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April 22, 2008
Recent market turmoil and its consequences will negatively impact the earnings of European banks for a considerable time. This reverses a long period of improvements in profitability and efficiency. But: the current environment should not distract from the trends that have favourably shaped the structure of the industry for the last 10 years and will continue to do so: consolidation, internationalisation, convergence and increasing specialisation. In this study, we consider to what extent these trends are going to further shape the banking sector in the foreseeable future. [more]
European banks: The silent (r)evolution ********* ** ** ****** ** ****** ** Author Jan Schildbach +49 69 910-31717 jan.schildbach@db.com Editor Bernhard Speyer Technical Assistant Sabine Kaiser Deutsche Bank Research Frankfurt am Main Germany Internet: www.dbresearch.com E-mail: marketing.dbr@db.com Fax: +49 69 910-31877 Managing Director Norbert Walter A p r i l 2 2 , 2 0 0 8 R e c e n t m a r k e t t u r m o i l a n d i t s c o n s e q u e n c e s w i l l n e g a t i v e l y i m p a c t t h e e a r n i n g s o f E u r o p e a n b a n k s f o r a c o n s i d e r a b l e t i m e . T h i s r e v e r s e s a * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * . B u t : t h e c u r r e n t e n v i r o n m e n t s h o u l d n o t d i s t r a c t f r o m t h e t r e n d s t h a t h a v e s h a p e d t h e s t r u c t u r e o f t h e i n d u s t r y f o r t h e l a s t 1 0 y e a r s a n d w i l l c o n t i n u e t o d o s o . * * * * * * * * * * * * * h a s l e d t o g r e a t e r s i z e a n d h i g h e r m a r k e t s h a r e s e s p e c i a l l y o f l a r g e b a n k s w h i c h c a n t h u s t a k e a d v a n t a g e o f e c o n o m i e s o f s c a l e , h a n d l e “ b i g t i c k e t ” t r a n s a c t i o n s a n d b e c o m e m o r e s t a b l e i n s t i t u t i o n s v i a a d i v e r s i f i c a t i o n o f t h e i r r e v e n u e s t r u c t u r e . * * * * * * * * * * * * * * * * * * * h a s o p e n e d u p n e w s o u r c e s o f g r o w t h f o r W e s t e r n E u r o p e a n b a n k s t h a t e x p e r i e n c e l o w e r g r o w t h r a t e s i n t r a d i t i o n a l h o m e m a r k e t s b u t c a n s e i z e o p p o r t u n i t i e s i n o t h e r E u r o p e a n c o u n t r i e s , t h e U S A , a n d e m e r g i n g m a r k e t s . * * * * * * * * * * o f b a n k - a n d c a p i t a l m a r k e t - b a s e d f i n a n c i a l s y s t e m s h a s l e d t o f u n d a m e n t a l i m p r o v e m e n t s i n t h e m a n a g e m e n t o f c r e d i t r i s k a n d t o a s h i f t o f b a n k a c t i v i t i e s f r o m a s s e t i n t e r m e d i a t i o n t o w a r d s t h e p r o v i s i o n o f f e e - g e n e r a t i n g c a p i t a l m a r k e t s s e r v i c e s . * * * * * * * * * * * * * , i . e . t h e b r e a k - u p o f t h e v a l u e c h a i n , a n d i n c r e a s i n g s p e c i a l i s a t i o n o f f e r b a n k s t h e c h a n c e t o f u r t h e r b e n e f i t f r o m e c o n o m i e s o f s c a l e , d e e p e r m a r k e t k n o w l e d g e a n d h i g h e r f l e x i b i l i t y t o a d j u s t t o c h a n g e s i n d e m a n d a n d c o m p e t i t i o n . * * * * * * * * * * * ! " * * * * * * * # $ * * * * * * * * * I t ' s t h e l a s t 1 0 y e a r s t h a t c o u n t , n o t t h e l a s t 1 0 m o n t h s 4 6 8 1 0 1 2 1 4 1 6 1 8 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 5 2 5 5 5 8 6 1 6 4 6 7 7 0 7 3 C o s t - i n c o m e r a t i o , r i g h t R O E , l e f t S o u r c e s : O E C D , E C B , S N B , D B R e s e a r c h % * * * * * & * * * * * * * * * * % EU Monitor 54 2 April 22, 2008 European banks: The silent (r)evolution April 22, 2008 3 1. Long period of rising bank profitability in Europe Since the beginning of the 1990s, the average profitability of banks in Europe has risen strongly: in fact, the average post-tax return on equity (ROE) for the eight most important Western European markets doubled from 7.9% in 1994 to 16.8% in 2006. 1 The develop- ment in the three largest Central & Eastern European (CEE) countries 2 was even more positive as banks’ ROE jumped from a mere 2.8% to 22.0% over the same period of time. Setbacks in the wake of the Asian crisis in 1997/8, or the bursting of the “New Economy” bubble in 2002/03 were only of a temporary nature (see charts 1 and 2, table 28 in the appendix). Contagion effects from the US subprime crisis led to an estimated decline of not more than 3 pp in Western Europe last year, while R OE even increased further by 0.5 pp in CEE countries. Several factors have contributed to these quite extraordinary improvements: on the one hand, economic growth certainly has played a role. Following economic crises in several European countries at the beginning of the 1990s, most EU nations experienced a period of steady economic growth, only interrupted shortly in 2002/03 (see chart 3). However, in contrast to other regions in the world, the last 15 years did not bring a significant rise in growth rates: many EU countries struggled with structural problems that kept them from reaping the full benefits of globalisation which established the emerging markets (EMs) as a new key driver of the world economy. This suggests that – in addition to the overall benign macro- economic development – there are other reasons behind the remarkable success of European banks during the past years. In particular, industry- and bank-specific factors do account for a large proportion of this success. Operative and structural improvements within both individual institutions and the industry as a whole will in the end be reflected in the cost-income ratio (CIR). Indeed, the CIR of Western European banks declined from 66.0% in 1994 to 57.0% in 2006, while the fall from 78.9% to just 57.7% was even more pronounced in the CEE countries (see table 29 in the appendix). 3 It is rather straightforward that fundamental changes must have taken place to result in such a new quality in banks’ financial performance, including developments in the external environment of banks as well as in the business model itself. In this study, we will take a look at these trends and will also consider to what extent they are going to further shape the banking sector in the foreseeable future. But first of all, we will turn to the new framework for banking in Europe that has evolved over the last few years, focusing on regulation, the emergence of markets outside Europe, and technological change. 2. A changing framework for banking business in the EU a. New regulatory environment The integration of European financial markets has been a long-term project of both EU institutions and the industry itself, motivated by benefits for the financial sector as well as firms and consumers. These are mainly based on assumptions of a reduction in the cost of 1 Unweighted averages for Germany, UK, France, Italy, Spain, the Netherlands, Sweden, and Switzerland. 2 Poland, Czech Republic, Hungary. 3 We estimate that the CIR increased rather moderately by about 2 pp in Western Europe and recorded an equal decline in the CEE region in 2007. -1 0 1 2 3 4 5 6 7 8 9 92 94 96 98 00 02 04 06 '*** (*) * ***" % p.a. Emerging markets World EU-15 Sources: Eurostat, IMF + 4 6 8 10 12 14 16 18 94 96 98 00 02 04 06 52 55 58 61 64 67 70 73 %*** ** &**** * ** *** CI ratio, right ROE, left Sources: OECD, ECB, SNB, DB Research % , -10 -5 0 5 10 15 20 25 94 96 98 00 02 04 06 30 40 50 60 70 80 90 100 %*** ** **** ** - ***** * % CI ratio, right ROE, left Souces: OECD, ECB, DB Research ** *** . EU Monitor 54 4 April 22, 2008 equity, bond and bank finance and an increase in the intensity of competition in previously segmented markets. Advantages for corporate clients are primarily due to lower costs of capital, those for retail clients due to both cheaper financial services and a greater product variety. 4 The respective welfare gains were estimated to amount to as much as a one-time increase of 1.1% in the EU’s GDP, or EUR 130 bn, in total, with some countries gaining even more (see chart 4). In addition, employment has been forecast to be 0.5% higher – amounting to about one million new jobs – upon completion of the single market for financial services. The EU’s effort to create a single European market for financial services has made substantial progress but is still far from being complete. Major steps have been accomplished in particular with the implementation of various measures of the Financial Services Action Plan (FSAP) since its adoption in 1999 which made possible the emergence of – by and large – integrated interbank and wholesale markets (actively been pushed forward by the major corporate and investment banks). On the other hand, the retail banking segment still remains much more fragmented along national borders, if one concentrates on the main indicators for measuring the level of integration: price convergence, cross-border supply of products and services, and the degree of foreign ownership (see charts 5 and 6). 4 See also: London Economics (2002). *** ** ** ** ** ***** ***** Interbank markets Wholesale Retail Prices Cross-border services Pan-European infrastructure Product availability low high Sources: European Commission, DB Research * 0 0.5 1 1.5 2 GR FI DK FR NL ES EU-15 AT IT PT UK DE SE IE BE /***0 ** ******** ** ** **0 % of GDP Source: London Economics ******* ** ** ***** ***** * 0 20 40 60 80 100 CH SE FR DE ES IT NL EMU-12 AT DK PT BE EU-25 SI CY MT GR IE UK HU FI LV PL LT BG RO SK LU CZ EE ** ** *"* * ** ** ****0***** **** % of total assets, 2006 Sources: ECB, SNB 1 European banks: The silent (r)evolution April 22, 2008 5 Current measures to further market integration Rising demand for cross-border retail services Risk of over-regulation This implies that there is still considerable untapped potential to reap the benefits of continued market integration. The EU Commission is consequently pressing ahead with new legislation focusing in particular on retail market issues (even though there is more to do also with respect to the structure of financial supervision in the EU, the alignment of consumer protection and contract law, and tax issues, among other things). The Markets in Financial Instruments Directive (MiFID) which came into effect on November 1, 2007, will benefit retail investors through an increase in trans- parency in securities trading and the application of the best execution principle. Similarly, the Consumer Credit Directive (CCD), which has been passed at the EU level, but still has to be trans- posed into national law, aims at improving the cross-border supply of consumer loans, thereby making credit more easily available and cheaper for retail clients. The Payment Services Directive (PSD) provides the legal framework for the Single Euro Payments Area (SEPA) that is set to make EU-wide payment transactions as convenient and efficient as those at a national level – thus also lowering costs for retail customers and SMEs. Despite several shortcomings regarding the effectiveness and efficiency of these measures, it can reasonably be assumed that EU retail markets will become more integrated in the years to come. There is evidence of an increasing demand for cross-border retail financial services from the customers’ side – i.e. about 25% of EU-25 citizens surveyed by the EU Commission indicated their intention to obtain services – including a bank account or a credit card – from another member state (up from the 15% who have done so already). 