Best bank – HSBC
Best debt house – HSBC
Best M&A house – Rothschild
Best at risk management and treasury – Citigroup
Best at cash management – Standard Chartered
Most improved bank in the region – National Commercial Bank
HSBC has arguably the most extensive regional presence in the Middle East in terms of both the number of countries in which it operates and the breadth of products that it offers. As well as being the winner of this year’s best debt house in the Middle East award, HSBC is also a strong contender for the risk management and treasury and cash management awards.
This year no awards have been given for best equity house or best at custody in the region as low volume of deals and the low turnover of most of the region’s markets mean awards for these categories would not be very meaningful. But even in these areas HSBC is one of the strongest players. It has a brokerage business in most markets and its affiliate, Saudi British Bank, was co-bookrunner on the only initial public offering in the region this year outside Israel.
Though not the number one arranger of loans in the region nor the top bookrunner for bonds, HSBC is one of the top arrangers of loans and project finance. It has used its leading expertise in Islamic finance to structure some of the most innovative deals, such as the Islamic finance tranche for the Al Hidd power and desalination project in Bahrain. Bonds are a less important financing instrument in the Middle East and though it missed out on the largest international bond issues of the past year it worked on a number of ground-breaking issues. These include the first UAE dirham domestic corporate bond and the emirate of Dubai’s first ever bond issue.
Few M&A deals in the Middle East use advisers but Rothschild deserves the award for best M&A house in the region. It advised on three very different large deals in three different countries and, according to Dealogic, is at the top of the league table for the value of completed deals. Its deals included advising on: France Telecom’s e324 million sale of 71% of Egyptian mobile phone operator MobiNil to Orange; the Tunisian government’s privatization of Union Internationale de Banques; and Thales’s divestment of its Contact Solutions business to Israeli company Nice Systems. Rothschild has been quietly busy in the Middle East and North Africa for some time and it has a number of mandates in Morocco, Algeria, Tunisia, and Israel.
HSBC loses out on the risk management award to Citigroup, which is the top-rated bank for a number of regional currencies, including the Saudi riyal. It is the sole provider of interest rate options in riyals and Kuwaiti dinar swaps. It has also done some innovative deals in the region including credit default swaps, market-linked deposits, range accruals and other structured notes, knock-out swaps, structured forex options, currency-linked yield-enhancement strategies and structured loans with embedded forex options. Citigroup affiliate Saudi American Bank is also widely regarded as the leading treasury bank in Saudi Arabia.
Standard Chartered may not have as many cash management clients in the Middle East as HSBC or Citigroup but its services are recognized for being of exceptionally high quality. In Euromoney’s November 2002 cash management poll Standard Chartered’s services outscored those of both HSBC and Citigroup in 12 out of 19 measures of service quality. And this quality has helped its business grow 25% in number of clients and 40% in transaction volumes over the past year. It is also particularly strong at the SME level, although its business with large multinationals in the region also increased by 50% over the past year. In an independent survey in the UAE 88% of respondents picked Standard Chartered as the best at cash management and 92% selected it as the best at trade services.
The past decade has not been easy for Saudi Arabia’s largest bank but a remarkable transformation lands it the most improved bank award. Run by Khalid bin Mahfouz, son of the bank’s founder, National Commercial Bank first became embroiled in the 1991 collapse of Bank of Commerce & Credit International, in which it held a 30% stake. Mahfouz was fined by the US regulators and ousted from NCB. Reinvigorated by a team of ex-Citibankers, in 1996 NCB reverted to Mahfouz who then oversaw a huge increase in non-performing loans and was embroiled in further scandals.
Finally, in 1999, NCB was effectively nationalized when the Public Investment Fund bought 50% of the equity. A further purchase of 30% secured the PIF’s position as controlling shareholder and opened the way for wholesale reform. NCB had not published figures since 1998 so this year’s numbers were the first verifiable indication of its impressive progress in the past three years. Return on equity for 2002 was 32%, compared with an industry average of 22.1%.
NCB has a 23.1% share of the Saudi deposit market and a 19.5% share of loans. Its net income of SR2.4 billion ($640 billion) indicates growth of 26.71% compared with the industry’s meagre 6.07% average.
Overall, the bank has a 22.75% share of the net income of the sector and its assets of SR106.7 billion represent market share of 21.45%. There has been a separation of management and ownership that has allowed bankers to run the bank for profit, rather than owners operating it as their private purse. Investment in IT has been central to the bank’s performance and both its B2B and retail systems are state of the art. The bank is also an innovator in Islamic financial products with new credit card, insurance and yield-enhancement products.
The transformation from murky fiefdom afloat only by virtue of its royal connections to modern retail and commercial bank – the largest and most profitable in its home market – is one of the region’s more remarkable success stories.
