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The Online Finance 30

The best of those business models, highlighted in Institutional Investor's annual ranking of e-finance innovators, had the right genetic stuff after all: Their Internet-based technological building blocks are cheaper, more flexible and quicker to implement than older systems and networks.

THE TECHNOLOGY CRASH THREE YEARS ago hit no area harder than online financial services. As financial industry profits evaporated in the bear market, so did the predilection for throwing money at dubious Internet business models. How, then, to explain the staying power -- and, in a growing number of cases, the profitability -- of a select few e-finance enterprises born of the dot-com boom?

Call it post-Internet Darwinism. The best of those business models, highlighted in Institutional Investor's annual ranking of e-finance innovators, had the right genetic stuff after all: Their Internet-based technological building blocks are cheaper, more flexible and quicker to implement than older systems and networks. That's been demonstrated not only by companies that have used the Net as a substitute for more costly delivery channels -- for instance, U.K. bank Egg (see Paul Gratton, No. 5) and Japanese brokerage Matsui Securities Co. (Michio Matsui, No. 11) -- but also by securities exchanges with modernized infrastructures, such as Euronext (Jean-François Théodore, No. 2) and EuroMTS, whose CEO, Gianluca Garbi (No. 4), could be speaking for all of the above when he says, "2002 was the best year ever."

What's more, the cream of e-finance enjoyed the nurturing of parents that didn't starve them of capital during the hard times, strengthening their competitive positions for when markets eventually recover. Cortal, a subsidiary of France's BNP Paribas, paid E485 million ($437 million) last April to acquire German e-brokerage Consors. That nearly doubled Cortal's customer base, to 1.1 million, and propelled CEO Olivier Le Grand to the top of the Online Finance 30.

The Online 30 profiles were compiled under the direction of Global Technology and Banking Editor Jeffrey Kutler and written by Kutler, European Editor Tom Buerkle, Hong Kong Bureau Chief Kevin Hamlin, Senior Editor Andrew Capon, Senior Writer Justin Schack, Staff Writer David Lanchner, Senior Contributing Editor Charles Smith and Contributors Jane Adams and Conrad de Aenlle.



"For many years people criticized us because we were not a pure Internet broker; now they understand our business model better."

Olivier Le Grand never allowed Cortal, BNP Paribas's retail investments subsidiary, to become too dependent on the online stockbrokerage business -- a move that looks brilliant today. "If we were just an Internet broker, we would be mired in the same big operating losses as much of the competition," he says. "Instead, we're expanding." That's an understatement: Cortal, which does business by phone and through independent financial advisers as well as via the Web, almost doubled its customer base last year, to 1.1 million. Cortal also increased assets under management by 57 percent, to E11 billion ($11.8 billion), all because of its April purchase of German online brokerage Consors from its troubled parent, SchmidtBank, for E485 million. Now known as CortalConsors, the business has a diversified base: It manages E5.9 billion in mutual funds and E3.9 billion in brokerage accounts, as well as E1.3 billion in cash deposits. Even so, times are still tough. The old Cortal's brokerage assets dropped 35 percent last year, mutual fund assets were off 11 percent, and Consors remains unprofitable. Le Grand, 50, insists that his merged operations in Belgium, France, Germany and Luxembourg will break even this year, while offices in Italy and Spain will either make money by 2005 or be discontinued. He's pegged the cost of integrating Consors at E60 million and is predicting annual synergy benefits of E57.5 million within two years.



"Euronext is the first and only consolidator of exchanges."

A breathtaking series of cross-border stock exchange mergers behind him, Euronext chairman and CEO Jean-François Théodore spent the past year putting the Amsterdam, Brussels and Paris bourses onto a common electronic trading platform. But the 55-year-old Théodore's toughest tests are still ahead. The former French Treasury official and ParisBourse chairman this year is linking his four continental derivatives markets with the London International Financial Futures and Options Exchange, which Euronext acquired 17 months ago for £555 million ($817 million). Théodore will then link his equities and derivatives trading platforms to a single clearing system, a move he believes will make Euronext more competitive with its principal rival, Deutsche Börse, in the battle to consolidate other European markets. Euronext has already shown how formidable its technology can be: In January the Chicago Board of Trade decided to adopt the Liffe electronic trading platform, terminating a leasing agreement with Deutsche Börse. Says Manus Costello, an exchange analyst at Merrill Lynch & Co. in London: "More than anyone else, Théodore has changed the way Europe trades. Now he has to drive through the economies and efficiencies that his trading model can achieve."



