International cash management meets the global challenge

Jorge Maortua, deputy head of global wholesale banking for Grupo Santander and the group’s head of treasury services, is running a fast-growing business. Perhaps more important, his division, while finding alternatives to traditional low-margin lending, is building key relationships with the bank’s clients, including small and medium-size enterprises.

Lawyers are cashing in by advising managements of public companies in ways to ward off evil hedge fund activists. But activism, handled with decorum, can be positive for management and investors. And who better to be an activist than a hedge fund manager? Helen Avery reports.

US state’s decision to pass a law protecting a bank from shareholder activists is seen as a setback for investors.

Brazil’s biggest private sector bank has announced the creation of a new subsidiary, Bradesco Investment Bank. This will focus on all aspects of the local and international capital markets business as well as asset management. Bradesco is a retail powerhouse but the bank’s CEO, Marcio Cypriano, is keen to take advantage of growing capital markets activity from Brazilian entities. Cypriano told Euromoney last year: “In general, we should be bigger and better in capital markets. That business should closely match Bradesco’s retail performance.” [See Euromoney December 2005, “Bradesco's plan of attack”.]

With the notable exception of Deutsche Bank, German investment banks’ performance has lagged their French peers for most of the decade. But the German sector is picking up on new market possibilities, with Commerzbank in particular looking to rebuild its business after a dramatic recovery. Philip Moore reports.

It’s not easy to see, but behind the trillions of dollars of FX trading a collision between new technology and traditional banking is changing the economics and mechanics of the business. So far, participants talk politely of cooperation.

“We’ve made $100 billion of investments in the past few years. We have to be number one in every product, in every market. We have no choice. There’s no other way to go.”

“Citigroup should wipe the floor with everyone in credit derivatives. What happened?”

Summer cum laude

Acquired asset managers often fail to fulfil their promise, as Deutsche Bank has found more than once. But Deutsche’s parachuting of Axel Schwarzer into US firm DWS Scudder looks set to be a success story.

Manic demand for returns is putting Latin American issuers in the driving seat, calling the shots on subjects such as length of maturity, target investor base and restructuring opportunities. Theodore Kim reports.

Latin America’s local-currency markets are no longer a sideshow for esoteric investors. Today, many emerging market portfolio managers have exposure. But, as Felix Salmon reports, the growth of domestic supply and demand will drive these markets forward.

Further consolidation in Latin America’s banking industry is expected on the back of strong economic growth and financial stability. Foreign banks, which were active acquirers in the 1990s, are expected to play a big part in this. Leticia Lozano reports.

Latin American companies are shedding reputations for irresponsible management to become competitors, and even leaders, in the global markets. So much so that some don’t even want to be considered Latin any more. Lawrence White analyses the results of Euromoney’s first survey of the best-managed companies in the region.

With Mario Draghi taking up a position on the European Central Bank’s governing council, and Jürgen Stark set to be the next new member, the inner sanctum is likely to become more pragmatic than doctrinaire.

Conflict over oil and gas supplies is set to fuel tension between western Europe and Russia in coming years.

The organizers of Rosneft’s IPO, tentatively scheduled for October or November, are considering placing the shares in Tokyo as well as in Russia and London, according to Valery Nazarov, head of the Federal Property Management Agency. However, he has so far ruled out a simultaneous flotation.

Italy’s Intesa has won the battle to acquire an 85.42% stake in Ukrsotsbank, Ukraine’s fourth-largest bank. The bank has 527 branches and serves more than 660,000 customers. Banca Intesa says that it values the bank at $1.3 billion and that its total investment will amount to $1.61 billion, including the share capital increase. Intesa already owns banks in Croatia, Hungary, Slovakia and Serbia & Montenegro.

Kazkommertsbank sold a S$100 million ($61 million) bond last month, the first ever Singapore dollar-denominated issue from a Kazakh issuer. European investors bought 65% of the three-year paper, with the rest divided between Asian and offshore US accounts. Singapore government securities offer very low absolute rates, and the deal’s success was attributed to the pick-up and currency diversification that it offered.

Fitch and S&P put Nigeria’s risk of default on the same level as Brazil and Turkey.

Flushed with the success of its 2005 activities, with more than $20 billion raised through privatizations for the Turkish treasury, the country’s privatization administration wants to reattempt the sale of tobacco firm Tekel. The government’s latest attempt to sell the firm was just last year, but no bids were received. This was blamed on an increase in tax on tobacco products. It also tried, but failed, to sell the company in 2003. Other entities slated for privatization this year include Halkbank, petrochemicals firm Petkim and Turkish Airlines.

The market is attractive to potential foreign acquirers, but the process of acquisition is proving far from easy. Patrick Gill reports.

How will money be made in emerging markets debt when bid-ask margins are anorexic and expected returns uncompetitive?

Foreign investors are back in Thailand to scoop up bargains. The timing couldn’t be better for a new drive to develop the capital markets but politics could get in the way of some important deals. Peter Koh reports.

Stock market reforms and restructuring portend further share price rises. There is money to be made, say fund managers, for those with patience and diligence.

A US Federal court case may force Congress to consider amendments to the Sarbanes-Oxley Act.

The problems of open-ended real estate funds might pave the way for the rapid success of Reits.

Javier Lazaro has joined Credit Suisse as head of global markets solutions covering Spain and Portugal from Goldman Sachs’s leveraged finance group. He will report to Paul Raphael, head of European equity capital markets, and Marisa Drew and Craig Klaasmeyer, co-heads of European leveraged finance origination.

The number of Middle East-based hedge funds is set to increase. In January, Abu Dhabi headquartered First Gulf Bank launched the first hedge fund of significance in the region. The fund, Al Saqer (“the Falcon”), is a macro-strategy hedge fund and has a capitalization of Dh3 billion ($817 million).

