Are investment banks playing with fire with hedge funds? Will their increased exposure to the hedge fund community provide more risks than rewards? This month, our capital markets editor Geraldine Lambe examines the lucrative relationship between the banks and the funds, the additional risks attached, if any, and the impact on liquidity during market stress.
JPMorgan Chase hopes its Ł110m Cazenove deal will give it greater influence in UK corporate broking but the US firm may be paying too high a price – especially if its partner’s star bankers move on.
Now that crusading New York Attorney General Eliot Spitzer has set his sights on the insurance industry, do banks with insurance operations have much to fear? If the current scandal widens to other commercial banks that have recently acquired insurance subsidiaries, might even the most law-abiding combinations be forced to return to the status quo, pre-banking deregulation? Or, at the least, will punitive fines be levied, severely damaging the balance sheets of offending companies? Will the whole affair stimulate shareholder suits?
Belgian bank Dexia and Italian bank Sanpaolo IMI are holding talks, possibly about a merger or a joint venture, according to reports leaked as The Banker went to press.
The decision by Standard & Poor’s to downgrade Greece’s credit rating has damaged the country’s image but will have little impact on the cost of borrowing, according to Athens-based analysts.
Turkey is likely to experience problems when it introduces a new currency next year, bankers and economists fear.
Turkey is due to introduce the currency, the new Turkish lira (YTL), on January 1. Six zeros will be knocked off the old currency in a move to ease accounting practices, reduce strains on payment systems and create psychological conditions to curb inflation forever.
Brazil’s central bank assumed control of the operations of struggling Banco Santos on November 15 after the latter was ordered to provide R$700m ($251m) to cover defaulted loans, a sum that exceeded its ability to pay by R$100m.
After growing through acquisition, Europe’s UBS Investment Bank decided that to make its mark in the tough US market, it had to beef up its M&A practice. Rick Leaman, co-head of global M&A, talks to Sophie Roell about the strategy that UBS used to compete successfully with the global giants.
Team members: (back row, left to right) Dimitry Kabysh, Sofia Smirnova, Chris Tuffey, Surjan Singh, (front row) Stella Tansengco, Cinzia Basile
Credit Suisse First Boston, in its role as joint lead manager, worked to overcome Russia’s challenging economic conditions to strike Rosbank’s first international capital markets deal. Geraldine Lambe meets its pioneering team.
Credit rating agencies, currently under EU scrutiny, maintain that they need neither harmonisation of standards nor more rules – and the banking industry agrees. Sergio Beristain reports.
Solomon Passy: ‘We decided to accelerate the reforms in Bulgaria. The modernisation of the country is in the deepest interests of the Bulgarian people’
With plans to sign an accession agreement next year, Bulgaria is preparing itself to become a EU member. Nick Kochan reports from The Banker’s conference.
Bulgaria has moved centre stage among the nations of central Europe. In due course, this will translate into a seat at the EU members’ table, perhaps as early as 2007. These considerations are driving Bulgarian economic and structural policy today.
That was clear at The Banker business conference, Banking on Bulgaria, held recently in London and sponsored by investment fund Equest. Solomon Passy, Bulgaria’s foreign affairs minister, told the conference that his government had two priorities when it came to power three years ago: the first was membership of NATO, which was achieved shortly after the election; the second was to prepare the country for EU membership.
Henry Tang: “Our role is to ensure we provide the best infrastructure and the freest regulatory regime that is credible and has integrity to allow business the greatest degree of freedom to operate”
Hong Kong’s Financial Secretary Henry Tang tells Karina Robinson the reasons he believes are behind the resurgence of China’s Special Administrative Region.
Q To what do you ascribe Hong Kong’s economic recovery? You have upgraded your forecasts to 7.5% GDP growth in 2004.
A A combination of factors. They say timing is everything and I agree. In the first quarter of 2003, when I was Secretary of Commerce, Industry and Technology, the figures were already showing signs of recovery. Unfortunately, the light at the end of the tunnel was the headlight of an oncoming train. It was a situation where a budding recovery was ruined by one quarter of [the respiratory disease] SARS. [But in addition] the Free Trade Agreement was signed with the People’s Republic of China. [People saw that the mainland government] was prepared to put money where their mouth is. It is not just one country two systems, they also support us and help us improve our situation [for example through allowing] individual travel [for China mainlanders]. Also, Hong Kong people are particularly adaptable and resilient. I have lived in Hong Kong for the better part of my life and have seen Hong Kong come through many crises.
Jonathan Zhu: ’More companies are raising money in international markets‘
Morgan Stanley’s China business is highly profitable, says co-head of China investment Jonathan Zhu. He tells Karina Robinson, in Beijing, about the bank’s winning strategies.
China may be slowing down as the authorities cut back on credit availability but foreign investment banks’ business is being boosted: as the government puts the brakes on credit, domestic companies are turning abroad for their funds and Morgan Stanley is one of the beneficiaries.
The US-headquartered investment bank ranks number two in Chinese equity capital markets in the year-to-date with a deal value of $2589m, giving it a 19% market share, according to data provider Dealogic.
President Ricardo Lagos: credited with concluding important free trade agreements
Chile may outshine its regional rivals with an economy that has matured since its democratisation in 1990, but there is still work to be done to raise the living standards of the general population, as Jason Mitchell reports.
Chile, the most successful economy in South America, needs major structural reform if it is to enjoy the kind of economic growth seen in the countries of east Asia.
In many ways, Chile is the economic and social model for neighbours such as Brazil and Argentina but it has a long way to go before its population can experience a First World standard of living. The economy is expected to grow by 5% this year and 4.5% in 2005 but per capita income is still only $5700 a year. Average unemployment is 9.2% but is 32.5% among 15 to 19-year-olds.
