Awards for Excellence 1999: Global Winners

Awards for Excellence 1999

Worldwide winners

Best bank: Chase

Best investment bank: Morgan Stanley

Most improved bank: Deutsche Bank

Most improved investment bank: Salomon Smith Barney

Best smaller bank: Garanti Bank

Best smaller investment bank: Schroders

Best bookrunner, euro and global bonds: Merrill Lynch

Best international equity underwriter: Warburg Dillon Read

Best at risk management: Deutsche Bank

Best forex bank: Citibank

Best at syndicated loans: Chase

Best at project finance: Citigroup

Best emerging-markets bank: Citigroup

Best government bond trading house: Deutsche Bank

Best eurobond trading firm: Warburg Dillon Read

Best mergers and acquisitions adviser: Morgan Stanley

Best at euro and non-dollar commercial paper: Barclays Capital

Best at mtns: Salomon Smith Barney

Best firm for equity linked: Warburg Dillon Read

Best underwriter of emerging market debt: JP Morgan

Best at bringing new issuers: Salomon Smith Barney

Best corporate bond firm: Warburg Dillon Read

Best sovereign bond house: Morgan Stanley

Best at high yield: Donaldson Lufkin & Jenrette

Best underwriter of asset-backed securities: CSFB

Best firm for research: all categories: Merrill Lynch

Best at transaction services: Citibank

BEST BANK: Chase

When William Harrison took over from Walter Shipley as chief executive officer at the beginning of June, the situation at Chase was even better than it had been 12 months before. Last year Euromoney considered Chase second only to Citibank as the world’s best bank. This year it is the outright winner.

While investment banks such as Merrill Lynch, Goldman Sachs or JP Morgan were suffering trading losses, and while management clashes between Citibank and Travelers/Salomon Smith Barney arose in the first phases of the merger, Chase was flying. The bank reported record earnings of $1.15 billion for the fourth quarter of 1998 and $3.78 billion for the full year. And the outstanding performance continued in the first quarter of 1999 when the bank turned in another record, with operating revenues rising to $5.4 billion from the $4.9 billion of the first quarter of last year.

“The key was our risk management,” says the newly appointed Harrison, who was formerly head of wholesale banking. “After the Asian crisis in 1997, the bank accelerated the introduction of more sophisticated risk-management techniques in order to reduce bank exposure. We were able to reduce risk without significantly reducing earnings opportunity.”

Stress-tester

Indeed, Chase was one of the first banks to understand the limits of the value-at-risk analysis, which works only under normal market conditions, and to adopt a stress-testing approach to risk management. Fine-tuned after the Asian turmoil of 1997, Chase’s stress-testing methodology is now so sophisticated that it allows the bank to analyze even individual trades.

With a market share of 37.6% in the first quarter of 1999, syndicated loans have once again been one of the main elements in Chase’s success. And the bank’s leadership of this market is now more significant than ever after the widespread introduction of market flex has turned this business with once razor-thin margins into a very profitable sector.

Market flex is a capital-markets approach to syndicated loans, which allows the loan manager to arrange the financing based on whatever pricing the market will bear. Adopted for the first time by Chase in a 1997 $175 million transaction for Beijing Enterprises, market flex took off during last year’s financial crisis. It was used in the $2.05 billion Federal Mogul deal for the purchase of Cooper Industries that reopened the market last autumn.

Chase has been involved in many of the most important deals of the past 12 months, including the AT&T $30 billion financing in April, which was the largest syndicate loan of all time. But it has also been using its name in the syndicated loans business to build a reputation in other banking sectors, especially in M&A where it has jumped to ninth position in the rankings.

Significant examples of this strategy have been the e22.5 billion ($23.6 billion) loan for Olivetti in March, which paved the way for the takeover of Telecom Italia, and the $9.5 billion acquisition financing for Allied Waste for the purchase of Browning Ferris Industries. In both cases Chase was not only the key arranger of the loans but was also one of the main M&A advisers.

But performances in others sectors have also been outstanding. Chase ranks fourth in high-yield and is moving fast up the league tables for high-grade corporate bonds. It is the largest provider of derivatives products in the world with approximately $10.3 billion in notional outstanding at the end of 1998 and it is one of the leading forces in the foreign-exchange business, having ranked third in our May forex poll.

In addition, Chase is an often overlooked leader in the less glamorous transaction-processing business. Its greatest strength is custody, where the bank has been market leader for the past three years and has strengthened its position by buying Morgan Stanley’s custody business in late 1998.

The next move is into electronic banking. Joe Sponholz, formerly chief financial officer of Chemical Bank, has been appointed to run a new business called Chase.com, which will coordinate Chase’s ventures in the electronic commerce sector.

This will include the Intelisys business-to-business electronic procurement operation, the Brown & Company on-line brokerage, the company’s website, its electronic bill presentment and payment operation ­ widely seen as central to competition in internet banking. Chase.com will also serve as the single point for internet joint ventures and marketing alliances, and will coordinate the shift of systems by Chase from close networks to the web. “Chase has given this project top priority because we believe the internet is changing everything we do,” says Harrison. “It is important for us to have the right framework and resources to establish a leadership position. It is important for us to have the right focus and sense of urgency to ensure that we establish leadership positions in the e-commerce world.”

The equity challenge

But what the market is most expecting is an acquisition in equity to ensure Chase’s dominance in the high-margin cross-border wholesale market. Many rumours have been circulating, some suggesting an acquisition of Merrill Lynch, others hinting at a merger with Morgan Stanley. And many observers have been saying that, as the main task of former chief executive officer Shipley was to start and finalize the merger between the Chemical Bank and the old Chase, now Harrison’s principal challenge is to merge Chase with a quality investment bank.

“We are the largest debt house in the world, but it is true we lack an equity capability,” admits Harrison. “We are always looking for opportunities. We are well aware that it is a long-term issue and that we have three options: buy, build or merge. However, we do not need equities to continue to achieve our financial objectives. At the moment, my commitment is to reach the three financial targets for the next year: double-digit earnings per share, double-digit revenue growth and a return on equity of 18%.” Luciano Mondellini

BEST INVESTMENT BANK: Morgan Stanley

Morgan Stanley wins our award for excellence as best investment bank for its balanced strength in three key areas: equity underwriting, debt underwriting and mergers and acquisitions advisory. Though its competitors may have particular strengths in one of the three ­ Goldman in M&A, Merrill in debt underwriting, for example ­ none has Morgan Stanley’s consistent strength across the board.

And it has another defining strength that is not always evident from the league tables. Through the volatile financial markets of the past year, in which equity deals have been pulled or downsized, primary bond markets have seized up and seemingly bold M&A deals have ended in failure, Morgan Stanley has tended not to mess up.

Joseph Perella, head of Morgan Stanley’s worldwide investment banking division, says: “I’ve been in this business for 29 years including time running my own firm and what amazes me is the commitment to quality of work here; it borders on obsession.” It sounds like a soft line to peddle, but Perella insists it distinguishes Morgan Stanley. “If a client says he wants to sell equity, it’s really easy for an investment banker just to say, ‘OK let’s go.’ Whether the stock sells at $20 or $15, his firm still makes the gross spread.”

The difference at Morgan Stanley, Perella says, is that it is prepared to give clients news they may not want to hear. “The first thing we will ask is ‘Can this deal get done? Should this company go to market?’ We might conclude it needs to run for another year as a private company, but the founders may be eager to float now while the stock market is hot. The client may want to raise $200 million and we may say, he can only get $100 million.”

Such analysis can be tough to stick to, if the firm is in a contest to lead an IPO in front of a company founder who just wants to hear big numbers about his prospective take and stock price multiple. But Perella says Morgan Stanley folk are uncompromising. “Our message to the client is: ‘do you want to feel good or do you want to hear the truth?'” He explains: “We want to make money but we only want to do it in a high-quality manner. So we tend to be very careful about what we say can and can’t be done. And that’s why you don’t see a lot of botched deals from Morgan Stanley.”

Perella has no illusions about how tough the business is and has little time for the great clichés of investment banking, such as the importance of relationship banking. “It’s all very noble to say you’re relationship-oriented. Some clients out there aren’t. They don’t want to go to dinner. They don’t want to play golf. They think all the investment banks are the same and just want the best-quality service at the lowest price. Sometimes they don’t care very much about the quality of service.” But he adds: “Most, however, do view advisory dialogues on a longer-term relationship-oriented basis, as we do.”

Nor is Perella particularly concerned by the intricacies of matrix management of industry experts, product people and country managers. The firm moved some time ago to global businesses ­ there is no German telecom effort, there is a global telecoms group ­ but there are no hard and fast rules about who takes precedence with clients. “The person with the best contact and most credibility at a client isn’t always the industry person. Sometimes it’s the product person, or the country person: it varies.”

While Morgan Stanley is renowned for some very strong industry specialist investment banking groups, most notably in technology, these are informally linked to the rest of the firm through a network of “buddies” in the product groups. The technology group will have designated buddies in areas such as equity capital markets and mergers and acquisitions. These individuals, who have other responsibilities as well, take the first call when the industry team has a client that wants to do an IPO or a takeover. Perella insists: “This is not a complicated business. The hard part is getting very intense, motivated individuals to work together towards a common goal.”

As for deals that best exemplify Morgan Stanley’s strengths: Perella mentions advising Amoco on its sale to BP (a deal worth $55 billion) and then BP Amoco on the acquisition of Arco for $32 billion; the £606 million ($975 million) IPO for real-estate group Canary Wharf.

But his personal favourite is the work the firm did defending Gucci from a creeping takeover by Bernard Arnault’s LVMH. Perella had known the equally acquisitive French tycoon François Pinault from his days at Wasserstein Perella, having worked with him on acquisitions of Christie’s and Chateaux Margaux. Perella visited Pinault in Paris and asked how he might like to work with Gucci chief executive Domenico De Sole and creative director Tom Ford (Gucci had been an old Morgan Stanley client, since the days of its flotation in 1994). The result: 10 days later Pinault-Printemps-Redoute invested $3 billion in a 42% stake in Gucci, diluting Arnault’s stake in Gucci to 20%. Morgan Stanley lent Pinault the money to buy the stake and began refinancing that bridge loan last month by leading a e920 million convertible bond for PPR. “The convertible had a 32% premium. We launched it at 7.30am and closed the books at 1.15pm and were three times oversubscribed,” says Perella with pride.

