Global Finance (May 2005)

REGIONAL REPORT: CENTRAL & EASTERN EUROPE PAGE 14

SOFTWARE HELPS COUNTRY REPORT: COMPANIES TRIM COST CYPRUS SETS SIGHTS OF COMPLIANCE PAGE 20 ON EURO ENTRY PAGE 22

2005 WORLD’S BEST EMERGING MARKET BANKS

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BIG THAW Investing in Russia is only for the brave. But when the country’s frosty investment climate warms up, it will, yet again, be the place to be.

CONTENTS

COVER STORY 8 Russia: Only For The Brave

MAY 2005 | VOL.19 NO.5

COVER STORY BY MARK LEHANE

The stakes are high, and so are the risks. So why are multinationals still buying into the Russia story?

REGULARS 2

A letter from the editor.

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FEATURES 14 Regional Report: Central and Eastern Europe

Newsmakers US treasury secretary John Snow says the time has come for China to float the yuan; and Belgian finance minister Didier Reynders offers the country’s difficult-tocollect tax receivables as an investment

ENTRY STRATEGY BY JONATHAN GREGSON

Prospective future entrants to the EU have been watching with interest the progress of the 10 countries that joined the union a year ago.

20 Financial Software: Compliance

Dear Reader

product.

5 SOFTWARE SOLUTIONS: BY ADAM ROMBEL

Companies are finding that software can help them rein in the high costs and disruption caused by complying with new regulations.

Milestones Lehman Brothers beefs up its presence in the burgeoning hedge-fund industry; and London asserts its position as the listing location of choice for Russian and Kazakh companies.

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

22 Country Report: Cyprus As its economy continues to grow, Cyprus is hoping to take advantage of its strategic position between Europe and the burgeoning markets of the Middle East and Africa.

24 The World’s Best Emerging Market Banks, 2005 Our 12th annual survey of the world’s best emerging market banks honors those banks that consistently provide excellent service and security in oftentumultuous markets.

COUNTRY REPORT: CYPRUS BY LAURENCE NEVILLE

19 EM Investor Key information for investors in emerging markets.

65 Focus: Corporate Debt AWARDS: WORLD’S BEST EMERGING MARKET BANKS BY GORDON PLATT, LAURENCE NEVILLE, PAULA L. GREEN AND SANTIAGO FITTIPALDI

As General Motors and Ford Motor flirt with high-yield status, some investors find the returns attractive.

68 Foreign Exchange Analysts say outlook could worsen for dollar as current-account deficit becomes ingrained.

70 Global Equity/DRs

60 Roundtable: Treasury and Cash Management We brought together some of the industry’s leading players to discuss recent developments in the cash management industry. Joseph Giarraputo moderated the discussion.

ROUNDTABLE: TREASURY AND CASH MANAGEMENT

Companies issuing global depositary receipts prepare for the EU’s new prospectus rules.

71 Mergers & Acquisitions Once fierce competitors, private equity firms are working together to pursue bigger targets. 2 0 0 5

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MAY 2005 | VOL.19 NO.5

Putin’s Dangerous Game REGIONAL REPORT: CENTRAL & EASTERN EUROPE PAGE 14

SOFTWARE HELPS COUNTRY REPORT: COMPANIES TRIM COST CYPRUS SETS SIGHTS OF COMPLIANCE PAGE 20 ON EURO ENTRY PAGE 22

2005 WORLD’S BEST EMERGING MARKET BANKS

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BIG THAW Investing in Russia is only for the brave. But when the country’s frosty investment climate warms up, it will, yet again, be the place to be.

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hat a difference two years can make. As we find out in our cover story this month (see page 8), the currently frosty investment climate in Russia is showing no signs of warming up any time soon. President Putin’s Kremlin is becoming, if anything, more interventionist, prompting foreign and domestic companies alike to review their plans for investing in Russia’s markets. All this is a far cry from spring two years ago, when this magazine was confident that Russia had become—finally—a “safe” place to do business. Back then, the country was eagerly anticipating a flood of new foreign investment, prompted by a conviction that Putin’s government had succeeded in creating a fair, transparent business environment. Then came the so-called Yukos affair, which marked the start of the country’s slide down a long, slippery slope.What looked initially like an isolated, politically inspired tussle now appears to be part of a much bigger plan to bring much of Russia’s business world back under, or at least close to, state control. Putin is said to have assured investors that he has no plans to revisit privatizations that took place more than three years ago, but for many nervous investors that provides little comfort. The Russian president may have perfectly good reasons for his apparent crackdown on big business, but the impact of his hard-line approach could hardly be clearer. During 2004, the year that optimistic Russia-watchers had predicted would see the return to Russia of large amounts of flight capital, official statistics show that money was leaving the country at an average rate of more than $21 million per day. That money—almost $8 billion in 2004—has to go somewhere. In a world where emerging markets investors are often spoilt for choice and where capital flows can be capricious, Russia’s leader is playing a dangerous game. Until next month,

Dan Keeler [email protected]

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

EDITOR: DAN KEELER CONTRIBUTING WRITERS: GORDON W. PLATT, JR., JONATHAN GREGSON, ADAM ROMBEL PAULA L. GREEN, AARON CHAZE, THOMAS CLOUSE, KIM ISKYAN, LAURENCE NEVILLE, SANTIAGO FITTIPALDI 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, Malaysia, 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. 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 May 2005, Volume 19, Number 5. Global Finance (ISSN 0896-4181/USPS 006-578) 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: 1-212447-7750. E-mail: [email protected]. London editorial office: The Associated Press Building, 12 Norwich Street, London EC4A 1QU, UK. Telephone: (44-207) 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)447-7900 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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SNOW SAYS THE TIME HAS COME FOR CHINA TO FLOAT YUAN

GOVERNMENT TO SECURITIZE UNCOLLECTED TAX DEBT

S treasury secretary John Snow appears to be losing patience with China’s foot-dragging on moving to a flexible currency system. For years now, China has argued that its undeveloped financial system was too weak to sustain the potential shock of a freefloating currency, but Snow is having none of it. Following a meeting of Group of Seven finance ministers in Washington last month, Snow told a press conference that Beijing had made enough progress in preparing for the move and that now is the time to act. “China has taken numerous steps over the last few years, including preparing for greater flexibility in its

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exchange rate, introducing foreign exchange market products and strengthening banks and bank supervision,” Snow said. “It’s time to take the next step and move toward more currency flexibility,” he said. Canadian finance minister Ralph Goodale reinforced Snow’s remarks by saying that “China should understand that there’s a freight train coming” in the form of US and EU trade restrictions. Analysts doubt, however, that China will revalue or float its currency in response to foreign pressure. Further capital-account liberalization is an essential precursor to a revaluation of the yuan, says Mike Newton, global head of emerging market foreign exchange strategy at HSBC in New York. “We think that the US administration wants to be seen to be pressuring China for domestic reasons but does not want to create political tensions that might undermine cooperation over security issues or progress on intellectual property rights,” Newton says. “Furthermore, with China and Japan trading barbs over issues that stem from a time when China was under occupation, the idea that the PRC will think this is a good moment to give in to foreign pressure on the currency is ludicrous,” he says. —Gordon Platt

Belgium has discovered a new asset class for securitization: the government’s uncollected tax debt. Finance minister Didier Reynders says it is feasible for Belgium to offer the country’s difficult-to-collect tax receivables as an investment product on the financial markets on a regular basis to help meet its fiscal goals. The government has hired NautaDutilh, a NetherlandsDidier Reynders: Aiming to trim deficit based international law firm, to assist with the first securitization of its outstanding unpaid taxes. JPMorgan Chase was appointed as financial adviser on the trial project, with the placement of securities scheduled for later this year. Reynders says the first securitization will raise about $340 million and will require that an additional $52 million be invested to improve the government’s ability to collect the debt. In addition to taking on the risk of not being able to collect the taxes due, the investor must be willing to invest in strengthening the tax authority. This will be the first time that securitization of tax debts has been tried in Belgium. Portugal used a similar procedure to collect about 15% of its outstanding unpaid tax revenues in 2003. The Portuguese program followed an earlier securitization of social security claims by Italy. The Belgian government plans to use the net proceeds from the securitizations of unpaid taxes, and from a campaign to stamp out tax fraud, to enable it to ease the tax burden on working people. The government aims to maintain a balanced budget this year as required by the Stability and Growth Pact. Belgium is slowly reducing its debt ratio, which currently stands at a still-high 96% of gross domestic product. The government’s long-range budget program seeks to reduce the fiscal deficit and secure future financing for the social security and welfare systems in the face of an aging population. —GP

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LEHMAN BEEFS UP PRESENCE IN HEDGE FUND INDUSTRY Why are investment banks buying into hedge funds? To paraphrase bank robber Willie Sutton, “Because that’s where the money is.” Lehman Brothers last month paid an undisclosed sum for a 20% stake in Ospraie, a hedge fund that manages about $2 billion and invests in basic industries and commodities. Lehman is no stranger to the hedge fund business. It already held 20% of GLG Partners, a British hedge fund in which it was seeking to increase its stake. In January Lehman announced plans to launch a series of hedge fund indexes based on the

HedgeFund.net database owned by Channel Capital. A leading bond-index provider, Lehman says the addition of hedge fund benchmarks will provide investors with new performance measures for this quickly growing market segment. With its Ospraie holding, Lehman will have access to new investment opportunities started by the hedge fund. For its part, Ospraie will gain better access to Lehman’s prime-brokerage business, which lends money to hedge funds to leverage their investments. With pension funds and other institutional investors

pouring money into hedge funds, the industry is being stretched and needs help in meeting the fast-growing demand. The investment bankers, meanwhile, need to find outlets for their talented traders, who might otherwise jump ship and start funds of their own. In order to attract the business of hedge funds, which now manage $1 trillion in assets, Wall Street firms have invested heavily in the technology needed to interact efficiently with a wide range of markets. They need the volume to support their clearing and technology services that enable hedge

funds to get into and out of positions quickly. Lehman, which has long been known for its fixedincome capabilities, also will gain the opportunity to continue its expansion into equity trading. —GP

Richard Fuld, Lehman’s CEO

CIS

RUSSIAN AND KAZAKH COMPANIES HEED LONDON’S CALL London-bound: The city’s appeal is growing

Russian and other CIS-based companies overwhelmingly select the London Stock Exchange as the favorite foreign destination for raising equity capital, according to a study by Ernst & Young. The LSE and its growth market, known as the Alternative Investment Market, or AIM, accounted for two-thirds of all equity placements and 41% of the cash raised by CIS companies in the three years ended last December, the study says.

Companies are attracted by good demand for initial public offerings in London, as well as lower compliance costs than in the US, says Mark Jarvis, managing partner for client service and accounts at Ernst & Young, a global audit and consulting firm that employs 1,880 people in its 13 offices in the CIS countries. And, of course, London is much closer geographically than New York or Toronto, he says. “It is clear that the LSE will remain the key exchange for CIS companies in the next few years,” Jarvis says. “For 2005 this is already an easy guess, considering that [Russia-based mobile-phone conglomerate] Sistema received over $1.3 billion in its LSE placement this year,” he says. According to the LSE, its members traded $64 billion of Russian stocks in 2004, a 76% increase from 2003. “A typical London placement for the region is a company registered in the UK, holding stakes in two or three CIS oil or metals-mining projects and co-managed by reputable Western directors,” says Vladimir Merkushev, research director for the CIS at Ernst & Young. While energy and mining will remain important, the study says consumer and financial companies will increasingly list CIS-registered companies in the next few years. Banks last year replaced energy companies as the major borrowers on the eurobond market in the CIS. —GP

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The Bank of New York’s EEMEA Conference Draws Record Attendance Not far from the ancient Via Maris, a route used for thousands of years by traders and travelers, EEMEA issuers met to discuss trade of a more modern sort. ith the Red Sea to the south and the Mount Sinai mountain range to the north, Sharm el-Sheikh, at the southern tip of the Sinai peninsula in Egypt, was the setting for The Bank of New York’s seventh annual international debt and equity conference for Emerging Europe, Middle East and Africa (EEMEA) issuers.This year’s conference drew a record 165 attendees from 22 countries, among them 20 current American and global depositar y receipt (DR) issuers and more than two dozen international debt issuers. What they heard from the Bank of New York’s Anthony Moro, vice president and head of DR marketing,had to make them happy. EEMEA has 347 DR issues from more than 275 companies in 25 countries.These companies have a total market capitalization of $1.8 trillion, and their DR market capitalization is over $58 billion. Moro reported that 2004 was a great year for DR issuers:The Bank of New York’s Emerging Market ADR index increased by 18.1%,double the return on the S&P 500 index.The 2004 return on the MSCI Emerging Europe and Middle East Index was even stronger at 35.8%. The two-day Conference was structured to help the region’s leading companies focus on improving their investor relations efforts and corporate governance procedures while making themselves more attractive to international investors. The Conference’s format allowed participants the opportunity to learn from each other and a select group of advisors in an informal but

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intensive setting. “The EEMEA region is geographically large and diverse and issuers from Poland,for instance, do not often have the opportunity to speak to and learn from issuers in South Africa”said Moro.

Corporate Governance and Regulation The US Sarbanes-Oxley Act of 2002 has had significant ramifications for DR issuers and their advisers, and there seemed to be no question among attendees at the conference that satisfying the Act’s requirements has cost foreign issuers in the US considerable time and money—most of it due to compliance with Section 404 of the Act. Section 404 was designed to ensure that a company’s internal control processes are up to standard. However, many issuers who commented on the subject thought the benefits of listing in the US were, for various reasons, worth the costs of complying with Section 404. According to Thomas Martin, a director at PricewaterhouseCoopers in South Africa,“Better internal controls lead to better information, which can lead to quicker and better decision making.” David Haddon general counsel and secretary of South Africa’s Randgold Resources, said.“ The vast majority of the gold bulls are in North America, and that means Randgold must be listed there.” Nik Jhangiani, CFO of Athensbased Coca-Cola HBC, said,“We needed to drive our visibility within the beverage sector, as we just were not being appropriately valued, and

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all of our peer group was listed in the US.This has to date been extremely successful. In addition, our listing enabled us to access the US debt capital markets at more attractive funding rates.” However, many Camille Abousleiman of Dewey Ballantine potential US issuers are still wary, and their advisers are telling them their caution is well founded.Camille Abousleiman, a London partner at Dewey Ballantine, said, “Because of the personal liabilities of the CEO and the CFO under Sarbanes Oxley, we would recommend US listings for foreign companies only in limited circumstances,where such foreign companies have implemented the necessary internal control systems and procedures and where there is a compelling market reason to be listed in the United States.” But PWC’s Martin said it would be short-sighted to avoid the US to dodge SarbanesOxley because “within three to five years there could be a corporate governance mandate in Europe Ibrahim Abdel of MTC that was similar in many ways to Sarbanes Oxley—but hopefully takes into consideration the experience of the US Act.”

A huge pool of capital and a new exchange to tap it. Fadi Ghosaini, managing director and head of business development for the new Dubai International Financial Exchange (DIFX), presented many participants with their first look at the new exchange. For years,money has been flowing to the Gulf States to pay for hydrocarbons.The flow has become a gusher in

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the latest round of oil-price increases.And the outlook is for more of the same.The Bank of NewYork’s Simon Derrick,head of the bank’s currency research group, said,“Over the course of the next decade, if India and China continue their growth, you could expect energy prices to remain relatively high and large sums of capital to continue to flow into the Middle East.” The DIFX says it will provide an Nik Jhangiani of CCHBC exchange built to international standards where this pool can be accessed directly. Issuers at the conference were enthusiastic yet somewhat prudent about the new exchange. Randgold’s Haddon said,“I think that DIFX's plan is exciting, as it will hopefully provide companies with access to another substantial source of investment capital.” Jhangiani of CCHBC said,“While we believe that the DIFX's plan to launch an international exchange is extremely positive, we would probably not consider a listing today as we are currently listed in Athens,London, New York and Sydney. However, we could always reconsider.” And, said Ibrahim Adel, investor relations manager of Kuwait’s MTC Group,“I find the DIFX story to be very intriguing Simon Derrick of The and potentially Bank of New York compelling. I would recommend that MTC take a very close look at a listing there, but I have to see the final documentation regarding the project. I am impressed by many of the projects undertaken in Dubai.They are gaining a reputation as a destination that delivers on promises,and that is very important.” 20 05

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COVER STORY RUSSIA

BY MARK LEHANE

ONLY FOR THE BRAVE

The stakes are high, and so are the risks. So why are multinationals still buying into the Russia story? he weather outside was sunny; the mood inside anything but. More than 1,000 businessmen, politicos and financiers had gathered in early April in the shadow of London’s Westminster Abbey for their annual gettogether on the state of the Russian economy. In recent years, the talk at the Russia Economic Forum increasingly has centered on the opportunities for making money out of Russia’s booming markets. This year, it was worries about a return to centralization that were top of the agenda. Little wonder:The Yukos affair is nearing its end, with major shareholder Mikhail Khodorkovsky likely to face a long stretch in prison and his company effectively renationalized.A recent decree made it clear that only majority Russianowned companies would be allowed to bid for key oil fields. April brought more bad news for would-be investors in Russia. The government’s anti-cartel body blocked a bid by Siemens of Germany for a 73.5% stake in turbine-maker Siloviye Mashiny. The agency said the move would give Siemens too tight a grip over the turbine market; others pointed

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to the decree passed a week before by the Duma state parliament, which declared a foreign takeover a threat to the country’s national security. Siemens shrugged off its disappointment, but there was little hiding the dismay among the delegates at the London Forum when news filtered through that Anglo-Russian joint venture TNKBP had been hit with a claim for $1 billion in back taxes. For some time now it has been clear that the Kremlin’s approach to Russian economic life was a balancing act between conservatives and liberals; last month’s event seemed clearly to indicate that conservatives were in the ascendant. Putin’s maverick economic adviser Andrei Illarionov described the new orthodoxy as “an interventionist model,” characterized by “extremely incompetent intervention in economic life by state officials.” That new mood has taken its toll, in the form of a falling investment rate and capital outflows. In 2004 some $7.8 billion left the country, according to official statistics. Industries that should be booming are suffering from underinvestment, say analysts. Most worrying are clear signs

of falling production in key oil fields as equipment begins to wear out. The tax bill slapped on TNK-BP is particularly worrying: The joint venture was widely viewed as a template for foreign participation in the Russian economy and was explicitly rubber stamped by the Kremlin. Robert Dudley, TNK-BP’s CEO, said his company’s experience would be “a test of whether Russia could integrate with the world economy.” As Global Finance went to press, BP CEO John Browne was flying to Moscow to talk to President Vladimir Putin.That’s not the only bridge-building Putin has been doing with the business world. In March he met leading businessmen, reportedly telling them the government would not revisit privatizations that happened more than three years ago. That put in the clear most of the Yeltsin-era loans-for-shares deals that created Russia’s present-day oligarch class. Economics minister German Gref points to the privatization of telco Svyazinvest as evidence that his liberal reform program still has legs. Even the rather messy merger between state gas monopoly Gazprom and Rosneft can be

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Frosty reception: President Putin’s move toward more centralization is unsettling investors

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viewed in a positive light. Because the Russian state ends up as (just) the majority shareholder in the newly merged entity, it is expected to lift restrictions on foreign ownership of Gazprom stock. That will boost the company’s standing in major emerging market indexes, likely prompting a flood of overseas buying. And there is still money to be made in Russia. The country’s economy is still growing at a fair clip: GDP expanded by 7.1% last year, and despite some worries over inflation ticking up, the macro climate remains sunny. That—and a booming world market for most commodities—is translating into profits for an increasing number of brave overseas buyers. Mid-April, London-based gold miner Peter Hambro

STARS OF THE NEW RUSSIA It’s no secret that the business climate in Russia has gotten a lot chillier in the past year. The recent decree that only companies with 51% or more of Russian ownership can bid for new hydrocarbon blocks is just the latest sign of a return to a more statist approach sweeping the Kremlin. But for those prepared to navigate those stormy waters,

BEST BANKS BEST DOMESTIC BANK MDM BANK Last year’s decline in confidence played into the hands of the state-owned behemoths, but MDM’s limited exposure to retail deposits and its relatively high rating have allowed it to plow on with its strategy of developing a high-class, customeroriented private bank.

BEST OVERSEAS BANK RZB/RAIFFEISENBANK Overseas banks are still gearing up their presence in Moscow, with some, in effect, returning for a second time. Others, however, have demonstrated that a measured but determined approach to key growth areas such as lending to medium-size

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the rewards can be rich indeed. Natural resources are the most visible force powering Russia’s surging GDP growth; a fast-growing middle class is sparking a consumer boom, too. In this year’s Stars of the New Russia Awards, Global Finance magazine honors those banks and companies that are proving most adept at riding this wave.

companies can deliver results. Chief among them is RZB/Raiffeisenbank.

BEST INVESTMENT BANK UBS BRUNSWICK They are still hitting home runs at this premier institution, now fully bought up by UBS. Coupled with strong links into the Russian economy, the international underwriting and distribution heft of UBS makes this the one to beat for crossborder investment banking services.

BEST COMMERCIAL BANK VNESHTORGBANK (VTB) The state-owned sector has traditionally lagged private-sector institutions in developing effective new business models, and in the past that has been reflected in

Global Finance’s awards. But the minibanking crisis of 2004 underlined this bank’s resilience, allowing it to grab much new business, away from its traditional area of foreign trade.

BEST CONSUMER FINANCE HOUSE RUSSIAN STANDARD The management style may be quirky— the bank had its origins in a vodka brand— but this Moscow-based outfit is setting the benchmark in Russia’s hard-charging home-loan consumer finance market.

BEST FOREX BANK ALFA BANK Alfa continues to set standards in this highly competitive arena.

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Mining said 2004-2005 earnings were up by half, largely on the back of increased production at its Pokrovskiy, Siberia, mine. But if natural resources continue to be the chief motor for the country’s economy, consumers are increasingly taking the burden onto their own shoulders. A growing middle class has spawned a mini-boom in the retail sector and associated financial services.The advance of Swedish retailer IKEA and Germany’s chain of Metro supermarkets is well documented; analysts argue that consumer businesses are not viewed as strategic by the conservatives in the Kremlin. While retail operators have to negotiate local politics, they are less vulnerable to attacks from the center.

BEST TRADE FINANCE BANK VNESHTORGBANK (VTB) This state-owned bank has built on its legacy as the official foreign trade bank by forging strong links with multilateral institutions as well as foreign banks.

