Global Finance (September 2005)

ISLAMIC FINANCE: BANKS ASSESS THE INSIDE: WHO’S WHO IN BANKS JOIN BATTLE BENEFITS OF BEHAVING GLOBAL TREASURY & FOR MARK...

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ISLAMIC FINANCE: BANKS ASSESS THE INSIDE: WHO’S WHO IN BANKS JOIN BATTLE BENEFITS OF BEHAVING GLOBAL TREASURY & FOR MARKET RESPONSIBLY CASH MANAGEMENT PAGE 19 PAGE 22 SURVEY: THE WORLD’S INTERNET BANKS—PART ONE

SEPTEMBER 2005

The global economy is proving remarkably resilient in the face of repeated shocks

FULL STEAM AHEAD PAGE 14

DEAR READER

SEPTEMBER 2005 | VOL.19 NO.8

The Teflon Economy

LAMIC FINANCE: BANKS ASSESS THE THE HOLES IN THE NKS JOIN BATTLE BENEFITS OF BEHAVING TERROR INSURANCE RESPONSIBLY SAFETY NET R MARKET PAGE 15 PAGE 18 PAGE 21 URVEY: THE WORLD’S INTERNET BANKS—PART ONE

SEPTEMBER 2005

The global economy is proving remarkably resilient in the face of repeated shocks

FULL STEAM AHEAD PAGE 10

here is no disputing the fact that the world’s economies are confronting some unsettling forces. Oil prices are surging, international terrorism is on the rise, there is political turmoil in Brazil and an ongoing tangle between China and the US over exchange rates, textile exports and, latterly, China’s desire to buy American companies. Natural disasters, such as the Asian tsunami and the increasingly frequent hurricanes in the US, create enormous financial stresses, disrupting the economies of entire regions. Despite these—and the countless other threats to global financial stability—the world’s economy is proving remarkably resilient. As we find out in this month’s cover story, the global economy seems to have developed both a protective shell and the ability to heal itself.When some catastrophe or another sends investors fleeing for safety, others quickly swoop in, hunting for bargains in an oversold market.Vast increases in global liquidity, dramatic advances in communications and an ever-growing hunger for yield are combining to create a safety net that can help to stop a crash before it happens. This self-sustaining protective web is one of the unexpected consequences of globalization:With so many connections and interactions between so many economies around the world, markets are becoming inherently better balanced and more robust.We’ve seen in the past few years, for example, how the world’s central bankers have been able to utilize the vastly increased amounts of information available to help them maintain stability in their own economies.This effect is being replicated in banking and corporate activities. And while corporations may be howling about the growing regulatory burdens they are carrying, they are also finding that a well-run business with clean accounts and good corporate governance is likely to be a more successful business—one that can better weather the bad times as well as enjoy the good times. Essentially, the changes that are taking place in the world’s economy are the result of just one thing: better risk management. With greater transparency, more information and increasingly effective risk management tools at their disposal, markets, governments and corporations can adjust quickly to unexpected events. It also means there are fewer unexpected events, and that should be good for all economies, large and small. Until next month.

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Dan Keeler [email protected]

EDITOR IN CHIEF AND CHAIRMAN: PAOLO PANERAI PUBLISHER AND PRESIDENT: JOSEPH D. GIARRAPUTO

EDITOR: DAN KEELER EUROPE EDITOR/LONDON: ANITA HAWSER CONTRIBUTING WRITERS: GORDON W. PLATT, JR., PAULA L. GREEN, MARK LEHANE, LAURENCE NEVILLE, DENISE BEDELL, JOACHIM BAMRUD, ADAM ROMBEL, AARON CHAZE, THOMAS CLOUSE, ANTONIO GUERRERO, KIM ISKYAN, BRIAN OPPENHEIM PRODUCTION MANAGEMENT (MILAN): GIULIANO CASTAGNETO ART DIRECTION: ER CREATIVITY/ENRICO REDAELLI, CLARA CIOCCHINI COPY EDITOR: TINA ARIDAS

VICE PRESIDENTS, SALES: SEBASTIAN CAZEIRO, LEWIS GALATI, PETER RIORDAN, THOMAS GEORGIADES, GRAEME McQUEEN, SALES DIRECTOR, EUROPE AND ASIA, RICHARD SCHOLTZ, SALES MANAGER, EUROPE MKT’G COORD, SPECIAL PROJECTS/EVENTS: NATASHA TRAJKOVA PUBLISHING ASSOCIATE: LAURA GALLETTI MANAGING DIRECTOR, OPERATIONS: CHRISTOPHER GIARRAPUTO ACCOUNTING MANAGER: YAWO GBEGNEDJI ADVERTISING OFFICES LONDON 44-207-583-7588 NEW YORK 1-212-447-7900 RIO DE JANEIRO 55-21-2274-3099 ADVERTISING REPRESENTATIVES: Bulgaria: Elka Koleva, Adia Advertising Agency. China: Mary Yao, Media Gateway International Ltd. Germany: Erhardt Eisenacher, Eisenacher Media. Hong Kong, Singapore: Godfrey Wu, MHI Limited. India: Faredoon Kuka, Ronny Mistry Assoc. Pvt Ltd. Indonesia: Rita Jayadi, PT Mediarep. Israel: Asa Talbar, Talbar Media. Japan: Shigeru Kobayashi, JAC Media. Malaysia: Adil Jilla. Mexico & Costa Rica: Xavier Romero Goytortua. Pakistan: Imran Ahmad, Pace. Philippines: Abdel Teodoro. Russia/CIS Baltic States: Arkady Komarov. South Korea: Heinz Kim, Heinz Communications Inc. Taiwan: Keith Lee, Advance Media Services Ltd. Thailand: Nartnittha Jirarayapong, N.J. International Media Company, Ltd. Turkey: Lemi Tanca GLOBAL FINANCE MEDIA INC CHAIRMAN: P. PANERAI VICE CHAIRMAN: A. BASODAN DIRECTORS: G. CAPOLINO, J. GIARRAPUTO, A. MATTEI, I. MAJEED, V. TERRENGHI SECRETARY: L. PANERAI FOUNDING EDITOR: CARL G. BURGEN September 2005, Volume 19, Number 8. Global Finance (ISSN 0896-4181/USPS 006578) is published monthly except a combined July/August issue in July by Global Finance Media Inc, 411 Fifth Avenue, New York, NY 10016. Telephone: 1-212-447-7900. Fax: 1-212-447-7750. E-mail: [email protected]. London editorial office: The Associated Press Building, 12 Norwich Street, London EC4A 1QU, UK. Telephone: (44207) 436-1356; Fax: (44-207) 436-1568. Periodicals postage paid at New York, NY, and additional mailing offices. Postmaster: Please send address changes to Global Finance, PO Box 2028, Langhorne, PA 19047, USA. Copyright © 2005 by Global Finance Media Inc. All rights reserved. Reproduction in whole or part without permission is prohibited. Microfilm and article copies are available from UMI. Telephone (313) 761-4700. Subscription: one year, US $350. Single copies: US and Canada $30.00 each prepaid; $33.00 outside US prepaid. Customer Service: (212)4477900 ext. 227. Reprints available. Contact: PARS International Corp. Telephone: (212) 221-9595. Fax: (212) 221-9195. Printed in the United States.

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CONTENTS

SEPTEMBER 2005 | VOL.19 NO.8

COVER STORY BY LAURENCE NEVILLE

COVER STORY 14 Full Steam Ahead Despite the shocks of high oil prices and terrorism and the apparent volatility of world markets, the global economy is enjoying a period of unprecedented stability.

REGULARS 1

Dear Reader A letter from the editor.

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The International Federation of Accountants tries to help beleaguered corporate accountants deal with transparency and accountability in financial reporting; and an American company is suing the European Central Bank over alleged patent

TRENDS: ISLAMIC FINANCE BY ANITA HAWSER

FEATURES 19 Vying for a Share of the Islamic Finance Market Global and local banks are jostling for position in a rapidly growing and potentially lucrative market.

Newsmakers

infringement on euro notes.

BANKS’ LENDING POLICIES BY PAULA L. GREEN

22 Banking on Responsibility

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Milestones Venezuelan president Hugo Chavez’s regional debt swap proposal gets a cool reception; and America’s China bashers

Increasingly, banks are discovering that strict lending policies can be a powerful risk management tool.

risk damaging the the US economy.

25 Holes in the Safety Net

RISK MANAGEMENT: TERRORISM INSURANCE BY GORDON PLATT

Despite the lessons learned in recent terror attacks, companies are still unprotected against the catastrophic losses they could face in the event of another attack.

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Emerging Markets Roundup The latest news from China, India, Russia and Brazil.

12 EM Investor Key information for investors in emerging

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Custodians Focus on Innovation

markets.

GLOBAL CUSTODY BY JOACHIM BAMRUD

As they strive to find ever more creative ways to serve their clients, custodians are increasingly finding themselves on the cutting edge of technological innovation.

38 Best Hotels and Airlines Global Finance readers select their favorite business hotels and airlines.

T INTERNET BES BA ’S

AWARDS WORLD’S BEST INTERNET BANKS

2005

Global Finance identifies the best online corporate and consumer banks by country and product or service category.

to pan-European banking are still in place.

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World’s Best Internet Banks: Part One

Big cross-border bank mergers in Europe are expected to remain rare, as numerous legal, regulatory and cultural impediments

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40 Mergers & Acquisitions

44 Global Equity/DRs Credit Suisse First Boston has rocketed to the top of the global IPO league tables, as the pace of new issues picks up.

45 Corporate Debt REPORT AND AWARDS: HOTELS AND AIRLINES BY MARK LEHANE

SunGard Data Systems sells $3 billion in notes in the biggest high-yield issue in more than six years.

46 Foreign Exchange Analysts aren’t sure if China’s 2.1% revaluation of the yuan is a baby step or a great leap forward toward a more-flexible system of currency trading.

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NEWSMAKERS

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UNITED STATES/EUROPEAN UNION

IFAC OFFERS LIFELINE FOR BELEAGUERED ACCOUNTANTS

US COMPANY SUES EUROPEAN CENTRAL BANK OVER EURO NOTES

xecutives who are still bogged down in SarbanesOxley and IFRS compliance are probably thinking the regulators and the world of accountancy professionals have said all they need to say on transparency and accountability of financial reporting. But they would be wrong.At its recent board meeting in New York, the International Federation of Accountants (IFAC) announced that it would look at further measures for enhancing the “financial reporting supply chain” and that age-old bugbear, corporate management and governance. The more skeptical may be thinking,‘Uh, oh! Not more regulatory compliance,’ but IFAC president Graham Ward says it is too early to conclude that its work would lead to further regulation. Instead, he says, the initial focus would be on providing practical help to people within the financial reporting supply chain to ensure they “do the right thing” when it comes to preparing company financial statements.“We are not starting from a pre-judged position that more regulation is needed, ” says Ward.“It has more to do with professional accountants within companies saying to us, ‘Can you give us some help in a practical sense?’They want more recognition for the role they play in the production of audited financial statements.”

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Ward says the renewed focus on the quality of financial accounting and reporting stemmed from a “credibility report” it issued two years ago entitled “Rebuilding Public Confidence in Financial Reporting.”And while company CFOs, CEOs and auditors have been in the firing line recently for inaccurate or dishonest financial reporting, IFAC’s aim is that everybody involved in the production of financial statements from the initial stages should focus on quality.That includes lawyers and banks.Ward says there was evidence to suggest that they earned fees based on the measure of success they had in convincing auditors that financial statements that weren’t fair were really fair. IFAC’s study will also look at whether measures such as the independence and rotation of auditors has made any difference in the quality of financial reporting. —Anita Hawser

IFAC president Graham Ward

ust when currency traders thought the euro was about to get over its recent woes, the beleaguered single currency has fund itself in another crisis. This time, however, it’s an identity crisis. In a lawsuit filed with the European Court of First Instance in Luxembourg, Document Security Systems, a Rochester, New Yorkbased provider of Pat White products to prevent counterfeiting of currency and other vital records, says the ECB used its patented anti-counterfeiting technology without permission. The company says the ECB should pay it a reasonable royalty for every euro banknote in circulation for infringing its European Patent 455750B1. The patent, which was granted in 1999, covers a method of protecting banknotes against forgeries by digital scanning and copying devices. “Our patents are among our company’s most valuable assets, and we have an obligation to protect them and a right to be paid when our technology has been used,” says Patrick White, CEO of Document Security Systems. The earliest date the case may come to trial is December 31, 2006, by which time the ECB is expected to have printed about 30 billion euro notes. Even a small royalty would add up to a considerable sum when multiplied by 30 billion, White says. “Ongoing royalties from licenses are an important source of revenue for our company, and enforcement of our patent rights is key to our long-term business success,” White says. The ECB, the guardian of the euro, is planning to put into circulation before 2010 a new generation of euro notes that will be secured with electronic microchips. A spokesperson for the bank had no immediate comment on the lawsuit. Meanwhile, the US company’s technology appears to be working. A total of 293,000 forged euro notes were pulled out of circulation in the first six months of this year, down from 307,000 in the same period a year earlier. This is a small fraction of the 9 billion genuine banknotes currently in circulation. —Gordon Platt

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VENEZUELA’S DEBT PROPOSAL GETS COOL RECEPTION keptics are questioning the rationale behind the Venezuelan government’s proposed debt alliance for Latin American emerging markets. Its chief cheerleader, Hugo Chavez, claims the move should bolster emerging market debt prices and provide financing for the region’s countries. Under the plan announced by Venezuela’s finance minister, Nelson Meirentes, in July, alliance members would purchase each other’s debt, with Venezuela already committed to purchasing debt from neighbors such as Argentina, Brazil, Bolivia and Ecuador.The government in Caracas is expected to purchase more than $500 million worth of Argentine debt alone this year. “It’s a way to unify Latin America,” says Meirentes, who also proposes the establishment of a regional debt trading center in São Paulo, Buenos Aires or Caracas. However,

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Venezuela’s Hugo Chavez

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while Venezuela may appear to be channeling some of its oil windfall to lending its neighbors a helping hand, analysts speculate whether the administration may be using the strategy to buy greater influence in the region. Chavez, who has already proposed the creation of an umbrella holding company to manage Latin America’s stateowned oil companies, supports the establishment of a regional economic union and recently launched a new regional television broadcaster as part of a broader strategy to gain greater regional prominence. However, the Venezuelan President’s increasingly authoritarian policies, fierce opposition to Washington and strengthening ties to the Fidel Castro regime in Havana means few governments are likely to jump on his debt bandwagon. Much of his regional support continues to come from Cuba, as well as from leftist administrations in Argentina and Brazil. “What this doesn’t seem to answer is how you will get net new lending into Bolivia, Peru and other developing countries,” said Randall Dodd, director of the Washington-based Financial Policy Forum, in a press interview in July. “You just can’t do each other’s dirty laundry and then say we are all better off.” —Antonio Guerrero

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TAKING NOTE

UNITED STATES/CHINA

WILL AMERICA’S CHINA BASHERS HARM THE US ECONOMY? hen China’s C N O O C withdrew its $18.5 billion allcash offer to buy US oil company Unocal in early August, it cited “the political environment in the US” as the reason for not sweetening its bid to top a rival offer from Chevron, a major US oil company. Hong Kong-based CNOOC, which is 70%-owned by the Chinese government and is the country’s third-largest oil producer, said the political reaction in the US to its offer was regrettable and unjustified. It was also ill-advised, says Robbert Van Batenburg, head of research at Louis Capital Markets, a New York-based brokerdealer of equities and derivatives. “The US should embrace foreign direct investment,” he says. “FDI is always a good thing for our economy.” China is making a positive contribution to the US economy and financial markets, a fact that is often overlooked in reports on its trade surplus, Van Batenburg says. The US economy is strong, not only because of robust domestic consumption but also because of growing demand for US exports in China and other emerging-market countries, he adds. The benefit to the US is not limited to exports but includes low inflation, he says. Most raw-material price increases have been absorbed by Chinese and other Asian manufacturers who have been unable to pass any of these costs on to the consumer, according to Van Batenburg. Van Batenburg is also among those who believe that if China bows to US demands to revalue the yuan dramatically, inflation will return to the US economy. Tariffs would be unlikely to work either, they believe, because China could simply compensate its exporters through tax breaks. “Protectionism has curtailed economic growth in Europe,” Van Batenburg says. “Let’s hope it doesn’t happen to the US.” The political wrangling required to get the Central American Free Trade Agreement through the US House of Representatives by a two-vote margin, however, reflects lukewarm support at best for open markets. —Gordon Platt

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EAGER INVESTORS CATCH A DOSE OF IPO FEVER n a long-awaited move, the Chinese central bank modified the yuan’s exchange rate on July 21 for the first time in a decade. China’s currency will now no longer be pegged directly to the US dollar but will instead be tied to an undisclosed group of currencies. While the decision to move to a more flexible pricing regime was praised both at home and abroad, the 2.1% revaluation may not be enough to satisfy critics of China’s monetary policy. Most observers expect further exchange rate adjustments, despite statements from the central bank seeking to quell such expectations. In June, the Bank of Communications also made a long-anticipated move when it became the first of mainland China’s banks to launch an IPO, which raised US$1.9 billion on the Hong Kong

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stock market.The bank was the most successful of several Chinese companies to list in Hong Kong this summer. Energy company China Shenhua raised almost $3 billion in its huge IPO. Pricing for the company’s stock, however, was lower than expected and dropped further during the first day of trading. Chinese shipping company COSCO and real estate company R&F Properties both met with lukewarm receptions due to concerns that China’s economy may be cooling. Baidu, China’s most popular Internet search engine, sold more than $100 million in shares on the US-based Nasdaq (see EM Investor, page 12). Early trading in the shares pushed the company’s valuation to stratospheric levels last seen at the peak of the Internet boom in the US. Despite having revenues of only $13 million last year, Baidu was valued at almost $4 billion by the end of the first day’s trading. Its price continued to rise the following day, although buying was tempered by rumors that short sellers were eyeing the stock. Public health concerns have been competing with investment opportunities for media attention following an outbreak of a lethal variety of

swine flu. By the early August the mysterious strain of Streptococcus suis bacteria had infected 198 people, killing 36 of them.The Chinese government has responded to the outbreak

by sending vaccines for 350,000 pigs to China’s most heavily affected province of Sichuan— and promising enough doses to vaccinate 10 million pigs. —Thomas Clouse

RUSSIA

CONSOLIDATION HEATS UP n the latest round of oil and gas Kasyanov: Under pressure industry consolidation, Gazprom received Russian President Vladimir Putin’s official blessing to take over Sibneft, the country’s fifth-largest oil producer. Meanwhile, Sibneft announced it would pay out a record $2.3 billion dividend, indicating to some analysts that a deal is likely as the company’s majority shareholders seek to bolster their SWITZERLAND, GERMANY, UNITcash holdings before a sale. Meanwhile, the parade of Russian IPOs continued, as Novatek, the country’s largest independent gas producer, raised $966 million on the London Stock Exchange in a sale that was more than 10 times oversubscribed. Despite being priced at the high end of the targeted range, shares still rose more than 13% during the first day of trading. Foreign investment in the Russian beer sector continued, as InBev agreed to buy Tinkoff, a high-end producer, for $202 million. The purchase comes on the heels of the sixth acquisition by Heineken in Russia, of Baikal Beer. One man who won’t be drinking a toast is former Prime Minister Mikhail Kasyanov, who earlier in the year indicated that he might be interested in running for President in 2008. Kasyanov was put under investigation for fraud relating to his below-market acquisition of a government holiday house. Kremlin-watchers suggested that the investigation was a warning to Kasyanov to stay out of politics, even though the chances of the tainted and unpopular Kasyanov achieving any sort of political momentum are widely regarded as slim at best. —Kim Iskyan

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MARKETS SHRUG OFF LULA’S POLITICAL WOES hile Brazilian corporates have stayed ever, issuers have placed nearly $4 billion clear of a political scandal surrounding abroad since the scandal broke, tapping global key leaders of President Lula Da Silinvestors seeking higher yields. The governva’s ruling Workers’ Party (PT), the ongoing ment jumped on the same bandwagon, swapfallout may be taking a toll on the country’s ping $4.4 billion of 8% C-bonds due 2014 for economic outlook. The scandal was unleashed longer-dated paper maturing in 2018 as part in June with allegations that PT leaders bribed of a plan to slash financing costs. lawmakers to support government projects. Ratings agency Standard & Poor’s sounds Prompted partly by the political uncertainan optimistic note for Brazil, commenting that ty that has forced the departure of several the political situation should not hurt the adgovernment officials and partly by first-quarministration’s solid fundamentals, although it ter 2005’s meager 0.3% GDP growth, Brazilis likely to delay passage of controversial legian companies are taking a more cautious islation or reforms. S&P, which rates the sovapproach to capital investments during the ereign at BB- with a stable outlook, says such Troubled: President Lula da Silva second half of the year. Foreign investment potential setbacks have already been factored could make up for the shortfall, though, with FDI up 112% in firstinto the rating. “The ratings, however, do assume continued comhalf 2005 to $8.6 billion. The central bank, however, predicts fullmitment to prudent macroeconomic policy by the current and fuyear FDI of just $16 billion—down from 2004’s $18.2 billion. ture governments and appropriate and adequate policy response The political turmoil was blamed for weakened demand for an to internal or external shocks,” says S&P credit analyst Lisa SWITZERLAND, GERMANY, UNITEDshe STATES IPO by Energias do Brasil, a São Paulo-based power company, Schineller. The rating and/or outlook, adds, could be affected which raised $474 million but saw shares priced at $7.72—well beif the administration’s policy commitment were to falter. low the $9.40-to-$12.00 target. On the fixed-income front, how—Antonio Guerrero