5 With more cross-border retail banking services, con- sumers will benefit from greater competition and a broader product choice. More importantly, easier market access to other EU countries will also allow banks to realise economies of scale by leveraging standardised products, distribution and transaction capabilities and lowering fixed costs, e.g. in IT, legal and other corporate functions. This will be an important source for the benefits expected to result from retail market integration. At the same time, however, there is a substantial danger that over- regulation may eliminate a substantial part of the potential gains from more open financial markets across Europe. Compliance costs are already high – bank-specific bureaucratic costs for instance, reach as much as EUR 3.1 bn a year in Germany alone, according to some estimates. 6 Increasing the regulatory burden further would certainly prevent banks from passing on lower costs to their clients – or, indeed, keep them from offering cross-border services at all. Furthermore, the dangerous trend to more – and more complex – rules remains fully intact also at the individual country level. The ongoing globalisation of financial markets, however, calls for a multinational regulatory framework. Optimally, this should be established on a global scale for globalised markets like wholesale and investment banking, and on a European level for European retail markets to reap the full benefits of integration. b. Growing importance of markets outside the EU Apart from European integration, the past decade has also wit- nessed a remarkable shift in the global balance of power – away 5 Source: European Commission (2005). 6 Source: IW Consult (2006). EU Monitor 54 6 April 22, 2008 Strong growth in emerging markets... ... from low starting levels ... but backed by favourable demographics ... and improved stability and openness especially from the industrialised countries in Europe, and towards emerging markets (EMs). Following the transformation of former socialist economies in Eastern Europe and China into (much more) market-oriented economies and as a result of a wave of economic liberalisation in many developing countries, growth has picked up there. Driven first and foremost by a deepening integration in the world economy and a surge in exports, GDP growth in EMs accelerated from a yearly average of 3.8% from 1989 to 1998 to an expected 6.5% in the decade from 1999 to 2008 – thereby widening the growth differential with the industrial countries from 1.1 pp p.a. to 3.9 pp, respectively. 7 Whereas the first period still included not only the dramatic losses during the transition of most countries of Central and Eastern Europe (CEE) to market economies but also the severe downturn in Latin America at the beginning of the 1990s or the Asian crisis of 1997/98, the last ten years were characterised by greater economic stability and an expansion of emerging economies that became more broadly based. But despite high growth rates, per-capita income in many emerging countries remains only a small fraction of that of developed nations. Even some of the most advanced emerging markets – Hungary, Czech Republic and Poland – do not exceed the 60% level of G7 per-capita income 8 and it will take decades for the majority of EMs to catch-up with Western standards. What should help the emerging countries to close the gap with the established economies are their increasingly efficient financial markets (which makes proper implementation of EU financial services rules and regulation in CEE all the more important) as well as their more balanced demographic structure (which, however, does not apply to Central and Eastern Europe, and some other countries). Whereas almost all advanced nations will face a further strong decline in the ratio of working people to retired people, the tendency towards a society dominated by the elderly is much less pronounced in most developing countries: e.g., the share of the population aged over 59 is expected to climb to 35% in Europe by 2050, compared with 24% in Asia, according to UN estimates. 9 The demographic development will therefore favour emerging markets as it affects the innovation potential of societies and their ability to stay on the technological edge: individual creativity and productivity growth tend to decline towards retirement, and entrepreneurship is usually associated with younger, not older people. In addition, most emerging countries’ populations will continue to grow in absolute terms, while many Western nations will experience a decline. Finally, economic and political stability usually go hand in hand. With ideological regimes globally on the retreat for almost two decades now, military confrontations have declined considerably, democracy has spread, and political stability increased. 10 In addition, the institutional framework for financial markets in many emerging countries has been strengthened. Thus, in sum, the favourable combination of high growth rates, low income, younger societies, and more stable institutions will continue 7 Source: IMF (2007). 8 Measured at market exchange rates. 9 Source: United Nations, World Population Prospects. 10 Sources: Freedom House (2008), Uppsala University, Uppsala Conflict Data Program. European banks: The silent (r)evolution April 22, 2008 7 to attract a large share of global investment flows and lead to a gradual catch-up of a substantial part of today’s “developing” world. The impact this will have on banks especially in Western nations can hardly be overestimated and reaches far beyond the traditional trade finance business (which in a first step benefits from the ever-growing interdependence of the world’s goods markets and increasing trade volumes). In fact, rising wealth in the EMs will also enlarge the basis for financial intermediation in general and should lead to a much stronger rise in the size of EMs’ banking markets than in industrial- ised countries: financial assets tend to grow faster than total economic activity (measured in bank credit to the private sector, resp., GDP) – a process called “financial deepening”. It implies that credit-to-GDP ratios are usually higher in richer countries (see chart 7). Furthermore, GDP growth of emerging countries should continue to outperform that of Western nations, resulting in relatively larger increases in the credit-to-GDP ratios in EMs and higher growth rates in the absolute size of their banking sectors. However, banks in Europe not only have to adjust to shifting market shares in global banking, but also have to prepare for more intense competition from new global players from emerging countries, for which the Chinese banks that have already entered the world’s top ten rankings by market capitalisation may just be a first indicator. c. Technological change A third key driver for changes in the European banking landscape in recent years has been technological progress, a factor whose influence can hardly be overestimated. Innovations in telecom- munications and electronic data processing have considerably facilitated the flow of information between clients and banks, within financial institutions, and between them. The internet, e-mail, online banking and “Web 2.0” – to name just a few inventions – have made gathering and exchanging information much easier for clients as well as for any bank itself. They have sped up financial transactions to an extent still unthinkable a few years ago. And they have brought about tremendous changes in almost every process within a bank; from risk, liquidity, and capital management to back office activities. They have thus not only been a precondition for the far-reaching improvements in the quality of products, in-house operations and clients’ services but at the same time allowed for enormous cost savings that have benefited both banks’ earnings and customers via lower prices for many standard banking services. The IT revolution, however, has not only turned upside down the way banking is conducted, but it also resulted in expenditures for technology and communication becoming one of the most important cost factors for the financial industry. Whereas some estimates put fixed costs (of which a substantial part is IT-related) at around 10% to 15% of total expenses at the beginning of the 1990s, in today’s world this share might have risen to as much as 25% to 30%. 11 Understandably, this has triggered new considerations about how to contain similar growth in IT costs in future. 3. Major trends in European banking Given these developments in the banking environment in Europe, how have banks in fact reacted to them – and achieved the sub- stantial improvements outlined in chapter 1? One can at least identi- fy four major trends: banking markets in Europe have become more 11 Source: Morgan Stanley (2005). 