For Investors, ICC’s 2014 Trade Register Report Lacks Credibility

- July 1, 2014 4:20 PM
Categories: Trade Financing | Tags:

This post originally appeared on Trade Financing Matters

I know I won’t be popular with this post, but I never choose the popularity route. To me, I’ll take quality over quantity any day. And so I have to point out that I think the 2014 International Chamber of Commerce (ICC) Trade Register Report has a ways to go. The report concluded trade transactions for all intent and purposes have practically zero losses. That’s right — zero losses. The press release stated,

 Based on data contributed by the major global commercial banks and reflecting more than 4.5 million transactions totalling an exposure in excess of US$2.4 trillion, the ICC Trade Register Report 2014 (“the Trade Register”) empirically demonstrates that trade finance is lower risk than many other types of financing and assets. It records that short-term trade finance customer default rates range from a low of 0.033% to a high of 0.241%, which is a fraction of the 1.38% default rate reported by Moody’s for all corporate products (according to 2012 figures).

The problem is that the people who matter don’t believe it. Who matters? Well, investors matter. And if investors don’t find your data credible just because the banks say so, then they will buy something else.

I mean, saying we’ve never had a default in 10 years (I’ve heard this quote from several bankers) or that your defaults are 10 times better than AAA credits will appear nonsensical to the market.

Go ask the banks that funded copper sitting in warehouses (supposedly) in Chinese ports. Or go ask Citibank about their $400 million trade frauds in Mexico.

Listen, you can’t fool sophisticated investors (or maybe you can, look at the subprime fiasco).

What the ICC report is saying is that absolute trade losses are low. The ICC Trade Loss Registry is a great step, but needs to go further.

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