Charting a course in uncertain times

Legendary investor Warren Buffet once advised people to “be fearful when others are greedy and greedy when others are fearful”. That could well be translated into being bold in times of uncertainty and that’s the course being taken by foreign-exchange specialist Moneycorp, which recently announced a significant expansion, with agreement to acquire US-based Commonwealth Foreign Exchange.

“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,” explains Richard Morrissey, associate director with Moneycorp. “You can’t just fly in and set up an office in the US. You have to get regulatory approval in each of the 50 states individually. Commonwealth Foreign Exchange is headquartered in Providence, Rhode Island, and San Francisco and has regulatory approval in every state. We expect that the deal will be approved shortly, and that Commonwealth will be part of Moneycorp by early next year.”

The acquisition presents a major opportunity for Moneycorp. “American banks currently enjoy very healthy margins on their foreign-exchange business. 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.”

It's not all one direction either. "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.

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.

“No one knew about Brexit even four years ago and no one could have predicted the election of President Trump back then either. 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 a number of MPs might be opposing Teresa May on aspects of Brexit.”

Manage volatility

Irish exporters and importers have to manage that volatility and that’s where the Moneycorp team can help. “No one can tell what’s going to happen in the markets. What we do is give our clients the tools to mitigate risk. Exporters need to 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.”

Every company should have a written treasury policy which is followed rigorously, he advises. “A treasury policy might be that export sales should be continually 100 per cent hedged six months ahead. This protects the financial controller from other executives who might have strong opinions on the future direction of an exchange rate. 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.”

Moneycorp brings the expertise, the technology platforms, and the ability to hedge forward to give companies the tools to mitigate the risks presented by this environment, Morrissey adds. “And that’s all that we do. We specialise in this area and we also do it very competitively because we can afford keen margins due to our high business volumes.”

Looking ahead to next year 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.”