Summit Notebook

Skeletons in the closet, sprawling ownership stymie Gulf bank consolidation

Anyone waiting for Gulf banks to consolidate — a long talked about prospect — can forget about it for now.

With debt markets shut, leaving only pricey equity financing, budding suitors are standing frozen, unable to make a commitment.

But the lack of reasonable financing for mergers is not the only obstacle, according to Frederick Stonehouse, head of strategic mergers and acquisitions at Bahrain’s Unicorn Investment Bank .

Valuing the assets of privately-owned banks, the best candidates for consolidation, is no easy task.

“Many of the banks which I feel should be looking for consolidation are unlisted, so how do you value those?” he says.

 And then there is the old, familiar issue of transparency — as in, the lack of it in the region. 

“You think everything may have come out of the woodwork but maybe it hasn’t. You could be going into an institution and paying quite a price for it and then finding that the problems are a lot deeper than you imagined,” he says.

Tax evaders on the run

  By Neil Chatterjee     The U.S. has promised it will hunt down tax evaders.     And it seems tax evaders are on the run.     DBS bank, based in the growing offshore financial centre of Singapore, told Reuters it had been approached by U.S. citizens asking for its private banking services. But when told they would have to sign U.S. tax declaration forms, the potential clients disappeared.       Swiss banks also approached DBS on the hope they could offload troublesome U.S. clients to a location that so far has not been reached by the strong arms of Washington or Brussels.     DBS said no thanks. In fact many private banks and boutique advisors now seem to be avoiding U.S. clients.     Will this spread to other nationalities, as governments invest in tax spies and tax havens invest in white paint?     Is this the end of offshore private private banking?

Geneva is for wealth management

Even for an American who’s not wealthy, Geneva has a reputation as a global centre for wealth management – the place the world’s rich come to stash their money and (they hope) make it grow.

    But you don’t necessarily expect it to be so aggressive — after all, the rich tend to be demure when it comes to their banking.

    Imagine one reporter’s surprise, then, on arriving in the airport in Geneva and seeing bank ads everywhere. Think of the casino adds in Las Vegas’s McCarron Airport or the technology ads in San Jose’s Mineta Airport: it’s the exactly the same in Geneva, only with wealth managers.

    Look left – there’s UBS. Look right – there’s Julius Baer. Look up in the baggage queue – there’s a Swiss bank that emphasises a focus on the Arab world. A complete unscientific guesstimate suggests the display ads in the terminal run about 75 percent wealth management and 25 percent fine watches. (No surprise that every other storefront in the Ville Centre area of Geneva has watches on offer.)

    There is one plus to all of the bank ads in the airport for the less wealthy though. Tell your cab driver to head toward their addresses and you’re likely to find the city’s best cafes.

Debt collecting gets…er, sexy?

Bank employees working in call centers and reminding clients of their overdue loans used to be as far to the bottom of the banking food chain as you could be. Not any more.

Raiffeisen International, the second-biggest lender in eastern Europe, has ramped up staff in its collections and risk management departments.

Active in 17 countries between the Czech Republic and Kazakhstan, it is exposed to a region that is among the hardest hit by the global financial crisis. Rampant loan growth of the last few years has turned into an equally rapid rise of bad debt.

“We substantially increased resources in our call centres, started new ones,“ Martin Gruell, Raiffeisen’s CFO, said ahead of the Reuters Central European Investment Summit in Vienna. “There are 40 percent more employees working in Collections than before the crisis.”

As it is struggling with the rising tide of non-performing loans – they more than doubled in the first half of the year – it has also shifted part of its pool for bonuses to those who are working on saving as much as possible of loans that have become overdue.

“Employees have targets and are getting bonuses depending on how much they are able to collect,” he said. Do they come at someone else’s expense? “Obviously, if there is not such a high demand on our salespeople, bonuses will be lower there.”

And Raiffeisen is feeling that its competitors are doing the same.

Nomura: Lehman taking shape

Nomura’s takeover of Lehman Brothers’ European and Asia businesses is yielding results, and concerns the Japanese bank will struggle to marry cultures is misplaced, according to the man who drove the deal.

“It’s a very successful start and we’ve been happy with what we’ve got,” Takumi Shibata, chief operating officer for Nomura, told the Reuters Japan Investment Summit in Tokyo.

“We are finding surprisingly little differences between Lehman in Asia and Europe and Nomura in Asia and Europe. It was a marriage of two multicultural organisations, and both Lehman Brothers and Nomura aspire to be houses with a collegiate culture.”

