Lloyds FX seeks to roll back the years; sets sights on top 10 by 2016
In 1990, Lloyds Bank was ranked seventh in the Euromoney FX poll, in what was essentially then a survey of corporates. The proceeding years haven’t been all that kind to Lloyds in FX, and by 2008 the bank had fallen outside the top 50.
“What we haven’t done is go out to
However, a new strategic direction at the helm is breathing new life into its FX business. Last year, Lloyds climbed nine places to 38th in Euromoney’s FX rankings. As far as the bank is concerned, it is just the beginning, as it sets out to reinvigorate its FX division.
Rob Garwood – head of FX sales– in a recent interview with EuromoneyFXNews lay out his targets: to reach the top 20 by 2014 and the top 10 by 2016.
A bold statement of intent? Possibly. After all, the industry is littered with tales of banks announcing their undying commitment to become a leading FX player, alongside the ensuing hiring spree of some of the market’s best talent, usually on exorbitant multi-year guarantees.
It typically ends the same way, too – the going gets tough, management patience wanes and the ambition dies. Garwood says the Lloyds story is, and will be, different.
“What we haven’t done is go out to the market, hire people from the major players and just hope it works,” he says. “The selection process has been much more carefully driven.”
Moreover, it already has a large captive client base, 60,000 of whom have FX requirements. A refocused approach and better connectivity to a host of banking services, via its new e-commerce platform Arena, will form the basis of a healthy and profitable business.
The hard part, and where Lloyds is seeking to reinvent itself, is the on-boarding of institutional clients. Success or failure with that will determine whether Garwood reaches his ambitious targets.
Garwood, who spent 14-years with UBS, joined Lloyds in November 2010, after a three-year stint with Millennium Global Investors.
Rethinking the client relationship
When Garwood and his team sat down in early 2011 to map out a strategy, they set about redefining the way in which they approached client coverage. In Garwood’s mind, the sales model was too siloed. For instance, a hedge fund salesperson might not understand the real-money business, and vice versa. Thus, they couldn’t really understand the others’ respective risk dynamics and flow, and therefore have a broader understanding of how they might add real value to their overall client base.
And so Lloyds took the decision to split their markets sales team, regardless of client sector, between servicing those clients that trade purely on price – flow customers – and those that were seeking to generate a return – alpha-seeking. This same strategy is also being replicated across the bank’s rates and credit business too.
“In a dealing-room environment, even if there are just a few feet separating a hedge fund desk and the real-money desk, it’s very unlikely they will have the innate knowledge required of each of their clients’ segments and their thoughts and views,” says Garwood.
To staff this new structure, Garwood went long on experience and familiarity. For institutional sales, he hired Graham Harris, a 30-year veteran from UBS to run the non-banks flow business, while Bruno Widmer, formerly global head of FX bank sales at Citi, and another member of the UBS alumni, was brought in to manage bank and e-sales. Meanwhile, Mike Walsh, another veteran of more than 20-years, joined from Royal Bank of Scotland to run the alpha-seeking sales team, known as the macro advisory group.
Additions were made to the trading team too, as Lloyds builds out its global trading hubs. Darren Coote, another UBS veteran, was hired in November to run the spot trading in London, while Keith Underwood, formerly of Lehman Brothers and Standard Chartered, was hired to run the New York-based trading team.
The biggest splash came in January, when the bank landed Richard Moore, the former European head of the bankrupt MF Global. Moore, who will join the bank in March to manage rates, credit and FX trading, had an extensive career at Citi between 1986 and 2008 where he had also worked with Garwood.
Lloyds is seeking to build similarly structured sales teams in the US and Sydney, making up the three core hubs for FX, and the recruitment drive in these locations has begun.
What’s the edge?
For all the big hires, clients and geographic expansion, Garwood is keen to keep perspective and expectations in reasonable control. After all, he knows as well as anyone how easy it is to attract the ridicule of the industrial FX banks that now dominate almost half of the market. He’s quick to qualify.
“Our aim is not to take on the top-five flow monsters – that is not our business model,” he says. “Our initial focus is to build a solid, broad, robust platform capable of supporting our franchise growth and our target of being the top mid-tier bank FX counterparty.”
Looking at the 1990 Euromoney poll results, Lloyds’ highest category ranking was equal fifth, as a sterling market maker. Two decades later, Garwood wants to reclaim some of the bank’s home market currency prowess. He sees no reason why Lloyds cannot offer a top-tier service in sterling and sterling crosses, which will form the basis of Lloyds’ initial competitive advantage in FX.
UK banks FX volume (2007 - 2011)
|Source: Euromoney Market Data
As one the UK’s leading corporate banks and the country’s biggest retail lender, Lloyds’ claim to an inside track on the British economy and its currency is not unreasonable. That’s further enhanced by the calibre of research and strategy surrounding the UK economy it produces, led by bank veteran Trevor Williams. The renewed focus on existing corporate relationships has borne fruit. One of the bank’s biggest corporate clients has moved Lloyds to the top of their FX counterparty list during the past 18 months.
Garwood cites a leading UK retailer who recently placed Lloyds as their number-one bank for all foreign exchange activity. A little over a year ago, the bank had not even been in the company’s top 10 dealing counterparties.
Further afield, a large Australian client, with whom Lloyds previously had primarily a lending relationship, has now placed Lloyds as their number-one counterparty for GBP trades and in the top two for AUD. While on the institutional side, though from a low base, the number of clients has grown 100% since Garwood arrived.
Creating an Arena for FX
To back up its ambition, Lloyds launched its single-dealer platform Arena, firstly to its commercial and mid-market firms in November, and will open it up to its larger corporate and institutional clients by the end of next month.
Arena has around 1,000 active clients, but Garwood sees it growing by many multiples. “What we do in e-commerce this year will transform our ability to expand our franchise quickly,” he says. “I expect us to be growing at triple-digit percentages in terms of volume and number of clients.”
Lloyds is a bank that has set clear, but optimistic ambitions, to make inroads in FX. However, the markets of today are quite a different proposition from those in the 1990s when Lloyds last had a seat at the top FX table.
It has been transformed, in large part by the entrance and now dominance of financial institutions and hedge funds, and the adoption of electronic trading. Corporate banking relationships will get it some of the way, but will not get it to a top-20 position, let alone a top-10 spot, further down the road.
Lloyd’s CEO António Horta-Osório has consistently referred to FX as being a strategic priority for the bank, but he will need to be patient. The institutional market is highly competitive, and without a presence in FX prime brokerage, the task is even more challenging.
Meanwhile, Garwood and his veteran management team will set about executing the plan.
“There’s absolute belief across Lloyds’ corporate markets division, and the people that have been at Lloyds for a few years have been energized by the changes and investment they’ve seen,” says Garwood. “It’s a great challenge and one which is doable.”