Rankings

Apersonal derivatives dealing serviceis what counts most for EnricoFrizzi, Rome-based finance and risk

manager at Bulgari. The luxury goods firmhas big Swiss franc production costs tohedge against its euro and dollar rev-enues, and Frizzi is a regular buyer of for-eign exchange options. He is naturallylooking for keen pricing, but above all heis determined to get the best ideas and re-search: “We remain loyal to a dealing teamthat looks after us,” he says.

Bulgari tends to use internationalbanks. Lehman Brothers, Goldman Sachs,JP Morgan Chase and Deutsche Bank areFrizzi’s principal dealers for interest rateand currency derivatives. “These banksmake an effort to phone up when some-thing in the market changes,” he says.“They are at our disposal more than theItalian banks.”

Risk Italia polled Bulgari and 99 othermajor players in the Italian over-thecounter derivatives trading community fortheir ranking of the best dealers for theirItalian business. Half of those we polledwere banks. The others were non-finan-cial end-users and financial end-userssuch as insurance companies.

Like Frizzi, most of the respondentsvoted for the major international deriva-tives dealers as providing the best ideas,prices and execution. JP Morgan Chase,

SG – the corporate and investment bank-ing arm of Société Générale – andLehman Brothers were voted the topthree dealers for the quality of their over-all risk management advice and for de-rivatives dealing.

But that is far from the whole story.The rankings show that while Italian deal-ers may not yet have the same breadthand depth of resources in derivativesdealing, they have made giant stridesover recent years; keeping pace with thegrowth of demand for derivatives in theinterbank, asset management and corpo-rate markets.

The largest Italian banks – BancaNazionale del Lavoro (BNL), Banca In-tesa and UniCredit Banca Mobiliare(UBM – the investment banking arm ofthe giant Credito Italiano group) scoredsome notable successes in our rankings,having made big investments in deriva-tives dealing in recent years. The suc-cess of Banca Akros in the rankingsproves that there is also roomfor the ‘boutique’ ap-proach to derivativesdealing.

With 10 top-threepositions in the rank-ings across the inter-est rate and currencycategories, BNL ranks

as the top home-grown Italian derivativesdealer. BNL has built a thriving derivativesdealing business on the foundations of itstraditional corporate and local authoritylending business, under the guidance ofGuido Grossi, its head of treasury in Rome.

BNL’s interest rate and exchange ratederivatives activities have increased dra-matically over the past three years. Thebank has expanded its derivatives activi-ties through its large core client base byoffering advisory services and interest rateproducts for liability management, ac-cording to Giuseppe Notarnicola, head offinancial product sales at BNL in Rome.

Before 1999 there was very little liq-uidity for Italian lire denominated

derivatives instruments. Now li-ability management is becom-ing increasingly important forits clients, partly driven by theintroduction of the euro and European integration. “A lotof our customers are devel-oping a different culture and attitude towards derivatives,

and are increasingly usingthem for managing interest

rates,” says Grossi.In response to growing de-mand, the bank has strength-

ened its sales and tradingdepa r tmen t s ,

Italian derivatives dealer rankings 2003Risk Italia – the Italian language edition of Risk – asked 100 players in the Italian over-the-counter derivatives business to rank their dealers. JP Morgan Chase, SG and LehmanBrothers came top, but Banca Nazionale del Lavoro runs close behind, and UniCredit BancaMobiliare, Banca Intesa and Banca Akros also make an appearance. By Naomi Humphries

“The credit derivatives trading desk atBanca Intesa is as busy as ever”Paolo Gribaudi, Banca Intesa

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OVERALL QUALITY OF RISK MANAGEMENT AND DERIVATIVES DEALING ADVICE1 JP Morgan Chase2 SG Top Italian adviser:3 Lehman Brothers UniCredit Banca Mobiliare (ranked 8)

Rankings

a small, independent, brokerage in Feb-ruary 1987. It was acquired by BancaPopolare di Milano Group (BPM) in 1998,but, under the stewardship of chief exec-utive Marco Turrina, it has maintained itsindependent style and business strategy.Although Banca Akros is headquarted inMilan, its New York office has been vitalto its development. Last year’s net profitsof €13.6 million were 120% higher thanthe 2001 result, and other Italian bankshave been closely following its success.

Banca Akros doesn’t appear in ourfixed-income or currency derivatives deal-ing rankings, perhaps because it remainsa far smaller investment banking businessthan BNL, MPS Finance (owned by BancaMonte dei Paschi di Siena) or MCC(Mediocredito Centrale – Capitalia’s in-vestment banking arm).

But the ability of a small operation torespond to clients can still be turned to itsadvantage. Steve Raffin, a financial riskmanager at Milanese publishing groupMondadori, rates Banca Akros highly be-cause, “they are very efficient, especiallywhen there is a back-office problem – andthe reason is because they are very small.I speak with the same three people atBanca Akros about our forex business, andwhen there is a problem I know exactlywhere to go to get an instant response.”

