A game of musical chairs

By Rodney Diola

Asian euphoria over the region’s healthy economic growth remains strong and explains why the mood among transaction bankers around the region is upbeat, despite the extended blues on interest rates and what has become a rampant game of musical chairs among senior executives.

The number of senior transaction banking executives hopping from one bank to another grew this year, creating the impression of turmoil and uncertainty in an industry that had for long thrived in obscurity and in the absence of any tabloid-type excitement. The sweeping changes in senior personnel have disconcerted large corporate clients and investors, worried about possible effects on the delivery of services.

Noting that his bank too has conducted its high-level poaching of talent across the industry, Richard Brown, Asia-Pacific head of treasury services at BNY Mellon, expresses the belief that the banks that bear the brunt of the poaching will likely have a harder time ensuring the quality of their service. “An institution needs to provide consistency in the quality and level of its service and that is not likely to happen when you have a slew of senior people leaving.”

Corporates can face a barrage of issues with local banks in different countries, according to Brown. “They need to talk to key banking and payment providers and it is important that they are able to talk to people they trust.”

The most established providers of cash management and trade finance services have not been spared. The likes of Deutsche Bank, J.P. Morgan, Citi, Royal Bank of Scotland (RBS), Bank of America Merrill Lynch (BAML), and Standard Chartered Bank have witnessed high-level departures, the obverse of high-level hirings, creating quite a buzz in the industry.

The departure of Thomas DuCharme from Deutsche Bank as head of its global transaction banking was one of the most talked-about developments and his appointment seems to have triggered a major shake-up in J.P. Morgan’s transaction banking business that has seen most of its talent fly to other banks. His hiring into J.P. Morgan neatly signalled the bank’s ambition to chase corporate clients across the region.

From BNY Mellon’s perspective, the freer movement of people was welcomed since the bank is now in a period where it is actively hiring staff, especially in Asia. “That has enabled us to grab some people that in a normal market we would not have been able to,” comments Brown. The group announced recently the hiring of a new head for treasury services in Japan who used to work with Chase and a new head for transaction banking in Malaysia who was from J.P. Morgan. (Other J.P. Morgan transaction bankers have been hired in HSBC, RBS and BAML.)

Balancing growth and risk

Neil Daswani, the head of transaction banking for Northeast Asia at Standard Chartered Bank, says his bank too experienced poaching of senior people, but has gained more by hiring first-rate talent that was available in the market. “We always run the risk of becoming the training school for other market players, but the bank’s strong performance and reputation have become a magnet for the best talent across the region.” The bank hired S.W. Hong, who used to be the head of

Citi’s global transaction banking services in Korea. “We have built a dream team in Korea,” Daswani enthuses. In Japan and Hong Kong, people have been hired with investment banking background and other broad areas of expertise. Daswani believes that the best way to stop poaching is building an appropriate career path for your best talent.

Asked what could cloud the prospects for the bank in the near term, Daswani argues that a bank’s success in transaction banking all boils down to fully understanding the needs and situation of the client. “We help our clients early on to identify mismatches in their balance sheets – whether those are due to currency exposures or short-term funding needs.”

The team is currently actively responding to changes in accounting practice in Korea. “We are helping large Korean conglomerates to restructure their balance sheets with regard to receivables in their working capital cycle (and providing additional protection through trade credit insurance) and we can extend credit to some of their distributors to help our clients develop new markets,” explains Daswani.

He describes 2010 as a challenging year for all transactions bankers. “At the early part of the year, there were worries about sovereign defaults and contagion risks. The fear has somewhat receded but ‘double dip’ are words that our clients still use.”

However, he believes that the best barometer of how much things have changed is that their clients are more upbeat than they used to be 12 months ago. “That’s evident from the order books; inventories are being restocked across all buyer locations. Things are a whole lot better. And there are a good many positive factors going on for Asia.”

The continued foreign direct investment into Asia and outside Asia has had a knock-on effect on the transaction banking world, he remarks, especially the continuing Chinese investment in Africa. “China is rapidly catching up with the US as potentially the largest global manufacturing economy.”

Robust growth in Asia

Michael Vrontamitis notes there is a consensus that the global economy is not out of the woods yet. The regional head of product management (Northeast Asia) for transaction banking at Standard Chartered Bank urges caution when looking at the overall economy. “We continue to manage cost growth carefully in line with our revenue growth. While we consciously invested through the trough, we didn’t extend ourselves to other products or countries that we did not understand. We stayed in Asia, Africa and the Middle East.”


