Strategy
HSBC expands its Asian insurance business

HSBC has added insurance operations to its business
in Vietnam, Taiwan and China in the space of a few weeks as it
looks to expand its franchise into both insurance and the
Asia-Pacific region.

On 27 September, HSBC received approval from China’s insurance
regulator to form a joint venture insurance company, the first
financial services company to receive such approval. A few days
earlier, the group had announced it was setting up a greenfield
insurance business in Taiwan; on 13 September, it said it had
entered into an agreement to acquire a 10 percent stake in
Vietnam’s leading insurance and financial services group, Vietnam
Insurance, for VND4.12 trillion ($255 million).

The deals indicate just how important both insurance and
Asia-Pacific have become to HSBC as it looks to diversify its
earnings base. The deals come just weeks after the UK banking group
announced it was looking to acquire a 51 percent stake in Korea
Exchange Bank, the sixth-largest bank in South Korea.

Payments
Visa USA unveils contactless key ring

Visa USA has announced the launch of its Micro Tag, a chip-based
key ring attachment embedded with its payWave contactless
technology, which can be used instead of cards to pay for low value
purchases. Cardholders can use the new Visa Micro Tag to pay for
purchases under $25 by simply swiping the device in front of a
contactless payment terminal. Visa’s payWave technology is
currently accepted in over 32,000 retail outlets across the
US.

The Micro Tag displays the Visa brand mark and contactless
indicator. A Visa account number is not required to be embossed or
printed on the device, providing extra security for
consumers.

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By GlobalData

Several other card issuers have already released similar
contactless products including MasterCard, which offers key fobs
featuring its contactless PayPass system to Citibank
cardholders.

Strategy
E*Trade lowers forecast after subprime losses

Diversified US financial services group E*Trade has restated its
2007 annual forecast, cutting earnings expectations significantly
due to increased loan loss provisions caused by the US subprime
mortgage crisis.

E*Trade’s mortgage portfolio, estimated to be around $30 billion,
is almost entirely comprised of third-party loans. The company
anticipates charge-offs of $95 million, as well as a total
provision expense of $245 million, in the second half of 2007.
Allowances for loan losses as a percentage of non-performing loans
is predicted to rise to 75 percent, based on assumptions for the
second half of the year, up from 45 percent in the first half of
2007.

E*Trade has also announced it is restructuring its business,
exiting the wholesale mortgage market and focusing its direct
mortgage lending business on its retail franchise. E*Trade’s
president and COO, Jarrett Lilien, said that E*Trade’s future
balance sheet growth would come from retail assets.

Strategy
GE and China Life to forge co-operative
deal

China Life, the country’s top life insurer, and GE Money have
announced the signing of a strategic co-operation memorandum to
explore joint partnerships on a wide range of financial matters,
according to a report from news agency Reuters.

By combining China Life’s wide distribution network across the
Chinese mainland with GE’s expertise in a range of financing
services, the two parties are looking to launch new investment
products to cater to the rapidly increasing demand of retail
customers, said the report.

China Life said that its banking, fund management and securities
operations will be increasingly significant sources of revenue over
the next few years.

Cards
MUFJ and Amex in card issuing
partnership

Mitsubishi UFJ Nicos, the majority-owned credit card subsidiary of
Japan’s largest banking group Mitsubishi UFJ, and American Express
have announced an agreement whereby Mitsubishi UFJ Nicos will offer
American Express-branded cards in Japan. The deal comes less than a
month after GE Money and Amex announced an ambitious card programme
in the country (see RBI 578).

Mitsubishi UFJ Nicos says it has the largest card base
in Japan, with over 25 million cards, and a credit card transaction
volume of ¥5.9 trillion ($51.1 billion) in fiscal 2007. It expects
to begin issuing Amex cards next spring, offering both gold and
platinum versions of the cards.

This new partnership will come as a boost for Mitsubishi UFJ Nicos,
which posted a ¥111.8 billion group net loss for 2007. Parent
company Mitsubishi UFJ Financial Group, which owns 65 percent of
Mitsubishi UFJ Nicos, recently announced that it will inject ¥120
billion into the subsidiary in a comprehensive restructure.

