BEST BANK
UBS
BEST DEBT HOUSE
Deutsche Bank
BEST EQUITY HOUSE
UBS
BEST M&A HOUSE
Merrill Lynch
BEST AT RISK MANAGEMENT
JPMorgan
BEST AT CASH MANAGEMENT
ABN Amro
BEST AT INVESTOR SERVICES
JPMorgan
BEST SMALLER BANK
Banco Finantia
Retail banking in Europe is about to undergo dramatic change. Since the introduction of the euro, the market has been awaiting major cross-border consolidation. In the past 12 months this has started to materialize.
The largest cross-border retail banking acquisition to date involved Spain’s Santander acquiring UK mortgage bank Abbey in the second half of 2004. The scale and success of this transaction is one of the reasons why Santander wins Euromoney’s global best bank award for 2005. In a further big cross-border deal, and as this issue of Euromoney went to press, Italy’s UniCredit looked all set to buy Germany’s HVB. More such deals will surely follow.
Contenders
In the absence of true multi-market retail banks, contenders for the best bank in western Europe award have tended to come from the wholesale side of the business.
At first glance, this year’s winner, UBS, fits that bill. It is a powerhouse in European equities, a leading player in the primary markets and has a pan-European secondary trading business that no other bank can match. It is also one of the world’s five leading debt houses, with an extremely strong European franchise.
As a bank, it has true scale, with the world’s largest asset base of $1.53 trillion and an aggregated loan book from all businesses of SFr292 billion ($230 billion), which helps drive a recurring cashflow of as much as 50%. The bank as a whole also generates a healthy return on equity of 20.1%.
But what distinguishes UBS from its competitors is the way it has combined its abilities in investment banking with an unrivalled leading position in retail and private banking. UBS is creating structured and alternative investment products and doing a better job of selling them through its own network to retail and high-net-worth investors than any other firm in Europe. It has opened new business lines with the creation of risk management solutions for private clients, notably in real estate investment trusts. It offers an unrivalled research product for wealth management clients.
UBS’s wealth management business looks increasingly unassailable, with recent acquisitions including American Express’s private-banking operations in Luxembourg, Sauerborn Trust in Germany, Laing & Cruickshank in the UK and Etra in Italy.
The winner of the regional debt house award, Deutsche Bank, started 2005 with a bang, storming the subordinated debt market and making amends for its previous underperformance in bank capital provision for European borrowers.
Faced with a once-in-a-rate-cycle opportunity, characterized by low absolute yields and historically flat curves, bank treasurers – among the more shrewd borrowers – front loaded capital issuance. Sovereigns and agencies were as active as always, but corporates were notably absent, making capital raising for financial institutions the only game to play in town.
Some 29 issuers in euros in the 12 months up to April 2005 gave the bank a 7.6% market share in the euro subordinated league table, just behind JPMorgan and only slightly behind UBS, both long-standing capital securities powerhouses.
Deals
The deals covered a broad range of retail capital deals, institutional capital deals, and a significant chunk of structured capital deals, such as normal constant maturity swap structures through to CMS curve steepeners.
Perpetual and long-dated bank capital product was funnelled to investors searching for yield and duration. Investors’ willingness to go down the capital structure and yield curve was part of a wider trend of accepting high levels of complexity in order to get yield.
Deutsche was also at the forefront of innovation for sovereigns, specifically the ultra-long end of the yield curve, with the inaugural €6 billion 50-year OAT for the Agence France Trésor.
Alongside Goldman Sachs, it also sold the first-ever public monetization of Paris Club debt – Germany’s €5 billion Aries trade. Deutsche was the only underwriter on every public 30-year sovereign bond in euros for the 2004/05 period and is the number one bookrunner for sovereigns.
The bank cemented its position as the top bookrunner at the long end of the curve with its lead role in the first 50-year bond issue for a European corporate, Telecom Italia, although the issue performed poorly in the secondary market.
Although corporate issuers were generally reluctant to print deals, Deutsche maintained a high profile and market share. Another of its notable trades was a 30-year long-end deal for Russian gas company Gazprom, the first emerging Europe corporate to extend this far down the yield curve.
Deutsche was better than any other firm at taking advantage of corporates’ desire to clean up balance sheets with liability management transactions. Over the past 12 months, it arranged 17 trades for a total targeted amount of €10 billion. Second-placed JPMorgan led only 10 deals for half of the total volume.
Although Merrill Lynch has had an amazing year in western Europe, topping the league table for equity capital markets issuance with a market share of 8.85% and leading some of the year’s most high-profile transactions, fifth-placed UBS, with a market share of 8.14%, is Euromoney’s choice for best equity house in the region.
Unlike second, third and fourth-placed Morgan Stanley, Goldman Sachs and JPMorgan, UBS and Merrill Lynch stand out for avoiding mispriced large block trades that hurt competitors.
The two banks have also stood out because of the strong aftermarket performance of their deals, which wasn’t the case for the other top-five bookrunners this year.
UBS led 14 more deals and was strong across more ECM products than Merrill, which focused primarily on IPOs and block trades. UBS’s business has also been strong in the midcap sector, where some of the most profitable business this year was to be found.
UBS retains its position as the dominant sales and trading force in western Europe and stands out for excellent research, which topped the majority of the categories in the leading surveys yet again this year.
There is no magic formula for achieving excellence in M&A. Consistent application and nurturing the client base are the keys to success, as Merrill Lynch has shown. By using a conventional matrix of country, industry and product specialists and by keeping a decent-sized team in place when M&A activity was slow, the bank profited when market activity picked up in 2004. Judicious lateral hires also help, and in March this year Merrill announced that it had hired Carlo Calabria as head of European M&A from CSFB.
