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Financial institutions groups have become big business
Three editorial specials are brought to you this month by The Banker’s staff. They are the business of the financial institutions groups (FIGs) that now account for 50% or more of revenues in the major investment banks; corporate social responsibility (CSR), which has become a critical part of every bank’s thinking; and our special coverage for the Inter-American Development Bank (IADB) annual meeting in Okinawa in April.
Industry poll demonstrates the damage of over-regulating
CSFI’s Banana Skins survey shows bankers fears for the future as regulation takes a stranglehold on their institutions, pushing up costs, increasing complexity and playing havoc with their profits.
A multicultural management would keep Citi out of trouble
Chuck Prince has stated his intention to change the way Citigroup does business. He should start with senior level recruitment.
EU entry preparations make Turkey an attractive target
European banks are sizing up potential acquisition targets in Turkey as the country’s financial sector benefits from the prospect of EU membership.
Banks must choose between
If banks do not respond to the changes in their environment, they could find themselves going the way of the dinosaur .
Low real interest rates are unsustainable
Stephen Roach worries about how the US economy can exit low real interest rates sensitively.
BNP Paribas joins rush to buy into Turkish banks prior to EU talks
BNP Paribas has acquired 50% of TEB Financial Investments AS from Turkey’s Colakoglu Group for $216.8m. The sales agreement, signed in Istanbul on February 11, means that the French bank now has control of a 42.2% stake in Türk Ekonomi Bankas¦ (TEB), a midsize Turkish bank. The development came as European banks stepped up a campaign to buy shares in Turkish banks, ahead of the start of Turkey’s membership talks with the EU in October.
Regulation voted biggest risk
The remorseless rise in regulation is seen as the main risk facing banks, according to the latest ‘Banana Skins’ survey from the London think tank CSFI. Regulation was described by many of the 440 bankers and observers from 54 countries surveyed as ‘out of control’ and ‘a serious threat’.
Lawsuit raises online fraud issue for banks
A lawsuit filed earlier this month against Bank of America raises the issue of who is responsible for online fraud. A Miami businessman, suing to recover $90,000 allegedly stolen from his account and placed in Latvian-based Parex Bank, has brought the case.
US budget proposals get a lukewarm reception
Reaction to President George W Bush’s latest budget proposals – which were presented to Congress on February 7 – has been mixed, writes Jane Monahan in Washington.
Intesa extends its CEE network with Serbian acquisition
Delta Banka, Serbia’s second largest bank by assets, has been acquired by Banca Intesa, Italy’s biggest bank. The deal will see Intesa acquire either 75% plus one share or, under certain circumstances, 100% of the voting share capital of Delta Banka. It is expected to close early in the second quarter of 2005 subject to approval by the regulatory authorities in each country.
Corrections
In Deals of the Year in the February 2005 issue of The Banker, Eksportfinans’ 4.375% $1bn global bond due 2009 was our Norwegian deal. Goldman Sachs, Citigroup and Nomura Securities were joint-lead managers for the transaction but we failed to mention the latter two banks.
Also in the Belgium deal which was Belgacom’s E3.6bn IPO, due to a typographical error UBS, one of four banks mentioned, was wrongly described as USB.
In an article on Romania in the same issue, we said a minority stake of BCR is expected to be sold to employees in 2005. In fact, 8% is already owned by employees and no further sales of this type are expected.
We apologise for the errors.
THE WINNERS
Last month saw the presentation of some of The Banker’s 2005 Central Banker of the Year and Finance Minister of the Year Awards. These awards have been given to governors and ministers who have made significant policy contributions and had the most impact in their respective economies.
The euro framework must be reformed
Dr György Suranyi argues for a new Stability Pact to focus on external accounts and widen the narrowly interpreted fiscal rules.
The euro is a success – despite its governing framework, the Maastricht Treaty and Stability and Growth Pact. Reforming the treaty and pact involves enormous political and economic risks. But not reforming them is even riskier.
One hit wonder
As the bidding war rages for the London Stock Exchange, Geraldine Lamb looks at how the 200-year-old-institution lost its lead in the European charts.
Around the time of London’s Big Bang in 1986, Jeffrey Knight, then CEO of the London Stock Exchange (LSE), was quoted as saying that the title of Europe’s stock exchange was London’s to lose. Mr Knight has been proved unwittingly prescient. The current bids for the exchange, from Deutsche Börse and Euronext, signal the end of independence for a 200-year-old institution but the question is whether they are a sign that the LSE brand has been squandered or of the LSE’s success. And this goes straight to the heart of the debate about the nature of a stock market.
Killer-heeled guard of Botswana’s billions
Linah Mohohlo, governor of the Bank of Botswana, talks to Karina Robinson about fighting Aids and watching South Africa .
FIG trends in 2005
Pictured (from left): David Godfrey, Benjamin Katz and David Marks
M&A activity, the impact of Basel II, access to Tier 1 capital and investment instruments are all concerns that affect financial institutions group business. The Banker’s round table discussion looks at these and other topics that will be high profile this year.