BEST SYNDICATED LOAN ARRANGER RZB/RAIFFEISENBANK There are banks higher in the league tables, but RZB/Raiffeisenbank underlined its longstanding commitment to Russian companies when, in 2004, it arranged a $600 million loan for telecom company MTS. The loan was the first unsecured loan arranged for a Russian company outside the commodity sector.

BEST ENERGY & COMMODITIES FINANCE HOUSE SG Unsurprisingly, much of the financing

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THE REMARKABLE COMEBACK OF THE STATE BANKING SECTOR rivate banks are smart, nimble, well managed; state-owned banks are slow, cumbersome and find it hard to make money. That conventional wisdom is being overturned in Russia, in the short term at least. After years of private banks making the running, public-sector institutions have made a strong comeback, putting on assets at a fast clip. State-owned Vneshtorgbank increased its asset base by over 50% last year, for example. And Sberbank, the public-sector savings monolith, continues to soak up almost two-thirds of Russian deposits.

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That’s partly a reaction to last year’s run on private-sector banks, of course. As confidence seeps back into the private sector, the competitive situation may change. Most analysts argue, however, that as in other sectors of Russian economic life, the government is now attempting to build up national champions as a counterweight to the private sector.

Other growth sectors include cinemas, gaming and telecom. Certainly, stock market investors still seem willing to take a bet on Russia’s prospects. In February cell phone holding company

Sistema successfully floated its shares on the London Stock Exchange. Overseas investors are prepared to weather political risk, it seems, when potential returns are rich enough. ■

action for Russian companies has been concentrated in the natural resources sector. SG’s traditional expertise in this area continues to make it the leader.

BEST EUROBOND ARRANGER

BEST DOMESTIC DEBT UNDERWRITER RENAISSANCE CAPITAL In this ultra-competitive market, where market share can assume undue importance, Renaissance has stood out by partnering some quality names to the bond market.

BEST DOMESTIC DEBT RESEARCH TROIKA DIALOG Information is all in this credit-intensive sector; Troika’s team delivers it.

BEST SECONDARY DEBT HOUSE TRUST INVESTMENT BANK The bank’s commitment to the primary market is mirrored in a comprehensive trading effort in a sector where liquidity can be patchy at best.

DEUTSCHE BANK Competition is always tough in this arena, but Deutsche has fought off rivals for the top slot, despite attracting some flak for a controversial 2004 parceling of Russian sovereign debt owed to the German government via the Aries vehicle.

BEST EQUITIES RESEARCH BRUNSWICK UBS Investors regularly cite the quality of output from the highly rated team—a key underpinning of the house’s investment banking offering. Key rivals such as United Financial Group mean it needs to stay on its toes, however.

BEST BOOKRUNNER PRIMARY EQUITIES UBS BRUNSWICK Highlights include a joint global-coordinator role in the December 2004 offering of 15% of Deutsche Telekom’s

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stake in MTS. Deal volume remains low, however, with many Russian IPO prospects preferring to take cash from the country’s booming bond markets.

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market, Brunswick UBS continues to perform exceptionally well in a sector that makes up for some of the disappointments in the equity pr imary market dealflow.

BEST SECONDARY EQUITY HOUSE

BEST M&A ARRANGER

ATON CAPITAL

CITIGROUP

This house’s commitment to providing liquidity garnered it over one in 10 trades on the RTS and MICEX systems in 2004.

Takeovers in Russia are rare as yet, and corporate links carry a great deal of weight, but for objective advice, clients come to this one-stop financial superpower.

BEST EQUITY-LINKED HOUSE

BEST ASSET MANAGER

BRUNSWICK UBS

TROIKA DIALOG ASSET MANAGEMENT

The house that arguably made this

BEST COMPANIES BEVERAGES BALTIKA: This St. Petersburg-based company shows you don’t have to be a foreign company or a global brand to excel in an increasingly brand-led industry, pushing sales to record levels in 2004.

CONSUMER PRODUCTS WIMM BILL DAN: The competition may be hotting up, but Russia’s largest food company remains the darling of stock buyers, as well as would-be foreign wooers such as France’s Danone.

ENGINEERING AVTOVAZ: Once a stalwart of the Soviet industrial system, Russia’s largest carmaker has teamed up with General Motors and tapped the European Bank for Reconstruction and Development to overhaul its production lines.

INFORMATION TECHNOLOGY IBS: In an increasingly tech-savvy

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country, Information Business Systems remains ahead of the pack.

MEDIA RBC TV: With much of Russian TV neutered, the launch of this businessheavy co-venture between Ros Business Consulting and CNBC provides a breath of fresh air.

NON-FERROUS METALS NORILSK NICKEL: It’s no secret that China is the x-factor in powering global demand for commodities, and with 20% of the world’s nickel deposits Russia’s largest miner/metals combine holds the trump cards.

OIL AND GAS BNP-TK: The investment climate for foreign companies has gotten chillier in the past year, and a recent decree that only majority Russian-owned companies could bid on new hydrocarbon blocs hasn’t helped the 50:50 BNP-TK joint venture. But the company has the management and technical smarts to

RUSSIA

Pensions privatization has combined with growing middle-class wealth to spark a boom in mutual fund sales. Short track records make choosing winners tricky, but the experienced team at TDAM has hit on a winning strategy, mopping up some 20% of all open-ended mutual fund assets in the country.

EDITOR’S SPECIAL AWARD FOR TRANSPARENCY MDM BANK This bank has marked itself out from the crowd by setting the standard in not only being transparent, but making clear it will be transparent.

turn itself into Russia’s most efficient oil company over the next few years.

TELECOM MOSCOW TELESYSTEMS (MTS): Vimpelcom remains a close r ival in terms of subscribers, but MTS has successfully avoided the distractions of politics as it wrestles with a fast-maturing market. A successful IPO for parent Sistema added to the glow.

TRANSPORT SEVERSTALTRANS: As Russia’s economy booms, so does the demand for ways to move goods and raw materials. That has given this market-leading integrated railway freight operator a lead start in a market where demand continues to outstrip supply.

UTILITIES MOSENERGO: Investors have been piling into Moscow-based Mosenergo, seeing it as the energy company best placed to benefit from the restructuring of the Russian power sector—now finally under way.

REGIONAL REPORT CENTRAL & EASTERN EUROPE

BY JONATHAN GREGSON

Entry Strategy Prospective future entrants to the EU have been watching with interest the progress of the 10 countries that joined the union a year ago. year has passed since the European Union’s enlargement of May 2004 when 10 new member countries, eight of them former Soviet bloc nations of Central and Eastern Europe, formally joined the world’s largest single economic area. How they have fared within an enlarged EU is providing valuable lessons for the countries next in line for full accession, starting with Bulgaria and Romania. The transformation they experienced did not happen overnight, although as soon as they joined, they gained access to EU structural and regional funds.The benefits of free access to EU markets were already in place beforehand.The largest impact on trade patterns, according to Walter Demel, economist at the Austria-based Raiffeissen Bank, has been a sharp increase in the exchange of goods and services between the new entrants now that remaining barriers have been dismantled. “The Czech Republic’s trade with other accession states leapt by more than 30% last year, whereas previously it had been growing at less than 10% annually,” Demel says. “Poland and Hungary experienced a similar surge in trade with their neighbors in ‘New Europe’.” Most macro-economic or structural change had already taken place prior to accession, however. Each country set out on the process of EU harmonization from its own starting point. Each

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had its own mountain to climb. And since all of the 10 accession states’ economies have been steadily integrating over the past 15 years or so, further changes occurring over the past 12 months have been largely the result of continuing momentum. “Going through the accession process meant that the countries involved had already made the effort,” says Nicolas Doisy, economist at the European Bank for Reconstruction and Development (EBRD). “After that, there’s no reason to expect formal entry into the EU to have that strong an impact.” Yet formal accession has made inward investors more confident. Tim Green, partner at private equity group GMT Communications, which specializes in telecom buyouts in the region, with some 25% of deals done in Central Europe, defines these markets as “still quite small and relatively immature.” That means they also present good investment opportuni-

ties for those prepared to accept a higher risk/reward profile. “Since we did our first deal in the Czech Republic in 1996, we have seen substantial shifts in attitude, legislation—especially the harmonization of telecom laws to EU standards—and corporate governance issues,” he says. Doing business has

REGIONAL REPORT

generally become easier, with less concern over legal ownership and intellectual property rights, all of which makes the markets more attractive to inward investment. “There has also been a substantial change in the quality of local management compared to 10 years ago,” says Green. “Over the past two years they have begun to look seriously at the financing possibilities of rapidly developing capital markets.” For instance, GMT Communications’ refinancing of Invitel, Hungary’s second-largest fixedline operator, included launching a large tranche of high-yield bonds. “It involved considerable structural issues,” says Green,

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“as this was only the second time a high-yield bond had been successfully launched in Hungary.”

Assessing the Benefits So a year after formal accession to the EU, are the citizens of ‘New Europe’ experiencing real and tangible benefits? Certainly their economies have been growing much faster than those of Germany or France, which constitute the core of ‘Old Europe’. The new entrants have enjoyed year-on-year GDP growth of around 4%, with central and eastern European countries achieving nearly 5% on average in 2004. That is more than twice the growth rates achieved by eurozone countries. Moreover, that has been built on strong exports, with Polish and Czech exports up by nearly a quarter last year in euro terms. But New Europe still has a long way to go to catch up with its wester n neighbors in ter ms of real wages and overall wealth levels. Real labor unit costs are often as little as one third of those in Old Europe, which accounts for the eastward shift of automotive and other labor-intensive industries. Howeve r, c o n s u m e r i s m i s growing more rapidly than the overall economy in most countries, the commercial banks are racing each other to extend consumer credit, and—always an important contributor to the feel-good effect—real estate values have been picking up. “If you look at Warsaw, Budapest or Prague, there’s a real boom going on in both commercial and residential property values,” says Gyuri Karady, partner in the private equity firm Baring Corilius,

CENTRAL & EASTERN EUROPE

which specializes in Central and Eastern Europe. But the trickle-down effect to rural regions and smaller towns has yet to occur. “The sectors that have benefited the most are those that service the new consumer economy,” says Karady.“Look at how the big supermarket chains have come in, the sectors where the multinationals are investing and the growth of spend in marketing. Advertising has increased hugely in volume, printing companies are buoyant as the pagecount in newspapers and magazines goes up, and Poland has seen a boom in radio stations,” he notes. Although the agricultural sectors in the 10 recently joined countries do not enjoy the full benefits of the Common Agricultural Policy (CAP), Doisy points out that they do have access to cohesion and structural funds and money transfers linked to the CAP. “Farmers’ incomes have increased substantially over the past year,” he says, although whether New Europe’s agricultural producers will share the full benefits of the CAP remains to be seen.

Currency Harmonization The biggest issue outstanding is when and under what ter ms these countries will adopt the euro as their currency. Front-runners on this are the smaller Baltic states, with the currencies of Estonia and Lithuania already pegged to the euro. Slovenia also entered the Exchange Rate Mechanism II (ERM II) last June, and Latvia is planning to join in the near future. Apart from having to satisfy the Maastricht criteria on budget deficits, inflation and overall debt levels, these countries have to prove that their currencies can maintain sufficient stability within ERM II bands for two years before being allowed to join the eurozone. “The reason this process started with the smaller states is because of the very prudent way they have managed their economies,” says Doisy. Slovakia could

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REGIONAL REPORT

follow next year, with the larger countries—Poland, the Czech Republic and Hungary—most likely waiting until at least 2007 to join ERM II. The main problem for the larger economies is bringing down government spending.Their governments spend more money than they bring in, even though they have relatively high tax levels.They face having to cut current expenditure on deeply entrenched and often highly popular social programs, and that in turn could cause political problems, especially in Poland and Slovakia where elections are coming up. Doisy believes these countries’ large fiscal deficits are structural in nature rather than caused by economic fluctu-

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to,” says Doisy. “That helped to keep down its fiscal deficit.” Financing state-funded pensions might prove a more intractable problem, but here the Council of Economic and Financial Ministers in Brussels (Ecofin) has allowed new entrants to exclude pension-related spending from their fiscal accounts. Nonetheless, the process of integrating toward the ‘euronorm’ is far from over, even for countries that are now within the EU.

Prospective Entrants Wait in Line The relative success of last year’s EU enlargement should act as a powerful stimulus to those countries still waiting in the wings. Next in line are Bulgaria

THE SUCCESS OF LAST YEAR’S EU ENLARGEMENT SHOULD ACT AS A POWERFUL STIMULUS TO THOSE WAITING IN THE WINGS The prospect of joining the EU is probably powerful enough to encourage governments to implement the necessary reforms ations.To overcome such deficits takes a degree of political will that has not always been evident. Until governments of the Central Europe’s ‘big three’ economies get serious about tackling their fiscal deficits, he says, it is hard to see how they can progress toward joining the single currency. Since these countries already have a relatively high tax take as a percentage of GDP, that means cutting down on spending. Slovakia provides a good example of how to whittle down fiscal deficits. It introduced a flat 19% tax rate for both corporates and individual incomes. In most cases this represented a significant reduction, and, with less tax avoidance and more businesses exiting the ‘black economy’, instead of falling, government revenues actually increased. “Slovakia also decided not to spend all of the EU structural funds it was entitled

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and Romania, having successfully finalized their membership negotiations last year. Provided they keep their reform process on track, they are scheduled to join the EU in 2007. The prospect of joining the EU is probably powerful enough to encourage governments to implement the necessary reforms, and now that Romania and Bulgaria have a joining date, foreign investors feel it is safe to go in. Already FDI has picked up, which opens the way for further productivity gains through technology and skills transfers. However, Green argues,“They still have further to come in terms of economic stability, access to capital and, above all, quality of management, where they are still a lot further behind.” Croatia’s progress has been delayed by political rather than economic considerations, especially since the EU’s recent

CENTRAL & EASTERN EUROPE

decision to postpone the start of membership negotiations until it is convinced that the Croatian government is cooperating fully with The Hague tribunal on bringing those suspected of war crimes to justice. However, while it has shown itself ready to wield the stick when it comes to the war-torn states of the former Yugoslavia, Brussels is equally adept at dangling the carrot of eventual EU membership to coax the western Balkan countries along the path of political and economic reform. Macedonia, for instance, filed its formal membership application last year, and Albania hopes to take its first step through finalizing the Stabilization and Association Agreement later this year. That leaves Turkey, which formally began its own journey toward EU membership last December after Brussels finally decided that Turkey satisfied the mainly political Copenhagen Criteria of being a fully functioning democracy with an acceptable human rights record. A longstanding member of NATO, Turkey’s inclusion within a broader European Union has been supported by the United States on strategic grounds and because, as a predominantly Muslim democracy, it could form a vital bridge to the Middle East region. Turkey still has a long road to travel to bring its macro-economic and fiscal policies more into line with the EU’s norm and in implementing legal and institutional reforms allowing for a freer, more transparent business environment. However, no country that has entered into EU accession talks has ever been refused entry. The experience of previous waves of accession states will provide some useful lessons along the way. “Are the new member states of Central and Eastern Europe yet seeing the reward for their efforts?” asks Raiffeisen’s economist Demel. “I’m inclined to say yes, though the final verdict will only be made in 10 or 20 years’ time when their citizens have reached comparable income and wealth levels.” ■

EMERGING MARKETS

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EM ROUNDUP CHINA

BANKS STRUGGLE BUT STOCK MARKET RECEIVES A BOOST n April anti-Japanese protests in Beijing, Shanghai and Guangzhou further strained the perennially tense ChinaJapan relationship after Japan approved textbooks that critics claim play down Japan’s wartime brutality.Tensions further intensified when the Japanese government awarded drilling rights for disputed waters in the South China Sea. Chinese protesters are calling for a three-month boycott of Japanese goods. China overtook the US as Japan’s largest trading partner last year, and an effective boycott could damage Japan’s economic recovery. Problems continue to surface in China’s troubled banking

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sector, possibly delaying plans of China’s top two state banks to go public later this year. China Construction Bank’s chairman, Zhang Enzhao, stepped down in late March and was subsequently detained by police. His resignation and detention may be related to a US civil case alleging that Zhang received bribes in excess of $1 million. Early last year, CCB and Bank of China each received $22.5 billion capital injections and embarked on a series of reforms in preparation for public stock offerings. But several scandals—including the discovery earlier this year that 800 million yuan ($97 million) had disappeared from a Bank of China branch in northeastern

China—indicate that internal controls at China’s state-owned banks remain weak. After hitting a six-year low in March, China’s stock market jumped in mid-April on news that the government may reduce its stakes in several of the country’s largest companies. Government and affiliated bodies hold most shares in China’s domestic stock market, creating an environment prone to manipulation by those in management positions and government offices. Minority shareholders in such companies have little, if any, influence over business operations. Chinese companies’ enthusiasm for overseas acquisitions appears to be cooling after

Detained: China Construction Bank’s Zhang Enzhao

peaking with Lenovo’s $1.75 billion purchase of IBM’s personal computer business late last year. In mid-April, Shanghai Automotive Industry Corporation (SAIC), one of China’s top three automotive producers, pulled out of talks over a possible joint venture or acquisition deal with troubled British carmaker MG Rover. —Thomas Clouse

INDIA

AVIATION SECTOR TAKES OFF India’s reforms continue apace with the government’s decision to privatize aviation fuel supply to airports, ending a monopoly by stateowned refiners. The government will buy all the fuel dumps and hydrants from the state-owned refiners at book value and allow oil companies equitable access to the infrastructure. The move should cut fuel prices and increase revenues for the airport authorities. Ministry officials hope the reforms will eventually prompt muchneeded investment in aviation infrastructure. There will be huge spinoff benefits, too, for airline companies that are now approaching Indian and global equity markets for capital. Indian Airlines, the state-owned domestic airline, which is the largest domestic operator in India, has anIndian Airlines: Ready for takeoff nounced an IPO. Though the final

size of the IPO has still to be decided, it could be the biggest ever from India, at nearly $2 billion. The government has been inspired by the fantastic response to private sector airline Jet Airways’ IPO earlier this year. Jet’s $450 million IPO received nearly $6.5 billion worth of bids, mostly from foreign investors. The other state-owned airline, Air India, is waiting in the wings to announce its IPO, and private sector minnow Air Deccan has already announced a small IPO slated for early next year. It’s not only India’s airline industry that is set to benefit from foreign investment, though. POSCO of South Korea, the world’s fifthlargest steel manufacturer, is looking at investing nearly $3.5 billion to build a steel plant in India’s iron ore and coal rich northeastern state of Orissa. The plant, which is expected to have a capacity of 10 million metric tons, will be one the largest in the country. —Aaron Chaze

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PUTIN TRIES FOR A NEW, KINDER IMAGE n late March President Vladimir Putin extended an olive branch to the country’s oligarchs by proposing legal reforms that would in effect put shady privatizations of the 1990s beyond the reach of the law and that would also streamline tax collection.The announcement was hailed by investors as the re-emergence of the dimension of Vladimir Putin that is a defender of investment and promoter of economic growth. But within two weeks the reality of Russia struck again, as TNK-BP—easily the highestprofile and largest foreign investment in Russia—was hit with a $1 billion tax bill.Two days later Siemens was blocked by the Federal Anti-Monopoly Service from buying a majority stake in Power Machines, Russia’s biggest producer of power turbines. Uncertainty of a different stripe had emerged previously, when Anatoly Chubais—the mastermind of Russia’s

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Survivor: Russia’s privatization supremo, Anatoly Chubais

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privatizations of the 1990s and currently head of Unified Energy Systems, the country’s monopoly power distributor— survived a roadside ambush. The seemingly never-ending trial of former Yukos head Mikhail Khodorkovsky finally wrapped up in early April.The man who was until recently Russia’s richest faces up to 10 years in prison.A US-based investment fund in late March announced that it is trying to gather minority shareholder support to sue the Russian government for share losses stemming from the destruction of Yukos. Despite the challenging environment, foreign investment into Russia continues. In early April CocaCola and its Greek bottling unit announced that they would buy Multon, Russia’s second-largest juice maker that analysts valued at roughly $650 million.Weeks later, British retail giant Dixons signed a deal that gives it the option of buying Russian electronics retailer Eldorado for $1.9 billion by 2011. Kyrgyzstan was the latest former Soviet state to upend its power structure, as the president of the small Central Asian nation fled in the face of protesters upset about recent rigged elections. Unlike Georgia and Ukraine, though, there is no clear unifying opposition leader in Kyrgyzstan, and the road to democracy promises to be particularly bumpy. —Kim Iskyan

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BRAZIL

LULA STRUGGLES TO BALANCE PROMISES WITH STABILITY President Luis Inacio Lula da Silva’s approval rating has dropped by six points since February of this year. Conducted by the Sensus polling firm and released by the National Transport Confederation late last month, the national poll found that personal approval for Lula has declined from 66.1% to 60.1%. Lula, who is up for re-election in 2006, faces the dilemma of either alienating poor voters as he pares back government social spending or jeopardizing his hardwon reputation with investors for fiscal austerity if he boosts expenditures. Hundreds of landless peasants stormed Brazilian finance Brazil’s finance ministry in Brasilia last minister Antonio Palocci month to demand more land reform funds. After 28 months in office, Lula has fallen behind job, land-reform and poverty goals after his government hiked the budget surplus and used high interest rates to cut inflation. Meanwhile, Brazil’s government said it will not renew the standby credit agreement with the International Monetary Fund that expired at the end of March. Brazilian finance minister Antonio Palocci said the country’s economic fundamentals had improved since September 2003, when the agreement was sealed, and Brazil no longer needed the fund’s support. Varig, the country’s flagship airline, has also improved its fiscal position in the past year. Brazil’s second-largest airline slashed its net loss to $33.5 million, or 87 million reais, in 2004, down from a loss of $700 million, or 1.8 billion reais, in 2003. And in the fourth quarter of 2004, the airline shifted into a net profit of nearly $85 million, according to Varig officials. The economic improvements may not be enough for foreign investors, who poured about $869 million in direct investment into Brazil in February—about 15% less than during the same month of 2004, according to the Central Bank Economic Studies Department. For the first two months of the year, foreign investment in Brazil totaled $2.08 billion, and in the 12 months ended in February of this year foreign investment tallied $18.2 billion. In an effort to rein in inflation, this South American nation’s central bank unexpectedly raised its benchmark lending rate for an eighth straight month. The nine-member board headed by central bank president Henrique Meirelles voted on April 20 to push the overnight interbank rate a quarter percentage point up, to 19.5%. Economists had expected bank officials would stop the string of interest rate increases so as not to hinder the country’s economic expansion of the past two years. But policymakers are concerned about inflation, which is running at 7.5% for the 12 months ended in March—two percentage points higher than their year-end target of 5.1%. —Paula L. Green

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EM INVESTOR NEWS

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RISK APPETITE IN EUPHORIA ZONE

ASIA TO KEEP NEW-ISSUE PIPELINE FLOWING

lobal economic growth typically decelerates at this point in the production cycle, but there is no evidence of a slowdown to date, says Jonathan Wilmot, chief global strategist at Credit Suisse First Boston. Meanwhile, CSFB’s index of global risk appetite has entered the euphoria zone for the first time in the current cycle. “Lots of growth now would be bad for risky assets,”Wilmot says, because it means that the coming downturn will Jonathan Wilmot be sharper.“A

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rising world interest rate environment will cut off the flow of excess liquidity to emerging markets,” he says. Emerging markets perform worse than developed markets once the euphoria zone is entered, according to Wilmot, and they generally are flat to lower within three to six months later.Within six to 12 months the index of risk appetite could be back in the panic zone, he says. Not only are emerging markets more susceptible to global monetary tightening than are developed markets, but they are also more cyclical,Wilmot says. “Emerging markets are also more at risk in this cycle because they are more directly exposed to a big slowdown in China,” he says. —Gordon Platt

COMPANY TO WATCH: CVRD/BRAZIL

MINER ON THE MOVE oaring minerals prices helped boost revenues at Companhia Vale do Rio Doce, or CVRD, by 53%, to $8.5 billion in 2004. Rio de Janeiro-based CVRD, the world’s biggest producer of iron ore, earned a record $2.6 billion last year. Amid rising demand from steel

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makers in China and elsewhere, CVRD is raising prices for ferrous metals by 71.5% for contracts signed this year, with exports expected to double to $10 billion. CEO Roger Agnelli, a former banker who left Bradesco in 2000 to restructure the mining

Companies from South Korea, India, China and Taiwan will make Asia the main source of capital raising using depositary receipts in 2005, says Patrick Colle, global head of ADRs at JPMorgan. Asian issuers will account for 60% to 65% of the volume of new issuance in DRs this year, with a number of high-technology issues from China expected to be floated, Colle says. JPMorgan was mandated ADR bank on 50% of all initial public offerings of ADRs from China in 2004. Many large Russian DR issues already have been SWITZERLAND, UNITED STATES placed and moreGERMANY, are likely, while Brazilian companies Patrick Colle also may be active in the ADR capital markets, according to Colle. “The new-issue pipeline is strong,” he says. Meanwhile, factors are in place to continue the 20-year secular trend toward increased trading and investment, including a sustained expansion of the global economy, reviving corporate profitability in many countries and the weak US dollar, he says. The average US investor has 14% of his portfolio allocated to foreign securities, which is still fairly low, Colle says. “The foreign allocation should be about 20% to 25%, which means there is still a lot of upside potential,” he says. Many US funds need the ADR vehicle to take exposure in foreign issues, while the growth of separately managed or wrap accounts investing in ADRs is adding to market liquidity. “As liquidity grows, investors become more comfortable,” Colle says, making it likely that the trend toward increased trading will continue. —GP

company, will plow some of its profits into expanding ironore production significantly. He says Brazil has the best and largest reserves of the ore in the world, enough to last for hundreds of years. Agnelli also wants to further diversify CVRD, which already produces bauxite, manganese and other minerals, makes aluminum and owns energy and transport facilities.

