Foreign exchange specialist Moneycorp has announced a significant expansion with agreement to acquire US-based Commonwealth Foreign Exchange. "Moneycorp is headquartered in the UK and we opened our Irish office four years ago," explains Richard Morrissey, associate director with Moneycorp. "Our aim is to become one of the largest payments and foreign exchange service providers in the world, not just in the UK and Ireland, and that requires a US presence."
He points out that setting up in the US entails more than just flying in and opening an office there. “You need to get regulatory approval in each of the 50 states individually,” he says. “You can’t just get approval in New Hampshire or Nebraska if you want to do business in the key states of Massachusetts, New York, Florida, Texas, Illinois, and California. You need approval in each state. Commonwealth Foreign Exchange is headquartered in Providence, Rhode Island, and San Francisco and has regulatory approval in every state. We hope that the deal will be approved shortly and that Commonwealth will be part of Moneycorp by early next year.”
He believes this presents a major opportunity for Moneycorp. “We are very excited about building our team in the US,” he says. “American banks currently enjoy very healthy margins on their foreign exchange business. Some US companies tend only to think in dollars so they don’t necessarily consider what they will be worth in other currencies when they send them abroad. That is definitely an opportunity for Moneycorp’s very competitive service offering.”
The opportunity also exists in the other direction. “It will also enable us to provide an even better service to US companies located in Ireland, particularly the emerging companies which IDA Ireland has been targeting in recent years,” he adds. “These companies arrive in Ireland with maybe five or 10 employees and then expand very rapidly and quickly have large foreign exchange requirements.”
Looking ahead to 2018 he believes that continuing geopolitical and economic uncertainty will make Moneycorp’s services even more sought after. “The reality of it is that the world of foreign exchange was quite stable for many years but in the last three years geopolitical and other events have brought with them considerable uncertainty.
“Take Brexit, for example. No one knew about it even four years ago and no one could have predicted the election of President Trump back then either. And then there are ongoing situations such as North Korea and Catalonia which bring further instability. The net result is that currencies are no longer moving in response to economic or interest rate data. Just recently sterling moved from 88p to the euro to 90p over a weekend simply on the rumour that some MPs might be opposing Teresa May on aspects of Brexit. This was just political gossip.”
That presents real challenges for many Irish exporters. “These companies need to manage this volatility,” says Morrissey. “That’s where the Moneycorp team can help. We can’t tell what’s going to happen in the markets and no one else can either as markets today can be irrational. What we do is give our clients the tools to mitigate risk. Ireland is a small open economy and we are very dependent on exports. Exporters have to know their markets and understand the currency risks. If they have an operating margin of 10 per cent and there is a significant shift in the exchange rate that margin could be wiped out. They can hedge against such changes and protect their margins.”
Doing nothing can be a strategy but it is a very risky one. Hope is not really a strategy
He is a very strong believer in every company having a treasury policy which is written down and followed rigorously. “If you are importing or exporting and have a currency risk you have to have a strategy to deal with it,” he advises.
“Doing nothing can be a strategy but it is a very risky one. Hope is not really a strategy. A treasury policy might be that export sales should be continually 100 per cent hedged six months ahead with no attempt to time it. This protects the financial controller from other executives who might have strong personal opinions on the future direction of currencies. If the policy is in place and in writing that ensures that the financial controller follows it and prevents them from being caught offside. The treasury policy might only be two lines long, but it is important to have one nevertheless.”
Morrissey argues that there is little point in any one trying to second guess or forecast the direction of currency markets. “The last few years have been very difficult. Ninety-seven per cent of foreign exchange trading is speculative, only 3 per cent is related to trade and exporting so the market isn’t being driven by real-world economic fundamentals.
“We bring the expertise, the technology platforms, and the ability to hedge forward to give companies the tools to mitigate the risks presented by this environment. And that’s all that we do. We are a one-trick pony and specialise in this area. We also do it very efficiently because we can afford competitive margins due to our high business volumes.
“The days of businesses going to one bank for all their financial service requirements are gone. If you’re a builder in Ireland, you are more likely to look to private equity for credit lines than a bank and if you are an SME you are more likely to go to a specialist invoice discounting or invoice finance provider than a bank. That’s the way the world is going.”
Looking forward to 2018 he sees the volatility which has characterised the past year continuing. “Irish companies have to prepare for that,” he says. “We are still in uncertain times and companies need to make sure they have the policies in place and the tools available to them to manage that uncertainty during 2018 and beyond.”