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Management Strategies

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SIBOS/SWIFT Coverage: Big Brother/Big Sister Programs for Bankers

Big banks look out for their little brethren.

Big banks look out for their little brethren.

Critical infrastructure isn't easy to maintain. That's why banks involved in securities and settlement activity have been facing a stark choice: "Either invest in resiliency, or outsource," says Linda McLaughlin Moore,SVP, treasury services global clearing, J.P. Morgan Chase (New York).

It's a bold bet for a firm to believe it can remain competitive on its own even after building the tertiary backup facilities required to operate part of the world's financial backbone. Thus, the availability of outsourcing can be a welcome relief for "banks without an appetite for secondary sites...[that] can't pour money into wire businesses and infrastructure costs," says McLaughlin-Moore.

Against that backdrop, J.P. Morgan Chase (assets: $802.6 billion) has essentially turned itself into a "banker's bank." It's not alone-the SIBOS show floor in Singapore last month was teeming with reps from global institutions determined to show that their organizations are ready to handle transactions from around the world.


J.P. Morgan Chase (JPMC) draws upon its recent history in describing its capabilities. "The experience with the merger (J.P. Morgan/Chase Bank in 2000) has allowed us to take advantage of an opportunity that came when the market became more fluid," says McLaughlin-Moore. "Once you have something that can handle multiple legal entities simultaneously, you can do this."

As a result, a bank client will be able to shift its back-office functions, as well as parts of its IT footprint, to JPMC. With much of the back-office that a financial institution wants to cede to either another bank or a technology provider, that's exactly what's possible.

Among these functions, the wire room operation is seen as a key outsourcing opportunity. Certainly, all financial institutions have had to respond to anti-money laundering regulations as of late. But for an overwhelmed wire room, there's a real risk of letting something slip through the net. That calls for a specialist at detecting suspicious transactions. "We're making sure we're not only compliant, but also enormously clever," says McLaughlin-Moore.

Another player in the bank-to-bank outsourcing game is Deutsche Bank (Frankfurt, EU802 billion in assets). "We do believe we are one of the major consolidators in the industry," says Norbert Wanninger, head of global cash management, Deutsche Bank. "Very few will be able to be a full end-to-end provider."

It's a win-win-win situation, he says. For the outsourcing banks, they receive a white-labeled product and broader capabilities. For corporate clients, it's state-of-the-art processing. And for Deutsche Bank, it's economies of scale and the ability to keep up with the changing economics of commercial banking.

Any discussion of scale should include Citigroup (New York, $1,187 billion in assets). "We look at the banks as a major customer group," says Andrew Au, managing director and regional trade head, Asia Pacific, global transaction services. Citigroup's platform allows other banks to focus on their core competencies, at a cost advantage, through Citi's global network, he says.

The bank's extensive footprint helps banks to extend their reach to places where they otherwise could not reasonably consider doing business. Furthermore, Citigroup's network of "people on the ground" helps its bank partners and their customers to structure deals, while also acting as a sounding board.

Still, there's more to life than scale. "Scale is important, but at the end of the day we constantly look for product [innovations]," says Au.

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