Euromoney 30th anniversary: Views from the top


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The leaders of 12 of the world's biggest financial institutions look back on their careers, reflect on how the financial markets have changed and spell out their visions of the future. HSBC's John Bond, Angel Corcóstegui of BSCH, Lloyds TSB's Peter Ellwood, ABN Amro's Jan Kalff, David Komansky of Merrill Lynch, André Lévy-Lang of Paribas, ING's Godfried van der Lugt, Bankers Trust's Frank Newman, Marcel Ospel of UBS, Joseph Roby of Donaldson Lufkin & Jenrette, Pedro Luís Uriarte of BBV and CSFB's Allan Wheat spoke to Euromoney

Euromoney 30th anniversary: Heroes and villains

In the following pages the chief executives of 12 of the largest and most powerful banks and investment banks in Europe and America share with Euromoney their thoughts on the future of financial services, reflect on the highlights of their own careers and on the changes wrought on the industry by 30 turbulent years, and answer questions about their institutions' present strategies and performance.

Some of what they have to say is familiar, much is challenging. For example, HSBC's John Bond points out that, for all the brave talk of globalization of financial services, many banks have withdrawn over the past 30 years from international markets to concentrate on domestic strategies.

While present orthodoxy holds that consumer banking is an inherently better business for shareholders than investment or wholesale banking, with more stable, better quality revenues, Paribas' André Levy-Lang wonders whether this is merely the consequence of different accounting conventions. He also points out that many of the same shareholders who recently urged Paribas to de-emphasize investment banking and concentrate on the specialist and consumer financing operations of Compagnie Bancaire, were urging the exact opposite just a few years ago. Peter Ellwood at Lloyds TSB explains why the world's best bank at creating shareholder value over recent years increasingly benchmarks itself against world-leading companies from other industry sectors away from banking. He suggests that in 10 years time, non-banks may be among the world's most important providers of financial services.

A familiar recurrent theme is mergers and acquisitions. Many of these chief executives have recently done major deals, are involved in mergers right now, or are busily planning them. Bond delayed talking to Euromoney in May until after HSBC announced its purchase of Republic New York; André Levy-Lang took time out from Paribas' battle to avoid BNP's bid and to complete its agreed merger with Société Générale; Angel Corcóstegui reflects on changes in Spanish banking just weeks after BCH and Santander announced the first big banking merger following the creation of the euro; at BBV, Pedro Luís Uriarte acknowledges the pressure to match that deal before the end of next year; Peter Ellwood explains why Lloyds TSB is looking for acquisitions in America or Europe and analyzing the insurance sector; ING's Godfried van der Lugt pinpoints the bank's next target as a large American life insurer; Jan Kalff discusses ABN Amro's ambitions in Italy to build on its stake in Banca di Roma; Marcel Ospel reflects on the traumatic events by which a series of stunning mergers and acquisitions have created today's UBS. And Merrill Lynch's David Komansky brings some telling US investment banking perspective. Recalling the IPO of Ford Motor Co, he notes that no more than 15 or so of the 200 underwriting firms for that deal still exist.

All reflect on the profound changes of the last 30 years. Banking has gone from being an administrative function run by protected institutions to whom customers felt beholden into a service industry where banks have to fight tooth and nail for every scrap of business. In investment banking, transactions and products which once seemed daring and complex are now utterly commonplace and routine. Jan Kalff recalls how banks in Europe in 1969 were scared of doing five-year syndicated loans because they couldn't figure out how to manage the mismatch risk of funding these with three-month Eurodollar deposits.

The markets took off anyway and Kalff recalls landing on his desk the first edition of a slim publication called Euromoney which aimed to report on them.

John Bond

For all the talk of globalization of financial services firms in recent years, John Bond, chairman of HSBC, reflects on 30 years in which banks have said one thing and done the opposite. "We have seen a consistent retreat from international banking and a strategy of consolidating in home markets, particularly in the consumer businesses. When I think back to banks with international aspirations in the 1960s - Grindlays, Ottoman - many have vanished from the scene. Even today, you see Bank of America selling off its personal banking operations in Taiwan, Singapore and India." He adds: "Banks like ourselves, Citicorp, ABN Amro are the exception."

Bond's career at HSBC reflects the group's rootless, international culture. He first joined the bank in 1961, transferring to Asia in 1964 and spending the next 25 years there, before a four-year stint in America, then returning to London in 1993 to become group chief executive. "Although I cannot claim to have foreseen the huge economic expansion that took place in Asia, I remember going out there with an enormous sense of adventure and of curiosity." He recalls: "The HSBC approach to training in the late 1950s and early 1960s was to give a very broad experience in many different jobs. HSBC did trade finance, remittance flows, project finance and we did investment banking from within the core commercial bank. We led new issues, we took equity positions. HSBC was a banque d'affaires, very different from a classic US or European commercial bank." Bond worked in all these areas. "About the only thing I have never done for HSBC is write a software programme. And the board can rest assured that I intend to leave it that way."

A bank steeped in history

There was much less sense of empire at HSBC than at other British banks, such as Barclays and Standard Chartered, which built their overseas operations around the British colonies. "The bank's history has been inextricably linked with China, which was never empire, and with its great commercial cities, including Shanghai and Hong Kong," recalls Bond. "I looked at our headquarters building in Shanghai in March and you cannot fail to be impressed by the enormous wealth denoted by putting up such a building in 1923."

It is no surprise that Bond has a keen sense of history. HSBC's values - thrift and conservatism - were set in the last century. The bank has tended to appear over-capitalized and under-leveraged during boom times, but has benefited during crises. Again Bond draws a lesson from history. "When we were founded in 1865, we were one of 11 banks in Hong Kong. By 1866, there were only five left."

The recent crisis in Asia and emerging markets he regards as nothing new, being a reminder of past recessions in 1965-67, 1973-74, 1983-84 and 1990-91. "We are sceptics of the new paradigm. All our experience tells us that the economic cycle has not been reformed and that we must plan our business to be strong in times of difficulty when others, who may have looked more exciting in a bull market, are weakened." It has typically made low-cost acquisitions of troubled banks, such as Midland in the UK in 1992 and Bamerindus in Brazil last year, and benefited when their markets turned up.

Bond delayed talking to Euromoney until after HSBC had unveiled its latest and slightly unusual acquisition, that of Republic New York Corp and Safra Republic Holdings on May 10. The bank is paying $10.3 billion, partly financed by a quickly placed $3 billion share issue, to acquire a private banking business which is the third largest bank in metropolitan New York. Rather than buying an emerging-markets turnaround play on the cheap, it is paying a full price for an attractive business it hopes to integrate with HSBC's existing private banking operations. Bond is quick to point out that consolidation opportunities - which the bank puts at $450 million per year pre-tax to be achieved over two years - are all in the back office and that there is almost no front-office overlap.

"An acquisition in an economy in its seventh year of expansion is more expensive than one in an emerging market. But an acquisition in the US will kick into earnings much more quickly than one in a country in difficulties," says Bond. The broad promise of HSBC to its shareholders is to balance exposure roughly 50-50 between OECD and emerging markets. After consolidating certain Latin American acquisitions last year, it was clearly attractive for HSBC to show an increasing portion of its exposure and earnings in the US.

