Competence centre for global financial markets and investment banking services
The Markets & Investment Banking (MIB) Division of HVB was created in July 2006 from almost all of the activities performed by HVB’s former Corporates & Markets business segment.
MIB is divided into four organisational units: two operating areas – Markets and Investment Banking – the COO organisation and the Markets & Credit Risk area. Global Research, a cross-function, supports the entire product franchise across all asset classes and client groups.
- Integrated business model
- 2006: another year of strong financial performance
- Markets: top “country broker” in FICC and excellent expertise in structuring derivatives
- Development of important business lines within Markets
- Investment Banking: innovative solutions and a strong position in structured finance
- Development of the main business units within Investment Banking
- Global Research: leading skills in Germany
- Outlook: spotlighting integration and key growth initiatives
- Selected growth initiatives for 2007
Integrated business model
Our integrated business model covers the entire value chain of the global markets and investment banking business. MIB takes its lead from the strategic goals of its various client groups. It provides origination, trading, structuring and distribution services to institutional customers, public clients, multinationals and corporates. MIB also develops specialist products for all the other divisions: Retail, Wealth Management, and Corporates & Commercial Real Estate Financing.
MIB has a proven track record in its core areas of expertise: structured derivatives, structured finance, cash trading and structured credit.
This enabled it to deliver impressive financial results in 2006, simultaneously proceeding with the UniCredit Group's integration processes in the field of investment banking.
2006: another year of strong financial performance
The operating profit of MIB reached €1,116 million in 2006, rising by 43.3% over an already strong 2005, driven mainly by a solid 20.6% growth in revenues across all the main revenue lines. Net interest income rose by 11.2% to €1,171 million. Net trading, hedging and fair value income amounted to €737 million, with a significant increase of 52.9% over 2005. Net fees and commissions rose to €366 million, up 8.9% year-onyear (yoy). The main business drivers of the good expansion of revenues were solid customer flows in Fixed Income, Currencies & Commodities (FICC), a record deal pipeline in structured finance solutions and excellent revenue generation in structured derivatives.
In 2006 the cost-income ratio of the division declined by 7.8 percentage points to 51% year-on-year, despite a 4.8% rise in operating costs related to results-driven bonus payments.
Thanks to the solid operating performance the overall yoy growth in pre-tax profit was close to 40% (38.4%), despite the decision to adopt a different parameter when calculating the fair values of financial assets and liabilities, which burdened the income statement by €153 million. Without that one-off effect, the yoy rise in pre-tax profit would have shown an even stronger 60% increase compared to 2005.
Markets: top “country broker” in FICC and excellent expertise in structuring derivatives
The Markets area includes trading, structuring and distribution activities. Its main business lines are: Structured Derivatives, Global Distribution, FICC, Equities, and Corporate Derivatives.
Markets’ aim is to tap new business potential in its core markets and expand its market share across the entire value chain of the capital markets. In 2006, besides recording an excellent year in terms of financial results, it gained a number of industry awards that confirmed its ability to deliver complex, high-value, client-centric solutions to its global customer base.
Development of important business lines within Markets
- The Structured Derivatives business confirmed its market leadership and expanded its innovative edge. Our fast product-development and time-to-market cycles for innovative solutions in equity, index and cross-asset structures give us a big advantage over our competitors. Winning the “Certificate of the Year Award” for the third consecutive year for our “HVB Express- Zertifikat EURO STOXX 50/Nikkei 225” demonstrated the business line’s outstanding strength in the structuring of products, especially in the retail segment (source: Zertifikate Award).
- Global Distribution provides our institutional customers with comprehensive coverage for tactical and strategic asset allocation. The unit acted as global sales force with deep market penetration, advising and distributing capital market products. Via its client-centric approach, Global Distribution added to Markets’ successful performance in 2006 with an excellent structured retail business and a strong institutional client business, both of which continued to deliver strong and stable revenues.
- Like all flow-driven businesses, FICC performed very well.
- The Corporate Derivatives business was primarily driven by our unique approach involving corporate financial risk management advisory rather than pure product sales in all target markets.
- Equities performed very strongly in a good market environment with greater customer activity. A new client coverage model helped to realise cross-selling potential.
Investment Banking: innovative solutions and a strong position in structured finance
The main business lines within Investment Banking are: Financing, Loan Syndication, Structured Credit, and Regional Investment Banking (which comprises Corporate Coverage, Corporate Finance, Equity Capital Markets (ECM) and Mergers & Acquisitions Advisory (M&A)).
