Welcome to the largest edition of The Banker ever produced in nearly 80 years of publishing history. At 328 pages, our July issue is a veritable gold mine of articles, interviews, facts and figures. Taking pride of place is, of course, our annual Top 1000 ranking of world banks.
UniCredit, Italy’s biggest bank by market capitalisation, last month announced a €15bn deal to merge with Germany’s HypoVereinsbank.
The news will be welcomed by the Italian president, Carlo Azeglio Ciampi, who has a background in banking and is an unapologetic enthusiast for European integration.
Phil Purcell: analysts believe he should leave quickly to halt the staff exodus
Phil Purcell, Morgan Stanley’s chairman and CEO, has bitten the bullet and finally announced he is stepping down.
“It has become clear that, in light of the continuing personal attacks on me, and the unprecedented level of negative attention our firm – and each of you – has had to endure, this is the best thing I can do for you, our clients and our shareholders,” he said in a letter to staff.
The financial wealth of the world’s high net worth individuals (HNWIs) has continued to grow significantly, expanding by 8.2% in 2004 to reach $30,800bn, according to the ‘2005 World Wealth Report’ by Merrill Lynch and Capgemini.
The global private banking industry is back on its feet for the first time this decade with improved profits and increased assets under management, says wealth management consultancy Scorpio Partnership.
Rating agency Moody’s is haemorrhaging experienced analysts even as the upcoming Basel II regime for banks increases the importance of the top rating agencies in assessing risk.
Bush’s man: Christopher Cox listens to President George W Bush announcing his appointment to the chair of the Securities and Exchange Commission
The republican chairman of the Senate Banking Committee, Richard Shelby, has thrown his support behind the new chairman of the US Securities and Exchange Commission (SEC), Christopher Cox. He also criticised former chair William Donaldson for failing to listen to his Republican peers.
Enrique Iglesias: leaving IDB to head
a new permanent summit secretariat
Two main candidates are lining up to replace Enrique Iglesias as president of the Inter-American Development Bank (IDB), the biggest multilateral development bank in Latin America. Mr Iglesias, who has held the position since 1988, has decided to step down at the end of September.
Jin Renqing, the Chinese finance minister, revealed efforts to maintain a stable economic outlook
China has entered a new cycle of growth and is willing to integrate further into the world economy, contributing to the greater global good, according to Jin Renqing, the Chinese finance minister.
The politician was speaking at a presentation to mark his acceptance of The Banker’s Finance Minister of the Year, Asia award in London early last month. Mr Jin outlined the latest macroeconomic developments in his home nation and revealed Chinese efforts to maintain a stable economic outlook.
On June 2, 38 banks, technology vendors and service providers gathered at the Café Royal on Regent Street, London to celebrate their success among the 180 entries received for The Banker Technology Awards 2005 .
Gerrit Zalm, the Dutch finance minister, calls for banking supervision in the European Union to be overhauled.
Obstacles to European cross-border mergers and acquisitions in the financial sector still exist and the fortifications of some national markets remain hard to penetrate.
The UK’s Financial Services Authority has set the template for regulation around the world but it has recently come in for criticism from politicians and market players for overdoing the red tape. How justified are the claims? asks Nick Kochan.
Having rewritten Lloyds TSB’s poor growth story, CEO Eric Daniels now wants to strengthen the bank’s franchise, he tells Karina Robinson.
Eric Daniels “is a stuffed shirt but what he says is good,” says a Lloyds TSB Group director about the man who has been group chief executive since 2003.
1. At present, the interest rates in the eurozone are at historically low levels. BASF recently took advantage of these favourable market conditions and issued a seven-year fixed-rate euro benchmark bond that was placed in May. We have another fixed-rate long-term bond outstanding that will mature in 2010.
1. In a cyclical industry like the forest industry, our revenues are volatile. During a down cycle our profits go down and during the up cycle profits improve. To reduce the impact of this cyclicality, our financing is generally linked to a short-term rate.
