Is regulation limiting trade finance flows in Asia and is the Qingdao port scandal just the tip of the iceberg? GTR Asia gathered its editorial board in Singapore to discuss.
- Rupert Sayer, co-founder of GTR and CEO of GTR Asia (chair)
- Stephen Capon, regional manager, political risk and credit, Asia Pacific, Ace Global Markets
- Christie Davidson, chief representative Hong Kong, GTR Asia
- Ivone Hodiny, executive director, head of structured trade, commodity and trade finance, DBS Bank
- Michael Hogan, head of trade, Asia, National Australia Bank
- Marcel Ivison, head of export and structured trade finance, Asia Pacific, Credit Suisse
- Neal Livingston, head of global trade and transaction banking, CBA
- Jason McGee-Abe, senior reporter, GTR
- Anthony Palmer, chief executive, BPL Global
- Kuresh Sarjan, managing director, global trade, Asia Pacific, Bank of America Merrill Lynch
- Shivkumar Seerapu, managing director, regional head, trade finance, Asia, global transaction banking, Deutsche Bank
- Gordon Sparrow, executive director, head of trade sales, global transactional services, Westpac
Sayer: Firstly, given current market conditions – so tightening regulation, compliance governance and volatility, etc – how do banks these days enhance their structured trade finance deals?
Sparrow: Flow businesses are vulnerable to interruption and disruption anyway, so we have always lived with that. I think that a lot of the regulatory change pressure that we are seeing is being more easily absorbed as we become more accustomed to the rate of change. There are significant changes in terms of how capital is being treated and so on.
From a banking perspective, I think we have become a lot smarter at how we manage that the changing environment. Certainly from where we are sitting, it is less around how we change the structure of financing solutions than it is around how we manage the environment that we deliver them into. There is focus on how we tighten up our due diligence process how behavioural data informs our view of the environment and how we manage that in the context of the financing that we have provided.
The changing landscape has driven, structural changes that we bring about in order to achieve capital relief, changes to how we manage liquidity and how we face into tapering as a risk, but I think we all manage those pretty well. To me, it remains more about how we manage the environment that we are playing into and how we prevent or manage disruption or interruption that happens in our flow business.
Sayer: Is a lot of this regulation fair enough? Is it long overdue? Is it unnecessarily limiting your ability to carry on doing what you are doing?
Sparrow: There are certainly challenges around it. There is no question that, as a trade financier, trade finance is disadvantaged against other product offerings in the marketplace. It has a drag on trading activity. At the end of the day, counterparties are looking for certainty of payment, ie, customers are looking for risk mitigation as well as for funding. To deliver both of those simultaneously has always been a challenge. I think the regulatory environment in terms of certainty of payment is unchanged but it is around whether we can provide the funding layer, whether we have access to liquidity and whether we have the risk metrics right.
There are, then, going to be sectors of the market – and there have been – that I think have been disadvantaged as a consequence. We talk about the small and medium-size enterprise (SME) sector, which is a segment of the market that is going to struggle to get access to funding, and access at an economically acceptable price, because it does not have the leverage to drive the pricing outcomes that it needs. Banks are constantly pushed, on the one hand, by the buy-side that is saying: ‘We want to see pricing at a particular level,’ and yet we are having to price for risk and capital costs that have changed, so there is that tension that has come into it.
I think the consequence of the regulation has been to create that degree of tension, which has slowed the business down. It has become tougher. Whether it has changed the risk dynamics that was the regulators intention to change, I think is probably open for discussion.
Sarjan: In the past, when we completed structured transactions, it was all about trying to make sure that we get the risk down right, we get the right protection and we get the right structuring and the legal documentation and so on. However, banks have increasingly started to try to meet the new capital requirements, to try to achieve capital-efficient structures, even at the cost of reduced profitability for the bank and increased cost for the client. Historically, you would have said, because of the bank structure and because of the counterparty risk, the bank would have been happy to take 50% on their books and get an export credit agency (ECA) or a multilateral guarantee for 50%. More recently, banks might be forced to increase that to 75% or 80%, just to get more capital relief. To get to better capital adequacy, even if you do not require it from this perspective, you require it now from a capital perspective.
That does two things: it will increase the cost to the client and, in some cases, it reduces the profitability to the bank. Banks and borrowers now have to make that trade-off, just because, in the new regulatory regime, it is just not enough to get the structure and the risk right. You also have to get the capital treatment right.