Our Investment Banking area aims to be among the top players in its core markets, providing innovative solutions and leveraging client network and knowledge in these markets and in high growth markets like New Europe, in close co-operation with the Corporates & Commercial Real Estate Financing division and with UniCredit’s CEE Division. Investment Banking had a very good year in 2006, significantly contributing to the divisional performance despite a competitive business environment.
Development of the main business units within Investment Banking
- Financing, which encompasses acquisition leveraged finance, project finance, structured commodity finance and other structured transactions, experienced a record deal flow. We acted as bookrunner and mandated lead arranger (MLA) for KION, one of the largest ever German leveraged buy-outs (LBO).
- Loan Syndication tightened our strong market position in this business field thanks to its in-depth knowledge of complex transactions and strong placement power. The markets rewarded our overall performance in 2006 with a # 1 ranking among German LBO bookrunners (source: Dealogic).
- Structured Credit had another successful
year offering our customers access to
unique products in the credit asset class.
Structured Credit carried out a series of
innovative transactions in 2006 that were
well received by investors. Major successes
were also scored with assetbacked
securities (ABS) in Central and
Eastern Europe. Among other things, HVB
was the first bank to give its clients access
to the Russian consumer loan market
through a euro-denominated ABS issue.
Another major transaction was Breeze II,
which was named Senior Debt Deal of The
Year 2006 (source: Euromoney/Ernst &
Young).
Active Credit Portfolio Management (ACPM), which is part of Structured Credit, was voted “Credit Portfolio Manager of the Year” by the market (source: Deutsches Risk Magazin). This confirmed its transformation from a business unit devoted solely to managing loan exposures to a credit portfolio manager. - Within Regional Investment Banking, ECM and M&A confirmed their role as major players in the local small and mid cap market segments. Throughout 2006, our Senior Banker concept ensured a highlevel strategic dialogue with our corporate and multinational customers, the new Corporate Finance unit supplied the analytic skills. This co-operation leads to innovative product solutions for our clients.
Global Research: leading skills in Germany
Global Research is a top quality provider of equity and credit analysis as well as economic research, FI/FX and cross-asset strategy for institutional investors.
Together with Global Distribution, the Bank’s task force for advisory and distribution services, Global Research hosted the German Investment Conference – the largest and most visible conference of its type in Germany. The Conference drew a record attendance in 2006, with 100 listed German companies represented by 240 corporate participants joined by 500 institutional investors to exchange views and to network.
HVB’s Global Research team also won a number of prestigious awards, including the EquityAnalystAward (Börsen-Zeitung), confirming its leading expertise for the German market.
Outlook: spotlighting integration and key growth initiatives
We will proceed with our integration activities in 2007. One of our major goals for the year will be to expand our Markets & Investment Banking division to a Munich-based competence centre for all of the UniCredit Group’s investment banking activities. Progressing with integration will help us to create additional value by exploiting existing transfer opportunities, leveraging the division’s pan-European network and investing in selected business areas with attractive growth potential.
Selected growth initiatives for 2007
- Markets will focus on expanding its FICC business and leveraging the potential inherent in the existing Equities network. In the Structured Derivatives business, we will make greater use of both customer potential and the product range (e.g. risk management advisory for multinationals).
- Investment Banking will scale up its business in ECM and M&A, and Corporate Finance is to be expanded. In terms of financing activities, we aim to selectively capture new markets by leveraging our innovative, tailor-made products. Structured Credit will focus more heavily on customer-centric solutions and securitisation activities.
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Landmark leveraged finance transaction As mandated lead arranger, bookrunner and agent, MIB made a decisive contribution to the success of the KION buyout, a landmark transaction in Germany in 2006. This deal underpins MIB’s strong market position in the leveraged buyout market. |
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Breeze II – Senior Debt Deal
of the Year 2006 Breeze II is an excellent example of MIB’s innovative structuring capacities. HVB was the first bank in Europe to develop a structure for the customised financing of wind park portfolios. The award shows that HVB is the undisputed market leader for renewable energy finance on the capital markets. |
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HVB named Best Provider
of Structured Products Structured Derivatives are an important pillar of HVB’s strong performance in 2006. Deutsches Risk recognised HVB’s approach to offer its clients tailor-made solutions with an attractive risk-reward profile. HVB is also a member of the Derivative Forum, which promotes transparent standards in the German retail market. |
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EquityAnalystAward for Global Research HVB Equity Research confirmed its performance with several top placements in 2006 Börsen-Zeitung’s EquityAnalystAwards. This external ranking again demonstrated that HVB is among the leading German brokers in terms of quality. |
