Touw became group treasurer at the Commonwealth Bank of Australia (CBA) in 2002 putting him in charge of the bankÆs own funding programme. In June this year he took charge of the global markets business as well, making him responsible for executing transactions for clients. Here he talks about his plans to offer more innovative funding ideas to clients and to expand the bankÆs global distribution reach, including courting investors and issuers in Asia.
CBA has brought the functions of group treasury and global markets together. Is it fair to say that there is a conflict between executing transactions for clients and setting fundraising policy for the bank?
Yes, we recognise this and the policy for the bankÆs own funding arrangements is set by the CFOÆs office, not by us. The CFO is in the process of hiring someone who will head balance sheet management. That person will own the planning and the funding limits and we will handle execution which means we will continue to scour the global markets for cost-effective funding for the bank û but funding that also meets our term objectives and our investor diversification targets. This is the role that treasury has always played.
So why did the bank bring together the role of treasurer and head of global markets? Are there examples of this kind of management structure at other Australian banks?
Other banks havenÆt brought the two together as obviously and completely as we have. It seemed like a logical step for CBA because of the complementary strength of our treasury, markets and structured finance departments. Over the past three or four years in treasury we have put together a clever team of risk professionals that has really boosted our trading capabilities. The team is strong and sustainable and now we want to merge that with the global markets area. The treasury team has also aggressively chased cross-border funding arrangements, capital markets deals and tier-1 transactions that have been seen as innovative. For example, we are one of the top 10 structured EMTN issuers on the planet and have done a lot of work with investors and systems, ops and process to create appetite for the bankÆs own paper. It makes sense to try and bring this to bear for our all of our clients and to share with them our innovative ideas.
Are you saying that innovation was lacking in the global markets group?
Global markets has done some very innovative things for our customers like a diesel cap hedge and newsprint but maybe they hadnÆt been given the chance to go as far forward as they could have. These days innovative products quickly become commoditised and margins collapse so you have to be constantly developing new ideas. We need to be at the sharper edge of the innovation curve.
What products or services are you focussing your energies on first?
The bank has been a top 10 issuer of structured EMTNs. We can bring this product to bear across our investor base and start to find new markets for our clients whether they be financial institutions, corporates or middle market issuers. Structured EMTN gives us the building blocks for many more client solutions and we can apply that across the wonderful distribution reach in Australia. We expect to develop this across Asia, Europe and eventually the US as well. About 60% of the A$9 billion worth of structured EMTNs that CBA issued last year was sold into Asian markets which gives you an idea of the potential. The other thing we are focused on is to build an institutional stock broking capability. We have a particularly strong headstart with the bankÆs retail stockbroking division called CommSec which is a well known brand. It makes sense for us to broaden the reach to institutional clients.
You talk about expanding distribution in Asia, what steps have been taken towards this goal?
We have long had a presence in Asia but the global markets sales and trading business had declined in recent years. So now we have Benjamin Wong in Singapore and we have hired Yun Ling Chan, who most recently worked for Shanghai Pudong Development Bank, to head our global markets business in North Asia including Greater China. She has good PRC experience and knows structured products and traded product generally. And we have moved Rowan Luke up to Hong Kong to run debt capital markets up there. Rowan reports into me and Yun Ling reports to Vincent Hua, head of product trading, but they also work very closely with Stephen Poon who we recently hired from ABN AMRO to be regional head of the bankÆs Asian business from Hong Kong.
So what is this team doing right now?
Ben already has a business up and running in Singapore. In Hong Kong Yun Ling is putting in place the systems and processes needed to increase the complexity of our product offering. SheÆs also hiring staff to build up the business. The plan is to distribute Australian paper in the region but also to offer funding solutions to local clients whether they be in the project finance area for resources companies and infrastructure projects, or structured finance solutions for local corporates. We have a deep knowledge of these areas in Australia and want to exploit a niche, where this creates some competitive advantage.
When it comes to your business in Asia, do you compare yourself to what other Australian banks are doing in the region or do you look for peer comparisons elsewhere?
Australian banks arenÆt our competitive target. We would look at the good work done by other foreign investment banks, from Europe in particular, like BNP Paribas, Societe Generale, and ABN AMRO. Having said that, weÆre not looking for a 20% market share, which is why I havenÆt nominated the market leaders like UBS, Deutsche and Citigroup, we just want to compete where it makes sense.
Commonwealth Bank has made some strategic investments in local banks in China. How can these alliances help you to achieve your global markets ambitions in the region?
You donÆt necessarily need alliances with local banks to build a global markets franchise, but over time if it is possible for us to increase our shareholding in these banks or make new acquisitions then it can be a value adding strategy. There is the potential to offer product to the customers of these banks.
Returning to Australia, what deals have you completed in the last 12 months that highlight Commonwealth BankÆs strengths?
We worked on Wells FargoÆs $750 million seven-year fixed and floating rate note which traded three basis points wider than the five-year issue done in 2005. We also worked on Bear StearnsÆ $450 million eight-year fixed and floating rate notes. Then we completed the mega $5.5 billion Medallion securitisation of the bankÆs own assets with CBA as a lead manager. We have excellent teams in the space led by Peter Christie and Rob Verlander.
Can you explain why the bank has fallen in the deal league tables this year?
This is a temporary effect. I think the team went through a period of introspection last year when Geoff Martin from our origination team passed away. WeÆve pulled through the other side of that. IÆve taken over the debt capital markets division for the time being and we have refocused on how important being number one is. We will be number one again.
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