Best Bank, Best Commercial Bank
Citi just gets stronger and stronger in Asia. That fact became evident at an analysts and investor meeting it held in Hong Kong in September when it went through all its Asian numbers line-by-line. If you actually looked at Citigroup Asia as a distinct bank, it would rank as the 40th largest in the world on the basis of profit.
Citi's corporate and investment banking division made $571 million in the first half of 2005 and analysts estimate that its non-Japan, non-Australia business will make about $1.2 billion for the year as a whole. What is even more impressive is that it does this on a 34% cost to income ratio.
This year it has continued to dominate in areas from cash management through to syndicated loans. Likewise it tops this year's G3 bond league table. On the M&A side it finishes the year third in completed M&A with $16.4 billion from 33 deals (according to Dealogic). That includes its advisory work for CNPC on its strategically vital acquisition of PetroKazakhstan (see Cross-border M&A Deal of the Year).
On equity-linked it ranks second by number of deals and third by volume. On equity it has done an equal number of deals (35) to league table leader, Morgan Stanley, although it trails in volume.
What is so impressive is that its franchise remains equally strong in North Asia, Southeast Asia and in the Indian subcontinent. And each year the bank's penetration just deepens. In Korea its acquisition of Koram has turned it into a truly embedded local bank.
It is thanks to this across-the-board strength, that Citi remains the franchise against which all other Asian banks benchmark themselves.
Best Investment Bank
In the first half of 2005, there would have been many who would have written Morgan Stanley's year off. But as the year progressed it became clear that the US investment bank had backloaded a lot of its business. The biggest of all was the highly successful $9.23 billion IPO for China Construction Bank - unquestionably the defining deal of 2005.
Morgan Stanley tops Dealogic's equity league tables with $9.79 billion of issuance. It has dislodged Goldman Sachs from its familiar position at the top, which is no mean feat. Indeed, to paraphrase Lord Palmerston, there are only three people who can remember when Morgan Stanley last topped the Asian ECM league tables and two of them are dead. Moreover, it has been Morgan Stanley, which has been pricing deals right up until the end of our awards process. On Wednesday, for example, it completed a $742 million block trade for LG Philips LCD.
In M&A, it just leads the completed league table over Goldman. And in debt, it may not lead the league tables, but its highly focused strategy in high yield bonds has vaulted it to second place in the debt wallet share league table.
Our deliberations this year saw several banks shortlisted, but in the end it once again came down to Morgan Stanley and Goldman. The clear blue water that Morgan Stanley has established in equity, and its highly profitable debt strategy made the decision somewhat easier than last year.
Our methodology for selecting the best investment bank is to look at the firms that most dominate equity capital markets, debt capital markets and M&A advisory. We do not have a weighting for principal investing.
Goldman would clearly like this to be case and its pitch was based around the idea of a four legged stool: equity, M&A, debt, principal investing. There is no doubt in our minds that there is a lot of merit in Goldman's approach - Merrill Lynch is also following a similar strategy - but our problem is how to measure the principal investment side.
Our view is that Goldman makes very smart principal investments (such as Jinro) and is definitely among the most profitable firms as a result. We think it had an excellent P&L this year. But our methology is not about prop trading. It's about client-led business. It's about traditional investment banking - not smart investing.
In the 'pure' investment banking model that our award analyses, Morgan Stanley earns a better composite score in 2005.
Let's start with CCB. At the end of 2004, who in their most optimistic, Krug-infested Xmas party moment could have predicted that one of the big four Chinese banks could attract $80 billion of demand, launch a greenshoe that in its own right would get into the top five deals of the year by volume, and yet trade up (at a valuation of over two times book)? Little wonder that Morgan Stanley is now billing this as the 'Deal of the decade'.
The firm's whole approach to launching one of the bigger, and trickier IPOs of the year was wholly vindicated - for example, its strategy to bring Bank of America in as a strategic investor proved smart.
But its equity franchise was not simply about CCB. It also did four major deals for LG Philips LCD, plus offerings for ICICI Bank, Chunghwa Telecom, Chi Mei, HDFC Bank, Suzlon Energy, Bharti, China Paradise, Agile, and Suntech Power, among others.
