Search

This section features the 2004 'Euromoney' Best Bank Awardees. HSBC wins the best bank for the year. Customers value its long-term approach to relationship banking and the fact that it has not been involved in the scandals that have enveloped so many of its peers. UBS has achieved what once seemed impossible for any European investment bank: it has entered into the front rank in the U.S. market. In the 12 months ending in April 2004 it doubled its shares in announced U.S. mergers and acquisitions deals, working on transactions such as the sale of WellPoint Health Networks to Anthem Inc. and merger of Regions Financial and Union Planters Corp. J.P. Morgan has been innovative in the field of best equity-linked bank in Europe as well as in the U.S. and Australia. Deutsche Bank is a dominant player in each area of risk management that has kept corporate treasurers, hedge fund traders and more traditional investors stable. UBS Wealth Management was voted as best global private bank. A global presence in wealth management has become a necessity for those wishing to capture the growing market in Asia and Europe, and no institution has managed to broaden its reach like UBS Wealth Management.

The article discusses several business deals of 2003. The British banking group HBOS issued the first British covered bond in July 2003 as part of a €14 billion program. The acquisition by the U.S. orthopedics firm Zimmer of Swiss rival Centerpulse was full of disagreements, accusations and drama, but it was one of Europe's biggest merger and acquisition deals of 2003. Spanish hotel group Sol Meliás issue was not the largest of the year's equity-linked transactions from western Europe. But it stands out because apart from being a rare Spanish issue, it illustrates several key themes in the European equity-linked market. The perfect conditions for emerging-market bond issuances resulted in a large number of sovereign deals coming to the market and many deals performed very well. Turkey's 10-year issue in September 2003, lead managed by Morgan Stanley and Merrill Lynch, was the high point of a great year for the sovereign. Poland also deserves praise for its debut samurai, which came to the market in June at levels flat to the sovereign's euro curve. Meanwhile, Gazprom's 10-year issue was the runaway success in emerging-market debt in 2003, and remains the largest emerging market corporate bond ever.

The growing size of U.S. banks, as of 2004, is alarming, which makes acquisitions by U.S. firms of European banks increasingly likely. The recent Parmalat scandal in Italy provides a further timely reminder that it is useful for a bank to have large reserves of funds available. Scandals aside, the changing nature of European corporates sets challenges for European banks that few can meet. A research report by Citigroup dated January 8, 2004 notes that the top 15 European bank stocks outperformed the bottom 15 by more than 50% in 2003, which emphasizes widening divergence between the best and the rest in the sector. Further in-market, or domestic, deals would create national champions in Europe, but they are unlikely to happen because of the competition regulations governing consumer banking in each country. Domestic consolidation would not necessarily provide a solution to banking systems' or individual banks' ills. Europe offers plenty of examples of such deals, which defied economic and business sense and failed. RBS has already made a series of acquisitions. It completed its acquisition of the Churchill Insurance Group in September 2003, which it bought from the Credit Suisse group.

Dutch pension funds will be required to match their assets and liabilities better after the poor performance of equities over recent years under the new solvency regulations as of 2004. This means they will become keen buyers of long-dated government bonds with maturities of between 10 and 30 years. According the ABN Amro, the impact on the yield curve will make it even harder for pension funds to match liabilities. It further said that issuers and investors are often unaware of the scale of this issue and of the level of impact it might have. The new Dutch pension solvency requirements will be implemented in the first half of 2004, and the draft version will be published in March or April 2004. The impact of the mass migration will be significant because Dutch pension funds are large. They make up the second largest market of its kind in the eurozone, despite the Netherlands being a relatively small country. When similar solvency equations were imposed in Denmark in 2001, demand for the long end of the euro curve rose, causing long-dated forward rates to drop. As Dutch pension funds move into long-dated government paper, French and German occupational pension funds will be doing the same thing.

Over 9 billion euros have been generated by the European equity-linked market in convertible redemptions in January 2004. Redemptions came from companies including Carrefour, France Télécom, Suez/AXA and Vivendi Universal on January 1, 2004. They were followed by Hutchison Whampoa/Vodafone and Suez/Fortis exchangeables among others. The prevalence of French firms is due to the fact that French issues often mature on January 1 because of regulations that mean investors receive the dividend for the calendar year in which they exercise their option to convert. Only five European equity-linked deals had been brought to market in January 2004. Moreover, the Barclays Capital convertible cost index shows that although issuance costs are not at all-time lows, they are cheap. The index which has been produced since the summer of 2003, it combines interest rates, volatility levels and dividend yields to create a figure that represents the coupon that a new issuer would have to pay for a new equity-linked deal. Barclay's equity-linked origination team also reports that for a range of unrelated and generally internal reasons, the firms that would ordinarily be likely to bring new deals to market are not doing so.

This article focuses on the issuance of InterNotes by banks in Europe. In December 2003, Landesbank Baden-Württemberg (LBBW) was planning to become the first issuer of continuously offered bonds in Europe. LBBW was due to join Bank of America and FCE Bank in issuing InterNotes. InterNotes are fixed-income instruments that investors can buy or sell in denominations of just $1,000, £1,000 or €1,000. They have an all-in fixed par price and a flexible coupon structure, so the investor can select monthly, semi-annual or annual coupon payments. The bonds are offered every week. InterNotes were developed in the U.S. by specialist investment bank Incapital, which is 25% owned by Bank of America. With a typical bond, two or three banks earn a tidy fee for managing it, backed by four or five banks acting as co-leads. With InterNotes, however, Incapital structures the product for a small fee and then puts around 300 banks into the syndicate. As an incentive, those 300 banks earn a large fee for selling the instruments. Since January 2001, over $25 billion-worth of InterNotes have been sold to U.S. retail investors. Developing the European market has been tougher, but Incapital could have first-mover advantage.