Wednesday, January 16, 2008

Lunches, trains and automobiles

Are we on the brink of a recession? Well even if we aren't, it seems like the markets are talking themselves into one, and it seems I am not alone in thinking that the market is panicking itself into a recession. Christmas sales haven't been what they used to be for retailers (although I think far too much weight is put on analysts' expectations especially when supermarket giants like Tesco still manage to record a 3.1% rise in Christmas trading, even though it was below analysts' expectations of 4%), and based on December figures the UK housing market is at its worst since the recession of 1992.

But retail earnings and housing slumps aside, some say a true sign that we are in a recession has to be the demise or otherwise of the business lunch and the number of people taking taxis.

I was just discussing this over a business lunch today, which lasted for a couple of hours - always a good sign that the days of the two-hour business junket are far from over. And judging by the busy lunchtime crowd that was in the restaurant, businesses are not battening down the hatches quite yet.

So it is official, while consumer confidence may be ebbing, all important business confidence is hanging on by the skin of its teeth, and those that work in the markets say, despite the credit crunch, trading volumes have not declined.

I feel another round of outsourcing coming on. The credit crunch may not mark the end of the business lunch, not yet anyway, but will it prompt banks to more seriously consider what is core to their business and what it is not and outsource the non- value-added menial tasks to high volume processors that benefit from economies of scale?


freedog said...

Anita - what is "outsourcing" now? I agree that more and more of it will happen - but a client told me last week about the trend of outsourcing by stealth. Buy-side firms are expecting their custodians to perform tasks which, by no means, fall into the category of settlement and safekeeping. This change in policy by the buy-side hasn't been announced - it just happened. Needless to say the banks don't believe they're being paid to gradually take on more and more responsibility - but clearly don't want to say no.

Maybe the absence of outsourcing announcements by buy-side firms is an illusion - it seems to be happening right under our noses.

Tony Freeman - Omgeo

FinancialTech Insider said...

Yes it seems in the ultimate quest for alpha, buy-side firms are looking beyond mundane settlement and safekeeping to more value-added tasks such as hedge fund administration, accounting, portfolio analytics etc. Some of the custodians I have spoken to say investment managers, particularly in the alternatives sector, see settlement and safekeeping as a given, but are more focused on the value add. If settlement and safekeeping is a commoditized business, then surely it is up to the custodians to factor those value-added costs in. Most of the major global custodians say it will become a question of a banks' ability to continue to invest in technology and people to keep up with where the buy side is investing. Maybe the outsourcing story will be more along the lines of the banks outsourcing part of their back office custody processing to larger high volume providers that can leverage economies of scale, or white labeling solutions developed by the major global custodians - at least that is the picture they paint. Meanwhile buy-side firms will outsource those parts that are seen as non-strategic, and I think they are starting to do that, particularly in the alternatives space.

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