Distribution
Deutsche Postbank and insurer HUK-Coburg agree to sales
alliance

Deutsche Postbank, Germany’s largest retail bank, has agreed a
long-term sales partnership with the HUK-Coburg insurance group,
one of the largest insurance companies in Germany with over 8
million customers and capital investments of almost $24 billion.
From October, Postbank will sell exclusively a variety of
HUK-Coburg insurance policies, while HUK-Coburg will offer retail
banking products from Postbank such as current accounts via its
sales channels.

Postbank is gaining access to potentially 8.5 million additional
customers for its banking products. HUK-Coburg has had no sales
partner in the banking sector until now, and says it expects a
considerable increase in new business as a result of market access
via the Postbank network.

Mergers and
Acquisitions

Barclays set for €200m AMRO consolation fee

Barclays, which looks set to lose out to the rival Royal Bank of
Scotland (RBS)-led consortium in the long-running takeover battle
for ABN AMRO, will be entitled to a €200 million ($283 million)
termination fee from ABN AMRO if the deal goes sour, agreed when
the proposed Barclays/ABN AMRO merger was first announced in
April.

Addressing the ABN AMRO extraordinary general meeting on 20
September, Huibert Boumeester, the bank’s chief financial officer,
said: “Technically speaking, Barclays can already claim that amount
now but they’ve agreed not to do so yet.”

ABN AMRO dropped its official support for the Barclays bid on 30
July and adopted a neutral stance after the RBS-led bid attracted
support from a number of ABN AMRO shareholders.

While ABN AMRO chief executive Rijkman Groenink did not recommend
the consortium offer to shareholders, he said that Barclays’ offer
is too low. “The Barclays share price will have to rise far above
700 pence to even come near the value of the offer of the
consortium,” said Groenink. On 27 September, the Barclays share
price stood at £6.09 ($12.2).

Diversification
Countrywide Financial to double branch network despite
woes

Despite its extremely poor business environment
(see RBI 578, 577, 574), Countrywide Financial, the
largest US lender, has said it plans to double the number of
branches at its retail banking subsidiary, Countrywide Bank. The
strategy to diversify away from mortgages into other mainstream
banking lines of business has been steadily implemented over the
past 12 months but has now picked up speed in the wake of the US
subprime collapse.

Angelo Mozilo, CEO of embattled Countrywide Financial, said he
remained “bullish, very bullish” on his company’s future despite
the difficult trading conditions. In early September, Countrywide
revealed plans to cut up to 12,000 jobs, or 20 percent of its work
force, by December.

Speaking at a Bank of America conference in San Francisco, Mozilo
said Countrywide operates 112 financial centres, and plans to add
about the same number within four to six months. He also said the
company has begun to attract net inflows of retail and commercial
deposits, after a short run last month when worried customers lined
up at branches to withdraw money.

Countrywide shares are still down 50 percent this year. In August,
Countrywide received a $2 billion injection from Bank of America,
which could eventually give the second-largest US bank a one-sixth
stake in the lender.

Strategy
Santander confirms profit target for
2007

Emilio Botín, chairman of Santander, has confirmed that the Spanish
bank’s profit for 2007 will be €8 billion ($11.34 billion).

Speaking at an analysts meeting on 17 September, Botín said “the
bank’s strategy places us in an excellent position, a winning
position, within international banking”.

Regarding growth, Botín said that what makes Santander different
from other global banks is its focus on retail banking, which he
said was a “source of recurrent revenues”. He said that Santander
now has the largest branch network in international banking.

“We’re not trying to build a larger bank, but rather a better bank:
more profitable and with better growth and value creation
prospects. That’s why Santander’s main criterion in acquisitions is
investing in retail banking, with the goal of controlling
management. The acquisitions we do must enable us to achieve
important and sustainable growths in the mid term as a result of
Santander’s management model,” he added.

If the acquisition of the ABN AMRO franchise succeeds, Santander
will be the largest non-state banking group in Brazil, added
Botín.

Brunch strategy
Sunday banking grows in Canada and Australia

CIBC, Canada’s fifth-largest retail bank, says it is “addressing
the changing needs of Canadians” by introducing Sunday branch hours
in selected branches in Vancouver and Toronto later this year.
These full-service branches will offer a complete range of
transactional services, sales and advice. CIBC also offers its
clients evening and Saturday banking hours in many of its 1,048
branches.