Nonetheless, a large proportion of Raf-fin’s derivatives business is done with in-ternational banks. “As an Italian company,it would be natural for us to use an Ital-ian bank,” he says. “But in recent yearsthere has been more consistency with theinternational banks.” And one reason whylarge Italian banks may be less user-

friendly is the difficult process of merg-ing and restructuring their businesses thatmany have undergone. “With an Italianbank, I might be speaking with 10 backoffices, eight middle offices and only onefront office. It’s not their fault, but it makesit difficult for a client,” says Raffin.

And, like Bulgari’s Frizzi, Mondadori’sRaffin says the international dealersexcel in client relationship manage-ment. “Most banks can structure almostanything a derivatives user requires.

comes close to the giant international liq-uidity producers: JP Morgan Chase, Gold-man Sachs and Deutsche Bank.

Strength of brandingUniCredit Banca Mobiliare was voted theleading Italian bank in the Overall Quali-ty of Risk Management and DerivativesDealing advice category, as well as achiev-ing some top-three rankings in the equitycategories. With a significant number ofvotes from both the retail and the corpo-rate community, the rankings show thatUBM’s strategy in derivatives is paying off.

UBM was created in 2000 by the Credi-to Italiano Group. Advised by McKinsey, theUS consulting firm, UBM decided to createa unique model based on distinct brandsthrough its Corporate Lab and Trading Labunits. Trading Lab devises equity derivativesproducts mostly for the retail market. Cor-porate Lab, the financial risk managementunit, advises Italian corporate and public-sector customers on financial engineering.It structures exchange rate, interest rate andcommodity derivatives products.

UBM’s second-place ranking for war-rants backs up Trading Lab’s own assertion that it is the number-one deal-er for Italian covered warrants, an equi-ty option open to retail investors.

Banca Akros – again an example of aderivatives dealing brand name that ex-

ists almost independently of its owner,Banca Popolare di Milano – also did

well in the equity derivatives cate-gories, gaining a third-place rank-ing for Italian vanilla OTC equityoptions and Italian equity indexoptions. Banca Akros began as

“A lot of our customers are developing adifferent culture and attitude towards

derivatives ... increasingly using them formanaging interest rates”

Guido Grossi, BNL

and also actively targeted customers, pro-viding advice and education to clients.Notarnicola says there is growing demandfrom corporates for structured solutions.But a strong client relationship is crucial,adds Grossi. “It is essential that a customerfully understands the risk profile of aproduct, accepting it only when it makessense with their overall position,” he says.

Banca Intesa is ranked number oneamong Italian credit derivatives dealers.That success draws on the significant vol-umes of trades made by the Intesa cred-it derivatives desk managed by PaoloGribaudi, head of credit derivatives atBanca Intesa in Milan. Gribaudi has beenone of the pioneers of the credit deriva-tives market and synthetic securitisationin Italy since the mid-1990s.

The continuing success of Gribaudi andhis team might have surprised those whoread last September’s new business planfor 2003–2005, issued by the bank’s newchief executive officer, Corrado Passera.He said Banca Intesa would be “downsiz-ing some non-core operations, such ascredit derivatives trading”. Passera was re-acting to substantial credit write-offs byBanca Intesa, many of those linked to itscollateralised debt obligation business.

This was not the signal of a full-scaleretreat from credit derivatives dealing,says Gribaudi – only from part of it.The bank had pioneered the useof long-term credit derivativescontracts to increase its expo-sure to international credits.These banking book expo-sures have indeed been dra-matically reduced: from €7billion to €3 billion in 2002.Gribaudi expects a further re-duction this year of up to30%. “The credit derivativestrading desk at Banca Intesais as busy as ever, providingboth flow trading and structuredtransactions for third parties,” saysGribaudi. The customers surveyedfor these rankings agree that Gribaudi’s desk offers aservice that

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Rankings

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INTEREST RATE DERIVATIVESInterest rate swaps: Interest rate swaps: Interest rate swaps:euro overnight euro less than 2 years euro more than 2 years

1 Banca Nazionale del Lavoro 1 JP Morgan Chase 1 JP Morgan Chase2 JP Morgan Chase 2 Banca Nazionale del Lavoro 2 Deutsche Bank3 Deutsche Bank 3 Credit Suisse First Boston 3 Lehman BrothersTop Italian dealer: Banca Nazionale del Lavoro (1) Top Italian dealer: Banca Nazionale del Lavoro (2) Top Italian dealer: Banca Nazionale del Lavoro (7)

Interest rate swaps: Interest rate swaps: Interest rate swaps: US dollar overnight US dollar less than 2 years US dollar more than 2 years

