"Cedel Bank to consider going public." That was the rumour during the second week of January. Wouldn't every important lead manager vie for this IPO mandate? However, the likelihood of Cedel Bank going public is about the same as that of Euroclear, operated by JP Morgan for almost 30 years?
Who better to ask to quosh the rumour than Ray Soudah, Cedel Bank's urbane chief financial and investment officer. Soudah has been a key member of chief executive Andre Lussi's "stage-two" management team, which has been responsible for orchestrating Cedel's remarkable renaissance. When Lussi arrived in 1989 Cedel was threatening to disappear completely. By 1994, when Soudah came from Citibank, Cedel was off the operating table and posing a genuine challenge to Euroclear for the first time in its history.
Soudah was recommended to Cedel by former chairman Hans Angermueller like Soudah, a Citicorp veteran. Soudah saw a unique challenge that would regenerate the Cedel Group, its strategy, markets systems and its product range. Through good house-keeping more cash could be channelled into strategic investments, and a better balance achieved between revenues and expenses. Then there was the problem of the group structure. The loose-knit co-op type structure suitable when the Cedel Group was founded in 1970 was no longer appropriate.
Under Lussi, Soudah and their advisers, Cedel Group became Cedel Bank, the most important individual change since the successful renegotiation of the bridge with Euroclear in October 1993. The decision to convert to banking status was driven by market forces as well as management perception. More transparency was required to show regulators, customers and counterparties the low-risk nature of the group (Cedel has never been forced to write off a single bad debt). Customers not only preferred banks and financial institutions which were regulated, but their deposits with Cedel Bank would attract only a 20% risk weighting as opposed to 100% applied to non-banks under the terms of the BIS ratios.
Turnover in 1996 rose by 36% to $13 trillion. Actual profits will not be released until the AGM at the end of May but these are expected to show a strong advance.
Compared with Euroclear, overall transaction volumes are still around 70:30 in Euroclear's favour. But Cedel's performance improves in specific sectors of the market such as non-government bonds. However, a key statistic is in Cedel Bank's levels of new securities deposits, which rose by 18% last year, nearly twice the percentage gain at Euroclear.
Cedel Bank has prime short-term credit ratings from Ibca and Standard & Poor's with recourse to the long-term debt markets a medium-term possibility. Rumours of a public flotation of Cedel Bank equity are, however, probably just a pipe-dream.
In the near term Lussi, Soudah and the management team have their hands full with day-to-day business, introducing new overseas customer facilities such as China Clear and renegotiating the earlier bridge agreement with Euroclear to correct the imbalances between the two systems with the arrival of real time gross settlement. Might Cedel Bank consider an external acquisition? Soudah, who speaks fluent English, French, Greek, Arabic and Japanese, says: "If it became available we could always consider buying Euroclear."