Best bank – Bank Austria/HVB
Best debt house – Citigroup
Best equity house – ING Barings
Best at custody – Bank Austria, HVB
Best M&A house – CSFB
Best at risk management and treasury – Deutsche Bank
Best at cash management – Deutsche Bank
In some ways, this has been a great year for banking in emerging Europe. At Euromoney’s central and eastern Europe conference in Vienna in February 2003, for example, there was a clear sense of optimism among the delegates that was in marked contrast to the gloom of bankers from other regions. CEE was a rare source of positive stories, such as the big Russian mergers and the accession of convergence countries to the EU.
In other ways, however, it has still been a tough year. Most of the big banks fighting to dominate the region, including KBC, UniCredito Italiano, Citigroup and RZB, have been hurt by low economic growth in Poland, the biggest market in the region after Russia. As one head of eastern European banking put it: “Something needs to change there soon.”
In addition, the number of banks competing for bond or M&A business has forced commissions down to the point where Ukraine, for example, can pay fees normally associated with investment-grade companies. All emerging-market syndicates are suffering as a result. And in equity, there have been few IPOs and in many countries privatization has stalled.
Nonetheless, the long-term prospects for the region are good, and several banks are positioned to capitalize on them.
In the retail sector, Erste Bank has, in the words of one analyst, “recreated the Austro-Hungarian Empire minus Hungary” with its domination of the retail sectors in the Czech Republic, the Slovak Republic, and Slovenia. In investment banking, Citigroup remains impressive, coming top in both syndicated loans and bonds for the region, scoring highly in M&A, and also being a front-runner in custody and cash management. It is pushing ahead with its retail expansion in Russia and elsewhere, though its total number of branches remains low compared with other banks.
JPMorgan also deserves mention for its strong performance in bonds and M&A – it won several awards for its work in different countries. KBC scores well in total assets and branch numbers, but its total profit has been hurt by the poor performance of Kredyt Bank in Poland.
The three banks that most impressed this year were UniCredito, RZB and Bank Austria. Unicredito leads by number of branches, and boasts such national leaders as Zagrebacka, Bank Pekao, Bulbank and now Koc Financial in Turkey, in which it bought a stake near the end of last year. Zagrebacka has looked particularly good in the past year, in Croatia and Bosnia-Herzegovina. But provisions and low commissions at Bank Pekao have proved a drag on the group’s regional income, with operating income down by 21% in the first quarter compared with the average for 2002.
RZB has excelled in some areas. It can be particularly proud of its performance in loans, where it is second in number of deals done, and its powerful push into the bond market in Russia. It is still the pioneer in new markets, having bought stakes in banks in Kosovo and Belarus. And it can boast market leaders in Slovenia, Serbia, and Bosnia-Herzegovina. Its failure to win the award this year springs from the fact that it does not dominate in enough countries or categories, with the exception of loans. It has a very impressive regional presence, in terms of the number of countries in which it has a subsidiary. But often, these subsidiaries are not in the top five of the country. In Poland, for example, its subsidiary is the eleventh biggest. And this translates to a relatively small net profit compared with some groups in the region.
Bank Austria is active in as many countries as RZB, but with twice as many branches and assets, and almost three times as much profit, according to figures from UniCredito, making it the largest network in the region. In the past year, it bought Biochim in Bulgaria and Splitska Bank in Croatia, both of which are getting results. These acquisitions were typical of Bank Austria – they were bought relatively cheaply, and were not the biggest banks in the country but are capable of challenging for that position.
That strategy has worked very well in Poland. While almost every other group has had its regional results dragged down by their Polish subsidiaries, BPH-PBK, Bank Austria’s subsidiary, is really starting to come into its own. This strategy of buying a mid-tier bank and building it up seems, in the past 12 year at least, to have worked better than UniCredito’s strategy of buying into the top of the market (Bulbank, Pekao, Zagrebacka), where there isn’t necessarily much immediate upside, or RZB’s strategy of buying into smaller banks, where there is too much of an uphill climb.
As well as winning the regional best bank award, Bank Austria has performed well in several asset classes. It wins the custody award, thanks to strong performances in almost every CEE country. In syndicated loans, parent bank HVB has had an excellent 12 months, pipping RZB as mandated arranger on most deals. Judged by arranger positions, it leads the loan market by some distance, with a 7.3% market share. The one area it could make more of a splash is in bonds where, according to Bondware, it is not in the top running. However, in M&A, CA-IB, Bank Austria’s investment banking subsidiary, has done the most deals in the region, together with CSFB. The combination of HVB’s loan strength with CA-IB’s advisory talents is making the bank the Citigroup of eastern Europe. That is unlikely to be changed by the IPO of 25% of Bank Austria later this year.
