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ArchiveFebruary 1 2000

Globalisation takes hold

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THE BANKER'S latest Top 50 global banks listing shows that mergers are, unsurprisingly, changing the banking landscape.

Mergers and acquisitions can radically change the financial landscape, and cross-border linkages can drastically alter the character of a business and a banking operation in particular. In an age of so-called globalisation, how are mergers changing banking structures? Are more truly global banks emerging? Or are smaller players establishing niches outside their own borders? What trends can be deciphered?

In The Banker's unique global banking survey, our research team examined the percentage of bank assets held overseas. The Top 50 listing this year throws up some significant shifts, but drawing firm conclusions can be dangerous, as mergers and consolidation take many different forms and the impact can give mixed results. Nevertheless, our latest listing shows that 13 institutions have more than 50% of their assets overseas, compared with 17 last year; while 38 have 30% or more of their assets abroad compared with 42 last year.

The composition of our latest Top 50, however, is quite different with a variety of new faces and new merged institutions coming through. One of the big shifts came in the US where Citicorp was placed seventh last year with 63% of its assets overseas but, following its merger with the largely domestic Travelers Group, the new Citigroup fell to twenty-eighth with now only 43% of assets abroad. Citigroup has certainly not forsaken its international strategy, but absorbing a domestic giant has altered its profile.

The same may apply next year with the two big Spanish banks, Banco Santander and Banco Bilbao Vizcaya which come sixteenth and twenty-fourth this year with 49% and 43.5%, respectively, but they may go down when their domestic mergers with Central Hispano and Argentaria are included.

At the top of the table, American Express Bank and UK-based Standard Chartered Bank retain their leading positions this year with modest increases to 85.8% and 76.6%, respectively. Standard Chartered has the highest percentage of its staff abroad (88.9%) - mostly in Asia and the Middle East - while overseas income accounts for 84% of its total. The new consolidated Swiss giant UBS moves up a slot into third place with 76.5%, while small South African newcomer Investec bursts into fourth place on 72% following acquisitions in Europe. Among the top 10 come the expected global heavyweights such as Crédit Suisse, HSBC, ABN Amro and Deutsche Bank, with the German bank likely to move further up the list next year when its acquisition of US-based Bankers Trust is folded in.

France's Paribas rose to sixth place but, following its merger with Banque Nationale de Paris (twenty-eighth), the new BNP is unlikely to reach next year's top 10. ING Bank moved up from thirty-first last year to ninth in the current list following its acquisition of Banque Bruxelles Lambert, which itself was placed twenty-ninth last year. Many banks are following very focused strategies.

The Irish banks, Allied Irish (eleventh) and Bank of Ireland (nineteenth), are small but with growing overseas activities in continental Europe. The same applies to National Australia Bank (thirteenth) with its string of UK subsidiaries and the two big Austrian groups Bank Austria (seventeenth) and Erste Bank (thirty-fifth). Both are keen to expand their interests in central and eastern Europe.

Den Danske Bank is a newcomer that jumped into the listing at twelfth place and 51% on the back of its expansion elsewhere in Scandinavia. In Canada, the government's decision not to allow domestic mergers among the big banks is likely to push the banks into expanding their overseas niche activities with Bank of Montreal (eighteenth) enlarging its US interests and Scotiabank (twenty-fifth) further developing its Caribbean and Latin markets. In assessing the nationality of the Top 50, no one country is a dominant force in this area with US and UK banks combined only providing around 20% of the listing.

Although the percentages of business overseas can be misinterpreted and the strength of individual banks (such as Citigroup) should not be underestimated, the listing does, however, provide some useful indicators. For example, Japan had six banks in the Top 50 two years ago but now it has only three - Bank of Tokyo-Mitsubishi, Industrial Bank of Japan and Sanwa Bank, at the lowly positions of forty-second, forty-fourth and forty-eighth, respectively. The exit of the Japanese banks from the world banking stage cannot be better demonstrated, and the announcement of bank mergers recently is not likely to prompt a resurgence of fortunes for Japanese banks in this listing in the near term.

Who will be the players with assets of more than 50% overseas? Mergers among large banks and the growing tendency towards cross-border deals suggests a core of around 10 truly diverse global banks will emerge. The basis of this core can be seen already and will become clearer as Citigroup establishes itself, Europe consolidates further and the two big Spanish banks continue to assert themselves both in Europe and Latin America. There will, of course, be a role for niche specialists and hence the Standard Chartered model will continue and allow for new entrants such as Investec and Den Danske.

Other potential entrants could be the new breed of Internet bank that can be based virtually anywhere and attract business from a variety of countries. The French-owned First-e, operating out of Dublin and claiming a pan-European franchise, is one example. This latest listing shows that the number of institutions in the over 30% and over 50% categories is not necessarily increasing, but it does suggest a growing diversity.

Research by Terry Baker-Self.

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