As the Euromoney FX poll has consistently shown, the market has been concentrated into the hands of fewer and fewer banks. In 2007, the top five accounted for a staggering 60.7% of the market.
And yet clearly the hundreds of banks that account for the rest of the market are not in it purely for fun. Some might offer FX as an ancillary service but the vast majority are still "in it to win it". But to capture market share from the big players is clearly a big task.
At first glance, UniCredit might seem an unlikely tip to be the banking group that manages to upset the status quo. The bank was ranked 31st in the 2007 Euromoney FX poll. And although the bank has grown rapidly by acquisition and merger, it has remained below the radar screen of many market participants. For instance, when the high-profile appointments of Keenan Altunis and Steve Turner as global head of FX sales and global head of hedge fund sales for FX was announced in September 2005, the two former Deutsche Bank employees must have got tired of responding to the question "Uni who?".
However, many of the bank’s constituent parts are familiar names to anyone who has worked in FX for any length of time – Credito Italiano, Banca di Roma, Bayerische Vereinsbank, Hypo Bank, Bank Austria and Creditanstalt were all active players in their day. Additionally, UniCredit has a significant historical presence through these constituent parts in central and eastern Europe. The bank now claims to have a leading position there, as well as in its core markets of Austria, Germany, and Italy.
UniCredit also has significant firepower. With the exception of HSBC, Banco Santander Central Hispano is the only bank with a larger market capitalization in Europe. With a value of about €75 billion, UniCredit is significantly larger than Deutsche Bank, the number one rated player by volume in the Euromoney FX poll. And if the rumour mill proves correct, UniCredit is about to get even bigger by making another significant European acquisition.
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"What this bank has in central and eastern Europe is spectacular. What people need to know is that this is a big institution and we have critical mass"
Ben Welsh, UniCredit |
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Having been put together over the past decade, UniCredit is now focusing on its FX operation. In September, it announced that it had hired US citizen Ben Welsh as its global co-head of fixed-income currencies and commodities. The appointment of Welsh, who has held senior roles at HSBC and Goldman Sachs, looks as if it might be a convenient way to overcome what outsiders would see as an inevitable culture clash between Italians, Germans and Austrians. Welsh plays this down. "I actually think it was very bold of the bank to hire an American. I think the idea was for me to come in with an unbiased opinion. We obviously have cultural differences, but I think ultimately that’s what makes us strong," he says.
Welsh believes that even without making any radical changes to what is already in place at UniCredit, the bank should feature higher up in the Euromoney poll. "I would suggest that’s [the poll ranking] not an accurate reflection. There’s an awful lot of FX business done at this bank. It’s more than I thought. We don’t break the numbers out, but what we generate here makes us a player. If we’re not top 20 next year, I’d be disappointed."
Looking further ahead, Welsh feels that UniCredit could move further up the poll. "When I look at the banks listed in the top 15, I think that’s a good peer group. They’re all good and credible financial institutions," he says. But he is aware that the bank will have to do more than just visit clients and flash its balance sheet and market capitalization at them. "When I joined this institution, we discussed implementing a three-year business plan. I think you have a much higher chance of being successful and building a successful business if you’re not so focused on purely the next quarter," Welsh points out.
In an ideal world, UniCredit would be able to start with a metaphorical blank sheet of paper. But the reality is that the institution has to integrate not only different cultures but, perhaps more important, different infrastructures, particularly on the IT front. "Building the FX business from here is a massive IT undertaking," says Welsh. The idea is to be slow and methodical in our approach, so we make sure we continue to service our clients and manage our risk as we go through changes. We have the additional complexities of local tax and banking regulations, which we need to be sensitive to. The idea is to migrate to as few systems as possible over the next two years. I don’t envisage a big bang where we unplug all the legacy systems."
The bank also has numerous trading rooms – at the last count it was believed to be 39 – and several back offices. Welsh points out that it would be rash to close all of these and have a single centralized trading room and that the value of local knowledge should not be underestimated. "Local knowledge is key and it suits us to manage eastern Europe, for instance, out of Vienna. It has proximity and well-established links, as well as a deep local talent pool," he says. "But London is by far and away the financial capital of the world, due to time zone, the regulatory regime and the emergence of Europe as a force. I would envisage that there will be some consolidation of our back offices and the idea is that, with the exception of local market trading, the vast majority of the risk will be managed out of London."
Ticket processing could be another thorny issue. Again, UniCredit is unable to simply rip out what it already has in place – it cannot even present a single name to clients. "You have to remember that UniCredit is made up of so many banks that have come together," Welsh says. "You still have clients that face HVB, UniCredit and BankAustria. There’s more to it than just deciding we want to be on one system. We have to change the way we interface to the market."