Livingston: If I think about all of this, I think our businesses are subject to what I would call cyclical disintermediation. Go back 10 years: the focus was heavily around traditional trade. That all shifted into the open account supply chain space. I would argue, however, that that was not led by the banks but by customers. Now, we are seeing, in addition to the regulatory, capital and liquidity hurdles, a whole additional series of disintermediation drivers. Big companies are taking a lot of these risks on to their own balance sheets. We have a whole series of, if you will, shadow banking-type players that are in a position to aggregate/disaggregate not just flows but the attendant liquidity and risk.
I think the banks are staring into quite a challenging outlook here. What is the response going to be in terms of getting back into a position where we can see a through-cycle return that is commensurate with the risks inherent in the business? There are lots of great things about our business. I do not want to taint or colour this conversation with negativity – that is certainly not my intent – but I do think there are some very important structural headwinds.
The other comment I would make is that there are ways to disintermediate these risks now through on-exchange instruments, particularly in the metals space and in the traded commodities space. That is a new dynamic that will grow as we go forward. There are lots of headwinds facing the business. I agree with the comments that these gentlemen have made.
The specific question was: how do you enhance your structured business? I think you need to have a tactical approach but you have to recognise that there are these cyclical trends impacting the business overall.
Hogan: I would add one point to that as well. I think what happened in China was a good opportunity for everybody to look back and say: ‘Are we doing what we are supposed to be doing, the basic stuff, as well as we should be doing it, before looking to other structures.’ I think that has been a wake-up call for many players to go back and re-examine what they thought was a very secure business and very vanilla flows, and say: ‘Was it properly set up, structured and controlled in the way we needed it to be?’
Livingston: So in other words, was there excessive turnover of the book?
Hogan: Yes. It is having a proper understanding of what is going on, because everybody thought it was fine, until it was not fine. That was not complicated business; it was not structured business as such. It requires revisiting some of the basics and asking: ‘Are things working the way we think they work across all markets in which we operate?’ because these are not complicated products but they have tripped up quite a lot of players in the market.
Sayer: Dare I ask whether Qingdao is simply the tip of the iceberg? There is surely more out there yet to be unearthed. What are your thoughts about that?
Seerapu: The next blow-up in Asia, at least on the trade finance side, is not going to come from the credit default swaps (CDSs) and the collateralised loan obligations (CLOs) and special purpose vehicles (SPVs), nor is it going to come from credit losses; I think it might very well come on the back of good old letters of credit. What we are hearing from China about the issues around warehouse receipts, photocopy documents, one-year tenors, and these kinds of LCs is an area of concern. If, as many people believe, Qingdao is only the tip of the iceberg, then this could be the next big blow-up in the trade finance space.
When you go one or two levels below the top-tier multinational and regional/local trading houses – the transparency and the level of visibility you have in terms of who the counterparties are – are they group companies and affiliates, is there a shipment actually taking place or is it goods going in and out of a warehouse, etc goes down. I think that is increasingly, for us at least, becoming an area of concern.
Hodiny: If I can add to that, in terms of the Qingdao case, I do not know whether it is, as you say, the tip of the iceberg. DBS, and I believe other banks as well, is going into a lot more KYC. We have gone into KYB as well – Know Your Business – so we put a lot of due diligence on a full-transaction basis. However, there will always be risks you can’t foresee.
Hogan: To Neal’s point as well, the trade finance products out there at the moment are solutions to problems that have been around for hundreds of years. While they can all be used to very good effect, they can also be abused to bad effect as well, if we are not careful and if we allow it to happen. It is the responsibility of the banks to make sure that they know their business and that they know their clients’ business, and that they can differentiate between what is legitimate, or physical if you want, and what might be structured, synthetic, and whatever else you want to call it. There is a risk of getting too hooked on something, if the industry is not careful.
Livingston: There is a real irony here because you have a wave of regulation, yet, arguably, the industry did not pick up the copper mountains, the excess inventory build-ups and the speculation beyond the norm that we now, with the benefit of hindsight, all know was going on, but we were all very happy to continue to play into that as a commercial opportunity. Were we blind or naïve? Did we not see it? Were we just hooked on the incentive of ongoing business? Qingdao is simple fraud but, obviously, it has exposed a much broader issue. The fraud will get solved, then there will be other frauds in due course, without doubt, but the bigger question, I think, is: what was really going on there? Was it supporting an economic, commercial activity? That is what our raison d’être, as trade bankers, should be.
Sayer: What is the view from the insurance market on Qingdao and how your market reacts?
