After an unprecedented 11-year reign as the best bank in Asia, Citi lost out last year to a resurgent Standard Chartered as the UK-headquartered bank capitalized on a strong showing in the global crisis to develop its regional business, build its previously underused corporate finance offering and boost profits in such core markets as India and Hong Kong. Standard Chartered continues to perform well in Asia, and deserves credit in particular for progress in China in the form of a developing relationship with Agricultural Bank of China and leadership in the small but growing business of renminbi-denominated trade settlement. But Citi has recovered from a post-crisis wobble in Asia and once again leads its global peers in moving from being a competitive foreign bank in Asian markets to a genuine rival to the locals. This year it reclaims the award for best bank in Asia for the sheer scale of its regional banking platform, the diversified nature of its business compared with rivals that make the bulk of their profits from a few core markets, and the way it has built out its smart-banking concept to win customers through technological innovation.
In the 12 months to the end of March 2011 Asia accounted for almost half of Citis global profits, indicative perhaps of the firms woes outside the region but also to the work it has done building client revenues from its integrating businesses. Deposits and assets under management rose to record levels of $230 billion and $185 billion respectively during the year, a great achievement considering the reputational damage the firms global brand suffered in the wake of the crisis. It raised more money than ever before for clients in Asias capital markets, generating revenues of more than $1 billion in eight markets. No single market accounted for more than 14% of net profits.
The banks Asian business is now ahead of its global network in some areas. The bank started its technology-driven smart banking offering in the region before rolling it out globally, and the strategy of embracing digital banking has won it some 200,000 new clients during this years submission period. To Singapore it has added Taiwan and Hong Kong as countries where it is beginning to compete on an even footing with more embedded local banks. In Japan, where many rivals have retreated, after failing to establish a profitable strategy, Citi makes good money thanks to the roll-out of smart banking and a well-run global markets business.
Citis Asia Pacific chief executives, the intense, garrulous Scottish former consumer banking head Stephen Bird and the incisive but more softly spoken Indian Shirish Apte, who made his reputation as chief executive for Citis central and eastern Europe region, make for a contrasting pair. Together, however, they have restored the firms position as the leading global bank in Asia, and Citis results in Asia Pacific the work of many years of investment, as they would be happy to admit have spared the global franchise much embarrassment in its earnings reports in the past few quarters. Although Citi still has some way to go in restoring its investment banking franchise in Asia it could use some big M&A mandates very soon, for example it is Asia Pacifics most complete banking platform and perhaps the most innovative consumer bank in the region despite the drawback of its size.
It was a year of big deals and tough environments in Asia. Although the regions debt markets are developing, Asia public investment banking is still mainly an equity business and two $20 billion IPOs, for Agricultural Bank of China and AIA, dominated the league tables and the headlines. The deals both exemplified the trend for issuers to hire ever-more bookrunners on capital-raising deals, hedging their bets and spreading the goodwill around. Away from these two deals, choppy markets meant that banks had to work hard with their clients to get deals done when they could, placing a premium on market understanding and sound advice. In M&A, the regions top companies continue to do more cross-border deals, financial sponsors and sovereign funds continue to rise in status, and China remains the key market for outbound resources-driven deals. Morgan Stanley identified and acted on these trends as well as any other investment bank in the region, and deserves this years overall award for Asia. The firm had one of the crucial global coordinator slots on both of the $20 billion IPOs, and worked on four of the regions five biggest deals, including the $4.8 billion Petronas Chemicals IPO in Malaysia and the $4.4 billion Samsung Life deal in Korea. Although the banks debt capital markets platform in Asia is still improving and probably not among the top four overall, it ranked top for IPOs conducted in the period and top for completed M&A by both volume and number of deals. For Asia including Japan, Dealogic data indicate that Morgan Stanley made more revenues from core investment banking than any other firm except Nomura, whose huge domestic revenues hide a comparatively small Asia revenue base.
Although Morgan Stanley did not entirely avoid slip-ups during the awards period it was perhaps on the wrong side of the race between the successful Datang and the delayed Huaneng wind power IPOs at the end of last year it has cemented its reputation as a leading Asia investment bank. It has worked hard to shore up its traditional weakness in Australia, with mandates on the $9 billion Westfield restructuring and the $2 billion Westfield retail IPO, for example, and through its joint venture with Mitsubishi UFJ Securities has made good progress in the difficult Japanese markets despite a setback in the form of trading losses this year.
