The alternative awards of the year 2018

By Euromoney writers

We profile the banker who showed outstanding bravery in accepting a new job, as well as the oversight of a trigger-happy chairman; the worst finance minister of the year; and the chief executives who collectively jumped off the bus before they fell under it.

We reveal the winner of a new category, Memo of the year, perhaps the most competitive field in 2018. Which bank celebrated a birthday by telling everybody about their song? And which politicians could we simply not ignore?

You’ve got to blow your own trumpet. No one else will. 

You can learn a lot from the president of the US on this and so much else. As he told his 56.2 million twitter followers on December 9: “The Trump Administration has accomplished more than any other US Administration in its first two (not even) years of existence, & we are having a great time doing it! All of this despite the Fake News Media, which has gone totally out of its mind – truly the Enemy of the People!”

The rest of the world continues to misunderestimate 45: but not Euromoney.

Rex Tillerson and Michael Wolff may want us to believe Trump barely reads, yet he is clearly a big fan of Henrik Ibsen or at least his seminal 1882 study of a man dedicated to telling truths unpalatable to the majority. 

It’s only a shame that, unlike Norway’s greatest playwright, Potus has just 280 characters to list his accomplishments. Helpfully, an earlier message condenses them. 

“Without the phony Russia Witch Hunt, and with all that we have accomplished in the last almost two years (Tax & Regulation Cuts, Judge’s, Military, Vets, etc.) my approval rating would be at 75% rather than the 50% just reported by Rasmussen. It’s called Presidential Harassment!”

There was a time, of course, when the accomplishments list would have started with the Dow Jones hitting another record high. Sadly, markets have moved on since those heady days in 2017 when Trump told Fox News he was honoured that US stocks had put on $5.2 trillion under his presidency and that “maybe in a sense” this counted as reducing the Federal debt.

Euromoney made the mistake at the time of reasoning that if he took credit for the market’s rise, Trump risked eventually being blamed for its inevitable fall. How wrong we were. Investors by now ought to see the pattern: talk belligerently, brew up an impending crisis, arrange a meeting, deploy a great personality to win over a former opponent, declare victory. It worked with little rocket man, so why not with China?

“I am a Tariff Man,” Trump declares. And if markets have a problem with that and go down, then it must be somebody else’s fault. Trump spotted this in November: “The prospect of Presidential Harassment by the Dems is causing the Stock Market big headaches!”

You don’t accomplish as much as president Trump without making your enemies jealous. One of the many ways he has outsmarted them has been to stop taking credit for markets going up and start taking credit for them going down instead. In November, Trump was even moved to thank himself for having buddies like Mohammad Bin Salman. “So great that oil prices are falling (thank you President T). Add that, which is like a big Tax Cut, to our other good Economic news. Inflation down (are you listening Fed)!”

It really is all about the Donald. We’d love to hear his thoughts on the inverted yield curve. But Tariff Man has clearly put Jerome Powell on notice. Let’s hope the Fed chairman gets the great news about falling inflation and doesn’t turn out to be as dumb as a rock. 

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You can’t place the blame entirely at the feet of Myanmar’s banks. 

Scroll back to 2010, and to another world, before the rise of Trump and Brexit and the emergence of fintech fever and China’s New Silk Road. In Yangon, Myanmar’s military, which controlled the entire government apparatus, had given reality a jolt by offering to hold full and free elections and saying if it lost it would honour the result and let civilians run the place. All of which then happened. 

Myanmar then opened up – fast. Consumer goods firms sought reliable partners. Miners filed extraction applications. And 13 foreign banks were handed permits to open local rep offices. Not one European or US bank made the list, which was chock full of names from Japan and southeast Asia. 

A message then came down from the central bank, sharp and clear. The country has almost no bank branches, it said, so build lots of them and be quick about it. Myanmar had plenty of lenders, 25 in all, including the freshly minted and fabulously named Glory Farmer Development Bank. Yet few of them had scale. 

For every 100,000 people, there were 1.5 branches, on a par with Afghanistan. Moreover, they were unevenly scattered. The whole of Chin state, with a population of 480,000, had just five branches, while parts of the capital had more than Hong Kong.

So the banks set out to build. As late as 2013, KBZ, the largest private bank by assets, had 122 branches. CB Bank had fewer than 50 and Aya Bank just 32. Then something shifted. Over the next five years, KBZ opened nearly 400 branches, propelling it toward its target of 1,000. Aya Bank opened its 250th branch in 2018, while CB Bank sailed past the 200 mark. 

