European - mediaserver.responsesource.com259+… · VRL KnowledgeBank BENCHMARK INTELLIGENCE ON EUROPE’S LEADING FINANCIAL INSTITUTIONS European Banker February 2007 Issue 259 03

BENCHMARK INTELLIGENCE ON EUROPE’S LEADING FINANCIAL INSTITUTIONSVRL KnowledgeBank

EuropeanBanker

February 2007 Issue 259

03 NEWS

■ Europe’s banks can survive 2007 storms■ Italy seeks transparency and competition in banks■ Turkish bank joins mortgage federation

04 MOSCOW RELAXES FOREIGN INVESTMENT IN BANKS

Interest in Russia’s banking market could become even more competitive this year as new regulations kick in

07 THE GOOD TIMES FOR SPAIN’S POWERFUL CAJAS

Spain’s savings banks have become influential and successful players in the Spanish retail banking market. Their unique business model has won praise from the IMF

08-09 COUNTRY PROFILE: ROMANIA

The growth potential of the Romanian banking market has generated huge interest from Western European banks

10-12 CASE STUDY: DEXIA

Dexia Group wants to expand its retail financial banking arms and its successful public/project finance business

14-15 COUNTRY PROFILE: BULGARIA

With its banking industry dominated by foreign-owned banks, the rush of other European financial institutions into Bulgaria is a testament to the country’s recovery since the painful collapse of its banking sector in 1996

MERGERS AND ACQUISITIONS

The long-awaited auction of one of Germa-ny’s savings banks has finally begun, with ini-tial estimates suggesting that around 20 bid-ders have shown an interest. The city of Berlin is being forced to sell its 81 percent stake in Landesbank Berlin to comply with European Commission rules on competition.

Estimates suggest that the city could receive as much as €5 billion for the bank as bidders fight to take control of a unique opportunity to enter Germany’s undercom-petitive banking market. The sale has been highly controversial in Germany, seen by the savings banks in particular as the start of the end for Germany’s unique three-pillar bank-ing system.

BiddersThe city of Berlin has not revealed the list of bidders although, according to various media sources, possible bidders include Ger-man institutions Commerzbank, HSH Nor-dbank, Deutsche Postbank, Landesbank Baden-Wuerttemberg and UniCredit-owned HVB. WestLB has been the only German group to officially declare its interest in con-nection with the sale.

According to Reuters, at least four large US private equity investors are also involved in the bidding: Cerberus Capital, Christopher Flowers, Texas Pacific Group and Lone Star.

Analysts believe that as much as €1 billion to €2 billion of the valuation of Landesbank lies in the Sparkasse brand name alone. In the run up to the sale, politicians, the DSGV sparkassen association and regulatory authority the BaFin, banded together to con-test the use of the sacrosanct Sparkasse name should the auction be won by a private- sector buyer – but to no avail.

According to the Financial Times, the DSGV has said it is prepared to bid on its own in an attempt to keep the Sparkasse brand out of private hands.

Deka Bank, which is owned jointly by Germany’s savings banks and landesbanken, owns the 10 percent stake in Landesbank Berlin that is not part of the auction. The remaining 9 percent stake is listed on the stock market.

European banks and credit card providers have reacted angrily to the European Com-mission’s final report on unfair, anti-competi-tive banking practices in the European Union (EU). In its 140-page report on the retail bank-ing sector published at the start of February, the commission concluded that there were a serious number of competition concerns for payment cards, payment systems and retail banking products across Europe.

Particular bugbears were large variations in merchant and interchange fees for pay-ment cards, barriers to entry in the payment systems and credit registers markets, obsta-cles to customer mobility and retail banking product tying.

Some market participants have already offered voluntary reforms following the pub-lication of preliminary findings on payment cards in June last year. But the commission said it will use its powers under the com-petition rules to tackle any serious abuses, working closely with national competition authorities.

Neelie Kroes, European Commissioner for Competition, said in a statement: “The inquiry has found widespread competition barriers which unnecessarily raise the cost of retail banking services for European firms and consumers. The commission will make full use of its powers under competition law to tackle these barriers, in the market for pay-ment cards and elsewhere, when they result from anti-competitive behaviour.”

Punitive legislationAlthough the report stopped short of intro-ducing punitive legislation against banks and credit card companies, it did say it would introduce anti-trust suits against the as-yet-unnamed offenders. It also urged credit card companies such as Visa and MasterCard to voluntarily reduce fees.

However, a number of banking associa-tions and credit card providers denied the accusations and warned that the proposed Single Euro Payments Area (SEPA) was in danger if the commission imposed restric-tions on the banking industry.

Through their association body, the Euro-

pean Bankers Federation (EBF), European banks reacted angrily to the suggestion that they were restricting competition. In a state-ment, the EBF said: “The banking industry is fully committed to achieving a high level of competitiveness and providing a high level of service to EU banking consumers. After actively contributing to the success of the Financial Service Action Plan, banks are also willing to attain further integration in the retail market.”

Two particular areas the commission said were in need of change were Europe’s pay-ment cards industry and its retail banking market.

A €1.35 trillion payments cards industryThe European payment cards industry pro-vides the means for consumer payments with an overall value of €1.35 trillion per year. Such payments generate an estimated €25 billion in fees annually for banks from EU countries. The commission’s inquiry found indications of several concerns, including large variations in merchant fees across the EU and large variations in interchange fees between banks.

It warned of high and sustained profitabil-ity – particularly in card issuing – which sug-gests that banks in some member states enjoy significant market power and could impose high card fees on firms and consumers.

The commission’s efforts to lower credit card and bankcard fees are aimed at integrat-ing the EU banking sector by 2010 through SEPA so that there is a framework in place to allow businesses and customers to make cross-border electronic payments with the same ease and costs as within their own countries.

Banks are required to join a new pan-EU payment card processing network by 2010, replacing the country-by-country systems now in place. Card processing networks run by banks in the EU countries demand high prices for cross-border transactions. But inef-ficiencies cost consumers up to €100 billion a year, the commission said.

The report found that in the payments business, the larger national players domi-

COMPETITION

European Commission threatens to clamp down on unfair EU markets

Landesbank Berlin auction finally gets under way

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European Banker February 2007

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BankerEuropean

nated and, in a number of cases, some elec-tronic payment companies form a national monopoly controlling electronic payments.

“The business of acquiring credit cards and debit cards in the international networks appears highly concentrated. The majority of national networks are characterised by a very high level of concentration in card acquiring. Issuing, on the other hand, is much less con-centrated,” the report said.

Commenting on the role of interchange, Peter Ayliffe, president and CEO of Visa Europe, said: “Setting interchange at com-mercially viable rates is a vital element in our system. It ensures the effective operation of a four-party payment system, to the benefit of consumers, retailers and banks. Without interchange it would be difficult to deliver SEPA and it could lead to the end of cards for all, as costs for consumers would increase.”

MasterCard warned the commission that further interference in the setting of inter-change fees runs the risk of derailing the SEPA timetable and accused Kroes of leaving the interchange debate in a “cloud of uncer-tainty that could deter further investment in SEPA initiatives”. It argued that banks may hesitate to continue to invest in SEPA while the commission debates what to do with interchange fees.

A €275 billion retail banking industryThe EU’s retail banking industry generates up to €275 billion per year in gross income, equivalent to 2 percent of EU GDP. But according to the commission, markets are fragmented along national lines, divided by factors including competition barriers and regulatory, legal and cultural differences. In some states, the conjunction of sustained high profitability, high market concentration and evidence of entry barriers raises concerns about banks’ ability to influence the level of prices for consumers and small firms.

One of the commission’s particular griev-ances was the practice of product tying – eg, where a loan customer is forced to buy an extra insurance or current account. “This can reduce customer choice and increase banks’ power in the market place to influ-ence prices,” said the commission.

The report added that with the exception of the Benelux and Nordic countries, there very few players have a leading market share in two or more member states.

In general, the number of non-domestic banks among the leading banks in the mem-ber states is limited. The commission find-ings show that foreign banks tend to have much stronger market positions in the new member states than in the EU15. For exam-ple, the inquiry’s data suggests that in France, Italy, Spain, Sweden and the UK, the top five

banks by market share are all domestic. By contrast, in the Czech Republic and Slovakia the top five banks are under foreign control, as are four of the top five in Hungary and Poland.

Fragmented marketThe report said that many European coun-tries had a fragmented market which led to a restriction of competition. Some countries such as Germany, Spain and Italy have a low percentage of banks controlling market share.

But the EBF said that the commission was wrong to assume that fragmentation was caused by a lack of co-operation. It repeated its conviction that the fragmentation was due to cultural and legislative differences among EU member states.

It said: “Historical evolutions, different standards of living and varying supervisory philosophies must be taken into account when analysing differences, an aspect which the EBF feels was not sufficiently taken into account.”

The commission also warned that co-operation between banks always bore the risk that co-ordination “goes beyond what is strictly necessary to achieve economic ben-efits and affects the competitive behaviour of the co-operating parties, for instance, with respect to price setting or market presence.”

Limiting competitionIt added that effective market competition, in particular, is impeded if independent banks with a significant combined market position engage in anti-competitive behaviour that limits competition among the co-operat-ing parties or hinders third parties (such as potential competitors) from market entry.

“According to market participants, entry is economically viable only at a certain mini-mum scale (translating, for instance, into a certain minimum share per relevant market) and – due to the importance of personal customer-bank relationships – on the basis of established local branch networks,” the report wrote.

“Consequently, it appears particularly dif-ficult to enter a market where a large share is held by banks or banking groups that cannot be acquired because of ownership structures (eg, co-operative banks and some savings banks) and/or regulatory restrictions (eg, some savings banks).”

The commission singled out France – where co-operative banks including the sav-ings banks account for roughly 60 percent to over 70 percent of the different retail prod-uct markets – as a market that is generally viewed as a difficult one for foreign banks to enter.


