Emerging Europe

Bankers are back in the saddle, pursuing ever-greater profits and rewards. Investors are back at the casino trying to recoup their losses. Have fund managers – and the analysts that rate banks – learnt any lessons from the banking crisis? Dawn Cowie investigates.

Burgeoning equity derivatives market; Introduction of futures on individual stocks a priority

Trio of projects set to be signed; Commercial bank lending recovering

After a troubled start to the year when defaults in the domestic bond markets occurred almost daily, there are tentative signs of a recovery in investor sentiment towards fixed-income offerings from Russian issuers. In late August conglomerate Sistema provided much-needed cheer for market participants when it successfully launched a R20 billion ($620 million) bond – the largest corporate issue to date this year, trumping an earlier R15 billion transaction from energy company Gazprom.

High oil price, cheap valuations to spur rally; Growth forecast at 4% in 2010

Development agencies emerge as key players; Other funds in the pipeline

Government policymakers and regulators around the world are striving to agree new rules to make the financial system safer. Euromoney has a few recommendations.

I love a headline full of hyperbollox (Do you mean hyperbole?, Ed). A raft of data confirms what we all know: there has been a significant fall in turnover in FX everywhere. In New York, the Foreign Exchange Committee’s (FXC’s) 10th survey of North American FX volume found that the average daily volume in total over-the-counter FX instruments – including spot transactions, outright forwards, FX swaps and options – totalled $527 billion, a decrease of 26.3% on April 2008. Disturbingly, this was the lowest level of activity since October 2005. The FXC says the declines were across currency pairs and instruments. Average daily turnover in spot fell 25.2% to $294 billion; outright forwards dropped 21.5% to $73.8 billion; swaps declined 27% to $141.8 billion; and, more tellingly, option volumes plunged 48.4% to just $17.76 billion.

Bad debts rise to new highs; Investors tire of mounting problems

First economic downturn in decade; Prime minister’s shock resignation

The revival of developing world capital markets is encouraging but investors should exercise a little caution.

One of Deutsche Bank’s most senior emerging markets bankers is joining Goldman Sachs

It’s a cliché – but when the going gets tough, the tough get going. It’s the clear theme that connects the winners in Euromoney’s best banks in central and eastern Europe awards. The past 12 months have arguably been the most testing in the region since it embarked on its transition from centrally planned to free-market economies following the fall of the Berlin Wall in 1989. Having become used to enjoying the full benefits of the cheap, plentiful global liquidity and investor appetite of the pre-credit-crunch era, the region has had to adjust to the rude shock of finding itself starved of capital and customer demand as the rising tide of risk aversion has blighted short-term economic prospects in the region. It’s appropriate therefore that RZB/Raiffeisen International, which helped to pioneer the development of the banking sector in the region when it was far from being an obviously attractive market, should retain its crown as the best banking group in central and eastern Europe. Having been at the forefront of the expansion of western European banking groups into the region in the 1990s, its long track record of operating in central and eastern Europe means that it is well placed to manage the risks as well as the rewards that the region has to offer. The Austrian bank’s ability to mitigate downside risk while maximizing upside potential has been a key factor in its award-winning performance. As a result the bank was able to deliver yet another strong set of results for 2008, reporting a record net consolidated profit of €982 million, up 16.7% on the previous year’s record return of €841 million. Herbert Stepic, chief executive of Raiffeisen International, whose missionary zeal about the business prospects in central and eastern Europe has helped to propel the bank to the forefront of the banking markets in the region, says that despite the economic slowdown in central and eastern Europe Raiffeisen International remains fully committed to its operations in the region. "The name of the game as a bank is to carry our customers through the crisis and not to panic," he says. Stepic believes that, with more than 20 years’ experience of operating in central and eastern Europe, Raiffeisen International has created a well-balanced universal banking model that is sufficiently robust to weather the economic storm. "Our banking model is good for generating profits in the good times as well as managing risk in the bad times," he says, adding: "I’m extremely happy that we have a diversified geographic and business segment model." In particular, with a presence in 17 central and eastern European countries and more than 15 million customers, Raiffeisen is well positioned to mitigate different risks across the region. "With our across-the-board activities we have built-in insurance in our business model," Stepic says. He adds that, in contrast to some of its rivals that paid top-of-the market valuations for its acquisitions in the region: "We have always paid reasonable multiple for our acquisitions that have totalled €600 million, which is a very low amount."

Dramatic fall in growth; Bankruptcy looms without bailout funds

Stronger investor appetite for emerging market risk since the start of the second quarter of the year combined with higher oil and gas prices is helping to reopen the international equity markets to energy companies operating in Russia and the Commonwealth of Independent States.

The financial crisis has prompted corporates to scrutinize more closely the risk presented by their bank counterparties. Laurence Neville reports.

The banking sector in emerging Europe is likely to experience an outright fall in total assets this year, according to a report issued last month.