In Australia, the country’s largest retail bank, Commonwealth Bank
of Australia, has also announced that some of its busiest branches
will now be opening for Sunday trading from mid-October, following
a trend in the country for seven-day branch banking (see Aiming
for second place).
 
Group executive of retail banking services Ross
McEwan said: “For many of our customers, Sunday is one of their
busiest days. It’s therefore logical that we provide banking
services on Sunday to support our customers as well as shoppers or
people looking for financial advice or products like a housing or
personal loan.”

Post office financial
services

UK post office expands banking product
range

The UK post office has signed distribution deals with UK-based
Aviva, the world’s fifth-largest insurance group, and Bristol &
West, the Bank of Ireland’s UK lending arm, as it expands its mass
market financial services product portfolio.

Aviva will run post office-branded life protection products, which
will be sold at the post office’s 14,000 branches, online and over
the phone.

David Barral, intermediary and partnerships director for Norwich
Union, said: “We are delighted [with] our latest partnership, which
builds on our existing relationship as the post office’s lead
insurance provider of personal motor, home and commercial vehicle
insurance.

The post office is also trialling Bristol & West mortgages at
selected branches. Three mortgage products will be available during
the trial, led by a three-year fixed-rate product with an initial
rate of 6.09 percent. Each of the products will have a simple
pricing structure, according to the post office’s director of
lending, Gary Fitton.

“We believe there is a real need for straightforward mortgage
products. This is why we have developed products with good initial
and long-term value,” he said.

Payments
RBC Royal Bank waves in a new era of contactless
payments

RBC Royal Bank, Canada’s largest retail bank, is introducing its
new contactless payment, Visa payWave, in October. The bank is
hoping that its customers will use the facility for purchases
typically under C$25 at a range of participating merchants such as
fast food restaurants. To use the credit card, a cardholder waves
it near a Visa payWave reader.

“As the first Canadian financial institution to offer nationally a
credit card with chip technology, we’re pleased to be at the
forefront of another new technology,” said Anne Koski, head of
payments innovation.

RBC Royal Bank says it is the leading issuer of chip cards in
Canada, processing over 10 million chip transactions worldwide. The
bank’s customers will begin receiving the Visa payWave feature on
their RBC Royal Bank credit cards during a market trial starting
next month.

Strategy
Erste Group confirms growth targets

Austria’s Erste Group has confirmed its earnings targets: an
average annual net profit growth of at least 20 percent is expected
in the years 2008 and 2009; the cost-income ratio target for 2009
remains below 55 percent; and ROE should return to between 18 and
20 percent following the capital increase in 2006.

At its capital markets day on 21 September, Erste reported that its
group-wide integration and development programme also remained on
track.

In order to enhance its efficiency and the consistency of service,
most back office and support functions will now be centralised or
outsourced. As a consequence, the bank’s work force will reduce
from 10,600 employees as of June 2007 to a target headcount of
8,200 by the end of 2008. In 2008, cost growth should equal only 7
percent.

In a statement, Andreas Treichl, CEO of Erste Group, said Erste
Group is ideally positioned to benefit from low risk exposure to
the fastest-growing EU markets in CEE.

Moreover, he stressed that, while still developing a balanced
overall portfolio through the strengthening of corporate banking
and global markets activities, retail banking will remain the core
focus of the group.

MARKETING NEWS DIGEST

Cards Marketing
Banamex launches football card

Banamex, Citigroup’s Mexican subsidiary and the country’s
second-largest bank, has introduced a co-branded credit card called
La Verde, linked to its sponsorship of the Mexican national
football team. The card launch is being promoted by an advertising
campaign with the tagline ‘I do believe in the Mexican team’.

Banamex signed an agreement in August with the Federación Mexicana
de Futbol (Mexican Federation of Football) to become the main
sponsor of Mexico’s national team. The agreement lasts until the
end of 2010 and includes an option for renewal beyond then. As part
of the deal, Banamex will be the main sponsor of the 2007 and 2009
Copa América matches as well as all official and friendly matches
played by the Mexican national team up to 2010.

