ISLAMIC FINANCE: BANKS ASSESS THE INSIDE: WHO’S WHO IN BANKS JOIN BATTLE BENEFITS OF BEHAVING GLOBAL TREASURY & FOR MARKET RESPONSIBLY CASH MANAGEMENT PAGE 19 PAGE 22 S U R V E Y : T H E W O R L D ’ S I N T E R N E T B A N K S — P A R T O N E SEPTEMBER 2005 The global economy is proving remarkably resilient in the face of repeated shocks FULL STEAM AHEADPAGE 14 DEAR READER SEPTEMBER 2005 | VOL.19 NO.8 The Teflon Economy T here is no disputing the fact that the world’s economies are LRNAU KMMRSIA CVJR OFEKIIEYNNTA: BNATCTEHT:LEEPA GWE 15ORBBRLAEESNNDPEK’OFSSIN TASSSII BSNOLEFTYS BESE RTHHNAEVPEAIGNTE G1 8BATTSHEANRFEKRE HTOSOYR—L NEIPNSEAS TIURNR TTA HNOECPNEAGEE 21 confronting some unsettling forces.Oil prices are surging, EDITOR IN CHIEF AND CHAIRMAN: PAOLO PANERAI international terrorism is on the rise,there is political turmoil SEPTEMBER 2005 PUBLISHER AND PRESIDENT:JOSEPH D. GIARRAPUTO in Brazil and an ongoing tangle between China and the US over exchange rates,textile exports and,latterly,China’s desire to buy EDITOR:DAN KEELER American companies.Natural disasters,such as the Asian tsunami and EUROPE EDITOR/LONDON:ANITA HAWSER The global economy the increasingly frequent hurricanes in the US,create enormous is proving remarkably CONTRIBUTING WRITERS: resilient in the face of repeated shocks financial stresses,disrupting the economies of entire regions. GORDON W. PLATT, JR., PAULA L. GREEN, MARK LEHANE, FULL LAURENCE NEVILLE, DENISE BEDELL, JOACHIM BAMRUD, STEAMAHEADPAGE 10 Despite these—and the countless other threats to global financial ADAM ROMBEL, AARON CHAZE, THOMAS CLOUSE, stability—the world’s economy is proving remarkably resilient.As ANTONIO GUERRERO, KIM ISKYAN, BRIAN OPPENHEIM we find out in this month’s cover story,the global economy seems PRODUCTION MANAGEMENT (MILAN):GIULIANO CASTAGNETO to have developed both a protective shell and the ability to heal ART DIRECTION:ER CREATIVITY/ENRICO REDAELLI, CLARA CIOCCHINI itself.When some catastrophe or another sends investors fleeing for COPY EDITOR: TINA ARIDAS safety,others quickly swoop in,hunting for bargains in an oversold market.Vast increases in global liquidity,dramatic advances in communications and an ever-growing hunger for yield are VICE PRESIDENTS, SALES:SEBASTIAN CAZEIRO, LEWIS GALATI, PETER RIORDAN, THOMAS GEORGIADES, combining to create a safety net that can help to stop a crash GRAEME McQUEEN, SALES DIRECTOR, EUROPE AND ASIA, RICHARD SCHOLTZ, SALES MANAGER, EUROPE before it happens. MKT’G COORD, SPECIAL PROJECTS/EVENTS: This self-sustaining protective web is one of the unexpected NATASHA TRAJKOVA consequences of globalization:With so many connections and PUBLISHING ASSOCIATE: interactions between so many economies around the world,markets LAURA GALLETTI are becoming inherently better balanced and more robust.We’ve MANAGING DIRECTOR, OPERATIONS: CHRISTOPHER GIARRAPUTO seen in the past few years,for example,how the world’s central ACCOUNTING MANAGER:YAWO GBEGNEDJI bankers have been able to utilize the vastly increased amounts of ADVERTISING OFFICES information available to help them maintain stability in their own LONDON 44-207-583-7588 economies.This effect is being replicated in banking and corporate NEW YORK 1-212-447-7900 RIO DE JANEIRO 55-21-2274-3099 activities.And while corporations may be howling about the ADVERTISING REPRESENTATIVES: Bulgaria: Elka Koleva, Adia Advertising growing regulatory burdens they are carrying,they are also finding Agency. China: Mary Yao, Media Gateway International Ltd. Germany: Erhardt that a well-run business with clean accounts and good corporate Eisenacher, Eisenacher Media. Hong Kong, Singapore:Godfrey Wu, MHI Limited. India:Faredoon Kuka, Ronny Mistry Assoc. Pvt Ltd. Indonesia:Rita governance is likely to be a more successful business—one that can Jayadi, PT Mediarep. Israel:Asa Talbar, Talbar Media. Japan:Shigeru Kobayashi, JAC Media. Malaysia: Adil Jilla.Mexico & Costa Rica:Xavier better weather the bad times as well as enjoy the good times. Romero Goytortua. Pakistan:Imran Ahmad, Pace. Philippines:Abdel Teodoro. Essentially,the changes that are taking place in the world’s Russia/CIS