Eurozone
Best bank: Deutsche Bank
Best securities firm: Warburg Dillon Read
What’s surprising about the award for excellence as best bank in the eurozone is just how short the list of serious candidates is. At a time when European banking is in the throes of consolidation frenzy – a contested three-way deal in France, a huge domestic merger in Spain, a series of attempted deals in Italy that might transform banking there – it is instructive to reflect how insular Europe’s national banking systems remain.
In a few cases banks from one of the larger countries have intruded into smaller neighbouring countries. The Dutch have bought the Belgians, the Spanish may well be on the way to doing the same in Portugal. But there are few signs of any true pan-European banks. The two big Spanish players, BBV and Banco Santander Central Hispano (BSCH), have taken some strategic equity stakes in banks in Italy and France, which may yet come to something or nothing. Among the French themselves, only Paribas could make a case for being significant across Europe, and then really only in debt capital markets.
A better case can be made for Citigroup than for most native European banks. It operates in all 11 euro countries and also in the nine western European out countries. It is good at doing many of the bread-and-butter banking businesses – cash management, payments, forex, securities services – which corporates and institutional investors value, and it does them well across borders.
It can transfer payments around Europe through its own network, while the national currency ties that bind corporate treasurers to national banks are loosening. Its ability to arrange financing and offer M&A advice can only be strengthened in the future by cooperation with Salomon Smith Barney, of which there is mounting evidence.
What rather counts against Citigroup, however, is that in many countries its focus is principally international and scarcely domestic. It will always seek to do business with the very large companies in each eurozone country – mainly their international business and most especially their emerging-markets business. And for many companies in Europe, Citigroup is a favoured international bank. But this is not quite the same as becoming fully embedded, to use a Citigroup term, in the local economy. It has less interest in the large number of sizeable domestic companies in each country, and little interest at all in the large number of small-to-medium-size companies around Europe.
Similar arguments could be made for and against ABN Amro, which also leads with two strong suits: being good at transaction services like payments and cash management, and being able to help European companies seeking to do business in any of the 70 or so countries in which it operates.
For other candidates, it makes sense to turn to the eurozone’s most important national economy, Germany, home to three of the continent’s larger and more internationally ambitious banks. In recent years, Deutsche Bank‘s traditional image as the most powerful bank in Europe has suffered somewhat as the largest Swiss, UK and even Spanish banks have surpassed it in terms of market capitalization and as institutions such as HSBC and UBS have built up more shareholder equity.
But most of these giants come from outside the single-currency bloc. Within the eurozone itself, dominated as it is by the economies of Germany, France, Italy and Spain (and Deutsche Bank has a strong presence in all four), it remains the leading bank. It has 7 million customers, 2,000 branches and, according to independent analysis by Greenwich Associates, more relationships with institutional investors than any other bank. In Germany, Deutsche Bank has long-standing relationships – often cemented by, but no longer reliant on, equity holdings – with many of the country’s leading companies. It also has on its doorstep the largest and most fertile group of tens of thousands of Mittelstand companies that may provide the future engines of European growth. Deutsche Bank has organized a special division, known as Core (one of its five operating arms), for serving these companies with everything from basic banking services to IPOs.
In this year’s awards for excellence, as well as being the best bank in Germany, Deutsche has been named as the best foreign bank in France and Italy and was also a contender for best foreign bank in Spain. The award of best bank in the eurozone therefore comes as little surprise.
Deutsche Bank is by tradition a universal bank and what has been most fascinating about the organization in recent years has been its, at times painful, struggle to redefine universal banking for today’s Europe. It has had to build more and more substance behind the fading all-powerful image of the German bank. And despite some setbacks, most notably in investment banking, it has built the businesses its customers need. It is a leader in foreign exchange, ranking as the top European bank in Euromoney‘s foreign exchange poll in May of corporates and institutional customers.
Deutsche is a leader too in various classes of derivatives and risk management within the eurozone, including equity derivatives. It is strong in cash management and transaction services, reflected in its recent appointment by Saint-Gobain of France to arrange its European cash management. And it should be boosted in this field by its acquisition of Bankers Trust.
What is most impressive about Deutsche Bank is the way it is managing the transition within Europe from corporates funding themselves in the bank market to funding themselves through the capital market. Deutsche Bank was strong in relationship lending; it is now very powerful in the eurozone bond market. It would be difficult to name any institution as the leading bank in the eurozone without considering its position in the euro bond markets, because this is increasingly the market in which European companies fund themselves.
According to Euromoney‘s own poll, Deutsche Bank is the leading government bond trader in Europe, a finding backed up by Greenwich Associates. In recent years it has carefully made itself important to bond investors around Europe, taking advantage of the fact that the Deutschmark bond market was by far the most international of the eurozone markets in the run-up to the single currency. It has pushed beyond the well-known top 100 international bond investors in Europe to penetrate the second- and third-tier investors, which were essentially domestic but may have bought the occasional Deutschmark bond.
