Bridging the gap
A
investment banking
Frankfurt's Dutch Day
The rapid rate of our international expansion over recent years, together with
our thrust into investment banking (IB) as part of the broader diversification
away from traditional bank lending, have produced a number of immediate
administrative challenges. There is always the potential for a widening gap
between the front office, which is originating more complex forms of new
business in high volumes, and the back office, which is charged with efficiently
booking these deals. Eliminating this potential and at the same time
substantially upgrading our efficiency are top priorities for the IB arm.
Model solution
Upgrading expertise
Adding value
Two-phase implementation
16 What'sNewS
Issue 12- December 1998
Says David Taylor, associate director of
IB's global administration unit, 'any
bank can hire a trader and give him a
telephone, a terminal and some
spreadsheet software. But that's never
enough. You have to build up the capacity
to process this work with the help of good
IT systems, trained professionals, and
coherent accounting and operational
procedures. Building this up necessarily
requires a longer lead time - but it's
essential. It's the foundation for your
growth. You can't allow the back office to
become a drag on your capacity to
provide excellence for customers.'
With the objective of professionalizing
back office activities and better aligning
them with business units under the 'one
team/one P&L' global matrix structure, IB
services has tabled a new organizational
model that seeks to establish a
fundamentally new working relationship
between its front and back offices. It will
not only more closely integrate the two
sides by means of a middle office, but it
will also progressively concentrate actual
transaction processing activities in three
new regional settlement centres located in
Utrecht, New York and Singapore. 'Our
overall objectives for IB services can be
summed up under three related headings,'
explains Barbara Carroll, head of IB's
global administration. 'We're looking to
improve excellence of service to our
internal and external customers, to
improve return on our considerable
infrastructure investments, and to play a
key role in the minimization of
operational risk.'
Uniform operating procedures are an
important first step, together with efforts
to upgrade the expertise of those involved
in transaction processing. Marcel
Gerritsen, who is also an associate
director of IB global administration,
remarks that anyone working in the
Utrecht back office should be able to
identify their counterpart in New York by
looking at an organizational chart on
which jobs and functions are clearly
spelled out. This is not presently the case.
Although the existing infrastructure may
have been acceptable under previous
conditions, it does not fit in a global
context in which we're dealing with much
higher business volumes and more
complex lines of business.'
Under the emerging investment banking
services model (IBSM), local middle office
operations are to be created as coherent
business units that will be tasked with
meeting the settlements, market risk,
credit risk, and financial control
requirements of the IB group overall. For
example, middle office professionals will
henceforth be physically co-located at the
front office. Their priorities will be more
closely aligned with those of the business
groups, including sales and marketing.
These professionals will not only support
trading - first and foremost of course by
maintaining customer and market data
and making sure trades and position are
accurately entered into (and
automatically moved through) systems -
but they will also add value by providing
clearly-defined, standardized control
services. They will also initially be
responsible for transaction management M
in all cases involving complex products
that are poorly suited to automation.
Meanwhile, as core settlement functions
are to be shifted into each of the three
major time zones, so, too, will scarce
knowledge. For example, an expert
derivatives-processing group recently
hired from UBS is being brought in to
fill vacancies in Utrecht. The IBSM is to
be implemented in two phases, in close
cooperation with local operations
professionals. The 'stabilization' phase
will be addressing both immediate
shortcomings and new business
requirements - and will be laying solid
IBSM foundations for our Utrecht and
London branches. This will be followed
by a 'consolidation' phase, during whiclnj
we will introducé greater efficiencies
and extend the model throughout the
network.
combined effort involving
Lprankfurt and Utrecht's fixed
income derivatives (FID) sales teams and
private placement trading culminated in
a seminar to inform German clients
about Dutch zero weighted government
(or WSW guaranteed) paper. Invited
speakers included the director of the
WSW (Guarantee Fund for Social
Housing), an institute which guarantees
a total of NLG 100 billion in loans, and
a representative from the VNG (Asso-
ciation of Netherlands Municipalities),
who spoke about the riskfree structure
of Dutch local governments. Opening
and hosting the event was our managing
board's Hanno Riedlin. According to
Utrecht's Jillis Herpers, 'the seminar was
an excellent opportunity to inform our
German clients about these high quality
Dutch zero weighted products, espe-
cially with the euro's imminent arrival in
mind. Both WSW and VNG were
enthusiastic about the idea since they
are also in the process of creating
information designed for foreign
investors. Competition is also
approaching the German market, but
we were the first bank to initiate a
seminar such as this one.'