"E-banking is a fait accompli in the Nordic countries. The big thing now is connecting our customers up with each other."

"We've reached a level of Internet acceptance in Scandinavia where growth will largely take care of itself," says Bo Harald, who as the Helsinki-based architect of Nordea's electronic delivery strategies is regarded as the dean of international online banking. The E252 billion-in-assets ($270 billion) Nordea runs the largest Internet banking operation in Europe: Of its 10 million customers in Denmark, Finland, Norway and Sweden, 3.3 million use the Web for everything from applying for student loans to investing in mutual funds. The company projects at least 3.7 million users by year-end. Harald's next trick: electronic payments, or, as he puts it, "positioning our Internet system as a go-between in a broad range of business-to-business transactions, retail purchases and even in relationships with state agencies like the tax authorities." Harald, 54, has already signed 700 merchants for Nordea's Solo Internet payments platform, and he's working with IBM Corp., Microsoft Corp. and the global Swift banking network to develop standards to encourage banks in other countries to similarly modernize and interconnect their payment systems. "It's only a matter of time before banks, corporations and governments recognize how they can improve efficiency and increase revenue by adapting existing online banking platforms to new kinds of transactions," says Harald.



"A deal can only happen between equals."

Gianluca Garbi isn't content with running the leading electronic marketplace for European government bonds. The CEO of EuroMTS wants to streamline Europe's notoriously inefficient posttrade clearing infrastructure. Last March Garbi, 32, chose Clearnet, an affiliate of the Euronext exchanges, to provide central counterparty services. That was a blow to the bigger, independent London Clearing House, but Garbi had a hidden agenda: He wanted to ignite merger talks between those rivals. With Garbi's MTS Group -- a multinational consortium with London-based EuroMTS as its flagship -- accounting for 60 percent of European government bond trades, the clearing bodies got the message. "Now LCH and Clearnet are talking, which is exactly what we wanted," notes Garbi, who may be establishing himself as the bond-market counterpart of Euronext chief executive Jean-François Théodore in his ability to influence changes in market structure. For MTS "2002 was the best year ever," adds Garbi, who built the network on a technology platform he developed for Italy's government bond market, Mercato dei Titoli di Stato. This year he plans to take MTS into Austria and Denmark, as well as Eastern Europe, starting with Hungary. Then it's on to Asia and Latin America.



"Our customers accept the Internet by definition. Unlike our competitors, we don't have to change their behavior, and that gives us an advantage."

Has Paul Gratton cracked the code? Egg, the five-year-old spin-off of U.K. insurance giant Prudential, is arguably the world's most successful online-only bank. Its customers, totaling 2.4 million, have nearly doubled in the two years since Gratton succeeded Egg founder Michael Harris as CEO. According to Nielsen/NetRatings, the Egg Web site attracted 1.57 million unique visitors in January, more than any other purely online bank. But Gratton, 43, isn't letting his good fortune go to his head. "We're not a trendy start-up anymore," he says. "We're an established business that needs to deliver predictable results." Offering a full array of deposit, credit and investment products, Egg earned £18.1 million ($29 million) pretax in the U.K. in the first nine months of 2002. The company opened in France in November with a nucleus of 70,000 customers acquired from the failed Zebank. And Gratton is eyeing the U.S., where he believes Egg's service quality would play well. "There are a couple of large spaces in the U.S. personal finance sector where customers are almost angry," he says.



"People hurt on their stock market investments are interested in getting 1 or 2 percent more on their liquid savings."

The harsh market environment has been a boon to ING Direct, an offshoot of Dutch bancassurance giant ING Group. CEO Hans Verkoren started it as a telephone-only bank in 1997 and expanded with an Internet service in 1998; it attracts new customers by promoting savings accounts at rates ranging from 2.75 to 3.5 percent -- 1 to 2 percentage points higher than those of traditional banking competitors. ING Direct nearly doubled in size in the 12 months through January, to 5.3 million customers with E52 billion ($56 billion) in deposits. It's in eight countries, including the U.S., where the customer total jumped from 400,000 to 925,000 and deposits from E4 billion to E10.8 billion, and Germany, where customers increased from 850,000 to 2 million and deposits from E7 billion to E22 billion. Verkoren added a million customers and E8 billion in one fell swoop in February by acquiring competitor Entrium from Italy's Capitalia for E300 million. Verkoren, 56, says that the operation broke even in 2002 and that he expects a "considerable profit" this year. More than half of new accounts are being opened via the Net, rather than through mail or call centers, up from 40 percent a year ago. Nearly 80 percent of transactions are done online, up from nearly 75 percent.