Charles Murphy
Deutsche Bank’s European head of FIG, Charles Murphy, explains to Geraldine Lambe why the bank decided to beef up its financial institutions capability and what the main challenges have been.
Fair value pushes pensions to take a longer route
Laurent Fransolet, European fixed income strategist at JPMorgan
Few disagree that regulatory change in the Netherlands and Sweden will see pension funds increase their exposure to longer-dated bonds. As Chris Newlands finds out, the debate is about how big the shift will be.
When European regulators start revising pension solvency requirements, dealers and issuers tend to sit up and take note. Legislative efforts to increase pensioner protection and decrease exposure to market risk have historically led to large sums of money being directed into bonds.
Equity derivatives spur growth
Asset management-related business is growing in volume and diversity as the search for yield and protection widens. Geraldine Lambe interviews Calvin Redlick, head of FIG for northern Europe at BNP Paribas.
KfW innovates with equity-linked bond
KfW treasurer Frank Czichowski
Germany’s KfW is once again breaking new ground, this time with an uridashi exchangeable bond. Edward Russell-Walling explains.
The word ‘unique’ is often used less than scrupulously. Yet as banks go, Germany’s state-owned Kreditanstalt für Wiederaufbau (KfW) really is one of a kind. As a vehicle for the country’s economic and social policy, it has become the largest financial issuer in Europe.
JP Morgan finds a solution that Bites
The JP Morgan team (l to r): Donal Quigley, Marius Brinkhorst, Danilo Rippa, Carl Bauer, Ina De and Viswas Raghavan
In a highly complex equity and debt transaction for Allianz, JP Morgan reworked instruments called Miles to devise a more flexible way for the insurer to deleverage its unwanted equity holdings. As Edward Russell-Walling reports, the solution was found when the two firms put their heads together.
Innovation fills the asset/liability gap
The search for yield has been producing great innovation in credit for some time. Now the focus has moved on to the more complex problems of European pension funds. Closing the yawning gaps between pension fund assets and liabilities takes more than a bit of yield enhancement to fix. Complex derivatives structures are often involved.
German loan market swept by nostalgia
While deep in products, it is worth noting the current revival in the schuldschein market in Germany. As Germany’s small and medium-sized companies – the Mittelstand – find that bank loans are less forthcoming, this tradable loan form is once again becoming popular and banks are structuring them as securitisations and in mezzanine form.
“The schuldschein is enjoying something of a renaissance. The beauty is you can keep it [on your balance sheet] or sell it,” says Roman Schmidt, head of Commerzbank Securities Germany.
The other attractions are that the documentation is simple –just two pages – they can be standardised and pooled and, best of all, they don’t need to be marked to market. Their nearest international equivalent is the Medium Term Note (MTN) and pricing of the two instruments is currently very similar. If German marketers could persuade more foreign issuers of the benefits, who knows? The humble schuldschein could follow the pfandbriefe onto the world stage.
Do appointments reveal agenda?
You can tell much about a bank’s concerns by who it elects to the board of directors. Hence, we must deduce that risk management is the overriding passion of UBS which has announced that Marco Suter, group chief credit officer since 1999, will replace the retiring Alberto Togni.
Citi’s character called in question
As the fallout from Citigroup’s ill-fated European government bond trading continues to reverberate, one starts to understand the true meaning of reputation risk. The treasurer at a major European issuer summed up Citi’s plight like this: “If it turns out that this was just an isolated group of traders that got carried away, then we can accept that. But if it transpires that the trade was done with knowledge of more senior executives then it would affect our relationship with the bank.”
Search for yield unearths new dangers in credit markets
Hubert Le-Liepvre, deputy head of structured credit at SG CIB in London
Credit specialists have risen to market challenges with new products. However, the recent fashion for longer-dated synthetic CDOs could present more risks than investors realise. Natasha de Teran asks how concerned we should be about this latest trend.
Economic conditions have been testing bankers’ wits in recent times. Equity bankers, in particular, have had a tough time rehabilitating their asset class in the collective mind of an investor base that is apparently still sceptical about the products on offer.
Motivation for automation
Technology now provides cheap methods of converting to straight-through processing, so cost should no longer be a hurdle for the small transfer agents that Euroclear is trying to convert. Dan Barnes reports.
Banks must change tactics as CSR goalposts shift
Corporate social responsibility, which in the past encompassed issues such as fair labour practices and environmental and sustainability concerns, is now increasingly focused on global financial accountability. Banks that comply early will see the benefits, advises Beth Ambrose.
Green goals and carbon emissions trading
Francis Sullivan: ‘The bank agreed an environmental action plan last July’
HSBC aims to achieve carbon neutrality this year. As well as a drive to reduce its CO2 emissions, it will consider offsets such as emissions trading, which has the potential to become a free-standing investment market. Jules Stewart reports.
It is not often that a bank makes the news as a champion of the environment. But HSBC, the world’s second-largest bank, has taken on that role with the aim of becoming the world’s first major bank to commit to going carbon neutral.
