Best domestic bank: Commonwealth Bank of Australia
Best foreign bank: Citibank
Best domestic bond house: Westpac
Best foreign bond house: UBS Warburg
Best domestic equity house: JB Were
Best foreign equity house: Merrill Lynch
Best domestic M&A house: Macquarie Bank
Best foreign M&A house: UBS Warburg
No commercial bank can win an award in Australia unless two major strategic opportunities are addressed in both wholesale and retail markets: funds management and e-commerce. Government regulations demand that 8% of gross salaries must be paid into superannuation, and the bulk of the money will find a home in growth investments with fund managers rather than bank deposits. In addition, the rapid acceptance of internet banking and online broking point to an increasingly electronic future.
Commonwealth Bank of Australia (CBA) stands out in both areas. Its recent merger with Colonial Limited propels CBA to first place in funds management, with the excellent brand name of First State likely to be retained when Colonial disappears. Commonwealth Securities is the most active discount and internet broker in the country, and CBA's website is the busiest financial portal. The bank's 23% return on equity places it well above its peers, and it has more local points of representation than any other Financial institution. Exclusive arrangements such as in-store booths in hundreds of Woolworths locations will reduce distribution costs.
Overseas, CBA recently rated highest of the Australian banks in Australian, Canadian and New Zealand dollars in Euromoney's Bond Trading Poll.
The four major Australian banks dominate local corporate and government relationships, in both debt and treasury markets. ANZ and Westpac are the most active suppliers in funding, transactional services and foreign exchange, but ANZ has the weakest bond operation of the four. The largest of Australia's banks is National Australia Bank whose foreign operations (40% of earnings are from abroad) and 50% cost to income ratio are the envy of its rivals.
The most significant foreign bank competitor in retail and wholesale markets is Citibank, supplemented by Salomon Smith Barney. The Euromoney Foreign Exchange Survey 2000 rated Citigroup top in Sydney and in Australian dollars. It plays a leading role in project financing, acquired Diners Club Australia in early 1999, and ranks First among foreign banks as a provider of debt, transactional and treasury services. SSB pioneered the most significant innovation of 1999, the Income Securities product. Deutsche Bank rates a close second, due to the strength of its treasury and bond teams, and the major improver is BNP Paribas, which retains a loyal client base despite recent staff rationalizations.
The best domestic bond house is Westpac, frequently cited by corporate treasurers as the most impressive all-rounder, with good pricing and up-to-date, useful research. It has led or co-led the more important corporate deals, including BHP, Telstra and Coles Myer.
CBA is also a consistent performer, while Macquarie has been strengthened by the ex-BT team, with particular success in the asset-backed market. None of the Australian banks can claim to have an international bond presence that delivers global capabilities.
The best foreign bond house award goes to UBS Warburg. Warburg is particularly strong in the kangaroo market, an important source of supply for investors given the shortage of high-quality domestic corporate issuers and the lack of government paper. The firm co-lead managed a A$500 million deal for BHP, the largest domestic corporate issue, during the period, which was a notable success. UBS has arranged the most deals for Australian clients in Europe in the past year. Elsewhere, Merrill's research is especially well regarded, and based on recent improvements on the domestic dealing side, has thrown off past doubt about market commitment. SSB seems to be rekindling some of the old success of County NatWest, whose operations it bought, and is a notable up and comer.
JB Were is the leading primary market underwriter and the house with the largest share of secondary turnover among the Australian names. Its main foreign competitor in equities is Merrill Lynch, which leads overall secondary market turnover, and is one of the few players which can offer a genuine global perspective to its clients.
Macquarie Bank is the stand-out performer among local institutions for M&A, with highlight deals for Kerry Packer's PBL and Telecom NZ. Said one corporate treasurer: "Others are giving them more of a run for their money but they are always up there." The ex-Schroders people at Ord Minnett are important competitors.
Among the foreign banks, UBS Warburg wins the M&A award for its consistent position at the top of advisory services, including Colonial's merger with CBA and Hanson's acquisition of Pioneer. CSFB's roles in the float of the NRMA and advice to CBA deserve mention, although AMP's purchase of GIO turned into a disaster during 1999.
Best domestic bank: Bank of Tokyo Mitsubishi
Best foreign bank: Citibank
Best domestic bond house: Nomura Securities
Best foreign bond house: Merrill Lynch
Best domestic equity house: Nomura Securities
Best foreign equity house: Nikko SSB
Japan's banking industry is about to undergo extraordinary change. Dai-Ichi Kangyo (DKB), Fuji Bank and Industrial Bank of Japan (IBJ) will merge in 2002 creating the world's largest bank by assets. It is expected to have an asset base of ¥158.2 trillion ($1.46 trillion). The merger entity will also have a market capitalization of around $64 billion and, most significantly, will have lower operating expenses than any of its international peers and predicted operating profits of ¥2 trillion. The August announcement soon triggered more consolidation, and in October Sumitomo and Sakura announced that they too plan to merge in 2002 creating the world's second largest bank, with assets of ¥98.7 trillion. Asahi and Tokai are also to join forces.
