Awards of Excellence: Best in the world
Awards for Excellence: Nordic region
Awards for Excellence: North America
Awards for Excellence: Latin America
Awards for Excellence: Middle East
Western Europe
Best bank: Deutsche Bank
Best bank in the euro zone: Deutsche Bank
Best securities firm: Warburg Dillon Read
Recent strategy pronouncements from members of the Deutsche Bank Vorstand that the bank intends to concentrate on Europe amount to a statement of intent to play to the bank’s obvious existing strengths. Its strategy in dealing with corporate and investing institutions across Europe has been to become the dominant provider of Deutschmark services – be that in foreign exchange or bonds – and to attempt to be the first-choice foreign bank counterparty in the customer’s home currency. The intention is to parley this into a position as the dominant bank in euroland.
In wholesale markets, the bank has clearly benefited from the build-up of Deutsche Morgan Grenfell (DMG) over the past three years. It is the leading European foreign-exchange bank and second overall behind the ever dominant Citibank. It claims top position as lead underwriter of bonds in the euro constituent currencies, as well as being a leading trader of European government bonds. In the months to come, its rivals will be watching for any sign that the folding of DMG back into the commercial bank is slowing its progress in these businesses. Its rise to prominence in these markets has come at some considerable personnel cost and the bank may seek to trim this.
Deutsche enjoys strong positions in retail financial services in the most important southern European markets. It has a 300-branch network in Spain and 260 branches in Italy, making it one of the few banks with a genuine chance to establish broad European coverage in retail financial services. Overall within the euro zone, it has 2,000 branches, 50,000 employees and some seven million customers.
An obvious step would be to expand in France, something chairman Rolf Breuer has stated several times in recent months would be desirable but politically difficult. The bank claims more retail assets under management than any other bank in the euro zone, thanks to its highly successful mutual fund arm, DWS.
Oddly, one of the toughest markets for Deutsche Bank is Germany itself. In the retail market growth is severely constrained by the ingrained relationships of many customers with local savings and cooperative banks. In the wholesale markets profitability is kept low by competition with big state- and mutually-owned banks. None of these has the same need to make profits as the private banks and competing with them on price gives Deutsche little chances of ever producing a Lloyds TSB-style return on equity. This explains its enthusiasm to establish a leading role in the wider European commercial and investment banking markets.
SBC Warburg, now known as Warburg Dillon Read, is the best pan-European equity research and execution firm according to Euromoney’s annual poll published last November. And it is the top Eurobond trader, according to our poll published this May. It is also one of the top firms in both primary equity and primary bond markets, leading more bond issues for European corporates than any other firm so far this year. These included sizeable dollar bonds for Siemens Capital and Rothmans Nederland Holdings, a large sterling deal for Ciba Specialty Chemicals and a Sfr1 billion ($667 million) equity-linked deal for Roche.
In the primary equity markets, the firm has been appointed global coordinator on several big offerings this year, including those by Dutch marketing and distribution group Hagemeyer, UK travel company Thomson Travel Group and the National Bank of Greece.
There are two obvious challenges for Warburg Dillon Read. One is making the merger with UBS work. By and large, in securities and investment banking, SBC’s strategy has been simply to take out one of its leading competitors, making the former UBS staff redundant. In the process however, some of the retained staff seem to have been unsettled.
A second challenge is the growing power of the US firms not only in the primary markets – where the Americans often benefit from their lock-on distribution into the US – but also in research and broking in domestic European markets. Merrill Lynch’s strategy of acquiring local brokers in countries such as Spain and the UK (it bought the UK’s Smith New Court in 1995) make it an ever more threatening competitor.
Peter Lee
Central and eastern Europe
Best bank: ING Barings
Best securities firm: CA IB Investmentbank
Best underwriter of debt: JP Morgan
ING Barings, Citibank, RZB and Bank Austria Group have all established a significant presence across the region in both investment and commercial banking. RZB has grown by a mixture of acquisition and local start-up and is a leading player in several markets. The Bank Austria Group, strengthened by its acquisition of Creditanstalt in January last year, has the most accomplished regional investment banking operation. And Citibank has continued with its embedded bank strategy of growing steadily from a strong local branch operation in each country. The acquisition of Travelers will add Salomon Smith Barney’s capital markets expertise to this strong network.
However, ING Barings has been the most dynamic and innovative of these big four. In 1997 it received full banking licences in Kiev and Timisoara. It made the first strategic investment with majority shareholding by a western commercial bank in an existing Polish bank; in Romania it was the first foreign bank to open sub-branches outside Bucharest; and in Hungary it arranged the first medium-term notes and the largest corporate debt issues.
Jack Kemp, who heads ING’s regional operations, chooses this year’s Russian rouble transactions completed for the EBRD as his favourite deals. While other markets were standing still, the EBRD raised R2.2 billion ($359 million) through five issues in very rough markets, with the roubles going to US investors and the EBRD swapping the proceeds back into dollars. “That’s where you show your strengths,” says Kemp. “By not standing still when the market isn’t there, but showing your creativity.”
Creditanstalt’s focus on central and eastern Europe continues to mark it apart from rivals in the securities business. Now with the added weight of Bank Austria behind the name it offers the most comprehensive coverage of the region for fixed-income clients. The bank has set up a regional desk in Vienna, combining sales and trading of all fixed-income products related to the region and has a revamped new issues team. Creditanstalt believes that competition in the region tends to be primarily from local banks in each market, rather than from any single foreign bank present across the region. A bank such as Merrill Lynch, they say, lacks the vital ingredient of having banks and coverage on the ground. “Clients say that they like us being on the ground, and committed to commercial as well as investment banking,” says a source at Creditanstalt.
JP Morgan is by far the leading underwriter of international debt issues for eastern European borrowers: in the past 12 months it has been bookrunner on 14 deals worth $5.2 billion – almost twice as much as runner-up Warburg Dillon Read. James Rutter
Austria
Best bank: Bank Austria
Best securities firm: Erste Bank
Best foreign bank: Deutsche Bank
For market clout and profitability Bank Austria, having bought Creditanstalt and sold GiroCredit, is the biggest and best in the land, although cynics attribute some of its good results to one-off gains.
The absorption of Creditanstalt hasn’t been without pain and some key Creditanstalt people continue to leave, but BA has been able to close 41 domestic branches, reduce staff by 700 people, mostly by natural attrition, and increase net profits in 1997 by 24% to Sch5.6 billion ($441 million) – after a Sch3 billion one-off restructuring charge.
Erste Bank (First Austrian) wins the award for best securities firm on the basis of secondary market turnover but CA IB Investmentbank, the Bank Austria unit, is more effective in research and international sales. Another bank to watch is Centro Internationale Handelsbank for its professionalism in index futures and derivatives trading.