It was as competitive a year in Asia debt capital markets as there has been in the past decade. Banks that have always under-invested in the product compared with equities and M&A seem to have identified a long-term shift in the balance of capital-raising activities in Asia towards more debt, and have adjusted their efforts accordingly. JPMorgan in particular made a strong case for itself this year, working as sole bookrunner on perhaps the years standout corporate deal, the $1 billion perpetual bond for Cheung Kong Infrastructure, as well as winning big mandates in the previously somewhat ignored sovereign bond market. Deutsche Bank remains perhaps the go-to bank for complex international bond offerings, and a resurgent Citi challenged for a top spot in the G3 bond league table after a couple of years of rebuilding.
As 2010 gave way to 2011, however, one theme began to command increasing attention among Asias bond bankers, global issuers, and indeed the media. The rise of the Chinese renminbi-denominated bond (CNH) market in Hong Kong has been one of the most dramatic developments in Asian capital markets for some time. Although volumes are still small by global standards, most regional debt capital markets bankers predict explosive growth over the next few years and the eventual rise of the market to become perhaps Asias most important. HSBC, again the winner of the best debt house in Asia award, enjoys something of a home advantage in this market. However, it should not be penalized for that. The extent to which it has dominated the CNH market while not losing its industry-leading market share in both international and local-currency markets in Asia makes the bank a deserving winner of this award, even if rivals are closing the gap.
HSBC topped the Asia ex-Japan G3 currency bond league table for the awards period, won repeat mandates from top Asia borrowers such as the Republic of the Philippines, Temasek and Reliance Industries, and showed off its cross-currency strengths with a Thai baht denominated deal (Bt4 billion $131 million) for Koreas Kexim, a £700 million ($1.1 billion) note for Temasek, and notes for Citic Bank international in US dollars, Hong Kong dollars and renminbi. It once again topped the local-currency league table for Asia, with an 8.8% market share against second-placed Standard Chartereds 6.8%. Finally, in the Bloomberg league table for the CNH market, HSBC took a commanding 31.6% market share, with 27 issues against second-placed Bank of China with 14 deals. Although almost every transaction in the fledgling CNH market is the first of its kind in some way or another, notable firsts for HSBC included the first deal by a German corporate, Volkswagens Rmb1.5 billion ($232 million) issue in May 2011; the first offshore renminbi deal by a Hong Kong blue chip corporate, Towngas; the first deal by a European company, Unilevers May transaction; and the first deal of 2011, the World Banks Rmb500 million issue. HSBC remains the top mandated loan arranger in Asia, with a 3.9% market share, and is earning good money behind the scenes in the loans market as a silent deal coordinator in several transactions.
HSBCs debt platform is not without holes it could do more in the lucrative high-yield market, for example, and it has little success in Japan, where some rivals have made progress. But in the year of the rise of the renminbi, it is hard to look beyond HSBC as the bank at the forefront of the trend and the one with the most complete debt capital markets platform across currencies and countries in Asia.
Goldman Sachs and Morgan Stanley established themselves as the top two overall Asia Pacific equities houses this year, leading the two $20 billion IPOs, placing first and second respectively in the equity and equity-linked league table, and receiving the most plaudits during Euromoneys conversations with issuers. Morgan Stanley had the slightly better year in IPOs but Goldman Sachs deserves the overall equity house award for its work in both IPOs and follow-on deals. Not all of these follow-on transactions were necessarily profitable Goldman is thought to have lost money, along with the other banks involved, on Vodafones $6.6 billion sell-down of its China Mobile stake. However, the deal made sense from a client relationship perspective, and in the field of Asia equities no other firm shows more instinct for profitable deals, avoiding, for example, the low-fee Indian government sector in favour of higher-paying block trades and bank recapitalizations. Goldman Sachs grabbed the joint-highest fees on the Agricultural Bank of China IPO alongside Chinas Citic Securities and received the best client feedback on the AIA IPO. Goldman Sachs worked on all four of the biggest Australia IPOs since the global crisis, the largest ever Korean IPO in the form of Samsung Lifes $4.4 billion deal, and it took a leading role in the trend for Asian bank recapitalizations, with deals such as the $8.9 billion follow-on for Mizuho Financial Group. It also led the largest-ever international convertible bond in Asia outside of Japan, the $1.8 billion deal for China Unicom. Rivals say that Goldman is more focused on block trades that put its balance sheet to work than IPOs, and that it is under-strength in India. The firm had a couple of public relations wobbles in the form of the Hong Kong-listed warrants typographical-error fiasco and a controversial single-investor block deal for Ping An but its peers still rank it as their most formidable overall competitor in Asia equities. Moreover, when a bank does arguably the most work on the years two biggest deals it deserves to win.
