Best transaction banking house

2009 Awards for Excellence
Best Bank	Best Investment bank	M&A house
DCM house	ECM house	Risk management house
Foreign exchange house	Commodities house	Short-term debt house
Corporate restructuring house	Securities restructuring house	Sovereign advisory
Project finance house	Equity derivatives house	Structured products house
Transaction banking house	Investor services house	Wealth management house
Private equity house	Hedge fund	Emerging markets bank
Emerging markets investment bank	Emerging markets DCM house	Emerging markets ECM house
Emerging markets M&A house

HSBC: HSBC has benefited from financials’ and corporates’ desire to have contingency arrangements, while its solid balance sheet is an added attraction

Also shortlisted in this category: Citi, Deutsche Bank

In a normal year, it would be hard to deny Citi an award for excellence for transaction banking. The bank is the benchmark: it has the broadest geographical coverage and the widest and most technologically sophisticated product offering. It is consequently always the bank to beat. But 2008 was not any normal year. In the most turbulent 12 months in banking in half a century, Citi’s formidable GTS division has clearly been affected by events not of its own making.

The long-term nature of contracts in many areas of transaction banking such as corporate cash management has disguised a change in mindset among clients. Counterparty risk is the phrase du jour and while no one believed for a moment that Citi was in jeopardy, even in the depths of the crisis, the recognition of counterparty risk – and concerns about government involvement – has, in the parlance of the sector, resulted in Citi starting to leak wallet share.

Citi has so far put up a good fight to retain business – arguably its product launches in the past year have been the most impressive of Euromoney’s shortlisted banks (the others being HSBC and Deutsche Bank). But the new-found necessity by corporates and financial institutions to have contingency arrangements has and will hurt Citi and help its main competitors. Clients have not lowered their expectations when it comes to quality of offering. But they have opened their minds to the notion that getting the majority of transaction banking services from one provider is not a risk worth taking.
This is not to belittle the achievements of Euromoney’s winner of the award for excellence, HSBC, or of Deutsche Bank (which has gone from zero to hero in a timespan few thought possible in transaction banking).

Andrew Long, HSBC: our pitch is as a global bank

“Having been established as a trade bank in 1864, HSBC has transaction banking in its DNA,” says Charlie Laughton-Scott, deputy head, global banking, at HSBC. “And it remains the bedrock of our client relationships.” Transaction banking might be in HSBC’s DNA but it impossible to ignore the fact that one of the bank’s principal strengths in the past year has been its balance sheet. “Rampant media and market speculation about the health of banks has not been beneficial to any bank that came under the spotlight – and that includes HSBC,” says Nicholas Taylor, head of financial institutions group, Americas, at HSBC. “However, by focusing attention on balance sheet strength the change in the terms of debate since September 2008 has been beneficial to HSBC.”

It is important to note that unlike either Citi or Deutsche Bank, HSBC lends on its balance sheet – something that cannot be underestimated as a factor in its success in a year of constrained credit. Indeed, HSBC groups its lending and transaction banking businesses together, generating revenues that are “a multiple of the sexier end of the product base”, according to Laughton-Scott. With revenues at global banking and markets business hit by $6.1 billion in write-downs in 2008, the $9.1 billion in revenues generated by global transaction banking have never been more central to HSBC’s success.

The scope and scale of HSBC’s transaction banking operation is impressive, with more than 3,000 cash management specialists across 86 countries and territories and more than 3,500 trade and supply chain specialists across 62 countries and territories. Of course, HSBC is strongest in Asia and the Middle East and has benefited as these regions have become more important to the global economy in recent years. “However, ,” says Andrew Long, head of global transaction banking at HSBC. “We’re now seen as credible by the largest corporate and FIG players in the US and that is important to us.”

Despite this, HSBC recognizes that “it can’t be everything to everyone, everywhere”, according to Long. “We are actively addressing what is currently a nascent region-wide proposition in Latin America, for example,” he concedes. “It’s important to be honest about where you are and are not a leader rather than having a scattergun approach. In the US that means focusing on the top global and local names and ensuring that we can deliver to them the quality of service they expect from a global bank.”

One frequent criticism of HSBC is that it remains too country-centric and is therefore unable to devise the types of global solutions that define modern cash and trade management, for example. “In an area such as global pooling – which has become increasingly important in the past year as liquidity management has come to the fore – the truth is that no bank has yet created the perfect solution because country regimes remain so different,” says Long.

However, Long says that HSBC is better placed than most banks to achieve effective global pooling. “We generated over $100 million in revenue in 2008 in over 20 different countries, which gives us strong relationships with regulators in those countries in terms of interpreting existing rules and in helping to influence the thinking around the development of new regulations,” he says. “We currently have a pilot pooling project that has benefited substantially from the scale of HSBC and its close understanding of local regulations.”