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INDIA

MONSOON FURY INUNDATES INDIA’S FINANCIAL CAPITAL n June the Indian markets were worried about the impact of a delay in the monsoon, but when it arrived in July, its impact was unprecedented. Mumbai, the financial capital, was inundated with 36 inches of rain in just one day, the highest-ever rainfall in recorded history, and several surrounding districts across the two states of Maharashtra and Gujarat were also badly hit. These states are major producers of cotton, oilseeds, sugar and various agricultural commodities, which have been heavily compromised.There will be implications for GDP growth since agriculture

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contributes 25% to GDP. Flooding killed at least 1,000 people in the city and caused landslides, large-scale destruction of housing and businesses, and severe disruption in communication. India’s two biggest stock exchanges and a number of commodity and bullion markets based in Mumbai were forced to close during the deluge. Power failures and failed Internet and telecom connectivity hurt the callcenter industry’s operations. Despite the destruction caused by the monsoon, equity indexes are at a new high thanks to strong and sustained foreign investment flows.The

BSE Sensitive index hit a new all-time high of 7,500 in July, and foreign investment into Indian India’s monsoon: Too late and too strong capital markets in July alone reached cash deal in the last week of $1.8 billion, pushing the total July.Teleglobe operates a network in the United States for the year so far to $6.5 and Canada along with a billion. Indian companies are global network of subsea, also ramping up their landline and satellite facilities. international investments. VSNL had earlier taken over VSNL, India’s largest international long-distance the submarine cable licenses telecom company, purchased and the fiber optic networks of two Tyco International Canadian telecom company subsidiaries for $130 million. Teleglobe International —Aaron Chaze Holdings in a $239 million all-

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ARGENTINA’S BONDS ATTRACT INVESTORS

CHINA’S “GOOGLE” FINDS A PRICE FOR ITSELF

rgentina’s inflationlinked bonds have caught the eye of global investors seeking high returns, triggering a flood of foreign capital into the country and forcing the central bank to mop up huge inflows of cash to keep the peso from rising, analysts say. Filippo Nencioni, global head of emerging markets Nencioni: Peso is stable strategy at Credit Suisse First Boston in New York, told the firm’s monthly strategy call to clients on July 8 that the bonds offer attractive returns, due to

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Argentina’s 12% annual inflation rate and relatively high yields.“The peso remains very stable,” Nencioni said.“It is stuck in a range that is 42% below where it was trading before the devaluation in 2001,” he said. The combination of a high return on the bonds and a cheap currency is appealing. The total return, or “carry,” on the country’s 10-year bonds in early July was about 19% when adding in their 7% yield.The bonds have since rallied sharply, cutting the yield to around 6% in early August.Argentina’s economy is growing at an annual rate of about 7.3% and the central bank’s dollar purchases contribute to inflation, according to Nencioni. —Gordon Platt

COMPANY TO WATCH: TEVA PHARMACEUTICALS/ISRAEL

A PENNY SAVED IS A SHEKEL EARNED erusalem-based Teva Pharmaceutical Industries signed a definitive agreement on July 25 to acquire Miami, Florida-based IVAX for about $7.4 billion, creating the world’s largest generic-drug company. Assuming that the

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transaction is completed,Teva will have annual sales of branded and generic drugs of $7 billion. It will operate directly in more than 50 countries and will employ about 25,000 people. Close to 90% of Teva’s sales are in North America and

aidu.com, China’s most-popular Web search engine, rose 354% in its August 5 debut, making it the hottest initial public offering in five years. While the IPO for a 13% stake in the company, which is patterned after Google, created a buzz on Wall Street, the offering of American depositary shares was also designed to put a price on Baidu for a potential future sale. Google, which holds a 2.6% share of Baidu, is one possible suitor. Californiabased Google is China’s second-most-popular search engine. The price set for the Baidu IPO of $27 a share, was higher than its $23-$25 estimated range, which was increased from an earlier estimate of $19-$21. In first-day on Nasdaq, the shares SWITZERLAND, GERMANY, UNITEDtrading STATES hit a high of $151.21 and closed at $122.54. The size of the offering was increased to 4.04 million American depositary shares from 3.6 million. The underwriters were Goldman Sachs, Credit Suisse and Piper Jaffray. Baidu, pronounced “buy-do,” is a well-known brand in China. The name was taken from an ancient Chinese poem about a man picking out the face of his lover in a crowd. Meanwhile, capital raised by non-US companies using depositary receipts rose 121% to $7.9 billion in the first half of 2005 from the same period of 2004, according to a report by Citigroup. Asian companies accounted for 36% of the total, Western European companies for 32%, and Eastern European companies for 29%. Citigroup said a continued positive US investor sentiment toward non-US markets is evidenced by growing cash flows to international mutual funds. —GP

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Europe. IVAX, with its operations in Latin America and Eastern Europe, will expand Teva’s geographic reach. Israel Makov, president and CEO of Teva, says the acquisition will provide his company with additional products, a deeper pipeline and a wider presence in new therapeutic areas and growth markets. Generic drugs account for nearly half of the prescription-drug market in the

US and analysts say this share is expected to increase as a result of efforts to control rising healthcare costs. Meanwhile,Teva’s new drug for Parkinson’s disease,Agilect, has been approved for marketing in the EU and Israel, and is under evaluation in the US and other markets.Agilect was launched in the UK in June and will be gradually introduced in other EU countries. —GP

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An entire day dedicated to Braskem at the NYSE “Braskem Day”, scheduled for September 2005 at the NYSE, will celebrate the world class Brazilian petrochemical company’s third year on the success trail Braskem, the petrochemical industry leader in Latin America, and a sound platform for growth going forward. celebrates its third anniversary during the “Braskem Day”, an With gross revenues of up to R$14.3 billion ($6 billion) in 2004 event to be held at the New York Stock Exchange (NYSE) in New and a production of 5.7 million tons, which includes York City, on September 6, 2005. On this date, Braskem’s top thermoplastic resins and basic and intermediate petrochemicals, management will meet with investors and market analysts at the the company provides more than 3,000 direct jobs, across 13 NYSE’s prestigious “Boardroom” to attend a presentation made industrial facilities. The business model adopted by Braskem, especially for this occasion based on the integration of and for them, delivered by first and second Braskem´s CEO, José Carlos petrochemical generations Grubisich, who will talk about and on competitive access to the company’s successful major raw materials (ethylene, track record since its propylene and chlorine), foundation in August 2002, as allows for important well as about its prospects for comparative advantages over the future. “Not only is its peers in the regional ‘Braskem Day’ an market. This strategic position extraordinary opportunity to is supported by market reinforce our relationship with leadership, cost the foreign investor competitiveness Vinyl plant in Alagoas, Brazil community, but it also (strengthened by synergies represents an important chance for both Braskem’s management captured through integration and production scale) as well as by and major international players in the global financial market to Braskem’s technological independence. meet and discuss issues of their interest”, says José Marcos The Company’s R&D Center has technological assets worth Treiger, Braskem’s Director of Investor Relations. approximately $100 million, allocated to six pilot plants and In full compliance with modern Corporate Governance eleven laboratories. Braskem’s Technology and Innovation practices, Braskem is listed on BOVESPA (The São Paulo Stock Center, located in the petrochemical complex in the city of Exchange), on the NYSE (The New York Stock Exchange) and on Triunfo (State of Rio Grande do Sul), considered to be a stateLATIBEX. In BOVESPA, the company ranks at Corporate of-the-art facility, is second to none in Latin America. Its Governance Level 1 and is in the process of migrating to Level technological structure enables the company to launch resins 2. The Company offers 100% of tag-along rights to all with higher value-added and to expedite the replacement shareholders and classes of shares. process of traditional materials with plastics. Due to its transparency, its direct and constant contact with investors around the world—either by means of road shows, Performance conferences or one-on-one meetings—and focus in creating The company’s financial performance in 2004 exceeded value, Braskem has indeed achieved recognition and reliability general expectations, illustrated by consistent EBITDA growth in this short period of time. “The year 2004 brought about posted throughout the year. In the international market, the important results from our efforts to further improve our company maintains its strategic presence through exports to relationship with the capital markets”, adds Treiger. “We more than 40 countries that on average account for received the 2004 Quality Award from the São Paulo Chapter of approximately 20% of net revenues and rank Braskem among the Capital Market Investment Analysts and Professionals Brazil’s 15 largest exporters. Association (APIMEC-SP), as well as the 2005 Investor Relations Based on an operational perspective, Braskem created a Magazine Award in the category for ‘Most Progress Made in program of excellence and competitiveness called “Braskem Investor Relations’ (including two important honorable +”, which started to be implemented last year and aims at mentions), which we believe demonstrate the level of approval positioning the company, within a three-year period, among the by the market of our collective efforts and achievements in world’s most competitive petrochemical companies. The Investor Relations,” adds Treiger. program has identified over 200 specific initiatives (based on Last September, Braskem successfully completed the the most advanced processes available in the petrochemical largest global public stock offering issued by a Brazilian industry worldwide), and has laid out performance objectives company in 2004. The proceeds, which totaled $422 million, and implementation schedules for each one of them. By 2007, increased Braskem’s free float to 45% and greatly “Braskem +” will have required investments in the magnitude contributed to the company’s strategy of reducing its net of R$330 million and, in turn, is set to achieve returns in excess debt, therefore assuring a more balanced capital structure of R$400 million, estimated on an annual and recurrent basis.

COVER STORY GLOBAL ECONOMY

BY LAURENCE NEVILLE

FULL

It might seem as if we live in risky times, but financial markets are now less volatile than they have been in decades. How has this come about, and is it sustainable? 1 4

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STEAM AHEAD f you read the newspapers, you could be forgiven for thinking the world is an ever more volatile place. Terrorism dominates both the domestic and foreign news pages. Natural disasters such as earthquakes, the Asian tsunami and hurricanes in the United States seemingly occur with ever-greater frequency.And in the economics world, the price of oil continues to hit record highs before dropping almost as suddenly. But while our perception of volatility has increased—no doubt partly explained by the ubiquity of information in the Internet age—the statistical reality is the exact opposite:The global economy is more stable than it has been for years—despite the shocks of terrorism and ballooning oil prices. Bond and equity market volatility is at historic lows in the US and other major markets. The nature of the cornerstone of this newfound economic stability will come as a surpr ise to many. According to Kenneth Broux, financial market economist at Lloyds TSB in London, the global economy is less prone to wild swings because it is enjoying a prolonged and unprecedented period of low inflation.“The main reason that we

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have economic stability at the moment is that inflation is under control.And the reason for that is China,” Broux says. China in itself is not the cause of stability; indeed, some protectionist US politicians denounce the dislocations it is causing in the domestic job market. But its growing prominence in international trade has created the conditions for stable economic growth. Manufacturing in the US, the UK and increasingly in continental Europe has, in effect, been outsourced to China and other low-cost economies. “Import costs are much lower [than domestic production], and margins are much higher, hence continuing growth and strong equity market performance,” says Broux. In addition, if developed-world demand is reduced, all that is reduced is imports—not economic growth. With inflation kept low thanks to increasing volumes of cheap imports, central banks have been able to keep interest rates low, which has resulted in healthy and stable growth.The US economy has been growing at more than 2% for nine quarters, and it looks as if that will continue for the third and fourth quarters of this year. Manufacturing has picked up, and employment is robust. Such a smooth rate of growth is unprecedented in economic history; traditionally, economies grow in fits and starts.

Structural Change in Fixed Income While the stable economy and lowinflation environment have had a major

bearing on the fixed-income market, additional factors specific to the market have also been important in keeping bond market volatility low. Aleksandar Kocic, derivative strategist in fixed-income research at Deutsche Bank in New York, says that changes in the supply and demand dynamics of the US mortgage market have had a major impact on volatility. One important determinant of the level of market volatility is demand for volatility in the form of swaptions and treasury options. Mortgage lenders use these to hedge their short position in the volatility that stems from mortgage borrowers’ ability to pay back their loans early. Traditionally, when mortgage lending is strong, as it was earlier this decade, demand for volatility—and therefore market volatility—is high. But in recent years, changes in the mortgage industry and the types of loans available to borrowers have reduced the requirement for volatility, despite high mortgage lending. At the same time, hedge funds have become enthusiastic suppliers of volatility. “[In 2000] they accounted for only 10%-15% of all the volatility flows,” notes Kocic, who says their activity is now on the same scale as mortgage lenders. “With declining demand from the mortgage community and the growth of the hedge funds, we effectively transitioned from a market which was demand driven to one where supply and demand were well balanced,” he ex-

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plains. Hence market measures of volatility decreased. The world’s central banks, particularly the US Federal Reserve, also deserve a share of the credit for the stability of bond markets.“There is little uncertainty about what the Fed is going to do, which takes out most of the volatility from the curve,” says Kocic.“There is a market free of noise with virtually no fundamental uncertainty regarding rates,” he adds. The result has been unprecedented stability. One measure of fixed-income volatility, the Merrill Option Volatility Estimate (Move) index, which shows market expectations of treasury prices for the coming year, has fallen consistently since 2003, when the Fed began a policy of indicating its intentions toward rates.The Move index recently hit a seven-year low, taking it to roughly the same level as just before the Russia crisis in 1998.

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driven by good profit cycles, so good figures from corporates justify very low levels of volatility,” says Lancetti. But while a low Vix level should spell contentment among investors and a steady immediate future in the equity market—in February 1996, when the Vix was last below 10, the stock market was set for one of its strongest periods of growth ever—investors should be cautious of over-reliance on such indicators. “Forecasting volatility is extremely difficult,” notes Lancetti.

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ized volatility figures to show that volatility is much higher when profit growth is low.And data from the Institutional Brokers’ Estimate System indicates that profit growth is poised to fall. “Deceleration is on the way,” he notes. In Europe, 2005 earnings growth is expected to be around 9% compared to over 20% in 2004. In the US it is the same: Forecasted earnings growth was over 20% in 2004 but is expected to be 14% this year.“We are moving toward a macroeconomic environment where realized volatilities should be around 13% for the S&P500 and implied volatility therefore around 15% to 16%,” he says.

Risks Galore

What the Models Don’t Show In the equity market, volatility is at a similar historically low level as fixed income.The Chicago Board Options Exchange Volatility Index (Vix) is the most commonly used measure of stock market volatility and is essentially a measure of the demand for protection from a falling S&P100.When demand for protection is high, the Vix soars; it hit 172.79 during the crash of 1987.When people are comfortable, it falls. Recently the Vix fell into single digits for the first time in a decade, having been in the 20s for most of the period from 1996 to 2003. “Why is volatility so low? Is this abnormal?” asks Sebastian Lancetti, quant strategist at Dresdner Kleinwort Wasserstein in London, rhetorically.“It is explainable if you look at the exceptional profit growth,” he says. The reasons for low equity volatility are the same as those for the global economy or the fixed-income market: Economic growth, profit growth and productivity growth continue to be strong in a low interest rate, low inflation environment. “Realized volatilities are

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Lancetti: Volatility “is explainable if you look at the exceptional profit growth”

Implied volatility measures such as Move and the Vix present problems in predicting future market behavior because of the way they are constructed: Most models are mainly driven by previous prices. That means that implied and realized volatilities look much the same.“In other words, contrary to what is often believed, implied volatilities include very little additional information,” says Lancetti. Ominously, Lancetti points out that volatilities tend to revert to the mean, so if we are nearly at a 10-year low, there is little room for further decrease in volatility. To back up that prediction, Lancetti has used S&P500 profit growth and real-

As if decelerating profit growth were not enough to drive volatility, there are other dangers lurking on the horizon. The threats with the highest profile in the media are not necessarily the most dangerous to the global economy, according to Lloyds TSB’s Broux.“Terrorism is a sideshow, and natural catastrophes such as the tsunami do little to impact global trends,” he says. Broux notes that the performance of the UK stock market following the bombings in London was extraordinary, with the FTSE100 regaining its losses the following day. “Even following 9/11, the world’s central banks flooded markets with cash, and the economy rebounded quickly,” he says. The huge liquidity in the global financial system—and the prevalence of hedge funds—means such dislocations are now swiftly corrected. Likewise, oil prices, which have almost doubled in the past two years, are something of a red herring. “The western world has become so much more efficient since the 1970s,” says Broux. “Much of the energy-intensive activity has been outsourced to low-cost countries like China.” However, there are a number of potential blow-ups visible. The clear imbalances in the US economy are a threat to world stability, according to

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China’s main trading partner—entering the region’s central banks, says Glenn Kim, head of public sector debt at Lehman Brothers in London. According to the US Treasury, Asian central bank reserves five years ago were around $1 trillion and now stand at $2.3 trillion. China’s central bank reserves have grown from $170 billion in 2001 to over $610 billion at the end of 2004. Broux estimates that China’s reserves now stand at around $800 billion. The reason why these reserves are important to the US fixed-income market and its economy is straightforward: In order to stay competitive and keep its currency stable, China has used its reserves to buy foreign bonds. “Consequently, there is a virtuous cycle where long-term bond yields are artificially low, especially in the US,” says Broux. “They could prompt a collapse in the dollar,” he says. But perhaps more important are the risks facing the economy that has done so much to ensure global stability in recent years: China. “History shows that it is inconceivable for a large nation like China to grow at 9.5% over a long period without any hiccups,” explains Broux. “Something has to give over the next six to 12 months.There must be misallocation of funds occurring. It is also likely that real inflation is higher than the official 1%. The financial system in China is very vulnerable to shocks.” That vulnerability to shocks is one of the reasons why the Chinese government took so long to respond to calls to revalue its currency. Ironically, the minor revaluation that occurred in July—vociferously demanded by many in the US to try to staunch the country’s trade deficit with China—could spell the beginning of the end for stability in the US fixed-income markets and possibly its economy. As China and the rest of Asia have grown largely through exports, there have been record flows of foreign currency—much of it dollars, as the US is

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potential risks in the market. According to Dresdner Kleinwort Wasserstein’s Lancetti, there has been little change in investor behavior recently. “A few months ago [following the downgrades of Ford and GM] there was an increase in risk aversion, and people rotated slightly to higher-quality assets,” he says. But since July that caution has dissipated, and people are keener to take on higher risk. “Investors use short-term arguments to justify their behavior, with arguments such as ‘Summer is usually very quiet,’ so they are happy to sell short-dated options,” says Lancetti. “They have a very relaxed attitude to risk.”The fact that investors are still expecting an 8% to 9% return on equities implies they will be employing risky investment strategies. Perhaps the last word should be left to Alan Greenspan, who has guided the

“HISTORY SHOWS THAT IT IS INCONCEIVABLE FOR A LARGE NATION LIKE CHINA TO GROW AT 9.5% OVER A LONG PERIOD WITHOUT ANY HICCUPS” “Something has to give over the next six to 12 months.” —Kenneth Broux, financial market economist at Lloyds TSB Broux.That has resulted in the US housing market being inflated—US mortgage rates are derived from the 10-year bond yield—and has kept the economy buoyant. So while the Fed has tightened monetary policy from 1% to 3.75%, financing conditions have not become expensive because of the low 10-year yield. If the yuan’s value continues to rise, there will be less need for China to buy treasuries and less of a lid on bond yields. “Also, it is significant that China has abandoned the peg to the dollar and instead is using a basket of currencies,” says Broux. “It means they are more likely to buy bonds in other currencies, and US bond yields will increase.” Investors seem prepared to ignore the

US economy through so many tribulations in the past two decades. In his semi-annual report to Congress, he noted that risk takers have been encouraged by what they perceive to be economic stability as a result of significant declines in measures of expected volatility in equity and credit markets. But Greenspan, renowned for his careful use of language, added, “History cautions that long periods of relative stability often engender unrealistic expectations of its permanence and, at times, may lead to financial excess and economic stress.” Such uncompromising talk does not come easily to Greenspan. Investors would do well to heed his warning:Volatility is coming. ■

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TRENDS ISLAMIC FINANCE

slamic banking is more than 20 years old, but the terrorist attacks on the World Trade Center in New York and the Pentagon in Washington, DC, and rising oil prices—which means there are substantial liquidity reserves seeking suitable investments—are turning a little-known ‘ethical’ investment sector into a multi-billion dollar industry. Although it is difficult to gauge the exact size of the Islamic banking market, current estimates suggest it is between $270 billion and $500 billion and growing at rate of 15% to 20% a year. “Rising oil prices generated significant liquidity in the market with a considerable portion being invested in the region and in many cases in a Shari’a compliant way,” says Omar Kamal, executive manager of Ernst & Young’s Bahrain-based Islamic Financial Services Group. Ghazi Al-Hajeri, portfolio manager, alternative investments division at New York-based Wafra Investment Advisory Group—which is owned by the State of Kuwait’s Public Institution for Social Security and manages funds in the United States for Kuwaiti financial insti-

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BY ANITA HAWSER

Players Vie for a Prime Slice of a Promising Market Global and local banks are jostling for position in a rapidly growing and potentially lucrative market.

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tutions and investors—says that governments in the Gulf Cooperation Council (GCC) countries increasingly are looking to invest in products that comply with Islamic law—or Shariah. “Governments in the region have requested Shariah-compliant funds, whether it is a pension system or the state allocating money to Islamic products,” he says. There are approximately 300 Islamic banking institutions spanning more than 25 countries. More than 90% of assets are held in the Middle East, including countries such as Iran, Saudi Arabia, Kuwait, the United Arab Emirates, Egypt and Jordan. Non-Islamic financial institutions are also eager to get a slice of the action, with leading brand names such as Citigroup, HSBC and UBS establishing Islamic financing divisions. But with approximately 1.5 billion Muslims in the world, the majority of whom still use conventional financing, the market for Shariah-compliant financial products remains largely untapped. In Malaysia, for example, which is home to 15 million Muslims and nine Islamic financial institutions, only 10% of total banking assets are held in Shariah-compliant accounts. The initial focus of Islamic financing outside of the Middle East was in the

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market because they didn’t want to have a conventional mortgage,” Ali explains. HSBC Amanah home finance typically services first-time buyers. Ali estimates there are 134,000 Muslims in the UK that still hold conventional mortgages. Unlike conventional financing, Shariah law forbids the payment or receipt of interest (riba). Money is also viewed as a means of exchange instead of a commodity, so the idea that it can rise in value is not accepted. Common Islamic financing techniques include, ijara, a leasing contract in which, instead of lending money or earning interest, the bank charges rental on an asset leased to a customer.A murabaha financing structure means the bank buys the asset in question from a third party and resells it to the client at an agreed “mark-up” price, which is paid back in installments, thereby avoiding interest.