Citigroup is the clear winner of the best debt house award this year, thanks to its strong performance in both bonds and syndicated loans. In bonds, it leads the league tables by number of deals and by volume. It has been particularly strong in Russia, where it won our best debt house award and managed to capture a large part of the profit from the debt boom that has occurred there in the past year. That has included deals for TNK, Gazprom, Sibneft and City of Moscow.
The bank is also particularly strong in Poland, where it won our award for best debt house. It has done deals for TPSA and the sovereign, and is working on one of the first securitizations out of Poland.
The only bank challenging Citigroup’s position in emerging European debt is JPMorgan, which at the time of writing had in fact just edged past Citigroup in the bond league tables. JPMorgan has won debt awards this year in Bulgaria and Romania, and has lead managed several sovereign deals.
Dresdner Kleinwort Wasserstein deserves a mention for having significantly improved its position in bonds – it is also one of the better banks in syndicated loans.
But Citigroup, according to Loanware, leads with a 9% market share in central and eastern Europe for the past 12 months. Some of the bigger deals include a e1.75 billion credit for Ceski Telecom and one worth $510 million for Sibneft.
The award for best M&A house was a hard call. Obviously, a handful of really big deals dominated the M&A market this year – BP-TNK, Yukos-Sibneft, and the Novartis takeover of Lek – though there were also several smaller but still important transactions, particularly in the banking sector, such as the privatization of DSK, Erste Bank’s acquisition of Ceska Sporitelna, or the Koc Financial-UniCredito deal.
Some banks, such as Lehman Brothers and Merrill Lynch, surged to the top of the league table having advised on one or other of the big oil deals, but hadn’t done that many other deals. And just because they were included in the advisory group it doesn’t mean they played a significant role. Indeed, arguably no bank played a significant role in the merger of Yukos and Sibneft, which propelled UBS and Lehman Brothers to the top of the league. Many in the market believe it was more or less worked out by Mikhail Khordorkovsky and Roman Abramovich, owners of Yukos and Sibneft respectively.
Euromoney is giving the best M&A house award to CSFB because it has played a leading role in the most deals in the past 12 months, including some of the landmark deals, such as Novartis’s acquisition of Slovenian generic drugs company Lek.
This e876 million deal was completed in October 2002, giving Novartis the capacity to compete with rival GSK’s profitable Augmentin drug. Euromoney failed to acknowledge CSFB’s key role in the deal when we awarded it the M&A deal of the year award in February, for which we offer apologies. CSFB, sources inform us, played an important role in making the transaction happen.
The bank has also won several deals through its relationship with Russian oil company LUKoil, including the acquisition of majority stakes in RKM Oil, Ukhtaneft, and Tebukneft, for undisclosed amounts. It also advised Sistema on its e340 million acquisition of 10% of Russian telecom company MTS; and Nordea on its e130 million acquisition of a stake in Petrobank.
Other contenders in M&A this year include JP Morgan, which advised on the successful privatization of DSK, the BP-TNK deal and the acquisition of Ceska Sporitelna by Erste Bank; HVB, which advised on several deals including the Novartis-Lek transaction; and UBS, which advised Norilsk Nickel on its acquisition of US company Stillwater Mining, as well as the Yukos-Sibneft merger.
The best equity house award was also difficult to decide, because there haven’t been many IPOs from emerging Europe this year. Dealogic’s Equityware reports just 11. Of these, ING Barings has done the most, having lead managed three IPOs. These include, most notably, the e850 million flotation of Polish telecom company TPSA in December 2002.
ING also has a strong record in equity trading. It is among the top traders by volume in several countries, and is the outright leader in Romania. And its emerging market research, led by Philip Poole, is well respected.
Both Deutsche Bank and Citigroup were strong candidates for the best at risk management and treasury and best at cash management awards. However, Deutsche edges ahead, thanks to its triumphant performance in our forex poll for emerging Europe this year. In both the koruna, the zloty and the forint, it takes first place, though Citigroup still holds on to the lead in Turkish lira. Deutsche has a regional presence in forex in eight CEE countries. It also has an excellent OTC derivatives business, which has grown an average of 60% in the past four years.