Foreign banks tend to ignore what they see is a small and crowded marketplace. ABN Amro is active in the corporate market and the merged SBC/UBS in corporate finance and derivatives. However, last year’s winner, Deutsche Bank’s branch in Vienna, had another strong year. In April its market share in equity trading reached 14% and its research is highly regarded.
The bank has also been involved in the first two public bids on the Vienna Stock Exchange and was behind the first asset-backed financing in Austria, a Dm100 million ($55 million) issue funded through the commercial paper markets.
Belgium
Best bank: Kredietbank
Best foreign bank: Citibank
Best securities firm: Petercam
Consolidation has finally reached Belgium. Générale de Banque, the largest and oldest Belgian financial institution, has been the target of a cross-border acquisition struggle between Belgian-Dutch financial group Fortis and ABN Amro of the Netherlands. Fortis was the eventual winner in a Fls24.5 billion ($12.2 billion) deal that until the last moment could have gone either way. Management has voted with its feet. Since the beginning of June prominent Générale executives have been leaving in droves.
With Générale distracted, smaller Belgian banks have caught up through their own consolidation strategy. Kredietbank, the second-largest Belgian bank, announced at the end of January that it was to merge with fifth-ranked Cera Bank and insurance firm ABB to form KBC Bank. Both banks have strong client bases in the Flemish-speaking regions. The merger will give the KBC banking group 20% of deposits and make the merged entity Belgium’s biggest bank.
Kredietbank itself has done particularly well in the past 12 months. Equity grew almost 21% (highest among Belgium’s top-five banks) and income grew by 81%. After the merger, Kredietbank will be able to close a large number of duplicate retail branches and increase profits further. In the long term this will provide a solid platform for international expansion.
Citibank, one of the few foreign banks to have succeeded in Belgium, has successfully accessed it with a strategy focusing on private banking for high-net-worth individuals and large-scale corporate finance. In such a small domestic market ambitious companies have to be international in their outlook. Corporates with multinational operations require extensive foreign exchange facilities and other transaction products that Citibank aims to provide. It also targets the larger Belgian corporates in the hope of picking up their business elsewhere in the world. This strategy has worked and most of the top 20 Belgian companies are Citibank clients. The bank has been in Belgium since 1962 and runs a full-service office employing over 100 people.
In the securities market, Petercam has stood out this year. Established in 1968, it is the largest independent member firm on the Brussels stock exchange. Petercam concentrates on stockbroking, Belgian government bond and Eurobond broking, asset management, real-estate management, corporate finance, and foreign exchange. Since 1993 it has been involved in a banking venture with Kredietbank. The two also have set up Kredietbank-Petercam Derivatives, an equity derivatives structuring, trading and hedging joint venture. Peter Lee
Bulgaria
Best bank: Bulbank
Highly commended: Post Bank
Best foreign bank: ING Barings
Bulgaria’s seven large state banks are being privatized, though the process has not been smooth. The second planned privatization, that of Varna-based Expressbank, has been held up by a lack of acceptable bids and the sale of Bulbank is now expected to be delayed until late 1999.
However, Bulbank, with assets of over $1.5 billion, is by far the largest and most liquid bank in the country. Pre-tax profits rose sharply in 1997 and the bank continues to dominate both foreign exchange and international trade in Bulgaria. Its president, Chavdar Kantchev, is regarded by many as the country’s premier banker.
Bulbank will face stiff competition from Post Bank after that bank’s privatization. Although only a fifth the size of Bulbank in terms of assets, Post Bank uses the post office network to reach retail customers and this deep customer base has attracted foreign interest, with Nomura among the interested parties.
At the regular breakfasts that ING Barings hosts for members of the central bank and monetary authority, the bank invites its guests to share their problems and concerns. As well as offering a shoulder to cry on, ING also offers the most comprehensive foreign banking operation in Bulgaria. With its recently opened branch in Varna, the bank now has 105 staff in the country and assets of $150 million, half in loans and half securities. It is the largest custodian and recently executed the first debt-export swap in the country. James Rutter
Croatia
Best bank: Zagrebacka Banka
Best foreign bank: Raiffeisenbank Austria
Best securities firm: Zagrebacka Banka
The largest privately-owned bank in Croatia, during the past year Zagrebacka Banka has consolidated its position as the most profitable and professional bank in the market ahead of Privredna Banka Zagreb. Year-on-year profits in September were up 47% on asset growth of 13%. In June it raised Dm400 million through a three-year syndicated loan at just 50 basis points over Libor. Its shares are listed in London, it has 25% market share in domestic corporate lending and it has improved the quality of its loan portfolio through a series of debt-for-equity swaps. Already well established in the corporate sector, it is trying to grow its retail business, and in concert with its subsidiary, Pomorska Banka, can now boast the broadest retail network in the country.
The bank is also the largest trader on the Zagreb stock exchange with 43% of turnover. Unsurprisingly this gives it the number one ranking in the market.
Now in its fourth year of operation, Raiffeisenbank is still the only foreign bank fully operational in Croatia. Four branches are due to be opened outside Zagreb in 1998, and the bank will introduce electronic and telephone banking as well as leasing and insurance. James Rutter
Czech Republic
Best domestic bank: not awarded
Best foreign bank: Citibank
Best securities firm: Wood & Co
Best foreign securities firm: Credit Suisse First Boston
Last year was difficult for Czech banks and so many problems remain that we are not making an award for excellent performance.
In the first quarter of 1998 Komercni banka posted a profit before provision for loan losses of Kr3.7 billion ($106 million). This is a rise of 27.6% on the corresponding period of last year. However, worries over the quality of the loan portfolio forced the bank to use 92.6% of this profit for provisions. Its capital-adequacy ratio under BIS methodology as at March 31 1998 was 9.25%.
While Ceskoslovenska obchodni banka (CSOB) has a lower level of problem loans than Komercni, it lacks its broader business lines. Ceska Sporitelna, the giant savings bank, is dogged by very poor quality of service and virtually non-existent IT.
Two to watch are Zivnostenska and Expandia. Zivnostenska has been one of the best performers over the past year. A stake in the privatized bank was recently purchased by Bankgesellschaft Berlin after strong competition from other foreign competitors. Zivnostenska remains small, with few branches, but is widely recognized as having the best level of service in the country. Expandia is the bank for the Czech yuppie, offering only telephone and internet banking. Again this is an attempt to compete on service in a market dogged by dire standards.
Among foreign banks, Citibank continues to set the standard. In 1997 its performance improved significantly: pre-tax profits increased by almost 50% and assets by 35%. It continues to dominate the foreign-exchange market and last year began market making in koruna derivatives in the local market.
Wood & Co remains the premier securities firm in the country. It advises the government on bank privatization and dominates M&A activity. Last year it could also claim presence in fixed-income markets through its 50% stake in WoodCommerz, its fixed-income joint venture with Commerzbank.
However, the two joint-venture partners have now decided to split up. Wood & Co retains 100% of the equity business (Commerzbank previously owned 25%) and Commerzbank takes over the fixed-income operation.