CVRD wants to enter into joint ventures with foreign steel companies, including China’s Baosteel, to build slab-forexport plants on Brazil’s impoverished north coast. It is trying to persuade the Brazilian government to grant tax relief that will convince the foreign partners to go ahead with the deals that could generate up to $8 billion in foreign direct investment. —GP

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FINANCIAL SOFTWARE COMPLIANCE

BY ADAM ROMBEL

Software Offers Compliance Solutions Companies are finding that software can help them rein in the high costs and disruption caused by complying with new regulations. he government’s main instru“They’re saying, ‘Give us a way to avoid search predicts that US companies will ment to promote corporate rethe pain and uncertainty we muscled spend a total of $6.1 billion to manage sponsibility and prevent future through last year,’” Holst says. SOX-compliance efforts in 2005, of Enron debacles, the Sarbanes-Oxley Act The pain came in the form of long which, $1.7 billion is allocated for techof 2002 (often dubbed SOX), has been hours for corporate financial officials, IT nology. That’s more than a 40% increase much more costly and time consuming staff members and auditors. Most public over tech spending on SOX in 2004. than most companies expected. The companies approached SOX with manuthorniest component of the SOX law has Easing the Pain al processes, using simple spread sheets been Section 404, which requires public So, what are companies that have to and calling upon an army of people to companies to establish, maintain and comply with SOX seeking from technoldocument, test and re-test internal condocument effective internal financial ogy? “The number-one thing they want trols. It was expensive and time consumcontrols and get those controls approved is relief from the way they dealt with this ing because it is all unstructured work by their outside auditors. last year,” says Sebastian Holst, vice presistarted from scratch and unplanned, reacAccording to a recent Financial Execdent of marketing at Axentis, a six-year tive work, says Sanjay Srivastava, chief oputives International survey of 217 public old, Cleveland, Ohio-based firm that lierating officer of San Mateo, Californiacompanies with revenues averaging $5 censes the risk-compliance management based Aceva Technologies, which makes billion, implementation of SOX Section transaction-reconciliation software. application Axentis Enterprise, which is 404 cost firms an average of almost $4.4 One company that went through the used by more than 80 companies with million in 2004—that’s nearly 40% more average annual revenues of $11 billion. cumbersome SOX-compliance process than companies had budgeted— last year was Loral Space & Comand 94% of the survey respondents munications, a New York-based Sanjay Srivastava of said the cost of compliance exsatellite-communications compaAceva Technologies ceeded the benefits. Moreover, ny that generated more than $500 hundreds of publicly traded commillion in revenue in 2004. Loral panies in recent weeks have deused a manual process and passed layed filing their annual reports its own compliance audit at the with the US Securities and Exend of last year, well before the change Commission as the firms April 15 deadline for US public struggle to prove the robustness of companies with a market capitaltheir internal controls. Many firms ization of $75 million or more to are turning to technology solucomply with Section 404 of SOX. tions, compliance-automation Having gone through that experisoftware in particular, to make it ence, the company is now moving Sebastian Holst at less painful to comply with the law to a non-manual solution. Barry Axentis in 2005 and beyond. AMR ReGoldfeder, senior director, business

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controls, systems and processes, at Loral, says the company is in the process of certifying its first-quarter 2005 financials using automation. Specifically, Loral is using the Oracle Internal Controls Manager (OICM) application, which Oracle says is in use by about 300 companies. Foreign companies and US-based firms with a market capitalization below $75 million were recently given a break. On March 2 the SEC extended to July 15, 2006, the deadline for these companies to meet the Section 404 requirements of SOX.That doesn’t mean companies should wait to get their acts together, vendors say.“I think many [foreign companies] learned from their US counterparts that this is not a 30-day enterprise. So they should start now in order to be ready in time,” says Neil Selvin, chief marketing officer with Approva, a Vienna,Virginia-based firm that sells the BizRights compliance-software platform, which has several dozen corporate customers, including General Motors and Siemens. Even those companies that don’t start now will realize eventually the need for technology to ease compliance. “Automation is inevitable. That’s the only way you’ll be able to take control of all your activities and make sure you’re keeping up with the times,” says Goldfeder.

Automated software can replace manual efforts that might take hundreds of hours with as few as a couple hours of analysis, says Approva’s Selvin. For example, a company might have a million purchase transactions in a month, and its internal auditors might spot-check about 50 of them to look for mistakes, inefficiencies or fraud. Approva’s software could monitor all 1 million of the transactions. “It’s about finding the needle in the haystack,” says Selvin. To identify weaknesses in their internal-control procedures and processes, companies need software with sophisticated reporting options that help them identify where weaknesses exist, such as risks not addressed by controls or financial-statement assertions not addressed by controls, says Katharina Reichert, specialist in application solution management for mySAP ERP at German software giant SAP, which introduced its Management of Internal Controls (MIC) product in the third quarter of 2004. More than 65 corporate customers are using MIC, according to Reichert. An example of a financial assertion that could get a company in trouble is booking as revenue sales orders that end up not materializing. Software systems can automatically check the orders against purchase documents to find out before the fact if it is bookable revenue. And

when a company does identify a problem in its financial controls, it should be easy to configure the software system to bring it under control, avoiding the problem in the future. Seamus Moran, director of accounting compliance applications development at Oracle and himself a former auditor, tells a story of one corporate customer that used OICM to identify about 400 instances of violating SOX’s segregationof-duty requirement. For example, a database administrator correcting an invoice could be a violation because the accounting people should do it. When the customer used OICM to check processes and transactions against the list of staffers authorized to perform those functions, “they were automatically able to clean up the problem,” Moran says.“It made fixing it very easy.”

Broadening the Benefits Vendors say that the benefits of putting in place automated financial controls extend far beyond SarbanesOxley compliance. Just by going through the process, companies can manage business processes better, become more efficient, save money and comply with many other laws, such as the European counterparts to SOX. “I end up thinking hard about my business and what my common standards are, and that always saves me money,” says Oracle’s Moran. Companies are clamoring for “a way to make my compliance effort pay off in some kind of competitive advantage for my business,” says Approva’s Selvin. Srivastava of Aceva Technologies echoes that thought.Aceva’s transaction-reconciliation application was first introduced about five years ago to help companies reduce the number of days of sales outstanding, before the company started transitioning the product into the SOX-compliance marketplace. “People get it for both. I don’t know of a single customer that has bought it for just one of these things,” Srivastava says. ■

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COUNTRY REPORT CYPRUS

BY LAURENCE NEVILLE

Building Bridges As its economy continues to grow, Cyprus is hoping to take advantage of its strategic position between Europe and the burgeoning markets of the Middle East and Africa. he year 2004 was one of mixed emotions for the Mediterranean island of Cyprus. The country achieved its long-held dream of joining the European Union. But a settlement of the conflict between the south of the island and the north, and its Turkish protectors, was not achieved. The south’s politicians and the broader population refused to accept Kofi Annan’s UN plan to end the 1974 division of Cyprus. The failure to unite the divided island was a disappointment to everyone. “We’ve always wanted a solution to the problem, but we needed something more than the Annan plan offered,” says Dennis Droushiotis, trade commissioner for the country in New York. He notes that political parties within the Greek Cypriot National Council recently put together a response to the Annan plan to try to find a way forward. Meanwhile, the north of Cyprus, though growing, remains substantially poorer than the south and reliant on handouts from Turkey, the only country that recognizes it—and the source of its 30,000 troops. Recent court cases bought by Greek Cypriots in the south over property owned by them in the north before 1974—and subsequently sold to British holidaymakers—indicate the scale of the task to be achieved for reconciliation to occur. Despite the failure to reconcile the

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conflicts of the past, the south of Cyprus is experiencing an economic recovery. “Last year the economy grew by about 3.5%, and this year we are expecting up to 4%,” says Sofronis Eteocleous, head of economic research and planning at Laiki Group, owner of Cyprus Popular Bank. Meanwhile, inflation is low and fairly steady.“Last year it dropped to 2.3% from 4.1%, but this year we expect a slight acceleration because of oil prices.”

Diversifying the Economy Tourism has long been the mainstay of the Cypriot economy, and services (of which most is tourism) account for 72% of GDP, according to Droushiotis. “Tourism remains the engine in terms of foreign currency,” he says. But the failure of visitor numbers to recover to pre-9/11 levels has focused attention on other areas of the economy. “We don’t have our eggs in one basket,” says Droushiotis. “There are over 50,000 corporations in Cyprus.” Despite an increase in the corporate tax rate from 4.25% to 10%, which was a condition of entry to the EU, Cyprus remains an attractive location for tax planning. It still has one of the lowest corporate tax rates in Europe and has tax treaties with 34 countries, with a further 31 under negotiation. According to Remko van Roekel, Cyprus analyst at Citco Corporate & Trust, the new tax regime is actually

Business boom: Cyprus is taking advantage of its strategic location to promote its transshipment facilities

COUNTRY REPORT

more favorable to companies in terms of exemptions. “There hasn’t been much lost, in all honesty,” he explains, “and now it’s got the seal of approval from the OECD and the EU.” Furthermore, he notes that the changes that Cyprus made before accession have cleaned up the economy. “There were concerns about some of the Russian money coming into Cyprus,” he adds. “It wasn’t great for the image of the country.” Other services hope to benefit from Cyprus’ location as a bridge between Europe and the growing economies of the Middle East and North Africa. The country has had free trade zones— where companies bring in shipments intended for neighboring markets and divide them up into country deliveries—since 1977, and use of them is increasing by such companies as IBM and Estée Lauder. Last year Cyprus generated $400 million in re-exports. Meanwhile, the government is also trying to encourage technology-based companies, especially in IT services. It has set up four $250,000 venture capital funds to develop companies and also signed agreements with EU countries and the State University of New York and Harvard University Research Insti-

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tute on Public Health to bring a greater knowledge base to its economy. The geographical positioning of the country is also working in Cyprus’ favor in the technology market, says Droushiotis. He notes that US firm Amdocs recently hired 45 IT professionals from India to work on software in Cyprus because communications with the US are better in Cyprus than in India, and the working environment is more stable and developed. Despite the country’s enthusiasm for joining the EU, the benefits of membership are perhaps less immediate for Cyprus than for the other nine countries that joined in May 2004.As the local press repeatedly noted, the country was the richest of the 10 new states. Indeed, it is expected that within a few years, Cyprus will become a net contributor to the EU budget. In the short term, however, Cyprus will benefit from agricultural modernization programs in areas such as dairy and wine production, the latter presenting potentially huge growth opportunities for the sun-drenched country. In addition, being a member of the EU gives Cyprus much more clout when it comes to determining quotas and trading with the US.

CYPRUS

Preparing to Join the Euro Having achieved EU membership, the next goal is joining the euro. Cyprus has been eager to show it is serious about currency matters for some time. It abolished foreign exchange controls before accession and pushed up interest rates to protect the Cyprus pound. Now the emphasis is on ensuring that the Cypriot economy meets the necessary conditions to join the euro. Chief among these is lowering the country’s deficit, which was 6.3% in 2003 and 4.2% last year.The target is to hit the eurozone entry level of 3% by 2006. “The government has had a tax amnesty from September 2004 to February this year, and that will affect revenues for both this and next year and should allow the government to hit its target,” says Eteocleous. “In addition, the government has resolved not to increase civil servant wages for 2004 and 2005 and has been successful in that.”

However, it has met resistance in trying to extend the pensionable age of civil servants from 60 to 63. As van Roekel notes, the government is prepared to do almost anything to fulfill the criteria for eurozone entry. “They would put up VAT [sales tax], but I think they would draw the line at increasing corporate tax,” he says. Indeed, despite expecting a slight pick-up in inflation rates, the central bank recently reduced interest rates from 5.5% to 5.25%. “The aim was to send a message regarding convergence,” says Eteocleous. “Our inflation is basically generated outside the island, so there’s no danger from this move.And Cyprus really wants to be ready for the euro.” ■

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ANNUAL SURVEY BEST EMERGING MARKET BANKS

THE BEST EMERGING MARKET BANKS 2005

In the 12th annual Global Finance survey of the world’s best emerging market banks, we honor those banks that consistently provide excellent service and security in often-tumultuous markets. n the dynamic world of emerging market banking, the past year has been an exciting one. Change is taking place at unprecedented speed, with established regional titans tightening their grip on their chosen markets and many smaller banks, with canny use of new technology or through audacious dealmaking, carving out ever-growing regional niches. Many formerly local banks are reaching across borders with acquisitions and alliances that are transforming them rapidly into regional powerhouses. Almost across the board, revenues are up and profits are up. The banks that really

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shine in this year’s survey are adopting new technology, leapfrogging their competitors and providing their customers with state-of-the-art facilities and services. Increasingly, corporations and consumers in emerging markets around the world are able easily to access the same levels of service that were only recently reserved for bank clients in developed markets. As always, the winners of this year’s emerging market banks awards are not necessarily the biggest or the most visible, but they are those that can best help their clients make the most of the vast opportunities available in the world’s di-

verse—and sometimes confusing— emerging markets. With input from industry analysts, corporate executives and banking consultants, Global Finance identified the banks that adhere to high standards of corporate governance and possess the imagination to succeed in a challenging environment. Our criteria included growth in assets, profitability, strategic relationships, customer service, competitive pricing and innovative products. ■ Contributors: Gordon Platt, Laurence Neville, Paula L. Green and Santiago Fittipaldi

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BEST EMERGING MARKET BANKS

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MIDDLE EAST AND AFRICA

Best Bank in Region: National Bank of Kuwait ational Bank of Kuwait is one of the largest and most profitable banks in the Middle East and is continuing to expand throughout the region and beyond.The bank is taking full advantage of the improved economic environment in the Gulf area as the result of high oil prices. It also is diversifying its revenue sources and continually upgrading its complete range of products in response to the needs of its customers.The largest bank in Kuwait and the highest-rated Arab bank, NBK is a leading provider of investment banking and trade finance services in the Middle East. NBK enlarged its regional network last year with the opening of a branch in Amman, Jordan, and a 10th branch in Lebanon. It also acquired a share in International Bank of Qatar, formerly Grindlays Qatar Bank, and will manage the bank under contract. NBK opened a branch in Bahrain in 2003, upgrading its offshore unit. Globally, it has branches or subsidiaries in New York, London, Paris, Geneva and Singapore, as well as representative offices in Thailand and Vietnam. It is planning to expand into Saudi Arabia, Iraq and China. NBK posted record profits in 2004, up 24% from a year earlier, giving it a return on equity of 29.9%. ■ Ibrahim Dabdoub, CEO www.nbk.com

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BAHRAIN Gulf International Bank Gulf International Bank, a leading investment bank in the Middle East, has expanded into such areas as shipping finance, secondary market asset trading and Islamic finance. GIB is the leading project finance bank in the region and was a lead arranger of the $9.3 billion facility for the Qatargas II liquefied natural gas project, the largest energy project financing deal worldwide in 2004. The bank is owned by the six member states of the Gulf Cooperation Council. JPMorgan Overseas Capital holds a minority interest. GIB’s earnings rose 42% in 2004, to a record $150 million. In addition to a 2 6

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subsidiar y in London, GIB has branches in New York, Riyadh and Jeddah. It has representative offices in Beirut and Abu Dhabi. ■ Khaled M. Al-Fayez, CEO www.gibonline.com

African countries outside South Africa. Standard Bank has offices in 21 additional countries worldwide. ■ Dennis Kennedy, managing director www.stanbic.com

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EGYPT

Stanbic Bank Botswana Stanbic Bank Botswana, a subsidiary of Standard Bank of South Africa, has operated in Botswana since 1991.The bank is active in trade and project finance and is aiming to broaden its small, upscale retail banking business, which comprises seven branches. In November 2003 it acquired the local private banking operations of South Africa-based Investec. Stanbic Bank operates in 17

Commercial International Bank Commercial International Bank, Egypt’s largest private bank, posted a 23% increase in earnings last year, with broad-based gains in retail, corporate and investment banking. CIB is working with the International Finance Corporation, the private lending arm of the World Bank, to increase lending to small and medium-size enterprises. The bank has installed a new consumer-

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Hisham Ezz Al-Arab, chairman and managing director, Commercial International Bank

credit management system to help diversify its product offerings. The bank’s non-performing loan coverage ratio reached 137% last year. CIB offers corporate and trade finance, as well as consumer lending, asset management, securities brokerage and insurance. ■ Hisham Ezz Al-Arab, chairman and managing director www.cibeg.com

ETHIOPIA Dashen Bank Addis Ababa-based Dashen Bank maintains Ethiopia’s largest banking network, with 33 branches, two of which opened in 2004. Established in 1995, Dashen Bank was the country’s first bank to offer Visa and MasterCard accounts. The bank, named after Ethiopia’s tallest mountain, upgraded its financial software last year, and it has a reputation for providing efficient banking services. ■ Lulseged Teferi, president www.dashenbanksc.com

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panies.The bank offers international money transfer and foreign exchange services, as well as Internet banking. ■ Pa Macoumba Njie, managing director www.trustbank.gm Pa Macoumba Njie, managing director, Trust Bank

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aged to trim its non-performing loans while keeping profits growing. ICB Banking’s other African banks are in Gambia, Ghana, Mozambique, Sierra Leone and Tanzania. ■ Sashidharan Nair, CEO www.icbank-guinea.com

JORDAN Jordan Kuwait Bank Abdel Karim Kabariti, chairman and CEO, Jordan Kuwait Bank

GHANA Standard Chartered Bank Ghana Standard Chartered Bank Ghana delivers innovative products with advanced technology and reliable service. It was the first financial institution to offer mobile phone banking in Ghana. As a subsidiary of London-based international bank Standard Chartered, the Ghana bank offers a full range of corporate and retail banking services, including foreign exchange, structured trade and corporate finance. The parent institution has operations in 14 African nations and is a leading emerging markets bank worldwide. ■ Ebenezer N. Essoka, managing director www.standardchartered.com/gh

Jordan Kuwait Bank is doing a booming lending business while reducing its non-performing loan ratio to a record low, thanks in part to Jordan’s flour ishing economy. The bank, founded in 1976, offers a full range of commercial banking activities and operates an extensive branch network in Jordan. It also provides a range of electronic delivery channels, including Internet banking and mobile phone access to accounts. The bank’s net income rose more than 30% in 2004, to $25 million. ■ Abdel Karim Kabariti, chairman and CEO www.jordan-kuwait-bank.com

GAMBIA

GUINEA

KENYA

Trust Bank Banjul-based Trust Bank offers retail and investment banking services in Gambia, a small western African nation that straddles the Gambia River. Trust Bank recently signed a master guarantee agreement with the US Export-Import Bank to provide export finance facilities to local com-

International Commercial Bank International Commercial Bank is a member of ICB Banking, a group controlled by former Malaysian finance minister Tun Daim Zainuddin. The group is applying sound banking practices in emerging market countries, including six in Africa. The Guinea-based bank has man-

Barclays Bank of Kenya UK-based Barclays has operated in Kenya for more than 88 years and is the market leader in retail banking. It also is expanding its corporate business and is seeking funding from the International Finance Corporation to increase dollar-denominated loans to medium-size companies. Barclays