"We were approached through a mutual friend earlier this year," says Bond. "Such was the strategic fit, it was clear cut that there was a potentially attractive deal. This doubles the size of our commercial and consumer banking operation in America, doubles our private banking operation around the world and it makes us a world leader in banknote and bullion trading. Also, it strengthens the senior management of the HSBC group. There are some top flight people at Republic who will end up in the top echelons of HSBC."

No doubt HSBC hopes to improve its stock market rating by hedging its emerging-market exposure with stable earnings from the world's strongest economy. After all, this is a bank which says it does not want to derive more than 12% of its earnings from investment banking in case the stock market should punish it for dependence on volatile, low quality earnings.

The bank is already preparing for a full NYSE listing for its shares, which hitherto have had primary listings in London and Hong Kong. "We estimate that our present US shareholding is between 5% and 10% which is quite modest for a group like ours. As US institutions have six times as much assets under management as UK institutions, it's important for us to appeal to the largest pool of capital in the world."

Internal growth opportunities

For the chairman of a renowned acquirer, Bond is sceptical about much of the talk of sweeping consolidation in banking. "Much of that talk comes from western countries where the banking systems in place probably belong to a past period of higher growth and don't reflect the economics of today. There is too much capital committed to straightforward commercial banking in the west, whereas countries like Brazil are crying out for sound financial intermediation to support growth."

While Bond remains opportunistic about acquisitions, he regards it as an article of faith that HSBC has plentiful opportunities for internal growth. Though HSBC is famed for a teamwork ethic instilled in its top executives, who will happily relocate anywhere in the world at short notice, the bank has much room for improvement in cross-selling. "HSBC has one of the best client lists in the world but my information tells me that we're not even selling two products to many of them, whereas it should be within our grasp to sell them at least four services. Residential mortgages account for 25% of our loan portfolio around the world, but I would be surprised if more than 5% of those customers insure with us."Peter Lee

Angel Corcóstegui

When Santander and Banco Central Hispano announced their merger in February, executives of the new Spanish banking giant were quick to point out that it was the first large banking merger following the introduction of the euro, as if it were a statement of intent to tackle the challenges ahead. While much attention is devoted to BSCH's Latin American operations, these only account for between 20% and 25% of its assets. "Latin America generates a lot of noise relative to its size," says Angel Corcóstegui, chief executive officer of BSCH. "We are committed to have a significant role in the euro market. Although so far the euro is a virtual currency, by 2001 everyone will be using it." But Corcóstegui admits that for the moment, "it's very hard to envisage how the eurozone financial market will actually look, because right now most bank CEOs are focused on domestic market consolidation".

Corcóstegui has two principles to guide him: "Today quality of service is number one in banking. That, together with cost control. The two are not mutually exclusive." The newly-merged bank is heavily weighted towards retail banking, which accounts for between 80% and 85% of its business and both partners were fearful before their merger that they looked small compared to the leading French and German banks. Now Corcóstegui describes the merger as "an aggressive move, based on very fast growth". He adds: "Size, revenue growth, cost control: we intend to get all together and get them quickly."

So what lessons from the Spanish banking market does BSCH think might be relevant to the rest of Europe? Like all retail bankers, Corcóstegui spends a lot of time thinking about delivery channels. Branches remain an important point of contact, but the bank now has an equivalent number of ATMs as it does branches and is educating clients that it is cheaper to use ATMs to deposit money as well as to withdraw it. The fastest growth may be in telephone banking. "It is available to customers 24 hours a day and it's free. We are cross-subsidizing it," says Corcóstegui. "Although telephone banking is a delivery channel, we are selling it like a product. We tell the salesforces in our branches, 'sell the customers a mortgage, a loan, a credit card and sell them a subscription to the telephone service'. Salespeople get points and rewards for this." From zero, three years ago, the bank now has 700,000 telephone banking customers. It hopes that telephone customers will take calls in the evenings on new products and allow it to reduce the costs of a large network. BSCH has already negotiated with the Spanish unions to reduce its 50,000 Spanish workforce by 20% over three years.

As a universal bank, BSCH has to be wary of what Corcóstegui describes in classic marketing-speak as the category killer - the specialist provider of a particular service. Customers are getting fickle, especially the most prized affluent ones from the professional and business elite. One million Spaniards a year change banks, unthinkable only 10 years ago, and banks know that they must retain customers in order to profit from them. "We have clients now who want a mutual fund attached to a credit line, who want to see on a single sheet of paper a report on their current accounts, their recent bills paid, their mutual funds and pension plans." The bank has invested heavily in technology to meet such demands and has an R&D unit examining new products.

BSCH has to provide all the products and be just as good as the specialists in each. "Seven years ago there were no mutual funds in Spain. Then US mutual fund giants said they were going to sell mutual funds here, so we reacted very quickly and started selling the best mutual funds. And if any specialist comes with an internet service we have to show our existing customers that their bank already offers a very good internet service." BSCH already has 200,000 internet customers and is pushing the service, particularly to its younger customers at university branches.

Wariness of large European competitors is ingrained in the minds of Spanish bankers. It prompted the mergers of the late 1980s, notably that of Banco Bilbao and Banco de Vizcaya, a deal of which Corcóstegui himself is a veteran. Fear of foreign competition impressed itself on the executives of Spanish corporates and banks in the mid-1980s, after Spain became a full member of the EU. "Everyone was rushing around saying the French and the Germans will eat us," recalls Corcóstegui. He links the fast development of Spanish banks to that of Spanish companies. Many were privatized and their markets liberalized in the late 1980s and early 1990s. They became very price competitive and then all tended to seek growth and secure future size relative to other European competitors by expanding into Latin America.

"The fact that other Spanish industrial companies have also invested in Latin America - Telefónica in Brazil, Endesa in Chile, Repsol in Argentina - gives us a sense of team in those countries," says Corcóstegui. And while Spanish acquirers may now need to be careful of a nationalist backlash against what some Latin Americans are calling the second conquista, Corcóstegui at least makes the usual noises about faith in the wisdom of long-term investments there. "When you meet the managers of the Latin American economies, they all talk as if they had a copy of the Maastricht treaty in their hands: it's all about controlling inflation and money supply and pushing privatization. And that gives us confidence."

For the moment, Corcóstegui believes that BSCH has sufficient size to be a factor in the eurozone. He shows little interest in the theory that wholesalers of sophisticated savings products in the heart of Europe might enter distribution agreements with the likes of BSCH in Spain. "Product factories can be quite small and efficient," says Corcóstegui. "We have perhaps 100 people out of 100,000 in the entire group managing mutual funds and performing extremely well. Do I really need to do that together with a European bank right now?"

Peter Ellwood

Peter Ellwood, chief executive of Lloyds TSB, contemplating the future of financial services sees only more and more consolidation in Europe and across the world, leading eventually to a smaller number of very large financial services suppliers.

He points out that 10 years ago, the top 20 US banks had one-third of the assets in the US banking system. Today the top 10 banks have two-thirds of the assets. "If you look forward another 10 years then it may well be that one of the top 10 financial suppliers in the world will be a non-bank: a utility company perhaps, or a Microsoft."

