As banks around the globe rush to join online foreign exchange marketplaces, Wells Fargo & Co. remains a contrarian.
Wells, which has $272 billion of assets, is the only one of the top six U.S. banking companies that has not agreed to join FXall or Atriax, the prominent bank-run foreign exchange marketplaces formed last year and expected to go into operation soon.
Instead, San Francisco-based Wells launched its own service, Foreign Exchange Online, in June.
That same month seven major financial institutions, including Bank of America, announced that they had formed FX Alliance LLC, a consortium that would own FXall. In all 31 banks have now agreed to provide liquidity for the service, which is to be launched next month.
Atriax followed in October, with J.P. Morgan Chase & Co., Deutsche Bank, and Citigroup taking lead roles in its creation, and 47 other banks, including Bank One Corp. and First Union Corp., signing on to provide liquidity. Atriax's service is scheduled to go live in the second quarter.
Tracey Warson, executive vice president of Wells Fargo foreign exchange, said Wells was asked to become part of both alliances but decided against doing so, at least for now. "I think there is a lot of talk out there, but there is nothing really developed," she said.
The aim of consortiums like FXall and Atriax is to enable customers, generally large multinational corporations, to trade on live currency prices from all of the participating financial institutions. The theory behind the multibank concept is that the banks get access to a wider pool of clients while the clients get more price transparency and liquidity as well as the convenience of meeting all their dealing needs in one place.
FXall and Atriax are mostly geared toward funds managers, Ms. Warson noted. Wells' FX customers, by contrast, are mostly smaller businesses.
"Taking the time to go in and out of various applications to eke out the best possible dime savings may not always be the most cost-effective strategy" for such businesses, Ms. Warson said.
Furthermore, Wells' foreign exchange business is decidedly smaller than that of many of the banks participating in the consortiums, several of which also support their own online foreign exchange platforms. Its 2,000 customers execute about 1,000 trades, worth about $1.2 billion, daily - a small amount compared with the $80 billion of foreign exchange conducted by Bank of America's 10,000 FX customers, for example.
Wells now has about 400 of its 2,000 foreign exchange customers using the Internet to conduct trades. The system, which the company has done little to market, automates foreign currency payments, checks for calculation and conversion errors, and offers personal training and online instructions. Ms. Warson declined to disclose the platform's transaction volumes.
Wells plans to eventually market its foreign exchange service to more of its 25,000 wholesale customers as well as its high net-worth retail customers, she said.
Wells' business customers have access to the foreign exchange service through the bank's CEO (Commercial Electronic Office) portal, which also offers online credit, cash management, and letters of credit. An online procurement service is also being tested.
The ultimate goal of the system, Mr. Warson said, is to free up Wells' foreign exchange advisers to do more treasury management. "Ideally customers will do more transactions through the Internet and we can spend more time adding value and consulting to position ourselves as part of their treasury team."
The bank already has a team of advisers to help businesses manage risk. Businesses deemed to be doing more cross-border transactions can have a Wells Fargo adviser book trades for them, or use the Internet to execute transactions.
"We want our customers to have a choice," Ms. Warson said.
The company started developing its Foreign Exchange Online system in August 1999. It looked at a number of outside vendors, but decided to go it alone. "A lot of sites were built on too much trading lingo and we wanted it to be customer-friendly," Ms. Warson said.
But Wells may not be able to go against the grain forever.
Larry Tabb, a senior analyst at TowerGroup, said Wells' strategy to go it alone may make sense "if their clients are medium to small firms and are committed to Wells Fargo." Joining a consortium would involve "significant costs," he noted.
He warned, however, that Wells might see its business erode, especially if it targets larger clients. "You want to try to convince your clients that it doesn't make a lot of sense to shop around for the best price, but most people find the multidealer sites get them better deals," he said. Ultimately, he predicted, there will be a centralized market for foreign exchange.
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