2 0 0 5 W O R L D ’ S B E S T E M E R G I N G M A R K E T B A N K S

MAY 2005

REGIONAL REPORT:CENTRAL & EASTERNEUROPE PAGE 14

SOFTWARE HELPSCOMPANIES TRIM COSTOF COMPLIANCE PAGE 20

COUNTRY REPORT:CYPRUS SETS SIGHTSON EURO ENTRY PAGE 22

Investing in Russia is only for the brave. Butwhen the country’s frosty investment climatewarms up, it will, yet again, be the place to be.

READY FOR THEBIG THAW

PAGE 8

READY FOR THEBIG THAW

http://www.bankmuscat.com

MAY 2005 | VOL.19 NO.5CONTENTS

REGULARSCOVER STORY8 Russia: Only For The Brave

The stakes are high, and so are therisks. So why are multinationalsstill buying into the Russia story?

FEATURES14 Regional Report: Central

and Eastern EuropeProspective future entrants to theEU have been watching withinterest the progress of the 10countries that joined the union ayear ago.

20 Financial Software:ComplianceCompanies are finding thatsoftware can help them rein in thehigh costs and disruption causedby complying with newregulations.

22 Country Report: CyprusAs its economy continues to grow,Cyprus is hoping to takeadvantage of its strategic positionbetween Europe and theburgeoning markets of the MiddleEast and Africa.

24 The World’s Best EmergingMarket Banks, 2005Our 12th annual survey of theworld’s best emerging marketbanks honors those banks thatconsistently provide excellentservice and security in often-tumultuous markets.

60 Roundtable: Treasury andCash ManagementWe brought together some of theindustry’s leading players to discussrecent developments in the cashmanagement industry. JosephGiarraputo moderated thediscussion.

2 Dear ReaderA letter from the editor.

4 NewsmakersUS 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-to-

collect tax receivables as an investment

product.

5 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 RoundupThe latest news from China, India, Russia

and Brazil.

19 EM InvestorKey information for investors in emerging

markets.

65 Focus: Corporate DebtAs General Motors and Ford Motor flirt

with high-yield status, some investors find

the returns attractive.

68 Foreign ExchangeAnalysts say outlook could worsen for

dollar as current-account deficit becomes

ingrained.

70 Global Equity/DRsCompanies issuing global depositary

receipts prepare for the EU’s new

prospectus rules.

71 Mergers & AcquisitionsOnce fierce competitors, private equity

firms are working together to pursue

bigger targets.

2 0 0 5 M A Y 1

COVER STORYBY MARK LEHANE

ENTRY STRATEGYBY JONATHANGREGSON

SOFTWARE SOLUTIONS:BY ADAM ROMBEL

COUNTRY REPORT:CYPRUSBY LAURENCE NEVILLE

ROUNDTABLE:TREASURY AND CASHMANAGEMENT

AWARDS: WORLD’SBEST EMERGINGMARKET BANKSBY GORDON PLATT,LAURENCE NEVILLE,PAULA L. GREEN ANDSANTIAGO FITTIPALDI

DEAR READER

2 M A Y 2 0 0 5

MAY 2005 | VOL.19 NO.5

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INTERNATIONAL R

Putin’s Dangerous Game

What a difference two years can make.As we find out inour cover story this month (see page 8), the currentlyfrosty investment climate in Russia is showing no signs

of warming up any time soon. President Putin’s Kremlin isbecoming, if anything, more interventionist, prompting foreign anddomestic companies alike to review their plans for investing inRussia’s markets.

All this is a far cry from spring two years ago, when thismagazine was confident that Russia had become—finally—a “safe”place to do business. Back then, the country was eagerlyanticipating a flood of new foreign investment, prompted by aconviction that Putin’s government had succeeded in creating afair, transparent business environment.

Then came the so-called Yukos affair, which marked the start ofthe country’s slide down a long, slippery slope.What lookedinitially like an isolated, politically inspired tussle now appears to bepart of a much bigger plan to bring much of Russia’s businessworld back under, or at least close to, state control. Putin is said tohave assured investors that he has no plans to revisit privatizationsthat took place more than three years ago, but for many nervousinvestors that provides little comfort.

The Russian president may have perfectly good reasons for hisapparent crackdown on big business, but the impact of his hard-lineapproach could hardly be clearer. During 2004, the year thatoptimistic Russia-watchers had predicted would see the return toRussia of large amounts of flight capital, official statistics show thatmoney was leaving the country at an average rate of more than $21million per day.

That money—almost $8 billion in 2004—has to go somewhere.In a world where emerging markets investors are often spoilt forchoice and where capital flows can be capricious, Russia’s leader isplaying a dangerous game.

Until next month,

Dan Keelerdan@gfmag.com

2 0 0 5 W O R L D ’ S B E S T E M E R G I N G M A R K E T B A N K S

MAY 2005

REGIONAL REPORT:CENTRAL & EASTERNEUROPE PAGE 14

SOFTWARE HELPSCOMPANIES TRIM COSTOF COMPLIANCE PAGE 20

COUNTRY REPORT:CYPRUS SETS SIGHTSON EURO ENTRY PAGE 22

Investing in Russia is only for the brave. Butwhen the country’s frosty investment climatewarms up, it will, yet again, be the place to be.

READY FOR THEBIG THAW

PAGE 8

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Web Site:www.gfmag.com

4 M A Y 2 0 0 5

AROUND THE WORLDNEWSMAKERS G L O B A L F I N A N C EGF

US

US treasury secretary JohnSnow appears to belosing patience with

China’s foot-dragging onmoving to a flexible currencysystem. For years now, Chinahas argued that itsundeveloped financial systemwas too weak to sustain thepotential shock of a free-floating currency, but Snow ishaving none of it. Following ameeting of Group of Sevenfinance ministers inWashington last month, Snowtold a press conference thatBeijing had made enoughprogress in preparing for themove and that now is thetime to act.

“China has taken numeroussteps over the last few years,including preparing forgreater flexibility in its

exchange rate, introducingforeign exchange marketproducts and strengtheningbanks and bank supervision,”Snow said.“It’s time to takethe next step and movetoward more currencyflexibility,” he said.

Canadian finance ministerRalph Goodale reinforcedSnow’s remarks by saying that“China should understandthat there’s a freight traincoming” in the form of USand EU trade restrictions.

Analysts doubt, however,that China will revalue orfloat its currency in responseto foreign pressure. Furthercapital-account liberalizationis an essential precursor to arevaluation of the yuan, saysMike Newton, global head ofemerging market foreignexchange strategy at HSBC inNew York.“We think that theUS administration wants to beseen to be pressuring Chinafor domestic reasons but doesnot want to create politicaltensions that mightundermine cooperation oversecurity issues or progress onintellectual property rights,”Newton says.

“Furthermore, with Chinaand Japan trading barbs overissues that stem from a timewhen China was underoccupation, the idea that thePRC will think this is a goodmoment to give in to foreignpressure on the currency isludicrous,” he says.

—Gordon Platt

Belgium has discov-ered a new assetclass for securitiza-tion: the govern-ment’s uncollectedtax debt. Financeminister Didier Reyn-ders says it is feasi-ble for Belgium tooffer the country’sdifficult-to-collecttax receivables as aninvestment producton the financial mar-kets on a regular ba-sis to help meet itsfiscal goals.

The governmenthas hired NautaDu-tilh, a Netherlands-based international

law firm, to assist with the first securitization of its out-standing unpaid taxes. JPMorgan Chase was appointed as fi-nancial adviser on the trial project, with the placement ofsecurities scheduled for later this year.

Reynders says the first securitization will raise about$340 million and will require that an additional $52 millionbe invested to improve the government’s ability to collectthe debt. In addition to taking on the risk of not being ableto collect the taxes due, the investor must be willing to in-vest in strengthening the tax authority.

This will be the first time that securitization of tax debtshas been tried in Belgium. Portugal used a similar procedureto collect about 15% of its outstanding unpaid tax revenuesin 2003. The Portuguese program followed an earlier securi-tization of social security claims by Italy.

The Belgian government plans to use the net proceedsfrom the securitizations of unpaid taxes, and from a cam-paign to stamp out tax fraud, to enable it to ease the taxburden on working people. The government aims to main-tain a balanced budget this year as required by the Stabili-ty and Growth Pact. Belgium is slowly reducing its debtratio, which currently stands at a still-high 96% of grossdomestic product.

The government’s long-range budget program seeks to re-duce the fiscal deficit and secure future financing for the so-cial security and welfare systems in the face of an agingpopulation.

—GP

BELGIUM

GOVERNMENT TO SECURITIZEUNCOLLECTED TAX DEBT

Didier Reynders: Aiming to trim deficit

John Snow: Laying down the law

SNOW SAYS THE TIMEHAS COME FOR CHINATO FLOAT YUAN

Why are investment banksbuying into hedge funds? Toparaphrase bank robberWillie Sutton, “Because that’swhere the money is.”Lehman Brothers last monthpaid an undisclosed sum for a20% stake in Ospraie, ahedge fund that managesabout $2 billion and investsin basic industries andcommodities.

Lehman is no stranger tothe hedge fund business. Italready held 20% of GLGPartners, a British hedge fundin which it was seeking toincrease its stake. In JanuaryLehman announced plans tolaunch a series of hedge fundindexes based on the

HedgeFund.net databaseowned by Channel Capital. Aleading bond-index provider,Lehman says the addition ofhedge fund benchmarks willprovide investors with newperformance measures forthis quickly growing marketsegment.

With its Ospraie holding,Lehman will have access tonew investment opportunitiesstarted by the hedge fund.For its part, Ospraie will gainbetter access to Lehman’sprime-brokerage business,which lends money to hedgefunds to leverage theirinvestments.

With pension funds andother institutional investors

pouring money into hedgefunds, the industry is beingstretched and needs help inmeeting the fast-growingdemand.The investmentbankers, meanwhile, need tofind outlets for their talentedtraders, who might otherwisejump ship and start funds oftheir own.

In order to attract thebusiness of hedge funds,which now manage $1trillion in assets,Wall Streetfirms have invested heavily inthe technology needed tointeract efficiently with awide range of markets.Theyneed the volume to supporttheir clearing and technologyservices that enable hedge

funds to get into and out ofpositions quickly.

Lehman, which has longbeen known for its fixed-income capabilities, also willgain the opportunity tocontinue its expansion intoequity trading. —GP

2 0 0 5 M A Y 5

TAKING NOTEMILESTONES G L O B A L F I N A N C EGF

Richard Fuld, Lehman’s CEO

UNITED STATES

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

Companies are attracted by good demand for initial public offer-ings in London, as well as lower compliance costs than in the US, saysMark Jarvis, managing partner for client service and accounts atErnst & Young, a global audit and consulting firm that employs 1,880people in its 13 offices in the CIS countries. And, of course, London ismuch closer geographically than New York or Toronto, he says.

“It is clear that the LSE will remain the key exchange for CIS com-panies in the next few years,” Jarvis says. “For 2005 this is alreadyan easy guess, considering that [Russia-based mobile-phone con-glomerate] Sistema received over $1.3 billion in its LSE placementthis year,” he says.

According to the LSE, its members traded $64 billion of Russianstocks in 2004, a 76% increase from 2003. “A typical London place-ment for the region is a company registered in the UK, holding stakesin two or three CIS oil or metals-mining projects and co-managed byreputable Western directors,” says Vladimir Merkushev, research di-rector for the CIS at Ernst & Young.

While energy and mining will remain important, the study saysconsumer and financial companies will increasingly list CIS-regis-tered companies in the next few years. Banks last year replacedenergy companies as the major borrowers on the eurobond mar-ket in the CIS. —GP

LEHMAN BEEFS UP PRESENCE IN HEDGE FUND INDUSTRY

CIS

RUSSIAN AND KAZAKH COMPANIES HEED LONDON’S CALL

London-bound: The city’s appeal is growing

Richard Fuld, Lehman’s CEO

T H E B A N K O F N E W Y O R KS P O N S O R E D S T A T E M E N T

The Bank of New Yo r k’s EEMEACo nfe re n ce Draws Re co rd Atte n d a n ce

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.

With the Red Sea to the south and theMount Sinai mountain range to the

north, Sharm el-Sheikh, at the southern tip ofthe Sinai peninsula in Egypt, was the setting forThe Bank of New York’s seventh annualinternational debt and equity conference forEmerging Europe, Middle East and Africa(EEMEA) issuers.This year’s conference drew arecord 165 attendees from 22 countries, amongthem 20 current American and global depositaryreceipt (DR) issuersand more than twodozen internationaldebt issuers.

What they heardfrom the Bank ofNewYork’s AnthonyMoro, vice presidentand head of DRmarketing,had tomake them happy.EEMEA has 347DR issues frommore than 275 companies in 25 countries.Thesecompanies have a total market capitalization of$1.8 trillion, and their DR market capitalizationis over $58 billion. Moro reported that 2004 wasa great year for DR issuers:The Bank of NewYork’s Emerging Market ADR index increasedby 18.1%,double the return on the S&P 500index.The 2004 return on the MSCI EmergingEurope and Middle East Index was evenstronger at 35.8%.

The two - d ay Conference was stru c t u red to helpthe re gi o n ’s leading companies focus on improv i n gtheir investor relations efforts and corp o r a t eg ove rnance pro c e d u res while making themselve sm o re attractive to international inve s t o rs .

The Conference’s format allowed participantsthe opportunity to learn from each other and aselect group of advisors in an informal but

intensive setting. “The EEMEA region isgeographically large and diverse and issuers fromPoland,for instance, do not often have theopportunity to speak to and learn from issuers inSouth Africa”said Moro.

Corporate Governance and RegulationThe US Sarbanes-Oxley Act of 2002 has had

significant ramifications for DR issuers and theiradvisers, and there seemed to be no question

among attendees atthe conference thatsatisfying the Act’srequirements hascost foreign issuersin the USconsiderable timeand money—mostof it due tocompliance withSection 404 of theAct. Section 404was designed to

ensure that a company’s internal controlprocesses are up to standard.

H oweve r, m a ny issuers who commented onthe subject thought the benefits of listing in theUS we re, for va rious re a s o n s , wo rth the costs ofcomplying with Section 404.A c c o rding toThomas Mart i n , a director atP ri c ewa t e r h o u s e C o o p e rs in South A f ri c a ,“ B e t t e ri n t e rnal controls lead to better inform a t i o n ,which can lead to quicker and better decisionm a k i n g .” D avid Haddon general counsel ands e c re t a ry of South A f ri c a ’s Randgold Resourc e s ,s a i d .“ The vast majority of the gold bulls are inN o rth A m e ri c a , and that means Randgold mu s tbe listed there.” Nik Jhangi a n i , CFO of A t h e n s -based Coca-Cola HBC, s a i d ,“ We needed tod rive our visibility within the beverage sector, a swe just we re not being appro p riately va l u e d , a n d

6 M A Y 2 0 0 5

all of our peergroup was listed inthe US.This has todate been extre m e l ys u c c e s s f u l . I na d d i t i o n , our listinge n a bled us to accessthe US debt capitalm a r kets at morea t t r a c t ive fundingr a t e s .”

However, manypotential USissuers are stillwary, and their advisers are telling them theircaution is well founded.Camille Abousleiman, aLondon partner at Dewey Ballantine, said,“Because of the personal liabilities of the CEOand the CFO under Sarbanes Oxley, we wouldrecommend US listings for foreign companiesonly in limited circumstances,where suchforeign companies have implemented thenecessary internal control systems andprocedures and where there is a compellingmarket reason to be listed in the United States.”But PWC’s Martinsaid it would beshort-sighted toavoid the US tododge Sarbanes-Oxley because“within three tofive years therecould be acorporategovernancemandate in Europethat was similar inmany ways toSarbanes Oxley—but hopefully takes intoconsideration the experience of the US Act.”

A huge pool of capital and a new exchange to tap it.

Fadi Ghosaini, managing director and head ofbusiness development for the new DubaiInternational Financial Exchange (DIFX),presented many participants with their first lookat the new exchange. For years,money has beenflowing to the Gulf States to pay forhydrocarbons.The flow has become a gusher in

the latest round of oil-price increases.And theoutlook is for more of the same.The Bank ofNewYork’s Simon Derrick,head of the bank’scurrency research group, said,“Over the courseof the next decade, if India and China continue

their growth, youcould expectenergy prices toremain relativelyhigh and largesums of capital tocontinue to flowinto the MiddleEast.”

The DIFX saysit will provide anexchange built tointernationalstandards 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'splan is exciting, as it will hopefully providecompanies with access to another substantialsource of investment capital.” Jhangiani ofCCHBC said,“While we believe that theDIFX's plan to launch an international exchangeis extremely positive, we would probably notconsider a listing today as we are currently listed

in Athens,London,New York andSydney. However,we could alwaysreconsider.”And,said Ibrahim Adel,investor relationsmanager ofKuwait’s MTCGroup,“I find theDIFX story to bevery intriguingand potentiallycompelling. I

would recommend that MTC take a very closelook at a listing there, but I have to see the finaldocumentation regarding the project. I amimpressed by many of the projects undertaken inDubai.They are gaining a reputation as adestination that delivers on promises,and that isvery important.”

T H E B A N K O F N E W Y O R KS P O N S O R E D S T A T E M E N T

Camille Abousleiman ofDewey Ballantine

Nik Jhangiani of CCHBC

Ibrahim Abdel of MTC

Simon Derrick of TheBank of New Yo r k

2 0 0 5 M A Y 7

8 M A Y 2 0 0 5

RUSSIA BY MARK LEHANE

COVER STORY

The weather outside was sunny;the mood inside anything but.More than 1,000 businessmen,

politicos and financiers had gathered inearly April in the shadow of London’sWestminster Abbey for their annual get-together on the state of the Russianeconomy. In recent years, the talk at theRussia Economic Forum increasinglyhas centered on the opportunities formaking money out of Russia’s boomingmarkets.This year, it was worries abouta return to centralization that were topof the agenda.

Little wonder:The Yukos affair is near-ing its end, with major shareholderMikhail Khodorkovsky likely to face along stretch in prison and his companyeffectively renationalized.A recent decreemade it clear that only majority Russian-owned companies would be allowed tobid for key oil fields.

April brought more bad news forwould-be investors in Russia.The gov-ernment’s anti-cartel body blocked a bidby Siemens of Germany for a 73.5%stake in turbine-maker SiloviyeMashiny. The agency said the movewould give Siemens too tight a gripover the turbine market; others pointed

to the decree passed a week before bythe Duma state parliament, which de-clared a foreign takeover a threat to thecountry’s national security.

Siemens shrugged off its disappoint-ment, but there was little hiding the dis-may among the delegates at the Lon-don Forum when news filtered throughthat Anglo-Russian joint venture TNK-BP had been hit with a claim for $1 bil-lion in back taxes.

For some time now it has been clearthat the Kremlin’s approach to Russianeconomic life was a balancing act be-tween conservatives and liberals; lastmonth’s event seemed clearly to indicatethat conservatives were in the ascendant.

Putin’s maverick economic adviserAndrei Illarionov described the new or-thodoxy as “an interventionist model,”characterized by “extremely incompe-tent intervention in economic life bystate officials.”

That new mood has taken its toll, inthe form of a falling investment rate andcapital outflows. In 2004 some $7.8 bil-lion left the country, according to officialstatistics. Industries that should be boom-ing are suffering from underinvestment,say analysts.Most worrying are clear signs

of falling production in key oil fields asequipment begins to wear out.

The tax bill slapped on TNK-BP isparticularly worrying:The joint venturewas widely viewed as a template for for-eign participation in the Russian econo-my and was explicitly rubber stamped bythe Kremlin. Robert Dudley,TNK-BP’sCEO, said his company’s experiencewould be “a test of whether Russia couldintegrate with the world economy.”

As Global Finance went to press, BPCEO John Browne was flying toMoscow to talk to President VladimirPutin.That’s not the only bridge-build-ing Putin has been doing with the busi-ness world. In March he met leadingbusinessmen, reportedly telling themthe government would not revisit pri-vatizations that happened more thanthree years ago. That put in the clearmost of the Yeltsin-era loans-for-sharesdeals that created Russia’s present-dayoligarch class.

Economics minister German Grefpoints to the privatization of telcoSvyazinvest as evidence that his liberalreform program still has legs. Even therather messy merger between state gasmonopoly Gazprom and Rosneft can be

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

ONLY FORTHE BRAVE

2 0 0 5 M A Y 9

RUSSIACOVER STORY G L O B A L F I N A N C EGF

Frosty reception:

President Putin’s move

toward more centralization

is unsettling investors

1 0 M A Y 2 0 0 5

RUSSIACOVER STORY G L O B A L F I N A N C EGF

BEST BANKSBEST DOMESTIC BANKMDM BANK

Last year’s decline in confidence playedinto the hands of the state-owned behe-moths, but MDM’s limited exposure toretail deposits and its relatively high ratinghave allowed it to plow on with its strat-egy of developing a high-class, customer-oriented private bank.

BEST OVERSEAS BANKRZB/RAIFFEISENBANK

Overseas banks are still gearing up theirpresence in Moscow,with some, in effect,returning for a second time.Others,how-ever, have demonstrated that a measuredbut determined approach to key growthareas such as lending to medium-size

companies can deliver results. Chiefamong them is RZB/Raiffeisenbank.

BEST INVESTMENT BANKUBS BRUNSWICK

They are still hitting home runs at thispremier institution, now fully bought upby UBS. Coupled with strong links intothe Russian economy, the internationalunderwriting and distribution heft ofUBS makes this the one to beat for cross-border investment banking services.

BEST COMMERCIAL BANKVNESHTORGBANK (VTB)

The state-owned sector has traditionallylagged private-sector institutions in de-veloping effective new business models,and in the past that has been reflected in

Global Finance’s awards. But the mini-banking crisis of 2004 underlined thisbank’s resilience, allowing it to grabmuch new business, away from its tradi-tional 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 thebenchmark in Russia’s hard-charginghome-loan consumer finance market.

BEST FOREX BANKALFA BANK

Alfa continues to set standards in thishighly competitive arena.

It’s no secret that the business climate in Russiahas gotten a lot chillier in the past year. The recentdecree that only companies with 51% or more ofRussian ownership can bid for new hydrocarbonblocks is just the latest sign of a return to a morestatist approach sweeping the Kremlin. But forthose prepared to navigate those stormy waters,

the rewards can be rich indeed. Natural resourcesare the most visible force powering Russia’s surg-ing GDP growth; a fast-growing middle class issparking a consumer boom, too. In this year’sStars of the New Russia Awards, Global Financemagazine honors those banks and companies thatare proving most adept at riding this wave.

viewed in a positive light. Because theRussian state ends up as (just) the major-ity shareholder in the newly merged en-tity, it is expected to lift restrictions onforeign ownership of Gazprom stock.

That will boost the company’s stand-ing in major emerging market indexes,likely prompting a flood of overseasbuying. And there is still money to bemade in Russia. The country’s econo-my is still growing at a fair clip: GDPexpanded by 7.1% last year, and despitesome worries over inflation ticking up,the macro climate remains sunny.That—and a booming world marketfor most commodities—is translatinginto profits for an increasing number ofbrave overseas buyers. Mid-April, Lon-don-based gold miner Peter Hambro

STARS OF THE NEW RUSSIA

2 0 0 5 M A Y 1 1

RUSSIACOVER STORY G L O B A L F I N A N C EGF

BEST TRADE FINANCE BANK VNESHTORGBANK (VTB)

This state-owned bank has built on itslegacy as the official foreign trade bankby forging strong links with multilat-eral institutions as well as foreignbanks.

BEST SYNDICATED LOAN ARRANGER RZB/RAIFFEISENBANK

There are banks higher in the leaguetables, but RZB/Raiffeisenbank un-derlined its longstanding commitmentto Russian companies when, in 2004,it arranged a $600 million loan fortelecom company MTS. The loan wasthe first unsecured loan arranged for aRussian company outside the com-modity sector.

BEST ENERGY & COMMODITIESFINANCE HOUSE SG

Unsurprisingly, much of the financing

action for Russian companies has beenconcentrated in the natural resourcessector. SG’s traditional expertise in thisarea continues to make it the leader.

BEST DOMESTIC DEBTUNDERWRITER RENAISSANCE CAPITAL

In this ultra-competitive market,where market share can assume undueimportance, Renaissance has stood outby partnering some quality names tothe bond market.

BEST DOMESTIC DEBTRESEARCH TROIKA DIALOG

Information is all in this credit-inten-sive sector;Troika’s team delivers it.

BEST SECONDARY DEBTHOUSE TRUST INVESTMENT BANK

The bank’s commitment to the prima-ry market is mirrored in a comprehen-sive trading effort in a sector whereliquidity can be patchy at best.

BEST EUROBONDARRANGER DEUTSCHE BANK

Competition is always tough in thisarena, but Deutsche has fought off ri-vals for the top slot, despite attractingsome flak for a controversial 2004parceling of Russian sovereign debtowed to the German government viathe Aries vehicle.