Lloyds TSB is arguably the most successful bank in the world. By concentrating on the UK market, where it has ruthlessly consolidated acquisitions, the bank has produced a return on equity of 32%. It has the second largest market cap of any European-headquartered bank - behind only HSBC - and a cost-income ratio of under 50%.

Starting a year ago, Lloyds TSB began a programme of benchmarking itself against other world-leading companies in three key areas: customer relationships, managing people and managing change. Many of the companies against which it compares itself are not banks. "We have learnt a lot from retailers and other service companies about customer segmentation and service," says Ellwood.

Today, data-mining is a vogue concept inside Lloyds TSB. The bank is increasingly using the information it gathers about its customers as a means of anticipating their financial needs, which often follow major life-events, and selling to those needs.

Ellwood suggest that while banks have used increased computer power mainly to drive down back-office costs by improving data-processing efficiency, the new opportunities are in applying sophisticated computer power to the front office. "The chip card has 80 times the storage capacity of the magnetic strip card. We simply have not yet fully understood how to use that capacity for revenue generation."

As to reducing costs, Ellwood argues that marketing can be much more focused and targeted. "You don't need to spend hundreds of millions of pounds on direct mail for a 1% response rate, if you understand the real needs of your customers. There's no point offering your grandmother a personal loan to buy a motorbike."

As Europe gets to grips with the problem of a greying population it is easy to predict that the market for savings products will grow. The challenge for bankers like Ellwood is in managing the distribution.

"Clearly the internet will grow very significantly and maturity seems to be in the legacy distribution, the branch network. We now have one million customers who prefer telephone banking. But the available technology is already way ahead of actual market appetite. We have an internet offering with 50,000 users. All told in the UK there are about 250,000 users. Meanwhile, 70% of our customers still go into our branches at least once a month."

At any one time Lloyds TSB will have 100 projects under development with at least a £1 million ($1.6 million) price tag and it has been studying how other world-leading firms manage such a multiplicity of projects and ensure that benefits accrue on time. Again, much of its benchmarking is against non-banks and even though 90% of the bank's business is in the UK it seeks examples from businesses around the world.

Ellwood describes the thinking as part aggressive, part defensive. "If we think of ourselves as a purely UK business, we might miss opportunities abroad and other clever competitors might come into our market in the UK."

Meanwhile the bank makes no secret of its ambitions to do another large acquisition soon. It is generating enormous amounts of capital through retained profits in excess of what it can use to grow organically. It would prefer to expand within the UK but, says Ellwood, "All the advice we are getting on competition law suggests that this government is keen to encourage more competition and that the chances of any of the top three or four getting together are very remote."

The bank has not ruled out handing capital back to shareholders but is also working to identify acquisition opportunities outside the UK in two markets: Europe and North America. Such a step would be something of a departure for a bank which holds shareholder-value creation as its guiding principle and knows that it is easier to produce cost synergies from in-market mergers.

Doing a deal in Europe or America is inherently less attractive. "When we do the maths on such merger opportunities, we don't expect to make the same returns on equity as we are right now. You wouldn't expect that," says Ellwood. But he adds: "Technology can increasingly operate cross-border."

And while the bank is renowned for cost-cutting and consolidation, it is also keenly aware of brand value. "Cheltenham & Gloucester [acquired in 1995] is a better brand in mortgages than was Lloyds or TSB and that has helped us to grow our market share."

Another option Ellwood has under close scrutiny is a deal with an insurance company: "It's a fragmented market with many competitors with single digit market share."PL

Jan Kalff

At the end of the 1960s, Jan Kalff was working as a trader at Dutch bank NTS, soon to be merged with Holland's ABN, as a dealer on the bank's Eurodollar deposit book. At that time the bank had plentiful offers of dollar deposits coming out of its network in Switzerland and the Middle East and also had a growing number of multinational corporates keen to borrow Eurodollars for three or six months. This market quickly transformed into the Eurodollar syndicated-loan market, when borrowers started asking for five-year loans, leaving the banks to debate whether they could stomach the mismatch risk of funding these through roll-overs of short-term deposits.

Kalff recalls a groundbreaking $100 million five-year loan for Philips at 1% over Libor, led by Citibank, which some major European financial institutions stayed out of, while other banks agitated for a let-out "availability clause" which would permit them to withhold credit if their own supply of deposits dried up. ABN, confident in the depth of liquidity from its Swiss and Middle Eastern clients, happily participated in this market which was the forerunner of the Eurodollar bond market. Kalff also recalls the first edition of a slim magazine called Euromoney landing on his desk and recommending to his then boss that the banks should support this useful new source of information by taking out a number of subscriptions.

Later Kalff moved back into the bank's domestic side, as branch manager in Rotterdam, but his international market experience still proved valuable. "There was an influx of large international companies, including American petrochemical and chemical companies, almost every month investing in the Rotterdam harbour, and these often wanted to borrow dollars rather than guilders. Because we knew how the Eurodollar market worked, we were able to increase our market share." The presence of large multinational companies in the Netherlands, such as Philips and Unilever, with substantial cashflows in dollars, meant that this experience continued to be valuable after Kalff joined ABN's management board in 1977, taking responsibility for its domestic business.

During the 1980s, ABN continued to build its business in America, first acquiring LaSalle in Chicago and then bolting on a host of smaller acquisitions during the second half of the decade to create the largest foreign-owned bank. It was only in 1990, when ABN's business had come to be split 50-50 between Holland and abroad, that it entered its domestic merger with Amro. "The urgency to do mergers then was much less than it is today," Kalff recalls. "So by the mid-1990s, when people really began anticipating the consolidation wave would really start in Europe, our national consolidation had already taken place. What is happening now in France and Italy, happened 10 years ago in the Netherlands."

Today Kalff says he is having more formal and informal meetings than ever before with other bank chairmen from across Europe. He senses that many of them have alliances in mind rather than full-blown mergers, but he is sceptical of this approach. "It may work in certain areas, such as payments. But it does not give a large common platform to sell retail financial services. That's what's needed: a platform of 15 million retail customers, not just five million. Almost no bank has that yet. But we all need to bring our costs down. And while some think they can achieve critical mass without mergers, I doubt that. It will become unavoidable. I would rather do full mergers and acquisitions or nothing at all."

Kalff is undeterred by the argument that domestic mergers deliver more savings and value than cross-border adventures. Technology, he believes, is changing all that. "We have created enormous critical mass in the US where the customers of EAB [ABN Amro's east-coast bank in New York state] may not know that all their back-office processing is done out of the Chicago computer centre where LaSalle is serviced. And Chicago and New York are further apart than Amsterdam and Milan."

Yet ABN Amro has just taken an 8.75% stake in Banca di Roma, as a way to enter the Italian market. Is this not a contradiction of Kalff's philosophy? He explains: "We have experience in various European countries where buying banks has been very complex and where local solutions have been preferred to international ones, even though these might have been better. In America any bank can bid for any other bank. Where the efficiency is obvious, a transaction gets done. That hasn't happened yet in Europe. It's a pity, but I don't doubt that will be overcome."

And while Italy may not seem a logical second European home for a Dutch bank, Kalff is pragmatic. "One can dream of doing things in Belgium or Germany or France, but if nothing is available there, whereas something is available in Italy and bank shares are not so expensive... plus there is greater growth potential in Italy where the percentage of the population with bank accounts is much lower than in the Netherlands."