Banks Eye Bigger Targets Having gained a toehold in the home financing market, banks are now looking for richer potential markets, such as project finance, asset management, debt instruments, insurance and hedge and mutual funds.All of these products must comply with Shariah law, which outlaws speculation and permits investment on-

“THE NEED TO ACHIEVE CERTIFICATION OF THE SHARIAH BOARD DOES ADD COMPLEXITY” home finance market. In the United Kingdom, HSBC Amanah, the Dubaiheadquartered Islamic financial services division of the UK bank, was the first to launch Shariah-compliant mortgages in 2003. Amjid Ali, UK head of HSBC Amanah, says it has completed 2,000 Shariah-compliant home financing deals and manages in excess of 1,000 bank accounts.“We knew from Muslim umbrella organizations that there was a fairly large percentage of people who were prevented from entering the housing

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ly in certain stocks, excluding companies that earn income from the production of pork-related products, alcohol, conventional financial services, pornography, gambling, tobacco and arms. Historically, most Islamic banking activity has been confined to commercial banking—corporate and retail—but Kamal believes that investment banking, asset management, equity capital markets, debt capital markets and private banking, will drive the next growth phase in Islamic banking, particularly with the

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development and opening up of capital markets in countries such as the UAE and Saudi Arabia, the increased liquid funds in the region and the high level of project finance activity in the GCC. Acquisitions and investments by private sector companies in the Middle East, and the need for local banks to meet capital adequacy and liquidity requirements, are fostering the development of the Islamic bond, or sukuk, market. A sukuk is assetbacked and is leased to the client in order to yield a return. By the end of 2004, the sukuk market was valued at $6.7 billion. In the second quarter this year the market grew by 474% on the previous quarter, with 26 issues valued at $6.2 billion, according to the Islamic Finance Information Service (IFIS).Traditionally confined to sovereign issuance in Middle Eastern countries, the sukuk is being embraced by other markets and is attracting the participation of corporate, government and financial issuers. Mohsin Nathani, chief executive, Citi Islamic Investment Bank, a leading provider in the international sukuk market, says that there is a higher level of awareness among issuers.“One of the encouraging trends we are seeing is that issuers with large fund-raising requirements have a preference to go the Islamic route,” he says. Some of the more notable issuances in the past 12 months include the World Bank’s (IBRD) $200 million Malaysian ringgit-denominated sukuk; ABC Islamic Bank’s Al Safeena sukuk, the first Islamic bond issued by the shipping sector; and the transaction that broke all records, the $2.35 billion raised for Saudi mobile telephone company Etihad Etisalat, billed as the largest debt transaction in the region and the biggest Islamic financing in the world. In the area of structured products, BNP Paribas, which has some 20 years of experience in Islamic financing, has established a Shariah-compliant CPPI (portfolio insurance) or a more generic contract in which BNP Paribas guarantees to deliver a certain return for investors based on exposure to equity, mutual funds and

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set of banks may not be approved by Shari’a scholars advising certain other banks resulting in varied product offerings by banks and lack of uniformity.” Citi’s Nathani agrees that differences of interpretation mean products approved by a Shariah board in one region might not receive the same seal of approval in another. “It is a challenge the industry is working to address, but it will not happen in the next six months,” he says. Ghazi Al-Hajeri (left): “There is a lot of money chasing few products” Mohsin Nathani (right): “Issuers have a preference to go the Islamic route”

other markets, in accordance with Islamic principles. David Choukroun, head of mutual fund derivatives, BNP Paribas, says these products reflect increasing demand for more sophisticated Islamic investment opportunities. Other emerging areas in Islamic financing include hedge funds. Al-Hajeri of Wafra says banks in the US and UK have launched Islamic hedge funds, but very little is known about their structure and how they gained acceptance from Shariah boards. “There is still a lot of work to be done with hedge funds,” says Kamal of Ernst & Young.

Stifling Innovation One of the problems for banks in the Islamic financial services sector is keeping pace with investor demand for new and innovative products. In countries such as Kuwait, Al-Hajeri says that traditional banks have only just started selling Shariah-compliant products—and only on a small scale. “There is a lot of money chasing few products,” he says. In terms of customer acceptance, Kamal says being Islamic is not enough. “The banks need to focus on competitive products and services and benchmark against the best conventional banks.” Ali of HSBC Amanah in the UK says not only do Islamic financing products need to be competitive in terms of pricing, but customers also need to have faith in the Shariah supervisory councils

that most banks are required to maintain in order to gain approval before launching products. “Customers look to see whether the source of funds the product is based on are Shariah compliant and what scholars we have on our board,” Ali says. Shariah boards are made up of esteemed scholars conversant in Islam, economics and finance. Gaining the acceptance of Shariah scholars takes time, and Shariah councils in different parts of the world do not always agree on what is compliant and what isn’t. “The need to achieve certification of the Shariah board does add complexity,” says BNP Par ibas’ Choukroun. “You may have to modify your contract or part of the deal and then take it back to the Shariah board, which is time consuming.” Some believe the process of gaining approval can hinder the development of new products. “It is hard to be innovative,” says Al-Hajeri. “The Shariah board has to [approve] the product, which means they are putting their reputations on the line.” Kamal believes the main reason for the slow pace of innovation in Islamic financing is the lack of human capital. “Getting talented and high calibre people experienced in Islamic financing is difficult,” he explains. Shariah scholars also need to agree on interpretations of structures for financial products, Kamal says.“Financial products approved by Shari’a scholars for a certain

Global Muscle, Local Knowledge In an increasingly globalized world, Islamic financial institutions are also struggling against competition from larger and better-capitalized western banks. Most Islamic banks have assets of $25 million or less, which limits their ability to compete in the primary and secondary markets. Despite their dominant size, the larger, more sophisticated western banks believe there is room for both Islamic and non-Islamic banking providers to flourish.“We have the structuring, global distribution, trading and asset management capabilities, as well as local knowledge” says Shaun Wainstein, head of London Structuring & Exotics Group, BNP Paribas. “We also work with Islamic banks who are established in the region.” Kamal believes competition from global banks is essential for the development of the Islamic financial services industry, but calls for the development of a well-capitalized wholesale Islamic bank to lead the Islamic financing industry. Regulation is also needed. Most countries do not have specific regulations in place for Islamic banks, although organizations such as the Islamic Financial Services Board and the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions are developing capital adequacy, risk management, accounting, auditing and ethical standards. “We have a number of enablers,” Kamal says. “The question is, Are they able to influence the outcome of what they are doing with Islamic banks? They need the support of the banks.” ■

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BANKING LENDING POLICIES

BY PAULA L. GREEN

Banking on Responsibility Increasingly, banks are discovering that strict lending policies can be a powerful risk management tool. hether they are pulling together a complicated financing package for a hydropower dam half way around the planet or lending to a local chemical company down the street, banks are increasingly looking at the impact of their lending practices on the environment. And it is not only the uncomfortable public scrutiny created by global activists protesting outside an unwanted logging mill in Indonesia or bank headquarters in downtown San Francisco that has more and more banks scrambling to create an environmental policy around their loans. Banks must increasingly worry about how the environmental activities of their corporate clients can affect their own credit risk. “Banks are paying more attention to corporate social responsibility because they realize it’s good business...it can affect their bottom line and their financial statements,” says Sang Hwang, an analyst with SNL Finance in Charlottesville, Virginia. Today, banks not only face the specter of an expanding portfolio of non-performing loans if their lending officers do business with environmentally care-

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less companies that go belly up because of pollution clean-up costs; tougher environmental regulations also mean a financial institution could even be held responsible for the clean-up costs of a polluted site if the land owner or business owner is unable to ante up. “Legislation can play a very important role in helping industry and banks move toward less polluting projects,” adds Hwang, who also holds a doctorate degree in environmental design and planning from Virginia Polytechnic Institute and State University in Blacksburg, Virginia. “The smart companies and the banks are aware of these situations. Paying attention to the environment makes good business sense, both from providing business opportunities and satisfying shareholders’ perception that corporations should be good stewards of the environment.” Ilyse Hogue, global finance campaign director for the Rainforest Action Network in San Francisco, agrees that the greater attention emanating from bank customers and other

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stakeholders, as well as the costs associated with financing environmentally sensitive projects, are putting pressure on bank managers. “If there is resistance to a project and concerns about its environmental impact, that can play out economically,” says Hogue, pointing to the huge cost overruns associated with controversial projects, such as the Royal Dutch Shell Sakhalin project. In July the giant energy company announced that the costs of its Sakhalin II project, which aims to tap into 4 billion barrels of hydrocarbons off the eastern coast of Russia, had doubled to $20 billion. Hogue says the increased economic and public pressure is

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in turn gradually shifting the mindset of bank executives. “When they are forced to look more closely at the consequences of their lending decisions, they are inevitably examining the mark they are going to leave on the world,” she says. “In many cases, irresponsible lending can lead to environmental destruction and human injustice. No one wants to be responsible for that.” “It’s a slow process, but there’s been a real sea change in the industry and a real shift in thinking,” Hogue adds,“but with

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in Washington, DC, agrees that the Equator Principles are a good example of how the banking community is paying more attention to social and environmental concerns. But the next step is for financial institutions to develop techniques and tools to implement these principles and make the techniques transparent to stakeholders, he says. “There’s three categories [of banks that have signed on to the Equator Principles]: banks that have taken this to heart, like Citigroup; banks that are

“INCREASED ECONOMIC AND PUBLIC PRESSURE IS SHIFTING THE MINDSET OF BANK EXECS” “They are forced to look more closely at the consequences of their lending decisions.” —Ilyse Hogue, Rainforest Action Network that said, there’s still a long way to go.” One of the most prominent displays of the global banking community’s greater attention to the environment is the Equator Principles. A voluntary set of guidelines for managing the environmental and social risks associated with financing large development projects like dams and oil pipelines, the Equator Principles were first adopted by 10 banks in June 2003.Today, more than 30 banks around the globe have signed on to the principles, which are modeled on the policies of the World Bank and the International Finance Corporation (IFC), the World Bank’s private sector investment arm. The principles use a set of specific mechanisms to help banks ensure that a development project they are financing won’t damage the environment excessively or disrupt the local community, such as by displacing indigenous people. The guidelines are voluntary and apply to projects with a total capital cost of $50 million or more. Jon Sohn, a senior associate at the World Resources Institute (WRI)

adopting and working through the implementation, like JPMorgan Chase; and the free riders,” says Sohn, adding that unfortunately many of the signatories fall into the third category. The environmental and social lending policies at Citigroup, one of the original adherents of the Equator Principles, have been evolving over many years. But the bank made a greater commitment in 2003 when its corporate and investment bank unit released a formal policy called the Environmental and Social Risk Management Policy (ESRMP). Building on the Equator Principles, the policy is meant to help Citigroup address environmental and social issues from both a credit-risk perspective and a reputational- and franchise-risk perspective. Last year the bank created the position of ESRMP director in its corporate and investment bank unit.The director serves as a technical resource and counsel for the bank’s specialists on environmental and social risks, as well as advises other executives in the corporate and investment bank division. Shawn Miller holds

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the director’s slot and reports to John planned in mid-July. “We were protestGilliland, one of the company’s senior ing their lack of environmental comrisk officers. mitment. We want to keep the pressure “This is a more structured way to ad- on,” she notes. dress these issues. We’re managing our Environmental groups are also keeprisk and responding to the public,” says ing the pressure on the lending pracPamela Flaherty, senior vice president tices of multilateral development agenfor global community relations at Citi- cies. In a report released in June, the group, “but there is also an element of World Resources Institute recomopportunity here to add value for our mended that multilateral development clients. We can help our clients be banks incorporate environmental and smarter about the environmental and social policies into their lending pracsocial risks they face.” tices to financial intermediary instituFlaherty says the bank is not turning tions in developing countries. down any greater number of loans The report criticizes the multilateral since its ESRM policy was adopted, institutions for making loans to soand, in any event, bank officials do not called financial intermediaries, such as a believe that the denial of loans is any measure of success of Flaherty: We’re whether their policies or the managing our risk Equator Principles are effective. “We want to work with our clients on developing projects. By articulating a set of guidelines, our clients know what to expect,” explains Flaherty. Signing on to the Equator Principles and adopting other similar policies can be seen simply as window dressing for the banks. Wells Fargo, for example, Bulmer: There’s a recently found itself in hot water shortage of capital when it announced a 10-point environmental commitment about two months ago. Critics said the bank’s com- local bank in Egypt, without fully asmitment fell far short of the industry sessing the effect that the local bank’s best practices set by other financial insti- loan to a local business will have on the tutions such as Citigroup, JPMorgan environment and community.The instiChase and Bank of America and did not tute’s report comes out as the IFC is in include implementation details or a pol- the midst of updating its own safeguard icy to back up the commitment. policies—guidelines used to make sure The bank, a recent signatory to the the private business ventures it finances Equator Principles, said the 10-point aren’t polluting the air or disrupting the environmental program was meant to homes of local people. integrate environmental responsibility First adopted in 1998, the safeguard into its business practices and proce- policies are based on the World Bank’s dures. “It [the commitment] was better operational policies. The IFC has been than nothing, but the content was working with other groups for some weak,” says Hogue, adding that a time as it reshapes the guidelines and planned protest outside the bank’s San will be accepting public comment, both Francisco headquarters went ahead as oral and written, before the end of the

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S E P T E M B E R

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LENDING POLICIES

year, an IFC spokesperson says. The agency hopes the revised guidelines are in place by the beginning of next year. Sohn says the WRI believes the IFC safeguard policies do not pay enough attention to the loans given out by the local banks at the same time that these financial intermediaries are receiving a larger portion of IFC funds. For example, more than 50% of IFC loans in 2002 went to financial intermediaries in developing countries. But IFC officials say they and the WRI have the same goal: insuring that the business ventures it finances follow environmentally sound practices. “We want the same thing, but it’s not possible to supervise every sub-project,” says William Bulmer, associate director of the environmental and social department at IFC in Washington. He adds that the IFC closely investigates the managing capabilities of the financial intermediaries. The IFC has boosted its loans to the local financial institutions as a way to get more money to viable business projects. “There’s a shortage of capital to support grassroots development,” Bulmer says. “We have the capital but can’t always reach the small-scale businesses.” Whether private or multilateral, financial institutions’ efforts to integrate the environment into their lending practices are here to stay, industry observers agree. “While the transformation may have been motivated by advocacy groups and outside pressure, the process of examining the real consequences of destructive lending policies has created real commitment in these banks,” says Hogue. “Wall Street is emerging as a leader on enacting solutions to these complicated and pressing problems. Still, we are far away from where we need to be, given the gravity of the global issues facing us in the 21st century.” ■

RISK MANAGEMENT TERRORISM INSURANCE

BY GORDON PLATT

Holes in the Safety Net Despite the lessons learned in recent terror attacks, companies are still unprotected against the catastrophic losses they could face in the event of another attack. our years after the terrorist attacks on the World Trade Center in New York and the Pentagon in Washington, DC, there are gaping holes in the insurance coverage available to compensate corporations for losses following any future large-scale attack, according to industry experts.The “9/11” attacks caused insured losses of more than $30 billion, making them the single most costly event ever recorded in the history of the insurance and reinsurance industry. Scenarios in which total insured losses from a single event could exceed $250 billion are now considered as plausible, terrorism experts say. Under current conditions, such catastrophic attacks, or the accumulation of medium-size terrorist attacks within a limited time frame, may remain beyond the capability of the insurance industry to absorb alone, according to the Paris-based Organization for Economic Cooperation and Development (OECD). A major terrorist attack could bankrupt companies and destabilize some economies, the OECD warned in a report released just two days before the

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London bombings in July. “Data on estimated maximum losses from terrorist attacks provided in the report are not meant to be alarmist or to scare the readers, but to raise awareness of the magnitude of potential risks entailed by new forms of terrorism, and to put the issue of market capacity into perspective,” says Cécile Vignial, principal administrator of the financial affairs division at the OECD, who directed the study. In the United States, for example, the property and casualty insurers’ surplus supporting all commercial property, general liability and workers’ compensation insurance is about $114 billion, according to the Insurance Information Institute. Terrorism insurance market conditions regarding prices and extent of cover have improved substantially since 2001, when there was a drastic shrinkage of affordable insurance following the attacks on the US,Vignial says. “But terrorism risk unpredictability remains a very big challenge for the insurance industry,” she says. No country can claim to be protected from the potentially devastating impact of future attacks; moreover, direct property

losses may turn out to be small compared to the global economic, social and political damage that may ensue, the OECD report says.The threat of future attacks might affect the economic outlook and investors’ behavior, compounding losses for insurers, the report adds.The heavy losses suffered by insurers and re-insurers from the 9/11 events combined with the downturn in the financial markets resulted in a capital loss to the global P&C industry of an estimated $200 billion. Peter Ulrich, managing director of enterprise risk management at Newark, California-based Risk Management Solutions, or RMS, says terrorism risk insurance rates are likely to go up and capacity will decrease following the bombings of the London subway and the Sharm el Sheik resort in Egypt in July. On July 7, the day of the London at-

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RISK MANAGEMENT tacks, RMS was scheduled to announce the release of its upgraded global terrorism risk and terrorism scenario models. “We delayed the announcement until the following week in order to avoid the appearance of being opportunistic,” Ulrich says. Under the worst-case scenario of a two-megaton nuclear bomb being detonated at the Empire State Building in New York City, losses could total $500 billion or more, according to Ulrich.The RMS terrorism scenario model has been expanded to cover every country in the world. The model enables users to estimate losses and casualties for multiple lines of business for 30 attack scenarios, ranging from conventional bombs to chemical, biological, radiological and nuclear, or CBRN, attacks. Because of the potential magnitude, spread and persistence of damages caused by CBRN attacks, these exposures are for the time being generally considered as uninsurable by the insurance industry and are excluded from most coverage, according to the OECD study. It says CBRN risks represent a growing source of concern, since these methods may be an increasingly plausible scenario of attack. The RMS model provides insurers and re-insurers with the first worldwide view of their catastrophe-risk accumulations, Ulrich says. Corporations can use the model to determine the safest locations to build plants or office buildings. “People who have an interest in a number of buildings, such as bankers with commercial mortgages, also use these tools,” Ulrich says. “By entering data for

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I N A N C E

how close they are to a particular target and what type of building they are in, they can quantify property and humanlife exposures,” he says. A mere 4 grams of botulinum toxin dropped into a milk-production facility could cause serious illness and even death for 400,000 people in the US, according to Lawrence M.Wein, professor of management science at Stanford Graduate School of Business. Any food product that goes through large-scale storage and production and rapid distribution could be at risk for such an attack, he says. The most worrying trend, according to the OECD, may be the terrorists’ ability to exploit the vulnerabilities and diffusion capacity of large critical networks, such as aviation, maritime and other forms of transport, the water supply, energy and telecommunications, in order to maximize the destructive potential of attacks. Aaron Davis, vice president of property syndication at insurance broker Aon in New York, says the insurance market cannot operate without some form of a terrorism risk backstop. A government safety net is needed to maintain terrorism insurance availability at an affordable price, he says. However, a June 30 report from the US Treasury recommended against extending the current program of government guarantees when it expires at the end of 2005. “The Treasury report downplayed the potential for market disruption and was unrealistic in its assessment of the private industry’s ability to provide cover,” Davis says. Treasury secretary John Snow told the

Ulrich: Insurance rates will go up

Davis: Market needs terrorism backstop

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Vignial: Data on losses not alarmist

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TERRORISM INSURANCE

House Financial Services Committee on July 13 that continuing the program would hamper the development of a private market for terrorism risk. Snow said the Bush administration would accept a temporary extension of the post9/11 program only if it included an increase in the percent of the losses paid by commercial insurers, as well as a large increase in the amount of losses that would trigger government participation. “Any compromise agreement to extend the federal program will look quite different from the backstop currently in place,” Aon’s Davis says. Among OECD countries, public-private partnerships exist in Australia, France, Germany, the Netherlands, Spain and the United Kingdom, as well as the US.Terrorism insurance take-up rates remain low, however, the OECD says. Less than 3% of eligible firms have contracted with the German compensation scheme, it says.About half of all companies are insured for terrorism risks in the US. Capital markets may in the future provide some additional sources of capacity to cover terror ism r isks, the OECD says, although there have only been two transactions to date explicitly covering such exposure. In September 2003, Golden Goal Finance issued $260 million of bonds to investors who took on the risk of cancellation of the 2006 World Cup soccer championship in Germany.The investors, mainly banks, will lose 75% of their investment in the event of cancellation of the final competition. Zurich-based Fédération Internationale de Football Association (FIFA), the world soccer federation, opted for this cancellation bond, which was structured by Credit Suisse, after insurers withdrew from the last World Cup cancellation policy in 2002 as a result of the 9/11 attacks. In the only other publicly announced terrorism-related offering, Swiss Re sold $400 million of notes in December 2003 for Vita Capital to cover catastrophic mortality risk in five countries from any source, including epidemics, natural disasters, wars or terrorist attacks. ■

Treasury & Cash Management

WHO’S WHO 2005

CONTENTS 4

A STATE OF FLUX Treasury technology is in a state of flux, with regulatory and business developments dictating change and corporate treasurers demanding it.

