Best bank
Bank Austria/HVB Best at investor services
Bank Austria/HVB
Best loan house
Citigroup
Best M&A house
Citigroup
Best at risk & cash management
Citigroup
Best bond house
UBS
Best equities house
CSFB
Award for innovation
Raiffeisen Zentralbank
In deciding the awards for excellence this year, one fact became apparent – some banks have had a great year, posting growth of well over 50%. “Best result ever” was a phrase encountered more than once – for Turkey’s Akbank, for example, whose consumer loans business grew by over 300%; or for OTP, whose 2004 first quarter figures were the best in the history of Hungarian banking; or Russia’s MDM Bank, which reported 76% net income growth.
Other banks have had a good year too. In Poland and the Czech Republic, for example, banks have emerged from the bad old days of loan provisions and negative profit figures, and are making healthy profits of between 10% and 30%.
And some banking sectors have just had OK years. In Slovenia, Romania and the Slovak Republic, for example, growth has been in the single digits.
The countries where banks have put in amazing results – Russia and Turkey – tend to be those where the fixed-income markets have had a very good year, so the banks have made excellent profits on proprietary trading. That’s not the only reason they have done well, but it’s one of them.
Beyond that, the regional story is one of ever-decreasing interest rate margins, shrinking fees in capital markets activity, more competition for retail deposits with a wider and more sophisticated range of products, and a more demanding work environment for CEE senior bankers. As Pyotr Aven, president of Alfa Bank, put it after dismissing the bank’s head of retail banking for failing to increase market share: “If someone does not work out, we will have no moral qualms about firing them.”
In other words, emerging Europe has emerged, and the new world into which it has emerged after EU accession, or after attaining a sovereign investment grade is, in many ways, a tougher one.
The big regional banks are already gearing up for another round of battle. RZB is raising e200 million via an International Finance Corporation loan, to give it much-needed cash for new acquisitions. Bank Austria says it intends to expand its retail network by 200 branches by 2007. Erste Bank and OTP are also looking for new acquisitions.
There are far fewer assets to be bought now, but there are still some prizes, such as PKO in Poland, or Banca Comerciala Romana in Romania, or, indeed, any of the large private banks in Russia. And some players at the table are likely to throw in their hand and sell assets – such as Bayerische Landesbank, which is expected to sell MKB, the second-biggest bank in Hungary.
In terms of the award for best bank in the region, we tried to decide it based on a balance of wide market coverage, dominance in key markets, and strength in investment banking.
The choice came down to two banks – Bank Austria and Citigroup. The latter name might surprise some, considering the relatively limited number of countries where it has retail operations. However, it has Bank Handlowy in Poland and strong retail operations in Russia – neither market leaders, admittedly. But Citigroup is so strong in investment banking, across all the assets, that one was tempted to give it the overall award.
In loans, where it is best regional debt house, for example, it is the clear leader, having done 38 deals for a total of $2.7 billion. The nearest competitor has done $600 million less. In M&A, where it is the best regional house, Citigroup has done $4.5 billion in deal volume. The next closest, JPMorgan, has done $1.7 billion. Globally, Citigroup might be losing market share in FX, but in emerging Europe currencies it is unrivalled. It also leads in structured trades in the region, through deals such as a Zl750 million ($200 million) structured private placement for the Polish ministry of finance, or a $210 million cross-currency hedge for a top-tier Czech client. For these reasons, it is also best at cash and risk management in the region.
The only area where it is no longer so strong as it was is in fixed income, where UBS has really come through as the market leader in the past 12 months, and in equity primary markets, where CSFB dominates.
UBS has lead managed 15 deals, compared with second placed JPMorgan’s 13. UBS has been particularly dominant in bringing Russian corporates to the Eurobond market, which is where the higher fees still are. It says it is moving into the rouble bond market, where Citigroup has already begun to venture.
However, choppy market conditions as a result of US interest rate rises and Yukos-related investor anxieties mean we may see a quieter Russian fixed-income market, at least until September.
CSFB has had a great year in ECM, lead managing equity offerings for Cesky Telecom and Telekomunikacja Polska, as well as arranging the $120 million IPO for Irkut, which was the largest domestic Russian IPO in several years. Merrill Lynch deserves praise for arranging the IPO of Zentiva, which was the first Czech IPO ever.
But even in fixed income and equity capital markets, Citigroup is quite strong, having lead managed eight bond deals and one accelerated equity offering.
Perhaps the deal that most sums up the strength of Citigroup’s emerging Europe business at the moment is the Norilsk Nickel acquisition of a stake in Gold Fields of South Africa. Citigroup advised both sides, arranged the financing – the largest unsecured loan from Russia so far – and did it all over a weekend.
Nonetheless, Bank Austria/HVB puts up a good fight, although only if you consider the two as one operation. In loans, they have arranged the second-most deals – 36 of them, for just under $2 billion. The group is among the leaders in IPOs, having done three in the past year.
It is the number one bank for trade finance in the region, according to Trade Finance magazine. It is the best custodian in central Europe, according to Global Investor’s poll. It has also done more deals with the European Bank for Reconstruction and Development than any other bank, even Raiffeisen Zentralbank.
Its subsidiaries have performed well, particularly in Poland, where BPH-PBK justified its Euromoney award last year by doubling profits ; and in Russia, where HVB’s International Moscow Bank recovered from a disastrous 2002 to put in one of its strongest years of profit ever in 2003. And, thanks to BA-CA’s successful IPO, which has performed better than most expected in the secondary market, the bank has some cash with which to make new acquisitions.
Raiffeisen Zentralbank poses something of a quandary. On the one hand, it doesn’t dominate in loans, bonds, FX, M&A, IPOs or equity trading, or custody and risk management. It is good in bonds, in loans, in EBRD-related deals and in M&A, but is not up with Citigroup or BankAustria/HVB. Nor does it have any clear domestic leaders in its portfolios – Tatra Bank, the jewel in its crown, has had a bad 2003 and lost its market leadership position.
On the other hand, RZB has played an enormously important role in the eastern European market. It was one of the first western banks into the region, and it is still one of the first banks to go where others refuse to tread – such as Belarus, Ukraine, Albania, Kosovo, and Serbia.
It is also a pioneer in market sectors. For example, it led the pack in the Russian loan market into the second tier of corporate clients, and it has taken on a similar pioneering role in the regional leasing market.
And RZB might yet have the last laugh – note how it has sneaked into the top three in the Romanian banking sector, while the big two banks rather idly sat on their laurels and lost market share. RZB might have lost some ground in the past few years but it might just gain it back in the next few, helped by the capital provided by the IFC equity investment.