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February 2007 European Banker


RETAIL BANKING

Europe’s banks can survive 2007 storms

European banks will be able to weather any economic storms ahead, according to a 2007 out-look from ratings agency Standard & Poor’s (S&P). The agency said that “exceptional performance” in 2006 had managed to shore up the top 50 European banks’ defences against rising interest rates and slowing world growth by introducing “fundamental management improvements”.

S&P said the ratings of the banks could come under pres-sure as the European Central Bank is likely to raise rates and European growth is forecast to slow in 2007.

The threat from a dollar crisis, a sharp rise in bond yields and cred-it spreads as well as high oil prices or a geographical crisis could also put banks under stress.

However, the report was mainly positive. It said: “Robust 2006 earnings have put Euro-pean banks in a strong position to withstand a cyclical downturn in 2007, when they will face ris-ing interest rates, a slowdown in GDP growth and a likely increase in corporate defaults.”

Almost 80 percent of out-standing ratings on the banks were assigned a stable outlook as of 1 January 2007, a higher proportion than at any time dur-ing the past five years.

EUROPEAN LEGISLATION

Italy seeks transparency and competition in banks

Echoing the European Union’s review of the banking sector (see page 1), Italy’s antitrust authority is looking for greater transparency on bank current account charges and a reduction in requirements on customers to take other services.

A study of current accounts from 72 Italian banks found that fees varied by as much as ten times from the lowest rates while the heavy costs of closing

an account stopped customers changing banks.

The Italian authority said its inquiry confirmed that the costs of keeping and changing a cur-rent account domestically were much higher than in other major European Union country.

“The total weighted annu-al cost in Italy is about €182 against a much lower European average,” it said.

Noting that the cost varied from €35 in the Netherlands to €108 in Spain, the authority added: “The results confirm the major weakness in the competi-tive process in our bank sector, compared to other countries and the absence of incentives to develop real competition.”

Although already subject to government action, charges for closing accounts – which can be as high as €150 – should be reviewed, said the authority. In addition, reforms should include transparency on costs, leave fees unchanged for a minimum period and offer scope to compare fees.


Shares rise on merger speculation between Benelux banks

An analyst’s report on a plausi-ble scenario of a merger between Benelux banking group Fortis and Dutch bank ABN AMRO sent both banks’ shares rising at the beginning of February.

The report by Keefe, Bruyette & Woods’ analyst Jean-Pierre Lambert cited “solid financial rationale” behind any potential merger and believed it could cre-ate €1.6 billion in pre-tax cost synergies.

A merger would create the largest bank in the Benelux area and Lambert said the main contributors to cost synergies would be wholesale activities, which have been a “perennial underperforming activity at ABN AMRO” and retail bank-ing in the Benelux region, as “both banks have considerable experience with restructuring retail services”.

However, even though both

banks are known to be looking for mergers, particularly in the Belgium banking market, other analysts are sceptical about any merger talk. Considering ABN AMRO’s disinterest in insurance and the differing managerial structures, many believe there would not be the strategic fit that Lambert claimed.

Both ABN AMRO and For-tis refused to comment on the report.

BUSINESS STRATEGY

UniCredit subsidiaries streamline investment business

UniCredit’s streamlining of its business lines has continued with the sale of Nordic-German investment society Nordinvest from HypoVereinsbank (HVB) to UniCredit-owned Pioneer Global Asset Management (PGAM).

The move of Nordinvest between the two UniCredit sub-sidiaries consolidates the asset management business under one roof at PGAM. As a result, HVB will increase its use of the asset management business and PGAM will provide a corre-spondingly wide product range to the entire group and its cus-tomers.

EUROPEAN STRATEGIES

Turkish bank joins mortgage federation

Following six months of nego-tiations, Turkey’s Garanti Bank has joined the European Mort-gage Federation (EMF). EMF members account for almost 75 percent of Europe’s residential and commercial mortgages and Garanti becomes the first Turk-ish member of the (now) 45-member group.

“The Housing Financial Unit, established within the personal banking department, has exper-tise in Turkey’s housing market which is booming,” said Garan-ti’s executive vice-president, Ali Fuat Erbil. “Our brand recogni-tion in foreign markets, our long-run approach on housing issues and the 40 percent increase in

our market share in the last two years all played important roles leading to our membership.”


NBG ups stake in Finansbank

Greece’s largest lender, Nation-al Bank Group (NBG), has increased its stake in Turkey’s Finansbank to 89.44 percent fol-lowing its offer to buy up minor-ity-held shares.

NBG said it gathered an addi-tional 5.43 million common Finansbank shares, representing 43.44 percent of the bank. The offer for minority shares ran from 8 January to 29 January this year. NBG was the first Greek bank to expand into Turkey and acquired 46 percent of Finansbank for €1.91 billion last year.


Subsidiary merges with Finnish owner

Finland’s OP Bank Group, the country's largest financial servic-es group, has streamlined its cor-porate structure with the merger of its subsidiary Phojola Group into the core business.

The merger is aimed at increas-ing the efficiency of business and cutting administrative costs. After the merger, Pohjola Non-Life Insurance, A-Insurance, Eurooppalainen Insurance and the Seesam non-life insurance companies operating in the Bal-tic states will continue operations as subsidiaries of OKO Bank and together form the non-life insur-ance business line of the OKO Bank Group.

OKO Bank acquired a major-ity holding in Pohjola in the third quarter of 2005. During the third quarter of 2006 the number of customer households in non-life insurance increased by 7,200, contributing to an increase of over 27,000 households from the beginning of 2006. Accord-ing to the bank, almost 90 per-cent of this growth was achieved though co-operation throughout the OP Bank group. Annual cost synergies are expected to run at €24 million per year.

NEWS DIGEST


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Russian banking stocks have been hit-ting new highs in the wake of fresh legislation to encourage foreign investment in local financial institu-

tions, opening up the country’s banking sys-tem to further penetration by overseas banks. The new law grants foreign banking groups that want to buy bank shares the same rights as local investors. Signals from the Kremlin suggest that the Russian government will now tolerate up to one-third of the capital of the country’s banks becoming foreign-owned.

Senior government officials stress that for-eign players will not be allowed to dominate Russian banking. The share of foreign capital in its banking system would grow very gradu-ally, rising to 30 percent to 35 percent within five to seven years, they indicated.

In its year-end vote, Russia’s parliament passed legislative amendments to encourage the flow of foreign capital into the Russian banking sector. The largest transactions com-pleted in 2006 show that non-residents have not been active enough in the market, accord-ing to officials.

The amendments simplify the procedure for banks to raise capital from what the legisla-tion termed “non-residents”. Effective 1 Jan-uary, foreign investors must inform regulators if they buy more than 1 percent of shares in a Russian bank and seek permission to build a stake of more than 20 percent.

The amendments will “expand the investor base for Russian banking shares”, witnessed by the surge in stock prices, Deutsche Bank said in a research note.

Growing opennessThe measures underline the growing open-ness of the Russian banking sector and the Kremlin’s intention to continue improving the health of local banks. In addition, the rules do not prevent foreign companies from oper-ating on the Russian market or developing specified banking services.

According to the central bank, 1,154 lend-ing organisations operated in Russia as of the end of 2006. Of these, 149 were banks with foreign capital, including 51 banks with 100 percent foreign capital and 12 with more than 50 percent of foreign capital.

Non-residents’ share of the aggregate capi-tal of the Russian banking sector has grown from 11.2 percent in early 2006 to 14.4 per-cent as of last October.

A burst of acquisitions last year, often for institutions with major retail banking opera-tions, illustrate the foreign interest in Russia. The economy is in its eighth straight year of growth and its relatively undeveloped bank-ing system has been regarded as ripe for for-eign involvement.

In the past 12 months, Austria’s Raiffeisen International bought 100 percent of Impexbank for $550 million (€424.27 mil-lion) while France’s Société Générale bought 20 percent of Rosbank for $634 million with an option to buy another 30 percent for $1.7 billion by the end of 2008. The Nor-dic region’s Nordea acquired 75 percent of Orgresbank for $313.7 million.

New expertiseAt the same time, Russian banks are show-ing increased willingness to cooperate with foreigners to attract new capital and exper-tise. The central bank acknowledges that for-eign participation often makes local banks increase their business transparency and improve corporate governance as well as introducing competition to benefit Russian consumers.

Nonetheless, Russia’s biggest banks still have “considerable room’’ to improve the amount of information they provide inves-tors after making progress in the past year, ratings agency Standard & Poor’s (S&P) has declared. In a survey of transparency among Russian institutions, S&P said it regarded MDM Bank, BIN-Bank and Alfa Bank as the three most open banks among Russia’s 30 largest lenders. Even so, MDM’s top score of 69 percent on S&P’s transparency scale fell short of the average 79 percent at the world’s top ten banks.

Meanwhile, the Russian population is showing greater confidence in their banking system, witnessed by a rise in retail deposits. Between September 2005 and September 2006, the value of Russians’ deposits grew by more than 30 percent from RUB2.41 trillion (€70.12 billion) to RUB3.26 trillion.

Only one quarter of Russians are estimated to keep their savings in bank accounts. The rest prefer to keep cash at home or invest in more profitable products than bank deposits. Tsirkon, a Moscow research group, believes that as the economic situation improves and people’s incomes grow, the number using bank deposits for savings will increase.

Deposit influxAmong individual institutions, the giant Sberbank benefited more than most banks from the deposit influx. Its individual depos-its jumped by 30.7 percent from November 2005 to November 2006. The value of its long-term deposits, those made for more than three years, grew by 45.5 percent.

The latest amendments are expected to especially favour Sberbank, which plans to sell as much as $7.6 billion of shares this year. The central bank, which owns 63.8 percent of Sberbank, is to buy about a quarter of the share issue in order not to over-dilute its hold-ing.