0 40 80 120 160 200 AR MX ID RU PK TR BR IN EG* VN* TH JP DE UK US /* ** **** ******** ** Bank loans to the private sector in % of GDP, 2006 * 2005. Source: World Bank ***** * ***** **2** 3 EU Monitor 54 8 April 22, 2008 Plenty of reasons for consolidation consolidated and more international – and banks more capital markets-oriented and more specialised over the last few years. We will discuss each of these trends individually, starting with con- solidation. a. Consolidation Size matters. This is the conclusion many banks have been drawing from the trends in regulation, technology, and the continued growth in capital markets. Reasons for the drive to create ever larger fin- ancial institutions mainly fall into two categories, either of operative or of a more strategic nature. Among the first group rank arguments relating to economies of scale, leverage opportunities of products and processes, stability issues, and “big ticket” transactions. The second group is less concerned with operative issues, but rather links consolidation to the strategic degrees of freedom and the level of publicity a bank obtains. — Achieving economies of scale in areas where fixed costs are a dominant factor – from “regulatory compliance” to IT expend- itures and other back office functions – poses a major challenge for bank managers. Equally, cost degression is also highly relevant in certain core businesses of banks, e.g. in payment transactions or in securities sales, trading and settlement. — Another case for M&A among banks may be related to efficiency issues: a merger between two banks can allow for the mutual exchange of best practices and leverage of successful products, processes, and brands. Besides this exogenous “restructuring story”, consolidation can also take place endogenously as the more efficient banks gain market share directly as a result of their effectiveness, which enables them to offer more competitive prices and leads to the market exit of inferior institutions. — More support for the creation of large banks comes from them being seen as more stable institutions. A usually higher degree of diversification reduces the exposure to adverse movements in individual markets which in turn strengthens ratings and lowers refinancing costs. — Large banks can also claim that they are the only institutions able to satisfy the increasing demand for large-scale (“big ticket”) transactions that in particular require a broad capital base and sufficiently experienced personnel. As the latest boom in lever- aged buy-outs and mega-M&A deals have demonstrated, volumes in the double-digit billion euro range are not exceptional any more in both syndicated loans and debt and equity under- writing. — What adds to this are strategic considerations. Large-scale upfront investments often call for equally large and financially strong institutions because these investments usually take some time to pay off. Even more, high stock market capitalisation and a broad international reach reduce management’s dependency on any single stakeholder (e.g. shareholders, labour unions, or governments) and increase its degrees of freedom. — Finally, creating a larger bank might also be beneficial in terms of public awareness (and that of financial analysts) of the very existence of this institution. Wider coverage in the media, by equity analysts, and perhaps the admission to a major stock index can give a push to the share price as well as facilitate initiating future business – potential partners may just recognise European banks: The silent (r)evolution April 22, 2008 9 Shrinking number of banks… ... along with strong asset growth ... pushed by M&A ... leading to a rise in market concentration a possible supplier and intuitively place greater trust in a company they have heard of already. 12 Given that there is considerable theoretical support for a con- solidation in the banking industry (as well as in other sectors) 13 , it does not come as a surprise that the total number of banks in EU countries has declined considerably over the last few years and that banks are growing fast: in fact, the number of credit institutions in the EU-15 decreased by 28% from 9,624 in 1997 to 6,926 in 2006 (see chart 8). At the same time, the average size of banks has grown more rapidly than the economy as a whole. Bank assets expanded by an average of 12.2% p.a. from 1997 to 2006, compared with a rise in nominal GDP of just 4.3% p.a., thus driving up the ratio of assets to GDP to 333% from 240%. In addition, larger banks have grown even faster than smaller ones: the world’s top 25 banks managed to raise their share in total assets of the world’s largest 1,000 banks from a mere 28% in 1997 to almost 41% in 2006. Organic growth and financial deepening did account for a sub- stantial proportion of that growth, but M&A among banks has also been an important factor during the last years. From 1996 to 2005, for instance, domestic M&A transactions in Europe were valued at almost EUR 400 bn – more than the annual GDP of countries such as Belgium or Sweden. 14 Yet despite all the progress made with consolidation, European banking markets still differ substantially in terms of market con- centration: bank assets in countries like Belgium, the Netherlands or many CEE nations are already concentrated in only a few hands, while the market share of the five largest banks, e.g. in Germany or France, lies far below that. Overall, however, the CR-5 ratio went up on an unweighted average base from 48.1% in 1997 to 53.6% in 2006 in the EU-15 countries and has meanwhile reached more than 50% in 17 of the 25 EU countries in 2006 (see chart 9). 15 12 In some cases, ”empire building” by senior management (i.e. executive managers seeking to expand their power and reputation) might also influence a decision to merge with or acquire another bank. 13 Empirical evidence that a larger size may indeed be beneficial for banks is found e.g. in Al-Sharkas et al. (2008), Cavallo and Rossi (2001), or Goddard et al. (2004). 14 Source: PricewaterhouseCoopers (2006). 15 The data is not without flaws, however: the ECB, for example, does not count as one institution the large Italian banking conglomerates that consist of several 0 500 1,000 1,500 2,000 2,500 3,000 3,500 DE FR AT IT NL Other EU- 15 1997 2006 4**** ** **** ** *"* **0,* Source: ECB 5 EU Monitor 54 10 April 22, 2008 Rationale for "going international"... ... with Europe an attractive market ... driven by advances in regulation ... and a stronger position of foreign banks b. Internationalisation 16 In response to a changing environment and as a driver of profit growth over the last few years, internationalisation is the second major trend that characterises developments in the European banking markets. Internationalisation itself comprises mainly three dimensions – the fact that European banks increase the share of foreign earnings, that foreign banks (often from EMs) enter the European market, and that the shareholder base of banks in Europe has become more international. In the following, we will mainly focus on the first issue, but also briefly touch upon the other two. In general, the two main drivers behind European banks “going international” are the search for new sources of growth and diver- sification of the revenue structure. Many of the Western home markets of banks are already mature and show rather high con- centration levels, limiting scope for further growth. Equally, broader geographic diversification is supposed to strengthen the overall stability of a bank as diverging national developments balance them- selves out and smooth revenues and earnings of a multinational institution. The particular attractiveness of the Western European market is based on its huge size, a stable development as one of the most mature markets in the world, and its reliable – and increasingly harmonised – legal and institutional framework. However, even within the euro area with its single currency, macroeconomic developments as well as economic and fiscal policy etc. can diverge remarkably (let alone considering the UK and the new member states in CEE countries). Given the differences in market structures as described above, other European markets can therefore still offer banks substantial potential in specific market segments and allow for internal as well as external growth. Not surprisingly, banks have thus put special emphasis on strengthening their operations in other European markets. The concrete triggers for banks to “go European” have been the creation of a single European market for financial services and increasing competition in the banks’ home markets as a result of the independent legal entities but share the same management. This results in an underestimation of the true concentration level of the Italian banking market. 16 Of course, internationalisation is a sort of consolidation, too, as the number of (independent) players that are active on a European scale decreases, even though the number of domestic institutions c.p. does not become smaller. 0 20 40 60 80 100 DE IT LU UK ES EU-25 EMU-12 AT IE PL BG FR HU SE RO SI CY CZ DK GR SK PT LV MT FI LU BE NL EE ** ** *"* * ** *"* **** ** **** **** ** .661 % (CR-5 ratio) Source: ECB 7 European banks: The silent (r)evolution April 22, 2008 11 ... resulting in higher M&A dynamic ...and a stronger position of foreign banks globalisation process that sped up dramatically in the 1990s. 17 In Europe, with the Treaty of Maastricht fully establishing the free movement of capital from 1993 and the Financial Services Action Plan (FSAP) of 1999 providing the framework for an integrated market for financial services, the EU accomplished major steps to facilitate the creation of truly “European champions”. The FSAP’s major measures – the integration of wholesale markets, the opening of national retail markets and the harmonisation of supervisory standards – greatly improved the conditions for the cross-border provision of banking services and the emergence of pan-European banks. The industry quickly responded to these new opportunities: “greenfield” investments and cross-border M&A activity in the EU gained momentum, the latter reaching a volume of almost EUR 160 bn 18 over the decade to 2005, in which year it rose to a new record level of more than EUR 41 bn. This figure has been surpassed by far in 2007 with EUR 112 bn, thanks mainly to the takeover of Dutch bank ABN Amro by three competitors for more than EUR 70 bn alone. 19 As a consequence, the share of total assets held by foreign-owned banks in the EU-25 has increased from 23.2% in 2001 to 27.1% in 2006; in the EMU-12, this shift was even more pronounced (with foreign bank-ownership climbing from 13.8% in 2001 to 17.9% in 2006). 20 Notable in particular was the development in those count- ries which previously had only a limited market share of foreign banks: in Germany, Italy and other – mostly large – Western European countries, foreign bank-ownership has picked up strongest since 1997, while e.g. in the already highly international wholesale part of the UK banking market (which was opened up years before), the share more or less remained the same. The difference between the euro area and the EU-25 stems not only from the inclusion of the UK, but additionally from the high market 17 See chapter 2. 18 Source: PricewaterhouseCoopers (2006). 19 Source: Dealogic. 20 See chart 11 and chart 6 in section 2. a. Value (EUR bn) Year Investor Country Target Country 1 71.8 2007 RBS, Fortis, Santander UK, BE, ES ABN Amro NL 2 15.4 2005 Unicredit IT HVB DE 3 13.9 2004 Santander ES Abbey UK 4 11.2 2000 HSBC UK Crédit Commercial FR 5 9.0 2006 BNP Paribas FR BNL IT 6 7.2 2000 HVB DE Bank Austria AT 7 5.9 2005 ABN Amro NL Antonveneta IT 8 5.7 2007 Hypo Real Estate DE Depfa IE 9 4.8 2000 MeritaNord- banken SE Unidanmark DK 10 4.1 1998 ING NL BBL BE Sources: PwC, DB Research ** ***** ****8 ,7750.663 !