BEST EQUITIESRESEARCH BRUNSWICK UBS

Investors regularly cite the quality ofoutput from the highly rated team—akey underpinning of the house’s in-vestment banking offering. Key rivalssuch as United Financial Group meanit needs to stay on its toes, however.

BEST BOOKRUNNERPRIMARY EQUITIES UBS BRUNSWICK

Highlights include a joint global-coor-dinator role in the December 2004 of-fering of 15% of Deutsche Telekom’s

Mining said 2004-2005 earnings wereup by half, largely on the back of in-creased production at its Pokrovskiy,Siberia, mine.

But if natural resources continue tobe the chief motor for the country’seconomy, consumers are increasinglytaking the burden onto their ownshoulders. A growing middle class hasspawned a mini-boom in the retail sec-tor and associated financial services.Theadvance of Swedish retailer IKEA andGermany’s chain of Metro supermarketsis well documented; analysts argue thatconsumer businesses are not viewed asstrategic by the conservatives in theKremlin. While retail operators have tonegotiate local politics, they are less vul-nerable to attacks from the center.

Other growth sectors include cine-mas, gaming and telecom. Certainly,stock market investors still seem willingto take a bet on Russia’s prospects. InFebruary cell phone holding company

Sistema successfully floated its shares onthe London Stock Exchange. Overseasinvestors are prepared to weather politi-cal risk, it seems, when potential returnsare rich enough. ■

Private banks are smart, nimble, well managed; state-owned banks are slow, cumbersome and find ithard to make money. That conventional wisdom is being overturned in Russia, in the short term atleast. 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 over50% last year, for example. And Sberbank, the public-sector savings monolith, continues to soak upalmost two-thirds of Russian deposits.

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

THE REMARKABLE COMEBACK OF THE STATE BANKING SECTOR

1 2 M A Y 2 0 0 5

RUSSIACOVER STORY G L O B A L F I N A N C EGF

BEST COMPANIESBEVERAGES

BALTIKA: This St. Petersburg-basedcompany shows you don’t have to be aforeign company or a global brand toexcel in an increasingly brand-led in-dustry, pushing sales to record levels in2004.

CONSUMER PRODUCTSWIMM BILL DAN: The competitionmay be hotting up, but Russia’s largestfood company remains the darling ofstock buyers, as well as would-be foreignwooers such as France’s Danone.

ENGINEERINGAVTOVAZ: Once a stalwart of the So-viet industrial system, Russia’s largestcarmaker has teamed up with GeneralMotors and tapped the European Bankfor Reconstruction and Development tooverhaul its production lines.

INFORMATION TECHNOLOGYIBS: In an increasingly tech-savvy

country, Information Business Systemsremains ahead of the pack.

MEDIA RBC TV: With much of Russian TVneutered, the launch of this business-heavy co-venture between Ros BusinessConsult ing and CNBC provides abreath of fresh air.

NON-FERROUS METALS NORILSK NICKEL: It’s no secretthat China is the x-factor in poweringglobal demand for commodities, andwith 20% of the world’s nickel depositsRussia’s largest miner/metals combineholds the trump cards.

OIL AND GAS BNP-TK: The investment climate forforeign companies has gotten chillier inthe past year, and a recent decree thatonly majority Russian-owned compa-nies could bid on new hydrocarbonblocs hasn’t helped the 50:50 BNP-TKjoint venture. But the company has themanagement and technical smarts to

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

TELECOM MOSCOW TELESYSTEMS (MTS):Vimpelcom remains a close r ival interms of subscribers, but MTS has suc-cessfully avoided the distractions of pol-itics as it wrestles with a fast-maturingmarket. A successful IPO for parent Sis-tema added to the glow.

TRANSPORT SEVERSTALTRANS: As Russia’seconomy booms, so does the demandfor ways to move goods and raw materi-als. That has given this market-leadingintegrated railway freight operator a leadstart in a market where demand contin-ues to outstrip supply.

UTILITIES MOSENERGO: Investors have beenpiling into Moscow-based Mosenergo,seeing it as the energy company bestplaced to benefit from the restructuringof the Russian power sector—now fi-nally under way.

stake in MTS. Deal volume remainslow, however, with many Russian IPOprospects preferring to take cash fromthe country’s booming bond markets.

BEST SECONDARYEQUITY HOUSE ATON CAPITAL

This house’s commitment to provid-ing liquidity garnered it over one in10 trades on the RTS and MICEXsystems in 2004.

BEST EQUITY-LINKEDHOUSE BRUNSWICK UBS

The house that arguably made this

market, Brunswick UBS continues toperform exceptionally well in a sectorthat makes up for some of the disap-pointments in the equity pr imarymarket dealflow.

BEST M&A ARRANGER CITIGROUP

Takeovers in Russia are rare as yet, andcorporate links carry a great deal ofweight, but for objective advice,clients come to this one-stop financialsuperpower.

BEST ASSET MANAGER TROIKA DIALOG ASSET MANAGEMENT

Pensions privatization has combinedwith growing middle-class wealth tospark a boom in mutual fund sales.Short track records make choosingwinners tricky, but the experiencedteam at TDAM has hit on a winningstrategy, mopping up some 20% of allopen-ended mutual fund assets in thecountry.

EDITOR’S SPECIALAWARD FORTRANSPARENCY MDM BANK

This bank has marked itself out fromthe crowd by setting the standard innot only being transparent, but mak-ing clear it will be transparent.

CENTRAL & EASTERN EUROPE BY JONATHAN GREGSON

REGIONAL REPORT

1 4 M A Y 2 0 0 5

A year has passed since the Eu-ropean Union’s enlargementof May 2004 when 10 new

member countries, eight of them for-mer Soviet bloc nations of Central andEastern Europe, formally joined theworld’s largest single economic area.How they have fared within an en-larged EU is providing valuable lessonsfor the countries next in line for fullaccession, starting with Bulgaria andRomania.

The transformation they experi-enced did not happen overnight, al-though as soon as they joined, theygained access to EU structural and re-gional funds.The benefits of free accessto EU markets were already in placebeforehand.The largest impact on tradepatterns, according to Walter Demel,economist at the Austria-based Raif-feissen Bank, has been a sharp increasein the exchange of goods and servicesbetween the new entrants now that re-maining barriers have been dismantled.“The Czech Republic’s trade with oth-er accession states leapt by more than30% last year, whereas previously it hadbeen growing at less than 10% annual-ly,” Demel says. “Poland and Hungaryexperienced a similar surge in tradewith their neighbors in ‘New Europe’.”

Most macro-economic or structuralchange had already taken place prior toaccession, however. Each country setout on the process of EU harmoniza-tion from its own starting point. Each

Entry Strategy

had its own mountain to climb. Andsince all of the 10 accession states’economies have been steadily integrat-ing over the past 15 years or so, furtherchanges occurring over the past 12months have been largely the result ofcontinuing momentum.

“Going through the accession processmeant that the coun-tries involved had al-ready made the effort,”says Nicolas Doisy,economist at the Euro-pean Bank for Recon-struction and Develop-ment (EBRD). “Afterthat, there’s no reasonto expect formal entryinto the EU to havethat strong an impact.”

Yet formal accessionhas made inward in-vestors more confi-dent.Tim Green, part-ner at private equitygroup GMT Commu-nications, which spe-cializes in telecombuyouts in the region,with some 25% ofdeals done in CentralEurope, defines thesemarkets as “still quitesmall and relatively im-mature.” That meansthey also present goodinvestment opportuni-

ties for those prepared to accept a high-er risk/reward profile. “Since we didour first deal in the Czech Republic in1996, we have seen substantial shifts inattitude, legislation—especially the har-monization of telecom laws to EU stan-dards—and corporate governance is-sues,” he says. Doing business has

Prospective future entrants to the EU have been watchingwith interest the progress of the 10 countries that joinedthe union a year ago.

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CENTRAL & EASTERN EUROPEREGIONAL REPORT G L O B A L F I N A N C EGF

“as this was only the second time ahigh-yield bond had been successfullylaunched in Hungary.”

Assessing the BenefitsSo a year after formal accession to the

EU, are the citizens of ‘New Europe’ ex-periencing real and tangible benefits?Certainly their economies have beengrowing much faster than those of Ger-many or France, which constitute thecore of ‘Old Europe’.The new entrantshave enjoyed year-on-year GDP growthof around 4%, with central and easternEuropean countries achieving nearly 5%on average in 2004. That is more thantwice the growth rates achieved by eu-rozone countries. Moreover, that hasbeen built on strong exports, with Pol-ish and Czech exports up by nearly aquarter last year in euro terms.

But New Europe still has a longway to go to catch up with its west-ern neighbors in terms of realwages and overall wealth levels.Real labor unit costs are often aslittle as one third of those inOld Europe, which accountsfor the eastward shift of auto-motive and other labor-in-tensive industries. Howev-e r , c o n s u m e r i s m i sgrowing more rapidlythan the overall econo-my in most countries,t h e c o m m e r c i a lbanks are racingeach other to ex-tend consumercredit, and—al-ways an impor-tant contribu-tor to the

feel-good ef-fect—real estate values

have been picking up. “If youlook at Warsaw, Budapest or Prague,

there’s a real boom going on in bothcommercial and residential propertyvalues,” says Gyuri Karady, partner inthe private equity firm Baring Corilius,

which specializes in Central and East-ern Europe. But the trickle-down ef-fect to rural regions and smaller townshas yet to occur.

“The sectors that have benefited themost are those that service the newconsumer economy,” says Karady.“Lookat how the big supermarket chains havecome in, the sectors where the multina-tionals are investing and the growth ofspend in marketing. Advertising has in-creased hugely in volume, printingcompanies are buoyant as the page-count in newspapers and magazinesgoes up, and Poland has seen a boom inradio stations,” he notes.

Although the agricultural sectors inthe 10 recently joined countries do notenjoy the full benefits of the CommonAgricultural Policy (CAP), Doisy pointsout that they do have access to cohesionand structural funds and money trans-fers linked to the CAP. “Farmers’ in-comes have increased substantially overthe past year,” he says, although whetherNew Europe’s agricultural producerswill share the full benefits of the CAPremains to be seen.

Currency HarmonizationThe biggest issue outstanding is

when and under what terms thesecountries will adopt the euro as theircurrency. Front-runners on this are thesmaller Baltic states, with the currenciesof Estonia and Lithuania already peggedto the euro. Slovenia also entered theExchange Rate Mechanism II (ERMII) last June, and Latvia is planning tojoin in the near future.Apart from hav-ing to satisfy the Maastricht criteria onbudget deficits, inflation and overalldebt levels, these countries have toprove that their currencies can maintainsufficient stability within ERM II bandsfor two years before being allowed tojoin the eurozone.

“The reason this process started withthe smaller states is because of the veryprudent way they have managed theireconomies,” says Doisy. Slovakia could

generally become easier, with less con-cern over legal ownership and intellec-tual property rights, all of which makesthe markets more attractive to inwardinvestment.

“There has also been a substantialchange in the quality of local manage-ment compared to 10 years ago,” saysGreen. “Over the past two years theyhave begun to look seriously at the fi-nancing possibilities of rapidly devel-oping capital markets.” For instance,GMT Communications’ refinancing ofInvitel, Hungary’s second-largest fixed-line operator, included launching alarge tranche of high-yield bonds.“It involved considerablestructural issues,”says Green,

1 6 M A Y 2 0 0 5

CENTRAL & EASTERN EUROPEREGIONAL REPORT G L O B A L F I N A N C EGF

follow next year, with the larger coun-tries—Poland, the Czech Republic andHungary—most likely waiting until atleast 2007 to join ERM II.

The main problem for the largereconomies is bringing down governmentspending.Their governments spend moremoney than they bring in, even thoughthey have relatively high tax levels.Theyface having to cut current expenditureon deeply entrenched and often highlypopular social programs, and that in turncould cause political problems, especiallyin Poland and Slovakia where electionsare coming up.

Doisy believes these countries’ largefiscal deficits are structural in naturerather than caused by economic fluctu-

ations.To overcome such deficits takes adegree of political will that has not al-ways been evident. Until governmentsof the Central Europe’s ‘big three’economies get serious about tacklingtheir fiscal deficits, he says, it is hard tosee how they can progress toward join-ing the single currency. Since thesecountries already have a relatively hightax take as a percentage of GDP, thatmeans cutting down on spending.

Slovakia provides a good example ofhow to whittle down fiscal deficits. Itintroduced a flat 19% tax rate for bothcorporates and individual incomes. Inmost cases this represented a significantreduction, and, with less tax avoidanceand more businesses exiting the ‘blackeconomy’, instead of falling, govern-ment revenues actually increased. “Slo-vakia also decided not to spend all ofthe EU structural funds it was entitled

to,” says Doisy. “That helped to keepdown its fiscal deficit.”

Financing state-funded pensionsmight prove a more intractable prob-lem, but here the Council of Econom-ic and Financial Ministers in Brussels(Ecofin) has allowed new entrants toexclude pension-related spending fromtheir fiscal accounts. Nonetheless, theprocess of integrating toward the ‘eu-ronorm’ is far from over, even for coun-tries that are now within the EU.

Prospective Entrants Wait in LineThe relative success of last year’s EU

enlargement should act as a powerfulstimulus to those countries still waitingin the wings. Next in line are Bulgaria

and Romania, having successfully final-ized their membership negotiations lastyear. Provided they keep their reformprocess on track, they are scheduled tojoin the EU in 2007.

The prospect of joining the EU isprobably powerful enough to encour-age governments to implement thenecessary reforms, and now that Roma-nia and Bulgaria have a joining date,foreign investors feel it is safe to go in.Already FDI has picked up, whichopens the way for further productivitygains through technology and skillstransfers. However, Green argues,“Theystill have further to come in terms ofeconomic stability, access to capital and,above all, quality of management, wherethey are still a lot further behind.”

Croatia’s progress has been delayed bypolitical rather than economic consider-ations, especially since the EU’s recent

decision to postpone the start of mem-bership negotiations until it is convincedthat the Croatian government is cooper-ating fully with The Hague tribunal onbringing those suspected of war crimesto justice. However, while it has shownitself ready to wield the stick when itcomes to the war-torn states of the for-mer Yugoslavia, Brussels is equally adeptat dangling the carrot of eventual EUmembership to coax the western Balkancountries along the path of political andeconomic reform. Macedonia, for in-stance, filed its formal membership ap-plication last year, and Albania hopes totake its first step through finalizing theStabilization and Association Agreementlater this year.

That leaves Turkey,which formally be-gan its own journey toward EU mem-bership last December after Brussels fi-nally decided that Turkey satisfied themainly political Copenhagen Criteria ofbeing a fully functioning democracywith an acceptable human rights record.A longstanding member of NATO,Turkey’s inclusion within a broader Eu-ropean Union has been supported by theUnited States on strategic grounds andbecause, as a predominantly Muslimdemocracy, it could form a vital bridgeto the Middle East region.

Turkey still has a long road to travelto bring its macro-economic and fiscalpolicies more into line with the EU’snorm and in implementing legal andinstitutional reforms allowing for afreer, more transparent business envi-ronment. However, no country that hasentered into EU accession talks hasever been refused entry. The experi-ence of previous waves of accessionstates will provide some useful lessonsalong the way. “Are the new memberstates of Central and Eastern Europeyet seeing the reward for their efforts?”asks Raiffeisen’s economist Demel.“I’m inclined to say yes, though the fi-nal verdict will only be made in 10 or20 years’ time when their citizens havereached comparable income andwealth levels.” ■

THE SUCCESS OF LAST YEAR’SEU ENLARGEMENT SHOULD ACTAS A POWERFUL STIMULUS TOTHOSE WAITING IN THE WINGSThe prospect of joining the EU is probably powerful enough to encourage governments to implement the necessary reforms

2 0 0 5 M A Y 1 7

CHINA

In April anti-Japaneseprotests in Beijing,Shanghai and Guangzhoufurther strained theperennially tense China-

Japan relationship after Japanapproved textbooks that criticsclaim play down Japan’swartime brutality.Tensionsfurther intensified when theJapanese government awardeddrilling rights for disputedwaters in the South China Sea.

Chinese protesters are callingfor a three-month boycott ofJapanese goods. China overtookthe US as Japan’s largest tradingpartner last year, and aneffective boycott could damageJapan’s economic recovery.

Problems continue to surfacein China’s troubled banking

sector, possibly delaying plansof China’s top two state banksto go public later this year.China Construction Bank’schairman, Zhang Enzhao,stepped down in late Marchand was subsequently detainedby police. His resignation anddetention may be related to aUS civil case alleging thatZhang received bribes in excessof $1 million. Early last year,CCB and Bank of China eachreceived $22.5 billion capitalinjections and embarked on aseries of reforms in preparationfor public stock offerings. Butseveral scandals—including thediscovery earlier this year that800 million yuan ($97 million)had disappeared from a Bank ofChina branch in northeastern

China—indicate that internalcontrols at China’s state-ownedbanks remain weak.

After hitting a six-year lowin March, China’s stock marketjumped in mid-April on newsthat the government mayreduce its stakes in several ofthe country’s largest companies.Government and affiliatedbodies hold most shares inChina’s domestic stock market,creating an environment proneto manipulation by those inmanagement positions andgovernment offices. Minorityshareholders in such companieshave little, if any, influence overbusiness operations.

Chinese companies’ enth-usiasm for overseas acquisitionsappears to be cooling after

peaking with Lenovo’s $1.75billion purchase of IBM’spersonal computer business latelast year. In mid-April,Shanghai Automotive IndustryCorporation (SAIC), one ofChina’s top three automotiveproducers, pulled out of talksover a possible joint venture oracquisition deal with troubledBritish carmaker MG Rover.

—Thomas Clouse

India’s reforms continue apace with the government’s decision to pri-vatize aviation fuel supply to airports, ending a monopoly by state-owned refiners. The government will buy all the fuel dumps andhydrants from the state-owned refiners at book value and allow oilcompanies equitable access to the infrastructure. The move shouldcut fuel prices and increase revenues for the airport authorities.

Ministry officials hope the reforms will eventually prompt much-needed investment in aviation infrastructure. There will be huge spin-off benefits, too, for airline companies that are now approachingIndian and global equity markets for capital. Indian Airlines, thestate-owned domestic airline, which is the largest domestic operator

in India, has an-nounced an IPO.Though the final

size of the IPO has still to be decided, it could be the biggest everfrom India, at nearly $2 billion. The government has been inspired bythe fantastic response to private sector airline Jet Airways’ IPO ear-lier this year. Jet’s $450 million IPO received nearly $6.5 billionworth of bids, mostly from foreign investors. The other state-ownedairline, Air India, is waiting in the wings to announce its IPO, and pri-vate sector minnow Air Deccan has already announced a small IPOslated for early next year.

It’s not only India’s airline industry that is set to benefit from for-eign investment, though. POSCO of South Korea, the world’s fifth-largest steel manufacturer, is looking at investing nearly $3.5 billion tobuild a steel plant in India’s iron ore and coal rich northeastern stateof Orissa. The plant, which is expected to have a capacity of 10 millionmetric tons, will be one the largest in the country. —Aaron Chaze

BANKS STRUGGLE BUT STOCK MARKET RECEIVES A BOOST

Detained: China Construction Bank’s Zhang Enzhao

INDIA

AVIATION SECTOR TAKES OFF

EMERGING MARKETS G L O B A L F I N A N C EGF

EM ROUNDUP

Indian Airlines: Ready for takeoff

President Luis Inacio Lula da Silva’s ap-proval rating has dropped by six pointssince February of this year. Conducted bythe Sensus polling firm and released bythe National Transport Confederation latelast month, the national poll found thatpersonal approval for Lula has declinedfrom 66.1% to 60.1%.

Lula, who is up for re-election in 2006,faces the dilemma of either alienatingpoor voters as he pares back governmentsocial spending or jeopardizing his hard-won reputation with investors for fiscalausterity if he boosts expenditures. Hun-dreds of landless peasants stormedBrazil’s finance ministry in Brasilia lastmonth to demand more land reform funds.After 28 months in office, Lula has fallen behind job, land-reformand poverty goals after his government hiked the budget surplusand used high interest rates to cut inflation.

Meanwhile, Brazil’s government said it will not renew thestandby credit agreement with the International Monetary Fundthat expired at the end of March. Brazilian finance minister An-tonio Palocci said the country’s economic fundamentals had im-proved 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 fis-cal position in the past year. Brazil’s second-largest airlineslashed 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. Andin the fourth quarter of 2004, the airline shifted into a net prof-it of nearly $85 million, according to Varig officials.

The economic improvements may not be enough for foreigninvestors, who poured about $869 million in direct investment in-to Brazil in February—about 15% less than during the samemonth of 2004, according to the Central Bank Economic StudiesDepartment. For the first two months of the year, foreign invest-ment in Brazil totaled $2.08 billion, and in the 12 months endedin February of this year foreign investment tallied $18.2 billion.

In an effort to rein in inflation, this South American nation’scentral bank unexpectedly raised its benchmark lending rate foran eighth straight month. The nine-member board headed bycentral bank president Henrique Meirelles voted on April 20 topush the overnight interbank rate a quarter percentage point up,to 19.5%. Economists had expected bank officials would stop thestring of interest rate increases so as not to hinder the country’seconomic expansion of the past two years. But policymakers areconcerned about inflation, which is running at 7.5% for the 12months ended in March—two percentage points higher than theiryear-end target of 5.1%. —Paula L. Green

BRAZIL

LULA STRUGGLES TO BALANCEPROMISES WITH STABILITY

1 8 M A Y 2 0 0 5

EMERGING MARKETS G L O B A L F I N A N C EGF

RUSSIA

In late March PresidentVladimir Putin extendedan olive branch to thecountry’s oligarchs byproposing legal reforms

that would in effect putshady privatizations of the1990s beyond the reach ofthe law and that would alsostreamline tax collection.Theannouncement was hailed byinvestors as the re-emergenceof the dimension of VladimirPutin that is a defender ofinvestment and promoter ofeconomic growth.

But within two weeks thereality of Russia struck again, asTNK-BP—easily the highest-profile and largest foreigninvestment in Russia—was hitwith a $1 billion tax bill.Twodays later Siemens was blockedby the Federal Anti-MonopolyService from buying a majoritystake in Power Machines,Russia’s biggest producer ofpower turbines.

Uncertainty of a differentstripe had emerged previously,when Anatoly Chubais—themastermind of Russia’s

privatizations of the 1990s andcurrently head of UnifiedEnergy Systems, the country’smonopoly power distributor—survived a roadside ambush.

The seemingly never-endingtrial of former Yukos headMikhail Khodorkovsky finallywrapped up in early April.Theman who was until recentlyRussia’s richest faces up to 10years in prison.A US-basedinvestment fund in late Marchannounced that it is trying togather minority shareholdersupport to sue the Russiangovernment for share lossesstemming from the destructionof Yukos.

Despite the challengingenvironment, foreigninvestment into Russiacontinues. In early April Coca-Cola and its Greek bottlingunit announced that theywould buy Multon, Russia’ssecond-largest juice maker thatanalysts valued at roughly $650million.Weeks later, Britishretail giant Dixons signed adeal that gives it the option ofbuying Russian electronicsretailer Eldorado for $1.9billion by 2011.

Kyrgyzstan was the latestformer Soviet state to upend itspower structure, as thepresident of the small CentralAsian nation fled in the face ofprotesters upset about recentrigged elections. UnlikeGeorgia and Ukraine, though,there is no clear unifyingopposition leader inKyrgyzstan, and the road todemocracy promises to beparticularly bumpy.

—Kim Iskyan

PUTIN TRIES FOR ANEW, KINDER IMAGE

Survivor: Russia’s privatizationsupremo, Anatoly Chubais

Brazilian financeminister Antonio PalocciBrazilian financeminister Antonio Palocci

Soaring minerals priceshelped boost revenuesat Companhia Vale doRio Doce, or CVRD,by 53%, to $8.5 billion

in 2004. Rio de Janeiro-basedCVRD, the world’s biggestproducer of iron ore, earned arecord $2.6 billion last year.Amid rising demand from steel

makers in China andelsewhere, CVRD is raisingprices for ferrous metals by71.5% for contracts signed thisyear, with exports expected todouble to $10 billion.

CEO Roger Agnelli, aformer banker who leftBradesco in 2000 torestructure the mining

company, will plow some ofits profits into expanding iron-ore production significantly.He says Brazil has the best andlargest reserves of the ore inthe world, enough to last forhundreds of years.Agnelli alsowants to further diversifyCVRD, which alreadyproduces bauxite, manganeseand other minerals, makesaluminum and owns energyand transport facilities.

CVRD wants to enter intojoint ventures with foreign steelcompanies, including China’sBaosteel, to build slab-for-export plants on Brazil’simpoverished north coast. It istrying to persuade the Braziliangovernment to grant tax reliefthat will convince the foreignpartners to go ahead with thedeals that could generate up to$8 billion in foreign directinvestment. —GP

2 0 0 5 M A Y 1 9

NEWS

Global economicgrowth typicallydecelerates at thispoint in theproduction cycle, but

there is no evidence of aslowdown to date, saysJonathan Wilmot, chief globalstrategist at Credit Suisse FirstBoston.