The issue here is not one of quantity but quality; or, to be precise, of quality of strategy. For this headlong rush to buy expensive office space in the heart of towns and cities, and fill them with lots of people in sharp suits and shiny shoes, began at the precise moment that banks everywhere else were shuttering branches and investing in digital. 

Along with the dawn of democracy and the Rohingya crisis, the two great stories of Myanmar’s opening-up era are digital in nature. The first involves Facebook, which in quick time has become the number one source of news. And the second is the advent of mobile money services providers such as Wave Money. 

The Yangon-based fintech outfit, originally a joint venture between Yoma Bank and Norwegian telecoms firm Telenor, is a legitimate phenomenon. Within 18 months of its launch, it had 1.3 million customers enamoured of its stripped-down simplicity. 

Anyone could open a Wave account if they had a Telenor phone number. Once that ankle-height bar was cleared, they were free to transfer cash to any other Wave customer. Accounts were topped up by handing cash to any of the firm’s 20,000-plus agents – usually sole traders or farmers, pillars of the local commercial community, dotted around hundreds of cities, towns and villages. Each transaction left a clear digital trail, in the form of an SMS sent to all relevant parties. Simple, easy and cheap. 

When Euromoney spoke to Wave’s cheery Australian chief executive Brad Jones, he was baffled by the banks’ persistent belief that the way forward involved more bricks and mortar, particularly in a country that has fallen in love with digital, and where people are deeply intimidated by the mere thought of walking into a branch. 

Of course, all this might change. Perhaps Myanmar’s aspirational consumers, emerging from decades of tyranny and poverty, may cast aside their phones and tablets and learn to love standing in a stuffy bank during monsoon season: then again, maybe not. 

Fast forward 10 years and it is easier to imagine many of the new branches gone and replaced by coffee shops or standing empty, with plants growing through the floor. 

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What was all that commotion that you heard down at the royal commission into Australian banking’s hearing room in Sydney in late November? That would be the new Commonwealth Bank chief executive, Matt Comyn, and his almost-as-new chair, Catherine Livingstone, throwing their recently departed counterparts Ian Narev and ex-chairman David Turner, as well as the entire CommBank board for good measure, under the bus for letting venality run riot at the bank. 

Narev chose to ‘retire’ before the commission got underway, which was probably a perspicacious move. That is more than can be said for many of his managerial colleagues at Australia’s other big money houses. 

The commission has claimed many big scalps, and commissioner Kenneth Hayne’s work is nowhere near done. In April, the chief executive, chair and senior legal counsel at financial services firm AMP were ousted within days of each other after evidence to the probe; NAB’s consumer banking boss, Andrew Hagger, went in September after NAB’s ‘fee for no service’ scandal was aired. He was replaced by politician-turned-banker Mike Baird. 

At ANZ, 200 senior executives got toasted for misconduct in October by chief executive Shayne Elliott. And the list goes on and on and on. 

Maybe Euromoney’s gong for best Aussie bank should have gone to the pious central Reserve Bank of Australia where, thanks to their canny trading of the roller-coasting Aussie dollar, governor Philip Lowe and his government bean counters managed to reverse last year’s A$900 million ($649 million) loss into a A$3.8 billion profit. 

Moreover, Lowe made that money without losing his job or ripping off his clients.

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Euromoney turns 50 this year, and we think we can learn plenty about marking the occasion from Singapore’s DBS, which reached the milestone in August.

It wasn’t the 50th anniversary S$500 ($366)-per-employee gift, or the 50th anniversary 50 cent-per-share dividend or the 50% discounts that caught Euromoney’s eye. No, it was the decision to launch a musical about itself that we are sorely tempted to emulate.

Regular readers will recall our account of ‘Sparks: The musical’, in which: “Chester Teo is a no-nonsense DBS banker who cares deeply about his clients, as he reminisces about his experiences – personal and professional.

“The characteristics that Chester and his team embody reflect the grit, gumption and purpose of the DBS people who made the bank what it is today.” 

It was such a big a deal that prime minister Lee Hsien Loong opened it on August 4. 

The musical was a spin-off from a 10-episode web series, also called ‘Sparks’, that had by then logged 150 million views from people keen to get the next thrilling but fictional insight into the lives of DBS bankers.