Meanwhile, if ABN Amro cannot achieve its objective in one large transaction, it will progress step by step. That is what is happening in Italy, where its two minority positions in Banca di Roma and Banca Antoniana Popolare Veneta underscore an intention to play a larger role. The managing board of Banca di Roma recently spent a day in Amsterdam discussing ways of working together. "We hope it will have enormous momentum. We can help them in asset management, where they have lots of customers with assets to be managed and we can provide the services of our international network to the customers of Banca di Roma."

ABN Amro remains one of the most international of the world's banks with operations in 74 countries. Other recent acquisitions have been in Thailand and late last year in Brazil, where its acquisition of Banco Real contributed to a ratings downgrade from Aa2 to Aa1 by Moody's. Kalff professes unconcern. "We have 8% of our assets in emerging markets and we take 15% of our profits from emerging markets. Some people may have a perception that it's more than that, but the dominant part of our profits still come from Holland, France, Switzerland, Luxembourg, US, Australia, Japan."

Kalff explains the thinking behind ABN Amro's purchase last month of the retail banking operations of Bank of America in India, Taiwan and Singapore. "Consumer banking can be a very attractive business in growth markets and we have started from scratch in Taiwan, Indonesia, Greece and Argentina. If someone else wants to sell their operations, we would look at it. We would have to pay goodwill but we could get three to five years ahead."

One area where Kalff says ABN Amro is no longer seeking acquisitions is investment banking. Its programme of establishing bridgeheads by buying small local outfits in key markets is finished. It wants to continue growing, so that investment banking eventually contributes 15% of group profits (up from 10% last year), but without acquiring. "We would love to be bigger in the US, but it makes no sense for us to acquire a bulge-bracket firm."PL

David Komansky

What David Komansky was doing back in the late 1960s has been repeated so often that it has almost become folklore, so to hear him repeat it might offer some reassurance. "I started at Merrill Lynch in 1968, working as an account executive on private client business in our Forest Hills Office."

Komansky has spent his entire career at Merrill Lynch, working predominantly in the private client business, with a stint running the company's residential real-estate business, until 1990. He then assumed a variety of roles running Merrill's debt and equities businesses, before becoming president and chief operating officer in 1995, and chief executive in December 1996.

It is no surprise, then, that Komansky chooses to view the last 30 years from the perspective of what has changed at Merrill Lynch. "When I started at the firm we were a totally US-centric organization, 99.9% retail-oriented, specializing in basic stocks and bonds. We didn't even offer mutual funds. Now we're a full-service institution whose businesses touch all corners of the world."

He singles out two events from the 1970s as defining moments, the first for the industry as a whole, the second for Merrill Lynch. "The deregulation in May 1975 was a landmark occasion for the industry," says Komansky. "The move away from fixed commissions to fully negotiated rates turned trading into a commodity, and so placed the emphasis on the firms to provide better support and value to clients."

The other major development came two years later, when Merrill conceived and introduced the cash management account [CMA]. Essentially a tool to enable a securities firm to circumvent the banks, the CMA allows a client to set up an account to manage investments and to issue cheques against. "I'd count that as the single most important event in the firm's history," he says.

But it is the 1990s that Komansky regards as the most exciting period. The pace of change in the industry has been faster, innovation and opportunities have abounded, and it has also been the period of Merrill's bold expansion overseas.

In five years the firm has made a number of acquisitions to increase its presence abroad in equities, asset management and the private client business, at a cost of about $7 billion. "We're now ranked as the number-one equities trading firm in every major market bar Japan," says Komansky.

Yet Merrill has been attacked in recent months for last year's losses in the debt capital markets division, and for its perceived lack of an internet strategy. Komansky is quick to counter accusations that this has put Merrill on the defensive. "With hindsight we could have prevented much of the losses of last year, but we were able to make whatever changes we felt we had to make without any drop in effectiveness. And in my mind and expectations, our fixed-income business will continue on the upward trajectory that it has enjoyed for the past 10 years."

His defence of the firm's internet strategy is equally robust: "We have the technology, but we want to make sure we do it correctly, and at the right time. Not piecemeal." An announcement is expected soon.

Looking back, it is a tombstone which Komansky uses to demonstrate how he views the last 30 years. "Look at the advertising tombstones for Ford and PPWA when they went public. Each had around 200 underwriters. I doubt more than half a dozen exist today. That's been our industry over the last three decades, one of unrelenting change and challenges. Those who've been able to master it and survive have really flourished by it. Those who couldn't, have disappeared."Antony Currie

André Lévy-Lang

"In the long-term the successful investment banks will operate in combination with retail financial services firms, because of the balance it gives to earnings stability," predicts André Lévy-Lang chief executive officer of Paribas. This is one of the driving ideas behind Lévy-Lang's attempt to merge Paribas, the leading French investment bank, with Société Générale - a deal thrown into doubt by BNP's unsolicited bid for both parties.

Before taking over as chairman of Paribas in 1990 Lévy-Lang had spent the previous 15 years at the group's specialist financial services unit, Compagnie Bancaire, which he recalls was "run more like an industrial company than a bank".

It was something of an upstart organization, striving to compete against the traditional universal banks in particular areas: consumer finance, mortgages, leasing. "In the mid-1980s, the specialist companies of Compagnie Bancaire were regarded as doomed businesses which the universal banks would wipe out," says Lévy-Lang. Instead they produced enviable returns on equity of around 25% and increasing market share. It became the first French bank to set up a life insurance unit, Cardiff, in 1974. Today, 61% of all new life insurance in France is written by banks.

Such businesses have not always been well appreciated by the stock markets. "Three or four years ago, investors were telling us we should sell Compagnie Bancaire and move more heavily into investment banking. We didn't. We kept it. And today the message is the reverse: get out of investment banking and concentrate on retail. There is a three-to-five-year cycle in financial-market fashions. Today retail is more fashionable." But Lévy-Lang argues that the perceived greater volatility of investment banking earnings is partly due to accounting differences. "If retail banks had to apply to their portfolios of fixed-rate mortgage funded with short-term deposits the same mark-to-market accounting which investment banks use, then whenever interest rates turned up they would look very bad."

France embraces the internet

In retail banking in France today, the most pressing question is what is the future of the traditional branch network? "You have to offer a variety of channels and products because banks don't know which ones customers will choose," Lévy-Lang says. "You need flexibility." He points to the recent enthusiasm for the internet in France, which he says could not have been predicted two or three years ago, when French households had far fewer computers than other European markets.

From this month, Paribas is offering European mutual funds through the internet in several European countries. "In a few years, if you want a straightforward home loan, you will probably be able to get that via the internet." But Lévy-Lang does not think traditional branches will disappear. "If there's any special circumstance, if it's a mortgage refinancing or an unusual type of property, that will require human contact." Lévy-Lang cannot resist scoring points against BNP. "We need good services and a good number of branches, 2,600 seems right. You don't need 2,000 more, in the same streets," - the number that would result from a BNP/Société Générale/Paribas combination.