"We want to make retail banking a highly profitable core business that does not need to shy away from comparison with international competitors."

Europe's largest bank started down the "bricks-and-clicks" path four years ago when Herbert Walter brought online brokerage and banking together with its 1,240-branch retail network under the brand name Deutsche Bank 24. Walter initially hoped to double the number of Deutsche 24 customers, to 20 million across Europe, by 2004. That's not going to happen. Deutsche serves 12.9 million retail customers, 2.3 million of them via the Net, and a further 550,000 use Deutsche's Maxblue e-brokerage service. Unfortunately, the securities business is terrible today no matter how you access it, and the bank earns little from clients who go online mainly to perform low-margin current- and savings-account transactions. Deutsche CEO Josef Ackermann has therefore given the 49-year-old Walter fresh marching orders: Shrink the branch network and focus on higher-margin services, especially for affluent and small-business customers. Walter, who once waxed enthusiastic about the bank's "online-centric" strategy, now rarely mentions the Internet. "The Web is just another commodity that adds convenience," explains a Deutsche spokesman.



"Acquisitions have given us critical mass and made us the one-stop shop for financial information and trading in France."

In 2001, as its volume declined, Société Géné-rale's online brokerage subsidiary cut its operating expenses in half. Once trimmed down, the bank's Fimatex unit went on an acquisition spree. Last April it bought Boursorama, France's leading financial news and investor education portal, for E44 million ($47 million). In January Fimatex adopted the better-known Boursorama brand name, then expanded further by purchasing French brokerage Selftrade, with its 55,400 accounts, from Germany's DAB Bank for E62 million. Now Boursorama is vying with another French-German amalgam -- CortalConsors -- for online investing leadership in France. The new Boursorama has a brokerage client base of 127,000, for a 38 percent share of the the Gallic Internet securities market. CEO Vincent Taupin, 43, wants to coax more revenue out of the 1.5 million people who visit the Boursorama site each month. Says Taupin, "Combining online brokerage with a financial data portal allows us to take on a new revenue stream from advertising and gives us a vast reservoir of potential trading clients." Later this month he expects to announce a slight loss for 2002, but he says the group will be profitable either this year or next.



"I reckon that the bear market will continue in 2003, with no noticeable recovery. Our strategy takes this into account."

A year ago Commerzbank's Comdirect Bank subsidiary reigned as the No. 1 online brokerage in Europe, driven hard by its founding CEO, Bernt Weber. Nine-year-old Comdirect is still tops in Germany, with more than 600,000 clients, but France's Cortal, after merging with German rival Consors, now has almost twice as many customers. And Weber, a 61-year-old sports car enthusiast, is out, succeeded last June by ex­Deutsche Bank executive Achim Kassow, 36. Given Kassow's experience in the Deutsche Bank 24 "bricks-and-clicks" retail operation, his appointment may signal closer integration between money-losing Comdirect and its financially strapped parent. "Bringing Comdirect closer to the mother ship will be the source of the next generation of customers and cost efficiencies," says European online finance expert Suzan Nolan, lead market analyst at BlueSky International Marketing in Paris. Kassow, though, has been focused on internal changes. "All our service activities have been concentrated in one location, and we have streamlined our organization internally," he says. "For 2003 we expect clearly improved results and for 2004 a profit of E50 million [$53 million]."




"Virt-x is well placed in the posttrade sector -- a significant advantage in times when margins are tight."

London-based electronic stock market Virt-x fell short of its goals. Now it's fallen into the arms of one of Europe's most experienced exchange operators: Reto Francioni, who more than a decade ago modernized the Basel, Geneva and Zurich stock exchanges and later launched the Deutsche Börse's Neuer Markt. He returned to Zurich a year ago as chairman of SWX Swiss Exchange, which then co-owned Virt-x with Tradepoint Financial Networks, a joint venture of major investment banks. Virt-x failed to gain the 10 percent share of European blue-chip trades that it had hoped for; it depended on Swiss share trading for most of its volume. So SWX moved late last year to buy out Tradepoint, and most of the outstanding shares had been tendered by January 31. Francioni, who spent two years heading German online brokerage Consors before taking the SWX helm, sees Virt-x's London presence and efficient backroom technologies as competitive advantages. "In the difficult market environment, there are signs that international trading activity is being concentrated in London," says the 47-year-old. "The full-scale takeover of Virt-x gives SWX a degree of leverage in this accelerating process of concentration."