And we would like to share with you a postscript. After we wrote in somewhat cheeky tones about the series and musical, DBS, taking it all in good humour, wrote to Euromoney offering Asia editor Chris Wright a cameo part in series two. 

“For this role, you’ll have to dye your hair a dirty shade of blonde and go on a no-carb diet for at least eight weeks,” wrote Jean Khong from the communications department. 

She was joking about both role and hair. 

We think. 

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We have rarely sensed a mood so uncertain, paranoid and flat-out terrified as that in the Malaysian financial services industry in the days after Mahathir Mohamad returned as prime minister, ousting one-time protégé Najib Razak.

Najib, it is increasingly clear, ruled by fear, and you were either with him or against him. Those who took the former course thrived, but only until he lost an election. 

Clearly Najib himself and his handbag-loving wife, Rosmah Mansor, had the most to lose from ceding power: Najib faces 32 charges on criminal breach of trust, money laundering and abuse of power, while Rosmah faces 17.

But the shockwaves go well beyond the ruling couple to anyone who has ever appeared connected to them. 

Within weeks of the election, resignations (or at least non-renewal of contracts) included Muhammad Ibrahim, governor of Bank Negara Malaysia; the entire board of sovereign fund Khazanah Nasional, including managing director Azman Mokhtar; several senior figures at oil utility and national jewel Petronas; and the top executives at Tabung Haji, which manages funds for Hajj pilgrimages. 

From the outset Malaysia’s top bankers were looking nervous – and many of them still are, wondering about past connections to 1MDB projects. Clearly Goldman Sachs has plenty to worry about: Mahathir and his intended successor Anwar Ibrahim have called for Goldman to repay $600 million in fees from 1MDB and filed criminal charges. 

In September it was confirmed that the former prime minister’s brother – and long-time critic – Nazir Razak would relinquish his role as group chairman of CIMB. 

One senses that Mahathir, now 93, is loving every minute of it and that he has a few more scalps to claim yet. 

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Disgruntled employees show a strong ability to embarrass themselves and their institutions by putting pen to paper and attempting to undermine their leaders. But by remaining anonymous, they might merely risk giving their bosses the chance to disparage them and reinforce the case they are arguing against.

Most active among the letter writers of 2018 was a group claiming to represent about 40 senior middle managers of the retail and commercial arm at ABN Amro. Having warned local regulators and the bank’s government owner in a letter in June about what they deemed strategic drift, they then wrote to their new chairman, Tom de Swaan, in November, with more criticism of chief executive Kees van Dijkhuizen.

The chief executive’s response was certainly robust, although he has denied their claim that he is not open to internal discussion. Hinting at legal action against them in an interview with local financial daily FD – which first reported on the letter – van Dijkhuizen told them to “get a life”, in particular because of their criticism of his prioritization of the bank’s sustainability agenda.

The letters’ most serious implication is its suggestion of lack of consensus over what ABN Amro should be as it tries to return towards full private ownership, 10 years after being broken up and nationalized. The most recent letter came just as the bank announced a new and more stringent cost-to-income target of 55% for 2022.

It also followed the resignation in February of former ABN Amro chair Olga Zoutendijk amid an ECB investigation into its governance and what the bank said was an internal discussion over her leadership style. ABN Amro investment bankers cherished Zoutendijk, who was previously Standard Chartered’s head of Asia wholesale banking. But the letter writers suggested cuts to the investment bank had not gone far enough.

Perhaps HSBC staff inspired their peers at ABN Amro? Another anonymous letter to HSBC’s chief executive John Flint and his board in late August criticized the “persistent failure” of its investment bank, which it said was demoralized after a string of senior departures. Will the anonymous memo trend continue into 2019?

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Guess who wrote this, and when: “It is obviously vital that European industry should have access to an adequate flow of capital.”

It could be one of many people – few in the region’s business community would disagree with the sentiment. 

And there’s more for them to agree with, from the same source. 

“The individual capital markets in western Europe, with the exception of the UK, are still too small and fragmented to satisfy the capital requirements of large companies.”

True again. What might be needed? 

“If a completely free market is to exist in Europe for both products and services, it is essential also to have a completely free capital market.” 

There are difficulties of course. 

“The establishment of a free capital market involves individual countries in accepting supranational authority. This is the root of the problem in that no European country seems, at present, prepared to give up control of its own capital market.” 

Yes, that certainly sounds very familiar.

So who and when? Was this a European finance minister earlier this year or perhaps an earnest Eurocrat looking to inject some impetus into Europe’s capital markets union (CMU) project?

