Swedish bank SEB said on Friday it plans to raise its profile in the increasingly competitive $1.2 trillion a day currency market, which it believes may be boosted over time by new accounting rules.
SEB, Sweden's third-largest bank by market value and ranked 19th in Euromoney's 2003 poll of the biggest FX banks, reported a 35 percent rise in net results from FX transactions and exchange rate changes to 1.896 billion Swedish crowns ($265.9 million) in 2003 from a year earlier.
It provided no further breakdown figures but Marcus Nysten, global head of foreign exchange, said volatile currency moves from the dollar's broad-based weakness helped expand the bank's trading income from foreign exchange.
"FX profits were considerably higher compared with 2002, partly because of the post-referendum activity but also volatility in major markets," Nysten told Reuters in an interview.
"Now growth comes from exporting our competence that has been built within the organisation over the last five years out of the Nordic region. We've been growing by around 10-15 percent a year in terms of presence in the market and profitability. I expect the growth rate will be around 15 percent going forward."
Sweden rejected the euro in a referendum on September 14 last year, initially sending the crown sharply lower against the euro and dollar.
SEB now has 11 FX trading desks globally after setting up a five-person operation in Denmark in October 2002.
Nysken said the introduction of the new International Accounting Standards (IAS) in Europe next year could further boost flows, though only in the longer run.
"(IAS) might lower the client activity in the short term. But over time it will increase the activity because the rules are going to force them to be more aware of their risks and when they are they will be more interested in using different instruments to hedge their risks."
IAS will apply to more than 7,000 firms traded on European stock markets from January 2005. They will require the balance sheet to reflect any change in the market value of derivatives instruments, unless strict hedging criteria can be met.
But the rules, IAS 39, under which corporates have to prove the instruments they are using are for hedging purposes, are extremely precise and exclude many common hedging approaches. Industry experts have said the burden of meeting the criteria may deter corporates from using derivatives.
The dollar's 17-percent fall against the euro and broad weakeness elsewhere in 2003 proved a bonanza for some banks as volatility as a result of its fall against major currencies encouraged investors to hedge their exposure.
"Volatility makes clients focus more on the market. If you look at traditional pension funds and insurance companies I think they have been shocked by the big dollar move. They are now focusing on moving their FX as a separate asset class and looking at currency overlay," Nysken said.
However, banks are generally seen struggling to boost underlying flows in a saturated foreign exchange market.
Swiss bank UBS and Britain's Barclays have both reported steady FX dealing profits last year.
Daily turnover in the market as a whole fell by almost a fifth to $1.2 trillion in 2001 from a peak of $1.5 trillion in 1998.
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