Skip to main content

Of International Banking Operations

A bit of a tangent today, in a sense I am proud of my employer decisions.  About 10 years ago, my employer decided to shut down the vast majority of its foreign operations (Before my time), keeping a small (funding) operation in London, and two regional offices in other major European cities.  These limited European operations generate a small profit for the firm; they have limited aspirations and do an excellent job.

Our firm is a smaller financial institution, and having international operations to “follow our clients” just didn’t make any sense.  My own experience working in London, New York and Singapore for very large financial institutions would also justify similar decision.  Our “home” clients were just not interested in working with us (and when I say us, I mean three different institutions from three different continents…).  Bottom line, our “home” client wanted local market expertise, and not some overpaid expatriate douche bag which had gotten off the boat two weeks earlier! (I wish I was making this up, but this actually happened – a German colleague (almost no English) investment banker debarked in Singapore and started pitching German clients his local expertise – he got lost driving back his “clients” to the airport…needless to say that this client took his business elsewhere!)

This morning, the royal Bank of Canada unveiled its results for the first quarter, the numbers were good, but all the profits were generated by the domestic operations.  The foreign operations were once again a drag on profits.  RBC is Canada’s premier financial institution, with a market cap of nearly $90 billion it stands shoulder to shoulder with some of the world’s largest banks (JPM and BoA are both around $154 billion in market cap).  RBC has been active in Europe and South America for more than a century.  It is a well established player in these markets.  Despite this RBC’s foreign operations almost never make a profit, and generally produce losses (as they have in the first quarter of 2010 – with a $27 million loss, which is better than the $1.1 billion loss for 2009, still…).

My point is that if one of the best run international banks is unable to generate consistent profits from its international operations, what chance do medium sized banks have, and why do so many try? My guess is habit, looking at the annual report of their competitors; banks decided that they too needed a foreign presence.  My guess is that those strategies are never fully though-out 

My employer decided that instead to strike agreements with strong local financial institutions.  Has it paid off?  Hard to say, our clients appear happy, they get our “seal of approval” and introduction to the right people, do we get the same kind of referral, no we don’t, but then there’s not that much interest in investing in Canada – on the other hand we have virtually not costs associated with the endeavor.

Comments

Post a Comment

Popular posts from this blog

Ok so I lied...a little (revised)

When we began looking at farming in 2013/14 as something we both wanted to do as a "second career" we invested time and money to understand what sector of farming was profitable.  A few things emerged, First, high-quality, source-proven, organic farm products consistently have much higher profit margins.  Secondly, transformation accounted for nearly 80% of total profits, and production and distribution accounted for 20% of profits: Farmers and retailers have low profit margins and the middle bits make all the money. A profitable farm operation needs to be involved in the transformation of its produce.  The low-hanging fruits: cheese and butter.  Milk, generates a profit margin of 5% to 8%, depending on milk quality.  Transformed into cheese and butter, and the profit margin rises to 40% (Taking into account all costs).  Second:  20% of a steer carcass is ground beef quality.  The price is low, because (a) a high percentage of the carcass, and (b) ground beef requires process
Post a Comment
Read more

21st century milk parlour

When we first looked at building our farm in 2018, we made a few money-saving decisions, the most important is that we purchased our milk herd from a retiring farmer and we also purchased his milking parlour equipment.  It was the right decision at the time.  The equipment dates from around 2004/05 and was perfectly serviceable, our installers replaced some tubing but otherwise, the milking parlour was in good shape.  It is a mature technology. Now, we are building a brand new milk parlour because our milking cows are moving from the old farm to the new farm.  So we are looking at brand new equipment this time because, after 20 years of daily service, the old cattle parlour's systems need to be replaced.  Fear not it will not be destroyed instead good chunks will end up on Facebook's marketplace and be sold to other farmers for spare parts or expansion of their current systems. All our cattle are chipped, nothing unusual there, we have sensors throughout the farm, and our milki
Post a Comment
Read more

So we sold surplus electricity one time last summer...(Update)

I guess that we will be buying an additional tank for our methane after all.   Over the past few months, we've had several electricity utilities/distributors which operate in our region come to the farm to "inspect our power plant facilities, to ensure they conform to their requirements".  This is entirely my fault.  Last summer we were accumulating too much methane for our tankage capacity, and so instead of selling the excess gas, that would have cost us some money, we (and I mean me) decided to produce excess electricity and sell it to the grid.  Because of all the rules and regulations, we had to specify our overall capacity and timing for the sale of electricity (our capacity is almost 200 Kw) which is a lot but more importantly, it's available 24/7, because it's gas powered.  It should be noted that the two generators are large because we burn methane and smaller generators are difficult to adapt to burn unconventional gas, plus they are advanced and can &qu
Post a Comment
Read more