Palmer: As far as I am aware – and I do not know if Steve thinks any differently – I am not aware of any of that hitting the insurance market. I have just heard on the grapevine what has happened; I have no direct experience, I am glad to say. It is just like Cuban sugar warrants 15 to 20 years ago: the same story again. We have seen issues in other countries of similar things.
Is the whole collateral management agreement (CMA) concept viable, given what is happening? I do not know what your view is on that, Steve?
Capon: We have not seen any claims that I am aware of, on the underwriter side, but I agree completely. Any underwriter in their 40s always makes the comparison to Cuba.
Certainly from our perspective, most of the underwriters who I have spoken to have been very wary of that kind of business anyway. We were very conscious of the build-up in some of the stock just because of the range of businesses that we deal with. I would say most underwriters have not even been exposed to those flows.
Coming back to the earlier points about profitability for the banks being squeezed. When I run the transactions shown to us by banks through our capital model then in many cases the risk/reward simply does not work. The competition in the bank market means that, as noted before, it is supply and demand, in terms of liquidity, not risk/reward which is driving pricing. The banks are originating at such a low price that there is often too little left to make it economical for the insurer. Over-capacity is leading to pricing levels at origination that make distribution ever more challenging just when capital, liquidity and leverage ratios require distribution.
Palmer: Meanwhile, structures are getting looser again.
Hogan: That is a natural evolution. Post 2008, the US have injected liquidity into the system via QE1, QE2 and QE3, the Europeans also had their injections, and Abenomics is the third regional injection. Where is all the money going? Have wholesale structural changes happened, or has that money just turned into cheap cash flooding the market, which affects profitability? The risk is still pretty much the same but, when there is so much supply there, prices are going to come down and margins gets squeezed. If banks are allowing a lot of the ‘frothy stuff’ to go on in the background, we are feeding that party as well. Banks have a responsibility to pull back on that.
Capon: That is tough to do. Everyone has budgets to make and it is a competitive marketplace, so it is incredibly difficult to do. The house view from our side, when I was running the analytics team in London, was that it would probably have been better if we had not had QE and taken the pain. It would have been incredibly painful but short-lived. Instead we have been dragging it out and creating all kinds of new or different problems, which is proving incredibly difficult to manage. We did not allow a proper ‘market clearing’ and have not dealt with the core fault lines and cultural weaknesses that led to the crisis.
Seerapu: I do not think central bankers or governments were thinking of bankers’ profitability and margins when they implemented the slew of monetary and regulatory measures that they did in the aftermath of the financial crisis, some which they are still persisting in.
Livingston: They do when it comes to the question of sustainability.
Ivison: I still think that what really gets the information clear in people’s minds is when you start hearing about bonds and those types of defaults that are coming, because that really is unavoidable. We can talk about trade finance and these sorts of deals at a commercial banking level, but what is really scary and what is really big, front-page news around the world is signs of Chinese companies defaulting under their bonds etc., which we have heard is beginning to happen. Then there is no avoiding this discussion about trade flows and letters of credit (LCs). I know they are very important: they are the bread and butter of many businesses. When it is at that level it is discussed amongst the banks, but I think there are some other issues that will trigger more political involvement and bigger regulatory issues, and that will be demonstrated through the bond market. I think that is linked, lately, with this discussion.
Livingston: It is a remarkably sovereign there, though.
Ivison: It is sort of “China Inc.”, ie, Chinese companies in private and maybe some weaker SOE types of companies.
Livingston: It isn’t in Argentina.
Ivison: No, it is not. In the ’90s, there was however lending to provincial ITICs, which were regarded as quasi-sovereign by many banks. They basically defaulted and there was not sufficient money or political will to support them. A lot of banks had to make significant ‘haircuts’ on those types of transactions.
Capon: I think that is exactly where we are heading. We have a major US multinational with enormous exposure in China. I have continual conversations with them about Chinese institutions, because they are worried, as are we, about some banks being allowed to fail. I have no doubt, Beijing is taking a view that they are going to move to market processes, so they will allow institutions that we think are fine to go. The question is when they are going to start to do that and which ones are going to go, but they are going to do it.
Palmer: Are you talking about banks or SOEs?
Capon: Both. Banks will be there; they will let them go.
Livingston: There is a scenario there where you have a raft of failures and a series of recapitalisations, which will have a disruptive effect. I found this interesting: I am not sure if you all picked up that the Fed did a study post-global financial crisis (GFC) around the resilience of trade finance and whether it was a tool that effectively diluted the liquidity risks that were in the market at that time, or if it had a compounding effect, looking across multiple markets.
