BEST BANK
Citigroup
BEST EQUITY HOUSE
Goldman Sachs
BEST DEBT HOUSE
Citigroup
BEST M&A HOUSE
Morgan Stanley
BEST AT TREASURY AND RISK MANAGMENT
HSBC
BEST CASH MANAGEMENT HOUSE
Citigroup
BEST AT INVESTOR SERVICES
JPMorgan
BEST PROJECT FINANCE HOUSE
ABN Amro
BEST SMALLER INVESTMENT BANK
Macquarie
Asia’s best bank award is won by Citigroup for the sixth year in succession, and during the past 12 months it has moved further ahead of its only viable regional competitor, HSBC. The $3.2 billion acquisition of Korean bank Koram, completed in April, filled one obvious geographic gap in its Asian footprint; it also made HSBC’s lack of a presence in Korea even more glaring. The only other key country where Citigroup has yet to play its hand fully is China, although with a 5% stake in Shanghai Pudong Development Bank and an option to increase that significantly, the bank already seems well positioned.
Asia remains a critical strategic region for growth at Citigroup and is already the group’s largest region outside the US, in terms of customers, revenues and earnings. The addition of a powerful retail and corporate banking franchise in Korea, one of Asia’s largest economies, promises significant profitability across product groups if Citigroup can ever get them all to work at the same time. And with the Asia country map almost complete, Citigroup can now proceed with that important and difficult task, which it claims is already well in hand [see interview with regional Citigroup head, Robert Morse, How Citigroup plans to stay number one in Asia].
Perhaps predictably, however, Citigroup’s competitors still see flaws in its strategy. The most common refrain heard about Citigroup from regional competitors in almost all product areas in which the bank competes is that if Citigroup ever really wins the internal product-versus-country battle, the bank will be even more competitive than it is already: a sobering thought.
It is true that while the retail and corporate banking machines appear to be in top gear, the same cannot yet be said of Citigroup’s investment banking franchise where, apart from debt capital markets, the bank has failed to break into the hallowed top three in either equities or M&A with any consistency. Indeed, it’s arguable that the non-debt side of the investment banking franchise has regressed rather than progressed over the past 12 months. Much work remains to be done to improve Citigroup’s performance in these areas. In the meantime, Citigroup in Asia can be relieved that HSBC’s record in equities and M&A is weaker still.
The award for best equity house in Asia was perhaps the closest call in Euromoney’s awards this year; UBS relinquishes its crown to Goldman Sachs for various reasons. In terms of league table status for primary equity issuance, the two leading equities players in Asia jockey one another for top position, the result depending on how the tables are cut. Here, Goldman Sachs wins out since in the 12 months under review the firm performed more strongly in Asia’s key markets than did its Swiss rival.
With creditable results in Japan, dominated by local firms, and Australia, where UBS reigns, Goldman Sachs in the rest of Asia raised more equity capital for clients than any other bank: more than $6 billion, including more than $4 billion through IPOs, where it led six of the region’s 15 largest issues.
It is a creditable result, yet it is in its secondary equities business that Goldman Sachs has made the most progress and earns the award. The anorexic structure of the past, with skeletal research coverage and opportunistic commitment to profitable markets, has given way to a more rounded and viable long-term business model.
Research coverage has increased 25% in the past two years and Goldman Sachs claims this will increase by another third in 2005. Although it does not pretend to be the same force in research that UBS clearly is, Goldman Sachs now covers more than 800 Asian companies, including in Japan. It has rolled out its direct market access model and launched REDIplus, its proprietary and highly sophisticated programme trading platform. Goldman Sachs is a leader in structured products in Asia and, with the exception of Morgan Stanley, is certainly well ahead of the competition in terms of prime brokerage, one of the strongest areas of growth in equities in the region.
With a leading position in primary equity issuance, an expanded research product and dominance in the more profitable product areas of Asia’s secondary equity markets, Goldman Sachs’ Asian equity franchise is assuming the look and feel of the future of the profitable Asian equity model: time will tell.
Citigroup is always a strong contender for best debt house in Asia since of all the viable candidates it boasts the deepest penetration of Asia’s debt markets and the broadest product suite. With 22 locations in Asia Pacific, there is almost nowhere that Citigroup’s debt teams do not compete. And with leading positions in G3 and local currency bonds and loans, there is barely a product that Citigroup cannot offer its clients.
