Saxo Bank aims to double revenue from the region

Saxo Bank, the first Danish bank in the region, is aiming to double the Middle East share of its total revenues from the current five per cent. The online trading major is on an expansion mode in the UAE as it continues to bring new products and exchanges onto its trading platform. "The Dubai Financial Market, the Abu Dhabi Securities Exchange and Nasdaq Dubai are on our priority list and we hope to be able to add the first, if not all three, next year," said Lars Seier Christensen, co-founder and co-CEO of Saxo Bank in an interview. Excerpts:



Being the first Danish bank in the region, how was business since launching operations in the region?

We have high expectations. We have confidence in the local and regional economy. We have a significant client base in the region, which we continue to grow and we have Jakob Thomsen running the Dubai office. The prospects are very good. We are also very proud to have opened an office in DIFC. It's the first time that a Danish bank has established a permanent presence in the Gulf and I think the timing is right. When the current financial crisis is over, I think the Gulf will have an increasingly important role to play in the international financial industry. That's when Saxo Bank and other strong and healthy companies will truly benefit from having a presence in the region.

The reason we chose to open now is because around five per cent of our revenue is generated in the Middle East. About a year ago, we concluded that a regional presence was necessary, and this had also been requested by many of our clients. With the new office now open, we expect our revenue from the Middle East to double over the next two years.

How do you see the governments' role in regulating lending activities?

I can understand if the government would want to impose better banking regulations. I personally think what we need is better regulation, not more regulation.

I also believe there is a great need for more accountability and responsibility, for not only financial institutions, but also their clients. Clients have a responsibility as well.

How is the banking sector doing in the wake of the global crisis and do you see bailout packages benefiting people?

Not good. And despite governments' and central banks' attempts to jump-start the economy, commercial banks still show little willingness to pass on cheap credit to companies and consumers.

This might be understandable considering what happened, but it is not helpful because companies will not invest again before they see credit easing up.

With Shariah-compliant banking and Islamic finance in the limelight, does Saxo Bank offer any such products? If not, do you have any plans to launch?

Saxo Bank is very interested in the field of Islamic banking. It is early days, but we are currently investigating different ways to expand our offering and build a diligent solution that can assist investors with a need for Shariah-compliant trading products.

Today, our offering is limited to a few exchange traded funds, but we are in discussions with leading scholars and other knowledgeable people to expand our Shariah offerings in the most appropriate and efficient way.

We see Islamic banking as being one of the most interesting and fastest-growing areas within banking, and it is an area we very much want to be a part of. However, it has to be done properly and with the right people.

What role do you see Shariah-compliant banking services playing in the wake of securitisation of sub-prime mortgages?

I think Islamic banking can, and will, benefit from the latest turmoil in the capital markets and in the financial sector. Islamic banking is by definition more risk averse, in both its capital requirements and its way of conducting business. So they have weathered the storm nicely and are well-equipped for the future, which we believe will be much more focused on risk management.

With the economic crisis hitting every sector globally, was there any product change at Saxo Bank to offer more value-added services to its customers?

Yes, both futures and contracts for difference (CFD) became more popular. We launched CFDs on commodities allowing clients to trade gold, oil and sugar besides stocks and indices. I understand why clients chose CFDs because it allows investors to take full advantage of the volatility in a market. The product is packaged in such a way that it allows a greater flexibility in both bear and bull markets, without the burden of borrowing shares.

CFDs also allow investors to leverage a successful trade. Using existing portfolios as collateral means investors can hedge using a CFD against a downturn without having to shore up huge amounts of capital.

How do you find the response to CFDs in the Middle East?

Besides growing and developing our client base, we look forward to introducing products such CFDs, which are popular in Europe, but still new to the Middle East. CFDs allow experienced investors to take advantage of both falling and rising stock and commodity markets.

By offering CFDs, along with our other more conventional products, we seek to give our clients greater flexibility and efficiency in their trading. In addition, being a regulated bank, it allows them to do so in a safe and transparent environment.

All in all, you could say that Saxo Bank sees the Gulf as having great potential for our type of business and it is certainly possible that this will lead to an expanded presence in the region.

How would you describe the demand for online investment trading services offered by Saxo Bank?

I think many clients are looking for new opportunities, new ways of handling their portfolios, more transparency, better products, pricing and services. That's exactly what Saxo Bank has to offer. The traditional big banks and brokerage houses have disappointed many clients and I think the financial crisis has worked to the advantage of smaller, younger and more adaptable banks such as Saxo Bank.

Being the leading service provider for online investment trading and wealth management services for FX, CFDs, stocks, commodities, futures, options, derivatives, fixed income and structured products, how would you describe the impact of global slowdown?

We have been affected, but we always expected 2009 to be a difficult year. We were well-prepared for what was coming and we have used the crisis to strengthen and optimise our entire value chain. This has included broadening our product offering and at the same time expanding our geographical footprint with new office openings in Milan, Madrid and Prague, as well as Dubai.

Most of your business is conducted online – does Saxo Bank focus on personal service and support to clients and partners on the ground?

Saxo Bank might be a leader when it comes to online banking but our real advantage is the fact that we combine technology with human interaction. This is why we have continued to widen our geographical footprint.

