But for Jeremy Shaw, JP Morgan’s head of trade finance for Europe, the Middle East and Africa, tough times are an opportunity to rethink how the business works.
Shaw spoke to Financial News about the trade finance market, the impact – or lack of it – from the Brexit vote, and how he sees the business being disrupted by new entrants and new thinking as a centuries-old area of banking is brought up to date.
Financial News: The World Trade Organization has global trade pegged at a sluggish 2.8% growth rate this year. What’s your view on the market?
Jeremy Shaw: Everybody picks up on global trade numbers. I always talk about the space where we can play as a bank. Which markets and which flows are we active in and what’s the impact on those?
When you look at what’s happened in the last year, the collapse in the commodity prices has meant that trade volumes that banks typically intermediate have declined.
Look at the oil price, for example – if you were doing transactions with a company or a buyer at between $ 120 and $ 140 a barrel and now it’s down to $ 50 or below, clearly that has an impact.
Markets that are dependent on natural resource income effectively have less money to spend on projects. Consumers have less money to spend – so what’s the impact on car purchases? If you are, for example, intermediating the export of vehicles into certain markets, that market may be down substantially. Then there are geopolitical factors to consider. There’s a lot of downward pressure on the trade space.
But offsetting that, in Europe and globally, you still have a lot of major companies that are very interested in implementing global supply chain finance programmes. There’s still a very large number of RFPs [requests for proposals – companies asking banks to tender for business] being issued, not only for new programmes for companies that don’t have one but, increasingly, for companies that have a programme but now want another two or three providers because they see more growth in regions like Asia or Latin America, and very few banks can support all markets comprehensively. That’s been a bright spot in terms of growth.
European banks are going through their issues, and you have local and regional names rising in prominence. How have you seen competition change?
Local banks will continue to fight very hard for their own clients – these could be in the Nordics, Saudi, Nigeria or other markets. The local banks may have a unique position because they’re more entrenched with local companies and take a broader view of the relationship.
When it comes to regional and global banks, we all have our key target clients. It’s all down to the interpretation of increasing capital requirements and different banks’ interpretations of that and where they are on that cycle of building and rebuilding balance sheets.
Has what you prioritise in the business changed? How do you react to a tougher market and ensure you’re getting a decent share of a market where growth is slowing?
It’s a balancing act. In some markets we have a long history and strong client relationships, and we are committed to the markets we’re in. You see cycles. Coming back to those markets that are heavily dependent on natural resources or the oil price, we see new opportunities. Some countries have never borrowed before and are now borrowing.
What are the most exciting markets?
Within Emea, a lot of what we’ve focused on here has been emerging market-driven business. We have a long history in the Middle East and understand that market well. It’s a question of when to step back, either because of economic or other reasons, and when to step up. We’ve seen these cycles before. We saw in the previous financial crisis that trade has supported key clients and key business opportunities.
Is the Middle East an area where you see opportunity for “stepping up”?
I think potentially we could. Our business there has come down a little bit because of what’s happened in terms of fundamental economics, the oil price and returns. In other markets, like in Europe, we don’t have the intermediated trade flows that you do in an emerging market. Emerging markets tend to have fluctuations, whereas business in Germany and France is much more stable. The business we’re doing is much less transactional, and more focused around infrastructure.
What was the immediate reaction to the referendum result here, in terms of discussions about how that might affect trade and trade finance as a business?
As a firm, we have a lot of businesses in London and we’re committed to continuing to work in London, but we may need to make adjustments to that to reflect any legal changes.
In my business, we don’t do a huge amount of business between the UK and Europe, we tend to focus on emerging market risk. There’s not necessarily a huge impact in that sense. We do provide long-term government-backed business, like export finance, so we would monitor any potential changes to UKEF, the export credit agency that supports that business.
The memos we saw from banks talked about the need to keep close to clients at a time when they’ll have questions. How does that play out in practice in trade finance?
We have a broad range of clients in the UK and, if their business model changes, we’ll work with them to support them as regulations become clearer. On the emerging market side, there haven’t been any specific questions my team has received and we’ll continue to work with our clients in Europe and the UK as we get more details.
What potential do you see for disruption in trade finance? What might change?
Trade and the instruments used have been around for a long, long time. People have talked about electronifying trade, but they’ve looked at it from the viewpoint of “This is how trade is done, how do we digitise that?”
I think you need to take a different view and reinvent how you do business. We have a team looking at it from the blockchain perspective, for example, to look at how the distributed ledger can be used across multiple different products, and trade is one of those. I personally believe we need to look at the business from a different perspective.
The challenge is that the traditional way of doing business has been there for a long time and from any country in any emerging market through to a developed market, people understand the process. There have been attempts in the past to electronify trade, to make it more seamless. It is not without its challenges in that respect.
Does this drive change the talent you look to bring into the business? When you hire junior bankers in trade, do you want people who have a desire to look at the business differently and bring in new ideas?
On the innovation side and product management side you need to have the basic skills around risk management, structuring, documentation. But in terms of how we facilitate that, it’s good to have people with creative minds to think around solutions. There’s still a lot of creativity using basic banking products, and we mustn’t forget that the human element in completing transactions is very important and will never be digitised. But, certainly, we see a lot of entrants in the fintech space and we are also focused on talent and opportunities in this area.
Are clients looking for new thinking?
Definitely. They’re looking for speed of implementation. I can buy something on my iPhone now from China in two clicks. But if you’re running a major company with a supply chain, you might want to think a little more about it. The bigger the business, the more complex the supply chain, the more crucial the relationships – that’s why there will always be a role for banks to play.
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