In the 12 months under review Citigroup reasserted its dominance of Asia’s debt markets after a somewhat pedestrian performance in the previous year. In all, the bank raised almost $21 billion from 200 deals, including international and domestic currency bonds, loans and ABS in Asia ex-Japan and Australia, and led the overall league table. Throw Japan and Australia in and Citigroup raised nearly $51 billion from 325 deals and came in third behind two domestic Japanese banks.
No matter how the league tables are cut, Citigroup was number one in Asian G3 bonds, with a consistent market share of about 15%, including Australia and Japan. In syndicated loans, Citigroup emerged number one bookrunner in Asia ex-Japan, where it was still the leading international bank after domestic banks. In local currencies, Citigroup also scored highly, only topped by domestic or regional banks that dominate in single markets. Citigroup remains the only bank that maintains a leading presence in all Asian local bond markets.
On a country-by-country basis, however, Citigroup’s market position is more mixed. Although it commands strong positions in India, Korea and Malaysia, by its own admission its performances in China, Hong Kong and Singapore have been below par.
To back its strong primary debt issuance capabilities, Citigroup has a highly rated fixed-income research team, claims the largest institutional sales force in the world and, through its extensive retail and asset management networks, significant access to high-net-worth retail investors, an increasingly important investor segment for fixed-income products.
Morgan Stanley wins the award for best M&A house in Asia for the second year in succession. As Asia’s M&A markets have developed, so has Morgan Stanley’s franchise. It has league table dominance in Asia overall, advising on 23 completed deals worth $17.9 billion in Asia excluding Japan and Australia, a market share of almost 30%. The US firm also ranked number one in league tables that include Australia and Japan, with 42 deals worth some $23.1 billion.
Alongside perennial competitor JPMorgan, there were some notable performances among regional M&A banks. Chief among these was CSFB, which continues to exploit good country franchises, most notably Korea, the Philippines and Singapore and, in particular, UBS, which came from nowhere to rank third in Asia ex-Japan and Australia.
Morgan Stanley, however, remains the stand-out M&A bank. In line with recent Asian trends, its cross-border business is especially strong. Such deals of note on which Morgan Stanley advised during the 12 months under review include the $2.5 billion acquisition of National-North of England Gas by Cheung Kong Group, the $1.7 billion sale by Singapore Power of its merchant energy business assets to China Light and Power, the $485 million acquisition by eBay of Internet Auction Co in Korea, CIMB’s $146 million acquisition of GK Goh’s stockbroking businesses in Malaysia, Singapore and Indonesia, Tesco’s $260 million acquisition of a controlling interest in Hymall Retail Group in China and the $150 million acquisition by Newbridge Capital of a 17.9% stake in Shenzhen Development Bank.
HSBC wins the award for best treasury and risk management house for the eighth consecutive year. Long the bank’s money machine, the group’s TRM division shows no signs of losing steam.
HSBC holds a dominant position in treasury products in Asia, with an estimated 24.3% market share in corporate interest rate derivatives, 14.6% for fixed income and an estimated 66% market penetration for foreign exchange – all strong increases over last year’s performance.
In addition to market share, HSBC’s TRM division has demonstrated its innovative risk management skills through a unique hedge effectiveness model that enables customers to restructure entire derivatives portfolios to minimize future profit and loss volatility without significantly changing the economics of their hedge books. Crucially, claims HSBC, the model also ensures compliance with the tricky accounting standard IAS39 concerning the valuation of derivatives.
In structured products, HSBC has also demonstrated leadership in product innovation, including synthetic CDO transactions in Thailand, digital swaps in Malaysian ringgits, and Indonesian rupiah interest rate swaps linked to dollar/rupiah forwards.
Citigroup makes a lot of money in what might appear to be fairly mundane businesses. Cash management, for which it takes this year’s award, is one such, something Citigroup does extremely well and one reason why it retains its title.
From an already impressive market position, Citigroup has continued to grow strongly. Revenues increased 50% year on year. With all the extra liquidity in Asia in recent years, high revenue growth is to be expected: in fact all entrants for the award showed strong top-line numbers. However, Citigroup’s transaction volumes have increased 30% year on year, partly because existing clients’ volumes have grown but also because new client acquisitions increased by 18%. And the bank won 80% of the regional deals on which it bid. A client acquisition rate of that magnitude goes some way to explaining the Citigroup cash management division’s very strong increase in net income, up 115% year on year.