"We will become the Nomura of retailing."

Two years ago Michio Matsui claimed that his online brokerage, Matsui Securities Co., would surpass Japan's mighty Nomura Securities Co. in total retail trading volume during 2003. He's not backing off that bold prediction, even though Matsui's market share in the fourth quarter was only 9 percent, compared with Nomura's 17 percent. The gap would have been smaller, says Matsui, 50, but for a rash of selling and repurchasing of stocks as investors scurried to get around a January capital-gains-tax hike. Those trades tended to go through more-established firms like Nomura that had sold the shares in the first place. As it is, Matsui is a potent David: Its single branch and 170 employees serve about 90,000 retail accounts, compared with the sprawling Nomura's 300,000. The upstart firm is expected to report a profit for the fiscal year ending this month about in line with last year's ¥4.37 billion ($36 million). Matsui attracts those he calls "the cautious rich" -- wealthy investors who trade more frequently than average in hopes of locking in gains, even in a depressed market. With other discounters, including E*Trade Japan, putting pressure on Matsui's pricing, he's extending the product line. In October 2002 the firm became the first in Japan to offer a securities lending service to retail investors.



As the European Union closes in on its 2005 target for establishing a single market for financial services, the pressure is mounting on David Wright. The 51-year-old Briton, head of the financial markets division of the European Commission's Internal Market directorate, is spearheading the initiative to unify the Continent's regulatory framework. That should be a boon to financial institutions seeking to leverage their online services and other technologies across a wider territory. But first, a lot of legislative pieces have to fall into place. Wright made progress last year with the adoption of six major measures, including directives that set limits on cold-calling and e-mail spamming and that allow consumers who sign contracts a grace period in which they can cancel them. Still unresolved are proposed pan-European takeover rules and an extension of the streamlined Lamfalussy regulatory processes into banking and insurance. Wright has exhibited a light touch by consulting with the industry in an attempt to encourage consolidation in cross-border securities clearing and settlement, rather than imposing legislation, as the European Parliament is demanding.



"Most customers in Scandinavia feel that good e-banking is like hygiene -- they expect you to have it."

Managing the biggest online bank in the world's most wired society, Gert Engman of Sweden's FöreningsSparbanken doesn't have a marketing problem: People keep signing up for the service, at the rate of 5,000 a week. Of the savings bank's 2.3 million active retail clients in Sweden, 1.3 million use the online service. The bank, which has 958 billion Swedish kronor ($113 billion) in assets, is pursuing further growth abroad; it has an additional 1.2 million online users in the Baltic states. And it is pushing higher-margin products, such as an online accounting service for small businesses. "We charge -- and charge reasonably well -- for it," says the 53-year-old Engman. But he is also focusing on cutting costs and improving reliability as much as on new features. He points out that FöreningsSparbanken's technology costs have held steady at about Skr2.3 billion for the past four years, while average daily Internet transactions have soared sixfold since 1999, to more than 3 million.



"FX Connect is the flagship example of what we can build and will continue to roll out in other asset classes."

The Internet spawned three multibank foreign exchange trading markets -- Atriax, Currenex and FXall -- but Stanley Shelton had the idea first. And he expects his FX Connect service at Boston-based State Street Corp. to outlast them all. (Atriax closed last year; Currenex is struggling; and for FXall, see Weisberg, No. 24.) In 1994 Shelton, head of State Street's global markets unit, mapped out a strategy to create a single technology platform for a wide variety of electronic trading capabilities and to aggregate as much liquidity as possible by opening the system to other financial institutions. The platform, Global Link, went live in 1996 and serves some 425 buy-side firms. Its FX Connect component, according to London-based research firm ClientKnowledge, does about $9 billion in daily trades, more than Currenex and FXall combined. Shelton, 48, attributes that to the fact that "electronic trading is part of our broader strategy in the finance world," complementing asset management, research, analytics and securities-processing businesses. "Naming FXall and Currenex as competitors doesn't do that strategy justice," he says. Observes ClientKnowledge CEO Justyn Trenner, "Shelton had a vision in 1994 that was validated in 2000, when Deutsche Bank became the second bank on his system." More than 30 others have followed, including Citibank and J.P. Morgan Chase & Co. -- co-founders, with Deutsche, of Atriax.