Baltic States:Arkady Komarov. South Korea:Heinz Kim, Heinz Communications Inc. Taiwan:Keith Lee, Advance Media Services Ltd. economy are the result of just one thing:better risk management. Thailand:Nartnittha Jirarayapong, N.J. International Media Company, Ltd. With greater transparency,more information and increasingly Turkey:Lemi Tanca effective risk management tools at their disposal,markets, GLOBAL FINANCE MEDIA INC CHAIRMAN: P. PANERAI governments and corporations can adjust quickly to unexpected VICE CHAIRMAN:A. BASODAN DIRECTORS:G. CAPOLINO, J. GIARRAPUTO, events.It also means there are fewer unexpected events,and that A.MATTEI, I. MAJEED, V. TERRENGHI should be good for all economies,large and small. SECRETARY:L. PANERAI FOUNDING EDITOR:CARLG.BURGEN Until next month. September 2005, Volume 19, Number 8. Global Finance (ISSN 0896-4181/USPS 006- 578) is published monthly except a combined July/August issue in July by Global Finance Media Inc, 411 Fifth Avenue, New York, NY 10016. Telephone: 1-212-447-7900. Fax: 1-212-447-7750. E-mail: [email protected]. London editorial office: The Associated Press Building, 12 Norwich Street, London EC4A 1QU, UK. Telephone: (44- 207) 436-1356; Fax: (44-207) 436-1568. 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Web Site: www.gfmag.com INTERNATIONAL R 2005 SEPTEMBER 1 CONTENTS SEPTEMBER 2005 | VOL.19 NO.8 COVER STORY COVER STORY REGULARS BY LAURENCE NEVILLE 14 Full Steam Ahead Despite the shocks of high oil 1 Dear Reader prices and terrorism and the A letter from the editor. apparent volatility of world markets, the global economy is enjoying a 4 Newsmakers period of unprecedented stability. The International Federation of TRENDS: Accountants tries to help beleaguered ISLAMIC FINANCE FEATURES BY ANITA HAWSER corporate accountants deal with 19 Vying for a Share of the transparency and accountability in Islamic Finance Market financial reporting; and an American company is suing the European Global and local banks are jostling Central Bank over alleged patent for position in a rapidly growing infringement on euro notes. and potentially lucrative market. BANKS’ LENDING POLICIES 22 Banking on Responsibility 6 Milestones BY PAULA L. GREEN Venezuelan president Hugo Chavez’s Increasingly,banks are discovering regional debt swap proposal gets a cool that strict lending policies can be a reception; and America’s China bashers powerful risk management tool. risk damaging the the US economy. 25 Holes in the Safety Net RISK MANAGEMENT: 8 Emerging Markets Roundup Despite the lessons learned in TERRORISM The latest news from China, India, Russia recent terror attacks,companies are INSURANCE still unprotected against the BY GORDON PLATT and Brazil. catastrophic losses they could face 12 EM Investor in the event of another attack. Key information for investors in emerging 27 Custodians Focus on markets. Innovation GLOBAL CUSTODY BY JOACHIM BAMRUD As they strive to find ever more 40 Mergers & Acquisitions creative ways to serve their clients, Big cross-border bank mergers in Europe custodians are increasingly finding are expected to remain rare, as numerous legal, regulatory and cultural impediments themselves on the cutting edge of technological innovation. to pan-European banking are still in place. 31 World’s Best Internet Banks: AWARDS 44 Global Equity/DRs GPalorbta l OFninea nceidentifies the best WORLD’SBESTINTERNETBANKS• WINOTRELRDN’EST B BEASNTKS Cthree dtiot pS uoifs tshee F girlsotb Balo IsPtOon l ehaagsu reo tcakbelteesd, atos online corporate and consumer THE 2005 the pace of new issues picks up. banks by country and product or service category. 45 Corporate Debt SunGard Data Systems sells $3 billion in 38 Best Hotels and Airlines REPORT AND AWARDS: notes in the biggest high-yield issue in Global Financereaders select their HOTELS AND AIRLINES more than six years. BY MARK LEHANE favorite business hotels and airlines. 46 Foreign Exchange Analysts aren’t sure if China’s 2.1% revaluation of the yuan is a baby step or a great leap forward toward a more-flexible system of currency trading. 