Jamie Thorsen, a bright and energetic kid who was quick at math, parlayed an opportunity in the new world of foreign exchange trading into a 30-plus-year career with Harris Bank and the Bank of Montreal. She ran a trading unit at Harris while still in her 20s and grew up along with the foreign exchange market. She was executive managing director for BMO Capital Markets and a key figure in BMO’s expansion into China, having responsibility over its capital markets operations, including forex, fixed income and derivatives in China. Thorsen announced her retirement after we spoke to her, but as you will see, she has accomplished much in the world of forex.
Futures Magazine: Jamie, you have a long and distinguished career in banking and forex; tell us how you got started.
Jamie Thorsen: I started at the Harris Bank at their management training program, which was an intake program for kids that had graduated from college. There were about 40 people in the program. Harris at the time was a commercial bank and a big part of what they did was credit. I thought I was going to lose my mind; it was very slow and very plodding, process-oriented. It was very difficult for me to keep my interest. The woman who was running the program said to me there was an area that was relatively new with about 10 people, and ‘I think you would be well suited.’ It had nothing to do with a particular skill set, it had to do with a personality type that liked action and liked movement. I interviewed and for whatever reason, I was given the opportunity, so I went into the foreign exchange room. I worked on the trading desk for two years and then I moved to a newly created sales desk and I worked on the sales desk covering clients.
FM: Did you take to it immediately?
JT: The speed [at] which this stuff happened is pretty incredible. It was new business and you [became] an expert in this new business pretty quickly. By the time I was 29 years old I was running the group: FX sales and trading so I had responsibility for the business in 1985. We did a lot of things on the floor of the Merc; we did arbitrage between the interbank market and the IMM. A big success factor was how quickly you could see relationships in your head and how quickly you could know that 33 was a third of 90 because you had to flip it around; one was in U.S. terms, one was in European terms. I worked in a grocery store for six years in the days before scanners, so [I would see] these relationships right away. It was fun for me. It is not genius stuff, I was quick at simple math.
We made a lot of money, relative to the time, doing arbitrage. Then we participated in the interbank market and there was risk that was taken but the sole message at the time is ‘customers equal profits.’ We are a customer-driven business. I enjoyed covering the clients; you got to know companies like McDonalds during their global expansion. It was very exciting to be a part of their global expansion as they moved into Europe and Latin America, and to have the opportunity to advise them in hedging programs and on investment timing in the foreign exchange market. That was really exciting and fun. I still think that foreign exchange is the absolute best market in the world. It is the deepest, most liquid global market. Everything affects it: Interest rates affect it, global political intrigue affects it, instability in any region affects it. I can’t imagine that any other market would be more fun, provide more challenges and have a more smooth application than the foreign exchange market. Every aspect of the entire global economy is part of the foreign exchange market. At a very young age I was able to do things that now would take years. The market was so young, you became an expert, and very quickly.
Everybody in the market was quite young. There was a lot of turnover, there was tremendous U.S. growth. U.S. banks and foreign banks were opening foreign exchange offices constantly because they felt like the more they participated in the markets the more money they could make. There was this huge [growth]. At one point there were 17 banks trading foreign exchange out of Chicago and now it is down to us in terms of a trading operation.
FM: Do you still enjoy it?
JT: I love it. My job has obviously changed. I am not out there doing the actual trading or selling; I am doing the management of the business, but I do love the client coverage [aspect] of it and I take every opportunity I get to talk to clients. I’ve had the opportunity to serve for 17 years on the New York Fed committee (an industry group that provides guidance to the global foreign exchange market). I have had an opportunity to work on the risk side of the guidelines and work with some incredibly talented people at other institutions to craft a vision of the market. And I had the opportunity in that same time period to work with the bank of Canada doing the exact same thing from a Canadian market perspective.
FM: Talk about the transition of the forex market from a purely institutional market for banks and large dealers to a global 24-hour market accessed by traders across the spectrum.
JT: When it was what it was, it was less transparent; the spreads were naturally wider. Then as electronic trading, transparency, market participation and speed became a part of the foreign exchange market, the institutions [were] disintermediated; their king-of-the-road position came out of the market and they had to think about reinventing themselves or adding value other than just providing liquidity.
FM: Is it a better market?