On the debt side, the firm has taken a very smart approach to the high yield markets and led deals for Mandra Forestry, Galaxy and China Future Corp. It may not be high volume business. But it is the more intelligent segment of the debt markets, and is remunerated accordingly. Where appropriate, Morgan Stanley has done investment grade business, such as Temasek's bond.
In M&A, Morgan Stanley finishes top of the league table for the third year in a row. It has been involved in important FIG deals such as IBT/Sinopac, StanChart/Korea First, and the sale of a stake in CCB to Bank of America and Temasek. It also completed the sale of Daewoo Heavy to Doosan, iFlex to Oracle, Haitai to Crown Confectionery, BenQ Corp's acquisition of Siemen's mobile phone business and the massive and complicated demerger of Reliance Industries.
When taken in sum, Morgan Stanley has delivered an impressively diverse array of business this year - from mid-cap Chinese IPOs to world record beating listings; it has advised on transformational bank M&A as well as critical deals for India inc. It has built a balanced business around FIG, TMT and general industries, and it has done repeat client business. When all's said and done, it has been a very good 2005 for the firm. Its challenge in 2006 will be to fend off, not just Goldman, but firms like UBS and Merrill Lynch, which continue to grow in strength.
Best Private Bank
Our approach to conducting this award is to set up a 'hypothetical client' situation and this year was no different. The client in question was a 39 year old Hong Kong-born lawyer with $8.5 million of investable assets, a wife and child, owning a mortgaged apartment in Repulse Bay.
The client had an existing equities portfolio worth about $3 million and wanted to get an annualized return on the entire $8.5 million of about 9%. The client also wanted wealth planning advice in the event of his death; to adequately fund schools and colleges for (potentially) two children and create a charitable company in 11 years time with $1 million of the funds. The client had some specific investment concerns about Avian flu, and a weakening US dollar, and likewise made clear that he would need to fully understand any hedge fund strategies that were offered.
We received truly excellent pitches once again, and after long and deep contemplation we have decided to give UBS the award. UBS is Asia's biggest private bank (by assets under management) and there are good reasons why. It is an extremely accomplished private bank.
The wealth planning issues for this hypothetical client were not as complex as in previous years. UBS's solution was clean and cost effective.
Where UBS really added value was in its approach to the investable funds. The client had specified a return of 9%, but the reality was that this number was somewhat arbitrary (by intent). UBS was quick to see this and took the clients through all of his spending needs (eg school fees, seeding the charity, retirement and so forth) and then built a discounted cashflow model. This proved in black and white that the client would probably only need a 7.28% return to cover his various outlays.
UBS then structured a portfolio that could achieve this return with as low a level of risk as possible. UBS took over the $5.5 million to create a nest-egg portfolio that balanced the client's more high risk equity portfolio. Using modeling it was able to show how the nest egg portfolio would have performed in nine terrible market environments - ranging from the first Gulf War to the most recent one.
The portfolio remained in positive territory in five cases, lost 0.2% in two cases (September 11 attack, the 2002 recession) and lost 3.9% when the Fed hiked rates in 1994 and 3.7% in the year of the first Gulf War (1990). The portfolio was designed to have bond-like characteristics, but outperform bonds with a lower level of risk.
UBS also made some recommendations on scaling back some of the equity exposures and putting in place some hedges to meet the client's specific macro concerns. It suggested a structured note relating to pharmaceutical stocks as a hedge against Avian flu; and some dual currency notes to take advantage of the client's more bullish view on euro and yen (versus the dollar). For the same reason, it also suggested some structured notes that related to the price of gold.
Overall, UBS was able to educate the client on exactly what his financial commitments would be and what the ideal portfolio for realizing that goal would be. This portfolio was much less aggressive than what the client had envisioned and gave him a great deal of comfort that he could achieve his goal with unduly putting his capital at risk.
Highly commended: Citigroup Private Bank
Credit Suisse First Boston
CSFB is a house, which looks poised to catch the competition off guard in 2006. The Swiss bank re-organised its global business along two divisional lines at the beginning of 2005 (Global Markets Solutions and Client Coverage) and the outlines of its new strategy have been clearly evident in the business it has completed this year.