2 SEPTEMBER 2005 G NEWSMAKERS GLOBAL F FINANCE AROUND THE WORLD NEW YORK UNITED STATES/EUROPEAN UNION IFAC OFFERS LIFELINE US COMPANY SUES EUROPEAN FOR BELEAGUERED CENTRAL BANK OVER EURO NOTES ACCOUNTANTS Just when currency Executives who are still Ward says the renewed focus traders thought bogged down in Sarbanes- on the quality of financial the euro was about to get over its recent Oxley and IFRS accounting and reporting woes, the belea- compliance are probably stemmed from a “credibility guered single curren- thinking the regulators and the report”it issued two years ago cy has fund itself in world of accountancy entitled “Rebuilding Public another crisis. This professionals have said all they Confidence in Financial time, however, it’s an need to say on transparency Reporting.”And while identity crisis. In a and accountability of financial company CFOs,CEOs and lawsuit filed with the reporting.But they would be auditors have been in the firing European Court of wrong.At its recent board line recently for inaccurate or First Instance in Lux- meeting in New York,the dishonest financial reporting, embourg, Document International Federation of IFAC’s aim is that everybody Security Systems, a Rochester, New York- Accountants (IFAC) involved in the production of based provider of announced that it would look financial statements from the PPaatt WWhhiittee products to prevent at further measures for initial stages should focus on counterfeiting of cur- enhancing the “financial quality.That includes lawyers rency and other vital records, says the ECB used its patented an- reporting supply chain”and and banks.Ward says there was ti-counterfeiting technology without permission. that age-old bugbear,corporate evidence to suggest that they The company says the ECB should pay it a reasonable management and governance. earned fees based on the royalty for every euro banknote in circulation for infringing The more skeptical may be measure of success they had in its European Patent 455750B1. The patent, which was thinking,‘Uh,oh! Not more convincing auditors that granted in 1999, covers a method of protecting banknotes regulatory compliance,’but financial statements that against forgeries by digital scanning and copying devices. IFAC president Graham Ward weren’t fair were really fair. “Our patents are among our company’s most valuable assets, and we have an obligation to protect them and a says it is too early to conclude IFAC’s study will also look at right to be paid when our technology has been used,” says that its work would lead to whether measures such as the Patrick White, CEO of Document Security Systems. further regulation.Instead,he independence and rotation of The earliest date the case may come to trial is December says,the initial focus would be auditors has made any 31, 2006, by which time the ECB is expected to have print- on providing practical help to difference in the quality of ed about 30 billion euro notes. Even a small royalty would people within the financial financial reporting. add up to a considerable sum when multiplied by 30 billion, reporting supply chain to —Anita Hawser White says. ensure they “do the right “Ongoing royalties from licenses are an important source of thing”when it comes to revenue for our company, and enforcement of our patent preparing company financial rights is key to our long-term business success,” White says. statements.“We are not starting The ECB, the guardian of the euro, is planning to put into circulation before 2010 a new generation of euro notes that from a pre-judged position that will be secured with electronic microchips. A spokesperson more regulation is needed,” for the bank had no immediate comment on the lawsuit. says Ward.“It has more to do Meanwhile, the US company’s technology appears to be with professional accountants working. A total of 293,000 forged euro notes were pulled within companies saying to us, out of circulation in the first six months of this year, down ‘Can you give us some help in from 307,000 in the same period a year earlier. This is a a practical sense?’They want small fraction of the 9 billion genuine banknotes currently in more recognition for the role circulation. they play in the production of —Gordon Platt IFAC president Graham Ward audited financial statements.” 