This is now translating into a hugely successful year for Deutsche Bank in the euro bond market. It has led a number of prominent transactions for European corporates. These include €1 billion ($1.05 billion) deals for Fiat of Italy and Alcatel of France; a €2 billion deal for Deutsche Telekom; and a €3 billion deal for Mannesmann – at the time of its launch in May the largest single-tranche corporate bond ever.
Deutsche is a prominent player in the large securitized bond markets of Europe, both Pfandbrief – it led the €2 billion deal for Eurohypo which was the first global mortgage Pfandbrief – and newer areas. It led a groundbreaking multi-tranche securitization backed by auto-loan receivables in Portugal. It has also become an increasingly important dealer in Euro-MTNs and in Euro-commercial paper.
In the pure securities markets, Paribas is strong in euro-denominated bonds, securitization and in equities: the bank has analysts covering 600 euroland stocks in 31 sectors. This year it led the large combined equity/equity-linked offer of France Télécom. The American firms are powerful and increasingly driving into the domestic securities markets, rather than just trying to do large cross-border new issues on the back of their distribution into the US. Notable in recent months has been Morgan Stanley Dean Witter’s purchase of AB Asesores, the largest independent brokerage in Spain.
But Warburg Dillon Read wins our award for best securities firm in the eurozone, largely on the basis of its strong coverage of secondary equity markets. It has 210 analysts, covering 1,200 companies stocks in the eurozone. Its overall market share in eurozone secondary equities is around 5%, with only Merrill Lynch and ABN Amro coming close as competitors. It ranked top for European research in Euromoney‘s most recent European brokers’ poll and it has strong positions in markets across the zone. It is the top ranked foreign broker in France and last year acted as financial adviser to CMP on its Ffr4.1 billion ($656 million) IPO. It was ranked second by Extel for Spanish research last year and has played a key role in many major Spanish equity deals. The company also has a huge secondary market share of between 12% and 15% in Dutch equities. It has a fast-growing warrant business in Germany and is the leading international house for bringing Austrian equity issues to the international market. WDR estimates that its share of cross-border institutional investment flow in the eurozone is 10%. It is a leading trader of euro convertible bonds.
It is also one of the leading firms – with Deutsche, ABN Amro and Paribas – in the euro bond markets, ranking third in Euromoney‘s recent poll of bond trading firms.
It’s been a tough year for WDR, with the fallout from the merger with UBS and the emergence of horrendous exposures to Russia and to Long-Term Capital Management. But it has held its nerve, maintained good levels of morale and is thinking imaginatively about applying new technology, such as a net-based money-market trading system, and new products, such as credit bond portfolio advisory services. Peter Lee
Austria
Best bank: Bank Austria
Best securities firm: CA IB Investmentbank
Best foreign bank: Deutsche Bank
Bank Austria is Austria’s largest bank, with assets twice as large as those of its nearest competitor, Erste Bank, and shareholders’ equity some three times greater than Austria’s number two bank. As a universal bank, Bank Austria offers commercial banking, treasury and investment banking services to the country’s leading companies. Though competition is fierce in an economy of only 8 million people, and interest margins are tight, Bank Austria has made increasing use of its position this year, following the takeover of Creditanstalt, Austria’s patrician formerly state-owned bank in 1997.
An example of its power in Austria was seen in April when Austrian Airlines’ status as the country’s national carrier – crucial in the company’s quest to secure licences outside the EU, especially eastern Europe – appeared to be under threat from the possible dilution of Austrian state holding company OIAG’s 51.9% stake in the airline following a rights issue.
Bank Austria, the airline’s house bank, stepped in and bought a large equity stake in the company, securing its negotiating powers. It surprised no-one in Vienna that the bank’s investment banking unit, CA IB Investmentbank then won the mandate to lead its rights offering. It is the leading securities firm in the country. The old Creditanstalt group also co-arranged with HSBC and Warburg Dillon Read the most important syndicated loan deal in Austria last year: a €545 million equivalent non-recourse financing to build out the mobile phone network for Connect Austria.
In general, Bank Austria has been reducing its equity stakes in Austrian companies, selling shares in car components company Steyr-Daimler-Puch and rubber group Semperit last year. It has used these holdings to reinforce its position in the local capital markets this year, selling bonds exchangeable into the shares of engineering group VA Technologie and Flughafen Wien, operator of Vienna airport.
But Bank Austria faces clear challenges. Growth opportunities at home are limited. All the big three Vienna banks and many international ones are competing in eastern Europe. It was hit badly last year by losses in Russia. Recently the bank’s chairman, Gerhard Randa, has been talking of the need for Bank Austria eventually to be integrated into an international network.
