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Did he Pull the Plug? Diamond Finance interviews Jeff Pfeffer, Senior Vice-President of HSBC Bank USA and head of it s Diamond and Jewellery team. After working for Bank Leumi in New York, Jeff, aged 54, moved to HSBC in June 2004 to head its diamond and jewellery division. When he took over, there were seven main clients who were inherited from HSBC’s US predecessor, Republic National Bank. Today it is the second largest bank in this sector after ABN Amro, and includes a healthy number of sightholders and their group companies. DF The question everybody asks is whether you are to blame for puling the plug on Fabrikant? Jeff – Before I answer the question, what I am saying here is based on publicly available information. This is an unfair question. A bank does not bring down a 106 year old business, its management does. Our sector, especially at the sightholder end, is a high volume and low margin business and you have to pay attention to the basics. Large offices in the Rockefeller Center, heavy overheads and not enough outsourcing, impact on the profitability. In an environment where most sightholders were losing money on their DTC goods, a fallout was predictable. But what really hit Fabrikant was its exposure to many of the large retail bankruptcies and Chapter 11s. When your large customers are not paying, you are in trouble. The lessons for the industry are that businesses have to be managed by diamantaires who pay attention to all of the aspects of their businesses and do not pursue growth by taking on large credit exposures. DF – What is HSBC’s growth rate and what prevents it from growing faster? Jeff – HSBC is second largest in the US after ABN Amro and before ADB, and we aim to grow between 15% to 20% per year, but with the right clients. We are aware that this sometimes means taking clients away from our competitors, but that also works vice versa. While we can often compete on banking charges and interest rates, what we offer our clients are our global reach and our knowledge of the industry. We are limited in our growth potential by not having branches in the two important locations of Antwerp and Ramat-Gan. Before we could open there, we have to find the right people to manage the branches, but HSBC does not have any plans for the near future in these two vital centres. Africa represents a big challenge for us, HSBC has a branch in South Africa, but we are still evaluating Botswana, Namibia and Angola. DF – Your largest competitor is ABN Amro, what are the implications of the pending Barclays takeover? Jeff – ABN’s diamond team is only a small part of the global bank, but within our sector it is by far the biggest. I am not sure if the new owners of ABN will want to keep the diamond division with its high risk portfolio. HSBC might be interested in taking it over if it came on offer, but we expect some serious bidding from our Indian competitors. ADB would be prevented from buying it for EU anti-trust reasons. First, we have to wait and see whether the takeover will go through. DF – Where do you stand on Basel II Jeff – We are ahead of the curve here, but diamond companies will have to present stronger and more transparent balance sheets in order to reduce sectoral risk and prevent overall bank liquidity flowing to less risky sectors. DF – What is your view of 2007? Jeff – We are seeing a lot of consolidation in the industry in the US, and the medium size jewellery and retail companies require, more and more, the backing of large players like the sightholders, and this trend will continue. 2007 in the US is going to be a difficult year, and companies will have to pay attention to their bottom lines. DF – Lastly, what about DTC’s selection this year? Jeff – I expect a net reduction of about eight sightholders with 20 deselections and 12 new sightholders coming in. This will be spread across the four main centres, New York, Antwerp, Ramat-Gan and Mumbai. I disagree with Chaim Even-Zohar’s prediction of no US sightholders in 2008. |
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