Cards Marketing
Chase ramps up Freedom card offering

Chase, the retail banking and cards division of JPMorgan Chase, has
introduced a refreshed version of its Chase Freedom card, the
product it launched last year designed to give consumers more
control over their rewards options.

Chase Freedom cardholders can choose to receive their rewards as
cashback or as points that can be redeemed for gift cards, travel
or merchandise. Customers will now earn triple cashback or reward
points for their top three (out of 15) spending categories, which
include petrol stations/convenience stores, grocery stores,
department stores, health clubs, telecoms suppliers,
cable/satellite and internet service providers.

Chase has the second-largest amount of Visa and MasterCard balances
outstanding in the US after Bank of America and has issued more
than 1.5 million Freedom cards since their launch.

Corporate Social Responsibility
RBC Royal Bank rolls out green
branches

Canada’s largest banking group, RBC Royal Bank, has announced that
it will purchase renewable green power for all new bank buildings
and branches, an initiative that it says will boost its green
energy consumption by more than 7,000 megawatt hours by the end of
2008.

RBC Royal Bank claims that more than 70 of its retail banking and
insurance locations in Canada will be powered by renewable sources
by the end of next year, helping it to reduce greenhouse gases by
over 5,000 tonnes annually, and other harmful emissions by more
than 20 tonnes annually.

The bank also intends to integrate green building practices into
new leased facilities.

Corporate Social
Responsibility

UK’s Co-operative Bank creates $50m microfinance
fund

The UK’s ethical Co-operative Bank has created a $50 million fund
to support the development of small businesses in some of the
world’s poorest countries.

The bank has created a line of credit in association with several
major international banks that will be used to provide
microfinance, or small loans, to the working poor around the
world.

The Co-op is already part of the Global Commercial Microfinance
Consortium, which brings together institutional investors and
development agencies in order to provide finance to poor
communities.

“Our involvement in microfinance clearly demonstrates to our
customers the mechanics of how our ethical stance really works and
shows how their money, when invested with the bank, can make a real
difference in tackling global poverty,” said Richard Wilcox, the
bank’s head of structured and asset finance.

Financial
Literacy

Schwab offers new college finance tool

Charles Schwab, the US-based discount share trader, has enhanced
the financial planning section on its website, hoping to drive
traffic by helping customers make decisions about funding
university/college education as well as paying college
expenses.

The site also offers a comparison of the benefits and limitations
of different college savings vehicles, plus a calculator to project
how much they might need and illustrations of the benefits of
starting to save as early as possible.

“For many people, planning for [college] is second only to planning
for retirement. The upgraded website now offers the tools and
practical guidance to help consumers make smart choices,” said René
Kim, a Schwab senior vice president.

Customer
Service

Nedbank launches Ask Once initiative

Nedbank has introduced a customer service initiative which it says
will set a benchmark for service excellence in South African
banking.

The country’s fourth-largest bank claims that its new customer
service programme, Ask Once, will improve the client experience by
dealing with client requests more effectively.

“As the name suggests, Nedbank clients will only have to ask once.
Many organisations have generic service charters, but we are
putting our money where our mouth is by providing a financial
guarantee to support the Ask Once promise,” said Tom Boardman,
Nedbank chief executive.

The bank has pledged to donate ZAR50 ($7.26) to a Nedbank approved
charity every time it breaks its Ask Once promise.

Sports Sponsorship
Credit Suisse football-themed tram rolls out

With less than a year to go before the 2008 Union of European
Football Associations championships, which will be held in Austria
and Switzerland, Credit Suisse, the main sponsor and partner of the
Swiss Football Association and its national team, has kicked off a
colourful tram sponsorship deal with a football theme.

Credit Suisse national team trams hit the rails on 22 September in
Zurich, Basel, Berne and Geneva and will run until the end of next
summer’s championship finals.

“Our aim with the national team trams in the four Swiss Euro 2008
venues is to position ourselves clearly as the long-term main
sponsor of the national team and to underline our commitment to
Swiss football in a pleasant way,” said Sandra Caviezel, head of
sports sponsorship at Credit Suisse.