Moreover, interest in Russia is grow-ing almost by the month. Bank Austria Creditanstalt (BA-CA) has finalised the acquisition of a 19.77 per cent shareholding of International Moscow Bank (IMB) from VTB Bank (France) for $395 million. Pursu-ant to the agreement signed earlier this year by BA-CA and Hypovereinsbank (HVB), BA-CA is also expected to acquire HVB’s 70.26 per cent shareholding of IMB. Completion of this transaction is expected by the end of the first quarter of 2007.

Swedish bank Swedbank has said it plans to bolster its earnings from eastern Europe by launching retail banking operations in Russia. In an interview with Dow Jones, chief execu-tive Jan Lidén said Swedbank aims to have a strategy in place this year for growth from its Hansabank unit, possibly by June.

ABN AMRO is planning to launch retail banking services in Russia this autumn, local newspaper Kommersant has reported, citing unnamed sources. The bank held a tender among recruitment agencies in the second half of last year to find 300 employees to work in consumer banking, the paper said, citing a Moscow headhunter.

Moscow relaxes foreign investmentInterest in Russia’s banking market, already red hot after a dramatic 2006, could become even more competitive this year as new regulations aimed at opening up Russia to foreign banking groups kick in, writes John Evans. A number of European banks are already showing an interest

COMPETITION: RUSSIA


5



A spate of mergers and acquisition predicted in Europe’s life insurance industry this year has got under way in grand style with the announce-

ment that Allianz intends launching an offer to buy the 42.4 percent minority interest in its French subsidiary AGF for $12.6 billion.

The AGF offer breaks the $10 billion mega-deal hurdle for the first time since the late 1990s and well exceeds the largest deal in 2006: Axa’s purchase of Winterthur Life for $10 billion from Credit Suisse. Of the total amount Allianz is to pay for AGF, $8.8 billion will be in cash and $3.8 billion in Alli-anz shares.

In addition to AGF, Allianz has announced that it will launch a $900 million cash offer for the 9 percent that it does not own of Alli-anz Leben, its German insurance unit. Both the AGF and Allianz Leben offers to minority shareholders are at a premium of 19.1 per-cent to the six-month volume weighted aver-age of their share prices.

The unconditional offers will be followed by a squeeze-out of minorities who do not accept the initial offers. In the case of AGF, a cross-border merger would also be con-sidered, said Allianz. Cash for both deals will come from internal resources and, said Allianz, “represents an efficient use of excess capital”.

Allianz explained that the buyouts are an outgrowth of a strategy that began last year to, as it put it, “thin the thicket of sharehold-ings and supervisory boards that have made the company, while profitable, difficult to manage”.

The first decisive step towards rationalisa-tion was to convert Allianz AG into a soci-etas Europaea (SE) in 2006. As Allianz SE, it established itself as a single pan-European company, eliminating the need to incorporate subsidiaries under individual national laws. This facilitated last year’s buyout of Allianz’s Italian subsidiary, Riunione Adriatica di Sicu-rità, for $7.3 billion, the first major move in its streamlining strategy.

The proposed buyouts of AGF and Alli-anz Leben are equally key parts of Allianz’s rationalisation. AGF constitutes a major part of Allianz’s operations, contributing

16.3 percent to its global life and health pre-mium income and 20.4 percent to its global general insurance premium income. AGF, in which Allianz acquired a majority stake ten years ago, is the eighth-largest life and health insurer and third-largest general insurer in France.

The acquisition of control of AGF will also automatically ensure full control of Allianz’s operation in Spain, Allianz Seguros, the coun-try’s 12th-largest life insurer and third-largest general insurer. AGF owns 48.3 percent of Allianz Seguros and Alliance SE the balance.

AGF also holds significant market shares in Belgium, where it is the seventh-largest life and general insurer, and in the Netherlands, where it is the tenth-largest life insurer and sixth-largest general insurer.

The buyout of minorities in Allianz Leben represents an important clean-up exercise. “Buying out the minority shareholders will make things a lot easier for us,” said Maxi-milian Zimmerer, Allianz Leben’s chairman. For example, he said, servicing the more than 10,000 minority shareholders of Alli-anz Leben represented an extremely work-intensive exercise.

Allianz Leben, Germany’s biggest life insurer, has more than 11 million contracts and a market share of 23.5 percent, based on new premiums. It is also the German market

leader in the private and corporate pension business. Total assets under management stand at €126 billion ($163 billion).

The proposed buyouts of AGF and Allianz Leben minorities will complete the restruc-turing of its largest European operating units, said Allianz. It stressed that it would not be making an offer to minorities of AGF’s cred-it insurance subsidiary, Euler Hermes, as it does not constitute an essential part of the assets of AGF in terms of French stock mar-ket regulations. AGF owns 70.77 percent of Euler Hermes.

Increasing M&A activityMerger and acquisition (M&A) activity in the insurance industry in 2007 is likely to exceed even the high levels recorded at the end of last year, according to investment bank Keefe, Bruyette & Woods (KBW).

Though in value terms M&A activity in the European insurance industry in 2006 was still well below levels experienced in the late 1990s, it improved on the already strong increase seen in 2005. According to KBW, deals valued at a total of $52 billion had been executed by the end of November last year, up from $43 billion in 2005 as a whole. At 72, the number of deals increased by just over a third compared with 2005.

However, the mega-deals of the late 1990s that exceeded $10 billion remained elusive and during 2006 only three deals exceeded $5 billion in value. The largest of these was Axa’s purchase of Winterthur Life for $10 billion from Credit Suisse. This was followed by UK company Resolution Life’s acquisition of Abbey’s UK and offshore life insurance book for $6.7 billion and the sale of Finnish composite insurer Sampo’s banking opera-tions to Danske Bank of Denmark for $5.2 billion.

KBW named insurers it sees as being the most likely candidates to be acquired. Of life insurers topping the list in terms of size, the largest is Irish Life & Permanent which, with a market capitalisation $7.3 billion, has the potential to test the mega-deal threshold.

Other acquisition targets include Italian group Mediolanum Assicurazioni and the UK’s Royal & Sun Alliance.

MERGERS AND ACQUISITIONS: INSURANCE

Allianz's multi-billion buyout spreeEurope’s insurance industry could be set for a year of strong market consolidation. Allianz has begun the year with a number of deals aimed at simplifying its structure and setting the groundwork for future growth both across key markets in Europe as well as abroad

Source: Keefe, Bruyette & Woods

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■ EUROPEAN INSURANCE INDUSTRYValue of corporate transactions


6



Nordea, the largest bank in the Nor-dic region, has a market capitalisa-tion of €28 billion and enjoyed an operating profit of €2.85 billion in

the first nine months of 2006 (full year 2005 operating profit was €3.0 billion). How-ever, like most large institutions, it has had to come to terms with finding efficiencies of scale and consolidate differing systems that it inherited after Nordea was formed through the merger of five banks back in 2001.

Although the cost-income ratio has come down ten percentage points since 2002 to 53 percent, total operating costs amounted to €3.76 billion in the first nine months of last year and is expected to be higher in 2007. Head of group processing and tech-nology at Nordea, Markku Pohjola, says the economies of scale are becoming increasingly important for the company as it looks to maintain double digit growth over the next five to ten years.

“We have seen how price pressure is going to continue on several products. We have seen it in mortgages and we know in the payment areas what is going to have an effect such as the Single Euro Payments Area, for example. So cost efficiency, productivity and econo-mies of scale are important, in that respect, to survive in the marketplace,” he says.

Nordea has been measuring all areas of the bank under a process it calls the Nordea Transformation Programme and has a clear target to increase productivity across all product lines. “The productivity does not just come from IT investment or straight-through processing, it also comes through more efficient manual work processes,” says Pohjola. “Without clear attention to these issues we would have not been able to swallow the high increase of the volume and number of transactions during the past two years.”

Increased productivityThe group has identified three areas in which it hopes to achieve increased productivity and cost efficiency: leaner banking; a reduction of external spending; and the use of sourcing to gain competitive advantage. Pohjola says that Nordea was looking at reducing 75 percent of the annual €1.5 billion procurement spend and “an efficient procurement and purchase is, of course, key in order to do that properly and have benefits of scale”.

The group is also using partnerships in various areas of business in order to improve its cost efficiencies and to improve the man-agement of different processes.

One of the biggest examples of this outsourcing is its contract with compu-ter company and consultancy IBM to run its IT operation. “We have completed the centralisation of mainframes to Stockholm from various locations and that has not been a small task. In fact, it has been a very big task in every comparison to the Nordic and European perspective. So these are the areas where we are acting as far as efficiency for the future is concerned,” Pohjola says.

Nordea is following other financial servic-es companies by launching what it describes as a “lean banking” platform. This involves, among other thing, streamlining end-to-end processes, encouraging collaboration across the organisation and, as Pohjola says, pro-moting empowerment and improvement via a ‘bottom-up’ approach combined with ‘top-down’ performance management.

He continues: “This is the basis for the continuous improvement of our platform in

the future. Lean banking deals with end-to-end processes from a customer value basis. If it is not of value to the customer it should not be done. We base this also by stimulat-ing teamwork and collaboration not only in the places where the processes are done but throughout the whole value chain that deals with this specific product.”

Pohjola says the result is increased cus-tomer satisfaction through shorter lead times and easier customer interaction. In addition, there is increased productivity through either decreased costs or increased volumes coupled with decreased risks and improved quality.

Nordea has already introduced the pro-gramme in 17 areas and claims an improve-ment in productivity, quality or lead time of around 20 percent to 30 percent.

Targeted spendingCost is also a big issue, and the company addresses this through targeted spending. Between 2003 and 2006, sourcing capital management grew its savings from €5 million to €107 million; savings under its premises management programme rose by €40 million to an expected €55 million in 2006.

Pohjola comments: “All this is about good management we did not have before. Now we have it in place. Now we have profession-als who are professionals in procurements and managing contracts, and that is a big improvement for us.”