Contrary to my impressions, the conclusion was that, by and large, trade finance had a smoothing effect on liquidity imbalances, and actually fared better than other asset classes through that period of time. Obviously, that is a single type of stress test, and there will be other variants that we will have in due course, but I do not go into this assuming or thinking that our asset class will be necessarily as badly or deeply impacted as some others. I think there are leveraging effects that were not in effect six or seven years ago, particularly in primary and secondary FI markets, which are much more connected now than they were, and I think all the banks are much more heavily reliant on the capital and insurance markets than, potentially, they were through the GFC.
Hogan: I think there is a compounding effect into trade from a lot of the banks that have been regulated out of investment banking. They have to replace those lost investment banking revenues somehow, or just be a smaller bank. Many banks are looking for trade finance business to make up that gap, and I do not think it is possible. You cannot replace that amount of lost business overnight. So there are more players throwing more liquidity into the market. Maybe there is something around the corner.
Livingston: Is it permanent liquidity or hot liquidity? If you look at banks that have raised billions of excess capital, that has a purpose through the cycle. What do they do with it short term, however? It goes into trade finance, by and large. I worry about how much of the liquidity in the system today is, for want of a better description effectively hot money, or transient money, which, when there is an event, will be withdrawn. Not to put any particular bank on the spot, but a lot of Indian banks have raised a lot of money, as we all know. By and large, that capital has not yet been deployed into other asset classes or mergers and acquisitions (M&A) activity and the like. It is definitely having a dampening effect on the yields in our business, so what would happen in a stress event or in a liquidity crisis?
Hogan: The price would go back to where it should be.
Sayer: Within this scenario, what is pricing doing at the moment? Where are we?
Ivison: It is under-priced.
Sarjan: From where we stand, there are many dynamics at work here, and it is not simply a supply and demand situation. For example, in India we see supply ramping up, which is a positive development for the broader credit market and creates a more competitive landscape. Therefore, in India and other markets, we are seeing the supply and demand dynamics becoming more capital-based, which is both a logical and market supportive progression.
Sparrow: That belies the intended effect of the capital regime, because we are not pricing that risk back in. We are not pricing for capital, so the market has not adjusted. A point will come, then, when the market is going to have to resettle, and we will start to see risk-based price adjustments and we will start to see the increased capital costs feeding into the pricing mechanism. It is going to be interesting to see how much pain the buyer can take at that point, because the customer base are, I think, going to see an adjustment coming through. Hopefully, it happens on a fairly shallow plane but, if it resets, that can have quite an impact on the customers that we deal with.
Livingston: Then again, none of this is actually new. I have long held the view that trade is an odd business in that you get under-compensated in good times and over-compensated in bad times. I do not think that that has fundamentally changed, and we are in a period of excess liquidity, so yields are compressed.
Sarjan: The credit cycle is still in a somewhat benign situation. In the last few years, international institutions, like many of us around this room, have been faced with a unique scenario whereby credit provisions are concerned. However benign this market has been in recent times, we are seeing select signs that the credit cycle could be starting to turn, which will undoubtedly have some impact on the market in the medium-term. For example, in a market like China, where there has been wide speculation about the health of credit, we are fairly confident that policymakers have made ample provisions for the stress debt and buckets for the stress debt to be taken away. We do not think that it will become a materially negative situation in China.
Livingston: How do you think that plays out, specifically in a China context? Do they do, effectively, what the US did in the late ’80s with the Resolution Trust Corp – in a bad-bank/good-bank structure?
Sarjan: It is an option. There are similar vehicles, and the ability to raise equity capital and even debt capital remains strong in China.
Livingston: The off-take of those distressed businesses?
Sarjan: Yes, it is an option available for the current situation.
Capon: I think there will be those institutions as shock absorbers. That is already happening, but there is no doubt that, if you talk to any of the whole turnover guys in trade credit insurance they are all seeing a huge build-up of overdues on their Chinese business.
Ivison: I think that the government is beginning to indicate this.
Capon: They are. They are being very open about it. I think they took the decision to prop up China Credit Trust on that occasion because they said: ‘We are not ready yet and, if we let this one go, the market could react so violently there are unintended consequences. It is just going to go before we have a chance to manage the process.’
Ivison: That is right: the word ‘manage’ is very key in China.