No. The writer was the Honourable David Montagu, then chairman of Samuel Montagu and Co, in an article in Euromoney in April 1971. Montagu later became a member of the board of supervision at the Bank of England.

Nearly 48 years later, what is the state of play on this urgent European need? Estimates vary, but it is clear that European businesses are still vastly more reliant on bank lending than they are on capital markets, the reverse of the now long-established position in the US – something that Erste Bank chief executive Andreas Treichl has called “the real problem of Europe”.

Rather more recently than Montagu, the Juncker Commission’s Investment Plan in 2014 called for the implementation of “a true single market for capital in the EU” by 2019. 

To be fair, there has been progress since then. There was the Prospectus Regulation in June 2017, regulations on European venture capital funds in October 2017, and the regulation on Simple, Transparent and Standardized Securitizations in December 2017.

But if there is to be any hope of meeting the European Commission’s target of implementing CMU by the time of the next European Parliament elections in May 2019 – a target reaffirmed as recently as November 28, 2018 – there is much more to be done at the national and European level. 

That has been made a lot more difficult by Brexit – not least because the vote means the departure from the European Commission of the UK’s Jonathan Hill, seen as the standard-bearer for CMU when he was commissioner for financial stability. It also means the loss of about a quarter of European Union capital markets activity.

Montagu wasn’t wrong when he wrote: “The main problems are political rather than technical”. The problem is that the technical issues have got trickier in the intervening 48 years.

A similar delay now will take us to 2067. If things don’t speed up, there might well not be a European market to unify at all.

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Emerging Europe can usually be relied on for a few good financial scandals and 2018’s crop was particularly rich. The most spectacular came from the Baltics, where the bill for two decades of handling dirty cash from Russia and the former Soviet Union finally came due. 

Latvia set the ball rolling in February with an impressive trifecta. First, its third-largest bank, ABLV, was forced to close following US accusations of institutionalized money laundering. Then central bank governor Ilmars Rimsevics was arrested by anti-corruption officials on bribery charges. And to top it all off, the owner of another local lender accused Rimsevics of a campaign of extortion. 

By September, however, Latvia’s efforts had been dwarfed by those of neighbouring Estonia. Despite boasting a population of just 1.3 million, the Baltic’s smallest state managed to produce possibly the largest money-laundering scandal in history when Danske Bank admitted that most of the €200 billion that had passed through its Tallinn branch in the eight years to 2015 could be classed as suspicious. 

Impressive as these efforts were, however, our judges – who dearly love a bit of schadenfreude – opted this year for a financial scandal originating not from the traditionally fertile ground of CEE’s wilder east but from the fringes of core Europe. 

In November, Poland’s banks and politicians were thrown into disarray when local tycoon Leszek Czarnecki accused Marek Chrzanowski, the head of Poland’s financial market regulator KNF, of soliciting a bribe in return for favourable treatment of the former’s Getin Noble Bank. Chrzanowski, a former central banker, was subsequently arrested and charged with corruption.

The piquancy of the case stems from the fact that Chrzanowski – who denies all allegations – had been appointed just two years earlier by Poland’s nationalist Law and Justice Party (PiS), which has positioned itself as a scourge of corruption, while at the same time stuffing public-sector institutions and state-owned firms with party loyalists. 

Some have even seen the fell hand of PiS in the latest upheavals, positing that the bribery scandal is a put-up job to allow the government to absorb Getin Noble and Idea Bank, which also belongs to Czarnecki, into the state sector. 

The eagerness with which the competent managements of state-controlled market leaders PKO BP and Bank Pekao disclaimed any interest in taking over Czarnecki’s troubled lenders, however, gives the lie to these claims – which, indeed, speak more to PiS’s growing reputation for conspiracy and infighting than to the realities of Polish banking.

A final layer of irony is added by the fact that, unlike the Baltics, Poland’s banking scandal is entirely home-grown – which seems delightfully appropriate, in light of PiS’s policy of “repolonizing” the banking sector by buying out foreign groups such as UniCredit.

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The revolving door of South Africa’s ministry of finance has spun once again. Nhlanhla Nene, South Africa’s disgraced minister, lasted just seven months in his second stint at the job when he was fired in October 2018. 

The first time he found himself out of the same job was back in December 2015, when the then president, Jacob Zuma, replaced him with the unknown David van Rooyen. 

