Day 2 FinanceAsia Achievement Awards 2002 - transactional banking
Best Global Custodian
State Street
State Street is known for its adaptability, doggedness and its shrewd moves - illustrated by its ground-breaking work with exchange traded products. This year the custodian's regional head, KK Tse, has been instrumental in opening up China, one of the hottest potential markets in the region now that qualified foreign institutional investor (QFII) status has been approved. This is being done through a strategic alliance with ICBC, the largest state-owned commercial bank in the country, and through Tse's involvement as chairman of the open-ended mutual funds committee for the CSRC. The committee has provided technical advice to the CSRC, fund management companies, custodian banks, and the China Securities Depository and Clearing Corporation to jumpstart the launch of open-ended funds. State Street is in the process of opening a representative office in Beijing.
Moreover, when you are running a business that deals in trillions of dollars worth of assets, adding a few more trillion in assets is an accomplishment that is difficult to comprehend. But State Street's acquisition this year of Deutsche Bank's global custody book, for $1.5 billion, puts the custodian in a league of its own. State Street made the strategic announcement in November putting an end to months of speculation about the fate of Deutsche Bank's global securities services business.
The Boston-based bank is buying a string of businesses including global custody, fund administration, securities lending, performance measurement and benefit payments. And it is picking up some large clients in Asia, from pension funds and fund managers to regional central banks. The acquisition is a lot to absorb and launches the bank into new areas that it has little experience in, like sub-custody and securities clearing in the UK and US. (The Asian sub-custody business of Deutsche was not included in the sale and has been retained by the German bank.) But State Street's wisdom and years of experience will help make the acquisition a success.
Best Sub-Custody House
HSBC
With each passing year HSBC consolidates its position as the number one sub-custody provider in Asia. In a business where reach and on-the-ground expertise counts, HSBC consistently comes up trumps. In 2002 the bank increased its market share by winning more than 140 new institutional mandates spread across its 28 branch network (which includes operations in the Middle East). One of these wins was for the largest ever client mandate by a foreign bank in Japan, which HSBC successfully secured and transferred. Institutional clients remain loyal to HSBC because of the operational benefits gained from working with a pan-regional provider. Clients praise the bank for its sound local market advice and its ability to lobby regulators and market participants to the benefit of foreign custodians and institutional investors. And HSBC exceeds benchmark service requirements on securities settlement, asset safekeeping and corporate actions. This was exemplified throughout 2002 by its outperformance of GSCS Benchmarks, which measure operational performance.
In difficult markets like India HSBC achieved a successful settlement rate of 95% versus the benchmark for that market of 81% and in Indonesia the bank averaged a clearance rate of 96% versus the benchmark of 80%. These high settlement rates are realized partly due to a bank-wide commitment to using the latest systems including the new SWIFT messaging format known as ISO15022 that HSBC made the switch to well before the implementation date.
2002 has also been an active year in China. HSBC maintained close contact with the Chinese regulators in the run-up to the opening of the A-share market to foreign investors and has already completed an application for a licence to provide on-shore custody to these qualified foreign institutional investors (QFIIs). HSBC's involvement in various regional regulatory initiatives such as this make it the first choice for global custodians and investors looking for local settlement services.
Best Securities Lending House
Northern Trust
Looking back on achievements in 2002, Northern Trust's entry into the Korean securities lending market stands out as a clear triumph. The American custodian has provided borrowers and intermediaries with a cheaper and customer-oriented alternative to the Korea Securities Depository, which up until this year had a monopoly on the lending of Korean assets. Northern Trust is the first custodian to really crack this tough highly-regulated market and answer the demand of big international borrowers like Goldman Sachs and Merrill Lynch who use the securities for arbitrage purposes or for on-lending to hedge funds. The coup is particularly important at a time when Korea is one of the only markets in Asia to retain significant trading volumes.
Northern Trust set up its securities lending operation in Asia when it opened its office in Hong Kong in 1995. Prior to that it traded Asian securities from bases in Chicago and London. It now has a lendable pool of Asian securities worth $22.7 billion with average daily outstandings of $4.6 billion (as of June 30, 2002). The bank specialises in equities in markets like Japan, Hong Kong and Australia.
At an international level it is also known for its strengths in global equities. As another sign of its maturity in this field, David Timpany, the head of Northern Trust's agency business in Asia has held the chairmanship of the Pan Asia Securities Lending Association (PASLA) since April this year. Through PASLA, Timpany has been instrumental in lobbying the Securities & Futures Commission in Hong Kong to ensure that the new Securities and Futures Bill provided an exemption for lenders from the disclosure requirements, and that the rule implemented since 1998 on mandatory buy-ins on T+3 was relaxed. He and Northern Trust are helping to ensure that securities lending remains a vital and vigorous activity in the region.
Best Cash Management House
Citibank
FinanceAsia's annual poll of finance executives from Asian companies again revealed Citibank as the preferred provider of cash management services in the region. Citi beat out its regional archrival, HSBC which like last year came second in the poll. This time 67% of poll respondents voted the American bank as their favoured provider compared with 52% last year. This strengthened position is underpinned by the bank's approach to customer service and its investment in technology that links a company's back office with the bank's cash management platforms.