He cannot resist one dig at LVMH, which bitterly contested the sale of the 42% Gucci stake to PPR in the Dutch courts ­ Gucci being incorporated in the Netherlands ­ and lost. “In the end, Arnault resorted to using three investment banks to fix the situation,” says Perella, “and didn’t manage to.” Peter Lee

MOST IMPROVED BANK: Deutsche Bank

Last year was a difficult one in which to raise profits and expand in new markets. So Deutsche Bank’s performance was particularly impressive. Faced with the twin challenges of the euro and the global economic slowdown, Deutsche not only held on but excelled. It raced up the league tables in virtually all the major product areas and became the bank of choice for all things euro-related.

This year Deutsche’s rise in league tables across the board was dramatic. It has cemented its position as a top-tier universal bank. In Euromoney‘s Poll of Polls in January it climbed to third place from sixth in 1997 for overall underwriting, trading and advising. In overall bond trading by volume it moved from third place last year in our May poll to top position. It has been the top bank in almost all investment-grade credit categories, short- and long-dated maturity buckets and leads in most euro-zone government bond categories. Borrowers voted Deutsche the second-best bank in terms of overall capital raising in Euromoney‘s global financing poll.

In foreign exchange, Deutsche vies for top position. Citibank is still first in the league tables but Deutsche is nipping at its heels. It is closing the gap and there is now less than one percentage point of market share between it and Citi. (Deutsche has 7.12% compared with Citibank’s 7.75%.) The euro has given it an extra edge this year. It is top of the league tables in all the major currency pairs involving the euro and on the trading side it is considered the best in euro transition, advice and research.

Euro strength

The single currency has been an opportunity for Deutsche to demonstrate its position as a leading European investment bank. The potential loss of a home market has made it important for European banks to establish themselves quickly as the bank of choice in the new currency. Deutsche Bank is leading this trend, and not only in foreign exchange and trading.

In the first half of this year it led 217 euro-denominated deals worth a total $42.7 billion, well ahead of any other bank. Key deals include a €750 million, seven-year deal for Japanese corporate Nippon Telegraph and Telephone, a €1 billion deal for German state Hessen, and a e1 billion seven-year deal for Philip Morris Finance, the US tobacco company’s finance vehicle.

Deutsche’s investment-banking business has undergone two fundamental transformations in recent years. Four years ago its wholesale-banking operations and new investment-banking business demanded an influx of new people and a new approach to business. The resources and systems are now in place and product areas are beginning to swell. “Our ambition is to be the top European investment bank,” says Josef Ackermann, head of Deutsche’s global corporates and institutions division.

It is not enough for Deutsche to be number one in Europe, however ­ its acquisition of Bankers Trust last December will strengthen its US operations, giving it a new platform to work from. The merger has added industry expertise, strengthened research capabilities, increased the bank’s assets under management and expanded its high-yield and leveraged-financing business.

Last year Deutsche was restructured into a hub-and-spoke organization. Five independent group divisions are connected by a corporate centre and each is run by a board member who is assigned full accountability for the business and is expected to integrate fully different strands of its operations. The investment-banking division operates as a team rather than as separate competing desks. Deutsche reckons that although lip service is paid to this approach by other banks they have not implemented it as thoroughly as it has done.

Starting from scratch

The new Deutsche structure faces opportunities and possible pitfalls. “We are starting from scratch,” says Ackermann. “We can create a vision that is new. However, because we do not have as long a track record as the global corporates and institutions group, it might take us longer to convince new clients of our capabilities.” Deutsche continues to rise overall but its penetration of Asian and other emerging markets is still relatively weak.

Deutsche’s move from being an old-style German-focused bank to the top tier of investment banking is well under way and the whirlwind of change over the past four years has pleased Deutsche Bank’s management.

But it has shocked them as well. “We are pleasantly surprised how quickly our initiatives have come to fruition,” says Saman Majd, managing director and global head of OTC derivatives and fixed-income governments. He heaps praise on Edson Mitchell, head of global markets at Deutsche, for this. “His clear goal is to get there and to get there quickly. There is a sense of urgency that he creates.” Alex Mathias

MOST IMPROVED INVESTMENT BANK: Salomon Smith Barney

After almost a decade, Salomon is back on top. In the 1980s Salomon Brothers dominated the financial markets with its star traders. By 1991 Salomon was said to be the world’s most profitable corporation per employee.

But after a treasury bond rigging scandal in 1991, the 1990s have been a roller-coaster period for the US investment bank. With size becoming increasingly important in the banking business and merger-mania spreading through all sectors, Salomon became first part of the Travelers group in September 1997 and then a member of Citigroup following the merger between Travelers and Citibank in October last year.

Opinions on Wall Street and in the worldwide financial community differed over whether this mega-merger was the most-inspired banking alliance for decades or a wild gamble that would destabilize two of the strongest franchises in the world. Those who backed the deal suggested that Citibank and Travelers had large operations with little overlap and that if Salomon Smith Barney was able to sell investment-banking services to Citibank’s huge client base, then the potential for revenue growth would be enormous.

On the downside, detractors argued that it would be difficult to merge the three different cultures: Travelers, with its culture of employee share-participation; Citibank, with its powerful country heads and commercial-banking expertise; and the investment bankers at Salomon Smith Barney. But also they suggested that the bank is just too big to manage.

Work in progress

One year on it is still too early to judge and a figurative work-in-progress sign is still hanging on the doors of the three institutions. Indeed, there were reports of management clashes in the first stages of the merger last autumn, although Ron Freeman, Salomon Smith Barney Europe’s joint chief executive, denies this. “On the contrary, Citibank’s Europe head, Ed Holmes, like myself is a McKinsey alumnus. We immediately found we saw things in the same way: Europe’s engaged in continent-wide restructuring to meet the standards of the global financial markets and its equity culture,” says Freeman, who worked for the world’s most prestigious business-consulting group at an early stage of his career from 1967 to 1973 before joining Salomon Brothers New York corporate-finance department.

Whether as a result of the merger or not, Salomon Smith Barney’s performance over the past 12 months has been impressive, especially in bonds.

The bank jumped from eighth position to third in the Capital Data league table for bookrunners of all international bonds over the past 12 months, for an amount of almost $82 billion against $45 billion the previous year. In the same period Salomon has also been the bank that has brought more new issuers than anyone else to the international market (40). And it posted an excellent performance in the MTN sector, winning Euromoney‘s award for excellence in both of these categories.

Charles Berman, Salomon’s European head of debt capital markets, praises his team for the success and explains that the achievements of this year are not a surprise. “Mega-deals such as AT&T and Conoco do not happen every day,” he says. “But the overall result is really the product of the efforts of the past four years. After a very difficult 1994 and 1995, we developed a strategy for a sustainable and profitable business largely based on organic growth combined with selective hiring. We put our trust in some young people from a variety of backgrounds and they have done very well and are now our senior originators and producers.”

The $8 billion AT&T and $4 billion Conoco global bonds have been Salomon’s biggest deals of the past 12 months. Launched on March 22, the AT&T deal broke all records and overshadowed the dollar markets for weeks, becoming not only the largest bond ever issued by a corporate, but also, with $16 billion in total orders, the largest book of interest ever accumulated for a corporate deal. The Conoco deal, launched in April, was not quite as large but the bond’s order book totalled an amazing $15 billion.

Growing fire power

After the merger with Citibank, Salomon now can boast one of the biggest sales teams in the market. “While Citibank was not huge in fixed income, they had some real pockets of excellence such as Italy,” says Berman. “We now have 11 salespeople covering the very important Italian market and two-thirds came from Citibank.”

Putting together new hires and people coming from Citibank, the department has grown from 65 employees to 117 in the past 18 months. With such fire power, Berman doesn’t hide Salomon’s ambitions for the future. “In the last few years we were up and down between fifth and 10th in the league tables,” he says. “Over the last 12 months we have made a big leap forward and now our ambitions are clearly to maintain a top-three position overall in international bonds.”

But Salomon’s growth strategy does not stop at bonds. Freeman is confident that the merger with Citibank will increasingly boost Salomon’s equity and M&A business. “The Citigroup merger added a long list of investment-grade corporate relationships and an excellent corporate coverage team on which to increase our M&A and equity business,” he says. Over the past 12 months, Salomon has been involved in 306 M&A deals worldwide. Salomon acted as adviser to GTE corporation last July when it was purchased by Atlantic in a $71.3 billion deal. Salomon advised the buyer in Global Crossing’s $51 billion acquisition of US West last May.

Equity commitment

In the equity business, Salomon’s increasing commitment to Europe deserves a special mention. Michael Lavelle, head of European equity capital markets, highlights three major deals in which Salomon was involved in July 1998 alone: the $811 million IPO for the French telecoms company Equant, the $890 million secondary offering for Banco Português do Atlântico and the $1 billion rights issue for Spain’s Banco Central Hispano.

Since the turn of the year, Salomon has arranged important deals such as the $355 million secondary offering for Norway’s Christiania Bank in March and the $170 million capital increase for Austrian Airlines in April. But some of the most important deals are still in the pipeline. Three big issues are going to be priced in the first half of July: the $5.5 billion capital increase for Spain’s oil giant Repsol on July 6, the Crédit Lyonnais $3.5 billion IPO on July 8 and the $1.5 billion secondary offering for Greece’s telecom operator OTE on July 12.

Freeman reckons that European M&A, equity and high-yield businesses will continue to soar and will come to rival the US market in size. For this reason, Salomon has reinforced the senior management at the European headquarters in London and reaffirmed its commitment to Europe. In a decision announced on March 30, Michael Klein and Ed Miller, both managing directors and members of the investment bank management committee, have been named to co-head European investment banking. With this move Ron Freeman, who previously ran the European investment banking group, has been left free to expand his CEO responsibilities and to join the other co-CEO Jim Boshart in running the overall European operations.