The bank's intention is to adopt a more focused approach and zero in on high margin product areas such as M&A, IPO's and leveraged finance. In all three of these areas it has made a strong showing in 2005.
The only reason why this may not yet be completely obvious to some of its peers is that CSFB's overall league table rankings have been compromised by its lack of a presence in India - increasingly a key investment banking battleground, especially in volume terms if not yet in fees. However, this is now in the process of being rectified following the news last week that CSFB has re-gained its license after a four-year ban as a result of the Ketan Parekh scandal of 2001. CSFB already has one very well connected rainmaker on the ground - Ajeya Singh - and it only remains to be seen how quickly it can re-build its franchise organically, since it looks unlikely to embrace a JV structure.
Strip out India and CSFB would have leapfrogged Citi and Merrill Lynch to end the year at number four in the ECM league tables behind Morgan Stanley, Goldman and UBS. As it is, the bank finishes sixth, having raised $5.172 billion from 18 deals.
Where it has been very strong is the China IPO market. Its $648 million IPO for Shanghai Electric this April represented the large sole bookrun deal from the Mainland since 1997. Much to the chagrin of Morgan Stanley, CSFB then went on to show considerable momentum by jumping onto the CCB IPO gravy train without having to make a strategic investment in the bank first.
Despite its late inclusion, CSFB was nevertheless pivotal to the marketing process, helping CCB achieve a rich valuation and a break the record for the largest global IPO in five years.
The two areas where CSFB has notably swept up the league tables are high yield debt and M&A. Both business lines have benefited from the re-habilitation of Indonesia Inc, since this is the country where CSFB has undoubtedly been strongest for almost a decade.
On the high yield debt side, CSFB has completed deals for Indosat and Gajah Tunggal this year. The latter deal was particularly interesting since it shows that bond investors are once again becoming receptive to credits that had got into trouble during the Asian financial crisis.
On the M&A side, 2005 also saw CSFB bring the year's biggest deal to fruition - the $5.2 billion acquisition of Indonesian cigarette manufacturer Sampoerna by US tobacco giant Philip Morris. The bank advised both sides on the sale.
Under the diligent lead of Colin Banfield, CSFB has built up a lucrative M&A franchise that plays to the bank's key strengths. This was also evident in a second market where it has historically been strong - Korea. Here the bank's landmark M&A transaction in 2005 was the $1.828 billion sale of a controlling interest in Daewoo Heavy to Doosan.
High yield debt now falls under the new GMS division (Global Markets Solutions), which brings together ECM, DCM and leveraged finance. Under the energized leadership of Vik Malhotra the team has delivered a number of innovative solutions in 2005. Chief amongst these has been the $700 million stapled financing package attached to the S$1.72 billion sale of the Raffles Hotel group in Singapore. The transaction represented the largest pure LBO financing in non-Japan Asia since 2003 and marked the first time that a stapled financing has been used in the region.
And finally it would be impossible to talk about CSFB's momentum without giving credit to the bank's Asian chairman Paul Calello. It is hard find to anyone who ever has a bad word to say about him and not that surprising considering the ease with which he communicates with everyone from the local serving staff to global management.
Best Financial Law Firm
It has been a year of striking growth for Linklaters in Asia. It has appointed 10 new partners in Asia and has seen revenues in the project and banking department grow 35%, while revenues in the corporate and M&A department are up17%.
As part of its growth this year, it scored a major coup when it brought a whole team of securitization lawyers over from Clifford Chance. This has transformed Linklater's securitization franchise - previously one of its weaker areas. Through its joint venture with Allen & Gledhill it continues to dominate Singapore and Southeast Asian transactions.
Some of the key deals it has worked on this year include: Link REIT's IPO; Bank of Communication's IPO; the record-breaking Philippine IPO for SM Investments; investments by RBS and UBS in Bank of China; HDFC's inaugural $500 million convertible bond; First Pacific's exchangeable bond into PLDT; high yield bonds for Hopson, Xinao, G Steel, and URC; investment grade bonds for Temasek and Hutchison (E1 billion); the first hybrid tier one transaction from Malaysia (Southern Bank); the highly innovative Willow Finance exchangeable from Indonesia; the $600 million Lenovo loans that helped finance its acquisition of IBM's PC business; and 23 project finance deals including Pusan New Port.