Banks Start Exiting Trade Finance
It used to be no bank would consider exiting the trade finance business. This was a classic product set and studies by consultants found that bank clients that used trade finance products and services used many more products than those that did not (eg. FX, standbys, guarantees, international cash management, overseas accounts, etc.)
In addition, the fact that more companies must manage global supply chains and are attempting to sell in markets outside their own bodes well for the business, right?
But the business of supporting companies with trade finance, documentary support, FX, risk management, and other services may not be as appealing in the past. What’s new?
Well for one, much of the news around banks shrinking their balance sheets is real. And this is one of the businesses that can be shrunk relatively rapidly given the short term nature of trade obligations. Number two, I believe the efforts to keep up with compliance around trade have added tremendous costs without corresponding revenue gains. I have written about that here.
So it was hardly surprising to see RBS, which had global ambitions not too long ago with their acquisition of the ABN AMRO network, decide to pull out of 25 of the 38 countries it currently has operations and with that, close its Global Transaction service ("GTS") operations. In essence, RBS will turn into a U.K. corporate bank. It told its corporate clients as much by asking them to find other banks or use RBS services through the NatWest systems in the UK.
The implications? Probably like much since the 2008 global financial recession, the rich get richer as the big banks carve up the market share.
But the most dramatic part for those of us in payments, is that RBS is closing its GTS operation.
Reading between the lines, I would hasten to guess that as many of the trade finance businesses within banks now report to Investment Bankers, their pencils are much sharper and the return on capital of this business just did not warrant further investment in technology, compliance, operations, and most importantly people (that is another subject for another day, but trade finance operation staff have some of the more crappy jobs in banking looking at screens all day and checking documents. Not likely to attract the best and brightest from the millennials.
The future? I would imagine we have not seen the end of this.
In addition, the fact that more companies must manage global supply chains and are attempting to sell in markets outside their own bodes well for the business, right?
But the business of supporting companies with trade finance, documentary support, FX, risk management, and other services may not be as appealing in the past. What’s new?
Well for one, much of the news around banks shrinking their balance sheets is real. And this is one of the businesses that can be shrunk relatively rapidly given the short term nature of trade obligations. Number two, I believe the efforts to keep up with compliance around trade have added tremendous costs without corresponding revenue gains. I have written about that here.
So it was hardly surprising to see RBS, which had global ambitions not too long ago with their acquisition of the ABN AMRO network, decide to pull out of 25 of the 38 countries it currently has operations and with that, close its Global Transaction service ("GTS") operations. In essence, RBS will turn into a U.K. corporate bank. It told its corporate clients as much by asking them to find other banks or use RBS services through the NatWest systems in the UK.
The implications? Probably like much since the 2008 global financial recession, the rich get richer as the big banks carve up the market share.
But the most dramatic part for those of us in payments, is that RBS is closing its GTS operation.
Reading between the lines, I would hasten to guess that as many of the trade finance businesses within banks now report to Investment Bankers, their pencils are much sharper and the return on capital of this business just did not warrant further investment in technology, compliance, operations, and most importantly people (that is another subject for another day, but trade finance operation staff have some of the more crappy jobs in banking looking at screens all day and checking documents. Not likely to attract the best and brightest from the millennials.
The future? I would imagine we have not seen the end of this.
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