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Bank of Kenya is incorporated in Kenya, with Barclays Bank owning 68.5% of the issued shares and the remainder listed on the Nairobi Stock Exchange.The bank has more than 34,000 shareholders, including individuals and institutions. With more than 50 branches, it is the largest of Barclays Bank’s 10 African banking operations. ■ Adan Mohamed, managing director www.barclays.com/africa/kenya

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LEBANON BLOM Bank Naaman Azhari, chairman and general manager, BLOM Bank

KUWAIT National Bank of Kuwait Ibrahim Dabdoub, CEO, National Bank of Kuwait

National Bank of Kuwait’s earnings rose 24% last year, to a record $515 million, maintaining an upward trend annually since the bank was founded in 1952. Domestically, NBK is more than twice as big as its nearest competitor, whether measured in terms of assets, capital or profits.The bank's ratio of non-performing loans declined to 1.53% of the loan portfolio in 2004, giving NBK one of the cleanest loan portfolios of any bank worldwide. The bank opened its 47th branch in Kuwait last September, serving the Andalus area. It is the bank of choice for multinational companies operating in Kuwait and serves local corporations with its strong underwriting capabilities and attention to customer needs. ■ Ibrahim Dabdoub, CEO www.nbk.com

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BLOM Bank has been the biggest bank in Lebanon for more than 20 years, and in 2004 it expanded its presence in the region. It opened Bank of Syria and Overseas at the beginning of last year. BLOM is the largest shareholder in the Syrian bank, with a 39% share, and the International Finance Corporation holds 10%; Syrian individuals hold the remaining shares. BSO is the first privately held bank to open in Syria since the country’s banks were nationalized in 1961. BLOM also opened eight branches, worth $28.1 million, in Jordan last year. Besides offices in London, Paris and Geneva, it has an international banking unit in Cyprus. The bank offers a full range of banking, securities and insurance products. Its stock brokerage unit Blominvest accounted for 36% of the transactions on the Beirut Stock Exchange in 2004, more than any other broker. ■ Naaman Azhari, chairman and general manager www.blom.com.lb

MOROCCO Attijariwafa Bank Attijariwafa Bank, created by the merger last year of Banque Commerciale du Maroc and Wafa Bank, is the largest bank in the Maghreb re-

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gion of northwest Africa. Attijariwafa Bank already has operations in Europe and Algeria and is planning a regional expansion, starting with a new subsidiary in Senegal. The bank is a leader in trade finance and foreign exchange, with extensive global correspondent banking relationships. It also offers insurance and asset management services. Based in Casablanca, the bank has more than 1 million customers and nearly 500 branches. ■ Khalid Oudghiri, presidentdirector general www.attijari.com

NAMIBIA First National Bank of Namibia First National Bank of Namibia, the country’s leading bank, is a division of South Afr ica-based FirstRand Bank, which owns a 55% stake. A group of Black Economic Empowerment partners holds 5%. FNB Namibia merged at the beginning of last year with Swabou, a local savings and loan association, creating a financial institution with a more diverse range of products. The bank posted a double-digit gain in pre-tax profits last year, thanks in part to its newly acquired insurance operations. It is the only bank listed on the Namibia Stock Exchange. ■ Lazarus Ipangelwa, CEO www.fnb.co.za

NIGERIA First Bank of Nigeria First Bank of Nigeria, the country's largest bank, aims to take advantage of the ongoing consolidation of the banking industry to become even bigger. It is holding discussions with a number of potential takeover targets ahead of the new minimum capital requirements that come into effect in December 2005. An oversubscribed rights is-

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sue in February 2004 made FBN the number-two most-capitalized stock on the Nigerian Stock Exchange. First Bank maintains a network of 363 branches, which are gradually being remodeled. With a subsidiary in London and a representative office in Johannesburg, FBN is beginning to expand outside of Nigeria as well. The bank, which has followed a strategy of growth and modernization, was the country's first bank to offer Internet banking. ■ Jacobs M. Ajekigbe, managing director and CEO www.firstbanknigeria.com

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sector bank in India. BankMuscat and Centurion will develop trade finance activities between India and the GCC region and will service non-resident Indian business and investment flows. ■ AbdulRazak Ali Issa, CEO www.bankmuscat.com

QATAR Qatar National Bank Saeed AlMisnad, CEO, Qatar National Bank

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Development and Industry is one of Rwanda’s largest banks and the only one with an ATM network and smart cards. The profitable bank continues to gain market share and is planning to expand into eastern Africa. Founded in 1995 by Alfred Kalisa, a former Bankers Trust vice president, along with a group of local businessmen, it focuses closely on its customers. BCDI finances a large share of Rwanda’s coffee and tea exports, as well as the development of hotels and offices in downtown Kigali. ■ NK Passwell Shapi, managing director www.bcdi.co.rw

SAUDI ARABIA

BankMuscat

Arab National Bank AbdulRazak Ali Issa, CEO, BankMuscat

BankMuscat, Oman's leading bank, aims to become a regional banking institution in the Gulf Cooperation Council states. It opened a branch in Bahrain early last year and plans a second branch in the country. It also has a representative office in Dubai. Meanwhile, it recently established Bank Muscat International, or BMI, an independent banking entity that will focus on the GCC region. As the economies of the GCC nations become more integrated, BankMuscat aims to provide a complete banking service to its customer s as they expand throughout the region. In February 2004 it acquired a 33% stake in Centurion Bank, a new private-

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Qatar National Bank, which is 50% owned by the government, controls nearly half of the country’s banking assets. Its earnings rose 27% last year, while its deposit base grew by 23%. The bank has developed core competencies in project finance and syndicated lending and is helping to finance the country’s ambitious plan for tourism development by backing new hotel construction. Several major five-star hotels are scheduled to open by 2006, when Qatar will host the Asian Games. The Doha-based bank has the nation’s largest distribution network, with 35 local branches and offices in London and Par is. Last year, QNB implemented JPMorgan Chase’s Horizon system for managing operational risk. ■ Saeed Al-Misnad, CEO www.qatarbank.com

RWANDA Bank of Commerce, Development and Industry Kigali-based Bank of Commerce,

Nemeh Sabbagh, managing director and CEO, Arab National Bank

Arab National Bank’s profits for 2004 increased by 52%, to $311 million, and its return on equity reached 26.6%.These record results came amid a buoyant Saudi economy, which benefited from high oil prices. ANB provides a full range of retail, corporate and investment banking services. The bank was established in 1980, when it took over the six branches of Arab Bank of Jordan under the “Saudization” program. It now has a domestic network of 125 branches, as well as a London branch. ANB is reconstructing its branches, often in new locations, to upgrade them and give them a standard look. Three of the

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Commercial International Bank Builds Advanced Infrastructure Adopting state-of-the art technology to better serve customers ver since our establishment in 1975, Commercial International Bank (CIB), Egypt’s largest and most profitable private bank, has continually worked to improve the service we offer our customers.We have achieved this over the years by investing in state-of-the-art infrastructure, systems, delivery channels and high-quality personnel. In recent years one of the bank’s main objectives has been to update and develop our information technology and communications infrastructure. New and improved systems were required to satisfy the requirements of our overall business strategy. By utilizing and capitalizing on the available infrastructure, we have been able to install a reliable centralized core banking system to serve both corporate and retail customers.The systems are linked to the necessary modules to efficiently provide a high-quality service. CIB’s systems are securely connected to the SWIFT global network in order to ensure fast and accurate processing.We have also introduced a new centralized system to manage loan arrangements with small and medium-size enterprises (SMEs).This new system is fully integrated with the bank’s core banking system and our trade finance and dealing networks. CIB is also the first bank in Egypt to set up a Chip Personalization Centre for our own centralized card management and also to provide Chip Cards for a number of other banks and institutions. Today CIB is able to offer a wide range of banking solutions and services for both corporate and retail customers using a variety of different delivery channels.

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Our Internet banking service has proved popular with many of our corporate and retail customers and combines a number of unique features, including a user-friendly multilingual interface. Internet banking customers now have access to a range of new services including fund raising, automatic bill payment and automatic requests processing.We have also recently introduced new cash management and trade finance services for our corporate Internet banking customers. CIB customers also have access to a network of 220 ATM machines, allowing them to perform a number of everyday banking transactions quickly and easily, including depositing cash or checks, paying utility bills, transferring funds or foreign exchange transactions. All our ATM machines use state-of-the-art monitoring and management systems to ensure reliable and efficient service. All of the bank’s systems use the latest security and cryptography technologies, including a variety of firewalls and PK Infrastructure technology, which supports digital signatures and other public key-enabled security services. At CIB we never underestimate the importance of our human talent, and we have invested heavily in recruiting highly-trained, specialized IT staff to manage and develop our IT systems to ensure we continue to offer the best possible service to our customers. ■ Contact information: Strategic Relations and Finance Programs Group Tel: (202) 570-2679 Fax: (202) 571-2362 Email: [email protected] 2 0 0 5

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branches offer exclusive Islamic banking services. ■ Nemeh Sabbagh, managing director and CEO www.anb.com.sa

SOUTH AFRICA Standard Bank Jacko Maree, CEO, Standard Bank

Standard Bank prospered in 2004, as Africa’s economy expanded at twice the average rate of the past 20 years and emerging markets were strong. The bank’s earnings increased by 22% last year, and the return on equity reached 26.4%. Earnings from retail banking rose 28%, while earnings from Africa, excluding South Africa, increased by 30%. Operating expenses in domestic banking rose 16%. Standard Bank is using broadband satellite service to expand its ATM availability, especially in South Africa’s rural areas. Standard Bank London has been active in syndicated lending for trade finance. Along with other banks, it signed a $47 million facility for Ukraine-based Post Pension Bank Aval and a $100 million syndicated term-loan facility for Halyk Bank of Kazakhstan in March 2005. ■ Jacko Maree, CEO www.standardbank.co.za

TUNISIA Banque de Tunisie Banque de Tunisie, the most consistently profitable bank in Tunisia in

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recent years, posted a 5% rise in net income in 2004, to $30 million. As a result of its good asset quality, the bank was able to reduce its loan loss provisions by 34%. Higher commissions and fees helped to offset a decline in the interest margin. Along with other major Tunisian banks, Banque de Tunisie joined Swift’s online messaging system last year. ■ Faouzi Belkahia, president director general

UAE National Bank of Dubai National Bank of Dubai's profits increased by 15.3% in 2004, to $253 million, while return on equity was 17.1%, compared to 14.6% in 2003. While most of the bank’s revenues come from its corporate banking business, it is boosting its retail banking operations and began offering home loans in February 2005.The bank has 39 domestic offices, as well as a branch in London and a representative office in Tehran. In addition to providing loans to government entities and businesses, NBD is active in trade finance and project finance, as well as foreign exchange and money markets. Last September it introduced a regional investment fund. ■ R. Douglas Dowie, CEO www.nbd.com

UGANDA Stanbic Bank Uganda Kampala-based Stanbic Bank Uganda is part of the Standard Bank group of South Afr ica. In Febr uar y 2002 Stanbic Bank bought 90% of the shares in Uganda Commercial Bank, a government-owned mainly retail bank with 67 branches. Stanbic Bank remodeled the branches and added a centralized computer network, as well as ATMs. Stanbic has operated in Uganda since 1906 and pur-

EMERGING MARKET BANKS: ME&A

chased the Grindlays’ network in Africa in 1993. ■ Kitili Mbathi, managing director www.stanbicbank.co.ug

ZAMBIA Standard Chartered Bank Zambia Standard Chartered Bank not only is profitable in Zambia, but its AIDS initiative also is making a difference in the communities where it operates. Mineral-rich Zambia remains one of the poorest countries in the world, but its economy is growing, and Chinese companies have invested in its copper-mining industry. Meanwhile, Zambia’s banking system is being modernized, thanks in large part to the presence of a handful of foreign banks, including Standard Chartered. ■ Thomas Aaker, managing director www.standardchartered.com/zm

ZIMBABWE Stanbic Bank Zimbabwe Stanbic Bank Zimbabwe is benefiting from a flight to quality in Zimbabwe’s consolidating banking sector. Stanbic Bank also has the risk-management skills required to succeed in a difficult economic and political environment. Zimbabwe’s economy is in its sixth year of recession, due in large part to the policies of the government of Robert Mugabe, which seized white-owned farms and frightened away investors. Mugabe’s party was returned to power in a huge landslide in the recent parliamentary elections, which were marred by charges of fraud. Stanbic is the brand name of Standard Bank of South Africa in the 17 African countries in which it operates outside of its home base. ■ Pindie Nyandoro, managing director www.stanbicbank.co.zm —Gordon Platt

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EMERGING MARKET BANKS: CEE

CENTRAL AND EASTERN EUROPE

Regional winner: RZB/Raiffeisen International ustria’s RZB/Raiffeisen International was one of the first European financial institutions to make a serious commitment to Central and Eastern Europe, and through continued dedication—displayed by new acquisitions such as the Savings Bank of Albania—it has stayed ahead of the pack. Its total assets in the region have grown from €1.395 billion in 1995 to more than €28 billion by the end of 2004, with acquisitions accounting for less than €5 billion of that. RZB has consistently produced strong organic growth.The bank has now added acquisitions to the growth mix, and in the past year assets have increased by more than 40%. With almost 23,000 employees in 16 markets in the region, RZB has grown its coverage, but not at the expense of profitability. For the business year 2004, the group earned a before-tax profit of €342.2 million—a record result and an increase of €65.5 million, or 23.7%, over 2003.That growth is being driven by the phenomenal increase in demand for banking services in the CEE market. GDP growth in the CEE has been around twice that of the eurozone in recent years, and the rate of growth of banking assets has been even higher as historically the region has been underbanked, according to RZB.With the bank well positioned to benefit from increased activity in the SME market and a potential explosion in consumer debt, it will take a lot to unseat RZB as the dominant player in the region. ■ Walter Rothensteiner, chairman www.rzb.at

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ALBANIA Raiffeisen Bank (formerly Savings Bank of Albania) Savings Bank of Albania was already a Global Finance favorite before Raiffeisen took charge at the privatized bank in April 2004. The swift modernization that accompanied its acquisition—the core banking system was replaced in less than four months—has predictably improved its position further. Locals have taken well to the acquisition, and during the takeover the number of accounts increased. In the all-important retail market, the

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bank launched a re-branding campaign and set about refurbishing every branch, while also establishing the largest ATM network in the country, with 50 machines at the end of 2004, another 50 planned for 2005 and 10,000 Visa debit cards issued. Meanwhile, the former Savings Bank has begun lending to the SME market in Albania for the first time in eight years. ■ Steven Grunerud, CEO www.raiffeisenbank.co.yu

BELARUS Priorbank

Raiffeisen-owned since 2003, Priorbank is the third-largest bank in Belarus, with around 12% of the Sergey Kostyuchenko, chairman, Priorbank

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total market’s assets. Since the beginning of 2002 the bank has increased its loan portfolio more than threefold and consequently increased its market share by 4%, to 10.6%. One of the bank’s greatest achievements has been to grow retail lending from just 0.5% of the market to 6.8% of the market. Priorbank is now the most profitable bank in the Republic of Belarus, which is growing strongly but still suffers the ill effects of hyperinflation and remains one of the most closed economies of the region. While Priorbank is still placed only third in terms of assets, capital and loans, it cannot be long before the ambitious operation challenges the largest banks in the country. Bank assets now stand at €480 million, having increased by 1.2 times during the past year. ■ Sergey Kostyuchenko, chairman www.priorbank.by

BOSNIA & HERZEGOVINA Raiffeisen Bank

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June 30, and the other between HVB and Central Profit Banka on September 30. Despite the challenges posed by these new groups, Raiffeisen Bank maintained its dominant position in the market, with a 21% share of assets. Indeed, it has increased its share of assets from 19.8% in 2003. But the struggle in the next 12 months will be tougher: Instead of a fragmented market, Raiffeisen now faces UniCredito Zag rebacka, with 15% market share in third place, and HVB Central Profit Banka, with 8% of market assets. Further acquisitions are expected in 2005. ■ Edin Muftic, CEO www.raiffeisenbank.ba

BULGARIA DSK Bank

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now provides financing to more than 560,000 individuals, giving it a market share of 43%. Indeed, the bank boasts that it reaches almost every Bulgarian household, servicing more than 3.8 million clients with over 1 million payment accounts and 700,000 cards. Meanwhile, DSK Bank has also doubled commercial loans and increased its corporate clients by 50,000. ■ Violina Marinova, chairman and CEO www.dskbank.bg

CROATIA Privredna Banka Zagreb Bozo Prka, chairman, Privredna Banka Zagreb

Violina Marinova, chairman and CEO, DSK Bank

Edin Muftic, CEO, Raiffeisen Bank

Competition is heating up in Bosnia and Herzegovina. The country’s Banking Agency spent much of last year revoking licenses of smaller banks and initiating liquidations in a bid to clean up the market. Meanwhile, approval was given for two large mergers: one between Zagrebacka Banka and Universal Banka completed on

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Solely owned by Hungary’s largest financial institution, OTP Bank, since last year, DSK Bank now has an organization with a market capitalization of almost €8 billion behind it. Just seven years after the DSK’s creation from the hulk of a state-owned savings bank, growth continues apace, and innovation is the key to increased profits. DSK’s after-tax profits went up by 60% in 2004, and the bank shows no sign of stopping.With the experience of OTP behind it, the bank has stepped up the introduction of new products and services. The bank

The largest and oldest of Croatia’s financial institutions, Pr ivredna Banka Zag reb—par t of Italian Gruppo Banca Intesa since 1999— has benefited from the flourishing local economy in the past year. In 2004 group net profit increased 5.8% against a backdrop of strong competition and constant pressure on interest rates. Most importantly, performance indicators show continuous improvements in profitability and productivity. The return on average equity at the level of the group was 18.6% while the consolidated retur n on average assets reached a very respectable level of 1.7%. Earnings per share also increase by 5.7%. Total deposits in 2004 rose by 8.1%, and the bank now commands a market share of

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Asaka Bank: Your Key for Success in Uzbekistan o support the development of key industries, Development (EBRD), the Asian Development the Government of Uzbekistan— Bank (ADB) and International Financial understanding the importance of such growth to Corporation (IFC).There are currently pending the national economy—created specialized credit lines totaling $20 million from Islamic financial institutions. Development of the motor Development Bank and the European Bank for industry fell to the young and ambitious Bank Reconstruction and Development. Asaka, which began its role as a Specialized State From its inception, the bank has successfully Joint-Stock Commercial Bank at the end of offered trade-financing services. Short-term 1995, at which point it had authorized capital of credits were established with JPMorgan Chase, US$150 million, 799 employees and 15 branches. UBS, BCP and several German banks, in addition From the start, Bank Asaka took a lead position in to an agreement with the European Bank for the banking market of the country. By 2003, Reconstruction and Development under the capital had grown by 10.7%, assets by 59.5%, Trade Facilitation Program (TFP). credit portfolio by 62.8% and A significant event for the Republic of Uzbekistan client base (including banking and financial system ● 4th place in the world in cotton investors) by 34.6%. By 2004, of Uzbekistan was the manufacturing and processing the bank had 26 branches and participation by Bank Asaka in ● 4th place in reserves of gold 45 “mini-banks,” with a total the syndicated loan for $36 ● 10th place in reserves of natural gas staff of 1,966 employees, million with a maturity of ● 11th place in reserves of copper At an early stage, the bank three years for the Amantaytau participated in the financing of ● 29th place in automobiles Goldfields gold extraction delivery of accessories from joint venture.The bank manufacturing Korea for the production of participated as the creditor cars by the joint venture UzDaewooAuto, as well along with such major banks as West LB and as for specialized engineering and the Standard Bank London.The project, which was manufacturing of buses for SamCochAuto. In initiated by British company Oxus Researching, addition, the bank financed seven new joint has continued in Khandiza (the Surkhan-Darya ventures for manufacturing spare parts from local region), for which Asaka has been allocated a raw materials, resulting quickly in the reduction of significant portion. raw materials dependence for two manufacturers. With its growing list of clients, branch network By following its strategic plan, since 2001 the and solid international reputation, the bank can bank has been a dynamically developing review the past 10 years with pride and can look institution, diversifying its activities by reducing its ahead with confidence. Global Finance magazine concentration in the auto industry and has recognized Bank Asaka as “The Best Bank in participating in investment projects totaling $200 Uzbekistan”—a distinction that will further million, including 20 investment projects in the enhance the bank’s relations with the leading textile industry, eight in pharmaceuticals, six in banks and financial institutions of the world. ■ information technology and two in transportation Mr. Shokir J. Juraev, Chairman of the Board and telecommunications. For these projects the Contact person: Mr. Jamshid M. Rakhmonov, credit lines of more than 160 foreign Head of International Division correspondent banks were used, with insurance 67, Nukus Street coverage by export credit agencies. 700015 Tashkent This adds to the bank’s growing reputation for Republic of Uzbekistan reliability and trust within the world banking Tel: (+998 71) 120 – 82 48 (203) community. In addition, the bank has successfully Fax: (+998 71) 120 – 8 166 utilized four credit lines, totaling $60 million, Email: [email protected] from such international financial institutions as www.asakabank.com. the European Bank for Reconstruction and

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19.4%. Privredna Banka Zagreb also continued its steady program of ATM expansion and introduced the PBZ American Express’s Platinum card. ■ Bozo Prka, chairman www.pbz.hr

CYPRUS Bank of Cyprus After two difficult years for the banking sector in Cyprus—which was affected by the prolonged downturn of the stock market and difficulties in the wider Cypriot economy, along with stricter regulations regarding loan quality—the Bank of Cyprus Group exper ienced a solid 2004 and looks well positioned for 2005. The bank has instituted a new management structure and expects return on equity to increase to more than 13% in 2005 from 6.9% in 2004. Nevertheless, 2004 was a good year for the bank: Group profit after tax for 2004 reached C£38 million compared to a loss of C£29 million in 2003. Domestic core profit increased 57% to reach C£79 million compared to C£50 million in 2003. Much of this is due to programs for cost containment and enhancing revenue. Group total assets increased 13% during 2004, and total customer deposits shot up by 17%. ■ Solon A. Triantafyllides, chairman www.bankofcyprus.com

CZECH REPUBLIC Ceská Sporitelna Ernst Bank-owned since 2000, this bank is consistently seen as the leading innovator in the Czech market, serving retail and small and medium-size businesses effectively. It has one of the best networks in the country, with 1,071 ATMs and almost 2.8 million bankcards at the

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end of 2004 and well over 5 million customers. That dedication to service and innovation has paid off handsomely for the bank, which in the six months to June 2004 achieved an unaudited net consolidated profit after minority interests of Ckr4.39 billion ($188 million) under International Financial Reporting Standards (IFRS).That represents an increase of 30% while operating profit for the same period increased by 50%. Ceská Sporitelna expects its net profit to grow around 10% this year. ■ John James Stack, chairman and CEO www.csas.cz