"If you don't move fast in this market, you'll get squashed."

Twenty years ago Paul Caplin was a keyboardist and composer with the rock band Haysi Fantayzee. (Their album, Battle Hymns for Children Singing, climbed high on the U.K. pop charts.) Today he's leading a band of upstarts who are shaking up the market-data distribution business. Schooled as a mathematician, Caplin in the 1990s developed real-time text protocol, which enables stock quotes and other rapid-fire data feeds to stream at high speed onto common Internet browsers. Caplin -- who founded the 50-employee software house Caplin Systems in London in 1995 -- believed RTTP and the Web could undermine and underprice entrenched proprietary systems, such as the Reuters Terminal Workstation. Caplin showed what he meant in January with the release of Mongoose, a direct challenge to Reuters Group's Kobra data-delivery technology. "We don't see ourselves as any threat to Reuters," the 48-year-old Caplin protests. "Their strength is as a content provider. Mongoose offers a way to deliver their content at far lower cost and with greater flexibility." Nine financial institutions are testing Mongoose: Their names are under wraps, but Caplin previously delivered RTTP products to J.P. Morgan Chase & Co., UBS Warburg and several major exchanges and data vendors.



"Our main challenge is adapting to the global recession and to the wait-and-see attitude among our customers."

Per Larsson failed to conquer the London Stock Exchange in a quixotic takeover attempt in 2000. But last year the head of Sweden's OM won the LSE as a customer and partner. The LSE chose OM's Click trading technology for its new equity derivatives market, EDX London. The LSE owns 76 percent of the venture and OM 24 percent; in addition to its trading system, the Swedish firm folded its London derivatives exchange into the operation. "We look forward to being able to develop an international equity derivatives market around OM's network of clients," declared LSE CEO Clara Furse in December, referring to the more than 20 exchanges and 350 financial institutions that use the electronic platform. Those were about the most encouraging words the 42-year-old Larsson heard all year. OM lost 24 million Swedish kronor ($2.8 million) on revenues of Skr2.6 billion, as weak market conditions crimped the revenues of Stockholmsbörsen and other OM-owned exchanges and tight corporate budgets hurt OM's technology sales. Larsson calls the past year "challenging. However, thanks to measures taken during 2002, including cost-efficiency programs and closing down [cross-border retail exchange] Jiway, we are well positioned to meet the challenges of the coming year."



"We have come to the end of the consolidation period."

Like other German banks that built big positions in the online brokerage market, HVB Group must decide whether to sell -- as SchmidtBank did with Consors (to France's Cortal) -- or hold -- as Commerzbank seems to be doing with Comdirect Bank. Alexander Uslar, the top executive of HVB's DAB Bank subsidiary since the resignation in October of Matthias Kröner, argues that the worst is over for DAB, which lost E54 million ($58 million) in the first nine months of 2002. He believes that a resurgent DAB, with 600,000 clients, can deliver both profits and marketing dividends. "The future of banking lies in the intelligent combination of an active sales approach toward customers with the lean structure of a direct bank," asserts the 36-year-old Uslar, a lawyer by training, who joined DAB in 1996 and managed the legal aspects of its 1999 IPO, when it floated 25 percent of the shares. With DAB's sale in January of its French Selftrade unit to Boursorama for E62 million, "DAB is retreating back to being a German discount direct broker," notes Suzan Nolan, lead market analyst at Paris-based consulting firm BlueSky International Marketing. "It has an excellent platform for independent advisers and funds, but it's not very cost-efficient for the limited market of self-directed frequent retail traders."



"Offering banking is a way to make clients more loyal to our insurance products."

France's banks have been stealing market share from insurers for years. The Internet offers a way to fight back, says Philippe Toussaint, head of Banque AGF, an offshoot of German insurer Allianz's French subsidiary, Assurances Générales de France. Since Toussaint, former chairman of Crédit du Nord, launched Banque AGF in 2000, it has attracted 260,000 customers -- more than any other French online bank. The vital ingredient, he says, is the 7,000 AGF agents and independent financial advisers who market banking in tandem with insurance to their 5 million clients. Banque AGF isn't profitable -- Toussaint doesn't expect to make money until 2005 -- yet industry rivals are flattering the CEO through imitation: Axa Group bought BNP Paribas's online bank, the 110,000-customer Banque Directe, for E60 million ($64 million) in July; and Groupama, a smaller insurer, is launching a joint venture with Société Générale this month. "Toussaint has done a remarkable job selling interest-bearing accounts," notes Gwenn Bézard, a New York­based senior analyst with technology research firm Celent Communications. To reach profitability, Toussaint must ratchet up the higher-margin consumer lending business.



