When it comes to services such as collateral management, securities lending and transition management, risk management and capital preservation were not always front of mind for investors. Instead, they were seeking alpha while downplaying many of the risks inherent to their trades.
Not so at JP Morgan, says Sandie O'Connor, the bank's global business executive for financing and markets products. "The crisis validated our approach," she says. That approach includes focusing on risk-adjusted returns, capital preservation and liquidity management for securities lending, allowing for consolidated views of positions for collateral management and minimising the cost of asset transitions.
The bank's financing and markets products division is part of its treasury and securities services business, which includes clearance, collateral management, depositary receipts, securities lending and transition management. Based in New York, O'Connor leads the division globally with Shaun Parkes, Asia ex-Japan head of worldwide securities services at JP Morgan, who is responsible for (though not exclusively) financing and markets products in the region. He took up the position this April.
This month, O'Connor has been on a tour of China, Hong Kong, Japan, the Philippines, Singapore and South Korea to meet with clients.
Securities lending is where the bank's approach has been most strongly validated, she says. "Asia has always been more aligned with our approach to securities lending, including risk-adjusted returns, capital preservation and liquidity management," O'Connor says. She cites clients who have told her that the bank has always provided transparency and discussed the risks of lending with them on a regular basis.
JP Morgan recently launched an enhanced securities-lending dashboard to give customers increased customisation and transparency with regard to lending activities. The bank's technology offering is one area O'Connor is quick to highlight. "Everyone wants to look at their positions in a consolidated manner," she says. In addition to enhancing the lending dashboard, the bank has updated its global collateral engine.
Meanwhile, the bank has seen increasing demand for collateral management and depositary receipt services. O'Connor attributes the growing need for tri-party collateral management to investors' desire to minimise counterparty risk and have an independent third party hold their assets.
In terms of depositary receipts, she says demand has picked up significantly in Asia, and especially in China. "Companies wanting and being able to access capital is a positive sign," she says. "IPOs are a bellwether for confidence in equity markets."
Earlier this year, independent research firm Oxford Metrica and financial group Bank of New York Mellon released a study indicating that depositary receipts at Chinese companies on average increase shareholder value by 40% in the first year of the programme, and also improve resilience against market volatility.
With regard to transition management, O'Connor says transitions to new asset classes or managers have increased globally, with the only regional difference in Asia being more activity in fixed income.
Asked about what's next from JP Morgan financing and markets products, she says the bank will expand its tri-party collateral management capabilities in the first quarter of 2010, while offering "more of the same" in securities lending, foreign exchange and transition management.
Whether everything O'Connor says about the robustness of JP Morgan's financing and markets business is true is difficult to measure; division revenue is not broken out on the bank's income statement. And in the third quarter, net revenue at JP Morgan's worldwide securities services business was down 14% year-on-year to $869 million.
She brushes off the decline in revenue, saying: "Revenues are definitely lower, but everyone in the market is impacted. What matters in this environment are risk-adjusted returns."