Richard Wood, owner and director of Wood & Co, says they had been discussing the separation of the businesses for the past six months, as the terms of the original agreement stated that after two years Wood & Co either had to give full control of its business to Commerzbank or retain independence.
In the past year Wood & Co has expanded into the Ukraine and become a member of the Budapest stock exchange in Hungary. “In the last 12 months we’ve moved into all the countries that our customers really care about,” says Wood. “We’re where we want to be now.” He adds that the firm has no intention of moving into the bond business.
In the equity business it could come under increasing threat from ABN Amro, which has four new public equity deals in the pipeline.
Credit Suisse First Boston is the strongest foreign securities house. Its regional commitment and research are praised by investors and the firm’s reorganization of its emerging markets effort, with the creation of a new client coverage team headed by Marcus Everard, will improve service further. James Rutter
France
Best bank: Société Générale
Best foreign Bank: JP Morgan
Best securities firm: Paribas
With the strongest operating results in its sector – income growth was 34% in 1997 – Société Générale remains the French bank most likely to succeed in the global financial market despite increased competition at home, particularly from BNP.
SocGen is also – unlike some of its rivals – committed to carrying out the rationalization and modernization needed to remain competitive in domestic and international markets. The bank also believes size is an advantage and is looking for acquisitions. Candidates include Paribas, which would add to its strength in the capital markets.
The bank also benefits from its presence in capital markets and international banking. A new division has been set up this year to focus on retail banking outside France, in particular the African market. Development of Société Générale’s investment banking capabilities has come through extensive hiring in areas such as high-yield debt, and through acquisitions like that of Hambros in the UK.
Crédit Agricole, though larger by assets, has falling income growth and market share. It also faces increased competition for savings accounts when the cooperative and savings banks’ monopoly on the livret – a tax-free savings account – is broken by upcoming government legislation.
Domestic banks still dominate retail banking but foreigners have broken into the capital markets and foreign competition will grow as the euro is introduced. JP Morgan is the biggest foreign player, particularly in the bond markets, with a long record in the country. This year the bank has run the books on major issues by Cades, Carrefour and Louis Vuitton Moët Hennessy.
Paribas still dominates among domestic securities houses. The bank has held on to its French business while expanding its client base abroad through leadership in the euro. It recorded a rise in net profits of 51% in 1997 and is rapidly increasing its share of European capital markets. Major restructuring has already occurred this year, with the sale of all retail banking subsidiaries to concentrate on investment banking and give itself more stable income flows. Peter Lee
Germany
Best bank: Commerzbank
Best securities firm: Metzler
Best foreign bank: Citibank
Best foreign securities firm: Goldman Sachs
In a world possessed by a mania for mergers, one of the banks that stand out for not having rushed into anything so far is Commerzbank. True, it had serious discussions with Smith New Court, and a brief flirtation with Credit Suisse, but executive chairman Martin Kohlhaussen has kept the bank out of expensive and dangerous acquisitions. Its discussions with the state-owned Postbank are on cooperation and a small shareholding only. Its small purchase in the UK, Jupiter Asset Management, is modestly successful. “For not having dared anything,” says a German investment banker, “they’ve come out looking good.”
Commerzbank’s one expensive adventure, on which the jury is still out, is its rapid expansion into equities under the leadership of Mehmet Dalman.
The bank’s profits have been good. It is still Germany’s third-biggest bank by equity, until the Bavarian merger goes through, and it is the 37th biggest in the world by market capitalization. We select it as the best German bank this year because the other main candidates, Deutsche Bank and Bayerische Vereinsbank, are in the middle of upheavals which may pay off in a few years, but are costly and high-risk. Dresdner Bank has been hit by resignations from its executive board, even though the new board looks better. But the difficult integration of Kleinwort Benson, and the weakness of its pan-European strategy leave Dresdner in a weak position in an increasingly competitive market. “Anyway,” concludes a German banker, “it’s not Dresdner that decides which way it will go, but Allianz [which owns 22% of the bank].”
Commerzbank is relatively weak in fixed income, but that is being addressed after the departure of Jürgen Karcher at the beginning of the year. Dalman, head of global equities, was an expensive hire last year and he has been adding considerably to the bank’s cost base. Apart from that the bank has “focused well on earnings”, says a Frankfurt analyst.
There is less of a dilemma about the award for the best foreign securities firm. Goldman Sachs has the widest coverage of corporate and institutional clients, even upper-tier mid-market companies. Its only weakness, compared with Merrill Lynch, is in retail distribution. Clients are impressed by Goldman’s commitment to Germany, the continuity of personnel and the presence of resident partner Paul Achleitner, regarded by many as the doyen of the foreign banking community. Goldman’s greatest coup this year is the co-lead management of a Dm7.5 billion rights issue for the Daimler-Chrysler merger. Next year the outlook may be different. Merrill Lynch has been recruiting aggressively, taking teams from BZW and Commerzbank. JP Morgan has wide client coverage and does spectacularly in advisory and M&A work. But only Goldman, Morgan Stanley and Lehman Brothers can offer equities and fixed-income trading and corporate finance.
The most obvious candidate for best domestic securities firm is Deutsche Bank. Deutsche certainly has the widest client coverage and highest-volume securities trading. But it is nowhere in M&A and corporate advisory for reasons of conflict of interest.
German securities houses that are not part of big banks are necessarily niche players. The best this year is Metzler, for its activity advising the government on various privatizations and share disposals. “It’s becoming the Rothschild of Germany,” says a German investment banker. Metzler is also a big asset manager and 92% of its business is with international clients. Oppenheim is judged to be sitting on too much capital and BHF-Bank, another possible candidate, needs more time to turn itself around under the leadership of Michael Kruse.”They [BHF] call themselves ‘merchant bankers by tradition’ but they’re not in the principal business, unless you include their industrial portfolio Agiv,” says a rival. David Shirreff
Greece
Best bank: Alpha Credit Bank
Best foreign bank: Midland Bank
Best securities firm: Sigma Securities
In terms of retail market share, Greek banking is dominated by state-owned National Bank and, to a lesser extent, Agricultural Bank. But their inefficient bureaucracies will find it hard to compete in a wider European market and much-needed restructuring is being met by fierce political opposition. The proposed sale of Ionian Bank by state-owned Commercial Bank has caused uproar.
While the state wrestles with the political issues, private banks are winning new clients. Their strategy is based on consolidation, and modern management and technology. No bank typifies this approach more than Alpha Credit Bank, the largest private bank in Greece, which will become the second largest overall if its purchase of Ionian Bank goes ahead. This will double its market share as Ionian Bank holds 8% of commercial deposits. It will also give it a strong position in southern Europe.
