Working for their money
Euromoney
London
May 1994
Aline van Duyn
Abstract:
As windfall trading profits dry up, foreign exchange banks are rediscovering client
business. But clients are becoming more demanding and competition fiercer. This shift
in emphasis has been felt particularly by smaller companies and second-tier banks.
They are noticing the benefits of more attractive pricing and better service. Clients want
their bankers to understand their exact requirements, to allocate one contact person, to
provide market information, and to give them a consistent and wide-ranging service.
Risk-management expertise also rates very highly, particularly among corporate users.
A poll ranks and rates foreign-exchange banks.
Full Text:
With the extraordinary proprietary trading profits of the past two years unlikely to be
repeated, many foreign exchange banks are refocusing on serving clients. Competition
for client business is consequently getting tougher. Says a currency trader at a major
investment institution: "Some of our providers have received less business from us this
year and they cannot understand why, since they have not changed in any way. The
reason we use them less is that their position relative to other banks, which have made a
real effort to get to know us and provide us with a good service, has worsened."
This shift in emphasis has been felt particularly by smaller companies and second-tier
banks. They are noticing the benefits of more attractive pricing and better service.
Before, many felt they were treated as second-class citizens compared to fund
managers and large corporations. "We used to be considered a nuisance," says the
chief dealer at a smaller London bank with annual foreign exchange requirements of $10
billion. "Now banks have had to swallow their pride and are coming to us for their breadand-butter business."
What sort of banks do clients like? Most clients are extremely demanding. They want
their bankers to understand their exact requirements, to allocate one contact person, to
provide market information, and to give them a consistent and wide-ranging service.
They complain if there is staff turnaround. "This is slightly unfair because obviously staff
within a bank want to move on," says one head of foreign exchange. Smaller users
appear to get very attached to an individual and will switch bank if the individual moves.
The larger users tend to have a less personal approach. "If a salesperson leaves, we will
give their successor a chance to provide an equally good service," says one treasurer.
"However if salespeople move around a lot we end up constantly educating the
salesforce about our needs. This can become too cumbersome."
All users state pricing as the number one consideration. "Competitive pricing is essential
because otherwise we would not even consider talking to the banks," says a Londonbased fund manager. The majority of respondents, however, appear to take it for
granted that they will get a competitive price and approach only one bank or two even for
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a large transaction. Some however are more aggressive. "We call three banks that are
good in that currency and the best price wins," says Alex Dziadek, programme manager
of FX operations at IBM Corp. "There may be only a small difference but sometimes it is
more significant if the bank has a position they want to offload. We keep a report card on
the banks. Personality only comes into it if there is a tie on price."
Larger institutional and bank users stress liquidity. "Liquidity is crucial," says a European
fund manager with a $100 billion annual foreign exchange requirement. "Commitment to
provide liquidity must come not only from the salesforce but also from the interbank
desk." Friction between dealers and sales staff can be felt by the customers. Complains
a dealer at a corporation: "At some banks the corporate team is still given low priority by
the interbank dealers."
Customers appear to favour using one bank for a range of currencies and products.
Risk-management expertise also rates very highly, particularly among corporate users:
the three top-ranked foreign exchange banks in the poll overall also feature highly in the
forwards, swaps and options categories.
Good market information can also make a difference. Investment banks traditionally
dominate the research categories but other banks are making advances. Goldman
Sachs's standing has declined markedly, possibly reflecting the loss of economists David
Morisson and Jeremy Hale. "Some banks turn out a lot of paper which is completely
useless. It, would be useful if I were writing a thesis on the foreign exchange market. I
want something which is brief, informal, with views on where the market is going," says
one corporate user. Corporate users appear to be particularly keen on research which
will help them formulate their views. Institutional investors, often with their own research
capabilities, prefer information on flows in the market.
Citibank's long-standing concentration on client business has helped it keep the number
one spot in Euromoney's annual foreign exchange poll. "Customers drive everything we
do in this business," says Julian Simmonds, head of global foreign exchange at Citi.
"There is fiercer competition now as more people are aiming for a wider customer
franchise."
Says another head of foreign exchange: "The US banks are gaining ground because of
their client focus. In the past few years they have been losing to European banks due to
their high credit ratings." American banks dominate our ranking this year. Of the top
seven banks, five are American and the London foreign exchange operations at the
other two have a heavy presence of former Citibank or Chemical Bank employees.
Noticeable improvements in the overall ranking have been made by Chase Manhattan,
HSBC/Midland, NatWest, Bankers Trust and BankAmerica.
Chase Manhattan has made particularly dramatic improvements in the poll—ranking
14th in 1991, 12th in 1992, eighth in 1993 and second this year. "We have concentrated
on trading in foreign exchange and derivatives and on commodity risk management,"
explains Albert Maasland, head of sales and marketing for foreign exchange in Europe.
"We aim to be the number one foreign exchange provider for our clients and this means
adding value." The clients themselves recognize the value of the service provided. "I feel
that Chase does not differentiate among clients and that it has been a style-setter in this
regard," enthuses one treasurer.
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