Foreign trade deficits are soaring. American firms are investing heavily offshore in Asia and elsewhere. And Macau's handle now trumps the volume of bets placed in Vegas.
For many, these financial events are bad news for the U.S. economy, but in the world of foreign currency exchange , and especially for Union Bank of California , it's paydirt.
The bank's Los Angeles foreign exchange desk, Southern California's largest, is gearing up to handle what it expects will be an explosion of growth as individuals and businesses convert U.S. dollars to Asian currencies and vice versa.
In particular, the resorts on Macau are now taking in a record $8 billion in revenue, allowing the island in the South China Sea to surpass Las Vegas as the world's largest and most profitable gambling destination.
Currently, Chinese government policy does not allow that money, much in the form of the Chinese Renminbi, to be exchanged for dollars, but Union Bank expects that going forward, that policy may be unsustainable.
"The greater significance we derive from this is that 100 million local Chinese are coming to Macau spending more Chinese currency that is up to this point not convertible, but as it grows in value and in circulation it will be," said Jim Griffin, senior vice president and co-manager of Union Bank's global foreign exchange department. "The domino effect in terms of volume stands to be substantial for us."
The downtown Forex operation, formed in 1996 by a merger Bank of California and Union Bank trading operations, has shown consistent growth over the past 11 years.
Ten years ago, the average daily volume of currency exchanged at the Forex desk was around $30 million per day whereas today it's closer to $60 million per day. Average annual volume also rose from an estimated $3.7 billion a decade ago to around $13 billion last year.
And while those numbers are only a fraction of what big New York Forex operations handle, Union Bank's position in Los Angeles as a gateway to the Pacific Rim puts it in a good position to grab a greater share of the growing Asian currency exchange business.
The desk mostly trades the Euro, British Pound, Japanese Yen, Canadian Dollar and Mexican Peso, but the hottest currency for Union Bank these days is the Japanese Yen.
And with China, Vietnam and other Asian countries among the fastest growing economies in the world, the bank expects that it will get an Asian currency boost far beyond the gambling halls of Macau as Western style consumerism spreads.
"We're in an environment now where countries are traded like stocks. It's heaven for Forex traders," said Peter Catranis, founder and president of Forex Capital Management LLC in Aliso Viejo. "Increasing volume and volatility is a major reason why this sector is thriving and trading desks are looking for new ways to expand."
Griffin, who came to Union Bank in 2000, leads a team of 22 within the bank's global markets division and is responsible for managing the day-to-day trading and sales activity within the Forex department, as well as the overall strategic direction of the currency exchange business.
In order to handle the expected influx of activity, the desk plans to hire an additional sales person and overhaul its proprietary Web-based trading program that allows customers to exchange currency directly with traders monitoring client activity.
Customers are composed most prominently of local and national energy, entertainment, technology and manufacturing concerns with international interests.
According to Griffin, Macau's casino growth is both an impetus and a reflection of a currency trade explosion in Asian money where currencies in established economies such as Singapore, South Korea and Indonesia will see volume gains, and where money flow from up-and-coming "Asian Tiger" economies such as Malaysia, Thailand and Vietnam will expand steadily in the coming years.
That Union Bank's parent company is global banking behemoth Bank of Tokyo-Mitsubishi, is a plus in that it will help Griffin's group leverage built-in clientele in the region.
Meanwhile, China holds hundreds of billions of U.S. dollars in its reserves, and is looking to diversify its holdings, which means, among other things, more trading in Euros, Yen and Canadian Dollars, all big movers for Union Bank. China's foreign exchange reserves, already the world's largest, surpassed $1.2-trillion at the end of March, the county's central bank said last week.
Up until recently Forex operations have traditionally made money solely through currency spreads the difference between the purchase price of currency from another bank and the sell price to a customer or by taking long or short positions for the bank or "house" account.
Griffin said those revenue sources will continue to be important, but the bank is now focusing on providing more information and research to customers as other Forex desks across the industry seek to get a bigger share of the growing business.
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