Central and Eastern Europe Regional Awards of Excellence

It’s a cliché – but when the going gets tough, the tough get going. It’s the clear theme that connects the winners in Euromoney’s best banks in central and eastern Europe awards. The past 12 months have arguably been the most testing in the region since it embarked on its transition from centrally planned to free-market economies following the fall of the Berlin Wall in 1989. Having become used to enjoying the full benefits of the cheap, plentiful global liquidity and investor appetite of the pre-credit-crunch era, the region has had to adjust to the rude shock of finding itself starved of capital and customer demand as the rising tide of risk aversion has blighted short-term economic prospects in the region. It’s appropriate therefore that RZB/Raiffeisen International, which helped to pioneer the development of the banking sector in the region when it was far from being an obviously attractive market, should retain its crown as the best banking group in central and eastern Europe. Having been at the forefront of the expansion of western European banking groups into the region in the 1990s, its long track record of operating in central and eastern Europe means that it is well placed to manage the risks as well as the rewards that the region has to offer. The Austrian bank’s ability to mitigate downside risk while maximizing upside potential has been a key factor in its award-winning performance. As a result the bank was able to deliver yet another strong set of results for 2008, reporting a record net consolidated profit of €982 million, up 16.7% on the previous year’s record return of €841 million. Herbert Stepic, chief executive of Raiffeisen International, whose missionary zeal about the business prospects in central and eastern Europe has helped to propel the bank to the forefront of the banking markets in the region, says that despite the economic slowdown in central and eastern Europe Raiffeisen International remains fully committed to its operations in the region. “The name of the game as a bank is to carry our customers through the crisis and not to panic,” he says. Stepic believes that, with more than 20 years’ experience of operating in central and eastern Europe, Raiffeisen International has created a well-balanced universal banking model that is sufficiently robust to weather the economic storm. “Our banking model is good for generating profits in the good times as well as managing risk in the bad times,” he says, adding: “I’m extremely happy that we have a diversified geographic and business segment model.” In particular, with a presence in 17 central and eastern European countries and more than 15 million customers, Raiffeisen is well positioned to mitigate different risks across the region. “With our across-the-board activities we have built-in insurance in our business model,” Stepic says. He adds that, in contrast to some of its rivals that paid top-of-the market valuations for its acquisitions in the region: “We have always paid reasonable multiple for our acquisitions that have totalled €600 million, which is a very low amount.”

Herbert Stepic, Raiffeisen International: missionary zeal

Rather than sit and wring his hands in Vienna, Stepic has spent a large part of the past 12 months visiting all parts of the Raiffeisen International network to ensure that the management and staff are fully prepared to face the market downturn. “For the last year I’ve been travelling constantly throughout the region to help change the mindset of the bank. The focus has gone from growth and profits to capital and liquidity preservation, and foremost risk management.” Stepic claims that the bank’s extensive on-the-ground presence in the region is a key competitive advantage when it comes to achieving the correct risk/reward balance. “The ‘know your customer’ principle is a key part of our business model and so we are totally aligned to fight the crisis.” Stepic says that Raiffeisen will continue to monitor markets across the region for potential acquisition targets. “For the foreseeable future the focus is firmly on managing our existing network, but that doesn’t mean that there will not be opportunities for expansion, especially in the CIS.”

Last but by no means least, Stepic believes that in general central and eastern Europe remains well positioned to cope with the crisis. “The population in central and eastern Europe had to cope with a constant state of crisis under communism and I’m sure that this inherent flexibility will help them to overcome the current crisis quite quickly and with fewer difficulties than in western Europe.”

With issuance volumes sharply down on previous years, the winners in the product categories have been those banks that have been able to demonstrate the ability to deliver the widest possible range of financing solutions in the face of highly challenging market conditions. On the debt front, no institution does that better than Deutsche Bank, which has been active in every area of the market – international bonds, domestic currency bonds, asset-backed bonds, syndicated loans, pre-export finance and project finance, repos, and bespoke structured loans. As a result the bank was able to raise more than $33 billion of debt for central and eastern European borrowers. The bank can point to an impressive range of transactions, with benchmark sovereign issues for such countries as Turkey, Slovenia and the Czech Republic, ranking alongside record-breaking issues for banks and corporates. Highlights include the $2 billion issue for Russian bank VTB – the biggest ever bond issued by a central and eastern European bank – as well as the $2 billion bond financing for Russian steelmaker Evraz – the biggest bond ever by a non-investment-grade corporate from central and eastern Europe. In conjunction with an impressive array of transactions in the international markets, Deutsche’s ability to raise funds for borrowers in their domestic markets also impressed, with the bank delivering big transactions in challenging markets such as Russia and Kazakhstan. As well as delivering in primary issuance, Deutsche performed impressively in the secondary market, continuing to make a market in international and domestic bonds at the height of market volatility when many of its rivals were noticeable by their absence. The bank also proved to be a prime mover in export finance, arranging more than $17 billion-worth of deals.

