Consulting firm Zurich IC2 can give potential clients a long-winded pitch about why they need to reduce their operational risk.
By Jeffrey Kutler
December 2001
Institutional Investor Magazine
Consulting firm Zurich IC2 can give potential clients a long-winded pitch about why they need to reduce their operational risk. Or it can just break out its database.
The database - a chronicle of financial misery - lists 20 years of operational and systems failures that have cost banks $300 billion. And that’s a lowball number. “That information is based on publicly available data, and we know that the majority of these incidents never make it into the press,” says Zurich IC2 CEO Wolfgang Friedel. “The real number may be three to ten times higher.”
Out of such nightmares a thriving consulting business may emerge. Zurich IC2 - that’s “intellectual capital squared” - opened in April to sell advisory services to bankers who, over the next few years, will have to calculate for the first time their exposure to operational risk to comply with new international capital requirements from the Basle Committee on Banking Supervision.
The September 11 attacks, of course, provided a horrifying lesson on the consequences of operational risk. “The definition of maximum losses, how they are measured and how they are protected against has changed,” says Friedel, a 30-year insurance industry veteran. “People will never go back to their old beliefs.”
That means that Zurich IC2, a Boston-based subsidiary of Zurich Financial Services Group, will be dealing with some big numbers. The financial industry certainly accounts for a sizable share of the $70 billion or more in anticipated World Trade Center-related insurance claims, and that’s just a start.
“In light of September 11, banks feel more pressure to solve their operational risk problems,” observes Friedel. “They weren’t able to recover from shutdowns and connectivity problems as quickly as their customers wanted them to.”
More grist for the database.
Camera angles
Home never felt so good. With the Federal Bureau of Investigation warning of the potential for more terrorist attacks and air travel snarled by security precautions, just about everyone is predicting that more business will get done via phone, Internet and the booming business of videoconferencing.
Companies specializing in videoconferencing and the related technology of Webcasting have already seen a surge in demand from the financial community. UBS Warburg, one of several Wall Street clients of interactive video technology supplier Avistar Communications Corp., increased its usage by 60 percent in September.
Even before September 11, virtual deal making was on the rise. “Growth has been significant all along,” says Andrew Konchan, UBS’s London-based executive director of e-commerce. “It’s a major contributor to productivity and has definitely decreased travel costs.” Some 1,100 UBS traders, analysts and others in 22 cities are wired for video. They use the system more than 40,000 times a month for client presentations and as a substitute for old-fashioned phone calls.
That’s good news for companies like Avistar, whose shares doubled to $2.80 when the Nasdaq Stock Market reopened on September 17. Even so, the eight-year-old Redwood Shores, California, company sports a modest $65 million market capitalization and nine-month revenues of $13 million. Selling a patented broadband technology to corporations that want high-resolution quality at hundreds or thousands of desktops, Avistar remains a niche player alongside higher-profile Polycom ($3 billion market cap, $263 million in revenues through September 30) and WebEx Communications ($1.4 billion, $55 million).
Financial industry expense cuts contributed to a 45 percent drop in Avistar’s third-quarter revenue, to $3 million. But the company is counting on a recently announced alliance with British Telecommunications’ Syntegra unit to boost its presence on trading floors. - J.K.
