France’s turn at the EBRD? The scribblings of journalists are rarely immortal. But Euromoney’s former Frankfurt correspondent Laura Covill can proudly look back on the day, nearly two years ago, when she wrote the following in a profile of Horst Köhler, following his appointment as EBRD president. “If he is successful in London, Köhler may yet advance further still – to the IMF’s top position.”
Covill, now based in Washington, always boasted impeccable contacts and undoubtedly based her winning forecast on soundings from inside German corridors of power. All of which suggests something Machiavellian in chancellor Gerhard Schröder’s bid to have a German as IMF boss. Did he propose his First choice Caio Koch-Weser knowing that the US would oppose it but would have insufficient political ammunition to shoot down a second candidate?
Enter Horst Köhler.
Everyone agrees that the political-jockeying process by which candidates are selected for top multilateral jobs is appalling. Köhler is already weakened by it as he takes up one of the world’s most senior Financial posts. Now the fear is that the shenanigans will continue in the search for an EBRD replacement.
Long-suffering staff at the London-based institution are prepared for the worst. Last time they were without a president for seven months as the EBRD presidency became a bit player in a French bid to run the European Central Bank. With the French now losing the IMF it would be surprising if they didn’t get back the EBRD as a consolation prize. Treasury director Jean Lemierre has been mentioned but so far there is no word on his taste in marble.
Brian Caplen
Clipping the internet Wings
The rumours of the sale of Wingspanbank.com, the retail internet banking spin-off of Bank One, might at First appear to be a worried response from a beleaguered bank. Perhaps there is a wider lesson. In retail banking at least, new economy start-ups will struggle to beat the incumbents.
Wingspanbank.com opened its virtual doors to the public with great fanfare last June, with the aim of having 500,000 customer accounts within a year. The unit was grouped in with the credit card businesses and run by Verne Istock. Istock was forced to resign last autumn after a huge drop in revenues from credit cards hit the bank’s share price, halving it within two months.
As for the internet bank, with just three months to go it has roughly 100,000 customers.
Analysts estimate that perhaps no more than one third of these are still active.
That weak performance highlights a wider trend in the US. In August last year, Cyber Dialogue published a report showing that in the previous 12 months two million people had opened internet bank accounts in the US. It sounds like a lot. Unfortunately in the same period, three million customers closed the on-line bank accounts they already had.
What would cause the US public, so enamoured of internet stocks and on-line shopping, to abandon on-line banking? In part it’s the fragmented nature of banking, and the lack of national banks. It’s also the drawback of having no bricks and mortar infrastructure.
With no ATM networks, there’s no easy or free way of getting your money. The traditional banks such as Citibank, Chase and Wells Fargo are faring somewhat better at present as they are treating the internet as an additional way of accessing accounts.
So should E*Trade, which owns Telebank, and other internet banks without bricks and mortar, be quaking in their virtual boots? Not necessarily, says Mike Mayo, banks analyst at CSFB in New York. “Just because you Flip a switch it doesn’t mean that everyone will follow. ATMs took two decades to catch on, for example.” Another example is the debit card, which has taken so long to catch on First because Americans love their cheques, and second because it often suffered from being regarded as a poor man’s credit card.
As for Wingspanbank.com, its future now hinges on Bank One’s new CEO, Jamie Dimon who was appointed at the end of March after 16 months weighing up his options following his sacking from Citigroup. He now faces the daunting challenge of turning around a traditional bank which is in near free-fall and the subject of continual takeover rumours. “Wingspan’s future rides on whether Dimon views it of long-term strategic potential, or a Financial black hole,” says Mayo. With the street expecting great things from Dimon, taking anything but the former view might prove far too risky.
Antony Currie
Deutsche goes e-retail in the US
In its latest attempt to conquer the elusive but all important US retail market, Deutsche Bank is hoping to reach Americans through the internet.
At the end of March Deutsche announced that it was to take up to a 19.3% stake in US on-line discount broker, the National Discount Brokerage Group. This follows on from earlier moves in February, when it teamed up with software developer SAP and eTime Capital, and mortgage trading platform Pedestal.
It’s all part of Deutsche Bank’s attempt to build what it dubs as nothing less than a “new Global E World”.
As with pure investment banks such as Goldman Sachs or Lehman Brothers, Deutsche had no retail presence in the US, and to build one would have taken years. And prices for old-style businesses are high. In the summer of 1998, Dresdner Bank was rumoured to be looking at Paine Webber: the price being talked about was $10 billion.
Deutsche is paying $135 million for a 14.6% stake in NDB to add to the 1.7% it already owns. The German bank is also allowed to purchase another 3% on the open market to make up its 19.3% stake, which would make it the single largest shareholder.