When asked what is going to be Salomon’s main weapon allowing it to conquer Europe, the newly arrived Michael Klein says: “With all due respect, no investment bank in the world can boast a line-up of senior professionals like ours.” LM

BEST SMALLER BANK: Garanti Bank

Garanti Bank is an institution with a vision. It may be unusual but it works. At Société Générale’s conference in London last month, “Jewels from the Baltic to the Mediterranean”, the executives’ presentation to investors was unlike any other. An introductory video emphasized the bank’s commitment to serving the customer, superior staff training and the environment. It highlighted its commitment to its customers ­ it opens at lunch breaks and on Saturdays ­ and its commitment to the environment ­ it won the United Nations Global 500 Environment Award for its recycled chequebooks.

Garanti has been a major player in Turkey for many years, but this year it has inched even closer to its competitors. In terms of assets and equity among private-sector banks, last year Garanti was the fourth-largest Turkish bank. Its total assets in 1998 reached $10.3 billion, which was 29% more than the previous year. It has been steadily ­ and more quickly than the other top-tier Turkish banks ­ gaining market share in the past 12 months. Market share has risen from 6.5% to 8.9% in asset terms.

Garanti Bank excels in its operational efficiency and its low level of non-performing loans. The bank’s operational costs last year were only 6.5% of its average-interest-earning assets, compared with an 8.6% average in the sector. Non-performing loans (NPLs), which are rising in Turkey because of deteriorating asset quality, stand at 1.3% of total loans at Garanti Bank compared with a 7.2% average in the Turkish banking sector. Garanti has kept a strict provisioning policy: unlike with some Turkish banks, loan-loss reserves fully cover all Garanti’s NPLs.

Garanti calls itself a “house bank” to emphasize its commitment to its customers, rather than its profits. “Other banks want to make money. We believe we serve clients,” says Akin Ongor, Garanti’s president and chief executive officer. This does not sacrifice profits. It ranks second in the world in terms of return on capital and fourth in terms of return on assets with a paid-in capital of TL40 trillion ($97.2 million).

The bank has a full range of commercial banking services and 227 branches. It has subsidiary banks in the Netherlands and Russia and branches in Luxembourg, Düsseldorf and Malta.

It does not have the largest branch network of its banking peers, but it compensates for this with its extensive branchless banking services. Electronic banking and e-commerce have been a key factor in the growth of the firm and Garanti was the first bank in Turkey to provide these services. Last year 35% of its banking transactions were from ATMs, internet and telephone banking. $25 million is invested in technology each year.

Western standards

Garanti Bank has worked hard to adopt western standards of banking. It was the first bank in Turkey to break into the mid-market credit card business when it launched the Acik-Open credit card in September 1997 to middle-income Turks. 400,000 credit cards had been issued by the end of last year, and the bank hopes to reach the one million mark by 2001.

In January, Garanti, with its parent company, acquired 57.5% ownership and 62% control of supermarket chain Tansas for $120 million. It will introduce co-branded cards and in-store banking to the branches to build synergy with Garanti operations and strengthen its balance sheet.

Garanti is 79% owned by Dogus Holdings, a diversified and privately owned conglomerate that operates in financial services, construction, food processing, passenger car distribution and leisure. But the bank’s operations are not compromised for the good of the group. “We are the only bank in Turkey where the shareholder doesn’t have any roommates, classmates or neighbours in the bank,” says Ongor. “We are there because we are good.” Its competitively high credit ratings, excellent profits, and the high quality of its employees support this claim.

The executive board say Garanti’s culture of teamwork, leadership and its ethical approach to the business is the key to the bank’s success. It is, according to them, what makes the bank unique in the Turkish banking sector and will be the catalyst for success in the future. “It is opposite of the general culture of the country,” says Ongor. AM

BEST SMALLER INVESTMENT BANK: Schroders

David Challen, chairman of Schroders’ investment bank, J Henry Schroder, is not greatly impressed that Euromoney has named his institution as best smaller investment bank. Schroders, he points out, operates in Europe, the US and Asia, is a leading M&A adviser and has a large and growing share of equity underwriting business.

Schroders’ income from investment banking in 1998 was £525 million ($845 million), an increase of 14% on 1997 in spite of losses in Asia that forced the bank to make provisions of £63 million. Its asset-management operation had £119 billion under management at the end of 1998. And unlike some large asset managers, which handle large volumes of government bonds, most of Schroders’ assets under management are equities.

A family affair

But by one important measure Schroders is very different from most other international investment banks: it is still controlled by family shareholders. “Continuity of ownership creates a feeling of being settled,” Challen points out. “It leads to a continuity of people; we don’t have the same turnover of staff that some other investment banks do. And clients appreciate knowing that the firm they deal with tomorrow will be the same firm they know today.”

Family owners can also, he claims, be even more jealous of their capital than public companies. “We are mean with our capital. That is one reason that we take few proprietary trading positions. The other reason is that it helps us to avoid conflicts of loyalty with our clients. It plays to our strengths, which are in giving good independent advice.”

M&A advisory is at the core of Schroders’ investment-banking business. In 1998 it advised on deals with a total value of over £60 billion. Most recently, for example, it advised Hicks Muse Tate & Furst on the acquisition of UK food producer Hillsdown and advised Cable & Wireless on its acquisition of Japanese telecoms company IDC. “That was the first contested takeover of a Japanese company by a foreign buyer,” says Challen, “in the sense that there was more than one bidder for the company. It is a deal which shows the importance of having people on the ground who have a good understanding of the market and the rules of the game.”

Many of the M&A deals Schroders has advised on recently involve blue-chip UK names: BAT’s acquisitions of Rothmans’ minority interests in Singapore, for example, or Bass’s acquisition of Intercontinental. But Challen insists that the firm has strong relationships with companies in many countries, not just those based on its home turf.

In the case of the Intercontinental purchase, for example, the seller was Saison Group, a Japanese family-owned company with which Schroders has a good relationship. Japan has become an important element of the firm’s international strategy. Challen says he visits the country about twice a month, a claim borne out by the fact that his business card is printed in Japanese as well as English. Schroders, which has a strong investment-banking operation in Japan, is building its presence in asset management in the country in response to the deregulation of the country’s pensions industry.

European expansion

Other than in Asia, where the firm has deep historical roots, Schroders is most active in the UK and several large European countries. “Initially we found France and Germany difficult,” says Challen. “But in the past three or four years we have made excellent progress. We are advising Crédit Lyonnais on its privatization, for example, which shows that we can compete with the very best firms in France and we have a similar strong position in Germany.”

Poland is another success story. “When what we used to think of as the eastern bloc was liberalizing we sent a director to the region,” recalls Challen. “His conclusion was that Poland should be a priority for us. That decision, based on such criteria as the size of Poland’s population and its industrial tradition, contested the conventional wisdom of the time which was that Czechoslovakia and Hungary were going to provide the principal business opportunities in the region. And it proved to be the correct decision at the time. Now we are busy throughout the region.”

That early investment paid off in a big way with the privatization of Poland’s telecoms company, Telekomunikacja Polska (TPSA), last year. Schroders advised on the privatization and also led the Z2.4 billion ($700 million) equity offering.

Schroders has made significant strides in recent years in building its profile in equity underwriting and distribution. According to data from Capital Data Bondware, it ranked 31 worldwide for equity underwriting in 1996, moved to 18 in 1997 and to 14 last year. In 1998 Schroders led, or co-led, equity issues worth a total of $27 billion.

But Challen believes that the bank’s strength in equities needs to be measured by more than just overall deal size. Its equity research, he points out, is well regarded by the investment community.

And Schroders has been slowly building its on-the-ground presence in a number of markets. In France, for example, it recently recruited a well-regarded securities team from Merrill Lynch. In Spain it bought Carnegie España, the stockbroker owned by the Nordic investment bank Carnegie, in 1996.

Its Italian equities operation is one of Schroders’ biggest in Europe. In the past 18 months, for example it has led such deals as the L323 billion ($185 million) offering for motorway service station group Autogrill in June 1998 and the L1.3 trillion secondary offering for Banca Nazionale del Lavoro in October. It is now working on the IPO for Italy’s oldest bank, Monte dei Paschi di Siena.

Schroders also has equity distribution capability in the US. It was involved in three of the largest equity issue of the past year, including the spin-off of Conoco from Du Pont and the flotation of Delphi from General Motors. The third big deal was the IPO of Goldman Sachs. “We were chosen to work on that deal as a result of our distribution capability in the US,” says Challen. “And we did better than most at selling the Goldman issue.”

The two other main elements of Schroders’ investment-banking operation, other than corporate finance, capital raising and securities, share a focus on providing advice while putting at risk as little as possible capital.

Project finance is perhaps the most global of Schroders’ business areas, and the focus is on helping project borrowers structure financings. “Our involvement in project finance is not as a lender,” says Challen. “In fact a key part of what we do is showing clients how to get the best deal out of the providers of finance.”

What Schroders terms the financial markets group advises clients on structuring large debt facilities, especially using derivatives, and also takes on some principal risk. Typically, this work involves a client with a large and complex funding need, such as a company making a big acquisition.

Operating at something of a distance from the rest of the investment bank is the private-equity business, Schroder Ventures. As is standard in this industry, the firm operates as a partnership in which Schroders has a minority stake. It has taken investments in buy-outs including the Swiss-German retailing group Vögler, of which it has just realized part of its investment. The firm’s investments total some $3.5 billion in equity, considerably leveraged with debt.

The biggest challenge for the future, according to Challen, is to build Schroders’ US operation. “We need to create an American operation which is wholly aligned with the focus of the rest of the investment bank,” says Challen. “And while the US continues to be the most active marketplace in the world we need a larger presence there and one which meets the growing need for the sort of independent advice which is our speciality.” Michael Peterson

BEST BOOKRUNNER, EURO AND GLOBAL BONDS: Merrill Lynch

With the financial market in turmoil for the best part of the past 12 months, Merrill Lynch deserves praise not only because it has arranged more deals than anyone else ­ 222 to the end of May ­ but also because it has been involved in the most important deals of the year.

The $8 billion AT&T bond launched on March 22 has been the most impressive. Launched in three tranches of five, 10 and 30 years, the deal, which Merrill led alongside Salomon Smith Barney, broke all records. The original issue was planned between $5 billion and $6 billion, but was increased first to $7 billion and then to $8 billion, making it the largest bond ever issued by a corporate. With $16 billion in total orders, the bond also received the largest book of interest ever accumulated for a corporate deal.