** ,6 * ***0** ** *-9 ***** ***** &**** * ,6 EU Monitor 54 12 April 22, 2008 "Going global" – advantages… ... and limitations share of foreign banks in the CEE countries. This in turn is pre- dominantly the result of the privatisation process of the 1990s, when the former socialist CEE banking systems recorded large inflows of foreign capital. Overall, the particular momentum in inner-European cross-border transactions is evidenced by the contrasting development of the market share of other European institutions in the EU-25 (which gained 3.5 pp to 19% from 1997 to 2006) and that of banks from third countries – which stayed almost flat at 8.2%, compared with 7.7% in 1997. In addition to becoming more active at a cross-country European level, European banks have also taken advantage of the rise of emerging markets by “going global”. A wave of liberalisation, deregulation and growth in many countries has made less developed financial markets much more attractive – and made broadening the geographic scope not only desirable for Western banks, but also achievable. Whereas their traditional home markets are often expected to experience only moderate economic growth as well as ageing (sometimes declining) populations over the next few decades, rising nations may indeed provide for a comple- mentary fit: they have huge catch-up potential in terms of income and wealth, increasingly rather stable institutions, and young and growing populations which are an important precondition for high growth rates in the long-run. Financial markets in general and banks in particular are set to benefit disproportionately strongly from this development (see section 2. b.). Banks have to keep in mind, however, that growth opportunities are not without risk and limitations. On the one hand, the absolute size of emerging countries’ financial systems is still no more than a tiny proportion of that of developed nations. Whereas in many emerging countries the volume of loans to the private sector falls in a spectrum of about 20% to 60% of GDP, in most OECD countries, on the contrary, this ratio has reached or exceeds 100% (see chart 7 in section 2. b.). 21 Retail-banking customers in the old EU-15 already hold more than 470 million current accounts, which is well beyond the total population of any developing country in the world, with the 21 Equally, while bank deposits usually remain below 60% of GDP in emerging markets, in many industrial nations these figures come close to or exceed 100%. 0 10 20 30 40 50 60 1997 2006 1997 2006 1997 2006 1997 2006 1997 2006 1997 2006 1997 2006 Europe* Other countries Germany ** ** *"* * ** ** ****0***** **** % of total assets Netherlands EMU-12** France EU-25** UK Italy *1997: EEA, 2001/06: EU-25; **data refer to 2001 and 2006, resp. Source: ECB ,, European banks: The silent (r)evolution April 22, 2008 13 ... higher risks ... but some experience ...leading to a pick-up in investments exception of China and India. Similarly, mutual funds domiciled in Luxembourg alone manage assets of USD 2.2 tr – a higher volume than the USD 1.6 tr for all Asian countries combined. 22 Notwithstanding the substantial improvements that have been achieved, emerging markets also still face higher risks than developed nations – be they of an economic, political or legal nature. The standard deviation of growth rates is just one indicator for persisting strong macroeconomic volatility in emerging countries – in fact, it has been twice as high as in mature markets over the past 15 years. Also, the rise of developing nations has in many cases been accompanied by large imbalances, e.g. current account surpluses or budget deficits not considered sustainable in the long run. Political and legal risks relate, among other factors, to the risk of nationalisation, restrictive and unstable regulatory environments, and corruption (Chile, ranked 20, is the first and only emerging market in the top 20 countries with the least corruption worldwide). 23 Despite these risks, EMs’ banking sectors have become much more attractive investment targets for Western financial institutions. While many European banks had been operating branches in the most distant locations for decades already, their motivation and the scale of their activities has for a long time remained distinctively different from today. Starting at the end of the 19 th century, banks from Europe and the US went abroad to support domestic industrial clients, e.g. in Southern America, China, or Africa during the first wave of globalisation. Usually, however, they did not cater for local clients. With the globalisation of goods and financial markets accelerating since the 1980s, things have changed dramatically: granted, traditional trade finance also grew at an impressive pace, but with emerging countries rapidly gaining in importance, their markets as such became much more attractive – and open to foreigners following a process of liberalisation and privatisation. European banks have promptly seized these opportunities and invested large sums to buy into emerging markets as well as to build up capacities organically. The stock of FDI in financial sector firms in Central & Eastern Europe held by EU-15 countries has meanwhile reached EUR 52.6 bn (as of end-2005), up from just EUR 21.7 bn in 2003. 24 The value of financial sector investments in EMs worldwide made by companies from the four largest European economies rose to more than EUR 91 bn at the end of 2005, representing about one sixth of the total stock of investments of these countries in EMs. 25 German banks e.g. held investments of more than EUR 11.8 bn in emerging nations (even though this is still a low number compared with the EUR 98.5 bn invested in developed markets). 26 Entering emerging countries’ financial markets, institutions from several European countries benefited from a mixture of (in part) a tradition as open economies themselves, historical links with former colonies or other forms of a joint history, a common language, and geo- graphic proximity – and overall considerable experience in inter- national politics and trade. 22 Source: Investment Company Institute (2007). 23 Source: Transparency International (2007). 24 Source: Foltete and Kärkkäinen (2007). 25 Source: Eurostat, Balance of payments statistics. Investments by German, British, French and Italian firms in non-OECD countries. 26 Source: Deutsche Bundesbank (2007). It has to be kept in mind, however, that not all of these investments necessarily have to involve financial institutions as targets. EU Monitor 54 14 April 22, 2008 USA another appealing market While expansion into emerging markets draws considerable attention, investments by European banks in other developed markets must not be overlooked. This applies, in particular, to the US which is a highly attractive market for Western banks (along with some other, smaller developed markets outside the EU). The world’s largest economy by far, the US has been growing faster than the EU for many years and has a much brighter demographic outlook in the long-run: while half of all EU countries will see their populations decline by 2050, the US is expected to remain a rather young society which will steadily grow from today’s 300 million people to more than 400 million in 2050. 27 Immigration and higher birth rates than in most EU countries will thus lead to the US overtaking the old EU-15 with regard to population numbers by around 2050. This will highlight even more the rationale for a presence in the US market of European banks, which have already been expanding their North American operations significantly in the last ten years (see table 13). 27 Source: United Nations, World Population Prospects. Year Investor Country Target Country Stake Value (USD bn) Notes 1998 ABN Amro NL Banco Real BR 100% 2.1 ABN Amro’s voting rights were initially limited to 40%; however, it had full management control. 1998 HVB DE BPH PL 36.7% 0.6 HVB raised its stake to 86.1% in 1999. 1999 KBC BE CSOB CZ 65.7% 1.1 1999 Unicredit IT Bank Pekao PL 50.1% 1.0 In its bid for Pekao, Unicredit was joined by Germany’s Allianz which bought an additional 2%. 2000 Santander ES Banespa BR 33.0% 3.8 Santander held 66.5% of the voting rights following its initial purchase of 33% of Banespa’s capital and in 2001 increased its capital stake to 97% for an additional consideration of USD 1.1 bn. 2004 HSBC UK Bank of Commu- nications CN 19.9% 1.8 HSBC has an option to increase its shareholding to 40% once legal restrictions on foreign bank ownership are lifted. 2005 Barclays UK Absa SA 54.0% 4.5 2006 Allianz* DE Industrial and Commercial Bank of China (ICBC) CN 2.3% 1.0 Goldman Sachs, Allianz, and American Express together acquired an 8.5% stake in ICBC for USD 3.8 bn, diluted to 7.4% after ICBC’s IPO at the end of 2006. 2006 Erste Bank AT Banca Comerciala Romana RO 61.9% 4.7 Erste Bank increased ist stake further in 2006 to 69.2%. 2007 ING NL Oyak TR 100% 2.7 Source: DB Research *Allianz SE is Europe's largest insurance company, but also the owner of Dresdner Bank, a large German bank, which bought the stake in ICBC. ******* *********** ** ** ***** **** ** *** **** ** ***8 ,7750.663 ,. European banks: The silent (r)evolution April 22, 2008 15 All in all, many European banks – and the largest ones in particular – have thus indeed been following a “going abroad” path and have become multinational institutions. This is a significant change from only a few years ago, when most of these banks were in fact strong domestic players with rather limited foreign operations. The 20 largest European banks, e.g., have on average managed to in- crease their share of revenues coming from outside the traditional home market from less than 48% in 2001 to about 52% in 2006 – despite several domestic mergers that still rank among the largest deals ever in the banking industry. The strong widening of the share of other European countries by 6 percentage points is a result of the primary aim of most European banks to become “more European”, while the share of earnings from outside the continent declined slightly as growth in other regions could not fully keep up with the inner-European dynamic. 