Back in the late 70s and 80s, then-New York City Mayor Ed Koch would often startle dozy straphangers by appearing on subway platforms to ask, “How am I doin’?” The answers were usually mixed, but at least he was out there. When it comes to corporate banking, companies probably don’t get that question from their banks too often. They therefore have to come up with their own performance measures to see how their banks are “doin’.” Enter the bank scorecard.
A review of a few NeuGroup FX Managers’ Peer Group 2 (FXMPG2) members’ bank scorecards for comparison began a discussion at a recent FX2 meeting of how to measure the key components of bank relationships.
One of the first key takeaways was that FX bank scorecards can get pretty granular. During the session, several members highlighted the key components of the scorecard reports they use internally to evaluate their FX banks on trade pricing and other performance measures. Those who chose to share their approach showed the level of detail they go into by currency and by bank, such as number of request for quotations (RFQs), hit rates and reject rates.
Members also track how much they trade with each bank for the different hedge programs (e.g., balance sheet program). Most of that comes from report data downloaded from an application like FXall and then manipulated in Excel. Even qualitative evaluations of research capability and market coverage make it into the most detailed reports, resulting in rankings for several categories like emerging markets or economic or technical research. As a side note, within the FXMPG2, 22 of 28 members use FXall, but in the pre-meeting survey, only 50% of the respondents said they use FXall’s execution quality analysis and 40% said they use a tool built in-house.
Others take more of a qualitative approach vs one that is formalized. That is, on the other end of the spectrum, some members may choose not to dedicate a lot of time to detailed and formalized analysis but informally take into account factors like credit-facility participation (most often required –“pay to play”), service levels, back-office availability and post-trade settlement efficiency, research capabilities and general responsiveness of the bank’s relationship managers and subject matter experts.
Another question that came up concerned how much companies share their scorecards with their bank partners. Members noted what they share with the banks during quarterly or annual reviews. Some blank out the names of competing banks in discussing performance while others are not shy about sharing the data openly to encourage a frank conversation about what’s working and what’s not. Including key metrics like hit ratios on requests for quotes is common, but even qualitative evaluations can lead to significant wins in bank-service levels as well as trade execution performance.
Most member scorecards start with report data downloaded from their e-trading platforms (like an FXall) to produce their bank evaluation scorecards, but customizing them to the exact requirements of each company’s preferred analysis still means a lot of tedious data manipulation. New execution quality analysis tools that are coming from FXall later this year may eliminate some of that extra work.