From 2007 until 2009 UBS was perhaps the leading investment bank in Asia Pacific, basing its regional success on a powerhouse equities division, its first-mover advantage in China through an unprecedented tie-up with a local securities firm, and the best Australia franchise of any foreign bank. In the past couple of years, however, the Swiss bank has suffered some heavy blows the global franchise has lost some credibility following post-crisis woes, and the Asian business suffered staff departures such as capital markets head Steve Barg, China deal machine Henry Cai and equity syndicate head Mark Williams. The banks rivals love to talk about UBSs problems, saying that it is still losing staff and that its hands are tied on pay. And yet the figures show that the firm remains a force in Asia. UBS is a top equity capital markets bank in volume terms despite missing out on both of the years $20 billion deals, and is the best global bank in Australia and a top advisory house. This year it claims the award for best M&A house, a decision that its competitors might deride but which the facts bear out. UBS was the top adviser in Australia, worked on 105 deals across 12 markets, ranked first on the league table excluding Japan for completed deals, and, perhaps most important, worked on the most interesting and innovative deals across the region.
Among these was the $3.3 billion acquisition by Arrow Energy of a company jointly owned by PetroChina and Royal Dutch Shell. The deal, acknowledged by one rival banker as "perhaps this years most complex M&A transaction in Asia", involved equalization of ownership of the assets injected into the joint venture, a board-recommended joint bid for the public Australian oil and gas company and a simultaneous demerger. Foreign companies have had a difficult time buying in China but UBS advised on drinks maker Diageos becoming the indirect controlling shareholder in Chinas Shujingfang and the subsequent mandatory tender offer worth $927 million. UBS has proved its worth in the key China state-owned enterprise sector, with deals for Sinochem, Sinopec and PetroChina, and has picked out some interesting niche mandates across Asia, such as Thanacharts acquisition of Siam City Bank in Thailand.
It was a year in which many of the biggest and most talked-about deals, such as BHP Billitons bid for Canadas Potash Corporation and Singapore Stock Exchanges audacious grab for its Australian peer, failed amid political sensitivities. That left the league tables an unreliable measure of success, and a handful of banks with claims to this award. Morgan Stanley, Goldman Sachs, Credit Suisse, the usurping Deutsche Bank and the resurgent Bank of America Merrill Lynch all made good pitches this year but in the end UBS deserves the accolade for best M&A house in Asia for the breadth of its business, its leadership in the key themes of China state company activity and big Asian companies expanding globally, and its work in the two most important markets of Australia and China.
Deutsche Bank did not have an error-free year in Asia. A particular low point was a six-month ban in Korea on trading shares and derivatives for its own account imposed in February for triggering a stock market crash the preceding November. It was the biggest penalty ever imposed on an investment bank in Korea. But while mistakes like this are galling for any firm, they are one by-product of the risks run in expanding as thoroughly as Deutsche has into the fabric of Asian markets. The bank estimates it makes some 30% of the revenues from its global markets business from making bespoke risk management products for clients. In Asia it has continued to win mandates by focusing in particular on helping clients manage the succession of crises that characterized global markets in 2010 and the start of 2011. In China especially Deutsche Bank had a good year, becoming in December one of only three banks to receive an onshore FX option licence from regulator Safe and subsequently executing one of the first trades in this product, for ICBC. Industry surveys suggest that the bank is increasing structuring revenues, particularly in Japan, in contrast to many of its rivals. It is perhaps the leading provider of CDS protection against European sovereign debt risk, something that worried Asian clients throughout the year almost as much as their counterparts in Europe. HSBC, Deutsches closest rival for this award and the winner in 2009 and 2010 had another good year itself, particularly in debt capital markets linked hedging, but Deutsche Bank deserves the overall award for best risk management house in Asia for its work in helping clients navigate a turbulent 12 months.
