The joint hosting by Poland and Ukraine of this summer’s Euro 2012 football championships was a sign of the coming of age of the host countries. But as the sporting spotlight fades and the short-term economic and confidence boost recedes, the underlying economic challenges these countries and the rest of central and eastern Europe face will come back to the fore. Hit hard by the seemingly endless eurozone financial crisis, weak economic growth globally and elsewhere in Europe adversely affecting exports, and deleveraging by western banks, CEE economies have in the past year broadly stalled and in some cases shrunk. UniCredit expects the region’s growth at the end of this year to fall to about 2.7% (it was 3.7% in 2011 and 3.5% in 2010) with possible subsequent recovery to between 3% and 4%. But if the long-term regional trend remains one of relatively strong economic growth, the confluence of factors affecting the region’s performance is unlikely to dissipate in the near future, and might even worsen in the coming months. For the regional banking sector, these factors have brought fresh challenges; for many of the leading banks a fundamental change in strategy to adjust to what economists refer to as a “new reality” or “new normal” enveloping banking in the region. All of the top six international banks in CEE – Erste Bank, Intesa Sanpaolo, KBC Group, Raiffeisen Bank International, Société Générale and UniCredit – have had to adjust or sharpen their regional and country business strategies in the past year. The results have been promising, underscoring a dogged resilience in the CEE banking sector on the whole. According to Raiffeisen Bank International, total loan growth in 2011 for CEE was 13% year on year in euro terms and 19% in local currencies. Loan-to-deposit ratios also improved in most CEE countries, with total loan-to-deposit ratios for the whole region below 100%. Non-performing loans peaked in important markets such as Russia and Poland, helping the CEE NPL ratio to stabilize below 7%. As a result, profitability, as measured by the total average return on equity, in the CEE banking sector increased to 12.8% in 2011 from 10.4% in 2010. That is some way off the average of 18%-plus ROE in the boom years but nonetheless satisfactory.
Best Bank Although Société Générale’s 2011 net banking income from CEE fell 3.6% on 2010 to €3.93 billion in 2011, net operating income increased 4.5% to €807 million as the bank cut costs; capitalized on its leading retail and corporate banking businesses in Russia, Romania and the Czech Republic; and enhanced its cross-selling capability between businesses. UniCredit reported CEE revenues of €6.5 billion in 2011 – up 1.5% on 2010 – and net operating profit jumped 23% to €2.31 billion. This performance suggests that UniCredit’s refined CEE strategy of focusing investment and resources on the main growth engines of Russia, Poland, Turkey and the Czech Republic is bearing fruit and bodes well for the future. However, although the resilience and leadership that Société Générale and UniCredit have shown in CEE has been impressive, it is the combination of these attributes and an acute sense of strategic purpose and direction regionally and locally that makes Raiffeisen Bank International Euromoney’s best bank in CEE. Although Raiffeisen is not without its problems, not least a still relatively weak core tier 1 capital ratio of 9% and substantial exposure to a region that remains hostage to the eurozone financial crisis, Raiffeisen has evolved into a stronger bank that is arguably in a better position than most to understand the risks in CEE, and how to mitigate them. It is for these reasons, in addition to an ability to generate profits (profit before tax in 2011 was up 6.7% on 2010 to €1.06 billion on revenues of €3.67 billion), manage down its non-performing loan exposure, and show a commitment to expansion and development in core growth economies such as Poland, Czech Republic and Slovakia, that the Vienna-based bank takes the award for best regional bank for the second year running. In investment banking, four banks can boast a top-10 position in each of the regional league tables for debt, equity and M&A. Of these, Russia’s VTB Capital is the only player based in the region. Over the past year, VTB Capital opened an office in Sofia to serve the wider Balkans region, and appointed Ozan Ozkural as director for Turkey. These are perhaps signs of things to come. For now, though, the international banks have far wider regional geographic spread.
Best Investment Bank In debt capital markets, Deutsche’s deals ranged from Russia’s seminal $7 billion triple-tranche bond in March to the first international bond from Azerbaijan large enough for inclusion in global indices (a $500 million five-year bond for the state oil company). Deutsche also acted on Romania’s first dollar bond, a $1.5 billion 10-year deal in January (the latter’s success allowed a $750 million tap in March). Deutsche Bank was involved with many of the largest equity deals from the region. Its equity markets performance was particularly strong in Russia. In M&A, it advised on one of the biggest deals of the year in Turkey: the $1.6 billion sale of local healthcare provider Acibadem to the Malaysian sovereign wealth fund. Deutsche advised on Sberbank’s takeover of local investment bank Troika Dialog. It also advised on Sberbank’s acquisition of the central and eastern European operations of Austria’s Volksbank, and Raiffeisen’s purchase of the Polish unit of Greece’s EFG Eurobank. Its work on such deals has led to its being appointed recently to advise on the sale of the emerging Europe operations of Austrian banking group Alpe Adria. But perhaps most impressive is the part that Deutsche played in the $5.4 billion leveraged buyout of Polish mobile operator Polkomtel by local entrepreneur Zygmunt Solorz-Zak. Deutsche was the only bank to act on all elements of the deal, Europe’s biggest leveraged buyout since the financial crisis. It advised on the acquisition, underwrote the loan financing, and arranged the placement of a 25% stake in Solorz-Zak’s television firm, Cyfrowy Polsat, the proceeds of which were used to part-finance the acquisition. It also provided currency and interest rate hedges and arranged the high-yield bond that replaced the loan.