Kanthadai: Growth has become the main theme in client conversations
“The industry has adopted a wait-and-see attitude as to where the global economy will wind up,” agrees Brown. Sridhar Kanthadai admits that Citi remains cautious about where and to whom it commits capital, considering that the low interest rate environment is narrowing margins and that the mood across the region has been temporarily tempered by what is happening in the US and Europe. But the managing director and head of treasury and trade solutions for Asia-Pacific at Citi notes that overall revenues and profits have climbed and he is confident that his team will be able to deliver on the commitments to shareholders this year.

Citi’s appetite for risk has grown, according to Kanthadai, and its trade book has gone up by almost 60% in the last two quarters. In Kanthadai’s view, it is quite apparent that the region as a whole – having largely been insulated from the weakness overseas – is returning to a period of robust growth, even as uncertainty hounds an economic recovery in the US and Europe. “Trade volumes have picked up and the utilization of containers has returned to full capacity. In the way they engage us, clients are phenomenally more active now than before,” notes Kanthadai.

Catering to institutional clients around the region, BNY Mellon received many more deposits during the crisis,” notes Brown. “This could be a function of our financial strength. Or it could be a reflection of the ongoing uncertainty.”

Gravitational shift

A major change is under way across the transaction banking industry in the region. Western banks that used to care little about domestic businesses have been pouring resources into the region and are growing more focussed on building the corporate side of the business.

As a result of the realignment of attention among major players and the reinvigorated focus from challengers – new and otherwise – the industry is again redefining itself. BAML, RBS, ANZ – as well as a host of domestic Asian banks including DBS Bank, ICBC, Bank of China, CIMB and ICICI Bank – have expressed their intention to achieve a more regional scope for their business.

Tempered excitement
Corporate caution hangs in the air

Citi’s Sridhar Kanthadai says that while risk remains a major concern among corporates in the region two years after the global financial crisis, growth has become the main theme in their conversations with clients

Two years after the global financial crisis, treasurers across the region have yet to regain a freehand in deciding on costs and expenses. Citi’s Sridhar Kanthadai says the mood across Asian corporates is optimistic but cautious and that makes sense because a lot of things can still go wrong and a fair number of companies need to steel themselves to all kind of surprises that can happen in the market. “Risk remains a concern among companies and that’s where creative structures are required.”

“A lot of corporates are making a real effort to keep costs and expenses under control in this kind of environment. Credit remains tight and the companies themselves have grown cautious in terms of how much credit they want to put on the table,” remarks Kanthadai. “It is obvious, however, that they want to support their business to be able to sell in the rapidly improving environment.”

Considering that the level of confidence has see-sawed this year, Kanthadai sees companies shifting their focus towards better risk management. “They have become keener on addressing gaps in their processes, especially in receivables management.

It is a dynamic process evolving. Companies are trying to drive efficiency using liquidity and they have learnt their lesson well about managing their risks and getting insurance intermediaries to step in and take risk off their books. And they want to make sure that their financing supply chain remains viable.

Capital investments are coming back but this mood is tempered with a strong sense of caution as there are still a lot of issues around supply chain stability. While a fair number of corporates are swimming and enjoying a flood of liquidity, there are concerns about how to best manage the supply chain.”

Client activity picks up

Kanthadai says another concern is about operating efficiency and being able to drive more changes and more efficiency in their operations. This desire to engage the bank has been reflected in Citi’s pipeline revenue, which has grown 35% on a year-to-date basis. “These are annual revenues of deals that come to fruition,” Kanthadai explains.

“Actual sales from new customer mandates have gone up 30% year-on-year and in August we had a significant pick-up of volume in client activity.” The bank has experienced tremendous growth in deposits, committed capital and trade assets, according to Kanthadai. In their conversation with clients, growth has become the theme in Asia, he notes. “They believe that growth prospects in the region are still sustainable. This explains why Citi does not have the concerns in Asia that it potentially has in other markets.”

There has been significant growth across the board. In the airline industry, for instance, airline companies are again showing full capacity while shipping companies have enjoyed positive growth after months of suffering from unused capacity.

