Sibos preview: Transaction banks expecting a more positive Sibos this year
A sombre mood has dominated the last two Sibos conferences as the financial services industry absorbed the consequences of increased regulation and Lehman's collapse. But with 7,000 registered to attend this year's conference in Amsterdam, it is likely to be more upbeat. However, there are some difficult decisions ahead for transaction banks as they decide whether to compete or collaborate.In the wake of Lehman's collapse and the financial recovery that ensued, the last two Sibos conferences were overshadowed by a relatively introspective mood as banks licked their wounds and waited for the regulators' grip on their business to harden.
Last year's Sibos was about regulation, rebuilding trust and recovering, and while these themes are likely to carry over to next week's Sibos conference in Amsterdam, those banks that are reporting solid and less volatile profits from their transaction banking business lines (payments, cash management, trade and working capital finance) are feeling more upbeat this year. "Transaction banking has performed very nicely," says Werner Steinmuller, head, Global Transaction Services, Deutsche Bank. Compared to investment banking, which has a price to earnings ratio of 7%, Steinmuller says transaction banking's PE ratio is 11%.
And although the regulators' grip will continue to be felt at Sibos, compared to the investment banking business which has had to swallow the removal of proprietary trading under the Dodd-Frank Act, Steinmuller says transaction banking has fared considerably better. "I don't like regulation," he says, "but compared to investment banking, transaction banking divisions have suffered less."
The message being pushed by transaction banks is that they are more relevant than ever before to their corporate customers, particularly when it comes to giving them greater visibility and control over their cash and liquidity. And instruments such as Letters of Credit that were pronounced 'dead' before the onset of the 2008 financial crisis, are in vogue again as more and more companies look for safety and risk mitigation. Deutsche Bank's trade business has grown by 16% throughout the crisis and it expects to make a few announcements at Sibos regarding pre-determined pricing around trade guarantees, regardless of where a buyer and supplier is located.
A number of the pre-Sibos announcements coming out suggest that transaction banks continue to invest in upgrading their payments infrastructure to provide corporates with greater visibility over their cash. Expect to see lots of announcements around mobile remittances and payments from both banks and vendors, e-invoicing as part of the overall emphasis on financial supply chain, and social networking technologies.
Yet, there is an increasing recognition, by some banks at least, that they cannot do everything on their own. Given the scale of investment required in technology and platforms to fend off new market entrants and the need to provide solutions in new emerging markets where banks may not be present, there is more talk of collaboration.
While the collaborate or compete debate is nothing new in transaction banking, the volume of the debate appears to have moved up a notch or two with some major global banks finding the word 'collaboration' rolls more easily off the tongue than it used to. So in those markets where banks don't have a presence, like Africa for example, they are looking to forge relationships with local banks that have strong local market knowledge and distribution networks.
And while the transaction banking business may be flourishing, compared to investment banking, there are new competitive threats from non-bank payment institutions and generally more innovative solution providers that are able to move more swiftly than banks, which are not only overburdened by legacy technology but also the burden of regulation and credit risk committees. Knowing where to invest is becoming an increasingly difficult decision for banks.
There is also the issue of rebuilding trust. Although there is not expected to be as many corporate treasurers attending Sibos this year (there were more than 100 in previous years), those that do make the journey to Amsterdam are likely to pull the banks up on a number of issues: making SWIFT more "bank agnostic", more rapid adoption of the new ISO 20022 standards and giving corporates SWIFT voting rights.
Date Posted:21st October 2010