Merrill has been very active outside its own home market. In March it arranged the NTT $500 million bond that reopened the Japanese corporate market after the autumn crisis. And in spring 1999 Merrill was involved in the two bonds ­ one at e3.25 ($3.12 billion) and another at e1 billion ­ launched by Spain’s oil and gas giant Repsol to finance the acquisition of Argentina’s oil company YPF.

“But the most satisfactory one has been Sicily,” claims Paul Richards, managing director of European syndicate. “That was the impossible deal. Everybody considered it impossible but we did it and we did it well,” he says. Indeed, the Italian region has had serious funding problems in the recent past. Forced to find almost the equivalent of $1 billion to fund its balance-sheet losses, the regional government tried to raise the money the first time in November through a syndicated loan and then in December with private negotiations. But both attempts failed because Sicily was considered too risky and unstable politically.

Merrill took the gamble this spring and arranged a two-tranche 10-year deal launched on April 14. Having noticed the lack of confidence of domestic investors, the bank changed strategy and promoted the issue first to foreign investors. The result was that both tranches were increased and the bond posted a huge success. The originally planned €300 million floater was increased to €433 million and the fixed rate was increased by €10 million from the original €200 million. “It went so well that Italian investors came back, after they noticed its success abroad. It was a restoration of a name,” says Niall Cameron, director of European syndicate.

After the autumn crisis, activity has now returned to normal levels and Merrill’s volume of issuance since the turn of the year has already reached 80% of the 1998 total.

Cameron attributes Merrill’s success to three main things.

“First, we are always very straightforward both with investors and issuers. We always try to find opportunities for both and we always tell them what we think is the best way to do a deal and never what they want to hear to win the mandate. Second, investors know they can find everything they need at the most competitive level when they come to Merrill Lynch: MTNs, advisory and swap capability, distribution, research. Third, we treat the smallest and biggest deal with the same accuracy,” he says.

When asked about innovations and guidelines for the near future, Richards has no doubts. “Once again we demonstrated that to be the best, we have to keep working as we always did and follow the informal motto of the department: ‘Get the deal. Do it right’,” he says. LM

BEST INTERNATIONAL EQUITY UNDERWRITER: Warburg Dillon Read

For UBS as a whole the last months of 1998 were quite traumatic. The resignations of former chairman Mathis Cabiallavetta and three other senior managers came in September after the bank’s massive losses in the LTCM affair. But in the same period Warburg Dillon Read, UBS’s investment-banking arm, was posting an astonishing performance in equity underwriting.

With emerging markets in turmoil and the US market virtually closed for most of the autumn, international equity issuance was driven by the European market and nobody was exploiting this situation better than WDR. With deals in Portuguese escudos, French and Swiss francs, Greek drachmas, Italian lire and Austrian Schillings, WDR was present all over Europe.

The $6.4 billion Swisscom deal of last October was definitely the most important. “It was very big and we did a very good job right in the middle of the market crisis,” says Rory Tapner, global head of equity capital markets at WDR in London. Split into four tranches, the deal met with immediate success. The Swiss government managed quite easily to sell 30% of its shares in the company and reduce its stake from 100% to 70%.

Although Europe is the main market for the bank, WDR’s equity underwriting business is organized on global lines with main offices in London, Zürich, Tokyo, Hong Kong, Sydney, New York (US domestic business) and Stamford, Connecticut, where all the international US business is done.

An issue for Japanese telecommunications company NTT has been the main deal outside Europe. Alongside Goldman Sachs and Daiwa securities, WDR was global coordinator of a $7.3 billion offering that in December offered investors worldwide 5.52% of the Japanese telecommunication company ­ the largest ever Japanese privatization offered globally.

Three smaller deals have stood out from WDR’s equity underwriting activity since the turn of the year. In February WDR advised on the complex restructuring of US telecom Sprint and successfully led the $702 million offering of Sprint PCS tracking stock, which was three times oversubscribed. And in the same month, the bank advised on a $120 million IPO for US IT company Perot Systems. The transaction was the largest IT services company IPO to price in the past two years. The price range was raised twice, and eventual demand exceeded 40 times the original offering, which permitted WDR to increase the deal size by 20%.

The third deal was done in April for Canadian paper company Abitibi Consolidated, where WDR acted as sole underwriter and book-runner. Fully oversubscribed before the opening of trading, the C$642 million ($437 million) offering is the largest bought deal underwriting commitment by a single investment dealer in the history of the Canadian equity capital market.

The slowdown in the market is due to change very soon. “I think it depended on market conditions, it has been the most difficult market since 1994,” says Tapner. “But after the summer I’m expecting an incredibly busy second half of the year, especially September and October. Nobody will wait until the last months of the year when the implications linked to the Y2K will slow down the market again”.

When asked which sectors are most likely to drive the market in the next few months, Tapner has no doubts. “They will be telecom, technology, banks and insurance once again,” he says. LM

BEST AT RISK MANAGEMENT: Deutsche Bank

Deutsche Bank reinvented itself four years ago, turning from commercial to investment banking. Besides needing new technology, new areas of business, and restructuring, it needed a model to work from that could be at the hub of its business. What could modernize its product offerings and inject a new more energetic way of thinking? The answer for Deutsche is derivatives, which, as Saman Majd, managing director and global head of OTC derivatives and fixed income governments at Deutsche Bank in London puts it, “lie at the heart of the global markets machine”.

“It is that derivatives thinking more than anything else that is vital to our success. It gives us a problem-solving approach,” says Majd. Structured products span more territory all the time and a broad derivatives knowledge provides flexible solutions for clients and cleverer ways to handle their risk.

Deutsche’s derivatives operation enhances many other product areas. It has always aimed to become more than an exotic options boutique or a stand-alone business in a larger institution. It has focused on aligning every strand of business globally. Structured exotic forex, bond options and credit derivatives all cross over different product lines and derivatives expertise enhances them all. “Sophisticated risk management products quickly become widely used elsewhere in the market. Our track record of innovation in this field gives us an edge,” says Josef Ackermann, head of investment banking at Deutsche Bank in Frankfurt.

More than half of the global management committee have a strong derivatives background but they can be found heading quite different areas in the bank. Anshu Jain, who heads the global sales force, came from Merrill Lynch’s derivatives team. Edson Mitchell, who heads global markets, also came from Merrill Lynch where he paved the way for equity derivatives.

A few years ago Deutsche was known for its size but not necessarily for its nimbleness. Its derivatives expertise is set to change its image. It is hoped its acquisition of Bankers Trust, which is nicknamed the “architect of innovation”, will further enhance Deutsche’s new approach and will combine two of the largest trading portfolios in the industry. BT Alex Brown won best derivatives house in last year’s Euromoney awards for excellence for its innovative and highly structured derivatives solutions. Bankers Trust also took the best risk adviser award last year.

Although Bankers Trust gave it a significant boost, Deutsche had already pushed itself into the global elite in its own right before the two banks merged. In the past three years it has become a top-tier player in the derivatives market. Its revenue has increased five-fold in that time. Last year Deutsche conducted more than 45,000 transactions with around 4,000 counterparties. Its notional volume in derivatives last year was Dm6.9 trillion ($3.7 trillion) and will likely exceed $5 trillion following the merger with Bankers Trust.

Deutsche provides more than volume, it is also innovative. With credit risk being a hot topic in Europe many clients are looking into sophisticated structured plays. Deutsche is ready with ideas. Credit derivatives is still a new area of business but Deutsche has already pioneered several structures. One structure takes advantage of attractive spreads over Libor in the Danish mortgage market for US hedge funds. The Pfandbriefe market was offering 0% risk-weighted bonds at Libor minus five basis points and the Danish mortgage market was offering 20% risk-weighted bonds at Libor plus 50bp. Deutsche swapped Danish krone fixed-rate mortgages into balance-guaranteed floating Deutschmark assets. The investor can buy a 20% risk-weighted asset at an attractive spread over Libor while Deutsche takes the forex and prepayment risk. It has also created long-dated foreign exchange/interest rate hybrid products such as the Bermuda callable power reverse bond, synthetic investment products such as German synthetic gilts, and other structures ranging from stripped convertibles to dual tax treaty transactions.

The amount of risk Deutsche will manage for its clients also makes it attractive to clients. Credit risk is attracting huge institutional demand at the moment and Deutsche is poised to provide the support its clients need. When Société Générale completed a $2.5 billion credit derivatives transaction based on a portfolio of corporate credits Deutsche Bank took on most of the risk. It was a landmark deal to show that OTC transactions are beginning to challenge securitization for balance-sheet management.

Deutsche is now unarguably impressive in what it has achieved in risk management and is firmly placed in the top tier. The management staff do not see this year as remarkable though. For them it is just another step along the way to their aim of being the best European investment bank. It was in 1995 and 1996 when the derivatives team was at its most explosive ­ when it was in its infancy. “We went out on a limb and embarked on an ambitious programme,” says Majd. “The fact is that 1998 is just part of what we believe will be continuing improvement.” AM

BEST FOREX BANK: Citibank

Foreign exchange has been one of the banking business more directly affected by the introduction of the euro and the sector has gone through radical changes over the past 12 months. The disappearing of many intra-European trades had a huge impact on the business and the volumes are getting lower and the pie to share has become smaller. But when it comes to awards of excellence, no sector can boast longevity and tradition as foreign exchange can.

For as long as anyone can remember, Citibank has been the world’s biggest forex dealer and the bank was once again cited as the top foreign exchange bank for the 21st time in Euromoney‘s annual forex poll ­ achieving the first position for every year of the survey.

But this year Citibank has done even better. It has not only topped the overall league table, but also swept its competitors away in many of the specific rankings that make up the poll. Citibank’s performance has been impressive in the emerging markets where the bank was awarded the best dealer ranking in each currency.

“Our network of treasury operations in the emerging markets allows us to provide our clients with a clear picture of each local economy and that is particularly useful in times of market disruption and tension,” says Richard Moore, European foreign exchange manager at Citibank in London.

Citibank has also improved its position in the heartland of global finance. It has ousted HSBC and Chase as best forex dealer in London and New York, ranked fourth and best of the foreign banks in Frankfurt and jumped from the sixth to the fourth position in Tokyo.

Worldwide dealing

There are two main reasons for Citibank’s success, according to Moore. “Our ability to deliver globally consistent pricing, execution and advisory service 24 hours a day is the key,” says Moore. “In support of this goal we maintain dealing rooms not only in the major regional centres of London, New York and Singapore but also in Sydney, Hong Kong and Tokyo”.

