June/July 2011

Outsmarting the legacy of the GFC – banking in 2050

24 June 2011
It’s all well and good reading about the short-term impact of the financial crisis on banking and businesses, but there’s a bigger worry out there. Namely: how the financial crisis has affected the long-term outlook for the global banking industry and how today’s financial leaders can take advantage of the changing landscape. Eleanor Hill, Editor, FX-MM, reports.We’ve reached a point today where not every article in the press, or every business meeting, begins with a reference – however fleeting – to the global financial crisis (GFC). Whether this phenomenon suggests recovery from, normalisation to or complacency about the crisis, however, is an argument for another day. Interestingly, the theme that has largely replaced talk about the GFC (even in the back of London taxis) is the shift in global economic power from West to East.

Expanding tenors and growing investors for dim sum bonds

24 June 2011
With companies expanding rapidly in China – both from a manufacturing and from a retail market perspective, financing operations in the country is becoming ever-more critical. Dim Sum bonds could be the answer – however onshoring funds is still difficult and time-consuming.The opening of the Dim Sum bond market – offshore renminbi-denominated bonds that international companies can issue out of Hong Kong – holds the promise of much-reduced foreign exchange risk in funding Chinese operations. Plus, it could open up new investor-bases of Singapore, Hong Kong, and other Asia-Pacific investors to issuers. However, China's capital markets and bank credit markets are still developing, and the domestic bond and equity markets are closed for non-domestic companies. As a result, it can be quite challenging for foreign companies to get long-term funding.

Firing on all cylinders

24 June 2011
A great deal can change in the space of a year, especially in the world of FxPro it seems. Since FX-MM caught up with George Xydas, Director of International Operations at FxPro in June 2010, the company has gone from strength to strength with the addition of new instruments, new offices and new sponsorship deals, not to mention the launch of its ECN platform. Eleanor Hill, Editor, FX-MM investigates.Leafing through the résumé of milestones that FxPro has achieved since its launch in 2006, I can’t help but wonder how the company’s competitors sleep at night. Each and every year, the FX and CFD broker has continued to build on the previous twelve months’ success and 2011 certainly looks set to be no different, with plans including the launch of institutional services.

A precarious balance

24 June 2011
The global recovery continues to drag its heels. A combination of slow growth brought about by suffocating debt and monetary tightening, an entanglement of supply and demand for commodities and materials, as well as supply chain disruptions has left economic growth across many nations moderate at best. These economies are vulnerable to exposure from further disruption and as such, political and economic decision makers are in a constant battle to avoid ‘the straw that could break the camel’s back’ as this may lead to a wide spread double dip, says Dean Peters-Wright.The European Union is still in ‘deadlock’ as the single currency bloc continues to move towards a problematic, two-tier economic pace. Inflation and debt remain the major constraints weighing on the Eurozone, yet the solution to one hinders the solution to the other: as national debt and austerity measures incite public spending cuts and constrain growth, so inflation worries call for interest rate hikes and a depressed ability for lending, leading to an insecure balance that will take some time to even out.

Cutting edge FX technology: The knives are out

24 June 2011
While IT budgets steadily recover from their mid-crisis wobble, the so-called technology ‘arms race’ among the FX banks continues apace. But should we really believe the hype? At what level are the banks looking to compete in this battle? More importantly, where can the banks truly add value for their clients through technology, and what does the future hold for e-FX?It’s no great secret that the FX market was once the laggard of the trading technology space, with e-adoption slow to gain traction. Over the last five years, however, FX technology has been playing catch-up, in a rather spectacular way. As the industry shifted to an electronic trading model for FX, the need for increasingly sophisticated trading technologies became apparent. What also became clear, however, was that competitive advantage in FX trading was being gained by those firms that were not only embracing the latest technology – but also using it in innovative ways.

Long road to economic recovery

24 June 2011
Three years on from the start of the global financial crisis, Andrew Milligan, Head of Global Strategy, Standard Life Investments, argues that despite the successful initial reaction of policymakers, preventing an even deeper recession, many of the most important and difficult decisions have simply been postponed. Accordingly, investors must prepare for slower economic growth and volatile financial markets for some time to come.The summer of 2008 saw the start of a cataclysmic global financial crisis. This article considers what has happened in the world economy and financial markets in the past three years – how far advanced is the recovery, how well has the global economy rebalanced, how much still needs to be done by policymakers.The good news is that some progress has been made by the corporate and financial sectors, the bad news is that many of the difficult decisions facing the government and household sectors have simply been postponed.