Among the foreign banks, Deutsche Bank has a strong position, both in core commercial banking, investment banking and in international capital raising. It has, for example, been the busiest lead manager for bond deals by Austrian issuers, leading several dollar deals for the Republic of Austria and bringing other Austrian names to the international markets for the first time this year, including Oesterreichische Kommunalkredit and Kärntner Landes-und-Hypothekenbank.
Deutsche has a 10% share of trading on the Vienna stock exchange, by far the largest of any foreign bank. Its euro cash management and electronic banking services have been well received by Austrian companies.
Belgium
Best bank: Generale Bank
Best securities firm: Petercam
Best foreign bank: ABN Amro
For years, many Belgian politicians dreamed of a grande banque belge, a domestic national banking champion to rank among the continent’s leaders. But the domestic mergers needed to create such an entity in an overbanked country (with 100 banks serving 10 million people) could never be engineered. And the country’s banks were clearly too small to compete on their own on a European scale.
However, Belgium’s leading banks have proved irresistibly mouth-watering to their acquisitive Dutch neighbours. ING acquired BBL in January 1998 and in May last year, Fortis emerged triumphant in a struggle to acquire Generale Bank, which ABN Amro had also coveted. Kredietbank, the leading bank in Flanders, meanwhile merged last June with domestic cooperative bank CERA to create KBC Bank.
For the purposes of this year’s awards, Euromoney has considered Generale and BBL as still essentially Belgian banks, notwithstanding their new ownership.
Generale Bank, which will become the centrepiece of the newly reorganized Fortis Bank, wins this year’s award for excellence on the basis of its leading position with Belgian corporates, including small to medium-size enterprises.
It acts as a universal bank, offering the full menu of payments and cash-management services, corporate-finance advisory, capital markets fund raising and securities trading to Belgian corporations and investors. It has played a prominent role in several keynote financings, including as arranger of the €495 million term loan for Tractabel, the country’s diversified energy conglomerate and a £517 million, ($832 million) loan for Belgian cement and aggregates company Etex Group to finance its takeover of Marley in the UK. It has also taken a number of smaller Belgian companies public on the local stock market. Generale offers international Belgian clients access to trade finance through a network of international partnerships.
Among the Belgian securities firms, Petercam continues to stand out. It topped Euromoney‘s October ranking of best brokers in the Belgian market both for its research and execution capability in our poll of institutional investors in the equity markets.
It has played a role in some internationally targeted equity offerings for Belgian companies, most recently as a bookrunner with ABN Amro Rothschild on a small placement of shares in Image Recognition Integrated Systems, which produces software for use within scanner applications. It has also been an active M&A adviser, working on 10 deals
in 1998, putting it in the front rank of competition with the leading international investment banks; it ranks second just behind Morgan Stanley on deal value, and just ahead of Warburg Dillon Read and JP Morgan.
Among the foreign banks, ABN Amro stands out. It combines size, being the eighth-largest bank in the country by assets, with a focused approach on select wholesale businesses and customer segments.
It concentrates on structured finance, corporate finance, trade and commodity finance, specialized treasury and global transaction services. Its target customers are large Belgian companies with a Dutch business connection and the many large multinationals which, for tax incentives, use Brussels as a financial coordination centre for their European operations. Greenwich ranks ABN Amro as the largest foreign bank serving this customer segment. The bank is one of the two leading firms in diamond financing, a $20 billion annual turnover market centred in Antwerp.
It has responded to fierce competition in Belgium through increased specialization. Instead of plain-vanilla treasury services, it increasingly offers tailored derivatives solutions to its corporate clients. In the past two years, it has built up its corporate finance position, leading more local IPOs and, more recently, moving into M&A advice.
Even major Belgian banks turn to ABN Amro from time to time. Kredietbank mandated it for a €300 million offering of subordinated debt to add to its upper tier two capital in April.
France
Best bank: Société Générale
Best foreign bank: Deutsche Bank
Best securities firm: Paribas
The shape of French banking remains unclear ahead of the resolution of the two merger proposals now outstanding – Société Générale to merge with Paribas and BNP to merge with both Société Générale and Paribas – and the privatization of Crédit Lyonnais. The three banks now embroiled in an unusually complex and bitter takeover contest are the leading forces in a still fragmented French banking sector.
BNP is the strongest of the three in retail banking, although it still lags behind Crédit Agricole. It is also an aggressive competitor in the syndicated lending business – although its shareholders may be less than overjoyed at the fact, given the thin margins available in France.
But Société Générale wins our award for excellence as the best bank in France. “In mainstream commercial banking – cash management, forex, structured lending – where we are competing to do business with all the top French companies, Société Générale is invariably our leading domestic competitor,” says the head of one large foreign bank in Paris.
Its strong relationships with French corporates have won it some key mandates, notably in the capital markets where its equity capital business is growing in strength. For example it is a key bank for aggressive water-to-media-group Vivendi, regularly appearing as an arranger of its bank loans. It jointly led the €3 billion convertible bond for Vivendi to part finance its acquisition of American water company US Filter.