28 All in all, however, 70% of the banks in this sample now have a larger foreign exposure than five years ago, and an equal share of banks is now more “European” as regards their revenue structure. In the end, given the stronger economic growth and new market opportunities in many regions outside Western Europe, this doubt- less also had a significantly positive effect on banks’ earnings and cost structures, thus contributing to the overall benign development of European banks during the last decade (as outlined above). A second aspect of internationalisation, still less frequently discussed, coincides with the emergence of new players on the global financial scene: apart from the growing importance of developing countries for European and other Western banks, banks from emerging markets themselves are in turn starting to become serious challengers for incumbent institutions in European markets (they join banks from other developed countries, especially the US, that have also been extending their position in the EU, particularly in investment banking). 28 See also chart 11. 52% 18% 29% '******* ** *"* .6 ** **** ** ***** **** ** **** **"**** ******** Revenue structure in 2001 48% 24% 27% Domestic market Other Europe Rest of the world Sources: Company reports, DB Research Revenue structure in 2006 ,* Year Investor Country Target Stake Value (USD bn) Notes 1999 Deutsche Bank DE Bankers Trust 100% 9.1 1999 HSBC UK Republic New York Corp. (RNYC) 100% 7.1 HSBC simultaneously acquired RNYC and Safra Republic for a total consideration of USD 9.7 bn. 2000 UBS CH PaineWebber 100% 11.8 2001 BNP Paribas FR BancWest 55.0% 2.5 BNP Paribas already owned 45% of BancWest before seizing full control of it. 2002 Deutsche Bank DE Scudder 100% 2.5 2002 BNP Paribas FR United California Bank 100% 2.4 2003 HSBC UK Household International 100% 14.8 2004 Royal Bank of Scotland UK Charter One 100% 10.5 2006 Santander ES Sovereign Bancorp 24.8% 2.9 2007 BBVA ES Compass Bancshares 100% 9.1 Source: DB Research ******* *********** ** ** ***** **** ** *"* * 98 ,7750.663 ,+ EU Monitor 54 16 April 22, 2008 Motivation for EMs' banks expansion in the West For one thing, growing demand for international support by their domestic corporate clients induces banks from emerging countries to start establishing a presence in Western markets. A second motivation, hardly less important, is based on EM banks’ desire to learn and gain experience in competitive banking environments, especially in advanced countries. Finally, fuelled by highly dynamic growth in their home markets, banks in emerging markets increas- ingly also seek to expand in retail banking in mature markets, primarily by taking advantage of their low-cost structures and clearly focusing on niche strategies. Examples of this new step in globalisation include — the move of Chinese banks to the US where three of them have already been granted a banking licence and China’s two largest financial institutions – ICBC and China Construction Bank – are applying for it. — India’s ICICI which already operates retail branches in Britain and Belgium and just extended its reach also to Germany. — Qatar Islamic Bank that eyes Europe’s market for sukuk (i.e., Islamic bonds) with a new London-based subsidiary. As a consequence, competition in European banking markets has intensified further, bringing traditional players under continuous pressure to keep up with the newcomers and in particular to figure out their fundamental strategy on how to compete successfully in the long run – whether to concentrate on becoming a distinctive innovator or a mass market supplier. But the internationalisation of European banking markets goes even beyond the focus on revenues, as globalisation is also taking hold of the shareholder base of (mainly large) European banks. In spite of the persisting “home bias” effect, the proportion of international investors in many banks in Europe has risen considerably. Analysing again the 20 largest European banks (of which, though, only a minority provides a geographic breakdown of their shareholder pool), the proportion of foreign stock owners has on average increased by several percentage points over the last five years. This is partly due to acquisitions of foreign banks that were financed with banks’ own shares, and also a result of both banks actively seeking new core shareholders and international institutional investors searching for a more diversified portfolio. Recently, foreign owner- ship increased further as investments by sovereign wealth funds (SWFs) helped to recapitalise several large banks in Europe and the US in the wake of the US subprime crisis. Admittedly, however, the internationalisation of the shareholder structure seems a less uniform trend than that of the earnings profile: some banks indeed experienced a return to larger shares of domestic stockholders following the retreat of foreign investors after the severe market decline in 2001/02. c. Convergence The third secular trend in European banking is less related to market structures than the two previous ones, but rather refers to the pro- ducts and services side: the convergence of bank- and capital market-based financial systems suggests that the clear distinctions which have been drawn between these two poles for decades may not be valid any more. Put simply, the term “convergence” describes the tendency in recent years of capital market activities and tradi- tional on-balance sheet banking becoming ever more interlinked – often not substituting, but complementing each other. 20 30 40 50 60 70 80 90 Unicredit BBVA Nordea ING 2001 2006 ** **** *"* * **** *"**8 Sources: Company reports, DB Research ******** ** ***** **** % ,* European banks: The silent (r)evolution April 22, 2008 17 Drawbacks of "originate and hold" "Originate and distribute" In the conventional “originate and hold” model of banking, banks granted loans and simply held them on their balance sheet till they were finally repaid. The drawbacks of this method are rather obvious: first of all, by passively sticking to their loan portfolios, banks became exposed to considerable concentration risks in those regions and sectors of the economy where they were positioned strongest. Conversely, when concentration risk became too high, new – potentially profitable – business had to be rejected, hurting client relationships at the same time. Second, as any bank loans have to be backed with equity, lending remained considerably restricted and subject to the capitalisation of banks. Overall, this seriously hampered the flexibility of credit institutions, in the end hurting both bank profits and client access to capital. Therefore, a variety of (product) innovations that enabled banks to increasingly switch to a new model of “originate and distribute” benefited banks and customers alike: — Credit derivatives allow banks to dispose of credit risks, while leaving the fundamental client relationship untouched. — The securitisation of assets makes them tradable and transferable to other investors. — The outright sale of loans improves the risk profile by reducing cluster risks and facilitating the diversification of the credit portfolio. Instruments of credit risk transfer (CRT) such as credit default swaps (CDSs) offer banks the opportunity to actively manage their credit risk instead of letting it evolve passively. In principle, the protection buyer – the lender – enters into a CDS agreement with the protection seller – the insurer – to pay a regular fee in exchange for the guarantee to be repaid the insured amount of credit in case the borrower defaults. From a micro perspective, hedging the credit risk thus frees up capital of banks required to back risky assets and makes granting new loans possible. 29 More generally, as CDSs are publicly traded, they increase not only the transparency of asset valuations, but also the efficiency of the entire financial system: CDSs improve the allocation of risk and lower firms’ cost of capital due to a higher risk appetite of investors and less restrictive lending by banks. As a result, CRT instruments have become widely popular in recent years: the market for credit derivatives grew more than tenfold since the summer of 2004 to USD 51 tr by mid-2007, with CDS accounting for the vast majority of all contracts (see chart 16). Today, the outstanding level of insurance on a particular issuer often even exceeds the underlying debt volume. Going one step further, banks have also increasingly turned towards fully passing on assets to other investors by making use of (true sale) securitisation techniques (see chart 17). The repackaging of ordinary loans and receivables into tradable securities can be applied to virtually any debt, be it mortgages, consumer and credit card loans or auto credit and corporate debt (which leads to the large variety of acronyms such as ABS, RMBS, CDO, CLO et al. that have recently gained broader attention). In addition, the securities can be sliced into different tranches of risk, with different probabilities of default, to meet the specific preferences of individual 29 However, banks do not eliminate risk completely but rather replace the counter- party risk of their client with that of the protection seller (which should be con- siderably lower). 0 5 10 15 20 25 30 35 40 45 Dec 2004 Jun 2005 Dec 2005 Jun 2006 Dec 2006 Jun 2007 * **** ******* *****8 USD tr Source: BIS ******** ****** *********** ,1 EU Monitor 54 18 April 22, 2008 A brief comment on the subprime & credit crisis Securitisation has been identified by many as a key cause for the subprime crisis and the resulting turmoil in financial markets. Specifi- cally, it is argued that securitisation has weakened origination standards, led to the extension of credit to borrowers unlikely to be able to bear the ensuing burden, and to in- creased leverage of the financial system in general. On the basis of available evidence, there is now wide-spread consensus that underwriting discipline suffered severely in the US mortgage market as the credit cycle matured in 2006 and 2007. The ability of mortgage brokers and banks to securitise mortgage loans, combined with strong investor demand for mortgage- backed securities, no doubt contributed to this development. These deficiencies in US mortgage origination and securitisation must be analysed and addressed. In fact, the financial industry, e.g. via the Institute of International Finance (IIF), has already made recommendations to this effect. However, in doing so, a measured approach should be taken that does not damage the instrument of securitisation as such, which continues to have many beneficial effects on the stability of the financial system. The ability to distribute credit risk away from the banking system (for which securitisation is but one, albeit important instrument) increases financial stability and allows for more active risk management by banks. Securitisation also enhances the liquidity of loan portfolios and provides price signals which in turn are the basis for more active and more prudent risk management. Clearly, though, the current crisis has high- lighted that these benefits will only be fully realised if all participants in the securitisation chain face the right incentives that will ensure the observation of high standards for credit origination, pricing, credit risk transfer and monitoring. It is important to realise that these incentives are the result of various parameters and instruments whose combination differs depending on the nature of the specific trans- action, as obviously the nature of securiti- sations differs substantially according to the underlying. Hence, a one-size-fits-all approach would be inappropriate and so would be simplistic solutions, such as the mandatory retention of first loss pieces by originating banks, as this would entail that securitisations would no longer be an instrument of credit risk transfer. In contrast, e.g. reputation effects from repeated transactions should help to partly overcome the apparent incentive problems in future. investors. Securitisation therefore allows both banks to enhance their credit risk management – and generate revenues from the process as such – and investors to invest in fixed income products that are much more tailored to complement their portfolios efficiently than traditional corporate or government bonds. 