Capon: I think they have done an amazing job – a much better job than I expected so far – and I think they are capable of that.
Ivison: Yes, which goes back to your point about managing it.
Sarjan: I think it is a fair point. With the first one, it was a challenging situation to manage a broader market impact, but once they get ready to manage the broader market impact, policymakers have indicated their comfort with allowing select defaults. I think that is the question.
Seerapu: Just going back to our favourite topic, which is trade finance opportunities, two things that we are certainly taking a very hard look at right now are the capital and leverage ratios. The fact is trade finance deals that are good for return on capital (better rated clients, well hedged deals) are not necessarily good for return on assets and vice versa.
Sparrow: We are certainly staring into the liquidity coverage ratio (LCR) window right now. The Australian regulator has been fairly proactive around that, and we have started to see the impact of that coming through. How the metrics are set up around the trade product is starting to shift a little, so it is certainly something that we have to keep in mind.
Sarjan: There is a calibrating and outflow factor on that. While ideally we would like the outflow factor to be 0% for trade contingent liabilities because we don’t expect outflows for LC and guarantees to be triggered by stress events, the good part is that it is now left to the discretion of each national regulator and capped at 5%. These are not credit conversion factors (CCFs) from a capital perspective; these are outflow factors from a liquidity perspective.
Sayer: In view of what has been said, what do you all have to do to differentiate yourselves in order to survive in this competitive environment?
Ivison: It is just sticking to the basics and doing them well. KYC is the number one thing. It is definitely the way to start. It is that simple.
Sayer: Is it getting more difficult with credit committees in light of this new environment? Is it more difficult than it ever was? Are you challenged to get certain deals through?
Livingston: Not necessarily. If you look at the broader book, yes.
Ivison: Looking at it at the portfolio level.
Livingston: If you look across the lending space and the relationship products etc, there is more challenge.
Ivison: For example with limits.
Sayer: Is credit-portfolio management becoming more and more important for the banks?
Palmer: Yes, more and more we are talking to the credit portfolio managers in addition to the originators and the syndication teams. Are you seeing that too, Steve?
Capon: Through your services and other brokers, yes, that is exactly what we are seeing. There is a bit of a shift but, the focus appears to currently be on Asia. I am not sure we have yet really seen a big shift in the London market and definitely not in North America. I think it is going to pick up in Asia.
Livingston: To your question, I would observe that, fundamentally, this is still a people business, and why these sorts of events are really important and key. Yes, there is some uplift in information-sharing, technology and models, but it is about people’s relationships at the end of the day. I think our customers value that aspect of the business hugely, despite how hard they will whip us, drive for the next basis point and demand a presentation, etc. Fundamentally, I do think it is about relationships with people. Your publication and what you guys do to facilitate industry dialogue plays directly into that.
Ivison: At the end of the day, it is about knowing your customers as well as possible. The more information and business you can generate with clients is very important. If you can get a good flow of their business including in areas such as private banking this generally helps a lot.
Livingston: In the wealth space, there is a very strong correlation, particularly where you have large, privately held, middle-market companies.
Ivison: We have very good experience of clients who also bank with us privately. We believe that this relationship of corporate business and private business creates better KYC prospects and that often translates into a better credit quality relationship between bank and client.
Livingston: Let me flip that on its head: does the shift to more fronted, syndicated-type arrangements fly in the face of that? Not just from a KYC perspective but from a compliance and regulatory perspective – understanding your customer, how they think, how they operate, what their strategies are, what is on the radar and all those things – we are seeing a shift, certainly in Asia, that is coming. We have seen it in North America and Europe, to some degree. That wave of change is coming here, where you will have, for convenience, if no other reason, more syndicated-driven facilities.
Ivison: I also believe in syndication and club deals. Legally, it is however quite difficult to link the corporate business with the private. You can extract some value and knowledge out of that relationship but, ultimately, you are still doing your trade finance activity on a corporate legal basis.
Capon: I think there is a lot of value in that relationship layer, and what comes from that is a lot of knowledge. We are a repository of considerable amounts of knowledge in the flows. We have knowledge of a big group of clients’ activities and behaviour, and I think that is quite powerful in terms of how we differentiate ourselves in the relationship with the client.
Livingston: That is a great answer to your question.
Capon: We have that intellectual property (IP) and, while this may sound clichéd, we position ourselves as thought-leaders and trusted advisers. We do take up that role and it is based on the fact that the individual client has a view of their own market and their immediate universe, but we have that broader view. Part of our responsibility in terms of the due diligence that we do is to bring that to bear anyway, but it is pretty powerful and it has a lot of value, whether it comes from the residual relationship or the broader relationship.
