This month we talk to Shahrokh Moinian about the challenges facing corporate treasurers today, the evolving transaction banking landscape and Deutsche Bank’s strategy in the current market.
Shahrokh Moinian
Head of Corporate Cash Management Sales
Shahrokh Moinian is the Head of Corporate Cash Management Sales for Western Europe and the Middle East within Deutsche Bank’s Global Transaction Banking division and has occupied this position since early 2006. Prior to that, he was responsible for the Division’s Global Cash Management Solutions Team for four years. Shahrokh also has extensive corporate treasury experience, following a three year tenure as the Corporate Treasurer of a French multinational in the optical lenses industry.
Shahrokh has a MA degree in International Relations from the Johns Hopkins University’s School of Advanced International Studies (SAIS) in Washington DC and a BA equivalent degree in International Economics from Sciences Po in Paris.
In his free time, Shahrokh enjoys cooking with his family as well as mountaineering whenever possible.
What are the main issues that corporates are facing right now and how are they addressing them?
I usually meet with four or five corporates each week and what I hear from most of these corporates is that managing working capital and access to liquidity are their main concerns in the current economic environment. In my opinion they are doing two things to address these concerns: they are reviewing their banking relationships and are looking to optimise internal sources of funding.
Regarding the first point, I would say that half of the corporates I talk to are looking to review their banking relationships. On the one hand, they have a counterparty risk exposure to their banks arising from their investments and deposits. On the other, they need access to credit from their banks. Corporates that are working with banks that are experiencing severe trouble are in certain cases considering foregoing efficiency and single bank solutions, and adding one or two additional banks to their cash management structure. I think in today’s environment, where connectivity has become more standardised and with SWIFT MA-CUGs and SCORE also playing a role, it’s easier to add other banks to your structure without necessarily incurring additional cost and compromising on efficiency.
What are corporates looking at when they review their banks?
Different corporates have different ways of evaluating their banks – whether it’s Tier 1 capital, whether it’s a credit rating, whether it’s looking at their balance sheet and seeing to what extent certain toxic assets are still left. Or it could be the bank’s strategy – for example, how does your bank stabilise cyclical businesses with more stable businesses?
Following the uncertainty we were seeing last October, government ownership of certain banks was seen as a comfort factor. However, now that corporates have had time to think, they are looking more critically at the impact of government ownership on banks and on their strategies.
Transaction banking is very capital intensive in terms of investment in innovation. The question that some corporates are asking today is, does the bank have its hands free to continue to invest in the latest technology, or even in its international network?
You also mentioned that corporates are looking for internal funding sources.
Yes – with credit becoming tighter and the price of credit more expensive, corporates are asking what they can do to find working capital efficiencies internally. This has led to two types of discussions.
The first of these is liquidity management. Corporates that do not already have an efficient cash pooling structure or centralised liquidity management are very quickly putting those structures in place. This enables them to recycle liquidity within the group itself. Other corporates, those that are not ready for a cash pool yet, at least want to have visibility on what liquidity is available, via electronic banking or other means.
The other aspect that corporates are looking at is more efficient financial supply chain management. First of all they are concerned about the health of their suppliers. In certain industries, especially where suppliers are specialised and there are few alternatives, corporates want to make sure their suppliers actually survive.
They also want to make sure the payment terms they have with their suppliers are efficient and provide them with breathing room in terms of working capital. So they are looking for efficiencies and are adopting platforms that go from invoice management all the way to providing supplier financing. They are also focusing on making the terms of supplier payments more transparent, and therefore up for negotiation and potential longer payment terms, as well as discounting possibilities so that suppliers can receive their funds more quickly.
These are of course long-term trends but they have tended to be accelerated by the crisis. With credit markets becoming more difficult, there’s a lot of pressure to become more efficient internally.
What is Deutsche Bank doing to remain competitive in the current market?
Firstly we are capitalising on our financial strength, to continue to be the destination of what I would call the flight to quality. This is a direct response to the first concern that corporates are having: re-evaluating their banking relationships and assessing the financial stability of their partners. We believe we are in a position of strength as far as financial flexibility is concerned. With regard to Tier 1 capital and access to liquidity, our most recent results have provided comfort to the markets. The leverage ratios of the bank have also come down significantly compared to our competitors and we have been very transparent with our balance sheet.
We are also continuing to maintain a balanced business model. We have our investment banking activities, which by nature are cyclical, and we also have our more stable activities, such as commercial and transaction banking, which are less cyclical by nature of the flows. So that has put a lot of stability in the results of the bank and has given our clients further comfort.
Another important aspect is the fact that we have not relied on government help, which means that we are fully flexible in terms of our investment strategy. This allows us to continue to build our activities at a time when not many banking organisations are really investing and growing, and we are proud to be in that situation.
As a result of capitalising on our financial strength and being the destination for flight to quality, we are receiving massive amounts of liquidity from corporates today, because they do view us as a safe haven. We are also increasing our corporate market share in terms of transaction banking. Even for corporates we did not previously have relationships with, we are often being asked to step in and provide services alongside one or two other banks that were previously used, again because we are seen as a safe haven.