Nomura had kept most of the Lehman staff it wanted to, has learnt from past international expansion mistakes, and was winning back business lost in the aftermath of the deal, he said.

It was number three in London equities trading in June, for example — from “nowhere” in December and number 8 in May.  Lehman had been number one before its collapse, however. “There’s no guarantee that we will go back to number one, but we want to be,” he said.

Nomura is also hiring bankers to beef up its U.S. presence, and is applying for an equity license in Australia and looking for a partner in China.

Asia still a wealth of wealth players

A few years ago, domestic and international financial players were chomping at the bit to lure Mrs. Watanabe’s millions of yen or fellow Asians’ yuan, won or dollar holdings from their futons or equal-interest savings accounts.

The global financial crisis in the last year has sparked a rejigging of foreign institutions’ expectations about Asian wealth and their own ability to attract it, with some opting out of the game altogether.

Barclays Asia-Pacific CEO Robert Morrice isn’t letting his rivals’ woes temper enthusiasm.

He says the No.2 British bank will boost staff and its private banking arm, Barclays Wealth, expects to manage $20 billion in Asia outside of Japan by 2012, compared with $10 billion at end of this year.

“We see some very interesting opportunities in that space. We believe we’re still small and need to grow the business aggressively,” he told the Reuters Japan Investment Summit. “We need to be patient and pick our spots.”

India has been one of those, likely to hit $1 billion under management by the end of this year, while its overall staff there now number 7,000.

Bankers’ chief says “vilification” of bankers tough to take

As the president of the American Bankers Association, Edward Yingling has soaked up a lot of criticism of the nation’s bankers in the past year. He has also had to work many hours to fight to ensure that crisis measures by the government don’t cause long-term damage to his members. But the one thing he has had difficulty in coping with is the assault on banking as a profession and links made by politicians and the media between any financial institution that has problems and bankers. He told the Reuters Global Financial Regulation Summit on Tuesday he is angry about the “vilification of the banking industry” given that many bankers had nothing to do with creating the financial crisis. He said the word “bank” appeared in stories in which it didn’t belong. “AIG was not actually a bank,” he said.

Mind you, Yingling remains uncompromising when pushed on how much banks are to blame for the events of the past two years. While acknowledging that some of his members made mistakes, he blames accounting rules that forced banks to value their investments at market levels, even if that didn’t reflect their longer-term value, for much of the damage to the financial system. And, he says, it was liquidity problems and a loss of confidence that caused a bank like Wachovia to be rescued more than the weak quality of the mortgage assets held by Golden West, which it bought in 2006. If anyone is looking for apologies — they won’t get them from this direction.

Central Europeans frown at state bank ownership

Talk in western Europe of possibly nationalising private banks to save them from the credit crisis is sending shivers down the spine of policymakers in ex-communist central Europe.

They remember how their government controlled financial systems completely collapsed in the 1990s and threatened to take the countries’ economies along with them due to pouring money into firms with little prospect of returning it.

“There are very strong attempts to nationalise banks, which, in my opinion, is a very short sighted approach,” Slovak central bank Vice-Governor Martin Barto told the Reuters Central European Investment Summit in Vienna this week.

He pointed to what he said was “very extensive experience with state owned banks” in Slovakia.

The Slovaks bought non-performing assets from state-controlled banks for over 100 billion Slovak crowns ($4.13 billion), or roughly around 12 percent of GDP, prior to their sale to western investors early this decade.

Polish Deputy Finance Minister was also unimpressed when asked about government ownership. “This is a very delicate issue particularly for countries in our region because 20 years ago banks were not private but public,” she said at the summit.

The central Europeans may shrug off the notion of nationalisation at least for now. Their banks, after being cleaned up and sold, have fed on domestic financial services growth in the past decade and have largely avoided the scraping for profit that forced western banks invest into highly leveraged assets that have turned sour.

The credit crisis is affecting us all…

Spare a thought for the mega-rich.

While the man or woman on the street cuts back on non-essential spending as the value of their home falls and they worry more about whether or not they will keep their job, so too multi-millionaires are feeling the pinch.

Javier Arus Castillo, general manager of Santander Private Banking International, explains.

“With the markets down, if you have lost $100 million and have $300 million left then that makes you think. Your life is not going to change but you start to feel a little concerned.

“The top people who have their own plane or have NetJet shares of $8 million and one-third of a jet are now saying ‘does it make sense that to fly from Latin America to Europe costs me $100,000? Maybe I should buy a first class ticket.’”

Puts our own worries in perspective.