Lévy-Lang points out that both Paribas and Société Générale had held talks in the last two years with BNP and decided it was not the right partner. Its unsolicited bid came as a shock. "Axa had made a clear choice in favouring our deal and its chairman had joined the Société Générale board. Axa's change of mind was something we did not expect."

Lévy-Lang is scathing of portrayals of a BNP combination with Société Générale as the start of a ruthless rationalization of French retail banking. "On the surface this may look like a French Lloyds TSB-type combination. But let me tell you that France is not the UK, Société Générale is not TSB and BNP is not Lloyds Bank." He argues that a combination of the three banks might even lose market share in certain segments. "Companies want diversified sources of funding. A medium-size customer who had three different lenders and suddenly finds himself dependent on just one, may turn to another bank for liquidity and reward that bank with more profitable business."

He adds: "BNP has presented no serious plan for commercial and investment banking. And I think markets have had enough bad experience with two-way hostile deals to want to be involved in a three-way hostile deal. We and Société Générale have a common vision, an agreed management structure and action plan. We know what businesses we want to be in, we have identified the 15 to 20 top management positions, we know what name we want for the new bank and all that gives us a greater probability of making our merger a success."

Whatever the outcome of this unusual struggle between the three French banks, Lévy-Lang can only see more concentration in future, based as much on the reduction of over-supply than on economies of scale. There are too many banks pouring too much capital into the business and not generating a decent return. "But there are still some opportunities for growth and we want to be a specialist in certain segments of investment banking and retail banking to take advantage of these. On the investment-banking side there will be a shift among European corporates from bank funding to market funding, and on the retail side there will be opportunities in products in savings for retirement."

If SG Paribas does emerge, as Lévy-Lang hopes, will it quickly be consumed in another mega-merger within France or cross-border within Europe? Lévy-Lang sees more joint ventures and joint developments. "There will be a different model for consolidation in Europe compared to the US. Europe will remain a number of separate markets." He points to Paribas' agreement with Bank Austria to offer custody services to non-resident investors in 17 European countries. "They were strong in eastern Europe, we are strong in western Europe."

The heads of the two banks' custody operations negotiated the joint venture. Lévy-Lang sees this as a model for future cooperation in Europe. Whereas in the 1970s, many banks entered ill-defined cross-border alliances based on small cross-shareholdings which never amounted to very much, in future the executives who run particular businesses will negotiate associations with other banks where they see specific opportunities.PL

Godfried van der Lugt

Godfried van der Lugt, chairman and chief executive of ING Group - the largest bank in the eurozone by market capitalization - has a longer perspective on international banking even than Euromoney. He took his first job straight from school 40 years ago. His father, himself a banker, had suggested that instead of going to university the young van der Lugt work his way around Europe, learning languages and gaining international business experience.

His first job was in Germany at Bank Herstatt, subject years later to the infamous collapse but still "a very serious institution in my day", van der Lugt recalls. Later, he moved to UBS in Geneva to improve his French, there meeting his German wife, before moving on to work as a stockbroker for SP Angel in Austin Friars in London.

Returning to Holland in 1964, he joined Nederlandse Crediet Bank as a management trainee, rising through the ranks to become chairman in 1983. It had been a smooth, if rather uneventful, career. But that was to change, as van der Lugt, still in his mid-40s, found himself propelled into a bewildering series of deals that created the modern ING.

In 1985, the Dutch minister of finance asked van der Lugt to become the first independent chairman of the state-owned Postbank and to lead it through privatization. His initial instinct was to decline the offer but following Chase's acquisition of Nederlandse Crediet Bank in 1983, van der Lugt realized that to further his career he would have to move to New York - something which did not suit his private life. So in September 1986, he became chairman of Postbank.

Unhappy marriage

The privatization of Postbank had been the subject of public discussion in Holland for almost 10 years. Fearful of new competition, the country's existing private banks had opposed the project but its politicians liked the notion of a more competitive banking market. Now, as privatization neared, Postbank executives were unsure what position they might take as a specialist retail and payments clearing bank. "We decided we had to find a partner," says van der Lugt. NMB was the second choice partner - van der Lugt says the identity of his first choice will remain a secret forever - and the two chairmen opened talks in the autumn of 1987. These culminated in Postbank's privatization and merger with NMB in 1989.

It was not a happy marriage. "After about one year, culture clashes erupted," he recalls. "It was not so much about the civil-service mentality of Postbank and the commercial mentality of NMB. More it rose from the feeling that, although this was a merger of equals, NMB had taken over Postbank."

The bank eventually resolved these conflicts in an unexpected way: by consummating a further merger in 1991 with insurance giant Nationale-Nederlanden to create ING. "There were now so many cultures within ING that it became clear that, rather than one struggling to prominence, a whole new culture had to be created at ING worldwide. Willem Scherpenhuijsen Rom (the chairman of Nat-Ned) was exactly the right person to create that."

Van der Lugt's career had entered a whole new phase. "You can imagine that, doing two large mergers in two years meant there were no free weekends. In fact, there haven't been many free weekends since."

Mergers and acquisitions continue to occupy van der Lugt's thoughts. He pours over a chart showing the largest financial institutions by market capitalization in Europe. It shows the three biggest banks in continental Europe as UBS, ING and Credit Suisse. "Isn't it a little odd that two small countries, Switzerland and Holland, should take the lead in banking consolidation?" he asks. "I was educated in banking with the sense that Deutsche Bank was the most powerful force in European banking. But look at the German banks today: they are too small to play an important role in the eurozone. There needs to be much more local consolidation in Germany and France over the next two years. During this same period we will see the first large cross-border mergers. Ten years from now there will be more transatlantic mergers, because banks all need to reduce costs, especially IT costs."

ING has already led the way, first in domestic consolidation, then by acquiring BBL in Belgium last year. In recent months it has acquired 39% of Germany's BHF and 11% of the French Crédit Commercial de France. Van der Lugt suggests that its 39% stake in BHF already gives it a control position and so further investment there is not a priority. Crédit Commercial de France is a different case. Three major foreign investors - Swiss Life, ING and Belgium's KBC - now each have similar sizeable stakes. "In future CCF may be a major opportunity for ING, depending on market developments. If one of the others wants to make a full-priced bid for it, then we'll make money."

A sign of the size and complexity of ING's portfolio of financial services businesses is that its overriding priority now is to acquire a large life insurance company in America.

ING Group now owns financial services businesses operating under more than 30 different brand names. While all these companies are subject to the same internal hurdle rates - being required to achieve a return on equity of at least 12%, and to show growth in net profit of at least 10% per year - ING has never been big on integration. "From the very start, with the merger of Postbank and NMB, branding was an issue. The two remained independent but reported a consolidated balance sheet and P&L. The deal with NatNed would have given us 35% of retail market share in the Netherlands. If you integrate that under one label, you find that customers don't like that kind of market share." Neither Barings, in the first years after its acquisition by ING in 1995, nor BBL were forced to add ING to their names.

Pruning this portfolio of businesses has presented van der Lugt with some tough choices recently. While ING Group chose to persist with ING Barings, despite last year's red ink, it sold off its highly profitable non-life insurance business in the US last year citing the long-term outlook. "Those operations were ultimately too small and we did not want to make the investment required to capture a large enough market share."

