Jamal Mecklai: What's in a name?

MARKET MANIAC

A rose, under any other name, they say, smells as sweet. To wit, the RBI has changed the name of the exchange control department to the foreign exchange department, but since they haven't yet been able to change the mindset of control, the smell of control hangs as a heavy haze on the 10th floor of Mint Street.

So too, several banks, who have changed the names of their treasury sales teams to treasury advisory groups (or, more grandly, strategic risk advisory group), leave a suspicious smell in the air.

Unless the core focus of banks' corporate treasury divisions""viz. selling treasury products to corporate clients to make money for the bank""changes, it is hard to see how any gussying up""free access to market rates, free calls every time the market moves, free advice (we all know what that's worth), free...well, everything""is going to make any difference to the effectiveness of the service that companies receive.

It will surely remain business as usual, except that it may lull some companies into believing that their treasury advisor is genuinely more interested in the company's bottom line than in that of the bank, which, incidentally, pays the advisor a good salary, (probably) provides them a nice flat in Bombay, a car and so on.

Of course, makeovers are nothing new in business, but for a makeover to work, it must be real, it must be a genuine change, it must speak from the heart of the organisation. And this change, from treasury sales to treasury advisor, appears to be transparently cosmetic.

Being an advisor myself, and having been in the business for almost three decades, I know that to be successful as an advisor, you have to have an unfettered focus on the client's business and bottom line. You charge a fee for your service and both sides know what they are getting.

Now, unless banks that have set up treasury advisory groups are going to disclose exactly how much money they make from each transaction of each client""a tall order, indeed""the lack of transparency and, importantly, the fact that the bank's interests and the client's interests are adversarial on each transaction, will surely result in bickering (at best) and failed client relationships (at worst).

Many years ago""before 1990""one of the foreign banks (I think it was American Express) had sent a couple of officers to see me to try and understand how they could improve their corporate forex business.

I remember I told them that they should tell their boss that the only way to get better business from a corporate client is to provide greater transparency""take the client into your dealing room, I said, and show him exactly how his transaction proceeds, how much money it costs and, importantly, how much money you make on the deal. Those were the pre-Internet days when information was very thin on the ground and banks could charge fat margins for even vanilla products.

Not surprisingly, I never heard back from them.

Now, some 15 years later, most banks""certainly all the foreign and private ones""have understood the only way to sustain and build client relationships is to provide the highest-quality service with the highest possible transparency. This is all the more true in this day and age, where deregulation is (albeit slowly""this is still India, after all) eliminating free lunches, competition is everywhere, and customer is truly KING.

The trick, of course, is ensuring the "highest possible transparency". In businesses that involve financial markets, this is well nigh impossible. Consider if you will, the following situation:

• The rupee opens the day at 43.50. The treasury advisory group calls you and tells you that you should sell some of your receivables at the earliest, since there is a strong expectation of dollar inflows from FIIs, which could strengthen the rupee and reduce your realisation. Following his advice, you sell $1 million. Now, as things turned out, the market turned out to be directionless and the dollar drifted slowly lower closing at 43.55.
• Now, anyone can make a wrong judgment and no sensible person will hang someone for being wrong about the market""provided, of course, it doesn't happen every time. However, in this case, there would be""or certainly should be""a nagging doubt because clearly somebody""the entity who bought the $1 million that you sold in the morning at 43.50""made (or could have made) Rs 50,000 on the transaction by selling those dollars in the afternoon. The nagging doubt would be: could that entity have been the proprietary trading desk of the bank?

Say, the bank traders believed the rupee was going to weaken. The prop desk was already long on dollars to the maximum permitted under its open position limit (set by the regulator and the bank's management).

Thus, it couldn't increase its exposure and profit potential, unless it could get hold of some underlying merchant business. Enter the treasury advisory group (TAG). The treasury head could ask the TAG if it had any exporters who wanted to sell dollars. Or, whether they had any clients to whom they could recommend selling dollars. Or, whether they could convince some clients to sell dollars.

While I don't mean to impute such blatant venality to my colleagues in the banking sector, let's just say it's been known to happen.

Which is why I believe that any services provided to clients by bank treasury advisory groups, suffering as they do under a very loud and obvious conflict of interest, will""or certainly should""meet with continuing scepticism from the corporate sector.

Let's remember a rose is a rose is a rose; and a bank is a bank is a bank!