Second-lien financings grew dramatically in 2005. Total US second-lien loan issuance alone amounted to more than $22 billion in 2005. In Europe, second-lien issuance totalled €5.75 billion in 2005, rising from €1.88 billion in 2004.

The Chicago Mercantile Exchange has launched a snowfall index. From the end of February, investors were able to trade snowfall futures and options based on snowfall in New York and Boston. “From municipal snow removal budgets to holiday retail sales, snowfall, or lack thereof, can have a major impact on local and regional economies,” says Scott Mathews, president of CTA WeatherEX. “Our clients will be able to hedge the expense or revenue side of the snowfall equation.” It will be a little too late for those affected by the snowstorms in New York in February. A record 27 inches of snow fell in 24 hours, costing the city an estimated $20 million.

As KPMG wins a $5.4 billion advisory mandate, are consultants stealing big deals from investment banks?

Where developed western markets go, Asia’s markets usually follow. Bankers in the region are confident that’s true of hybrid securities. From a buy-side perspective, hybrids have arrived already. As many as a dozen international issuers, most conspicuously from Latin America, have successfully tapped an Asian retail market driven principally by private bank clients hungry for yield.

In Japan emerges from the shadows, February issue, we reported that Nikko Citigroup had led a ¥120 billion domestic bond deal for Sanyo last September. In fact, the deal was for Sony. Apologies to all concerned.

Asian-based hedge funds generated 30% of all reported commissions earned by brokers over the past 12 months on trades of Asian stocks.

As China’s banks continue their rapid restructuring, government and regulators are already mapping out the future for the industry. “One word is becoming very important in China’s banking sector – deregulation,” says Zhang Jinguo, president of Bank of Communications (Bocom). “Banks in the west were talking about this in the 1980s and 1990s. We’ve been talking about this only since last year.” The People’s Bank of China, the mainland’s central bank, wants several so-called universal banks to emerge. That, say China bankers, means huge opportunities for mergers and acquisitions of banks and other financial services businesses such as securities firms and insurance companies.

This could be just the beginning of a battle between exchanges and their users.

73.4

DrKW has embraced blogging in a big way. The fondness for internet opinion boards has spread from the bank’s IT staff to the rest of the bank, which now has about 300 internal web logs, used for sharing work ideas.

The Lehman Bond Show will now be available via podcast.

There was a message of serious intent in the choice of syndicate for Hong Kong-based Hutchison Whampoa’s proposed flotation of its Italian 3G business. The message from the market was equally clear. Despite the best efforts of Goldman Sachs, HSBC, JPMorgan, Merrill Lynch and Morgan Stanley to get the deal away, the US$7 billion price offered by investors was simply too unpalatable for an investment that has cost Hutchison between US$8 billion and US$9 billion. The IPO was pulled.

Arcelor, the Luxembourg-based steel company that has in the past preferred not to use bank advisers, is wheeling out the big guns to defend it against the €18.6 billion ($22.1 billion) hostile bid from Mittal Steel. It has just hired Morgan Stanley, which will join BNP Paribas, Deutsche Bank, UBS and Merrill Lynch in advising it. Most of the main advisory firms are involved in the hostile bid on one side or the other. Mittal Steel is being advised by Credit Suisse, Goldman Sachs, HSBC, Société Générale and Citigroup.

It hasn’t been the easiest of starts to 2006 for Citigroup in Asia, with continuing integration challenges at its Korean banking acquisition and difficult negotiations with existing and future partners over its China strategy [see Citigroup fails to solve the China conundrum, this issue]. Now Citi’s China strategy will need to be reconsidered after the departures of chief rainmakers Francis Leung and Wei Christianson.

Focus is on the potential for corporate debt outperformance in 2006.

The US bank has made an expensive foray into China’s banking market, with little to show from two-and-a-half years’ work and millions of dollars spent.

Invest with female mutual fund managers to save on trading costs

Fund managers' priorities for 2006

By Lawrence White

The Iranian authorities’ recent granting of operating licences to two new private banks (Bank Sarmaye Daneshgah and Bank Pasargeda) suggests that the sector has a future, despite president Mahmoud Ahmadinejad’s apparent disdain for his predecessor’s reformist agenda.

Supply of both Islamic-compliant and conventional instruments has so far failed to keep up with the voracious levels of demand across the Middle East, but there are signs that product-starved investors might now begin to see a steadier flow, though far-reaching challenges remain. Kathryn Wells reports.

The sale of Hotspot has prompted a torrent of speculation about the future of other ECNs. But it seems the rumours about new owners for FXall are true.

Cheyne Capital Management sold one of the largest-ever European arbitrage CLOs last month via Nomura. The €1 billion Cheyne Credit Opportunity CDO 1 incorporated several structural features to overcome problems that could arise from its relatively large size. In contrast to typical CLOs, which are normally half the size, 40% ramped up at launch and have around a year to complete sourcing loans, Cheyne Credit Opportunity has a two-year time period to ramp up fully. This extra flexibility will be particularly useful. The competition for leveraged loans will be greater than ever, given that an estimated 35 CLOs are operating this year, compared with about 25 last year.

Dave Tait has not only had a long and successful career in the FX market, but he has also climbed some notable peaks outside of the trading environment.

The FSA took a couple of years but the UK regulator has finally accepted the concept of covered bonds; the Netherlands will be next.

Reserve confirms Wachovia deal qualifies for tier 1. And that could spark over $40 billion of copycat deals.

Rio de Janeiro now offers a developing market alternative to Chicago.

Government rumoured to be planning new bond deal although holdouts issue remains unresolved.

Hedge fund managers are increasingly shopping around and using more than one prime broker at the same time.

Latin America’s development bank has to change tack as countries in the region rely less on dollar funding.