"Before we can change Japan's investment system, the people have to be enlightened."

Former Goldman, Sachs & Co. bond trader Oki Matsumoto created online brokerage Monex in -- and for -- a very different world. It was April 1999, and Matsumoto was anticipating a sea change in Japanese household investment habits, away from low-return bank deposits and into the stock market. But Monex's low ¥1,000 ($8) commission rate isn't luring new investors, and the firm suffered a pretax loss of ¥1.33 billion in the nine months through year-end 2002, 56 percent more than in the previous year. Matsumoto, whose financial backers include Goldman Sachs, Sony Corp. and Soros Fund Management, says he is disappointed "as a citizen and as CEO." He believes that society suffers because too much of the public's money sits in government-guaranteed bank and postal savings accounts. As a member of a Financial Services Agency advisory council, Matsumoto is calling for the bank deposit guarantee to be lifted and for the ceiling on individual postal accounts to be lowered from ¥10 million to ¥3 million. But those changes are by no means certain, and Matsumoto, 38, needs to take short-term steps to boost Monex's revenues. Following rival Matsui Securities Co.'s lead, he started a securities lending service in January and now allows clients to trade on margin, something he once said wasn't desirable.



"I expect to see NeoNet look-alikes. There will be followers."

With no truly global stock exchange -- or even an easy way of routing transactions between existing exchanges -- in sight, Torvald Bohlin offers a virtual equivalent. Customers of his Stockholm-based agency brokerage, NeoNet, can gain access to 11 major European and American exchanges. Since hooking up to the Nasdaq Stock Market and Borsa Italiana last year, NeoNet gives clients in 13 countries access to 30 percent of world market capitalization; a year from now, after NeoNet adds the New York Stock Exchange, the penetration will be 80 percent. "That's our first-level goal, and then we might think about moving on to Asia," says Bohlin, 52, a former telecommunications executive who served on the board of NeoNet from its start in 1996, becoming CEO in 2000. The 80-employee firm's revenues declined 3 percent last year, to 185 million Swedish kronor ($22 million). "That's not bad, considering stock exchange volumes fell 30 to 35 percent," notes Bohlin.



"The digital information revolution has always been at the core of our business."

In early 2001 Softbank Corp. founder Masayoshi Son's $5 billion in technology investments carried a market valuation of $20 billion. Then the Japanese Internet mogul had to run for cover. Between September 2001 and November 2002, Softbank divested some ¥150 billion ($1.2 billion) of assets, significantly reducing its stakes in Internet and e-finance start-ups like Yahoo! and E*Trade Group as the 45-year-old Son redeployed assets into a new pet project: broadband telecommunications. Softbank subsidiary Softbank BB Corp. is now Japan's biggest and fastest-growing operator of high-speed asymmetric digital subscriber line, or ADSL, services. But that didn't get Son out of the woods. Softbank BB lost ¥31 billion in the six months ended last September, contributing to a consolidated ¥55.8 billion loss for Softbank Corp.; at year-end BB was 300,000 subscribers shy of 2 million, its break-even point. Meanwhile, Son is still tinkering with his financial holdings: Another subsidiary, Softbank Investment Corp., is planning to merge this year with E*Trade Japan. But E*Trade, Japan's biggest online brokerage, suffered a 29 percent decline in profits for the nine months through year-end, to ¥459 million. And in the tough banking climate, Son hasn't fared well with Aozora Bank, which a Softbank-led consortium purchased from the government in 2000. Aozora is on the selling block.



"No one cares where a trade gets executed. That's a lot different than, say, five years ago."

Maybe it's because his offices are in New York's garment district, but Seth Merrin sees an apparel industry analogy to the mission of Liquidnet. The major stock exchanges have become so geared to retail-size transactions, says the CEO of the alternative trading system, that the process of moving large institutional blocks "is like going into a Gap store and asking for 500 red shirts." Merrin, 42, created a purely institutional venue two years ago, linking the likes of Barclays Global Investors and Putnam Investments to a pool of liquidity large enough to effectively execute orders that now average 49,107 shares, compared with the New York Stock Exchange average of 665. Merrin's concept was born of the Internet boom -- Liquidnet's underlying technology is akin to the Napster peer-to-peer approach -- but was timed perfectly to address cost-conscious institutions' growing insistence on best execution. The system increased its membership by 85 percent last year, to 235 institutions, and handled 1.21 billion shares worth $33.5 billion. Volume in the fourth quarter surged 92 percent from 2001, while stock trading overall declined 8 percent. "It takes a while for people to gravitate to something new," says Merrin. "But I think we've reached critical mass."