Last year was disastrous for ING Barings and van der Lugt makes no attempt to hide the fact. "We had too high a risk profile in debt and equity trading and we had to take loan-loss provisions. We had a management team that was not in control. But it was not a structural problem. It was not a reason to sell ING Barings. We changed the management, we put in a new team, lowered our risk profile and came up with a client-driven strategy. We will do investment banking for our corporate banking customers, with more focus on western Europe, where we will concentrate on medium-size companies, a market where we can add value and make money. We are not abandoning emerging markets, where we have made a lot of money in the past."

After 40 years in banking, van der Lugt is still learning new lessons - not all of them pleasant ones. Last year's events in Russia clearly still rankle. "Until 1998, I never believed I would see the insolvency of a country's entire banking system. I never thought I would see a national central bank fail to fulfil its duty as a lender of last resort. It happened in Russia. Who can guarantee to me that it won't happen elsewhere? We will only deal now with the biggest and strongest financial institutions around the world."PL

Frank Newman

Frank Newman prefers to see the last 30 years as a period of evolution for banking and finance, rather than as a series of major events. Yet he has been involved in some of the major trends and challenges the industry has been through.

His first job in banking has an uncanny resonance with the challenges facing bankers today. In 1969 Newman was working for a management consultancy which had been hired by Citicorp. "We were asked to devise a strategy to apply technology to banking," says Newman. "It was a project being run by John Reed [now co-CEO of Citigroup], and he asked me to join the bank to continue the work." The two have remained friends ever since.

Back then, applying technology to banking mostly had to do with trying to create a cheque-less and paperless society, something which still has yet to happen in the US. (Even businesses in the US still pay most of their bills using cheques).

Newman's next job was similar. "I wanted to move to San Francisco, and managed to get a job with Wells Fargo. Initially I worked on applying computer terminal technology, and that broadened out into applying analytical tools across the range of banking."

He was promoted to CFO of Wells Fargo. Towards the end of his time there, and at his next job at Bank of America, he amassed a great deal of experience in bank mergers and takeovers. At Wells Fargo in the mid-1980s he oversaw what he describes as "the first major acquisition of another bank. We bought Crocker Bank from Midland, and undertook an extensive series of cost rationalizations and branch closures. It set a pattern for many of the future takeovers and mergers."

In 1986 he left to join Bank of America, which had had a dreadful time of late, having lost over $1 billion. "On the Sunday before I started work I got a call from my new chairman and CEO, to tell me that he'd just received a letter from the CEO of First Interstate signaling his intention to launch a hostile bid for Bank of America." If that was one shock for Newman, another was to follow a week later. "I got another call, again on a Sunday, to inform me that I was to have a new boss - Tom Clausen was being brought in as CEO. So within the space of a week in my new job I was facing a hostile takeover and developing a dialogue with a new boss who I'd never met. I decided that I'd never answer the phone again on a Sunday."

But he and Clausen developed a good relationship, and the two worked together as Bank of America went on a takeover spree, with Security Pacific the major acquisition. He then moved to Washington to join the Clinton administration, first as under secretary, and then deputy secretary to the treasury, serving under Robert Rubin. At one point he even had the opportunity to serve in the top post. "There was a two or three week period before Rubin was accepted and sworn in by the Senate, and I was made acting secretary," recalls Newman. "I thought that since it was Christmas I ought to have an easy run. But two days in, the Mexican crisis hit."

Newman has seen several crises - Mexico, Russia last year, the less developed countries crisis of the early 1980s, and the US savings and loans crisis. "Past crises were very different to those of the last two years or so. The LDC crisis, for example, was relatively easier to control because most of the loans were controlled by the banks, and so it was not too difficult to get them all together. Back then the markets were more disposed to looking to the longer term, and to dealing with a crisis over a period of time. Now there are so many more players, who have to mark their positions to market daily, or who want simply to make money without needing to understand the products. That has made the markets much more volatile."

Universal banking model

What the various crises have shown to Newman, though, is that the US banking system is relatively resilient. "It still serves the needs of the US economy, and the IMF and other bodies have long since recognized the need for emerging markets to try to develop strong banking systems. And now the laws in the US have changed enough for us to be able to follow a universal banking model of sorts. It's now possible to offer a more integrated service in a coherent and cohesive way."

Newman is now of course faced with the challenge of integrating his institution with its new owner, Deutsche Bank. (The $10.1 billion deal has just received approval from the federal reserve). Integrating these two operations will be a rather different proposition to those he has worked on before. "The logic is sound, but it is much more global than any other merger in the past. In effect it's uncharted territory for this industry. We've seen it in the automobile and pharmaceuticals industries, but not really in banking."

For all the changes and evolution, one thing remains the same for Newman: "The fundamentals still apply. Banking remains a business where we make judgements on how best to help individuals and companies to meet their financial needs."AC

Marcel Ospel

Marcel Ospel started his career at Swiss Bank Corp in the 1970s, moved to Merrill Lynch in the 1980s and returned to SBC 10 days before the great stock market crash of 1987. "The industry was shifting from a fixed-income to more of an equity-focused culture. Big Bang and widespread deregulation made it very difficult for many firms to figure out what their strategic focus should be in the late 1980s. The only thing we were sure of was that we were moving towards a new class of off-balance-sheet instruments and that we had to get prepared in terms of our technology and our professional skills."

Ospel's experience in the US had impressed upon him that American firms were state-of-the-art in this new hi-tech finance. And so was conceived one of the most unlikely mergers of recent financial history, between Swiss Bank Corp, smallest of the three big Swiss banks, and Chicago-based O'Connor, a listed derivatives trading firm. At first the two began with a joint-venture strategic alliance, but Ospel soon decided there would be enormous benefit in fully integrating O'Connor's 1,100 professionals into SBC's 3,000-strong treasury, capital markets and investment banking operations outside Switzerland.

From the outset it became clear this was a reverse takeover. He recalls: "It was very difficult at the outset. We had to make sure we moved everyone to the same strategic and operational agenda. We had to cut deep and that obviously hurt and created some bad blood." But he also recalls: "It didn't take long to prove to ourselves and to outside observers that we were capable of building a proficient operational and technical platform."

By the mid-1990s, Ospel and Swiss Bank Corp faced two key questions. One was how to add a customer franchise to the trading business they had created with O'Connor. The other was whether to continue with its expensive build-up in New York or to concentrate its efforts more in western Europe. "The US market at that time was in a different cycle. We anticipated accelerated corporate restructuring and privatizations here in Europe, as well as a strong shift from a deposit culture to an equities culture among both institutional and private customers." So when SG Warburg's attempted merger with Morgan Stanley collapsed, Swiss Bank Corp didn't wait long to swoop on the wounded UK merchant bank.

What it found was a mixed bag. "The franchise had a stronger international focus than we had expected in terms of quality relationships though it was a bit less strong in the UK. Some corporate clients clearly felt that they had been missing that top quality of coverage, including access to a diversified product range and to capital. Warburg added a marvellous institutional investor franchise on top of its corporate franchise."