JT: It depends on which chair you are sitting. It is always better if you are the guy who is the casino head and there is lack of transparency and wide margins. That was hard for a lot of institutions to adjust to. But from a global growth perspective, having deep, liquid, fully transparent markets serves everyone well and the more participants you have that have access to those markets in a positive way [the better]. The markets over time have grown appropriately with the global economy and have continued to serve all the global economies incredibly well. Even in the crisis this market performed flawlessly; the spreads widened out a little bit, there [were] some credit concerns, there were some people who couldn’t get stuff done because of who they were but generally speaking the markets contributed beautifully. And the banks and institutions, as these market have become $3 trillion a day, have continued to find ways to mitigate the risks that come with being so big. The prime example of that is the Continuous Link Settlement Bank (CLS), which now is a consolidator of settlement risk where we are really looking to take risks out of the market and create a sense of confidence. The banks got the settlement risk issue on their plates ahead of regulators.
It is all part of the market evolution, the transparency we just talked about is all good; it serves the ultimate client in the global economy better than a very expensive, non-transparent market.
FM: How have the players changed?
JT: The players have become more diverse and there is some legislation around the Volcker rule and the OCC legislation where they are worried about protecting people from going into the foreign exchange market, so that may change again as Dodd-Frank and Volcker and some other changes come into play.
FM: Talk about regulation in the U.S. and Canada.
JT: Canada’s banking system is completely different than the United States’. There are six schedule A banks that are regulated by OSFI (Office of the Superintendent of Financial Institutions), they have branches everywhere. There’s not the diversity, there is not the ability [to start up new banks]. We can do that in the U.S. We do not have the federalized banking system that Canada has. There is less ability to get into trouble.
The oversight of those six banks can be a lot more thorough because there are only six and the country is a lot smaller. It has the ability to be better regulated. It is quasi-governmental in that you have to have a government charter in order to participate. It’s harder given the size and scope of what’s going on in the U.S. to effectively regulate. Having said that, the Canadians did an amazing job in a very difficult time of making sure there was solid oversight of all the banks. They performed exceptionally well. I joked around after 2008, who would have thought it would be sexy to be Canadian? You say ‘I am from the Bank of Montreal’ and people would yawn in 2007 and in 2008 they would be opening the door and saying ‘let’s talk.’ Boring and highly regulated [have become] very attractive.
FM: Has the fact that BMO is not involved in proprietary trading become a positive?
JT: Absolutely. The Volcker rule is going to make pure prop desks something of the past. We never had that a strategy as an institution or as a foreign exchange group. We always had a client service strategy. Not that that was always a good thing. There was a lot of money made in proprietary trading so I am not saying we’re so smart, we just did not like the risk profile associated. I as a manager in foreign exchange would say to people all the time ‘if I am betting in the foreign exchange market that the dollar is going up, I am going to be right half of the time and wrong half of the time because I don’t have enough information about this complex market. The only way that you can truly make money in this market is if you are listening to clients, you’re taking orders and you are playing off of the flows that come through your business. You may do a deal for a client and realize that a lot of clients are buying dollars, that information that you get from dealing with your clients and information you provide back to your clients. That is the value.
FM: The United States has been pushing China to float their currency. Will this happen? When? Would it be a good thing?
JT: Eventually but not any time soon. The primary focus of the Chinese government is the domestic situation that faces them on a daily basis. They have a wealth distribution issue; there are a lot of people, they need a GDP that is growing quickly and they need to control an economy so it doesn’t get white hot and so they can keep that population gainfully employed and fed. It is a communist government that has very tight controls and is liberalizing in baby steps. That is to protect the domestic situation in China, it is not to get everybody in Washington pissed off at them. It is really to just make sure that they don’t have a situation with massive unemployment [and a] high level of inflation. They are trying to keep their economy growing sensibly. They are gradually liberalizing the CNY (yuan) and they are using something called the CNH, which is the deliverable within Hong Kong. That is the first step to internationalize the currency, which means you can actually trade in the CNH in Hong Kong and buy CNY to pay your bills. But it is a different currency; there is CNY, which is the yuan that exists onshore and there is CNH, which is the yuan that exists in Hong Kong. There is also an offshore CNY market that is non-deliverable; there is a difference in price in the non-deliverable market and the onshore market. I believe over time the CNY will internationalize and become more freely floating but that will not happen in any time frame that is set externally from that country. That will be a domestically driven policy change that is done in a way that will meet the overall economic goals of China. When will it happen? Five to eight to 10 to whatever number of years from now.
