Add to this the economic difficulties facing much of the region – minimal economic growth, plummeting real estate markets and high unemployment – and the picture looks bleaker still. But some banks are better placed to deal with this gloomy outlook than others, and are equally well positioned to benefit from any improvement in the economic or market outlook for the region. BNP Paribas is without question the stand-out bank in western Europe. Its platform is much larger and more diverse than any of its competitors’, in no small part because of its acquisition of Fortis Bank in Belgium and the Netherlands. With its established presence in France and Italy, BNP Paribas is in the unique position of having a market share of about 10% or more in four domestic eurozone countries, with a total of 20 million retail customers. This deposit base gives BNP Paribas an in-built funding advantage at a time when access to capital markets is proving difficult for many financial institutions. At the same time, the bank’s strong credit rating and capital position – it is near the top of the league for big European banks with a 10.5% tier 1 ratio at the end of the first quarter of 2010 – make its cost of funding relatively cheap compared with its peers. Since buying Banca Nazionale del Lavoro in Italy in 2006, BNP Paribas has transformed itself from a predominantly French bank to one where just one-third of its earnings comes from France, compared with two-thirds only four years ago. Group profits for the full year 2009 were €5.8 billion but surged ahead to €2.3 billion for the first quarter of 2010, in part reflecting the benefits of the Fortis integration. BNP Paribas’ senior management, led by chief executive Baudouin Prot, has consistently executed on its strategy, notably in maintaining a stable business mix within the group of 50% retail, 33% corporate and investment bank, and the remainder in investor solutions or asset management. A cautious approach to risk allowed the group to remain profitable throughout the global financial crisis, while its investment bank continues to make inroads in European capital markets.
Credit Suisse is the best investment bank in Europe for strength and consistency across many different aspects of the business that more than compensate for a lack of outright dominance in any one. In equity capital markets, for example, it ranks third behind market leader JPMorgan and close behind Goldman Sachs. But Credit Suisse ranks far ahead of JPMorgan in M&A, albeit second behind Goldman Sachs at the head of the European advisory rankings. In debt capital markets, Credit Suisse has been bookrunner on deals with double the value of those led by Goldman. No other firm manages to combine leading capabilities in so many different fields. In M&A Credit Suisse enjoyed a particularly impressive 12 months to the end of the first quarter of 2010. In a generally subdued period for M&A, it advised on one of the biggest deals, working for Rio Tinto on its $58 billion iron ore joint venture in Australia with BHP Billiton. In a fast-moving and ground-breaking deal in financial services, Credit Suisse advised BlackRock on its $13.5 billion cash and shares acquisition of Barclays Global Investors. It was a deal complicated by the allowance of a go-shop provision to the vendor, Barclays plc, and by the vendor’s desire to retain a 19.9% equity stake in the new combined company, BlackRock Global Investors, which is the biggest institutional fund manager in the world. In equity capital markets, Credit Suisse played lead roles in a number of key deals including Rio Tinto’s £7.5 billion ($11.1 billion) rights issue to pay down the Alcan credit facilities and UniCredit’s €4 billion rights issue to strengthen its capital structure this February. It even cropped up on the accelerated bookbuild through which the Swiss government sold down SFr5.5 billion ($4.9 billion) of UBS shares last August. In debt capital markets it helped a range of sovereign, quasi-sovereign and corporate names execute deals both in euros and in the revived Swiss franc bond market. JPMorgan stands out at the top of the Dealogic equity capital markets bookrunner rankings for the 12 months up to the start of April 2010, having led 89 deals worth $39 billion, well ahead of second-placed Goldman Sachs with 50 deals worth $24.5 billion. That gives JPMorgan a 15.3% market share, compared with Goldman’s 9.6% and third-ranked Credit Suisse’s 8.7%. A sign of the high regard that even its closest competitors hold for the bank’s capabilities in equity capital markets is the number of large rights issues JPMorgan led for troubled European banks seeking to repay state aid. These are not the kinds of deals that leave any margin for error, either for issuers or for arranging banks providing hard underwriting commitments. Issuers are going to go for the safest pair of hands. JPMorgan’s strong