In the best equity house category, the ability to deliver financing solutions across a range of countries, industry sectors and market segments was most clearly demonstrated by JPMorgan. Not only did the US investment bank produce a table-topping performance on the primary issuance front, arranging more than $3.4 billion-worth of transactions for corporates from central and eastern Europe, it also provided vital back-up in the secondary market amid the highly challenging market conditions of the past 12 months. In new issues, JPMorgan can point to a number of highlights. These include the $2.5 billion initial public offering for Czech mining company New World Resources, the largest-ever IPO from central and eastern Europe (ex-Russia); the $673 million accelerated bookbuild offering of Turkcell shares for Cukurova, the largest ABB in the region in the past 12 months; and the $637 million follow-on offering by Russian shipping company Fesco. While arranging deals in a broad range of countries and market segments, JPMorgan also provided vital support in the secondary market, with its equity market research team providing comprehensive coverage of companies across a wide spectrum of countries and industry sectors. On the trading side the firm also demonstrated a clear commitment to making markets in both local and international shares through its key trading hubs in New York, London and Moscow.

In the M&A category Bank of America Merrill Lynch provided an impressive display of versatility, with a portfolio of transactions that spanned the entire region and provided proof of its definitive expertise in a range of different industry sectors. Not only did it top the M&A charts, with 29 transaction totalling almost $65 billion giving it the leading market share in the region, it also demonstrated that it could operate in a wide range of countries and work with a variety of corporates. As a result it has established itself as the M&A adviser of choice for both corporate and private equity clients. Highlight transactions included the largest-ever Russian M&A transaction, Russian metal company Rusal’s $13.8 billion acquisition of a stake in rival Norilsk Nickel from Onexim Group; advising private equity player BC Partners on its $3.2 billion purchase of supermarket chain Migros Türk, the largest leveraged buyout in Turkey; the $2.6 billion acquisition of Russian oil company Imperial Energy Corporation by ONGC Videsh, the largest-ever investment in Russia by an Indian company; and advising Czech pharmaceuticals company Zentiva on its $3.2 billion defence against offers for the company.

For sheer diversity of expertise and ability to execute transactions, Credit Suisse wins the best investment bank award. Over the course of the past year the firm has demonstrated that it has the best-balanced investment banking franchise, which has delivered consistently strong results across the debt, equity and M&A fields. Like the winners in the individual product categories, Credit Suisse demonstrated the ability to deliver benchmark transactions across a range of countries, industries and asset classes. Highlight transactions include acting as adviser to metals company Rusal on its $13.8 billion acquisition of a 25% plus one share interest in Norilsk Nickel, which paved the way for the development of a Russian metals and mining champion able to compete on a global scale. In equity markets, it played important roles in the $1.7 billion rights issue for Garanti Bank, the largest-ever rights offering in Turkey; the $717 million initial public offering for Polish power company Enea, and the $2.3 billion equity-linked transaction for Russian oil company Rosneft. The bank can also point to a series of landmark debt capital market transactions.

In project finance, BNP Paribas won out against fierce competition on the back of its roles in landmark transactions – most notably the $24 billion Sakhalin II project, one of the largest LNG/oil projects in the world, as well as its financial advisory role on the $2.6 billion Refinery project in Poland.

In an era when the ability to hedge risk is as important as the ability to reap profits, Deutsche Bank’s capacity to deliver defensive financial solutions in the face of unparalleled market volatility secures it the best risk management award. The bank offers its clients unrivalled ability to hedge their risks across the board, encompassing instruments that cover the commodity, credit, currency, debt and equity markets.

Deutsche also takes the FX award. As many as 30% of corporates and investors operating in the region rely on the bank for advice and execution – a huge market share.

UniCredit wins both the cash management and investor services awards in central and eastern Europe thanks to its extensive reach and execution capacity, serving about 28 million customers in 19 countries through more than 4,000 offices. Furthermore, with access to a further 12 million customers and 6,200 outlets in western Europe and beyond, UniCredit is well placed to serve commercial interests of companies and investors within and outside the region. Thanks to this unparalleled reach UniCredit is able to offer in-depth knowledge of a wide range of products and services across the region as well as access to all major international financial centres.