Behind these deals is the drive for economies of scale in retail banking and the need to increase capital strength in the wake of the bad debt crisis that forced all the major players into the arms of the government and into mega-mergers, except Bank of Tokyo Mitsubishi (BTM). Fuji, Sanwa, Sakura, Sumitomo, and DKB have all had to accept recapitalization assistance from the government.
BTM is the country's best and largest commercial bank, and is one of the five largest banks in the world by assets. The bank operates in more than 40 countries and is the only Japanese bank listed on the NYSE. Profits for year to end-March were ¥341.9 billion ($3.14 billion) up from a loss in the previous year, largely on the back of securities sale and trading. Even its loan-loss charges have been brought down to ¥498.14 billion for the year to end-March, compared with ¥843 billion the previous year. It's forecasting loan losses of less than ¥300 billion this year.
IBJ is BTM's closest competitor. IBJ was long regarded as the country's premier banking institution and Japan's largest lender. Today BTM is Japan's biggest commercial lender, with almost 2% of the total Asia market for arrangers of loans. Disintermediation and the lack of a retail presence have damaged IBJ.
Despite its alliance with Dai-Ichi Mutual Life it still lacks a strong national branch network.
Although it cannot compete with the might of BTM, Fuji Bank's restructuring plans are going well and its capital position has been strengthened. Fuji has also made substantial progress in addressing problem loans. DKB too is mending the damage. It remains the country's largest retail institution and is the only bank to have branches in every prefecture in Japan. Approximately 815,000 customers a day visit the bank's network of 380 branches.
Domestically, Japan's securities market is still a one-man show. Only a decade ago the Wall Street giants started invading the preserves of local brokers. Now only Nomura Securities among the locals remains a real power. Yamaichi is bankrupt; Nikko has fled into the arms of Citigroup; Daiwa has been forced back to its home markets and explicitly tied to its keiretsu parent Sumitomo. Even Nomura, once one of the world's most profitable companies, now a multi-billion dollar loss-maker has been forced into alliances with the Industrial Bank of Japan.
Nevertheless, Nomura was the best-positioned securities house to take advantage of the revival of the samurai, Euroyen and global yen markets, which began in the second half of 1999. Last year and in the First quarter 2000, Nomura was the biggest bond bookrunner both by number of deals and amount, having led 33 Euro and global yen bond issues. It was the bookrunner on ¥636.3 billion worth of deals, giving it about a 27% market share.
Meanwhile, foreign underwriters are battling it out for mandates. The biggest foreign bookrunner on global yen and Euro debt deals out of Japan has been Merrill Lynch. It ran 36 issues in 1999, worth ¥327 billion, giving it a 13.7% share of the market. It also worked on the ¥50 billion issue for Toyota Motor Credit in November last year - the First bond issue by a Japanese corporate in the global yen market and the deal credited with opening the fixed-rate global corporate yen market. Only a few days later Merrill led a ¥50 billion deal for General Motors, which made its debut on the Euroyen market.
Although Morgan Stanley whips it at M&A and Chase, Merrill Lynch, HSBC and Deutsche Bank are eating into various of its businesses, Citibank is the best overall foreign commercial bank in Japan. It is the biggest arranger of syndicated loans, it has a sound track record in corporate finance through securitization and cross-border fund management for global companies, and it operates one of the biggest private banks in Japan.
The number of customers in Citibank's consumer banking division has grown to roughly one million and, despite only having 23 branches, it now has a link with postal saving ATMs giving its customers access to ATMS in 83,000 locations. Citibank is also strong in securities, particularly equities, through its acquisition of Nikko Securities to form NSSB.
Best foreign bank: Bank of New Zealand
Best foreign bond house: Deutsche Bank
Best foreign equity house: CSFB
Best foreign M&A house: CSFB
In New Zealand, there are no locally owned banks of significant size. The best foreign commercial bank is awarded to the Bank of New Zealand (owned by National Australia Bank).
Its recent excellent profit results are backed by corporate surveys showing its leading role as a financier and provider of transaction services, and it heads foreign exchange and derivatives business. Citibank is well regarded for wholesale products, but the sale of its retail book to AMP Bank reduces its overall market coverage.
The best foreign bond house is Deutsche Bank, adding the former BT franchise to build a leading market share, including its share in mortgage-backed securitization. It also plays an active role in selling NZ dollar bonds into Europe and elsewhere in the world.
Global capabilities are brought to the equity business of CSFB in New Zealand, which wins both best equity house and best M&A house awards. It underwrote Westpac's NZ$650 million (US$302 million) capital placement to its New Zealand shareholders, and has recently advised on major deals for Fletcher Challenge, Lion Nathan, Carter Holt Harvey and Tower Limited.
It is the most active stockbroker in the country, and leads in corporate Finance market share. Deutsche is throwing down a stronger challenge, and Macquarie is a consistent threat.