TREASURY & CASH MANAGEMENT WHO’S WHO 2005 This is Global Finance’s inaugural Treasury & Cash Management Guide. As well as addressing some of the most topical issues affecting treasury managers today—regulation, centralization of cash and treasury management, and outsourcing of back-office processes—the Guide also turns the spotlight on some of the personalities behind the

6

BRINGING IT ALL TOGETHER The key to successful management of a global treasury system is a balance between central control and local autonomy.

companies and the banks leading this dynamic industry, in our Cash Management Who’s Who. These are the people responsible for shaping the future delivery of treasury and cash management services within leading global cash management banks and major multinational companies. The list of luminaries includes the head of the world’s largest cash management and payments business, a World Series poker winner and application developer, a treasurer/marathon-runner, a global product management executive in charge of a $5.7 billion business, and a group finance director who has brought financial discipline to one of Britain’s most revered media institutions, the BBC.

16

In addition to the people shaping the business, the Guide also

TREASURY OUTSOURCING

explores some of the headline trends that are having an impact on

After getting off to a slow start, outsourcing of key treasury functions is becoming increasingly popular—and sophisticated.

and accounting transparency, we look at how corporate treasurers’

the way CFOs and treasury executives manage their business. With a spate of new regulations on the horizon calling for greater financial demands for more sophisticated treasury management technologies and higher levels of automation are transforming the industry. An overarching trend that has shaped the industry for the past decade is centralization of cash and treasury management. We recount some of the experiences of companies that have gone down that path, the

20

WHO’S WHO The most important, influential, creative and powerful people in international treasury and cash management.

pros and cons, and lessons learned. Last, but not least, for a number of treasury and cash managers, all of these developments inexorably lead to one conclusion: outsourcing their back-office treasury operations to a third party. We look at how the confidence level of both providers and customers has changed the outsourcing question from one of not ‘if’ but ‘when’? Anita Hawser Europe Editor [email protected]

2

T ECHNOLOGY

A STATE OF FLUX Treasury technology is in a state of flux, with regulatory and business developments dictating change and corporate treasurers demanding it. By Denise Bedell

W

ith so many new developments in the regula-

maintaining that across the range of systems with which

tory and business landscape, the world of

treasury interacts—from the TMS to ERP and accounting

treasury technology is in a state of rapid

systems internally, and to banks and other external sys-

change. What corporate treasurers want from their

tems—is still an exception rather than the norm.

providers is changing, and many in the industry are

“The industry is changing, and clients are less under-

scrambling to keep up. Those that manage to survive this

standing of historic models where we rewrite software

upheaval will not look the same as they do today, but

every seven years. That is no longer acceptable,” says

how that metamorphosis will change them remains to be

Dummitt. “The software cost is just a small part of soft-

seen.

ware implementation.”

When it comes to systems, the most important issue for

The process of changing other systems and procedures

treasurers going forward is increasing straight-through

to ensure integration with that upgrade and maintain STP

processing (STP) for general compliance and liquidity, ac-

is where the real costs lie, Dummitt explains, adding that

cording to Ken Dummitt, president of the AvantGard

for clients it is not acceptable to have to redo that every

business unit of SunGard Treasury Systems: “Compliance

few years. SunGard Treasury is working to present soft-

is relatively straightforward because the more you get

ware in a technology wrapper that does not need to be

straight-through processing, the more audit trails you

physically upgraded, where they can pass clients the next

have, and the easier it is to show compliance.”

level of best-of-breed services without affecting existing

Treasury is taking more responsibility for cash through-

systems or processes.

out the enterprise—not just treasury cash, which makes

Mike Thrower, director of marketing at Wall Street Sys-

up the bulk of cash but not the bulk of transactions, but

tems, adds that treasurers have spent the past few years

also managing working capital across the organization.

looking to create more efficiency in their own internal en-

“As a result, treasurers are looking for systems and

vironment. “They are looking to consolidate the financial

processes that can give them a clearer picture of liquidi-

value chain. And those that have solved the internal chal-

ty across the enterprise, and that can help them manage

lenges to this are now looking to better integrate with

that liquidity on a real-time basis,” adds Dummitt.

other systems’ accounts payable and accounts receivable

Creating STP and a real-time environment is not easy

systems,” he says. “The pressure is on from all different

in many processes, particularly on the receivables side.

sides: the need for regulatory compliance, the need for

Some aspects of the working capital chain can now boast

greater efficiency in payments and receivables manage-

a degree of STP in best-of-breed systems; however,

ment, and so on,” he adds.

4

T ECHNOLOGY

A number of industry players are making a push to im-

lay real-time cash information in open data formats.

prove communication between systems—both through

TRAX managing director, Hans Cobben, says: “We have

the development of open standards such as Rosettanet

mature ERPs, mature bank systems and very good TMS

and TWIST and also by developing integration technolo-

systems, but they miss out on that space between what

gy that acts as an overlay between systems. This has also

they do and what everyone else is doing. And that is

led to the growth of middleware designed solely to pro-

where we come in.”

vide a bridge between disparate systems.

Being rules-based, TRAX also deals more effectively

Computer distributor Ingram Micro is one company

with another key issue for treasurers: reconciliation.

that has chosen to use middleware to deal with its inte-

Vlaminck says that the ideal would be to have just one

gration issues. The group recently implemented a solu-

system that automates group processes and integrates

tion from software firm TRAX to communicate between

completely with external systems, but at present that is just not an option. “If that is possible in one system, then

its various internal and external system providers.

why not? But if not, then I need middleware to address

Luc Vlaminck, senior director, treasury, Europe, at Ingram Micro Coordination Cen-

my concerns.” He adds that there

ter, explains: “We were in the

are those on both the bank and

process of reshuffling our cash

TMS sides working on such a dream

management systems and also

workstation, but at the moment it is

our relationships with our prima-

not a reality.

ry settlement banks. In the mid-

Vlaminck says that one big prob-

dle of the project we decided

lem is that, when it comes to bank,

that a direct SWIFT connection

treasury and ERP systems, the pace

would be ideal for us, since

of change is not consistent with de-

SWIFT has opened up to corpo-

velopments in the market. “Some-

rate use. We tried to integrate

times they take a big step and end

that into our approach; it was a

up ahead of the game for a while,

chance for us to gain some flex-

but then there is a gap when no new

ibility with the solution our busi-

developments happen, and they

ness partners were proposing,” he adds.

Hans Cobben, managing director of TRAX: Providing a rules-based transaction platform

end up behind again. It is an up and down cycle,” he says. What corporate treasurers would

Ingram Micro chose TRAX for

really like to see is the development

a number of reasons. Ingram Micro’s existing ERP and treasury management systems are

of treasury management systems with integrated con-

very efficient, explains Vlaminck, but the technology they

nectivity or with banks providing a tailor-made solution

used was relatively old. TRAX eased the transition to

but using standardized tools. Vlaminck adds: “Also, I be-

SWIFT’s rather newer technology. The system operates

lieve easy access to the SWIFT network for mid-size

before information enters the TMS to enrich payment in-

companies will be the next trend we are going to see.”

structions on a self-learning basis—meaning when you

At first there was reluctance on the bank side to open

add information once, it can be reused any time. In ad-

up corporate access to SWIFT, Vlaminck says, because

dition, when payment instructions are released from the

they were worried it would take a piece of the cake. “But

TMS, then TRAX validates the information before it goes

I think banks have a real opportunity and a key role to

out to SWIFT.

play by providing an appropriate solution and valueadded products, rather than just a commoditized solu-

TRAX provides a rules-based transaction platform that

tion,” he notes.

acts as middleware between ERPs, TMSs and banks to re-

5

O PERATIONAL M ANAGEMENT

BRINGING IT ALL TOGETHER The key to successful management of a global treasury system is a balance between central control and local autonomy. By Anita Hawser

F

or a decade or so now, centralization of treasury man-

more strategic value-added tasks, such as risk and bank rela-

agement and accounting operations has been the

tionship management. Michael Mueller, managing director of

most-used weapon in a corporate treasurer’s armory

global transaction banking–cash management at Deutsche

for defending its global expansion, while reigning in some of

Bank, says: “In the past there was a lot of talk about SSCs and

the costs and inefficiencies associated with that strategy.

payment factories but not much happening in terms of actual

Managing multiple accounting structures, treasury opera-

installations. Now we are seeing a lot more activity in this

tions and business lines in 50, 100 or 200 countries demands

space. Some companies are taking this a step further by using

a system that will help ease the cost and complexity of do-

providers to cover significant parts of their respective work-

ing business in multiple locations and legal jurisdictions.

flows. There are payment processors behind certain compa-

Most Fortune 500 companies have some form of central-

nies, and consolidators which represent a number of different

ized group treasury operations, which acts as a central poli-

companies.” Knight says there is an increasing trend toward

cy-making body and nerve center for the group’s global op-

centralizing payment operations on the back of shared services

erations. “Volkswagen is a centralized entity in terms of

by linking in-house banks with SSCs to achieve greater syner-

decision making,” says Olivier Brissaud, general manager,

gies. An in-house bank handles inter-company payments to

Volkswagen Group Services, based in Belgium. “The center

global subsidiaries and external payments to suppliers on the

in Germany runs the policies and laws and frameworks.”

internal accounts of the company. In this way, companies can

David Knight, global leader of the finance effectiveness

reduce banking fees as well as optimize working capital and

advisory team at PricewaterhouseCoopers (PwC) in the Unit-

liquidity. Thomas Bergqvist, chief marketing officer at treasury

ed Kingdom, says there are aspects—minimum governance

solutions provider Trema, says it is seeing the closer alignment

standards, awareness and visibility from a group perspec-

of commercial and financial payments within companies.

tive—that should come from the center. “Treasury is one of

“Treasury is becoming more active in linking with other finan-

those areas of activity that has to be governed properly,” he

cial activities such as customer financing, and there is closer

explains. “How the processes and structures fit together,

alignment and integration of business processes,” he says.

however, can vary from one firm to another depending on

MANAGING RISK

the nature and complexity of their business.” Most larger corporates will probably have consolidated their

Centralized payment and accounting functions also help

treasury operations along regional lines, establishing central-

simplify group-wide risk management, including FX expo-

ized payment processing centers, otherwise known as shared

sures, market risk, credit risk, operational risk or dealing with

service centers (SSCs), which handle accounting and accounts

regulations such as Sarbanes-Oxley (SOX) and IAS 39. “Risk

payable and receivable. Brissaud says Volkswagen’s SSC in

management is an increasingly important concept, and hav-

Belgium acts globally and has helped the company achieve

ing functions centralized provides an element of sound risk

economies of scale as well as other financial and tax benefits.

management,” says Volkswagen’s Brissaud.

These centralized structures also allow companies greater con-

Bergqvist adds that regulations such as SOX and the fo-

trol over transaction flows and allow the treasurer to focus on

cus on corporate governance is forcing companies to move

6

O PERATIONAL M ANAGEMENT

toward a global-platform approach in treasury management.

and ERP systems as well as the integration of in-house sys-

“Risk management is now enterprise-wide,” he says, “and

tems and third parties. “Local subsidiaries can still run their

companies need to get as many business units, financial

own treasury, but if you get everyone on the same system

flows and commercial flows on the same platform.”

and the same database, then you can start to gain control

John Alarcon, CEO of XRT, a US-based treasury systems

and visibility,” Bergqvist adds.

provider, says compliance is much smoother when process-

LESSONS LEARNED

es are consolidated and automated. “If a company is centralized, it will be easier to demonstrate the effectiveness of

Although centralizing treasury brings obvious benefits,

internal controls,” he says. Centralization aids compliance

global companies need to strike a balance between centraliz-

by providing greater transparency in terms of where a com-

ing certain functions while retaining some autonomy at the lo-

pany’s cash is and where the risks and costs lie, says

cal level. “Volkswagen is a centralized entity in terms of decision making, but not at the

Deutsche Bank’s Mueller. Knight says “visibility from

operational level,” Brissaud

the center” is achievable

explains. “We need to have

even if treasury is decentral-

decision makers in local mar-

ized, as long as subsidiaries

kets such as Brazil and China

provide information back to

that feel they have a certain

the center. “Some organiza-

duty to act. There is a fine

tions have realized the bene-

line between what has to be

fits of well-coordinated man-

centralized and what has to

agement of currency risk, but

be done locally. What to do is

that doesn’t mean you have

decided in the center, but

to bring exposures into the

how to do it is largely decid-

center,”

ed locally.” Bergqvist stresses

Knight

explains.

“Hedging can be done locally, as long as central treasury

XRT’s Alarcon: Consolidation smoothes compliance

Trema’s Bergqvist: Treasury is becoming more active

that some functions such as cashflow forecasting should remain decentralized in the

has visibility of those exposures.” Browser-based technologies and open and more flex-

hands of local business units rather than central treasury. Alar-

ible standards for integrating data enterprise-wide have

con believes that those companies that do not centralize at all

evolved to provide treasurers with a more centralized view of

may be at a competitive disadvantage, in terms of efficiency

their operations, without having to physically relocate staff

gains, to those that do. However, he says the organizational

and resources to a central location. “Using web-based tech-

structure and culture of some companies does not lend itself

nology, it is possible to initiate a payment in one place and

to centralization. “For those companies with a decentralized

review it in another, which gives corporate treasury a differ-

structure, operating independently of one another, there is no

ent level of control over their processes,” says Mueller.

motivation for them to centralize. They just don’t have the business culture to make it work,” he says.

Alarcon says companies can achieve further efficiency gains by consolidating their IT systems so that, technically,

Centralizing to the extent of building a payment factory or

the organization runs on one system. In the past, one of the

in-house bank also entails costs and technical challenges,

hurdles to tighter integration and centralization of treasury

particularly if companies are running multiple ERP systems.

systems on a single platform was the fact that most compa-

“Ultimately, treasury must have the underlying risks and is-

nies maintained multiple ERP and treasury systems. Howev-

sues that warrant this scale of centralization,” says Knight.

er, Alarcon says protocols are available to allow for the eas-

“In-house banks cost a lot to implement, so you have to

ier exchange of information between treasury workstations

have a clear business case.”

7

C ONTRIBUTED A RTICLE : C ITIGROUP C ORPORATE

THE

AND

I NVESTMENT B ANKING

ART OF CONVERSATION IN LIQUIDITY MANAGEMENT Adopting a more holistic view when crafting liquidity strategies By Sridhar Kanthadai

Designing a well-structured liquidity solution for multinationals and top domestic corporates is not just about putting it all to paper, or cobbling a few cash concentration techniques. On the contrary, it is a dynamic process where the liquidity solution provider engages the client in a conversation. The fact is that there is simply no right or wrong solution until the specific situation facing the client has been discussed. Liquidity management involves having the right amount of cash – at the right place, at the right time, in the right currency. It is, therefore, not just about implementing netting or pooling techniques that are, after all, just techniques or tools utilized to achieve several liquidity management goals. More than anything, it is about knowing what is appropriate for a company, and making sure that the model pursued is in line with its strategy and culture.

or her view is essential given the broad and strategic role this position often plays in managing liquidity. Only when the treasurer has participated in these various aspects of the conversation can a better perspective be gained of the workings of the organization.

Holistic view As it is, the treasurer looks at various options when it comes to ensuring sufficient working capital. He or she can choose to borrow from the organization’s bank, or tap the capital markets. If the company is enjoying excess liquidity, the treasurer has to identify opportunities where that cash can be made to work for the advantage of the shareholders. But first the treasurer needs to have a clear understanding of what the company already has, what it needs and the timeframe required to satisfy that need. Essentially, it is about taking a holistic view, which is exactly how Citigroup approaches Management buy-in Sridhar Kanthadai each situation – beginning with Of critical importance is how strategic conversations with treasurers integration is achieved between to craft the most appropriate liquidity management solution. different legal entities. The first key issue a treasurer must It is also the reason why, as the premier cash management consider when instituting liquidity solutions across an orinstitution, Citigroup values its in-house consulting service, ganization is the need to obtain management buy-in from which is made up of professionals who can structure all levels within. This is an absolute must. The support of solutions. What Citigroup has specifically is a model that the most affected entities or departments will simply enbrings in knowledgeable product experts. The company’s sure smoother implementation and a better rate of success. relationship managers are well trained and can identify The consultation must then start quite early within the opportunities in the capital market, in investment and in organization itself. In treasury, for example, there are people the working capital space. involved only in hedging risks, while some are focused What’s more, Citigroup shapes its conversation with a solely on payments, collections and other types of transcorporate client based on the key concerns that preoccupy actional activities. Each has their own view on how visibility the latter. With the impact of the Sarbanes Oxley Act, for of accounts and process testing can be improved. It is example, the focus has been on compliance and corporate also important to bring the CFO into the conversation. His


Many countries have regulatory restrictions on the type of structures in which companies can participate. Factors to consider when structuring liquidity management solutions include: • Resident and non-resident accounts • Inter-company lending regulations • Commingling of funds • Debit and credit interest • Overdraft policies • Special regulatory reporting • Economic benefits governance practices. The regulation has prompted treasury organizations to work harder in ensuring a high level of compliance and greater visibility in accounts. Only when compliance issues have been addressed and tools such as ERP systems are in place can the treasurer then focus on external developments that directly impact liquidity. Given the rising interest rates and volatile foreign exchange, the treasurer needs to look at all things in the balance and arrive at a holistic strategy on how to address their impact on the company’s cash flow, looking at the same time at the opportunity costs. While the goal of minimizing the level of idle cash in accounts is important, it is also critical to look into how this is achieved and to determine whether it is being done in a cost-efficient and truly automated way. Be aware, however, FX and swap costs can either enhance or wipe out gains of cash concentration. Compliance concerns In Asia, considerable challenges remain when it comes to structuring a comprehensive regional liquidity solution. In some jurisdictions, the size of inter-company loans and how they are priced are still heavily regulated. The commingling of funds from non-residents’ resident accounts is not allowed in some cases, and there are regulations about overdrafts and currency convertibility. Ultimately, liquidity management is bound by varying compliance and regulatory issues and the challenge becomes understanding those issues fully to avoid unnecessary risk. At the same time, restrictions imposed on how cash is moved continue to come down. For instance, Malaysia and China have both recently made a number of changes. In addition, two markets that come up often in conversations with clients are Korea and India. These are two of the more highly regulated markets, but where regulators are starting to move in line with some of the less regulated

AND


markets in the region. In Korea, the government has strict controls on FX documentation. While inter-company movement of funds is allowed, there are tax regulations that could make such transfers unattractive. The tax issues have certainly made it difficult for Korea to participate in cash concentration initiatives. Treasury organizations are better off implementing liquidity solution in stages, starting first with the less regulated jurisdictions and then moving toward the more regulated ones. Corporates can pursue various cash optimization strategies in-country – either at the most basic single entity, single currency level or through the more complex single/multientity, multi-currency type of arrangement. There are different models that can be aligned on top of one another to provide an infrastructure that is efficient. Summary The key to implementing these different solutions is the quality of infrastructure of the key liquidity solution provider. In terms of Citigroup, the bank has a consistent infrastructure that offers the ability to integrate regional treasuries from around the world, and this serves as a key driver for implementing a solution. At the moment, many corporates are trying to move their liquidity structures into a regional treasury structure, complementing the existing structures of shared service centers. Citigroup’s ability to achieve a regional interface and provide a regional solution is what drives customers to the company’s solutions. For more information, please contact your relationship manager. Sridhar Kanthadai Managing Director Head, Liquidity & Receivables Products Asia Pacific Citigroup Global Transaction Services Tel 852 2868 8315 Fax 852 2868 7740 [email protected] www.transactionservices.citigroup.com


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TRADITIONAL BOUNDARIES BLUR Where is the cash management industry headed? By Hugh Davies, Amol Gupte and Eric Sepkes Several factors will combine to shape the international

tax rates, wage rates, regulatory issues and so on. On

cash management business in the coming year. Together

another, arming the group treasurer with the detailed

with the changing role of the corporate treasurer, the shift

information needed to fend off unwelcome propositions

towards centralisation and the expanding role of primary

from local management or local banks involving manufac-

bank/overlay relationships, treasurers are likely to demand

turing, supply or distribution issues.

more from their banks – defying some of the traditional boundaries between cash, trade and advisory services.

The result is that the line between cash management services and trade finance services is becoming blurred.

This year may also be a defining one for the Single European Payments Area (SEPA) project to create a domestic

The Shift to Centralisation

payments zone across Europe by 2010. This was driven by

The trend towards centralisation – most apparent in the

the European Parliament’s adoption in 2001 of Regulation

proliferation of shared service centres (SSCs) and

2560 for transactions of up to €12,500.

payments factories – is set to continue. For many large

SEPA commits the banking industry to migrate to

corporates, the establishment of regional SSCs is early

pan-European, rather than national, payments infrastructures

payback for implementing a unified, corporate-wide

and to a single set of payment and collection products

Enterprise Resource Planning (ERP) system.

(excluding cheques) by 2010. And, with the lifting of the

However, complete centralisation may not make sense.

threshold for low value payments covered by the Regulation

Some corporates need to be close to their customers. Banks

from €12,500 to €50,000 due to take place on January 1,

have to be flexible enough to support structures in which

2006, corporate treasurers need to put some thought into

some functions are centralised while others are not. Other

the way the operations are structured to ensure they

variations on the centralisation theme are emerging. One is

derive maximum advantage from the new regime.

the ‘virtual’ SSC, which captures many of the synergies of centralisation without the costs of a new site, new process-

The Changing Role of the Treasurer

es or staff transfers.

Now, in many of the bigger corporates, the treasury function

This trend begs the question whether the near future

has an operational reach to it. The treasurer is involved in

will see the emergence of global SSCs to replace regional

the procurement process, in optimising cash within the

ones. Big corporates need a multiplicity of banking

supply chain, in change management throughout the

relationships, something that works against the establishment

organisation and more. Increasingly, treasury is as much

of a global SSC. While, in theory, there is no reason why a

about maximising operating efficiencies and improving

well-run SSC should not be able to manage multiple bank

key ratios as it is about obtaining the best overnight rate

partners efficiently, there are risk issues in putting all the

on cash.

corporate eggs in one basket.