balance-sheet capacity and its placement capabilities came to the fore. The bank was, for example, the joint global coordinator for ING’s €7.5 billion rights issue announced in October 2009 and completed in December. It also took bookrunner roles in other key deals, such as Lloyds Banking Group’s £13.8 billion rights issue. JPMorgan was also a bank of choice for corporates, often in conjunction with advisory assignments and debt financing in which the equity capital markets piece showed its capabilities across the capital structure. It acted as bookrunner last year on the €1 billion rights issue for Pernod Ricard and joint bookrunner on the €3 billion rights issue for Danone. It’s noteworthy that these are cases of repeat business for JPMorgan, which has established relationships with these corporate clients through previous advisory work and financing mandates. JPMorgan has led numerous deals for these French corporates in the past five years. Goldman Sachs is top of the European M&A adviser rankings for the 12 months under review, having worked on 99 deals worth $142 million, ahead of second-ranked Credit Suisse, which worked on 89 worth $112 billion. Third-ranked UBS advised on $87.9 billion-worth of deals. The noteworthy transactions in which Goldman Sachs played a prominent role include advisory assignments ranging across industry sectors and countries in Europe. It acted as adviser to UK confectioner Cadbury in its contentious and protracted sale to Kraft of the US. The US company’s bid for an iconic UK brand, which inspires sentimental affection among British consumers of chocolate, stirred up calls for greater protections for British workers during an economic downturn. Cadbury played a long game and extracted a premium from Kraft of 50% above its prevailing share price before news of the bid emerged. In Germany, Goldman Sachs acted as financial adviser to VW on the $7 billion investment by Qatar Holding, which might emerge as a pivotal moment in the protracted series of steps required to complete a merger of Porsche into VW. In Switzerland, the firm acted for Novartis on its acquisition from Nestlé of additional shares to give it a 77% stake in Alcon and a leading position in the fast-growing global market for eye-care. The total cost for that majority stake comes to $38.5 billion. In the Netherlands, Goldman acted as co-lead financial adviser to Nuon on the energy company’s staggered sale to Vattenfall in a deal executed against a backdrop of heightened political sensitivity over the privatization of strategic assets. Barclays Capital was at the heart of the most prominent themes in western European debt markets in 2009 and the first quarter of 2010: the recapitalization of the European banking sector and the rise in sovereign borrowing requirements. In the last three quarters of 2009, after government guarantees on bank debt and central bank liquidity schemes had become embedded, bank issuance rose rapidly, first under guarantees and then, when confidence had been restored in credit markets, in the non-guaranteed market. A resurgence in corporate issuance also contributed to a record year of issuance right across sovereign, bank and corporate bond markets. Barclays led the way in both volume and the number of transactions, widening the gap from its closest rivals Deutsche Bank and HSBC, completing €82.6 billion of issuance for financial companies and gaining a 6.7% market share. In all, it helped raise €173.1 billion. Barclays played a role in the reopening of numerous market segments within the FIG sector, such as the bank hybrid markets, which had been crippled by the banking crisis in 2008, including a tier 2 capital transaction for Rabobank and the sterling tier 1 market issuance for Crédit Agricole. It also acted as joint manager in the partial reopening of the European securitization markets, helping Lloyds Banking Group raise just under £4 billion via an RMBS transaction. In covered bonds, it brought 43 publicly placed transactions to market across 10 countries, during a period of record issuance. In sovereign markets, Barclays has maintained its position as a top-ranked primary dealer for a large group of government issuers, helping it gain a number of mandates. Its leading position in European bond syndication (see Euromoney’s primary debt poll in June), paid dividends, especially at a time when more new sovereign issues require some syndication to clear the trade. Traditionally, new issues were primarily cleared by an auction process between the primary dealers. Barclays has been rewarded with bookrunner status on four out of six syndicated UK gilt transactions since June 2009. Deutsche Bank maintained its position as the leading risk management adviser in Europe, largely because of its continued commitment to being a main liquidity provider in rates and credit derivatives markets. In credit default swaps it executed €2 