FM: There is growing fear of China’s power in the United States based on its holding of U.S. debt. Is this fear misplaced?
JT: All of that fear is misplaced. China’s economic interest is aligned with the U.S. They’re the second largest trading partner; they are producing things for us to buy. It would be like saying ‘do you want to shoot an arrow through the heart of your best customer?’ Well no, because then your best customer is not coming back to the table. China needs to grow; it has a population that needs more sophisticated operations and jobs. They need the assistance of the United States to buy their goods, they need the assistance of the United States from an intellectual capacity perspective, to have more eco-friendly factories and all of those would be done in a way that is aligned with its trading partners. It is a very different cultural and political system, so [they] won’t always sound like Americans or Canadians or Europeans when they speak but their interests are incredibly well aligned with their customers, and we are their customers. I do not believe China is to be feared; I don’t think there is any ulterior motive. They are trying to manage a domestic situation that needs to be carefully controlled. They are trying to liberalize in a time frame that meets their domestic agenda and they are trying to operate with a global environment in a way that best serves their interest, so killing their best customer is not in their interest. They have also done very well on their U.S. debt, so it’s worked. There are lots of mutual benefits that these two countries have and a lot of what I hear is political rhetoric.
FM: But a lot of that political rhetoric has been sharp.
JT: Cooler heads will prevail. That is like shooting yourself in the foot. It would not be in anyone’s best interest.
FM: Can you give us your outlook on the euro? First in terms of its value, and more importantly in terms of its viability.
JT: Currently there has been approved a €130 billion ($172 million) bailout of Greece by the [European Central Bank], the European Union and the [International Monetary Fund]. [On Feb 27, Germany approved it as well]. The question is, is that enough? Will that work? Normally when you have a situation like this, you restructure your debt and you devalue your currency. Devaluing jacks up your competitiveness. With your competiveness going up that means you are able to earn your way out. Unfortunately they can’t devalue so this is essentially kicking the can down the road. If the global economy picks up--there are signs of that going on--they will be able to grow out of it but that [requires] 5% to 6% GDP growth coming out of Greece.
FM: What is the probability of that?
JT: I’m not sure. Realistically, in the long-term there are probably two players that have to step out [of the single currency]: Greece and Portugal. But there is no provision within the EU constitution to have countries leave, so there would have to be an amendment. If we don’t get the growth that I’m talking about, we would see those two countries as not capable, unless we keep throwing money in there. I do think the euro will hang together [but] there is a possibility that Greece, Portugal and even Spain may over time have to be eased out. The EU has 27 members, the Eurozone has 17 members; the question would be could you remain in the EU but not in the Eurozone? But that is not clear. This bailout will occur, there will be a possibility that that’s good enough if global growth kicks up and if they are able to reduce spending and restructure their loan process, then they will be able to stay, if they can’t they will have to ease them out.
FM: Would returning to their old currency be the best answer?
JT: Default and devalue has been the way of the world but Greece can’t [do that]. Illinois is broke, it is like Illinois saying we want to devalue the dollar. [Illinois] can’t devalue the dollar. [The EU] just kicked it down the road. So then we try and do some other stuff, [but] now the can is in front of me again, are we going to bail them out again? That is what is going to happen unless they take steps and global growth kicks in. I give it a low probability of being successful. You are going to have to see a couple [countries] exit and then the Eurozone will become stronger. There are no provisions in the EU constitution for this. So the back story is that there is work being done in the back rooms trying to rewrite the constitution for an orderly separation. Realistically I am not telling you that the euro will survive against all odds. Right now there is a probability that two to three players have to exit and that they will come up with an orderly exit.
FM: Do you expect there to be further contagion in Europe?
JT: If the world starts growing again, the contagion will be contained; if global growth doesn’t happen the contagion will continue. And people will get tired. Germany will get tired of it.
FM: Another crisis will occur. Is a break-up inevitable?
JT: There is no global interest served to have a messy break-up. It would hurt everyone globally. Given that, steps will be taken to do everything in an orderly, sensible fashion. If it breaks up and is done in a way that is messy and non-orderly, it would be very ugly for a lot of people.
FM: Is the idea of the dollar being replaced as the world reserve currency a real possibility?
