The average foreign exchange volume conducted by large corporate and financial institutions worldwide rose slightly but significantly in 2002, but at the same time interbank trading fell off. Or so says a 2002 study by Greenwich Associates.
“Customer business – as opposed to interbank business – has become more important to the banks,” says Greenwich Associates consultant Tim Sangstons.
Among the larger users globally, the average volume of foreign exchange trading by the same 716 institutions in 2001 and 2002 rose from $26.6 billion annually (all values shown are in U.S. dollars) to $28.2 billion. Among the largest of them, those that trade more than $10 billion annually, the average rose from $53 billion to $54.5 billion.
Examining the market by region, average forex volume is up sharply in continental Europe, Canada, and Australia/New Zealand; up slightly in Latin America, Asia, and the United States; and marginally down in the United Kingdom and Japan.
70% of larger institutions – up from 67% – are conducting at least some of their foreign exchange trading on a “non-competitive” basis, including 96% in Japan, 82% in the United States, and 73% in the United Kingdom.
There is evidence that forex users are reducing their number of dealer relationships, in part because of greater dealer consolidation but also to matter more to those they do trade with. At the same time, banks are attempting to conjoin their foreign exchange services with related products in order to maximize their client business.
Notes consultant Peter D’Amario: “With corporate customers, they are moving to cover each of their institutional clients with the whole range of products that a customer may need – having each of their salespeople responsible for covering a specific customer’s needs in foreign exchange, derivatives, sometimes even debt capital markets.”
More than half (51%) of the larger institutions using foreign exchange around the world prefer to be covered by a foreign exchange specialist; 22% prefer to be covered by a generalist supported by a specialist, and 13% prefer pure coverage by a generalist across products.
Institutions are awarding more of their foreign exchange business to those banks that supply them with credit, Greenwich Associates research shows. 59% of larger corporations and 24% of financial institutions award new or additional business as a result of lending relationships.
In most regions, particularly Latin America and Asia (excluding Japan and Australia/New Zealand), such awarding takes place as often as 40% of the time. The lowest proportion awarding their forex business for credit consideration is Japan.
“It needs to be emphasized that Greenwich Associates research does not show evidence of untoward duress by the banks themselves in the form of credit coercion, but instead an active and deliberate policy by institutions to manage their bank relationships better, Greenwich Associates consultant Frank Feenstra says. “Institutions tell us they are trying in a more focused way to rise in value to their banks and in turn win more favorable attention when they come calling for a loan.”
Overall average total compensation for foreign exchange professionals globally was $108,000 in 2002, up from $106,000 in 2001. Salaries rose from $73,000 to $76,000, while bonuses fell marginally from $33,000 to $32,000.
Total compensation was highest in the United States ($172,000), followed by Latin America ($161,000) and the United Kingdom ($154,000). Those in Asia and Australia/New Zealand earned substantially less.
Foreign exchange professionals at financial institutions earned nearly twice as much as did their corporate counterparts, in large part due to much larger bonuses. Financial institutions paid an average bonus of around $74,000, while corporations paid just $16,000 on average. Bonuses for professionals at government institutions were even less, averaging $14,000 in 2002.
From September to December, 2002, Greenwich Associates conducted 2,724 mostly in-person and some telephone interviews at corporations and institutions around the world about their foreign exchange business practices, service provider assessments, and compensation. Interviews were conducted with chief financial officers, finance directors, treasurers, assistant treasurers, fund managers, portfolio managers, and buy-side traders. Interviews were conducted in the following countries: Argentina, Austria, Australia, Belgium, Brazil, Canada, Chile, China/Hong Kong/Macao, Colombia, Denmark, Finland, France, Germany, India, Indonesia, Ireland, Italy, Japan, Malaysia, Mexico, the Netherlands, New Zealand, Norway, the Philippines, Portugal, Singapore, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, the United Kingdom, the United States, and Venezuela.