|  |  | International |  | | |
International's wholesale banking operation in emerging markets made significant progress in advancing and strengthening its business franchise and operating platform.
Financial highlights
- Headline earnings down 7% in US dollars and 21% in rand, off a high base in the previous year.
- All principal product areas and major regions performed well, benefiting from strong customer flows, increased client focus and enhancement to product range.
- Global markets, metals trading and asset management businesses, in particular, achieved strong performances.
- Margin pressure was experienced in a competitive emerging markets environment.
- Additional provisions were raised against mining and energy exposures.
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How we did
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2004 |
2003 |
| Headline earnings (Rm) |
685 |
866 |
| ROE (%) |
12,8 |
14,7 |
| Cost-to-income ratio (%) |
68,8 |
61,2 |
| Credit loss ratio (%) |
0,37 |
0,78 |
| Net advances (Rm) |
34 591 |
43 311 |
| Headline earnings contribution (%) |
9 |
14 |
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Wholesale banking in emerging markets
What we achieved in 2004
International’s investment banking operation in emerging markets reported satisfactory results for the year, with US dollar earnings marginally below budget. International made significant progress in advancing and strengthening its business franchise and operating platform. International took major strides to:
- further enhance its product range;
- deepen its regional penetration; and
- upgrade its information technology, support and risk structures.
These achievements are critical to the future growth of the business.
Global markets
The global markets division, housing International's customerdriven capital markets and treasury activities, generated strong growth.
Interest rate trading and foreign exchange activities recorded increased volumes, aided by a strong customer focus and increasing geographic diversity. The Brazilian, Turkish and Russian operations all performed strongly.
Credit trading businesses produced a record performance, benefiting from increased customer flows and the delivery of higher-value customised credit derivative products to clients. The debt origination and customer financing businesses also performed well, despite strong competition and relatively tight spreads.
The principal trading business generated weaker results than reported in 2003 with a good performance by the fixed-income unit partly offset by losses in the equity derivatives principal trading unit, leading to the latter’s closure during the year.
Resource banking
The resource banking division enjoyed a strong operating performance, with particularly good results from the metals trading businesses and the structured commodity finance units. The base metals business again reported significantly increased revenues, driven by strong growth in client activity aided by sustained price rises and increased volatility in most metals. The precious metals business delivered satisfactory results, despite a continued reduction in forward hedging by gold producers.
The energy business continued its development by reinforcing its market position in a number of specific industry sectors. The structured commodity finance business, including both energy financing and metals financing, reported satisfactory growth.
The division’s net results were, however, adversely impacted by credit losses suffered during the year within the precious metals and energy businesses.
Banking and trade finance
The banking division delivered an encouraging performance with revenues up significantly on 2003. The specialised finance business closed several high-profile acquisition financings, including the first Russian acquisition financing seen in international markets. The business broadened its presence in Turkey, Asia, Russia and Central America.
The telecommunications finance business reported further strong results, consolidating its position as the pre-eminent telecommunications financial advisory and financing team in Africa, while also establishing a presence in the greater Russian region (the Commonwealth of Independent States, CIS).
The distribution group also performed well, placing more than US$8 billion of syndicated loans, trade finance and forfaiting paper. With Standard Bank acknowledged as a market leader in arranging and placing debt in emerging markets, the year saw International arrange and successfully close 45 syndicated financings for emerging market borrowers, located primarily in Eastern Europe, the CIS, the Middle East, Asia and Africa.
Wealth management
What we achieved in 2004
International’s wealth management business, including asset management and private client services, continued to develop. The private banking operations comprising the Standard Bank Offshore Group performed in line with 2003, with margin pressure continuing due to the low interest rate environment. The emerging markets business continued to advance the regional penetration of its private client activities across the international network.
The asset management business again reported strong growth, with third-party assets under management exceeding US$3 billion. Good investment performances were achieved across the range of funds.
Focus areas for 2005
In the year ahead, International will concentrate on:
- sustaining the focus on our existing core product areas and key geographic regions;
- enhancing return on shareholder capital by combining ongoing revenue growth, improved resource utilisation and greater capital efficiency;
- expanding banking capabilities in Hong Kong, Russia and Brazil;
- deepening regional penetration in other geographic markets;
- further enhancing customer focus by increasing the effectiveness and value of the bank's customer relationships;
- continuing to upgrade the information technology, support and risk infrastructures; and
- further developing and expanding the quality of talent.
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