The treasurer is expected to contribute to big strategic

However, the move towards standardisation of messaging

decisions, too. As a consequence, banks are being called

formats and away from proprietary systems reduces the

upon to play more of a support and advisory role. On one

cost to a corporate of switching banks, making the

level, assisting the treasurer with input on decisions over

appointment of a single cash management bank a more

where operations may be sited – providing all the data on

viable proposition.

And that process is due to take a


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major step forward in 2005 as a new standard from the

The key point to note is that SEPA will not be

Transaction Workflow Innovation Standards Team (TWIST)

implemented by way of a ‘Big Bang’. Banks and corporates

moves off the drawing board and into the pilot stage.

alike need to think in terms of a five-year strategy. But

The new TWIST standard involves a core payments

those corporates that have positioned themselves to

‘kernel’ designed to deliver a single file format for mass

become early adopters of the new payments regime will

payments globally. Banks have started to offer it to clients

also be the first to benefit from new efficiencies and

this year as a standard payments mechanism in HTML that

reduced operating costs.

can be plugged into any other standard – including those applying in the logistics and supply chain areas, for instance. Amol Gupte is managing director, Gearing Up for Step II The vision of a single payments system across Europe is

Citigroup Global Transaction Services EMEA [email protected]

one where there is no distinction in terms of cost or efficiency between domestic and cross-border credits or

Hugh Davies is director,

debits; and where there is no need to maintain more than

Citigroup Global Transaction Services EMEA

one bank account in each country or currency. To that end, the

[email protected]

first pan-European automated clearing house (PE-ACH) was set up last year by the Euro Banking Association for

Eric Sepkes is vice president,

low-value transactions across the eurozone. Over time,

Citigroup Transaction Services EMEA

each national grouping of banks is expected either to migrate

[email protected]

its domestic (and not just cross-border) payments traffic onto an existing PE-ACH or convert its existing domestic ACH into a PE-ACH. With the advent of the first PE-ACH, it is now possible to make so-called ‘Step II’ payments – those made through a pan-European clearing mechanism. Many banks already have the capability to make and receive Step II payments but have been reluctant to do so on cost grounds. To take advantage of the low-cost payments covered by Regulation 2560, all transactions in PE-ACH must indicate the customer’s International Bank Account Number (IBAN) and the bank’s Bank Identifier Code (BIC). That is already necessary for cross-border transactions but it will be expensive migrating domestic payments onto a PE-ACH. There is therefore in-built inertia that is slowing the migration process. Eventually, Step II promises to change the payments landscape. Today, a corporate with operations across Europe may well have to maintain 40 or 50 different accounts across 15 countries and engage in netting and pooling strategies to gain the advantages of cash concentration. Step II has the potential to make much of this redundant, cutting costs and the changing approach treasurers take to managing their payment flows and liquidity solutions.

www.transactionservices.citigroup.com

O UTSOURCING

GAINING GROUND After getting off to a slow start, outsourcing of key treasury functions is becoming increasingly popular—and sophisticated. By Anita Hawser

utsourcing the bulk of its treasury operations to an

O

sury outsourcing is in its infancy,” he states. “Growth has

independent third-party provider was a ‘no-brain-

been steady rather than dramatic.”

er’ for Stockholm-based ship cargo handling

Research group IDC’s worldwide and US finance and ac-

equipment provider MacGregor. A team of three people

counting (FA) business process outsourcing study indicates

based at its corporate headquarters in Stockholm serviced

that companies have more readily embraced some aspects of

the cash and liquidity management, FX and financing needs

FA within outsourcing than others. It predicts that general out-

of its 50 subsidiaries in 25 countries, but service levels and

sourcing of business processes pertaining to FA will grow at an

quality were unreliable. “It was hard to motivate people,”

annual compound rate of 9.6%, topping $47.6 billion by 2008.

says Per Malm, MacGregor’s finance manager, “and it was

The fastest growth (9.8%) in the next five years, it says, will

difficult to have treasury up and running at all times if staff

come from the outsourcing of transaction management (ac-

took a couple of days off work.”

counts payable), with slower growth anticipated in areas such

One option was to expand MacGregor’s in-house trea-

as treasury and risk management.

sury operations, but that would have entailed additional costs and difficulties in terms of getting the right staff. An-

STRATEGIC OBJECTIVES

other option was to decentralize treasury operations and

With estimated cost savings in the region of 20% to 50%,

farm activities out to subsidiaries, which also would have

achieving greater economies of scale are key objectives for

been costly and presented loss-of-control issues. Instead,

any company considering outsourcing. Yet, according to IDC,

Malm opted for outsourcing day-to-day ‘non-strategic’ ac-

more strategic objectives around business advisory services

tivities such as FX, intra-group loans and deposits, cash and

and opportunities around financial compliance are more effec-

liquidity management, netting and settlement, accounting

tive drivers of FA outsourcing. Dermot Daly, treasury outsourc-

and reporting to an independent third-party provider, FTI in

ing sales, ABN AMRO Treasury Solutions, cites findings from

Dublin. Malm says outsourcing has allowed it to benefit

Treasury Strategies’ 2004 Corporate Treasury Survey, which

from a more efficient and reliable treasury operation, which

shows that treasurers rank cost sixth, behind more strategic

is able to service the needs of the company’s 50 sub-

concerns such as regulation, financing and credit, technology,

sidiaries around-the-clock.

global cash management, and liquidity and working capital, in

Companies are beginning to realize the benefits of out-

terms of issues that are important to them.

sourcing some or all of their routine treasury operations, in-

Based in Dublin, where ABN AMRO runs its European out-

cluding trade confirmations, reconciliation, reporting, ac-

sourcing operations for largely US multinationals, Daly is also

counting and IT-related components. Aengus Murphy,

finding that regulations such as Sarbanes-Oxley are also caus-

chairman of FTI in Dublin, says outsourcing to meet “real

ing companies to consider outsourcing more seriously. “Regu-

treasury needs” is a relatively recent phenomenon, which

latory intervention is the key concern for US corporates,” he

has gained momentum in the past few years. “As such, trea-

says, adding that companies were looking to outsourcing

16

O UTSOURCING

providers to help them get their IT infrastructure in order.

threat to the treasurer and treasury function. Now, providers

JPMorgan Chase, which launched Financial Services

stress that outsourcing actually increases a treasurer’s control,

Provider (FSP), a treasury outsourcing service for corporates,

as long as the appropriate accountability and reporting mech-

early last year, says most outsourcing is focused around core

anisms are in place. “The loss-of-control argument is some-

areas of activity such as treasury middle office, back office and

thing we hear, but it is relatively easy to dispel the myth as the

some execution; cash management, including liquidity man-

corporate writes the operating guidelines,” says Daly.

agement, pooling, etc.; and the outsourcing of in-house

Web-based treasury management tools allow treasurers to

banks, cashflow forecasting and payment factories. “A number

monitor how trades are being handled by outsourcing

of companies are taking that approach because they want to

providers. “With outsourcing, control tends to improve be-

focus on more strategic elements of the business,” says Anne

cause of the increased transparency,” Daly explains. That is the

Collard, global product executive for FSP. “Having people in

experience of MacGregor’s Malm, who actively monitors its re-

treasury checking whether a payment

lationship with outsourcing provider

has gone through is not using their

FTI. “An outsourcing provider is sim-

skills strategically. So we are getting a

ilar to any other key supplier or part-

lot of requests for us to do the un-

ner,” he says. “You have to really take

derlying day-to-day work.”

care of it and monitor the relationship

The norm, however, says Murphy

closely.” Malm also stresses MacGre-

of FTI, is to keep the critical decision

gor’s desire to work with a non-bank

making, risk management and bank

outsourcing provider to avoid con-

relationship management in-house.

flict-of-interest issues. “It is about

“Rarely, if ever, is treasury totally out-

having somebody that is totally inde-

sourced, and best practice would dic-

pendent from a bank,” he explains.

tate that a company would not be-

The banks insist that ‘Chinese

come totally reliant on an outsourced

walls’ are enforced, which means that

provider,” he says. The potential benefits of outsourcing to a third party in-

Anne Collard, FSP: Treasury departments are focusing on strategic elements of the business

clude the ability to leverage best-of-

the client’s outsourced business is kept separate from the bank’s normal transaction processing. ABN AMRO

breed technology without companies having to make the

Treasury Solutions, for example has a dedicated team of deal-

upfront IT investment themselves, and the associated cost sav-

ers that trades specifically on behalf of outsourcing customers

ings attached to that in terms of IT maintenance, human re-

with multiple banks. “We offer a multi-bank service so the end-

sources and training.

client decides the panel of banks it wants to use for money

In MacGregor’s case, it leveraged the infrastructure of FTI to

market transactions,” Daly explains.

better service its subsidiaries instead of having to make the in-

Despite the associated cost savings and strategic advan-

vestment in additional resources and staff itself. “If we had ex-

tages that can be gained from outsourcing, there can also be

panded our treasury, we would have had to employ two or

pitfalls. Collard explains: “In the marketplace some of the

three extra staff, so we have seen a cost saving there,” says

deals that seem to have failed allowed the scope of the pro-

Malm. “We may have had a problem with turnover of staff, so

ject to creep. Part of the problem seems to be that the project

there are soft issues which are hard to put a price on.”

was not adequately defined from the start to prevent this from happening.” Malm emphasizes the need for companies to

GROUND CONTROL

clearly establish what they hope to gain by outsourcing.

With any outsourcing relationship, one of the key concerns

“You have to have thought through what you want done,

for most companies is relinquishing control to a third party. In

how you would like it to be done, and get the policy sanc-

the early days, Murphy says, outsourcing was viewed as a

tioned from the board down,” he says.

18

W HO ’ S W HO 2005

WHO’S WHO

IN TREASURY AND CASH MANAGEMENT ANN CAIRNS Head of Transaction Banking ABN AMRO Ann Cairns is the head of transaction banking in a newly created bank-wide organization, coordinating global payments and trade product management for the bank’s wholesale, commercial, private client and retail businesses worldwide. Prior to this, Cairns headed ABN AMRO’s Working Capital organization, which brought together wholesale cash and trade to create a market-leading working capital offering for corporate and financial institutions worldwide. Email: [email protected]

DANIEL COTTI Managing Director Global Transaction Products ABN AMRO Part of the Transaction Banking Group, Daniel Cotti is responsible for managing ABN AMRO’s worldwide trade services and trade finance business, global liquidity management and the FI transaction banking business. Prior to joining ABN AMRO, Cotti worked for 20 years for Citigroup in various business and operations positions in trade and corporate banking in Switzerland and in the UK. He started his career at Swiss Bank Corporation in Switzerland. A Swiss national, he completed his studies in banking at the Swiss Banking School. Email: [email protected]

JOERG PINKERNELL Head of FIS Payments, Settlement & Outsourcing Solutions Transaction Banking Group ABN AMRO Joerg Pinkernell began his career with

Dresdner Bank in 1986. In 1988 he joined ABN Bank as an Internal and EDP Auditor in Frankfurt. Pinkernell’s various roles and responsibilities within ABN AMRO, both in Europe and in North America, have included establishing the bank’s DM Clearing Center in Frankfurt, being part of the euro task force for correspondent banks, and setting up the direct link of ABN AMRO New York to the German clearing. In his current role as head of FI cash product management, Pinkernell is responsible for product management and market development for ABN AMRO’s financial institution clients within the areas of payments, settlement and outsourcing solutions. Email: [email protected]

G.M. STETTER Managing Director Head of Cash Management & Trade for the Americas Commercial Banking Division ABN AMRO Prior to joining ABN AMRO, G.M. Stetter was an executive vice president with Fundtech. Before joining Fundtech, Stetter was first vice president of bank relations/cash management at Merrill Lynch. He was responsible for the management of commercial banking relationships; establishing bank credit facilities; setting policies and procedures and implementation of systems and programs for domestic and international cash management, custody and clearing activities. Stetter is a former member of the board of directors of the Association for Financial Professionals and is a past chair-

20

man of the board. He is also a past chairman and original member of AFP’s Payments Advisory Group. Stetter received a B.S. degree in finance from the University of Virginia. Email: [email protected]

WILLEM VAN ALPHEN Cash Pooling Services ABN AMRO Willem van Alphen has been working in the corporate treasury management area for more than 25 years and currently has global responsibility for ABN AMRO’s cash pooling services. He started his career at the Dutch central bank, where he was involved in the early process of European monetary unification. He joined ABN AMRO in 1979 and helped the bank develop its corporate domestic transaction services. In 1985 he was appointed head of the bank’s treasury management consulting group, a position he held after the merger between ABN and AMRO Bank. He has advised corporations in Europe and the US and developed an extensive training program for corporate treasurers. In 1992 van Alphen was appointed head of ABN AMRO’s international cash management group in Amsterdam. In this role he helped the bank develop its first European cash management products. From 1998 he was involved in the development of ABN AMRO’s cash management strategy for the euro and helped the bank develop its euro cash management services. As head of global cash management advisory he assisted many corporate clients implementing regional

W HO ’ S W HO 2005 and global cash management structures. In 2003 van Alphen joined the bank’s working capital project, where he led the development of the bank’s new liquidity services. Van Alphen has been a speaker at treasury conferences, has published articles in many different magazines, and in 2002 co-authored a handbook on international cash management. Email: [email protected]

KIMBERLY ROSS Senior Vice President Chief Treasury and Tax Officer Ahold Promoted to her current position in April, Ross formerly worked as the senior vice president and group treasurer at Ahold. An American, Ross was a senior manager at Ernst & Young in New York before joining Ahold in Switzerland in 2001.

MICHAEL J. CURRAN Executive Vice President Global Treasury Services Bank Of America Michael Curran describes his “ridiculous” level of energy as both “a blessing and a curse.” Aside from too much whistling and finger drumming, though, it seems mostly a blessing. Curran brought Fleet from the position of having no cash management business to being the fifth-largest cash manager nationally in the 10 years before Fleet was purchased by Bank of America in 2003. Curran enjoys strategy; guessing the direction of the industry gets his “toes tapping.” He also takes pride in the variety of experience that nearly 30 years in the business has yielded: He has been involved with all the major governing bodies associated with treasury management (AFP, Nacha, SWIFT, Clearing House, BAFT), was employed by the major banks in the industry (MHT, Chemical, Fleet, BAC), survived seven mergers, and became acquainted with “almost everyone” in the industry. Email: [email protected]

S. WILSON “SKIP” HEAPS III Global Product Management Executive Global Treasury Services Bank of America As the global product manager for Bank of America’s Global Treasury Services, a $5.7 billion business, S. Wilson Heaps is driven by a self-described competitive, thoughtful nature. He handles all aspects of product management, including legal, operational, pricing, and sales, as is the custom at Bank of America, for deals exceeding $1 million. Heaps, who began a graduate program in philosophy in hopes of becoming a college professor, changed career paths in 1981 when his interest in finance began. Though he left academia, Heaps’s love of learning and literature remained strong. A “voracious reader,” he has found time on weekly business trips—which often take him to Asia and South America—to feed his interest, tackling everything from political non-fiction to spy novels. Email: sprole.w.heaps@bankofamerica. com

ZARIN PATEL Group Finance Director BBC In her seven years with the BBC, Zarin Patel, now group finance director, helped to reorganize Greg Dyke’s One BBC Review, which allowed the BBC to redirect investments and reformed the BBC’s financial management disciplines as part of the implementation of SAP.

ERIC CAMPBELL Chief Technology Officer Bottomline Technologies Eric Campbell is responsible for Bottomline’s technology strategy and direction. He joined Bottomline as vice president and product group executive of the eBanking Division after the company acquired ICM Electronic Banking Services in 1999. He co-founded ICM Electronic Banking Services in 1981. He initially served as vice president of development until he became CEO in 1996. Campbell is known throughout the com-

21

mercial banking community as an expert in electronic delivery products. While at ICM, he pioneered the design and delivery of the first treasury workstations offered by banks to corporate clients. Over the past 22 years Campbell has been responsible for developing, deploying and supporting many international electronic banking technologies for cash management, trade finance and custody for the company’s corporate and institutional clients. Under his direction, in 1997 ICM introduced one of the first Internet corporate cash management services and was instrumental in developing unique multi-bank straight-through-processing solutions for the securities industry. Email: [email protected]

KEVIN DONOVAN Chief Financial Officer and Treasurer Bottomline Technologies Kevin directs the financial and accounting operations at Bottomline as well as other areas including human resources and information systems. He possesses a strong background in financial analysis and management, and significant experience with current SEC reporting requirements. Kevin joined Bottomline in 1999 as corporate controller. He was promoted to vice president of finance in 2000 and then treasurer in 2001. Prior to joining Bottomline Kevin served as a manager in the audit department at Ernst & Young, where he assisted a portfolio of start-up and high-growth companies in diverse industries, including high-technology, manufacturing and consumer products. Email: [email protected]

FRANK J. BISIGNANO CEO Citigroup Global Transaction Services Citigroup Prior to being named CEO of GTS in 2002, Frank J. Bisignano was the chief administrative officer of Citigroup’s Corporate and Investment Banking (CIB) and, as such, had global responsibility for operations and technology and general services for the CIB.

W HO ’ S W HO 2005 Bisignano also served as deputy head of operations and technology for all of Citigroup from 2000 to 2003 and is a member of the CIB Operating Committee and Citigroup’s Management Committee. Prior to joining Smith Barney in 1994, Bisignano was executive vice president and chief consumer lending officer at First Fidelity Bancorporation. Additionally, he was a senior vice president at Shearson Lehman Brothers from 1986 to 1990. Bisignano serves as a director on the boards of Depository Trust & Clearing Corporation and the Options Clearing Corporation. Email: [email protected]

DAVID F. CONROY Global Head of Trade Sales Citigroup Global Transaction Services Citigroup David Conroy joined Citigroup in 2000 as the head of an e-commerce product development team before becoming the North America sales director for Citibank Cash Management and Trade Services. Email: [email protected]

PAUL GALANT Managing Director Cash Management Citigroup Global Transaction Services Citigroup Paul Galant is global head of the cash management business for Citigroup Global Transaction Services. Prior to this position, Galant was global head of ecommerce and market data strategy for Citigroup’s Global Corporate and Investment Bank. Additionally, he was a member of the GCIB Planning and Management Committee. Galant and his team set strategic direction and coordinated execution of e-commerce initiatives; advised on e-commerce alliances, consortia and joint ventures; set market data strategy; managed market data relationships; and developed global agreements. In addition, Galant developed and deployed CitiVision—Citigroup’s corporate portal—and ran CitiMedia to produce proprietary video content for distribution through Citigroup websites and third-party channels. Galant holds a B.A. from Cornell University, where he gradu-

ated a Phillip Merrill Scholar. He and his wife, Deborah, reside in New York City with their four children. Email: [email protected]

DIANE S. REYES Global Head of Cash Management Sales Citigroup Global Transaction Services Citigroup For seven years, Diane Reyes was the treasurer of the New York Race for the Cure, an affiliate of the Susan G. Komen Breast Cancer Foundation. Email: [email protected]

CLAUDIA SLACIK Global Head of Trade Citigroup Global Transaction Services Citigroup Claudia Slacik is the global head of trade within the Global Transaction Services business at Citigroup. The Trade Group manages all of the bank’s products that facilitate international trade for corporations and governments. It has operations in nearly 100 countries. Email: [email protected]

ANDREW ENGLAND Global Head of Product Management Global Transaction Banking / Cash Management Deutsche Bank Based in Frankfurt, Andrew England oversees a team of product managers located in Europe, the Americas and Asia. England is also a member of the Executive Committee of the recently formed Global Transaction Bank. Email: [email protected]

HANSJÖRG NYMPHIUS Director Global Head of Methodologies & Performance Management Global Transaction Banking / Cash

22

Management Product Management Deutsche Bank Hansjörg Nymphius is global head of methodologies and performance management within Deutsche Bank’s GTB Cash Management business, responsible for coordination of product planning, strategic planning and project management discipline within the GTB product management area. He is based in Frankfurt. Email: [email protected]

DANIEL ROSENSTEIN Managing Director Head of US Corporate Sales Global Transaction Banking / Cash Management Deutsche Bank Daniel Rosenstein joined Deutsche Bank in 2001 and is highly focused on expanding the bank’s corporate cash management penetration in the United States. He is based in New York City. Email: [email protected]

WERNER STEINMUELLER Head of Global Transaction Banking Deutsche Bank Werner Steinmueller joined Deutsche Bank in 1991 as corporate finance director. In this function he assumed responsibilities for the origination of all investment banking products and for the execution of ECM transactions for selected multinational companies in Germany. After being co-head of the Investment Banking Division for Germany and Austria, he became head of global corporate relationship management for Continental Europe in 1998, and from 2003 until 2004 he was chief operating officer of the Global Banking Division/Global Transaction Banking. Before joining Deutsche Bank in 1991, he worked for 11 years in different capacities at Citibank in Germany, where he was head of corporate finance covering

W HO ’ S W HO 2005 Germany, Switzerland and Austria. He holds a master’s degree in mechanical engineering and business administration with a specialization in finance from the University of Darmstadt. He is based in Frankfurt. Email: [email protected]

DAVID L. O’BRIEN, CTP Assistant Treasurer EDS Corporation EDS Corp. is a $20 billion revenue multinational IT service provider based in Plano, Texas. At EDS David O’Brien’s team is responsible for global cash management, foreign exchange and working capital.

MICHAEL MACCALLAHAN Treasurer Esselte Group Holdings A marathon runner. A wine taster. A tennis player. The personal life of Michael MacCallahan is as varied as his professional life. At Esselte, a private manufacturer of office products that has a $1.1 billion turnover and operates in 25 countries worldwide, MacCallahan has been responsible for implementing large-scale changes including a major renegotiation of the group’s uncommitted facilities, worth $400 million, with the group’s committed bilateral facilities, of equal value. MacCallahan has also authored a book, Re-engineering Corporate Treasury, several case studies and a series of articles that have appeared in major publications, including the Financial Times. In addition, he has spoken at conferences and seminars in the UK, US and Germany.

