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Despite the financial meltdown, delegates at Sibos managed to stay focused on the business at hand and many reported that supply chain finance deals are still being inked, writes Justin Pugsley. 

This year’s Sibos meeting in Vienna was unfortunately over-shadowed by the momentous events in the financial markets, among the most damaging of which was the US authorities allowing Lehman Brothers to go bust. That move compounded the fear and mistrust in the financial markets helping it to spiral into blind panic as the weeks wore on. Indeed, the situation has deteriorated dramatically since last year’s Sibos in Boston, when the credit crunch was only just breaking and few could foresee just how bad it would get. If nothing else it makes trade finance look like a safe haven. It potentially makes supply chain finance (SCF) even more compelling as activities such as investment banking and securitisation take the full brunt of the credit crunch.

While the financial hurricane raged outside, delegates, many of whom must have been worried about their jobs, did their best to put on a brave face and soldier on stoically with business. In fact for many it was a very good Sibos.
Indeed, technology vendors carried on signing up new deals and bankers reported growing interest in supply chain finance. One banker in particular said he had never been so busy. “People are taking SCF more seriously and talking much more about detail and how it can help their supply chains in a time of crisis,” he says. “Big corporates are starting to look more closely at solutions for helping companies in their supply chains.”

Also, as can be expected, offerings are becoming more sophisticated. Patrik Zekkar, head of trade finance in Sweden from SEB, remarks that SCF bank products are becoming better packaged and are offering more value-added services. “Aspects such as purchase order matching, reconciliations, legal and documentary assistance etc… are more developed (compared with last year’s Sibos),” says Zekkar.
However, he sees more scope for improvement, especially when it comes to servicing emerging markets and also for better regulatory compliance.

“Despite the news outside of the event, it was a really good Sibos with my team pretty much in back to back meetings for the whole week,” says Olivier Berthier, head of product management, Misys Trade Services. “We noticed that the level of seniority of the people coming to us and enquiring about our financial supply chain solutions was higher and a lot more diverse.”

He mentioned that there were a lot more enquiries from more none-trade finance quarters, such as FX and cash management. “They were interested in the trade services business for the cross-selling opportunities they see it offering to their core business,” says Berhier.
Misys reported a strong level interest in its Misys Trade Portal for Multi-Bank solution. ING and KBC were the first banks to join the platform. “Corporate customers can access multiple banks and their consolidated trade transactions via a single front-end solution,” explains Berthier.
“There’s a growing intent by banks to outsource some of their trade services activities,” says Lawrence Webb, global head of trade services and supply chain head of Asia Pacific trade services with HSBC.

He also noticed a tendency for buyers to strengthen their relationships with strategic suppliers – a move which should favour SCF. “They’re looking for ways to take risk out of the process,” he says.

Wachovia merged
Possibly one of the big events for trade services started to unravel as Sibos was coming to a close, and that was the fate of Wachovia.
Weakened by losses from sub-prime mortgages, it became subject to an acrimonious takeover battle between Citigroup and Wells Fargo. In the end Citi walked away leaving Wells Fargo to close the deal. The fate of Wachovia is important, because it is a major supplier of trade services to banks around the world. It will be interesting to see how triple-A rated Wells Fargo, a bank highly regarded for its efficiency and management capability, will digest its acquisition. Will it want to carry on with Wachovia’s extensive in-house IT team, which produces trade services platforms? Citigroup, by contrast, has been increasingly outsourcing such activities preferring to focus more on banking. It works closely with CGI, for example.

Wells Fargo, meanwhile, has a tie-up with HSBC for the provision of international trade finance. Longer-term, how will that arrangement work out? Will it switch to the Wachovia model of being the trade bankers’ bank and renegotiate its relationship with HSBC? Or will it sell that capability to another trade services player?

As Wells Fargo is conservatively run, it may decide not to keep Wachovia’s trade services model. But then again Wells Fargo chairman Dick Kovacevich is on record for making statements such as “Wells Fargo will acquire all of Wachovia Corporation” and “…will keep Wachovia intact…”
Both banks have been subject to takeover talk for years. Combined they’re much bigger and probably safer. Unfortunately, no one from Wells Fargo was available to comment about trade services.

Next year’s Sibos is due to take place in Hong Kong. Hopefully, by then the credit crunch really will be receding. Although there’s no telling what skeletons could fall out of the cupboard in the meantime – something from the US$65trn credit default swaps market perhaps? But one thing that almost seems certain is that much of the world will be marred in recession by then, but hopefully the green shoots of recovery will be visible by then.