The sub-prime crisis has presented opportunities for institutions whose balance sheets have been left relatively intact to boost their trading operations, not least in foreign exchange. Several, such as Canada’s CIBC and Japan’s Nomura, have already started to build out their FX businesses, while the market is still waiting to see how existing heavyweights HSBC and JPMorgan will evolve. BNP Paribas is another player that market participants might be wise to watch.
The French bank can hardly be classified as a non-player; it is just that it has traditionally gone about its business in an understated manner. It has made steady progress up the Euromoney FX poll rankings. In 2005, it ranked 19th by reported turnover in the poll. This year, it had risen to 10th, not bad progress for a bank that has perhaps not focused on the poll as much as most of its rivals.
Business position
Senior figures at the bank have always emphasized that they have concentrated on their FX business’s profitability rather than a position in the rankings. However, that now appears to have changed and the bank is making no secret of its ambition to become a top-five player in the market.
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“We have been given a clear mandate [by the bank’s management] to do what it takes to become a top-five player in the FX market” Eric Auld, BNP Paribas |
“There’s been a big decision on the part of the management to go for it in FX. We have all the ingredients to be a really big international FX player,” says Eric Auld, BNP Paribas’ global head of FX and FX hybrids. “We have a strong balance sheet and excellent staff, and I’m very optimistic and glad that we have the backing to expand the business. We recognize that we cannot do it overnight and we’ve thoroughly analysed what we have been missing.”
Two of the missing ingredients are clearly FX prime brokerage and a strong e-commerce platform. Auld says that will soon change. “We’re planning to significantly boost our e-commerce offering and capabilities and we recently acquired the intellectual property rights of AIG’s prime brokerage business, as well as a team of nine to run it,” he says.
According to François Boisson, the bank’s European head of FX sales, the prime brokerage offering will go live in January 2010. It will remain under the control of the investment bank, although Boisson says it will work closely with BNP Paribas Securities Services, the bank’s wholly owned custodian subsidiary.
The professionals
Boisson believes that the bank’s balance sheet puts it in a strong position to attract new business. “We’re looking to further push into financial institutions. We have an enhanced focus on ratings-sensitive counterparties, including central banks and pension funds. We are continuing to target pure corporates but we’re also looking to partner with regional institutions as a way of distributing our products and especially our derivative capabilities. I think it’s fair to say that we might often prefer to trade with what we’d term under Mifid professional counterparties.”
He adds: “The 2008 crisis has presented us with an opportunity to deal with customers who once claimed they were over-broked. Clients are now cold-calling us and that’s a nice position to be in.”
It seems BNP Paribas has found itself short of sales staff to cope with the demand – market rumours suggest that it has embarked on a hiring spree and is prepared to pay generously.
If this is true it will be interesting to see how the bank manages to cope with the political pressure that awarding big pay packets generates, especially as French president Nicolas Sarkozy has been so vocal in his calls for curbs on bankers’ salaries. And, of course, FX history is littered with the corpses of wannabe players.
But it is possible to break into the FX bulge bracket, as Barclays Capital has shown, especially if the attempt is built on solid foundations. BNP Paribas insists it is not going for a short-term boost but that it is seriously thinking for the long term.
“We are looking to become more aggressive in our approach to the FX business,” says Auld. “Being a large revenue earner has always been and will remain the key objective. But to get to the next level, we realize that we have to become more of a flow business. We have been given a clear mandate [by the bank’s management] to do what it takes to become a top-five player in the FX market.”