Meanwhile, CSFB’s index ofglobal risk appetite has enteredthe euphoria zone for the first

time in thecurrent cycle.“Lots ofgrowth nowwould be badfor riskyassets,”Wilmotsays, because itmeans that thecomingdownturn willbe sharper.“A

rising world interest rateenvironment will cut off theflow of excess liquidity toemerging markets,” he says.

Emerging markets performworse than developed marketsonce the euphoria zone isentered, according to Wilmot,and they generally are flat tolower within three to sixmonths later.Within six to 12months the index of riskappetite could be back in thepanic zone, he says.

Not only are emergingmarkets more susceptible toglobal monetary tighteningthan are developed markets,but they are also morecyclical,Wilmot says.“Emerging markets are alsomore at risk in this cyclebecause they are more directlyexposed to a big slowdown inChina,” he says. —Gordon Platt

SWITZERLAND, GERMANY, UNITED STATES

Companies from South Korea, India, China and Taiwanwill make Asia the main source of capital raising usingdepositary receipts in 2005, says Patrick Colle, globalhead of ADRs at JPMorgan. Asian issuers will accountfor 60% to 65% of the volume of new issuance in DRsthis year, with a number of high-technology issuesfrom China expected to be floated, Colle says. JPMor-gan was mandated ADR bank on 50% of all initial pub-lic offerings of ADRs from China in 2004.

Many large Russian DR issues already have beenplaced and more are likely, while Brazilian companiesalso may be active in the ADR capital markets, ac-cording to Colle. “The new-issue pipeline is strong,” hesays. Meanwhile, factors are in place to continue the 20-year seculartrend toward increased trading and investment, including a sustainedexpansion of the global economy, reviving corporate profitability inmany countries and the weak US dollar, he says.

The average US investor has 14% of his portfolio allocated toforeign securities, which is still fairly low, Colle says. “The foreignallocation should be about 20% to 25%, which means there is stilla lot of upside potential,” he says. Many US funds need the ADRvehicle to take exposure in foreign issues, while the growth of sep-arately managed or wrap accounts investing in ADRs is adding tomarket liquidity. “As liquidity grows, investors become more com-fortable,” Colle says, making it likely that the trend toward in-creased trading will continue. —GP

EM INVESTOR

Patrick Colle

RISK APPETITE INEUPHORIA ZONE

COMPANY TO WATCH: CVRD/BRAZIL

MINER ON THE MOVE

DR NEWS

ASIA TO KEEP NEW-ISSUEPIPELINE FLOWING

EMERGING MARKETS G L O B A L F I N A N C EGF

Patrick Colle

Jonathan Wilmot

COMPLIANCE BY ADAM ROMBEL

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The government’s main instru-ment to promote corporate re-sponsibility and prevent future

Enron debacles, the Sarbanes-Oxley Actof 2002 (often dubbed SOX), has beenmuch more costly and time consumingthan most companies expected. Thethorniest component of the SOX law hasbeen Section 404, which requires publiccompanies to establish, maintain anddocument effective internal financialcontrols and get those controls approvedby their outside auditors.

According to a recent Financial Exec-utives International survey of 217 publiccompanies with revenues averaging $5billion, implementation of SOX Section404 cost firms an average of almost $4.4million in 2004—that’s nearly 40% morethan companies had budgeted—and 94% of the survey respondentssaid the cost of compliance ex-ceeded the benefits. Moreover,hundreds of publicly traded com-panies in recent weeks have de-layed filing their annual reportswith the US Securities and Ex-change Commission as the firmsstruggle to prove the robustness oftheir internal controls. Many firmsare turning to technology solu-tions, compliance-automationsoftware in particular, to make itless painful to comply with the lawin 2005 and beyond. AMR Re-

Software OffersCompliance SolutionsCompanies are finding that software can help them reinin the high costs and disruption caused by complyingwith new regulations.

“They’re saying, ‘Give us a way to avoidthe pain and uncertainty we muscledthrough last year,’” Holst says.

The pain came in the form of longhours for corporate financial officials, ITstaff members and auditors. Most publiccompanies approached SOX with manu-al processes, using simple spread sheetsand calling upon an army of people todocument, test and re-test internal con-trols. It was expensive and time consum-ing because it is all unstructured workstarted from scratch and unplanned, reac-tive work, says Sanjay Srivastava,chief op-erating officer of San Mateo, California-based Aceva Technologies, which makestransaction-reconciliation software.

One company that went through thecumbersome SOX-compliance process

last year was Loral Space & Com-munications, a New York-basedsatellite-communications compa-ny that generated more than $500million in revenue in 2004. Loralused a manual process and passedits own compliance audit at theend of last year, well before theApril 15 deadline for US publiccompanies with a market capital-ization of $75 million or more tocomply with Section 404 of SOX.Having gone through that experi-ence, the company is now movingto a non-manual solution. BarryGoldfeder, senior director, business

search predicts that US companies willspend a total of $6.1 billion to manageSOX-compliance efforts in 2005, ofwhich, $1.7 billion is allocated for tech-nology.That’s more than a 40% increaseover tech spending on SOX in 2004.

Easing the PainSo, what are companies that have to

comply with SOX seeking from technol-ogy? “The number-one thing they wantis relief from the way they dealt with thislast year,” says Sebastian Holst, vice presi-dent of marketing at Axentis, a six-yearold, Cleveland, Ohio-based firm that li-censes the risk-compliance managementapplication Axentis Enterprise, which isused by more than 80 companies withaverage annual revenues of $11 billion.

Sebastian Holst at

Axentis

Sanjay Srivastava of

Aceva Technologies

2 0 0 5 M A Y 2 1

COMPLIANCE

when a company does identify a problemin its financial controls, it should be easyto configure the software system to bringit under control, avoiding the problem inthe future.

Seamus Moran, director of accountingcompliance applications development atOracle and himself a former auditor, tellsa story of one corporate customer thatused OICM to identify about 400 in-stances of violating SOX’s segregation-of-duty requirement. For example, adatabase administrator correcting an in-voice could be a violation because theaccounting people should do it. Whenthe customer used OICM to checkprocesses and transactions against the listof staffers authorized to perform thosefunctions, “they were automatically ableto clean up the problem,” Moran says.“Itmade fixing it very easy.”

Broadening the BenefitsVendors say that the benefits of

putting in place automated financialcontrols extend far beyond Sarbanes-Oxley compliance. Just by goingthrough the process, companies canmanage business processes better, be-come more efficient, save money andcomply with many other laws, such asthe European counterparts to SOX. “Iend up thinking hard about my businessand what my common standards are,and that always saves me money,” saysOracle’s Moran.

Companies are clamoring for “a wayto make my compliance effort pay offin some kind of competitive advantagefor my business,” says Approva’s Selvin.Srivastava of Aceva Technologies echoesthat thought.Aceva’s transaction-recon-ciliation application was first introducedabout five years ago to help companiesreduce the number of days of sales out-standing, before the company startedtransitioning the product into theSOX-compliance marketplace. “Peopleget it for both. I don’t know of a singlecustomer that has bought it for just oneof these things,” Srivastava says. ■

Automated software can replace man-ual efforts that might take hundreds ofhours with as few as a couple hours ofanalysis, says Approva’s Selvin. For exam-ple, a company might have a million pur-chase transactions in a month, and its in-ternal auditors might spot-check about50 of them to look for mistakes, ineffi-ciencies or fraud. Approva’s softwarecould monitor all 1 million of the trans-actions. “It’s about finding the needle inthe haystack,” says Selvin.

To identify weaknesses in their inter-nal-control procedures and processes,companies need software with sophisti-cated reporting options that help themidentify where weaknesses exist, such asrisks not addressed by controls or finan-cial-statement assertions not addressed bycontrols, says Katharina Reichert, special-ist in application solution managementfor mySAP ERP at German software gi-ant SAP, which introduced its Manage-ment of Internal Controls (MIC) prod-uct in the third quarter of 2004. Morethan 65 corporate customers are usingMIC, according to Reichert.

An example of a financial assertion thatcould get a company in trouble is book-ing as revenue sales orders that end upnot materializing. Software systems canautomatically check the orders againstpurchase documents to find out beforethe fact if it is bookable revenue. And

controls, systems and processes, at Loral,says the company is in the process of cer-tifying its first-quarter 2005 financials us-ing automation.Specifically,Loral is usingthe Oracle Internal Controls Manager(OICM) application,which Oracle says isin use by about 300 companies.

Foreign companies and US-basedfirms with a market capitalization below$75 million were recently given a break.On March 2 the SEC extended to July15, 2006, the deadline for these compa-nies to meet the Section 404 require-ments of SOX.That doesn’t mean com-panies should wait to get their actstogether, vendors say.“I think many [for-eign companies] learned from their UScounterparts that this is not a 30-day en-terprise. So they should start now in or-der to be ready in time,” says Neil Selvin,chief marketing officer with Approva, aVienna,Virginia-based firm that sells theBizRights compliance-software plat-form, which has several dozen corporatecustomers, including General Motorsand Siemens.

Even those companies that don’t startnow will realize eventually the need fortechnology to ease compliance. “Au-tomation is inevitable. That’s the onlyway you’ll be able to take control of allyour activities and make sure you’rekeeping up with the times,” saysGoldfeder.

CYPRUS BY LAURENCE NEVILLE

COUNTRY REPORT

2 2 M A Y 2 0 0 5

The year 2004 was one of mixedemotions for the Mediter-ranean island of Cyprus. The

country achieved its long-held dreamof joining the European Union. But asettlement of the conflict between thesouth of the island and the north, andits Turkish protectors, was not achieved.The south’s politicians and the broaderpopulation refused to accept Kofi An-nan’s UN plan to end the 1974 divisionof Cyprus.

The failure to unite the divided is-land was a disappointment to everyone.“We’ve always wanted a solution to theproblem, but we needed somethingmore than the Annan plan offered,” saysDennis Droushiotis, trade commission-er for the country in New York. Henotes that political parties within theGreek Cypriot National Council re-cently put together a response to theAnnan plan to try to find a way for-ward.

Meanwhile, the north of Cyprus,though growing, remains substantiallypoorer than the south and reliant onhandouts from Turkey, the only countrythat recognizes it—and the source of its30,000 troops. Recent court casesbought by Greek Cypriots in the southover property owned by them in thenorth before 1974—and subsequentlysold to British holidaymakers—indicatethe scale of the task to be achieved forreconciliation to occur.

Despite the failure to reconcile the

Building Bridges

conflicts of the past, the south ofCyprus is experiencing an economicrecovery. “Last year the economy grewby about 3.5%, and this year we are ex-pecting up to 4%,” says Sofronis Eteo-cleous, head of economic research andplanning at Laiki Group, owner ofCyprus Popular Bank. Meanwhile, in-flation is low and fairly steady.“Last yearit dropped to 2.3% from 4.1%, but thisyear we expect a slight acceleration be-cause of oil prices.”

Diversifying the EconomyTourism has long been the mainstay

of the Cypriot economy, and services(of which most is tourism) account for72% of GDP, according to Droushiotis.“Tourism remains the engine in termsof foreign currency,” he says. But thefailure of visitor numbers to recover topre-9/11 levels has focused attention onother areas of the economy. “We don’thave our eggs in one basket,” saysDroushiotis. “There are over 50,000corporations in Cyprus.”

Despite an increase in the corporatetax rate from 4.25% to 10%, which wasa condition of entry to the EU, Cyprusremains an attractive location for taxplanning. It still has one of the lowestcorporate tax rates in Europe and hastax treaties with 34 countries, with afurther 31 under negotiation.

According to Remko van Roekel,Cyprus analyst at Citco Corporate &Trust, the new tax regime is actually

As its economy continues to grow, Cyprus is hoping to takeadvantage of its strategic position between Europe andthe burgeoning markets of the Middle East and Africa.

Business boom: Cyprus is taking

advantage of its strategic location to

promote its transshipment facilities

2 0 0 5 M A Y 2 3

CYPRUSCOUNTRY REPORT G L O B A L F I N A N C EGF

tute on Public Health to bring a greaterknowledge base to its economy.

The geographical positioning of thecountry is also working in Cyprus’ favorin the technology market, says Droush-iotis. He notes that US firm Amdocs re-cently hired 45 IT professionals fromIndia to work on software in Cyprusbecause communications with the USare better in Cyprus than in India, andthe working environment is more stableand developed.

Despite the country’s enthusiasm forjoining the EU, the benefits of mem-bership are perhaps less immediate forCyprus than for the other nine coun-tries that joined in May 2004.As the lo-cal press repeatedly noted, the countrywas the richest of the 10 new states. In-deed, it is expected that within a fewyears, Cyprus will become a net con-tributor to the EU budget.

In the short term, however, Cypruswill benefit from agricultural modern-ization programs in areas such as dairyand wine production, the latter present-ing potentially huge growth opportuni-ties for the sun-drenched country. Inaddition, being a member of the EUgives Cyprus much more clout when itcomes to determining quotas and trad-ing with the US.

Preparing to Join the EuroHaving achieved EU membership, the

next goal is joining the euro. Cyprus hasbeen eager to show it is serious aboutcurrency matters for some time. It abol-ished foreign exchange controls beforeaccession and pushed up interest rates toprotect the Cyprus pound. Now the em-phasis is on ensuring that the Cyprioteconomy meets the necessary conditionsto join the euro.

Chief among these is lowering thecountry’s deficit, which was 6.3% in2003 and 4.2% last year.The target is tohit the eurozone entry level of 3% by2006. “The government has had a taxamnesty from September 2004 to Feb-ruary this year, and that will affect rev-enues for both this and next year andshould allow the government to hit itstarget,” says Eteocleous. “In addition,the government has resolved not to in-crease civil servant wages for 2004 and2005 and has been successful in that.”

However, it has met resistance in tryingto extend the pensionable age of civilservants from 60 to 63.

As van Roekel notes, the governmentis prepared to do almost anything to ful-fill the criter ia for eurozone entry.“They would put up VAT [sales tax], butI think they would draw the line at in-creasing corporate tax,” he says. Indeed,despite expecting a slight pick-up in in-flation rates, the central bank recentlyreduced interest rates from 5.5% to5.25%.“The aim was to send a messageregarding convergence,” says Eteocleous.“Our inflation is basically generatedoutside the island, so there’s no dangerfrom this move.And Cyprus really wantsto be ready for the euro.” ■

more favorable to companies in termsof exemptions. “There hasn’t beenmuch lost, in all honesty,” he explains,“and now it’s got the seal of approvalfrom the OECD and the EU.” Further-more, he notes that the changes thatCyprus made before accession havecleaned up the economy. “There wereconcerns about some of the Russianmoney coming into Cyprus,” he adds.“It wasn’t great for the image of thecountry.”

Other services hope to benefit fromCyprus’ location as a bridge betweenEurope and the growing economies ofthe Middle East and North Africa.Thecountry has had free trade zones—where companies bring in shipmentsintended for neighboring markets anddivide them up into country deliver-ies—since 1977, and use of them is in-creasing by such companies as IBM andEstée Lauder. Last year Cyprus generat-ed $400 million in re-exports.

Meanwhile, the government is alsotrying to encourage technology-basedcompanies, especially in IT services. Ithas set up four $250,000 venture capitalfunds to develop companies and alsosigned agreements with EU countriesand the State University of New Yorkand Harvard University Research Insti-

2 4 M A Y 2 0 0 5

BEST EMERGING MARKET BANKS

ANNUAL SURVEY

In the dynamic world of emergingmarket banking, the past year hasbeen an exciting one. Change is tak-

ing place at unprecedented speed, withestablished regional titans tighteningtheir grip on their chosen markets andmany smaller banks, with canny use ofnew technology or through audaciousdealmaking, carving out ever-growingregional niches.

Many formerly local banks are reach-ing across borders with acquisitions andalliances that are transforming themrapidly into regional powerhouses. Al-most across the board, revenues are upand profits are up.The banks that really

shine in this year’s survey are adoptingnew technology, leapfrogging theircompetitors and providing their cus-tomers with state-of-the-art facilitiesand services. Increasingly, corporationsand consumers in emerging marketsaround the world are able easily to ac-cess the same levels of service that wereonly recently reserved for bank clientsin developed markets.

As always, the winners of this year’semerging market banks awards are notnecessarily the biggest or the most visi-ble, but they are those that can best helptheir clients make the most of the vastopportunities available in the world’s di-

verse—and sometimes confusing—emerging markets.

With input from industry analysts,corporate executives and banking con-sultants, Global Finance identified thebanks that adhere to high standards ofcorporate governance and possess theimagination to succeed in a challengingenvironment.

Our criteria included growth in as-sets, profitability, strategic relationships,customer service, competitive pricingand innovative products. ■

Contributors: Gordon Platt, LaurenceNeville, Paula L. Green and

Santiago Fittipaldi

In the 12th annual Global Finance survey of the world’sbest emerging market banks, we honor those banks thatconsistently provide excellent service and security in often-tumultuous markets.

THE BESTEMERGINGMARKET

BANKS 2005

BEST EMERGING MARKET BANKSANNUAL SURVEY G L O B A L F I N A N C EGF

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EMERGING MARKET BANKS: ME&AANNUAL SURVEY G L O B A L F I N A N C EGF

National Bank of Kuwait is one of the largest andmost profitable banks in the Middle East and iscontinuing to expand throughout the region and

beyond.The bank is taking full advantage of the improvedeconomic environment in the Gulf area as the result ofhigh oil prices. It also is diversifying its revenue sources andcontinually upgrading its complete range of products inresponse to the needs of its customers.The largest bank inKuwait and the highest-rated Arab bank,NBK is a leadingprovider of investment banking and trade finance servicesin the Middle East.

NBK enlarged its regional network last year with theopening of a branch in Amman, Jordan, and a 10th branchin Lebanon. It also acquired a share in International Bankof Qatar, formerly Grindlays Qatar Bank, and will managethe bank under contract. NBK opened a branch inBahrain in 2003, upgrading its offshore unit. Globally, ithas branches or subsidiaries in New York, London, Paris,Geneva and Singapore, as well as representative offices inThailand and Vietnam. It is planning to expand into SaudiArabia, Iraq and China.

NBK posted record profits in 2004, up 24% from a yearearlier, giving it a return on equity of 29.9%.■ Ibrahim Dabdoub, CEO

www.nbk.com

MIDDLE EAST AND AFRICA

BAHRAIN

Gulf International Bank Gulf International Bank, a leadinginvestment bank in the Middle East,has expanded into such areas as ship-ping finance, secondary market assettrading and Islamic finance. GIB isthe leading project finance bank inthe region and was a lead arranger ofthe $9.3 billion facility for theQatargas II liquefied natural gas pro-ject, the largest energy project fi-nancing deal worldwide in 2004.The bank is owned by the six mem-ber states of the Gulf CooperationCouncil. JPMorgan Overseas Capi-tal holds a minority interest. GIB’searnings rose 42% in 2004, to arecord $150 million. In addition to a

subsidiary in London, GIB hasbranches in New York, Riyadh andJeddah. It has representative officesin Beirut and Abu Dhabi.■ Khaled M.Al-Fayez, CEO

www.gibonline.com

BOTSWANAStanbic Bank Botswana Stanbic Bank Botswana, a subsidiaryof Standard Bank of South Africa,has operated in Botswana since1991.The bank is active in trade andproject finance and is aiming tobroaden its small, upscale retailbanking business, which comprisesseven branches. In November 2003it acquired the local private bankingoperations of South Africa-based In-vestec. Stanbic Bank operates in 17

African countries outside SouthAfrica. Standard Bank has offices in21 additional countries worldwide.■ Dennis Kennedy, managing

directorwww.stanbic.com

EGYPTCommercial International Bank Commercial International Bank,Egypt’s largest private bank, posteda 23% increase in earnings last year,with broad-based gains in retail,corporate and investment banking.CIB is working with the Interna-tional Finance Corporation, theprivate lending arm of the WorldBank, to increase lending to smalland medium-size enterprises. Thebank has installed a new consumer-

BEST

EM

ERGING MARKET BANKS 2005

Best Bank in Region: National Bank of Kuwait

http://www.anb.com.sa

2 8 M A Y 2 0 0 5

EMERGING MARKET BANKS: ME&AANNUAL SURVEY G L O B A L F I N A N C EGF

credit management system to helpdiversify its product offerings. Thebank’s non-performing loan cover-age ratio reached 137% last year.CIB offers corporate and trade fi-nance, as well as consumer lending,asset management, securities broker-age and insurance.■ Hisham Ezz Al-Arab, chairman

and managing directorwww.cibeg.com

ETHIOPIADashen BankAddis Ababa-based Dashen Bankmaintains Ethiopia’s largest bankingnetwork, with 33 branches, two ofwhich opened in 2004. Establishedin 1995, Dashen Bank was the coun-try’s first bank to offer Visa and Mas-terCard accounts. The bank, namedafter Ethiopia’s tallest mountain, up-graded its financial software last year,and it has a reputation for providingefficient banking services.■ Lulseged Teferi, president

www.dashenbanksc.com

GAMBIATrust Bank Banjul-based Trust Bank offers retailand investment banking services inGambia, a small western African na-tion that straddles the Gambia River.Trust Bank recently signed a masterguarantee agreement with the USExport-Import Bank to provide ex-port finance facilities to local com-

panies.The bank offers internationalmoney transfer and foreign exchangeservices, as well as Internet banking.■ Pa Macoumba Njie, managing

directorwww.trustbank.gm

GHANAStandard Chartered Bank Ghana Standard Chartered Bank Ghana de-livers innovative products with ad-vanced technology and reliable ser-vice. It was the fir st financialinstitution to offer mobile phonebanking in Ghana.As a subsidiary ofLondon-based international bankStandard Chartered, the Ghana bankoffers a full range of corporate andretail banking services, including for-eign exchange, structured trade andcorporate finance. The parent insti-tution has operations in 14 Africannations and is a leading emergingmarkets bank worldwide.■ Ebenezer N. Essoka, managing

directorwww.standardchartered.com/gh

GUINEAInternational Commercial Bank International Commercial Bank is amember of ICB Banking, a groupcontrolled by former Malaysian fi-nance minister Tun Daim Zainud-din. The group is applying soundbanking practices in emerging mar-ket countries, including six in Africa.The Guinea-based bank has man-

aged to tr im its non-performingloans while keeping profits growing.ICB Banking’s other African banksare in Gambia, Ghana, Mozambique,Sierra Leone and Tanzania.■ Sashidharan Nair, CEO

www.icbank-guinea.com

JORDANJordan Kuwait Bank

Jordan Kuwait Bank is doing abooming lending business while re-ducing its non-performing loan ratioto a record low, thanks in part to Jor-dan’s flour ishing economy. Thebank, founded in 1976, offers a fullrange of commercial banking activi-ties and operates an extensive branchnetwork in Jordan. It also provides arange of electronic delivery chan-nels, including Internet banking andmobile phone access to accounts.The bank’s net income rose morethan 30% in 2004, to $25 million.■ Abdel Karim Kabariti, chairman

and CEOwww.jordan-kuwait-bank.com

KENYABarclays Bank of Kenya UK-based Barclays has operated inKenya for more than 88 years and isthe market leader in retail banking. Italso is expanding its corporate busi-ness and is seeking funding from theInternational Finance Corporationto increase dollar-denominated loansto medium-size companies. Barclays