Ivison: The knowledge is invaluable.
Hodiny: I totally agree with what has been said in terms of the special relationship. But, nowadays with regulatory tightening, as well as transactions becoming more and more sophisticated and complex, there is a need to look at everything holistically. At DBS, we try to make sure that we look at every aspect of risk and we can encompass the end-to-end transaction. In addition, for transactions with special commodities: there is commodity hedging, currency hedging, and so we try to package all of these too. In today’s market conditions, we have good coverage on relationships, and we are also tapping more and more into our regional network. Every bank looks to tap into the people on the ground, because they know the local market better and are able to give us thorough feedback on particular customers, that particular markets and industry. This is how banks differentiate themselves and add value to our customers.
Hogan: I would like to take a moment to take a step back. Over the past 10 to 15 years, when everything was going well, everybody wanted to do lots of things in different places and get involved in all sorts of businesses. If you have then ‘blown the roof off’, basically, and have received a lot of your government’s money and taxpayer’s money, then there is a willingness or a desire for the government to bring you back on to your market and to serve your own market properly, because you have to repay those funds to the benefit of the overall society that has ‘bailed you out’ as it were.
I think the regulators are creating a push effect as well for banks to go back home, where their natural client base is, where their expertise is and where they can gain more from cross-selling activities etc., rather than living off skinny margins on the other side of the world. I think that is basically the old correspondent-banking model of 50-odd years ago, before everybody thought it was a good idea to have a global-banking model. Personally, I think the global-banking model is dead – and that shift will be accelerated over the next five or 10 years.
You will get some of the Southeast Asian banks growing here now and providing more regional coverage, but I would not expect to see CIMB or Maybank doing an intra-European flow. There is no natural advantage for them, so they really have to have some IP that nobody else has, to be able to sell it to a client base that is not naturally theirs. People will maybe reflect a little and go back home: ‘If I have a skinny margin in trade, then I better be doing everything else with this client in a place where I have the full product set.’ That is, naturally, your home base rather than the other side of the globe.
Ivison: That has been proven: for example, many of the Scandinavians did that when the markets became bad in the late ’90s. Many went back to Scandinavia and the Baltic markets.
Hogan: The problem is banks forget their home base. The question was asked about what the conversations are like with credit committees: as long as there is enough of a story to paint, then it is okay. Why am I in this flow? Is it because our clients are in the flow, and are they moving goods from one place to another? If I am in it, then and I should see that flow and have access to it. Between the four Australian banks, we should dominate 80% of the flow, for example, from Australia, but not expect it to be the same elsewhere. What has a Belgian bank intervening in that flow got to offer – unless you have super-cheap pricing or something that nobody else has?
That reshuffling, I think, will take place, and banks will need other banks to extend their network. I do not think it will be a single bank that will be able to pull off being everything to everyone, everywhere. HSBC is reducing their focus of coverage areas to six strategic markets that Stuart Gulliver, CEO of HSBC, put on the table, and they were the world’s bank. Today, it is a six-strategic-market bank, with a real focus around China.
Seerapu: I still believe that there is a strong role that global banks can play today, and there is room for local, regional and global banks to co-exist. When we say global banks, we do not mean that they need to be in every country and city in the world. Even if they are present in the biggest financial hubs of the world and cover the top five to 10 markets in each continent that network can bring significant competitive benefits and value to clients who are looking to global. Yes, you are right that every bank cannot be in every market. Every bank, I am sure, cannot be in every client segment, even in the markets they choose, but they will pick and choose their hotspots, and those hotspots may not necessarily be only in their home market.
Capon: I would agree with that. In terms of the way we have structured ourselves, we have a team looking at political risk and credit, sitting in São Paulo now. We have been here (Singapore) for seven years; we are in New York and San Francisco and London is the central hub. We will be in Tokyo and maybe in China, but that is a long way away. Those hubs, are necessary to service our global clients. We do not need to be anywhere else – just in those hubs.
Livingston: The bigger question here is: what does this mean for treasury strategies and the client base? In terms of the historical assumptions around how you get access to capital markets and to the relevant services you need, particularly if you are multinational, I think that equation has changed. We are seeing quite different outcomes in terms of relationship focus, strategic alliances and whom clients want to partner with now. I think they are getting that picture quite strongly.