In recent years, the global currency market has undergone a significant shift, with tech giant Apple holding $135 billion in currency derivatives.
Alphabet has $60 billion, while hedge funds only manage $78 billion in currency assets combined. This trend has Wall Street banks recalibrating their focus.
Previously, lively traders dominated the market. Now, corporate bankers liaise with financial officers globally.
These bankers have become indispensable, providing consistent business and higher profit margins.
According to Vali Analytics, revenue from corporate forex operations at the world’s five largest banks has increased by around 30% in the last five years.
Angad Chhatwal from Coalition Greenwich says to Bloomberg the forex industry is becoming highly competitive.
Banks need to find a unique advantage to stay ahead. Regulatory changes after the global financial crisis are one reason for this shift.
Another is reduced market volatility. Many investors have exited the market, reducing the number of currency-focused hedge funds by 82% since 2007.
As U.S. banks report their third-quarter earnings, Wall Street giants like Goldman Sachs and Morgan Stanley expect a decline in fixed-income, currency, and commodities trading.
In contrast, Bank of America and Citigroup, focused on corporate forex services, anticipate slight increases in related revenues.
New Ecosystem
Citigroup excels in this new ecosystem, leading in market share for forex trading for 10 consecutive years.
Under CEO Jane Fraser, the company is doubling down on corporate forex services.
Their global presence offers a distinct advantage, providing direct communication lines with corporate treasurers worldwide.
Deutsche Bank also sees corporate opportunities as key to achieving its financial goals.
The company is confident despite industry-wide declines in trading revenue in the first half of the year.
In a market with less volatility, corporate orders provide a cushion. For example, Apple has more than tripled its portfolio of derivatives over the last decade.
Luca Maestri, Apple’s CFO, praised the effectiveness of their extensive hedging program.
While e-commerce disrupts traditional business models, the consistent demand from corporate clients remains appealing for banks.
These clients also offer higher profit margins, given their need for multiple services from their banks.
The transition towards corporate participation in currency markets is clear. These corporate giants are reshaping the forex landscape with a focus on service over cost.
With information from Bloomberg