At launch in April, this was the largest convertible deal ever. SocGen played the leading coordinator role in the €1.9 billion financing for Imetal’s acquisition of English China Clays and arranged the Ffr3 billion financing to recapitalize leading French pharmaceuticals company Beaufour-Ipsen. Société Générale has also been a key local partner for large foreign companies operating in France, leading a Ffr1.2 billion credit to fund the American company Prologis’s acquisition of French warehouse company Garonor, and being the French co-arranger for a €1.7 billion financing for Canadian manufacturer Bombardier.
For all Société Générale’s prowess in convertible bonds this year, Paribas remains the top-ranked French securities firm. It is a top trader of bonds and equities in France and a leader in bringing French issuers to the international capital markets. It led keynote equity and convertible bond issues as part of the second leg of the privatization of France Télécom.
This deal was a tricky one to execute, coming just as the European equity markets were beginning to revive at the end of last year. While BNP led the lower-priced French retail tranche, Paribas moved quickly to catch resurgent institutional demand, eschewing pre-marketing and swiftly building an order book.
It has also been a consistent force in bringing French issuers to the bond market, recently leading with Lehman a deal for a leading food retailer, the unrated Promodès. It also played lead roles in benchmark euro bond deals for electronics group Schneider and French government agency Cades, earlier this year. Paribas is also an innovator in the asset-backed market and completed the first credit-card securitization in France, last year.
Among the largest and most active foreign banks in France, Deutsche Bank stands out for the breadth of its activities in corporate banking and investment banking. It was chosen by Saint-Gobain to organize its European cash management.
It was brought in by Paribas as a co-arranger on the €1.9 million financing for Imetal’s acquisition of English China Clays. It advised Gaz de France on its largest-ever corporate deal: the Ffr4 billion acquisition of a 38.2% stake in Berlin gas distributor Gazag. It advised Danone and Nestlé on disposals in the Czech Republic and has advised De Dietrich Cie on a recent acquisition in Germany.
In the debt capital markets, Deutsche led Lafarge’s EMTN programme, acted as joint bookrunner on a benchmark €1 billion deal for Alcatel, and last year was sole bookrunner on a €1 billion deal for Electricité de France. It was also appointed one of the joint leads by the French government in a €14.5 billion exchange programme for its outstanding Ecu debt. According to the French treasury, Paribas has a 10.9% market share in its huge stripped government bond market – the largest of any foreign bank – and is one of the most active primary dealers in French government bonds.
It is the top foreign lead manager of bonds for French issuers. It has also scored some successes in equities, acting as sole bookrunner on Accor’s €433 million issue of bonds exchangeable into the stock of Compass Group.
Germany
Best bank: Deutsche Bank
Best foreign bank: Citigroup
Best securities firm: Deutsche Bank
Public-sector banks have a high market share in Germany, not to mention a depressing effect on profitability, as evidenced by low returns on equity for Germany’s private-sector lenders. And foreign banks and investment banks have been eager to win high-margin business from the country’s industrial giants, encouraged by recent moves by the German banks to unwind – or at least hold for potential sale – their equity stakes in larger German companies, which once bound these customers to them. The shock of Goldman Sachs playing the lead role in advising Daimler-Benz on its merger with Chrysler reverberated around the boardrooms of the country’s domestic banks last year.
But in the German corporate world, the three big Frankfurt banks, and Deutsche Bank in particular, should never be written off. “The large German corporates have let it be known that they are open to working with international banks and have even gone out of their way to emphasize that they no longer have house banks. But on the financing side, the pattern is that large German companies will always retain one German bank and then one or more international banks,” says one corporate financier at an advisory firm in Frankfurt. “Some will use Commerzbank and Dresdner Bank, but most will consider Deutsche Bank as their lead bank. Deutsche Bank has always been the most powerful of the three and the feedback from corporations is that Deutsche Bank at least seems to be putting together the right product mix.”
Another foreign investment banker adds: “German companies are increasingly asking which banks they can rely upon still to be around in three to five years’ time, in view of the consolidation around Europe. They don’t debate that with Deutsche Bank. It is building step by step across Europe and, with Bankers Trust, in the US as well.”
And this year, it has been someone else’s turn to stumble. Goldman Sachs has faltered for the first time in Germany, advising Deutsche Telekom on its abortive plan to merge with Telecom Italia, a move that cost the German company its key international alliance with France Télécom.
Deutsche Bank has improved its performance in recent years. It is the top German bank doing foreign exchange and payments for the country’s corporates. It is also the strongest firm across the board in secondary bond and equity markets, and derivatives markets in Germany. It therefore wins the award for best securities house as well, although niche players such as Metzler and, more on the advisory side, Oppenheim provide decent competition, as do the large American investment banks.