1 JP Morgan Chase 1 JP Morgan Chase 1 JP Morgan Chase2 Deutsche Bank 2 Morgan Stanley 2 Goldman Sachs3 Goldman Sachs 3 Lehman Brothers/Goldman Sachs 3 Deutsche BankTop Italian dealer: Banca Nazionale del Lavoro (4) Top Italian dealer: Banca Nazionale del Lavoro (6) Top Italian dealer: UniCredit Banca Mobiliare (4)

Euro forward rate agreements US dollar forward rate agreements1 Deutsche Bank 1 JP Morgan Chase2 JP Morgan Chase 2 Citigroup3 Banca Nazionale del Lavoro 3 Banca Nazionale del LavoroTop Italian dealer: Banca Nazionale del Lavoro (3) Top Italian dealer: Banca Nazionale del Lavoro (3)

Euro repurchase agreements US dollar repurchase agreements

1 Banca Nazionale del Lavoro 1 Banca Nazionale del Lavoro2 SG 2 JP Morgan Chase 3 Banca Intesa 3 CitigroupTop Italian dealer: Banca Nazionale del Lavoro (1) Top Italian dealer: Banca Nazionale del Lavoro (1)

CURRENCY DERIVATIVESFX options, euro/US dollar FX swaps, euro/US dollar

1 Goldman Sachs 1 Goldman Sachs2 UBS Warburg 2 Banca Nazionale del Lavoro3 Banca Nazionale del Lavoro 3 Deutsche BankTop Italian dealer: Banca Nazionale del Lavoro (3) Top Italian dealer: Banca Nazionale del Lavoro (2)

Exotic currency products in euro, for example: Exotic currency products in US dollar, for example: FX options correlated to other asset classes FX options correlated to other asset classes

1 JP Morgan Chase 1 Deutsche Bank2 Goldman Sachs 2 Banca Nazionale del Lavoro3 Banca Nazionale del Lavoro 3 JP Morgan ChaseTop Italian dealer: Banca Nazionale del Lavoro (3) Top Italian dealer: Banca Nazionale del Lavoro (2)

EQUITY DERIVATIVESItalian OTC equity International OTC equity Italian equity index optionsoptions, vanilla options, vanilla

1 SG 1 SG 1 UniCredit Banca Mobilaire2 UniCredit Banca Mobiliare 2 Deutsche Bank 2 SG3 Deutsche Bank/Banca Akros 3 CSFB 3 Banca AkrosTop Italian dealer: UniCredit Banca Mobiliare (2) Top Italian dealer: UniCredit Banca Mobiliare (8) Top Italian dealer: UniCredit Banca Mobiliare (1)

International equity Exotic OTC equity options, for Warrantsindex options example: barrier options

1 SG 1 SG 1 SG2 JP Morgan Chase 2 CSFB 2 UniCredit Banca Mobiliare3 CSFB 3 BNP Paribas 3 CitigroupTop Italian dealer: UniCredit Banca Mobiliare (5) Top Italian dealer: UniCredit Banca Mobiliare (5) Top Italian dealer: UniCredit Banca Mobiliare (2)

CREDIT DERIVATIVESItalian single-name International single name Collateralised debt obligation default swaps default swaps (CDO) dealing

1 JP Morgan Chase 1 JP Morgan Chase 1 JP Morgan Chase2 Banca Intesa 2=Goldman Sachs 2=Bear Stearns3 SG 2=UBS 2=Deutsche BankTop Italian dealer: Banca Intesa (2) Top Italian dealer: Banca Intesa (7) Top Italian dealer: Banca Intesa (8)

Exotic interest rate options, for example:swaptions

1 JP Morgan Chase2 Credit Suisse First Boston3 Deutsche Bank/Goldman SachsTop Italian dealer: Banca Nazionale del Lavoro/Banca Intesa (=7)

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The value lies in the advice and servicethey offer,” he says. On this score, hegives JP Morgan Chase high marks.

JP Morgan Chase’s high profile in Ital-ian derivatives dealing originates from thetwo franchises of retail banking power-house Chase Manhattan and investmentbank JP Morgan, following their mergerin 2000. Matteo del Fante, head of finan-cial institutions derivatives marketing forEurope, the Middle East and Africa at JPMorgan Chase in London, says the bankwas smart in handling its potential peo-ple and business overlap in the region.“The immediate effect was to have aneven greater presence than before,” hesays. The bank now has a strong indus-try focus, with specific coverage teams forfinancial institutions, corporates and thepublic sector, which work across productlines to deliver client solutions.

JP Morgan Chase also dominates ourrankings for credit default swap (CDS)and collateralised debt obligation (CDO)trading. Italian banks’ involvement withcredit derivatives has grown dramaticallyover the past 12 months, and a handfulhave set up CDS trading and market-mak-ing operations.