Citigroup might not possess the widest client base – that honour goes to bitter rival HSBC – but it dominates the more lucrative multinational corporations and top-tier local corporations space. This accounts for 70% to 80% of all corporate customers, which all told total 60% of Citigroup’s customer revenues. Citigroup also holds a strong position with financial institutions, which account for most of the remaining 40% of revenues.
If there is a flaw, it might be Citigroup’s relatively weak position in the small to medium-size enterprise sector. The group’s rapid integration of the Koram acquisition will go some way to addressing that deficiency, at least in Korea. The bank estimates that Koram will bring a significant boost to its SME business, increasing market share by 7%.
JPMorgan deems its investor services product suite Worldwide Securities Services (WSS), a good title since the bank is the world’s largest global custodian and winner of Asia’s best investor services award.
Formed from the merger of JPMorgan’s investor services and institutional trust services businesses, WSS provides custody, investor services, securities clearance and trust services to institutional investors and debt and equity issuers globally.
Although strong regional economic growth in recent years has enabled most securities services providers to record strong growth in their core businesses, JPMorgan stands out, with growth in client assets under custody in Asia Pacific increasing by more than 150% in the past five years and a further 28% growth in the past year alone. Assets in custody in Asia now stand at $104.4 billion.
Revenues have also increased strongly, with growth of 40% in the past two years and 23% over the past year. Broken down, revenues from Japan were up 39%, Asia ex-Japan up 33% and Australia up 11%. Despite a commanding position in investor services, JPMorgan continues to win new business, with 15 new deals in the past year and an 80% win-rate for all contested bids.
Project finance has enjoyed some of its best years in Asia of late, driven largely by the relentless demand from China for commodities and raw materials and rendering previously non-viable projects suddenly very lucrative.
At the forefront of the specialist project finance banks that ply their trade throughout the region is ABN Amro, which wins the award for best project finance house in Asia.
Although many banks choose to specialize in project finance, for example focusing on infrastructure or natural resources, ABN Amro is notable for delivering project finance solutions across all product and project types, from greenfield projects to restructuring deals. In the 12 months under review, ABN Amro closed deals with a combined value of $24.4 billion, including transactions in China, India, Indonesia, Korea, Pakistan, Philippines, Taiwan and Thailand. Project types included LNG terminals, power plants, gas pipelines, telecoms infrastructure and broadcast assets. Clients advised included K Power of Korea, PT Paiton Energy of Indonesia, PNOC in the Philippines, Eastern Multimedia in Taiwan and Reliance Infocomm of India.
This is the first year that Euromoney has considered a best smaller investment bank award. In Asia, it is a mark of the dominance of the US bulge bracket firms that, in the absence of truly boutique domestic corporate finance houses, there are few regional players that fit the bill.
Macquarie is one notable exception and is a clear winner of the best smaller investment bank in Asia award. Very much a top-tier investment bank in its home country of Australia, in Asia Macquarie had until recently played a clever game of carving profitable and often unrelated business niches in separate markets, thus neatly avoiding the bigger competition. One notable exception is in infrastructure investment, where the bank is already an acknowledged market leader globally.
The niche strategy changed when Macquarie acquired the Asian equities business from Dutch bank ING in 2004. Originally the highly regarded Barings equities franchise, the business had drifted under ING’s management and Macquarie reputedly picked it up for a song.
Now renamed Macquarie Securities, the bank has wasted no time in putting the acquisition to very good use. In addition to a stellar performance in the Philippines, where Macquarie completed almost all new equity issues over the past year, the franchise is bringing immediate benefits in Indonesia, Korea and Singapore. Macquarie also has operations in Hong Kong, China and Malaysia and has ambitious plans for expansion.
Although now arguably competing head-on with the bulge-bracket banks, Macquarie in Asia is in fact careful to continue with its niche approach, focusing clearly either on areas where it has proven market leadership, such as infrastructure, or in geographic locations where the securities franchise already has a strong market position, such as the Philippines and Indonesia.
At least that is the strategy for now. With a flying start after the recent equities acquisition, it might not be long before Macquarie is fighting the mainstream market for the main Asia awards.