ESTONIA Hansabank Long the darling of international investors—which essentially used this dominant player as a proxy for the entire Baltic region—the disappearance of Hansabank from the Estonia stock exchange following its purchase by Swedbank is a disappointment. But the factors that made it such an attractive target are clear: It is an efficient and dynamic player in one of the fastest-growing regions of the world. The bank benefited from improved consumer sentiment following Estonia’s accession to the EU in May 2004, one result of which was an increase in lending of 35% during 2004. Due to faster-than-expected asset growth and improvements in efficiency, Hansabank’s net profit increased 40% over the year, to €182.8 million. Fur ther more, Hansabank’s market value rose by 80% over the year, to €3.05 billion. ■ Erkki Raasuke, acting CEO www.hansagroup.com

HUNGARY OTP Bank OTP Bank’s acquisition of DSK

EMERGING MARKET BANKS: CEE

Bank in Bulgaria last year—and its continued expansion this year with the purchase of a 95.59% stake in Croatian bank Nova for €236 million in April—is an indication of the confidence the bank now has. OTP is also in the process of trying to buy 99.89% of the capital of Niska banka in Serbia. Already overwhelmingly the dominant player in Hungary and the largest bank in Central Europe by market capitalization, the bank certainly has the money to spend: Its beforetax profit increased from Hf87 billion in 2003 to Hf123 billion ($641 billion) in 2004. Consolidated net profit is expected to rise by 10.3%, to Hf138.82 billion ($723 million), in 2005, and the bank expects to hit Hf245.89 billion by 2009. ■ Sándor Csányi, chairman and CEO www.otpbank.hu

LATVIA Parex Banka Parex Banka was the first company from Latvia to access the syndicated loan market and in Apr il launched the first eurobond from the country. Already observers are predicting the bank could float later in the year or in 2006, valued at up to $1 billion. Parex Banka is the largest bank in Latvia in terms of assets. Its largest owners are the bank’s top executives,Valery Kargin and Viktor Krasovitsky. Bank assets grew by 33.2% in 2004, the volume of deposits by 32.1%, and the volume of loans issued by 43.7%. The growth of Parex’s mortgage portfolio was exceptional at 104.6% while its market share in terms of assets was 17.8%, its share of deposits 20.4% and its market share of loans 15.2%. ■ Valery Kargin, president and chairman www.parexgroup.com

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LITHUANIA SEB Vilniaus Bankas Julius Niedvaras, president and CEO, SEB Vilniaus Bankas

Now known as SEB Vilniaus Bankas, to better reflect its ownership by Sweden’s SEB, the bank is the biggest in Lithuania and the market leader for deposits and lending. It is also being used to further SEB’s expansion in the region. In January 2005 it completed the purchase of 95% of the shares of Ukrainian Bank Agio. In 2003, the last year for which figures are available, the bank’s assets increased by 29.1% while its mortgage loans increased by 88%. Equally impressive was an increase in consumer loans of 76%.With a market share of corporate deposits of nearly half the market and a third of retail deposits, SEB Vilniaus Bankas appears unassailable in its home market. ■ Julius Niedvaras, president and CEO www.vb.lt

MACEDONIA Komercijalna Banka Komercijalna Banka is celebrating 50 years of existence in 2005 and is in fine shape as it does so. In the last figures available, from its 2003 annual report, the bank increased gross profit by 21%. Retail deposits increased by a healthy 20% while other entities, principally corporates, increased deposits by 16%.

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Lending to corporates increased a huge 66% on 2002. The bank has successfully modernized the banking market in Macedonia and claims success in using the Internet for services, not only for retail customers but for international payment operations. The bank’s internal FX market had a turnover of $821 million in 2003. ■ Trajko Davitkovski, chairman www.kb.com.mk Trajko Davitkovski, chairman, Komercijalna Banka

MALTA HSBC Malta Five years on from HSBC’s acquisition of Mid-Med Bank, the operation continues to go from strength to strength, with 2004 being another record year. Before-tax profit increased by 26.3% while costs were cut without reducing customer service or investment for the future. The bank’s fund management, insurance and stock-broking subsidiaries contributed substantially to the overall performance of the group. Profit attributable to shareholders increased by 31.9%. During the year, the bank, in common with other HSBC operations, focused on customer-driven initiatives. The result in Malta was the reorganization of operations into three groups: personal financial services, commercial banking, and corporate and investment banking and markets. The change has been backed up by

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continued investment in technology, premises and systems. ■ Shaun Wallis, CEO www.hsbcmalta.com

MOLDOVA Victoriabank Unrelenting in its efforts to offer a modern standard of universal service to Moldovan customers,Victoriabank has begun offering Internet banking services in order to improve the quality and accessibility of its operations. The country’s largest bank says that improved customer relations and a more professional approach to delivering services helped to increase its number of clients by almost 20,000, to more than 86,000 in 2003, the last year for which figures are available.That helped to boost assets by 28%. The bank has also been an integral player in developing the Moldovan economy—working with the IFC, EBRD and other international organizations to distribute lines of credit to new and growing businesses. ■ Victor Turcanu, president and chairman www.victoriabank.md

POLAND Bank Pekao In 2004 UniCredit subsidiary Bank Pekao increased consolidated net profit by 46% to hit a new record, while return on equity increased from 13.1% to 18.8% over the year. The bank attributes this impressive performance to improved efficiency and a determination to identify and resolve all the negative areas of the bank’s revenue structure identified a year earlier. The bank set out to improve its revenue mix. Fees and commission income now represent 37% of total income compared to 34% a year ago. Similarly, Pekao achieved good results in sales

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of its strategic products: mutual funds and mortgage loans. In 2004 the bank’s mutual funds increased their market share to a record high of 34.5% from 30.4%, while new mortgages shot up by 99.5%. That gave the bank a market share of new sales of mortgages of 25.3% from just 10.9% a year earlier. ■ Jan Krzysztof Bielecki, president and CEO www.pekao.com.pl

ROMANIA Raiffeisen Bank Steven van Groningen, president and CEO, Raiffeisen Bank

Raiffeisen Bank is now a leading universal bank in the Romanian market, providing a complete range of products and services to private individuals, SMEs and large companies through its 200 banking outlets, its extensive ATM network and its phone and mobile banking services. It is also modernizing the country’s banking industry: In the past year it offered new loan products and the first drive-in ATMs in Romania for retail customer s. Meanwhile, Raiffeisen Bank launched the largest cor porate bond issue on the Romanian market since 1989 and financed the largest infrastructure project in Europe—the building of Brasov-Bors motorway by American corporation Bechtel. Raiffeisen is also a leading funding par tner of the largest mobile communications

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companies operating in the Romanian market, Connex and Telemobil. ■ Steven van Groningen, president and CEO www.raiffeisen.ro

RUSSIA MDM Bank Joint holder of the highest credit ratings for a privately owned Russian banking group from all three ratings agencies, MDM Bank shook off many of the problems experienced in the Russian market in the past year to post an impressive set of figures for the first three quarters of 2004, the most recent figures available. Group profit was $153 million while core revenues rose 10.4% on the previous year. Total assets grew 13% while total shareholder equity increased 23%, to $839 million. One of the bank’s key growth areas was consumer loans, which increased 21% over the 2003 year-end level. Much of its solidity can be attributed to a tier-one ratio of 19.2%—well above the bank’s own target of 13% to 15%. ■ Andrey Saveliev, CEO www.mdmbank.com

SERBIA & MONTENEGRO Raiffeisen Bank After just four years of operations, Raiffeisen Bank is now a true universal bank in Serbia and Montenegro, offering a full range of banking products and services to all major client groups such as corporates, private individuals and SMEs. One year ago, when Raiffeisen last won this award, the bank was congratulated for its extraordinary growth and for placing fourth in the country. Now it is Serbia’s leading bank by all main criteria: total assets, loans to customers, deposits from customers, and profit. In every area of banking, market share soared in

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2004. Market share of retail lending increased from 7.54% at the end of 2003 to 12.82% by September 2004. Similarly, market share of corporate deposits increased from 10.69% to 19.34% over the same period.Total assets market share increased almost 5% over the same period.The figures behind these increases in market share are incredible: a 261% increase in the retail credit portfolio and a 70.2% increase in corporate deposits. ■ Budimir Kostic, chairman www.raiffeisenbank.co.yu Budimir Kostic, chairman, Raiffeisen Bank

SLOVAKIA VUB Banca This majority-owned subsidiary of Italy’s Banca Intesa since 2001 spent a year transforming itself into a modern organization, and by the end of 2003 that investment had paid off. The bank entered 2004 able to offer products and services as good as or better than the competition. Net profit grew more than 47% in 2003 largely through cost cutting. But more importantly, the bank was set up for a stellar 2004. Net operating profit under IFRS grew an impressive 82% in 2004 against a backdrop of an increase in operating revenues of just 14%— further proof that efficiency is now firmly embedded at VUB.The bank increased total consolidated assets

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by 14% while the customer loan portfolio grew by nearly 12%. One of the best-performing areas at the bank was its fund management franchise, which grew assets under management by 106%. ■ Tomas Spurny, CEO www.vub.sk

SLOVENIA Nova Ljubljanska Banka Although Nova Ljubljanska Banka, which is one-third-owned by Belgium’s KBC, suffered a drop in net profits in 2003, the last year for which figures are available, the bank is still the one to beat in Slovenia. It has 57,500 business accounts and a Marjan Karmar, president and CEO, Nova Ljubljanska Banka

39.4% market share in the SME sector. It dominates the retail market to a similar extent. Nova Ljubljanska Banka also expanded its range of services on the Slovenian market in 2003 with the creation of life assurance company NLB Vita, a

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joint venture with KBC. In the first six months of operation, the venture took a 4% market share. ■ Marjan Karmar, president and CEO www.nlb.si

TURKEY Akbank This is another win for Akbank, which has undergone major change in the past few years. Back-office staff has been reduced and processes centralized while branch staff have been retrained and operations have become more sales-focused. Akbank’s success in modernization is evident from the fact that 66% of all banking transactions are now done by alternative, non-branch means such as Internet banking, call centers or ATMs. Similarly, the new emphasis on sales has resulted in a 90% increase in fees and commissions, mainly from credit card and asset management operations. In the consumer market, Akbank is number one in loans, with a 15.4% market share, and is well positioned in the rapidly growing mortgage market, with 13.2%. The bank is the most profitable private-sector bank in Turkey, and with total assets of $26 billion at the end of 2004 it is a hard act to beat. ■ Zafer Kurtul, president and CEO www.akbank.com.tr

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UKRAINE Privatbank Despite the political upheaval of the past year in the Ukraine, Privatbank has carried on doing what it knows best: improving banking services for its 8.4 million retail customers and 365,000 corporate customers. The bank now has more than 2,100 ATM machines and 1,738 branches and a staff of more than 23,000 employees. It recently enhanced its ATM netAlexander Doubilet, chairman, Privatbank

work, is now expanding its branch network and is increasing its Visa and MasterCard business. Privatbank has a leading 35.7% share of the Ukrainian financial services market. According to figures from the National Bank of Ukraine, Privatbank can boast number-one positions in total assets and loan portfolio and is also a clear leader when it comes to net profit. ■ Alexander Doubilet, chairman www.pbank.com.ua —Laurence Neville

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Regional Winner: HSBC ith operations in nearly 80 countries, HSBC’s dominance in Asian banking reaches back to its formation in Hong Kong in 1865 and continues with its recent inroads into the Chinese banking market. Last year HSBC bought a $1.7 billion stake in the Bank of Communications, China’s fifth-largest bank, and earlier this year became the first foreign bank to provide local currency services in the Chinese capital of Beijing.The bank’s renminbi services for local and international corporations aims at strengthening the business links with domestic companies based in the capital city of this Asian economic giant. Elsewhere in Asia, HSBC also acquired a 14.6% stake in an Indian private bank, UTI Bank, in 2004. HSBC Group executives have targeted India and China, along with Brazil and Mexico, as markets with strong growth potential for the bank over the next several years.And in other recent expansions, this giant financial services firm that is now based in London integrated the Bank of Bermuda into HSBC Group and bought the retail financial services arm of the Marks & Spencer Group.The bank provides a comprehensive range of financial services to consumer and corporate clients through a network of more than 9,800 offices in 77 countries around the globe. Earnings in 2004 jumped to $11.8 billion,up from $8.8 billion in 2003,while assets increased to nearly $1.3 trillion. ■ Stephen Green, group chief executive of HSBC Holdings and chairman of HSBC Bank plc www.hsbc.com

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ARMENIA Converse Bank Converse Bank has emerged as one of the top banks in Armenia over a tumultuous decade in which the number of commercial banks dropped drastically by more than 70%. Since this Southwest Asian nation first created a banking system in 1993, the Central Bank of Armenia has implemented a wide range of reforms to strengthen the country’s financial system. Assets and profit grew as the number of commercial banks plummeted from more than 70 to about 20 to-

day. Converse Bank provides a full range of services, including commercial lending, trade finance and correspondent banking, to its business clients and caters to retail customers with consumer loans, Internet banking and a network of branches. Its managers are dedicated to using the latest banking technology and innovative solutions to meet their clients’ financial needs. The bank was listed on the Yerevan Stock Exchange in 1995. Assets total $70 million. ■ Nasibyan Smbat, general director www.conversebank.am

AZERBAIJAN International Bank of Azerbaijan Republic Jahangir Hajiyev, chairman, International Bank of Azerbaijan Republic

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The largest bank in this former Soviet Republic country, the International Bank of the Republic of Azerbaijan is majority-owned by the Ministry of Finance. So even though it carries the risk that goes along with rapid growth and a concentrated balance sheet in a volatile economy, the bank retains the backing of the state, which held a 50.2% stake at the end of 2004.As part of banking reforms announced by the president earlier this year, the government will sell off shares and is expected to sell a 20% stake to the European Bank for Reconstruction and Development. The bank remains strong in foreign exchange; it was created in 1990 as a replacement for the local branch of Vnesheconombank, the former USSR foreign trade bank. IBA is also a leader in corporate lending as it expands its retail operations.The bank has about 35 branches and more than 100 outlets in 30 cities around the country. With about $664 million in assets, IBA retains slightly more than half of the total assets in the nation's banking system. ■ Jahangir Hajiyev, chairman www.ibar.az/en

BANGLADESH Islami Bank Bangladesh In a banking system dominated by four large state-owned banks, Islami Bank Bangladesh stands out as one of the successful privately owned banks in Bangladesh. The bank was created more than two decades ago to operate under the principals of Islamic law, known as Shariah, meaning it earns profits on investments rather than charging interest on loans and pays a portion of gross returns to depositors. Islamic banking principals require social goals to be emphasized before the maximizing of profits, so Islami Bank has maintained better-than-average asset quality. This successful formula encompasses a wide investment portfolio that ranges from more than 40%

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for trade to about 30% for industry to 2.5% for agriculture and rural investment. The bank has introduced such projects as the Rural Development Scheme to help improve the living standards of people, especially women, in rural areas. Operating in one of the largest Muslim countries in the world, this financial institution has assets of nearly $1.4 billion, about 3,700 employees and 140 branches, mostly in the urban areas of Bangladesh. ■ Abdur Raquib, executive president www.islamibankbd.com

CHINA ICBC The largest of China’s four stateowned commercial banks, the Industrial and Commercial Bank of China is a full-service bank offering a wide range of services to corporations, governments and consumers.The bank is moving far from its roots in the mid1980s as a source of working capital to state-owned enterprises.This spring it received regulatory approval to launch gold derivatives products, for example, and analysts are waiting to see how the bank’s much anticipated reorganization plays out this year. Bank executives hired China International Capital, the country’s largest investment bank, in March to lead a reorganization of the bank’s $640 billion worth of assets and turn it into a joint-stock company.The reorganization will prepare ICBC for an initial public offering that could reach $10 billion and be the nation’s biggest share sale. The bank has a strong franchise, with 20,000 branches within China’s borders and about 70 branches overseas. Those offices are servicing 100 million individual customers and more than 8 million corporate clients. Operating profits for 2004 were up 20%, to $9 billion. ■ Jiang Jianging, chairman and president www.icbc.com.cn

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GEORGIA ProCredit Bank (Georgia) ProCredit Bank (Georgia) has built its success by providing credit and financial services to entrepreneurs and to micro and small businesses in this country of nearly 4.7 million people. Owned by a consortium of international financial institutions, the bank is part of a global network of nearly 20 banks spread through Eastern Europe, Latin America and Africa. It was created in 1999 as Microfinance Bank of Georgia. Analysts say the bank’s Western management is experienced and efficient and adheres to sophisticated risk management procedures.Assets are about $62 million, and the bank is increasing lending to mid-size companies and expanding consumer services with home mortgages and improvement loans. The bank is also attracting more retail customer deposits. ■ Philip Sigwart, general manager www.procreditbank.com

INDIA ICICI Bank K.V. Kamath, managing director and CEO, ICICI Bank

ICICI Bank has used its expertise in technology to emerge as a significant player in consumer banking, with 505 branches and about 1,800 ATMs in more than 250 cities across India. The bank’s retail deposit base has more than doubled since its shift in

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March 2002 from a developmentbanking model into a commercial bank. India’s second-largest bank continues to serve the nation’s leading companies and small and midsize businesses with an array of services from correspondent banking to structured finance deals as its international banking group caters to the cross-border needs of its corporate clients.The bank is financially sound, with $33.6 billion in assets at the end of 2004. About 16% of its equity remains indirectly in gover nment hands as a public company listed on the New York Stock Exchange, and it has access to foreign international investors, who hold close to a 70% stake in the bank. ■ K.V. Kamath, managing director and CEO www.icicibank.com

INDONESIA Bank Danamon Francis A. Rozario, president, Bank Danamon

Bolstered by a strengthening economy as well as the financial muscle of its parent, Temasek Holdings, Bank Danamon posted stronger profits and a stronger capital position for the year 2004. The bank’s net profit after tax was up by 57% last year as the bank carved out a successful niche in Indonesia’s growing market for consumers and small and mid-size businesses.The purchase of a 75% interest in Adira Finance in April of 2004 has given it a strong entry into the high-

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er-margin market of micro-credits or small-scale loans.With $6.3 billion in assets, Bank Danamon is the country’s fifth-largest bank and accounts for 5% of the nation’s system-wide assets. While its loans to corporate clients now make up a smaller percentage of its loan portfolio, the bank still offers corporates an array of services from loans, to treasury services, such as foreign exchange and complex derivative transactions, to standard trade finance activities like letters of credit. ■ Francis Andres Rozario, president www.danamon.co.id

KAZAKHSTAN Kazkommertsbank The largest commercial bank in this Central Asian nation, Kazkommertsbank has shaped its success by offering a wide range of services to mid-size and large corporations. It provides domestic and international clients with expertise in everything from trade and structured finance products to corporate lending to asset management services.While its share of the corporate loan market remains significant at nearly 30%, the bank is generating more business by targeting regional small and mid-size enterprises as well as retail clients. The bank now has about 20% of the retail deposit market and a network of about two-dozen full-service banks. The bank has increased profitability recently by expanding into other markets throughout the Commonwealth of Independent States as it improves its IT and risk management techniques. ■ Nina A. Zhussupova, chairman of the management board www.en.kkb.kz

KYRGYZSTAN AsiaUniversalBank This Central Asian financial institution has leveraged an expertise in technology and an extensive network of correspondent banks to become one of

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the region’s leading providers of international banking services. The bank’s management sees itself as bridging a gap between East and West as it provides a wide range of banking services to corporations throughout the Commonwealth of Independent States. Created in 1997, AsiaUniversalBank focuses on interbank clearing, currency exchange, export-import deals and other international transactions for clients throughout the region. It provides trade finance services to many of the country’s leading corporations. This year, the bank is continuing its expansion into international activities, including setting up a correspondent banking account with American Express Bank in New York. AsiaUniversalBank already has correspondent relations with banks throughout the CIS, the Baltics and Europe.Assets total about $100 million. ■ Nurdin Akenovich Abdrazakov, CEO www.aub.kg/en

MACAU Seng Heng Bank Seng Heng Bank is Macau’s thirdlargest bank by assets and a strong player in the corporate market, with commercial banking services accounting for more than 80% of its loan book. While the quality of the bank’s $2.5 billion in assets is sound, the bank’s loan book is highly concentrated, and the 10 largest borrowers account for about 70% of its total loans. However, it has the support of its parent, the Sociedade de Turismo e Diversoes de Macau. Since its acquisition by STDM in 1989, the bank has implemented technology so it can offer services such as phone banking while corporate customers can obtain sophisticated advice on project finance deals or mergers and acquisitions. ■ Hung Sun Stanley Ho, chairman and managing director www.senghengbank.com

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MALAYSIA Maybank Datuk Amirshamz Aziz, president and CEO, Maybank

As Malaysia’s largest bank, with nearly a quarter of the country’s banking assets, Maybank is dominant in both conventional and Islamic banking. With almost half of the market share for Islamic trade financing, for example, this international bank also retains nearly a quarter of the country’s overall business in trade finance activities. Analysts laud its management team for continually striving for improvement. Maybank serves the consumer market with strong online banking services and retail services like auto financing and home loans. But its sheer size, with more than $42 billion in assets, makes it a logical player in the corporate market as it maintains a strong presence in commercial lending—a business that should increase as the country’s corporations have restructured their balance sheets and the economy keeps improving. The bank has about 460 offices in 12 countries and 1,100 ATM machines. ■ Datuk Amirshamz Aziz, president and CEO www.maybank2u.com.my

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branches. The roots of the company go back eight decades to when it began operations as the State Bank of Mongolia. Now more commonly known as The Khan Bank, the institution was privatized in 2003 after being run for nearly three years under a special corporate governance structure that involved the Mongolian and US governments and the World Bank.Today, the bank has a team of welltrained managers. Assets stand at $120 million, and the bank serves more than 30% of the 2.5 million people living in this landlocked nation that borders Russia and China. ■ J. Peter Morrow, CEO www.khanbank.mn

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National Bank of Pakistan Majority-owned by the government, the National Bank of Pakistan is the largest commercial bank in the country in terms of assets and acts as a business partner with the government to foster Pakistan’s growth. National Bank of Pakistan was created in 1949 to provide loans to the agricultural sector, particularly the troubled jute trade. Today it offers a wide range of corporate and retail banking products through a network of nearly 1,200 domestic and 16 overseas branches. Most of its lending was historically to the public sector, but private-sector loans now make up about 70% of its total loans. The bank remains one of the most important financial players in this nation of more than 150 million people and holds a market share of about 21% of total deposits.Assets total more than $8.2 billion. ■ Syed Ali Raza, president www.nbp.com.pk