4 SEPTEMBER 2005 G MILESTONES GLOBAL F FINANCE TAKING NOTE VENEZUELA UNITED STATES/CHINA VENEZUELA’S DEBT WILL AMERICA’S CHINA BASHERS PROPOSAL GETS COOL HARM THE US ECONOMY? RECEPTION When China’s Skeptics are questioning the while Venezuela may appear to C N O O C rationale behind the be channeling some of its oil withdrew its Venezuelan government’s windfall to lending its $18.5 billion all- proposed debt alliance for neighbors a helping hand, cash offer to buy Latin American emerging analysts speculate whether the US oil company markets.Its chief cheerleader, administration may be using Unocal in early Hugo Chavez,claims the the strategy to buy greater August, it cited move should bolster emerging influence in the region. “the political en- market debt prices and Chavez,who has already vironment in the provide financing for the proposed the creation of an US” as the rea- son for not region’s countries. umbrella holding company to sweetening its Under the plan announced manage Latin America’s state- bid to top a rival by Venezuela’s finance owned oil companies,supports offer from Chevron, minister,Nelson Meirentes,in the establishment of a regional a major US oil July,alliance members would economic union and recently company. Hong Kong-based CNOOC, which is 70%-owned by purchase each other’s debt, launched a new regional the Chinese government and is the country’s third-largest oil with Venezuela already television broadcaster as part producer, said the political reaction in the US to its offer was committed to purchasing debt of a broader strategy to gain regrettable and unjustified. from neighbors such as greater regional prominence. It was also ill-advised, says Robbert Van Batenburg, head of Argentina,Brazil,Bolivia and However,the Venezuelan research at Louis Capital Markets, a New York-based broker- Ecuador.The government in President’s increasingly dealer of equities and derivatives. “The US should embrace foreign direct investment,” he says. “FDI is always a good Caracas is expected to authoritarian policies,fierce thing for our economy.” purchase more than $500 opposition to Washington and China is making a positive contribution to the US economy million worth of Argentine strengthening ties to the Fidel and financial markets, a fact that is often overlooked in re- debt alone this year. Castro regime in Havana ports on its trade surplus, Van Batenburg says. The US econ- “It’s a way to unify Latin means few governments are omy is strong, not only because of robust domestic America,”says Meirentes,who likely to jump on his debt consumption but also because of growing demand for US ex- also proposes the establishment bandwagon.Much of his ports in China and other emerging-market countries, he adds. of a regional debt trading regional support continues to The benefit to the US is not limited to exports but includes center in São Paulo,Buenos come from Cuba,as well as low inflation, he says. Aires or Caracas.However, from leftist administrations in Most raw-material price increases have been absorbed by Argentina and Brazil. Chinese and other Asian manufacturers who have been unable to pass any of these costs on to the consumer, according to “What this doesn’t seem to Van Batenburg. answer is how you will get Van Batenburg is also among those who believe that if Chi- net new lending into Bolivia, na bows to US demands to revalue the yuan dramatically, in- Peru and other developing flation will return to the US economy. Tariffs would be unlikely countries,”said Randall to work either, they believe, because China could simply com- Dodd,director of the pensate its exporters through tax breaks. Washington-based Financial “Protectionism has curtailed economic growth in Europe,” Policy Forum,in a press Van Batenburg says. “Let’s hope it doesn’t happen to the US.” interview in July.