30 The subprime crisis has led to a reassessment of the perceived advantages of securitisation; new issuance declined in 2007 already and dropped dramatically in Q1 2008. So have revenues from securitisation activities, and a return to the growth rates seen before 2007 is unlikely. At the same time, it is clear that the securitisation model will undergo changes which stem from both market practices and regulatory change (see box). A third way of disposing of credit risk, the complete sale of loans, has also become more popular among banks (and drawn a lot of public attention recently). A rather young market as well, there are a number of persuasive arguments in favour of it: first, banks can not only reduce concentration risks but also diversify their credit portfolio by buying loans originated by other banks. Second, banks may again use the capital relief stemming from a reduced loan book volume to grant new loans to their private and corporate clients – who could otherwise see their demand for credit not being satisfied. Investors, finally, benefit from greater transparency on underlying products compared with, for instance, a securitised loan portfolio. 31 All in all and notwithstanding the excesses which led to the recent turmoil in global financial markets, banks’ move away from the traditional asset intermediation to the new model of risk inter- mediation has been to the advantage not only of banks but also borrowers, investors and the economy as a whole: it resulted in a better allocation of risk, higher returns on assets, and broader, more diverse sources of funding for banks, in the end increasing the stability of individual credit institutions and the entire financial system. Last but not least, closer links between banks and capital 30 See also Altunbas et al. (2007). 31 Regarding criticism brought forward against the sale of loan portfolios, it has to be borne in mind that the majority of all loans sold are in fact non-performing loans (NPLs) where the borrower has failed to meet his or her obligation to pay interest and redemption. Furthermore, the investor buying a portfolio of loans in any case enters all obligations arising from the original loan contracts, being able to modify them only for NPLs or with consent of the borrower. 0 500 1,000 1,500 2,000 2,500 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 RMBS CDO CMBS Auto ABS Other ABS Credit Card ABS (***** **** ********* ******** USD bn Source: Deutsche Bank ,3 European banks: The silent (r)evolution April 22, 2008 19 "Disintermediation" ... and institutional borrowers markets also provide incentives for innovation by allowing banks to reap first-mover advantages in new (often structured) products such as retail certificates or exchange-traded funds. Households and firms in turn benefit from an increased supply of funds and possibly lower interest requirements, making higher leverage ratios viable – and thus e.g. large investments which would not have been feasible under the restraints of the traditional banking model. However, convergence does not only go hand in hand with ever stronger linkages between on-balance-sheet banking and capital markets, but also refers to the tendency of borrowers as well as investors to increasingly access capital markets directly without relying on conventional banking services. In the process of “disintermediation”, the activities of banks – the traditional “inter- mediators” – thus shift more and more from borrowing and lending towards providing advice, market liquidity, underwriting and other fee-yielding services related to capital markets. On the borrowers’ side, private companies e.g. tend to finance themselves less through loans and increasingly via equity (incl. private equity), mezzanine or fixed income products, however, in relative, not absolute terms: growth rates of bank lending to corporates have still been positive, even though below that for other sources of financing. Chart 18 depicts this development for the four largest EU economies. In three of them, shares indeed play a greater role today than they used to a decade ago, with bank loans declining in relative importance as a source of funding. The only exception is the UK which, however, in 1996 already had a much more market-oriented structure than the large continental countries. Overall, in the euro area, the proportion of firms relying on shares and other equity for funding has grown by a remarkable 10 pp to 56% over the last 10 years, accompanied by a decline in the share of loans from 33% to 28% (the importance of bonds remained rather modest, though stable at well above 3%). Likewise, chart 19 demonstrates the positive development of stock markets in Europe; chart 20 the increasing popularity of private equity finance. 0 20 40 60 80 100 120 96 98 00 02 04 06 Fund raising Investments ) ***** *:**** ** ** *** EUR bn Source: EVCA .6 0% 20% 40% 60% 80% 100% 1996 2006 1996 2006 1996 2006 1996 2006 Bonds Shares & other equity Loans Accounts payable Other DE FR UK IT '********** ** ***0********* ** ** ****** Source: Eurostat % ,5 0 2 4 6 8 10 12 14 16 18 97 99 01 03 05 07 20 30 40 50 60 70 80 90 100 110 % of GDP (right) USD tr (left) *** ** ** ************** Sources: World Exchanges, IMF, DB Research ** ** *** ,7 EU Monitor 54 20 April 22, 2008 For private households, the long-term trend of declining interest rates made savings deposits in bank accounts less attractive as an asset class. Instead, in many European countries, they have shifted more weight on shares and other equity in their portfolios, while bonds also lost ground (see the three euro area countries Germany, France, and Italy in chart 21). The higher risk incurred by the new allocation was somewhat compensated for by an increase in insurance reserves. Again, the UK stepped out of line: bank deposits went up in relative terms, shares down and insurance policies continue to account for an exceptionally high proportion of house- holds’ total financial assets. In the euro countries on average, the share of bank deposits shrank from 40% in 1996 to 31% one decade later, while equity climbed from 23% to 30% and insurance reserves from 22% to 28%. Bonds (whose share fell by more than 4 pp to 9% in 2006) suffered from lower interest rate levels and rather sluggish supply from corporates. But challenges for the traditional interest-related business of banks arise not only from low volume growth on both the assets’ and the liabilities’ side (see chart 22 for an illustration of the declining role of deposit funding for banks), but also because of strong margin pressure: first, the level of competition seems to have increased in most European banking markets. As shown in chart 23, the ECB’s Bank Lending Surveys indicate a growing importance of competition among banks for the trend of declining credit standards (until very recently). Second, standardisation has led to many traditional products becoming low-margin commodities, even though it enabled the realisation of economies of scale. This is also true for techno- logical progress which made it easier for consumers to compare offers and helped new players to enter the market: the prime example for this is the rapid rise of direct banks which have especially increased banks’ refinancing cost as a result of high deposit interest rates and low account management fees. Fourth, in a long-term comparison, interest rate levels are fairly low and limit the scope for banks’ pricing policies. As a result of the continuing pressure, intermediation margins have shrunk considerably over the last few years (see chart 24). The difference between lending and deposit rates in the commercial banking business with households and non-financial corporations, -25 -20 -15 -10 -5 0 5 10 15 20 Apr 2003 Apr 2004 Apr 2005 Apr 2006 Apr 2007 easing zone tightening zone Housing loans -40 -30 -20 -10 0 10 20 30 40 50 Apr 2003 Apr 2004 Apr 2005 Apr 2006 Apr 2007 * **** ****** ** *** *"* easing zone tightening zone *** ** *********** ***** **** ** *"* ** * * ** Loans to enterprises -25 -20 -15 -10 -5 0 5 10 15 20 Apr 2003 Apr 2004 Apr 2005 Apr 2006 Apr 2007 Credit standards Competition from banks as driver easing zone tightening zone Source: ECB Consumer loans .