The number of Italian credits available

in the default swap market is unlikely toincrease in the near future, because thereare few active participants in the credit de-rivatives market across the Italian bankingsystem. But an important driver in Italy’scredit derivatives market is the burgeon-ing securitisition market and the growthof synthetic CDO deals. Italy is currentlyranked the third largest market in Europe,after the UK and Germany, accounting for15.1% of 2002 issuance, according to rat-ing agency Standard & Poor’s.

SG gains a second-place ranking in theoverall risk management advice and de-rivatives category. While fixed income inItaly has become an important market forSG in the past three to four years, its realstrength lies in equity products. The banktakes a first-place ranking in five of ourcategories, with a second-place ranking

for the remaining Italian equity index op-tion product categories.

David Armstrong, responsible for engi-neering and sales for Italian equity deriva-tives at SG in Paris, says much of the bank’sequity derivatives business in Italy is con-centrated in the warrants business, as it wasthe first bank to list warrants on the BorsaItaliana in July 1998. “Previously, SG wasnot a strong brand for clients and the fi-nancial community in Italy, and this helpedus to gain recognition and visibility.”

SG has also been building up its ca-pacity in structured equity derivatives,where business is predominantly target-ed towards both retail and institutionalclients. SG’s ‘mountain range’ series ofguaranteed equity products for the retailmarket, including Altiplano and Kiliman-jaro, have proved popular in Italy. “Wehave seen very strong interest on the re-tail side because these products allow in-vestors to have a modified risk approachto equity markets, which works well withthe current equity context we have had,and at the same time people are lookingfor higher security,” Armstrong says.

Lehman Brothers gains only two top-three places in our rankings, but takesthird place in the rankings for ‘OverallQuality of Risk Management Advice andDerivatives Dealing’. Its success stemsfrom its long background in private eq-uity and investment banking in Italy. InMarch 2002, Lehman moved a fixed-in-

come team of around 20 people fromLondon to Milan to better serve its Italianclients. Its most popular products includeinflation-linked bonds and swaps, whichhave attracted the interest of banks andinsurance companies, says Andrea Pot-sios, head of fixed income for Italy. Agrowing number of corporates are alsousing the products to hedge the risks as-sociated with revaluing their employeepension funds based on Italian inflation.

Goldman Sachs did well in the cur-rency categories, with first-place rankingsin forex swaps and options and secondplace for euro exotic options. The banksecures a good proportion of its votes fromthe corporate community. Andrea Ansel-metti, head of the Italian corporate salesgroup at Goldman in London, says prod-uct innovation has grown rapidly in the

past few years. Following the introductionof the euro, the intra-European currencyderivatives trade has disappeared, butGoldman has been taking up the slack involumes with its online forex trading plat-form. “Progress with online tools has en-abled us to capture flows in the Italianmarket that would previously have beenphysically impossible for us to obtain, andhas consequently allowed us to focus evenmore on creating innovative solutions tomatch client needs,” Anselmetti says.

Other international dealers in the rank-ings include Deutsche Bank, which gained11 top-three places. Deutsche has beenbuilding its Italian business from the bot-tom up – it bought Banca d’America e d’I-talia in the late 1980s, providing a franchiseof around 300 branches across the coun-try. “Italy is the most important Europeanmarket for us outside of Germany,” saysMichele Faissola, Deutsche’s London-based global head of OTC derivatives. “Ourbusiness has traditionally centred on theasset management side, but over the lasttwo years we have been making a pushinto the corporate side,” he says.

The financial sector – banks, insurancecompanies and other institutional investors– continues to drive most derivatives deal-ing in the Italian market. But Italian man-ufacturing companies and public-sectorentities have become increasingly sophis-ticated users of derivatives since the intro-duction of the euro in 1999. �

Rankings

Risk Italia surveyed 100 counterparties in the Italian over-the-counter derivatives market. Fifty were Italian and inter-national banks with dealing desks based in Italy, and alsoItalian banks with derivatives dealing desks based outsideItaly. The other 50 were Italian financial and non-financialcompanies that we classify as end-users of over-the-counter derivatives, that is, buyers who hold contracts forrisk management and investment purposes.

Respondents were asked to nominate their top threedealers, based on the overall quality of the dealers’ riskmanagement and derivatives dealing advice. They werealso asked to nominate their top three dealers in OTCderivative products.

We asked respondents to base their votes on criteriasuch as competitive pricing, speed of execution, liquidityprovision and product innovation. We weighted the resultswith three points for a first-choice vote, two points for asecond-choice vote and one point for a third-place vote.Totalling these points produces the final rankings.

How the rankings are produced

“Progress with online tools has enabled us to capture flows inthe Italian market that would previously have been physicallyimpossible for us to obtain” Andrea Anselmetti, Goldman Sachs

Banks 50 Asset management/investment/hedge funds 11 Insurance companies 5 Industrial companies/corporates 31 Government agencies 3

Distribution of responses