An annual customer survey conducted in face-to-face meetings, by telephone and by a postal questionnaire has been the central tenet of Citibank’s forex strategy for the last years. “Simply asking our clients what they expect and require from their FX banks has proved a highly effective way to manage and direct our business,” says Moore.

After the introduction of the euro, Citibank’s competitive position is likely to become increasingly strong in the future. Citibank has always found it hard to compete with European domestic banks in their own particular currencies, but with the elimination of the majority of the most important intra-European trades, the situation has created a level playing field. “The advantages traditionally associated with providing specialist local currency advice disappeared on January 1 in the 11 participating countries,” he says. LM

BEST AT SYNDICATED LOANS: Chase

No deal signals the new pre-eminence of the syndicated lending market better than the €22.5 billion ($25 billion) loan raised by Olivetti in March to finance its purchase of Telecom Italia. Two years ago the syndicated loans market was a commoditized business in which few participants made much money. Now it is a big fee earner for many banks. The Olivetti facility, for example, offered fees of 175 basis points on top of a 225bp margin. No longer is this a market in which too many providers seek out too few deals and make commitments for slim margins. Now it is the only market where companies can raise the truly huge amounts they need to finance the bold, leveraged acquisitions which are currently in vogue.

“Recently, we have seen the largest syndications ever, including the Olivetti financing and the $30 billion deal for AT&T,” says Peter Gleysteen, global head of syndicated finance at Chase. “These deals redefined the parameters for acquisition financings. They also demonstrate the step-shift increase in scale for loan-financed cash bids available to companies for strategic acquisitions and growth.”

And no bank is doing better out of this healthy market than Chase. The firm arranged the Olivetti loan along with Lehman Brothers, Donaldson Lufkin & Jenrette and Mediobanca, but is widely credited as the bank which did most to drum up interest in the deal. Chase has long been stronger in the domestic US market than in the Euroloan market, but increasingly these big deals are being distributed on a global basis. That plays to Chase’s strengths.

Says Gleysteen: “The Olivetti loan demonstrated we now have a single global market whose liquidity could be brought to the doorstep of an Italian company to finance their lira tender offer for another Italian company, indeed one of unique prominence. It was a financing that was possible only because it was conceived and executed in the global loan market, not in the Euro or Italian market. This has definitively become a global market.”

More recently, Chase has been working on a £585 million ($930 million) leveraged loan to finance the buy-out of AstraZeneca’s specialty chemicals business by Investcorp and Cinven. The deal, which was expected to be completed in late June, is significant not only because of its size but because it has attracted a significant number of non-banks as investors for the first time. Chase has seen strong demand for the loan from US mutual funds.

In the first five months of 1999, Chase was the leading arranger of syndicated loans by a considerable margin. Worldwide, it led 208 deals worth almost $70 billion in the first five months of 1999 according to Capital Data Loanware.

The bank has also led the way in establishing new market practices. In late 1997 and early 1998, bank appetite for loans decreased as many banks, particularly those from Japan, withdrew from the market. That pushed up lending margins and allowed loan arrangers to introduce as standard practice in the market something which they had long desired but which was largely impossible in a borrowers’ market. This practice, usually known as market flex, was pioneered by Chase: it consists of a change to the wording of loan documentation which gives arrangers greater flexibility to decide the final price of a loan in response to market conditions.

“The last 12 months have probably been the most eventful year in the loan market ever,” says Gleysteen. “This period has included an abrupt market change in the fall of 1998 when the loan market was still able to provide liquidity to major borrowers, not withstanding the almost complete shutdown of other markets.”

BEST AT PROJECT FINANCE: Citigroup

When Citibank and Salomon Smith Barney announced their intention to merge in early 1998, many rivals were sceptical of their claims that the combination would produce synergy and opportunities for cross-selling.

But in one area at least, the benefits of the merger are now becoming visible. In project finance a single operation has been forged which marries Citibank’s traditional strength in loan financing and emerging market projects with Salomon Smith Barney’s prowess in bond distribution. At the end of 1998, for example, Citibank arranged a $300 million loan for a Colombian telecoms project, Comcel, while Salomon Smith Barney led a $285 million bond issue for the project in the US high-yield market.

Citigroup’s head of project finance, Christopher Beale, joined Citibank four years ago as the bank was developing a strategy to dominate the project-finance market. The bank’s various project finance operations were unified and it began to work on improving areas where it was traditionally weak. In project bond underwriting, for example, Citibank went from nowhere to number one in the league tables in only a few years.

Salomon had a more limited involvement in the market, even in project bonds. Perhaps its most important area of strength was toll-road financing in the US, an activity carried out within its municipal finance operation. The firm also inherited an Australian project finance capability through its acquisition of County NatWest Australia some months prior to the merger with Citibank.

Road builder

Salomon Smith Barney’s experience of toll-road financing has helped Citigroup secure a leading role in the world’s biggest project financing of early 1999. The bank, along with Bank of Montreal and Royal Bank of Canada, raised a C$2.7 billion ($1.8 billion) loan for Highway 407, a project in Toronto. Now, Salomon Smith Barney and Nesbitt Thomson of Canada are marketing a project bond which will refinance part of that debt. “That deal provides a good example of the combined muscle of Citibank and Salomon Smith Barney,” says Beale. “And it is a good opportunity for us to provide value for two important clients, Ferrovial of Spain and SNC-Lavalin of Canada, which are the two main sponsors of the deal.”

Citigroup’s project finance team now consists of some 100 market professionals based in a number of regional hubs with New York and London the biggest centres. But Citibank’s unrivalled geographical presence is a further strength of the project finance operation. “When we do transactions in emerging-market countries we typically tap into our local country organizations,” says Beale. “They can offer local expertise, help assess political risk and often have valuable relationships with local project sponsors. And our local banking presence can offer access to pools of local-currency financing. For example, as a result of a flight to quality in Thailand last year, Citibank had a surplus of Thai baht. One use of that surplus was being the biggest lender in baht for the working capital facility for Thailand’s Tri Energy project.”

But deals in emerging markets, once the mainstay of Citibank’s project-finance business, have become rarer following the crisis of the past two years. The market has shifted towards projects in developed countries and deals with export credit agency (ECA) financing. “With the drop in liquidity last year, ECA financing, which had fallen out of favour, has become very important again,” says Beale. “And we are now benefiting from the fact that Citibank has maintained its capability in the ECA market.”

The engine of growth in the project finance market this year is the US. “The project finance market has two main drivers,” says Beale, “economic growth and deregulation. Both these factors are at play in the US at the moment following the deregulation of the energy market. In the past 18 months US utilities have auctioned 40,000 megawatts of capacity and received proceeds of $20 billion. A lot of that money was raised by non-recourse debt in the syndicated loan and bond markets. The huge spurt of growth in the US project finance market has provided the first big opportunity for us to demonstrate the benefits of the combination of Salomon Smith Barney and Citibank.”

But will the North American project-finance boom come to an end if the US economy begins to slow? Beale foresees a healthy project finance market in the US for the next few years.

And if the focus of project finance does eventually switch back from the US to emerging markets, few players will be as strongly placed as Citibank to benefit.

BEST EMERGING-MARKETS BANK: Citigroup

Citigroup was the winner of our best foreign bank award in over 20 individual emerging markets – many more than any other bank – so naming it as Euromoney’s best emerging-markets bank was not a difficult decision.

The bank has the sharpest focus on the emerging markets of any big bank from a developed country. In 1998 Citigroup derived over $1 billion in net income (of total net income of $5.8 billion) from areas it regards as emerging markets, and that in a year when emerging-markets activity was subdued.

Citigroup now splits its banking activities into two broad divisions, the global corporate investment bank and the global consumer bank. In 1998 emerging markets accounted for $640 million of Citigroup’s net income for global corporate and investment banking, 31% of the total. That is 27% lower than the equivalent figure for 1997, reflecting the slowdown in emerging-market dealmaking in the past couple of years. Citigroup doesn’t disclose its consumer income from emerging markets, but Asia-Pacific contributed net income of $346 million in 1998 and Latin America brought in a further $96 million.

Long-term moves

Much of this business is inherited from the old Citibank. And few Citibankers have a better knowledge of the group’s emerging-markets operations than Victor Menezes, the co-head of Citigroup’s corporate and investment bank. He began his career with Citibank 26 years ago and has worked in Asia, Latin America, Africa and eastern Europe.

Menezes describes the typical development of Citibank’s presence in an emerging market: “Our business usually starts with serving the local subsidiaries of big international companies. We offer them services such as cash management, foreign exchange and foreign lending. The next stage is to serve local corporates. Then we move to providing a broader range of services to smaller companies and to consumer banking.”

Citibank has been in Asia since 1902 and in Latin America since 1915. Most recently it set up an operation in Bulgaria. When it decides to go into a country it’s usually a long-term move. “We tend to stay in markets in good times and bad,” says Menezes. “In times of volatility we often benefit from a flight to quality and pick up the best customers both for lending and deposits. Lately we have been through a number of crises – in Asia and Latin America for example – and in every case we have stuck it out. And we have grown our franchise nicely as a result.”

Menezes believes that this unbroken track record is what gives Citibank an advantage over its international rivals in emerging markets. “We have a deep local presence on both the consumer and the corporate side,” he says, “and that’s a result of having been in these markets for a long time. We are not seen as suitcase bankers: we have strong relationships with local corporates.”

Last year’s merger with Salomon Smith Barney gave Citibank a new level of capital markets expertise. “The old Citibank did not have a great investment-banking capability,” says Menezes, “so we could take large local corporates only so far in terms of accessing world capital markets. Today, the combination of Citibank’s strong relationships and Salomon Smith Barney’s capital markets product line allows us to do deals which would not have been possible before.”

Menezes points to this year’s $1.6 billion equity offering for Siam Commercial Bank as a deal that combines the skills of both Citibank and Salomon. Some M&A advisory mandates have also come the way of the new bank: shortly after opening its representative office in Bulgaria, a joint Citibank-Salomon Smith Barney team won the mandate to advise Telefónica on its bid for the Bulgarian Telecommunications Company. And as Christopher Beale, global head of project finance for Citigroup points out, the two sides of the merger have worked together on a number of project financings. Last month, for example, Citigroup won the mandate to lead a financing for Philippines electricity utility Meralco. This will comprise a bridge financing provided by Citibank to be taken out by a bond issue led by Salomon Smith Barney.

