“We used the crisis to optimise”

The credit crisis took a wrecking ball to the balance sheets of many global banks. Not Saxo Bank. This feat marked the bank out. This Denmark-based operation now has a hugely expanding geographic footprint and its distinctively outspoken CEO is not shy of challenging the traditional big players – as well as the perceptions of just what and how a bank should operate.

“As a financial institution not really affected by the financial crisis as much as other more traditional banks, we were able to use the crisis to strengthen and optimise our entire value chain,” says Saxo Bank co-founder Lars Seier Christensen, “including broadening our product offering and at the same time expanding our geographic footprint.”

Saxo is undoubtedly shaking things up, as Mr Seier Christensen has no problem admitting. Few banks offer the blend of technological services and local market nous that Saxo can. The number of operators offering a properly integrated range of services – forex, futures, equities, FX options, not to mention ETFs and CFDs – remains limited.

In a nutshell
What is the core of Saxo Bank? It acts mainly as a financial facilitator, says Mr Seier Christensen. “We see our world consisting of three primary segments: Liquidity, facilitation and distribution. At one end of the spectrum, we find liquidity, meaning product providers, such as investment banks, exchanges and others that deliver high quality liquidity that we integrate into the platform.”

By entering into active cooperation with these large financial institutions, Saxo ensures access to a one-stop trade execution, settlement and custody offering. “At the other end of the spectrum is distribution, meaning banks, brokers and other financial institutions that have well established client franchises that they want to provide the best products to.” And in between? “You find Saxo Bank as the facilitator linking the two,” he says.

It's a clever strategy that's plainly working. It's also a strategy that properly anticipates real change and competition within the banking industry. “That means having a lean business model will be crucial,” says Mr Seier Christensen. “Now, companies must be able to develop products and services before the clients realise their need for these. We believe that new and improved distribution channels are important when you want to reach clients before your competitors do. That is three important challenges that we take very seriously – Saxo Bank is well prepared to meet those challenges.”

An online personal world
Increasingly many banking clients are looking for new opportunities, of handling their portfolios, plus more transparency, better products, pricing and services. Saxo Bank offers exactly this. “I think that while Saxo Bank might be a leader when it comes to online trading, another advantage of ours is that we combine technology with personal service,” says Mr Seier Christensen. That is why Saxo Bank will continue to open offices in Asia, Europe and Latin America.

Saxo is also doing much digging to understand precisely what its clients value and why they continuously choose Saxo Bank for their online investing. The latest survey commissioned shows their clients' perception of quality is more important than the perception of price. “Among the services our clients especially value staff knowledge together with trade services and support, which is surely connected. Well-educated and experienced staff give better trading support. Reputation is very highly valued as well.”

Saxo's growth story is also reflected here. The number of clients, trades and overall trading volumes continue to rise – and the strong results achieved in the first half year of 2010 are also rooted in actions taken before the onset of the financial crisis in 2008. Saxo has increased efficiency through IT , work process rationalisation, and outsourcing while also slashing its headcount by approximately 40 percent from its September 2008 peak. A difficult decision to take – but necessary.

It has also completed 10 acquisitions, all of which have lived up to expectations, claims Mr Seier Christensen. “We have established IT development centres in India and Ukraine in addition to our IT centre in Copenhagen. Moreover, we have launched new products within FX, Equities and Commodities. We have also increased our geographical footprint with new offices in nine countries and expanded the business to also include asset management.”

Is the credit crisis over?
That depends on how you define the credit crisis. The crisis could be seen in terms of the interbank market and bank lending to consumers or companies, says Mr Seier Christensen. “The interbank market has clearly corrected and it is nearly up and running again. There are still banks which have difficulty in getting their short term financing needs done through the interbank market and still use the liquidity windows provided by the central banks.”

However, compared to the almost total meltdown back in 2008‑09, the interbank market has clearly reversed, he thinks. “In terms of lending from banks to consumers or companies, the activity is, unfortunately, only marginally higher and I believe that in a longer timeframe, it is flat.”

In Denmark where Saxo is headquartered, some journalists and politicians had difficulty believing Saxo weathered the crisis so robustly. “Yes, we faced some media scrutiny, also because we stand out as a big growth story and an unusual business model in a small market. Being outspoken, as we are, on the big challenges facing our Scandinavian welfare society in the future, is also not something that endears you to certain participants in the public debate.”

Getting on with it
Meanwhile, business goes on. Equity markets have been rising higher for some time now – partly on expected quantitative easing from the US Federal Reserve and another earnings season that was widely anticipated to show better-than-expected results. The earnings season is now halfway through and the results – at least in the US – are certainly living up to expectations.

“Given the economic development in the US and the lack of prospects for growth most market participants we find it very likely that the FED will launch another round of QE,” says Mr Seier Christensen. And no sooner than Seier Christensen had uttered the words, the Fed acted, pumping in more than $600bn of fresh money; yields on 30-year US Treasury bonds leapt 20 points and the dollar plunged.

“We are more moderate in our expectations than most market participants and according to our view this disappointment would trigger a retracement in equities and, also, risk in general,” counsels Mr Seier Christensen. “At current levels in equities there is little room for a continued rise in prices and we expect that we would face a retracement towards the year end,” he adds.

Rapid spade work
In the background banks continue to rebuild their balance sheets – look at Basel III, for example. Financials have been broadly given a grandfathering period of eight years to implement the new Basel III requirements. But the final version that was released on 12 September is a lot less strict than the first version released in December 2009.

“Traditional banks are still rebuilding their balance sheets and will most likely continue to do this for years,” says Mr Seier Christensen. “The ease of the mark-to-market legislation both in the US and in Europe will help banks and we expect that when this legislation is put back in place, that is when the rebuilding of their balance sheets is done.”

Increased currency movements also bode well for Saxo's business model. There is now what Mr Seier Christensen describes as “significant movement” in the market. But as with most such movements in the market that brings with it a sharp increase in volatility – and volume. “As with all market participants in times of increased volume, we are indeed seeing more flow; however this is not unique to just Saxo Bank, but rather a function of the overall market environment.”

Either way, it's good for business and good for Saxo. Assets under management continue to build from €2.8bn to €3.9bn during the first six months of 2010. “Overall, looking back on the last 18 years,” says Mr Seier Christensen, “I am most proud that my business partner Kim Fornais and I created Saxo Bank and became one of the first banks to take real advantage of the internet creating, what I genuinely believe, is the best online trading platform in world.”

Lars Seier Christensen is co-founder of Saxo Bank

Saxo Bank in brief
– A global investment bank specialising in online trading and investment opportunities across all international financial markets.
– Offers practical, professional, sophisticated features allowing investors the kind of access only professional and institutional investors enjoyed – until recently.
– A cutting-edge trading platform. Clients simply use Saxo Bank's technology – no need for major, additional investment.
– A wide range of tools: SaxoTrader, SaxoWebTrader and SaxoMobileTrader, the award-winning, multi-asset online platforms; clients' trade FX, CFDs, Stocks, Fixed income, Futures, Commodity CFDs, ETFs, Options plus many other derivatives.
– Streaming news, research price alerts, price boards with research and search functions built into them. Approximately 11,000 add-on instruments on its website that any investor can use – a sophisticated yet practical offering.

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