Nordea’s Transformation Programme is a core component of the company’s suc-cess, according to Pohjola. The programme specifically addresses the retail processes, products and underlying systems. Nordea eschews focusing solely on its IT systems and adopts what it calls a holistic view of the value chain, how it services clients, how it handles the transactions after the comple-tion of the deal and how the underlying IT systems perform.

Pohjola says: “Everybody understands that the starting point for Nordea has been extremely complicated. Five big banks have been brought together in order to form Nordea and everybody had different systems, different kinds of ways of handling the cus-tomers, different kinds of processes.”

STRATEGY: NORDEA

Nordea cuts now to grow laterNordea is implementing a programme that seeks to cut costs and increase efficiencies so that it can continue its double-digit growth strategy in years to come. Simon Miller looks at how the largest bank in the Nordic region is identifying areas where it can improve its business

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Source: Nordea

■ COST MANAGEMENTNordea – costs rose slightly in 2006


7



Times have never been better for Spain’s savings banks, the powerful cajas de ahorros, whose profits grew 33 per-cent in the first nine months of the

year, reaching €6.23 billion, according to the Confederación Española de Cajas de Ahorros (CECA), their umbrella organisation.

The performance was boosted by the results of the two biggest cajas, Barcelona-based La Caixa and Caja Madrid, whose profits were up 52.2 percent and 35.1 percent, respectively, at the end of the third quarter. Smaller outfits are also faring well and most are spreading their tentacles well outside their home prov-inces, whose frontiers used to mark the limits of their territorial ambitions. Expansion to foreign markets has been mooted ever more loudly by the boldest of them.

“The tide is good for the cajas, but the Span-ish market doesn’t have much more to grow, so going abroad is a necessity for them”, says Alfonso García Mora, a banking expert at InfoAnalistas, a Madrid-based consultancy.

The positive news is the result of manage-ment improvements and efficiency gains that have helped the cajas to grab a bigger share of the Spanish retail market. As of October 2006, they had the lead in current and savings accounts, with 56.61 percent of the market.

Widening rangeThe trend is not new. Ever since the Spanish financial market was deregulated in 1977, the cajas have been widening the range of prod-ucts and services they offer to the general public, as well as making noticeable inroads into sectors like asset management, invest-ment banking and private banking. They already manage 28.9 percent of the country’s investment funds.

La Caixa and Caja Madrid have consoli-dated their places as the third- and fourth-largest banks in Spain, behind international behemoths Santander and BBVA.

The discipline of a competitive market took care of the laggards, with mergers and acquisi-tions reducing the number of cajas to 46 from 84 over three decades. The province of Anda-lucía alone lost eight of the 14 saving banks it housed in 1988, and it is likely to be the stage of another merger, involving El Monte and

San Fernando, both based in Seville.According to García Mora, one of the main

factors that help to explain the cajas’ success is their much closer relationship with the public than other banks. They must allocate at least half their profits to reserves (the per-centage will usually be considerably higher); the remainder is reinvested in the community, taking the form of cultural events, education-al initiatives or other social works.

A study by the International Monetary Fund (IMF) published in June this year reck-oned that social works funded by cajas’ money benefit 96 percent of the Spanish population. Separate statistics gathered by CECA show that social investments by all cajas amounted in 2005 to €1.34 billion, equivalent to 21.5 percent of the sector’s net profits, and gener-ating almost 30,000 jobs.

The closeness with the public is reinforced by the fact that the cajas are major investors in small and medium business, particularly start-up companies based in local communi-ties. It is estimated that they have a share in over 2,000 Spanish companies, 95 percent of which are not listed. Some of the portfolios are very impressive, including stakes in many the jewels of the country’s industrial crown, an outcome of the active role played by the cajas during the privatisations of the 1990s.

For instance, the recent announcement by La Caixa that it plans to float part of its

industrial portfolio have caused a stir in equi-ty markets, as it includes considerable stakes in companies like Repsol (oil) and Telefónica (telecommunications).

Banking market shareBut the cajas have not relied exclusively on good deeds to increase their share of the banking market. They have also been offer-ing innovative products and services to face the challenge posed by Spain’s very competi-tive retail banks.

Take consumer credit, for instance: Caja de Ahorros de la Inmaculada (CAI) pioneered lending from ATMs in the country, and other cajas have followed its lead, including La Caixa, Bancaja and Caja Navarra.

Others cajas have been paying higher interest rates on current accounts than tra-ditional retail banks, and many of them have stretched themselves much beyond their home provinces. Bancaja alone has opened 104 new offices in 2004 and 2005, and La Caixa, with almost 5,000, has more branches in Spain than Santander. “The cajas have diversified their activities, and results have been good”, García Mora remarks.

But the cajas’ increasing assertiveness also draws criticism from several fronts. Some peo-ple in the banking business have complained that, while the cajas can be major sharehold-ers of retail banks (La Caixa, for instance, owns 13.8 percent of Banco Sabadell), the lat-ter are not allowed to own their rivals, which have no share capital.

The cajas’ advocates pay little heed to the criticism, saying that they’ve made huge improvements in management, that the cen-tral bank keeps a close eye on them and that pressure by stakeholders – including employ-ees and the general public – to put ever more money in social works force them to be efficient, as they are prevented from issuing equity to increase their capital.

Indeed, the cajas’ model of banking with social benefits is the subject of studies by international institutions like the World Bank and the IMF, and there are some who believe it could be replicated in other countries, par-ticularly in emerging markets, bringing the same kind of success achieved in Spain.

The good times for Spain’s powerful cajasExpanding both domestically and abroad and taking market share from their commercial rivals, Spain’s savings banks have become successful players in the Spanish banking market. Their involvement in social responsibility is helping to weld them into local communities – and customers, says Rodrigo Amaral

SAVINGS BANKS: SPAIN

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■ CHANGING MARKETSSpain – market share of deposit taking, 1991-2003

Source: Analistas Financieros Internacionales


8


www.vrlknowledgebank.com COUNTRY PROFILE: ROMANIA

The largest of the Balkan countries, Romania, joined the European Union (EU) on 1 January 2007 along with neighbour Bulgaria (see pages 14 and

15), the most significant development in the country’s history since the downfall of Nico-lae Ceauşescu’s communist regime in 1999. With the seventh-largest population in the EU – some 21.6 million people – Romania is second in population size only to Poland in Eastern Europe.

Its GDP of €97 billion in 2006 allowed Romania to overtake Hungary to be ranked the 17th-largest economy in the EU. But the economy is still relatively small, ranking last but one in the EU25 in terms of GDP per capita last year: €4,482, approximately 19 to 20 percent of the European average. A low level of household wealth, sluggish corporate investment and weak confidence in the banking sector has so far limited the demand for banking services.

Since 2000, however, Romania has attract-ed increasing amounts of foreign investment, estimated at $6.3 billion in 2005, according to a recent report from the World Bank. The same report ranked Romania 49th of 175

economies in ease of doing business, scoring higher than other countries in the region such as Hungary, Poland and the Czech Republic.

Additionally, the World Bank judged Romania to be the world’s second-fastest economic reformer in 2006, largely as a result of the country adopting new labour regulations that encourage businesses to employ first-time workers. In the first half of 2006, the International Monetary Fund reported a GDP growth rate in Romania of 7.4 percent, driven by strong growth in construction, industrial output and services. Ratings agency Fitch Ratings forecasts 5.6 percent GDP growth and 4.8 percent infla-tion in 2007.

Although lending growth has been very rapid in Romania since 2002, banking assets equalled 45 percent of GDP and loans equalled 21 percent of GDP at the end of 2005, according to ratings agency Fitch (2004: 36 percent and 17 percent), reflect-ing a relatively low penetration of the bank-ing system in Romania compared with more developed markets, as well as less developed countries in the region.

According to ratings agency Standard &

Poor’s (S&P), Romania’s central bank, the National Bank of Romania (NBR), has tar-geted additional reductions in the inflation rate, a real appreciation of the Romanian currency (the lei), an increase in real inter-est rates, a slowdown in consumption, an acceleration of savings, a deceleration of imports growth and a slight reduction in the trade deficit. These changes, says S&P, will aid Romanian banks as they are expected to boost much needed domestic currency cus-tomer deposits.

S&P reports that depositor confidence in the banking sector is returning and this, cou-pled with low wealth and growing domestic consumption, has helped the savings envi-ronment compared with peer countries. The agency forecasts that the improving financial position of the corporate sector and a broad-ening of savings products for households can be expected to support future savings dynamics.

Currently, bank deposits are the savings vehicle of choice of Romanians, given that the stock markets and life insurance industry are underdeveloped.

Relatively small banking systemThe Romanian banking system remains small and relatively concentrated. The top five banks in Romania (of 39 in all) repre-sent 61 percent of the banking sector’s total assets. Like other Central and Eastern Euro-pean countries such as Poland and Bulgaria, foreign banks dominate the country’s bank-ing system.

The Romanian government cancelled the privatisation of the country’s last state-owned bank, the savings bank Casa de Economii si Consemnatiuni (CEC) in December 2006, due to lower-than-expected bids from the National Bank of Greece and Hungary’s OTP Bank, and will focus on restructuring the bank before trying again to sell it. At the time of the cancelled privatisation, the Romanian finance minister announced that the government planned to inject €150 mil-lion into CEC.

