Presented at the Bankers Association for Finance and Trades 81st Annual Meeting The Global Marketpla

1
(No Transcript)
2
Rob Walker
Global Head of Institutional Banking HSBC The
view from Overseas Financial Institutions -
Europe
Presented at the Bankers Association for
Finance and Trades81st Annual MeetingThe
Global Marketplace-At the Crossroads May 4-7,
2003The Arizona Biltmore, Phoenix, AZ
3
Presentation Summary

• Consolidation within European Banking
• The Euro and Continuous Linked Settlement (CLS)
• Correspondent Banking Strategies for European
  Banks
• The HSBC Institutional Banking strategy

4
Consolidation within the European Banking Industry
5
Consolidation within the European Banking Industry

• Consolidation has been ongoing and will continue
  despite general lull in 2002

European consolidation
6
Consolidation within the European Banking Industry

• Characteristics
• Bulk of MAs involves domestic banks and smaller
  institutions early 1990s
• Banking groups first sought to consolidate within
  national borders before looking outside
• Since late 1990s trend towards involvement of
  larger institutions
• Trend within Europe has often been the creation
  of regional groups (Fortis, Dexia, Nordea)
• Conglomeration (creation of financial companies
  operating in different sectors)
• Asset Management, Investment Management,
  Insurance

7
Consolidation within the European Banking Industry

• Drivers
• The Euro
• Basle II
• Increasing cost of regulation
• Economies of scale (mainly for small bank MAs)
• Diversify / match risk (conglomeration)
• The need to be big (regional or global banks)
• Restrictions
• Monopolies and mergers
• Lack of co-ordination cross-border (regulation)
• Reluctance of customers to switch to foreign
  entrants

8
Consolidation within the European Banking Industry
Germany
9
Consolidation within the European Banking Industry

• Germany
• Consolidation desperately needed - over 2,000
  banks with over 50,000 branches
• Landesbanks - loss of state guarantees,
  consolidation inevitable

10
Consolidation within the European Banking Industry
France
11
Consolidation within the European Banking Industry

• France
• Will the Credit Agricole purchase of Credit
  Lyonnais be the catalyst for further industry
  rationalisation?
• Biggest banks still need to grow to compete on a
  global scale
• Desire to strengthen domestic banking universe
  before any cross-border proposals contemplated
• Cross-border consolidation with Belgium likely

12
Consolidation within the European Banking Industry
Italy
13
Consolidation within the European Banking Industry

• Italy
• Consolidation will undoubtedly occur
• Most likely within retail co-operative banks
• Market will remain closed to non-domestic suitors
• Banca dItalia power to veto mergers
• Cross-shareholdings widespread
• Desire to strengthen domestic banking universe
  before any cross-border proposals contemplated

14
Consolidation within the European Banking Industry
Spain
Portugal
15
Consolidation within the European Banking Industry

• Spain / Portugal
• Further cross-border activity possible between
  these two - but partnerships may be preferred
• Portugal already has high proportion of Bank
  Capital held by overseas shareholders (BBVA, SCH)
• Consolidation already been very strong in
  Portugal - 3 largest banks have combined market
  share of 65 (only Finland Sweden are higher)
• Spanish consolidation advanced within the cajas
  de ahorros (savings banks) likely to be next
• Increasing cross-holdings between Spain and Italy
• Spain / Portugal developed a Latin Corridor to
  Latin America

16
The Euro

• Generally seen as a success
• Physical introduction
• Capital market impact
• Still waiting for the full impact
• No real consolidation of Euro correspondent banks
• Impact of pan-European payments directive for
  Single European Payments area
• Payments to become a loss-leader?
• Absence of a single Pan-European Automated
  Clearing House

17
Continuous Linked Settlement (CLS)
Elimination of FX risk
But sledgehammer investment to crack a nut?
?
?
Impressive volume/value
But are these the trades we were concerned about?
?
3rd party interest growing
But where are they?
But is this truly global or led by the few?
?
Shining example of collaboration
18
European Banks - Correspondent Banking Strategy

• Banks frequently have Correspondent Banking as
  a discreet product set
• Very few banks have a strategy of full-service
  proposition - 7-10 of largest banks only
• Co-ordinated approach to selling to banks is
  unusual
• Others sell to banks but ad-hoc and within silos
  only
• Reciprocity is not dead but changing in nature
• Movement away from 11 reciprocity
• Across business lines and geographies

19
HSBC Institutional Banking Strategy

• A core objective of the Corporate, Investment
  Banking and Markets (CIBM) business line
• Relationship driven approach with segmentation
  according to client needs
• Integration of the Relationship teams with the
  Investment Banking and Markets teams to offer
  co-ordinated and seamless service
• Objective is to be the no.1 provider of full
  range of banking services to the bank clients of
  choice

20
Rob Walker
Global Head of Institutional Banking HSBC The
view from Overseas Financial Institutions -
Europe
Presented at the Bankers Association for
Finance and Trades81st Annual MeetingThe
Global Marketplace-At the Crossroads May 4-7,
2003The Arizona Biltmore, Phoenix, AZ