1. A potential increase in interest rates – especially in real rates – might lead to repercussions on the technology, media and telecommunications (TMT) capital markets at three levels:
1. The most important microeconomic impact would be the change of discount factor. On the investor side, that may imply different pricing leading to portfolio reallocations.
1. Higher interest rates typically affect the valuation of utilities because they are considered defensive stocks, and tend to have higher leverage and dividends than companies in other industries, so share value will be affected unless you can provide the market with a growth story. Companies will begin to look for growth rather than a yield play.
1. The weakening of the dollar has been felt in two areas:
a) a reduction in the growth of the group’s earnings arising in dollars when translated into sterling. This exposure is not hedged and the effect is, therefore, carried through to the bottom line;
1. Not a lot of effect on treasury operations but because a lot of our business operations are in the US or are dollar functional, a declining dollar is not good for our shareholders who hold our shares as a sterling investment.
1. The impact is positive. As an organisation that is short dollars on an ongoing basis (a number of our key operational expenses, such as jet fuel, are priced in dollars and we are in the middle of a large fleet expansion programme, which is also priced in dollars), we have and, in line with our rolling hedging policies, continue to take advantage of the weaker dollar against the euro and sterling.
The head of European investment banking and debt capital markets at Barclays Capital tells Geraldine Lambe why BarCap’s business continues to boom despite the debt party being almost over.
Kamal Naqvi, director of commodities research at Barclays Capital
Commodity financing looks ready to surge as firms take advantage of the latest market trend. Helen Dunne considers companies’ alternatives, with investors swarming and demand set to outstrip supply.
Backwardation may sound like a fancy Pilates move but it is actually the major factor behind the recent dramatic upturn in commodity companies turning to the capital markets for their funding requirements.
Big names come together for an outstanding performance: Bill Northfield (left), Anneke de Boer and George Richardson
In just one week, the hit team – drawn from Deutsche Bank, Goldman Sachs and Morgan Stanley – devised a strategy, pricing, timing and a script for pricing conversations with investors that made Germany’s $5bn bond issue sell like hot strudel, reports Edward Russell-Walling .
Compagnie de Financement Foncier is making fast progress in its plans to raise €12bn this year. Its $1bn short-dated issue, aimed at diversifying the investor base, appealed strongly to Asian central banks, Edward Russell-Walling reports.
Asian investors feel increasingly at ease with covered bonds and are developing quite an appetite for the product, as Compagnie de Financement Foncier (CFF) was delighted to discover with its recent $1bn three-year offering.
Chris Skinner reviews the new European legislation aimed at protecting the buyer by ensuring transparency on off-exchange trading of equities, equity derivatives and money markets.
It often appears that government ministers and senior civil servants are unaccountable for their mistakes. All the same, it seems to go a bit far to make Rerngchai Marakanond, the former governor of Thailand’s central bank, stump up personally for the funds lost defending the baht during the Asian financial crisis.
Still on the subject of foreign exchange reserves, very little progress – if any – has taken place in making holdings more transparent, despite IMF bidding. Overall, the picture is clear.
For all the fuss that is made about the lack of “property rights” in emerging markets, the so-called developed countries can still come up with perversities.
Alasdair Reid, head of UK Asset Owner Group, State Street
The fear of pension funds falling into deficit is a very real one. With no single solution on the radar, funds need to look at all the services available to help with their structure and strategies. Dan Barnes reports.
Times are hard in the pensions fund business. The UK government launched the Pension Protection Fund earlier in the year in an attempt to ensure final salary pension funds can still pay the scheme members should the fund be in deficit.
Gerhard Bruckermann, DEPFA: ‘Germany is still the biggest market in terms of new business’
DEPFA has gone from strength to strength since it split from the Aareal mortgage bank and moved to Dublin. Jan Wagner reports from Frankfurt and Dublin on the most profitable bank active in Germany today.
Germany’s mortgage banks have been partying recently. In May, Eurohypo held a bash to celebrate the 10th anniversary of the “Jumbo Pfandbrief”. Since its introduction, the high-volume Jumbo has spawned a €600bn European market.
As the market leader, Eurohypo and its peers whooped it up. Attractions included plenty of champagne and an elephant installed in front of the Frankfurt stock exchange. Another Pfandbrief conference, replete with champagne, was hosted in June.
Ingrid Bluma: ‘We are still building branches in Latvia, while we are closing them down in Estonia and Lithuania’
Ben Aris reports on the banking sector surge in Estonia, Latvia and Lithuania, spurred on by EU accession and foreign interest in the market.
Accession to the European Union has fuelled a boom in the Baltics and the leading banks are slugging it out to shore up their market positions. The domestic banks are well established but the competition from foreign-backed rivals is driving down margins close to zero in some products. The weapons in this battle are local knowledge versus the foreigners’ deep pockets and the outcome is still unclear, but Baltic consumers and businesses are already the real winners.
Following a year of ups and downs in the Russian economy, The Banker’s conference on May 11 attracted a good crowd, interested in the latest developments, reports Gerry O’Kane.
A second round of consolidation and privatisation has begun in Romania’s banking sector, offering attractive propositions for growth. Matei Paun reports.
Raiffeisen International has been highly successful in entering new markets in central and eastern Europe and it now has plans for dramatic organic growth in Russia, CEO Herbert Stepic tells Stephen Timewell.
Rumours of mounting bad debt problems in retail banking have led Russia to pass a law allowing credit bureaux to set up – but their proliferation is getting out of hand. Ben Aris reports from Moscow.
Gazprombank has broken away from giant parent Gazprom to diversify and build on its foundations, its chief financial officer Alexander Sobol tells Ben Aris.
Russia’s banking system has learnt the lessons of the 1998 crisis but there is still a long way to go before it matches the success of banks in the developed world, as Alexander Sobol explains.
In recent years, there has been a rapid increase in consumer lending. At the same time, despite high average annual growth rates in this segment for the past three years (48%-50%), the market is set to expand further. The retail loans/GDP ratio is not more than 3% compared with 74% in the US, 52% in the EU and an average of 20% in the developing countries.
Russia’s banks have been working to boost their reputation on the international capital markets. Ben Aris reports on how their bonds have surged in popularity.
Afghanistan has many issues to resolve, such as security, a poor infrastructure and over-reliance on aid. But when you consider the recent strides that have been made, the country has reason for optimism. James Eedes reports from Kabul.
Efforts by Indian banks to sort out non-performing assets and laws to protect creditors’ rights have made the lending climate more favourable, reports Kala Rao.
Taiwan’s push to consolidate its banking sector received a boost recently but whether its efforts will pay off is uncertain. Dennis Engbath reports from Taipei.
A healthy energy sector is fuelling economic growth in Trinidad and Tobago, but not everyone is feeling the benefits. Monica Campbell writes from Port of Spain on the challenges facing the government.
Finance minister Conrad Enill is steering one of the fastest growing economies in the western hemisphere. Monica Campbell quizzes him on policy and strategy.
Richard Young, managing director of Scotiabank, Trinidad and Tobago
Banks in Trinidad and Tobago are enjoying economic stability to make them the envy of many of their regional counterparts. And in the midst of all this optimism, there is still room for growth in credit cards, mortgages and wealth management. Monica Campbell reports from Port of Spain.
Tour the offices of Trinidad and Tobago’s financial heavy-hitters and it is hard to deny that the sector is experiencing an upbeat moment.
With financial co-operatives still indulging in inadvisable practices, the country’s next banking crisis is just about due – but the sector is in much better shape to deal with it this time, reports Jane Monahan from Asunción.
The Saudi Arabian Monetary Authority is trying to curb the surge in money supply in the economy but will prices be kept under control? Dr Nahed Taher reports.
