I’ve just received this month’s Banker magazine which the editor, Brian Caplen, describes as their most important issue of the year as it covers the latest Bank 1000 listings.
This year’s listings show a surprisingly stable crew of American and British banks.
World Bank Tier One Pre-tax Rank Capital profit $m $m 1 Bank of America Corp 160,387.77 4,360.00 2 JP Morgan Chase & Co 132,971.00 16,143.00 3 Citigroup 127,034.00 -8,445.00 4 Royal Bank of Scotland 123,859.00 -4,366.29 5 HSBC Holdings 122,157.00 7,079.00
Considering the crisis was meant to have killed these banks, you may find it surprising to see that Citigroup and RBS have maintained their leading positions.
This is down to the fact that the Banker measures a bank’s strength by its Tier 1 Capital, and so their positioning is more of a reflection of the sheer size of these firms than by their brand or market capitalisation, which is used in some other studies of size.
The Banker’s data is fascinating though, as the database also contains profitability, revenue, cost-income ratio and more, so it’s a useful tool in all senses. And the online data goes back to 1996, so you can do some useful comparisons.
Mind you, my data - old Banker magazines - goes back even further so I quickly took a snapshot of a few useful year’s – 1994, 1999, 2004, 2008 and 2010 – to see how things have changed. Mapping out the Top 20 banks of the world for each year makes for an interesting picture (doubleclick the picture to see a larger version):
Back in 1994, Japan ruled the world.
Then their economy went South and Origami Bank folded, Sumo Bank went belly up, Bonsai Bank cut back their branches and something fishy went on at Sushi Bank where staff got a raw deal.
Post-Japan’s slump, the Anglo-American financial system ruled. So you would think that, as that system failed, it also would have gone South.
Not the case.
Maybe that’s a reflection of the sheer scale of investment American and European firms have put into these economies to avoid such a crash.
Well worth spending time looking at the data and looking forward to playing around with it further.
WARNING: THIS BLOG ENTRY WILL NOT CHEER YOU UP [sorry]
I spent the morning with a group of futurists debating the long-term outlook for financial markets and am never sure about the usefulness of such debates, although there is definitely something of use in creating scenario plans for the future which is where we were focused.
The key question I kept asking myself during the conversation is: when will the next financial crisis take place, what will cause it and is it predictable?
To answer the first part of that question, we only need to look back in history.
If we take the first financial crisis as the fall of the Roman Empire then it was about 1,000 years until the second financial crisis occurred, with the collapse of the Medici banks of Renaissance Italy. Four centuries later, the South Sea Bubble and Great Tulip Collapse took place. 250 years after that, we hit the Great Depression; and 80 years after that we imploded in the Subprime Crisis and Global Credit Crunch.
Sure there were plenty of hiccoughs along the way - LTCM, Asia, Russia and Latin American implosions in the late 1990s for example - but global crashes have been notable. Loosely speaking, global crisis are now occuring twice as fast as the previous ones:
1,000 years – the Roman Empire to the Medicis
400 years – the Medicis to the South Sea Bubble
250 years – the South Sea Bubble to the Great Depression
80 years – the Great Depression to the Subprime Crisis
On that basis, you could bet on the next crisis being anything between thirty and fifty years from now.2040 to 2060.So what would cause the next financial crisis? After all, we’re only just trying to get through this one. Surely we can regulate to avoid another one?Maybe not.Here’s a view you could take of the factors that contribute to the next financial collapse. I should say that it doesn’t make for fun reading, but the logic could have some grain of accuracy.2011Banks globally are heavily regulated, taxed and governed to avoid another subprime crisis. The focus is on derivatives, liquidity, capital and governance.2012The European Union struggles through a fragile and fallow period of financial and political instability with Portugal, Italy, Greece and Spain managing to just about maintain Eurozone requirements. Unfortunately, it is at the expense of citizens and governments in many of these nations. In fact, the cuts and tight budgets in these Southern member states creates a major movement of economic migrants from Southern Europe into Northern Europe, with the associated tensions and fissures appearing between Northern Europe and Southern Europe as a result. The outcome is that Europe never quite achieves the competitive economic zone it dreamed of becoming.2016China opens its markets to full financial servicing, with a rocking stock exchange in Shanghai that becomes the world’s second major investment banking city by volume and value by 2020, just behind New York This is combined with a revaluation of the Remnimbi (RMB) that satisfies their critics but worries some, particularly the USA, as the Chinese currency is looked towards by the investment community as a possible alternative reserve currency.2019Rather than creating a reserve currency for the world, the investment community creates a basket of currencies to avoid too much exposure to risk in one economy – after all, they don’t want a repeat of the 2008 crisis. The basket includes Euro, RMB and Dollar, along with Gold and other commodities. Nevertheless, the decision to place a weighting towards RMB rather than the Dollar creates issues for the USA, which has spent most of the 2010s in stagnation.2022The Middle East enters a major crisis, as oil becomes less needed as a commodity due to the rise of alternative energy sources and conversion of many motorised vehicles to electricity. Iran and Israel go to War and there is a huge effort by the United Nations to bring stability to the region. Eventually, Sovereign Wealth from the GCC outflows towards new and rising economies, such as Africa, and tensions continue to rage across the region on an ongoing basis.2025Africa’s economy is raging onwards and upwards. Like the BRICs of the 2000s, Goldman Sachs creates a new investment portfolio known as CAGES – Congo, Angola, Guinea, Ethiopia and Sudan – where natural resources of platinum, cobolt, gold, diamonds, manganese, uranium, chromium and tantalite are abundant. Johannesburg is rising fast as one of the largest world financial centres.China is now the largest trading partner and region with Africa, thank to their investments at the turn of the century. America finds this to be particularly challenging, as their view of Africa had been one of occupation and charity, rather than investment and growth, during this period. But China doesn’t care too much, as China has now become the world’s largest economy.2028American and European investment firms decide to make RMB the reserve currency of the world, and drop the concept of the basket of currencies.2032The quiet rise of India as the world’s second largest economy had largely gone unnoticed but, in 2032, for the first time China’s economy had less than 3% growth. This was put down to the lack of skills in the country where skills were needed, and is a reflection of the aging population in China and lack of new blood. China’s one-child policy of the previous century, and a distinct lack of female population for the overly male populated society that resulted, means that 2 in every 5 citizens has reached or is near retirement age. This, combined with strict immigration controls, places a strain on continued growth and industry.2039India’s continually booming economy has created frictions between their Chinese border rivals, and a Cold War commences between the two nations. Like the Cold War of the previous century, no arms are traded or battles take place, but the economic controls freeze out much of China from India’s trading partners and vice versa. The result is an economic climate where India’s investment community trade with India and China’s with China.There are ripples through the Shanghai and Mumbai stock exchanges as a result.2044India continues to see success as a stable and harmonised country. China appears to be becoming more unstable as the government struggles to maintain investment and trading, and avoid the inflationary pressures created by their exposure to investments in Africa for future commodities that can no longer be utilised.The economy fails to achieve growth rates above 1% for three quarters, and the government determines that the Remnimbi needs devaluation. This angers the USA and Europe, who have major investments in Chinese land and other illiquid stocks, along with major reserves of Chinese currency. The decisions taken by the Chinese government force them to look towards India and Africa.2050The outflow of investment by American and European investment houses from China results in aggressive currency arbitrage between the Chinese RMB and the Indian Rupee, with the latter winning as the RMB’s reserve currency status ends. The resultant big time betting against the continued stability of China causes the Cold War between India and China to spill over into skirmishes. The world sees a period of major instability ensue and the China Crisis is put down to currency speculation amongst the world’s capital markets created by complex foreign exchange instruments intertwined between the major economies.
Nothing to do with housing this time.
Jeez, that was a depressing vision and I told you this conversation wouldn't cheer you up.Thank goodness it’s just fiction.
However, if you like this sort of future conjecture and dialogue, you are welcome to join us for two more optimistic discussions (hopefully) at the FSClub in June:Monday, 07 June 2010 The Long Now of Finance A panel discussion with Professor Michael Mainelli and guestsThis evening is dedicated to a panel discussion focusing upon: "The Long Now of Finance - a Framework for the next 10,000 years". Many financiers and academics are beginning to focus upon how to invest in long-term projects that secure the planet for our children and grand children and great grandchildren. Short-term thinking is killing the planet. So how do we think long term: the Long Now, and how do we fund it: Long Finance?Long Finance is an initiative begun in 2007 by Z/Yen Group in conjunction with Gresham College, to establish a World Centre of thinking on Long-Term Finance. The initiative began with a conundrum – “when would we know our financial system is working?” and has worked on a variety of projects, including the signature program focused upon an Eternal Currency.This debate will be chaired by Professor Michael Mainelli, a cofounder of Long Finance and Executive Chairman, Z/Yen Group.Monday, 14 June 2010 The Future of Banking, a discussion with Professor Ray Barrell, Professor David De-Meza and Professor Donald MacKenzie of the Economic and Social Research Council, chaired by Brian Caplen, editor of the Banker Magazine.
The Economic and Social Research Council (ESRC) is the UK's leading agency for research funding and training in economic and social sciences.
Established in 1965 as the Social Science Research Council, under a Royal Charter, the ESRC covers a wide range of disciplines, ranging from anthropology to statistics with a budget that has grown from £73 million in 2001-02 to £204 million in 2009-10. Financial services are a key sector for the Council's business engagement strategy. The ESRC is partnering with the Technology Strategy Board on the new Financial Services Knowledge Transfer Network.
This evening the ESRC has kindly agreed to host a discussion focused upon the Future of Banking featuring three very distinguished scholars.
Professor David De-Meza is with the London School of Economics and has published many papers on banks policies in a wide range of journals. He is the on the Council of the Royal Economic Society and the Institute of Economic Affairs; Associate Editor of the Journal of Industrial Economics and Joint Managing Editor of the Economic Journal.
