HSBC dominates Counterparty Confidence Survey

Thanks to all those who took part in our recent survey designed to measure confidence in a given list of counterparties and willingness to place cash with those organisations, either directly or via a sterling denominated money market fund.

45 finance professionals, largely from local authority treasury and/or LGPS functions, completed the survey and while the results are far from scientific, we think they reveal some interesting attitudes.

Respondents were asked to rank 24 different counterparties from 1 to 5. 1 indicated no confidence at all in the organisation and a total unwillingness to place cash with it. 5 indicated the polar opposite. We’ve added up the total scores of each counterparty and divided their overall score by the number of respondents to come up with an Average Confidence Rating (ACR). So an ACR of 5 would be the highest possible score and 1 the lowest.

Unsurprisingly, the UK high-street banks were the biggest winners by some distance with HSBC recording an ACR of 4.75. Nobody rated the bank lower than a 4 and 75% of local authorities awarded it a 5. It was streets ahead of most of the banks in our list and was comfortably ranked higher than both Lloyds TSB and RBS, who finished the survey with ACRs of 3.93 and 3.86, respectively.

Measure of confidence in and willingness to place cash with HSBC. Counterparty Confidence Survey Q2 2012 (44 Respondents)

Santander (UK), although thought by Moody’s to be in a healthier position than its parent, is clearly suffering by association to the Spanish crisis and, of course, its recent downgrade. 41.9% of local authorities surveyed would definitely not place cash with the bank and an ACR of 2.25 put Santander (UK) well below other UK banks, using our ranking system.

Perhaps this says more about the trend for local authority treasurers to manage the risk to their organisations than it does about the credit worthiness of the bank itself. Arguably nobody will win any prizes for imaginative treasury management that yields a few extra basis points but the risk of being in a UK bank with a Spanish parent that blows-up, however unlikely that is, is apparently not a risk worth taking. Opportunities may of course be going begging though.

Top-10 ranked counterparties from a selection of 24 banks from UK, Europe and Australia*. Respondents were asked to rate banks according to their confidence in them and willingness to place cash with them. Counterparty Confidence Survey Q2 2012 (44 Respondents)

Banks outside the UK were not highly ranked – again, perhaps unsurprisingly for a survey undertaken largely by UK local authorities. It is however worth reiterating that respondents were asked to measure their willingness to place cash with banks either directly or via a sterling denominated money market fund – so currency was not really an issue here.

Also, many of these counterparties are to be found on the lending lists of money market funds that local authorities are already investing in. So while some of our respondents are possibly outsourcing risk management to pooled fund providers, and indeed placing cash via them into some of the counterparties listed in our survey, local authority confidence in those same counterparties is notably low. That may simply be because our respondents are not money market fund investors. We should have asked!

Of the 15 foreign banks listed in our survey (from France, Germany, Scandinavia, Netherlands and Australia), only two of them (National Australia Bank and Commonwealth Bank Australia) received more than one vote of 5 from 45 different respondents and their combined ACR (the average of the 15 Average Confidence Ratings) was just 2.21.

However, when asked which counterparties respondents would have given a ‘5’ to, had they been listed in the survey, 17 different respondents cited over 25 foreign banks, some of them more than once (particularly the Canadian ones). That’s a lot of confidence in a lot of banks.

Was this difference simply because we listed a group of ‘riskier banks’ in the survey or is it perhaps indicative of a behavioural trend which demands confidence in the institutions you invest in and a lack thereof in the ones you don’t! It’s difficult to tell from our modest survey but hopefully there’s some food for thought there. Thanks again to all those who took part.

*The banks that featured in the survey, in alphabetical order, were: Barclays, BNP Paribas, Britannia Building Society, Commerzbank, Commonwealth Bank (Australia), Credit Agricole, Danske Bank, Deutsche Bank, DnB Nor, HSBC, ING Bank, Landesbank Baden-Württemberg, Landesbanken Berlin, Lloyds TSB, National Australia Bank, Nationwide Building Society, Nordea Bank, RBS, Santander (UK), SEB, Societe Generale, Standard Chartered Bank, Swedbank, Yorkshire Building Society

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The Local Authority Treasurers’ Investment Forum September 25th, 2012, London Stock Exchange
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