Hisham Ezz

Al-Arab,

chairman

and

managing

director,

Commercial

International

Bank

Pa

Macoumba

Njie,

managing

director,

Trust Bank

Abdel Karim

Kabariti,

chairman

and CEO,

Jordan

Kuwait Bank

http://www.nbk.com

3 0 M A Y 2 0 0 5

EMERGING MARKET BANKS: ME&AANNUAL SURVEY G L O B A L F I N A N C EGF

Bank of Kenya is incorporated inKenya, with Barclays Bank owning68.5% of the issued shares and theremainder listed on the NairobiStock Exchange.The bank has morethan 34,000 shareholders, includingindividuals and institutions. Withmore than 50 branches, it is thelargest of Barclays Bank’s 10 Africanbanking operations.■ Adan Mohamed, managing

directorwww.barclays.com/africa/kenya

KUWAITNational Bank of Kuwait

National Bank of Kuwait’s earningsrose 24% last year, to a record $515million, maintaining an upwardtrend annually since the bank wasfounded in 1952. Domestically, NBKis more than twice as big as its near-est competitor, whether measured interms of assets, capital or profits.Thebank's ratio of non-performing loansdeclined to 1.53% of the loan port-folio in 2004, giving NBK one ofthe cleanest loan portfolios of anybank worldwide. The bank openedits 47th branch in Kuwait last Sep-tember, serving the Andalus area. It isthe bank of choice for multinationalcompanies operating in Kuwait andserves local corporations with itsstrong underwriting capabilities andattention to customer needs.■ Ibrahim Dabdoub, CEO

www.nbk.com

LEBANONBLOM Bank

BLOM Bank has been the biggestbank in Lebanon for more than 20years, and in 2004 it expanded itspresence in the region. It openedBank of Syria and Overseas at thebeginning of last year. BLOM is thelargest shareholder in the Syrianbank, with a 39% share, and the In-ternational Finance Corporationholds 10%; Syrian individuals holdthe remaining shares. BSO is the firstprivately held bank to open in Syriasince the country’s banks were na-tionalized in 1961. BLOM alsoopened eight branches, worth $28.1million, in Jordan last year. Besidesoffices in London, Paris and Geneva,it has an international banking unitin Cyprus. The bank offers a fullrange of banking, securities and in-surance products. Its stock brokerageunit Blominvest accounted for 36%of the transactions on the BeirutStock Exchange in 2004, more thanany other broker.■ Naaman Azhari, chairman and

general managerwww.blom.com.lb

MOROCCOAttijariwafa Bank Attijariwafa Bank, created by themerger last year of Banque Com-merciale du Maroc and Wafa Bank, isthe largest bank in the Maghreb re-

gion of northwest Africa. Attijari-wafa Bank already has operations inEurope and Algeria and is planninga regional expansion, starting witha new subsidiary in Senegal. Thebank is a leader in trade finance andforeign exchange, with extensiveglobal correspondent banking rela-tionships. It also offers insuranceand asset management services.Based in Casablanca, the bank hasmore than 1 million customers andnearly 500 branches.■ Khalid Oudghiri, president-

director generalwww.attijari.com

NAMIBIAFirst National Bank of Namibia First National Bank of Namibia,the country’s leading bank, is a di-vis ion of South Afr ica-basedFirstRand Bank, which owns a 55%stake. A group of Black EconomicEmpowerment partners holds 5%.FNB Namibia merged at the be-ginning of last year with Swabou, alocal savings and loan association,creating a financial institution witha more diverse range of products.The bank posted a double-digitgain in pre-tax profits last year,thanks in part to its newly acquiredinsurance operations. It is the onlybank listed on the Namibia StockExchange.■ Lazarus Ipangelwa, CEO

www.fnb.co.za

NIGERIAFirst Bank of Nigeria First Bank of Nigeria, the country'slargest bank, aims to take advantageof the ongoing consolidation of thebanking industry to become evenbigger. It is holding discussionswith a number of potentialtakeover targets ahead of the newminimum capital requirements thatcome into effect in December2005. An oversubscribed rights is-

Naaman

Azhari,

chairman

and general

manager,

BLOM Bank

Ibrahim

Dabdoub,

CEO,

National

Bank of

Kuwait

http://www.qnb.com.qa

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EMERGING MARKET BANKS: ME&AANNUAL SURVEY G L O B A L F I N A N C EGF

sue in February 2004 made FBNthe number-two most-capitalizedstock on the Nigerian Stock Ex-change. First Bank maintains a net-work of 363 branches, which aregradually being remodeled. With asubsidiary in London and a repre-sentative office in Johannesburg,FBN is beginning to expand out-side of Nigeria as well. The bank,which has followed a strategy ofgrowth and modernization, was thecountry's first bank to offer Inter-net banking.■ Jacobs M. Ajekigbe, managing

director and CEOwww.firstbanknigeria.com

OMANBankMuscat

BankMuscat, Oman's leading bank,aims to become a regional bankinginstitution in the Gulf CooperationCouncil states. It opened a branchin Bahrain early last year and plansa second branch in the country. Italso has a representative office inDubai. Meanwhile, it recently es-tablished Bank Muscat Internation-al, or BMI, an independent bankingentity that will focus on the GCCregion. As the economies of theGCC nations become more inte-grated, BankMuscat aims to pro-vide a complete banking service toits customers as they expandthroughout the region. In February2004 it acquired a 33% stake inCenturion Bank, a new private-

sector bank in India. BankMuscatand Centurion will develop tradefinance activities between India andthe GCC region and will servicenon-resident Indian business andinvestment flows.■ AbdulRazak Ali Issa, CEO

www.bankmuscat.com

QATARQatar National Bank

Qatar National Bank, which is 50%owned by the government, controlsnearly half of the country’s bankingassets. Its earnings rose 27% lastyear, while its deposit base grew by23%. The bank has developed corecompetencies in project financeand syndicated lending and is help-ing to finance the country’s ambi-tious plan for tourism developmentby backing new hotel construction.Several major five-star hotels arescheduled to open by 2006, whenQatar will host the Asian Games.The Doha-based bank has the na-tion’s largest distribution network,with 35 local branches and officesin London and Par is. Last year,QNB implemented JPMorganChase’s Horizon system for manag-ing operational risk.■ Saeed Al-Misnad, CEO

www.qatarbank.com

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

Development and Industry is one ofRwanda’s largest banks and the onlyone with an ATM network andsmart cards. The profitable bankcontinues to gain market share andis planning to expand into easternAfrica. Founded in 1995 by AlfredKalisa, a former Bankers Trust vicepresident, along with a group of lo-cal businessmen, it focuses closelyon its customers. BCDI finances alarge share of Rwanda’s coffee andtea exports, as well as the develop-ment of hotels and offices in down-town Kigali.■ NK Passwell Shapi, managing

directorwww.bcdi.co.rw

SAUDI ARABIAArab National Bank

Arab National Bank’s profits for2004 increased by 52%, to $311million, and its return on equityreached 26.6%.These record resultscame amid a buoyant Saudi econo-my, which benefited from high oilprices.ANB provides a full range ofretail, corporate and investmentbanking services. The bank was es-tablished in 1980, when it tookover the six branches of Arab Bankof Jordan under the “Saudization”program. It now has a domesticnetwork of 125 branches, as well asa London branch. ANB is recon-structing its branches, often in newlocations, to upgrade them and givethem a standard look. Three of the

AbdulRazak

Ali Issa,

CEO,

BankMuscat

Nemeh

Sabbagh,

managing

director and

CEO, Arab

National

Bank

Saeed Al-

Misnad,

CEO, Qatar

National

Bank

http://www.cibeg.com

C I BS P O N S O R E D S T A T E M E N T

Commercial International BankBuilds Advanced Infrastructure

Adopting state-of-the art technology to better serve customers

Ever since our establishment in 1975,Commercial International Bank (CIB),

Egypt’s largest and most profitable private bank,has continually worked to improve the servicewe offer our customers.We have achieved thisover the years by investing in state-of-the-artinfrastructure, systems, delivery channels andhigh-quality personnel.

In recent years one of thebank’s main objectives hasbeen to update and developour information technologyand communicationsinfrastructure. New andimproved systems wererequired to satisfy therequirements of our overallbusiness strategy.

By utilizing and capitalizingon the available infrastructure,we have been able to install areliable centralized corebanking system to serve bothcorporate and retail customers.The systems arelinked to the necessary modules to efficientlyprovide a high-quality service.

CIB’s systems are securely connected to theSWIFT global network in order to ensure fastand accurate processing.We have also introduceda new centralized system to manage loanarrangements with small and medium-sizeenterprises (SMEs).This new system is fullyintegrated with the bank’s core banking systemand our trade finance and dealing networks.

CIB is also the first bank in Egypt to set up aChip Personalization Centre for our owncentralized card management and also to provideChip Cards for a number of other banks andinstitutions.

Today CIB is able to offer a wide range ofbanking solutions and services for bothcorporate and retail customers using a variety ofdifferent delivery channels.

Our Internet banking service has provedpopular with many of our corporate and retailcustomers and combines a number of uniquefeatures, including a user-friendly multilingualinterface. Internet banking customers now haveaccess to a range of new services including fundraising, automatic bill payment and automatic

requests processing.We havealso recently introduced newcash management and tradefinance services for ourcorporate Internet bankingcustomers.

CIB customers also haveaccess to a network of 220ATM machines, allowingthem to perform a number ofeveryday banking transactionsquickly and easily, includingdepositing cash or checks,paying utility bills,transferring funds or foreignexchange transactions.All our

ATM machines use state-of-the-art monitoringand management systems to ensure reliable andefficient service.

All of the bank’s systems use the latest securityand cryptography technologies, including avariety of firewalls and PK Infrastructuretechnology, which supports digital signatures andother public key-enabled security services.

At CIB we never underestimate theimportance of our human talent, and we haveinvested heavily in recruiting highly-trained,specialized IT staff to manage and develop ourIT systems to ensure we continue to offer thebest possible service to our customers. ■

Contact information:Strategic Relations and FinancePrograms GroupTel: (202) 570-2679Fax: (202) 571-2362Email: maha.ragab@cibeg.com

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EMERGING MARKET BANKS: ME&AANNUAL SURVEY G L O B A L F I N A N C EGF

branches offer exclusive Islamicbanking services.■ Nemeh Sabbagh, managing

director and CEOwww.anb.com.sa

SOUTH AFRICAStandard Bank

Standard Bank prospered in 2004, asAfrica’s economy expanded at twicethe average rate of the past 20 yearsand emerging markets were strong.The bank’s earnings increased by22% last year, and the return on eq-uity reached 26.4%. Earnings fromretail banking rose 28%, while earn-ings from Africa, excluding SouthAfrica, increased by 30%. Operatingexpenses in domestic banking rose16%. Standard Bank is using broad-band satellite service to expand itsATM availability, especially in SouthAfrica’s rural areas. Standard BankLondon has been active in syndicat-ed lending for trade finance. Alongwith other banks, it signed a $47million facility for Ukraine-basedPost Pension Bank Aval and a $100million syndicated term-loan facilityfor Halyk Bank of Kazakhstan inMarch 2005.■ Jacko Maree, CEO

www.standardbank.co.za

TUNISIABanque de Tunisie Banque de Tunisie, the most consis-tently profitable bank in Tunisia in

recent years, posted a 5% rise in netincome in 2004, to $30 million. Asa result of its good asset quality, thebank was able to reduce its loan lossprovisions by 34%. Higher commis-sions and fees helped to offset a de-cline in the interest margin. Alongwith other major Tunisian banks,Banque de Tunisie joined Swift’sonline messaging system last year.■ Faouzi Belkahia, president

director general

UAENational Bank of Dubai National Bank of Dubai's profitsincreased by 15.3% in 2004, to$253 million, while return on equi-ty was 17.1%, compared to 14.6%in 2003. While most of the bank’srevenues come from its corporatebanking business, it is boosting itsretail banking operations and beganoffering home loans in February2005.The bank has 39 domestic of-fices, as well as a branch in Londonand a representative off ice inTehran. In addition to providingloans to government entities andbusinesses, NBD is active in tradefinance and project finance, as wellas foreign exchange and moneymarkets. Last September it intro-duced a regional investment fund.■ R. Douglas Dowie, CEO

www.nbd.com

UGANDAStanbic Bank Uganda Kampala-based Stanbic BankUganda is part of the StandardBank group of South Afr ica. InFebruary 2002 Stanbic Bankbought 90% of the shares in Ugan-da Commercial Bank, a govern-ment-owned mainly retail bankwith 67 branches. Stanbic Bank re-modeled the branches and added acentralized computer network, aswell as ATMs. Stanbic has operatedin Uganda since 1906 and pur-

chased the Grindlays’ network inAfrica in 1993.■ Kitili Mbathi, managing director

www.stanbicbank.co.ug

ZAMBIAStandard Chartered Bank Zambia Standard Chartered Bank not only isprofitable in Zambia, but its AIDSinitiative also is making a differencein the communities where it oper-ates. Mineral-rich Zambia remainsone of the poorest countries in theworld, but its economy is growing,and Chinese companies have invest-ed in its copper-mining industry.Meanwhile, Zambia’s banking sys-tem is being modernized, thanks inlarge part to the presence of a hand-ful of foreign banks, including Stan-dard Chartered.■ Thomas Aaker, managing

directorwww.standardchartered.com/zm

ZIMBABWEStanbic Bank Zimbabwe Stanbic Bank Zimbabwe is benefit-ing from a flight to quality in Zim-babwe’s consolidating banking sec-tor. Stanbic Bank also has therisk-management skills required tosucceed in a difficult economic andpolitical environment. Zimbabwe’seconomy is in its sixth year of reces-sion, due in large part to the policiesof the government of Robert Mu-gabe, which seized white-ownedfarms and frightened away investors.Mugabe’s party was returned topower in a huge landslide in the re-cent parliamentary elections, whichwere marred by charges of fraud.Stanbic is the brand name of Stan-dard Bank of South Africa in the 17African countries in which it oper-ates outside of its home base.■ Pindie Nyandoro, managing

directorwww.stanbicbank.co.zm

—Gordon Platt

Jacko

Maree, CEO,

Standard

Bank

http://www.ri.co.at

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ALBANIARaiffeisen Bank (formerlySavings Bank of Albania) Savings Bank of Albania was al-ready a Global Finance favorite be-fore Raiffeisen took charge at theprivatized bank in April 2004. Theswift modernization that accompa-nied its acquisit ion—the corebanking system was replaced in lessthan four months—has predictablyimproved its position further. Lo-cals have taken well to the acquisi-tion, and during the takeover thenumber of accounts increased. Inthe all-important retail market, the

bank launched a re-branding cam-paign and set about refurbishingevery branch, while also establish-ing the largest ATM network in thecountry, with 50 machines at theend of 2004, another 50 plannedfor 2005 and 10,000 Visa debitcards issued. Meanwhile, the for-mer Savings Bank has begun lend-ing to the SME market in Albaniafor the first time in eight years.■ Steven Grunerud, CEO

www.raiffeisenbank.co.yu

BELARUSPriorbank

Raiffeisen-owned since 2003, Pri-orbank is the third-largest bank inBelarus, with around 12% of the

Austria’s RZB/Raiffeisen International was one ofthe first European financial institutions to make aserious commitment to Central and Eastern Eu-

rope, and through continued dedication—displayed bynew acquisitions such as the Savings Bank of Albania—ithas stayed ahead of the pack. Its total assets in the regionhave grown from €1.395 billion in 1995 to more than€28 billion by the end of 2004, with acquisitions ac-counting for less than €5 billion of that. RZB has consis-tently produced strong organic growth.The bank has nowadded acquisitions to the growth mix, and in the past yearassets have increased by more than 40%. With almost23,000 employees in 16 markets in the region, RZB hasgrown its coverage, but not at the expense of profitability.For the business year 2004, the group earned a before-taxprofit of €342.2 million—a record result and an increaseof €65.5 million, or 23.7%, over 2003.That growth is be-ing driven by the phenomenal increase in demand forbanking services in the CEE market. GDP growth in theCEE has been around twice that of the eurozone in recentyears, and the rate of growth of banking assets has beeneven higher as historically the region has been under-banked, according to RZB.With the bank well positionedto benefit from increased activity in the SME market anda potential explosion in consumer debt, it will take a lot tounseat RZB as the dominant player in the region.■ Walter Rothensteiner, chairman

www.rzb.at

CENTRAL AND EASTERN EUROPE

Regional winner: RZB/Raiffeisen International

Sergey

Kostyu-

chenko,

chairman,

Priorbank

http://www.kazkommertsbank.com

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total market’s assets. Since the be-ginning of 2002 the bank has in-creased its loan portfolio more thanthreefold and consequently in-creased its market share by 4%, to10.6%. One of the bank’s greatestachievements has been to grow re-tail lending from just 0.5% of themarket to 6.8% of the market. Pri-orbank is now the most profitablebank in the Republic of Belarus,which is growing strongly but stillsuffers the ill effects of hyperinfla-tion and remains one of the mostclosed economies of the region.While Priorbank is still placed onlythird in terms of assets, capital andloans, it cannot be long before theambitious operation challenges thelargest banks in the country. Bankassets now stand at €480 million,having increased by 1.2 times dur-ing the past year.■ Sergey Kostyuchenko, chairman

www.priorbank.by

BOSNIA & HERZEGOVINARaiffeisen Bank

Competit ion is heating up inBosnia and Herzegovina. Thecountry’s Banking Agency spentmuch of last year revoking licensesof smaller banks and initiating liq-uidations in a bid to clean up themarket. Meanwhile, approval wasgiven for two large mergers: onebetween Zagrebacka Banka andUniversal Banka completed on

June 30, and the other betweenHVB and Central Profit Banka onSeptember 30. Despite the chal-lenges posed by these new groups,Raiffeisen Bank maintained itsdominant position in the market,with a 21% share of assets. Indeed,it has increased its share of assetsfrom 19.8% in 2003. But the strug-gle in the next 12 months will betougher: Instead of a fragmentedmarket, Raiffeisen now faces Uni-Credito Zagrebacka, with 15%market share in third place, andHVB Central Profit Banka, with8% of market assets. Further acqui-sitions are expected in 2005.■ Edin Muftic, CEO

www.raiffeisenbank.ba

BULGARIADSK Bank

Solely owned by Hungary’s largestfinancial institution, OTP Bank,since last year, DSK Bank now hasan organization with a market cap-italization of almost €8 billion be-hind it. Just seven years after theDSK’s creation from the hulk of astate-owned savings bank, growthcontinues apace, and innovation isthe key to increased profits. DSK’safter-tax profits went up by 60% in2004, and the bank shows no signof stopping.With the experience ofOTP behind it , the bank hasstepped up the introduction of newproducts and services. The bank

now provides financing to morethan 560,000 individuals, giving it amarket share of 43%. Indeed, thebank boasts that it reaches almostevery Bulgarian household, servic-ing more than 3.8 million clientswith over 1 million payment ac-counts and 700,000 cards. Mean-while, DSK Bank has also doubledcommercial loans and increased itscorporate clients by 50,000.■ Violina Marinova, chairman and

CEOwww.dskbank.bg

CROATIAPrivredna Banka Zagreb

The largest and oldest of Croatia’sfinancial institutions, Pr ivrednaBanka Zagreb—par t of Ital ianGruppo Banca Intesa since 1999—has benefited from the flourishinglocal economy in the past year. In2004 group net profit increased5.8% against a backdrop of strongcompetition and constant pressureon interest rates. Most importantly,performance indicators show con-tinuous improvements in profitabil-ity and productivity.The return onaverage equity at the level of thegroup was 18.6% while the consol-idated return on average assetsreached a very respectable level of1.7%. Earnings per share also in-crease by 5.7%. Total deposits in2004 rose by 8.1%, and the banknow commands a market share of

Edin Muftic,

CEO,

Raiffeisen

Bank

Bozo Prka,

chairman,

Privredna

Banka

Zagreb

Violina

Marinova,

chairman

and CEO,

DSK Bank

B A N K A S A K A

S P O N S O R E D S T A T E M E N T

Asaka Bank: Your Key forSuccess in UzbekistanTo support the development of key industries,

the Government of Uzbekistan—understanding the importance of such growth tothe national economy—created specializedfinancial institutions. Development of the motorindustry fell to the young and ambitious BankAsaka, which began its role as a Specialized StateJoint-Stock Commercial Bank at the end of1995, at which point it had authorized capital ofUS$150 million, 799 employees and 15 branches.From the start, Bank Asaka took a lead position inthe banking market of the country. By 2003,capital had grown by 10.7%, assets by 59.5%,credit portfolio by 62.8% andclient base (includinginvestors) by 34.6%. By 2004,the bank had 26 branches and45 “mini-banks,” with a totalstaff of 1,966 employees,

At an early stage, the bankparticipated in the financing ofdelivery of accessories fromKorea for the production ofcars by the joint venture UzDaewooAuto, as wellas for specialized engineering and themanufacturing of buses for SamCochAuto. Inaddition, the bank financed seven new jointventures for manufacturing spare parts from localraw materials, resulting quickly in the reduction ofraw materials dependence for two manufacturers.

By following its strategic plan, since 2001 thebank has been a dynamically developinginstitution, diversifying its activities by reducing itsconcentration in the auto industry andparticipating in investment projects totaling $200million, including 20 investment projects in thetextile industry, eight in pharmaceuticals, six ininformation technology and two in transportationand telecommunications. For these projects thecredit lines of more than 160 foreigncorrespondent banks were used, with insurancecoverage by export credit agencies.

This adds to the bank’s growing reputation forreliability and trust within the world bankingcommunity. In addition, the bank has successfullyutilized four credit lines, totaling $60 million,from such international financial institutions asthe European Bank for Reconstruction and

Development (EBRD), the Asian DevelopmentBank (ADB) and International FinancialCorporation (IFC).There are currently pendingcredit lines totaling $20 million from IslamicDevelopment Bank and the European Bank forReconstruction and Development.

From its inception, the bank has successfullyoffered trade-financing services. Short-termcredits were established with JPMorgan Chase,UBS, BCP and several German banks, in additionto an agreement with the European Bank forReconstruction and Development under theTrade Facilitation Program (TFP).

A significant event for thebanking and financial systemof Uzbekistan was theparticipation by Bank Asaka inthe syndicated loan for $36million with a maturity ofthree years for the AmantaytauGoldfields gold extractionjoint venture.The bankparticipated as the creditor

along with such major banks as West LB andStandard Bank London.The project, which wasinitiated by British company Oxus Researching,has continued in Khandiza (the Surkhan-Daryaregion), for which Asaka has been allocated asignificant portion.

With its growing list of clients, branch networkand solid international reputation, the bank canreview the past 10 years with pride and can lookahead with confidence. Global Finance magazinehas recognized Bank Asaka as “The Best Bank inUzbekistan”—a distinction that will furtherenhance the bank’s relations with the leadingbanks and financial institutions of the world. ■

Mr. Shokir J. Juraev, Chairman of the BoardContact person: Mr. Jamshid M. Rakhmonov,Head of International Division 67, Nukus Street700015 TashkentRepublic of UzbekistanTel: (+998 71) 120 – 82 48 (203)Fax: (+998 71) 120 – 8 166Email: ifiteam@asakabank.comwww.asakabank.com.

● 4th place in the world in cottonmanufacturing and processing

● 4th place in reserves of gold● 10th place in reserves of natural gas● 11th place in reserves of copper● 29th place in automobiles

manufacturing

Republic of Uzbekistan

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EMERGING MARKET BANKS: CEEANNUAL SURVEY G L O B A L F I N A N C EGF

19.4%. Privredna Banka Zagreb al-so continued its steady program ofATM expansion and introducedthe PBZ American Express’s Plat-inum card.■ Bozo Prka, chairman

www.pbz.hr

CYPRUSBank of Cyprus After two difficult years for thebanking sector in Cyprus—whichwas affected by the prolongeddownturn of the stock market anddifficulties in the wider Cyprioteconomy, along with stricter regu-lations regarding loan quality—theBank of Cyprus Group exper i-enced a solid 2004 and looks wellpositioned for 2005. The bank hasinst i tuted a new managementstructure and expects return on eq-uity to increase to more than 13%in 2005 from 6.9% in 2004. Never-theless, 2004 was a good year forthe bank: Group profit after tax for2004 reached C£38 million com-pared to a loss of C£29 million in2003. Domestic core profit in-creased 57% to reach C£79 millioncompared to C£50 mil l ion in2003. Much of this is due to pro-grams for cost containment and en-hancing revenue. Group total assetsincreased 13% during 2004, and to-tal customer deposits shot up by17%.■ Solon A.Triantafyllides,

chairmanwww.bankofcyprus.com

CZECH REPUBLICCeská Sporitelna Ernst Bank-owned since 2000, thisbank is consistently seen as theleading innovator in the Czechmarket, serving retail and small andmedium-size businesses effectively.It has one of the best networks inthe country, with 1,071 ATMs andalmost 2.8 million bankcards at the

end of 2004 and well over 5 millioncustomers. That dedication to ser-vice and innovation has paid offhandsomely for the bank, which inthe six months to June 2004achieved an unaudited net consoli-dated profit after minority interestsof Ckr4.39 billion ($188 million)under International Financial Re-porting Standards (IFRS).That rep-resents an increase of 30% whileoperating profit for the same peri-od increased by 50%. CeskáSporitelna expects its net profit togrow around 10% this year.■ John James Stack, chairman and

CEOwww.csas.cz

ESTONIAHansabank Long the darling of internationalinvestors—which essentially usedthis dominant player as a proxy forthe entire Baltic region—the disap-pearance of Hansabank from theEstonia stock exchange followingits purchase by Swedbank is a dis-appointment. But the factors thatmade it such an attractive target areclear: It is an efficient and dynamicplayer in one of the fastest-growingregions of the world. The bankbenefited from improved consumersentiment following Estonia’s ac-cession to the EU in May 2004,one result of which was an increasein lending of 35% during 2004.Due to faster-than-expected assetgrowth and improvements in effi-ciency, Hansabank’s net profit in-creased 40% over the year, to€182.8 mil l ion. Fur thermore,Hansabank’s market value rose by80% over the year, to €3.05 billion.■ Erkki Raasuke, acting CEO

www.hansagroup.com

HUNGARYOTP Bank OTP Bank’s acquisition of DSK

Bank in Bulgaria last year—and itscontinued expansion this year withthe purchase of a 95.59% stake inCroatian bank Nova for €236 mil-lion in April—is an indication ofthe confidence the bank now has.OTP is also in the process of tryingto buy 99.89% of the capital ofNiska banka in Serbia. Alreadyoverwhelmingly the dominantplayer in Hungary and the largestbank in Central Europe by marketcapitalization, the bank certainlyhas the money to spend: Its before-tax profit increased from Hf87 bil-lion in 2003 to Hf123 billion ($641billion) in 2004. Consolidated netprofit is expected to rise by 10.3%,to Hf138.82 billion ($723 million),in 2005, and the bank expects to hitHf245.89 billion by 2009.■ Sándor Csányi, chairman and

CEOwww.otpbank.hu

LATVIAParex Banka Parex Banka was the first companyfrom Latvia to access the syndicat-ed loan market and in Apr i llaunched the first eurobond fromthe country. Already observers arepredicting the bank could float lat-er in the year or in 2006, valued atup to $1 billion. Parex Banka is thelargest bank in Latvia in terms ofassets. Its largest owners are thebank’s top executives,Valery Karginand Viktor Krasovitsky. Bank assetsgrew by 33.2% in 2004, the volumeof deposits by 32.1%, and the vol-ume of loans issued by 43.7%. Thegrowth of Parex’s mortgage portfo-lio was exceptional at 104.6% whileits market share in terms of assetswas 17.8%, its share of deposits20.4% and its market share of loans15.2%.■ Valery Kargin, president and

chairmanwww.parexgroup.com

http://www.pbz.hr

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EMERGING MARKET BANKS: CEEANNUAL SURVEY G L O B A L F I N A N C EGF

4 4 M A Y 2 0 0 5

LITHUANIASEB Vilniaus Bankas

Now known as SEB VilniausBankas, to better reflect its owner-ship by Sweden’s SEB, the bank isthe biggest in Lithuania and themarket leader for deposits andlending. It is also being used to fur-ther SEB’s expansion in the region.In January 2005 it completed thepurchase of 95% of the shares ofUkrainian Bank Agio. In 2003, thelast year for which figures are avail-able, the bank’s assets increased by29.1% while its mortgage loans in-creased by 88%. Equally impressivewas an increase in consumer loansof 76%.With a market share of cor-porate deposits of nearly half themarket and a third of retail de-posits, SEB Vilniaus Bankas appearsunassailable in its home market.■ Julius Niedvaras, president and

CEOwww.vb.lt

MACEDONIAKomercijalna Banka Komercijalna Banka is celebrating50 years of existence in 2005 and isin fine shape as it does so. In the lastfigures available, from its 2003 an-nual report, the bank increasedgross profit by 21%. Retail depositsincreased by a healthy 20% whileother entities, principally corpo-rates, increased deposits by 16%.

