On a trip to Asia last week, CEO of JPMorgan's treasury and securities services business, Heidi Miller, spoke to FinanceAsia about the ongoing integration between the bank's investor and institutional trust services and treasury services. She affirmed her client retention strategy, shed light on product development and explained how important Asia is to the overall business.
Why do you think the three businesses that fall under TSS go together?
These are big operating businesses that share many similar functions so there is a clear opportunity for synergies. When I first took over this role last year, my intuitive sense told me that these synergies existed and now, with each passing review of the business, I come across situations where functions are replicated.
We have started to create centres of excellence where these overlaps occur. One example of this is in liquidity management. We sit on billions of dollars worth of deposits and money market fund assets and the interest income from these assets used to be managed separately by our treasury and custody divisions. Now we have pulled these together into one shop with a treasurer dedicated to the business.
Other areas where there are overlaps include corporate actions, cash reconciliation and wire transfers. We shouldn't be replicating any of these functions.
Is the aim to make one global business, one group?
No. We realise that the businesses have very distinct client groups, even though there is also some overlap here. The businesses require their own technical expertise and their own product sets. But we can create these centres of excellence to serve all three parts of the business.
Is the integration going to be a quick process?
We are just getting started and, while we have made some strides, I don't like to do things hastily. Success will depend on working as a partnership. Tom Swayne who used to head investor services recently retired and his retirement created an opportunity, so I promoted Mike Clark, our current head of trust services, to look after the two businesses. With Mike overseeing both trust and custody we can accelerate some of the reforms.
You mention liquidity management, which other functions will be integrated in the initial phase?
We are trying to create one layer of support staff - those that are involved in financial reporting, marketing and human resources. Then we want to get better value out of our technology spend. Last year we spent $1.6 billion in technology for TSS, so making sure there is no duplication in technology will create tremendous savings.
Is this a cost cutting exercise?
I want to draw a distinction between cutting cost and cutting waste. My focus has always been on removing duplication, creating value by cutting out unnecessary costs. We want to be a crisp shop, a nimble service provider that is creative in its product development and service delivery. We need to reduce the amount of money we spend on stupid things and spend that money on people and product.
What is your product development strategy?
Miller: We have enough to invest in product in all three of our businesses. The only limitation on this investment is our ability to execute which is why we choose our target markets and our target clients very carefully. When we review a new market we ask several questions: how are we currently placed in that market, what are the barriers to entry and what are the likely returns. In TSS we don't always have the bricks and mortar to compete with the local banks, which is why we don't always aspire to being a local player. We provide products to clients in a very specific target group.
How important is Asia to JPMorgan TSS?
The region represents about 10% of our business today and we have some aggressive growth targets imbedded in our budgets. The growth rates in the region suggest that Asia is playing a bigger role in the world economy. We want to participate in the growth and we are setting ourselves up to do so. We are at the leading edge of providing services in China.
Why do rumours about JPMorgan exiting the TSS arena persist?
I'm not sure why. Over the years Chase, JPMorgan and Bank One have sold various businesses. Bank One sold its trust business to JPMorgan just before the merger, for example. But now these three entities have merged we have created such large fundamental businesses that it would be crazy for us to get out of them. These core franchises create huge stickiness with our customers and the products we provide are vital to the operation of our clients' businesses. The average tenure of a relationship in the treasury services division is five to seven years and CFOs are always interested in hearing about new product offerings. Being big is important, however, which is why we want to remain number one, two or three in each market.
What is your client acquisition strategy?
In the past few years we have increased our client base both organically and through business acquisition. JPMorgan is a big global company and is bound to be looking at future acquisition deals that will benefit our business but we don't necessarily need to grow through acquisition. In places like Asia, clearly the future growth area, there are new clients emerging each day as companies grow and regulatory regimes are relaxed. We are focusing on newly emerging markets like China's insurance sector.
What about in places like Australia where you already have critical mass? What is your client retention strategy in these markets?
Miller: We are providing our existing clients with new services. For example, a number of clients are launching funds in the long/short space and we are servicing these hedge funds. One of our advantages is our global franchise - we are developing products in the US and the UK that can be introduced to clients in Australia. They want us to bring them new ideas and solve their challenges. The other key to client retention is maintaining excellent customer service. We don't want to give anyone a reason to leave. If our prices are competitive and we have the best customer service in the business, then there is no reason why a client should leave. Our average client retention in Australia to date is 10 years.