CEC had attracted the interest of potential investors including Banca Monte dei Paschi di Siena, Hungary’s OTP (already present in

Profits beckon for the early moversThe growth potential of the Romanian banking market in terms of retail deposits and loans has generated huge interest from Western European banks. Significant investments have been made in the country by the likes of Erste Bank, Société Générale, Raiffeisen and UniCredit. Douglas Blakey reports

■ MARKET FUNDAMENTALSRomania – selected financial ratios, 2005

Banca Comerciala Romana

Banca Romana pentru Dezvoltare Bancpost

Banca Transilvania

Banca Romaneasca

Total assets (RONbn) 34.20 19.70 5.80 5.10 2.30

Total equity (RONm) 4,008.00 1,824.00 796.60 516.10 212.90

Net income (RONm) 655.70 492.40 -4.30 107.30 10.50

Operating ROA (%) 3.02 3.82 -0.02 3.16 0.95

Operating ROE (%) 19.79 36.31 -0.65 29.98 16.81

Loans-assets (%) 47.73 51.38 42.79 59.33 63.3

NIM (%) 7.09 8.57 8.27 9.14 5.64

Cost-income (%) 61.93 49.82 100.29 70.25 81.96

Cost-average assets (%) 4.92 4.38 7.36 8.38 7.58

RATINGS OF BANKS (FITCH)

Long-term A- A- A- BB- BBB+

Short-term F2 F2 F2 B F2

Individual C/D not rated D D D

Outlook stable stable stable stable stable

Note: HVB Tiriac had no financial statements at end 2005 due to the merger of Banca Tiriac and HVB Romania in September 2006. Source: Fitch Ratings


9



the country with OTP Bank Romania, which has 27 branches and a 0.64 percent market share), Raiffeisen International Bank, EFG Eurobank and Dexia.

Despite a modest market share of 4.5 percent, CEC is the owner of the country’s largest branch network (1,405 branches) and holds €1.53 billion in assets. It made a pre-tax profit of €1 million in 2005, serves about 3.1 million customers and held €1.31 billion in deposits and €511 million in loans at the end of 2005.

Major playersThe big five banking groups – BCR, BRD, Raiffeisen, HVB UniCredit and ABN AMRO – are topped by the recently privatised Banca Comerciala Romana (BCR), which boasts a 25.6 percent market share. Priva-tisation of BCR in the second half of 2005 and the acquisition by Austria’s Erste Bank of a majority stake in the bank, so far the largest bank privatisation deal in Romania, increased the share of foreign owners in the banking system capital to almost 90 percent as of the end of 2005.

Erste Bank was the successful investor chosen by Romania’s Authority for State Assets Recovery from a list of seven bid-ders, the others being Deutsche Bank, BNP Paribas, Banca Intesa, Dexia, National Bank of Greece and Portugal’s Banco Comercial Português.

Erste Bank recently boosted its ownership of BCR to 69 percent by acquiring nearly all of the shares owned by BCR’s staff (7.2 per-cent) for €490 million. BCR has announced plans to increase its branch network from 450 to more than 500 within the next year.

Banca Romana pentru Dezvoltare (BRD), in which Société Générale is the majority shareholder, ranks number two in the mar-ket with a market share of 14.75 percent and assets exceeding €8 billion. In 1998, BRD was the first bank to be privatised in Roma-nia and now has 2 million customers and 530 branches (compared with 450,000 cus-tomers and 190 branches when privatised).

Raiffeisen, the Austria-headquartered co-operative that bought Banca Agricola in 2001, ranks number three, with a mar-ket share of 9 percent and assets worth €3.2 billion at the end of 2005. Raiffeisen CEO Herbert Stepic said at the time of the bank’s failed bid for CEC last year that he believed CEC would provide access to “mass busi-ness, low-income clients” and complement its existing business.

“Our offer for the 69.9 percent stake in CEC reflected our perception of the bank’s value, given the restructuring effort needed for the bank’s turnaround. We always said that we are highly interested in the Roma-

nian market and, therefore, the acquisition of CEC would have made sense for us. But not at any price,” said Stepic.

He added that Raiffeisen International now plans to grow its existing Romanian subsidiary organically and extend the latter’s network by 40 to 50 branches over the next two to three years (see EB 253).

The merger of HVB Bank and Ion Tiriac Commercial Bank was concluded last year and during 2007, the bank will complete its merger with UniCredit Romania. In 2006, HVB Bank and Bank Tiriac had a market share of 7.5 percent with assets worth €2.64 billion – an increase of 44 percent compared to its 2005 figures – and 130 branches.

In an interview with Romania’s English-language newspaper Nine O’ Clock in early February, Rasvan Radu, chief executive of UniCredit Romania, stated that the newly merged bank would open ten new branch-es in 2007 and that he expected the bank to overtake Raiffeisen in terms of market share.

Alpha Bank Romania, which had a mar-ket share of 4.4 percent at the end of the third quarter of 2006, has announced that it is aiming for a top five position in the mar-ket by 2010. The bank plans to increase its branch network from 70 to 125 by the end of 2007 and targets 150 branches by the end of next year. Innovative mortgage products – Alpha was the first bank in Romania to introduce a mortgage credit product – will form a part of Alpha’s ambitious expansion plans.

At the end of January this year, further evi-dence of foreign banks’ interest in the Roma-nian market came from a statement by Por-tugal’s Banco Comercial, announcing plans to start a 40-branch bank in Romania.

Margin pressureProfitability in the Romanian banking sys-tem has been volatile and vulnerable to eco-nomic trends. Fitch reports that the NBR has raised banks’ liquidity requirement to limit

their high growth of lending, which has put additional burdens on banks’ profitability.

The NBR is aiming to control retail lend-ing growth by limiting household debt to 40 percent of family income, or 35 percent in the case of mortgages. Fitch has expressed concerns about the continued rapid loan growth in Romania, as well as the possibility of increasing competition leading banks to target less creditworthy customers in order to gain market share. In addition, the per-formance of new borrowers with increasing indebtedness through a full economic and interest rate cycle is as-yet untested.

Ongoing privatisation of state-owned banks and the entrance of foreign ownership have improved corporate governance in the Romanian banking system. In its most recent Romanian survey, S&P concluded that the regulatory environment has improved in recent years, given the progress made on strengthening the NBR’s ability to monitor and discipline the banks and the recent shift to risk-based assessments.

The NBR is encouraging improved govern-ance in the banking sector, and is planning to increase the accountability of bank directors and executive management. In this way, the NBR expects to introduce greater market discipline in the long term, while moderat-ing the likelihood and extent of regulatory intervention.

Ratings agency Moody’s has, howev-er, upgraded Romania’s ratings to Baa3, prompted by continuing improvements in Romania’s economic institutions and a reduction in the government’s debt. Moody’s analyst Kenneth Orchard said: “Romania’s progress in most relevant areas has reduced credit risk to the point where the country can now be considered an investment-grade credit.”

Moody’s also predicted that deepening trade, financial and institutional integration with Europe should help Romania to con-tinue along the path of reform and to reduce policy variation.

COUNTRY PROFILE: ROMANIA

■ FOREIGN OWNERSHIPRomania – top seven players

Rank Name of Bank Main owner Assets, 2005 (€bn)

1 Banca Comerciala Romania Erste Bank (69%) 9.26

2 Banca Romana pentru Dezvoltare Société Générale (58.3%) 5.20

3 Raiffeisenbank Raiffeisen Group (99.5%) 3.17

4 HVB Bank and Bank Tiriac UniCredit/Bank Austria Creditanslalt (50%) and Ion Tiriac (50%)

2.64

5 ABN AMRO Bank Romania ABN AMRO NV (100%) 2.29

6 ING Bank Romania ING Group (100%) 1.76

7 Casa de Economii si Consemnatiuni Romanian Ministry of Finance (100%) 1.58

Source: Standard & Poor’s


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Expanding into Turkey through its recent €1.89 billion acquisition of DenizBank, the tenth-largest bank in the country, from the wealthy, sta-

ble economies of Belgium and Luxembourg may seem out of character for Franco/Bel-gian finance company Dexia Group but it is only about one thing: growth. Dexia bought a controlling interest of 75 percent in May 2006 and recently acquired the remaining shares.

As an applicant for membership of the European Union (EU), Turkey has been experiencing unprecedented levels of eco-nomic growth at around 6 percent over the past five years, certainly much higher than Dexia’s retail banking home markets. Dexia’s intention is to get in at the start of the mod-ernisation of this developing economy.

Along with economic growth, the popula-tion of 70 million is expected to rise to 82 million over the next decade, giving rise to huge growth in retail financial products for individuals and businesses.

But Dexia’s interests are not constrained to retail banking. Dexia is unique in that it has two pillars to its business – international public sector finance and personal financial services (PFS). It is a world leader in public/project finance (PPF) with a presence in 30 countries and 24,000 employees. In 2005, it took sixth position in the world for project financing and was the number one for public private partnerships.

PPF is the largest part of its business, gener-ating 51 percent of net income for the group: 22 percent comes from PFS; 13 percent from

asset management, insurance and investor services; and the remaining 14 percent from treasury and financial markets.

On the personal finance side, Dexia Group’s three operations are Belgium-based Dexia Bank (DB), Dexia Banque Interna-tionale a Luxembourg (DBIL) and France-based Dexia Crédit Local (DCL). Essentially the PFS business is centred on Belgium and Luxembourg where 80 percent of income is generated.

The group itself was formed in October 1996 through the strategic alliance of DCL, formerly Crédit Local de France and DB, pre-viously Crédit Communal de Belgique. Both these former companies were active in the local public sector markets in Europe and it was the first cross-border merger in the Euro-pean banking sector.

All three banking operations are wholly owned by holding company Dexia SA. Capi-talised at €22.9 billion in 2006, it is the 15th-largest bank in the eurozone and it is listed on the stock exchanges in Brussels and Paris.

Dexia also has an investment manage-ment business, Dexia Asset Management, which provides equity, fixed income, money market and diversified funds across Europe and Scandinavia. Set up in partnership with Royal Bank of Canada and Dexia in January 2006, Dexia Investor Services provides fund administration and investment services to institutional investors across the world.

Dexia also supplies life and non-life insur-ance products through Dexia Insurance Serv-

ices via the retail networks of the group in Belgium, Luxembourg and France.

