Saxo Bank today announced its full year figures for 2014, which denoted very strong performance indeed. The ensuing few months which constitute the early part of 2015 have been a time when the entire industry has witnessed a landmark event, notably the Swiss National Bank’s removal of the 1.20 peg on the EURCHF pair, and some extraordinary market volatility.
LeapRate today spoke in detail with Kim Fournais, Saxo Bank’s CEO, who takes a comprehensive look at the year gone by, and the challenges that lie ahead
Saxo Bank clearly had a great 2014 with net income more than double 2013 at DKK 381 million, and you remain strongly capitalized. But the one-day loss on January 15 due to negative client balances could potentially wipe out two years’ worth of net profits. What are the key lessons Saxo Bank has learned to mitigate such an event in the future?
What happened is unfortunate. This was an unique and extraordinary situation. Our capital position helped us withstand the extreme market impact and most investors appreciate that. We have since been focusing on making sure that our risk models are dynamic and robust.
Robust risk management increases confidence in trading rather than deter investors from trading. We have been open and honest about this and I believe that is why we have seen a fresh inflow of new clients, with clients’ collateral deposits at a record-high in February. We believe clients are increasingly looking to trade across multiple asset classes and want to diversify risk. Our multi-asset approach works to our advantage in this environment.
Your financial statements clearly demonstrate an increasing number of clients choosing Saxo Bank. How can these clients be encouraged to generate substantial volume and their have lifetime value increased whilst the firm mitigates exposure to negative balances in the future caused by increasing market volatility?
Our clients are not clients of Saxo Bank to get the most aggressive leverage possible and we don’t recommend to anyone to leverage their positions a lot. We do on the contrary recommend that our clients diversify into more asset classes and do not use too much leverage.
Saxo Bank’s core business is online trading and investment in multi asset products for private and institutional clients and we will continue within the core business areas to invest in improving the products, platform and services offering and our competiveness to enable the bank to provide good trading and investment possibilities for clients. I would say that the continued rise in client’s collateral deposits shows the strength of our business model and is a clear sign of trust and confidence in the Bank. This combined with our multi asset offering is very important for Saxo Bank going forward.
Can a well recognized firm with a good reputation continue to maintain its standing if it goes down the route of B-book execution post SNB event?
It wouldn’t be appropriate for me to comment on competitors and what they do.
It is clear that there is displacement in the FX liquidity market post January 15, with several liquidity providers either pulling out or upping significantly the margin they require. We understand that quite a lot of smaller FX brokers are therefore turning to the larger established brokers such as Saxo Bank for liquidity. Are you seeing such a move?
Yes, we are seeing a significant uptick in demand from brokers asking for liquidity after the Swiss franc event.
As Saxo Bank operates as a licensed bank, and has experienced a growing number of collateral deposits, does the firm have plans to begin offering interest on deposits in order to maintain client accounts?
No, we rather believe that clients are looking for a new approach to risk management. This is what is on clients’ minds these days. Investors are more careful where and how they place their investments. It’s increasingly important that risk models are dynamic enough to anticipate and react to changes in the risk profile of the underlying instrument and asset class.
As previously mentioned, robust risk management increases confidence in trading rather than deter investors from trading. We believe that is why we have seen a fresh inflow of new clients, with clients’ collateral deposits at a record-high, ready to trade when volatility returns again. Also, clients are looking to trade across multiple asset classes and they want to diversify risk and our multi-asset approach and our business model works to our advantage in this environment.
What is your perspective on the Danish government’s continuing attempts to intentionally devalue the krone in order to maintain its peg against the flagging Euro at all costs, especially as a firm which reports its figures in Krone?
It was expected that the Danish Central Bank would outlast the market. I personally believe the fixed exchange rate policy has served its purpose but I do not believe that anyone dares removing it, but it would be the right thing to do, given the state of the euro.
It is interesting that Saxo Bank chose the Irish stock exchange to list notes worth 334 million krone. Let’s take a look at the reasons behind issuing the notes, and why the Irish stock exchange was chosen.
We chose the Irish Stock Exchange because they had the strongest track record.
How does Saxo Bank attract and maintain institutional and high net worth traders, and does the firm view institutional accounts as lower risk/longer term, or is the potential loss of one large institutional mandate potentially more harmful than operating numerous smaller retail accounts?
We have added further resources to accelerate the development of our institutional business. The focus is on developing the offering and service solutions to better meet the needs of financial institutions including Banks, Brokers, Asset Managers, Money Managers, Hedge Funds, Funds, Introducing Brokers, Broker Dealers and other professional and corporate clients.
Building on our industry-leading solutions for White Label clients and Introducing Brokers, we are also currently developing new innovative solutions for a broader range of institutional segments, enabling more financial institutions to effectively service their clients by using Saxo Bank’s trading platforms, trading infrastructure and back-office services.
This strategy resulted in several new business relationships with institutional clients. We also moved forward with the strategy of consolidating the institutional business into three centres of excellence which are London, Copenhagen and Singapore. This strategic move allows us to centralise our capabilities and put our resources at the service of Saxo Bank’s growing institutional client base. We are very happy with the move because clients seem to get better service from it and for me, it’s always about getting more happy and active clients.
Kim Fournais is co-founder and CEO of Saxo Bank. In partnership with Lars Seier Christensen, he has steered Saxo Bank from internet trading pioneer to one of today’s leading investment banks.
Mr. Fournais has held various positions in the financial services sector, before he established Saxo Bank with Lars Seier Christensen in 1992 under the name Midas. Fournais headed Midas alone until 1995, when Seier Christensen joined as co-CEO. In 2001, Midas attained European bank status and was officially renamed Saxo Bank.
From the outset, Mr. Fournais has taken particular interest in Saxo Bank’s innovative online trading technology. He was instrumental in developing the SaxoTrader platform which has won worldwide industry acclaim and secured Saxo Bank’s position as a leader in online trading and investment. Today, Saxo Bank provides online trading services for a retail client base in over 160 countries and many of the world’s leading financial institutions, including Citibank, the largest bank in the US.
Mr.Fournais has invested in the rebuilding of the Danish island ‘Vejrø’ as an organic farm and meeting place for private people as well as corporations with good accommodation in the form of reconstructed farmhouses, houses, a restaurant, an airfield and a port.
Most recently, Inner Mission’s last hotel ‘Stella Maris’ has been acquired and will be converted into a hotel and conference center with organic foods from Vejrø.