The bank covers capital markets through Alpha Finance and Alpha Brokerage, and has enjoyed dramatic profit growth over the past year. It is also expanding its retail and investment-banking operations into the Balkans, a promising new market for Greek companies. In setting up Bank Bucharest in 1993 and Bucharest Investment Group in 1994 it was an early entrant into the Romanian market.
The main rival to both Alpha and the securities arm of National Bank is Sigma Securities. Set up in 1990, it is now half-owned by the expanding Bank of Piraeus and is gaining market share as the largest securities house in Greece. Last year profits doubled. Some 70% of Sigma’s clients are foreign banks or institutional investors.
A number of foreign banks operate in the Greek market, but they tend to focus on the capital markets. Citibank has penetrated the domestic retail sector, and BankAmerica is a leader in investment banking. But Midland Bank has managed to establish itself in both areas since its arrival in 1981. Its strategy has been to concentrate on private banking, corporate finance and investment banking – where it is particularly strong in equities. It is one of the most profitable foreign banks in Greece. Rebecca Bream
Hungary
Best bank: OTP
Best foreign bank: Raiffeisen Unicbank
Best securities firm: Concorde
Best foreign securities firm: CA IB Investmentbank
In an increasingly crowded marketplace, foreign banks are choosing to take stakes or outright control in Hungarian operations, blurring the distinction between foreign and domestic institutions.
Among the longest established of the foreign banks is Raiffeisen Unicbank. It has the highest return on equity of any Hungarian bank and increased assets by over 50% during 1997. It is a leading player in the corporate and municipal markets.
Similar ventures to watch in future are ABN Amro Magyar Bank, formed when ABN bought Magyar Hitel Bank, and Citibank’s recently agreed purchase of Europai Kereskedelmi Bank.
Of the truly domestic banks, OTP bank, the largest commercial bank, has a strong position in corporate lending and a regular presence in securities markets.
Among domestic securities firms, Concorde is the only firm with any significant international profile, and the only domestic operator that regularly attracts foreign clients.
Creditanstalt continues to be a significant force in Hungary’s privatization story. Lead manager for the sale of Matav, the telecommunications company and the largest Hungarian privatization to date, it was also joint lead for the secondary offerings in oil and gas company MOL, OTP bank, and the largest Hungarian pharmaceutical company, Gedeon Richter. Following the merger with Bank Austria, the bank will have 20 branches in Hungary through which to expand its domestic securities business. James Rutter
Ireland
Best bank: Allied Irish Banks
Best foreign bank: Citibank
Best securities firm: Davy Stockbrokers
Two banks dominate the domestic Irish market – Allied Irish Banks and the Bank of Ireland. Although they are close competitors, Allied Irish Banks is ahead in size and reputation. It is the largest Irish banking and financial services organization, with total assets of IR£31.2 billion ($43.7 billion).
In May 1997 it became the first Irish bank to obtain an AA rating from Moody’s. The bank’s profits rose 38% in 1997, earnings per share were up 25% and return on equity was 23.6%. Its cost-income ratio fell to 62.4% from 64.5%.
The big two’s domination is not a complete stranglehold. Ulster Bank (a subsidiary of NatWest) and National Irish Bank (a subsidiary of National Australia Bank) run sizeable businesses in the country. Although foreign-owned they are widely considered domestic banks and report to the central bank as if they were. Ulster Bank operates throughout the whole island whereas National Irish Bank operates only in the Irish Republic. Both are concentrating on expanding their branch networks.
Citibank established a presence in Ireland almost 33 years ago and is the only bank in Ireland that can provide full corporate services locally, using its own dealing room to access 100 countries worldwide. Its business is targeted at the largest corporates in Ireland and it provides them with cash management, rate-risk management, trade services, funding and investor products, custody and funds administration.
The two also dominate the securities markets, Bank of Ireland through Davy Stockbrokers, AIB through Goodbody Stockbrokers.
Davy is Ireland’s largest securities trading house. Its market share in bond and equity trading exceeds 30% in day-to-day trading and it is corporate broker to eight of the 10 largest stocks listed on the Irish stock exchange. In recent years it has accounted for over two-thirds of equity funds raised and a similar proportion of non-government fixed-interest-rate issues. Davy fixed-income research has been consistently voted the best in Dublin and its chief economist, Jim O’Leary, has been the top-ranked economist in Dublin for the past nine years.
With 11 equity dealers and eight research analysts Davy also has the largest equity team and its international client base now numbers more than 300 of the leading names in global fund management worldwide. Davy is the only broker in Dublin to provide a full research service on every listed stock and its research is top-rated. Alex Mathias
Italy
Best bank: Credito Italiano
Best foreign bank: Deutsche Bank
Best securities firm: IMI
The Italian banking sector is – after years of talk but no action – in the midst of a profound restructuring. Several of the country’s leading banks have completed or announced mergers in recent months, creating three new leading banking groups in a country where, unusually for Europe, there are still no clear national champions. What were once known as the three banks of national interest, Banca Commerciale Italiana, Banco di Roma, and Credito Italiano, were never truly national in scale, and were among the least well-managed institutions in a country notorious for poor returns in banking. Banca Commerciale Italiana and Banca di Roma recently called a halt to their merger talks and seem to have been left behind in Italy’s fast-moving consolidation.
The most significant recent combinations have been those between the (by Italian standards) highly profitable Milan-based Ambroveneto and Cariplo (the country’s largest savings bank) to create Banco Intessa; between the wholesale-oriented IMI and the country’s largest retail bank, San Paolo di Torino; and between Credito Italiano and Unicredito, the holding company for three leading savings banks in Turin, Verona and Treviso.
The transformation of Italian banking extends beyond mergers and acquisitions. While banks pursue these, some are also embracing that once unthinkable notion of managing for profit and shareholder value. A new group of senior executives is emerging, often coming in from outside banking, to lead the revolution. None has made a bigger impression than Alessandro Profumo, a former McKinsey consultant, now the driving force at Credito Italiano where he is chief executive. Under him, the bank has become extremely cost-conscious, running one of the lowest cost-income ratios in the country. It also enjoys some of the strongest margins in Italian banking by virtue of its focus on the retail market, where returns are holding up better than in wholesale lending, and its regional bent to the more prosperous north. It has extended into select and promising markets, such as asset management.
Credito Italiano is also an example of a successful acquirer. Banca Rolo, which it created out of previous acquisitions in the Emilia Romagna region, is itself arguably the best performing bank in Italy, with a return on equity last year of close to 14%, remarkable in a country where low single digit returns are the norm. One of Rolo’s successes was in redeploying staff from obsolete back-office operations following the acquisition by Credito into marketing and other front-office tasks. This has improved its ties to desirable customers and helped the bank to weed out potential bad debtors, a key advantage in a country where non-performing loans still burden most banks. Rolo helped Credito Italiano to produce an overall return on equity of 7.9% in 1997, up from 1.3% in 1994. If it makes as good a success of Unicredito as it did with Rolo, Credito Italiano could be producing a return of close to 20% by 2000.