Márcio Cypriano: “Bradesco will never have retail banking outside of Brazil. We will stay in the domestic market, which has space to grow”
Banco Bradesco, Brazil’s largest non-government bank in asset terms, is enjoying impressive income growth. But it cannot afford to rest on its laurels if it wants to keep up with the competition.Bill Hieronymous in Săo Paulo explains why.
Márcio Cypriano, president and CEO of Banco Bradesco SA, appears confident yet relaxed as he talks to The Banker at the bank’s headquarters in Osasco, Săo Paulo. His contentment may be due to the bank’s announcement a few days earlier that its third-quarter net income has soared to R$752m ($263m) from R$564m a year ago – growth of 33%.
Yet Bradesco has some way to go to catch up with its rival Banco Itaú, a fact that Mr Cypriano appears to shrug off. “This [larger market capitalisation for Itaú] is a function of its higher profitability in the last four years, higher than that of Bradesco,’’ he says. “This doesn’t bother us because we aren’t going to sell Bradesco.’’
Iran is reaping the benefit of economic reforms and its banking privatisation plan is likely to be a springboard to further financial success. Stephen Timewell reports from Tehran.
M Jafar Mojarrad,vice-governor of Bank Markazi, Iran’s central bank, tells The Banker about the latest developments in the economy and the financial sector.
Iran’s reformers are keen to promote economic growth, which is leading to a resurgence of interest in the country’s private banks. Stephen Timewell reports.
High oil prices and an increasing aversion to Western markets are drawing huge flows of wealth into the Gulf. This is creating a highly lucrative market for private bankers in Bahrain.
Qatar has attracted a record 36-strong underwriting group for its latest gas scheme, in what is being hailed as the largest project financing scheme on record, write Kevin Godier and Jon Marks.
Klaas van der Laan, manager, channel management, retail banking, Rabobank Nederland
Not many people know but Rabobank is Europe’s biggest internet bank. Micheal Imeson explains how the Dutch bank is building on this, while striving to maintain its dominance in other sectors.
A small, unpaid army is at work in the Netherlands. A band of 40-50 men and women – all Rabobank pensioners – are targeting old people’s homes throughout the country. Their mission: to recruit as many elderly people as possible to the bank’s internet service. Their tactics: to be invited to care homes to teach residents en masse how to use computers, surf the web and make the most of internet banking.
Jon Saxe, CIO at Morgan Stanley, tells Dan Barnes that he regards system reliability as a crucial strand of operations and that hardware should not be allowed to dictate the speed of innovation.
Leading investment banks’ lucrative relationships with hedge funds have multiplied across a number of business silos. But their exposure to risk has grown too. Could their overlapping business lines spell trouble in difficult markets, asks Geraldine Lambe.
The JSE Securities Exchange in South Africa aims to give a boost to a lifeless exchange-traded derivatives market by trading the underlying cash instruments and derivatives side by side. Edward Russell-Walling reports.
The South African bond market – at least, the government bond market – is one of the most liquid in the world. So it is hardly in need of competition to pep it up. Yet competition is what it is about to get – not because of any shortcomings in the bond trade itself, rather as an attempt to waken a lifeless exchange-traded derivatives market.
Insisting on majority control, it took Nestlé most of the 1980s to negotiate its first direct investment in China. At that time, even one of the world’s largest and best capitalised multinationals was nervous about doing such a deal.
The higher returns of emerging markets should be the answer to the problems facing poorly performing European pension funds. Sluggish equity markets, low dividends and the risks of being on the wrong end of a new corporate governance drama (like that of Enron or Parmalat) are starting to make emerging markets relatively more attractive.
Patrice Blanc, chairman of Fimat, the brokerage arm of Société Générale
Exchanges and clearing houses, faced with compressed margins and increasing competition, are looking outside traditional sectors for growth opportunities and delving into over-the-counter markets. How are banks turning this threat to their advantage? Natasha de Teran investigates.
Gone are the days of strictly marked territories, when exchanges and their clearing houses had a guaranteed stronghold on specific markets. The concept of these being “sleepy” utilities has not yet faded but both are starting to change the ways they do business – even, in some cases, by encroaching on areas that used to be the unchallenged preserve of banks or brokers, their principal customers.
The IAS 39 poses real risk for treasury departments in the first two quarters of next year. Dan Barnes examines the potential impact of the new accounting standard and the late change that is contributing to compliance problems.
While Russia’s central bank had to rebuff talk of a crisis this year, a surge in retail and investment banking went unnoticed. Meanwhile, the crisis that never happened also spurred reforms, writes Ben Aris.
As trading volumes rise inexorably, banks face a pressing need to develop trading platforms that meet demand. But is the quest for the all-singing, all-dancing trading system a folly doomed to end in costly failure? Dan Barnes surveys the scene.
When is an ATM not an ATM? When it’s a vending machine. Chris Skinner finds that banks are finally waking up to the possibilities beyond cash dispensing that their customers will be queuing up to take advantage of.
David Lloyd: ‘Access to the bond markets is essential given our capital expenditure’
Anglo-Dutch steel maker Corus is enjoying an upturn in fortunes, as signalled by its latest deal. Edward Russell-Walling reports.
All companies have bad patches, but steel makers’ bad patches tend to be more nerve-wracking than most. So when Corus’s first straight bond issue in September attracted bids worth eight times the available paper, it was very public recognition that the good times are returning for the Anglo-Dutch steel company.
Another threat to mainstream banks comes from the rise of internal banking at large corporations that then fans out into providing external services. Siemens Financial Services (SFS) has only been in operation since 1997 but already boasts an E8bn balance sheet, of which 75% relates to non-Siemens business.
