I had a chat with an old friend from the Asian debt markets recently who is involved with something that I had long envisaged and, in my flights of fancy, even imagined setting up myself – that is a “bond app”.
Much as Michael Bloomberg saw the potential in tapping the chaotic data of bond markets and placing it into an analytical framework which became the Bloomberg terminal, so it seems obvious that something similar can be done in a smartphone app.
Indeed, all the more so, since the bond market has always been quintessentially OTC and, moreover, one that is driven by gossip, vested interests and monumental ego.
A marvellous idea, then, to combine the nuances of social media with the ability to see where bonds are trading.
During the course of the chat I rather wickedly suggested that the app could allow a straw poll of new issue terms and pricing.
Imagine a button that is pressed after the app has asked you: ”Do you think this new issue is 10bp-15bp too expensive?” Or conversely: ”Do you think this new issue is 10bp-15bp too cheap versus the issuer’s implied curve?”
You’d need to have a rather acute sense of logic and elegance (or dare I say humour) to design that part of the app, but I’m sure it can be done.
I’m also sure it could be misused. If the thing were to take off, it’s easy to conceive a syndicate manager getting his colleagues, family or friends to influence pricing in the way he tells them to. And if there’s a comments section along the lines of the Daily Mail website then where would that lead? If you can troll and fat-shame I’m sure you can bond-shame too.
I’VE WRITTEN IN this column about the coming fintech revolution. Over the next few years the disruption to the “normal” way of doing business is going to be profound, with multifarious consequences.
In numerous countries across Asia – to take one geographical example – fintech is starting to bite. Banks in many of the frontier economies have established branchless online banking, which is targeted not only at generations X and Y but also specifically at the low-income demographic which has been traditionally shunned by old-style retail banking.
I suppose these developments are simply the way of the world and there’s no going back on them. Look at the anodyne financials of any banks and you will encounter a wide variety of terminology, some of which appears simply flannel, some of which cuts to the bone.
Cost to income is one I like, which captures the essence of a bank quite nicely. The lower the ratio, the better the bank is doing. The Chinese banks have very low cost-to-income ratios, but that is largely thanks to state funding. That’s not to say those banks aren’t doing terribly well from a commercial perspective, even if their competitors moan about price undercutting.
ICBC is the world’s best capitalised bank, beating its American peers hands down, and its metrics look rather good - if you’ll excuse the aberrations of net profitability. The Singapore banks have had a bad year of it thanks to loan loss provisions against the oil and gas and shipping industries. But a low base will no doubt rescue the profit level when the next reporting round is due.
WHEN I THINK of the mad rush to embrace fintech and all that comes with it of banks in Asia, I look to the other side of the Pacific and what Donald Trump has done to ignite US banking stocks (Asian banks have also enjoyed the Trump-inspired financial sector rally).
His view is that US banks are encumbered by a raft of regulation that stops them from doing their fundamental job of lending and – yes it may stick in the craw – speculating on the markets. Whatever your view of the man, President Trump will help the banks in the US by pushing the Treasury yield curve steeper, and helping them collect positive carry. A new culture will be ushered in, which inevitably invites questions about Global Financial Crisis part 2.
The question is whether all this is rather too old-fashioned, as old hat as Mr Trump’s pompadour hairstyle.
I ask this because banks are quickly refashioning themselves along the lines dictated by fintech, social media and all the rest of the IT complex. I suppose a sceptic would say they are primed to mis-sell their products all over again. An optimist would say they are refashioning so fast that no one quite knows where their future bottom line will be.
Whatever the answer, I want to see a new bond issue sculpted alongside Kim Kardashian’s “asset portfolio.” That will tell me that the new era of banking has truly begun.
