Q&A: "Okay, but what about ...?" (financial management) (Special Global Report) (panel discussion).

The speakers invited to FEI's 59th Annual conference held in Chicago recently are all high-level business and political figures in the U.S. and Canada. They're strategic thinkers, the people who lead our country throgh their decision-making. At the conference, they spoke of the global implications of our actions at home and the national implications of our actions abroad. But some of the most important insights they shared with the financial executives were their impromptu answers to some provocative questions posed by the audience. Here's a sampling of those exchanges.

Q: What will the financial services industry look like in 10 years? Who will survive?

THOMAS C. THEOBALD

Chairman, Continental Bank Corp.: "I think it will be much more differentiated. One player will sell one thing, and another player will sell another. There will be fewer players, but the ones remaining will be more focused. And I hope that a reasonable proportion of American firms will survive globally. I don't accept the notion that we're condemned to failure by the regressiveness of our government policy."

Q: What effect will the new risk-based CaPital rules have on the pricing of bankproducts?

THEOBALD: "First, I think the approach is fairly esoteric. The Central Bank regulators, including the Federal Reserve, have tried to capture more components of risk than are obvious on an FASB-type statement, to use that as a measure of capital required in a bank. But analysts, rating agencies, even regulators continue to use standard, FASB-type reports. So the risk-based rules have had a relatively modest impact on pricing.

What will raise prices, however, is that there will be fewer banks and these banks will commit less capital to the corporate business because it hasn't been very profitable. Fewer salespeople will try to get your business, because salespeople are expensive and they haven't been covering their costs."

Q: What are your views on computerized arbitrage trading between Chicago and New York? How about 24-hour trading?

THOMAS R. DONOVAN

President and CEO, Chicago Board of Trade.. "While there's nothing wrong with arbitrage trading-in fact, it brings the markets closer together-what you really need are coordinated circuit breakers. The NYSE recently assembled a blue-ribbon committee that recommended circuit breakers at certain levels, but when the Chicago Board of Trade and the Chicago mercantile Exchange adopted the resommendation, the NYSE committee rejected it. If the markets are going to function as we want them to, we need some coordination.

"Twenty-four hour trading is here to stay. A few years ago, when the Japanese decided they wanted to trade the U.S. Treasury bond, we decided we couldn't let them get a toehold on our market in their time zone, so we would need to begin trading in an evening session. But that meant establishing another operation, another entire shift. So the then-chairman of the CBOT and I went to New York to get advice from 10 of our large member firms-companies like Goldman Sachs, Salomon Brothers, and Dean Witter. All but one advised us against establishing an evening trading session, saying we could never beat the Japanese. We realized that, if that's the type of confidence that American business has in American exchanges, we've got a major problem. We opened our evening sessions anyway, and today we trade four to one against the Japanese, because we make a better market. But if we would have shrunk at the challenge, they would be taking our market away right now."

Q: How do you verify the quality of the information you use when viewing foreign investments?

J. GARY BURKHEAD

President, Fidelity Management Research Co.: "About three years ago, Fidelity established a joint research venture between our international and domestic companies. We now have 30 analysts abroad following foreign companies. It costs more and takes more time and attention to cover foreign companies than it does to cover those in the U.S., and the quality of information is not as good. Both disclosure requirements and conventions abroad are very different. in some foreign markets, for instance, companies will not respond to our monthly phone calls, which is one way we collect information in the U.S. The only way to assure yourself of quality information is to have analysts on the ground, and it takes a lot of them to do a satisfactory job."

Q: What method should an individual investor use to find undervalued foreign investment opportunities?

BURKHEAD: "You have to have access to good investment research. Many U.S. brokerage firms are putting substantial numbers of analysts abroad, hiring good people in Tokyo and London, and these companies can provide good investment...