The plan remains: Everyone gains

FX services have roared fast out of the recession. No longer a niche market; Commerzbank's Peter Billington and Gerald Dannhaeuser are confident a multi-product FX offering for corporate, institutional and retail clients is the way forward

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Commerzbank has been a leader in corporate banking since its establishment more than 140 years ago. The changes have been immense during their tenure as currency and technological innovation force pace. Technology has played a huge part in transforming the FX market but it’s not just about the speed and execution. It’s also about the support structure behind it, be it for institutions, corporations or right down to retail clients, now also fast-adopters of algorithmic technology.

To be a leader in this field a company must devote itself to meeting clients’ contemporary needs. At the heart of Commerzbank’s business ethos, is an unswerving dedication to the quality comprehensive client services they offer to both private and corporate customers. It is by this criterion they measure their success.

Commerzbank is well aware that one of the key challenges in the FX market is the connectivity between the bank and the client. It’s essential to provide sufficient must-have products, at the right price and right speed. “Price is obviously a crucial part of any trade,” says Commerzbank Corporates & Markets Global Head of Foreign Exchange Trading, Peter Billington, “but service is equally important. What makes your service really different can really help you stand out from the crowd and having a global coverage model helps us to do this.”

He continues: “It’s very important to us that our clients have access to the market whatever the time, whatever the location; whether that be in London or in Tokyo. Our aim is to ensure the best possible service is available at all times.” Commerzbank is managing to get this balance right, with a client-focused approach based on its domestic footprint of more than 100,000 corporates. It’s a deeply impressive hinterland from which Commerzbank regularly draws huge experience and know-how from.”

Managing client risk and liquidity
It’s not just about offering services to corporates. Institutional clients are increasingly important for Commerzbank. To retain these, Gerald Dannhaeuser says outstanding product performance in all areas is crucial. “Things have had to change since the credit crisis. Everyone has spent time looking at their risk profile and knowing their books, as a result clients are increasingly reliant on their relationship banks to provide risk management and client advisory services.”

“The regulatory landscape is also changing,” he goes on, “and we want to be part of that in an advisory capacity. We have a sophisticated product range and service offering that clients can have a real direct use for, be it, pricing, liquidity, or research. It’s about understanding your client’s business in-depth and offering this as an integrated service to clients.”

New players are also bringing competition to the sector. Commerzbank knows the market is simultaneously becoming much broader and fragmented, and therefore potentially ripe for consolidation. But it’s also a very competitive market to be in, which ultimately has to be good news for end users and participants. The FX sector also has come through the global downturn relatively unscathed, unlike other banking areas that were severely rocked during the credit seizure. Much of this is down to its relatively higher levels of liquidity and increasing levels of service, transparency and product sophistication.

Commerzbank has been recognised internationally as a pioneer in FX trading and, notably, by European CEO magazine as the best Foreign Exchange and Treasury Management bank in Eastern Europe. The Panel felt that when they considered the awarding criteria – which includes transaction volume, market share, global coverage, service and security, innovation and originality, financial strength, technology infrastructure, regulatory transparency and good governance – Commerzbank has succeeded in all areas and excelled in one of the most competitive categories (Eastern Europe) in this years awards.

Longer-term concerns and issues meanwhile aren’t going away says Dannhaeuser. “Hedging of longer maturities, uncertain exposures or liquidity concerns, these all matter. But it’s about finding solutions. Adapting to change. Huge numbers of trades are done every day. But in the current environment you can’t take an issue like liquidity for granted.”

Future risk, future planning
It’s one thing buying in at the right moment, but a big part of Commerzbank’s offering is about ensuring the right exit strategy is available too. This is where having a wide scope of products really benefits its clients. “There was an under-appreciation of this aspect in the past,” acknowledges Billington. “But with markets changing, people have become much more mindful about the longer term.”

There is certainly more a mentality, Peter Billington comments, for really understanding risk management from clients. “We’re definitely seeing appetite for understanding risk and susceptibility better than before the crisis. A lot of our business also has a direct link to the client’s original business, be it M&A, manufacturing or international trade. So it’s a reminder about what we are all trying to achieve and why we are doing it. Too many people tended to forget about liquidity in the past.”

The key strength of COBA’s multi-product offering is that it is carefully weighted. “No single product dominates,” explains Billington. “Instead, we have made the decision to ensure that all our areas are inter-linked and benefit each other in order to provide our clients with the best possible all-round product palette.” Looking ahead, having an integral FX strategy will become increasingly important for many. This shift will also surely mean greater volumes and efficiencies, increased revenues for those who get their offerings right, and inevitably reduced                                transaction costs.

A new world
Just like the new accounting standards a few years ago, a likely new regulatory framework will mean additional pressures and answers. But fundamentally the FX trade environment will remain the same: the need to trade in a variety of currencies is not going away and will more likely build in future than dissipate. More of the same? Yes, but more influential and more powerful – a real growth area.

“What’s important is to really understand and anticipate our clients’ needs,” says Dannhaeuser. “We can do that not only through investment in technology but through our people and the offerings we create. It’s a hugely substantial package.”

Commerzbank’s own roots with retail and corporate clients remain deep. But its increasing confidence and dedication to the institutional market is plain to see. Its capabilities are first class and its commitment to its clients across its home market of Germany and the wider European region is beyond question. ìClients want more than a best price at a certain millisecond. They want answers to their own varied circumstances and demands. But you can only meet those demands by offering a fully tailor-made service,” says Dannhaeuser.

In today’s world, the dynamics of the markets can change very quickly. The ability to develop timely market-leading solutions for clients is crucial. Ultimately this means reacting quickly while relying on long-held Commerzbank expertise. Not every player, has this experience. Cutting edge technology and keen in-house pricing in collaboration with wide human risk management facilities has to be the way forward. It requires huge amounts of investment and deep pockets. Get it wrong and it can be very expensive. Commerzbank have clearly remained one step ahead of their competitors.