Lending to corporates increased ahuge 66% on 2002. The bank hassuccessfully modernized the bank-ing market in Macedonia andclaims success in using the Internetfor services, not only for retail cus-tomers but for international pay-ment operations. The bank’s inter-nal FX market had a turnover of$821 million in 2003.■ Trajko Davitkovski, chairman

www.kb.com.mk

MALTAHSBC Malta Five years on from HSBC’s acquisi-tion of Mid-Med Bank, the opera-tion continues to go from strengthto strength, with 2004 being anoth-er record year. Before-tax profit in-creased by 26.3% while costs werecut without reducing customer ser-vice or investment for the future.The bank’s fund management, in-surance and stock-broking sub-sidiaries contributed substantiallyto the overall performance of thegroup. Profit attributable to share-holders increased by 31.9%. Duringthe year, the bank, in common withother HSBC operations, focused oncustomer-driven initiatives.The re-sult in Malta was the reorganizationof operations into three groups:personal financial services, com-mercial banking, and corporate andinvestment banking and markets.The change has been backed up by

continued investment in technolo-gy, premises and systems.■ Shaun Wallis, CEO

www.hsbcmalta.com

MOLDOVAVictoriabank Unrelenting in its efforts to offer amodern standard of universal ser-vice to Moldovan customers,Victo-riabank has begun offering Internetbanking services in order to im-prove the quality and accessibilityof its operations. The country’slargest bank says that improved cus-tomer relations and a more profes-sional approach to delivering ser-vices helped to increase its numberof clients by almost 20,000, to morethan 86,000 in 2003, the last yearfor which figures are available.Thathelped to boost assets by 28%. Thebank has also been an integral play-er in developing the Moldovaneconomy—working with the IFC,EBRD and other international or-ganizations to distr ibute lines ofcredit to new and growing busi-nesses.■ Victor Turcanu, president and

chairmanwww.victoriabank.md

POLANDBank Pekao In 2004 UniCredit subsidiary BankPekao increased consolidated netprofit by 46% to hit a new record,while return on equity increasedfrom 13.1% to 18.8% over the year.The bank attributes this impressiveperformance to improved efficien-cy and a determination to identifyand resolve all the negative areas ofthe bank’s revenue structure identi-fied a year earlier.The bank set outto improve its revenue mix. Feesand commission income now rep-resent 37% of total income com-pared to 34% a year ago. Similarly,Pekao achieved good results in sales

Trajko

Davitkovski,

chairman,

Komercijalna

Banka

Julius

Niedvaras,

president

and CEO,

SEB Vilniaus

Bankas

http://www.jordan-kuwait-bank.com

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EMERGING MARKET BANKS: CEEANNUAL SURVEY G L O B A L F I N A N C EGF

of its strategic products: mutualfunds and mortgage loans. In 2004the bank’s mutual funds increasedtheir market share to a record highof 34.5% from 30.4%, while newmortgages shot up by 99.5%. Thatgave the bank a market share ofnew sales of mortgages of 25.3%from just 10.9% a year earlier.■ Jan Krzysztof Bielecki, president

and CEOwww.pekao.com.pl

ROMANIARaiffeisen Bank

Raiffeisen Bank is now a leadinguniversal bank in the Romanianmarket, providing a complete rangeof products and services to privateindividuals, SMEs and large compa-nies through its 200 banking out-lets, its extensive ATM network andits phone and mobile banking ser-vices. It is also modernizing thecountry’s banking industry: In thepast year it offered new loan prod-ucts and the first drive-in ATMs inRomania for retai l customers.Meanwhile, Raiffeisen Banklaunched the largest corporatebond issue on the Romanian mar-ket since 1989 and financed thelargest infrastructure project in Eu-rope—the building of Brasov-Borsmotorway by American corpora-tion Bechtel. Raiffeisen is also aleading funding par tner of thelargest mobile communications

companies operating in the Ro-manian market, Connex and Tele-mobil.■ Steven van Groningen, president

and CEOwww.raiffeisen.ro

RUSSIAMDM Bank Joint holder of the highest creditratings for a privately owned Russ-ian banking group from all threeratings agencies, MDM Bank shookoff many of the problems experi-enced in the Russian market in thepast year to post an impressive setof figures for the first three quartersof 2004, the most recent figuresavailable. Group profit was $153million while core revenues rose10.4% on the previous year. Totalassets grew 13% while total share-holder equity increased 23%, to$839 million. One of the bank’s keygrowth areas was consumer loans,which increased 21% over the 2003year-end level. Much of its soliditycan be attributed to a tier-one ratioof 19.2%—well above the bank’sown target of 13% to 15%.■ Andrey Saveliev, CEO

www.mdmbank.com

SERBIA & MONTENEGRORaiffeisen Bank After just four years of operations,Raiffeisen Bank is now a true uni-versal bank in Serbia and Montene-gro, offering a full range of bankingproducts and services to all majorclient groups such as corporates,private individuals and SMEs. Oneyear ago, when Raiffeisen last wonthis award, the bank was congratu-lated for its extraordinary growthand for placing fourth in the coun-try. Now it is Serbia’s leading bankby all main cr iter ia: total assets,loans to customers, deposits fromcustomers, and profit. In every areaof banking, market share soared in

2004. Market share of retail lendingincreased from 7.54% at the end of2003 to 12.82% by September2004. Similarly, market share ofcorporate deposits increased from10.69% to 19.34% over the sameperiod.Total assets market share in-creased almost 5% over the sameperiod.The figures behind these in-creases in market share are incredi-ble: a 261% increase in the retailcredit portfolio and a 70.2% in-crease in corporate deposits.■ Budimir Kostic, chairman

www.raiffeisenbank.co.yu

SLOVAKIAVUB Banca This majority-owned subsidiary ofItaly’s Banca Intesa since 2001spent a year transforming itself intoa modern organization, and by theend of 2003 that investment hadpaid off. The bank entered 2004able to offer products and servicesas good as or better than the com-petition. Net profit grew more than47% in 2003 largely through costcutting. But more importantly, thebank was set up for a stellar 2004.Net operating profit under IFRSgrew an impressive 82% in 2004against a backdrop of an increase inoperating revenues of just 14%—further proof that efficiency is nowfirmly embedded at VUB.The bankincreased total consolidated assets

Budimir

Kostic,

chairman,

Raiffeisen

Bank

Steven van

Groningen,

president

and CEO,

Raiffeisen

Bank

http://www.otpbank.hu

EMERGING MARKET BANKS: CEEANNUAL SURVEY G L O B A L F I N A N C EGF

by 14% while the customer loanportfolio grew by nearly 12%. Oneof the best-performing areas at thebank was its fund managementfranchise, which grew assets undermanagement by 106%.■ Tomas Spurny, CEO

www.vub.sk

SLOVENIANova Ljubljanska Banka Although Nova Ljubljanska Banka,which is one-third-owned by Bel-gium’s KBC, suffered a drop in netprofits in 2003, the last year forwhich figures are available, the bankis still the one to beat in Slovenia. Ithas 57,500 business accounts and a

39.4% market share in the SMEsector. It dominates the retail mar-ket to a similar extent. Nova Ljubl-janska Banka also expanded itsrange of services on the Slovenianmarket in 2003 with the creation oflife assurance company NLB Vita, a

joint venture with KBC. In the firstsix months of operation, the ven-ture took a 4% market share.■ Marjan Karmar, president and

CEOwww.nlb.si

TURKEYAkbank This is another win for Akbank,which has undergone major changein the past few years. Back-officestaff has been reduced and processescentralized while branch staff havebeen retrained and operations havebecome more sales-focused. Ak-bank’s success in modernization isevident from the fact that 66% of allbanking transactions are now doneby alternative, non-branch meanssuch as Internet banking, call centersor ATMs. Similarly, the new empha-sis on sales has resulted in a 90% in-crease in fees and commissions,mainly from credit card and assetmanagement operations. In the con-sumer market, Akbank is numberone in loans, with a 15.4% marketshare, and is well positioned in therapidly growing mortgage market,with 13.2%. The bank is the mostprofitable private-sector bank inTurkey, and with total assets of $26billion at the end of 2004 it is a hardact to beat.■ Zafer Kurtul, president and

CEOwww.akbank.com.tr

UKRAINEPrivatbank Despite the political upheaval of thepast year in the Ukraine, Privatbankhas carried on doing what it knowsbest: improving banking services forits 8.4 million retail customers and365,000 corporate customers. Thebank now has more than 2,100 ATMmachines and 1,738 branches and astaff of more than 23,000 employees.It recently enhanced its ATM net-

work, is now expanding its branchnetwork and is increasing its Visa andMasterCard business. Privatbank has aleading 35.7% share of the Ukrainianfinancial services market. Accordingto figures from the National Bank ofUkraine, Privatbank can boast num-ber-one positions in total assets andloan portfolio and is also a clear leaderwhen it comes to net profit.■ Alexander Doubilet, chairman

www.pbank.com.ua—Laurence Neville

Marjan

Karmar,

president

and CEO,

Nova

Ljubljanska

Banka

Alexander

Doubilet,

chairman,

Privatbank

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EMERGING MARKET BANKS: ASIAANNUAL SURVEY G L O B A L F I N A N C EGF

ARMENIAConverse Bank Converse Bank has emerged as oneof the top banks in Armenia over atumultuous decade in which thenumber of commercial banksdropped drastically by more than70%. Since this Southwest Asiannation first created a banking sys-tem in 1993, the Central Bank ofArmenia has implemented a widerange of reforms to strengthen thecountry’s financial system. Assetsand profit grew as the number ofcommercial banks plummetedfrom more than 70 to about 20 to-

day. Converse Bank provides a fullrange of services, including com-mercial lending, trade finance andcorrespondent banking, to its busi-ness clients and caters to retail cus-tomers with consumer loans, Inter-net banking and a network ofbranches. Its managers are dedicat-ed to using the latest banking tech-nology and innovative solutions tomeet their clients’ financial needs.The bank was listed on the YerevanStock Exchange in 1995.Assets to-tal $70 million.■ Nasibyan Smbat, general director

www.conversebank.am

AZERBAIJANInternational Bank ofAzerbaijan Republic

With operations in nearly 80 countries, HSBC’sdominance in Asian banking reaches back to itsformation in Hong Kong in 1865 and contin-

ues with its recent inroads into the Chinese banking mar-ket.Last year HSBC bought a $1.7 billion stake in the Bankof Communications, China’s fifth-largest bank, and earlierthis year became the first foreign bank to provide local cur-rency services in the Chinese capital of Beijing.The bank’srenminbi services for local and international corporationsaims at strengthening the business links with domesticcompanies based in the capital city of this Asian economicgiant.Elsewhere in Asia,HSBC also acquired a 14.6% stakein an Indian private bank, UTI Bank, in 2004. HSBCGroup executives have targeted India and China, alongwith Brazil and Mexico, as markets with strong growth po-tential for the bank over the next several years.And in oth-er recent expansions, this giant financial services firm that isnow based in London integrated the Bank of Bermuda in-to HSBC Group and bought the retail financial servicesarm of the Marks & Spencer Group.The bank provides acomprehensive range of financial services to consumer andcorporate clients through a network of more than 9,800 of-fices in 77 countries around the globe. Earnings in 2004jumped to $11.8 billion,up from $8.8 billion in 2003,whileassets increased to nearly $1.3 trillion.■ Stephen Green, group chief executive of HSBC

Holdings and chairman of HSBC Bank plcwww.hsbc.com

ASIA

BEST

EM

ERGING MARKET BANKS 2005

Regional Winner: HSBC

Jahangir

Hajiyev,

chairman,

International

Bank of

Azerbaijan

Republic

5 0 M A Y 2 0 0 5

EMERGING MARKET BANKS: ASIAANNUAL SURVEY G L O B A L F I N A N C EGF

5 0 M A Y 2 0 0 5

The largest bank in this former Sovi-et Republic country, the Internation-al Bank of the Republic of Azerbaijanis majority-owned by the Ministry ofFinance. So even though it carries therisk that goes along with rapid growthand a concentrated balance sheet in avolatile economy, the bank retains thebacking of the state, which held a50.2% stake at the end of 2004.As partof banking reforms announced by thepresident earlier this year, the govern-ment will sell off shares and is expect-ed to sell a 20% stake to the EuropeanBank for Reconstruction and Devel-opment. The bank remains strong inforeign exchange; it was created in1990 as a replacement for the localbranch of Vnesheconombank, the for-mer USSR foreign trade bank. IBA isalso a leader in corporate lending as itexpands its retail operations.The bankhas about 35 branches and more than100 outlets in 30 cities around thecountry. With about $664 million inassets, IBA retains slightly more thanhalf of the total assets in the nation'sbanking system.■ Jahangir Hajiyev, chairman

www.ibar.az/en

BANGLADESHIslami Bank Bangladesh In a banking system dominated byfour large state-owned banks, IslamiBank Bangladesh stands out as one ofthe successful privately owned banksin Bangladesh.The bank was createdmore than two decades ago to operateunder the principals of Islamic law,known as Shariah, meaning it earnsprofits on investments rather thancharging interest on loans and pays aportion of gross returns to depositors.Islamic banking principals require so-cial goals to be emphasized before themaximizing of profits, so Islami Bankhas maintained better-than-averageasset quality. This successful formulaencompasses a wide investment port-folio that ranges from more than 40%

for trade to about 30% for industry to2.5% for agriculture and rural invest-ment. The bank has introduced suchprojects as the Rural DevelopmentScheme to help improve the livingstandards of people, especially women,in rural areas. Operating in one of thelargest Muslim countries in the world,this financial institution has assets ofnearly $1.4 billion, about 3,700 em-ployees and 140 branches, mostly inthe urban areas of Bangladesh.■ Abdur Raquib, executive president

www.islamibankbd.com

CHINAICBC The largest of China’s four state-owned commercial banks, the Indus-trial and Commercial Bank of Chinais a full-service bank offering a widerange of services to corporations, gov-ernments and consumers.The bank ismoving far from its roots in the mid-1980s as a source of working capital tostate-owned enterprises.This spring itreceived regulatory approval to launchgold derivatives products, for example,and analysts are waiting to see howthe bank’s much anticipated reorgani-zation plays out this year.Bank execu-tives hired China International Capi-tal, the country’s largest investmentbank, in March to lead a reorganiza-tion of the bank’s $640 billion worthof assets and turn it into a joint-stockcompany.The reorganization will pre-pare ICBC for an initial public offer-ing that could reach $10 billion andbe the nation’s biggest share sale.Thebank has a strong franchise, with20,000 branches within China’s bor-ders and about 70 branches overseas.Those offices are servicing 100 mil-lion individual customers and morethan 8 million corporate clients. Op-erating profits for 2004 were up 20%,to $9 billion.■ Jiang Jianging, chairman and

presidentwww.icbc.com.cn

GEORGIAProCredit Bank (Georgia) ProCredit Bank (Georgia) has builtits success by providing credit and fi-nancial services to entrepreneurs andto micro and small businesses in thiscountry of nearly 4.7 million people.Owned by a consortium of interna-tional financial institutions, the bankis part of a global network of nearly20 banks spread through Eastern Eu-rope, Latin America and Africa. Itwas created in 1999 as MicrofinanceBank of Georgia. Analysts say thebank’s Western management is expe-rienced and efficient and adheres tosophisticated risk management pro-cedures.Assets are about $62 million,and the bank is increasing lending tomid-size companies and expandingconsumer services with home mort-gages and improvement loans. Thebank is also attracting more retailcustomer deposits.■ Philip Sigwart, general manager

www.procreditbank.com

INDIAICICI Bank

ICICI Bank has used its expertise intechnology to emerge as a significantplayer in consumer banking, with505 branches and about 1,800 ATMsin more than 250 cities across India.The bank’s retail deposit base hasmore than doubled since its shift in

K.V. Kamath,

managing

director and

CEO, ICICI

Bank

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EMERGING MARKET BANKS: ASIAANNUAL SURVEY G L O B A L F I N A N C EGF

March 2002 from a development-banking model into a commercialbank. India’s second-largest bankcontinues to serve the nation’s lead-ing companies and small and mid-size businesses with an array of ser-vices from correspondent banking tostructured finance deals as its interna-tional banking group caters to thecross-border needs of its corporateclients.The bank is financially sound,with $33.6 billion in assets at the endof 2004. About 16% of its equity re-mains indirectly in governmenthands as a public company listed onthe New York Stock Exchange, and ithas access to foreign international in-vestors, who hold close to a 70%stake in the bank.■ K.V. Kamath, managing director

and CEOwww.icicibank.com

INDONESIABank Danamon

Bolstered by a strengthening econo-my as well as the financial muscle of itsparent, Temasek Holdings, BankDanamon posted stronger profits anda stronger capital position for the year2004. The bank’s net profit after taxwas up by 57% last year as the bankcarved out a successful niche in In-donesia’s growing market for con-sumers and small and mid-size busi-nesses.The purchase of a 75% interestin Adira Finance in April of 2004 hasgiven it a strong entry into the high-

er-margin market of micro-credits orsmall-scale loans.With $6.3 billion inassets, Bank Danamon is the country’sfifth-largest bank and accounts for 5%of the nation’s system-wide assets.While its loans to corporate clientsnow make up a smaller percentage ofits loan portfolio, the bank still offerscorporates an array of services fromloans, to treasury services, such as for-eign exchange and complex derivativetransactions, to standard trade financeactivities like letters of credit.■ Francis Andres Rozario, president

www.danamon.co.id

KAZAKHSTANKazkommertsbank The largest commercial bank in thisCentral Asian nation, Kazkommerts-bank has shaped its success by offeringa wide range of services to mid-sizeand large corporations. It provides do-mestic and international clients withexpertise in everything from trade andstructured finance products to corpo-rate lending to asset management ser-vices.While its share of the corporateloan market remains significant atnearly 30%, the bank is generatingmore business by targeting regionalsmall and mid-size enterprises as wellas retail clients. The bank now hasabout 20% of the retail deposit marketand a network of about two-dozenfull-service banks. The bank has in-creased profitability recently by ex-panding into other markets through-out the Commonwealth ofIndependent States as it improves itsIT and risk management techniques.■ Nina A. Zhussupova, chairman of

the management boardwww.en.kkb.kz

KYRGYZSTANAsiaUniversalBank This Central Asian financial institutionhas leveraged an expertise in technol-ogy and an extensive network of cor-respondent banks to become one of

the region’s leading providers of inter-national banking services. The bank’smanagement sees itself as bridging agap between East and West as it pro-vides a wide range of banking servicesto corporations throughout the Com-monwealth of Independent States.Created in 1997, AsiaUniversalBankfocuses on interbank clearing, curren-cy exchange, export-import deals andother international transactions forclients throughout the region. It pro-vides trade finance services to many ofthe country’s leading corporations.This year, the bank is continuing itsexpansion into international activities,including setting up a correspondentbanking account with American Ex-press Bank in New York. AsiaUniver-salBank already has correspondent re-lations with banks throughout theCIS, the Baltics and Europe.Assets to-tal about $100 million.■ Nurdin Akenovich Abdrazakov,

CEOwww.aub.kg/en

MACAUSeng Heng Bank Seng Heng Bank is Macau’s third-largest bank by assets and a strong play-er in the corporate market, with com-mercial banking services accountingfor more than 80% of its loan book.While the quality of the bank’s $2.5billion in assets is sound, the bank’sloan book is highly concentrated, andthe 10 largest borrowers account forabout 70% of its total loans. However,it has the support of its parent, the So-ciedade de Turismo e Diversoes deMacau.Since its acquisition by STDMin 1989, the bank has implementedtechnology so it can offer services suchas phone banking while corporatecustomers can obtain sophisticated ad-vice on project finance deals or merg-ers and acquisitions.■ Hung Sun Stanley Ho, chairman

and managing directorwww.senghengbank.com

Francis A.