Deutsche Bank has played a key role in many of the largest debt and equity deals for German companies in recent months, including the groundbreaking e2 billion bond deal for Deutsche Telekom and Mannesmann’s recent €3 billion deal. It broke new ground in the euro convertible bond market with its issue of debt exchangeable into shares of Allianz.
It is now arranging, jointly with Chase, a $17 billion syndicated loan for DaimlerChrysler, to consolidate the new company’s debt facilities around the world.
And Deutsche does not just concentrate on the largest German companies. It has a specialist unit to serve the countries middle-market names and has been one of the most active lead managers of new issues on the Neuer Markt, for entrepreneurial high-growth German companies from newer sectors such as information technology.
Citigroup has been rated as the strongest foreign bank as a result of its transaction services. German users of its cash-management and global transaction services systems on a regional or worldwide basis include no less than the Deutsche Bundesbank, the German postal service, Hoechst, VW, BMW, Veba, Bosch and Merck. Many of the country’s largest companies use Citibank for foreign exchange and hedging. It is also the dominant issuer, distributor and trader of equity warrants in Germany, with a market share of 40%.
Ireland
Best bank: Allied Irish Banks
Best foreign bank: Citigroup
Best securities firm: Davy
While Bank of Ireland fends off criticism for its failed merger with Alliance & Leicester, its main rival, Allied Irish Banks, is consolidating its already strong position with wholesale customers in Ireland. “They have moved even further ahead this year,” says one Irish branch head of a large foreign bank in Dublin, which competes with AIB. “They have very good relationships with local corporate treasurers, they are very strong in outsourced treasury, lending and financial structuring. And they are also a very aggressive bank.”
Bank of Ireland has taken the lead in some specialized niches – building up a sizeable and well-regarded funds management business and pushing more into retail financial services and mortgages – but AIB is the lead bank for large Irish companies as well as for smaller privately owned businesses which it serves through a network of specialist branches.
Among the securities firms, competition is strong between Davy, Goodbody, NCB and ABN Amro. But Davy is regarded as the strongest, heading Euromoney‘s poll of international institutional equity investors as the best broker in Ireland. It also scores well in local surveys of Irish institutional investors, which have a strong regard for its economic analysis as well as its overall coverage of Irish equities – including its coverage of mid-cap stocks.
Many of the foreign financial institutions in Ireland tend to concentrate on offshore fund management through the international financial-services centre in Dublin. Many of these rely on Citibank for a variety of crucial administrative services. It has just been appointed cash-management bank for Royal Sun Alliance’s international life assurance operation in Dublin. It provides custody (including local custody) for many fund managers.
In addition Citibank is a key bank for the treasurers of many large Irish companies and the Irish subsidiaries of many foreign multinationals. It outsources treasury for some, provides hedging services for others, as well as offering complex financing, such as the leveraged financing for Telecom Eireann’s ESOT. The combination with Salomon Smith Barney may bring more deals: the group has been retained to advise the Irish government on strategic alliances or a possible flotation for Aer Lingus.
Italy
Best bank: Banca Commerciale Italiana
Best foreign bank: Deutsche Bank
Best securities firm: IMI
The fragmented Italian banking sector has been transformed in recent years, with a number of powerful new groups being formed through a complex series of mergers and a new generation of Italian bank executives seeking to break with past practices of directed lending and gross inefficiency.
The emerging giants in a country notable for the absence of any national banking champion include SanPaolo-IMI, created through the merger of Milan-based investment bank, IMI and Turin-based SanPaolo, one of the largest retail banks in northern Italy. Another is Unicredito, formed by the combination of a number of leading regional banks and the absorption of Banco Rolo – perhaps the best managed of all Italian banks. A third is Banca Intesa, which combines another strong northern Italian bank with a well-regarded securities arm, Banco Ambroveneto and Cariplo.
This year the Italian banking scene has been thrown into utter confusion, following the initial announcement and subsequent frustration of two giant mergers designed to cement further consolidation of the sector. Following months of negotiating by Mediobanca (the most influential force in mergers and acquisitions advice in Italy) to bring Banca Commerciale Italiana (BCI) and Banca di Roma together, Unicredito announced a deal to merge with BCI and SanPaolo-IMI announced a planned merger with Banca di Roma.
It seemed to be a breakthrough. But both deals have since been blocked and, while the chief executives of Italian banks continue their private negotiations, all that remains clear is that there will be more mergers. Who will end up with whom is a mystery. “In my view the euro presents the Italian banks with an awesome challenge which some may not survive,” says one foreign banker in Milan. “But some Italian banks have decided not to die and are determined to merge with others on a more or less friendly basis.” Rumours continue to circulate – the most recent being that Mediobanca chief Enrico Cuccia may try to engineer a merger between BCI and Intesa.