But Citibank’s emerging-market franchise is about more than simply generating investment-banking deals. Menezes believes there is scope to increase revenues from small to medium-size companies in emerging markets. This is a highly competitive sector in most developed countries but a neglected niche in emerging countries.

Becoming embedded

Some 35% to 40% of Citigroup’s emerging-market income still comes from large multinationals. But the bank’s aim is to become what Menezes describes as the “embedded bank” in each market. That is, Citigroup wants to be seen as a bank with strong local roots and not as an offshore bank.

The medium-term objective is to grow Citigroup’s share of the total wholesale market in emerging markets, which Menezes estimates at between 3% and 4%, to more than 6%. That increase will come continue to come from organic growth rather than large acquisitions. “Where Citibank has made acquisitions they have been to round out our presence,” he says. “They have been small operations bolted onto an existing Citibank franchise. That will be very much our strategy in the future.”

So which markets is Citigroup targeting for expansion? “We have priority countries for development,” says Menezes. “They are the bigger economies scattered across Latin America and Asia.” MP

BEST GOVERNMENT BOND TRADING HOUSE: Deutsche Bank

As an established market leader in Bunds, Europe’s largest government bond market, Deutsche had a head start in government bond trading even before the euro was introduced. It is the leader in European government trading markets and is among the top-five in almost all European government-bond markets.

“It’s not enough to be number one in Europe” stresses Saman Majd, Deutsche’s managing director and global head of OTC derivatives and fixed-income governments. “We are not noticeably lagging in other markets. We want to give a consistent global service to clients.” The bank has extended its global reach with considerable success. It is the top trader in overall government bonds in Euromoney‘s bond-trading poll having moved up three notches since the previous year. It maintains strong positions in G7 markets around the world and is active in at least 18 government bond markets overall.

In Japan Deutsche went from having no presence at all in 1996 to now being the second-largest foreign house in Japanese government bonds. It is the first government-bond trader in Australia and New Zealand and holds its own in a handful of emerging government-bond markets.

Deutsche has decided to remain one of the most active government-bond traders when other big banks are concentrating on more profitable and exciting areas. “Clients are very appreciative and grateful,” says Anshu Jain, managing director and global head of institutional client group at Deutsche Bank. Government-bond trading still gets clients connected to Deutsche and so the team recognizes its importance. “We have an integrated distribution platform. By establishing linkages in all areas we stay prominent,” explains Jain.

State-of-the-art technology provides Deutsche with the other necessary side of the equation – speed and distribution. To service the US treasuries market, the bank participates in two electronic trading consortiums, Tradeweb and BBT. Investors can tap into them to request the best price from a handful of brokers. Autobahn is Deutsche’s private label, which has been established in number of markets. When it was initiated in 1996 it was a simple electronic market-making tool but its pricing methods and distribution platform have evolved and include more products. AM

BEST EUROBOND TRADING FIRM: Warburg Dillon Read

Simon Bunce, global head of bond sales and trading at Warburg Dillon Read’s headquarters in London, is particularly proud of the attitude of his team during last autumn’s crisis. “After the Russian default,” he says, “we provided liquidity to our key clients when some of the other banks were either unwilling or unable to do that due to capital constraints. The clients’ appreciation has been our major achievement.” And that despite the knock to the UBS’s reputation caused by the revelation of an Sfr950 million ($616 million) shortfall caused by the exposure to Long-Term Capital Management.

One of the main reasons for WDR’s team success has been distribution. “We feel we are very strong in that respect. We have good coverage of all the most important markets, from Asia to America to Europe” says Bunce.

Adding US strength

In building up the department, WDR was helped by the merger between the old UBS and SBC Warburg that took place last year. The old UBS brought its franchises to add to those already enjoyed by SBC Warburg. The best was in the US primary and secondary market, where Warburg had previously failed to establish itself.

And now the bank is pretty strong in all the major currencies. Traditionally dominant in the Swiss franc sector, WDR has used its strength and expertise in sterling – a market dominated by single- and double-A rated issuers – to become one of the major players in the euro sector which, since the advent of the single currency, has moved down the credit curve from its traditional triple A bias and now looks rather like the sterling market in credit terms. But also WDR is the European bank with the biggest presence in the dollar-denominated market and, alongside Dresdner Kleinwort Benson, it is also the only European bank to be in a leading position in the yen market.

While other firms are trying to establish themselves as traders of a particular asset class, WDR sees itself as a trader of credit, and embraces an integrated approach to different products. Research is done by sector reflecting the shift in investors’ portfolios from a geographical basis to sectors and credit. The bank has also invested substantially in leading-edge credit technology, establishing a global risk-management platform, complemented by a client coverage model across time zones, and considers the market as a whole from high-yield through to government trading. “We cover a full range of securities, including all ranges of sector of corporate credit,” says managing director Richard Johnson. LM

BEST MERGERS AND ACQUISITIONS ADVISER: Morgan Stanley

It has been an explosive year for mergers and acquisitions. They were frequent, larger than ever and sometimes hostile. They spanned sectors and straddled continents. They attracted an enormous amount of media attention. And in the most significant unions of 1998 Morgan Stanley was working behind the scenes offering its expertise.

M&A advisory is best judged by volume, activity and quality of service. Morgan Stanley is the best across the board. Last year, it completed 343 transactions, making it the number one house by this measure. Its transaction value amounted to $533 billion with a 26% market share, which placed it third behind Goldman Sachs and Merrill Lynch.

It has been on the right side of most of the high-profile M&A mandates this year. Goldman Sachs, by contrast, backed the wrong horse when it advised Deutsche Telecom on its attempt to merge with Telecom Italia. Merrill Lynch is strong in US M&A but doesn’t have the global lead that Morgan Stanley has. Morgan Stanley has been the top M&A adviser in Europe for the past four years. It is first in Asia and is third in the US.

It has shown the capacity for juggling many ground-breaking mergers simultaneously. From the early months of this year it has advised the Italian government on the Olivetti acquisition of Telecom Italia, it defended Gucci from LVMH, and advised Société Générale against the defensive takeover of Banque Nationale de Paris. Other sizeable mandates include advising Amoco on its $55 billion merger with British Petroleum, which created the largest ever industrial merger and created the UK’s biggest-ever company. It also advised Bell Atlantic in its acquisition of GTE for $77.3 billion to create the largest US phone company.

The size of some of these mergers is staggering. But, says Gary Parr, managing director and global head of M&A at Morgan Stanley “it doesn’t change the dynamic a lot. There is a higher level of publicity and you need greater capital markets capabilities but otherwise the deal tactics are the same”. The secret to being successful is combining creativity in financial structuring and engineering, with a well-timed execution of tactics with industry knowledge, he says.

The firm is looking ahead now to predict what direction M&A might take so it can be best prepared. It expects to see a surge in the technology sector and a slowdown in volume (but not activity) in the energy sector. It sees corporate restructuring as the next big trend and has already put a dedicated team of 10 in place to anticipate new business.

BEST AT EURO AND NON-DOLLAR COMMERCIAL PAPER: Barclays Capital

The advent of the euro has the power to change the Euro-commercial paper (ECP) market irrevocably. Excitement is building that the euro might bring a deep and liquid European money market once and for all. In January alone oustandings grew by $5 billion to reach $135 billion, and about a quarter of issuance was in euros. Many dealers predict the euro could come to account for between 30% and 40% of the ECP market and boost liquidity significantly. Barclays Capital is well positioned for a surge in ECP. Its league table prominence, diversified issuer base and enviable collection of arranged programmes make it a strong contender.

Barclays Capital’s arranged programmes amount to $4.5 billion. Its performance is strong across the entire market. Its distribution to borrowers this year has included triple-A to double-B rated entities; European, American and Asian borrowers; and sovereigns, banks, corporates and asset-backed programmes. Its particular strengths lie in the sterling commercial paper market, of which it has a 50% share, and in placement for corporate issuers of which it has a 25% share of all programmes.

Dedicated desk

High-profile and active ECP borrowers for which Barclays is a prominent dealer include the Republic of Finland, Cades and Ford Credit. Another is KfW, Euromoney‘s commercial paper borrower of the year. The German agency signed a e5 billion multi-currency programme last December which is already approaching e1 billion outstanding.

Barclays believes that being the only ECP house with a desk dedicated solely to ECP, rather than to money market instruments in general, gives it a necessary focus on this business. It has a five-strong team in London, a trader in Hong Kong to cover borrowers in Asian time. It also has distribution points in Paris, Frankfurt, Hong Kong, Singapore and Tokyo.

Highly commended: Deutsche Bank

As most improved bank this year, Deutsche’s progress has extended to Euro-commercial paper. Its has steadily increased its market share over the past 18 months in terms of placement, arranging and dealing. Its position has been boosted by the dominance of euro-denominated paper, an area of strength for Deutsche, in the post-euro era. The launch of the euro has significantly boosted the ECP market and driven outstandings up by more than 20% in only four months. Of Deutsche’s sales of ECP in this period, 30% were euro-denominated.

BEST AT MTNS: Salomon Smith Barney

Since the introduction of the euro and the decline of interest rates in Europe, investors have been faced with a need for yield. Many European investors are looking to structured MTNs to provide some of it.

Successful banks in this expanding market need a combination of distribution capability, derivatives expertise and knowledge of the issuer base. Salomon Smith Barney has excelled by successfully combining all three.

Salomon’s merger last October with Citibank and its alliance last December with Nikko Securities have boosted its distribution capabilities to make it a consistent performer across the three major EMTN markets: Europe, the US and Asia.

The firm believes the way its London and Tokyo MTN desks operate give it an advantage over competitors. Larger banks typically have one person talking to the investor, another talking to the issuer and another in the middle pricing the structure. Salomon has one person talking to the investor and one doing everything else. “It is a very direct process,” says Peter Jackson, managing director of EMTNs at Salomon Smith Barney. “There are not many links in the chain; we try not to have many people involved.”