Principles in question
Rachel Kyte
Momentum is building in favour of sustainability standards but there is still a long way to go. Jane Monahan looks at the state of progress in the implementation of the Equator Principles.
What has sustainability to do with private banks? Their labour policies are good and they do not produce the carbon emissions that are the main culprits of climate change.
From ‘small and risky’ to a target for partnership
Grigori Marchenko: the CEO of Halyk Bank aims to make it the top financial institution in five years
Kazakhstan’s spectacular financial boom is beginning to attract the attention of European banks, reports Christopher Pala from Almaty.
European banks have long perceived Kazakhstan, the largest after Russia of the former Soviet republics, as “too far, too small, too risky”. Five times the size of France with its economic capital, Almaty, close to the Chinese border and as far from Paris as Paris is from New York, Kazakhstan’s population is only 15 million: a small market spread over a huge area, ruled by an authoritarian president unwilling to make the transition to democracy.
No distractions from sell-off momentum
Indonesia’s banks are going back into private hands as the government continues with its economic reform plans, despite the huge post-tsunami rebuilding task it faces. Simon Montlake reports on progress.
New supervisor makes headway
Kong Jaw-sheng, the first chairman of Taiwan’s new Financial Supervisory Commission, talks to Dennis Engbarth about its early days and its future priorities.
Latin money heads home
Gerard Aquilina: ‘Last year saw more investor interest in basic commodity and forex funds’
Although the offshore market is important to Latin Americans, some are now being tempted to bring their wealth onshore. Monica Campbell reports.
Thanks to a strong, more stable local banking sector, the trend among affluent Latin Americans to have their assets managed offshore is slowly reversing. Sensing an opportunity, many foreign powerhouses, such as US banks Citigroup and JP Morgan, Swiss bank UBS and the UK’s HSBC, are setting up private banking shops in the region, hoping to convince the wealthy to do their financial shopping locally, instead of heading to Miami.
Brazil reaches out to unbanked population
Michael Esrubilsky, CEO, Lemon Bank: ‘We are not sure if credit at 2% per month is viable’
Central Bank initiatives are enabling Brazil’s low-earning citizens to access banking services. Jonathan Wheatley reports from São Paulo on the benefits for both local communities and the financial institutions that cater for them.
Standing in line at a kiosk in Vila Nivi on the northern outskirts of São Paulo, Sandra, a 38-year-old mother of four, is upset. “I’ve been waiting 40 days for my bank card,” she says. “I’ve come here every day to complain.”
Panama proves its strength
This year’s Central American ranking is dominated by Panama’s banks as the country benefits from stability.
Independence debate heats up
Bermuda is discussing whether to sever ties with the UK, with opinion sharply polarised. Mairi Mallon assesses the implications for the financial sector.
At the mercy of debt
Ngozi Okonjo-Iweala: without debt relief, Nigeria’s reforms could be doomed
Nigeria’s finance minister is campaigning hard for debt relief for the country and finding plenty of sympathy but little action so far.James Eades reports.
Nigeria’s finance minister, Ngozi Okonjo-Iweala, is on the road to convince the country’s creditors to forgive its debts. Two months into the year hailed by many as the year of Africa, the timing arguably could not be better. But she is finding that a sympathetic hearing does not necessarily equate with actual debt relief.
Improve productivity to make the most of branch popularity
A survey by Booz Allen Hamilton shows that, in much of western Europe, the branch is still customers’ preferred interface with their banks. Ironically, it is often in the regions where the branch is most popular that customers are the most dissatisfied with service. And even more worryingly a second survey by Finalta shows that bank are making poor use of this communication channel. Stephen Timewell digests the data.
The customer is the priority
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Debby Hopkins, chief operations and technology officer at Citigroup, spoke to Dan Barnes about co-ordinating systems across the global giant, keeping customers’ data safe and talking in plain English.
Debby Hopkins, chief operations and technology officer at Citigroup, finds the scale of the company undaunting, not only through her background working for Ford, Boeing and General Motors but also due to the bank’s corporate culture.
Top tier must replace core systems or risk burn out
Jim Wilson, division president of Fidelity Information Systems
Tier 1 banks that do not replace core banking systems risk losing out to their competitors – especially in the emerging markets – and falling foul of the regulators. The process may be long and arduous but modular replacement can relieve the pain. Dan Barnes investigates.
India’s IT outsourcers
Despite concerns over data fraud, communication problems and a backlash from western countries, India is still a prime destination for banks to outsource their business processes, writes Kala Rao.
Turn off your computers
In the age of invisible financial transactions, and especially post 9/11, systems resilience has been vital. But bank CEOs should not trust in belief alone; they should test out a systems shutdown and make sure they have the right CIO. By Chris Skinner.
IT spend continues to grow
Cautious optimism is the watchword for banking technology. As they adopt an integrated enterprise approach to regulatory and other tactical changes, banks will be able to realise higher returns from their IT investments.