Something that has emerged from recent attempts to encourage mergers is that many in Italian banking consider Banca Commerciale Italiana an attractive partner. In recent years instability at the top of the bank has somewhat detracted from the strength of the institution. Former chief executive Luigi Fausti was fired last year and the two new co-chief executive officers who replaced him have been undermined by Mediobanca for resisting its efforts to force a merger with Banca di Roma – which would inevitably bring with it a far from pristine loan portfolio.
And while charismatic chief executives like Alessandro Profumo at Unicredito have continued to lead their banks into more efficient retail financial services, including provision of mutual funds and asset management, BCI has impressed in the suddenly less glamorous field of serving large Italian corporations.
“On the wholesale and corporate side, BCI are unbeatable,” judges the head of one foreign bank in Italy. “They are excellent providers of sophisticated structured products. Few bankers in Italy are as credible or as sympathetic as Profumo, but you sometimes wonder how solid Unicredito is two managerial levels below him. At BCI, it’s the reverse. The strength of the bank is lower down. There is a lot of talent at the operational level.” In recent months BCI has been instrumental in several key deals, including a L2.67 billion ($1.6 billion) acquisition refinancing and capital-restructuring package for Seat Pagine Gialle Group, Italy’s leading directory provider.
In Italian investment banking, there is a clear face-off between Mediobanca (for so long the champion of the established northern Italian industrial families), exerting its influence to forge and break mergers and alliances, and the more modern IMI (now part of SanPaolo-IMI), which earned its spurs in the Italian privatization programme of the early to mid-1990s, leading huge share offerings for giants such as ENI.
Both were present in force at the battle for Telecom Italia, with Mediobanca emerging on the winning side, helping to guide Olivetti, with which it has long ties, to victory. SanPaolo-IMI was not only on the losing side, it also ended up surrendering its Telecom Italia shares to the enemy. Although Mediobanca is in many ways the more powerful, especially in M&A, IMI remains the strongest Italian securities firm, ranking second in our investors poll of best brokers. Warburg Dillon Read was top ranked in Italy. It has led equity issues for Italian food company Cremonini and maker of hair care and personal hygiene products Mirato.
Of the foreign banks, Paribas and Citibank are strong but Deutsche Bank is pre-eminent, not only for its large retail network but also for a wholesale business covering 40,000, small, medium-size and large corporations in Italy. It is active in leasing, factoring, fund management and insurance as well as debt and equity capital markets and corporate finance. It has clearly been helped in this last category by strong business links between Germany and Italy.
Deutsche advised Audi on its acquisition of Lamborghini and Mannesmann on its purchase of 12% of Oliman from Olivetti. The bank has been mandated to act as global coordinator for IPOs of several Italian companies, including Trevifin and Roncadin. The bank is a leading mutual fund manager in Italy. It is a top five player in the Italian interbank deposit market.
Luxembourg
Best bank: Banque Générale du Luxembourg
Luxembourg is a country dominated by foreign banks, mostly active in private banking, mutual funds management and administration and other fee-earning business related to high-net-worth retail customers, as well as in the local money market. While Banque Générale du Luxembourg – which is 52.6% owned by Belgium’s Generale Bank, itself now owned by Dutch-Belgian banking and insurance group Fortis – is active in all those areas it is also a universal bank offering loans, wholesale-banking services and investment banking to Luxembourg companies. It provides MultiLine electronic banking services for companies to manage their standard cashflows, offers factoring as well as plain-vanilla short-term loans, and arranges leases and equipment loans as well as offering both interest rate and exchange rate risk management.
Corporate loans to national businesses increased markedly last year. Its position in the local economy is cemented by strategic shareholdings in several leading Luxembourg companies in key sectors. These include stakes in steel companies Arbed and Paul Wurth, air transport companies Luxair and Cargolux, energy company Cegedel and media and telecoms companies, Société Européenne des Satellites and Audiofina.
Netherlands
Best bank: ABN Amro
Best foreign bank: Citigroup
Best securities firm: Kempen & Co
For a small country of 15 million people, the Netherlands has produced some of the most powerful financial institutions in Europe, including Fortis, Aegon, ING and ABN Amro. The leading Dutch banks went through a series of mergers 10 years ago, which concentrated the industry into two main groups: ING and ABN Amro. Rabobank is notably a strong third force.
ABN Amro and ING now rank as the leading eurozone banks by market capitalization, with the only larger banks in Europe being the Swiss and UK giants. Both banks have sought growth outside the Netherlands in emerging and developed markets. ABN Amro is the largest foreign bank in the US and has one of the biggest international networks of any bank in the world. ING, meanwhile, has made the first cross-border acquisition in Europe, buying BBL in Belgium as a stepping stone into French-speaking Europe. But neither is about to surrender ground to foreign interlopers in serving the larger Dutch corporates such as Philips, Unilever, KLM and KPN. “The Dutch banks are defending their home turf very strongly,” says one foreign banker. “We’re an active bilateral lender to Dutch companies but in straight syndicated lending we’re behind the home banks. ABN Amro is particularly strong.”
