Specialists Assist Global Flow of Money : Trade: The job of finalizing agreements and then transferring securities is highly specialized and also a moneymaker.
It has become commonplace to speak of global capital flows as though the billions upon billions shuffling around the planet around the clock were dispatched at the merest touch of a button.
Sal Ricca knows it’s not always that easy.
As president of Sequor Group, a division of Los Angeles-based Security Pacific National Bank, Ricca is one of an increasingly specialized breed of financial professionals who enable capital to roam the globe.
Their business is clearing and settlement--the timely completion of complex transactions, most often involving institutional investors and government securities, across borders, time zones and currencies. Clearance--when the buyer pays the seller--and settlement--when the seller transfers securities to the buyer--are what make global markets possible.
“You can’t buy and sell to your heart’s content in money markets without being mindful of how you’re going to settle the transactions,” said Ricca, who conveys a technician’s appreciation of the world markets machine.
“If you could trade and settle simultaneously, at the push of a button, the amount of transactions that could be done is staggering,” he said. “Trading is gated by the ability to settle a transaction.”
Burgeoning global financial activity, not only in New York, Tokyo, London and other centers, but in emerging markets in Singapore, Manila and Kuala Lumpur and elsewhere, has made settlement critical. Deals aren’t done until they’re done with finality--market parlance for cash in hand.
Though not the settlement leader, Sequor illustrates how global office services--clearance, instrument transferal and safekeeping, foreign exchange money conversion and movement--are now banking profit centers.
Sequor’s parent doesn’t release the unit’s results. But Sequor spokesman Patrick Scorese said the group, created in 1989 when the bank combined five processing areas, accounts for roughly 10% of the holding company’s 1989 earnings of $740.6 million.
“It’s a major contributor, there’s no doubt,” said Robert Manheimer, a Sequor managing director and president of Security Pacific International Bank, the group’s foreign exchange and trade financing arm.
“Years ago, moving money was merely an accommodation,” Manheimer said. “There weren’t specific prices charged . . . it was a different world.”
Now, he said, “there’s been a tremendous growth in the number of transactions that have to be settled. Banks realize that this is a good business and their attention has been focused on this.”
“It’s something everybody is talking about a lot,” said banking management consultant Steve Runan of McKinsey & Co. “They’re paying more attention to it because it’s a fee-based revenue generator.”
He offered the caveat, though, that the heavy investment in technology needed to succeed may limit the ranks of profitable players.
Most major U.S. banks engage in settlement, but some institutions, including Manufacturers Hanover and Chase Manhattan Bank, have begun to bundle and more aggressively market such processing services. Revenues from them are all the more important in a time when banks, just getting past the 1980s Third World debt debacle, face a new fiasco in real estate lending.
A rough gauge of activity is message volume in the Clearing House Interbank Payments System, or Chips, in New York, the primary U.S. network for settling foreign exchange and money market transactions. Chips volume leaders in 1989 were Citibank, Chase Manhattan, Bankers Trust, Manufacturers Hanover, J.P. Morgan, Bank of New York and Chemical Bank.
