Aust. bankers to battle for survival?

Press, 21 June 1984, Page 24

Aust. bankers to battle for survival?

NZPA-AAP Sydney The merchant banking industry is expected to face a year of rationalisation and turmoil following the Federal Government’s granting of foreign exchange licences to 40 of its participants. Banking economists and merchant bankers are anticipating radical changes when the industry is delivered from its guaranteed world of regulation and protection into a new era of fierce competition. They forecast that of the 50 merchant banks now in business, only about eight will survive alongside the big existing trading banks. Marac Australia, Ltd, a subsidiary of the New Zealand merchant bank, Marac Holdings, Ltd, is among the 40 successful applicants named on Tuesday. A major cause of the

rationalisation will be the decision to allow trading banks into the formerly exclusive merchant bank domain of the • short-term money market. Merchant banks are primarily foreign owned and owe their existence to legislation which restricted trading banks from participating in the short term money market.

Before March, 1982, the trading banks were not authorised to accept interest bearing fixed deposits of more than 550,000 for fewer than 30 days. This was reduced to 14 days in 1982.

But from August 1 the restriction will be eliminated, opening the way for the trading banks to deal in the former bread and butter area of the merchant banks. There also are substantially more capital and personnel requirements for

trading foreign exchange than in dealing in the forward hedge market. The survivors after the next 12 months are expected to be those merchant banks with computer systems and staff in place ready to take advantage of the new market circumstances.

The key to the survival of many of the new foreign exchange operators will be their ability to establish trading banks limits or recognition in the international forum.

Companies that may be well recognised domestically could be seen as total strangers on other foreign exchange markets without a strong reputation behind them.

Merchant banks, such as Barclays Australia, Ltd and BA Australia, Ltd (a subsidiary of the giant Bank of America), already have a parent bank with a reputation on international foreign exchange markets. Some foreign exchange operators and merchant banks believe many will find it difficult to gain important business through other foreign exchange markets.

Many merchant banks have been diversifying in recent years — looking to the local equity markets as well as providing corporate advisory services. According to one foreign exchange dealer, the survivors will be the corporations in the short term as the new participants strive to win business in a new and very competitive environment.