Exchanges get interest

24 June 2011
As exchanges gear up to clear interest rate and credit default swaps, Frances Maguire looks at the infrastructures being built and a new exchange set to bridge both OTC and exchange trading.The introduction of mandatory clearing for swaps has prompted firms to re-engineer and rethink their use of these instruments as both the logistics and the cost of trading them for the end-user will change dramatically. However, the swaps industry began looking to clear swaps some years ago and clearing of interest rate swaps has been steadily increasing since.Over half of all interest rate swaps are now being submitted for clearing with a central counterparty, dramatically reducing the notional value of such products outstanding, according to new analysis from the International Swaps and Derivatives Association (ISDA).

The trader transformation: From ‘being broke’ to profit

24 June 2011
Like anyone who has ever traded forex, McLean Van Cleve of Fair Trading Technology had to start somewhere, learning the hard way about taking risks, and losses for that matter. Here Van Cleve shares some words of wisdom on trading currencies for profit.It all began in 2002 when I watched a film entitled the 25th Hour. One of the opening scenes portrays a prop trader from an investment bank waiting for the NFP numbers to be released. He’s holding a $100,000,000 position and when the numbers are released…he’s right. He’s outsmarted the market. He’s making money, probably millions by the minute. It’s all very exciting and glamorous, because that’s what trading is, right? All glory and dollar signs. I remember watching this and thinking, “THAT is what I should be doing,” and so I embarked on a journey that would soon become my career.

Cash management: What’s new?

24 June 2011
Should eBAM be more firmly on the treasurer’s agenda? What level of automation is achievable, and indeed acceptable, where cash management is concerned? What are the true benefits of partnering with a bank that operates collaboratively within the industry? Our expert panel answers all these questions and more... IntroductionFor many treasurers, the mere mention of efficient cash management is enough to elicit a deep, protracted sigh. No matter how much time and effort goes in to developing cash management strategies or processes, there are always improvements that can be made, and worse than that, there is nearly always someone else out there doing a better job of it. Well, that’s how it often seems anyway, but is this really true? And if so, what can be done to improve matters?

Nigeria: Lighting the fuse

24 June 2011
Since Goldman Sachs identified Nigeria as one of the N11 countries in 2005, the significant potential of the country to become a leading world economy has been recognised across the globe. FX-MM investigates what it will take for the country to make the final transition and speaks to leading industry experts about the intricacies of the country’s business environment.Two and a half times the geographical footprint of California, Nigeria has the largest population of any country in Africa. Seen as a regional power, Nigeria is today ruled by a democratic government with a fairly elected leader, President Goodluck Jonathan. The success of Jonathan’s recent re-election campaign has been welcomed among the international community and looks set to boost Nigeria’s institutional and democratic credentials.

Managing corporate FX risk

24 June 2011
Five corporate treasurers discuss the challenges of managing foreign exchange risk today, putting forward some interesting suggestions as to how to tackle operational and execution risk through the use of a multi-bank FX portal for example. Talk also turns to the selection of competitive banking partners and even hybrid cash pools.Best practice and risk: two topics that are of ever increasing significance to corporate treasurers, in particular where foreign exchange is concerned. As a result of this intensified focus on FX, over the last decade, we have witnessed the rise of a new role within corporate treasury departments, namely the treasury trader. While a handful of corporations have appointed new personnel specifically dedicated to that task, some have shared the role among existing treasury employees and others are currently contemplating the most appropriate path to take.

60 second interview

24 June 2011
This edition, FX-MM is delighted to welcome Carole Berndt, Head of Global Treasury Solutions, EMEA, Bank of America Merrill Lynch to our editorial board. We quiz Carole about the most interesting and relevant initiatives and developments in the transaction banking world, as well as her latest read. Industry-wide, what would you single out as the development or initiative to watch going forward?Talking globally, I think Basel III and the cost of capital are going to be the ones that we will all be watching. Whilst there has been a lot of conversation around these topics, we’re still in the process of understanding and realising the true extent of their reach. A tactical example of this would be that when we price cash management products today, we don’t have to factor in the cost of capital, but quite often our ability to secure our cash management mandates is dependent on lending. At some point Basel III is therefore likely to have an impact on cash management pricing across the industry.