Best Debt House Citi gains the top spot, with Deutsche second, in terms of volume and number of bond deals in the regional league table if one excludes the Russian state-owned firms Sberbank and VTB (which are both almost entirely domestic oriented). Citi’s debt franchise impressed for its quality as well as its quantity. Citi was the only bank to act on the Russian sovereign Eurobond in 2012 as well as in 2010 (when the sovereign came back to the market after a 12-year absence). Citi acted with Deutsche Bank on Romania’s dollar deal, and was also bookrunner on the Republic of Croatia’s $1.5 billion deal in March. In corporate business, Citi was a bookrunner on the $2.2 billion multi-tranche deal from Russia telecoms firm Vimpelcom last year, the biggest corporate bond from Russia since 2009. It was bookrunner on a $1 billion dual-tranche offering for Czech utility CEZ. In financial institutions, Citi was bookrunner on Sberbank’s $1.5 billion debut 144a/RegS deal earlier this year. It was also the sole manager of a R10 billion ($304 million) deal from Russian Agricultural Bank in February: the first Euroclearable rouble bond for almost a year. Citi’s success in debt capital markets continued into April with rare high-yield and subordinated debt issuance from Russia.
Best Equity House Data from Dealogic show that issuance in CEE’s equity markets failed to recover, particularly compared with emerging Asia and Latin America. This intensified the scramble between banks to underwrite what deals they could amid contracted supply from CEE at $15.1 billion – down from $24 billion in the previous 12 months. Morgan Stanley rose up the league table to third and combined an impressive haul of deals across industries in Russia and elsewhere with a renewed commitment to capturing business, particularly in Poland. Top among its deals was the $1.4 billion IPO of Yandex, a leading Russian internet company; the $588 million IPO of Global Ports, the second-largest IPO ever from Russia’s transport sector; and the £491 million capital increase for Polymetal, a Russian gold and silver producer, which revived the market after the 2011 summer turmoil. Outside Russia, Morgan Stanley helped raise $128 million in the IPO of Czech Republic software company AVG Technologies.
Best M&A House Goldman advised on deals even in a market such as Kazakhstan, where few other banks managed to source business. But the firm’s business is most impressive in Russia, which is by far the biggest market for M&A in the region. In the Russian consumer sector, for example, Goldman Sachs advised Unilever on its $835 million buyout of Kalina, the Yekaterinburg-based manufacturer of personal-care products. In the oil and gas sector, Goldman advised on a $1 billion investment by Russian energy firm TNK-BP in an exploration and production concession in Brazil. In metals and mining, Goldman advised on the merger of Russian potash producers Uralkali and Silvinit, creating the second-biggest mining firm in the country after Norilsk Nickel (the deal was effected via a stock swap and a bond and loan-financing cash injection of some $900 million). Finally, it advised on the $1 billion merger of Russian telecoms firms MTS and Comstar.
Best Project Finance House The bank showed a high degree of geographical diversification by providing project finance loans in countries including Poland, the Czech Republic, Bulgaria, Romania, Turkey, Russia, Ukraine and Kazakhstan. The bank also executed a wide range of types of deal. Among UniCredit’s most notable deals was the largest deal in 2011: the refinancing and repricing of phase one of the Nord Stream gas pipeline. UniCredit is also one of the most active banks in the renewable energy sector in the region. It was the mandated lead arranger in projects including the Acciona Golice Wind Farm in Poland and SunEdison Karadzhalavo PV Plant, a renewable fuel plant in Bulgaria. UniCredit has also been prominent in the financing of the Turkish infrastructure sector, considered one of the fastest-growing infrastructure markets in CEE. The bank acted as adviser and coordinating mandated lead arranger on the majority of deals that closed in the period in Turkey, including the Zafer Airport and Iskenderun Port financing.
Best Flow House Citi rose from sixth to third in Euromoney’s foreign exchange survey for 2012, in terms of overall market share for central and eastern Europe. In the qualitative rankings for eastern European currencies, Citi rose from third to first. Citi’s flow business benefits from a presence in nine countries in the region, with the biggest presence in Moscow and Warsaw, where it owns Bank Handlowy. Citi has one of the largest market shares in Polish equity trading. Citi’s market share has also been growing in trading of Hungarian government debt. In Kazakhstan, where the bank also has a presence, Citi has acted as one of the main providers of commodity and currency hedges at a time of heightened dollar-tenge volatility.
Best Risk Adviser As another illustration of Deutsche’s risk advisory business, the bank helped a company with large export earnings hedge against the rouble strengthening to the dollar. Deutsche made the currency forward rate affordable, despite concerns about the Russian economy, by making the deal expire once a pre-agreed level of profit had been made. It also embedded a feature limiting mark-to-market losses in the case of rouble weakening. Finally, Deutsche was particularly active in developing principal-protected index-linked products for regional corporates with excess cash: a situation in which many found themselves, particularly in Russia, thanks to the high commodity prices.
Best Cash Management House UniCredit has extensive operations in the region – it is present in 17 countries and the bank and its subsidiaries have sophisticated product offerings in cash pooling, collections and payments. Its EuropeanGate system offers corporations an easy way to conduct cash management operations across the region from a single point of contact. UniCredit helped the energy meter-reading firm Iskraemeco implement cash pooling across three countries in the region. It also helped the Romanian unit of Czech energy group CEZ develop a new system for collections and invoices, and advised a Romanian airline on implementing in-flight point-of-sales collections. The bank also helped McDonald’s implement point-of-sales terminals and card payments systems in Slovakia. |
