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Foreign Exchange

Euromoney FX survey 2011: BAML cedes US corporates to Citi

Bank of America Merrill Lynch is big, but it has a small FX footprint. With some key hires in recent years, it hopes to capitalize on its potential. Can it deliver? asks Hamish Risk

Peter Antico

Bank of America Merrill Lynch’s FX business is bigger now than the sum of its former parts, says its new global head of G10 currencies, Peter Antico. At first glance the numbers in the Euromoney FX survey 2011 bear this out. While its overall position is unchanged at 12, BAML has been quietly accumulating market share, increasing volumes by 37% over the past 12 months.

But the picture isn’t all rosy.

This year’s survey has exposed a flaw in BAML’s fair complexion. It has been toppled by its great rival as the leading FX provider for US corporations, a position BAML had held for the past two years. Citi leapfrogged BAML’s relatively unchanged market share of 13% by grabbing 17.4% of the market, up from just 12.96% last year.

Most of this reversal is due to BAML’s weakness in e-commerce. While BAML’s strength has always been with its corporate and commercial customers, Citi’s CitiFX Pulse has gained traction among US corporates.

It’s something that Antico and his team are rectifying. BAML is now into a second year of building its e-commerce platform presence, with the key hires of Michael Dubno, the former chief technology officer of Goldman Sachs, joining as head of global markets technology in January 2010. At the same time Liam Hudson was lured away from Barclays Capital to be global head of electronic foreign exchange and Richard Elliott from Credit Suisse joined as head of eFX options trading.

BAML is upgrading its technology and increasing capacity to process more trades and improve the yield from the flow across the platform.

Antico expects to make up ground quite quickly, increasing daily trading volumes significantly within a few months. BAML declined to give details of any forecast increase in volumes, or any potential percentage increase in revenues it expects to achieve with its FX platform rollout.

If they can get it right, the potential returns are compelling. “We could do even more business with our commercial customers,” Antico says. “We’re investing in our electronic product offerings that enable our clients to hedge exposures and make payments while matching their workflow needs.”

BAML has 160,000 customers nationwide who manage payments through its banking network, yet only a minority do FX conversions through it. BAML has begun to roll out its own FX application to those customers. “We want to be on the desktop of every major commercial customer across the country,” says Antico.

“In America where we have just started to hit the tip of the iceberg, without even exporting many of our capabilities. Once we do this, we will be a top tier business, and that’s what we’re aiming for over the next couple of years,” he concludes.

Key hires

But there is a bigger picture that has allowed BAML to keep its overall ranking. The bank has made some important hires in sales and trading since Bank of America and Merrill Lynch merged in late 2008. In 2009 BAML hired Chris Bae from Goldman Sachs and Tom Gillie from Credit Suisse to run its global options business. It added Doug Horlick, also from Goldman, to run FX sales in the US. It picked up high-profile FX strategist David Woo from Barclays Capital to run FX research last year.

Efforts to develop its institutional client base seem to be paying off. Trading volumes from real money clients are up 130% over the 12-month period, improving its client ranking from 15 in 2010 to 8 this year.

Antico is pleased with the progress. “Given who we are and what we’ve come through, I don’t think the growth in our institutional business should surprise anybody,” he says. “It’s a lot of IT work, the right hiring, improving our trading metrics, and forging ahead.”

While the progress made with real money is noteworthy, Antico is well aware that for BAML to be a force in global foreign exchange, it needs to do three things: maximize its domestic market strength; build an electronic platform that can easily be scaled up; and manage the risk that it executes.

A lot will rest on BAML’s ability to deliver a credible electronic solution at a time when regulatory reform is reshaping the structure of the market. But Antico believes change will work to BAML’s advantage, as smaller banks struggle to find the resources to invest in the technology requirements that regulatory reform mandates. That said, execution, pricing and functionality will still need to be spot on.

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