What’s on International Treasurer’s radar screen this week.
There were several topics for exploration that emerged from this week’s editorial meeting, including further analysis of Reval’s recent acquisition of treasury management systems company ecofinance, whether the world will face a devaluation war, new rating entrants and how Goldman Sachs’s new push to put customers first could affect its bottom line. Also, more sobering views of Citi after its most recent quarterly results.
Acquisitive Reval
Just this week Reval announced it had purchased Austrian-based treasury management software provider ecofinance (see related story here). Reval said it bought the company to stay ahead of the market trend of companies going for more integrated solutions when it came to treasury. Nonetheless, it still raised some interesting questions; namely, why did Reval buy a vendor barely anyone has heard of outside of Europe? And were potential changes to hedge accounting effectiveness testing measurement and the commoditization of valuation for OTC derivatives as a result of Dodd-Frank reforms also drivers? And how does it tie into Reval’s prior acquisition of FXpress and the plans for its FIRST product? Does ecofinance have built-in SaaS capability or will Reval have to invest to get it up to speed?
We will also check in with one of ecofinance’s regional competitors, Bellin Treasury, to see what they make of the acquisition.
Currency devaluation
Amid the global financial crisis, many countries (including the US) embarked on a plan to export their way out to economic recovery. But there have been fears that this would ultimately lead to currency manipulation – or more accurately, currency devaluations – by trading partners; the idea being that to export successfully requires a cheap local currency. Many monetary authorities have spoken of the dangers of currency devaluation, and the G20 in November agreed to refrain from competitive devaluation.
Nonetheless, there remain rumblings about it. And the discussion often starts with the US and its most recent quantitative easing plan (QE2). The question now is whether an all-out competitive devaluation trend starts to bubble to the surface if the global economic recovery peters.
Upstart raters
This week Jules Kroll started publishing his Kroll Bond Ratings Agency ratings, taking aim at Moody’s, S&P and Fitch and promising a more forensic approach. Mr. Kroll bought LACE Financial back in August (see related story here http://www.itreasurer.com/viewarticle.aspx?id=16044&terms=kroll), which gave Kroll Nationally Recognized Statistical Rating Organization (NRSRO) status. But while there is undoubtedly room in the market for niche players, experts say, it will be an uphill battle to match the breadth and depth of the “Big Three” rating agencies. “As long as the agencies [Moody’s, Fitch, S&P] are able to operate efficiently and effectively, there’s really no need for another rating agency… it’s niche at best,” said a banker who covers the ratings market. And while they may have stumbled during the crisis, the big rating agencies have made big strides in remediating the problems of the past, the banker added. “They’ve fixed what was wrong and made substantial progress,” he said.
Goldman still reputationally challenged
Recently, Goldman Sachs released a business Standards Committee Report, which detailed new policies and plans on how to conduct business and to rehabilitate its reputation (see here and IT, January 2011). Most importantly, it sought to lay to rest the perception that it put profits ahead of clients. But over the past few days, it has once again stumbled, suggesting that regaining that reputation might be harder than anticipated.
First was news that Goldman, worried that the media attention paid to its Facebook private placement in the US and the regulatory problems that posed, decided it would only offer shares to foreign investors. The “level of media attention might not be consistent with the proper completion of a US private placement under US law,” the company said in a statement. Initially many thought Goldman and Facebook were trying to skirt US law – if a company has more than 500 investors it must register with the SEC and disclose financial information – by offering minority shares through a single entity.
A few days later it announced quarterly results that were far less than stellar.
The response to both issues has been very negative for Goldman and its reputation; regarding Facebook were questions whether the powerhouse really knows what it’s doing and as far as earnings are concerned, whether issues like the Facebook debacle heralds a new era of a bumbling Goldman and bad quarterly results.
Citi Falls Out of Its Groove
Several weeks back, International Treasurer posted how Citi seemed to be getting its groove back, based on an enthusiastic memo its CEO circulated to employees ahead of year end (see related story here). While it is still likely true what was said about the success of its Global Transaction Banking services, the broader results for the recent quarter suggest that Citi, like some other banks, will still fall out of their groove now and then as they seek to sustain profitability in a still challenging economic environment. It doesn’t help that in the new world of fair value, improved pricing in Citi debt in the wake of the US Treasury exit created an earnings hit.