Volatility the new reality in FX markets with Brexit only one part of the story

The following article appeared in The Irish Independent Business Supplement on the 20th of February 2020: 


The shoulder pads, pinstripes and macho swagger of the hit late 1980s movie 'Wall Street' nearly put Aisling Dodgson off a life in finance. As a new graduate, she had no interest in Michael Douglas and Charlie Sheen's characters' testosterone-fuelled excesses.

"I actually turned down my first job in treasury," she explains.

"When I finished college, I went to UCC (BComm), and I did a masters in finance, and then I was looking for roles and I applied to various different companies.

"And one of the companies was Woodchester Credit Lyonnais Bank, and when they called me for interview, they said the role was in treasury.

"My initial reaction was, well, I don't think I'd like to be in a dealing room. I think, you know, that the movie 'Wall Street' could have been out at the time so I would have perceived it was going to be a very male-orientated department where you're dealing with lots of egos and you'd be under pressure to make a lot of money. And I thought that wasn't a role I was looking to do."

Dodgson thought of herself as more academic - more in the detail and the numbers than the dynamic of the dealing room floor - and baulked at the prospect.

In fact, the bank explained that the role in the firm's group treasury was inside the institution, in the unit that pumps funds to where they are needed.

"And I actually then did take that role and started my career as a treasury accountant, so I was actually looking at the accounts for the various different treasury entities.

"And it was really a learning curve, but it also gave you exposure early on to the management structure within the organisation. I think that's something I've taken with me throughout my career."

Far from a den of machismo, her first boss was a woman - Deirdre Barry.

"She was a fantastic mentor to me, and she's still a good friend, so actually it was a very balanced organisation at the time."

Woodchester later bought Gandon Securities which was bought by GE, and by 2002 had morphed into Investec Ireland, where Dodgson has been a senior frontline banker for the past 16 years.

Now as head of treasury products and distribution at Investec Ireland, Dodgson is a senior client-facing banker, and as a foreign exchange specialist, she's been thrust into Irish industry's efforts to grapple with Brexit.

Investec Ireland's client base is weighted to the kinds of indigenously owned exporters most exposed to the UK.

In the currency markets, the 2016 referendum and the political aftershocks have been a rollercoaster.

But Dodgson points out that the preceding decade was more volatile than post-crash amnesia tends to credit.

The idea of a pre-Brexit vote period of stability doesn't really stand up, she says.

"We actually did a piece of work ourselves in the team, actually looking at the strongest and the weakest performer currencies in the last decade. You'd be quite surprised at the level of volatility."

The single currency was battered during the euro-crisis, she reminds me, while the dollar suffered its own swings around the 2016 US election that eventually gave us president Donald Trump.

She adds: "In terms of sterling, if you were to look back, it would have traded at 69p to the euro to actually near parity over the period. That's a lot of volatility for companies trying to manage businesses day to day."

But the unique lack of clarity around Brexit has stepped that up a gear, she says.

"If currency management wasn't on the board agenda, Brexit certainly put it on those agendas.

"If you're proactively managing, you're in a much, much better position than being a business trying to deal with the politics," she highlights.

The market noise around Brexit has dropped dramatically in the wake of Boris Johnson's thumping win in the UK general election.

The emphatically pro-Brexit Conservative majority means there is now a roadmap, Dodgson says, but that doesn't mean the route is clear.

"The next 12 months are crucial in terms of whether Mr Johnson can actually do his trade negotiations.

"What we might see [is a] level of kind of calm up to June. But really, come June, as it becomes clear on whether these trade deals can be done or not, I wouldn't rule out another cliff edge in November when we see actually it is going to the wire."

At Investec, Dodgson's team doesn't trade on the currency markets. Its role is to service clients' requirements for currency and their need to cushion in, so far as possible, volatility.

The key, she says, is to focus less on individual transactions and more on understanding clients' needs and the different dynamics of sectors like food, construction or life sciences.

"We're seeing a lot more demand from clients to put together economic overviews, looking at pricing strategies, and actually board presentations, done in conjunction with ourselves for a finance director," she says.