Professor Donald MacKenzie is a Professor of Sociology at the University of Edinburgh, with work that has constituted a crucial contribution to the field of Social Studies of Finance. He has also undertaken widely-cited work on the history of statistics, eugenics, nuclear weapons, computing and finance, and was awarded the Chancellor's Award from HRH Prince Philip, Duke of Edinburgh and Chancellor of the University of Edinburgh, in August 2006 for his contributions to the field of Science and Technology Studies.
Professor Ray Barrell is a visiting professor at Brunel University, Director of Macroeconomic research and Forecasting for the UK and World Economies, and Senior Research Fellow at the National Institute of Economic and Social Research. Previously, he has been a visiting Professor of Economics, Imperial College, London from 1996 to 2004, and was a part-time professor at the European University Institute, Florence, 1998-1999. He is on the editorial boards of Economic Modelling and was on the board of the Journal of Common Market Studies until 2007.
I love talking to Chinese and Indian banks, just by the sheer drama of hearing their numbers.
For example, I talked with State Bank of India this week. They have:
150 million customers
11 million High Net Worth customers who earn >US$10,000 per month
Increased their ATM network from 12,000 to 20,000 units over the past year
Surprisingly, they only have 3.5 million internet banking users and, having released mobile access to the bank in December 2008, only 240,000 mobile banking customers. Admittedly, the latter is growing at 35,000 customers per month, but it is low.
I'm sure those numbers will change over time anyways, as more rural customers come onstream via mobile payments, like the M-PESA style revolution taking place in Kenya. Oh yes, btw, not sure if you spotted it but M-PESA is now a fully-fledged banking service.
That's an aside however, when you think of the sheer scale of the Chinese and Indian banks.
For example, China has 200 banks that each have more customers than the UK's largest bank (Lloyds has 30 million customers) and China's banks are also the most attractive for investment right now. For example, according to the most recent Financial Times Global 500 firms by market capital, the Top Three Banks are Chinese, whilst ICBC and China Construction Bank now feature as Two of the Top Six firms globally.
This is so politically incorrect that I almost didn't post it ... but then I did to show how cultures are different and sensitivities are not the same.
As I left Singapore, I saw this and felt quite offended:
Yet Singaporeans are desperate to avoid offending foreign visitors, as are most Asian countries, so how could I be offended?
Well, look more closely ...
I'm sure that my Western colleagues will get the point.
No wonder, following on from Damian Glendinning's points raised earlier, that we don't always agree:
But then we arrive in Asia and handout business cards with one hand and immediately put a received business card in our pocket without reading it.
In Asia, the protocol is that we should offer the business card to the receiver as a gift, with the upper top corners held in each hand so that the card is presented the right way round to be readable. Similarly we should take their card with honour, and read the details of title properly before putting the card away.
These nuances of societies are brilliantly described in Richard Lewis's book, When Culture Collide, and have been used in HSBC's advertising to great effect for the past eight years.
It was 2002 when this ad first aired ...
... and it's true.
When global, think local, so I wasn't offended after all, as the meaning of the word is not intended.
After writing earlier this week about the bullish views of HSBC on China and Asia as a whole, with the clear view that the world has decoupled, Asia is self-sustaining and China will be the largest economy in the world by 2035 or sooner, I was really interested to hear the views of Damian Glendinning and David Blair.
Damian Glendinning is Vice President & Treasurer with Lenovo, the Chinese PC firm, having previously worked for IBM in NYC, USA. David Blair is Treasurer with Huawei, the Chinese telecoms firm, having previously been treasurer with Nokia in Helsinki, Finland.In other words, we have two guys in senior jobs at Western firms who have moved East. If anybody can explain the world of China, their outlook and view of the West, it’s these guys.The main discussion came from Damian’s presentation titled: Asian Multinational Corporations (MNCs) – are they the same or different?, with the point being whether they act like European or American firms, or whether they have their own unique outlook.Again, not verbatim, but here’s the summary of Damian’s presentation and yes, it’s very useful if you really want to know what’s going on in the world of Asia:Asian Multinational Corporations (MNCs) – are they the same or different?First, I think the question is wrong. It’s not Asia we should focus upon, but emerging markets including Russia, Brazil and Latin America. We’ve seen massive growth in emerging markets for the past decade. For example, according to JPMorgan, GDP growth from 2002 to forecast in 2012, not compounded, is an average 11% growth in China, 8% in India, 7.5% in emerging markets overall. This compares with an average 2.5% across the world, and an average 2% growth in the USA, 1.5% in G7 countries and just 1% in Japan.As you can see, the country with the lowest growth rate for the last twenty years is an Asian country – Japan – whilst two of the main emerging markets are also in Asia – China and India. So my first comment would be: don’t treat Asia as just some homogenous mass and remember that there are other emerging markets, particularly Brazil, that should be included in this discussion.The companies which dominate these emerging markets are now not just international firms, but major MNCs:
the top three banks by market capital are Chinese
Tata, Mittal are huge Indian conglomerates
InBev of Brazil is a very large drinks company
Part of the reason for the fast growth of these firms is that their technologies are better. For example, Lenovo are ripping out the IBM IT systems and implementing Lenovo ones. We expect a huge increase in productivity as a result.Another factor about these companies, is that their home markets are under threat from Western firms who are looking towards emerging markets for growth. These foreign competitors are a major threat, as they can invest significantly to gain market share. This means that the critical question emerging markets MNCs are asking is that, if you are the market leader in a domestic emerging market, what do you do? You either expand or you face severe threat from foreign firms and, as the best method of defence is attack, you end up creating aggressive expansion and acquisition plans because you have to. That is a major factor in the reasoning as to why Lenovo acquired IBM’s PC division, why TATA bought Jaguar and Land Rover, why Geely buys Volvo and why Arcelor were bought by Mittal.Sure, these sound like major expansion plans into overseas markets, but all of these acquisitions are to expand in markets where growth rates aren’t great. These Western brands do not offer growth as they are in mature markets where growth is less than 2%. If you compare that to the strength of emerging markets, which is based upon growth, then you realise that any acquisition of a western brand is a pure defensive move, not an expansionist one.I had this realisation when I realised that a decade ago, I lived in New York driving a British car, a Jaguar, and working for an American firm, IBM. I now drive an Indian car, still a Jaguar, and work for a Chinese firm, Lenovo. I suppose the only good news there is that Jaguar, a UK firm, is now being subsidised by Indians rather than by Americans.So why are these firms buying into mature markets? What they are buying is brand, access and knowledge of how these markets work.They then have the challenge of how to make these acquisitions work.Any firm expanding overseas has challenges, and the challenge here is whether they want to be a true MNC, or an international firm head officed in China or India.The difference between an international firm and a MNC, is that a MNC has a broad base with diverse senor management whilst an international firm is controlled its from domestic HQ, with key positions occupied by home country nationals and standards imposed by the home country.The latter are always seen as foreign, whilst the former is far more integrated.Asian MNCs would historically include examples such as Toyota, Nissan, Hitachi, Sony, Honda and more from Japan; Hyundai, Samsung and LG from Korea; Lenevo, Huawei from China.This means to be a MNC you have to make acquisitions.Then you encounter all the other issues, with the biggest challenge being culture. A MNC is different because corporate culture in MNCs is stronger than national cultures. This is why international firms don’t work as well as MNCs.Another big issue is merging IT platforms, as rarely can a MNC operate on multiple systems, so there has to be an evolution towards a single platform.A further issue is pride. A Western firm acquired by an Eastern firm has employees who may feel slightly lessened by being owned by Mumbai or Shanghai rather than New York or Frankfurt.The recent movement in banking is a good example, with high street banks taking over investment banks. Investment bankers have many qualities, but being modest is not one of them, so moving from working for a prestigious Wall Street brand to a common High Street one is not appealing to many of them. This is why so many of these people have moved firms.Equally, buying an American firm if you come from a low income market, creates challenges develop about pay differentials and attitudes.So the real issues for an emerging market corporation is where do you go for growth, particularly when developed markets are not growing. Today, it means that you do look towards other emerging markets, but that creates other risks.Now risk is interpreted differently based upon your view of the world.
Risk in financial context used to mean that emerging markets firms would look towards working with Western banks, because banks don’t fail, right?
Now, Chinese banks don’t fail, right!
Emerging markets MNCs will therefore say to you today to explain risk management. What are the qualities of risk management that you can give to us in the East, developed in the West? And you complain about our strict regulatory environment, but maybe our regulations aren’t such a bad thing. And with all of your systems and controls, tell us how they work again.In fact, emerging markets can be less risky because government intervention can prevent overheating in the economy. Remember that the current crisis was purely one seen in developed markets, not in emerging economies.We actually like our regulations because regulations can prevent excesses. There is no subprime lending in India or China, there’s a lack of derivatives and leverage has been pretty much smothered ever since the financial crisis which occured over here in 1997 to 1998,Payment disciplines are different too.For example, Days Sales Outstanding (DSO) for Lenevo in Asia is 15 days. This is because everyone knows payments are a problem, so we offer early payment incentives. In the USA, 30 days is our typical DSO whilst, in Europe, it’s 60 days. So, tell me where the risk lies?Equally, where are the countries with excessive external debt? China, Brazil and Russia are down at the bottom of the league table for sovereign debt, because we do not have leverage in emerging markets; whilst, at the other end of the table, the UK, USA, Japan and many European countries are leveraged to the hilt. So tell me, where the risk lies?In conclusion, we are seeing MNCs coming out of emerging markets, but more because they have to as a defence than that they want to. As a result, they have to grow in developed markets, but the risks and reward are poor and, for many, they would feel more comfortable acquiring and growing in other emerging markets, where there are better opportunities for growth and less issues with regulatory barriers and other hurdles because, as an emerging market firm, they are used to them.We will see some convergence with traditional MNCs, but we will also see some big differences. For example, emerging market MNCs are far more open than their counterparts, because they are buying in skills and intellectual property to integrate the workforce, not alienate them.
So I can’t tell you what the world will be like tomorrow but I can tell you it’s going to be different, and the future MNC will be much more open and embracing than those of the past.
Inspired by three events this week, I focused on apps for my panel discussion today ... and got shot down in flames for talking bollards.
Harrumph.
Here are the events, the logic, the proposal and why it got shot down.
First, the events.
Event number one: my first iPhone
My Blackberry has just been switched for an iPhone. Now, not knowing the beauty of iPhone apps personally until I made the switch, I am so in love with the new phone. It’s not just the ease of everything, the thousands of choices of apps from flight and traffic alerts to currency values to imitating noises your bottom makes, it’s something else that really amazed me. The ease of setup.
You see I am used to programming things, like the PC and Blackberry. With the iPhone, you just plug it in and it automatically synchs all your contacts, calendar, email accounts, music etc. No setting up involved, it just does it. Fantastic.
Event number two: bank bloggers unite
This week, James Gardner kicked off a debate about iPhone apps and the lack of one at HSBC. A good debate is always a great way to resolve an issue, and between James and Brett King’s entries on this, I think it’s obvious that the iPhone and iPad have some potential in banking.
Event number three: apps are for dummies
Number three event is the front page in the business section of the Straits Times today, which has headlined with an interview with Philip Yeo. Mr. Yeo heads up the Singapore government’s innovation and enterprise
programme, Spring Singapore, and has managed to incur the wrath of Apple's fanatical followers by saying that they buy 'useless applications' for Apple's products as 'gullible customers'.
In fact, he goes one step further and calls them ‘dummies’. Tut-tut. He did clarify later on that he meant dummies as in ABC for dummies, the books, rather than being idiots although, listening to the interview, I think he meant the latter.Anyways, these three events inspired me to outline a vision of the future based upon this logic.The logic is that banks are being componentised, as mentioned many times before.As banks componentise their services into little pieces of functionality, my original proposal is that they would then offer these as widgets to customers who could build them back into any form of integrated service they wanted.
Now, my view has gone a step further with the belief that the banks will actually wrap them into apps. I should say that my use of the word app here, is in terms of the ease-of-use of Apple apps but it does not mean that has to be Apple based.
Just so you know I'm not an Apple fanatic, just someone who can see the ease-of-use of apps is a revolution. So where I talk about apps, think about Google's Android phone or any other phone that makes mobile interet access easy, as these are the new generations of phone that are revolutionary.
Y'see first there were SMS and WAP-based phones; then there were mobile internet access smartphones; and now there are intelligent mobile internet phones with apps.
That's the revolution.
The first phones were mainly for just that - telephone calls. The second wave allowed us to pull information to the phone, but push internet services were more difficult. Push began with the Blackberry, but that was just for push email. The iPhone revolution of apps gives us location-based push services that users download to gain such usability.
That's the revolution.
It gives us the ability to create location-based components of functionality that are relevant at the point of action.
It gives users the immediate access to pieces of functionality on demand.
It makes using the internet on the mobile as simple as touching a screen.
That's the revolution.
Now, back to banking and treasury services (note: the only reason for the focus on treasury, corporate and B2B is because that's the conference I'm attending this week).
If banks are component-based, and each bank offers different treasury apps and usability, you will soon end up with a million banking apps. There will be a liquidity risk app, an e-invoicing app, a supply chain app, a cash management app, an accounts payable app, a foreign exchange app ... and so on and so forth.
Corporates will then take these apps and select those that work best for their businesses.
They will download the apps to their corporate treasury iPads, iPhones and Androids (Google), and roll these out to their ‘dummies’: the employees who need to look at days sales outstanding, inventory, supplies and logistics, etc.
These dummies will be used to the interface and service – a bit like folks got used to using PC’s and keyboards to access the internet in the old days – and will take to this easily.
Similarly, the users, the corporates and the banks will be in continual ‘synch’ because, just as my iPhone automatically synched with my iTunes and Outlook, it will automatically synch with my corporate treasury processes, data and content.
In other words, you end up with treasury being redefined as we move to banking-on-demand 24*7 through treasury-in-the-pocket.
The critical point in this logic is that, by making treasury app-based, corporates will be much more efficient:
They will be able to mix and match the apps and the app providers – banks – to best fit their business model;
They will be able to ensure that even the most unskilled member of staff, associate, player, employee or whatever can use them;
They can be easily adjusted to suit business changes over time through centralised control;
They can be a mix of in-house created or bank provided and operated or collegiate, open source apps; and
They will always be secure, up-to-date, controlled and managed in real-time 24*7.
All of the above will give the treasury ops incredible flexibility, agility and speed to adapt to changing circumstances.Now ok, I said a lot more than that, but this was the gist of it.
So here’s the proposed treasury operations future.
The corporate treasury runs on SAP today, and will in the future probably. However, the CFO will have consolidated all treasury ops onto SAP as a single platform and determined that a small number of bank partners will be selected to integrate with it.
Those bank partners will be selected on the basis of the beauty, ease, adaptability and refreshment of their component-based bank app functionality, and its fit with the business needs of the corporation.
To me, this is a simplified future as we have turned a tipping point from proprietary bank lock in and lack of standards in the past, to very easy and flexible developments that are open sourced and simple in the future.
And here’s where I got shot down.“Oh, but treasury is far more complex than your simple consumer view of the future.”“Oh, but this won’t work because our processes and infrastructures are too difficult to change to this vision.”“Oh, but technology is expensive.”“Oh, but oh but, oh but, yea but no but yea but no ...”
I was really disappointed with this reaction. Of course, I had views on these points which have been explored on this blog before, but the disappointment is that I expected more buy-in for such a vision in visionary Asia.Then I got it.
None of these guys use iPhones (double click image to enlarge, and note Chinese and Indian iPhone users):
Note: Japan and Australia don’t count in this context as these are developed economies versus emerging markets
The thing that really sticks in the throat is that by omitting to view these developments, corporates and banks will miss the whole trend towards business simplification that such tools allow.
Luckily some banks are not so short-sighted in Asia, as the announcement of the iPad coming up for sale from July in Singapore was underscored with the news that OCBC and DBS have both developed specific apps for this service, amongst the first.
Meanwhile, and to put the record straight, HSBC and First Direct are on the case with these technologies as they are sponsors of this conference and have told me some of their plans.
Finally, and the real underline of this blog entry, is that it now explains why, when the Chair of the panel I was on asked: "Chris, what are the new things you see happening? Do you think, for example, that we could use the iPhone for Treasury one day", he got a big laugh with that opening question.
Like Philip Yeo, these guys think the iPhone is just a toy.
It's not.
The iPhone, Android and, more importantly, the app is for business use as much as it is for consumers.
Get real.
Postnote: it's a shame but I suspected this at the time. Apparently many folks in the audience thought that I was some Appleite with iPhomania because I kept referring to 'apps'. To be honest, I meant apps as an interchangeable idea with widgets and gadgets to refer to the componentised bank functions.
It actually doesn't matter that much if folks did interpret this as being Apple-based however, as the PC-age was Microsoft-based, the internet-age is Google/Firefox/Explorer-based and the mobile internet is now Apple-based.
With 100 million units shipped in just three years, a further 58 million this year, the iPhone is becoming the de facto standard for the mobile internet.
Ah but wait, what's this?
Android tops iPhone: Google's Android operating system edged out Apple's iPhone operating
system for the No. 2 spot in the U.S. consumer smartphone market in the
first quarter, according to research firm NPD Group.
I love this conference as you get here and see the sponsor’s names – HSBC, JPMorgan, RBS, Deutsche Bank, Standard Chartered and Bank of America Merrill Lynch. There ya’ go, you just know it’s gonna be a rich week of food, entertainment, wine and song. None of that cheapskate IT show stuff, where everything has to be managed on a teensy-weeny small budget. No, this is way beyond the small budget syndrome so I know it’s gonna be fun.
It’s also gonna be fun because it’s in Singapore, a place I first came to in 1987 when, if my memory serves me right, the Merlion fountain sat in the grounds of the Raffles Hotel which sat in its own unique position on the Peninsula Marina.
Today, Raffles is surrounded by buildings, hotels and skyscrapers, and the Merlion statue has moved.
That’s progress, but then Singapore is a progressive place.I won’t say too much about Singapore though as, if you’re interested, National Geographic had a superb supplement analysing all features of the country. I won’t say too much about the article, except that it’s opening gives away that it’s a great story:
If you want to get a Singaporean to look up from a beloved dish of fish-head curry—or make a harried cabdriver slam on his brakes—say you are going to interview the country's "minister mentor," Lee Kuan Yew, and would like an opinion about what to ask him.
"The MM? Wah lau! You're going to see the MM? Real?"
You might as well have told a resident of the Emerald City that you're late for an appointment with the Wizard of Oz. After all, LKY, as he is known in acronym-mad Singapore, is more than the "father of the country." He is its inventor, as surely as if he had scientifically formulated the place with precise portions of Plato's Republic, Anglophile elitism, unwavering economic pragmatism, and old-fashioned strong-arm repression.
Unfortunately, it’s also a country I find difficult to enjoy straight away as I took the overnight flight from London which gave me about three hours sleep in 36 hours, so I spent yesterday fitfully sleeping on and off and watching crappy movies on HBO and Star ... but at least in Singapore you can watch crappy movies in the English language, unlike hotels in Europe where fitful night hours are dulled with non-stop CNN news.Back to the conference though and Robert Prior-Wandesforde, Senior Asia Economist with HSBC, gave the opening speech: Asia - aren’t you glad to be here?
Here are my brief notes:
Asia - aren’t you glad to be here?The economic recovery began around the second quarter of 2009 for most economies, and Asia’s industrial production index is now back on track, exceeding the peak pre-crisis levels of 2008. This unlike the Eurozone and USA, which took such a shock that their output is still at levels below 2000.This means that Asia has reached a self-sustaining cycle, without dependency on USA and Europe, and the concerns over decoupling have not materialised because Asia is no longer coupled with the other geographies as they were a decade ago. In fact, Asia now has a virtuous circle of growth, based upon strong domestic demand, which boosts imports and exports, which helps lift personal income and profitability, which creates more domestic demand.That is why HSBC forecasts year-on-year export growth of 20 %+ in the region, which is crucial to the level of sustainability of a recovery here in Asia. But how can that level of export growth be the case when you have the mess that’s in the EU and America?Answer: a lot of increase in demand has just been within Asia.So we have this old world view of the American consumer being the consumer of last resort, but it has changed. For example, Korea’s electronic shipments to China and China’s shipments of electronics to the USA were closely coupled at the start of the 2000’s. Today, they are not.Over the last 18 months, Korea’s exports to China have surged significantly but China’s exports to the USA have not. So it does suggest that the Korean products are going to China and staying in china. This is true not just for electronics, but for motor vehicles and more.In other words, it’s the Chinese who are shopping!Historically, China has been an export and investment led economy. That isn’t going to change necessarily, but the fact that private consumption as a share of GDP in China is about 36%, it singles the country out from others in the G20, such as the USA where private consumption is over 70% of GDP.Equally, savings as a percentage of household disposable income has risen to almost 40% in China over the last decade, up from under 30% at the end of the 1990s. That compares to about 3% in the USA. Why they are saving so much is, according to a survey of citizens by the Central Bank of China, for their child’s education and their own retirement. These are Chinese citizens’ major concerns and the Chinese government are therefore trying to change this mindset to encourage consumerism. This does not mean a massive swing to USA-style consumerism, but does mean giving more assurance to citizens about education and pensions so that they save less and spend more. If this does change the mindset of the people of China, then even a few percentage points swing to spending rather than saving will have a massive impact as it will change the habits of 1.4 billion consumers, not just a few million.This does not mean that Asia does not need the USA and Europe though, and the risks of continued growth or not are related to America and Europe’s issues. America has delivered better than expected results for the past few quarters, and so there is recovery there. In Europe, there are different issues and the concerns about Greece are major. But Greece is a small country in Europe, and the contagion kicked off is not necessarily justified as Spain and Italy, which have been caught in this maelstrom, are different to Greece. Spain’s government debt to GDP ratio is half of that of Greece’s, whilst Italy does have a government debt issue but the budget deficit there is half of Greece’s. The fundamentals are different but, overall, we do expect governments in Europe to increase taxes and reduce spending, with the UK being one of the critical countries to face that challenge. In summary, Europe as a region may be in continued recession but you have to look to Germany, which stands out and is still motoring forward. Germany’s economy is about ten times the size of Greece’s and is stable. So there are positive indicators in the region along with those negative ones.Other worries may be things like the end of policy support from governments, which is unlikely; the end of inventory-led growth, which is also unlikely; exchange rate appreciation, but that assumes demand disappears, and we cannot see that happening as Asia is now self-sustaining.,There are also concerns about an asset-bubble boom and bust in China. For example, seventy Chinese cities saw property prices were up 12% year-on-year and, in Singapore, it is even more marked with private residential prices up 30% in just the last nine months.In China, you then need to look at GDP growth, which was up 12% in the first quarter and nominal GDP growth for the last year was 15%, so a 12% rise in property prices makes sense.What about inflation?Inflationary pressures are showing some signs of issue, as it is growing rapidly with a bigger underlying inflation problem in the region anticipated for 2011. This means that asset price bubbles could develop in a more meaningful way going forward.The issue here is that many of the Asian central banks are unwilling to tighten interest rate policies, but interest rates will need to be watched and managed carefully in Asia this year if we are to avoid an asset bubble next year.Remnimbi is also a topical issue, with the Yuan:$ exchange rate pretty well fixed over past few years. The more pressure the USA puts on China to untie that fix, the more likely China will not do anything but we do think that China will appreciate the exchange rate later this year. It won’t be a massive revaluation of the remnimbi, however. It will just be tentative.This is because China is worried about their exporters and want to avoid any double dip recession within China, so we expect it to be around a 5 percent appreciation of the Yuan against the US$ over the next nine months.Longer term, our view is that we expect China to overtake the USA economy by 2035.In other words, China will become the largest economy of the world in 2035, with the USA and Europe closely behind, and India nipping at their heels.The only thing that can hold this back is that China’s government are showing too much concern right now about a double dip recession and asset price boom domestically, whilst India does have an asset price bubble and inflationary issues.
The Central Bank of China and Reserve Bank of India must get to grips with these issues to realise these dreams.
Fascinating report in the FT this week about Global Brands, with the financial sector bouncing back the strongest of all. MasterCard and Visa led the financial pack, although Goldman Sachs saw a 25% growth in brand value over the last year ... I wonder how much they lost this year?
Anyways, considering banks had the worst results ever last year and lost all brand momentum, it’s no surprise I guess to see they’ve bounced back this year, and even beat beer as a sector for brand improvements:Year-on-year growth in 17 categories Category Brand value growth (%)Financial Institutions 12% Beer 10% Technology 6% Fast Food 1% Retail -1% Soft Drinks -1% Mobile Networks -1% Bottled Water -2% Gaming Consoles -3% Spirits -3% Luxury -3% Apparel -4% Personal Care -4% Coffee -6% Insurance -7% Cars -15%Source: Millward Brown Optimor (including data from BrandZ, Datamonitor and Bloomberg)
Strange how and why insurance is languishing down the bottom though ... maybe it's their lack of ability to cover Toyota's these days, which is why the car sector sits at rock bottom.
All in all, a big contrast between this and the Harris Interactive Reputation Survey I blogged about earlier this month ... so brands and reputation have nothing to do with each other, do they?
What surprised me is the list of the top 10 brands in our sector (doubleclick picture to enlarge):
Wow! ICBC from China, the #1 bank brand in the world!
In fact, they’re the 11th best brand in the world, just behind Google and Apple:
A great report from the FT again, and well worth a read if you have the time ...
I don’t know if any of you read the IMF report recommending two new bank taxes:
a bank levy based upon the risk banks represent, called a Financial Stability Contribution (FSC); and
a straight tax on profits and bonuses called the Financial Activities Tax (FAT).
If you haven't, then I can recommend it's worth a skim. For example, they reject the Tobin Tax / Robin Hood Tax idea, saying that this would just get passed on to customers by the banks.
However, the fact that they support the idea of a levy and a tax – a double whammy – could have bankers worried ... except that bankers are pretty clever at tax avoidance and Canada and Japan have said they won’t implement these plans so it’s a G18 agreement right now, or less.
In my view, the document is also flawed. Here's why.
Now the actual content is debatable and not set in stone.
As I said, it’s for discussion.
But it does contain some really interesting appendices which are noteworthy as useful research materials, covering diverse subjects from each country’s proposals for reform to their contributions to the bank crisis to date.
For example, here are the amounts announced or pledged for financial sector support so far, as a percentage of 2009’s GDP (doube-click chart to see a bigger version):
What this shows is that for the ‘advanced economies’ – think USA, UK, France, Germany, Japan et al – the cost has been 6.2% of GDP in direct support and a further 10.9% in guarantees.
The total of columns A to E represents 29.8% of advanced economies’ GDP in 2009.
That compares with 1.8% in the emerging economies – think the BRICs, Indonesia, et al.
Mind you, they then go on to say that “for the advanced G-20 economies, the average amount utilized for capital injection was 2 percent of GDP, that is $639 billion, or just over half the pledged amounts. France, Germany, the USA and the UK accounted for over 90 percent of this. For the advanced G-20 economies, the utilized amount for asset purchases was around 1.4 percent of GDP, less than two-thirds of the pledged amount. Similarly, the uptake of guarantees has been markedly less than pledged.”
This is why the report reckons that the global financial crisis has cost about $533 billion less than originally estimated, and is now just a mere $2.28 trillion when all is said and done.
Now how much is $1 trillion again?
Thanks Mint.
So yes it’s still a lot, but it’s half a trillion dollars less than before.
Phew!
Now who’s the daddy when it comes to global bailouts and guarantees:
Wow, the UK wins!
We’re number one, we’re number one, we’re number wohohohohone.
Wait a minute.
That means we’re #1 in global bailouts of banks.
Hmmm ... not sure if we should be so thrilled with that accolade and maybe this is why Gordon Brown is so keen on the idea of a Tobin Tax or a Robin Hood Tax or a Financial Activities Tax or ... well, any tax really to help with our debt mountain to be honest ...
Source: the Daily Mail
... as the burden of national debt amongst the G7 nations is at a 60-year high, with the UK’s Treasury planning to increase national debt by over £560 billion between now and 2015. That’s about $800 billion or almost a trillion (how much is a trillion again?).
Meanwhile, the emerging economies paint a very different picture:
Apart from Russia, this crisis has cost the key future economies of the world urrmmmm ... nothing.
These charts make it clear that NINE of the G20 nations have had no crisis. Add to this the fact that Canada’s financial system has been the most stable in the world, and Japan do not intend to implement these tax and levy options, and you realise that under half of the G20 will be keen to support any radical changes to the financial markets.
It's not as clear cut as this, as the fact that the Advanced Economies bailouts allowed the Emerging Economies to survive this crisis without their economies also imploding is a key part of the dialogue.
Another useful chart shows why the IMF has reduced the bailout numbers by $533 billion where financial markets have used far less of the pledged amounts than those offered by their respective governments:
Finally, these charts are followed by a review of each country’s bank taxation policies implemented or proposed (Appendix 2, Page 32), a review of corrective taxation and prudential policies (Appendix 3) and the current taxation policies (Appendix 4).
This last section is also particularly intriguing as it demonstrates why banking has been so critical to Gordon Brown’s policies of the past decade. For example, here’s the percentage of a country’s total tax pool raised from financial firms by country.
G20 Corporate Taxes Paid by the Financial Sector (in percent)
This makes it clear that for every country, but particularly for Italy, Turkey, Canada and the UK, the role and influence of the financial sectors on their economies and government policies is fundamental to the country and its economic and public sector health.
Without bank taxes, countries fail.But with bank failures, countries fail.And that is their Catch-22 and the reason why this is so hard to change.
Between domestic interests and focus, aligned with the radically different ways in which this crisis has impacted each G20 nation, it is unlikely that we shall ever see a simple agreement of policy reform now, or at the G20 meeting in Toronto in June.
The International Monetary Fund's managing director said he worried
that rivalries among countries could thwart a global overhaul of
financial regulation, as governments split over the merits of an IMF
proposal to levy a new tax on the world's banks.
"The risk…is that different parts of the world will have their
proposals which make sense" to them, but "which may be somewhat
inconsistent," Dominque Strauss-Kahn said at a press briefing ahead of
this week's meetings of financial officials from around the world.
Back in 2004, I asked a group of bankers when mobile would take off in banking. They all said: “not in our lifetimes”.
In 2007, Bank of America launched their mobile banking applications and has seen a rapid uptake of users. In less than a year, they reached a million customers on mobile, and saw a further 300% growth in 2008. It took them over a year to get the first million customers; a pregnancy period of just nine months to get the second million; and a short six months to get the third.
According to Doug Brown, the man responsible for mobile banking at Bank of America, the speed of take-up is accelerating even faster in 2009, with 150,000 new mobile customers in September 2009, 210,000 in August and 220,000 in July.
What are they doing?
99% of mobile users’ view balances, 90% view transaction details and about $10 billion of funds have been moved via mobile.
But this is not just for existing accountholders wanting account access. The bank has gained over 150,000 new accountholders from competitors during 2009, just because they wanted mobile banking.
So far so good.
Now jump to Africa.
M-PESA is the story in Africa.
M-PESA is the mobile text service introduced by Vodafone’s subsidiary, Safaricom, back in 2007. Suddenly a country with zero electronic methods for making payments for the masses had an electronic access which has revolutionised the country.
Within a year, one in five Safaricom users were using M-PESA to make payments, and one in ten Kenyans had used the service. By November 2009, M-PESA had become the world’s biggest mobile money service with over 10% of Kenya’s GDP moved by mobile payments. Accidentally, Safaricom had become the biggest bank in Kenya with 8 million users registered and over $2 billion transferred by mobile.
Now M-PESA is being expanded into Nigeria, South Africa and other African countries, whilst banks are saying that customers are actually switching banks to get mobile channel access.
Now jump to Japan.
A bank launched in Japan in June 2008 called Jibun Bank.
Jibun Bank is a mobile only bank. The Bank is designed for access via mobile only. You try to use the bank online, and it’s rubbish. As for branches, forget it. This is a multimedia rich, mobile only bank.
The bank is a joint venture between the Bank of Tokyo-Mitsubishi UFJ and telecom operator KDDI.
Jibun Bank, which means my bank, gained 500,000 account openings in just eight months and, after eighteen months, had Y140 billion ($1.5 billion) of deposits by December 2009, from over 850,000 accounts.
At the start of March 2010, the bank opened their millionth account.
What is the point of these three short case studies?
Well, there are many, many examples of banks innovating with mobile worldwide today, but the lesson is this.
In 2004, bankers believed this revolution would not take place in their lifetime.
One banker actually said to me, in writing: “I think this idea is way out there – ten to twenty years – before this plays out in any sizable way.”
Six years later, the battleground is already defined and being won.
Are you fighting in this space?
Have you lost already?
As those who follow this blog know, I write regularly about services such as Facebook and PayPal.
This is because they are disruptive and fresh, as well as being incredibly successful. For example, Facebook is now the world’s #1 website, bigger than Google. Not bad for a five year old. Meantime, PayPal is still growing fast, making over $95 a second in revenues based upon $3 billion in revenues this year. This makes them the interweb’s sixth most successful website by earnings. Not bad for a ten year old.But these sites are not the be-all and end-all. You have to bear in mind that they are purely popular in their language of origin: English.
As a result, there are several other search engines, social networks and P2P payment services that are succeeding out there, from China’s QQ to Russia’s Yandex.
Here's a world map of social networks, taken from the blog of Vincos, Italy (doubleclick to enlarge picture):
Although Facebook is a big hit worldwide with 400 million users, it’s tiny in some countries like the Czech Republic (Lidé is the #1 social network), Hungary (iWiW), India (Google’s Orkut), Japan (Mixi), Netherlands (Hyves), Philippines (Friendster), Poland (Nasza-Klasa), Russia (vkontakte), South Korea (Cyworld), Taiwan (Wretch) ...
Similarly, PayPal is hardly recognised in some countries. In the Netherlands, for example, the banks launched iDEAL, a set of standards to facilitate online payments. iDEAL was created in 2005 by a range of participating banks with ABN AMRO, ASN Bank, Fortis, Friesland Bank, ING, Rabobank, SNS Bank, SNS Regio Bank and Triodos Bank on board today.Some of the major features of iDEAL include the fact that it offers both real-time payment initiation and authorisation by both the issuing and acquiring bank, followed by irrevocable credit transfers to the merchant at the time of online purchase.The participation of the banks along with real-time processing, has created a strong perception of iDEAL being SAFE. As a result, iDEAL has gained over 15,000 participating merchants and 5.8 million users, resulting in a total of 45 million transactions in 2009 worth over €3.4 billion (up 60% over 2008). * maandtotalen = monthly total In other words, iDEAL has a 40% market share of all e-payment transactions in the Netherlands, with an acceptance rate at almost 9 out of 10 online merchants (88% of all Dutch merchants) compared with only 1 in 4 for PayPal (although that’s up on 1 in 5 a year ago, thanks to the decline of AMEX in the Netherlands). So the banks do have a PayPal service equivalent ... but, right now, only in the Netherlands, although iDEAL aims to expand across more of Europe by gearing up for SEPA Credit Transfers (SCT) and the Unify XML standards.Meanwhile, in Russia, their version of Google Checkout has taken a place ahead of the market.Google Checkout is actually called Yandex.Money run by Yandex, Russia’s largest search engine.According to Liveinternet.ru, Yandex increased its share of search traffic from 56% in January 2009 to 59% in December to 62% in February 2010.
Yandex.Money claims to be the leading online payment system in Russia as a wholly owned subsidiary of Yandex. Founded in 2002, Yandex.Money has seen payment volumes grow 135% CAGR, processing 21.5 million transactions per year worth $350 million.
This may sound small, but the appeal of Yandex.Money is for the vast numbers of unbanked and underbanked Russians who want to deal online.
Yandex.Money provides over a million prepaid cards per year through 100 distributors, to be used in over 50,000 participating outlets all over Russia. They have over 200,000 participating terminals to load cash on the cards in 80 of Russia’s largest cities, and 1 in 5 customers use them as top-up wallets. Meanwhile, 61% of users pay directly from the Yandex.Money interface online.
So Russia’s online payments market has developed a slightly different way.Meanwhile, China has an incredible story of the success of Alipay, a division of Alibaba the B2B ecommerce portal.
Alipay is China's primary payment platform thanks to being the preferred payment system for sister firms Taobao and Alibaba.com, along with over 460,000 external merchants. The result is that Alipay has a 49% market share today for all online payments in China:
Q1 2010 market share figures from iResearch
Equally, it has a larger userbase than even PayPal with over 300 million registered users as of March 2010, with five million transactions per day worth an average RMB 1.2 billion (US$176 million).
Why should this be of interest to our global banking community, and PayPal specifically?News Headline, April 11th 2010: “Alipay, China’s largest online payment network, has announced that Alibaba Group will invest a total of RMB5 billion (US$732 million) over the next five years to upgrade the payment solution for e-commerce in China and around the world.”Serious stuff!Meanwhile, in a non-exhaustive list, there are many other online payment services worth a look including 2CO, AlertPay, Bill Me Later, C-gold, CashU, Dotpay, E-Gold, LiqPay, Mobile Wallet, Nochex, PayPay and Z-Payment.So in future, when I talk about PayPal, don’t forget that we’re also talking about their national equivalents such as iDEAL, Yandex.Money and Alipay. Similarly with Facebook, don’t forget that there’s also Mixi, Hyves, Orkut and Friendster.
The implications of these services on core banking is exactly the same which is that we are seeing the creation of many disruptive, fresh and incredibly successful web services for social and P2P finance ... leading, in future, to social B2B finance.
I'm sure you realised this was an April Fool ... or was it?
The Wall Street Journal reports this week that "U.S. and European governments are moving toward a
consensus on taxing large banks to cover the cost of any future bailouts
rather than asking taxpayers to foot the bill, as happened regularly in
past banking crises".
However, in an exclusive report, the Finanser has learnt that the G20 Finance Ministers' negotiations for a global agreement on banking regulations disintegrated dramatically last night.
This was after lengthy talks about a transaction tax caused fundamental disagreements and a major rift between the key economic nations of the world.
The Tobin Tax, or Robin Hood Tax as some call it, is meant to create a fund for future issues in the financial system. In principle, the G20 has agreed that this is the right thing to do and were discussing the level of the tax being 0.01 cents per transaction, no matter the size of the bank transaction.That’s all fine in principle but, in practice, governments are unable to agree as to its usage.The German and French authorities have been arguing that the fund is meant to be there to protect citizens and, should another bank collapse occur, to fund future bank bailouts.Most of the other G20 nations agreed with this – particularly the Canadians who often sided with the French – but several disagreed fundamentally, particularly the British.
Alistair Dawling, on behalf of Gordon Brawn, argued that the tax should be used to create a home fund for the procurement of homes for those challenged by opportunities to get on the housing ladder.
His argument being that individual’s and pension funds’ investments in property had seen major losses during the crisis, and that this area specifically needed help to ensure a strong economy. Equally, in current climate, using the Fund for such purposes is seen to be a strong justification for supporting the housing markets, and therefore the economy, in this time of crisis.
His argument unravelled somewhat however when Christian Lagarde – the French Finance Minister – said that this was a unique situation to markets, such as Britain’s, where home ownership was a major factor, and she asked him to be explicit in how such funds would actually be allocated.In response, Mr. Dawling said that for Britain the access to such funds would be reserved for those with a legitimate vote in the UK Houses of Parliament, and would be limited to just those members with second homes. By introducing such a bank fund, Mr Dawling argued that it would overcome the issues created by the banking disaster. Not only has the crisis caused the housing market to collapse but this, combined with the scandal of MPs expenses, has meant that many of the right honourable members have lost a fortune. The Americans didn’t like this idea.Tom Geithner believes that any bailout should not be a bailout for the long-term or for a politician. It should be for a banker and a banker only. Therefore, the Americans argued that the Fund should be evaluated at the end of each year, and distributed equally back to the banks based proportionally upon their profitability.In other words, JPMorgan and Goldman Sachs should be legally entitled to 90% of the Fund each year.The Chinese objected to this approach and the wicked Western ways of undermining the global financial system. Finance Minister Xie Xoren countered with their approach to the Fund’s usage, which would be based upon a ‘Committee of Worthiness’. The Fund would be reviewed each year by a G20 Committee of Finance Ministers, who would have a discussion of projects and their worthiness. The most worthy global projects would then get their funding from the Fund.The Americans and British almost bought into this idea, which could have led to an agreement with the Chinese until Xie Xoren black-balled their suggestion that the ‘worthiness’ panel should be chaired by Simon Cowell, with a public vote to determine the winner each year.Tom Geithner thought this a particularly good idea because it would double the Fund’s value, based upon members of the public being charged a minimum dollar per call, but the Chinese didn’t like the idea of parading their government works in public and so it soon got canned.President Lala of Brazil then came up with a good idea for an alternative spin on this venture, with the view that, as the financial disaster had been created by ‘white men with blue eyes’, the Fund should be run by ‘brown men with brown eyes’.This almost succeeded, as Mexico and India came on board having been abstentious to that point, until the whole thing got shot down by Wayne Swan, the Australian Finance Minister, who called it a “shitty idea from a man who was more Gu-Ga than Lu-la”.This caused a fight to start between Brazilian Finance Minister Guido Mantoga and Mr. Swann, which was only resolved when Russian Finance Minister Alexei Leonidovich Kodrin stepped in. Mr. Kordin managed to break the stranglehold Mr. Mantoga had on Mr. Swann, by kicking Mr. Montega hard in a very sensitive part of the body.Although this worked, it did not endear Mr. Kodrin to the rest of the Ministers in their search for cooperative global relations. Luckily the Japanese sorted out the frictions, just in time, by saying that the competition for the Fund should be managed on a secret ballot basis, with each country having a vote as to how the funds would be used.The ministers all agreed with this idea until Turkish Minister Mehmett Şimmşek reported that the Italian Prime Minister, Silvio Burlusconi, had offered him a million euros to vote for using the Fund to encourage improved sexual relations ... and he didn’t think Mr. Burlusconi meant relations in the workplace.At this point, Tom Geithner was overheard to whisper ‘f***ing Italians’ which led to another fight starting between Mr. Geithner and Italian Finance Minister Julio Tremonti. Seeing another fight starting gave Guido Mantoga, the Brazilian Finance Minister, a chance to get his own back on the Russian Minister, and so he immediately launched himself at Mr. Kodrin, managing to gorge his fingers into Mr. Kodrin’s eyes.With this murderous moment, Alistair Dawling immediately hid under the table, the Chinese left and the meeting ended in bedlam.So much for global harmony.Of course, the good news is that the banks can continue to practice their methods of investing, remunerating, operating and managing our monies as before.Plus ca change.
Good friend of the FSClub Emmanuel Daniel joined us this week to talk, about the future of banking and the rising influence of Asian banks, especially those from China and India.
Emmanuel Daniel is the founder of The Asian Banker, a leading provider of strategic business intelligence on the financial services industry for the Asia Pacific and Middle East region.
He began with a review of the composition of the largest banks’ income streams, which shows that the truly global banks keep a small home income balance (doubleclick images to make them bigger) ...
... by comparison with banks from larger countries like the UK and US, which are
essentially domestic in their income even if they were international ...
... whilst banks from smaller countries like the Netherlands and Switzerland, have large earnings from outside the domestic base of the bank.
He thinks the same trend will be the case if Asian banks globalise, namely that the ones from smaller countries will be truly international whilst the ones from larger countries, such as China and India, will be essentially domestic.
Emmanuel then raised the striking point that at one point during the financial crisis – March 2009 – many Asian banks, such as DBS, UOBC and ICBC, were larger by market capitalisations than the world’s former big banks, such as Citi and RBS.
So why didn’t these banks buy an American or European bank to make themselves global?
Emmanuel puts it down to culture and a fear of repeating past mistakes.
After the Asian financial crisis, many Asian banks were beaten up by American and European financial markets for being too lackadaisical with their management of risk, especially credit risk. Non-performing loans (NPLs) were rife across the Asian markets, and this led to huge issues.
As a result, Asian banks had looked to American and European banks for leadership practices and, when China opened its borders to foreign bank entry in 2001, it was the world’s global banks they sought for knowledge.
Now, these banks are looking around and saying: “whoa, there’s no-one out there who can help us but ourselves”, and this has led to the realisation that these banks are leaders themselves today.Not only that, but these banks are big.ICBC has 20,000 branches and over 400,000 staff, so change is a challenge. But these banks are changing and changing fast. For example, the Asian Banker presented an award to ICBC for consolidating 1,000 fragmented data centres into two in a program that took under a year to implement. That’s the sort of leadership these banks are achieving – best practices in data centre management; branch distribution and transformation; use of new technologies especially mobile; and more. Equally, Chinese banks are now clearly generating profitable leadership, as around $20 billion in profit is created in Chinese banks every year. So, after a couple of profitable years, China’s banks could buy an RBS or Citi.
But they didn’t because they were not ready.
Indian banks are even more risk averse than the Chinese in this process, as their Chairman is normally elected when he is three years from retirement. As a result, an Indian bank rarely wants to make decisions that are aggressive or growth oriented. They would rather be boring and safe, and are incredibly account driven with a focus upon stability.Equally, there is a lot of unionisation in India which halts change. For example, the State Bank of India has tried to introduce branch automation programs over the years but the unions have resisted this strongly as they don’t want to see job losses.In contrast, China wants to create a long-term, sustainable, commercial banking model. This is unlike the Japanese who have far more interest in gaining global credibility in capital markets, as demonstrated by the likes of Nomura.
Emmanuel finally left us with something to think about, by bringing in the
impact of technology and customer expectations to realise that our
biggest fear may not be Asian banks but any small player who can
disintermediate the larger banks just by being relevant.
All in all, a really insightful review of the state of
Asia’s banks and the thing that surprised me most is that we haven’t seen an Asian bank become truly global yet.
But we will, with ICICI (India) and ICBC (China) being the two most active players today. That's why Emmanuel reminded us that two global banks originated in Asia – HSBC and Standard Chartered - albeit run by British Chiefs.
Now, the question is whether the banking talent found in banks like ICICI and ICBC will throw up ambitions to repeat what their colonial masters did a century ago.
According to Fast Company, only one of the Top 10 financial websites of the world comes from a traditional bank. That bank is Itaú Unibancoe in Brazil. Well done Itaú Unibancoe ... what happened to the rest of you?
Mind you, plenty of innovation from outside banks and my favourite upstart of the year has to be BPAY in Australia.
What's BPAY?
It's a 12-year old newbie on the payments block that has, since its launch in November 1997, become the
most popular bill payment service in Australia.
Over 170 Australian financial
institutions covering around 90% of the consumer banking market, belong to the scheme. This has resulted in 18 million bills worth
AUS$11 billion being paid using BPAY every month, and more than 84% of these are paid
over the internet.
That's the nature of innovations like BPAY and PayPal, they just nibble away at the fringes of banking and gradually become processors with clout before you know it.
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I'm pleased to welcome this guest blog entry by Steve Edge of AsiaEtrading.com.
Singapore
is the best city in Asia to headquarter an electronic trading business
according to a two week opinion poll conducted at the AsiaEtrading.com
website.
The result is no
surprise as Singapore has a low corporate tax rate of 18% (17% in 2010), a high
standard of living, a great quality of life and wonderful weather all
year-round, which is why the island at the apex of the Straits of Malacca won the day
amongst pollers.
Drilling down, the electronic trading environment the local
Government and Monetary Authority of Singapore (MAS) oversee is the
envy of the zone especially to Hong Kong, its regional rival, which
came second in the poll. The Singapore Exchange (SGX) pioneered cross
border futures trading in Asia offering complimentary contracts in
Japan, Taiwan and Hong Kong. The Osaka Securities Exchange (OSE) was
forced to offer futures trading in the Nikkei 225 one year after the
SGX rolled it out in Singapore.
Singapore is leading the way in the dark pool space as well. A join
venture announced last November with Chi-X to form Chi-East is Asia’s
first exchange sponsored dark pool. Granted the Singapore pension
market isn’t that large and there is a perception that this kind of
offering with fragment liquidity but it is widely acknowledged that
institutional investors need a place for “upstairs” trading with out
signaling or moving the market and a dark pook is just the place.
Let’s not forget the commodities hub that Singapore is pushing to
be. The SGX has a subsidiary called SICOM (Singapore Commodities
Exchange) of which the MAS has allowed a competing commodities exchange
to operate directly against it; the Singapore Mercantile Exchange
(SMX). Singapore is even the third largest oil trading market in the
world.
Fortis and Barclays are headquartered there. Eurex has established
an access point of which Transmarket Group was its first client back in
2006. Trading vendors such as Trading Technologies, RTS and FlexTrade
call Singapore home as well. Equities, futures, commodities, clearing,
world class firms, low taxes and nice weather certainly make Singapore
an electronic trading Mecca in Asia.
Here are the results of the poll
1) Singapore – 38.1%
2) Hong Kong – 29.8%
3) Mumbai – 15.4%
4) Tokyo – 9.0%
5) Shanghai – 7.7%
There was some consternation about the cities chosen in the poll and
perhaps the result might be different if it included Sydney, Seoul or
Taipei but I doubt it. Hong Kong is the gateway to China but its
complacent retail-centric approach to trading is leaving it behind its
regional rival. Mumbai is still growing up and will certainly be one to
watch in the coming years. It has always been a commodities hub
especially when the US declared independence from England and the
ensuing war cut off cotton and forced the British to buy from India.
Japan is the largest equities market in Asia but is now only coming
around to industrial strength trading. Shanghai has a long way to go as
well with respect to trading savvy and regulatory openness.
I chaired a dinner last night on remittances and it was pretty interesting.The
term ‘remittances’ is generally used to refer to foreign
workers sending money home and represents major GDP for many
countries. For example, Tonga’s remittances represent 40% of the country’s GDP, Samoa’s is 25%, Jamaica’s is over 20% and the Philippines 10%.This is a big market and a mature one. Equally, it is not just about migrant workers as the appetite for transferring money internationally has extended far beyond itinerant workers to a vast and diverse cross-section of senders and receivers. Some senders are using lo-tech systems like Hawala, whilst others are heavily linked via hi-tech mobiles ... meanwhile receivers are the same, with everyone assuming they receive through human interfaces and yet, if you study this area closely, more and more is being enabled via mobile.For example, in the Philippines, SMART and Globe Telecom have been running riot in the remittances space for years:
SMART is the leading mobile operator in the Philippines with over 25 million subscribers, and has been offering an SMS-based remittance service known as “SMART Padala” since 2004. This service allows expatriates to deposit money with partnering banks in areas where high concentrations of Filipinos live, such as Hong Kong, Yokohama, and Abu Dhabi, and to specify the SMART subscriber in the Philippines who is to receive the money. The service sends a text message to both the sender and the recipient, notifying them that the money has been transferred. The recipient can then use his/her mobile account to specify the desired withdrawal amount and pick it up at a partnering institution in the Philippines.
The Philippines’ second mobile operator, Globe Telecom, offers a similar service known as G-Cash. At participating remittance companies in the US, the UK, Australia, and Taiwan, Filipino workers can send money via an SMS message to Globe subscribers in the Philippines. The recipient can pick up the cash from any Globe Telecom store by showing his mobile phone (with the SMS message) and a form of personal identification.
And if you wonder whether low-income folks want mobile money, then this is the place to look. For example, a study by the microfinance and remittance focused organisation CGAP found that targeting low income users could succeed. “Philippines is known as the texting capital of the world but we were working in provinces that were poorer and where literacy levels were lower than the national norm. What we found is true in most markets globally: younger people whose social lives involve being connected via cell phones and people with exposure to using computers are more comfortable using cell phones to begin with.” The result is that 80% of money movements in the Philippines is now made electronically. A decade ago, 80% would have been physical movements of cash. That’s transformational and is why one of the folks at the table said that: “if you don’t know what is happening with technology these days, then you’ve lost the plot”. This increase in access to electronic and formal channels for money transfer, rather than physical and informal channels, is rapidly changing the dynamics of connectivity and funding.For example, microfinance is now becoming a major focal point, as is financial inclusion, and it amazed me that everyone talked about mobile for money transfer during our discussion but no-one talked about social networks. And when I did raise the subject of Kiva as a social lending microfinance service, one of the bankers asked me: “what’s Kiva?” Surely, being in this space, banks should know about these developments? Another said the lack of commentary on social media and microfinance was more of a reflection of the fact that young people use social networks and the average age of a remittance sender and receiver is around 37. I then added that the average age of a Facebook user is 42 and Twitter users are generally over 35s.
Silence.
“if you don’t know what is happening with technology these days, then you’ve lost the plot”
The nature of networks, mobile internet and social finance is changing all of our lives fundamentally and is as true in the remittances space as any other.Ignoring such fundamental changes is likely to leave the existing money transfer firms dead in the wake of dynamic societal change.For example, the likelihood of a divide between informal networks using human carriers of money versus formal networks using mobile internet is the clear path of the future. This inevitably raises critical questions for existing providers of Money Transfer such as Western Union, Travelex and the banks.And these are the themes we explored in depth last night.It was interesting that one theme that kept cropping up regularly was ‘trust’.I always hear trust in the context of banking and payments, so challenged what it is that is trusted.For example, the Philippine GCASH Service is delivered in partnership with financial institutions and banks. Why? Because, according to the banks, customers trust the service if a bank is involved.Sure. They trust the service, not because they trust the bank but because they trust the banking infrastructure to guarantee movement of funds.So the trust is in the system, not the individual bank or financial partner involved.That’s one critical point.Another is that this market – especially if we talk more about financial inclusion – involves so many players. It cannot be led by a bank or mobile operator, but needs to be led by a collaborative effort of banks, mobile carriers, governments agencies, regulators and more.It may even need involvement of security services and police, as half the dialogue about money transfer is focused upon terrorism.“9/11 was funded by hundreds of sub-$1,000 transactions through the money transfer markets”, was one of the comments made last night.Sure, but is the role of a money transfer service to allow simplicity of money transfer or to monitor the pulse of terrorism?I would argue that it is both, which is why so many organisations need a hand in these markets: global regulatory authorities, national governments, police and security forces, banks and infrastructure providers, mobile and electronic service organisations, software and technology firms ... and money transfer agents of course.This led to an interesting debate at the end of the evening about the role of banks in money transfer markets and their interest, or lack of interest, in remittances.One banker said that: “any dramatic change in the past will not have been noticed by the bank and any dramatic change in the future will not be noticed because these changes happen locally, not globally”.Another reckoned it was because banks are not able to make money out of money transfers, but can lose money: “on a $1,000 transaction, we make about $10 if we’re lucky but, if you mess up, the costs are anything up to $100 million in fines and over $1 billion in lost business due to reputational damage.”I disagreed with that view as, if banks felt that way, you wouldn’t be performing any payments processing for anyone.In fact, a point came up that surely this was a corporate and social responsibility and that if banks are not interested in remittances today, and the market continues to grow, then at what point will banks start to wonder why they are disintermediated from these markets and wish they had been involved?We concluded that, in order for remittances to really rock and roll in the future, it needed three things:
A goal: there must be some collaborative objective and mission to be reached;
A reason: there needs to be some skin in the game and value returned for all players; and
A cause: there needs to be a common enemy to cause the players to do this, such as the threat of regulatory change.
With the above, then a multi-industry group could potentially be created to burst the bubble of financial exclusion and move us to a completely connected global society of commerce.
Fascinating meetings with the Russian exchanges RTS and SPIMEX. After my reference to military intelligence yesterday, you may wonder whether SPIMEX is something to do with finding out who started the swine flu pandemic but no, it’s the St. Petersburg International Mercantile Exchange.
The two exchanges have very different start points and focal points, with RTS (the Russian Trading System) starting as a privately-owned exchange back in 1995 whilst SPIMEX is an initiative of the government to create a working commodities exchange.I had been aware of RTS for a while as, during the MiFID investigations, their name came up many times as a working, highly automated exchange. Originally launched using NASDAQ’s trading platform, they soon developed their own products and services, covering algorithmic trading for equities, forex, future and options and more.Today, the exchange is one of the best performing, with the RTS Index tripling in value during 2009 to an index high of 1,451 at yesterday’s close, compared to a market low back in February of under 500, although this is still well below the high of 2,487 in May 2008.What is the reason for such volatility?Oil.Chris Weafer, Chief Strategist at Uralsib Bank, puts it in context: “We've recovered very strongly this year mainly because of the recovery in the oil price. Plus, the recovery and optimism in the rest of the world has allowed for the Russian ruble to stabilize." Or is it because RTS is a keen innovator offering analysis across every trader’s portfolio and position in real-time, as the RTS people I spoke with yesterday said. RTS now offers highly automated trading across 1,400 stocks, with 90% of the trades using automated systems and 10% Over-the-Counter (OTC). It is also one of the top 40 Global derivatives exchanges and trading is getting far more complicated, with around 15 trades per transaction on average today compared with 10 trades per transaction just two years ago.Similarly talking with the SPIMEX guys, there is a clear vision that they are trying to avoid being another failed commodities exchange (around 60 have been launched since 1990).Why did the previous exchanges fail?Because no-one trusted them by the sound of it.According to a SPIMEX advisor, it was because of a poor understanding of risk, a word rarely used because Russians do not allow risk to occur. This is why most exchange and exchanges are based upon ‘fundamentals’ – "if I can see it, touch it and trade it, then that’s ok. If you are looking for me to pay now for something that might pay back in the future, no way."This is why most Russian banks do not provide trade finance, and why oil is an issue.For example, oil producers currently do not co-operate because they do not trust each other, according to one of the guys at SPIMEX.Most oil producers are local monopolies with no competitive mechanisms. As a result, when oil prices rose in 2007-2008, Russians were paying more for their oil than America and Europe, even though Russia has more oil reserves and production than most.So SPIMEX was launched in September 2008 to overcome this, with the Russian anti-monopoly committee creating the right environment to trade on exchange by fining several of the oil producers for anti-competitive practices.But the real common feature of both SPIMEX and RTS is real-time risk management.Both exchanges proudly talk about their focus upon real-time analysis of traders’ positions.In the case of SPIMEX, they offer real-time settlement and straight through processing, so there is no risk for trading.In the case of RTS, they offer real-time positioning of every trader and every trader’s clients portfolios, not just in real-time for their own trades but also for the knock-on effect of their dealings in derivatives down the line. I asked RTS about their risk management, and they made clear that for each transaction, the risk is calculated for the trader’s portfolio, including all orders to be filled, in real-time. There are then two clearing sessions during the day. One at 14:00, which takes three minutes to process, and the second is at end of day, and takes fifteen minutes.If a margin call is made, the broker must cover their position within two hours or, if at end of day, before the start of the next day’s trading.This discussion got interesting, as RTS and SPIMEX appear to be developing systems that ensure no trader can leverage risk to the levels where the market implodes, and they do this in real-time.It is the nature of new trading systems and operations that they design things to work in the ideal way, as the outline above is what Europe and USA are trying to develop.For example, the FSA’s £2 billion technology change program for real-time liquidity reporting is pretty much what RTS has today.No wonder the gentleman from RTS turned to me towards the end of our chat and asked, straight-faced, “what has the Markets in Financial Instruments Directive (MiFID) done for democracy”.He probed me about best execution and what it means: “is it just all about price, speed and cost (and likelihood of settlement)?”I then realised what he was getting at.Where, in all the developments of MiFID and its best execution, transparency and competitiveness objectives, was the mention of risk?Where is the focus on real-time risk reporting?Hmmmm ... it’s obvious that RTS, and the Russian aspirations to build the next major Russian-Asian commodities exchange, is something to watch.Meanwhile, the major thought that struck me in this dialogue, was that we have two opposites.In Europe and America, we have an over-leveraged, casino capitalism culture of trading that is now being re-engineered to restrain excessive risk without responsibility.In Russia, we have a risk avoidance trading environment through real time controls, which needs to increase liquidity and leverage in order to fuel the flow of commerce.If Russia does not achieve this, then its commodities ambitions cannot be achieved.So maybe there is a happy medium here between the Russian approach to risk controls of trading, and the Anglo-Saxon approach of using financial instruments to create liquidity.Now there would be a thought ...
The big EU players, America, the BRIC economies, Japan.
You’ve got Argentina, Oz, Canada in there.
Indonesia gets a nod, as does Saudi Arabia and South Africa.
Not forgetting Turkey of course.
Twenty of them.
All huddled together working out what to do with the banking system.
France and Germany shout bankers should be hanged and bonuses eradicated.
America and Britain tell them to get lost as the banks would leave America and Britain if they did that.
The Chinese just sit and smile, sit and smile.
Russia got a headache and swigs a little more vodka, whilst the rest look confused.
What to do, what to do.
“Well there’s two big issues at work here”, pipes up someone from the back in a heavy Scottish brogue. “Clean up the banking system so this never happens again and sort out the economy.”
“And ‘ow are we going to do zat?” asks the short Frenchman.
“Well, we’ve all agreed the banks need sorting out and we now have a plan, don’t we Mr. President?” says the Scotsman.
“You talking to me?” the United States of America’s First Black President splutters.
“First, we are going to slap the banks around their cheeky little chops with new regulations that will stop them taking excessive risks,” says the tartan leader.
“Vot do you mean?” asks a stout German lady called Miss Marple.
“Well, we are going to say that if they are taking risks they have to be ‘socially useful’. This means they must be able to explain, in words a ten-year old could understand, what it is they are investing in, why, how much is involved and the possible losses if it all goes wrong.”
“Vot if it goes wrong?” Miss Marple asks again.
“Well”, says Braveheart. “We throw them in jail. This is what we think the bankers want as - and I quote from Mr. Stephen Green, Chairman of HSBC and the British Banker’s Association - when I say that ‘banks have chased short term profits by introducing complex products of no real use to humanity’ and it is clearly a ‘basic failure of corporate governance’. So we are going to make it clear that they can’t do that any more.”
“How are you going to do zat?” asks Inspector Clouseau the short Frenchman.
“Obvious isn’t it Mr. President?” the kilted wonder turns to the United States of America’s First Black President.
“You talking to me?”
The haggis chomper ignores this and continues: “what we are going to do is to tell these banks they have to reserve lots of money to pay for and cover any risks they take in the future.”
“How much?” asks Miss Marple.
“Well, we don’t know. It depends on the size of the risk they are taking,” responds the heather misty eyed Scot.
“And what about ze bonuses?” asks Inspector Clouseau.
“Well, we don’t want to go there, do we now?”
At this point, the Chinese delegate raises a finger and a scurry of activity takes place to translate something.
After five minutes, the interpreter breathlessly says: “President of the People’s Republic kindly asks how Britain and America will repay the $5.8 trillion of money they invented in the last year.”
The bottom-line of the G20 summit this time around is that yes, they will regulate for bank risks in the future, and ensure that the more risk taken, the more money is placed in reserve. The challenge with this policy is obviously:
how do you measure the risks taken,
how much needs to be placed in reserve, and
how does this impact lending when banks are already being asked to place more capital in reserves than ever before.
But they will work something out.
For me, the key point is the old ten-year old test.
If a banker cannot explain their product in words a ten-year old can comprehend, then they shouldn’t be investing in that product.
Going back through this crisis we have had all sorts of instruments - CDO-Squared, SIVs, MBAs, CDS and more three-letter acronyms than we’ve ever seen before – which even the cleverest banker has found hard to digest, absorb and explain. If they cannot digest, absorb and explain their own products then they shouldn’t be selling or investing in them.
That’s the rule for the future.
But there’s a more fundamental question.
Has Quantitative Easing worked?
Has the Toxic Asset Relief Program solved the issues?
Have the economies stabilised?
Is the future bright or even Orange?
These questions remain to be resolved and my personal view is that we’ll flatline for at least another two years.
Royal Bank of Scotland needs more capital as do many other banks – where are they going to get it from? The USA and China are on the brink of a trade war whilst Europe sees a rocky road of challenges for the foreseeable, with even the most successful economy (Germany) admitting this will be tough for years to come.
We’re not out of this mess yet.
Yes, there are green shoots ... but are they growing vibrantly or struggling in rocky soil?
Right now, the latter.
So the soil still needs tending, nurturing and watering and the USA and Britain has little rain to sprinkle on these shoots left.
We’ve already bet our children and grandchildren’s tax burden on getting through the last year ... what happens if it doesn’t work?
Now I’m an optimist, which is why I’m saying we will get through this after two years of flat lining ...
... but Marc Faber who produces the Gloom Boom Doom Report and often gets these things right, came out this week on Bloomberg and said that the US Government will fail within the next decade on the back-end of this crisis.
Switch US for the UK Government if you believe his words, as the two economies are intimately tied.
All in all, the G20 has challenges and can treat the easy bits – how to regulate banks – but the hard bit is how to detox the global economies to regain stable future growth. And you don’t get that by printing more money to feed the addict.
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So, another SIBOS comes to a close and another year of financial markets ups and downs draws to an end. And what a year it has been.
In Vienna 2008, SIBOS was a shock zone. In Hong Kong 2009, it has been more of a worry zone. What I mean by that is that most of the dialogue here has been around regulation and the concerns about future regulation.
This kind of goes to the heart of SIBOS, which is where is the theme?
Each year the show has a theme and a heartbeat, sometimes not even the one that SWIFT expected. For example, last year the theme was shock as Lehmans, Washington Mutual, Merrill Lynch, HBOS and others disappeared each day. The year before the theme was corporates and what do they really want. This year, the theme has been more concerned with worry, and specifically the worries of the banking community around further regulatory pressures.
It is clear that the financial markets will be exposed to further regulation. The only question is: ‘how much?’
The answer to that is less clear right now, although talking with some delegates the view is that the future is brighter if you view regulation as an opportunity to create the future, and lobby the regulatory authorities to draft meaningful and appropriate regulations, rather than waiting for them to be released and thinking of them as a threat.
This means get involved and under the skin of regulatory drives, don’t ignore them.
I’m sure that next year’s SIBOS will delve down deeper into these areas but, this year, regulatory concerns were a core focus of the show.
What else is new?
OK, liquidity risk has been at the fore. Liquidity risk is unsurprisingly up there as a big issue because that’s what’s top of mind since and thanks to the collapse of Lehman Brothers last year.
Back office post-trade clearing and settlement has become 'sexy'.
Innovation has been a source of dialogue, although not as much as perhaps in previous years.
And new technologies have been a stimulant, particularly things like Twitter. For example, last year no-one had probably heard of Twitter at SIBOS and yet this year it’s been integral to the Show, as demonstrated by this panel on the exhibition floor hosted by SWIFT with Twitter streaming as part of the core presentation of the show (note Twitter stream at the bottom of this panel):
Meanwhile, the over-riding theme of this year's SIBOS has been Asia. That’s not that unusual, as we are in Hong Kong and it is SIBOS Asia.
Lazaro Campos, CEO of SWIFT made it clear how important Asia has become when he outlined the final attendance numbers for SIBOS 2009. Apparently, there were 5,740 people attending this year of which 2,300 came from Asia which is a new record. 2,600 were from Europe, reflecting SWIFT’s strong European focus and domain, and the 840 remainder from the Americas, Africa and Middle East.
Certainly half the audience arriving from around Asia is a coup, but it also reflects a stronger drive from Asia to shape the future of banking.
For example, I had one conversation with the Chairman of a major European bank group who believes that the power base is shifting.
For the past century, the power base was firmly in the West and American banks led the way. For the next century, he believes that the power base has moved to the East and Chinese banks will lead the way.
Chinese banks have a new found confidence and, post the crisis, they have a new found capability.
Capital strength and liquidity are in abundance with the Chinese banks, unlike those in the West, but there is more to it than this. Specifically, China’s banks recognise the issues and opportunities in this crisis because they have been through it before.
A decade ago, Asia had its own financial crisis.
Back then, the West and the Americas in particular, took a view that Asia was a backwater with poor standards and knowledge.
The result is that the West had a bit of a superiority complex whilst the East had an inferiority issue.
This is what has turned around.
Today, the Eastern banks and China in particular recognise that they have the ability to dominate the next century of commerce.
This was the focus of the plenary panel on Tuesday and I agree with Dominic Barton of McKinsey who stated that "if you don't have footprint in Asia in the next few years, you will become irrelevant".
A few years ago, that statement would have been laughed at. Today, we just nod in agreement.
Tomorrow's banks will therefore be exploding from an Asian base.
Be there or be irrelevant.
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