In Africa, the poor are proving to be reliable, stable customers who make microfinance institutions twice as profitable as commercial operations, write Elizabeth Littlefield and Martin Holtmann.
Taiwan’s global competitiveness ranking continues to improve but its public institutions and financial systems are not keeping pace, reports Dennis Engbarth.
Thomas Tung-liang Wu: ‘We have maintained growth in earnings for the past three years‘
Thomas Tung-liang Wu, chairman of Taishin International Bank, shares his thoughts on its future prospects and Taiwan’s financial market with Dennis Engbarth.
In 2004, the Taishin Financial Holding Company ranked second among Taiwan’s 14 financial holding companies in terms of after-tax net earnings and earnings per share. This can be put down to aggressive promotion, innovation and low non-performing loan ratios in credit cards and other consumer and corporate finance operations.
Ho Mei-yueh: ‘Taiwan’s ICT industries have allowed it to become unique’
Ho Mei-yueh, Taiwan’s minister of economic affairs talks to Dennis Engbarth about relations with China, financial reform and sustainable development measures.
Taiwan’s Ministry of Economic Affairs is responsible for policy implementation in a wide range of fields, from industrial development, energy and water conservancy to commerce and investment policy. After serving as vice-chairwoman for the Council for Economic Planning and Development during the first term of President Chen Shui-bian’s government, Ho Mei-yueh, 54, returned to the ministry as minister in May 2004.
Bank Austria Creditanstalt is no longer a competitor but a subsidiary of UniCredit in central and southern Europe.Stephen Timewell considers the Austrian bank’s retail prospects.
Wendy Atkins looks at how credit cards can help both governments and corporations to save money and time, while keeping tabs on overall spending in a transparent, auditable way.
To make the radical change from selling products to services, Jose Valino, CIO at Spanish savings bank Caixa Galicia, uses consultants wisely and co-operates with other banks on technology development. He tells Dan Barnes about bridging the gap between the business and IT departments and helping customers to understand the new systems.
Stefan Van Overtveldt, vice-president, ICT Propositions at BT
Applications can now be built from components that can be recycled and reused. Dan Barnes reports on how banks are reducing the need to design systems from scratch.
It seems that every three letter abbreviation – or TLA – heralds the next big thing (or NBT) in information communications technology (or ICT). The latest push from technology providers’ marketing departments is service-oriented architecture (SOA).
Technological developments herald the death of plastic as customers can now be identified via biometrics – or chips in their clothing before they have even entered the bank. By Chris Skinner.
To earn $1, diversified banks spend about 60 cents. A convoluted set of financial services processes, fragmented systems and legacy interfaces affect structural expense. Continual processing and system errors cause frequent rework and ineffective controls.
Matthew Carter: EU directive was an important spur for hybrid issuance
Innovative hybrid capital is no longer the first choice for banks when it comes to capital issuance, as the growth in non-step-up securities clearly illustrates, reports Alan McNee.
The Financial Institutions Group (FIG) is playing an important role as banks focus on strategies for raising capital. But a period of innovation in hybrid capital is now giving way to a relatively standardised, mature market. Paradoxically, much innovation on the part of bank issuers is now driven by the need to avoid their hybrid capital being classified as ‘innovative’ by regulators.
Eden Riche of RBS describes the changes undergone by the European banking and capital markets over the last few years – which were speeded up by the introduction of the euro.
The securitisation market is constantly evolving to meet the challenges of prevailing economic conditions but the approach of Basel II is also driving change, says RBS’s Ronald Thompson.
Guy Miller: banks must attempt to maximise their cash returns without destroying the potential to create future cash flow
The market in German non-performing loans is booming as the country’s banks start an aggressive sell-off of their portfolios.Alan McNee reports.
Sales of non-performing loans to foreign investors are becoming more common in Europe. Morgan Stanley, for example, bought a €430m portfolio of problem loans from Italy’s Banca Nazionale del Lavoro (BNL) last year.