In the investment banking and securities markets, Mediobanca and IMI are the clear leaders. However, each has been distracted recently. Mediobanca has been preoccupied by its efforts to push the now-stalled Banca di Roma/Banca Commerciale Italiana merger and by internal wrangling between modernizers and the old guard. IMI has been distracted by its alliance with Turin-based San Paolo and the restructuring of its various securities and capital-markets subsidiaries. IMI has impressed its international investment-banking partners on big share sales, including those of Italian energy group ENI, airline Alitalia, as well the offer of shares in Rome football club Lazio.
Given the overbanked nature of the domestic retail market, most foreign banks concentrate on wholesale and capital-markets business.
Deutsche Bank stands out because it has also penetrated the retail market through its 260 branches. It has also made a foray into the fast-growing mutual-fund business through Finanza e Futuro, where it is the seventh-largest manager. It is one of the top bond, forex and money market and repo traders in the Italian markets and has also done good business in the primary equity markets business for Italian companies, including large block trades. Peter Lee
Luxembourg
Best bank: Banque Générale du Luxembourg
Luxembourg’s banking sector is exceptional. The country is the world’s 10th largest financial centre and yet its population is not large enough to support a significant domestic market. Virtually all banks are foreign-owned. One banker describes the banking sector as an extension of the Belgian, Netherlands and German markets.
Banque Générale du Luxembourg, a subsidiary of the biggest Belgian bank, Banque Générale, competes for top position with Banque Internationale à Luxembourg. Banque Générale du Luxembourg tends to be most analysts’ favourite because it is more of a risk taker. Its flexible $2 billion Euro-MTN programme earned it a Euromoney award as most innovative borrower. Fortis, the Belgo-Dutch financial services group, recently beat ABN Amro in a bidding war for Banque Générale in Belgium. The planned merger may have implications for the Luxembourg arm. Alex Mathias
Netherlands
Best bank: ING Group
Best foreign bank: Générale Bank
Best securities firm: ABN Amro
This has been a year of great expansion at ING. Recent acquisitions include Equitable Iowa in the US and the purchase of Banque Bruxelles Lambert in January, a Fls9 billion ($4.7 billion) deal creating the largest financial group in the Benelux region. This has given ING a wider client base through which to cross-sell its retail financial services. Consolidation of businesses and income from abroad gave ING an 80% increase in profits in the first quarter of 1998. Equity and income growth in 1997 reached approximately 30%.
The bank’s revamped strategy and its decisive management have been credited with moving ING into first place among Dutch banks and into the biggest five banks in the world by market capitalization. It is also increasing its presence in asset management and international insurance markets.
Many of the global investment banks are players in the lucrative Dutch capital markets, but Générale Bank from Belgium has been unique in managing to forge a presence in the retail market. This small universal bank has grown considerably this year thanks to radical restructuring. Profits rose in 1997 from Fls84 million to Fls111 million.
ABN Amro is the biggest securities house in the Netherlands and has retained its lead this year. It has expanded abroad making it one of the largest European securities houses in terms of geographical spread, new issue activities and research. The firm is investing heavily in trading the euro. Revenue increased by 30% in 1997, though a large rise in operating expenses caused pre-tax profits to fall by 4%.
The first year of the joint venture between ABN Amro and Rothschild, established in July 1996 to improve research and distribution in core and emerging equity capital markets, has proved fruitful. ABN Amro Rothschild has been awarded a number of prestigious mandates, including the 35% privatization of Australian telecoms company Telstra in November 1997. It has also become a major player in convertible bonds and is moving into equity derivatives. Peter Lee
Poland
Best bank: Bank Rozwoju Eksportu
Best foreign bank: ING Bank
Best securities firm: CDM-Pekao
Best foreign securities firm: CA IB Investmentbank
With the support of Commerzbank, Bank Rozwoju Eksportu (BRE) has taken over from Handlowy as the best-performing domestic bank in Poland. Although Handlowy can claim to have a wider reach, BRE benefits from its more focused approach. It can also boast a better and more transparent management structure and superior systems, as well as a strong position in the corporate loan market and a generally higher quality of assets. Both it and Handlowy are likely to be in the market for a retail operation, with the larger bank the more likely to succeed.
ING Bank continues to offer a broad range of financial services in Poland, which should all be brought under a single roof in the $100 million development under way in central Warsaw. As well as a full branch operation, the bank also owns a majority stake in Bank Slaski, which operates in south-east Poland, giving it added weight in the corporate market as well as access to more than 1 million retail accounts for the sale of its life insurance products. ING is also considering acquiring full control of Bank Przemyslowo Handlowy, in which it already has a 12% strategic share.
CDM-Pekao is the brokerage arm of Bank Pekao. It is responsible for 14% of the turnover of the Warsaw Stock Exchange and is the largest brokerage firm. It is strong in the primary markets, particularly in fixed income.
Creditanstalt continues to offer a comprehensive service in Poland and one that will be strengthened by the merger with Bank Austria. Last year it was lead manager of several IPOs for the Polish National Investment Funds, and led one of the largest capital raisings in Polish corporate history, for food processing company Agros Holdings. James Rutter
Portugal
Best bank: Banco Comercial Português
Best securities firm: Banco Essi
Best foreign bank: Santander
Portuguese banks have performed strongly over the past 12 months, with the country’s largest bank, Banco Commercial Português, recording strong net income for 1997 of Esc36 billion ($196 million), a gain of 55%, and an impressive return on equity of close to 18%. BCP has benefited from a benign environment in Portugal where strong economic growth has led to growing demand for consumer loans and mortgages. Beyond mainstream retail banking, it is a market leader in several attractive and fast-growing businesses, including insurance, asset management, mutual funds, cards, leasing and factoring.
The bank is a case study in customer segmentation and cross-selling. Its domestic customers have shown a high propensity to buy products such as mutual funds through the bank. Its insurance business has performed particularly strongly, benefiting from low-cost distribution through the banking network.
In 1995, BCP acquired a stake in sleepy Banco Português do Atlántico and last year took complete control and turned the bank around. As part of this restructuring, BCP scored many successes in selling products – including cards, mortgages and mutual funds – to Banco Português do Atlántico’s less affluent and previously under-served customers. It has also managed to introduce a single computer platform across both banks, although analysts quibble that the bank could push harder for cost savings by further integrating the two, instead of maintaining separate brands.
The future for all Portuguese banks is unclear, given their small size and the potential effect of the introduction of the euro. They might all be swallowed up at some stage. BCP has at least shown itself capable of meeting the challenges of disintermediation and probable falling forex trading income – something of a mainstay for Portuguese banks prior to the euro – by growing its mutual-fund business.
The bank has also shown some imagination in its foreign strategy, recently acquiring a 45% stake in Poland’s retail financial services group, Spolka Akeyina. Why Poland? BCP believes that Poland, an emerging economy with an underdeveloped banking system, resembles Portugal several years ago. It hopes to export strengths such as product cross-selling and is looking for other potential deals in Europe.