Kanthadai says the larger and more established companies are certainly better prepared to cope with the financial situation seen in the last two years, while commentators feel that the crisis has served to enforce a more transparent regulatory environment.

Lending to the real economy

The credit environment is changing rapidly in China, notes Pei Yigen, who runs cash management as the managing director and product head for China in the treasury and trade solutions for Citi Global Transaction Services. Much of the lending action occurred mostly back in 2008 after the crisis hit. “This is why we experienced a significant jump in liquidity brought in mostly by local banks.

The tougher liquidity situation this year is only natural since the regulator wants to make sure the money is going into the real economy and not in real estate, for instance. The government has asked lenders to be extra cautious in approving loan applications. Other sectors, such as the consumer sector, continue to enjoy considerable access to liquidity, since the government wants them to grow further.

The major state-owned banks have become highly selective in deciding to who to lend in view of the government preferences for the growth of specific industries, such as clean energy.

Helping clients to leverage

Citi continues to invest aggressively in its transaction banking platform, explains Kanthadai. “In the last nine months, we have about tripled our client manager force that is dedicated to helping clients successfully leverage their network. “These client managers bring the power of Citi to working with the clients.” The bank has pushed hard to promote the use of pre-paid purchase cards for specific industries such as governments and public institutions.

“We have expanded the wholesale card platform into 12 countries in the region and we have significantly increased the pipeline and the deal flow,” comments Kanthadai. “It is a natural fit into our cash management business since it helps clients to control expenses. It is not about getting a larger spread from clients. Rather, the idea is to provide customers with a convenient way of making their payments, that is efficient and compliant to policies.”

Enhancing cash flow visibility
RBS offers clients more responsive services


Goodyear: Enhancing our platform in China
Tougher market conditions have made it more difficult for corporates and institutions to consistently arrive at an accurate forecast of cash flows. Transaction bankers say the volatility across markets and asset classes has made it more challenging for treasurers to manage cash. Corporates are increasingly concerned that liquidity could get tighter, once the effects of inflation and volatile exchange rates are factored in, believes Alan Goodyear, head of global transaction services for Asia-Pacific at The Royal Bank of Scotland. The rising prices of major commodities have already sparked fears of an inflationary spiral which has contributed to volatility in interest rates and foreign exchange.

“With income from investments much less dependable and delivering smaller yields than they used to, corporate customers realize that they need to hold more cash in hand,” Goodyear explains. “They appreciate how important it is to be able to obtain dependable commitments from their banks on credit lines. If they are holding a significant amount of excess cash they need to find a place where they can park it and extract yield – which is particularly challenging in the current low interest rate environment.”

Greater visibility

This is the reason, according to Goodyear, why RBS is working closely with clients to help them gain a better understanding of their cash flows. “We help our clients achieve better visibility of their cash flow by enhancing the responsiveness of our services to them.” This year in fact, the bank has launched an improved online client service capability.

Clients who avail of the bank’s electronic channels can now communicate to its team through a dedicated online service request system, 24 hours a day. RBS has been rolling out more features for electronic bank accounts, notes Goodyear. One of those features gives clients the ability to change signatories or alter authorities in payment instructions via online request. “In a period of economic stress and difficult market conditions, a whole lot of companies suffer staffing volatility. If you happen to be a company where the treasurer resigned suddenly, then you need to have the ability to gain greater control of your books and immediately override the authority of that treasurer to make payments.”

Stepping up in China

Goodyear says he is positive about the ability of the RBS transaction banking team to grow the volume of its business in key markets, such as China. “We are, in a significant manner, investing in enhancing the capability of our platform in that country.” In China, adds Goodyear, RBS is working through locally incorporated entities that were bought from ABN AMRO. “We want to make sure that our electronic channels in China are capable of serving tailored and complex customer requirements. We already have the local language capability and the internet platform and we want to ensure that host-to-host exchanges are up to standard. The issue in the processing side is to enhance the straight-through nature of what we do.”

Regulators in China have issued stricter regulations concerning the examination of flow payments, Goodyear notes. Measures have been imposed that allow authorities to better track and control the purpose of payments. A good example would be the requirement for banks to know precisely how the money that is lent to individuals or companies will be utilized. “They don’t want that money to go into the stockmarket or the property market. But the necessity to have a record of the underlying transaction often inhibits us from accomplishing straight-through processing.” To ensure that additional requirements do not unnecessarily inconvenience customers, RBS uses a “market-leading client-servicing platform”, in the words of Goodyear.