Rozario,

president,

Bank

Danamon

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EMERGING MARKET BANKS: ASIAANNUAL SURVEY G L O B A L F I N A N C EGF

MALAYSIAMaybank

As Malaysia’s largest bank, with nearlya quarter of the country’s banking as-sets, Maybank is dominant in bothconventional and Islamic banking.With almost half of the market sharefor Islamic trade financing, for exam-ple, this international bank also retainsnearly a quarter of the country’s over-all business in trade finance activities.Analysts laud its management team forcontinually striving for improvement.Maybank serves the consumer marketwith strong online banking servicesand retail services like auto financingand home loans. But its sheer size,with more than $42 billion in assets,makes it a logical player in the corpo-rate market as it maintains a strongpresence in commercial lending—abusiness that should increase as thecountry’s corporations have restruc-tured their balance sheets and theeconomy keeps improving.The bankhas about 460 offices in 12 countriesand 1,100 ATM machines.■ Datuk Amirshamz Aziz, president

and CEOwww.maybank2u.com.my

MONGOLIAThe Agricultural Bank of Mongolia From its base in the capital city ofUlaanbaatar,The Agricultural Bank ofMongolia is a leading provider of fi-nancial services in this giant Asian na-tion, with a network of nearly 400

branches. The roots of the companygo back eight decades to when it be-gan operations as the State Bank ofMongolia. Now more commonlyknown as The Khan Bank, the institu-tion was privatized in 2003 after beingrun for nearly three years under a spe-cial corporate governance structurethat involved the Mongolian and USgovernments and the World Bank.To-day, the bank has a team of well-trained managers.Assets stand at $120million, and the bank serves morethan 30% of the 2.5 million peopleliving in this landlocked nation thatborders Russia and China.■ J. Peter Morrow, CEO

www.khanbank.mn

PAKISTANNational Bank of Pakistan Majority-owned by the government,the National Bank of Pakistan is thelargest commercial bank in the coun-try in terms of assets and acts as a busi-ness partner with the government tofoster Pakistan’s growth. NationalBank of Pakistan was created in 1949to provide loans to the agriculturalsector, particularly the troubled jutetrade.Today it offers a wide range ofcorporate and retail banking productsthrough a network of nearly 1,200domestic and 16 overseas branches.Most of its lending was historically tothe public sector, but private-sectorloans now make up about 70% of itstotal loans. The bank remains one ofthe most important financial players inthis nation of more than 150 millionpeople and holds a market share ofabout 21% of total deposits.Assets to-tal more than $8.2 billion.■ Syed Ali Raza, president

www.nbp.com.pk

PHILIPPINESBank of the Philippine Islands The Bank of the Philippine Islandshas been a leader in the financial sec-tor since its creation in 1851 as the

first bank in both the Philippines andSoutheast Asia.The merger with theFar East Bank and Trust Company in2000 cemented that leadership posi-tion, and today the bank is the coun-try’s second-largest, with about $7.5billion in assets—about 13% of thesystem’s total assets.The financial in-stitution’s solid financial strength andits conservative management stylehave helped turn it into the country’slargest consumer bank and amongthe top corporate lenders. By invest-ing in technology, the bank has beenable to meet consumer demand forthe latest technologically dr ivenproducts, such as its online bankingservice, BPI Direct.■ Jaime Augusto Zobel de Ayala II,

chairmanwww.bpi.com.ph

SOUTH KOREAShinhan Bank Founded in 1982 by Korean expatri-ates living in Japan, Shinhan Bank to-day is one of Korea’s largest, with a10% share of the market. Its savvymanagers and solid financials helped itweather the banking crisis of the late1990s and the credit card crisis of2003. Shinhan Bank is the largest sub-sidiary of the Shinhan FinancialGroup,which in late 2003 acquired an80.4% controlling stake in ChohungBank.Analysts are waiting to see howthe holding company will integratethe operations of the two banks.Themerger should be completed in Sep-tember of next year, creating a new fi-nancial entity that would be the sec-ond-largest bank in Korea, with morethan 15 million customers. Analystslike the focused approach of Shinhan’smanagers and the prudent risk man-agement techniques they wield toproduce an upmarket brand imageand strong capital ratios. Assets aremore than $58 billion.■ Sang Hoon Shin, CEO

www.shinhan.com

Datuk

Amirshamz

Aziz,

president

and CEO,

Maybank

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EMERGING MARKET BANKS: ASIAANNUAL SURVEY G L O B A L F I N A N C EGF

SRI LANKACommercial Bank of Ceylon

Commercial Bank of Ceylon is this is-land nation’s fourth-largest bank interms of assets and holds a 10% shareof the banking business.The legacy ofits lengthy relationship with StandardChartered Bank, which dissolved inthe late 1990s because of local regula-tory changes, is a strong risk manage-ment system. In addition to its tradi-tional strength in corporate bankingand trade finance, the bank has devel-oped a strong franchise for small andmid-size businesses as well as con-sumers. It is among the most techno-logically advanced banks in Sri Lankaand has used this strength to create anetwork of about 115 branches andmore than 160 ATMs. Assets stand atabout $1.1 billion. In March the bankset up a fully owned subsidiary, X-Pertise, to offer modern training anddevelopment techniques to localcompanies.■ Amitha Gooneratne, managing

directorwww.combank.lk

TAIWANChinatrust Commercial Bank Chinatrust is the largest private sectorbank in Taiwan in both assets and eq-uity size.With the successful acquisi-tion of Grand Commercial Bank inlate 2003 and Fengshan Credit Coop-erative in July 2004, this family-con-trolled bank has increased its distribu-

tion network to 111 branches andgrown market share. The bank nowhas about 6% of the Taiwanese bank-ing sector’s deposit and loan market,up from about 4% several years ago. Itsinvestment in technology and a strongrisk management system have helpedthe bank carve out a leading positionin the credit card business—it hasnearly 20% of the market measured bycard spending—and smoothly inte-grate its customer relations manage-ment system into its retail bankingoperation. To survive in Taiwan’s in-tensely competitive banking market,Chinatrust opted for a corporatebanking strategy that generates in-come by cross-selling corporate ser-vices, ranging from treasury-relatedproducts such as foreign exchange andderivatives to corporate finance andtraditional commercial lending.■ Jeffrey J.L. Koo Jr., CEO

www.chinatrust.com

THAILANDKasikornbank Created 60 years ago by the Lamsamfamily, Kasikornbank has evolved intoThailand’s third-largest commercialbank, with 13% of the country’s de-posits and loans and $20 billion in as-sets.The bank is enjoying the recoveryof the Thai banking sector, which hasseen nonperforming loans drop toabout 10%—down sharply from 50%in 1999, two years after the Asian fi-nancial crisis. Known as Thai Farmers

Bank until the spr ing of 2003,Kasikornbank has restored profitabilityby reducing costs, reorganizing a net-work of nearly 500 domestic branchesand five overseas offices and strength-ening its risk management techniques.The bank continues to grow by diver-sifying its revenue base. Last month,the bank announced plans to intro-duce leasing and securities servicesthrough Kasikorn Securities andKasikorn Leasing.The creation of thetwo units is part of the bank’s plan tointroduce universal banking servicesthis year with five units under theKasikornbank Group banner.■ Banthoon Lamsam, chairman and

CEOwww.kasikornbank.com

UZBEKISTANAsaka Bank Asaka Bank is the second-largest bankin Uzbekistan and one of the largestbanks in the CIS.The bank was creat-ed in 1995 primarily to provide bank-ing services to the automobile indus-try. Over the past 10 years, it hasdiversified its activities and now oper-ates as a full-service commercial bank.While its main focus has been on cor-porate clients,Asaka Bank has expand-ed into the retail sector to diversify itsrevenue stream and funding base.Andlike many other banks in this formerSoviet Republic, the bank’s mainstrengths remain its experienced se-nior managers, who have good con-nections with important governmentministries and some of the largestcompanies in the nation.The down-side is the continued dominance bythe state,which owns a majority share.About 500 employees work at thebank’s headquarters in the capital cityof Tashkent while another 1,500 arespread through about two-dozenbranches around the country.■ Shokir J. Juraev, chairman

www.asakabank.com—Paula Green

Amitha

Gooneratne,

managing

director,

Commercial

Bank of

Ceylon

Jeffrey J.L.

Koo Jr., CEO,

Chinatrust

Commercial

Bank

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EMERGING MARKET BANKS: LATAMANNUAL SURVEY G L O B A L F I N A N C EGF

ArgentinaBanco Macro Bansud Banco Macro Bansud is one of Ar-gentina’s few remaining 100% locallyowned financial institutions. It is alsoone of the country’s few remainingprofitable banks, ending 2004 withtotal earnings of $66.5 million and a16.2% return on equity after distrib-uting some $21 million in dividendslast July.While loans to private sectorborrowers grew by 23% in Argentinalast year, the bank boosted lending by103% in 2004 (versus a 42% expan-sion in 2003), consolidating its marketleadership.Continuing with its acqui-sitions drive launched in 1996, whenit began buying privatized provincial

banks, Banco Macro Bansud acquiredNuevo Banco Suquia in 2004 in adeal that added 256 branches andgave it the largest branch network ofany domestic private bank. Formedthrough the merger of Banco Macroand Bansud, it was first a wholesalebank before it reinvented itself as a re-tail banking operation after the“tequila crisis,” focusing on Argentineprovinces with underbanked popula-tions that presented the greatestgrowth potential.■ Jorge Horacio Brito, president

www.bansud.com.ar

BarbadosFirst Caribbean International

FirstCaribbean, created in 2002 tocombine the Caribbean operationsof Barclays Bank and CIBC, is theEnglish-speaking Caribbean’s largestbank, doing business on 26 islandsand territories. Its pan-regional pres-ence allows the bank to offer a one-stop approach for investors. It offersinternational mortgage loans, for ex-ample, for purchasers of residentialreal estate in Barbados, the Bahamas,Belize, the British Virgin Islands, theCayman Islands, St. Kitts, St. Luciaand the Turks & Caicos. Loans areavailable in US and Canadian dol-lars, sterling or euros. This year, itrolled out Internet and phone bank-ing throughout the region and ex-

The world’s largest financial institution, Citigrouphas been a major player in Latin America’s financialsector for nearly a century. The financial giant

opened its first Latin American office in Buenos Aires in1914—the first foreign branch of any nationally charteredUS bank—and has maintained its commitment to the re-gion through both the boom years and the crises,with op-erations in 24 countries. It affirmed this commitmentwhen it acquired Mexico’s Banamex for $12.5 billion in2001 in a landmark deal that remains the largest-ever US-Mexican corporate merger. Citigroup contributes to ex-panding the region’s capital markets, such as when Citi-group Chile structured and placed the country’s largestlocal bond issue to date last year—a $428 million deal tofinance construction of an expressway in Santiago. Conse-quently, it has become one of the most respected US brandnames throughout Latin America and the Caribbean. Itsnet income in the region rose from $114 million in third-quarter 2003 to $391 million during the same period in2004. In March 2004 Citigroup named Banamex CEOManuel Medina Mora as the group’s new chairman andCEO for Latin America and Mexico, quickly appointing anew senior team that will further boost its profile.■ Charles Prince, CEO

www.citigroup.com

LATIN AMERICA

BEST

EM

ERGING MARKET BANKS 2005

Regional Winner: Citigroup

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ANNUAL SURVEY G L O B A L F I N A N C EGF EMERGING MARKET BANKS: LATAM

panded into Tr inidad & Tobagothrough the acquisition of Mercan-tile Bank. CIBC, which entered theCaribbean market in 1920, and Bar-clays, which arrived in 1837, eachhold a 43.6% stake in First-Caribbean. The remainder is tradedon the Trinidad & Tobago, Barbadosand Jamaica stock exchanges, with amarket cap of $2.4 billion.Assets aremore than $8 billion.■ Charles Pink, CEO

www.firstcaribbeanbank.com

BoliviaBanco Bisa A banking-sector innovator, BancoBisa was the first to introduce ATMsand telephone banking in Bolivia andhas recently added the country’s firstinterest-bearing checking accounts toits lengthy product portfolio. It nowoffers clients checking accounts in bo-livianos as well as in euros and dollars.Founded in 1963 as a second-tierbank and offering commercial bank-ing services since 1988, it is the flag-ship company of Bolivia’s first andlargest financial-sector conglomerate.Since then, it has remained in expan-sion mode, growing its nationwidebranch network from merely threebranches a decade ago to a current 18branches. Throughout the period, ithas also included supporting Bolivia’seconomic development as one of itsstated missions, while gaining wide-spread brand recognition within thecountry’s business sector. Bisa Finan-cial Group, the bank’s holding compa-ny, reported assets of $813 million atSeptember 30, 2004, when BancoBisa reported assets of $600 million.■ Julio León Prado, president

www.grupobisa.com

BrazilBanco ItaúBanco Itaú remains one of Brazil’smost profitable banking institutions,with net income rising from $1.2 bil-

lion in 2003 to $1.5 billion in 2004.Total assets rose from $46.3 billion to$50.9 billion during the period.Withcredit cards now among Brazil’sfastest-growing retail financial prod-ucts (number of cards in circulationgrew by an annual average of nearly16% in 1991-2004, when transac-tions were up 22.3% annually), Itaúhas been making a strong entry intothe profitable market segment. In2004 it upped its stake in CredicardBanco—Brazil’s largest credit card is-suer (7.6 million cards issued throughSeptember 2004)—to 50%.Togetherwith its Itaúcard credit card division,the bank now holds more than a 20%share of the country’s credit cardmarket. It also upped its stake in Or-bitall, the country’s largest credit cardprocessor, from 33.3% to 100% lastyear. Its positive earnings outlook ledMoody’s to upgrade the bank’s finan-cial strength rating this year to Cfrom a previous C-.■ Roberto Egydio Setubal, president

and CEOwww.itau.com.br

ChileBanco de Chile

Ranked as Chile’s second-largestbank, Banco de Chile has a nearly18% share of the nation’s loan marketat end-2004.Total assets last year were$17.2 billion, with $12.3 billion inloans and more than $10 billion in de-posits. Mainly engaged in commercial

banking, the bank offers its clients as-set management, securities brokerage,financial consulting, insurance, factor-ing, securitization and credit collec-tion services. Return on capital was27.6% in 2004, compared to an aver-age of 20.6% for its main peer group.The bank’s stellar performance wasdue to an improved asset mix, focuson pricing, integration of its sub-sidiaries’ businesses with the bank’score business, a conservative risk poli-cy and an emphasis on adding valuethrough technology-supported prod-ucts. It is currently involved in theNEOS project to upgrade its technol-ogy platforms. Its shares are listed inSantiago,New York,Madrid and Lon-don, with local stocks gaining 28%year-on-year and ADRs advancing37% in 2004.■ Segismundo Schulin-Zeuthen,

presidentwww.bancochile.cl

ColombiaBanco de BogotáFounded in 1870 as Colombia’s firstfinancial institution—with authoriza-tion to issue currency at that time—Banco de Bogotá is a market pioneerthat has gained a standing as one ofthe country’s greatest “top of mind”brands. Its D+ financial strength ratingfrom Moody’s is the highest of anyColombian bank and is based on itsstrong franchise, conservative manage-ment and diversified funding base,among other factors. Its non-per-forming loan ratio is also among thelowest in Colombia, at just 1.2%. Re-turn on equity rose from 24.6% in2003 to 27.1% in 2004, which waswell above the 25.8% average for thesystem as a whole last year.Assets wereup 30.7% year-on-year, nearly doublethe system’s average of 16.4%. Bancode Bogotá is currently involved in amass campaign to boost the country’sdomestic savings levels, raising its de-posits by 61.4% last year alone and

Segismundo

Schulin-

Zeuthen,

president,

Banco de

Chile

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ANNUAL SURVEY G L O B A L F I N A N C EGF EMERGING MARKET BANKS: LATAM

giving it a market share of more than11% for savings accounts (nearly 19%for checking accounts).■ Alejandro Figueroa Jaramillo,

presidentwww.bancodebogota.com.co

Costa RicaBanco Interfin Despite some difficulties in 2004, In-terfin remained the strongest player inCosta Rica’s financial sector, with to-tal assets rising from $546.6 million in2003 to $709.9 million in 2004. Itscredit portfolio also grew, reaching$529.2 million last year, comparedwith the previous year’s $403.9 mil-lion. Much of the bank’s success is at-tributable to its focus on servicing thecountry’s medium-size to large com-panies. To better serve its clients, In-terfin rolled out new IT systems at theend of 2004, having already investedmore than $10 million on technologyover the past two years alone. Interfinis part of the larger Corporación In-terfin conglomerate, which owns100% of the bank as well asTransamerica Bank and Trust in theBahamas, a securities brokerage, pen-sion fund manager, private develop-ment bank and leasing units in Pana-ma, Honduras, Guatemala, Nicaraguaand El Salvador. Interfin operates anetwork of 22 branches throughoutCosta Rica.■ Luis Liberman, general manager

www.interfin.fi.cr

EcuadorBanco del Pichincha Banco del Pichincha topped itself in2004, when net profits rose by nearly41% to $26.6 million from the previ-ous year’s $18.9 million, once againgiving it the lion’s share of theEcuadorian banking sector’s totalprofits. Assets rose 15.31% year-on-year, to $2.1 billion in 2004 from2003’s $1.7 billion. In addition to itssuccessful retail banking operations,

the bank is a local leader in debtplacement and underwriting for do-mestic issuers and is a major player insuch areas as cash management andprivate banking. Its extensive branchnetwork gives Banco del Pichincha apresence in 20 of Ecuador’s 21provinces.The bank, founded in 1906,also operates an agency in Miami andan offshore bank in Nassau. Despitethe country’s ongoing political tur-moil, Banco del Pichincha’s manage-ment has implemented sound strate-gies to allow it to continueweathering the storms and producingbenefits for both its clients and share-holders alike.■ Fidel Egas Grijalva, president

www.pichincha.com

El SalvadorBanco AgricolaSince its establishment in 1955,BancoAgricola’s slogan has been “A Progres-sive Bank Servicing A Progressive Na-tion.”As a banking sector innovator, itwas an important driver in establish-ing the market for personal loans in ElSalvador, which remains one of Cen-tral America’s strongest economiesand one of just a handful of Latincountries with a coveted investment-grade rating. But Banco Agricola hasbeen looking beyond the country’sborders to attract investments by thegrowing community of Salvadorans inthe US, to whom the bank also mar-kets its money remittance servicesthrough bank agencies at three Cali-fornia locations: Los Angeles, Hunt-ington Park and San Francisco.Bursabac is the bank’s securities bro-kerage unit. In 2002 the bank also es-tablished a subsidiary in Panama. Ban-co Agricola’s assets rose from $2.9billion in 2003 to $3.2 billion in 2004,with net profits also rising from $30.5million to $34.7 million during theperiod.■ Rodolfo Schildknecht, president

www.bancoagricola.com

GuatemalaBanco Agromercantil

Banco Agromercantil has embarkedon the third phase of a three-prongedprogram to boost efficiency and im-prove its customer service. The latestphase involves investing in upgradingits IT capabilities, after a first phasethat increased the bank’s capitalizationand a second phase that sought to im-prove efficiency.So far, the strategy haspaid off nicely, with Banco Agromer-cantil continuing to wrest marketshare away from some of its larger ri-vals. Net assets at September 30, 2004,were $543.4 million.The bank oper-ates a network of 77 branches and 600ATMs nationwide, as well as three of-fices in California and Illinois. It is al-so an important participant in themoney remittance market, operatingin the US through an alliance with ElSalvador-based Banco de Comercio.Banco Agromercantil is the result of amerger in 2000 between Banco delAgro and Banco Agricola Mercantil,both of which had initially been es-tablished to service Guatemala’s agri-cultural sector.■ Rafael Viejo, CEO

www.bam.com.gt

HondurasBanco Atlántida Founded in 1913, Banco Atlántida isHonduras’s oldest as well as largest fi-nancial institution. It is part of the

Rafael Viejo,

CEO, Banco

Agromercantil

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ANNUAL SURVEY G L O B A L F I N A N C EGF EMERGING MARKET BANKS: LATAM

larger Grupo Atlántida diversified fi-nancial services organization that in-cludes banking, insurance, real estate,warehousing, leasing, reinsurance andlogistics divisions. Fitch upgraded theoutlook to positive from stable lastyear for Seguros Atlántida, the group’sinsurance subsidiary and a majorhealth, life and casualty insuranceprovider in Honduras.Yet the bank isthe group’s key asset, operating a net-work of 225 branches and ATMsthroughout the country. Mobile unitsalso take banking services directly tojob sites and shopping malls, helpingthe bank to gain even greater marketshare and customer allegiance. Muchof the bank’s success continues to bedriven by its ability to grow its base ofdepositors by offering low fees andlow minimum deposits to establish ac-counts. The bank also maintains astrategic alliance with MoneyGramfor money remittances.■ Guillermo Bueso, president

www.bancatlan.hn

MexicoBanamex When Banamex was established in1884, it operated as both a commer-cial bank and a national bank, withauthorization to issue currency andcollect taxes while also supportingprivate-sector development. Morethan a century later, Banamex hasconsolidated its identity as one ofMexico’s premier financial services

providers to both individual andcorporate clients. With more than1,400 branches and nearly 4,500ATMs, one is never far from a Ba-namex location virtually anywherein Mexico.Acquired by Citigroup in2001, Banamex can also tap theknow-how and capital of the world’slargest financial group. A market in-novator, Banamex was the first LatinAmerican bank to open a New Yorkoffice in 1926 and the first Mexicanbank to introduce ATMs as far backas 1972 and last year unveiled thefirst and only bi-national credit cardfor shared use by clients on bothsides of the US-Mexican border.Citigroup’s net income in Mexicorose to $1.7 billion last year from$1.2 billion in 2003.■ Manuel Medina Mora, CEO

www.banamex.com

PanamaBanistmo Banistmo continues to grow by leapsand bounds. Having unleashed an ex-pansion strategy through acquisitionsin 1986, the bank developed a region-al network of subsidiaries in CostaRica, Honduras, El Salvador, and theBahamas. Last year it not only enteredthe Nicaraguan market but alsojumped into South America with theacquisition of Lloyds TSB Bank inColombia. Founded in 1984 by agroup of Panamanian investors with astaff of only 20, Banistmo has grown

to a staff of more than 3,000. Its $5.6billion in assets at September 30,2004, make it the largest bank inPanama as well as in all of CentralAmerica. Banistmo shares are tradedin Panama and Costa Rica. Last year,profits were up 30% to over $100 mil-lion. Moody’s upgraded Banistmo’slong-term foreign currency depositsrating to Ba1 and its financial strengthrating to D+, partly due to the bank’sexpansion into new markets. Rumorssay Mexico and Venezuela may beBanistmo’s next targets.■ Samuel Lewis Galindo, president

www.banistmo.com

PeruBBVA Banco Continental

Part of Spain’s BBVA financial group,BBVA Banco Continental continuedto grow its business in Peru last year,reaching a nearly 26% share of thecountry’s deposits. Assets were up4.1% to $4.3 billion in 2004,while netprofits were up 28% year-on-year to$71.6 million. Return on equity alsojumped from 17.66% in 2003 to21.93% in 2004, for a hefty 427-basis-point gain. The bank’s 2.15% non-performing loan ratio is the Peruvianmarket’s lowest and has continued toimprove from the 3.7% level reportedin mid-2003. While the bank, estab-lished in 1951, saw fit to increase itsbranches by merely one office lastyear, for a nationwide total of 201branches, it nevertheless increased its

Guillermo

Bueso, CEO,

Banco

Atlántida

Manuel

Medina

Mora,

CEO,

Banamex

Jose

Antonio

Colomer,

CEO, BBVA

Banco

Continental

5 8 M A Y 2 0 0 5

ANNUAL SURVEY G L O B A L F I N A N C EGF EMERGING MARKET BANKS: LATAM

ATM network by 15.5% for a total of298 cash machines in operation atend-2004. Internet banking transac-tions were up 25% year-on-year forindividual clients and an even greater44% for corporates.■ Jose Antonio Colomer, CEO

bbvabancocontinental.com

Puerto RicoBanco Popular de Puerto Rico It would be nearly impossible to dis-cuss the growth of Puerto Rico’s busi-ness sector without mentioning Ban-co Popular. Established in 1893 toserve the island’s working class, BancoPopular has grown into Puerto Rico’slargest bank and the largest Hispanic-owned bank in the United States.Banco Popular N.A., the bank’s main-land US operation, operates branchesin New York, Illinois, California, NewJersey, Florida and Texas and madetwo new acquisitions in 2004: Quak-er City Bancorp in California andKislak National Bank in Florida. Pop-ular Inc., Banco Popular’s financialholding, reported a 37% year-on-yearhike in net income during first quar-ter 2005 to $162.9 million, for a re-turn on assets of 1.43% (versus 1.29%in first-quarter 2004) and a return oncommon equity of 21.62% (versus17.95% in first-quarter 2004). InMarch 2005 Banco Popular becamethe first bank to offer mobile bankingin Puerto Rico, allowing clients to ac-cess accounts on their mobile phones.■ Richard Carrion, chairman,

president and CEOwww.bancopopular.com

Trinidad & TobagoRepublic Bank Republic Bank’s appetite for acquisi-tions remains strong. In 2004 the bankacquired Reliance Stockbrokers inTrinidad & Tobago, increased itsshareholdings in Barbados NationalBank to 65.1% and upped its stake inEast Caribbean Financial Holding

(parent company for the Bank of St.Lucia) to 20%.The bank, founded in1837, now maintains subsidiaries inTrinidad & Tobago, Guyana, Grenada,Barbados, the Cayman Islands and theDominican Republic—giving it apan-regional franchise that continuesto expand each year. Despite the dev-astation brought to some of its mar-kets by four hurricanes that sweptthrough the Caribbean last year, thefinancial group still managed to post aprofit attributable to shareholders of$663.7 million in 2004—a 13.7%year-on-year increase. Share pricessoared last year as well, raising share-holder value to a record $958.3 mil-lion. A new technology platform in-troduced a year ago should continueto boost efficiency and profitability.■ Ronald Harford, chairman and

managing directorwww.republictt.com

UruguayABN AMRO Uruguay

The Uruguayan unit of ABN AMRO,one of Europe’s most prominent fi-nancial institutions, is also the SouthAmerican nation’s most profitablebank and a force to be reckoned withby rivals. Although the 2002 Argen-tine financial crisis had a spillover ef-fect into neighboring Uruguay, whereit sparked the loss of 40% of ABNAMRO Uruguay’s bank deposits andpushed assets down by more than32%, the bank nevertheless managed

to turn a profit. ABN AMROUruguay, in existence since 1952, op-erates 23 branches in Uruguay and isthe largest foreign bank in the coun-try. Last year it remained an importantsupporter of the nation’s export sec-tor, with the Inter-American Devel-opment Bank approving a partialcredit guarantee of up to $22.5 mil-lion for a trade finance facility to ex-tend credit to exporters.ABN AMROUruguay offers a full line of productsfor individual and corporate clients. ItsReal Seguros insurance division hasbeen offering insurance products inUruguay for a century and opened a24-hour customer service desk lastyear.■ Francisco Di Roberto Jr., CEO

www.abnamro.com.uy

VenezuelaBanco Mercantil Banco Mercantil marks its 80th an-niversary this year, and it has much tocelebrate. In a country immersed inpolitical turmoil, the bank still report-ed a 41.5% year-on-year rise in totalassets last year.Banco Mercantil’s assetsrepresent 13.9% of the system’s total.The bank also holds a 16.9% share ofthe 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 networkof 297 branches and 821 ATMs located throughout Venezuela. Firstestablished to focus on agriculturalloans and to service trade with Eu-rope, the bank still operates an officein Zurich. It also maintains rep officesin the UK,Netherlands Antilles,Mex-ico, Colombia, Peru and Brazil andagencies in Miami, New York andHouston. It owns BMC Bank & Trustin the Cayman Islands, Banco delCentro in Panama and Commerce-bank in the US.■ Gustavo A. Marturet, president

www.bancomercantil.com—Santiago Fittipaldi

Francisco Di

Roberto Jr.,

CEO, ABN

AMRO

mailto:valoisio@grupobisa.com

G LO BAL FINANCE: H ow will cor-porate tre a s u ries interact with banks inthe future? How will this be affectedby changes in standards? And how fa rin the future is true straight-thro u g hp rocessing for corporates? FOLIA GRACE, d i r e c t o r, O ra cle appli-c a t i o n s, O ra cl e : Our customers are ve rycommitted to straight-through pro-c e s s i n g , so we ’re working on the stan-d a rds to enable that. We are inve s t i n gin SWIFTNet for corp o r a t e - t o - b a n k

c o m mu n i c a t i o n . We are incorp o r a t i n gthe corporate-to-bank XML pay m e n tke rnel designed by SWIFT, OAG i ,TWIST and IFIX in the next re l e a s eand have support for the pri o r - d ay andi n t r a d ay bank statement.J.L. “JOHN” ALARCO N , g e n e ra lm a n a g e r, N o r th A m e r ican opera t i o n s,X RT: When companies work withmultiple banks—and a network ofs t r a t e gic part n e rs — t h ey need a com-mon technology to support mu l t i p l e

data formats and communication p ro t o c o l s , while giving them flexibili-ty and reducing costs. The key forcompanies is to remain agile and toh ave full visibility into their financialt r a n s a c t i o n s .J O EY BRODE, senior vice president,d i r e c t o r - client integration solutions, g l o b a lt r e a s u ry serv i c e s, Bank of A m e ri c a : E ve nve ry small clients, although they ’re notlooking for straight-through pro c e s s-ing as such, a re looking for data fro mus in a form they can use. In terms ofs t a n d a rd s , the challenge for us as banksis that we have new standard s , but weneed to have the flexibility to help ourclients normalize data from mu l t i p l ea reas so they can use it whether they ’rebig or little.DANIEL J. ROS E N ST E I N , head ofUS corp o rate sales, cash management,D e u t s che Bank Global Transaction Bank-i n g : Benefits of straight-through pro-cessing can include real-time access toi n f o r mation that leads into bettermanagement of working capital andi m p roved deployment of re s o u rc e s .One way to start the move to STP isto establish a globally centralized tre a-s u ry, an initiative that has moved a lots l ower than some thought it wo u l d .ALFRED CA R P E T TO, senior vicep r e s i d e n t , w e s t e rn hemisphere sales exe c u-t i ve, t r e a s u ry serv i c e s, JPMorgan Chase:

Ka m ba c k: A big aspect of the futu re

se rv i ce is how well we can deve l o p

the people side of the business

Coffing: People are going to see a

big drive to all-electronic payment

TREASURY & CASH MANAGEMENT MODERATOR: JOSEPH GIARRAPUTO

RO U N DTA B L E

Changing Sta n d a rd s,Changing MarketsWe brought together some of the industry’sleading players to discuss recent developments in the cash management industry.