In securities and investment banking, BCP lags behind some of its competitors, notably Banco Essi, part of the Espirito Santo Financial Group. Essi has been one of the most successful parts of the group, able to compete with international investment banks in the Portuguese privatization programme. Essi has played a leading role in share offerings for Portugal Telecom, the country’s leading stock. In 1997 Essi doubled income from investment banking and grew its profits by 62%. It claimed a 42% share in primary equity placements in Portugal, even excluding privatizations. But it faces growing competition from a revitalized Banco Português de Investimento. BPI has traditionally prided itself on being Portugal’s leading investment bank and has led well-regarded deals recently for Electricidade de Portugal and two of the country’s leading football clubs.
Foreign banks have not traditionally fared well in Portugal, facing high cost structures in their retail banking efforts, where the Spanish banks Banco Bilbao Vizcaya and Santander are the most prominent foreign players. In the wholesale markets, the handful of active foreigners, including Citibank, Deutsche Bank, ABN Amro, SBC Warburg and the Spanish two, have tended to trade the same staff between each other. Portuguese bankers rate Santander for making a splashy start in the capital markets and girding itself to improve on the consumer side. Peter Lee
Romania
Best domestic bank: Banca Comerciala Romana
Best securities firm: Global Valori Mobiliare
Best foreign bank: ING Barings
Best foreign securities firm: CA IB Investmentbank
Restructuring the state-owned banks in eastern Europe’s fourth-largest country remains a daunting prospect. Of the four largest state banks, Banca Comerciala Romana (BCR) clearly stands out, not having been affected by bad loans to the same extent as either Bancorex or Banca Agricola.
The high standing of BCR is indicated by the tight pricing it managed to achieve on a recent syndicated loan despite the sovereign downgrade announced at the same time.
Of the foreign banks in Romania, ING Barings has the widest client base, and is the market leader in electronic banking. It is looking to expand beyond its base in Bucharest, with sub-branches in five regional centres – the first foreign bank to make such a move. ABN Amro is making good progress in the corporate market and has quickly expanded its brokerage operations. Citibank is in its first year of real operation and has yet to make an impact.
Global Valori Mobiliare is a subsidiary of Turkey’s Global Securities. It has established 23 representative and branch offices in Romania, launched a Romanian closed-end fund and is a key player in Romania’s privatization programme. It has also advised several companies – foreign and local – on corporate finance strategies. James Rutter/Simon Brady
Russia
Best domestic bank: Unexim
Highly commended: Avtobank
Best foreign bank: Citibank
Best domestic securities firm: MFK Renaissance
Best foreign securities firm: Credit Suisse First Boston
Highly commended: Brunswick Warburg
Economic turmoil means that consolidation – always inevitable – will now be more widespread and rapid than was first thought.
In this context, Unexim stands out as the most powerful bank in the market, although as rivals point out, it isn’t always apparent in the bank’s profits. It is a key lender to the government and to corporate Russia, it is a major regional player through acquisitions and joint ventures and it is a significant player in the securities markets both through its association with MFK and as a depository.
Though smaller, Avtobank, a professionally-run and profitable firm, is trying to expand into the retail market in the same way as rival SBS-Agro.
With total capital of $150 billion, Citibank is among the top 20 banks in Russia. It has two branches, in Moscow and St Petersburg, and focuses on three main customer bases: multinationals, large Russian corporations and financial institutions. It has been particularly prominent in arranging international loan facilities for domestic banks including Unexim, Gazprom Bank and Avto. Both assets and profits rose significantly during 1997.
It is hard to separate Credit Suisse First Boston and Brunswick Warburg for best foreign securities house. CSFB has been in Russia since 1992 and now has more than 300 people in Moscow. It is one of the largest foreign bank primary dealers in Russian government debt and the leading foreign trader of GKOs. The firm believes that Russia will be one of Europe’s core markets over the next 25 years and has been a leading underwriter of international debt securities for Russian names: recent issues include a Dm2 billion Eurobond for the Russian Federation. A $500 million issue for the City of Moscow and a R700 million ($113 million) issue for the Republic of Tatarstan. These deals, and the greater importance of the debt markets this year, just give the award to CSFB.
Brunswick Warburg is the pre-eminent stockbroker in Russia and one of the principal intermediators of foreign equity investment into Russia. It also has a market-leading corporate finance and advisory business.
When Boris Jordan left the bank to set up Renaissance Capital Group (RCG) CSFB turned down the opportunity to invest in the business, and that reluctance to buy into domestic firms will remain for the foreseeable future. RCG’s merger with MFK – Russia’s fifth-largest bank by capital – to form MFK Renaissance has created the largest investment-banking operation in Russia. The merged entity is a formidable presence in local securities markets. Renaissance Capital was already the leading broker of fixed-income securities in terms of volume and variety of products. It has also set the pace in local market debt, including regional municipal bonds and veksels. James Rutter/Simon Brady
Slovak Republic
Best domestic bank: Tatra banka
Best foreign bank: Citibank
Best securities firm: Vseobecna Uverova Banka
Since last July, the Slovak Republic has been going backwards as a credit. Forthcoming elections should help to clarify the political situation, but the new government needs to solve the country’s urgent economic problems.
Tatra banka is the benchmark against which banks measure themselves in this market. Though 53% owned by Austria’s Raiffeisen Zentralbank, Tatra operates as a domestic institution and it is the largest fully private bank in Slovakia. During 1997 it grew its balance sheet by 23% and increased profits by an impressive 90% to underline its position as the most profitable bank in the country. It is at the forefront of automated retail banking, and was the first Slovakian bank to introduce telephone and internet banking.
Since opening its branch office in 1995, Citibank has steadily expanded its business. Among its landmark deals of last year was the financing for oil company Slovnaft, which it claims was the most complicated deal to come out of the country to date. The funding was needed to finance the company’s heavy petrol residue upgrade project. Citibank coordinated two loan tranches: a clean five-year tranche for $150 million, and a $100 million 10-year tranche, covered by MCM, the Dutch credit export agency.
Although essentially a corporate credit deal, because it is Slovnaft and not the project that repays, the transaction had elements of a project-finance deal because of the importance of the project to Slovnaft’s future business.
Many bankers expect to see a wave of M&A activity from the country in the year ahead. The lack of liquidity in the domestic market and the increasing cost of international funding has forced domestic companies to realize that they cannot live by debt alone. This could mean large-scale corporate restructuring, with many companies seeking foreign partners.Vseobecna Uverova Banka (VUB) is one of the country’s leading commercial banks and brokerages. The investment-banking arm was launched in 1991 and VUB was a founder member of both the Bratislava and Prague stock exchanges. James Rutter/Simon Brady
Slovenia
Domestic bank :Nova Ljubljanska Banka
Highly commended: SKB Banka
Best securities firm: Publikum
Foreign bank: Bank Austria Creditanstalt Slovenia
Nova Ljubljanska Banka and SKB Banka are the main contenders in Slovenia’s domestic markets. SKB is the largest privately-owned bank in the country and is 49% foreign owned (the EBRD and Germany’s DEG are big shareholders).
