The sixth annual Falcon Group Dubai trade and corporate finance forum – entitled
‘Corporate Growth versus Global Challenges’
– described the turbulent economic and political landscape that corporates face globally and how diversifying funding sources can help to mitigate risk.
At the same time the event also highlighted the opportunities for corporates presented by the growth of global trade, the rise of emerging market (EM) business, and the technological revolution. It is here – in a business environment of opportunities – that specialist financiers add the most value.
The forum opened by looking at how specialist financiers offer corporates a means to diversify funding sources, and hence help to mitigate risk.
The 2008 global financial crisis highlighted the vulnerability of a financial landscape that is almost entirely dominated by global banks. Indeed, when the crisis hit, it was the global banks that felt the greatest impact.
“Initially governments and regulators tried to shame the banks,” commented Dr. Duvvuri Subbarao, former Governor of the Reserve Bank of India (RBI), during the event’s lively panel debate. “Then they saw that shame was not enough – they had to pinch. That is the reason behind the heavy penalties. Learning from the lessons of the financial crisis, regulators and central bankers all over the world are reforming regulations.”
Increasingly “over-saddled with costly regulation” – as Alain Madelin, a former French finance and economy minister described it – global banks have had no choice but to retreat to domestic markets, focus on core clients and return to plain-vanilla, traditional, products.
“Even HSBC – one of the world’s largest banks – is looking to ‘shrink and simplify’,” noted Richard Dean, presenter of Dubai Eye’s ‘The Business Breakfast’.
Increasing Funding Options
While global banks have been shrinking and simplifying, specialist financiers have been expanding geographically and broadening their product range.
“Specialist financiers cover the last mile,” said Subbarao. “They are more nimble, and more efficient. There is a niche for them and RBI – although I no longer speak for it – recognises that.”
What’s more, not only do specialist financiers provide financing themselves, they collaborate with both global banks and corporates so as to combine capabilities and create comprehensive solutions.
“We work with partners around the world to deliver financial solutions in places where some banks choose not to invest,” said Guy Smith, director of Cisco Capital.
The increasing popularity of specialist financiers means that despite a volatile economic backdrop, corporates have gained more choice than ever before with regard to their funding options. They do not have to rely solely on global banks and are therefore able to ensure that should another crisis hit they do not run the risk of losing all their funding.
“The great thing about the global financial crisis is that a lot of companies learnt the disadvantage of ‘putting all your eggs in one basket’,” said Mark Wyatt, chief risk officer (CRO) at Falcon Group. “Specialist financiers offer an opportunity to diversify funding sources, which as the crisis demonstrated is critical.”
Landscape of Opportunity
Yet the benefits of diversified funding sources go beyond mitigating risk.
“Placing yourself in a favourable financial position when the economy is stronger not only protects you for a downturn,” said Falcon’s chief commercial officer, Chris Howarth. “It also puts you in a strong position to look at the opportunities that only present themselves at the bottom of the market.”
So while the forum discussed in detail the global challenges that corporates face, it also addressed the opportunities they could seize.
“Global trade is forecast to grow at 4% over the next two years,” added Howarth. “Globalisation presents an opportunity for corporates to consider fast-growing markets outside of their core domestic focus.” Technology advances mean that not only are those markets much easier to reach, but technology itself also presents opportunities for innovation.
“Over the coming decades we shall witness prodigious and unbelievable technological breakthroughs we cannot yet fully imagine,” said Madelin. “It is a promising new world, more than ever full of opportunities for entrepreneurs.”
“Every company will become a technology company; every company will become a software company,” predicted Den Sullivan, head of architectures, and chief technology officer of the Emerging Markets at Cisco.
Yet corporates that rely solely on a single source of financing are too busy struggling to find funding in hard times – thanks to the withdrawal of global banks – to seize the opportunities presented by global growth and technological advances. By contrast, corporates that diversify their funding can prosper.
The implementation date of Europe's revised Markets in Financial Instruments Directive, aka MiFID II, is fast approaching. Yet evidence suggests that awareness about the impact of Brexit on MiFID II is, at best, only patchy and there are some alarming misconceptions.
Banks might feel justified in victim blaming when fraud occurs, but it does little for customer confidence.
Politicians have united in urging the Reserve Bank of Australia to lend its backing to the digital currency by officially recognising it.
In the aftermath of the Brexit referendum, it was feared that the consequences would be catastrophic. Now, 14 months on, we’ve seen how the UK has weathered the storm – at least in the short term.