DIANNA PIUMELLI CEO GETPAID Corporation Dianna Piumelli co-founded GETPAID in 1991 after spending time in management and consulting for the retail and manufacturing industries, where she recognized the need for manufacturers, distributors and retail buyers to collaborate on the management of trade receiv-

ables. Since 1991 GETPAID has grown to be the most mature and widely used product for managing corporate risk, cash flow and vendor-supplier relationships. The development of the first commercialized B2B collection automation solution by GETPAID helped usher in a new era in credit management that has resulted in dramatic improvements in the traditional measures of receivables performance. Under Piumelli’s leadership, GETPAID has brought to market solutions for optimizing working capital by driving integration, automation and workflow across the entire financial value chain. Technology integration is a key focus for companies seeking to implement global standards and policies to improve the management of corporate risk, cash flow, operating costs and compliance. Piumelli is involved with investing in and supporting technology companies. She serves on the board of the Medical Needs Foundation (MNF), a non-profit organization that provides financial assistance to individuals and families facing overwhelming expenses due to chronic or catastrophic illness. Piumelli is a graduate of Rider University. Email: [email protected]

LAWRENCE WEBB Head of Payments & Cash Management for Asia Pacific HSBC Lawrence Webb works to encourage cooperation between banks and customers in the region he believes is home to some of the most robust economic activity internationally.

LORI HRICIK Executive Vice President Head of Treasury Services JPMorgan Chase After the events of September 11, 2001, firemen and policemen were not the only leaders working on damage control. As critical communication and systems failures ensued, representatives from many of the nation’s largest banks worked alongside members of

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the Federal Reserve to stabilize the flow of global funds and prevent a market crisis. Among them was Lori Hricik. As the co-chair of the Federal Reserve Payments Risk Committee, she also worked to promote more stringent communications protocols and to promote disaster recovery. Hricik, who is responsible for leading the world’s largest cash management and payments business and who oversees the movement of up to $2.9 trillion in payments on a single day, is no stranger to community affairs. In May 2003 she was deemed a “Local Hero” by the NYC affiliate of the Susan G. Komen Breast Cancer Foundation for her work as a senior sponsor in the Race for the Cure. She also serves on the board of directors of the International Center in New York, which helps immigrants assimilate to American culture, and was inducted into the Academy of Women Achievers by the YWCA in NYC. Email: [email protected]

HEIDI MILLER CEO, Treasury and Securities Unit JPMorgan Chase Heidi Miller is a woman with a great deal of influence, both inside the firm and out. At JPMorgan, Miller is part of the Executive Committee, which advises the office of the chairman on the future direction of the firm, and the Operating Committee, which influences decisions relating to merger integration and strategic matters. Miller also currently serves on the General Mills board of directors and is a trustee of Princeton University, from which she graduated. Miller is also passionate about women’s leadership issues and has been instrumental in the planning of the White House Project’s Women’s Leadership Summit in 2001 and the creation of the Executive Leadership Institute of Women of Color. Under her direction this year, TSS has driven a 20% growth in assets, acquired the company Vastera, announced a reorganization and integration of Investor Services and Institutional Trust Services into Worldwide Securities Services, and ended the first quarter of

W HO ’ S W HO 2005 2005 with net income of $245 million— a $152 million increase from the first quarter of last year and an overall increase of 163%. Email: [email protected]

JULIE MONACO Senior Vice President JPMorgan Chase Julie Monaco is the core cash management business executive for the treasury services business of JPMorgan Chase. In this role, she has global responsibility for many of Treasury Services’ core products, including ACH, global clearing, enterprise services, deposit services, currency services and wholesale and retail lockbox.

PAUL SIMPSON Senior Vice President JPMorgan Chase Noted as a “visionary” in the world of trade finance, Paul Simpson was responsible for the bank’s recent acquisition of Vastera. Simpson is also responsible for a variety of innovative treasury services products globally, such as commercial card, electronic financial services (government payment services), pre-paid cards/EZpay, EBPP and EIPP/Order-to-Pay.

STEVE MIRANDA Senior Vice President Application Development Oracle Corporation This summer Steve Miranda won $42,150 in the World Series of Poker. But aside from poker—which, he explains, he adopted as a form of relaxation before its recent rise to popularity—Miranda has little time for leisure. “Work life and other life have really started to blend together,” he says. In his selfdescribed role as the leader of a team that helps to set the direction of cash and treasury management globally, Miranda outlined his schedule, which speaks to the degree to which global-

ization has affected his work. His “email trail” begins at 6 a.m. with Europe and ends with electronic correspondences with Asia-Pacific and India between 9 and 10 p.m. Miranda suggests that there is “nothing typical” about the intermediate hours aside from an effort to divide his time between research, product development, sales, establishing good business relationships, maintaining a solid work team under pressure and dealing with “the four-year-old tragedies” that commonly arise with his two young children.

GERI WESTPHAL Vice President of Treasury Oracle Corporation Westphal takes great pride in her role in addressing globalization early at Oracle though centralization, integration and implementation of advanced technology.

CLAYTON C. DALEY JR. CFO Proctor & Gamble Clayton Daley is currently involved in one of the biggest challenges of his career: co-leading the P&G/Gillette integration with Gillette CEO Jim Kilts. With P&G since 1974, Daley has risen through the ranks, holding a variety of positions. In his current role he enjoys integrating and implementing business strategies learned on Wall Street into P&G’s strategy. Self-described as a classic “type-A personality,” Daley is on the board of directors for both Nucor Corporation and the Boy Scouts of America and was formerly a member of the board at Cancer Family Care, where he also served as president. In his leisure time Daley enjoys automobiles, wine collecting and traveling. Email: [email protected]

FRIEDRICH SEMPER VA Tech Finance RZB At RZB Friedrich Semper works in technical finance as an adviser on issues such as hedging foreign exchange, interest rates risks, cash pool and liquidity management, and base metal risks. He previously worked as the

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group treasurer at Austrian Industries: OAIG. Email: [email protected]

KEN DUMMITT President of AvantGard Business Unit SunGard SunGard’s AvantGard business unit serves the treasury operations of corporations and financial institutions. Ken Dummitt has been with SunGard for 15 years; he spent the first eight with SunGard Availability Services before joining AvantGard in 1998. Prior to his role as president, Dummitt was senior vice president of the Americas, where he used his experience, education and dedication to cultivate a customer-centric environment while merging the needs of employees and customers from five distinct companies. During his tenure as president, Dummitt has overseen the use of AvantGard by the treasuries of 52 Fortune 100 corporations. Dummitt earned his undergraduate degree in economics from Harvard University and his M.B.A from the Richard Ivey School of Business. Dummitt is married with two children and enjoys golf, tennis and sailing as well as “globe-trotting.”

MARTIN MAYR Head of Group Finance & Treasury Telekom Austria Martin Mayr is responsible for financial risk management, credit risk and fraud management. Email: [email protected]

JOHN ALARCON General Manager XRT North America John Alarcon is considered a leading international authority on information technology and financial services. Throughout his career he has delivered financial IT advice to the global marketplace. He recently joined XRT to provide client-focused, technologically advanced treasury solutions to the company’s expanding North American customer base.

SECTOR REPORT GLOBAL CUSTODY

BY JOACHIM BAMRUD

Global Custodians Focus on Innovation As they strive to find ever more creative ways to serve their clients, custodians are increasingly finding themselves on the cutting edge of technological innovation.

nvest in technology or die. That’s the clear message from global custody executives.“The technology is core in any aspect in [the] entire custody workflow,” says Christian Hudson, chief information officer of SwissAmerican Securities (SASI). “It makes it harder and harder for small and medium-size custodians to survive.” Jim Flannery, senior vice president and national marketing and sales manager for Mellon Global Securities Services, agrees. “You invest in technology and make sure that you’re either even with or ahead of the curve in terms of technology,” he says. “One of the things that has caused previous custodians in the US to sell their business is that you have to have some scale in order to do it. There are some basic things that you have to do that the industry or regulators require but that are not inexpensive.” Kevin Galvin, the San Francisco-based vice president of institutional services and asset management at Union Bank of

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California, agrees. “It’s really been incumbent on us to continue to invest in [technology] or risk losing [our] client base,” he says. But significant technology investments are not enough. “The challenge will be how to spend investments in

technology wisely,” says John Galante, JPMorgan’s chief technology officer for treasury and securities services. “The goal is to aggressively pursue targeted investments in technology and execute in a timely manner. Because of the heavily regulated environment, the changes we’ve implemented are going to ensure transparency and improve reporting to ensure compliance.” JPMorgan recently added new custody technology, including JPMorgan Performance Measurement, JPMorgan E-Tax and electronic distribution of corporate action materials. One of the key innovations implemented by Mellon’s custody business was to provide its clients with so-called “dashboard” reports, permitting a customized screen inside the regular PC screen.“They’re populated every day with information customers said they want,” Flannery says. “It’s based on two or three things they like to see and don’t have to go into databases and gather.” Mellon acquired Eagle Invest-

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ment Systems in 2001 partly in order to be able to have access to high-grade and next-generation technology. “By purchasing Eagle, we purchased stateof-the-art technology,” Flannery says. “We now have a factory that will not only generate next-generation technology, but maybe fill holes where we have a product gap.” Union Bank of California took control of its web utilities in December last year. Prior to that it had utilized webservices-supported external solutions. “By taking it in-house, we take data feeds in real time into a relational database that we own, so that we hang it to our web portal,” Galvin says.The result is that clients have access to more information faster. “Our objective is to be able to make it as efficient as possible and as seamless as possible for our clients to have access to all the moving parts of the accounting environment and how they measure and analyze that,” he says. It’s the “C” for communications in “ICT” (information and communications technology) that will be crucial, adds Jon Lloyd, the Paris-based head of clearing, settlement and custody at BNP Paribas Securities Services. “The providers who can most easily and openly integrate themselves with their clients and their clients’ operational processes will have a true competitive advantage,” he says. “Innovative connectivity solutions will therefore be one of the keys to success going forward.” Among the key technology innovations implemented at BNP Paribas Securities Services is using the Internet rather than paper-based systems to facilitate proxy voting before shareholder meetings to improve security and efficiency. It has also implemented SwiftXML messages for its transfer agent and fund administration products and established an architecture principle to improve scalability and resilience. Further innovation will be key, Lloyd says. “Implications could be considerable, especially as we seek ways to im-

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prove client connectivity and STP [straight-through processing],” he says. “Hence developments like ‘XML integrates’ are of considerable interest to us to help simplify the myriad of connections needed, whether with clients, the market infrastructure or internal applications.” XML (Extensible Markup Language) permits the sharing of data across different systems. BNP Paribas Securities Services is also developing “rich client” front-ends using “.net” to support what it calls power users within corporations, according to Lloyd.“This will help to enhance the overall client service by enabling operational account managers to develop their own queries and workflow tools,” he points out. Another key challenge is to make sure clients actually use the technology correctly. “It’s amazing how people don’t always understand the technology. Fortunately, we have a dedicated CRM group that is exceptionally active being at clients’ sites,” Hudson says. More important, incorrect use of technology could lead to lost business. “When you bring a new client—and all technology is new—you end up having to go back every while, just like an annual physical,” Flannery says.“You want to avoid that a competitor shows them something they didn’t realize was available on their PC. That way you make sure you get maximum return on your investment.” And technology without

Galvin: Invest or risk losing clients

the equivalent service is also a waste. “Once you have technology in place, you have to make sure you back that up with service,” Flannery adds. A key element clients increasingly require is speed, custody executives say. “People want to know how quickly can I get my … information,” says Flannery. Whether it’s pension fund managers or asset managers, they want data as fast as possible. “Both seem to want data faster—core data around securities or audited accounting data or performance data,” Flannery says. That means companies have to spend money on technology so they can get audited accounts not on the seventh business day, but the third business day, he says.“Even the people who hire managers, a lot of time they want snapshots of unaudited accounts early,” he notes. Another key issue is security—of greater concern now that custodians are using web-based solutions rather than dedicated lines as in the past, Flannery points out. “Information delivery is a key element of the future state of the custody business,” he says. In the end, technology will help the bottom line. “The ability to maintain proper accounting controls leads to more efficient and less risky operating environments,” Galvin says. “To the extent that we’re able to develop a more efficient operating environment, that will control our operating overhead and improve our margins.” ■

ANNUAL SURVEY BEST INTERNET BANKS

BY ADAM ROMBEL

THE WORLD’S BEST INTERNET BANKS, 2005 In the first of a two-part series, Global Finance identifies the best online corporate and consumer banks by country and product or service category.

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compelling for customers to walk away from online banking.” As part of that cranking-up effort to help stop identity theft, banks are rolling out email alerts that are designed to help customers detect more quickly when their account has been compromised. The secure email alerts tell clients when transactions have been made, when checks have been posted against their accounts, when their account balance reaches a certain level, and when someone tries to access the customer’s account with an incorrect password. South Africa’s Standard Bank has begun using a two-factor authentication system for online accounts, where clients receive a second password via their cell phones and independent of an Internet-banking session. Standard Bank will also protect online credit-card use with a secure code, which will authenticate every online transaction.The service makes use of information not included on a customer’s credit card. Weber authored the Celent research report, “Emerging Affluent Baby Boomers, Financial Services & The Web.” He found that banks are ahead of their insurance and securities brokerage counterparts in connecting with wealthy baby boomers, including online. “Banks appear to be the trusted partners. Customers have a long history with banks,” he says, adding that banking customers also interact with their banks much more often to pay bills,

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ith all the headlines about identity theft, phishing attacks, computer hacking and exposure of customer creditcard numbers, it’s easy to think that banks are on the defensive with their Internet banking efforts these days. A study by Stamford, Connecticut–based research firm Gartner Group found that 28% of respondents say online attacks are causing them to reduce their web-banking activity. According to Gartner, the number of phishing attacks—scam emails that attempt to get people to visit phony copies of legitimate financial sites and reveal their personal data—increased by almost 30% in the past year alone. A recent study by Calabasas, California–based Informa Research Services found a decline (from 70% in 2003 to 59% in 2005) in the number of consumers who believe Internet-based financial transactions are safe and secure. Despite the decline in confidence, more people are banking online.The number of consumers who reported they used the Internet for a transaction in the past six months increased 15% between 2003 and 2005, according to the Informa Research study. At least one analyst says banks will overcome the security concerns. “Confidence has doubtless taken a hit. But I think the majority of banks are in the process of cranking up security,” says Craig Weber, senior analyst at Boston–based research firm Celent. “The convenience factor is simply too

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Banks are also playing offense on the Internet, rolling out new products and services that push the envelope of innovation and boost client productivity and convenience. For example,Wells Fargo recently introduced what it called the “Desktop Deposit” service. Available through the bank’s Commercial Electronic Office portal, which processed $4.1 trillion in payments in 2004, it is the only remote Internet-based deposit service on the market that does not require the client to install any software on his computer. Customers can make deposits from multiple offices and remote locations. On the consumer side, Wells introduced a tool called “My Spending Report,” which automatically combines spending transactions from a customer’s check card, credit card, checking ac-

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n this issue we reveal the Best Corporate/Institutional and Consumer Internet banks at the country level. In all, more than 100 country winners are named. Regional and global winners in these categories will be announced at an awards ceremony in New York in November and in our December issue.

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The current issue also identifies the award-winning banks in five Corporate/Institutional and five Consumer sub-categories, such as “Best Online Cash Management” and “Best Bill Payment and Presentment” in the six regions. In recognition of the heightened importance and attention that online security has received, we have added the new sub-category of “Best Information Security Initiatives” on both the Corporate/Institutional and Consumer sides. This new sub-category honors banks with the most comprehensive and forward-thinking strategies to address security risks. Global winners in the sub-categories will also be announced at the awards dinner and in the December issue. All first-round winners were chosen among entries evaluated by a world-class judging panel consisting of representatives from Tata Infotech. Global Finance editors were responsible for the final selection of winners in the first round. Only banks that entered the competition were considered for awards, and awards are only given in those regions, countries and categories in which there were entries. Winning banks were selected based on the following criteria: strength of strategy for attracting and servicing online customers, success in getting clients to use Internet offerings, growth of online customers, breadth of product offerings, evidence of tangible benefits gained from Internet initiatives, website design and functionality, and the strength of the bank’s security initiatives. —AR

niversary of Internet banking at Wells Fargo, they are looking for free online tools, such as email alerts and My Spending Report, that can help them

BANKS ARE SQUEEZING COST SAVINGS FROM THEIR INTERNET-BANKING INITIATIVES count and bill-payment service in one convenient location. “In the early days of Internet banking, customers were most interested in looking at balances and transferring money between accounts,” says Jim Smith, executive vice president of Wells Fargo’s Consumer Internet Channel. “Now, as we celebrate the 10th an-

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check and balance accounts, etc. In the Infor ma Research survey, banks were rated the most innovative type of financial institution in employing technologies to serve their customers. Seventeen percent of consumers ranked commercial banks as the most innovative. Though that’s down from 33% two years ago, banks still beat out all other types of financial companies in perceived technology innovation, according to the Celent study.

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better organize their money,” he adds. Wells Fargo says its consumer Internet product sales increased 42% in 2004.The bank has 6.8 million active online consumer customers as of the end of June 2005, up 21% from the prior year. More than one in two Wells Fargo consumerchecking accounts are accessed online. The latest release of Citigroup’s

CitiDirect online-banking service allows corporate clients to make payments in 90 countries and obtain real-time access to important transactional information. Banks are also squeezing cost savings and operating efficiencies from their Internet banking initiatives. For example, United Kingdom–based Alliance & Leicester recently reported that its 2005 operating expenses will fall short of 2004 expenses as the bank saves money by getting more of its customers to bank online and through automated, self-service telephone systems. A&L reported that 35% of all sales of the bank’s four main products were generated over the Internet in the first six months of 2005, compared to 20% in 2004.The bank has 750,000 customers registered for Internet banking, an increase of 50% over a year ago. ■

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COUNTRY WINNERS: BEST CORPORATE/INSTITUTIONAL INTERNET BANKS NORTH AMERICA Canada: JPMorgan Chase United States:Wells Fargo

EUROPE Austria: RZB Finland: Citigroup Germany: JPMorgan Chase Greece: EFG Eurobank Ergasias Ireland: Citigroup Italy: Citigroup Netherlands: Citigroup Poland: Bank BPH Portugal: Millennium BCP Spain: Citigroup Sweden: SEB Merchant Banking Switzerland: Citigroup Turkey: Garanti Bank United Kingdom: JPMorgan Chase

ASIA

Hong Kong: HSBC India: ICICI Bank Korea: Citigroup Kyrgyzstan: AsiaUniversalBank Malaysia: OCBC Singapore: DBS Bank Taiwan: Chinatrust Commercial Bank Thailand: Citigroup

LATIN AMERICA Argentina: Banco Rio de la Plata Brazil: Bradesco Chile: Citigroup Colombia: BBVA Jamaica: Citigroup Mexico: Banamex Peru: BBVA Puerto Rico: Citigroup Trinidad & Tobago: Citigroup Venezuela: Banco de Venezuela

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Brunei: HSBC China: Citigroup

Bosnia/H’govina: Raiffeisen Bank dd

Croatia: Raiffeisenbank Austria dd Czech Republic: Citigroup Hungary: Citigroup Romania: Citigroup Russia: Citigroup Serbia/M’negro: Raiffeisenbank ad Slovakia: Citigroup

MIDDLE EAST/AFRICA Cameroon: Citigroup Egypt: Citigroup Israel: Citigroup Ivory Coast: Citigroup Kenya: Citigroup Kuwait: National Bank of Kuwait Nigeria: Citigroup Qatar: Qatar National Bank Saudi Arabia: Samba Senegal: Citigroup South Africa: Citigroup Tanzania: Citigroup Uganda: Citigroup Zambia: Citigroup

COUNTRY WINNERS: BEST CONSUMER INTERNET BANKS NORTH AMERICA Canada:TD Bank Financial Group United States: Bank of America

EUROPE Austria: RZB Belgium: Citigroup Germany: Citigroup Greece: EFG Eurobank Ergasias Italy: Citigroup Poland: Bank Millennium Portugal: Millennium bcp Spain: Citigroup Turkey: Akbank United Kingdom: Citigroup

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Guam: Citigroup Hong Kong: HSBC India: ICICI Bank Indonesia: Citigroup Malaysia: Citigroup Pakistan: Citigroup Philippines: Citigroup Singapore: DBS Bank Taiwan: Chinatrust Commercial Bank Thailand: Citigroup

LATIN AMERICA Argentina: Banco Rio de la Plata Brazil: Bradesco Chile: Santander Santiago Colombia: BBVA Mexico: Banamex Peru: Citigroup Puerto Rico: Citigroup Venezuela: BBVA Banco Provincial

CENTRAL/EASTERN EUROPE Bulgaria: Raiffeisen Bank EAD Czech Republic: Citigroup Hungary: Raiffeisen Bank Rt Romania: Raiffeisen Bank SA Russia: ZAO Raiffeisenbank Austria Slovakia:Tatra Banka Slovenia: Raiffeisen Krekova Banka dd Ukraine: JSCB Raiffeisenbank

MIDDLE EAST/AFRICA Bahrain: Citigroup Egypt: Citigroup Jordan: Jordan Kuwait Bank Kuwait: National Bank of Kuwait Oman: Bank Muscat Qatar: Qatar National Bank Saudi Arabia: Samba United Arab Emirates: Dubai Islamic Bank

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REGIONAL WINNERS: BEST CORPORATE/INSTITUTIONAL INTERNET BANKS NORTH AMERICA

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Best Online Securities Research: JPMorgan Chase Best Online Cash Management: Citigroup Best Website Design:Wells Fargo Best Integrated Corporate/ Institutional Bank Site:Wells Fargo Best Information Security Initiatives:Wells Fargo

EUROPE Best Online Securities Research: RZB Best Online Cash Management: JPMorgan Chase Best Website Design: RZB Best Integrated Corporate/ Institutional Bank Site: RZB Best Information Security Initiatives: Millennium BCP