Swiss Bank Corp with its new-found American operating culture was not a welcome acquirer to many Warburg veterans and again the first months were tough. "We had a broad buy-in to the deal at the outset but there was a lot of suspicion. We were determined to emerge as quickly as possible with a story that would fly and we were helped by strong markets and growth across the businesses. When it became clear that there was access to capital and to state-of-the-art product expertise, staff and clients were more easily convinced," Ospel recalls.

Time bombs

Some good years followed for SBC Warburg as it established itself as a leader in European equity and bond markets. Then came a very different kind of merger. While O'Connor had brought skills and Warburg had added clients, the merger with Union Bank of Switzerland to create UBS was more of a classic consolidation play, driven by overcapacity in Swiss domestic banking. The merger was already bloody enough, before 1998 revealed some hidden time bombs: first in the form of incorrectly priced positions in stripped Japanese convertible bonds at the old UBS; and then in an exposure to the notorious hedge fund LTCM, which Swiss Bank Corp had passed up but Union Bank of Switzerland had taken on.

So low was morale for a while that some insiders at the securities and capital markets arm of the bank, Warburg Dillon Read, feared that they might be sold or closed down. "The last four months of last year were obviously a very difficult period. As well as merging the businesses and running them, we had to overcome these new types of shocks which created disappointments both internally and externally," says Ospel.

Since then, results have improved and UBS has pressed on with the merger - it is now completed internationally and will be finalized in Switzerland this summer. It has also set about clearly defining itself to the markets as an investment bank by the broad American definition, including asset management, private banking and securities and capital markets.

To emphasize that it is not a commercial bank it has announced plans to shrink the loan book from Sfr270 billion ($179 billion) to Sfr60 billion, an exercise similar to one Swiss Bank Corp carried out in the mid-1990s. "Traditional bank lending is not a business we belong to. Our experience suggests that making loans is not the driving element in a client relationship," says Ospel. And the bank has adopted a more conservative risk profile. Ospel says: "What happened last year was triggered by market corrections which forced us to pay for some legacy positions overnight rather than over an extended period of time. We have adjusted our operating parameters by which we monitor, control and direct risk exposure, but we have not moved away from risk-taking."

UBS intends to continue building on the corporate advisory side, but while Ospel does not rule out another big deal, he offers no hint that one is being contemplated. "There is nothing in the pipeline. As you would expect, we are watching how the current consolidation phase plays out. Then, three to five years from now, we will assess things again. One may assume that with newly-formed very large organizations, certain bits and pieces may fall off which may create opportunities to supplement activities within our current portfolio." UBS is keener on an acquisition in private banking than in any other area and intends to expand its operations either by internal building or buying.PL

Joseph Roby

Joe Roby has one major regret about the last 20 years. "Maybe none of us was optimistic enough about how much the financial services industry would grow during the 1980s and 1990s." The growth rate, he says, has been between 15% and 20% each year.

But then Roby's first 15 years in banking could never have prepared him for that. His career began in 1967 at Kidder Peabody which had just expanded its graduate intake from one MBA graduate to three. "Going to Kidder was a bit of an accident," says Roby. "I'd got a summer internship there, and it was the only job offer I had at the time. Only 11 others from my MBA class went into investment banking, and I thought I'd do it for three or four years and then get a proper job."

Years of struggle

After five years of "number-crunching and slaving away on spread sheets" Roby joined Donaldson Lufkin & Jenrette's newly created investment banking division in 1972, on his birthday. There were just 15 of them back then, as opposed to over 1,000 now. The next few years in the industry were, says Roby, not particularly pleasant. "The 1970s was really a non-event. The industry went sideways, the stock market went nowhere, and a lot of good people left the industry. It was a real struggle." And not an easy time for the fledgling DLJ, either. "One could argue that DLJ should have been sold back then, but Richard Jenrette's stubbornness and tenacity kept us going."

One success from that period which sticks in his mind is DLJ's first mandate as lead manager on an IPO, for a firm called Advanced Micro Devices. Roby is still good friends with its founder, Jerry Sanders, and now sits on the board of the company.

DLJ was sold in the end - in 1985 - to Equitable Insurance, which five years later was bought by Axa. But DLJ has been allowed to maintain its independence. That has given the firm a financial cushion allowing it to pursue its ambitions. Over the course of the 1990s DLJ has built up a formidable presence in US equity underwriting and high-yield debt. "The meltdown in high-yield debt in the late 1980s and the collapse of Drexel Burnham Lambert presented us with a major opportunity," says Roby. "And we were quite aggressive, building up our business at a time when virtually no issues were coming to the market."

DLJ began to build up a significant presence abroad two years ago when it bought Phoenix, a London-based investment-banking boutique. Since then DLJ has been building organically, benefiting greatly from recent mergers - it has done especially well out of the SBC-UBS merger, getting a good portion of UBS' foreign exchange and equities people.

But its international operation is still at the early stages. It contributed $322 million to the bank last year. Roby is hoping for between $500 million and $600 million this year, but won't consider it a real success until it brings in $1 billion a year.

After 10 years of substantial growth in the US, and 18 months of progress abroad, DLJ's future was clouded by last year's Russian meltdown, which was "as sharp and precipitous and vicious" as any Roby can remember. Analysts were concerned because DLJ's two core businesses - high-yield debt and equities underwriting -- were hit hard.

But Roby believes the business is solid. "I think we're well diversified. We have a large asset management business, managing $73 billion in assets, our correspondent clearing service, Pershing, brings in about $1 billion a year, and we're ahead of many of our competitors on the internet." This part of the business, DLJ Direct, was listed on the New York Stock exchange last month.

Roby expects to continue this success by focusing on his staff as well as clients. "We spend a lot of out time thinking about people. We want to get the best and the brightest, and want to retain them. A major exodus of talent would really worry me. But it has never happened."AC

Pedro Luís Uriarte

Pedro Luís Uriarte, chief executive of Banco Bilbao Vizcaya (BBV), has seen great changes in a 27-year career - interrupted briefly by a stint as finance minister of the Basque region - in Spanish banking. "I have seen deep changes in the financial industry in Spain, the former smaller financial institutions have become the leading ones highly efficient and very profitable institutions which are now the market stars. Banks which were at the bottom 27 years ago, today are at the top. The critical success factors have been management and vision."

The defining moment in the development of the modern Spanish banking market came 10 years ago, when Banco Bilbao failed in its attempt to merge with Banesto and fell into a merger with Banco de Vizcaya. It was a bloody affair in Bilbao. The boards and senior managements of the two banks were filled with members of the city's leading families. And when the newly-merged bank failed to make tough decisions on who should fill key posts, the merger lost momentum. Eventually, BBV found the right way and has since risen to prominence.

Spain's big six banks of the mid-1980s have given way to today's big two: BBV and BSCH, the product of this year's merger between Santander and Banco Central Hispano. The most significant changes have been in management philosophy. Uriarte says: "Running a bank used to be a rather administrative task, since banking was one of the few industries where customers didn't have much power. Now the whole business is about customer service and value creation."

The top Spanish banks show efficiency ratios - BBV's is around 47% in domestic banking - and returns on equity far above the norm for continental Europe. Transformation during this decade has already been profound. At the start of the 1990s, 60% of those employed in BBV's Spanish branch network performed administrative functions. Today that figure is just 3%, with 97% of staff devoted to sales or other commercial functions.