You mentioned your investment strategy. In which areas is Deutsche Bank currently investing?
We are continuing to grow transaction banking, which is a stable business. We have invested massively in product innovation and our global channels for payments and collections in the past five years. Our investment in platforms is key for what we view as the consolidation that will continue to take place in the next couple of years, and the additional volumes of transactions that will come to us.
We have invested in SEPA and SEPA platforms, to differentiate ourselves from the competitors, and also to offer corporates solutions that make their transition to SEPA as smooth as possible. SEPA may have been overshadowed by larger topics, but corporates are looking for efficiency and cost savings and SEPA can provide these things. That’s why corporates are pursuing those projects as well – and so are we, in terms of our investments.
A related aspect is our investment in new innovative end products. We have launched a couple of new solutions over the past few months. One is a product which we call FX4Cash. This is a new cross-currency payment solution and it’s been developed jointly between the transaction bank and our global market teams. This was launched in July 2008 and it enables clients to make payments in up to 76 different currencies using a single funding account. In other words, clients do not necessarily have to open accounts in different currencies to make one-off payments or infrequent payments.
The other example is our card acquiring proposition, which we launched last summer. We have established an entity called Deutsche Card Services, which is a fully owned subsidiary of Deutsche Bank, and we are offering a pan-European solution to companies which are looking to the new SEPA environment to centralise their card acquiring collections as well to gain more efficiency. This proposition provides a lot of value-add in terms of reporting and in terms of managing the entire cycle of flows related to card collections, and it brings a lot of automation to the process.
Do you have any plans for geographical expansion in the near future?
We’re continuing to invest in geography, because we believe that despite the current financial crisis, we are still living in a globalised world. Our corporates are asking us to be in more countries, or to increase our presence in certain countries.
For example, we are committed to investments in Europe. In a press release last year, we announced our intention to widen our domestic presence in the Netherlands. We are also growing further within Germany via another transaction that’s been in the news with Deutsche Postbank. We are making investments in Eastern Europe with a view of opening up more countries. We have recently received a more comprehensive wholesale banking license in the UAE, and we are building that proposition up too. And we are beefing up our presence in Latin America, to go deeper into markets such as Brazil and Argentina.
This is being complemented by our ongoing investment in China, which is very important for corporates, as well as places like India, which represent a huge market.
What other areas is Deutsche Bank focusing on in 2009?
We are continuing to invest in people. The Global Transaction Bank actually increased its headcount by over 10% in 2008. There are not too many examples in the market of banks actually hiring staff these days, so this is very motivating for the team. There is a lot of pride in being part of Deutsche Bank – I have never seen it so high.
I was in Switzerland a couple of days ago and two of my clients were saying, “Your slogan is ‘A passion to perform’ and we actually see this passion in the faces of the team sitting in front of us.” That is one of the crucial points of the success that we’ve been having, because banking is a people business – it’s all about people skills and delivering on our commitments.
One other aspect that I wanted to mention is that before making any investment, whether in terms of geography or products, we actually consult our clients. We hold regular forums where we listen to the strategic requirements of our clients and ask how we can improve certain services or our geographical presence. Once we’ve ensured that the demand is there, we respond to that demand.
“We hold regular forums where we listen to the strategic requirements of our clients and ask how we can improve certain services or our geographical presence.”
We are also continuing our drive to become a market leader in terms of the on-boarding of new clients to our systems. In cash management, when you embark on a project with a particular bank, you need to open accounts, put in place banking systems or connectivity and receive training on some of the products. In today’s environment, where corporates are looking for additional banking partners, they want this to happen as quickly and efficiently as possible. We have recently invested a lot in technology to accelerate on-boarding processes.
Ongoing customer service is another key topic. We regularly have very positive feedback on our customer service model, which is decentralised, so it’s actually in the countries rather than having a central call centre. This means that we are close to the corporate entity in each country, and this close proximity allows us to be in contact with them, know how they operate and therefore provide a very customised and a user-friendly service. That is a pillar of our strategy and we are continuing to invest in that.
How do you expect the transaction banking landscape to develop in the current conditions?
I see government support as a temporary measure to bring confidence to the market. I believe that regulation of certain aspects of banking is definitely needed to put certain controls on certain activities. At the same time, I think it’s also a question of where the banking community sees itself going forward and I see a clear trend towards more corporate and commercial banking investment. Banks are seeing the value of their stable businesses more and more these days and are looking to further invest in these areas.
However, transaction banking is very capital intensive. The barriers to entry are significant because the level of investment is high and the fees are low, so it’s really a volume game, and there’s only so much volume around in the market today – not everybody can become a transaction bank and make it a profitable proposition.
There may be a focus on commercial and transaction banking today but not everybody will be able to make those investments. Those who are today’s strong players in transaction banking, and who are also financially healthy, are probably the winners of tomorrow’s game.
Overall I would say all the areas we have discussed – our financial strength, the flight to quality, our continuing investments in innovation, geography, customer service and on-boarding – allow us to continue to support corporates in today’s environment as much as in yesterday’s environment, and positions us as a strong player in a consolidating market.