“You just The political wrangling required to get the Central Ameri- can’t do each other’s dirty can Free Trade Agreement through the US House of Repre- laundry and then say we are sentatives by a two-vote margin, however, reflects lukewarm support at best for open markets. —Gordon Platt all better off.” VVeenneezzuueellaa’’ss HHuuggoo CChhaavveezz —Antonio Guerrero 6 SEPTEMBER 2005 G EMERGING MARKETS GLOBAL F FINANCE EM ROUNDUP CHINA EAGER INVESTORS CATCH A DOSE OF IPO FEVER In a long-awaited move, stock market.The bank was the swine flu.By the early August by sending vaccines for 350,000 the Chinese central bank most successful of several the mysterious strain of pigs to China’s most heavily modified the yuan’s Chinese companies to list in Streptococcus suis bacteria had affected province of Sichuan— exchange rate on July 21 Hong Kong this summer. infected 198 people,killing 36 of and promising enough doses to for the first time in a Energy company China them.The Chinese government vaccinate 10 million pigs. decade.China’s currency will Shenhua raised almost $3 has responded to the outbreak —Thomas Clouse now no longer be pegged billion in its huge IPO.Pricing directly to the US dollar but for the company’s stock, RUSSIA will instead be tied to an however,was lower than CONSOLIDATION HEATS UP undisclosed group of expected and dropped further currencies. during the first day of trading. While the decision to move Chinese shipping company to a more flexible pricing COSCO and real estate In the latest round of oil and gas Kasyanov:Under pressure regime was praised both at company R&F Properties both industry consolidation, Gazprom received Russian President home and abroad,the 2.1% met with lukewarm receptions Vladimir Putin’s official blessing to revaluation may not be due to concerns that China’s take over Sibneft, the country’s enough to satisfy critics of economy may be cooling. fifth-largest oil producer. Meanwhile, China’s monetary policy.Most Baidu,China’s most popular Sibneft announced it would pay out observers expect further Internet search engine,sold a record $2.3 billion dividend, indi- exchange rate adjustments, more than $100 million in cating to some analysts that a deal despite statements from the shares on the US-based is likely as the company’s majority central bank seeking to quell Nasdaq (see EMInvestor,page SWIsThZaEreRhLoAldNerDs, sGeEeRk MtoA NboYl,s tUeNr ItTh-eir such expectations. 12).Early trading in the shares cash holdings before a sale. In June,the Bank of pushed the company’s Meanwhile, the parade of Russian IPOs continued, as Novatek, Communications also made a valuation to stratospheric levels the country’s largest independent gas producer, raised $966 mil- lion on the London Stock Exchange in a sale that was more than long-anticipated move when it last seen at the peak of the 10 times oversubscribed. Despite being priced at the high end of became the first of mainland Internet boom in the US. the targeted range, shares still rose more than 13% during the China’s banks to launch an Despite having revenues of first day of trading. IPO,which raised US$1.9 only $13 million last year, Foreign investment in the Russian beer sector continued, as billion on the Hong Kong Baidu was valued at almost $4 InBev agreed to buy Tinkoff, a high-end producer, for $202 mil- billion by the end of the first lion. The purchase comes on the heels of the sixth acquisition by day’s trading.Its price Heineken in Russia, of Baikal Beer. continued to rise the following One man who won’t be drinking a toast is former Prime Minis- day,although buying was ter Mikhail Kasyanov, who earlier in the year indicated that he tempered by rumors that short might be interested in running for President in 2008. Kasyanov sellers were eyeing the stock. was put under investigation for fraud relating to his below-mar- ket acquisition of a government holiday house. Kremlin-watchers Public health concerns have suggested that the investigation was a warning to Kasyanov to been competing with stay out of politics, even though the chances of the tainted and investment opportunities for unpopular Kasyanov achieving any sort of political momentum media attention following an are widely regarded as slim at best. —Kim Iskyan AAnnootthheerr ppuubblliicc hheeaalltthh ssccaarree iinn CChhiinnaa outbreak of a lethal variety of 8 SEPTEMBER 2005