trillion of trades over the year and provided support that enabled it, in some cases, to execute one-off client trades as large as $10 billion, as well as offering protection on 20,000 companies globally. It also increased market share by integrating its distressed, high-yield and investment-grade traders, so it could more effectively structure solutions and identify opportunities for clients across the asset class. Throughout the sovereign debt crisis and the resulting fall in liquidity, Deutsche has remained a leading market maker, executing $5 billion of CDS and $5 billion of cash bonds a day at the height of the crisis in the first quarter. In one situation it was approached by a European state to buy protection on a large domestic exposure that it had. Deutsche took on the exposure and managed to clear the position in the market in the days following the transaction. In rates, its long established and dominant position in the interest rate swaps market meant it could successfully execute the largest-ever long-maturity euro-denominated swaption, a €1.35 billion 50-year transaction, for a European insurance company. At the other end of the yield curve, Euribor options have become the world’s most actively traded interest rate options since the crisis started, overtaking Eurodollar. According to data from NYSE Liffe, Deutsche is the top-ranked trader, accounting for 30% of the market over the past year. Deutsche Bank, while losing some market share in 2009, also continues to be the region’s preferred foreign exchange franchise. The results of Euromoney’s 2010 FX survey in May demonstrate that it still holds a significant lead in market share from its closest rivals, UBS and Barclays Capital. Deutsche’s slice of the market fell from 19.6% to 17% during 2009, yet it still managed to maintain a 7% margin over UBS, in second position. The bank has continued to play a lead role in the movement of voice trading to electronic trading platforms, a migration that is predicted to climb to approximately 75% of all volume by the end of 2012, from a little less than 50% today. Its trading platform, Autobahn, and Barclays Capital’s Barx have become market leaders, adding new functionality over the past year, such as smart order systems, algorithmic trading programs and click-and-trade option pricing. However, while greater volumes have been attracted, margins have continued to shrink since the crisis. Nonetheless, Deutsche believes that its integration of clients, salespeople and traders onto one platform will enhance cross-selling, both within the currency business and within other asset classes also on the platform. In terms of credit counterparty risk, Deutsche has enhanced its credit support annexe, a model that allows clients to use collateral other than cash as a margin for transactions. The annexe now incorporates all new and existing business, meaning that, at the time of trade, the bank knows the expected credit loss and the level of risk-weighted assets required for its counterparties. This allows it to keep collateral charges lower than they would normally be, the bank claims. Deutsche’s FX-linked investment products proved to be popular during 2009 and early 2010, with €7.5 billion invested in products linked to more than 80 indices. In the past year it enhanced the product by using what it calls ‘index surface risk analysis’ to calculate correlation risk over the life of the product, rather than only when the product was first created, as many similar FX-linked products have historically been sold. Cash management in western Europe is a straight battle between two very strong firms: Citi and Deutsche Bank. They are in a similar number of countries (Citi edges Deutsche by 22 to 21); both banks are at the forefront of technology provision; and both were at the cutting edge of two issues that took centre stage with treasurers during the financial crisis: liquidity management and receivables management. This year Deutsche Bank just edges the decision because of the momentum in its client base. It has moved into new client segments, notably in insurance, where it picked up trophy mandates from Axa and Zurich Financial Services with innovative products such as Sepa receivable solutions and liquidity solutions to leverage regulated assets. Deutsche’s cross-currency payments solution, FX4Cash, continues to go from strength to strength, and in the past 12 months has added receivables functionality and currency coverage from 75 to more than 120. On the client side, Deutsche has scored some notable wins. Among corporates, these include the mandate as single European banking partner to GlaxoSmithKline, migrating all existing business from local banks across the region, as well as a regional liquidity management solution. Deutsche ranked first for western European corporates in the 2009 Euromoney cash management survey in October. Deutsche is also