StanChart Reports 21.6 Per Cent Rise In FX Gains For 1993 As Exotics Grow

Standard Chartered Bank reports 1993 foreign exchange dealing earnings of £163 million, up 21.6 per cent from 1992 FX gains of £134 million. Overall dealing income and FX translation gains/losses for the bank totalled £247 million, a 55.3 per cent rise over the 1992 figure of £159 million, according to last week's results statement.

This is the first time StanChart has broken out a separate figure for foreign exchange earnings - the bank did not do so in 1992 or in its 1993 interim report in August, although bank officials say the distribution of the FX gains "was fairly even throughout the year." Officials decline to comment on the six-month breakdown for 1992. The annual numbers show that the bank's FX operation surged ahead of Lloyds Bank's in 1993 (see table, this issue).

StanChart treasury officials attribute the strong result to last year's growth in trading of the exotic, particularly Asian, currencies that are its specialty. "Exotic currencies are our competitive advantage - that's how we differentiate ourselves from other banks," says John Maxwell, the bank's London-based global treasury director.

John McFarlane, a StanChart executive director who joined the bank last year from Citibank to oversee treasury and capital markets operations, says StanChart is not a big proprietary trader. "Our foreign exchange business has always been customer-driven," he says. "Growth is a function of market share for us, and of demand by customers determined by trade or investment. Last year was the year of emerging markets."

McFarlane says that StanChart is "a major supplier of exotic currencies" to the world's biggest players in the FX markets, and is in turn supplied by them in what he termed "reserve currencies," although the bank does do a reasonable amount of reserve currency trading in London, New York and major Far East centres.

He says StanChart plans to increase its commitment to exotics in London and New York. ""We don't try to compete head on in the reserve currencies with the big boys," he says. The bank has, therefore, been relatively less affected by the turbulence in the Exchange Rate Mechanism over the past two years, says McFarlane - but growth in Asia has boosted its FX turnover more than that of rival banks. FX results were particularly good in Hong Kong last year, he says.

Despite StanChart's decision in January to cut back its FX desk in Los Angeles to a sales function and move traders to New York, McFarlane says the bank has no plans to consolidate in foreign exchange (FX Week, January 31). The L.A. move was for efficiency's sake, he says, since the bank did not need two U.S. trading centres, particularly since the L.A. desk was effectively operating only during New York trading hours. The sales function, however, remains "very important" to StanChart in L.A., says McFarlane, because of the bank's growing West Coast customer base. The bank's partnership with First Interstate Bancorp has been quite important in that respect, he says.

Maxwell agrees that the U.S. move was to "concentrate our trading resources in one centre while ensuring a properly focussed marketing operation on the West Coast." He says two or three traders in the L.A. office who didn't want to make the move or "didn't fit into our plans" were let go.

In general, says McFarlane, StanChart plans to grow the foreign exchange operation worldwide "materially" over the next two or three years. "It's an area that in many ways is unexploited by us," he says. In addition, the bank is focusing on growth in derivatives and options. In FX options, StanChart currently has a 24-hour desk in Hong Kong, he says. But it has plans to develop a global book this year, creating a desk in the U.K. to trade options on reserve and exotic currencies. "We have a search program on at the moment," says Maxwell.