The Agricultural Bank of Mongolia From its base in the capital city of Ulaanbaatar,The Agricultural Bank of Mongolia is a leading provider of financial services in this giant Asian nation, with a network of nearly 400

Bank of the Philippine Islands The Bank of the Philippine Islands has been a leader in the financial sector since its creation in 1851 as the

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first bank in both the Philippines and Southeast Asia. The merger with the Far East Bank and Trust Company in 2000 cemented that leadership position, and today the bank is the country’s second-largest, with about $7.5 billion in assets—about 13% of the system’s total assets. The financial institution’s solid financial strength and its conservative management style have helped turn it into the country’s largest consumer bank and among the top corporate lenders. By investing in technology, the bank has been able to meet consumer demand for the latest technologically driven products, such as its online banking service, BPI Direct. ■ Jaime Augusto Zobel de Ayala II, chairman www.bpi.com.ph

SOUTH KOREA Shinhan Bank Founded in 1982 by Korean expatriates living in Japan, Shinhan Bank today is one of Korea’s largest, with a 10% share of the market. Its savvy managers and solid financials helped it weather the banking crisis of the late 1990s and the credit card crisis of 2003. Shinhan Bank is the largest subsidiary of the Shinhan Financial Group, which in late 2003 acquired an 80.4% controlling stake in Chohung Bank. Analysts are waiting to see how the holding company will integrate the operations of the two banks. The merger should be completed in September of next year, creating a new financial entity that would be the second-largest bank in Korea, with more than 15 million customers. Analysts like the focused approach of Shinhan’s managers and the prudent risk management techniques they wield to produce an upmarket brand image and strong capital ratios. Assets are more than $58 billion. ■ Sang Hoon Shin, CEO www.shinhan.com

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SRI LANKA Commercial Bank of Ceylon Amitha Gooneratne, managing director, Commercial Bank of Ceylon

Commercial Bank of Ceylon is this island nation’s fourth-largest bank in terms of assets and holds a 10% share of the banking business.The legacy of its lengthy relationship with Standard Chartered Bank, which dissolved in the late 1990s because of local regulatory changes, is a strong risk management system. In addition to its traditional strength in corporate banking and trade finance, the bank has developed a strong franchise for small and mid-size businesses as well as consumers. It is among the most technologically advanced banks in Sri Lanka and has used this strength to create a network of about 115 branches and more than 160 ATMs. Assets stand at about $1.1 billion. In March the bank set up a fully owned subsidiary, XPertise, to offer modern training and development techniques to local companies. ■ Amitha Gooneratne, managing director www.combank.lk

TAIWAN Chinatrust Commercial Bank Chinatrust is the largest private sector bank in Taiwan in both assets and equity size. With the successful acquisition of Grand Commercial Bank in late 2003 and Fengshan Credit Cooperative in July 2004, this family-controlled bank has increased its distribu-

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tion network to 111 branches and grown market share. The bank now has about 6% of the Taiwanese banking sector’s deposit and loan market, up from about 4% several years ago. Its investment in technology and a strong risk management system have helped the bank carve out a leading position in the credit card business—it has nearly 20% of the market measured by card spending—and smoothly integrate its customer relations management system into its retail banking operation. To survive in Taiwan’s intensely competitive banking market, Chinatrust opted for a corporate banking strategy that generates income by cross-selling corporate services, ranging from treasury-related products such as foreign exchange and derivatives to corporate finance and traditional commercial lending. ■ Jeffrey J.L. Koo Jr., CEO www.chinatrust.com Jeffrey J.L. Koo Jr., CEO, Chinatrust Commercial Bank

THAILAND Kasikornbank Created 60 years ago by the Lamsam family, Kasikornbank has evolved into Thailand’s third-largest commercial bank, with 13% of the country’s deposits and loans and $20 billion in assets.The bank is enjoying the recovery of the Thai banking sector, which has seen nonperforming loans drop to about 10%—down sharply from 50% in 1999, two years after the Asian financial crisis. Known as Thai Farmers

EMERGING MARKET BANKS: ASIA

Bank until the spr ing of 2003, Kasikornbank has restored profitability by reducing costs, reorganizing a network of nearly 500 domestic branches and five overseas offices and strengthening its risk management techniques. The bank continues to grow by diversifying its revenue base. Last month, the bank announced plans to introduce leasing and securities services through Kasikorn Securities and Kasikorn Leasing.The creation of the two units is part of the bank’s plan to introduce universal banking services this year with five units under the Kasikornbank Group banner. ■ Banthoon Lamsam, chairman and CEO www.kasikornbank.com

UZBEKISTAN Asaka Bank Asaka Bank is the second-largest bank in Uzbekistan and one of the largest banks in the CIS.The bank was created in 1995 primarily to provide banking services to the automobile industry. Over the past 10 years, it has diversified its activities and now operates as a full-service commercial bank. While its main focus has been on corporate clients,Asaka Bank has expanded into the retail sector to diversify its revenue stream and funding base.And like many other banks in this former Soviet Republic, the bank’s main strengths remain its experienced senior managers, who have good connections with important government ministries and some of the largest companies in the nation. The downside is the continued dominance by the state, which owns a majority share. About 500 employees work at the bank’s headquarters in the capital city of Tashkent while another 1,500 are spread through about two-dozen branches around the country. ■ Shokir J. Juraev, chairman www.asakabank.com —Paula Green

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Regional Winner: Citigroup he world’s largest financial institution, Citigroup has been a major player in Latin America’s financial sector for nearly a century. The financial giant opened its first Latin American office in Buenos Aires in 1914—the first foreign branch of any nationally chartered US bank—and has maintained its commitment to the region through both the boom years and the crises, with operations in 24 countries. It affirmed this commitment when it acquired Mexico’s Banamex for $12.5 billion in 2001 in a landmark deal that remains the largest-ever USMexican corporate merger. Citigroup contributes to expanding the region’s capital markets, such as when Citigroup Chile structured and placed the country’s largest local bond issue to date last year—a $428 million deal to finance construction of an expressway in Santiago. Consequently, it has become one of the most respected US brand names throughout Latin America and the Caribbean. Its net income in the region rose from $114 million in thirdquarter 2003 to $391 million during the same period in 2004. In March 2004 Citigroup named Banamex CEO Manuel Medina Mora as the group’s new chairman and CEO for Latin America and Mexico, quickly appointing a new senior team that will further boost its profile. ■ Charles Prince, CEO www.citigroup.com

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Argentina Banco Macro Bansud Banco Macro Bansud is one of Argentina’s few remaining 100% locally owned financial institutions. It is also one of the country’s few remaining profitable banks, ending 2004 with total earnings of $66.5 million and a 16.2% return on equity after distributing some $21 million in dividends last July.While loans to private sector borrowers grew by 23% in Argentina last year, the bank boosted lending by 103% in 2004 (versus a 42% expansion in 2003), consolidating its market leadership. Continuing with its acquisitions drive launched in 1996, when it began buying privatized provincial

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banks, Banco Macro Bansud acquired Nuevo Banco Suquia in 2004 in a deal that added 256 branches and gave it the largest branch network of any domestic private bank. Formed through the merger of Banco Macro and Bansud, it was first a wholesale bank before it reinvented itself as a retail banking operation after the “tequila crisis,” focusing on Argentine provinces with underbanked populations that presented the greatest growth potential. ■ Jorge Horacio Brito, president www.bansud.com.ar

Barbados First Caribbean International

FirstCaribbean, created in 2002 to combine the Caribbean operations of Barclays Bank and CIBC, is the English-speaking Caribbean’s largest bank, doing business on 26 islands and territories. Its pan-regional presence allows the bank to offer a onestop approach for investors. It offers international mortgage loans, for example, for purchasers of residential real estate in Barbados, the Bahamas, Belize, the British Virgin Islands, the Cayman Islands, St. Kitts, St. Lucia and the Turks & Caicos. Loans are available in US and Canadian dollars, sterling or euros. This year, it rolled out Internet and phone banking throughout the region and ex-

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panded into Tr inidad & Tobago through the acquisition of Mercantile Bank. CIBC, which entered the Caribbean market in 1920, and Barclays, which arrived in 1837, each hold a 43.6% stake in FirstCaribbean. The remainder is traded on the Trinidad & Tobago, Barbados and Jamaica stock exchanges, with a market cap of $2.4 billion. Assets are more than $8 billion. ■ Charles Pink, CEO www.firstcaribbeanbank.com

Bolivia Banco Bisa A banking-sector innovator, Banco Bisa was the first to introduce ATMs and telephone banking in Bolivia and has recently added the country’s first interest-bearing checking accounts to its lengthy product portfolio. It now offers clients checking accounts in bolivianos as well as in euros and dollars. Founded in 1963 as a second-tier bank and offering commercial banking services since 1988, it is the flagship company of Bolivia’s first and largest financial-sector conglomerate. Since then, it has remained in expansion mode, growing its nationwide branch network from merely three branches a decade ago to a current 18 branches. Throughout the period, it has also included supporting Bolivia’s economic development as one of its stated missions, while gaining widespread brand recognition within the country’s business sector. Bisa Financial Group, the bank’s holding company, reported assets of $813 million at September 30, 2004, when Banco Bisa reported assets of $600 million. ■ Julio León Prado, president www.grupobisa.com

Brazil Banco Itaú Banco Itaú remains one of Brazil’s most profitable banking institutions, with net income rising from $1.2 bil-

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lion in 2003 to $1.5 billion in 2004. Total assets rose from $46.3 billion to $50.9 billion during the period.With credit cards now among Brazil’s fastest-growing retail financial products (number of cards in circulation grew by an annual average of nearly 16% in 1991-2004, when transactions were up 22.3% annually), Itaú has been making a strong entry into the profitable market segment. In 2004 it upped its stake in Credicard Banco—Brazil’s largest credit card issuer (7.6 million cards issued through September 2004)—to 50%. Together with its Itaúcard credit card division, the bank now holds more than a 20% share of the country’s credit card market. It also upped its stake in Orbitall, the country’s largest credit card processor, from 33.3% to 100% last year. Its positive earnings outlook led Moody’s to upgrade the bank’s financial strength rating this year to C from a previous C-. ■ Roberto Egydio Setubal, president and CEO www.itau.com.br

Chile Banco de Chile Segismundo SchulinZeuthen, president, Banco de Chile

Ranked as Chile’s second-largest bank, Banco de Chile has a nearly 18% share of the nation’s loan market at end-2004.Total assets last year were $17.2 billion, with $12.3 billion in loans and more than $10 billion in deposits. Mainly engaged in commercial

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banking, the bank offers its clients asset management, securities brokerage, financial consulting, insurance, factoring, securitization and credit collection services. Return on capital was 27.6% in 2004, compared to an average of 20.6% for its main peer group. The bank’s stellar performance was due to an improved asset mix, focus on pricing, integration of its subsidiaries’ businesses with the bank’s core business, a conservative risk policy and an emphasis on adding value through technology-supported products. It is currently involved in the NEOS project to upgrade its technology platforms. Its shares are listed in Santiago, New York, Madrid and London, with local stocks gaining 28% year-on-year and ADRs advancing 37% in 2004. ■ Segismundo Schulin-Zeuthen, president www.bancochile.cl

Colombia Banco de Bogotá Founded in 1870 as Colombia’s first financial institution—with authorization to issue currency at that time— Banco de Bogotá is a market pioneer that has gained a standing as one of the country’s greatest “top of mind” brands. Its D+ financial strength rating from Moody’s is the highest of any Colombian bank and is based on its strong franchise, conservative management and diversified funding base, among other factors. Its non-performing loan ratio is also among the lowest in Colombia, at just 1.2%. Return on equity rose from 24.6% in 2003 to 27.1% in 2004, which was well above the 25.8% average for the system as a whole last year.Assets were up 30.7% year-on-year, nearly double the system’s average of 16.4%. Banco de Bogotá is currently involved in a mass campaign to boost the country’s domestic savings levels, raising its deposits by 61.4% last year alone and

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giving it a market share of more than 11% for savings accounts (nearly 19% for checking accounts). ■ Alejandro Figueroa Jaramillo, president www.bancodebogota.com.co

Costa Rica Banco Interfin Despite some difficulties in 2004, Interfin remained the strongest player in Costa Rica’s financial sector, with total assets rising from $546.6 million in 2003 to $709.9 million in 2004. Its credit portfolio also grew, reaching $529.2 million last year, compared with the previous year’s $403.9 million. Much of the bank’s success is attributable to its focus on servicing the country’s medium-size to large companies. To better serve its clients, Interfin rolled out new IT systems at the end of 2004, having already invested more than $10 million on technology over the past two years alone. Interfin is part of the larger Corporación Interfin conglomerate, which owns 100% of the bank as well as Transamerica Bank and Trust in the Bahamas, a securities brokerage, pension fund manager, private development bank and leasing units in Panama, Honduras, Guatemala, Nicaragua and El Salvador. Interfin operates a network of 22 branches throughout Costa Rica. ■ Luis Liberman, general manager www.interfin.fi.cr

Ecuador Banco del Pichincha Banco del Pichincha topped itself in 2004, when net profits rose by nearly 41% to $26.6 million from the previous year’s $18.9 million, once again giving it the lion’s share of the Ecuadorian banking sector’s total profits. Assets rose 15.31% year-onyear, to $2.1 billion in 2004 from 2003’s $1.7 billion. In addition to its successful retail banking operations,

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the bank is a local leader in debt placement and underwriting for domestic issuers and is a major player in such areas as cash management and private banking. Its extensive branch network gives Banco del Pichincha a presence in 20 of Ecuador’s 21 provinces.The bank, founded in 1906, also operates an agency in Miami and an offshore bank in Nassau. Despite the country’s ongoing political turmoil, Banco del Pichincha’s management has implemented sound strategies to allow it to continue weathering the storms and producing benefits for both its clients and shareholders alike. ■ Fidel Egas Grijalva, president www.pichincha.com

El Salvador Banco Agricola Since its establishment in 1955, Banco Agricola’s slogan has been “A Progressive Bank Servicing A Progressive Nation.”As a banking sector innovator, it was an important driver in establishing the market for personal loans in El Salvador, which remains one of Central America’s strongest economies and one of just a handful of Latin countries with a coveted investmentgrade rating. But Banco Agricola has been looking beyond the country’s borders to attract investments by the growing community of Salvadorans in the US, to whom the bank also markets its money remittance services through bank agencies at three California locations: Los Angeles, Huntington Park and San Francisco. Bursabac is the bank’s securities brokerage unit. In 2002 the bank also established a subsidiary in Panama. Banco Agricola’s assets rose from $2.9 billion in 2003 to $3.2 billion in 2004, with net profits also rising from $30.5 million to $34.7 million during the period. ■ Rodolfo Schildknecht, president www.bancoagricola.com

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Guatemala Banco Agromercantil Rafael Viejo, CEO, Banco Agromercantil

Banco Agromercantil has embarked on the third phase of a three-pronged program to boost efficiency and improve its customer service. The latest phase involves investing in upgrading its IT capabilities, after a first phase that increased the bank’s capitalization and a second phase that sought to improve efficiency. So far, the strategy has paid off nicely, with Banco Agromercantil continuing to wrest market share away from some of its larger rivals. Net assets at September 30, 2004, were $543.4 million. The bank operates a network of 77 branches and 600 ATMs nationwide, as well as three offices in California and Illinois. It is also an important participant in the money remittance market, operating in the US through an alliance with El Salvador-based Banco de Comercio. Banco Agromercantil is the result of a merger in 2000 between Banco del Agro and Banco Agricola Mercantil, both of which had initially been established to service Guatemala’s agricultural sector. ■ Rafael Viejo, CEO www.bam.com.gt

Honduras Banco Atlántida Founded in 1913, Banco Atlántida is Honduras’s oldest as well as largest financial institution. It is part of the

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larger Grupo Atlántida diversified financial services organization that includes banking, insurance, real estate, warehousing, leasing, reinsurance and logistics divisions. Fitch upgraded the outlook to positive from stable last year for Seguros Atlántida, the group’s insurance subsidiary and a major health, life and casualty insurance provider in Honduras.Yet the bank is the group’s key asset, operating a network of 225 branches and ATMs throughout the country. Mobile units also take banking services directly to job sites and shopping malls, helping the bank to gain even greater market share and customer allegiance. Much of the bank’s success continues to be driven by its ability to grow its base of depositors by offering low fees and low minimum deposits to establish accounts. The bank also maintains a strategic alliance with MoneyGram for money remittances. ■ Guillermo Bueso, president www.bancatlan.hn Guillermo Bueso, CEO, Banco Atlántida

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Manuel Medina Mora, CEO, Banamex

providers to both individual and corporate clients. With more than 1,400 branches and nearly 4,500 ATMs, one is never far from a Banamex location virtually anywhere in Mexico.Acquired by Citigroup in 2001, Banamex can also tap the know-how and capital of the world’s largest financial group. A market innovator, Banamex was the first Latin American bank to open a New York office in 1926 and the first Mexican bank to introduce ATMs as far back as 1972 and last year unveiled the first and only bi-national credit card for shared use by clients on both sides of the US-Mexican border. Citigroup’s net income in Mexico rose to $1.7 billion last year from $1.2 billion in 2003. ■ Manuel Medina Mora, CEO www.banamex.com

Panama

Mexico Banamex When Banamex was established in 1884, it operated as both a commercial bank and a national bank, with authorization to issue currency and collect taxes while also supporting private-sector development. More than a century later, Banamex has consolidated its identity as one of Mexico’s premier financial services

Banistmo Banistmo continues to grow by leaps and bounds. Having unleashed an expansion strategy through acquisitions in 1986, the bank developed a regional network of subsidiaries in Costa Rica, Honduras, El Salvador, and the Bahamas. Last year it not only entered the Nicaraguan market but also jumped into South America with the acquisition of Lloyds TSB Bank in Colombia. Founded in 1984 by a group of Panamanian investors with a staff of only 20, Banistmo has grown

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to a staff of more than 3,000. Its $5.6 billion in assets at September 30, 2004, make it the largest bank in Panama as well as in all of Central America. Banistmo shares are traded in Panama and Costa Rica. Last year, profits were up 30% to over $100 million. Moody’s upgraded Banistmo’s long-term foreign currency deposits rating to Ba1 and its financial strength rating to D+, partly due to the bank’s expansion into new markets. Rumors say Mexico and Venezuela may be Banistmo’s next targets. ■ Samuel Lewis Galindo, president www.banistmo.com

Peru BBVA Banco Continental Jose Antonio Colomer, CEO, BBVA Banco Continental

Part of Spain’s BBVA financial group, BBVA Banco Continental continued to grow its business in Peru last year, reaching a nearly 26% share of the country’s deposits. Assets were up 4.1% to $4.3 billion in 2004, while net profits were up 28% year-on-year to $71.6 million. Return on equity also jumped from 17.66% in 2003 to 21.93% in 2004, for a hefty 427-basispoint gain. The bank’s 2.15% nonperforming loan ratio is the Peruvian market’s lowest and has continued to improve from the 3.7% level reported in mid-2003. While the bank, established in 1951, saw fit to increase its branches by merely one office last year, for a nationwide total of 201 branches, it nevertheless increased its

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ATM network by 15.5% for a total of 298 cash machines in operation at end-2004. Internet banking transactions were up 25% year-on-year for individual clients and an even greater 44% for corporates. ■ Jose Antonio Colomer, CEO bbvabancocontinental.com

Puerto Rico Banco Popular de Puerto Rico It would be nearly impossible to discuss the growth of Puerto Rico’s business sector without mentioning Banco Popular. Established in 1893 to serve the island’s working class, Banco Popular has grown into Puerto Rico’s largest bank and the largest Hispanicowned bank in the United States. Banco Popular N.A., the bank’s mainland US operation, operates branches in New York, Illinois, California, New Jersey, Florida and Texas and made two new acquisitions in 2004: Quaker City Bancorp in California and Kislak National Bank in Florida. Popular Inc., Banco Popular’s financial holding, reported a 37% year-on-year hike in net income during first quarter 2005 to $162.9 million, for a return on assets of 1.43% (versus 1.29% in first-quarter 2004) and a return on common equity of 21.62% (versus 17.95% in first-quarter 2004). In March 2005 Banco Popular became the first bank to offer mobile banking in Puerto Rico, allowing clients to access accounts on their mobile phones. ■ Richard Carrion, chairman, president and CEO www.bancopopular.com

Trinidad & Tobago Republic Bank Republic Bank’s appetite for acquisitions remains strong. In 2004 the bank acquired Reliance Stockbrokers in Trinidad & Tobago, increased its shareholdings in Barbados National Bank to 65.1% and upped its stake in East Caribbean Financial Holding

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(parent company for the Bank of St. Lucia) to 20%. The bank, founded in 1837, now maintains subsidiaries in Trinidad & Tobago, Guyana, Grenada, Barbados, the Cayman Islands and the Dominican Republic—giving it a pan-regional franchise that continues to expand each year. Despite the devastation brought to some of its markets by four hurricanes that swept through the Caribbean last year, the financial group still managed to post a profit attributable to shareholders of $663.7 million in 2004—a 13.7% year-on-year increase. Share prices soared last year as well, raising shareholder value to a record $958.3 million. A new technology platform introduced a year ago should continue to boost efficiency and profitability. ■ Ronald Harford, chairman and managing director www.republictt.com

Uruguay ABN AMRO Uruguay Francisco Di Roberto Jr., CEO, ABN AMRO

The Uruguayan unit of ABN AMRO, one of Europe’s most prominent financial institutions, is also the South American nation’s most profitable bank and a force to be reckoned with by rivals. Although the 2002 Argentine financial crisis had a spillover effect into neighboring Uruguay, where it sparked the loss of 40% of ABN AMRO Uruguay’s bank deposits and pushed assets down by more than 32%, the bank nevertheless managed

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to turn a profit. ABN AMRO Uruguay, in existence since 1952, operates 23 branches in Uruguay and is the largest foreign bank in the country. Last year it remained an important supporter of the nation’s export sector, with the Inter-American Development Bank approving a partial credit guarantee of up to $22.5 million for a trade finance facility to extend credit to exporters.ABN AMRO Uruguay offers a full line of products for individual and corporate clients. Its Real Seguros insurance division has been offering insurance products in Uruguay for a century and opened a 24-hour customer service desk last year. ■ Francisco Di Roberto Jr., CEO www.abnamro.com.uy