Dexia’s strategy is to expand both pillars of its business and the main driving force for both is the strong global demand for PPF in less developed countries as they renovate their infrastructures. Outstanding debt for the global public financial market stood at $5 trillion (€3.86 trillion) in 2005 and is expected to growth by another $1.4 trillion over the next decade. The entrance into Tur-key is ideal for Dexia giving it opportunities for both its business lines.

Axel Miller, managing director of Dexia Group, said: “Getting in at the inception stage is the key to winning new PPF and retail banking business.”

He explained: “At the moment develop-ment decisions in Turkey are made at a central government level but in five to ten years’ time, decisions will be made at a local level and this is where our expertise lies – we are good at working with people at a local level.”

He expects the banking market in Turkey to grow by 6 percent to 7 percent a year com-pared with 2.5 percent in Belgium. Take-up of banking services in Turkey is far behind Western Europe and he noted that small busi-nesses and professionals will be the growth engine but that retail deposits will be another

A unique business modelOne of the main expansion strategies of Dexia Group is to expand both its retail financial banking arms and its highly successful public/project finance business. The Franco/Belgian group has made a bold push into Turkey, hoping to sell retail products as well as increase its project finance ambitions. Karen Beavis reports

CASE STUDY: DEXIA

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■ DEXIA GROUPAssets under management

Source Dexia

■ TURKEYDenizBank – financial highlights

30 Jun 2006

31 Dec 2005

Total assets (TRYbn) 14.01 11.98

Cash loans (TRYbn) 8.68 6.17

Non-cash loans (TRYbn) 14.89 9.96

Customer deposits (TRYbn) 7.87 6.98

Number of branches 254 246

Number of employees 6,197 5,724

Source: Dexia

“At the moment development decisions in Turkey are made at a central government level but in five to ten years’ time, decisions will be made at a local level and this is where our expertise lies – we are good at working with people at a local level”Axel Miller, Dexia Group


11



important area of expansion.While Dexia’s retail banking operations

traditionally concentrate on low-risk and wealthy geographic areas, the move into Turkey is not without risk. Ratings agency Standard & Poor’s (S&P) says that Dexia’s dominant position in lending to European local government’s is particularly low risk and gives it a high-quality loan portfolio and satisfactory profitability. S&P lists its strengths as having a strong retail banking position in Belgium and Luxembourg; a low-risk business mix; excellent asset quality; and strong capital operating performance.

Best rate in EuropeS&P analyst Sylvie Dalmaz said: “Dexia’s three operational banks in Belgium, Luxem-bourg and France have a rating of AA – one of the best rates in Europe – and this was not effected by the decision to buy DenizBank because of the good strategic rationale behind the acquisition and because it is moving into a region with higher growth potential than Belgium and France.

“The deal was also securely funded through a capital increase of around €1 billion, Tier 1 instruments and divestment of non-core assets. Even though the recent acquisition is giving Dexia exposure to the Turkish econo-my and it is an untested strategy, it is a mod-est downside risk for Dexia.”

Miller at Dexia points out that Deniz-Bank represents 10 percent of the value of the whole group and 3 percent of the group’s total assets.

The challenge for Dexia now is the integra-tion of DenizBank into the group. Although the group’s main experience in cross-border mergers stems from its own merger in 1996, its track record in acquisitions is slightly blem-

ished. Between 2000 and 2001, DB was par-ticularly aggressive by buying Artesia Bank-ing Corporation for €3.3 billion, US insurer Financial Security Assurance and Dutch niche banks Labourchère and Kempen.

While the Artesia move has proved success-ful creating cross-selling opportunities for loans and insurance, the Dutch banks were later sold in 2002 and 2004, respectively, fol-lowing a downturn in the equity markets.

Nevertheless, the latest acquisition is time-ly, coming just after the group, led by Miller, completed the integration of Belgium-based Artesia Banking Corporation into DB, free-ing up resources for the new project. It was acquired in July 2001 and the integration, starting from 2002, involved the rationali-sation of the branch network and the devel-opment of a common IT platform. It also brings up to date Dexia’s experience in inte-grating acquisitions. A new separate team is now working on the DenizBank integration project.

Existing operationsDexia now plans to focus on its existing operations, grow organically and continue with acquisitions in mature and emerging markets. Miller said: “We do not need other major acquisitions but would be interested in options for PPF and PFS combined – perhaps something like working alongside public banks that have been privatised.”

S&P says that it doesn’t believe that Dexia plans to acquire other large institutions but it adds there is room to manoeuvre. Dexia doesn’t have to expand further through a full-blown acquisition – it could grow through partnerships or by buying branches or devel-oping third-party relationships.

Prior to the takeover, DenizBank’s strat-egy was to look at the surrounding countries for opportunities and Miller confirmed that

Dexia is committed to continue with this.Miller is targeting 10 percent growth

income for PFS over next three years, fol-lowed by 6 percent to 7 percent; a reduction of the cost-income ratio to less than 52 per-cent (from 53.9 percent in September 2006); and to further improve the return on equity, which rose to 23 percent at September 2006 from 19.3 percent in September 2005.

Although Dexia is looking for a substan-tially higher rate of growth than the pre-vailing rate in Belgium and France, Miller believes PFS can achieve higher growth rates because it has a dual model – retail banking and private banking. He believes that there is room for growth in the group’s home coun-tries from the ageing population's demand for products such as non-life, life assurance and private banking, and also from small busi-nesses and professionals.

Income growth improvement can also to be achieved through the introduction of more cost efficiencies. Dexia has about the same number of branches as some of its con-temporaries but does half the business and, although a new IT platform has been put in place and new distribution channels, Miller said that more is to be done to achieve cost efficiencies.

In ten years’ time, Miller is certain that

CASE STUDY: DEXIA

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■ DEXIA GROUPTotal customer loans – retail and private banking

Source: Dexia

“Even though the recent acquisition is giving Dexia exposure to the Turkish economy and it is an untested strategy, it is a modest downside risk”Sylvie Dalmaz, Standard & Poor's

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Public/project finance and credit enhancement 51%

Treasury and financial markets 14%

Personal finance services 22%

Asset management, insurance and investor services 13%

■ DEXIA GROUPBusiness line contribution to underlying net income

Source: Dexia


12



the global banking landscape will look com-pletely different as consolidation continues and more alliances are formed. As to whether Dexia will be a predator or prey, he believes that its twin pillars of PPF and PFS will give it protection because there are few interna-tional banks around with the experience and know-how in public finance to take on such a unique creature.

Belgium and Luxembourg Dexia, which is ranked among the three larg-est retail banks in Belgium and Luxembourg, receives around 80 percent of its PFS income from these two countries. Dexia Group has 4 million clients and more than 1,000 branches in Belgium and Luxembourg. In Belgium, DB sells banking products and services to indi-viduals, the self-employed and small busi-nesses. It claims to currently have a market share of 16 percent to 18 percent in customer deposits, retail assets and unit-linked insur-ance products. It also says that it holds a 30 percent share of the younger market.

DB was one of the first financial compa-nies in Belgium to offer social products to the poorer elements of society and those in finan-cial difficulty giving them access to banking payment methods. The range includes the Dexia Aide socialite account, introduced in 2000, a basic current account as required by law in March in 2003, debt mediation accounts and rent guarantee accounts. As of 2005, it held 100,000 social accounts for low-income people.

In 2004, it launched a new customer rela-tionship management platform and a cus-tomer care centre with a staff of 275. This

gives bank staff a complete view of the cus-tomer’s holdings enabling them to suggest appropriate products.

DBIL’s business activities in the Grand Duchy covers retail banking, private banking, trading on the financial markets, as well as fund management and fund administration. The product range includes fixed-term depos-its in the world’s major currencies, shares, bonds, certificates, gold, hedging instruments and wealth management services.

SlovakiaDexia banka Slovensko is the leader in pro-viding finance to the local public sector. It offers retail clients personal banking and investments through a national network of 52 branches and 706 employees (2005). Dexia became the majority shareholder of Dexia banka Slovensko (previously called Prva komunalna banka) in May 2000 and now holds a stake of 79 percent. At Decem-ber 2005 total assets were SKK45.79 billion (€1.33 billion) and net profit was SKK234 million.

All eyes on Turkey Set up as a state-owned bank in 1938, Deniz-Bank was privatised in 1997 when it was bought by Zorlu Holding. In May 2006, Dexia took a 75 percent share and bought the remaining shares from Zorlu Holding the following December, giving it ownership of 99.74 percent.

After being acquired by Zorlu, DenizBank underwent a five-year programme to imple-ment a new corporate identity, expand the branch network through acquisition and take on new staff. At June 2006, it had a network of 254 branches, up from 246 at the same period a year ago; 6,197 employees, up from 5,724; and 1.4 million retail clients. The plan now is to expand the branch network to 500 over the coming three years.

This programme also included expanding into surrounding countries and DenizBank set up a greenfield operation in Moscow to target the business market and moved into Vienna, Austria through acquisition. It also has a branch in Bahrain and an offshore bank in northern Cyprus. Miller said that further expansion is on the agenda.

Currently the tenth-largest bank in Turkey, DenizBank’s ambition is to move into the top five. Miller said. “We intend to grow Deniz-Bank’s PFS business from 11 percent a year to 20 percent within three years and the PPF business from 0 percent to 5 percent within three years.”

The decision to acquire DenizBank was not taken on a whim. Talks were held over a lengthy period and followed from an inves-tigation of Romania. Dexia was a bidder for Banca Commercial Romania but pulled out leaving Austria-based Erste Bank to buy a majority share worth €3.75 billion at the end of 2005. It could have taken on both acquisi-tions but would have increased its exposure to risk.

At end June 2006, DenizBank’s total assets were TRY14 billion (€7.7 billion), up from TRY11.9 billion at the same period in 2005. Customer deposits were TRY7.8 billion from TRY6.9 billion.

■ RESULTS

Strong results add fuel to expansion plansQuarterly results published on 30 Septem-ber last year showed that Dexia Group had increased net income to €1.96 bil-lion, an increase of €478 million or 32.2 percent over the same period in 2005. Total income was €5.12 billion, up 16.4 percent.