In fact 49% of the respondents who voted for Citibank rated its technology platforms as the best in the business. The other area that company executives singled out was relationship management, with 47% of Citibank-voters stating that they were very happy with the attention to detail paid by their relationship managers, particularly when it comes to problem solving.
One voter summed it up: "Citibank has certainly approached our unusual business mix with an open mind and a very flexible attitude." And another: "Citibank is innovative in creating new products which can assist its customers."
This innovation is evident in its internet banking initiatives. This year Citibank flicked the switch on an upgrade to its CitiDirect web product, adding new services and languages including Chinese, Japanese, Korean and Thai. It also launched a version of its web-based payment channel in China allowing companies to send domestic renminbi payments to over 7,000 locations in the country.
In this emerging and potentially enormous market in Asia, Citibank its streets ahead of its competitors. Citibank's continued commitment to the region will only strengthen its reputation as a solid and stable cash management partner for local companies. As one poll respondent put it: "When we evaluate our bank providers, product pricing and the ability to customize cash management products are critical factors in our decision making process. Nobody comes close to Citibank in this respect."
Best Trade Finance House
HSBC
HSBC's hold on trade finance services remains firm, winning the award for best trade finance bank for the sixth year running. Widely respected as the largest writer of short-term finance in Asia, HSBC's leading position was confirmed by a poll of exporters and importers conducted by FinanceAsia in the lead up to these awards. HSBC was voted preferred bank for its regional and global coverage. However, this year was a tight race and Deutsche Bank received strong support from poll respondents for its innovation in areas such as longer-term export financing. Deutsche Bank was also commended for its ability to tailor solutions for customers. But when it comes to size and reach, HSBC is still the preferred favourite.
As one poll participant wrote: "HSBC offers financing on competitive terms and can confirm letters of credit from difficult markets where other banks don't operate." Respondents also praised the bank for its quick response times and its fast and accurate processing of documents. "Documents are turned around with 24 hours, or a maximum of 48 hours," says one exporter.
HSBC has invested considerable time and effort in 2002 to improve the electronic processing of trade documents for small to medium enterprises - a market segment that HSBC excels in. Just under a third of the bank's smaller corporate clients who have access to its Business Internet Banking platform are regular users of the trade services that come with the platform. Though still a relatively new offering, companies are using the service to open letters of credit and track the progress of their trade transactions, significantly reducing the length of the trade cycle.
Overall, HSBC keeps its loyal customers happy by standing by them in tough times. As validated by this poll respondent: "Around the middle of 2002, we were suddenly in need of extra trade finance and our needs were promptly attended to by HSBC."
Best Foreign Exchange House
HSBC
We followed the same practice as last year and sent out a poll to over 1000 treasury officials around the region. We asked recipients to tell us who they used most for their forex services, using a first, second and third place ranking.
In all, 291 clients responded and a fairly broad geographical split resulted. The largest number of voters came from Hong Kong, but it only represented around 60 votes out of 291.
The polling process took two weeks, and in the end HSBC won, with Citibank taking second place.
HSBC got a total of 1112 points, and was selected as the first choice forex bank by 146 voters. The poll will no doubt be viewed as a vindication by HSBC of all the hard work it has done for its treasury clients around the region in 2002.
Best Derivatives House
Deutsche Bank
In discussions with its peer group, it soon became clear that Deutsche leads the pack in interest rate and FX derivatives in Asia. Rival banks conceded that Deutsche is the most innovative and aggressive firm in the region.
Its Korean operation in particular is known to be stellar, and highly profitable. Indeed, compared to the slim pickings to be had from investment banking revenues in 2002, Deutsche's 'under the radar screen' Asian derivatives business is vastly lucrative.
The worst its detractors can say is that it has taken some very strong views (for example on Korean interest rates at the beginning of 2002) and got it very right.
Deutsche Bank's Asian derivative business has grown 10 times since 1997. It has a broad presence in all markets thanks to having banking licenses almost everywhere; its product offering ranges across vanilla interest rate and cross-currency swaps, swaption and cap volatility, bond yield and credit spread options, barriers on a suite of interest rate benchmarks and correlation across interest rates, credit and currencies.
There is no doubt that this business - under the command of Asian global markets boss, Jonathan Paul - is the jewel in Deutsche's regional crown.
Best Depositary Receipt House
Citibank
To the naked eye, the business of managing ADR programmes may not appear the most contentious of areas and judging the Depositary Receipt Bank of the year may seem straightforward. However, to draw that conclusion would be a serious mistake.
The business in Asia is dominated by Citibank and Bank of New York. Both are formidable competitors; and both have excellent franchises in Asia.
So how to decide?
This year we decided to look at market shares on new capital raisings; market shares by trading volume of existing ADR programmes; and testimonials from the clients who use their services and ought to be the ultimate judge.