How is the bank gearing up to customise banking services to cater to the different requirements of high networth individuals (HNIs) in the region?

HNIs have been a primary focus for Saxo Bank for some time. In January this year, we acquired Danish wealth management company – Sirius Capital Management – in order to provide our clients with stronger portfolio management services.

In addition, the bank purchased the entire share capital of another asset management company – Capital Four Management – as well as a 51 per cent stake in Global Evolution Management. As such, the asset management activities of Saxo Bank now include management expertise in fixed income, equities, corporate bonds and emerging market products.

Our new asset management department got off to a good start with DK14 billion (Dh9.83bn) of assets under management during the first six months of 2009, a figure that is continuing to grow at a healthy rate.

We have also recently – as part of our institutional services – launched a designated offering that seeks to meet the special needs of family offices. Saxo Bank takes family offices, their position in society and their needs very seriously. Being a niche bank, we are focused on the liquid side of asset management.

We are focused on the proprietary trading arm of investment activities. Besides which, our award-winning online trading platform is specifically designed for clients, who are either self-directed investors or advice-based. In that way, our banking services are already customised to each client.

The global banking sector has been facing challenging situations. What are the reasons you attribute to this phenomenon?

As we see it, 1980 marked the beginning of a new trend, which had debt financing and credit creation as its hallmarks. You could say that since 1980, every economic problem has been met with lower rates and credit that was plentiful.

Our thesis was that this easy credit fostered a speculative boom unprecedented in human history and asset prices were getting so much out of sync with reality that even the commercial banking system, which was the channel of credit to the real economy, no longer wanted to increase lending. We actually wrote that in our financial outlook for 2009.

The fact that central banks began cutting rates aggressively by the end of 2007 and money markets did not react by letting interbank market rates drop as well, was a clear sign to our strategists that the financial system was saturated with risk.

This was why our strategists were able to predict the crisis before anybody else. What did surprise us was the alarming speed of deleveraging. Unfortunately, I believe the market is still ahead of the curve in pricing-in the recovery, and regrettably, I think that the fundamental problems of the economy are still unresolved.

Some time ago, Saxo Bank conducted roadshows to enhance business in the region. What were the results? Any such plans for the future?

We have seen an almost 20 per cent growth in assets under management in the Middle East and the roadshows have contributed to these great results. We did some additional roadshows recently and we will continue to do so because these face-to-face interactions are popular with investors.

What is the business volume from the Middle East and the UAE in particular?

The Gulf has always been very successful for Saxo Bank and as I said before the region accounts for five per cent of our overall business. You could say that 2008 was a year of consolidation. The Middle East unit merged its private business and institutional business into one regional department and under one management in order to increase overall client services in the region, and also to forge a comprehensive strategy for the region.

Over the next five years, what is your business model expected to accomplish?

I definitely think that our business model has shown its viability during what seems to be the worst financial crisis ever, and I am certain that we will be able to reach the targets we have set for the next five years.

Could you elaborate on Saxo Bank's business expansion strategy?

We pick countries or cities in which we have a reasonable success rate either because of their importance to the financial community or because we have seen great demand and interest from clients in that area.

Also, there's no traditional heavy investment phase. The newly-established offices are small with moderate overhead costs, which are typically covered by our existing business from that region.

What are the future plans for Saxo Bank and when are you starting trading on UAE bourses?

We are always looking for ways to expand, strengthen and optimise the bank's entire value chain, product offering and geographical footprint. In the UAE, we will continue to add products and new exchanges. The Dubai Financial Market, Abu Dhabi Securities Exchange and Nasdaq Dubai are on our priority list and we hope to be able to add the first, if not all three, next year.

How do you foresee the business in financing leveraged buyouts?

I personally think that LBOs sometimes leave companies with too much debt to operate, but it is not something I would comment any further on.

The UAE banking sector's exposure through syndicated and bilateral transactions to embattled Saudi groups – Saad and Algosaibi – is believed to be more than $3bn (D11bn). As a banker, how do you look at this situation? How can banks protect themselves from such unforeseen crises in corporations?

I am not the right person to ask that question. You have to remember that Saxo Bank is an investment bank and we do not depend on the loan financing business.

What was the first half of 2009 like for the banking business globally?

I think it's safe to say that it has been a very difficult year for everyone. The reason Saxo Bank has not been hit by the crisis as hard as others is because 2008 was another record year in terms of income and profit. Operating income increased 61 per cent year-on-year. I wouldn't say 2009 has been easy for the bank. However, as you probably know, Saxo Bank is an investment bank and this has proven an advantage in weathering the crisis. So far, all things considered, it has been a pretty good year for Saxo Bank.





Lars Seier Christensen

Founder and co-CEO of Saxo Bank

Christensen has been involved in derivative sales and trading since 1987 and he worked in London for both European and American brokerage firms, until 1995. In 1992, Christensen and Kim Fournais founded the brokerage – Midas. Since 1995, Christensen and Fournais have been managing the company together. In 2001, Midas was granted a banking licence and officially changed its name to Saxo Bank. In 2007, Christensen and Fournais received the coveted Achievement Award from FX Week in New York. The award was given for their outstanding contribution and strong commitment to the success of the electronic-FX industry.

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