becoming the transaction banking partner of choice for financial institutions, picking up mandates from four of the biggest European banks over the past 12 months. BBVA has had a very good year in project finance worldwide, but has cemented its position in western Europe by acting as arranger on 49 deals over the past 12 months, according to Dealogic. The Spanish bank has benefited from having project finance teams on the ground in Madrid, London and Frankfurt, as well as in Italy, France and Portugal. It has arranged deals in western Europe for infrastructure, power, oil and gas and advisory clients and was arranger on two of the most significant deals of the period. The £582 million Greater Manchester Waste deal involved the construction and operation of a range of waste processing and treatment facilities in a complex deal involving a range of different technologies over 30 different sites. BBVA was also arranger on the M25 DBFO £1.1 billion 27-year term loan for Connect Plus, a consortium owned by Balfour Beatty, Skanska, Egis and Atkins. The deal involves the operation and maintenance of the much-maligned London orbital motorway together with the management and construction of several road-widening schemes. The huge deal proved that there was still appetite for public-private partnership financing in Europe despite the difficult financial environment and has been used as the pricing benchmark for other European transportation projects ever since it closed. Northern light Last year, the prospect of looming loan defaults in the Baltic republics cast a long shadow over the Nordic banking sector. Banks such as SEB, Swedbank and DnB Nor had lent massively in the Baltic states (SEB and Swedbank had a combined exposure of SKr366 billion – $47 billion) and there was widespread concern that this lending could drag them down with it. This year, however, things are different. Concern has shifted away from the Baltic states and away to other peripheral European countries such as Portugal, Ireland, Italy, Greece and Spain. The outlook for Nordic banks is far more positive; indeed they may benefit from having far less exposure to some of these problem markets than many of their European peers. So having been tarnished last year by their exposure to the Baltic states, this year Nordic banks are seen as a safe haven thanks to their insulation from events further south. Nordea, the best bank in the Nordic region, has impressed this year with strong and stable performance through unpredictable markets and is best bank in the Nordic region. It has big positions in Nordic banking markets – 40% in Finland, 25% in Denmark, 20% in Sweden and 15% in Norway – and is a leading asset manager in the region, with €102 billion (including private banking) under management.
While other banks in the Nordic region have struggled to contain the impact of their exposure to the Baltic states, Nordea has so far shrugged it off. Lending to the Baltic states is now just 3% of the Nordea group customer loan book – far below that of Swedbank and SEB. Nordea’s loan losses in the Baltic states, Poland and Russia fell 51% quarter on quarter for the first quarter of 2010 and are now only 13% of impairments for the group. Its large balance sheet and stable performance through the crisis enabled Nordea to open up a significant funding advantage over other regional banks last year: for example, in February the bank was able to issue €1.49 billion of seven-year senior secured funding at 87 basis points over, while in the same month Swedbank was paying 133bp for three-year senior secured. The bank was forecast to post a €633 million profit for the first quarter of this year – marginally up on the fourth quarter of 2009. JPMorgan wins Euromoney’s Nordic investment bank category as a result of its strong performance across the board in investment banking. The bank topped the regional M&A league tables but has also developed strong franchises in Nordic equity and debt capital markets. Its strong long-term relationship with Ford meant that JPMorgan won the mandate for the US automotive company’s sale of Volvo to Zhejiang Geely Holdings and it was also adviser on the largest announced deal in the region last year, the $5 billion combination of holdings in VimpelCom and Kylvstar by Telenor. The bank’s position as a leading bookrunner of Nordic equity holdings is evidenced by the fact that it undertook four equity offerings in Sweden, three in Norway, three in Finland and three in Denmark as well as pan-Nordic deals for SAS and Nordea. And on the debt side JPMorgan tops the rankings for corporate deals announced during the period under review and has completed key transactions in euros (for TVO, Moeller-Maersk, Stena, DnB Nor and Aktia Real Estate Mortgage Bank) and dollars (for Danske Bank, Nordea, Svenska Handelsbanken and Nokia). |
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