JT: Not in my lifetime. The last currency that was replaced was the British pound in 1918, and it takes a very long time for that to happen. The U.S. dollar is the most liquid currency, has the most liquid capital markets, has the most liquid and large bond market and in terms of safety and liquidity right now there isn’t any currency that would give us a run for our money. Now that can change. In the last four years our national debt has gone from $10 trillion to $15 trillion and now we are on a 100% debt to GDP in the United States. If we continue down that path, over time we will not look as attractive. However, who is going to take over? Is it the euro? We just talked about that. The other one that is thrown around is the CNY (yuan). The CNY would have to be fully floating, would have to be internationalized, would have to have a bond market that is completely open and liquid and none of those things are likely to happen in the next five to 15 years. Here is what would have to happen: Europe would have to get its act together, China would have to internationalize and we would have to totally screw everything up. If all of those happen there is a good possibility it would change but it would change not in five years, not in 10 years, not in 20 years. It took a very long time for [the British pound] to lose its position as the reserve currency and it would take 25 to 35 years for the global markets to change if we do everything wrong. I don’t think it is likely and I don’t think it would be likely in my lifetime.
FM: What would be the impact?
JT: All the benefits of being the reserve currency would be taken away. Inflation would happen because your deficit would be harder to fund, you would be in the same position Greece is in. You would have high debt, you would be defaulting, you’d look terrible. If would be a mess. It wouldn’t have just to do that we lost our status as a reserve currency, it would be that we screwed everything up and everyone else did everything right. It would be a devastating position to be in.
FM: What is your outlook on the dollar?
JT: We are the safety and soundness and liquidity provider. I am surprised that the euro is as strong as it is. When I look at what happened to us — debt going from $10 trillion to $15 trillion — it doesn’t surprise me as much because we are not a great alternative. I am neutral to mildly negative on the dollar. I don’t think there will be any dramatic moves. There are a lot of things going on in the [world] right now that will make the dollar very attractive very quickly. The Iran [situation] could blow-up. When I look at that I find it very frightening. I find what is going on in that Middle Eastern corridor very frightening, and our inability to come to terms with that and the possibility of a true conflict is worrying to me. But that would bode very well for the U.S. dollar because once again you go back to what are you going to do [but return to the] safety and soundness [of the U.S. dollar]. Without a global catastrophe of any kind, given our inability to affectively attack our own fiscal situation, I am neutral to mildly negative on the dollar.
FM: Assuming that the current recovery continues to gain steam and there is no major global crisis, where does the dollar go?
JT: Then the dollar stabilizes and goes up slightly. We are seeing signs of recovery but until the housing market [improves] — my personal signal though I am not an economist — [the economy will struggle]. Until the housing market feels like it is truly recovering and until people are feeling wealthier, and their primary asset is their house, it is hard for me to see that we are going to have a robust turn. People need to start spending with confidence, people need to start hiring with confidence, there has to be a sense of wealth creation.
FM: In addition to your responsibilities for BMO Capital Markets, you serve on several corporate and charitable boards. Why is this important? Do you bring something unique due to having such a global outlook?
JT: It is important to me for a bunch of reasons. I am on the board of trustees of Dennison University, which is where I went to school, largely on a scholarship and government loans. I had an opportunity through the generosity of other people who didn’t know me to be able to get an excellent education. Part of the reason I feel this need to give back is because without that you have a lot of people who don’t get those opportunities. A lot of the boards I’ve been on have to do with education because allowing people to get access to education — you are teaching someone to fish instead of giving them fish — is very important. It is very important that people of all shapes, sizes and colors have access to that education based upon their willingness to work and their abilities. The other focus I have had is health care and that has been through Children’s Memorial Hospital. That is because women and children, generally speaking, haven’t gotten the same access to health care that other people have. If you are a sick child and your parents can’t afford it, where do you go? Children’s has been one of those places where if you are a sick kid, you have the ability to get access regardless of your financial situation. That is why I have focused on the charities that I have.
FM: Throughout your growing career you also have had a high profile husband (Thorsen is married to James McNulty, chairman of the board of directors of NYSE Liffe U.S., a board member of NYSE Euronext and former President and CEO of the Chicago Mercantile Exchange). How difficult has that been?
JT: Having two people that work very hard can be stressful and can be difficult; however, having two people that are working very hard all of the time can be helpful to each other because you have an appreciation for what is going on in someone else’s life. If you [have a situation in which] the guy is a CEO and the wife is staying home, it can be less helpful. There are benefits and there are definite downsides to it.