Transaction Banking: The year that was & the year that is going to be

What a year 2010 has been, and for very different reasons for different parts of the global landscape.

For this part of the world, it confirmed the suspicion that Asia is not only the place on which the post-GFC recovery depended – but also where the action has been for a while now and is here to stay. Obviously, it goes without saying that this phenomenon poses its own set of problems, although the dynamism is unmistakable. Curiously, many people seem to have a strange kind of wistfulness for the year truly being over – a year that started with sheer hope that turned into optimism, and was then translated into tangible positivism.

The feeling is understandable – things could only get better after 2008 and 2009. With even slightly better earnings posted for banks quarter on quarter, this seemingly big leap managed to sustain the rampant optimism. However, as a new year begins, most people know that optimism will not be handy any more – 2011 is going to be a year that demands solid action and tangible results across businesses within the banking and finance industries.

2010 appeared to be a bumper year for transaction banking – not only by recruitment standards but actual business performance as well. While the honours were largely attributed to the bigger players, some of the more niche players also had some good pipelines to speak of. What mostly captured the headlines however, was the very strong expansion that all transaction banking players engaged in, right from the time when no other businesses were hiring up to the time other sectors caught up and went slightly beyond that as well. This in itself kept the business in the limelight, which the sector was largely unaccustomed to.

While banks like Standard Chartered did most of its aggressive hiring in the first half of the year, banks such as J P Morgan, ANZ, Bank of America, Merrill Lynch and DBS did most of theirs in the second half. Other banks including the likes of Deutsche Bank and BNP Paribas focused on consolidating their traditional expertise and expanding other businesses – such as trade finance for Deutsche bank and cash management for BNP Paribas.

The relevant teams have largely been established. The easier task has been done. Giving in to the demands of the rising trade volumes in Asia and increasing numbers of intra-regional cash mandates, banks have expanded or entered various facets of the transaction banking business last year by taking the most important first step – recruiting the right candidates. The more difficult task now begins – that is, to capture the increased volumes, gain market share and for some banks to win real major deals. The onus is on the newly acquired transaction banking professionals across all banks to prove their mettle. Mere optimism belongs to the past, and will not be sufficient this year. If one was to gauge by the bonus stories making the rounds, it would show the challenging reality that banks faced last year and will face even more so this year.

Despite the prevailing optimism, the majority of bankers who have received bonuses felt they were paid less than last year, even though the actual amounts may be higher in some cases. It is common consensus that simply sustaining last year’s performance will not be enough for the transaction banking sector this year, and even increased business volume due to additional headcount might not be sufficient. Faced with fierce competition this year, the gains have to be incremental and real, while bankers are compelled to deliver very strong performances this year just to keep in line with the Asian transactions and demands. Thankfully that is the real good news for the next few years in transaction banking– fierce competition but in an expanding and hopefully sustainable but not contracting market.

This is not to say that no hiring will happen this year. Post-bonus attrition always has to be accounted for. Interestingly, more and more seasoned transaction banking professionals are finding more than one interesting opportunity in the market with the right compensation – not something transaction banking was famous for in the past. While senior transaction banking professionals with a proven track record will always be in demand, attracting well-established industry veterans will prove to be a difficult task. Like 2010, product professionals will see some interesting opportunities arise, not simply in a mundane product program writing role but something with more of an advisory slant. In contrast with the previous year, the hiring focus of 2011 will be the search for strong support professionals – from implementation, solution delivery, technology and even operations as the older players brace themselves for increased volumes and the newer players invest in evolved technology platforms – from bringing in new ones to upgrading and enhancing the existing ones.

Last year was a good year, without which the expectation of an even better 2011 would be impossible. But 2011 is going to be quite the real thing - stronger business expansion, better financial results, higher revenues and hopefully incremental bonuses too.