Goldman now has a venture with on-line retail investment bank Wit Capital, and Lehman with one of the biggest retail-to-institutional investors, Fidelity. So far, European banks have kept out of the US retail investment market. With NDB, Deutsche adds a retail network to the investment banking and high-net worth businesses it acquired with Bankers Trust Alex Brown.
Deutsche actually already had a link-up with an on-line US discount broker, Ameritrade, since last year. That was based on cooperation on clearing and settlement of each others’ international trading, and providing German retail clients of Deutsche’s Bank 24 access to US stocks. It has been superseded by the new alliance. Deutsche-NDB plans to create a jointly- owned international online brokerage capability in Europe, Asia and South America.
Most importantly, it enables Deutsche Bank to tap into the US retail market via the internet. Deutsche Bank’s US investment banking and brokerage unit, Deutsche Banc Alex Brown, will sell IPOs through NDB’s web site, thus reaching NDB’s 208,000 customers.
That’s a modest client base: less than one third of Ameritrade’s, and just over 10% of the two largest, Charles Schwab and TD Waterhouse. But it does have the benefit of client satisfaction, being the number one rated broker in Barron’s Best survey. It has a strong technology platform, and a First-class reputation, explains Scott Moeller, managing director of the e-business division, e-GCI, at Deutsche.
In turn, NDB will gain access to Deutsche’s US equity research and IPO capabilities, and will have the enormous opportunity to establish a global presence, says NDB’s chairman Dennis Marino. There are, after all, about 100 on-line brokers on the US market, and consolidation will almost certainly increase their need to expand globally.As for Ameritrade, it’s for sale.
Anja Helk
Mergers in cyber space
By now it is common knowledge that internet time runs faster than normal time. Tech companies are dreamed up, Floated, their share prices double or more, and recent college grads become millionaires within months. But now it’s moving beyond the get-rich-quick IPO market.
Mergers and acquisitions may be the next big thing in the internet sector, now that ludicrously over-valued IPOs are starting to look rather passé.
Oneview.net is a great example. Within a span of 14 months, it was developed, publicly Floated, and then acquired by, or rather merged with, freecom.net for £136 million. In January 1999, Stuart Lawley launched Oneview.net with eight employees to provide everything from basic website designs to full e-commerce solutions for small and medium-sized enterprises. When the company went public in October last year, it was valued at £4 million and had grown to a staff of 200.
Freecom.net approached Oneview.net in March and within two weeks a deal had been agreed upon. Freecom.net had Floated in December and was a rival to Oneview.net. The merger of the two companies is the First consolidation in its sector. Freecom.net also recently purchased Pegasus, a company that produces accounting software. Chris Hawkley of Arthur Andersen, who advised on the merger, says that freecom.net envisions the companies working together to oVer a fully integrated virtual office.
“There will be more consolidation,” says Hawkley. “Lots of companies have Floated recently, alliances will form and mergers will take place. Some of the stronger players will emerge to acquire weaker players. The market rewards size.”
Internet M&A will be different of course. Hawkley says: “There is a tendency to share ideas in ways traditional businesses tend not to. These internet companies are into informal alliances and adapt more quickly. They can have mergers at different points of development.”
Christina White
Mattress money alchemy
Russians famously keep huge stacks of US dollars under their mattresses because they don’t trust the government or the banks.
Meanwhile the economy is starved of funds. The answer is for Russians to buy an international bond, part of the proceeds of which could be channelled back into the economy.
That, at least, is the idea of Oleg Preksin, a former Russian director at the EBRD, and Fred Ponsonby, who used to work for Phibro Energy/Salomon Smith Barney. Their Eurorouble project has created much interest, and some nervousness, among governments and banks.
Alexander Shokhin, chairman of the state Duma committee for credit organizations and Financial markets, described the idea as “legal money laundering” while supporting the scheme as better than an amnesty for offshore money. In exchange for being allowed to repatriate their money the owners would have to buy bonds.
But while gaining the backing of Russia’s bank for external trade Vneshtorgbank, western banks, essential to provide the kind of guarantees needed for the project to work, have so far shied away.
They fear anything that could look like money laundering, even though they buy into the common sense argument that much of this money is clean and will one day be subject to an amnesty.
“There has been so much fuss about Russia receiving western taxpayers money [IMF funds] and using it improperly. The beauty of this scheme is that it would be Russian money and we would be helping to ensure that it is used properly,” says Preksin. Adds Ponsonby: “To work the money must be invested in Russia under western control.” Both men are executives with trade advisor Evroinvest Ltd.
The aim would be to invest 70% of the proceeds in western securities such as US treasury bonds and 30% in Russian projects.
BC