The return on equity improved to 23 percent from 19.3 percent in Septem-ber 2005. Gross operating income rose to €2.6 billion at September 2006, an increase of 29.7 percent against the same period a year ago.

The underlying cost-income ratio at September 2006 fell to 53.9 percent from 55.6 percent in the same period a year ago. However, costs rose by 5.1 percent to €2.51 billion due to a number of projects related to business development.

The PFS business saw total customer assets increase by 5.3 percent over the year to €127.8 billion at September 2006. Total customer assets in retail banking were €82.4 billion, up 1.8 percent against the same period a year ago, and private banking customer assets were €45.5 bil-lion, up 12.4 percent.

Strong growth was seen in the insur-ance business with premiums collected going up by 29 percent over the year to €885 billion. Dexia Asset Management held assets under management of €100 billion, a progression of 16.4 percent over the year.

CASE STUDY: DEXIA

■ GROWTH MARKETSDexia Group – income by activity

Sep 2005 (€bn) Sep 2006 (€bn) Variation (€bn) % change

Total income (underlying) 4,255 4,658 403 9.5

Banking 3,563 3,886 323 9.1

Financial security assurance 385 418 33 8.5

Insurance activities 307 354 47 15.5

Source: Dexia

“We intend to grow DenizBank’s PFS business from 11 percent a year to 20 percent within three years and the PPF business from 0 percent to 5 percent within three years”Axel Miller, Dexia Group


13



BANCASSURANCE

Cardif sets up new units in Bulgaria and Romania

BNP Paribas’s insurance arm, Cardif, is set to create insur-ance companies to market life insurance and personal protec-tion insurance in new European Union (EU) accession countries Romania and Bulgaria. Business will be launched in February 2007 in both countries, which joined the EU on 1 January.

The two new units will market creditor insurance and individual protection products in partner-ship with banks and financial institutions. With 7.7 million inhabitants, Bulgaria is poised for robust economic growth, says the French bank. The coun-try’s average annual growth for the next six years is estimated at 16 percent.

With 21.6 million inhabitants, Romania is the second-larg-est market in Central Europe. The country’s GDP per capita is expected to rise by more than 50 percent in the next six years.

Cardif already enjoys strong positions in Central Europe, where it is the leading provider of creditor insurance. Bulgaria and Romania are Cardif’s fifth and sixth locations in the region, where Cardif first began operat-ing in 1996 in Poland and the Czech Republic, followed by Slovakia in 2000 and Hungary in 2002.


ABN AMRO sells Mortgage Group to Citigroup

Dutch group ABN AMRO has reached an agreement to sell ABN AMRO Mortgage Group (AAMG), its US-based residen-tial mortgage broker origination platform and servicing business that includes AAMG, InterFirst and Mortgage.com, to Citigroup. Citigroup will purchase around $9 billion in net assets, of which around $3 billion is AAMG’s mortgage servicing rights associ-

ated with its $224 billion mort-gage servicing portfolio.

After accounting for costs related to the transaction, ABN AMRO expects to record a small book gain on this transaction.

The Dutch bank will contin-ue to have a strong presence in the US. Its Business Unit North America brings together ABN AMRO and LaSalle Bank’s cli-ent activities in the US and Can-ada, forming one of the largest foreign-owned financial holding companies in North America with total assets of approximate-ly $217 billion.

ABN AMRO emphasised that LaSalle Bank, AAMG’s corpo-rate parent, will remain in the residential mortgage business, saying “consumer mortgages and home equity loans will continue to be core products” for LaSalle, via its retail branch network in Illinois, Indiana and Michigan.

ABN AMRO said its decision to sell the business is part of the group’s strategy to streamline its activities and to align them around its mid-market commer-cial and consumer clients.

AAMG’s business, which is primarily focused on a US-wide national mortgage broker net-work and mortgage servicing portfolio, falls outside the bank’s strategy.

Analysts have suggested that another reason for the sale was that the activities are nationwide, rather than in ABN AMRO’s areas of geographic strength.


KBC increases stake in ČSOB to 97.5 percent

Belgium-based KBG Group has increased its 89.9 percent stake in Československa Obchodni Banka (ČSOB) to 97.5 percent, with the purchase of the Euro-pean Bank for Reconstruction and Development’s 7.47 percent stake in the bank.

Now that KBC owns more than 90 percent of ČSOB, it can choose, under Czech law, to buy out remaining minority share-holders. KBC intends to exercise this right with regards to the rest of the owners who hold the

remaining 2.5 percent of shares. Originally state owned, ČSOB,

which is active in both the Czech Republic and Slovakia, was priva-tised in 1999. In 2000, it acquired local bank Invešticní a Postovni Banka, which was a leading bank in terms of lending and deposit taking, giving ČSOB a premier position in the Czech Republic. ČSOB provides banking serv-

ices to around one-third of the population and is the second-largest bank in the country in terms of assets.


Glitnir seeks further Nordic expansion

Glitnir, Iceland’s second-largest bank, has bid €341 million for FIM, the Finnish asset manage-ment company. If the bid is suc-cessful, it would continue the bank’s Nordic spending spree, give it a base in Finland and assist expansion into Russia.

The offer has been approved by FIM’s major shareholders but the bid requires regulatory approval. The acquisition would make Glitnir the third-largest player on the Nordic equity mar-ket, behind Sweden’s SEB Bank and Carnegie Investment Bank, Glitnir said.

FIM was established in 1987 and has grown to become one of Finland’s biggest investment services groups, with approxi-mately €3 billion of funds under management as well as broker-age services for private and cor-porate clients.

In common with other leading Icelandic banks, Glitnir has grown rapidly in recent years, fuelled by Iceland’s housing boom.


DnB NOR to acquire Polish bank

DnB NOR, Norway’s largest financial services group, has reached an agreement to acquire 76.3 percent of Poland’s Bank for Social and Economic Initiatives (BISE Bank) through its partially owned subsidiary DnB NOR, which it established in 2005.

BISE Bank’s operations focus

on retail customers, small- and medium-sized businesses and parts of the public sector, where-as DnB NOR in Poland currently serves only corporate clients. BISE Bank has 780 employees and 46 branches throughout Poland.

The acquisition price repre-sents 3.3 times book equity and values the Polish bank at approx-imately €140 million. DnB NOR will negotiate with the minority shareholders with an aim to take over the remaining shares.

BISE Bank was established in 1990 to provide financing to small- and medium-sized compa-nies but has subsequently expand-ed its customer base to include retail customers, the energy sec-tor and local authorities. Pre-tax profits for the first nine months of 2006 totalled €5 million, while total assets were €600 million as of September 2006.

DnB NOR has identified potential synergies of approxi-mately €8 million, mainly from sales of DnB NOR products to customers of BISE Bank.


GE considers Polish acquisition

According to a report by news agency Reuters, General Elec-tric (GE) is looking for potential acquisitions in the Polish bank-ing sector.

The agency reported Leslaw Kuzaj, GE’s regional director for Central and Eastern Europe, as saying that GE was interested in retail lending rather than corpo-rate banking in Poland.

Kuzaj declined to comment on reports that GE was among five bidders short-listed in the sale of Bank BPH, the smaller of Italy’s UniCredit’s Polish units. UniCredit took control of BPH last year as part of its takeover of Germany’s HVB and is in the process of uniting it with its larg-est Polish unit, Pekao, to create Central Europe’s biggest lender.

However, under a deal with the Polish government, UniCredit is obliged to sell 200 BPH branch-es, the bank’s brand name and a portion of its clients in an inter-national tender.

NEWS DIGEST


14



Heavyweight reforms to the Bulgarian financial sector began back in 1997 after the collapse of the sector at the end of 1996 when 14 out of the 35

registered commercial banks failed.According to a recent study by Gallina

Andronova Vincelette of the Central Euro-pean University – Bulgarian Banking Sector Development, Post-1989 – the overall cost to the country’s government of the restructuring coupled with a period of bailing out banks between 1991 and 1998 reached the equiva-lent of about 75 percent of GDP.

Since the start of the century, however, when the country completed a privatisation programme, Bulgaria has seen a sea change in the banking industry. By the end of 2000, five Bulgarian banks were privatised: United Bul-garian Bank, Bulgarian Post Bank, Express Bank, Bulbank and Hebros Bank. Biochim was privatised in the summer of 2002, and the State Savings Bank was sold in the spring of 2003. Foreign banks looking for market opportunities moved quickly – by mid-2005, some 80 percent of Bulgaria’s banking assets were foreign-owned.

Ratings agency Moody’s says that the com-plete privatisation of the banking system, and the active involvement of foreign banks in the market, has “raised the level of expertise

in the sector and contributed to the Bulgar-ian banks’ franchise development through improved risk management processes, quality of service, and product innovation”.

Moody’s notes that as of June 2006, for-eign-owned banks (including foreign banks’ branches) accounted for 79 percent of regis-tered capital and for around 77 percent of the banking system’s assets. It adds: “At the same time, the increased foreign participation in the Bulgarian banks’ capital has strengthened the sector in terms of better corporate governance practices and enhanced transparency, though we believe there is still room for improvement in these areas, especially for the banks that remain in the hands of domestic investors.”

Currently there are 33 banks operating in Bulgaria but the system is fragmented with the five largest banks controlling around 50 percent market share of banking assets while the ten largest banks control 75 percent of deposits.

Largest-ever mergerThe biggest merger deal in 2006 came from the consolidation by Italy’s UniCredit and its subsidiary Bank Austria Creditanstalt of Bulbank, HVB Bank Biochim and Hebros. Expected to be completed by the third quar-ter of 2007, the largest-ever merger in Bul-

garia to date will result in the largest Bulgar-ian bank with a 22 percent share of banking assets. Hot on its heels in the second half of 2006 was the €157.76 million offer by Greece’s EFG Eurobank for 74.26 percent of DZI Bank, bringing the number of Bulgarian banks owned by Greek banks to six.