ABN Amro has also made a large investment in cash management, which pays off in winning business from large domestic and internationally oriented Dutch companies. And in recent years it has built a strong conventional investment-banking business, which enables it to arrange large debt and equity capital markets financing for big Dutch companies. Late last year it led, jointly with Goldman Sachs, a Fls4.2 billion ($2 billion) combined equity and convertible bond deal for Royal Ahold – one of the most keenly followed Dutch corporate deals of the year. It is a leading debt arranger for Dutch financial issuers, such as public sector bank, BNG.
For its part, while remaining a powerful force in insurance, asset management and retail financial services, ING has not competed as strongly in core wholesale banking activities such as payments and treasury. It has lagged behind ABN Amro in syndicated lending and is far behind it in the field of investment banking.
ING’s reputation has been injured by the near implosion of ING Barings last year, which ING’s top management now admits was following an overly-risky strategy that was not well managed and not customer-focused. In trying to rectify this the group is wrenching its focus away from emerging markets and distressed-debt trading to more conventional investment banking in the eurozone. It may well succeed in time, but the episode shows one of the potential dangers for ING in managing at arm’s length the disparate financial services groups that it owns.
With such large and powerful Dutch banks, the Netherlands is a difficult market for foreign competitors. Citibank has toughed it out as usual by seeking to do business with top companies like Philips and Unilever, especially in emerging markets where the Dutch banks have no presence. It is a strong lender, a competitor in treasury and cash management. And having a former Dutch finance minister, Onno Ruding, as vice-chairman helps open some doors. It has a significant extra string to its bow in the Netherlands, which is home to $500 billion in pension funds and mutual fund money – the fourth-largest pool of such capital in the world. Citibank is global custodian of a large number of these funds and had expanded even before the merger with Salomon Smith Barney into doing forex, bond dealing and hedging with these investors. Serving big Dutch investing institutions accounts for half of Citibank’s business in Amsterdam.
In the securities markets, Kempen & Co is widely praised as a highly competent and profitable niche player in the equities and asset management businesses. It ranks highly in Euromoney‘s European brokers’ poll for its research capability in Dutch equities and leads the occasional international share placement for Dutch companies such a that for Devote, last February.
Portugal
Best bank: Banco Espírito Santo
Best foreign bank: Santander
Best securities firm: BES Investimento
The giants of Spanish banking, Banco Bilbao Vizcaya (BBV) and BSCH, cast ever longer shadows over the Portuguese banking scene. The announcement of the merger between Banco Central Hispano and Santander in January caused particular consternation among the senior executives of Portugal’s largest bank, Banco Commercial Português (BCP). BCH had owned a 14.5% stake in BCP since 1993 and the two banks had an understanding that BCH would not move into Portugal.
But Santander, widely regarded as the senior partner in the BSCH partnership, has the largest, strongest and most profitable retail, commercial and investment banking operations of all the foreign banks in the country. Fearing that it might become subservient to the powers in Madrid, BCP insisted that the Spanish merger had brought the non-compete agreement to an end. The cross-shareholding was unwound. BCP has placed some of the shares once held by BCH with other strategic partners, Commerzbank and Royal Bank of Scotland, and taken the lion’s share back in the form of treasury stock, leaving many analysts to suspect that BCP will try to place it with another partner. One senior foreign banker in Portugal says, “In the corporate sector in Portugal, so in the banking sector, everyone is talking to everyone. There will be further consolidation, exchanges of minority stakes and mergers.”
There are rumours that BCP may do a deal with Argentaria or Banco Popular in Spain, or that it might eventually enter a domestic merger with the government-owned Caixa, its closest rival in Portuguese consumer banking. Meanwhile BSCH is seeking to solidify its position through a stake in the Champalimaud group of financial companies.
BCP is clearly the number-one consumer bank in Portugal. It has a strong mix of consumer brands and businesses through its ownership of Banco Português do Atlântico and its proven ability to cross-sell banking and insurance products.
But in wholesale banking, Banco Espírito Santo has made the greater strides this year and wins Euromoney‘s awards as best bank in Portugal. “Banco Espírito Santo has widened its power as being a major shareholder in several of the largest Portuguese companies in the sectors of telecoms, oil and power,” says one analyst. The bank and its investment banking subsidiary, BES Investimento (previously known as Essi), have been involved in many major corporate transactions in Portugal this year. It also therefore wins the award as best securities firm, ahead of Cisf and Banco Português de Investimento, which is a more narrowly focused corporate-finance and fund-management operation. “Banco Espírito Santo is the most international of the Portuguese banks and so has good chances for doing business with the Portuguese subsidiaries of foreign companies,” says one foreign banker in Lisbon.