Venezuela Banco Mercantil Banco Mercantil marks its 80th anniversary this year, and it has much to celebrate. In a country immersed in political turmoil, the bank still reported a 41.5% year-on-year rise in total assets last year. Banco Mercantil’s assets represent 13.9% of the system’s total. The bank also holds a 16.9% share of the overall credit market and a 15.8% share of the market for financial trusts. The bank services its more than 1.8 million clients through a network of 297 branches and 821 ATMs located throughout Venezuela. First established to focus on agricultural loans and to service trade with Europe, the bank still operates an office in Zurich. It also maintains rep offices in the UK, Netherlands Antilles, Mexico, Colombia, Peru and Brazil and agencies in Miami, New York and Houston. It owns BMC Bank & Trust in the Cayman Islands, Banco del Centro in Panama and Commercebank in the US. ■ Gustavo A. Marturet, president www.bancomercantil.com —Santiago Fittipaldi

RO U N DTA B L E TREASURY & CASH MANAGEMENT

MODERATOR: JOSEPH GIARRAPUTO

Changing Standards, Changing Markets We brought together some of the industry’s leading players to discuss recent developments in the cash management industry. GLOBAL FINANCE: How will corporate treasuries interact with banks in the future? How will this be affected by changes in standards? And how far in the future is true straight-through processing for corporates? FOLIA GRACE, director, Oracle applications, Oracle: Our customers are very committed to straight-through processing, so we’re working on the standards to enable that. We are investing in SWIFTNet for corporate-to-bank

communication. We are incorporating the corporate-to-bank XML payment ke rnel designed by SWIFT, OAG i , TWIST and IFIX in the next release and have support for the prior-day and intraday bank statement. J.L. “JOHN” ALARCO N , general m a n a g e r, N o rth A m e rican opera t i o n s, X RT: When companies work with multiple banks—and a network of strategic partners—they need a common technology to support multiple

Kamback: A big aspect of the future service is how well we can develop the people side of the business

Coffing: People are going to see a big drive to all-electronic payment

d ata f o r m ats an d c om mun i ca ti on protocols, while giving them flexibility and reducing costs. The key for companies is to remain agile and to have full visibility into their financial transactions. JOEY BRODE, senior vice president, director-client integration solutions, global treasury services, Bank of America: Even very small clients, although they’re not looking for straight-through processing as such, are looking for data from us in a form they can use. In terms of standards, the challenge for us as banks is that we have new standards, but we need to have the flexibility to help our clients normalize data from multiple areas so they can use it whether they’re big or little. DANIEL J. ROSENSTEIN, head of US corp o rate sales, cash management, Deutsche Bank Global Transaction Banking: Benefits of straight-through processing can include real-time access to i n f o r mation that leads into better management of working capital and i m p roved deployment of re s o u rc e s . One way to start the move to STP is to establish a globally centralized treasury, an initiative that has moved a lot slower than some thought it would. ALFRED CA R P E T TO, senior vice president, western hemisphere sales execut i ve, t r e a s u ry serv i c e s, JPMorgan Chase:

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Financial institutions do STP ve ry we l l , and the efficiencies that come along with that are endless. For corpor a t e s , the pri m a ry difference is that most manufacture a product and have to sell it. At JPMorgan Chase, we are transferring what we already provide to the FI space into the corp o r a t e space to allow them the same benefits that these efficiencies provide. SCOTT COFFING, managing director, Americas, SunGard Treasury Systems: In terms of banks interacting with banks, we do things like balance transaction reporting and payments. From a corporate perspective it’s “Tell me what’s in my bank account, give me a cash position that I can act upon, maybe I’ll do some short - t e rm investing and I m a ke a pay m e n t , get some flow s through to the bank, the bank gives me a confirmation back in real time with that reference number.” It’s paid pretty large dividends for a lot of our joint large customers. MARIA MANDLER, managing director, global cash management, global transaction services, Citigroup: Corporates want to link from their workstations and ERP systems directly into our back office. Convergence in terms of formats and protocol is happening, at last, so now smaller corporates can start to see the benefits—this should be a gre a t opportunity. ERIC KAMBACK, executive vice president,The Bank of New York: We all talk about moving toward the Internet and common standards, but, in fact, it will n ever be perfect because of the variations and diversity of the needs for each corporation. So a big aspect of the future service is how well we can develop t he people side of the business. JEAN FRANCOIS HAMANT, vice president, corporate cash management, SG: That is a true cost for us, which is really substantial, and banks have to take that into account in their pricing program. GF: What impact are Sarbanes-Oxley

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Grace: People are now asking if the money they’re spending will really do anything for them in the end

and other corporate governance issues having on treasury functions? CARPETTO: Companies are taking operational risk more seriously and are actively engaging their banks in looking for ways to help them manage their operational risk. MANDLER: It’s fostered a real appreciation for transparency overnight. BRODE: Sarbanes-Oxley is indicative of a whole tren d towa rd a mu c h greater interest in risk.We used to talk about managing cash flow ; n ow it’s about managing risk. That gives us a benefit; it is really what we as banks know how to do. R OS E N ST E I N : Companies are starting to realize it takes resources to help their tre a s u ry and financial departments implement proper controls. It is beneficial when management loosens its purse strings so their internal groups have sufficient resources for complying with the law. COFFING: I’m stunned by the number of companies that don’t know how many bank accounts they have, or who has signing authority and what sort of account features are on them. O n c e you understand your banking account

TREASURY & CASH MANAGEMENT

Alarcon: For some businesses that operate with very low margins, going electronic will be a matter of life or death

landscape, you can have some sort of central repository so you can manage signers, etc. KAMBACK: There will be real benefits for corporates as banks part n e r with them to ensure they have the technology and the infrastructures to comply with the va rious re g u l a t o ry environments. This will create a more efficient process, which hopefully will lead to better value. GRACE: People are now asking if the money they’re spending will really do anything for them in the end. They’re now talking about “sustainable compliance.” We are delivering tools that help with the documentation and testing of risk and controls and automation of business pro c e s s e s . One key learning from all of this is that you not only have to document policies, procedures and business processes, but you have to make sure people know and understand them. You have to ensure people are properly trained as well. ALARCON: There is an incentive for companies to push for more automation so they have control over who accesses information. For those companies that have already automated their

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cash management function, t h ey ’re looking beyond that, at access controls and the reliability of their banking communications. H A M A N T: I t ’s still going to take some time, if yo u ’re a tr ue global client. The problem is automation is only for the US and Western Europe. You’re going to a very different image if yo u ’re going to A f rica or Eastern Europe. GF: The importance of checks is diminishing. What impact will this have on corporates and the banks and techn o l og ies that are trying to serv i c e them? KAMBACK: The impact overall will be positive because it enhances the available cash and money flows through the corp o r a t e s . U n f o rt u n a t e l y, c a s h management institutions will have to maintain check processing because checks will be around for a long time. CARPETTO: Culturally, the United States is much slower to adopt this type of technology, but Check 21 is f o rcing the issue. N ow, banks either have to come on board or it’s going to start costing them more money.

Carpetto: More firms are going global so they need our technology and our guidance to help them compete

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M A N D L E R : You’re starting to hear the phrase “ n a t ive electronic paym e n t s ,” w h e re transactions start out electronically as opposed to just ending electronically. There’s an opportunity going forward, especially in the Bto-B space, by having the invoice and related data go along with the payment. CO F F I N G : As the technology gets c l e a n e r, the economics will actually drive things to native electronic processing. People are going to see a big drive to all-electronic payment. B RO DE : M a ny of our clients are considering leapfrogging the imaging stage and going straight to electronic p ay m e n t s . Bu t we will still need to serve clients at all these differe n t stages and be able to combine the data f rom those payments and deliver it back to clients. ROSENSTEIN: Checks will still exist for a while, and with Check 21 t h e re has been a concern about the potential for an increase in attempts at check fraud. Companies need to ensure they’re using all the tools offered by their banks to prevent check fraud, such as positive pay and payee match

Rosenstein: Companies need to ensure they’re using all the tools offered by their banks to prevent check fraud

TREASURY & CASH MANAGEMENT

services. G RACE: As it becomes easier from the technology standpoint and fro m what the banks offer to customers , we’ll see a greater adoption of electronic payment and bill pre s e n t m e n t .I t a l l ows companies to provide gre a t e r service to their customers. ALARCON: For some businesses that operate with very low margins, going electronic will be a matter of life or death because that’s where it will be determined if they can continue to be competitive within the marketplace or not. G F: What developments have there been in the outsourcing of tre a s u ry functions in the past year, and what is expected in the future? KAMBAC K: Some financial institutions have been forming alliances to create more efficient processes, which have created opportunities for the banking institutions and efficiencies for the corporates.While it may not be direct outsourcing,those alliances have created a lot of value for corporate clients. CA R P E T TO : O ve rseas corp o r a t e s are much more willing to outsource, whereas in the States people have really struggled with the idea that they’re giving up some control. Now, though, we see a lot more traction in the US than we’ve seen for years. MANDLER: We ’re seeing tre m e ndous focus on specific, e s p e c i a l l y strategic, aspects of treasury and a willingness to outsource everything else. It often takes place while clients are centralizing activities themselve s . C u st o m e rs are really looking for their banks to move up the value chain and offer end-to-end services. B R O D E : For anything companies don’t perceive as key to their competitive edge, we’re seeing a much greater willingness to talk to partners about outsourcing. R OS E N ST E I N : We see a gre a t e r p ropensity towa rd outsourcing for processes that will become more standard and for those areas where compa-

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nies feel they can hold their vendors m o re accountabl e. As more ve n d o rs have entered the space, it’s becoming easier to hold them accountable because there are other options. G RAC E : Outsourcing is picking up a c ross the board on two leve l s . One is the IT foundation—the ability to buy softwa re as a serv i c e. T h e n there’s outsourcing of the daily business processing of transactions. We are seeing more widespread adoption of shared service centers .M a ny large corporations are moving routine transaction pro c e s s i n g — l i ke customer payments and receipts—to lowe r - c o s t locations, such as India. On the other hand, companies usually keep some of th e more strategic fu nctions in h o u s e — l i ke planning and bu d g e t i n g and forecasting. COFFING: One key hurdle is that if you’re going to be outsourcing any of your technology functions, we need to be SAS 70 type-2 compliant. For technology companies that’s quite an investment because you’re taking some of that Sarbanes-Oxley stuff and pushing it off on your vendor. G F: What developments have there been in working capital management in the past year, and what’s expected in the future? ALARCON: Treasurers and CFOs are b ri d ging the disconnect between cash management and workin g capital management [business planning]. P rogress is being made in cash flow forecasting from both short-term and long-term planning perspectives. Cash flow forecasting is being taken more seriously. MANDLER: There’s much more attention paid to automated execution based on the corporate policy with respect to ri s k . This is where eve rything’s coming together—audit trails, risk profile and execution. COFFING: CFOs’ bonuses are being d riven by keeping the cash balances to an absolute minimum. To be able

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Hamant: In the US everybody had to deliver their own solution very quickly so each bank rushed to the Web

to have control over that, you need to be able to run a daily cash cycle. Chief executives are wanting to move f rom quar terly down to mont hly down to weekly—and the end goal is to get daily—cash visibility across the entire corporation. CARPETTO: If we get the efficiencies right and CFOs have access to this information, they can then plan a lot better from a liquidity perspective and m a ke proper investments to manage down to a zero balance. Traditionally, treasury areas are not viewed as a reve nue-generation are a , but they are starting to demonstrate that they can save millions of dollars in processing. ROSENSTEIN: As banks and techn o l ogy ve n d o rs give our customers tools to save them time, they can then get directly involved in the management of inventory, the invoicing and payables process; these things directly impact the working capital. BRODE: The Homeland Investment Act changes the landscape. If a global client has a lot of money ove rs e a s ,t h ey can bring it home and use it to invest. The client just found a new, inexpensive source of working capital.

TREASURY & CASH MANAGEMENT

Brode: We’re seeing a much gr eater willingness to talk to partners about outsourcing

KAMBACK: The banks have done a relatively good job in advancing accounting practices and inform a t i o n technology to allow treasurers to better manage their cash, especially on a global basis. There are real efficiencies that have truly helped the treasurer’s office manage their global cash flow. MANDLER: T h e re ’s also, in North America, an appreciation of new techniques for facilitating re c e iva bles financing. GRACE: In terms of technology, people are moving toward consolidating their systems. Now you can have one global instance running all over the world, which means a treasurer can not only get the daily bank statement inf o rmation but also have visibility to a ny future impacts on cash—in any currency for any number of days they want to forecast. GF: There are indications particularly in the US that the size of firms in need of global treasury management solutions is becoming smaller.What implications does this have for banks and technology vendors? CARPETTO: It means opportunity.

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More firms are going global so they need our technology and our guidance to help them compete. GRACE: It’s not just a trend in treasury; it’s a trend overall. Small companies need to have the same advantages that the large companies do to compete. The challenge is delivering software at lower cost and making it easier to install and seamless in terms of set-up. Oracle has focused on lowering the total cost of software ownership to address this need. M A N D L E R : T h e re will be eve n m o re demand for standardization to enable smaller companies complete access without having to adapt to proprietary formats. ROSENSTEIN: Small companies are going to rely more heavily on their vendors. In particular they will require their banks to deliver infor m a t i o n g l o b a l l y, and perhaps automate how they function on a global basis. HAMANT: The Web changed everything, and in the US everybody had to deliver their own solution very quickly so each bank rushed to the We b. That’s why they’re probably more advanced than the Europeans. COFFING: A lot of smaller corporations don’t have the technology or the IT staff to support systems so the ASP model has been a boon.We can get rid of the IT and the hosting.You just get the functionality at your fingert i p s , portable around the world. K A M BA C K : The challenge for a smaller company is that they’re being driven by their own customers to become more global, so the opportunity for us is to give our direct customers the tools to deliver effective global financial access to their clients. BRODE: The challenge for us is how to reach those people and deliver in such a way that it is not as costly as what we deliver to the larger global c l i e n t s . The smaller companies are forcing us all to cross some of the silos inside our own walls—the silos bet ween the consumer side and the

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Mandler: Smaller companies cannot afford to custom-make or adapt to proprietary formats

wholesale side, for example. A L A R CO N : Small companies don’t deal with the kinds of complexities you deal with in a large organization so they expect different, simpler tools; it’s not just a cost function. Our approach is to provide simpler, easy-touse software for small companies that will allow them the same benefits—to gain visibility of cash. GF: What are you doing to help your corporate customers perform a better job with global enterprise risk management? COFFING: First you need to get all your data consolidated. Without consolidated data there is no true ri s k management. Once you’ve got all the information in one place and you can ve ry easily present that. The third , m o re sophisticated step is to assess what is important to each individual corporation and base risk management decisions on that. CARPETTO: O ve r a l l ,i t ’s about education, best practices and roundtables that get corporates to better understand their operating ri s k . M a ny of them have ignored certain ri s k s . I t ’s

TREASURY & CASH MANAGEMENT

Giarraputo: The size of firms in need of global treasury management solutions is becoming smaller

our job to make them aware of those risks and help them to manage them. K A M BAC K : Most of us have the technology in place that will help all these institutions really mitigate and manage their risk. But we need to educate them about the risks inherent in certain businesses and certain transactions. R OS E N STEIN: I t ’s extremely important that companies take advantage of the information that banks can provide for them, particularly for cash positioning on a global level. In addition, as companies start to outsource and source important material and production from emerging markets, they need a centralized point within their company to monitor the sovereign risk and better understand their exposure. G RACE: Another area of grow i n g importance is operational risk—being able to have visibility at every level of the company and across the globe. We can help them monitor the operational risk, as well as consolidate information in one place—which is one of the keys mentioned earlier.

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CORPORATE FINANCING FOCUS

High-Yield Market Gets Ready to Embrace Falling Auto Angels

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Sandy Wong

rated below investment grade. Some nalysts say it’s not a question of if, of these funds already are selling GM but when the bonds of General and Ford bonds in anticipation of Motors and Ford Motor will slide another downgrade, according to below investment grade, probably late Penniman. this year. “Nevertheless, a lot of investmentThe once triple-A-rated US grade accounts won’t sell this paper, automakers are flirting with higheven if it is downgraded,” he says. yield status, and the outlook is “They can pick up 250 basis points negative from the rating agencies. in yield compared with KDP’s high“If GM and Ford, along with their yield index.” financing arms, join the high-yield Meanwhile, about one-third of the space, they will account for 15% participants in the high-yield market of the market,” says Kingman already have invested in GM debt, Penniman, director of research at Penniman says. Montpelier,Vermont-based A drop below investment grade KDP Investment Advisors, a firm would increase borrowing costs for that provides research and pricing Ford and GM, both of which need to services on high-yield bonds, Debt Deb invest in new models to compete with including a daily index of the t Asian producers, which are gobbling up market. US market share. While GM and Ford are two of Toyota Motor of Japan, which the largest issuers of corporate debt, makes the popular Prius hybrid model that with a total of about $475 billion outstanding, runs on a combination of gasoline and electric including the bonds of their profitable financing units, power, could soon pass GM as the world’s largest they should be assimilated easily into the high-yield automaker. sector, Penniman says. Prices of the bonds of Ford and GM already have been “Fallen angels are not a new phenomenon to the market, beaten down so low, analysts say, that a downgrade to and the automakers will be considered as good credits by “junk” status already has been priced into the market to buyers of high-yield debt,” he says. some extent. “Of course, nobody knows where the bottom is for The yield on GM’s euro-denominated bonds rose sharply these bonds and how quickly they will come back,” in late March after the automaker slashed its 2005 profit Penniman says. “But it is more of a technical rather than a outlook and forecast a loss for the first quarter.The spread fundamental issue.” against US Treasury issues widened further when Standard & With GM bonds yielding more than 500 basis points Poor’s issued a “negative outlook” on the automaker, more than comparable US Treasury securities, they appear attractive to investors who can afford to hold on to them for indicating that the next rating change was likely to be a downward move. the long term, he says. A downgrade wouldn’t precipitate liquidity problems for Many institutional investors, including pension funds, GM, which holds nearly $20 billion in cash and another however, are not allowed to invest in securities that are 2 0 0 5

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$10 billion in credit facilities, says Scott Sprinzen, a managing director at S&P. General Motors Acceptance Corporation, or GMAC, the automaker’s financing unit, holds nearly $23 billion in cash. GM is relatively well positioned to sustain a downgrade, Sprinzen wrote in a recent note to investors. Ford cut its 2005 earnings forecast on April 11 and said it will not reach its profit Kingman Penniman, target for 2006 because director of research, of rising gasoline prices KDP Investment Advisors and health-care costs. S&P responded by cutting the outlook on Ford debt, which is rated BBB-, the lowest investment grade, to negative from stable.

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market debt if investors become less tolerant for risk. Spreads between interest rates on riskier bonds and US Treasury bonds have widened suddenly in recent weeks, says Stephen Poloz, chief economist at Export Development Canada. Spreads on Brazilian bonds, for example, widened to nearly 450 basis points in mid-April from as narrow as 370 basis points in early March. Spreads also widened for Mexican, Russian and Turkish bonds. In contrast, Poloz says, US corporate bond spreads are still at their lowest level in eight years, just under 100 basis points. “US interest rates are moving back up to normal and are attracting investment back to the US,” Poloz says. “This has caused the dollar to stabilize and is leading to some widening of risk spreads,” he says. According to Poloz, the widening is not so much a retreat from risk as it is a return to a more balanced flow of international capital that includes the US as a destination.

Market Share Shifts

Daimler Chrysler, the number-three US automaker, has gained market share in the past 12 months, even as GM and Ford have lost ground to Toyota and other Asian automakers. Breathing Room GM’s 25.7% share of the US market for light-vehicle sales in the first quarter of 2005, according to New Jersey-based The automakers may win a temporary reprieve from Autodata, was the lowest since 1925. index-related selling of their bonds as a result of changes GM shook up its top management in early April, putting that Lehman Brothers is making in the inclusion rules for CEO Rick Wagoner in charge of day-to-day control of its its widely followed investment-grade indexes. Beginning July 1, 2005, Fitch ratings will be used in addition to those core North American operations. “One of our biggest challenges is our lack of costfrom Moody’s Investors and S&P when calculating the competitiveness in the United States, which is due to our index quality assigned to individual securities. legacy costs, especially the Two out of the three ever-increasing burden of agencies would need to rate MARKET SHARE OF US LIGHT-VEHICLE SALES high health-care expenses,” the security investment-grade (FIRST QUARTER 2005) Wagoner said in a statement for it to be eligible for being indicating that he will be included in Lehman’s inOthers General Motors seeking concessions from vestment-grade indexes. 3.4% 25.7% labor unions. These changes could become The US automakers have important if issuers are been forced to use pricedowngraded or upgraded by and interest-rate incentives a single rating agency in the to convince consumers to future. buy their cars. Rising rates Ford and GM are the Ford Motor have made cash-back offers second- and third-largest 19.5% and zero-interest financing issuers of corporate debt, more costly. following General Electric, in Asian automakers Meanwhile, GM needs the Lehman US Credit 36.2% to refinance or pay nearly Index. $45 billion of debt in Analysts say it is possible Daimler Chrysler 2006, and Ford has $37 that concern about the credit 15.2% billion of debt coming quality of the US automakers due next year. Most could spread to emergingSource: Autodata 6 6

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suppliers for both companies already are residents of the high-yield neighborhood.

US HIGH-YIELD NEW-ISSUANCE VOLUME 20

Issuance Dries Up

18 2004

16 2005

14

($ billion)

US issuance of high-yield corporate debt fell to less than $8.3 billion in March from $9.3 billion in February, according to KDP Investment Advisors.The monthly total was as high as $18 billion last November. An inflation scare and the auto-related problems contributed to an increase in risk aversion in March, according to analysts. Investors pulled billions of dollars from high-yield bond funds. El Segundo, California-based DaVita, which operates kidney dialysis centers, was the largest issuer in March.The company offered $500 million of senior notes due 2013 and $850 million of senior subordinated notes due 2015 in a private placement. DaVita plans to use the net proceeds from the offering, along with available cash, to repay all outstanding amounts under the term-loan portion of its senior secured credit facilities. Bethesda, Maryland-based Host Marriott placed $650 million of senior notes due in 2015.The net proceeds were used to fund a tender offer for $300 million of senior notes due in 2006, as well as to redeem $169 million of senior notes due in 2008 and to repay the $140 million mortgage debt secured by two of the company’s Ritz-Carlton hotels located in Atlanta, Georgia, and Naples, Florida.