That must be resource-intensive for a relatively small bank, I suggest?

It's not the 'Wall Street' cliche of men with their sleeves rolled up roaring into three phones at once to deal currencies, she says.

"Machines will do it faster," she says simply.

"Price is a hygiene factor these days; you have to be competitive, and you have to provide a good price.

"But what we're actually doing is we're providing solutions to our clients - actually helping them devise strategies to ensure that their business is sustainable in the long term."

In the retail market, providers like Revolut are rapidly displacing the traditional currency providers at bank and post office counters.

That's yet to happen in the corporate world, but Dodgson thinks it will, and is betting that the same emphasis on client service will be crucial in retaining a role for teams like hers.

"It allows us to wrap our arms around the client and actually ensure that we're connected on a day-to-day basis, so that we're well-positioned, when that transaction or that event is going to happen," she says.

The team provides a mix of foreign exchange, interest rate management and commodity hedging, and overlaps with Investec's corporate finance advisers in cases like cross-border mergers, where a client has a need for currency to close a deal.

Those strategies in many cases have been made more complex by Brexit.

"We have clients in the construction space, pharma, tech, life sciences, and we've seen a lot of change with those companies in looking to new markets, looking for new opportunities outside of the UK," she says.

Enterprise Ireland and Bord Bia are doing a lot with companies, she says, but new markets are inevitably challenging.

Investec's South African parent and far flung operations can also help, she says, but success in new markets will ultimately come down to contacts on the ground.

"If you're in business and you're looking to open up additional markets and new relationships, then you know what, it is a relationship.

"You're going to have to be very comfortable with the parties and counterparties you're dealing with; it doesn't matter whether the market is in eastern Europe, or in China.

"You're going to have to be very comfortable with your counterparty on the other side. I think that's core.

"So due diligence is what we would say [is needed], and working with companies that have experience and know how to operate in those markets."

From an FX perspective, the currency may change but for most Irish firms the product mix stays the same from market to market.

"Clients hear a lot about options, foreign exchange options and they want to know, understand options and how they operate. Now the experience is people tend to stick to the traditional products - so you are spotting forward.

"But that's not to say that within a portfolio there isn't an appropriate piece for options.

"Clients are very interested to understand what products are out there but the experience in terms of actually dealing is that corporates don't tend to like foreign exchange options."

Investec itself has been through its own Brexit upheavals.

The bank sold its wealth management business in Ireland last May to British investment manager Brewin Dolphin for €44m.

It closed its institutional equities business and handed back a retail deposit to shareholders.

That leaves the Irish-regulated business focused on services like Dodgson's treasury arm and corporate finance.

The entirety of Investec Ireland was a takeover target for AIB in 2018, but the deal petered out.

The new structure was designed to Brexit-proof the firm, and has been signed off by Irish regulators.

It leaves a small bank here, but one Dodgson points out is well-capitalised in its own right.

Reflecting on her own career, she credits mentors, including Barry and Investec CEO Michael Cullen, as well as a spell in London and the insights from that early group treasury role - "exposure early on to the management structure within the organisation".

Investec has a Women in Business programme which is useful, she notes, not just for promoting women within the bank but for connecting with clients, who are also increasingly women.

But she's keen to see mentoring become something that happens across the gender divide.

She highlights: "I think it's very important that actually, you know, we don't pull the ladder up behind us.

"The best networks are informal - encouraging somebody to put themselves forward for a role or to put themselves outside of their comfort zone."

As a Cork woman, she's also keen to point out that Investec has an office in the southern capital serving Munster, a move that has bucked the trend for centralisation by financial institutions - something that has long irked business owners.

Ireland has a culture of entrepreneurship right across the country, which can be overlooked, she says.

If that's true, it's hard not to come away with the impression that it is something which might suit her.

After all, other people ignoring the potential to plug into Irish business just leaves more of the field to Investec.

While she might have baulked at the naked aggression of that 'Wall Street' movie all those years ago, the Cork woman's ambition is smoother rather than lower.

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