2 0 0 5 M A Y 6 1

T R E AS U RY & CASH MANAG E M E N TRO U N DTA B L E G L O BA L F I N A N C EGF

Financial institutions do STP ve rywe l l , and the efficiencies that comealong with that are endless. For corp o-r a t e s , the pr i m a ry difference is thatmost manu fa c t u re a product and haveto sell it. At JPMorgan Chase, we aret r a n s f e rring what we already prov i d eto the FI space into the corp o r a t espace to allow them the same benefitsthat these efficiencies prov i d e.SCOTT CO F F I N G, managing director,A m e ri c a s, S u n G a rd Tr e a s u ry Systems: I nt e rms of banks interacting with banks,we do things like balance transactionre p o rting and pay m e n t s . F rom a cor-porate pers p e c t ive it’s “ Tell me what’sin my bank account, give me a cashposition that I can act upon, m aybe I’lldo some short - t e rm investing and Im a ke a pay m e n t , get some flow st h rough to the bank, the bank give sme a confirmation back in real timewith that re f e rence nu m b e r.” I t ’s paidp retty large dividends for a lot of ourjoint large customers .MARIA MANDLER, managing direc-t o r, global cash management, global tra n s a c-tion serv i c e s, C i t i g r o u p : C o rporates wa n tto link from their workstations andERP systems directly into our back of-f i c e. C o nvergence in terms of form a t sand protocol is happening, at last, s on ow smaller corporates can start to seethe benefits—this should be a gre a to p p o rt u n i t y.ERIC KAMBACK, e xe c u t i ve vice pres-i d e n t ,The Bank of New Yo r k : We all talkabout moving towa rd the Internet andcommon standard s , bu t , in fa c t , it willn ever be perfect because of the va riations and dive rsity of the needsfor each corp o r a t i o n . So a big aspect of the future service is how well wecan develop the people side of the bu s i n e s s .JEAN FRA N COIS HAMANT, v i c ep r e s i d e n t , c o rp o rate cash management, S G :That is a true cost for us, which is real ly substantial , and banks have to take that into account in their pri c-ing progr a m .G F: What impact are Sarbanes-Oxley

and other corporate gove rnance issuesh aving on tre a s u ry functions? CA R P E T TO : Companies are takingoperational risk more seriously and area c t ively engaging their banks in look-ing for ways to help them managetheir operational ri s k .M A N D L E R : I t ’s fostered a real appre-ciation for transparency ove rn i g h t .B R O D E : S a r b a n e s - O x l ey is indicativeof a whole trend towa rd a mu c hgreater interest in ri s k .We used to talkabout managing cash flow ; n ow it’sabout managing ri s k . That gives us ab e n e f i t ; it is really what we as banksk n ow how to do.R OS E N ST E I N : Companies ares t a rting to realize it takes re s o u rces tohelp their tre a s u ry and financial de-p a rtments implement proper contro l s .It is beneficial when managementloosens its purse strings so their inter-nal groups have sufficient re s o u rces forcomplying with the law.CO F F I N G : I’m stunned by the nu m-ber of companies that don’t know howm a ny bank accounts they have, or whohas signing authority and what sort ofaccount features are on them. O n c eyou understand your banking account

l a n d s c a p e, you can have some sort ofcentral re p o s i t o ry so you can manages i g n e rs , e t c.K A M BAC K : T h e re will be real bene-fits for corporates as banks part n e rwith them to ensure they have thet e c h n o l ogy and the infrastru c t u res tocomply with the va r ious re g u l a t o rye nv i ro n m e n t s . This will create a moreefficient pro c e s s , which hopefully willlead to better va l u e.G RAC E : People are now asking if them o n ey they ’re spending will really doa nything for them in the end. T h ey ’ren ow talking about “ s u s t a i n a ble com-p l i a n c e.” We are delive ring tools thathelp with the documentation and test-ing of risk and controls and automa-tion of business pro c e s s e s . One keyl e a rning from all of this is that you notonly have to document policies, p ro c e-d u res and business pro c e s s e s , but yo uh ave to make sure people know andu n d e rstand them. You have to ensurepeople are properly trained as we l l .A L A R CO N : T h e re is an incentive forcompanies to push for more automa-tion so they have control over who ac-cesses inform a t i o n . For those compa-nies that have already automated their

G ra ce : People are now asking if the

m o n ey they ’re spending will rea l l y

do anything for them in the end

A l a rco n : For some businesses that

o p e ra te with ve ry low marg i n s, going

e l e c t ronic will be a matter of life or dea t h

6 2 M A Y 2 0 0 5

TREASURY & CASH MANAGEMENTRO U N DTA B L E G L O BA L F I N A N C EGF

cash management function, t h ey ’relooking beyond that, at access contro l sand the reliability of their bankingc o m mu n i c a t i o n s .H A M A N T: I t ’s still going to takesome time, if yo u ’re a true globalc l i e n t . The pro blem is automation isonly for the US and We s t e rn Euro p e.Yo u ’re going to a ve ry different imageif yo u ’re going to A f rica or EasternE u ro p e.

G F: The importance of checks is di-m i n i s h i n g . What impact will this haveon corporates and the banks and tech-n o l og ies that are trying to serv i c ethem? K A M BAC K : The impact overall willbe positive because it enhances theavailable cash and money flows throughthe corp o r a t e s . U n f o rt u n a t e l y, c a s hmanagement institutions will have tomaintain check processing becausechecks will be around for a long time.CA R P E T TO : C u l t u r a l l y, the UnitedStates is much slower to adopt thistype of technolog y, but Check 21 isf o rcing the issue. N ow, banks eitherh ave to come on board or it’s going tos t a rt costing them more money.

M A N D L E R : Yo u ’re starting to hearthe phrase “ n a t ive electronic pay-m e n t s ,” w h e re transactions start oute l e c t ronically as opposed to just end-ing electro n i c a l l y. T h e re ’s an opport u-nity going forwa rd , especially in the B-to-B space, by having the invoice andrelated data go along with the pay-m e n t .CO F F I N G : As the technology getsc l e a n e r, the economics will actuallyd rive things to native electronic pro-c e s s i n g . People are going to see a bigd rive to all-electronic pay m e n t .BRODE: M a ny of our clients arec o n s i d e ring leapfrog ging the imagi n gstage and going straight to electro n i cp ay m e n t s . Bu t we wi ll st il l need to serve clients at all these differe n tstages and be able to combine the dataf rom those payments and deliver itback to clients.R OS E N STEIN: Checks will still ex-ist for a while, and with Check 21t h e re has been a concern about thepotential for an increase in attempts atcheck fraud. Companies need to en-s u re they ’re using all the tools offere dby their banks to prevent check fraud,such as positive pay and payee match

s e rv i c e s .G RACE: As it becomes easier fro mthe technology standpoint and fro mwhat the banks offer to customers ,we’ll see a greater adoption of elec-t ronic payment and bill pre s e n t m e n t .I ta l l ows companies to provide gre a t e rs e rvice to their customers .A L A R CON: For some businesses thatoperate with ve ry low margi n s , g o i n ge l e c t ronic will be a matter of life or deathbecause that’s where it will be deter-mined if they can continue to be com-p e t i t ive within the marketplace or not.

G F: What developments have therebeen in the outsourcing of tre a s u ryfunctions in the past ye a r, and what isexpected in the future ?K A M BAC K : Some financial institu-tions have been forming alliances toc reate more efficient pro c e s s e s , w h i c hhave created opportunities for the bank-ing institutions and efficiencies for thecorporates.While it may not be directoutsourcing,those alliances have createda lot of value for corporate clients.CA R P E T TO : O ve rseas corp o r a t e sa re much more willing to outsourc e,w h e reas in the States people have re a l-ly struggled with the idea that they ’regiving up some contro l . N ow, t h o u g h ,we see a lot more traction in the USthan we ’ve seen for ye a rs .MANDLER: We ’re seeing tre m e n-dous focus on speci fic, e s p e c i a l l ys t r a t e gi c, aspects of tre a s u ry and a will-ingness to outsource eve rything else. I toften takes place while clients are cen-tralizing activities themselve s . C u s-t o m e rs are really looking for theirbanks to move up the value chain andoffer end-to-end serv i c e s .B R O D E : For anything companiesd o n ’t perc e ive as key to their compet-i t ive edge, we ’re seeing a much gre a t e rwillingness to talk to part n e rs abouto u t s o u rc i n g .R OS E N ST E I N : We see a gre a t e rp ropensity towa rd outsourcing forp rocesses that will become more stan-d a rd and for those areas where compa-

Ca r p etto: More firms are going globa l

so they need our technology and our

g u i d a n ce to help them co m p ete

Rose n ste i n : Co m pa n i es need to ensure

t h ey ’re using all the tools offe red by

their ba n ks to preve nt check fra u d

2 0 0 5 M A Y 6 3

T R E AS U RY & CASH MANAG E M E N TRO U N DTA B L E G L O BA L F I N A N C EGF

nies feel they can hold their ve n d o rsm o re accountabl e. As more ve n d o rsh ave entered the space, i t ’s becomingeasier to hold them accountable be-cause there are other options.G RAC E : O u t s o u rcing is picking upa c ross the board on two leve l s . One i s the IT foundation—the abili ty to buy softwa re as a serv i c e. T h e nt h e re ’s outsourcing of the daily bu s i-ness processing of transactions. We areseeing more widespread adoption ofs h a red service centers .M a ny large cor-porations are moving routine transac-tion pro c e s s i n g — l i ke customer pay-ments and receipts—to lowe r - c o s tl o c a t i o n s , such as India. On the otherh a n d , companies usually keep some ofthe more stra tegic functions in -h o u s e — l i ke planning and bu d g e t i n gand fore c a s t i n g .CO F F I N G : One key hurdle is that ifyo u ’re going to be outsourcing any ofyour technology functions, we need tobe SAS 70 type-2 compliant. For tech-n o l ogy companies that’s quite an in-vestment because yo u ’re taking someof that Sarbanes-Oxley stuff and push-ing it off on your ve n d o r.

G F: What developments have therebeen in working capital managementin the past ye a r, and what’s expected inthe future? A L A R CO N : Tre a s u re rs and CFOs areb ri d ging the disconnect between cashmanagement and working capitalmanagement [business planning].P rogress is being made in cash flowf o recasting from both short - t e rm andl o n g - t e rm planning pers p e c t ive s . C a s hf l ow forecasting is being taken mores e ri o u s l y.M A N D L E R : T h e re ’s much more at-tention paid to automated exe c u t i o nbased on the corporate policy with re-spect to r i s k . This is where eve ry-t h i n g ’s coming together—audit trails,risk profile and exe c u t i o n .CO F F I N G : C F O s ’ b o nuses are beingd riven by keeping the cash balances to an absolute minimu m . To be able

to have control over that, you need tobe able to run a dai ly cash cycle.Chief exe c u t ives are wanting to movef rom quar ter ly down to monthlyd own to weekly—and the end goal isto get daily—cash visibility across thee n t i re corp o r a t i o n .CA R P E T TO: If we get the efficien-cies right and CFOs have access to thisi n f o rm a t i o n , t h ey can then plan a lotbetter from a liquidity pers p e c t ive andm a ke proper investments to managed own to a zero balance. Tr a d i t i o n a l l y,t re a s u ry areas are not viewed as a rev-e nue-generation are a , but they ares t a rting to demonstrate that they cans ave millions of dollars in pro c e s s i n g .R OS E N STEIN: As banks and tech-n o l ogy ve n d o rs give our customerstools to save them time, t h ey can thenget directly invo l ved in the manage-ment of inve n t o ry, the invoicing andp aya bles pro c e s s ; these things dire c t l yimpact the working capital.BRODE: The Homeland Inve s t m e n tAct changes the landscape. If a globalclient has a lot of money ove rs e a s ,t h eycan bring it home and use it to inve s t .The client just found a new, i n e x p e n-s ive source of working capital.

K A M BACK: The banks have done are l a t ively good job in advancing ac-counting practices and inform a t i o nt e c h n o l ogy to allow tre a s u re rs to bet-ter manage their cash, especially on aglobal basis. T h e re are real efficienciesthat have truly helped the tre a s u re r ’soffice manage their global cash flow.MANDLER: T h e re ’s also, in Nort hA m e ri c a , an appreciation of new tech-niques for facilitating re c e iva bles fi-n a n c i n g .G RACE: In terms of technolog y, p e o-ple are moving towa rd consolidatingtheir systems. N ow you can have oneglobal instance running all over thewo r l d , which means a tre a s u rer can notonly get the daily bank statement in-f o rmation but also have visibility toa ny future impacts on cash—in anyc u rrency for any number of days theywant to fore c a s t .

G F: T h e re are indications part i c u l a r l yin the US that the size of firms in needof global tre a s u ry management solu-tions is becoming smaller.What impli-cations does this have for banks andt e c h n o l ogy ve n d o rs? CA R P E T TO: It means opport u n i t y.

H a m a nt: In the US eve rybody had to

d e l i ver their own solution ve ry quickly

so each bank rushed to the We b

Brode: We’re seeing a much greater

willingness to talk to partners

about outsourcing

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TREASURY & CASH MANAGEMENTRO U N DTA B L E G L O BA L F I N A N C EGF

M o re firms are going global so theyneed our technology and our guidanceto help them compete.G RAC E : I t ’s not just a trend in tre a-s u ry ; i t ’s a trend ove r a l l . Small compa-nies need to have the same adva n t a g e sthat the large companies do to com-p e t e. The challenge is delive ring soft-wa re at lower cost and making it easi-er to install and seamless in terms ofs e t - u p. Oracle has focused on lowe ri n gthe total cost of softwa re ow n e rship toa d d ress this need.MANDLER: T h e re will be eve nm o re demand for standardization toe n a ble smaller companies complete ac-cess without having to adapt to pro-p ri e t a ry form a t s .R OS E N ST E I N : Small companies aregoing to rely more heavily on theirve n d o rs . In particular they will re q u i retheir banks to deliver inform a t i o ng l o b a l l y, and perhaps automate howt h ey function on a global basis.H A M A N T: The Web changed eve ry-t h i n g , and in the US eve rybody had tod e l iver their own solution ve ry quick-ly so each bank rushed to the We b.T h a t ’s why they ’re pro b a bly more ad-vanced than the Euro p e a n s .CO F F I N G : A lot of smaller corp o r a-tions don’t have the technology or theIT staff to support systems so the A S Pmodel has been a boon.We can get ri dof the IT and the hosting.You just getthe functionality at your fingert i p s ,p o rt a ble around the wo r l d .K A M BAC K : The challenge for asmaller company is that they ’re beingd riven by their own customers to be-come more global, so the opport u n i t yfor us is to give our direct customersthe tools to deliver effective global fi-nancial access to their clients.B R O D E : The challenge for us is howto reach those people and deliver insuch a way that it is not as costly aswhat we deliver to the larger globalc l i e n t s . The smaller companies aref o rcing us all to cross some of the silosinside our own walls—the silos be-t ween the consumer s ide and the

wholesale side, for example.A L A R CO N : Small companies don’tdeal with the kinds of complexitiesyou deal with in a large organizationso they expect differe n t , simpler tools;i t ’s not just a cost function. Our ap-p roach is to provide simpler, e a s y - t o -use softwa re for small companies thatwill allow them the same benefits—togain visibility of cash.

G F: What are you doing to help yo u rc o rporate customers perform a betterjob with global enterp rise risk man-agement? CO F F I N G : F i rst you need to get allyour data consolidated. Without con-solidated data there is no true r i s km a n a g e m e n t . Once yo u ’ve got all thei n f o rmation in one place and you canve ry easily present that. The third ,m o re sophisticated step is to assesswhat is important to each indiv i d u a lc o rporation and base risk managementdecisions on that.CA R P E T TO: O ve r a l l ,i t ’s about edu-c a t i o n , best practices and ro u n d t a bl e sthat get corporates to better under-stand their operating r i s k . M a ny ofthem have ignored certain r i s k s . I t ’s

our job to make them awa re of thoserisks and help them to manage them.K A M BAC K : Most of us have thet e c h n o l ogy in place that will help allthese institutions really mitigate andmanage their ri s k . But we need to ed-ucate them about the risks inherent inc e rtain businesses and certain transac-t i o n s .R OS E N STEIN: I t ’s extremely im-p o rtant that companies take adva n t a g eof the information that banks can pro-vide for them, p a rticularly for cash po-sitioning on a global leve l . In addition,as companies start to outsource ands o u rce important material and pro d u c-tion from emerging marke t s , t h ey needa centralized point within their com-p a ny to monitor the sove reign risk andbetter understand their exposure.G RACE: Another area of grow i n gi m p o rtance is operational ri s k — b e i n ga ble to have visibility at eve ry level ofthe company and across the globe. Wecan help them monitor the operationalri s k , as well as consolidate inform a t i o nin one place—which is one of the key smentioned earlier.

M a n d l e r: Smaller co m pa n i es ca n n ot

a ffo rd to cu sto m - m a ke or adapt to

p ro p r i eta ry fo r m a ts

G i a r ra p u to: The size of firms in need of

g l o bal trea s u ry management so l u t i o n s

is becoming smaller

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Analysts say it’s not a question of if,but when the bonds of GeneralMotors and Ford Motor will slide

below investment grade, probably late this year.

The once triple-A-rated USautomakers are flirting with high-yield status, and the outlook isnegative from the rating agencies.

“If GM and Ford, along with theirfinancing arms, join the high-yieldspace, they will account for 15% of the market,” says KingmanPenniman, director of research atMontpelier,Vermont-based KDP Investment Advisors, a firmthat provides research and pricingservices on high-yield bonds,including a daily index of themarket.

While GM and Ford are two ofthe largest issuers of corporate debt,with a total of about $475 billion outstanding,including the bonds of their profitable financing units,they should be assimilated easily into the high-yieldsector, Penniman says.

“Fallen angels are not a new phenomenon to the market,and the automakers will be considered as good credits bybuyers of high-yield debt,” he says.

“Of course, nobody knows where the bottom is for these bonds and how quickly they will come back,”Penniman says.“But it is more of a technical rather than afundamental issue.”

With GM bonds yielding more than 500 basis pointsmore than comparable US Treasury securities, they appearattractive to investors who can afford to hold on to them forthe long term, he says.

Many institutional investors, including pension funds,however, are not allowed to invest in securities that are

rated below investment grade. Some of these funds already are selling GMand Ford bonds in anticipation ofanother downgrade, according toPenniman.

“Nevertheless, a lot of investment-grade accounts won’t sell this paper,even if it is downgraded,” he says.“They can pick up 250 basis points in yield compared with KDP’s high-yield index.”

Meanwhile, about one-third of theparticipants in the high-yield marketalready have invested in GM debt,Penniman says.

A drop below investment gradewould increase borrowing costs forFord and GM, both of which need toinvest in new models to compete withAsian producers, which are gobbling up

US market share.Toyota Motor of Japan, which

makes the popular Prius hybrid model that runs on a combination of gasoline and electric

power, could soon pass GM as the world’s largestautomaker.

Prices of the bonds of Ford and GM already have beenbeaten down so low, analysts say, that a downgrade to“junk” status already has been priced into the market tosome extent.

The yield on GM’s euro-denominated bonds rose sharplyin late March after the automaker slashed its 2005 profitoutlook and forecast a loss for the first quarter.The spreadagainst US Treasury issues widened further when Standard &Poor’s issued a “negative outlook” on the automaker,indicating that the next rating change was likely to be adownward move.

A downgrade wouldn’t precipitate liquidity problems forGM, which holds nearly $20 billion in cash and another

CORPORATE FINANCING FOCUS

High-Yield MarketGets Ready to Embrace

Falling Auto Angels

DebtDebtDebt

San

dy

Wo

ng

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$10 billion in creditfacilities, says ScottSprinzen, a managingdirector at S&P. GeneralMotors AcceptanceCorporation, or GMAC,the automaker’sfinancing unit, holdsnearly $23 billion incash.

GM is relatively wellpositioned to sustain adowngrade, Sprinzenwrote in a recent note toinvestors.

Ford cut its 2005earnings forecast onApril 11 and said it willnot reach its profittarget for 2006 becauseof rising gasoline pricesand health-care costs.

S&P responded by cutting the outlook on Ford debt,which is rated BBB-, the lowest investment grade, tonegative from stable.

Breathing RoomThe automakers may win a temporary reprieve from

index-related selling of their bonds as a result of changesthat Lehman Brothers is making in the inclusion rules forits widely followed investment-grade indexes. BeginningJuly 1, 2005, Fitch ratings will be used in addition to thosefrom Moody’s Investors and S&P when calculating theindex quality assigned to individual securities.

Two out of the threeagencies would need to ratethe security investment-gradefor it to be eligible for beingincluded in Lehman’s in-vestment-grade indexes.These changes could becomeimportant if issuers aredowngraded or upgraded bya single rating agency in thefuture.

Ford and GM are thesecond- and third-largestissuers of corporate debt,following General Electric, inthe Lehman US CreditIndex.

Analysts say it is possiblethat concern about the creditquality of the US automakerscould spread to emerging-

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, saysStephen Poloz, chief economist at Export DevelopmentCanada.

Spreads on Brazilian bonds, for example, widened tonearly 450 basis points in mid-April from as narrow as 370basis points in early March. Spreads also widened forMexican, Russian and Turkish bonds.

In contrast, Poloz says, US corporate bond spreads are stillat their lowest level in eight years, just under 100 basispoints.

“US interest rates are moving back up to normal and areattracting investment back to the US,” Poloz says.“This hascaused the dollar to stabilize and is leading to somewidening of risk spreads,” he says.

According to Poloz, the widening is not so much aretreat from risk as it is a return to a more balanced flowof international capital that includes the US as adestination.

Market Share ShiftsDaimler Chrysler, the number-three US automaker, has

gained market share in the past 12 months, even as GMand Ford have lost ground to Toyota and other Asianautomakers.

GM’s 25.7% share of the US market for light-vehicle salesin the first quarter of 2005, according to New Jersey-basedAutodata, was the lowest since 1925.

