Best Banks Awards: Citi

Financial markets have been lacking in trends since the extraordinary monetary policies of major central banks flooded markets with liquidity. Now, after nearly a decade of artificial financial conditions, there is a sense that a paradigm shift is happening.

“There has been a sea change in the last 12–18 months, and the normalisation of policy after nearly a decade of financial repression is starting to cause little hiccups in stocks and emerging markets (EM). After a period of little volatility, we are moving into a new regime,” says Thomas Fitzpatrick, global head of FX technical product within Citi’s G10 business.

Citi has been voted the winner of seven categories at the 2018 FX Week Best Banks Awards, picking up the prizes for Best Bank for FX Prime Brokerage, Best Bank for FX Research and Strategy, and Best Bank for Emerging Markets for European, Middle Eastern and African Currencies, among others. Overall, the US dealer has been voted the second-best bank for FX.

EM volatility has already picked up in some currencies this year, as a combination of macroeconomic and political factors have added to the headwinds provided by rising rates in the US. But, while the Turkish lira and the Mexican peso were among the units facing a battering this year, overall, the EM space remained benign enough for clients to experiment with algo execution.

The lines between developed markets and EM have blurred in terms of liquidity and algo execution

Giles Page, Citi

“Algos were a growth area for EM clients,” says Giles Page, head of FX local markets for Europe, the Middle East and Africa at Citi. “The lines between developed markets and EM have blurred in terms of liquidity and algo execution.”

As the lines between developed markets and EM have blurred due to electronification, competition has increased. This has translated into spreads compressing in EM, mostly due to algo execution and as profitability in the space adjusts to G10-style levels.

“I think spread compression will continue as a natural consequence of the move to electronic pricing in local markets,” says Page.

“Competition is intense and scale continues to be a key competitive advantage. Banks that can utilise global scale coupled with strong local franchises will be best placed to deliver value to clients and gain market share,” he adds.

Going local

Extensive presence in local markets allows Citi to give clients an on-the-ground view, and let them capitalise on the bank’s broader insight into execution and local presence.

This was especially important this year, when the dollar turned a corner and found its strength again, while 10-year US Treasury yields notched up to 3% in August for the first time since June 2013, as the Federal Reserve continued to tighten monetary conditions.

“Since 2015, there has been a significant flow of investment into local markets, and a proportion of that has reversed this year as the dollar strengthened and risk premia increased. This year, we had to contend with a significant repricing in EM assets in conjunction with political headwinds,” says Page.

Still, while there is a sense of a paradigm shift happening, for now, a full-blown crisis in markets seems a long way away as EM countries have learned from previous instances of capital outflows and as access to dollar funding remains intact.

Exploring algos

“Clients do expect to be able to call us and ask for a two-way price when there is a dislocation in the market, but the benefits of algo execution are also clear to them, especially when volatility is low,” says Page.

Corporates have also started experimenting with algos, although it is mostly the largest players in the space that are exploring these tools, says Flavio Figueiredo, global head of FX corporate sales and head of the corporate solutions group for Europe, the Middle East and Africa at Citi.

“Algo tools will become more and more popular as corporate clients get comfortable with them, and as the benefits of minimising information leakage and market impact become clear,” he says.

The return of global macro themes has also attracted more hedge fund activity, says Sanjay Madgavkar, global head of FX prime brokerage at Citi, who notes there has been a general sense of optimism that macro and relative-value traders will become more attractive to investors as equity markets find their top.

“It’s been tough over the last few years for a long-short macro hedge fund to look attractive in comparison to a long-only equity fund, but investors sense that particular dynamic may be changing,” says Madgavkar. 

“This may draw more funds toward discretionary and systematic macro funds, so we are preparing for this additional business via capital-efficiency measures, more advanced risk-control metrics, better technology and more resources to service clients,” he adds.

And macroeconomic factors spurring volatility in markets are here to stay, says Ebrahim Rahbari, chief G10 FX strategist, and global head of FX analysis and content at Citi.

“We expect volatility to stay high next year,” he says. “Trade, politics and macro factors will play a much bigger role than they have for years.”

Interviews with the 2018 FX Week Best Banks Awards winners

JP Morgan

Best Bank Overall for Foreign Exchange Dealing

Best Bank for FX for Banks

Best Bank for FX for Investors

Best Bank for Spot FX

Best Bank for FX Forwards

Best Bank for EUR/USD

Best Bank for USD/JPY

Best Bank for EUR/JPY

Best Bank for E-Trading

Citi

Best Bank for FX for Corporates

Best Bank for Currency Options

Best Bank for Structured Products

Best Bank for FX Prime Brokerage

Best Bank for FX in North America

Best Bank for Emerging European, Middle Eastern and African Currencies

Best Bank for FX Research and Strategy

HSBC

Best Bank for FX in Asia-Pacific

Best Bank for Renminbi

Best Bank for Emerging Asian Currencies

Deutsche Bank

Best Bank for FX in the Eurozone

ANZ

Best Bank for Australian Dollar

Barclays

Best Bank for GBP/USD

Best Bank for EUR/GBP

Best Bank for FX in London

UBS

Best Bank for Swiss Franc

NatWest Markets

Best Bank for FX Post-Trade Services

360T

Best Professional e-Trading Venue

Best Vendor for Dealing Technology

Refinitiv

Best Broker for Forward FX

Best Broker for Emerging Markets FX

LCH

Best FX Clearing House

EBS

Best Broker for Spot FX

Bloomberg

Best Market Data Provider for FX

Danske Bank

Best Bank for Scandinavian Currencies

Standard Bank

Best Bank for South African Rand

Best Bank for African Currencies excluding ZAR

BMO Capital Markets

Best Bank for Canadian Dollar

Banco Santander

Best Bank for Emerging Latin American Currencies

kACE

Best Vendor for Risk Management/Options Pricing Software

Saxo Bank

Best Prime-of-Prime House

BGC (no interview)

Best Broker for Currency Options