Best Online Securities Research: JPMorgan Chase Best Online Cash Management: Citigroup Best Website Design: JPMorgan Chase Best Integrated Corporate/ Institutional Bank Site: HSBC Best Information Security Initiatives: HSBC

LATIN AMERICA Best Online Securities Research: Banamex Best Online Cash Management: BBVA Best Website Design: Bradesco Best Integrated Corporate/ Institutional Bank Site: Bradesco

Best Information Security Initiatives: Banco Rio de la Plata

CENTRAL/EASTERN EUROPE Best Online Cash Management: Raiffeisenbank ad Best Website Design: Raiffeisenbank ad Best Integrated Corporate/Institutional Bank Site: Raiffeisenbank ad

MIDDLE EAST/AFRICA Best Online Cash Management: Samba Best Website Design: Riyad Bank Best Integrated Corporate/Institutional Bank Site: Qatar Nat’l Bank Best Information Security Initiatives: Samba

REGIONAL WINNERS: BEST CONSUMER INTERNET BANKS NORTH AMERICA

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Best Bill Payment & Presentment: Bank of America Best Online Consumer Credit: Bank of America Best Website Design:Wells Fargo Best Integrated Consumer Bank Site:Wells Fargo Best Information Security Initiatives: Bank of America

EUROPE Best Bill Payment & Presentment: Millennium BCP Best Online Consumer Credit: Millennium BCP Best Website Design: RZB Best Integrated Consumer Bank Site: RZB Best Information Security Initiatives: Millennium BCP 3 6

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Best Private Banking: Citigroup Best Bill Payment & Presentment: Citigroup Best Online Consumer Credit: Citigroup Best Website Design: HSBC Best Integrated Consumer Bank Site: ICICI Bank Best Information Security Initiatives: Citigroup

LATIN AMERICA Best Private Banking: BBVA Best Bill Payment & Presentment: Banamex Best Online Consumer Credit: Banamex Best Website Design: Banamex Best Integrated Consumer Bank Site: Banamex

Best Information Security Initiatives: Bradesco

CENTRAL/EASTERN EUROPE Best Website Design: Raiffeisen Bank EAD Best Integrated Consumer Bank Site: Citigroup

MIDDLE EAST/AFRICA Best Bill Payment & Presentment: Jordan Kuwait Bank Best Online Consumer Credit: National Bank of Kuwait Best Website Design: Qatar National Bank Best Integrated Consumer Bank Site: Samba Best Information Security Initiatives: Arab National Bank

BUSINESS TRAVEL BEST HOTELS AND AIRLINES

BY MARK LEHANE

The Rise of the Smart Business Traveler Canny travelers are searching out the best bargains. ith the global economy largely on an upswing, business travel is entering its second year of growth. Flight numbers are up, as are the premium rates that typically mark the health of the market. Travel management company BTI UK says business fares are up by between 3% and 4% over summer 2004. That trend is reflected in the health of the hotel market, too. According to Deloitte’s HotelBenchmark Survey, a regular industry study, revenue per available room (revPAR) for the Middle East hotel sector increased by 24.5% in the first six months of 2005.Where there’s a shortage of rooms for the business traveler, the uptick is stronger still. RevPAR in Moscow rocketed by 33.9% in year-to-May 2005, with the average room rate hitting $229. Those kinds of figures have put smiles on the faces of many industry participants in recent months. Increasingly, they are translating that optimism into industry plays. In July

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Swissotel opened the doors on a 235room hotel in the heart of Moscow. A 332-room Ritz-Carlton will follow in summer 2006. But if the investment spigots are opening, a note of caution lingers in the background.A fragile security situation in key parts of the globe could easily turn into a cutback on international travel if, for example, the recent bombings in London turn out to be part of a sustained offensive.And although Avian flu has killed just 55 humans since it first appeared in South East Asia in late 2003, Leslie Garrett, senior fellow for global health at the Council for Foreign Relations, points out that, with 50% human mortality rates, the virus potentially is much more dangerous than the Spanish flu, which killed 50 million people in 1918 and 1919. There’s little that travel planners can do in the face of risks on that scale. Instead, they are concentrating on making the most of the resources they have at their disposal. That’s producing a strange split in the business travel market, say analysts. At one end of the scale, business travelers are abandoning the traditional premium full-

fare ticket for short-haul flights in Europe or the US, opting instead for one of the growing number of budget airlines.That’s reflected in the varying fortunes of airlines: Ryanair, Europe’s leading low-cost airline, saw pre-tax profits for the second quarter of calendar year 2005 soar by 32%. The company’s market capitalization now touches that of British Airways, once the self-dubbed “world’s favorite airline.” Low-cost airlines typically were quicker in latching on to the Internet, gaining important first-mover advantage in the hunt for the budget-conscious self-booker businessman. In the US, over 50% of business flights already are booked online, and European is catching up fast. Many older airlines have now refashioned their online offerings, but they are fighting on other fronts, too.Asian and European airlines have toned up their business-class services, making flat-bed seats standard on many intercontinental routes. Cashstrapped US airlines have struggled to match that level of comfort. That has made them vulnerable to another threat: the increasing democratization of private jets. Companies now have a range of options in private services, which offer comfort, convenience and flexibility. Jet timeshares allow companies to defray the costs of ownership, for example. Industry analysts see a clear geographic procession: A trend toward private hire, which began in the US, has since spread to Europe. In the future, Chinese entrepreneurs and companies are expected to provide the fastest growth in demand. ■

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GLOBAL FINANCE READERS’ PICKS FOR THE BEST HOTELS AND AIRLINES, 2005 GLOBAL WINNERS Best Global Hotel Chain Marriott Hotels Best Global Airline Singapore Airlines BEST REGIONAL HOTEL CHAIN North America Marriott Hotels Europe The Ritz-Carlton Asia/Pacific Mandarin Oriental Hotels Latin America Marriott Hotels Middle East/Africa Hilton Hotels BEST REGIONAL AIRLINE North America American Airlines Europe British Airways Asia/Pacific Singapore Airlines Latin America American Airlines Middle East/Africa Emirates BEST HOTELS BY CITY NORTH AMERICA Atlanta Four Seasons Hotel Bermuda Castle Harbour Resort Boston Four Seasons Hotel Chicago The Ritz-Carlton Dallas Four Seasons Hotel Denver Denver Marriott City Center Detroit Marriott Renaissance Center Houston Four Seasons Hotel Las Vegas Bellagio Hotel and Casino Los Angeles The Beverly Hills Hotel Miami JW Marriott Hotel Miami Montreal Fairmont The Queen Elizabeth New York The Waldorf-Astoria

Puerto Rico San Francisco Toronto Washington DC EUROPE Amsterdam Brussels Budapest Copenhagen Frankfurt Geneva Istanbul Lisbon London Madrid Milan Moscow Munich Paris Prague Rome

San Juan Marriott Resort & Stellaris Casino Mandarin Oriental Four Seasons Hotel Four Seasons Hotel

Stockholm Vienna Warsaw Zurich

Hilton Amsterdam Hilton Brussels City Kempinski Hotel Corvinus Hilton Copenhagen Hotel InterContinental Frankfurt Hotel Beau Rivage Four Seasons Hotel Istanbul Four Seasons Hotel The Savoy Hotel InterContinental Madrid Hotel Principe di Savoia Moscow Marriott Grand Hotel Four Seasons Hotel Four Seasons Hotel George V InterContinental Prague InterContinental Hotel de la Ville Roma Grand Hôtel InterContinental Wien Marriott Warsaw Marriott Zurich

ASIA Beijing Hong Kong Islamabad Jakarta

Grand Hyatt Beijing The Peninsula Hong Kong Islamabad Marriott Hotel Jakarta Hilton International

Kuala Lumpur Manila Mumbai New Delhi Seoul Shanghai Sydney Taipei Tokyo

Shangri-La Hotel Kuala Lumpur Mandarin Oriental Hotel Manila JW Marriott Hotel Mumbai Maurya Sheraton Hotel Grand Hyatt Seoul Grand Hyatt Shanghai The Ritz-Carlton Shanghai (tie) Park Hyatt Sydney Grand Hyatt Taipei Imperial Hotel

LATIN AMERICA Bogotá Radisson Royal Bogota Hotel Buenos Aires Four Seasons Hotel Caracas Hotel Caracas Lima JW Marriott Hotel Lima Mexico City Four Seasons Hotel Rio de Janeiro Le Meridien Copacabana Plaza Copacabana Hotel (tie) Santiago Santiago Marriott Hotel São Paulo Marriott Renaissance São Paulo Hotel MIDDLE EAST/AFRICA Amman InterContinental Jordan Bahrain The Ritz-Carlton Bahrain Cairo Four Seasons Hotel Cairo at Nile Plaza Dubai JW Marriott Dubai Jeddah Marriott Jeddah Johannesburg InterContinental Sandton Sun & Towers Tel Aviv Dan Tel Aviv

Methodology: In order to ensure these awards reflect the real experiences of business travellers, Global Finance surveyed 18,000 of our 235,000 readers around the world, asking for nominations in categories that were relevant to them.

The Waldorf Astoria 301 Park Avenue New York, NY 10022 Reservations: 1-800-WALDORF www.waldorf.com

An official New York City landmark since 1993, The Waldorf=Astoria is synonymous with elegance and grandeur. The Art Deco property occupies an entire city block of prime Park Avenue real estate in the heart of midtown Manhattan, within walking distance of New York's most popular attractions. More than a century has passed since The Waldorf=Astoria first opened its doors to Manhattan society and guests from around the world. Throughout the years, its peerless luxury, impeccable service and gracious style have remained constant, even as the hotel played host to some of the world’s most memorable events and public figures.

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CORPORATE FINANCING FOCUS

Big Cross-Border Mergers May Remain Rare Occurrences In Europe’s Financial Sector

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hen Abbey National, then the sixth-largest bank in the UK, agreed in July 2004 to a takeover bid of about $15.5 billion from Banco Santander, Spain’s biggest bank, analysts said the deal could herald a wave of major cross-border bank mergers in Europe.The longawaited consolidation of the European Union’s financial services industry was under way, and the creation of a pan-European system would result, they said. It wasn’t until a year later, however, that the next big crossborder acquisition took place in Europe’s fragmented banking sector. In July 2005 Italy-based UniCredito agreed to acquire Germany’s HVB and its Bank Austria Creditanstalt unit with an extensive network in the fast-growing economies of Central and Eastern Europe. The $18.7 billion bid to take over Germany’s secondlargest bank followed failed attempts by UniCredito in recent years to form alliances with Spain’s Banco Bilbao Vizcaya Argentaria, or BBVA, and with Commerzbank, also of Germany. “Together, UniCredito and HVB will be a strong new force rooted at the heart of Europe,” says UniCredito’s chief executive, Alessandro Profumo. “We will become the first truly European bank.” While the deal was the largest cross-border banking merger ever in Europe, analysts say that mega-mergers that cross Europe’s borders will remain an anomaly.This is not the start of a frenzied game of musical chairs that will have Europe’s big banks aggressively seeking new partners, they say. Sandy Wong

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Politics and cultural differences, as well as differing legal, regulatory and tax systems, make it difficult for any EU banking monolith to emerge, industry participants and analysts say. “There won’t be many more transformational deals,” says Stephen Jancys, vice president of mergers and acquisitions at New York-based Trenwith Securities, an independent investment banking affiliate of BDO Seidman and BDO International, which has a global network of 600 offices that provide financial advice and consulting services. The volume of middle-market deals in the European financial services industry will continue to be much larger than that of the major mergers, Jancys says. Trenwith Securities represents both US and non-US companies in middle-market transactions. Its clients range from middle-market businesses to multinational corporations seeking to acquire or divest middle-market companies. “European banks need to step up their domestic mergers to avoid being absorbed by international rivals, including the big US banks,” Jancys says. “They need to become bigger fish so that they are not takeover targets themselves,” he explains. There will be more consolidation in European financial services, particularly in the fragmented markets of Italy and Germany, Jancys adds.

Quality Assets for Sale Private equity firms will increasingly be involved in the restructuring of banks and insurance companies, with

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many institutions divesting non-core businesses, according to Jancys. “A lot of quality assets are available for sale, including credit-card businesses and consumer finance operations,” he notes. There also will be further consolidation in the assetmanagement industry, where costs have increased in order to keep up with the growing burdens of financial reporting, Jancys says. Deutsche Bank signed an agreement in July 2005 with UK-based Aberdeen Asset Management on the sale of part of the German bank’s asset-management businesses in the UK and the US, in a transaction valued at about $450 million, depending on future fee revenue. Deutsche Bank said the deal followed a comprehensive and strategic review of its asset-management business globally. “The objective is to create a stronger, more focused Deutsche Asset Management business that can provide greater value to our clients and shareholders,” says Kevin Parker, member of Deutsche Bank’s executive committee and global head of Deutsche Asset Management. The German bank’s UK-based hedge-fund and real-estate businesses and its Philadelphia, Pennsylvania-based highyield business were not part of the deal and remain part of Deutsche Asset Management’s global platform. Meanwhile, Spain’s BBVA is pursuing Italy-based Banca Nacionale di Lavoro, while ABN AMRO of the Netherlands is battling for control of Banca Antonveneta. Overall M&A activity within Europe reached $427 billion in the year-to-date through July 15, 2005, according to Dealogic.That represents an increase of 33% compared to the same period of 2004, it says. Finance was the most-active industry for intra-European M&A activity, with $75.8 billion from 331 transactions.The UK remains the most-targeted country for M&A in Europe, Dealogic says.

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of Rabobank International. “Our aim is to develop local community banks which operate close to their customers, with a particular focus on nonmetropolitan areas,” he says. Sekerbank has 201 branches, of which 130 are located outside Istanbul and Ankara. Also in July, the Dutch-Belgian banking group Fortis purchased an 89.3% stake in Disbank of Turkey for Stephen Jancys, $1.27 billion. Disbank, vice president, Trenwith Securities Turkey’s seventh-largest privately owned bank, has more than 1 million customers. UniCredit of Italy paid $1.46 billion in May to acquire a 57% controlling stake in YKB, or Yapi ve Kredi Bankasi, in cooperation with the Turkish finance company Koc Finans. Earlier this year, BNP Paribas of France acquired 50% of the holding company that controls Türk Ekonomi Bankasi, or TEB. Meanwhile, Deutsche Bank bought the remaining 60% it did not already own of Bender Securities, a mid-size brokerage house based in Istanbul.The German bank also acquired a commercial banking license in Turkey.

Merger Activity Increases

In 2004, European financial services M&A activity increased by approximately one-third in terms of total announced deal values and total deal numbers compared with M&A ACTIVITY IN EUROPE BY INDUSTRY 2003, according to a report (January 1, 2005 - July 15, 2005) by PricewaterhouseCoopers, Turkish Banks Targeted or PwC. Finance With approximately $54 The rapid growth of the Turkish 18% billion of deals announced, economy and the onset of EUfinancial services was the accession talks stimulated a second most-active sector in number of acquisitions in Turkey’s Real Estate Europe after pharmaceuticals banking sector this year by 12% last year. European financial institutions. According to PwC, there was Rabobank of the Netherlands Others Telecommunications 32% a significant increase in the agreed in July to buy a controlling 11% proportion of cross-border interest in Sekerbank, the bank of deals, representing 61% of all the sugar-beet cooperatives, for Utility/Energy financial-services merger activity about $350 million. Computers and Electronics 9% in Europe in 2004.The report “We are developing bank 5% Construction/ predicts increased appetite from partnerships in a selected number Building Products private-equity investors and a of fast-growing Central and 6% continued focus on divestments Southeastern European Food and Beverages 7% of non-core businesses. countries,” says Harry de Roo, In banking, PwC foresees member of the managing board Source: Dealogic 2 0 0 5

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limited significant European cross-border M&A, with larger deals such as the acquisition of HVB by UniCredit continuing to be a rarity. “We had one big cross-border deal last year [Santander’s purchase of Abbey] and another big deal this year,” says Nick Page, London-based partner in TS Financial Services, part of the transaction services group of PwC. “There remain impediments to the industry consolidating quickly,” Page says. “Cross-border mergers will continue to increase in coming years, but we may see only one big transaction a year,” he says. Following the big banking mergers in the US in the past few years, US predators may look to the UK or possibly Europe for their next move, according to the PwC study. “In the short term, however, Asia might offer slightly more exciting opportunities,” Page says. It won’t be easy for a major US bank to create a pan-European banking company with a single acquisition, Page notes. “If you buy a bank in the UK, you are buying a UK bank,” Page says. “And if you buy a bank in Germany, you are getting a German bank.You are not gaining a panEuropean presence,” he says. Meanwhile, European financial institutions will continue to rationalize the products they want to offer, according to Page. “Some diversified groups with asset-management operations might divest these activities, but there will be no big consolidation in this sector,” he says.

Rise of Private Equity Private-equity investment in European financial services is expected to grow and is a potentially significant trend, Page says. In recent years, private-equity funds have been getting bigger, following a greater focus on alternative investments, resulting in a significant increase in the amount of money these funds have to invest. Fund managers are becoming adept at operating within the regulatory regime of European financial services and at managing compliance issues, according to PwC. “There are plenty of opportunities for private equity funds to participate, such as in buying non-performing loans in Italy, Germany or emerging Europe,” Page says. The availability of billions of dollars of relatively low-cost credit that the major banks are offering has enabled privateequity funds to leverage the companies they are acquiring, according to the PwC report. “Some market watchers are talking about a potential credit bubble, but the major financial services deals seen in Europe are all built on recurring cash flows,” it says. “It is precisely the cash-generating nature of these financial services businesses that makes them particularly attractive to private-equity investors,” it adds. Increased activity from private-equity firms in the 4 2

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financial services sector may increase the pressure on major corporations to make acquisitions earlier than they otherwise would, it predicts. In one of the biggest changes in the German banking industry in many decades, the country’s Landesbanks, which are partially state-owned, lost their government backing in July. These guarantees, which had enabled them to raise money at lower interest rates than their private-sector competitors, were eliminated at the EU’s insistence. In what analysts describe as a healthy trend, the Landesbanks, along with the municipally owned savings banks, now have to compete on a level playing field with the country’s private banks. Some of the Landesbanks could seek merger partners as they try to defend their market shares in the newly competitive environment. While the Landesbanks have become more like commercial banks, the transformation is not yet complete, according to New York-based rating agency Standard & Poor’s. The Landesbanks need to continue with restructuring efforts and successfully implement their game plans, the rating agency says. —Gordon Platt AMERICAS M&A: TOP DEAL ADVISERS Rank Value % Mkt # of ($million) Rank Share Deals

Adviser Goldman Sachs Morgan Stanley UBS Lehman Brothers Merrill Lynch Industry Totals*

223,333 219,009 173,465 156,633 130,644 683,859*

1 2 3 4 5 -

32.7 32.0 25.4 22.9 19.1

102 98 69 70 66 5,108

EUROPE M&A: TOP DEAL ADVISERS Rank Value % Mkt # of ($million) Rank Share Deals

Adviser JPMorgan Goldman Sachs Morgan Stanley Deutsche Bank Citigroup Industry Totals*

116,981 113,555 110,726 107,481 104,221 455,786*

1 2 3 4 5 -

25.7 24.9 24.3 23.6 22.9

93 66 72 56 70 5,232

ASIA M&A: TOP DEAL ADVISERS Adviser Nomura Morgan Stanley Merrill Lynch JPMorgan Mitsubishi Tokyo Financial Industry Totals* January 1, 2005 – July 28, 2005

Rank Value % Mkt # of ($million) Rank Share Deals 72,883 58,594 54,261 50,996 50,396 196,755*

1 2 3 4 5 -

37.0 29.8 27.6 25.9 25.6

78 37 24 17 45 4,594

Source: Thomson Financial Securities Data

* Figures may not add up, as more than one bank typically obtains credit for any one transaction.

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TOP MERGERS AND ACQUISITIONS (JULY 1, 2005–JULY 28, 2005) AMERICAS Date Announced

Target Name (Target Advisers)

7/25/05

IVAX (UBS Investment Bank)

US

Teva Pharmaceutical Industries Israel (Credit Suisse First Boston) (Lehman Brothers)

Definitively agreed to acquire manufacturer of organic drugs and medical products.

7.96

7/6/05

PacifiCare Health Systems (Morgan Stanley) (MTS Health Partners)

US

UnitedHealth (Citigroup) (Banc of America Securities) (Goldman Sachs) (JPMorgan)

Agreed to merge with provider of hospital and medical plan services, in a stock-swap transaction.

7.36

7/10/05

IMS Health (UBS Investment Bank) (Gleacher Partners)

US

VNU Netherlands Merged with provider of information (Credit Suisse First Boston) services to the healthcare industry, in a (Deutsche Bank) stock-swap transaction. (Evercore Partners) (ABN AMRO)

6.92

7/19/05

Bavaria Colombia (Lehman Brothers) (Morgan Stanley) (Citigroup)

SABMiller (Merrill Lynch) (JPMorgan Cazenove)

UK

Agreed to acquire a 71.8% interest in beverage producer and planned to launch a tender offer for the remaining 28.2%.

4.22

7/26/05

General Motors Acceptance

US

Bank of America

US

Agreed to acquire $55 billion of retail auto loans from unit of General Motors.

3.85

7/17/05

Maytag (Lazard)

US

Whirlpool (Greenhill)

US

Unsolicited challenging offer to acquire manufacturer of household appliances, in a stock-swap transaction.

2.34

7/12/05

Hudson United Bancorp (Keefe Bruyette & Woods)

US

TD Banknorth (Lehman Brothers) (Goldman Sachs)

US

Definitively agreed to merge with New Jersey-based bank, in a stock-swap transaction.

1.93

7/26/05

Cendant’s marketing US services division (Banc of America Securities) (Credit Suisse First Boston) (Harris Nesbitt)

Affinity Acquisition Holdings (Deutsche Bank)

US

Unit of Apollo Advisors definitively agreed to acquire division of real-estate agency.