GM shook up its top management in early April, puttingCEO Rick Wagoner in charge of day-to-day control of itscore North American operations.

“One of our biggest challenges is our lack of cost-competitiveness in the United States, which is due to our

legacy costs, especially theever-increasing burden of high health-care expenses,”Wagoner said in a statementindicating that he will beseeking concessions from labor unions.

The US automakers havebeen forced to use price-and interest-rate incentivesto convince consumers tobuy their cars. Rising rateshave made cash-back offersand zero-interest financing more costly.

Meanwhile, GM needs to refinance or pay nearly$45 billion of debt in 2006, and Ford has $37billion of debt coming due next year. Most

Others3.4%

36.2%Asian automakers

15.2%Daimler Chrysler

Ford Motor19.5%

General Motors25.7%

MARKET SHARE OF US LIGHT-VEHICLE SALES(FIRST QUARTER 2005)

Source: Autodata

Kingman Penniman, director of research,

KDP Investment Advisors

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

Issuance Dries UpUS 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 totalwas as high as $18 billion last November.

An inflation scare and the auto-related problemscontributed to an increase in risk aversion in March,according to analysts. Investors pulled billions of dollars fromhigh-yield bond funds.

El Segundo, California-based DaVita, which operateskidney dialysis centers, was the largest issuer in March.Thecompany offered $500 million of senior notes due 2013 and$850 million of senior subordinated notes due 2015 in aprivate placement.

DaVita plans to use the net proceeds from the offering,along with available cash, to repay all outstanding amounts un-der the term-loan portion of its senior secured credit facilities.

Bethesda, Maryland-based Host Marriott placed $650million of senior notes due in 2015.The net proceeds wereused to fund a tender offer for $300 million of senior notesdue in 2006, as well as to redeem $169 million of seniornotes due in 2008 and to repay the $140 million mortgagedebt secured by two of the company’s Ritz-Carlton hotelslocated in Atlanta, Georgia, and Naples, Florida.

Sudden Downturn in MarketAuto contagion led to a noticeable pullback by investors

in high-yield bonds in mid-April, says John Fenn, fixed-

income strategist at Citigroup’s global markets division inNew York.

While the severity of the downturn in high-yield bondprices was hard to explain, it seems to have been triggeredby the problems of the automakers, Fenn says.

The market is bracing for the $140 billion mountain ofGM and GMAC debt set to hit the market sometime thisyear, he says.

“It strikes us that the increased volatility in the markethas pushed investors to rebuild cash balances, as the marketis suffering from a lack of confidence,” according to Fenn.

The auto-parts sector was particularly hard hit.“WithFord and GM [yield spreads] widening dramatically, the

relative value being offeredby the parts companies isquestionable when comparedwith the lofty yields beingoffered by both of theinvestment-grade credits,”Fenn says.

But in a clear case of thegood being thrown out withthe bad, some higher-qualityparts suppliers, such as Lear,American Axle and TRW,have been oversold andappear extraordinarily cheap,he says.

“Sure Lear has exposure toFord’s production schedule,as well as GM’s, but the Learoperators know about Fordproduction cuts before[CEO] Bill Ford does—andthey plan accordingly,” Fennsays. —Gordon Platt

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0

2

2005

2004

4

6

8

10

12

14

16

18

20

($ b

illio

n)

US HIGH-YIELD NEW-ISSUANCE VOLUME

Source: KDP Investment Advisors

Issuer Offer Date Coupon % Issue Type Maturity Date Private/Public Amount ($mil)

DaVita 3/15/05 7.250 Sr.Sub.Notes 3/15/15 144A 850

Host Marriott 3/3/05 6.375 Senior Notes 3/15/15 144A 650

Allied Waste Industries 3/3/05 7.250 Senior Notes (Secured) 3/15/15 144A 600

DaVita 3/15/05 6.625 Senior Notes 3/15/13 144A 500

Atibi-Consolidated of Canada 3/22/05 8.375 Senior Notes 4/1/15 Public 450

Levi Strauss 3/7/05 Floating Rate Notes 4/1/12 144A 380

Corrections Corporation of America 3/8/05 6.250 Senior Notes 3/15/13 144A 375

Revlon Consumer Products 3/11/05 9.500 Senior Notes 4/1/11 144A 310

Pogo Producing 3/23/05 6.625 Sr.Sub.Notes 3/15/15 144A 300

TTI Holding 3/11/05 10.000 Sr.Sub.Notes 3/15/13 144A 300

Exide Technologies 3/15/05 10.500 Senior Notes 3/15/13 144A 290

Suburban Propane Partners 3/18/05 6.875 Senior Notes 12/15/13 144A 250

Trustreet Properties 3/17/05 7.500 Senior Notes 4/1/15 144A 250

US Oncology 3/15/05 Floating Rate Notes 3/15/15 144A 250

Progress Rail Services 3/17/05 7.750 Senior Notes 4/1/12 144A 200

WCI Communities 3/3/05 6.625 Sr.Sub.Notes 3/15/15 144A 200

Colorado Interstate Gas 3/2/05 5.950 Senior Notes 3/15/15 144A 200

Source: KDP Investment Advisors

TOP US HIGH-YIELD ISSUES IN MARCH 2005

G L O B A L F I N A N C EGF

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Judging by all the recentattention given to the J-curve by economists andanalysts, the outlook couldget worse for the dollarbefore it gets better.

The dollar has been risingin recent weeks in an-ticipation of higher USinterest rates, but analysts stillconcur that the greenbackwill need to decline furtherin order to boost US exportsand begin to reduce thecurrent account deficit.

In time, rising exports willrein in the current account,but not before higher importprices expand the deficittoward 7% of gross domesticproduct in 2006, says RobertDiClemente, chief USeconomist at Citigroupglobal markets in New York.

Many forecasters expectthat the current accountmay be on the verge of aturnaround, attributing thepast year’s increase in thedeficit to the traditional J-curve effect, he says.

“However, we believe thatthe J-curve effect has not yetcome into play,” DiClementesays.“The J-curve will add tothe deficit when foreign firmsbegin to raise US importprices more aggressively,probably this year,” he says.

If Americans continue toimport the same amount offoreign goods, they will paya larger import bill as pricesgo up.

The current account deficithas continued to widen des-pite the dollar’s decline sinceearly 2002.The gap account-ed for about 4.5% of GDPthree years ago and is nowaround 6.25%.This widening

shows how ingrained thedeficit has become, reflectingthe stronger growth of theUS economy, as well as USpreference for foreign goods,DiClemente says.

Until now, foreign firmshave chosen not to raiseprices to compensate for thedollar’s losses, acceptingnarrower profit margins, forfear of losing US marketshare.

This won’t continueforever, DiClemente says, andthere already are signs thatprices of imported goodshave begun to march higher,even excluding petroleum.

Triangular TradeNeal Soss, chief economist atCredit Suisse First Boston,says US consumers willremain addicted to Asian-sourced goods and that Asiancentral banks will continueto invest their surplus dollarsin US securities.

“This triangular trade isreally quite stable,” he says.“Asia needs the jobs, we likethe subsidy, and thisaddiction continues.”

Meanwhile, continuinggains in US productivity willkeep inflation from gettingout of control, according to Soss.

Average hourly earnings inthe US are rising at a slowerpace than inflation, he says,and until wages increasefaster than prices, there is noreal inflation threat.

Real GDP increased at a4% rate last year, and the bigquestion is how muchtolerance the FederalReserve will have for above-

1.0

1.2

1.6

1.4

Forecast

Forecast

Source: Deutsche Bank

Source: Bank of New York

Canada(C$/US$)

Source: Bank of New York Forecast

Mexico(Peso/US$)

4.0

3.5

3.0

2.5

2.0

8

12

10

14

Brazil(Real/US$)

UK(Pound/US$)

Source: Bank of New York Forecast

Euro(Euro/US$)

Source: Bank of New York Forecast

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J0.6

0.7

1.0

0.8

0.9

0.5

0.4

0.7

0.6

60

80

100

120

140

Forecast

Japan(Yen/US$)

Source: Bank of New York

0.8

1.2

1.0

1.4

1.6

Source: Deutsche Bank Forecast

Switzerland(Franc/US$)

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J

CURRENCY FORECASTSDollar Faces Still-WiderCurrent Account Deficit

6 8 M A Y 2 0 0 5

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trend growth in the USeconomy, Soss says.

Open-Mouth PolicyThere seems to be a majordisconnect between theinflation data, which havegenerally been tame, and thebehavior of the US Treasurybond market, says DavidGilmore, economist andpartner at Essex, Connec-ticut-based ForeignExchange Analytics.“Thedata on inflation are notwhat is driving Treasuryyields up,” Gilmore says.“This is the result of Fedopen-mouth policy.”

The mention of elevatedinflation risk in the March22 Federal Open MarketCommittee’s statement wasthe main impetus for higher

bond yields, according to Gilmore.The financialmarkets are trading onassertions, rather than facts,he says.

“Markets seem content to follow, rather than tochallenge, the Fed,” Gilmoresays.“What we end up withare exaggerated movesaround the time of theFOMC statements, or publicremarks by Fed officials, andany hint of supportingevidence on what the Fedhas in its craw at any giventime,” he says.

Growth ExpectationsThe resiliency of the dollar inthe face of a weaker-than-expected March employmentreport, which showed a gainof only 110,000 in non-farm

payrolls, suggests that thereason behind the dollar’s re-cent strength may not be entirely due to interest-rateexpectations, says MichaelWoolfolk, senior currencystrategist at the Bank of NewYork.

“The dollar’s gains mayalso be based in part upongrowth expectations,”Wool-folk says.“By comparison to other major economies,the US economy is doingquite well.” Nonetheless,with ongoing concernsabout financing a wideningUS trade deficit, the dollarbulls cannot afford tobecome complacent, he says.

Tankan TanksJapan’s tankan report,released on April 1, was

much weaker than expected.The tankan, the Bank of

Japan’s quarterly survey ofcorporate sentiment, rein-forced doubts about thestaying power of the upturnin Japan’s economy that be-gan in the fourth quarter of2004, according to analysts atBrown Brothers Harriman inNew York.

The report was consistentwith BBH’s expectationsthat Japan will experienceyet another year of verymodest economic growth in 2005.

Most of the details in the report were not nearly as negative as theheadline, but “not asnegative” doesn’t translateto “positive,” the BBHanalysts note.

—Gordon Platt

8.0

8.2

8.4

8.6

8.8

9.0

ForecastSource: Bank of New York

ForecastSource: Deutsche Bank

China(Yuan/US$)

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J

Australia(A$/US$)

1.2

1.0

1.4

1.6South Korea(Won/US$)

ForecastSource: Deutsche Bank800

1000

1200

1400

1600

Forecast

Turkey(Million Lira/US$)

Source: Deutsche Bank1.2

1.4

1.6

1.8

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J

J FF M A M J J A S O N D MA M J J A S O N D

20062004 2005

J

CURRENCY FORECASTS

7 0 M A Y 2 0 0 5

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GLO

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On July 1, 2005, theEuropean Union willimplement the ProspectusDirective, a cornerstone inthe creation of a single pan-European capital market.

The new legal framework,which applies to both EUand non-EU issuers, will in-troduce a single set of docu-ments, or passport, for raisingcapital on a regulated marketin any member country.

Once a prospectus is authorized in one memberstate, it can be used in all theothers.

Lawyers warn that theharmonization of prospectusrequirements will lead issuersto be exposed to liability fortheir prospectuses in all EUmember states.This couldmake the preparation of aprospectus more costly andtime-consuming, they say.

For equity securities, theProspectus Directive, or PD,requirements are based onthe disclosure standards forcross-border equity offeringsissued by the InternationalOrganization of SecuritiesCommissioners.

The main requirement isthat the prospectus mustcontain all the information necessary for investors tomake an informed assess-ment of the assets and lia-bilities, financial position,profit and losses andprospects of the issuer.

Although globaldepositary receipts are non-equity securities for purposesof the PD, the prospectusrequires equity-styledisclosure by the issuer.

“The new EU regime hashad little impact to date on

the GDR market,” saysMike Hughes, director andglobal product manager forequity products at DeutscheBank in London.

Most issuers of GDRs willhave no problem in meetingthe prospectus requirements,which call for much of thesame information to bedisclosed as previously, butin a different format, he says.

Another EU directive, theTransparency Obligations Di-rective, or TOD, which isn’tscheduled to go into effectuntil 2007, will have a muchbigger impact on the GDRmarket, according to Hughes.

Non-EU issuers of GDRswill have until January 1,2007, until they are requiredto prepare prospectuses thatinclude accounts that followInternational FinancialReporting Standards.

“The IFRS is not an issueright now, but it may becomea problem for smaller issuers,who may decide in somecases not to list on a regu-

lated exchange within theEU when planning to issueequity in the internationalcapital markets,” Hughes says.

The TOD deals with theongoing periodic disclosureobligations of issuers, includ-ing annual and half-yearlyreports under IFRS or theequivalent.

A third directive, theMarket Abuse Directive, to beimplemented at a later date,will require immediate publicdisclosure of price-sensitiveinformation by issuers thathave securities admitted to anEU-regulated market.

The PD will require dis-closure that is different in se-veral respects to what is cur-rently required, according toa report issued in February byLondon-based global capitalmarket lawyers Linklaters.

A 2,500-word prospectussummary must be preparedthat conveys the essentialcharacteristics and risksassociated with the issuerand the securities.

An operating and financialreview also is required.

Considerable detail isrequired on sources andamounts of an issuer’s cash

flows, funding structure,treasury policies and peakborrowing requirements.

Significant recent trendsin production, sales andinventory, and costs arerequired, as are statementson conflicts of interest andcorporate governance.

Existing issued GDRs willbecome subject to the TODwhen it is implemented.

The net effect of thesechanges may lead existingissuers of GDRs to reviewwhether to maintain a listingon an EU-regulated market,Linklaters says.

Both the London StockExchange and the Luxem-bourg Stock Exchange arecreating new segments,known as exchange-regulatedmarkets, which are notregulated markets for thepurpose of the EU regimebut will be regulated by therelevant exchange.

“We believe that thesignificant number ofexisting GDR issuers whowill be unable to complywith the TOD will need tomove across to an exchange-regulated market,” Linklaterssays. —Gordon Platt

EU’s Prospectus RulesFail to Roil GDR Market

Mar

31,

2004

Apr

9, 2

004

Apr

23, 2

004

May

7, 2

004

May

21,

2004

Jun

4, 2

004

Jun

18, 2

004

Jul 2

, 200

4

Jul 1

6, 2

004

Jul 3

0, 2

004

Aug

13, 2

004

Aug

27, 2

004

Sep

10, 2

004

Sep

24, 2

004

Oct

8, 2

004

Oct

22, 2

004

Nov

5, 2

004

Nov

20,

200

4

Dec

3, 2

004

Dec

17, 2

004

Dec

31, 2

004

Jan

14, 2

005

Jan

28, 2

005

Feb

11, 2

005

Feb

25, 2

005

Mar

11, 2

005

Mar

25,

200

5M

ar 3

1, 20

05

80

100

120

140

160

Latin America Europe Asia

Source: Bank of New York

REGIONAL ADR INDEXES

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& A

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A listing of the members of the investor group thatagreed to acquire SunGardData Systems in an $11billion leveraged buyout in late March reads like a Who’s Who of privateequity.

Silver Lake Partners, aMenlo, California-basedbuyout firm that focuseson market leaders intechnology businesses, puttogether a team of sevenprivate equity firms to bidfor SunGard, which makessoftware for financialinstitutions as well astreasury-managementsystems for corporations.

Private equity firms,formerly fierce com-petitors, increasingly arepooling their resources inorder to pursue biggercorporate takeover targetsthan they could tackle ontheir own. Joining in theformation of such groups isknown as clubbing.

The SunGard purchasegroup includes KohlbergKravis Roberts, or KKR,one of the oldest and mostexperienced buyout firms,which bought RJRNabisco in 1989.TheSunGard buyout is thelargest since that storieddeal, which was valued atmore than $26 billion.

Other members of the SunGard buyout teamare:• Boston-based BainCapital, which recentlyfloated a $3.5 billionproposal with sports in-vestment bank Game Planto buy the entire NationalHockey League.

• Blackstone Group, aleader in private equityinvesting, whose fundsmanage more than $14billion.The firm has raised atotal of about $32 billionfor alternative-assetinvesting since it wasfounded in 1985.• GS Capital Partners,which makes private equityinvestments on behalfof its parent, GoldmanSachs.• Providence EquityPartners, a Rhode Island-based private investmentfirm specializing in equityinvestments in mediaand communicationscompanies. It has investedin more than 80 companiesin 20 countries.• Texas Pacific Group, aFort Worth,Texas-basedprivate investmentpartnership managing morethan $15 billion in assets.TPG is a leading globalprivate equity investor inthe technology sector.

Two other prominentprivate equity firms—Thomas H. Lee Partnersand the Carlyle Group—had planned to be part ofthe buying group butdropped out at the endover a disagreement aboutprice.

“The new investors inSunGard are world-leadingprivate equity firms,” saysCristóbal Conde, presidentand CEO of SunGard,which is based in Wayne,Pennsylvania.

“They have a long-termview toward growing thebusinesses in which theyinvest and an excellent track

record of working inpartnership withmanagement to build greatcompanies,” he says.

Each partner in theconsortium bringscomplementary expertise tothe investment, says GlennHutchins, a co-founder andmanaging member of SilverLake Partners.

“Our interests are alignedwith the long-terminterests of SunGard’scustomers and employees,”Hutchins says.

The transaction will befinanced through equitycontributed by each of theconsortium partners anddebt financing provided byJPMorgan, Citigroup,Deutsche Bank, Goldman

Sachs and Morgan Stanley,which also acted asfinancial advisers to theinvestors.

The second-largest M&Atransaction in the US inMarch, the $7.6 billionacquisition of Toys “R” Us,also was a club deal.

The investor group thatbought the retail toy storeoperator comprised KKRand Bain Capital Partners,along with Vornado RealtyTrust, one of the largest realestate investment trusts inthe US.

Washington, DC-basedCarlyle Group launchedtwo new buyout funds inlate March, totaling morethan $10 billion.

—Gordon Platt

Private Equity FirmsWorking Together

AMERICAS M&A: TOP DEAL ADVISERS

EUROPE M&A: TOP DEAL ADVISERS

Rank Value % Mkt # of Adviser ($million) Rank Share Deals

Goldman Sachs 135,546 1 49.3 42Merrill Lynch 84,704 2 30.8 26Morgan Stanley 80,724 3 29.4 26UBS 77,660 4 28.3 21Credit Suisse First Boston 73,185 5 26.6 26Industry Totals* 274,699* - 2,083

ASIA M&A: TOP DEAL ADVISERS

Source: Thomson Financial Securities DataJanuary 1, 2005 – April 1, 2005

* Figures may not add up, as more than one bank typically obtains credit for any onetransaction.

Rank Value % Mkt # of Adviser ($million) Rank Share Deals

Goldman Sachs 49,663 1 30.0 28Morgan Stanley 36,160 2 21.8 24JPMorgan 35,561 3 21.5 40Citigroup 32,296 4 19.5 25Lehman Brothers 31,468 5 19.0 19Industry Totals* 165,785* - 2,223

Rank Value % Mkt # of Adviser ($million) Rank Share Deals

Nomura 51,630 1 46.5 36Mitsubishi Tokyo Financial 49,195 2 44.3 24Merrill Lynch 48,986 3 44.1 13Morgan Stanley 48,334 4 43.6 14JPMorgan 45,299 5 40.8 4Industry Totals* 110,979* - 1,906

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Date Target Name Acquirer Name Ranked ValueAnnounced (Target Advisers) Country (Acquirer Advisers) Country Description ($billion)

3/28/05 SunGard Data Systems US Investor group US Definitively agreed to acquire provider 10.84(Lazard) (Morgan Stanley) of information technology, in a leveraged(Credit Suisse First Boston) (Citigroup) (JPMorgan) buyout.

(Goldman Sachs) (Deutsche Bank)

3/17/05 Toys “R” Us US Investor group US Definitively agreed to acquire owner 7.64(Credit Suisse First Boston) (JPMorgan) (Morgan Stanley) and operator of retail toy stores.(Duff and Phelps) (Deutsche Bank)

(Banc of America Securities)

3/6/05 Hibernia US Capital One Financial US Definitively agreed to acquire Louisiana- 5.27(JPMorgan) (Bear Stearns) (Credit Suisse First Boston) based bank, in a stock-swap transaction.

3/7/05 United Defense Industries US BAE Systems North America US Unit of UK-based BAE Systems 4.20(Lehman Brothers) (Goldman Sachs) definitively agreed to acquire manufacturer (JPMorgan) (Gleacher Partners) (Hoare Govett) of combat vehicles, artillery and

(Dresdner Kleinwort Wasserstein) ammunition.

3/7/05 Insight Communications US Investor group US Management-led investor group made an unsoli- 3.34(Citigroup) (Morgan Stanley) cited offer to acquire the remaining 86% it did

(Stephens) not already own in provider of cable TV services.

3/21/05 Inamed US Medicis Pharmaceutical US Definitively agreed to merge with 2.66(JPMorgan) (Deutsche Bank) manufacturer of medical equipment, in a

(Thomas Weisel Partners) stock-swap transaction.

3/21/05 Ask Jeeves US IAC/InterActiveCorp US Agreed to acquire provider of question- 1.97(Citigroup) (JPMorgan) and-answer services on Internet, in a(Allen & Company) stock-swap transaction.

3/9/05 Great Lakes Chemical US Crompton US Definitively agreed to merge with chemical 1.77(Merrill Lynch) (Morgan Stanley) (Citigroup) manufacturer, in a stock-swap transaction.

3/1/05 Oakwood Worldwide’s US Archstone-Smith Trust US Agreed to acquire 30 apartment 1.40apartment communities communities.

3/14/05 Gecina France Metrovacesa Spain Agreed to launch a tender offer to 10.00(Lehman Brothers) (Morgan Stanley) acquire the remaining 70% it did not (Credit Suisse First Boston) (Calyon) already own in real-estate agency.

3/18/05 Banca Nazionale del Lavoro Italy Banco Bilbao Vizcaya Spain Planned to launch a tender offer to 8.39(JPMorgan) Argentaria acquire the remaining 85.28% it did not(Rothschild) (Morgan Stanley) already own in Rome-based bank, in(Mediobanca) (Merrill Lynch) (Goldman Sachs) a stock-swap transaction.

3/30/05 Banca Antonveneta Italy ABN-AMRO Bank Netherlands Planned to launch a tender offer for the 8.14(Goldman Sachs) (ABN-AMRO Holding) remaining 87.3% it did not already own.

(Lehman Brothers) (Rothschild)

3/11/05 Amadeus Global Travel Spain Wam Acquisition Luxembourg Agreed to launch a tender offer for 5.82Distribution (JPMorgan) developer of online travel and tourism

(Credit Suisse First Boston) (Morgan Stanley) services, in a leveraged buyout.(Lazard) (UBS Investment Bank)(Dresdner Kleinwort Wasserstein)

3/29/05 ISS Denmark PurusCo Sweden Investor group planned to launch a tender 5.14(Nordea Securities) (Goldman Sachs) offer to acquire provider of property-

(Citigroup) (Enskilda) management services, in a leveraged buyout.

3/15/05 Oskar Mobil Czech Vodafone UK Definitively agreed to acquire Czech 4.40(Lehman Brothers) Republic (UBS Investment Bank) telecom and to increase its interest is(Lazard) (JPMorgan) MobiFon of Romania to 99%.

3/29/05 Celtel International Netherlands Mobile Telecommunications Kuwait Agreed to acquire an 85% interest in 3.40(Rothschild) (UBS Investment Bank) Dutch telecom and planned to acquire(Goldman Sachs) (Citigroup) the remaining 15% stake.

3/25/05 Turkcell Iletisim Hizmetleri Turkey TeliaSonera Sweden Planned to raise its interest to 64% from 3.10(JPMorgan) (Citigroup) 37% by acquiring shares from Cukurova Group.

3/9/05 RAC UK Aviva UK Planned to launch a tender offer to acquire 2.42(Lazard) (Hoare Govett) (Goldman Sachs) the remaining 99.1% it did not already own(ABN-AMRO Holding) (JPMorgan Cazenove) in wholesaler of automobiles and electronics.

3/9/05 Hanjaya Mandala Indonesia Philip Morris Indonesia Indonesia Unit of Altria of US planned to launch 3.14Sampoerna (Credit Suisse First Boston) mandatory tender offer to acquire the

remaining 60% it did not already own in cigarette manufacturer.

3/28/05 Mitsubishi Paper Mills Japan Chuetsu Pulp & Paper Japan Definitively agreed to merge, in a reverse 2.45(Mitsubishi Securities) (Mizuho Securities) stock-swap transaction.

TOP MERGERS AND ACQUISITIONS (MARCH 1, 2005–APRIL 1, 2005)

EUROPE

AMERICA

ASIA

Source: Thomson Financial Securities Data