However, the main focus in Europe at present is on Germany, where banks such as Dresdner and Hypo Real Estate (HRE) have been restructuring their portfolios and selling them off to foreign investors. The next stage could witness the involvement of the Sparkassen (savings banks) and co-operative banks which make up the bulk of the country’s banking system.
Tom Roche, MD and global head of e-commerce and agency treasury services at RBS
Outsourcing offers the opportunity to pick and choose the best services and products from a provider that excels in that area. Frances Maguire looks at how this new model is changing the face of the financial services industry.
Global consolidation, enabling large banks to compete locally through acquisition, and the subsequent pressure upon local banks to compete at a global level, are the two main drivers for a new focus upon outsourcing and white-labelling in the financial sector.
Justin Malta of RBS charts the turnaround in vision and management approach in the 1990s that took the bank from a second-tier ranking in the UK to being the sixth largest in the world.
This year’s survey reveals the world’s top banks are enjoying record profits as consolidation strengthens the markets. By Stephen Timewell.
Research by Terry Baker-Self, Beata Ghavimi & Matthew Dickie.
HIGHLIGHTS:
The aggregate return on Tier 1 capital of all the banks in the 2005 Top 1000 listing reached a record return of 19.86%, significantly higher than the previous year’s 17.56%.
The 2005 listing, which reflects fiscal 2004 figures, represents a mirror image of the changes in last year’s listing, which reflected fiscal 2003 figures. As with Tier 1, the aggregate total assets in the 2005 listing grew by 15.5% to a huge $60,501.5bn and this also follows a 19.3% increase the previous year.
Andrea Morresi, head of equity derivatives investor marketing for EMEA, JPMorgan
The equity sector may be one of the smallest derivatives markets but it has a high profile and a profitable reputation.Natasha de Teran investigates this highly lucrative business.
For the status it is given, you would never believe that the equity derivatives business is one of the smallest of the derivatives markets. The outstanding amounts of equity-linked, over-the-counter derivatives contracted were valued at a mere $4400bn at the end of last year.
Remi Frank, global head of equity and derivative sales, BNP Paribas
All the noise surrounding pension liabilities and EU-wide reform has meant that asset liability management solutions have now become one of the hottest topics in the investment banking world. Natasha de Teran asks what role equity derivatives can play.
Pension liabilities are the bane of many corporates’ existence and a worry for people who are not blessed with solvent defined benefit schemes or a good pool of retirement assets to cushion them in their old age.
Isabelle Bourcier, ETF global co-ordinator, SG CIB
Exchange traded funds have been in existence for more than a decade but have only recently become significantly popular products. Natasha de Teran charts their progress and new developments.
Although exchange traded funds (ETFs) were first introduced in the US in 1993, they have really taken off in the past three or four years. In 2000 there were fewer than 100 ETFs listed globally, with less than $100bn in assets between them, according to research from Morgan Stanley’s ETF guru, Deborah Fuhr.
Joachim Willnow: ‘The dream of a single European market has simply not come true’
Natasha de Teran considers Europe’s regulatory landscape, its impact on distribution and why banks have lost faith in the ideal of a single market.
Between the EU Savings Directive, the new International Accounting Standards (IAS), Basel II and the other edicts emanating from national and international regulators, derivatives structurers and markets have had a complex task in recent years. So much so, in fact, that the French have come up with a new word for describing their method of dealing with the issues: structuration.
Christophe Mianné: innovation and sophistication are the emphases in SG’s equity derivatives business
From new recipes to house specialities, demand for structured products is as strong as ever. Natasha de Teran investigates what is on the menu for investors and what tastes are being catered for.
Christophe Mianné, global head of equity derivatives at SG CIB, describes the equity derivatives business as being very much like the pharmaceutical industry: one in which players can either invest in research and development (R&D) and base their business on sophistication and innovation, or run a volume-based, generic business.