While Deutsche is this years best risk adviser, the firm as a whole has worked hard to bolster its capacity in more traditional flow products as well as structured solutions. In Asia, it is one of two houses battling for supremacy in that field but HSBC takes the inaugural award for best flow house in Asia in recognition of its overall platform. In FX the bank had one of its best years ever, increasing market share from 5.6% to 9.3% in Asia including Japan in Euromoneys 2011 FX survey. It increased the number of institutions it deals with by 10% to 14,000, and its volumes rose 56%. Most striking was HSBCs success in its rates products, whose total sales volume rose 98% as it grew its client base by a third. The bank has won praise from clients for the way in which it has created reciprocal regional trading desks across the globe, putting a Latin America desk in Asia, for example, to answer Asian clients questions and inquiries about the Latin markets in real time. The bank ranks first in industry polls for interest rate derivatives. In credit, HSBC is able to take advantage of its status as the regions leading primary underwriter of debt to become the top bond-trading house, offering almost 3,200 securities in 2010 in 26 different currencies. The bank is finally investing heavily in technology, having lagged behind in e-commerce in particular relative to the competition, and is the narrow choice over rival Deutsche as the best overall flow house in Asia.
Cash management, and indeed the whole business of transaction services, is an increasingly important part of most global banks business in Asia as regional heads see the value of daily interaction with the top clients and the steady flow of revenue that the business provides. Traditional winners of this award, such as Citi, HSBC and Deutsche Bank, all had strong performances but this year the award goes to Standard Chartered for the impressive growth it managed and its leadership in the renminbi market. The banks revenues grew 54% in this business in the year to the end of March, with customer balances for cash management in Asia growing 25% as more clients choose the firm as a provider. For full-year 2010 the bank increased Swift volumes by 21.5 % in the top Asian markets, substantially outperforming the industry average of 13.99% growth. Although these growth figures are more impressive than those of many of Standard Chartereds rivals partly because the bank is growing its cash management business from a smaller base, the firm has no peer when it comes to the small but growing market in renminbi-denominated trade settlement. If this was the year when the Chinese currency began to make real strides towards internationalization, then Standard Chartered was at the forefront of that trend in encouraging clients to settle more of their trade in renminbi. From early 2010 to March 2011 the banks renminbi accounts in the wholesale bank increased 70-fold, and it is the highest-ranked foreign bank for clearing in China and third overall.
It was a boom year for project finance in Asia, with the region being the worlds largest market for the first time in almost a decade as demand for infrastructure projects swelled and Chinese companies became more prominent in cross-border transactions. After ceding the award that it had made its own from 2007 to 2009 to Société Générale last year, HSBC deserves to reclaim the best project finance house in Asia award thanks to the breadth of its portfolio and the inventiveness in structuring that it used to secure funding for clients. Perhaps most interesting among its projects was the $200 million-worth of Malaysian ringgits it raised for the Trans-Thai Malaysia Phase II project, a joint venture between Thailands PTT and Malaysias Petronas. The companies approached banks with a conventional funding solution in mind but HSBCs sukuk structure won favour and allowed the ambitious project 15-year financing priced inside PTTs shorter-denominated debt. The cross-border nature of HSBCs mandates in this years awards period is particularly striking: the bank worked among others on a deal for Dubai Ports World in Australia, for China Light and Power in India, for Chinas Guangdong Yudean group in Indonesia, and for global power firm AES in Vietnam. HSBCs close relationships with leading export credit agencies such as Koreas Kexim and Japans JBIC help it in arranging financing for clients, especially in markets with difficult local conditions, as with Kexims and K-Sures support for the Vietnam deal. In this years awards period HSBC closed 12 deals raising more than $10 billion and won 22 new mandates.