Those involved in MTNs often argue about which is the best way to measure leadership of this market. Perhaps the most effective way to determine who is leading the market is by the volume of deals traded after stripping away SPVs and self-led deals. Using these criteria, Salomon is firmly number one. In the first half of this year it had traded $5.2 billion-worth of non-syndicated deals. “We’re here to raise money and make money doing it,” says Mark Falconer, vice-president of EMTN trading at Salomon Smith Barney.

Those on Salomon’s origination desk attribute their success to a combination of hard work and enjoyment. “If you work at half pace you don’t do a single trade,” says Jackson. “But it’s got to be fun. It is a very competitive market. You cannot compete unless you have a fun working environment.” AM

BEST FIRM FOR EQUITY LINKED: Warburg Dillon Read

Three houses have dominated the equity-linked market over the past 12 months: Goldman Sachs, Société Générale and Warburg Dillon Read.

If it were down to figures alone Goldman Sachs might have taken the award. With 12 deals worth a total $8.9 billion since last July according to Capital Data, the US bank has arranged more issues and raised more than anyone else in the international equity-linked capital markets.

If we consider improvement in market share, Société Générale would be the one to win. The French house jumped in the league tables from 10th position last July to second this year, although its achievement mostly springs from the fact that many French issuers came to market in the first half of this year.

But the Euromoney award for best equity-linked house goes this year to Warburg Dillon Read because of the success of a major deal in particularly difficult market conditions.

After arranging a $2 billion Swiss Life exchangeable into Gemms and after breaking into the US with the $3.2 billion Bell Atlantic deal exchangeable into New Zealand Telecom in the first part of 1998, WDR continued its excellent performance in the second half of the year. Last August, the bank was the sole book-runner of the Bell Atlantic $3.18 billion exchangeable into Cable & Wireless Communications. Issued just a week before the Russian default and despite the third largest ever fall in the Dow Jones index during marketing, the bond broke all the records: it was the largest ever convertible issue and the largest pre-underwritten equity-linked issue.

Badly wanted mandates

“It required ability and stomach,” says Simon McGuire, head of global equity-linked at Warburg Dillon Read in London. “We are very pleased to have won Bell Atlantic’s mandates, not just once, but twice, against the stiffest of competition from the American powerhouses. Bell Atlantic’s issues were very important, being the two largest US equity-linked of all time and I can tell you that the American firms want the mandates badly”.

Warburg Dillon Read has also been very active in the first half of 1999. Deals include the $100 million convertible issue for Taiwanese company Delta Electronics and the £400 million ($636 million) issue for UK rail infrastructure company Railtrack.

With a market share of 12% and $922 million on the international capital markets since the turn of the year, WDR is also the leader in reverse convertibles, which represents the most rapidly expanding segment of the equity-linked market. LM

BEST UNDERWRITER OF EMERGING MARKET DEBT: JP Morgan

Underwriting emerging market debt this year was not an easy task. The investor base had shrunk and borrowing was expensive. Many markets had been closed off for some time. The sustained comeback of emerging market deals has been thanks, in part, to the successful deals JP Morgan has led.

In the past twelve months the firm brought 31 emerging-market issues to market which amounted to $14.9 billion. Although Goldman Sachs is the top bank and raised $17.8 billion, JP Morgan’s strength lies in the quality of the deals it led and the breadth of regions in which it had consistent success. It launched groundbreaking deals in all of the major emerging markets.

Argentine reopening

In Latin America, JP Morgan is the underwriter of choice for Argentina the region’s most active and prolific borrower. It has been the leading bookrunner of Argentina’s international bonds in the past decade. It has led 12 issues for Argentina amounting to $7.7 billion. It first established its relationship with the sovereign back in January 1997 when it lead Argentina’s first ever jumbo issue with Merrill Lynch, a $2 billion 20-year issue in January 1997. Last November JP Morgan, with Deutsche Bank, led an innovative $1 billion seven-year issue with warrants (exchangeable into the republic’s 2027 global) for Argentina. “It was a make or break time for investors,” says Richard Luddington, global head of emerging market debt syndicate at JP Morgan. The deal was a success and reopened the market for Latin America.

JP Morgan also helped pave the way for a return of issuance in Asia. The Philippines launched a $1 billion deal in the first few days of this year with the first real Asian deal to come back to the markets. “Investors were still pretty skittish about Asia but we knew if we sold it right we could make it work,” says Luddington.

JP Morgan has prevailed in Europe as well. It has worked hard to bring emerging-market borrowers to the region when confidence was low. “We would like to think we played a fairly integral role in building a pan-European investor base to get confidence to buy into liquid transactions from emerging market issuers,” says Luddington. It led the way for Hungary’s dip back into the markets with a e500 million 10-year deal in January. It became the first eastern European borrower to issue in euros post-Emu.

JP Morgan beat 30 other banks to get the mandate with its careful pricing and got the deal away successfully along with DG Bank. “It was a strategic challenge. With all the competition for the euro we wanted to be aggressively positioned to be the emerging market underwriter of choice” says Luddington. The success of the deal gave the firm a lever into other euro-denominated mandates. Deals for South Africa and the Slovak Republic soon followed.

JP Morgan was underwriter for the most successful emerging-market corporate issues as well. One of the most challenging deals was for Polish telecoms company TPSA. The bank led its $1 billion Eurobond last December. “Due to the market we were dealing with and that it was a debut borrower was clearly an enormous challenge,” says Luddington. It was the largest corporate deal to ever come out of the region and was an unqualified success.

With the trend toward larger deals and the use of joint bookrunners in dollars and euros in the past two years, JP Morgan is also working at being the joint bookrunner of choice. “Even our competitors find us someone good to work with as a preferred partner,” says Luddington. AM

BEST AT BRINGING NEW ISSUERS: Salomon Smith Barney

All the top Eurobond originators feel that introducing new issuers to the markets is one of their main strengths. But there is little data to show how firms compare in this area. Using Capital Data Bondware Euromoney found that issuers that had not been in the market since 1980 have launched 296 bonds.

Analysis of the lead managers chosen shows that two houses have been ahead of the pack in terms of issues arranged. Both Salomon Smith Barney and Lehman Brothers have arranged 40 deals each, but the difference is huge when it comes to the amount. Lehman Brothers, which ranks second, raised a total amount of $7.4 in those issues. And that is not even half of the $20.8 billion raised by Salomon in its 40 issues.

Charles Berman, managing director and head of fixed income capital markets at the European Salomon’s headquarters in London, is particularly pleased with the performance and praises his whole team for the success. “Issuing a debut bond is normally a complex process and requires a variety of skills,” he says “as well as a strong syndicate and capital markets team, you need superior distribution and trading and a very good research department, especially for corporates.”

The Finnish group Metsä-Serla, Europe’s fourth-largest paper and forest products group, is one of the companies Berman is most proud of having introduced to the international capital markets this year.

The seven-year €2 billion ($2.3 billion) debut Eurobond was launched on December 14 as the inaugural issue off the global medium-term note programme signed in late November. After roadshows in London, Helsinki, Milan, Amsterdam, Paris and Frankfurt, the bond achieved the investor diversification Metsä-Serla wished. Two-thirds of the issue was placed outside Finland. The bond was launched at 120 basis points over the Bund and quickly tightened to 118bp.

The 10-year €150 million Eurobond arranged for Belgian food distributor Delhaize last May is another testament to Salomon’s commitment to the corporate market. Originally planned at €110 million, the issue was increased following strong demand. “The issue was modest in size, but given that it was unrated, it was one of the most important transactions from a new issuer this year” says Berman.

Following the merger with Citibank, Berman is sure that bringing new issuers will remain one of the main strength of Salomon. “Citibank has fantastic relationships with a lot of corporations in Europe and with the increasing integration of the activities, our potential is huge in the new credit-driven euroland,” he says.LM

BEST CORPORATE BOND FIRM: Warburg Dillon Read

Warburg Dillon Read wins our award for best underwriter of corporate bonds on the basis of the number and variety of corporates it has worked with over the past year. Between June 1998 and May 1999 it underwrote 75 bond issues for private corporate borrowers with a total value of just under $21 billion according to Capital Data Bondware.

This is a hotly contested area of the league tables: Salomon Smith Barney took a slightly higher share of the market by value, but Warburg worked on a greater number of deals.

The bond issues Warburg Dillon Read has led range across the credit spectrum, from triple B rated telecoms company Sprint, which came to the market with a three-tranche $3.5 billion in April, to Shell, a triple A rated corporate that brought a $325 million 10-year bond to the market in March.

The firm can also claim to have a strong franchise in this area across the world. In Europe, it has led deals for such borrowers as Portugal Telecom, which issued a €1 billion 10-year bond in March, as well as Shell, BP Amoco and DaimlerChrysler. Its mandates from US borrowers in the past 12 months have included Coca-Cola and Dupont, which both issued $400 million 10-year bonds in April. In Asia, Warburg Dillon Read’s credits include NTT, which brought a $500 million five-year issue to market in March.

But perhaps the deal of which the firm is most proud is for an issuer that falls outside some definitions of what constitutes a corporate borrower (including that used in the Capital Data Bondware league table cited above). Associates Corp, a double A rated US financial company, came to market in October with a bond issue that reopened the market for corporate issuance after the Russian crisis of last August. “The Associates deal caused a massive rally in US corporate spreads,” recalls Richard Johnson, managing director and head of syndicate and secondary trading at Warburg Dillon Read, which was joint lead-manager on the three-tranche $4.8 billion issue along with Bear Stearns. “The deals and the sector tightened by more than 10 basis points in one week.” MP

BEST SOVEREIGN BOND HOUSE: Morgan Stanley

It has not been the most active year for the sovereign bond market. In the developed regions, particularly Europe, governments are trying to reduce their debt and so are not borrowing as much money. In the emerging markets, spreads are still high so many governments can not afford to borrow. Despite these obstacles, Morgan Stanley has lead-managed significant deals for sovereigns in every region in the world. In the last 12 months it has led 21 sovereign issues valued at $11.5 billion.

The firm has long been a leader in developed market sovereigns but it is also the number one emerging-markets sovereign bond house.

In Latin America, Morgan Stanley is second for sovereign issuance. Two years ago the firm dedicated a team to focus on Latin American sovereign issuers and it has paid off with an increase in mandates for this region. Argentina has been its catalytic client. Since 1990, Morgan Stanley has issued seven deals for Argentina amounting to $2.9 billion. Last October, Morgan Stanley brought a groundbreaking deal to market which effectively reopened the global markets which had been shut down since July, and re-opened the Latin American sovereign new issues market. Argentina issued a Dm500 million ($267 million) puttable senior step-down note. The transaction was mandated, announced and priced in less than seven hours and was sold largely with European retail investors which gave an important vote of confidence to the market.