"Competition brings out the best
in banks."

Richard Lai concedes that it was "a shot in the dark" when he launched financial portal DollarDex in late 1999. But the former Bain & Co. consultant and DBS Bank executive hit his mark: The Singapore-based Web supermarket provides links to product offerings from 76 banks, insurers and fund managers. In 2002 it sold insurance policies with monthly premiums of 1.2 million Singapore dollars ($680,000), and it received inquiries for mortgage loans totaling S$1.72 billion, about 22 percent of which it converted into sales. DollarDex has also shaken up the Singapore mutual fund market by pushing front-end commissions down from 5 to 6 percent to 2.5 percent and lower. Backed by Lazard Asia Fund and Hong Kong investment firm AsiaCommerce, DollarDex is earning profits from its Hong Kong and Singapore operations, recently opened a Taiwan office and has attracted interest from Charlotte, North Carolina­based Wachovia Corp. as a potential investor. Singapore native Lai, 40, is contemplating entering the China market and perhaps even the U.S. "Everybody says I must be nuts because the U.S. is so competitive," says the determined CEO. "But a small slice of a huge pie?" Hard to resist.



"Last year was the year to show platforms can serve customers properly. This is the year to generate critical mass."

Online foreign exchange trading venues are shaking out, and FXall is playing for higher stakes. It defeated a rival bank-owned consortium, the now-defunct Atriax, but FXall CEO Philip Weisberg is facing tougher competition. With more than 50 liquidity-supplying banks, 425 transacting customers and an estimated $4.5 billion in average daily volume, New York­based FXall trails State Street Corp.'s market-leading FX Connect, although it recently surpassed third-ranked Currenex, which is regrouping after the year-end resignation of its founding CEO, Lori Mirek. "Our volumes grew by a factor of eight in 2002, and they seem to be growing at an equally robust rate so far in 2003," boasts Weisberg, 35, who spearheaded FXall's development while working in J.P. Morgan Chase & Co.'s LabMorgan technology incubation unit. The three-year-old spin-off has been praised for its quality and efficiency, but Weisberg knows that he'll be judged on harder financial measures, and he says he'll deliver: "We had a wonderful January, with month-on-month growth of 25 percent. We'll be into profit very shortly -- within this year."



"The need for greater liquidity drove our merger with Asiabondportal."

Two electronic bond-trading platforms were one too many for Asia. The winner: BondsIn-Asia and its CEO, Albert Cobetto. In May it took over rival and brought its shareholders -- ABN Amro, Bank of America Corp. and J.P. Morgan Chase & Co. -- into the larger BondsInAsia consortium, which includes Citigroup, Deutsche Bank, Hong Kong Exchanges & Clearing and HSBC Holdings. For Cobetto, 52, it's an exercise in reinvention. He helped develop Asia's fledgling bond markets as an investment banker with Lehman Brothers and Salomon Brothers in the early 1990s, then founded Prudential Asia, a unit of Prudential Financial, in 1997. Singapore-based BondsInAsia began trading in January 2002, more than a year after Asiabondportal did the same -- but BondsInAsia's focus on trading technology won out over its competitor's broader range of information services. The platform handled $24.5 billion of transactions in its first year. Though Cobetto concedes that "volatility and the delicate state of the economy" will make life difficult for BondsInAsia, he expects to turn a profit this year. "That was our plan," he asserts. "And that's what we are striving for."



"Finance people tend to take themselves terribly seriously. That's why we're slightly quirky and not too pompous."

You won't find hedge-rows in quaint Albourne Village -- just hedge funds. A three-year-old Internet community started by U.K. hedge fund consultant (and native of a town near the real Albourne) Simon Ruddick, 42, the virtual Albourne boasts a library, pub and shopping mall. They serve as icons for a research database, a chat room and a fund marketplace, respectively. It's a whimsical front for the serious business of Ruddick's firm, Albourne Partners, which advises on $8 billion in hedge fund clients' portfolios. "They are excellent hedge fund analysts," says Peter Roffman, vice president of investment services at Standard & Poor's, an Albourne client and Albourne Village data supplier. "The Web site and its ability to help with the monitoring process is an added benefit." Says Ruddick, a former hedge fund trader with Westminster Equity: "The village works for us. It's an efficient way to collect the kind of information we'd need to collect anyway." Village registration is free, and the population has doubled in the past year, to 7,734. But that kind of growth doesn't tax the infrastructure, which, as they say, is highly scalable.