It is now working on the fourth sale of stock in Portugal Telecom, alongside leading investment banks Warburg Dillon Read and Merrill Lynch. In March it worked with the same two international firms on a benchmark €1 billion bond for Portugal Telecom. BES has played a key role in some Portuguese corporate IPOs, including one for pulp and paper company Soporcel. It ranked top in Euromoney‘s European brokers poll for its research and execution in Portuguese equities.
Foreign banks have come and gone in Portugal in recent years. Crédit Lyonnais, the oldest foreign bank in Portugal, sold out to BBV. Deutsche Bank continues to do some interesting investment-banking transactions, including securitizations, but commercial banking in Portugal is increasingly covered by Deutsche’s branch in Madrid.
Santander has the broadest market coverage, with strong equity research, trading and sales and equity derivatives operations. Its debt capital markets business has sold deals to Portuguese investors for Instituto de Crédito Oficial and the World Bank. And its corporate finance arm acted as arranger and adviser to Metropolitano de Lisboa on a Esc25 billion 20-year ($130 million) cross-border leasing deal. It also led the IPO of Finibanco, advised retailer Modelo-Continente on its acquisition of Candia in Brazil, and it advised Cofina on the acquisition of a controlling stake in Companhia Celulose de Caima. Santander is driving further into the local economy, dealing with smaller companies below the top 10 corporate names that control most of the Portuguese economy.
Spain
Best bank: BSCH
Best foreign bank: Chase
Best securities firm: BBV
The two giants of Spanish banking, Santander and BBV, are locked together in an intense rivalry both at home and abroad. If one declares an initiative – to expand into Latin America, or Italy, or France – the other is sure to follow. This year may be remembered in Spain as the moment when Santander stole a decisive march on its great foe.
While the senior management of BBV had talked a great deal in 1998 about the pressing need to consummate a large domestic merger to gain critical mass in the run-up to the euro, it was Santander that struck first, unveiling its deal with BCH in February. It was the first large European bank merger following the introduction of the single currency. BSCH is now the largest financial group in Spain ranked not only by total assets, shareholder equity, market capitalization and profitability, but also by market share in most segments of retail and wholesale banking as well as asset management.
The bank has moved quickly to integrate its treasury operations and consolidate its corporate banking effort. It has a 20% market share in lending in Spain, a 23.4% share of mutual funds and 22.8% of pension funds under management. Although the lion’s share of BSCH’s domestic earnings comes from retail banking, it is also determined to take full advantage of its leading position in corporate banking with the target of being the main bank for 50% of larger corporations in Spain.
Large Spanish companies and banks have been watching keenly for signs of how BSCH will develop now. “Santander was very transaction-oriented,” says the head of the Spanish office of one large multinational. “Much more so than BBV. Now with the BCH integration, I expect relationship banking to play a bigger role.” Competitors will also be watching for any strains at the top of the new bank, where the autocratic figure of Emilio Botín is now joined as co-chairman by José Amusátegui and by first vice-chairman and chief executive officer Angel Corcóstegui. The bank claims to have learnt the lessons of earlier Spanish mergers – such as that between Banco Bilbao and Banco Vizcaya, of which Corcóstegui is a veteran – and has determined to push through key organizational and managerial decisions in the first 100 days after the merger agreement. The one obvious sign of stress so far has been Botín’s decision to remove his daughter, who until March ran Santander’s investment banking business.
Within Spain, BBV has done an even more impressive job of establishing itself as the main Spanish bank to lead international bond and equity deals for large Spanish issuers. This year, it executed two large block trades in stock of Telefónica España, winning mandates from the Spanish government as part of its privatization programme in partnership with Goldman Sachs. It has also done smaller corporate equity deals for Bodegas y Bebidas and Indra Sistemas. Last year it did a bought deal in Iberdrola stock. It has led keynote bond deals for leading Spanish corporates including Endesa, Repsol and Telefónica.
It will be interesting to watch next year for the performance of smaller Spanish securities firms now under the ownership of bulge-bracket foreign firms – most notably leading equity firm Asesores, which Morgan Stanley Dean Witter bought this April.
Chase has been the largest and, according to available figures, most profitable of the foreign banks in Spain, having operated there for long enough and on a sufficient scale to consider its operations as a Spanish bank in their own right, as much as a foreign outpost. Its strengths are corporate finance, syndicated lending, treasury, custody and clearing and M&A. It has sole-led several large loans this year, including those for Essa, Abengoa and Grupo Navigul. It advised RTVE on the disposal of a stake in VIA Digital and underwrote the public offering of stock in Ferrovial. It is the top foreign bank in clearing in Spain and holds in custody some 20% of all foreign investment in Spanish equities. Chase will have to watch out for Citibank, another long-established foreign bank, which claims 250 active wholesale relationships and which now, as well as doing euro cash management and other transactions services and lending for these, can increasingly add the debt and equity underwriting capability of Salomon Smith Barney. PL