+ 0% 20% 40% 60% 80% 100% 1996 2006 1996 2006 1996 2006 1996 2006 Bank deposits Insurance policies Bonds Shares & mutual funds Other ;****"****< ********* ****** Source: Eurostat DE FR UK IT % ., 0 10 20 30 40 50 60 FR IT DE NL ES 1996 2006 "* * ** ******* ******** ** ****< ***** ****** Sources: OECD, ECB % .. European banks: The silent (r)evolution April 22, 2008 21 High share of in-house value added in banking for example, deteriorated by about half, from 2-4 pp at the start of 2003 to just 1-2 pp by the end of 2007. The main driver of this was in fact the steep increase in deposit rates, caused partly by rising official interest rates, while lending rates were largely held down due to strong competition. With the share of interest-earning assets declining on both the asset (due to securitisation) as well as the liabilities side (due to low deposit growth) and competition exerting pressure on margins, it does not come as a surprise that the relative importance of interest income in total revenues of banks has shrunk considerably over the last few years: on the other hand, commission and fee income as well as trading revenues rose strongly, more than compensating for the rather modest development in interest income – and driven in part exactly by this shift from “originate and hold” to “originate and distribute”. Consequently, the share of non-interest-related revenues has soared in most EU countries, often close to or even above the 50% mark (see chart 25). d. Deconstruction & specialisation A fourth major trend in European banking markets is based on banks’ reviewing their core businesses, identifying competitive advantages as well as relative weaknesses, and in the end con- centrating on their identified strengths. Financial institutions follow similar developments in other industries by evaluating which parts of the value chain to cover themselves and which services to procure from external sources. The efficiency gains associated with a higher degree of specialisation and a better division of labour in turn con- tributed to making the banking sector as a whole more effective and profitable – just as chapter 1 has shown. Traditionally, banks used to consider a large number of activities “confidential” or indispensable to lose control of and therefore kept them in-house. For instance, they regarded product innovation as much a “core competence” as their relationship management capabilities vis-à-vis clients and the processing of all kinds of trans- actions, from payments and securities trades to the industrial pro- cessing of loans in a “loan factory”. Rising complexity, the presence of economies of scale and growing international competition, however, are increasingly forcing banks to specialise in what they really do best, divesting from areas in which they have no particular expertise and too small operations. Banks hence concentrate on fewer in-house activities (which they expand), 0 1 2 3 4 5 6 7 2003 2004 2005 2006 2007 Loans for house purchase, > 5 years Consumer loans, > 5 years Deposits from households, < 2 years /****** - ******* **** ** *"* ** * * ** #=$ ... with households 0 10 20 30 40 50 60 70 DE FR UK IT ES NL 1996 2006 4**0**** *** ****** ** = ** ***** *** ******* Sources: OECD, ECB .* 0 1 2 3 4 5 6 2003 2004 2005 2006 2007 Loans to non-fin. corp., > 5 years Deposits from non-fin. corp., < 2 years Source: ECB ... with non-fin. corporations .* EU Monitor 54 22 April 22, 2008 Incentives for outsourcing… while extending cooperation with other service providers in non-core businesses. Outsourcing of administrative tasks like IT or accounting – and sometimes customer support processes – has become a major issue since the 1990s, with off-shoring often being taken as a second or even parallel step (incl. the so-called “off-shore out- sourcing”). Nevertheless, banks still have a long way to go in reducing the depth of production from today’s high level compared to other industries: the proportion of in-house value added continues to be up at a startling 50%-80%, whereas e.g. in automobiles it has already declined to about 25%, according to some estimates. 32 The motivation behind banks now moving forward with scaling down the scope of their activities is mainly three-fold: — First, outsourcing improves the division of labour and therefore releases efficiency gains as banks can benefit from deeper specialist knowledge. — Second, outsourcing is an important way for banks to generate economies of scale, thus lowering costs (something that is especially true in transaction banking). The same applies to specialised suppliers that are more flexible in choosing cost- efficient locations where they can build on differing comparative advantages. — Third, banks also gain from greater flexibility due to their more focused operations: they are more sensitive and pay more attention to changes in a specific market environment to which they can then adjust more quickly. Overall, productivity and efficiency improvements are set to be particularly strong in case of rapid technological progress. In the end, production, distribution, and transaction specialists should emerge, alongside some large “universal” banking providers (see chart 26). Examples of this advance in specialisation among Euro- pean banks include DVAG (distribution) and First Data, Equens, and Xchanging (transaction). 32 See e.g. Zerndt (2006) or Disselbeck (2007). Fully integrated bank Production Transaction Multi-channel distribution Product specialist Transaction specialist Distribution specialist Client % ** 0** ** *"* ***** *"*** Source: DB Research Fully integrated bank Production Transaction Multi-channel distribution Product specialist Transaction specialist Distribution specialist Client % ** 0** ** *"* ***** *"*** Source: DB Research .1 European banks: The silent (r)evolution April 22, 2008 23 ... and risks Standardisation and commoditisation Customisation Despite the considerable benefits for all banks involved in processes like off-shoring and outsourcing, it is self-evident that such a new model is not without drawbacks, too, and that the conversion of the advantages into hard facts cannot be taken for granted. The most obvious drawback is the loss of direct control over possibly crucial operations and know-how of a bank. Product development, e.g., would seem to be a core competence of most financial institutions and is therefore usually not sourced out. A second point is closely linked to that: execution and reputational risks can arise if contract- ual partners apply lower standards regarding the quality, efficiency and timeliness of operations, compared with activities that are kept in-house. Furthermore, the deconstruction of the value chain goes hand in hand with two other trends in European banking markets: industrial- isation and customisation as well as the integration of infrastructure. Without the ongoing standardisation and commoditisation of basic products and services like a current account, consumer credit, but also foreign-exchange trading, and equally of largely homogenous processes (namely, payment transactions), the specialisation of banks on a particular part of the value chain would hardly have been possible to the extent experienced so far. That is, standardisation allows for automated processing of transactions which in turn frees up human resources that are newly available for individual services (in addition to automation usually being less error-prone and more reliable than personal handling). Yet at the same time, fierce competition and an extensive use of sophisticated IT infrastructure also lead to a decline in profit margins. Banks have been able to compensate for this at least partly by focusing more intensively on individual clients’ needs: the fast emergence of ever more advanced and complex products has also strengthened the case for devoting more energy and capacity to the customisation of these new services. Customers far beyond the traditional private wealth and asset management segment in- creasingly rely on a thorough analysis of their financial position as a consequence of growing income and wealth. They will probably show stronger demand for more comprehensive – and possibly in- dependent – advisory, especially regarding tailor-made (structured) products, where margins are more favourable for banks. Business segment (products, customers, region) Basic strategy (differentiation, cost leadership, niche strategy) Depth of production Business segment (products, customers, region) Basic strategy (differentiation, cost leadership, niche strategy) Source: DB Research ****" ** * ******** ** * *** ** ****** ********* Business segment (products, customers, region) Basic strategy (differentiation, cost leadership, niche strategy) Depth of production Business segment (products, customers, region) Basic strategy (differentiation, cost leadership, niche strategy) Source: DB Research ****" ** * ******** ** * *** ** ****** ********* .3 EU Monitor 54 24 April 22, 2008 Integration of infrastructure The other condition to be fulfilled for specialisation to have maximum effect – the integration of infrastructure – is also making substantial progress. Political flanking of industry efforts has generally been welcome, although there have been instances in which insufficient regard was given to market principles. The establishment of SEPA, i.e. the establishment of a pan- European infrastructure and the harmonisation of rules concerning cross-border payment transactions in Europe so as to make them as easy as at the national level, is broadly based upon two components: on the political side, the PSD provides the necessary legal framework and will be implemented by all member states by November 2009. The European banking industry, on the other hand, has made the first SEPA transactions now officially available as of January 28, 2008, after having set standards for payment instruments as well as for clearing and settlement via the EPC (European Payments Council). The necessary investments in platforms and processes (which were sizeable in many cases) have already induced some banks to consider disposing off their respective activities – which other banks or pure specialists (e.g. Automated Clearing Houses, ACH) have taken over. Thus, the integration of Europe’s financial markets will benefit not only consumers, but also be an additional impetus for banks to realign their scope of activities and to concentrate on their core advantages. The resulting efficiency gains will then continue to be a driver for higher bank profitability in the coming years, as did the improve- ments of the last decade. 33 4. Conclusion Notwithstanding a moderate reversal as a result of recent market turmoil, European banks have achieved substantial improvements regarding their profitability and efficiency levels since the beginning of the 1990s. While this is partly due to macroeconomic developments, trends within the sector have contributed as well. Operating in a highly dynamic environment of globalisation, regulatory change and technological progress, banks in Europe have risen to these challenges: 1. They have grown in size to take advantage of economies of scale and keep up with rising demand for “big ticket” transactions from their clients. M&A complemented organic growth, signify- cantly reducing the number of banks and leading to higher market shares of the remaining institutions. 2. EU banks became more international than ever, expanding into foreign markets both in Europe and beyond. The majority of revenues of the largest European banks now stems from outside the traditional home market – a true novelty. Still, there is con- siderable scope for further cross-border integration and domestic banks continue to dominate national markets to a large extent. 3. Links between banks and capital markets are now much more intense than a decade ago as credit institutions have funda- mentally adjusted their business models and turned increasingly from purely balance-sheet-based banking towards a more active approach with regard to credit risk management, called the “originate and distribute” model. 