"If Internet companies in Asia
have to slug it out with local players, they are going to lose."

"I wouldn't call myself a venture-capitalist type," says James Kelso. And that happens to be why Kelso, a 20-year veteran of Prudential Securities, succeeded Mark Duff in June as CEO of Hong Kong­based online brokerage Entrepreneur Duff, still a Boom director, conceded that the stand-alone retail brokerage strategy had to be scrapped. "It's too expensive to acquire customers in these fragmented markets," says Kelso, 48, who was most recently Prudential's regional director for Asia. Kelso has gotten busy looking for strategic partners interested in using Boom's multinational, multicurrency platform -- perhaps a bank seeking online securities capabilities or a local brokerage trying to gain regional connectivity. Kelso believes that a slimmed-down Boom -- its staff of 31 is half what it was at its peak two years ago -- has enough cash to last at least four more years. "I am fortunate that Boom is well capitalized," he says. "I have the luxury of not having to panic."



"We are the most unglamorous of firms. We gather information in one place and distribute it to where it has to go."

There is no shortage of ideas about how to create a low-cost, fully electronic way to trade stocks globally. (For one, see Bohlin, No. 20.) The problem with most, says Charles Giessen, 44, is that they come out of an investment banking mind-set, with cost structures weighed down by commissions and related overhead. Giessen's answer: "Come at this from a pure technology, rather than a financial-processing, perspective." The former Salomon Brothers executive established London-based Omiris Networks in 1999, with backing from Carlyle Group, as a "pure utility" for worldwide order routing and settlement management. Users pay fees, explains Giessen, "based on our cost of communications, not on financial charges." Business from top banks and money managers picked up in recent months as Giessen expanded his network of direct-access connections from 20 markets to 83 and as firms got ever more serious about controlling execution costs. "Our January volume was 400 percent over our previous best month, September, and we equaled January in the first six trading days of February," says Giessen. "Our trading business is profitable for the first time."



"We succeed by staying focused on a sector other firms neglect."

Giants of venture capital have come and gone from the European e-finance space. Rodney Schwartz is no giant, but he's at least stayed the course. "When we started it was only us and GE Capital," recalls the American-born Schwartz, 45, who founded Catalyst Fund Management & Research in London in 1997 and closed a £40 million ($64 million) fund in 1999. Today General Electric Capital Corp. is pulling back from venture investing; Efinanceworks, formed in 2000 by Capital Z and General Atlantic Partners, is out of business; and long-standing private equity players like Apax Partners and Carlyle Group are making bigger, later-stage investments than those Catalyst favors. In September Schwartz launched the Second Financial Fund, pegged at £60 million and searching for the likes of first-fund stars Future Dynamics, a trade-processing software vendor, and Propero, an application service provider. "Financial technology is a great business to be investing in," says the upbeat Schwartz, who two decades ago was a top-rated financial industry analyst at PaineWebber before moving to London in 1988 as a Lehman Brothers investment banker. "Spending hasn't gone down. The only way for these institutions to improve profitability is through technology."



"The buy side is crying out for customized research."

The bear market has done nothing to slow the tide of investment research that clogs the in boxes of fund managers -- and often goes unread. But it has given John Thorne an opening to sell his Internet-based technology for dealing with that chaos. Thorne's four-year-old company,, was one of the first to develop electronic publishing, cataloguing and sorting products that conform to the securities industry's RIXML (research information exchange markup language) standard. Though an upstart compared with data publishers, Standard & Poor's and Thomson Corp., London-based Researchsummary has attracted more than a dozen customers, including Bear, Stearns & Co.; CLSA; ING Financial Markets; and UBS Warburg. Those firms are among the initial contributors to Researchsummary Professional, an upgraded service introduced in January with reports on 15,000 companies in both RIXML and PDF (portable document file) formats. "Investment research delivery is changing," says Thorne, 33, a former head of e-commerce development at HSBC Holdings. "First, it was in [Microsoft] Word, then PDF." RIXML acceptance will accelerate this year, he predicts, because no other method matches its ability to "interrogate data and search for companies based upon individual investment research criteria."

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