A report released by Euromoney, a research company specializing in financial markets, recently revealed that consolidation is the name of the game for the forex industry in 2012.
And why not? Contagion fears in the euro region are unlikely to be resolved anytime soon, threats of currency intervention from the Swiss National Bank (SNB) and the Bank of Japan (BOJ) are still strong, and global economic growth is still on a knife’s edge. In unusually uncertain times, it makes sense for investors to put their money on where they think it’s safest.
Unsurprisingly, the big names and established players in the banking industry are benefiting from the flight to safety. Euromoney’s report detailed that the world’s top currency-dealing banks have shown increased market share, while less popular institutions have suffered dramatically lower trade volumes.
Here’s a link if you want to dig deeper into the report: http://www.euromoney.com/Article/3022109/FX-survey-2012-Results-index.html
The heads of the top banks’ foreign exchange departments are saying that the forex and investments industries have gotten extremely competitive. Read on to see what else they have said about the industry:
For the eighth straight year, Deutsche Bank is the numero uno choice of traders when it comes to foreign exchange transactions. Unfortunately, its market share fell to 14.57% this year from 15.65% last year.
Kevin Rodgers, the global head of its FX spot, e-trading, and Derivatives Department, had this to say:
“It’s difficult to tell whether the slowdown reported by ECNs [electronic communications networks] means there is a slowdown on ECNs or for the market as a whole. It certainly does not reflect Deutsche Bank’s volumes which have continued to rise… In preparing for new regulation, our approach is to be flexible, and to be ready for a range of outcomes.”
Citigroup was the biggest gainer for this year as it jumped to number 2. Its market share rose to 12.26% from 8.86% last year.
Despite the strong performance, Jeff Feig, the Global Head of the G-10 Foreign Exchange Department, seems to be very cautious. Here’s what he said:
“I cannot see how consolidation does not happen. The margins have contracted to such extremes that you have to either have a niche focus or be a wholesale provider to the general market place. In which case, you have to invest a huge amount in technology, infrastructure and people. Without critical mass you can’t do that.”
While both Deutsche Bank and Citigroup had good results, Barclays didn’t fare so well. It’s now sitting at third place, down one spot from last year.
Nick Howard, the Managing Director and Global Head of EM and FX Distribution department, seems to be optimistic though. Here’s his take on current market conditions:
“There is consolidation taking place, because what is required to deliver products consistently, and to prepare for future changes such as regulation, is significant. It takes significant investment, and I’m not sure the smaller players will have the capacity to continue that investment. I think as it is contained within three or four banks, it represents healthy competition.”
Since concerns on the markets (e.g. contagion in the euro zone, QE, and currency intervention threats) don’t seem have an end in sight just yet, the consolidation in the FX market will most likely continue.
However, it doesn’t necessarily mean that the smaller banks will be pushed out of the industry. Euromoney’s report assures that they still have a firm grasp on some company ties in their own local markets. In the meantime, we’ll most likely continue to see a fierce battle among the world’s top currency-dealing banks.