The most striking aspect of Merrill’s performance is its role on a series of breakthrough deals in each of the industries it covers. As such, its total volumes might be behind such traditional powerhouses as Goldman Sachs or JPMorgan. But its track record on landmark deals is unmatched. If a European acquirer is looking at cross-border consolidation or creating a national champion, the chances are that Merrill will be involved.
Institutional business
In financial institutions business, Merrill advised Santander on its purchase of Abbey and Royal Bank of Scotland on its Charter One acquisition. It has followed this up by advising UniCredit on its takeover of HVB. Although a domestic deal that did not grab as many headlines as these cross-border consolidations, Caisse d’Epargne’s $15 billion consolidation of various local French banks was another highlight. The picture is similar in healthcare (Sanofi-Aventis, for Sanofi); TMT (Telecom Italia Mobile on the TI merger); and multi-industry (Snecma on its $6.6 billion merger with Sagem, Finmeccanica on the $1.8 billion acquisition of Agusta Westland, and others).
The bank’s work for Pirelli Real Estate and Cannon Capital has given it exposure to the most innovative real estate deals. Indeed, a strong real estate M&A practice is a sign of strength in breadth, since the advisory role is regularly part of a larger mandate that includes sometimes very aggressive leveraged finance, an equity placement, tax structuring, and liquidity provision. Real estate M&A is often driven by financial sponsors, where Merrill’s coverage is also strong. In the past 12 months it was involved on BC Partners’ disposal of Grohe, and Punch Taverns on the acquisition of Innspired Pubs and Taverns from Alchemy Partners.
Risk management
Mention the name JPMorgan in association with risk management and you will probably polarize opinion. The firm’s detractors (often its competitors) say the bank is overly aggressive in its marketing of derivative-based products, and the bank has undoubtedly been caught up in a number of high-profile cases.
But speak to clients, particularly in western Europe, and you get a very different picture. Yes, the firm is aggressive, but what its clients like is that JPMorgan is one of the most active players in all big derivatives markets. That puts it in a unique position to see flows, spot trends and package solutions for its clients.
JPMorgan has undoubtedly been one of the leading players in the development of cross-asset-class derivatives products. It has introduced innovative hybrid structures, such as hybrid swaptions, to address multiple risks. It has also been one of the leading banks in terms of developing tools for clients to analyze the impact of international accounting standards. The firm has also begun to beef up the one sector in which it traditionally lagged its competitors, commodities derivatives, again with a view to providing clients with the type of hybrid product they now seek.
Despite the recent departures of many of the senior management who drove the development of the firm’s structured credit business, JPMorgan remains the leading bespoke platform for credit derivatives, executing more than 275 bespoke tranched trades on more than $17 billion of notional in 2004. There is no better demonstration of how important JPMorgan remains in this area to its clients than the fact that more than 2,000 of them attended the bank’s annual structured credit conference in Paris.
ABN Amro‘s holistic approach to cash management has resulted in an impressive increase in its market share in western Europe over the past two years.
By addressing companies’ working capital within the entire cash management offering, it has set itself apart from other banks in the field, which have focused on products.
Although it is a leader in technology for cash management in the region, ABN Amro realizes that product innovation can only go so far in a concentrated and competitive market. It has therefore sought to gain market share by increasing the range and depth of services and the ease of integration that corporate entities require to deal with the often fragmented European market. This truly pan-European approach has enabled the bank to capitalize on the growing trend of companies to move away from having multiple relationships with domestic or regional banks to just one cash management solutions provider.
Over the past 12 months, the bank has won more than 1,500 deals in the region, including a mandate for Procter & Gamble.
State Street’s acquisition of Deutsche Bank’s custody business in 2003 is now bearing fruit. It secured several high-profile custodial mandates last year, including a multibillion euro mandate with Lufthansa and VHV Insurance in Germany.
But JPMorgan is hard to beat in terms of product innovation, its range of clients and the size of the mandates it secures.
After landing a big outsourcing deal from Barclays Global Advisors last year, the bank has continued to maintain its leadership and can boast new European clients such as UBS Global Asset Management, Cazenove Fund Management, PFA Pension and Aviva Funds Services.
Although JPMorgan Worldwide Securities is active in more than 80 countries, its local focus on Europe is commendable. Unlike many of its competitors, its global processing hub is in Europe. It also remains fully committed to continuing investment, opting to grow its business organically.
Over the past 12 months it has continued to focus on Dublin, Luxembourg and Frankfurt, where it is the largest non-indigenous custodian. It has also been developing region-specific sales and client service teams.
In response to the dramatic shift in market attitudes to derivatives and hedge funds, JPMorgan has introduced an independent valuation service for OTC derivatives, from simple interest rate swaps through to exotic structured derivatives.
New award
This year Euromoney has introduced an award for the best smaller bank in western Europe. The inaugural award goes to Portugal’s Banco Finantia, which is active in Spain and Latin America, as well as domestically. It does not try to compete across the board against its larger rivals but has been extremely successful in the areas it has chosen to specialize in.
Finantia’s three main operating areas are investment banking, consumer finance and private banking. In 2004 it posted consolidated net income of €30.5 million, an 18% rise on 2003, and generated impressive return on asset and return on equity numbers of 2.4% and 21%.
Finantia’s greatest success has been in carving out a niche in debt capital markets for Brazilian, Turkish and Russian issuers, where it competes with some of the world’s largest investment banks. This has translated into trade finance and M&A cross-border business. Finantia has also played a leading role in the development of structured finance and securitization markets in Portugal.