1.83

7/26/05

Retevision Movil (Merrill Lynch)

Spain

France Telecom (BNP Paribas)

France

Agreed to acquire an 80% interest in provider of wireless telecom services; includes assumption of $2.41 billion in liabilities.

10.74

7/22/05

BPB (Rothschild)

UK

Cie de Saint-Gobain (UBS Investment Bank) (BNP Paribas)

France

Planned to launch an unsolicited tender offer for manufacturer of lightweight building products.

6.60

7/4/05

Turk Telekomunikasyon (Rothschild) (BNP Paribas)

Turkey

Oger Telecom (Morgan Stanley) (Citigroup)

Turkey

Agreed to acquire a 55% interest in state-owned telecom services provider.

6.55

7/18/05

Banca Nazionale del Lavoro (Rothschild) (Mediobanca) (JPMorgan)

Italy

Unipol Assicurazioni (Nomura Securities) (Credit Suisse First Boston) (Deutsche Bank) (Vitale & Associati)

Italy

Planned to launch a challenging mandatory tender offer to acquire the remaining 59% interest which it did not already own.

5.94

7/18/05

Banca Nazionale del Lavoro (JPMorgan) (Rothschild) (Mediobanca)

Italy

Unipol Assicurazioni (Nomura Securities) (Credit Suisse First Boston) (Deutsche Bank) (Vitale & Associati)

Italy

Raised its stake to 41% from 13.5%; subsequently launched a tender offer to acquire the remaining interest.

2.77

7/4/05

Unilin Holding (Goldman Sachs)

Belgium

Mohawk Industries (Lehman Brothers)

US

Definitively agreed to acquire manufacturer of wood-based and laminated panels and flooring products.

2.65

7/13/05

Nileg Immobilien Holding (Drueker)

Germany

Fortress Investment (Sal Oppenheim Jr.)

US

Acquired real-estate development firm from NordLB, in leveraged buyout.

1.81

7/5/05

FinecoGroup (Rothschild) (Morgan Stanley)

Italy

Capitalia (Lehman Brothers) (MCC)

Italy

Planned to acquire the remaining 53.7% interest which it did not already own in bank.

1.57

7/5/05

Priory Healthcare (Rothschild)

UK

ABN AMRO Holding

Netherlands Agreed to acquire provider of mental healthcare, in a secondary buyout.

7/19/05

Mather & Platt Pumps

India

Wilo (SBI Capital Markets)

Germany

Planned to launch a mandatory tender offer to raise its interest to 82.67% by acquiring a 20% stake.

4.65

7/25/05

World (E&Y Transaction Advisory Services) (Deloitte Tohmatsu)

Japan

Harbor Holding Alpha (Nomura Securities) (GCA)

Japan

Planned to launch a tender offer to acquire manufacturer of women’s clothing, in a management buyout.

1.65

Country

Acquirer Name (Acquirer Advisers)

Country

US

Ranked Value ($billion)

Description

EUROPE

1.53

ASIA

Source: Thomson Financial Securities Data 2 0 0 5

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US HIGH-YIELD NEW-ISSUANCE VOLUME

SunGard Sells $3 Billion In Biggest Deal in Years

20 18 2004

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Software provider SunGard Data Systems sold $3 billion in notes on July 27 in a three-part offering that was the largest issue in the highyield debt market in more than six years. Wayne, Pennsylvania-based SunGard originally intended to issue $1.25 billion of notes as part of the financing for the largest leveraged buyout since the RJR Nabisco takeover in 1989. In light of strong demand from yield-hungry investors, however, the intended issue was increased to $2 billion. Hours after the $2 billion of fixed- and floating-rate notes were priced, SunGard returned quickly to the market for another $1 billion of 10-year senior subordinated notes, which were priced to yield 10.25%. Deutsche Bank, Citigroup, JPMorgan, Goldman Sachs, Morgan Stanley and Banc of America Securities managed the sales. SunGard and seven private-equity groups led by Silver Lake Partners moved up the offerings by a day to

take advantage of favorable market conditions. SunGard’s $11.3 billion leveraged buyout, which was agreed to in March, was the largest LBO ever of a technology company. SunGard said shareholders approved the buyout on July 28.

2005

14

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Dealers Expect US Rates To Rise

Source: KDP Investment Advisors

US interest rates are expected to rise modestly over the next six months, according to a survey of primary dealers released by the Bond Market Association on July 28. “Although interest rates are still relatively low, we expect rates will rise modestly over the next quarters, as consistent with the current environment of sustained US economic growth,” says Micah S. Green, president of the association. Survey respondents expect the treasury yield curve to continue to flatten but do not forecast longterm rates to surpass shortterm rates.

“A flat yield curve is consistent with other periods in which the Federal Open Market Committee raised the target federal funds rate,” Green says.“The shape of the yield curve, especially at the long end, reflects subdued inflationary expectations, Federal Reserve credibility in the marketplace and foreign investor demand for US treasury securities,” he says. The shift in China’s currency policy injects a new source of uncertainty into the outlook that, along with restrained global investment and high energy costs, could affect the neutral level of

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Mar

Apr

May

TOP US HIGH-YIELD ISSUES IN JULY 2005 Issuer

Offer Date Coupon %

SunGard Data Systems L-3 Communications Holdings SunGard Data Systems SunGard Data Systems Quicksilver Mylan Laboratories CCM Merger Ashtead Holdings Clayton Williams Energy FTI Consulting Grant Prideco Methanex Mylan Laboratories

7/27/05 7/27/05 7/27/05 7/27/05 7/14/05 7/14/05 7/14/05 7/21/05 7/14/05 7/28/05 7/14/05 7/28/05 7/14/05

Source: KDP Investment Advisors 4 4

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9.125 6.375 10.250 6.875 6.375 8.000 8.625 7.750 7.625 6.125 6.000 5.750

Issue Type Senior Notes Sr.Sub.Notes Sr.Sub.Notes Floating-Rate Notes Senior Notes Senior Notes Senior Notes Senior Notes Senior Notes Senior Notes Senior Notes Senior Notes Senior Notes

Maturity Date Private/Public Amount ($mil) 8/15/13 10/15/15 8/15/15 8/15/13 4/15/15 8/15/15 8/1/13 8/1/15 8/1/13 6/15/13 8/15/15 8/15/15 8/15/10

144A 144A 144A 144A 144A 144A 144A 144A 144A 144A 144A 144A 144A

1,600 1,000 1,000 400 400 350 300 250 225 200 200 150 150

Jun

Jul Aug

Sep

Oct

Nov

Dec

rates, according to Christopher Wiegand, economist at Citigroup Global Markets in New York. The knee-jerk reaction to China’s policy shift on the yuan seems somewhat overdone, he says, but should the dollar start to wobble or market participants become concerned about the future pace of capital inflows to the US, yields in the longer end of the market would rise. “Chances remain good that, unless underlying inflation accelerates or financial conditions prove more resistant to Fed action, tightening is in its final chapter and the funds rate will peak at 4%,”Wiegand says. Meanwhile, the US fiscal balance continues to improve, as rising corporate profits and economic growth lead to higher tax revenues. The ongoing upturn in receipts is pushing the ratio of revenue to gross domestic product toward its long-term norm of about 18%,Wiegand says. —Gordon Platt

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Global IPO Volume Stronger Than Last Year

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The Royal Dutch Shell Class-A and Class-B ADR programs combined now represent the largest company in The Bank of New York’s ADR Index. Xinhua Financial, Hong Kong-based provider of information on China’s financial markets, selected Bank of New York as depositary for its Level-1 ADR program.The ADRs trade on the over-thecounter market, and the ordinary shares are listed on the Mothers section of the Tokyo Stock Exchange. JPMorgan Chase was named successor depositary for the Level-1 ADR program of Rio Tinto Ltd., whose shares trade on the Australian Stock Exchange. Earlier this year, the bank was appointed successor depositary for UK-based Rio Tinto Plc, the secondlargest mining company in the world, for its New York Stock Exchange-listed ADR program.That program backs Rio Tinto’s ordinary shares listed on the London Stock Exchange. —Gordon Platt

network in Central and Eastern Europe. PartyGaming operates an online poker site. In the US market, IPOs in the retail industry had the best performance in the second quarter, led by Everett, Washington-based Zumiez, which rose 69% from its May 5 debut, according to Thomson Financial. Zumiez sells sports-related apparel and equipment and allows customers to design their own skateboards online. SK, South Korea’s largest oil refiner, sold $1 billion of SK Telecom stock on August 3, to repay holders of convertible securities.The company sold 47.9 million American depositary receipts of its mobile-phone unit for $21.40 each. Meanwhile, Bank of New York said Royal Dutch Shell selected it as depositary for its Class-B ADR program. The Class-B shares are the result of the unification of UK-based Shell Transport and Trading and Royal Dutch Petroleum of the Netherlands.

market volume so far in 2005, up from 22% in the same period last year, Dealogic says. The value of deals arranged by CSFB so far this year is nearly double the $3.62 billion total from the 22 deals it handled in the year-earlier period. Russian companies returned to the market in the second quarter, with two IPOs generating more than $1 billion of proceeds, according to Thomson Financial. Discount food retailer Pyaterochka raised $598 million, and steel and mining industrial group Evraz raised $485 million. The biggest IPOs in the second quarter were UK-based PartyGaming’s €1.3 billion issue and Raiffeisen International’s €968 million, which was the largest-ever Austrian IPO. Raiffeisen has an extensive banking

REGIONAL ADR INDEXES 180 Latin America

Europe

Asia

160

140

120

100

Jul 31, 2005

Jul 1, 2005

Jul 15, 2005

Jun 3, 2005

Jun 17, 2005

May 6, 2005

May 20, 2005

Apr 8, 2005

Apr 22, 2005

Mar 11, 2005

Mar 25, 2005

Feb 11, 2005

Feb 25, 2005

Jan 14, 2005

Jan 28, 2005

Dec 31, 2004

Dec 3, 2004

Dec 17, 2004

Nov 5, 2004

Nov 20, 2004

Oct 8, 2004

Oct 22, 2004

Sep 10, 2004

Sep 24, 2004

Aug 27, 2004

Jul 31, 2004

80 Aug 13, 2004

The volume of initial public offerings worldwide this year is running ahead of last year’s pace, with Credit Suisse First Boston climbing to the top of the global IPO league tables, according to Dealogic. In the period from January 1 through August 3, 2005, global IPO volume reached $83.2 billion, an increase of 14% from the same period of last year, while the number of deals rose to 896 this year from 750 a year earlier, Dealogic says. CSFB, which plans to drop “First Boston” from its name on January 1, 2006, rose from number-six position last year to claim the lead in the year-to-date running, with a deal value of $6.88 billion from 31 issues. Zurich-based Credit Suisse says the new brand name will be used on all CSFB sites, along with a logo featuring two sails. This will coincide with the combination of the New York-based investment bank with the group’s retail and private banking business. Goldman Sachs held onto its second-place position in the global IPO league tables, with a total of $6.44 billion from 28 issues so far this year. Last year’s leader Morgan Stanley slipped to number three, with $6.12 billion, according to Dealogic. UBS and Merrill Lynch filled out the top five positions for 2005. IPO volume represents 28% of all equity capital

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China’s Revaluation: Baby Step or Great Leap? China’s modest revaluation of slightly more than 2% in the value of the yuan against the dollar was either a baby step or a giant leap forward, analysts say. The adjustment in the pegged value of the yuan to 8.11 from 8.28 to the dollar was accompanied by a move to a managed float against a basket of currencies, but many details of the central bank’s new policy went undisclosed. While a 2% revaluation of China’s currency isn’t going to eliminate the US trade deficit, analysts say, the possibility of a regime change in the country’s foreign exchange policy could introduce the flexibility and additional appreciation of the yuan that will add up to something very significant in the long run. The People’s Bank of China has not published, and will not publish, the components of the currency basket, but analysts surmise it will include the currencies of countries with which China does most of its trade. “Our best guess is that the currency basket may give the US dollar the highest weighting of 45%, as it includes the trade weights of both the US and Hong Kong and reflects the intention of the authorities to initially maintain relative stability of the yuan against the dollar,” says Michael Spencer, chief economist for Deutsche Bank in Asia, who is based in Hong Kong. “This is deemed necessary 4 6

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to control speculation and to ease domestic opposition to currency reform, especially during a transition period when foreign exchange hedging products are not readily available for most importers and exporters,” Spencer says. The formation of a currency basket should have no immediate impact on the currency composition of China’s foreign exchange reserves, Spencer says. But to the extent that the Chinese currency’s flexibility has triggered a new downtrend in the dollar, this could affect China’s assessment of the profitability of holding dollar reserves and weaken the argument for holding dollar assets, he says. Deutsche Bank forecasts a 5% appreciation of the yuan in the next 12 months, on top of the initial 2% move.

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The governor of the People’s Bank of China, Zhou Xiaochuan, said the 2.1% revaluation of the yuan to 8.11 to the dollar on July 21 was an initial step and that the central bank would adopt a gradual approach to reform the country’s foreign exchange system. “China’s overall buying power has increased, the currency is stronger and has more value,” he said on state television two days after the change was announced. “The positive effects on the economy will be much greater than the negative effects,” he said. China’s export companies should probably increase their prices, which would help to correct imbalances in global trade in an orderly way, he suggested, although this was not likely to have a major impact on the US trade deficit. Globalization and the integration of emerging markets into the global economy have resulted in

SAMPLE CURRENCY BASKET FOR CHINESE YUAN British Pound

3%

Singapore Dollar

4%

Australian Dollar

3%

South Korean Won

10%

Japanese Yen

15% US Dollar

45%

Euro

20% Source: Deutsche Bank

rapid increases in their share of world trade and their importance in determining the real trade-weighted value of the major currencies, says Bankim Chadha, global head of macro foreign exchange research at Deutsche Bank in New York. The share of emerging markets in US trade has doubled from 25% in the early 1970s to almost 50% now.The real values of emerging market currencies, therefore, now determine almost half the real value of the dollar on a broad, tradeweighted basis, which is the most relevant measure of the exchange rate for gauging prospects for US trade flows and the current account, Chadha says. The extent of the US external imbalance argues for a dollar well below historic averages to affect external adjustment, Chadha says. Thus, even significant appreciation of emergingmarket currencies of about 12% against the dollar should be expected to have only a modest impact on the US external balance, he says, since this would only bring these currencies to around their historic averages. Speculators seem to be pouring money into China, keeping the yuan under upward pressure against the dollar, says Carl B.Weinberg, chief economist at High Frequency Economics, based in Valhalla, New York. Weinberg says that the Chinese government is not prepared to say how it will set the exchange rate or how often it will adjust the reference rate or even how it will intervene if market trading moves the currency more than 0.3% away from

the pegged level. The reference for the peg can be defined using any of several currencies on a given day,Weinberg says. While the Chinese central bank says that the market should not expect another revaluation to come quickly, if at all,Weinberg says, “We see no merit to a one-time 2% revaluation. In effect, it is merely an extension of the old currency regime at a different level for the exchange rate.” If the People’s Bank of China does change the peg again, it will try to surprise the market,Weinberg says. “However, even one more revaluation will prompt a flood of speculation about the timing of the third, fourth and fifth adjustments of the peg,” he says. Meanwhile, China’s foreign exchange reserves jumped another $52 billion in the three months to June, to a new record high of $711 billion.While that’s still below Japan’s $843 billion, the gap is narrowing fast, say analysts at Brown Brothers Harriman in New York. If China’s reserve growth continues at this pace, they say, China will be the world’s largest holder of foreign exchange reserves by early 2006. China’s top planning body, the National Development and Reform Commission, said the yuan revaluation will cut exports and employment in the near term and that the government would have to act to counter this negative influence. The State-Owned Assets Supervision Commission said that China’s economic growth could slow for the full year 2005 to 9% from

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9.5% in the first half. It added that rising costs are crimping profits for steel makers and other users of imported raw materials. “We don’t put much weight on these forecasts of doom, at least not revaluation-linked doom,” says Anne Mills, director of currency research at Brown Brothers Harriman. “Chinese exports have an import content of over 50%, which makes a 2% revaluation more like a 1% move, hardly enough to have any impact,” she says.“Profit margins are a more serious issue.” China’s currency move has ramifications for all of the financial markets, says Kathy Lee, chief strategist of Forex Capital Markets, a New York-based online foreign exchange agency trading service aimed at middle-market hedge funds and financial institutions. “As the world’s secondlargest holder of US treasury securities, China will have a reduced need to buy treasuries and this could potentially take away a big buyer from the market,” Lee says.“If this is the case, it will cause bond prices to slide and long-term yields to rally, which could offset some of the additional pressure on the Federal Reserve to continue raising rates,” she explains. “If China even begins to dump US treasuries, we could see the yield-curve conundrum [in which long rates have remained stuck while short-term rates have risen] begin to fix itself,” Lee says. The decreased demand for US treasuries and the possibility of increased demand for other currencies such as euros

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G

CURRENCY FORECASTS 1.0

Euro (Euro/US$)

0.9 0.8 0.7 0.6

Forecast

Source: The Bank of New York A

S

O

N

D

J

F

M A

2004

M J

J

A

S

O

N D

J

F

M

2005

140

A

M

J

J

J

J

J

J

M

J

J

M

J

J

M

J

J

M

J

J

2006

Japan (Yen/US$)

120 100 80

Source: The Bank of New York

Forecast

60 A

S

O

N

D

J

F

M A

2004

M J

J

A

S

O

N D

J

F

M

2005

A

M

2006

0.7

UK (Pound/US$) 0.6

0.5

Forecast

Source: The Bank of New York 0.4 A

S

O

N

D

J

F

M A

2004

M J

J

A

S

O

N D

J

F

M

2005

A

M

2006

1.6

Switzerland (Franc/US$)

1.4 1.2 1.0 0.8

Forecast

Source: Deutsche Bank A

S

O

N

D

J

F

M A

2004

M J

J

A

S

O

N D

J

F

M

2005

A 2006

1.6

Canada (C$/US$) 1.4

1.2

1.0

Forecast

Source: The Bank of New York A

S

O

N

D

J

F

M A

2004

M J

J

A

S

O

N D

J

F

M

2005

14

A 2006

Mexico (Peso/US$)

12

10

Forecast

Source: The Bank of New York 8 A

S

O

N

D

J

F

M A

2004

M J

J

A

S

O

N D

J

F

M

2005

4.0

A 2006

Brazil (Real/US$)

3.5 3.0 2.5

Forecast

Source: Deutsche Bank 2.0 A

S

O 2004

N

D

J

F

M A

M J

J

A

S

2005

2 0 0 5

O

N D

J

F

M

A 2006

S E P T E M B E R

4 7


G

L O B A L

GF

persistent macroeconomic imbalances within the Chinese economy,” he says. Very strong investment in China continues to drive growth, Alexander explains, and major bottlenecks in energy and transportation infrastructure are generating inflation pressures. “The desire to divert growing protectionist pressures may have also played a role in China’s decision,” he says. If the impact of the yuan appreciation on China’s exports and on its economy proves to be relatively modest, Chinese officials will likely be encouraged to accelerate the pace of currency appreciation, according to Alexander. “Given the modest prospects for exchange-rate

and Japanese yen could be very negative for the dollar, according to Lee.The yen benefited from the revaluation, which made Japanese goods more competitive on a relative basis against Chinese goods, she says. Malaysia followed suit immediately by scrapping its own ringgit peg and also adopting a managed float. While the initial effects of China’s currency change are likely to be modest, it marks the beginning of an exchange-rate adjustment that will likely contribute to containing global imbalances in the long run, says Lewis Alexander, chief global economist at Citigroup. “One of the motivating factors behind the decision was the need to contain

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Democrat from New York, and Sen. Lindsey Graham, Republican of North Carolina, the leading trade protectionists in the Senate, said that what China did in July was a good first baby step, but more needs to be done. If not, the severe Schumer-Graham bill to impose 27.5% tariffs on China will go to a floor vote in the Senate in October and very likely win the backing of a majority, in not just the Senate but the House, forcing a presidential veto and possibly an override, Gilmore says. “For China, allowing the yuan to rise another 2% by the fall is a small price to pay for avoiding a costly round of trade sanctions,” Gilmore says. —Gordon Platt

adjustment in the near term, we expect the US current account deficit will continue to widen, rising above 7% of gross domestic product in 2006,” he says. By stating their intention to manage their currency relative to a basket of currencies, Chinese officials are probably signaling their willingness to allow the yuan to appreciate relative to the dollar if other currencies, such as the yen and the euro, are again pushed higher, Alexander says. Meanwhile, in Washington, legislators are growing more restless, says David Gilmore, economist and partner at Essex, Connecticut-based Foreign Exchange Analytics. Sen. Charles E. Schumer,

CURRENCY FORECASTS 1.6

1600

Australia (A$/US$)

South Korea (Won/US$)

1400

1.4 1200

1.2 1000

Forecast

Source: The Bank of New York 1.0

800

A

S

O

N

D

J

F

M

A

2004

M J

J

A

S

O

N

D J

F

M

2005

A

M

J

J

S

2006

O

N

D

J

F

M

A

2004

9.0

M J

J

A

S

O

N

D J

F

M

2005

A

M

J

J

J

J

2006

1.8

China (Yuan/US$)

8.5

Forecast


Turkey (Million Lira/US$) 1.6

8.0

1.4 7.5 7.0

Forecast


S

O 2004

N

D

J

F

M

A

M J

J

A

2005

S

O

N

D J

F

M

A

M

1.2 J

J

2006

Everything you need to know about Foreign Exchange Services fits on a business card. We Should Talk.

Forecast


S

O 2004

N

D

J

F

M

A

M J

J

A

S

2005

O

N

D J

F

M

A

M

2006

Robert Ryan New York (212) 804-2260

Kazuma Yamashita Tokyo 81-3-3595-0343

James McAuliffe London 44-207-570-6680

Joe Fong Hong Kong 852-2-840-9880

www.bankofny.com

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