It appears to be that time of year again when every FX bank, broker and bureaux de change starts hounding their clients to complete the Euromoney FX survey showing said institution in a glowing light. TMM are completely baffled by it.
We imagine that once upon a time, in the primordial financial ooze of FX, a Euromoney virus inserted its genetic matter into the DNA of the first progenitor "Head of Sales" and it has survived through the generations ever since. For once a year this recessive gene kicks in and, rather than pursuing the normal aspirations of a financial institution, such as growing a sustainable highly profitable business, the Heads of Sales across the world transform into slavering demented beasts craving to dine on fresh votes. All because they have tethered themselves to a benchmark that is bollox and persuaded the boards of their banks that high rankings in the Euromoney survey are synonymous with a highly successful cost to income ratio and hence bottom-line for the bank.
A Head of Sales at a full Euromoney.
"beware the 'Moony lads, and stay on the roads".
Two of team macro man's favourite aphorisms are "Benchmarks are Bollox" and "Correlation does not imply causality". The Euromoney Survey encompasses both.
As far as a Head of Sales is concerned, the argument goes like this.
- the higher clients rate you, the more business they do with you.
- the more business they do with you, the more money you make.
Which is all well and good - but completely flawed. As anyone who has ever worked in an FX dealing room will tell you.
As the FX wars are basically being fought on the battlefields of credit and technology, it's easy to get clients to do more business with you. You just extend credit lines to every subhuman rated entity out there and then provide them all with an e-platform streaming suicidally tight prices in every product under the sun for them to deal on. The business will flood in and no doubt you will get a stunningly high ratings in the Euromoney Survey. But does this mean you have a flourishing, sustainable and profitable business? As the constantly raging battles on the shop floors of FX rooms between sales and trading will attest, no, and they will continue to attest to it as long as either side's benchmarks are misaligned.
One bank we know had a fantastic franchise that they tried to enhance through the introduction of an algorithmic pricing platform. It was a roaring success as the clients loved it and volumes soared. Unfortunately, revenues didn't. As clients, of course this is just great as we keep getting handed more and more mid market pricing. In fact the banks are now at the point where their fantastic services are being rewarded by being allowed to make a price in competition with all the other banks, which, if won, means by definition they were off market. We wonder how long its going to be before someone on the sell side says enough is enough. Or indeed the regulators... wouldn't any company with an alleged market share of 20%+ attract the attention of the competition authorities?
As a client you do business with a bank for a variety of reasons, but they basically fall into two pots. Doing business with them either decreases your costs (e.g. best price, cheapest prime brokerage, e-processes, outsourced functionalities) or it increases your revenue (great research, information, trade ideas, advice or introductions). But when all other choices are marginal, picking who you actually pull the trigger with depends on whether you like the guy on the end of the phone. Who you pick to do $50m of "at best" will be completely different to who you give $100m, as part of larger, on a price in a "help get me out of here" market. Greater volumes in the second case but the happier bunny won't be the one that just saw twice as much business.
Whatever the business argument is above, TMM are most surprised at how banks think that increasing the Euromoney rank has a direct bearing on profitably rather than the other way round. You are what you are to your clients whether they fill in the survey or not. Wining and dining, cajoling and schmoozing for the extra votes for that extra place on the survey does not increase your profitability. It will only increase the bonus of the Head of Sales who has had the Euromoney survey outcome tied into his performance measures. In fact if you are like us, you will find this fawning for votes positively negative and award less business to those that appear to really care about their rankings. Take heed WereSurvey.
Though we may not have the silver bullet to rid us of this menace, we suggest a little fun. If you are like us poor folks currently being plagued, begged, bribed, induced, beaten, blackmailed or otherwise curmudgeoned into filling in the form of the WereSurvey, please cast your protest vote for TMM.
We promise that, should we win any category and Euromoney track us down, we will send a Werewolf on stage to collect it at the Euromoney presentation dinner and publish the photos thereof on the blog.
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