Uriarte no longer thinks of BBV as a bank so much as "a distribution company, a retailer, that happens to sell loans, deposits, current and savings accounts, mutual funds, pension plans, equities, financial services, advice insurance and try to cover every financial need of its customers at a low cost".

The bank has invested $700 million over three years on technology. It has a six-year programme to create a single technology platform for its entire operations across the world. It intends to achieve a cost-income ratio of 50% across the network by the end of 2000 and to produce a return on equity of 24% with pre-tax profits of $3.5 billion. It sounds ambitious but this is a bank which has increased its market value from $4.7 billion in 1994 to $35 billion today.

Latin vision

It is this track record of transforming backward institutions that gives Uriarte confidence in the bank's main expansion strategy. Starting in 1995, the bank has pursued large acquisitions in Latin America, closing down much of its network of branches in cities like Brussels and Frankfurt.

The bank intends to be a powerful institution in southern Europe and Latin America, relying on a shared language and cultural tradition for competitive advantage. "You cannot control the largest institution in Venezuela without being able to understand the country and to communicate at all levels at the organization. It is far different from just opening a branch somewhere. Transferring core competencies is a must in order to attain huge efficiency and cost savings, and it is easier and faster when you share a common language for a competitive and efficient bank, that makes the process only a question of time."

The prize is potentially huge. Typical banking spreads in Spain are 1.7%, compared to 7.5% in Latin America. The shared language is important because BBV is wary of importing Spanish management wholesale. It wants local banks to maintain their local identity. And out of 46,000 staff working for BBV in Latin America, there are only 40 Spaniards posted there full-time with 300 rotating through each year on short-term secondment to complete specific tasks.

It is the Spanish cultural tradition that gives Uriarte confidence that BBV can ride out the inevitable political and economic setbacks in Latin America. Uriarte says: "Our experience working in a country that has suffered very complex political and financial environments not so many years ago, is a valuable asset when investing abroad. We know how to do banking in an economy which is not ruled by orthodox policies. We have the skills to manage through economic cycles and periodic instability."

He recalls that as recently as 1992-93, the Spanish peseta devalued 40% against the Deutschmark. Spain 20 years ago was somewhat like Latin America today. As recently as 1990 BBV in the Canary Islands had 60% of its loans non-performing. The proportion in Latin America is 6.7%. "We have the skills to manage through economic cycles and periodic instability." Meanwhile, the bank forecasts the Latin American region will grow at roughly 4.1% per year over the next 10 years.

While BBV pursues acquisitions in Latin America - its most recent being Chilean pension fund manager Provida, which gives BBV a 25% market share in Latin American pensions - it is also pursuing opportunities in southern Europe, concentrating on France, Italy, Portugal and Andorra, as well as Spain. Uriarte's plan is to seek what he calls "strategic alliances, in other words, low-intensity mergers" including cross shareholdings, board seats and the development of certain pan-European businesses like asset management.

Seven months ago it became the leading shareholder among a group of core shareholders in Italy's BNL an investment Uriarte describes as "a strategic stake to give us a presence in Italy". It is progressing carefully. "We had the option to offer a new CEO to BNL but we chose to support the existing CEO and management and we are now defining opportunities for cooperation. We are ready to provide BNL with the expertise that has made BBV operations so profitable." In May it made an offer to the French government to be a core shareholder in Crédit Lyonnais.

But BBV's biggest challenge may yet be in Spain. It was publicly promoting the idea of a large domestic bank merger throughout 1998 and was rather taken aback when arch-rival Santander and Banco Central Hispano consummated a deal in February. "We have made a commitment to our shareholders to do something in Spain. But I feel no pressure right now. Perhaps we will feel more pressure if we haven't been able to do a merger in Spain by the end of 2000."PL

Allan Wheat

One of the first deals that Allan Wheat was involved in still sticks in his mind. "We were working on a deal involving a Japanese securities house, a Mexican company, a US corporate, and investors," says Wheat, who has been chief executive of Credit Suisse First Boston since the end of 1997. "There was a bond deal, two currencies, a swap. The profit we made on the deal took us over our target for the year." That deal is also indicative of how much the industry has changed. "Today that deal would barely be significant enough to be reported on our major deal sheet."

But the deal was also a precursor of the direction his career would take some years later. When he joined Credit Suisse in 1990, he set up Credit Suisse Financial Products, and oversaw the growth of that business just as the use of derivatives began to grow rapidly. Unsurprisingly, he views the development of this market as one of the major occurrences in financial markets in the last 30 years. Two other developments he mentions are the creation of the euro market, and the move towards underwritten bond deals - something he credits to Hans-Joerg Rudloff, who ran CSFB's euromarket debt operations when the firm was king of the heap in the 1980s.

In the early 1970s, though, Wheat would no doubt have scoffed at the idea of his becoming the head of a major financial institution. His first experience in banking was one he enjoyed a great deal. "I graduated in 1971 and got onto the Chemical Bank training programme," he says. There was a big group of trainees, and that made life fun, but the work wasn't quite what he was looking for. "We were rotated around a lot, so you could end up doing almost anything. I spent a few days up in the Bronx once, taking in car loan applications." He spent three years there and "quit pretty much on the last day of the programme".

His next move took him out of banking and into the treasury department of General Foods for eight years. While there, he had a two-year posting to Brussels, "travelling around wonderful cities, staying in great hotels". Just as his boss and mentor, Dave Brush, retired, Wheat took a call from a headhunter and resigned to join Bankers Trust. During eight years there he ran their global capital markets business, and rose to chairman of Bankers Trust International.

It is at CSFB, though, that Wheat has had his most challenging of times. "The collapse in Russia certainly has to go down as the worst moment in my career. But it has also taught all of us some valuable lessons. Shareholders want less volatility. The IMF and other organizations cannot possibly act as a safety net in every situation, and although regulators are much more proactive and smarter than in the past, people realize that they're not going to pick up on everything." Until the next time, perhaps, when a combination of short-term memory and new people at the helm could sow the seeds for another crisis. "We could easily be looking at another trauma in three or four years' time."

As with many of his counterparts in the US, though, it is the importance of technology and the rapid consolidation of the financial world which Wheat ranks above all else as the greatest changes facing the industry. Market capitalization in the billions and stock market listings have replaced the $10 million or so capitalization of what were mainly partnerships just 20 years ago. The size of the firms has increased - CSFB alone has 14,400 employees now, as opposed to just 5,000 in 1996. And the expense base is huge. "We spend, say, $16 million a day just to turn the lights on and be able to work," says Wheat.

As for technology, Wheat aptly uses the world of derivatives to explain some of the change. "If we wanted to price a swap in the early 1980s, we'd use the Wall Street Journal as our main point of reference. Now a matter of seconds can determine whether you get business and how much money you make or lose. So while 15 years ago we only had a handful of people dedicated to information technology, we now have 3,000."

Then there is the internet. "All the mainline investment banks know it will dramatically change how we do business," he says. "But no-one is quite certain how to develop it. Firms with major retail outlets are having a very difficult time setting it uip next to their traditional brokers"

Wheat is keen to exploit these opportunities, yet a hint of nostalgia lingers for days gone by. "The business is less personal than it used to be. I used to knew most of our employees. That is impossible now."AC