Strong synergy

“The Asian transaction banking business was a crown jewel in the acquisition of ABN AMRO back in 2007. ABN AMRO’s strong client franchise and local markets knowledge across Asia have further enhanced RBS’ position as an international transaction bank. As one of the top ten banks in the US and a leading bank in Europe and the UK, we are well positioned to bring global connectivity to our clients,” enthuses Goodyear.

“In fact, we have recently inked a partnership with the UK Trade and Industry to help UK companies seek opportunities and grow in Asia.”

Treasury to the fore
BAML goes all out to strengthen global corporate banking

Bank of America Merrill Lynch is sparing no expense in building its global corporate banking capability in Asia. The bank made waves in the corporate banking space early this year after it announced major hires from established transaction banking players. More hires will be announced this year, according to Ivo Distelbrink, the head of global treasury services, Asia-Pacific

Distelbrink: Top-tier targets
Six months since his appointment as the Asia head of global treasury services at Bank of America Merrill Lynch (BAML), Distelbrink has grown more confident than ever that the bank will become a major player in the region by attracting multinationals, large cap local corporates and financial institutional clients to its global treasury services offerings.

In an interview with The Asset, Distelbrink says the build-up of their transaction banking business in Asia continues and that more significant hirings will be announced in the next few months on top of the key hires made earlier this year. “The transaction banking business is ultimately about having the best people, the best technology and the best servicing model,” remarks Distelbrink. The hiring will double headcount by the end of this year from where it was at the start of the year. “Most hiring is done in product management and in sales consulting roles to drive market leading treasury and trade solutions for our clients. We expect the hiring to continue into 2011 and 2012 as we expand across the region.”

Early this year, BAML made waves in the corporate banking space after it announced major hires of well- known talents from established rivals. Distelbrink was one of those hires, joining BAML in March where he has taken the responsibility for treasury and trade services across client segments. He reports to Joel Van Dusen, the bank’s deputy head of global corporate banking. Before BAML, Distelbrink was Citigroup’s Asia head of treasury and trade solutions.

“BAML is committed to executing a substantial build-up of its corporate and investment banking platform in Asia that can match the very best,” states Distelbrink, adding that the integration of the technology and client facing platforms of the two legacy institutions – Bank of America and Merrill Lynch – turned out to be simple.

“The corporate and investment bank operations in the region are complementary. With Merrill Lynch traditionally not being active in the treasury services business, we have focussed on giving all Merrill Lynch clients access to our leading global treasury services capabilities.” With Bank of America’s growth over the last decade through a number of major acquisitions, it had gained considerable experience in transition and integration management. “It made the integration with Merrill Lynch so much easier.”

Capturing the top tier

Eighteen months since their merger, Distelbrink says BAML’s two institutions “feel more integrated and aligned than rival institutions did with a combined corporate and investment bank”. A large number of Merrill Lynch client relationships have already been onboarded onto the Bank of America platform and the momentum continues to accelerate. Distelbrink says clients in this part of the region used to have few options in terms of credible, consistent global treasury management service providers. “For too long, corporates and FIs have not exactly been spoilt for choice in selecting a transaction services provider.”

His group, he says, will stay focussed on capturing the top tier of the market “where clients are interested in finding global solutions that are fully integrated, leveraging the latest industry standards”.

Distelbrink contends that scantily few providers in the region have delighted clients with competitive, relevant global treasury solutions. He feels the build-up of global treasury services is core to establishing a leading global corporate bank. The build-up of global corporate banking capabilities is driven by its clients, and the group’s desire to leverage the Merrill Lynch platform that was acquired two years ago. Merrill Lynch delivered Bank of America overnight a global footprint and senior access into clients around the world. Given that Bank of America in Asia already enjoys an established regional presence, with a 50+ year presence in many markets, Distelbrink considers his group is quite lucky. “We already have direct high and low value clearing and settlement capabilities wherever we want it.

We don’t have to obtain new banking licences or need to build basic infrastructure since we already have significant on-the-ground operations in all markets either through Bank of America, Merrill Lynch or both.”

“BAML,” he notes, “will continue to make significant hirings of the best in the industry, across the corporate treasury and FIG segments, disciplined market by market, country by country, product by product, function by function across the front, middle and back office.”