Van Rooyen fared slightly worse than Nene, lasting just four days as minister of finance. (His extremely short stint as head of the public purse is pretty much the only reason why anyone knows who he is today. In fact, South Africa has had five ministers of finance since 2015 and anyone who can name them all wins a share in the country’s equally unstable utility firm, Eskom*). 

When Zuma announced that there were legitimate reasons for firing Nene the first time, he didn’t share any of the details. 

“You say a sitting finance minister was removed without reason, but you don’t know the reasons why I removed a sitting finance minister,” Zuma said. Cryptic. 

And while the real reasons for Nene’s dismissal are not known, it is widely rumoured that Zuma, worried that Nene was getting close to the president’s dodgy dealings with the notorious Gupta family, cut the cord with Nene before anything important could be revealed. 

But fast forward three years – and how the tables have turned. 

Nene, the once popular, competent finance minister, was forced to resign in October as it was discovered that he too was suspected of meeting with the Gupta family in secret on a number of occasions. 

Astonishingly, these meetings took place during the same period of time Nene was investigating Zuma.

At the time, Nene thought it best not to mention these covert meetings, perhaps assuming that no one would ever find out. He was, however, forced to tell the truth during South Africa’s state capture enquiry, which aims to uncover how the Gupta family affected domestic politics under Zuma’s rule. 

Nene maintains that nothing untoward was discussed during these meetings. But the fact that he didn’t disclose them in the first place has led some to question his position in South African politics.

Nene’s reputation may be in ruins, along with a great deal of South Africa’s economy, but the way things are going, we look forward to welcoming him back as finance minister for a third time in 2021.

*Subject to the South African government finally giving up and privatizing the waning electricity provider.

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With a supervisory board chairman like Paul Achleitner behind you, hiding that glinting thing in one hand while patting you on the shoulder with the other, it presumably takes some courage to step forward and take the chief executive’s chair at Deutsche Bank. 

When Achleitner was first appointed in 2012, Anshu Jain and Jürgen Fitschen had already been named as co-chief executives designate to replace the long-serving Josef Ackermann. Achleitner didn’t appoint them, but he stuck with them. He watched them double down on the markets businesses Jain had built while running the investment bank but which new regulations rendered obsolete, and then sacked them. 

He brought John Cryan across from the supervisory board to be chief executive in 2015 to execute the five-year plan previously agreed with Jain and Fitschen to turn the bank round. 

In 2018, Achleitner sacked Cryan too. He was caught looking for a replacement from outside the bank, but couldn’t find one. And so instead he promoted 48-year-old Christian Sewing, a former auditor, credit officer and risk manager, and more recently co-head of the private and commercial banking division. 

Sewing looked more like one of the next generation leaders who might have been a candidate in the next transition, rather than the ideal chief executive for Deutsche today. His painstaking work in moving the German retail banking activities of Postbank into the same legal entity as Deutsche’s won some regard for his management capability. 

On the bank’s third quarter of 2018 earnings call Sewing declared: “Overall, we are on the right path, and we are moving in the right direction. Costs and balance sheet are under control. Focus is now on the top line. We delivered quickly and in a disciplined manner on what we promised and what is under our direct control.” 

But Deutsche’s challenges are essentially strategic much more than managerial. Sewing may have been brave to step up as the latest chief executive. Could he be its last chief executive? 

The bank is strong in areas where returns are weak, such as German retail banking, and weak where revenues are strong, such as from corporate and investment banking in the US. Deutsche has attracted a few value investors hoping for a turnaround, but the market capitalization has sunk from over €40 billion when Cryan was appointed to under €16 billion in mid December 2018. 

With investigators from the Frankfurt prosecutor’s office raiding its offices in November in pursuit of evidence of alleged wrongdoing relating to tax shelters revealed in the Panama papers and worries growing about its role as a correspondent of Danske Bank, anyone who wanted to could buy €1 of Deutsche book value for 23 cents.

Shareholders fully expect Sewing to deliver the revised 2018 cost target of €23 billion – the one Cryan was sacked for setting, having initially targeted €22 billion – but no longer care. They assume a profit for 2018 and now want to see revenues grow, but don’t seem to attach much credibility to the 4% return on equity target for 2019, never mind the longer term 10% target. 

Talk of an eventual tie up with Commerzbank continues to distract employees. There is no reason to assume Deutsche would be the dominant partner. 

Sewing had better keep his armour on for now.

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