Nova Ljubljanska Banka, 92.3% owned by the state, has emerged from the ruins of the old Ljubljanska Banka as the leader in both domestic loans and deposits – with market share of over 20% – and its profitability
is improving. As the two banks signed an agreement to merge in March last year, next year’s award is likely to go to the new superbank.
Publikum has increased its market share on the Ljubljana stock exchange from 9% in 1997 to 14% in the first quarter of 1998 – both figures ahead of nearest rival CA IB Investmentbank. It is the largest member of the stock exchange and a big player in unlisted securities.
Creditanstalt continues to be a strong performer in the Slovenian market, and its position will be enhanced by the merger of operations with Bank Austria. That will push the Bank Austria group into the top 10 banks in Slovenia by market share, with five regional branches complementing headquarters in Ljubljana. James Rutter/Simon Brady
Spain
Best bank: Banco Bilbao Vizcaya
Best foreign bank: Chase
Best securities firm: Santander
Spanish banking is dominated by the rivalry between its two leading institutions, Banco Bilbao Vizcaya (BBV) and Santander. Each has enjoyed strong profitability in core Spanish banking and at the same time sought future growth by building networks in Latin America. So far this competition has been healthy as each bank has taken up the challenge initially laid down several years ago by the smaller, more retail and domestic-focused Banco Popular, to demonstrate quality management and strong financial returns.
Last year BBV grew consolidated earnings by 43%, compared with Santander’s 36.5%. BBV’s return on assets improved to 0.96% for 1997, compared to Santander’s 0.72%. BBV reported net profits of Pta130 billion ($850 million) to Santander’s Pta110 billion.
At home, both banks have benefited from a stronger emphasis on the more profitable Spanish retail sector and have relied less upon corporate lending. In addition, Santander has done better from the profitable trading and investment banking sectors into which it expanded early and quickly.
The two banks’ acquisition strategies in Latin America – which will determine victory in future – are influenced by their differing management structures. Santander is run as a benign dictatorship under chairman Emilio Botín; BBV spreads decision-making powers across a wider group of senior managers.
So in Latin America, Santander has grown faster, always going for controlling stakes in acquisitions, sometimes at the cost of taking on more risk more quickly. BBV is happy to wait for control, though sometimes from the weaker initial starting point of a minority stake.
Neither strategy is without its dangers and in the short term could threaten hard-won gains in Spain “There are both financial risks – these economies are still fragile – and operating risks,” says one analyst. “The Spanish banks may speak the language, but they do not know the local customers well.” But so far, these risks have paid off. Investors in the shares of either bank have enjoyed spectacular capital gains over the last 12 months. Both BBV and Santander reason that the Spanish market is relatively mature and that it will be hard to maintain volume gains in Spain. The challenge is to export European-style cost-to-income ratios to relatively inefficient Latin American banks, while keeping inevitable credit losses to a minimum.
The Spanish banks are keenly aware of larger strategic questions about their place in the likely restructuring of the European banking industry that will follow introduction of the euro.
Their Latin American empires may be useful and attractive bargaining chips in any merger negotiations. At its general meeting earlier this year, BBV pointedly drew attention to voting-rights limits in its own statutes restricting any shareholder to a 10% voting limit, no matter how large its shareholding. That might be regarded as a very shareholder-unfriendly message. The clear point is that the bank will not be pushed into mergers or alliances which it feels are unsuitable.
BBV’s management has also talked about potential asset swaps with other large international banks, perhaps offering to exchange stakes in its Latin American holdings for a stake in another bank’s holdings elsewhere in the world where BBV is weak, possibly Asia. It is also considering moves in southern Europe, notably Italy.
Few foreign banks have made any impact in the Spanish retail market. Among those which operate in the wholesale markets, Chase stands out as the largest and most profitable with a wide range of activities including syndicated loans, corporate finance, treasury, clearing and custody, project and trade finance and fund management. Peter Lee
Switzerland
Best bank: Credit Suisse
Best foreign bank: Deutsche Bank
Best securities firm: Warburg Dillon Read
When plans to merge Swiss Bank Corporation (SBC) and Union Bank of Switzerland were announced in December it seemed a foregone conclusion that the bank would dominate in its own back yard. Switzerland is overbanked and overbranched and a cost-cutting merger would give the new entity economies of scale impossible to compete with.
However, in domestic commercial and retail banking Credit Suisse is still the premier financial institution, not least because of its merger with insurance company Winterthur last August. It had total assets of Sfr690 billion ($460 billion) at the end of 1997.
The combined UBS vies with Credit Suisse for leadership of the domestic securities market. In 1997, Credit Suisse arranged 37% of local bond issues compared to 31% for the combined UBS/SBC. But this year, UBS’s investment-banking arm, now known as Warburg Dillon Read, has pulled ahead. It led 41% of bond issues in the first half of the year.
Private banks such as Bank Vontobel, Pictet and Lombard Odier and state-owned cantonal banks are also performing well. The cantonal banks remain strong in their prospective states holding onto a share of between 40% and 60% of that market. The largest of them is Zürcher Kantonalbank which has lead-managed $2.03 billion worth of Swiss franc issues in the past twelve months.
Deutsche Bank is a long-established foreign bank in the domestic market and it is a major player with branches in Zurich and Geneva. Unlike other foreign banks it plays an active role in the Swiss market rather than being just a global bank for Swiss corporations wanting to finance subsidiaries elsewhere. As one banker explained, Deutsche will take any Sfr100,000 customer whereas other foreign banks will only take the wealthiest. In the past 12 months Deutsche lead-managed 24 Swiss franc issues totalling $2.15 billion and it holds 5.92% of the market share for the currency.Alex Mathias
Turkey
Best bank: Akbank
Highly commended: Garanti Bank
Best securities firm: TSKB
Best foreign bank: Citibank
Akbank last won this award in 1994 (having also picked it up in 1993). Garanti Bank, winner for the past three years, is still a strong contender, and many would rate its franchise, its management, its efficient use of capital and its international profile more highly. However, when Turkish inflation falls – as analysts and foreign bankers in the country agree is inevitable – Akbank will be in a stronger position to cope.
It relies less for funding on the repo of Turkish government bonds, although its exposure has increased this year. It provides fully for its annual tax liability while other banks take advantage of tax deferral. It hasn’t yet made use of an offshore funding vehicle to beautify its balance sheet, as have Garanti and Yapi Kredi Bank. So, for solidity of results, transparency of its balance sheet and the beginning of a serious transformation into an independent banking entity, Akbank wins this year’s title of best Turkish bank.
