Thursday, July 24, 2008

Strategic Initiatives of Credit Suisse in Eastern Europe

Traditionally Credit Suisse had seen the highest growth coming in the East, in countries like Russia and Kazakhstan and in some of the other Central Asian countries. Central Europe has grown a little bit more slowly and they are expecting that looking forward in 2007 and 2008 as well.

Area of focus for CSFB
The largest driver of growth within Central Europe is likely to be Poland where Credit Suisse is looking at a growth rate of up to 5.5 percent, or 6 percent. Poland is the area Credit Suisse is focused on in Central Europe. It’s a very deep and exciting equity market with a very diverse sector representation.

Which countries will underperform?
From a growth perspective, Credit Suisse is hoping Hungary will lag a bit behind this year on a growth perspective. That is mainly because CSFB sees the government making significant cuts in fiscal spending in order to achieve the Maastricht criteria target of less than 3 percent GDP budget deficit. It is likely that they will see less government spending in Hungary over the coming years. That is likely to have some impact on the growth rate in the country overall.

Difference in development between the two new EU members and the rest of the region
Rumania and Bulgaria are the newest EU members. They joined in January of 2007. They think these are very interesting countries for investment. Unfortunately, Credit Suisse had seen a pretty shallow equity market historically in these two countries. CSFB is anticipating some new IPOs over the coming year that will allow them to invest in both Rumania and Bulgaria in a more significant way going forward.

On Russia’s economic growth?
On the commodity side, Credit Suisse is quite bullish on commodity prices. They are expecting commodity prices to maintain the high levels that we’ve seen over the past few years. One of the most positive aspects of Russia is that Credit Suisse is really starting to see diversification in the economy. One of the biggest drivers across the region, and for Russia in particular, will be growth in consumption and growth in investment. The government is looking to spend a lot of money on infrastructure build over the coming years. Credit Suisse do see the growth of the Russian consumption being hugely important for the economy overall.

The oil, gas industry certainly is the major industrial sector within the Russian market. Credit Suisse is starting to see some new industries grow. They are hoping to see more IPOs in these areas, so they can participate in those growth areas of the market. An example would be the IT sector. Credit Suisse do see a fairly large IPO going on in the IT sector today. We could see some growth in that industry over time, so we are looking to tap into some of these opportunities.

The fragmentation of the $50 billion European fixed-income market illustrates the diversity of the competitive landscape. Today, 11 major global players have a share of just under 50% of the market, nine major regional players have 27 percent, and around 40 national players have just under a quarter. Each category includes highly profitable players. Profits come from the more value added products such as derivatives and hybrid securities and from regions such as Eastern Europe and the Middle East. As a result of intense competition, the core investment-grade bond business and other plain-vanilla product categories have wafer thin margins.

Another consequence of that competitive intensity has been the death of the sole adviser. Clients have many mouths to feed at payback time, after months or years of diligent coverage by the major firms. Consequently, big IPO and M&A deals typically involve a number of advisers. Inevitably, this arrangement puts even more pressure on the economics of banking.

The industry's radical transformation is likely to continue as major banks in Europe, as well as global banks that do business there, seek to build winning corporate- and investment- banking franchises. The bad news is that competition will intensify. The good news is that it will likely drive further innovation, spurring primary demand as more of Europe's financial-intermediation activity moves to the capital markets.

CSFB thinks most interesting sectors in the equity market today are the retail and consumption driven sectors. Retail stocks would be a place that is very interesting as well as infrastructure stocks. The main way Credit Suisse is looking at that theme is through the steel sector which is of course providing beams for some of the major road construction, some of the rail construction and a lot of the home buildings going on in the country.

According to CSFB, there are very few internal macroeconomic risks that could disrupt the long-term outlook for the markets. However, they do remain concerned about commodities. The equity markets are sensitive to commodities. So, any prolonged downside in the commodity prices certainly would be a negative for this region of the world. However, Credit Suisse expects that commodity prices will remain in relatively strong bands looking into the future.

Management reshuffle
Credit Suisse has reshuffled top-line management within parts of its European fixed-income capital markets business, following the decision of the bank's head of structuring to step down. The move announced in Jan 2007, spans three separate business areas and comes in direct response to Jeremy Bennett's decision to to take a sabbatical. As well as being the bank's head of structuring, Bennet is also co-head of European fixed-income capital markets and the emerging markets group.

As part of the reshuffle, Sudip Thakor takes over as head of the global structuring group in addition to his existing responsibilities as head of the fixed income derivatives product group in New York and co-head of the global credit trading business, which includes investment grade and emerging market credits.

Thakor is co-head of the global credit trading and sales business alongside Jonathan McHardy, who also runs the commodities business globally.
McHardy is now also solely responsible for managing the bank’s insurance and tax business, with Pedro Beroy and Larry Fletcher reporting to him directly. Credit Suisse’s European fixed income business was co-led by Bennett, but his departure now hands Gael de Boissard full control and responsibility for the London-based division.

Furthermore, the emerging markets group – one of the most lucrative revenue earning businesses within Credit Suisse’s fixed income division - is now being jointly run by Ram Nayak and Darren Walker. Nayak, who remains European head of commodities and co-head of fixed income for Eastern Europe , Middle East and Africa, reports directly to Thakor and McHardy.Nayak joins the bank’s fixed income operating committee with Walker, who holds on to his existing responsibilities for the EEMEA trading group that includes credit trading, credit derivatives and local currency trading.

Walker also reports directly to Thakor and McHardy. Bennett, who joined Credit Suisse First Boston as it was then known in 1997, has been one of the most important figureheads in carving out a new direction for Credit Suisse’s fixed income capital markets operations over the last three years.

Sources: Industry articles

No comments: