Transaction Banks Launch Internal JVs With FX


In the lead-up to SWIFT’s Sibos conference in Boston, I sat down with a number of the world’s leading transaction banks to get their take on how the banking markets are changing and what it means for corporates. A big change that a number of the banks are making is setting up internal “joint ventures” to bring together what were once siloed products. One of the key areas where banks are trying to leverage their strong transaction banking relationships is with foreign exchange: cross-selling FX payments services to transaction banking clients.

This, of course, is hardly surprising given what is happening in the FX market (and, in fact, capital markets and investment banking in general), as we reported on in our September issue in Gordon Platt’s piece, Where Have All The FX Traders Gone? In a nutshell, with regulatory uncertainty and the end of prop trading for a number of global banks given the introduction of the Volcker Rule, FX trading volumes are at historic lows. Banks are looking at any and all ways to leverage their current infrastructure and knowledge base in order to reinvent themselves in the new, less-risk-tolerant global regulatory and investment environments. Hence, tying FX and transaction banking (and investment banking and transaction banking, and…) more tightly together.

This has become such a trend that I recently saw this job posting in a transaction banking forum on eponymous business networking site LinkedIn: “Exciting & unusual banking role combining FX and Transaction Banking.” Key responsibilities? To develop networks across sales, product and delivery in the corporate, bank and investor and intermediaries segments, and drive uptake and adoption of FX payments, RFQs, collection and trade FX functionality. Location? Hong Kong.


The trend to integrate products is pretty universal among the biggest transaction banks. Naveed Sultan, global head of Citi’s Treasury and Trade Solutions, says the bank now uses scorecards across the franchise with business goals relating to each product and giving relationship managers a broader view of client relationships. “And based on that view, we can both serve our clients and gain a greater share of their institutional business. For example, when TTS has very strong embedded client relationships, we can introduce these clients to other Citi services covering investment banking and capital markets. We believe by leveraging TTS relationships, we can create value for other parts of ICG.”

Paul Simpson, who, until recently, was head of global transaction banking at Bank of America Merrill Lynch and is now overseeing the bank's prime brokerage, stock loans, OTC clearing and futures and option businesses, and leading global custody and agency services at the bank, says their integrated approach (perfected over the past few years) makes a big difference in client interaction. “Particularly, for example, in foreign exchange payments, where we leverage a joint venture arrangement with our FX team in global markets. The JV works phenomenally well.”

While all of the banks with which I spoke were moving to the internal JV approach, it was the return, again and again, to FX that really stood out. It is clearly one area where the banks are focusing their integration efforts.

Gareth Lodge, senior analyst at consultancy Celent, notes “I have been talking to a few large banks who have been doing it [integrating services] to leverage their FX capabilities across the board. Back-end synergies are really driving this—particularly investments in the securities sides of the business, which have been nowhere near as profitable as they had been. So the cost savings have been a win-win.”

And the result for corporates? Well, the service aspect certainly seems to be benefiting from the JV approach, or at least not deteriorating, as bank client relationship managers—and product sales manager—now likely have a better view of each company’s overall relationship with the bank, which should help guide a deeper discussion with clients on their specific needs. But corporates are likely to eventually pay for some of the fallout of lower bank returns and tougher regulatory positions, as I reported in our annual Treasury & Cash Management in the September issue.