33 A recent study conducted on behalf of the EU Commission estimates potential benefits from SEPA to reach volumes in the three-digit billion euro range over the next six years, accruing mainly to customers, but also to banks (see Capgemini (2008)). European banks: The silent (r)evolution April 22, 2008 25 4. Banks in Europe have refocused their business activities, trimmed them in scope and depth to realise gains from specialisation, a more advanced division of labour and of economies of scale. Substantial parts of the value chain have been sourced out, while others have been strengthened by also taking on responsibility for the provision of services for other financial institutions. As there are good reasons for most of these trends and banks still lag somewhat behind other industries, we expect consolidation, internationalisation and specialisation to certainly continue in the years to come. On the other hand, financial market turbulences that were triggered by deteriorating valuations of securities backed by US mortgage loans will reduce revenues from securitisation for a number of years. Nonetheless, the underlying trend towards greater convergence of traditional commercial banking and capital markets remains intact and the banks’ role will continue to shift from asset intermediation to risk intermediation. Jan Schildbach (+49 69 910-31717, jan.schildbach@db.com) EU Monitor 54 26 April 22, 2008 ******* **** *** * Al-Sharkas, Adel A., M. Kabir Hassan and Shari Lawrence (2008). The Impact of Mergers and Acquisitions on the Efficiency of the US Banking Industry: Further Evidence. Journal of Business Finance & Accounting, 35 (1-2), pp. 50-70. Altunbas, Yener, Leonardo Gambacorta and David Marqués (2007). Securitisation and the bank lending channel. ECB Working Paper 838. Capgemini (2008). SEPA: potential benefits at stake. Researching the impact of SEPA on the payments market and its stakeholders. Cavallo, Laura, and Stefania P.S. Rossi (2001). Scale and scope economies in the European banking systems. Journal of Multinational Financial Management, 11 (4-5), pp. 515-531. Deutsche Bundesbank (2007). Bestandserhebung über Direkt- investitionen. Statistische Sonderveröffentlichung 10. Disselbeck, Kai (2007). Die Industrialisierung von Banken am Beispiel des Outsourcings. ECB (2007a). EU banking sector stability. ECB (2007b). EU banking structures. European Commission (2005). Public Opinion in Europe on Financial Services. Special Eurobarometer 230 / Wave 63.2. Foltete, Anne, and Arja Kärkkäinen (2007). EU-15 Foreign Direct Investment in the new Member States continues to increase. Eurostat Statistics in focus 106/2007. Freedom House (2008). Freedom in the World 2008. Selected Data from Freedom House’s Annual Global Survey of Political Rights and Civil Liberties. Goddard, John, Phil Molyneux and John O.S. Wilson (2004). Dynamics of Growth and Profitability in Banking. Journal of Money, Credit and Banking, 36 (6), pp. 1069-90. IMF (2007). World Economic Outlook October 2007. Globalization and Inequality. Investment Company Institute (2007). Investment Company Fact Book. A Review of Trends and Activity in the Investment Company Industry. IW Consult (2006). Bürokratiekosten in der Kreditwirtschaft. London Economics (2002). Quantification of the Macro-Economic Impact of Integration of EU Financial Markets. Morgan Stanley (2005). European Banking Consolidation: IT Synergies and Basel II Will Drive Cross-Border Restructuring. PricewaterhouseCoopers (2006). European banking consolidation. Transparency International (2007). Global Corruption Report 2007. Corruption in Judicial Systems. Zerndt (2006). Die Transformation zur Netzwerkbank. Mit Sourcing Wertschöpfung visionär gestalten. Banken & Sparkassen, 14 (6), pp. 10-13. European banks: The silent (r)evolution April 22, 2008 27 9******> 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 DE 5.5 6.0 5.0 6.1 6.1 6.0 5.8 5.3 8.9 5.2 5.0 3.7 2.0 -2.2 3.9 9.4 10.2 FR 5.5 6.1 4.3 0.5 -1.3 1.3 2.4 5.3 8.3 8.0 9.7 10.3 9.6 8.9 12.6 19.1 20.2 UK 7.8 5.0 3.3 12.2 18.2 18.9 17.0 18.1 20.0 21.0 14.9 13.8 11.6 15.4 16.8 16.9 17.5 IT 10.5 9.2 4.9 4.3 1.2 1.2 3.4 1.4 7.0 8.4 10.9 8.4 6.8 7.0 10.6 13.0 16.8 ES 9.9 9.3 8.1 1.3 6.3 7.1 7.6 8.4 8.9 9.0 8.8 8.2 8.0 7.6 15.1 17.1 20.3 NL 8.3 8.8 9.9 11.1 10.7 11.1 11.7 11.3 10.2 13.0 12.4 11.8 8.6 11.6 13.1 15.0 14.6 SE 0.8 15.7 17.8 19.7 7.8 14.5 12.4 14.8 16.0 7.4 9.5 15.8 19.5 20.4 CH 6.1 6.7 5.7 8.1 5.9 6.9 0.3 4.0 15.0 16.1 14.6 8.7 7.0 9.6 12.6 18.3 14.4 PL -5.6 1.2 21.6 31.3 22.3 6.8 10.5 10.7 9.8 4.9 5.3 16.5 20.0 21.2 HU 5.2 13.3 15.7 5.9 -22.3 3.3 8.8 12.1 -0.9 13.5 24.9 24.8 21.5 CZ 2.6 1.9 1.1 -4.9 -3.1 -9.7 -18.7 0.8 10.3 11.8 14.1 24.7 24.1 23.5 Sources: OECD, ECB, SNB, DB Research '*** * ** *:****8 = .5 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 DE 64.8 65.2 64.5 62.4 60.8 63.8 63.8 64.1 57.6 67.8 68.7 69.9 63.8 72.6 68.9 68.6 65.2 FR 68.3 65.6 66.8 64.8 71.3 65.6 69.9 68.8 67.7 67.6 66.0 62.1 64.7 64.0 66.0 62.0 60.2 UK 65.9 65.7 65.9 63.2 64.1 63.7 62.1 60.9 56.5 54.6 55.5 57.4 60.8 56.8 42.9 41.8 41.0 IT 62.8 63.9 65.6 60.8 68.4 67.6 66.7 68.7 61.0 60.7 56.0 55.4 59.9 60.9 58.1 61.5 59.4 ES 61.0 58.6 60.3 59.7 59.7 63.2 62.2 61.4 60.6 63.1 61.0 55.5 56.7 54.3 55.3 53.9 49.0 NL 68.7 68.0 67.2 66.6 67.1 67.3 67.3 69.2 70.8 67.9 70.5 69.6 70.9 67.2 67.3 67.1 68.1 SE 78.2 120.5 146.5 109.8 81.1 71.6 64.3 79.2 68.7 73.3 66.6 64.3 71.0 64.3 60.1 55.3 54.4 CH 59.3 51.8 52.1 58.6 55.6 56.4 66.1 63.2 52.5 55.0 55.9 60.0 58.9 60.7 60.5 56.7 59.0 PL 48.0 52.8 49.1 51.0 55.0 62.2 63.2 63.2 61.6 63.8 68.3 65.0 61.4 59.3 HU 111.2 113.0 73.5 76.7 115.8 87.0 74.9 64.6 65.3 59.9 56.0 55.2 58.8 CZ 61.5 72.8 81.9 96.9 92.4 98.0 103.9 104.5 75.1 72.5 69.1 62.6 56.9 55.1 Sources: OECD, ECB, SNB, DB Research ****0****** ****8 = .7 EU Monitor 54 28 April 22, 2008 Indicator AT BE CH CY CZ DE DK EE ES Markets: Total assets of banks, EUR bn, year- end Total assets in % of GDP 306 357 657 512 101 308 374 118 258 Number of bank accounts in millions, year-end 8.2 13.2 NA 1.7 9 90.9 NA NA 24.8 Number of issued cards with a payment function in millions, year- end 9.3 16.6 10.3 0.9 8.2 120.2 NA 1.6 74.3 Banks per million inhabitants, year- end 98 10 44 436 6 25 35 10 8 Branches per 100,000 inhabitants, year-end 51 43 50 122 18 49 39 18 99 CR-5 concentration ratio 44 84 81* 64 64 22 65 97 40 Revenues: Loans to non-banks in % of total assets, year-end Net interest income in % of total operating income 62.1 47.5 28.6 69.7 61.1 48 56.5 66.0 54.5 Net interest margin in % (NII in % of total assets) 1.6 0.90 0.73 1.77 2.38 0.84 1.01 2.29 1.49 Funding: Non-bank deposits in % of balance sheet total, year-end Profitability: ROE after tax in % ROA after tax in % 0.94 0.71 0.67 0.82 1.23 0.31 0.7 1.67 0.96 Asset quality: Non-performing loans in % of total loans, latest date available Efficiency: Cost-income ratio in % Solvency: Tier 1 ratio in %, year-end Foreign banks: Share of foreign-owned banks in % of total assets, year-end * CR-3 ratio; ** 2005 * **** ** ******** * ** ***** * #.661$ 11.4 7.4 19.5 24.9 8.2 30.3 96.9 11.1 20.1 98.5 49.0 7.9 8.4 13.9 10.2 9.6 7.7 9.2 8.7 55.1 65.2 53.6 43.0 61.5 55.8 59.0 47.5 20.3 2.6 1.8 0.3 NA 4.1 4.0 0.4 0.2 0.6 23.5 10.2 14.3 24.4 22.5 23.3 14.6 14.6 63.7 34.1 41.6 43.0 62.6** 67.5 38.7 18.8 49.5 52.5 2,516 44.2 34.6 40.6 46.7** 45 42.9 54.4 74.0 115.00 7,123 822 15 790 1,122 1,988 74 European banks: The silent (r)evolution April 22, 2008 29 * **** ** ******** * ** ***** * #.661$ Indicator FI FR GR HU IE IT LT LU LV Markets: Total assets of banks, EUR bn, year- end Total assets in % of GDP 153 320 161 104 675 189 73 2,540 140 Number of bank accounts in millions, year-end 13.5 72.1 27.6 8.9 5.9 38.4 8.4 NA 3.6 Number of issued cards with a payment function in millions, year- end 6.3 94 15.1 8.2 8.3 70.9 3.5 1.1 2.1 Banks per million inhabitants, year- end 69 13 6 21 18 14 23 333 12 Branches per 100,000 inhabitants, year-end 30 63 33 32 22 55 26 51 27 CR-5 concentration ratio 82 52 66 54 45 26 83 29 69 Revenues: Loans to non-banks in % of total assets, year-end Net interest income in % of total operating income 59.2 36.8 69.1 67.8 62.3 51.9 68.9 33.3 57.6 Net interest margin in % (NII in % of total assets) 1.33 0.77 2.64 3.82 0.89 1.79 2.12 0.49 2.32 Funding: Non-bank deposits in % of balance sheet total, year-end Profitability: ROE after tax in % ROA after tax in % 0.93 0.6 0.92 1.43 0.64 0.77 1.06 0.73 1.66 Asset quality: Non-performing loans in % of total loans, latest date available Efficiency: Cost-income ratio in % Solvency: Tier 1 ratio in %, year-end Foreign banks: Share of foreign-owned banks in % of total assets, year-end 64.8 8.7 56.5 11 37.4 56.3 43.2 13.9 76.7 94.6 49.9 13.0 8.5 9.9 9.4 9.8 7.1 6.6 13.5 45.6 59.4 52.6 40.3 47.5 60.2 53.8 58.8 26.4 0.3 3.2 5.5 2.5 0.7 5.3 1.0 0.2 0.4 14.6 16.8 22.8 18.4 14.4 20.2 16.4 21.5 68 35 24.8 67.0 50.3 24.5 33.3 50.2 34.3 48.7 23 51.5 33 53.1 60.1 34.1 51 70.9 19.0 1,186 2,793 17 840 255 5,728 315 94 EU Monitor 54 30 April 22, 2008 Indicator MT NL PL PT SE SI SK UK Markets: Total assets of banks, EUR bn, year-end Total assets in % of GDP 600 355 70 256 253 129 140 506 Number of bank accounts in millions, year- end 0.8 23.5 23.9 20.3*** 15.2 2.4 8.2 139.1 Number of issued cards with a payment function in millions, year-end 0.5 31.4 23.8 17.6 13.9 3.1 4.3 164.6 Banks per million inhabitants, year-end 44 21 19 17 22 13 47 Branches per 100,000 inhabitants, year-end 27 21 14 53 22 35 22 21 CR-5 concentration ratio 71 85 47 68 58 62 67 36 Revenues: Loans to non-banks in % of total assets, year-end Net interest income in % of total operating income 72.9 50.7 58.1 54.7 52.5 58.7 63.1 63.7 Net interest margin in % (NII in % of total assets) 1.37 1.05 3.04 1.77 1.01 2.19 2.49 1.42 Funding: Non-bank deposits in % of balance sheet total, year-end Profitability: ROE after tax in % ROA after tax in % 1.02 0.47 1.56 1.01 0.73 0.89 1.27 0.71 Asset quality: Non-performing loans in % of total loans, latest date available Efficiency: Cost-income ratio in % Solvency: Tier 1 ratio in %, year-end Foreign banks: Share of foreign-owned banks in % of total assets, year-end *** 2004 * **** ** ******** * ** ***** * #.661$ Sources: ECB, SNB, IMF 774 35 42 31 1,873 190 9,652 46.2 55.3 50.9 58.1 52.2 61.3 46.2 397 32 36.2 42.4 64.2 44.6 23.6 50.3 64.6 28.3 12.9 14.6 21.2 18.0 20.4 15.0 22.0 17.5 2.8 1 9.4 1.3 0.4 NA 3.2 0.9 30.8 68.1 59.3 53.2 54.4 59.3 54.4 41.0 20.8 9.3 12.9 8.1 7.3 8.3 11.2 50.3 8.5 8.9 28.9 92.3 37.3 14.8 65.4 22.3 +6 ** ****** ISSN 1612-0272 All our publications can be accessed, free of charge, on our website www.dbresearch.com You can also register there to receive our publications regularly by e-mail. 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