Since 1995 Akbank says it has divested $405 million of non-financial participations – including $120 million in 1997 and another $105 million up to April this year. It has also been expanding the dollar size of its balance sheet, with total foreign medium-term borrowings of $625 million, and an offering of American depositary receipts and ordinary shares totalling around $140 million. For future years there is talk of much progress at Oyak Bank, which is owned by the Army Benevolent Fund, competing aggressively in corporate and venture-capital lending.
There is little contest for top investment banking house in Turkey, at least on the primary offering side. TSKB wins for another year. Last year it led public offerings for Vestel Elektronik, Uzel Makina, Sabanci Holding, Goltas Cimento and Koytas Tekstil. This year along with Salomon Smith Barney it led the banner global secondary offering of Is Bankasi. Although TSKB is a consortium bank owned 57% by Is Bank it has carved an independent niche for itself in Turkish banking. Despite successful raids on TSKB staff by rival banks, executive vice-president Metin Ar says the institution hasn’t suffered.
The title for best foreign bank in Turkey has long been a tussle between Chase and Citibank. Chase has tended to win because of its long track record in project finance and corporate banking. But while Chase has slowed, Citibank has doubled assets and more than doubled revenues, in the process establishing itself as one of Turkey’s prime consumer banks. It is the leader in syndicated lending, ADRs and securitization. It is also positioning itself to withstand the awaited fall in inflation. Its Argentine general manager, Dardot Saberots, saw the same phenomenon at home and is preparing Citibank Turkey for the shock. David Shirreff
UK
Best bank: Lloyds TSB
Best securities firm: Warburg Dillon Read
Best foreign bank: Citibank
In mid-May the market capitalization of Lloyds TSB – the UK’s best-run bank – hit $76 billion, putting it above NationsBank, HSBC, Citibank and any other contender. Although this may be a short-lived record, assuming the Citicorp/Travelers and BankAmerica/NationsBank mergers are completed on schedule later this year, the premium rating on the bank’s equity is nevertheless a sign of how well Lloyds’ management is performing.
The bank’s strong earnings and profitability – 1997 pre-tax earnings of £3.16 billion ($5.2 billion) equates to a return on equity of 40.8%, a record in the history of UK banking – make Lloyds a nonpareil in the UK, where retail banks are generally profitable. In a European context it is even more impressive: any bank in continental Europe making more than a 10% return on equity looks respectable and a 20% return is the mark of a real high-achiever.
Lloyds’ success results from focusing on the UK retail market and making startling successes of a series of acquisitions. It has eschewed the kind of costly and distracting expansions in investment banking which have recently embarrassed its UK rivals, Barclays and National Westminster and angered their shareholders. The modest extent of its overseas lending has also been a plus. Exposure to troubled Asian debtors is negligible and loan write-offs are minimal.
Its acquisitions of the UK’s leading low-cost mortgage originator, Cheltenham & Gloucester, and of TSB, which attracts less affluent retail clients than Lloyds itself, have both been well handled. Though Lloyds has maintained acquired brands, it has ruthlessly trimmed costs; it is now well ahead of the annual cost-savings targets published in 1996 for TSB of £400 million a year by 1999.
Lloyds has to decide what other acquisitions it might make in the UK, perhaps to fight off competition in key sectors such as mortgage lending from the old building societies. When Barclays made tentative merger advances to NatWest last year, Lloyds flexed its muscles and let it be known it would consider counter-bidding.
Bankers across Europe wonder what plans the bank has for the continent and have never tired of pitching deals to chairman Sir Brian Pitman and new chief executive Peter Ellwood. So far the bank has resisted, privately citing the difficulty for a UK bank of successfully managing a large institution in, say, France.
That said, Lloyds, with a strong share price operating in a profitable market, is optimally placed to buy European banks with lesser valuations in less profitable markets. If the euro leads to a harmonization in European financial services, an averaging out of margins and returns, it might be a good idea for Lloyds to act now. It also has to continue making a high return on an equity base being boosted by high retained earnings.
London is home to countless foreign banks who regard the city as a key centre for international banking, but surprisingly few make a real effort to capture much share of the domestic UK retail or wholesale markets.
Citibank is one which does, claiming a core bank relationship with almost every company in the FTSE-100 index. Often that springs from its widely acknowledged strengths in forex and processing. In consumer banking, it is a provider of credit and charge cards through the Diners Club brand and it also operates a large private bank in the UK. It will launch internet banking in the UK later this year in a deal which offers new UK customers of Citibank one year’s free and unlimited access to the web.
Warburg Dillon Read is a leading trader of UK stocks and lead arranger of equity offerings, including the successful recent £1.8 billion deal for Thomson Travel Group. Its UK sales and trading teams have been top-ranked in surveys of institutional investors by Reuters and Greenwich Associates. Peter Lee
Ukraine
Best domestic bank: Bank Ukraina
Highly commended: VA Bank
Best foreign bank :ING Barings
Best foreign securities firm: Alfa Capital
Bank Ukraina is the largest commercial bank in the Ukraine in terms of shareholders’ equity, assets and branches. Its accounts have met international accounting standards for four years and it was the first Ukrainian bank to deal internationally with correspondent banks. The EBRD is to take a sizeable stake in the bank and it has borrowed money in the international loan market.
VA Bank is much smaller but still provides a full range of universal banking services. It has been a joint-stock company since 1992, making it one of the more experienced banks in the country. It is also 20%-owned by the EBRD and complies with international accounting standards.
For foreign bankers in the region, Ukraine is one of the markets of the moment. Until this year it remained largely underbanked with foreign banks generally unable to gain licences.
Since the early 1990s the market has been dominated first by Crédit Lyonnais and more recently by Société Générale. While the competition was minimal, the fees were not. In turn, both banks were able to profit handsomely from their privileged position.
But by the end of this year, the situation should be radically altered. ING Barings and Citibank have recently received full banking licences, and they are set to be joined by, among others, RZB, Credit Suisse First Boston and Creditanstalt. The likely result? “Banking fees will drop off the cliff,” says one local banker.
ING has a slight head start of its rivals. It has had a representative office in Kiev for two years, and had over 40 staff in place when it received approval for a full branch operation on April 3.
Already it is showing a clear intent to eat into the margins enjoyed by the French banks. According to ING, where SocGen would charge between 2% and 4% of the portfolio value for its custodian facility, ING will be charging a mere 50 basis points.
Similarly, the bank lending market will be squeezed by competition. At present it costs a company upward of 60% to borrow hryvnya on the interbank market, but the company will net only 20% on deposits. In the near future, 10% is likely to come off both sides of that margin.
Alfa Capital has been in the Ukraine since mid-1995 and now has 130 staff in the country, making it the largest brokerage house. Alfa is a wholly-owned subsidiary of Russia’s Alfa Bank. James Rutter/Simon Brady