In February, Morgan Stanley led a similar deal in euros. The €350 million senior step-down note was the first ever euro-denominated issue for a non-investment-grade emerging-market borrower. It was increased from its original size of €250 million and again was put away quickly. Yet another similar deal followed in March. Other Latin American sovereign deals include a $1 billion issue six-year issue for Mexico and a $2 billion five-year issue for Brazil.

Danish creativity

Morgan Stanley showed its creative side last August when it lead-managed a euro-fungible €500 million 10-year issue for the Kingdom of Denmark. It used a structure which allowed investors to choose between listed or unlisted bonds. Japanese investors, who bought more than half the issue, were prepared to pay more for bonds that did not have to be marked to market. European investors could receive a liquid and listed issue.

Morgan Stanley’s most timely sovereign issue was for Israel last month. The launch was aligned with last month’s Israeli election of a moderate coalition government which hopes to revive the peace process in the Middle East. This, and the rarity of the name, made the deal a huge success despite otherwise difficult conditions for emerging market issuers. The seven-year €400 million transaction was increased from €300 million and priced competitively. It was distributed to a broad pan-European investor base which paved the way for future issuance for Israel in the single currency. AM

BEST AT HIGH YIELD: Donaldson Lufkin & Jenrette

High-yield bond issuance is, by its very nature, a volatile business. When it booms, it can generate spectacular fees for investment bankers. When liquidity dries up, the drought can last for years.

Many firms are betting that Europe is heading for a high-yield boom as euroland investors begin to diversify their portfolios and move down the credit curve. Well over 20 investment banks now have high-yield departments. But John Ezrow, head of European high-yield capital markets for Donaldson Lufkin & Jenrette, thinks many of the runners in the race to dominate Europe’s high-yield market will not stay the distance. “People will start to realize that putting in a team of four salesmen and five bankers is not enough. They are going to realize that they are going nowhere. They will either have to add 100 people or shut down.”

Ezrow believes the European high-yield market has reached critical mass. “Sure it’s still small,” he says. “But lots of companies are financing themselves there.” What of the lack of liquidity in European high-yield paper? “The deals we have been involved in have liquidity,” he claims. “The European market is less liquid than the US market but it is getting better. And people’s ideas of what is achievable need to be calibrated correctly. Even in the US, when the institutional money flows out, liquidity dries up quickly.”

DLJ has led several of the deals which have helped to breathe life into the European high-yield market in the past year, as it has begun to recover from the knock-back it received after the Russian default crisis. The issue for Hermes Europe Railtel, led by DLJ in December, was the first for a below-investment-grade borrower to include a euro-denominated tranche (for €85 million) since July. More recently, in June, DLJ and Chase were joint bookrunners on an issue for another single-B rated issuer, the Dutch telecoms company Netia. The offering consisted of a $100 million tranche and a €100 million tranche.

But European-focused issues remain only a very small part of the high-yield universe. In the domestic US market, where issuance has continued throughout the last 12 months, DLJ has emerged in recent years as the leading player. According to Ezrow, the firm lead-managed 36 US high-yield deals between January and early June, giving it a leading 19% share of the market.

Notable deals over the last 12 months include the $2.4 billion issue for chemical company Lyondell, for which DLJ also provided an eight-year term loan, and the $2 billion bond for Ecostar. DLJ also lead-managed the biggest high-yield bond issue of the 1990s: the $3.45 deal for Niagra Mohawk in June 1998.

DLJ owes its strength in the US high-yield market to its decision, in the late 1980s, to stick with the market through difficult times. At the end of the decade the market collapsed amid a string of defaults. Issuance took several years to recover its previous volume. “At that time many firms suspended their commitment to the market,” says Ezrow. “But DLJ remained committed. So when the market came back in 1991 and 1992 we moved from being at the back of the pack to the front.”

Ezrow, a veteran of the high-yield business, moved from New York to London a year ago to head DLJ’s business in Europe. The firm now employs some 40 to 50 people in Europe just on high yield and has others, such as the telecoms research team, who play a key role on some deals. But the European operation retains close links with DLJ’s US business. “We can execute locally in Europe, but the knowledge base is institutional,” says Ezrow. “We talk to New York every day to tap into the idea flow.” MP

BEST UNDERWRITER OF ASSET-BACKED SECURITIES: CSFB

With a market share of nearly 19%, Credit Suisse First Boston has a clear lead in the league table for bookrunners of asset-backed deals over the past 12 months. It is the market leader both in terms of capital raised ($20 billion) and by number of deals arranged (88). Its closest rivals are Lehman Brothers, which ran 61 deals worth $14.6 billion, and Merrill Lynch, which did 53 worth $13.7 billion.

Jorge Calderon, co-head of Credit Suisse First Boston’s asset finance group in New York, attributes this success to the longevity of his group. “We are a team that has been working together for a long time, many of us for more than five or six years,” he says. “Year after year you learn to rely on individuals that work with you and at the same time, issuers and financial institutions learn to rely on you.”

But organization also matters. “In comparison with other banks,” he says “we have a centralized structure both geographically and in terms of products. Being centralized geographically gives you an advantage because the same people deal with the issuers both for their issues in Europe and in the US. Being centralized in terms of products allows you to offer a package solution to clients.”

Euro first

Over the last twelve months, CSFB’s biggest deal has been the €750 million ($675 million) transaction arranged for MBNA in May, which represents the first ever euro-denominated asset backed security (ABS) from a US issuer as well as the first euro-denominated credit card ABS transaction. The issue was well received all over Europe especially by the institutional investors that represented over the 90% of the buyers. It was distributed mainly in the UK (30%), Germany (19%) and Italy and Spain (12% each).

But the deal Calderon is most proud of is the one arranged for Akbank, Turkey’s fourth largest bank, last July. “It was a successful execution in a very difficult environment when numerous emerging-market issuers were pulling issues” he says. The $250 million receivables transaction carried a coupon about 175 basis points below the sovereign. Secured on credit card receivables, the bond was the first issue worldwide to include American Express international credit card voucher flows. “The inclusion of Amex flows enabled Akbank to approximately double the size of the bond issuance,” says Calderon.

Although 85% of the total asset-backed volume at CSFB is done in the US, Calderon believes the advent of the euro will bring a lot of changes in the European asset-backed sector. “The unification of the European market through a single currency could propel it to become as large as the US one in few years time,” he says. LM

BEST FIRM FOR RESEARCH: ALL CATEGORIES: Merrill Lynch

Research may not be the most exciting business for a bank but for investors it can be vital. As the economic crisis hit the world and euro convergence created a new market, investors were as confused as ever. For its superior and consistent guidance in all areas, Merrill Lynch wins all of our global research awards this year: international equity, emerging-market bonds and equity, fixed-income and credit.

“When spreads blew out it was impossible to say what was going to happen,” says Don Ullmann, managing director of global fixed income research. “From a credit perspective there were clearly some excellent companies looking cheap at these levels. We tried to cut through the market haze and focus on credit. When spreads did normalize, then we looked at relative value among sectors.”

The global research group has over 700 research professionals and covers the world from 41 offices in 27 countries. The fixed-income research team, headed by Ullmann, has more than 150 analysts globally that provide credit, sector and relative-value analysis of the financial and commoditites futures markets. Its equity research department is the largest in the world. It has 468 fundamental equity analysts in 27 countries and covers over 3,800 companies.

“Credit research in Europe is an extraordinarily competitive market,” says Ullmann. In Euromoney‘s credit research poll Merrill Lynch performed well. It ranked third this year and was number one for high-yield corporates. For quality of research it led in virtually every category.

Quality not quantity

The primary complaint investors make about banks’ research is that there is too much of it to wade through and despite the amount there is not enough of quality. The firm believes in producing targeted and digestible material. Merrill provides a range of research material to suit everyone such as daily comments, short weeklies and monthly almanacs. It was the first to produce a weekly high-yield report that has remained a favourite with investors. To address the issues of the moment, Merrill produced four in-depth studies that analyzed the impact of the emerging-markets crisis, the threat of deflation, year 2000 compliance and the effect of e-commerce on business.

Ullmann is proud of his fixed-income team and thinks he has the best analysts in the business, but he sees room for improvement. “I don’t pride myself on our delivery of research. That is an area where we have to work harder,” says Ullmann.

BEST AT TRANSACTION SERVICES: Citibank

Citibank and Chase closely competed for this award last year. Both banks offered excellent operating services to the corporate and bank markets. This year the gulf is widening with Citibank pulling ahead in several areas.

Chase is still Citibank’s strongest competitor in global custody, one component of transaction services. It holds top place in the league tables, but Citibank has rocketed from 13th to third place with $3.4 trillion total assets under custody in September 1998. Where many other leading banks in transaction services, such as State Street and Bank of New York, concentrate primarily on the US market, Citibank has a broader client base. Its presence in 100 countries around the world, gives it a global reach that no other bank can touch. This translates into a large global transaction capability. It leads this market, processing more than $1 trillion a day.

It uses several platforms to deliver its services. Citibank’s world-wide securities services (WWSS) is a global leader in cross-border transaction services with $3.4 trillion in assets under administration. It is the largest proprietary network in the industry and it spans over 50 countries. Citibank handles 344 ADR programmes through WWSS.

For cash management and trade services, Citibank has created CitiDirect electronic banking, a browser-based delivery system. It allows its customers to make payments in a range of formats and currencies and gives a direct link to the entire range of products and services Citibank offers. Treasury management services and risk mitigation tools will soon be added to the system. In April, Citibank Commerce was launched, offering corporate clients an opportunity to conduct business-to-business e-commerce without having to set up their own proprietary infrastructure.

The main reason that Citibank began setting up branches in so many countries was for the provision of trade services. For over 100 years it has been a global leader in trade finance. It now has over 1,000 trade professionals in 82 centres world-wide and continues to develop new trade financing techniques such as offering vendor financing programmes to help its clients get pre-export financing for their overseas suppliers in an increasing number of markets. AM

Awards for Excellence 1999