In the first category, it has not been the most active of years, and some disputes arose as to what constituted new DR capital raisings. In the end, having seen various sets of figures, corroborated them, and made a judgement call on a dispute over two transactions, we deemed that Citi was just ahead of Bank of New York in this category, based on total new capital raising of $5.2 billion.
In terms of trading volume, there is less to dispute. Citi has a bigger volume- even though Bank of New York runs a larger number of programmes in absolute terms. For example, Citi has all five of the top programmes by trading volume (TSMC, Samsung Electronics, UMC, KT Corp and SK Telecom). Trading volume is an important consideration because (broadly speaking) the more a programme trades, the more revenue it earns for the depositary house managing the programme.
Then in the area of testimonials, we received 12 from major Asian clients, many of which went into the specifics of why the client felt Citi deserved the award.
Based on these three criteria we give the award to Citi in 2002.
Best Private Bank
UBS
This is always one of the most challenging awards to give each year. By their very nature, private banks are very private, and so it is often very difficult to judge them.
This year we decided to approach this problem by shortlisting the major players and asking them to structure a solution for a hypothetical client. The banks were given a couple of weeks to prepare their solutions and then made one and a half hour presentations to us - as if we were the client in question.
The hypothetical client was a Hong Kong entrepreneur who planned to retire to Shanghai in around 10 years time. He wanted to use some of his funds for charitable goals - namely to put Hong Kong students through US universities. He wanted to make sure that his two children did not inherit any money before they were 40 years of age; and that at 40 they would each receive $100,000 a year in today's money and the capital when they got to 65. Meanwhile, the client had $8 million of investable assets, a HK$10 million home in Hong Kong and planned to buy a place in Shanghai. The client wanted structuring advice on all the above, and was looking to make a return of 6% per year with a low downside risk appetite.
All of the banks that participated in the process this year were excellent; and in reality, each had somewhat different strengths relative to the others.
Broadly speaking the private banking process breaks into the following components. First is the quality and depth of the estate planning and trust structuring advice. Second is the rigour of the investment advisory process and the ability to explain and forecast forward a portfolio based on stress testing. Third is the armoury of alternative investment advice such as structured products, hedge funds and property. Fourth is the most intangible quality of all, and involves how you interact with the individuals in the room.
After some deliberation, we eventually settled on UBS as the winner. The bank met high standards in all of the above. Its structuring advice pointed out all the pitfalls in a clear way. Indeed, Hans-Peter Stadelmann was very impressive in the way he presented his solutions in a manner that had depth without being confusing. Likewise, investment advisor Ivan Leung was very strong, and gave very good analysis of how the portfolio would perform based on back-testing and future cashflow projections; he also excelled in his discussions about hedge funds (both in describing their different strategies and also the debate as to whether data on past performance was a reliable indicator of future performance). All in all, UBS was a polished performer and gave excellent advice in response to a reasonably complicated hypothetical client's needs.
However, we would also like to highly commend CSPB, in particular for its excellent advice on alternative investments as well as insurance; HSBC Republic for its excellent tax and structuring advice; and JPMorgan Private Bank for its outstanding investment advisory process.
Best Financial Law Firm
Freshfields Bruckhaus Deringer
The tough year that all have faced in the financial markets has been equally felt by the legal community. Despite this, Freshfields have thrived in the face of adverse market conditions, winning an impressive array of deals across all product sectors. In particular they have dominated the regional securitization market, which is the most legally intensive area of the financial markets. They acted for four out of the five credit card backed deals to come out of Korea this year as well as two auto loan securitizations. The firm also acted on the Hong Kong Mortgage Corporation's Bauhinia issue, the GT Stars II deal in Thailand and successful deals in Singapore and Indonesia.
On the equity side as well, the teams has been dominant. It successfully worked on a string of high profile IPOs including those for ClearMedia, Media Nation, Media Partners, China Telecom and COSL in Hong Kong; Capital Mall Trust S-Reit and MobileOne in Singapore; and PLUS in Malaysia.
In project finance, the team has been busy on two of the four new petrochemical projects in China that are being financed, as well as the Phu My 2.2, Phu My 3 and Thu Duc projects in Vietnam. In the bond markets, the team has worked on the Telkomsel and RHB issues and has one of the highest profile sovereign mandates due to come out early next year.
In M&A the firm has worked on three deals of note this year: the acquisition of Hyundai Merchant Marine's car carrier division by Wallenius Lines and Wilh. Wilhelmsem; Petrochina's acquisition of Devon Energy in Indonesia; and Anheuser-Busch's acquisition of a stake in Tsingtao Brewery in China.
In a brutally competitive market, Freshfields just pips its competitors this year on the breadth and scope of its financial practise in the region. Its clients, both issuers and underwriters, have only had positive things to say about the team this year. The growing development of its US practise to complement its full service local and UK practises in Asia also mark Freshfields out slightly ahead of its rivals. But there is no time for complacency. The continuing excellence of other UK firms such as Allen & Overy, Clifford Chance and Linklaters means that all mandates will be fiercely fought over. While the US firms, in particular Shearman & Sterling are providing constant competition on the international deals and increasingly more on the local side as well.