12 10 8 6 4 2 0 Jan

Feb

Mar

Apr

May

Jun

Jul Aug

Sep

Oct

Nov

Dec

Source: KDP Investment Advisors

income strategist at Citigroup’s global markets division in New York. While the severity of the downturn in high-yield bond prices was hard to explain, it seems to have been triggered by the problems of the automakers, Fenn says. The market is bracing for the $140 billion mountain of GM and GMAC debt set to hit the market sometime this year, he says. “It strikes us that the increased volatility in the market has pushed investors to rebuild cash balances, as the market Sudden Downturn in Market is suffering from a lack of confidence,” according to Fenn. The auto-parts sector was particularly hard hit. “With Auto contagion led to a noticeable pullback by investors Ford and GM [yield spreads] widening dramatically, the in high-yield bonds in mid-April, says John Fenn, fixedrelative value being offered by the parts companies is TOP US HIGH-YIELD ISSUES IN MARCH 2005 questionable when compared Issuer Offer Date Coupon % Issue Type Maturity Date Private/Public Amount ($mil) with the lofty yields being DaVita 3/15/05 7.250 Sr.Sub.Notes 3/15/15 144A 850 offered by both of the Host Marriott 3/3/05 6.375 Senior Notes 3/15/15 144A 650 investment-grade credits,” Allied Waste Industries 3/3/05 7.250 Senior Notes (Secured) 3/15/15 144A 600 Fenn says. But in a clear case of the DaVita 3/15/05 6.625 Senior Notes 3/15/13 144A 500 good being thrown out with Atibi-Consolidated of Canada 3/22/05 8.375 Senior Notes 4/1/15 Public 450 the bad, some higher-quality Levi Strauss 3/7/05 Floating Rate Notes 4/1/12 144A 380 parts suppliers, such as Lear, Corrections Corporation of America 3/8/05 6.250 Senior Notes 3/15/13 144A 375 American Axle and TRW, Revlon Consumer Products 3/11/05 9.500 Senior Notes 4/1/11 144A 310 have been oversold and Pogo Producing 3/23/05 6.625 Sr.Sub.Notes 3/15/15 144A 300 appear extraordinarily cheap, TTI Holding 3/11/05 10.000 Sr.Sub.Notes 3/15/13 144A 300 he says. Exide Technologies 3/15/05 10.500 Senior Notes 3/15/13 144A 290 “Sure Lear has exposure to Suburban Propane Partners 3/18/05 6.875 Senior Notes 12/15/13 144A 250 Ford’s production schedule, Trustreet Properties 3/17/05 7.500 Senior Notes 4/1/15 144A 250 as well as GM’s, but the Lear US Oncology 3/15/05 Floating Rate Notes 3/15/15 144A 250 operators know about Ford Progress Rail Services 3/17/05 7.750 Senior Notes 4/1/12 144A 200 production cuts before WCI Communities 3/3/05 6.625 Sr.Sub.Notes 3/15/15 144A 200 [CEO] Bill Ford does—and Colorado Interstate Gas 3/2/05 5.950 Senior Notes 3/15/15 144A 200 they plan accordingly,” Fenn Source: KDP Investment Advisors says. —Gordon Platt 2 0 0 5

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Dollar Faces Still-Wider Current Account Deficit Judging by all the recent attention given to the Jcurve by economists and analysts, the outlook could get worse for the dollar before it gets better. The dollar has been rising in recent weeks in anticipation of higher US interest rates, but analysts still concur that the greenback will need to decline further in order to boost US exports and begin to reduce the current account deficit. In time, rising exports will rein in the current account, but not before higher import prices expand the deficit toward 7% of gross domestic product in 2006, says Robert DiClemente, chief US economist at Citigroup global markets in New York. Many forecasters expect that the current account may be on the verge of a turnaround, attributing the past year’s increase in the deficit to the traditional Jcurve effect, he says. “However, we believe that the J-curve effect has not yet come into play,” DiClemente says.“The J-curve will add to the deficit when foreign firms begin to raise US import prices more aggressively, probably this year,” he says. If Americans continue to import the same amount of foreign goods, they will pay a larger import bill as prices go up. The current account deficit has continued to widen despite the dollar’s decline since early 2002.The gap accounted for about 4.5% of GDP three years ago and is now around 6.25%.This widening 6 8

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shows how ingrained the deficit has become, reflecting the stronger growth of the US economy, as well as US preference for foreign goods, DiClemente says. Until now, foreign firms have chosen not to raise prices to compensate for the dollar’s losses, accepting narrower profit margins, for fear of losing US market share. This won’t continue forever, DiClemente says, and there already are signs that prices of imported goods have begun to march higher, even excluding petroleum.

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CURRENCY FORECASTS 1.0

Euro (Euro/US$)

0.9 0.8 0.7

Forecast

Source: Bank of New York

0.6 A

M

J

J

A

S

O

N

D

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F

M A

2004

A

S

O

N D

J

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2006

Japan (Yen/US$)

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Source: Bank of New York

Forecast

60

A

M

J

J

A

S

O

N

D

J

F

M A

2004

M J

J

A

S

O

N D

J

2005

F

M

2006

0.7

UK (Pound/US$) 0.6

0.5

Forecast

Source: Bank of New York

0.4

A

M

J

J

A

S

O

N

D

J

F

M A

M J

J

A

S

O

N D

J

2005

F

M

2006

1.6

Switzerland (Franc/US$)

1.4

Neal Soss, chief economist at Credit Suisse First Boston, says US consumers will remain addicted to Asiansourced goods and that Asian central banks will continue to invest their surplus dollars in US securities. “This triangular trade is really quite stable,” he says. “Asia needs the jobs, we like the subsidy, and this addiction continues.” Meanwhile, continuing gains in US productivity will keep inflation from getting out of control, according to Soss. Average hourly earnings in the US are rising at a slower pace than inflation, he says, and until wages increase faster than prices, there is no real inflation threat. Real GDP increased at a 4% rate last year, and the big question is how much tolerance the Federal Reserve will have for above-

J

140

2004

Triangular Trade

M J

1.2 1.0 0.8

Forecast

Source: Deutsche Bank

A

M

J

J

A

S

O

N

D

J

F

M A

2004

M J

J

A

S

O

N D

J

2005

F

M

2006

1.6

Canada (C$/US$) 1.4

1.2

1.0

Forecast

Source: Bank of New York

A

M

J

J

A

S

O

N

D

J

F

M A

2004

M J

J

A

S

O

N D

J

2005

F

M

2006

14

Mexico (Peso/US$) 12

10

Forecast

Source: Bank of New York

8

A

M

J

J

A

S

O

N

D

J

F

M A

2004 4.0

M J

J

A

S

O

N D

J

2005

F

M

2006

Brazil (Real/US$)

3.5

3.0 2.5

Forecast

Source: Deutsche Bank

2.0

A

M

J

J

A

2004

S

O

N

D

J

F

M A

M J

J

2005

A

S

O

N D

J

F

2006

M

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bond yields, according to Gilmore.The financial markets are trading on assertions, rather than facts, he says. “Markets seem content to follow, rather than to challenge, the Fed,” Gilmore says. “What we end up with are exaggerated moves around the time of the FOMC statements, or public remarks by Fed officials, and any hint of supporting evidence on what the Fed has in its craw at any given time,” he says.

trend growth in the US economy, Soss says.

Open-Mouth Policy There seems to be a major disconnect between the inflation data, which have generally been tame, and the behavior of the US Treasury bond market, says David Gilmore, economist and partner at Essex, Connecticut-based Foreign Exchange Analytics. “The data on inflation are not what is driving Treasury yields up,” Gilmore says. “This is the result of Fed open-mouth policy.” The mention of elevated inflation risk in the March 22 Federal Open Market Committee’s statement was the main impetus for higher

Growth Expectations The resiliency of the dollar in the face of a weaker-thanexpected March employment report, which showed a gain of only 110,000 in non-farm

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payrolls, suggests that the reason behind the dollar’s recent strength may not be entirely due to interest-rate expectations, says Michael Woolfolk, senior currency strategist at the Bank of New York. “The dollar’s gains may also be based in part upon growth expectations,”Woolfolk says. “By comparison to other major economies, the US economy is doing quite well.” Nonetheless, with ongoing concerns about financing a widening US trade deficit, the dollar bulls cannot afford to become complacent, he says.

much weaker than expected. The tankan, the Bank of Japan’s quarterly survey of corporate sentiment, reinforced doubts about the staying power of the upturn in Japan’s economy that began in the fourth quarter of 2004, according to analysts at Brown Brothers Harriman in New York. The report was consistent with BBH’s expectations that Japan will experience yet another year of very modest economic growth in 2005. Most of the details in the report were not nearly as negative as the headline, but “not as negative” doesn’t translate to “positive,” the BBH analysts note. —Gordon Platt

Tankan Tanks Japan’s tankan report, released on April 1, was

CURRENCY FORECASTS 1.6

1600

Australia (A$/US$)

South Korea (Won/US$)

1400

1.4 1200

1.2 1000

Forecast

Source: Bank of New York 1.0

800

A

M

J

J

A

S

O

N

D

J

F

M

A

2004 9.0

M J

J

A

S

O

N

D J

2005

F

M

M

J

J

2006

A

S

O

N

D

J

F

M

A

2004

M J

J

A

S

O

N

D J

2005

F

M

2006

1.8

China (Yuan/US$)

8.8

Forecast

Source: Deutsche Bank A

Turkey (Million Lira/US$) 1.6

8.6 8.4

1.4

8.2 8.0

Forecast

Source: Deutsche Bank A

M

J

J

A 2004

S

O

N

D

J

F

M

A

M J

J

2005

A

S

O

N

D J

1.2 F 2006

M

Forecast

Source: Deutsche Bank A

M

J

J

A 2004

S

O

N

D

J

F

M

A

M J

J

2005

A

S

O

N

D J

F 2006

M

CORPORATE FINANCING NEWS FOREIGN EXCHANGE

G

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EU’s Prospectus Rules Fail to Roil GDR Market

7 0

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the GDR market,” says Mike Hughes, director and global product manager for equity products at Deutsche Bank in London. Most issuers of GDRs will have no problem in meeting the prospectus requirements, which call for much of the same information to be disclosed as previously, but in a different format, he says. Another EU directive, the Transparency Obligations Directive, or TOD, which isn’t scheduled to go into effect until 2007, will have a much bigger impact on the GDR market, according to Hughes. Non-EU issuers of GDRs will have until January 1, 2007, until they are required to prepare prospectuses that include accounts that follow International Financial Reporting Standards. “The IFRS is not an issue right now, but it may become a problem for smaller issuers, who may decide in some cases not to list on a regu-

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flows, funding structure, treasury policies and peak borrowing requirements. Significant recent trends in production, sales and inventory, and costs are required, as are statements on conflicts of interest and corporate governance. Existing issued GDRs will become subject to the TOD when it is implemented. The net effect of these changes may lead existing issuers of GDRs to review whether to maintain a listing on an EU-regulated market, Linklaters says. Both the London Stock Exchange and the Luxembourg Stock Exchange are creating new segments, known as exchange-regulated markets, which are not regulated markets for the purpose of the EU regime but will be regulated by the relevant exchange. “We believe that the significant number of existing GDR issuers who will be unable to comply with the TOD will need to move across to an exchangeregulated market,” Linklaters says. —Gordon Platt

lated exchange within the EU when planning to issue equity in the international capital markets,” Hughes says. The TOD deals with the ongoing periodic disclosure obligations of issuers, including annual and half-yearly reports under IFRS or the equivalent. A third directive, the Market Abuse Directive, to be implemented at a later date, will require immediate public disclosure of price-sensitive information by issuers that have securities admitted to an EU-regulated market. The PD will require disclosure that is different in several respects to what is currently required, according to a report issued in February by London-based global capital market lawyers Linklaters. A 2,500-word prospectus summary must be prepared that conveys the essential characteristics and risks associated with the issuer and the securities. An operating and financial review also is required. Considerable detail is required on sources and amounts of an issuer’s cash

REGIONAL ADR INDEXES 160

Asia

Europe

Latin America

140

120

100

Source: Bank of New York

Mar 11, 2005

Mar 25, 2005 Mar 31, 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 22, 2004

Oct 8, 2004

Sep 10, 2004

Sep 24, 2004

Aug 27, 2004

Jul 30, 2004

Aug 13, 2004

Jul 2, 2004

Jul 16, 2004

Jun 4, 2004

Jun 18, 2004

May 21, 2004

May 7, 2004

Apr 23, 2004

80 Mar 31, 2004

On July 1, 2005, the European Union will implement the Prospectus Directive, a cornerstone in the creation of a single panEuropean capital market. The new legal framework, which applies to both EU and non-EU issuers, will introduce a single set of documents, or passport, for raising capital on a regulated market in any member country. Once a prospectus is authorized in one member state, it can be used in all the others. Lawyers warn that the harmonization of prospectus requirements will lead issuers to be exposed to liability for their prospectuses in all EU member states.This could make the preparation of a prospectus more costly and time-consuming, they say. For equity securities, the Prospectus Directive, or PD, requirements are based on the disclosure standards for cross-border equity offerings issued by the International Organization of Securities Commissioners. The main requirement is that the prospectus must contain all the information necessary for investors to make an informed assessment of the assets and liabilities, financial position, profit and losses and prospects of the issuer. Although global depositary receipts are nonequity securities for purposes of the PD, the prospectus requires equity-style disclosure by the issuer. “The new EU regime has had little impact to date on

Apr 9, 2004

CORPORATE FINANCING NEWS GLOBAL EQUITY/DR S

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Private Equity Firms Working Together A listing of the members of the investor group that agreed to acquire SunGard Data Systems in an $11 billion leveraged buyout in late March reads like a Who’s Who of private equity. Silver Lake Partners, a Menlo, California-based buyout firm that focuses on market leaders in technology businesses, put together a team of seven private equity firms to bid for SunGard, which makes software for financial institutions as well as treasury-management systems for corporations. Private equity firms, formerly fierce competitors, increasingly are pooling their resources in order to pursue bigger corporate takeover targets than they could tackle on their own. Joining in the formation of such groups is known as clubbing. The SunGard purchase group includes Kohlberg Kravis Roberts, or KKR, one of the oldest and most experienced buyout firms, which bought RJR Nabisco in 1989. The SunGard buyout is the largest since that storied deal, which was valued at more than $26 billion. Other members of the SunGard buyout team are: • Boston-based Bain Capital, which recently floated a $3.5 billion proposal with sports investment bank Game Plan to buy the entire National Hockey League.

• Blackstone Group, a leader in private equity investing, whose funds manage more than $14 billion.The firm has raised a total of about $32 billion for alternative-asset investing since it was founded in 1985. • GS Capital Partners, which makes private equity investments on behalf of its parent, Goldman Sachs. • Providence Equity Partners, a Rhode Islandbased private investment firm specializing in equity investments in media and communications companies. It has invested in more than 80 companies in 20 countries. • Texas Pacific Group, a Fort Worth, Texas-based private investment partnership managing more than $15 billion in assets. TPG is a leading global private equity investor in the technology sector. Two other prominent private equity firms— Thomas H. Lee Partners and the Carlyle Group— had planned to be part of the buying group but dropped out at the end over a disagreement about price. “The new investors in SunGard are world-leading private equity firms,” says Cristóbal Conde, president and CEO of SunGard, which is based in Wayne, Pennsylvania. “They have a long-term view toward growing the businesses in which they invest and an excellent track

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record of working in partnership with management to build great companies,” he says. Each partner in the consortium brings complementary expertise to the investment, says Glenn Hutchins, a co-founder and managing member of Silver Lake Partners. “Our interests are aligned with the long-term interests of SunGard’s customers and employees,” Hutchins says. The transaction will be financed through equity contributed by each of the consortium partners and debt financing provided by JPMorgan, Citigroup, Deutsche Bank, Goldman

Sachs and Morgan Stanley, which also acted as financial advisers to the investors. The second-largest M&A transaction in the US in March, the $7.6 billion acquisition of Toys “R” Us, also was a club deal. The investor group that bought the retail toy store operator comprised KKR and Bain Capital Partners, along with Vornado Realty Trust, one of the largest real estate investment trusts in the US. Washington, DC-based Carlyle Group launched two new buyout funds in late March, totaling more than $10 billion. —Gordon Platt

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

Adviser Goldman Sachs Merrill Lynch Morgan Stanley UBS Credit Suisse First Boston Industry Totals*

135,546 84,704 80,724 77,660 73,185 274,699*

1 2 3 4 5 -

49.3 30.8 29.4 28.3 26.6

42 26 26 21 26 2,083

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

Adviser Goldman Sachs Morgan Stanley JPMorgan Citigroup Lehman Brothers Industry Totals*

49,663 36,160 35,561 32,296 31,468 165,785*

1 2 3 4 5 -

30.0 21.8 21.5 19.5 19.0

28 24 40 25 19 2,223

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

Rank Value % Mkt # of ($million) Rank Share Deals 51,630 49,195 48,986 48,334 45,299 110,979*

1 2 3 4 5 -

46.5 44.3 44.1 43.6 40.8

36 24 13 14 4 1,906

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 (MARCH 1, 2005–APRIL 1, 2005) AMERICA Date Announced

Target Name (Target Advisers)

3/28/05

SunGard Data Systems (Lazard) (Credit Suisse First Boston)

US

Investor group US (Morgan Stanley) (Citigroup) (JPMorgan) (Goldman Sachs) (Deutsche Bank)

Definitively agreed to acquire provider of information technology, in a leveraged buyout.

3/17/05

Toys “R” Us (Credit Suisse First Boston) (Duff and Phelps)

US

Investor group (JPMorgan) (Morgan Stanley) (Deutsche Bank) (Banc of America Securities)

US

Definitively agreed to acquire owner and operator of retail toy stores.

7.64

3/6/05

Hibernia (JPMorgan) (Bear Stearns)

US

Capital One Financial (Credit Suisse First Boston)

US

Definitively agreed to acquire Louisianabased bank, in a stock-swap transaction.

5.27

3/7/05

United Defense Industries (Lehman Brothers) (JPMorgan)

US

BAE Systems North America US (Goldman Sachs) (Gleacher Partners) (Hoare Govett) (Dresdner Kleinwort Wasserstein)

Unit of UK-based BAE Systems definitively agreed to acquire manufacturer of combat vehicles, artillery and ammunition.

4.20

3/7/05

Insight Communications (Citigroup)

US

Investor group (Morgan Stanley) (Stephens)

US

Management-led investor group made an unsoli- 3.34 cited offer to acquire the remaining 86% it did not already own in provider of cable TV services.

3/21/05

Inamed (JPMorgan)

US

Medicis Pharmaceutical (Deutsche Bank) (Thomas Weisel Partners)

US

Definitively agreed to merge with manufacturer of medical equipment, in a stock-swap transaction.

2.66

3/21/05

Ask Jeeves (Citigroup) (Allen & Company)

US

IAC/InterActiveCorp (JPMorgan)

US

Agreed to acquire provider of questionand-answer services on Internet, in a stock-swap transaction.

1.97

3/9/05

Great Lakes Chemical (Merrill Lynch)

US

Crompton (Morgan Stanley) (Citigroup)

US

Definitively agreed to merge with chemical manufacturer, in a stock-swap transaction.

1.77

3/1/05

Oakwood Worldwide’s apartment communities

US

Archstone-Smith Trust

US

Agreed to acquire 30 apartment communities.

1.40

3/14/05

Gecina (Lehman Brothers) (Credit Suisse First Boston)

France

Metrovacesa (Morgan Stanley) (Calyon)

Spain

Agreed to launch a tender offer to acquire the remaining 70% it did not already own in real-estate agency.

3/18/05

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

Italy

Banco Bilbao Vizcaya Argentaria (Morgan Stanley) (Merrill Lynch) (Goldman Sachs)

Spain

Planned to launch a tender offer to acquire the remaining 85.28% it did not already own in Rome-based bank, in a stock-swap transaction.

8.39

3/30/05

Banca Antonveneta (Goldman Sachs)

Italy

ABN-AMRO Bank (ABN-AMRO Holding) (Lehman Brothers) (Rothschild)

Netherlands Planned to launch a tender offer for the remaining 87.3% it did not already own.

8.14

3/11/05

Amadeus Global Travel Spain Distribution (Credit Suisse First Boston) (Lazard) (Dresdner Kleinwort Wasserstein)

Wam Acquisition (JPMorgan) (Morgan Stanley) (UBS Investment Bank)

Luxembourg Agreed to launch a tender offer for developer of online travel and tourism services, in a leveraged buyout.

5.82

3/29/05

ISS (Nordea Securities)

Denmark

PurusCo (Goldman Sachs) (Citigroup) (Enskilda)

Sweden

Investor group planned to launch a tender offer to acquire provider of propertymanagement services, in a leveraged buyout.

3/15/05

Oskar Mobil (Lehman Brothers) (Lazard) (JPMorgan)

Czech Republic

Vodafone (UBS Investment Bank)

UK

Definitively agreed to acquire Czech telecom and to increase its interest is MobiFon of Romania to 99%.

4.40

3/29/05

Celtel International (Rothschild) (Goldman Sachs) (Citigroup)

Netherlands Mobile Telecommunications (UBS Investment Bank)

Kuwait

Agreed to acquire an 85% interest in Dutch telecom and planned to acquire the remaining 15% stake.

3.40

3/25/05

Turkcell Iletisim Hizmetleri (JPMorgan)

Turkey

TeliaSonera (Citigroup)

Sweden

Planned to raise its interest to 64% from 37% by acquiring shares from Cukurova Group.

3.10

3/9/05

RAC (Lazard) (Hoare Govett) (ABN-AMRO Holding)

UK

Aviva (Goldman Sachs) (JPMorgan Cazenove)

UK

Planned to launch a tender offer to acquire the remaining 99.1% it did not already own in wholesaler of automobiles and electronics.

2.42

3/9/05

Hanjaya Mandala Sampoerna

Indonesia

Philip Morris Indonesia (Credit Suisse First Boston)

Indonesia

Unit of Altria of US planned to launch mandatory tender offer to acquire the remaining 60% it did not already own in cigarette manufacturer.

3.14

3/28/05

Mitsubishi Paper Mills (Mitsubishi Securities)

Japan

Chuetsu Pulp & Paper (Mizuho Securities)

Japan

Definitively agreed to merge, in a reverse stock-swap transaction.

2.45

Country

Acquirer Name (Acquirer Advisers)

Country

Description

Ranked Value ($billion) 10.84

EUROPE 10.00

5.14

ASIA

Source: Thomson Financial Securities Data 7 2

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