Moody’s believes merger activity is likely to continue over the medium term with a number of Austrian, Greek, German and Italian banking groups eager to expand their presence in south-eastern Europe. It adds: “In this framework, and in view of the good business opportunities in the Bulgarian mar-ket compared to these banks’ home markets, we believe that the consolidation process is likely to continue in the foreseeable future.”

However, Moody’s also believes that the entry of large international banks has chal-lenged the viability of the smaller banks which account for 1 percent to 2 percent of the sys-tem’s assets. It says that in the absence of a niche, some smaller banks are feeling the pres-sure to consolidate. In particular, EU accession rules allowing EU domiciled banks to directly service Bulgarian entities such as co-operatives and high-net-worth individuals may well put further consolidation pressures in Bulgaria.

Source of confidenceIn a report on the country, ratings agency Fitch says: “The extent of foreign ownership in Bulgarian banks is another source of confi-dence in the health of the system. This is part-ly because foreign ownership is a quick and efficient method of incorporating best prac-tice into the Bulgarian banking system.”

Fitch picks out the strong growth in bank credit to the private sector in recent years with a 32 percent growth rate in 2005. Mortgage credit to households grew 98 percent year on year while other consumer loans grew 43 per-cent. According to Fitch, the rapid expansion of credit has been driven by both supply and demand side factors despite the supply-side being relatively unbanked compared with more developed markets.

Moody’s adds: “The country’s large unbanked retail population and the lower cost of attracting such customers in an underlever-aged market suggests that the gradual shift in

COUNTRY PROFILE: BULGARIA

Successful reforms spur banking growthWith its banking industry already dominated by foreign-owned banks, the rush of other European financial institutions into Bulgaria is a testament to the country’s recovery since the painful collapse of its banking sector ten years ago in 1996. Simon Miller reports

■ FOREIGN-LED MARKETBulgaria – banking system (June 2006)

Foreign ownership?Market share

in assets (%)Market share

in deposits (%)Market sharein loans (%)

DSK Bank Yes – OTP Bank 14.2 15.2 16.7

Bulbank Yes – UniCredit 10.2 11.3 9.6

United Bulgarian Bank Yes – NBG 9.5 9.7 12.1

Raiffeisenbank Yes – Raiffeisen Group 8.4 8.2 8.0

HVB Biochim Yes – Bank Austria/UniCredit 7.5 5.1 8.1

First Investment Bank No 7.3 5.4 7.6

Bulgarian Post Bank Yes – EFG Eurobank 6.2 7.5 6.2

Economic and Investment Bank No 3.4 3.9 2.0

DZI Bank Yes – EFG Eurobank 3.1 3.7 2.5

SG Express Bank Yes – Société Générale 3.1 3.4 4.1

Others 27.1 26.6 23.1

Source: Moody’s


15



loan portfolio mix towards household credit will continue over the medium term. This is expected to be carried out on the back of con-tinuous product innovation targeting retail customers together with aggressive marketing and expansion of the banks’ distribution net-work in order to offer proximity banking.”

Although starting from a low base, Bul-garian banks have experienced rapid credit growth with the average growth rate run-ning at 44 percent during the past three years. According to Moody’s, improved macroeco-nomic conditions, a low interest rate environ-ment and high profit expectations of foreign shareholders which translated into “aggressive lending strategies” have been the main factors supporting this trend. Bank credit to the pri-vate sector at the end of 2005 was around 104 percent of GDP in the euro area against 45 percent in Bulgaria.

Another key to the success of Bulgaria’s reform has been a strong regulatory frame-work. Moody’s believes that the country has “good banking supervision, adopting

Western standards” applicable to the acces-sion to the EU. The Bulgarian National Bank adopted recommendations made by inde-pendent organisations such as the Interna-tional Monetary Fund and “at the same time has set tough prudential norms, and is closely and proactively monitoring banks’ compli-ance with them.”

Restricting creditWith a rise in lending and introduction of credit cards, the central bank has spent two years introducing a series of restrictive credit measures. These include a rise in the minimum reserve requirement ratio from 4 percent to 8 percent in December 2004, and a recommendation in February 2006 that banks avoid lending to customers whose monthly disposable income is below €51.

Despite such a positive outlook from the two ratings agencies, the quality of bank earnings is relatively poor in terms of diver-sity and sustainability of income streams is seen as a sector weakness. Moody’s says that

banks in the country are exhibiting a grow-ing reliance on interest income. Fee and com-mission income was equivalent to a modest 2 percent of average assets and 22 percent of operating income.

“This can be mainly attributed to the fact that fee-generating services in Bulgaria such as the credit card market, insurance and asset management business remain relatively underdeveloped, having recently started from a low base,” Moody’s states.

It adds that Bulgaria’s banks need to make a considerable effort to grow their credit card businesses and take advantage of cross-selling opportunities to market insurance and fund management services. These would be rein-forced as interest rate margins came down over the medium term. Moody’s concludes: “Going forward, we expect growing compe-tition to weigh on the sector’s profitability through compressed interest rate margins, a factor that would constrain any upward movement in the banks’ financial strength ratings.”

COUNTRY PROFILE: BULGARIA

Rank Bank €bn Return on Equity (%)

1 HSBC 159.5 17.17

2 UBS 103.2 24.79

3 Royal Bank of Scotland 98.1 15.57

4 Grupo Santander 90.4 16.81

5 BNP Paribas 80.9 16.00

6 UniCredito Italiano 75.7 13.02

7 Barclays 75.2 21.15

8 Intesa Sanpaolo 72.8 21.53

9 BBVA 70.8 25.79

10 Credit Suisse 65.9 14.78

11 HBOS 63.9 18.65

12 Société Générale 63.9 21.08

13 Deutsche Bank 55.7 13.94

14 Crédit Agricole 54.5 13.79

15 Sberbank 51.8 34.32

16 Lloyds TSB 50.8 23.51

17 ABN AMRO 47.7 23.47

18 Fortis 43.0 30.03

19 KBC Group 35.5 16.03

20 Standard Chartered 31.6 17.98

21 Nordea 31.4 18.05

22 Dexia 26.8 15.64

23 Natixis 26.5 14.06

24 Danske Bank 25.2 16.72

25 Commerzbank 21.7 10.79

Rank Bank €bn Return on Equity (%)

26 Allied Irish Banks 20.1 20.12

27 National Bank of Greece 18.8 25.04

28 Erste Bank 18.6 17.82

29 Banco Popular Español 18.4 19.70

30 Capitalia 18.2 12.19

31 SEB 17.5 15.52

32 Bank of Ireland 17.3 26.90

33 Raiffeisen International 16.8 16.24

34 DnB NOR 15.4 19.06

35 Handelsbanken 15.3 17.74

36 Swedbank 15.3 24.33

37 Mediobanca 14.4 13.88

38 Banco Español de Credito 12.9 17.03

39 Banca Monte dei Paschi 12.5 10.79

40 PKO Bank 12.2 19.75

41 Akbank 12.2 23.22

42 EFG Eurobank 11.6 21.17

43 Anglo Irish Bank 11.6 27.28

44 Group CIC 11.1 10.04

45 Deutsche Postbank 10.9 9.89

46 Banco de Sabadell 10.9 13.60

47 Pekao 10.8 18.77

48 Turkiye Is Bankasi 10.5 16.95

49 BCP 10.5 20.28

50 Alpha Bank 9.8 23.98

Source: Thomson Datastream, as of 09/02/2007

Top 50 banks ranked by market capitalisationDATABANK


16



INDEXEUROPEABN AMRO 3, 4, 13AGF 5Alfa Bank 4Allianz 5Alpha Bank Romania 8-9Axa 5Banca Comerciala Romana 8-9Banca Monte dei Paschi di Siena 8-9Banca Romana pentru Dezvoltare 8-9BBVA 7BIN-Bank 4Biochim 14-15BISE Bank 13BNP Paribas 13Bulbank 14-15Bulgarian Post Bank 14-15Caja Madrid 7Cardif 13Casa de Economii si Consemnatiuni 8-9Commerzbank 1Credit Suisse 5ČSOB 13Deka Bank 1DenizBank 10-12Deutsche Postbank 1Dexia 8-9, 10-12DnB NOR 13Economic and Investment Bank 14-15EFG Eurobank 8-9Erste Bank 8-9Eurobank Bulgaria 14-15Express Bank 14-15First Investment Bank 14-15Fortis 3Glitnir 13Hebros Bank 14-15HSH Nordbank 1HVB 1, 8-9, 14-15Impexbank 4ING 8-9KBC 13La Caixa 7Landesbank Baden-Wuerttemberg 1Landesbank Berlin 1MDM Bank 4National Bank of Greece 3, 8-9, 14-15Nordea 4, 6Novator 14-15OKO Bank 3Orgresbank 4OTP Bank 8-9Piraeus Bank 14-15ProCredit Bank Bulgaria 14-15Raiffeisen 4, 8-9Rosbank 4Santander 7Sberbank 4Société Générale 4SSB 14-15Swedbank 4UniCredit 1, 3, 8-9, 14-15United Bulgaria Bank 14-15WestLB 1

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Opportunities in Emerging EU Wealth MarketsA strategic analysis

By Gregor Broschinski

An all-inclusive research report which answers your key questions including:

• What is the scale of the market potential and how sustainable is the growth potential?

• What does the competitive environment look like?

• Is there a ‘right’ strategic approach to market entry and development?

• What do the client profiles look like, how do they differ from the mature markets, and what differentiation strategies should be used to address them?

• What are the additional opportunities in maturing markets provided by product development based on emerging EU asset classes like stocks, bonds, and real estate and what are the investment constraints?

• How should strategy differ for domestic players and foreign entrants?

Emerging EU Wealth v3.indd 1 30/11/06 4:08:14 pm

Documents

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