US super-regionals step up FX game

US super-regional banks are building out their foreign exchange capabilities and technology, mirroring some of the offerings of their larger peers in order to deepen their footprints in the $5.1 trillion-a-day currency markets.

Citizens Bank and SunTrust Bank are two of the large regional institutions that have been expanding in recent years while investing more in their FX platforms and bolstering their trading desks with talent from the top currency dealers in order to stay in step, or ahead, of their bulge-bracket rivals.

“We compete with almost everyone on Wall Street and we’re becoming more successful in a competitive space. We are very pleased with that. We just can’t ever rest, essentially. We focus on offering the best consultative approach we can to serve our clients the best we can,” says Anthony Bedikian, managing director and head of global markets at Citizens Bank.

“I think at this point we are competitive with any of the super-regionals out there. But what sets us apart is the fact that although we’re not the biggest bank on the planet, we have a huge amount of expertise, and every single client really matters to us,” he adds.

The Providence, Rhode Island-based bank became a fully independent publicly-traded company in November 2015, breaking away from RBS, which bought it in 1988. Citizens, which used to depend on RBS as a partner to provide a number of services such as hedging activities for its customers, has now filled many of its product gaps so it can serve clients on a standalone basis.

The bank has since hired Rose Noritake from JP Morgan and Bryan Morales from Deutsche Bank to join its FX corporate sales team so they can take on coverage roles in its expanding middle-market sales business.

We compete with almost everyone on Wall Street and we’re becoming more successful in a competitive space

Anthony Bedikian, Citizens Bank

“We have come a long way in implementing new systems and platforms, new trading capabilities, and enhancing our product suite over the past three years. We have been in an exciting growth mode during this time (post-IPO) where we have been looking to add staff with various types of expertise and experience from a variety of different banks,” Bedikian tells FX Week.

“We essentially built a pure trading staff from scratch. In the past, the desk relied primarily on RBS to be a partner for most of our hedging of customer activity. Now we are handling all of our flow in-house,” he says. “We have added new systems and product enhancements to our interest rate and foreign exchange desks. In the past, we essentially relied on RBS to handle FX options products on our behalf. Now we can offer and book those products in-house.”

“So now we are able to offer the more structured FX products – FX options and cross-currency swaps in particular – plus the market-making capabilities of in-house risk management all on our own upgraded and newly implemented platforms. We are operating now completely independently and operating like any of the super-regional banks out there for our clients,” Bedikian adds.

As top-five FX dealers prioritise profitable clients and pull away from markets that provide less return on equity, they are losing market share to regional and smaller firms instead of their top-10 peers, according to research consultancy Greenwich Associates.

In a June paper titled, Top five dealers dominate FX, but less than before, Greenwich researchers found that the trend has been occurring since 2015 and that the percentage of trading that the buy side does with the top-five dealers has shrunk to 44%, from a peak of 53% in 2013.

Although the five biggest dealers – ranked by Greenwich as JP Morgan, Citi, UBS, Deutsche Bank and, in joint fifth place, Bank of America Merrill Lynch, Barclays, HSBC and Goldman Sachs – still command the largest share of buy-side currency business, researchers noted that regional dealers are “stepping up their game” and that their local expertise is proving beneficial for large asset managers who still need service in those venues.

“This now makes the FX market one of the least concentrated among over-the-counter markets, which provides welcome diversity for financial end-users, regulators and emerging dealers,” says Greenwich.

FX will remain a product solution that we can offer clients across all our expansion markets

Brian Morgan, SunTrust Robinson Humphrey

The changing appetite of larger institutions is something regionals with comparable services can further use to muscle their way into the currency space and scoop up additional middle-market clients, the bread and butter of their businesses.

“We are going to continue to focus on our middle market and corporate client base, and that has been a strong focus for SunTrust Robinson Humphrey historically,” says Brian Morgan, managing director in financial risk management, at SunTrust Robinson Humphrey, the FX arm of SunTrust Bank. “We certainly feel these middle-market clients would receive a different kind of service from us versus larger bulge-bracket competitors, who may not offer their full capability set to this client set.”

“We are expanding our wholesale business via our investment bank, our corporate bank and our commercial bank. We have been expanding nationally into the north-east, the west, and the south-east for some time. FX will remain a product solution that we can offer clients across all our expansion markets,” he adds.

Along with its spot-trading solutions, SunTrust also boasts online FX trading, hedging via forward and option contracts, FX swaps, non-deliverable forwards contracts, and various other FX structured products and foreign currency accounts – mainly for its corporate client base.

“We continue to grow and we have invested in talent and technologies to support our FX business as we compete against both regional and large, bulge-bracket competitors. We think these talent and technology investments will continue to support our growth as we expand nationally into new markets,” Morgan says.

“We feel we can be a leader in this space over the long term. We see plenty of runway for our FX product solutions as we expand nationally. We think we can be a big player going forward in the FX space,” he adds.