Erik Jens, the Global Head - Diamond & Jewellery Clients - AMRO BANK N.V. comes armed with professional experience in banking, financing and investments. He has specialized in private wealth management solutions, investments in hedge funds, private equity and real estate industry; and has served as director/advisor to various hedge funds and private equity funds at Fortis, which later became ABN AMRO.
Erik Jens has also held various senior executive positions at Fortis MeesPierson in banking and investment services in the Netherlands, Belgium, Switzerland, Netherlands Antilles, Ireland, United Kingdom, USA and Asia.
In an interview with Rough & Polished, Erik Jens speaks about the global gems & jewellery industry, expressing immense confidence in its future; and reiterating that sufficient finance is available for companies, which show good performance and maintain transparency.
Your optimism at the 'Diamond Financing Summit' in Mumbai was contagious and brought much cheer to the participants. What's the reason behind the enthusiasm? More so, when other bankers, barring one saw a rather gloomy scenario?
First of all, I'm a 'posimist', that is 'positive' and 'optimistic'. Every threat offers an opportunity. Every challenge creates strength. I sincerely believe the financing of a niche like the diamond and jewellery industry has a great future now all industry stakeholders including the banks are starting to speak the same language realising that change is there to stay and that issues need to be tackled rather than just talking about it. Music to my ears after being somewhat lonely the last years in my quest for transparency, innovation, sustainability in order to create a bankable sector again.
Do you think the global gem & jewellery industry will pick up momentum in the near future? The major Chinese market is still slow; no sign of EU improving; while Middle East & US seem to be the only sustenance? In fact, US too is unpredictable given the political situation there. Your views?
Well the diamond and jewellery industry is there already for many centuries. The problem is that everybody just looks at the day of today and tomorrow and seldom take some distance and look at longer trends. All research reports tell us that the diamond and jewellery industry has become more cyclical like other consumer and luxury sectors. Also, the boom in China basically covered up the underlying trend of overproduction and stockpiling and lead to high and not sustainable prices. Now the market is adjusting and demand is at lower levels, creating room for lower prices which will make diamonds more attractive to buy. After all, this is not a game of volume and turnover, it’s about profitability. Also with lower prices one can make interesting margins, provided you manufacture at the right yield with the right product. Innovation is key in that matter. The story on the millennial is overstated. First of all, they are not the big spenders on consumer durables yet. They rather spend their money on travel and other type of experiences. After accumulating some wealth however, they will spend money on luxury goods including diamond jewellery for sure. However, the product must be clean, provenance transparent, modern and cool, and different from what their parents liked and bought. That requires a thorough understanding of the needs of the new consumer wherever in the world they are. I'm happy to see that our clients and stakeholders like Diamond Producers Association for instance, are working on these themes.
As a banker and market watcher, what's your opinion about the current Indian G&J industry? Will it boost itself and be back to its robust self soon, having faced numerous challenges in recent times? The recently concluded Signature IIJS seemed to foretell good times soon. Do you see 'light at the end of the tunnel'?
As I said I am a 'posimistic' person and as Winston Churchill said: 'Never let a good crisis go to waste'. The industry is going through a healthy correction with a good sense of realism, de-leveraging, optimisation and derisking. Of course, the demonetisation impact came on top of it all, but again that is only a short-term impact which in itself is also cleaning up certain practices in certain areas of the industry. I believe strongly in India, its sheer opportunities. Just like in China we see the development and growth of a new middle class. That in itself will continue to boost growth and thus demand for luxury goods including diamonds and jewellery.
Having catered to the global diamond industry for many decades and seen the ups & downs of the industry, what's the bank's general philosophy in financing the industry? Does it go tandem with the strategies of the financial sector? Or, any specific strategies formulated for the diamond industry, given the diamond business is rather unique?
The diamond industry is different indeed, but at the same time that is also the challenge. Why should finance practices be so different from the commodity industry? I keep on repeating this! Yes, the product is not a commodity, far from it, that makes it different, but finance practices should not be different from commodities, so we as a bank look at more asset based financing, more secure lending. Keep the mystic but get rid of the mystery. We have optimised and derisked our portfolio and geographical footprint in the last few years and we are happy were we are now, steady as we go. We are open for good business in all our locations and we invite other banks and financial institutions to join us in supporting the industry. One should never forget that you need to know this market, inside out. It's a niche with global connectivity of which you need to be part of to understand to manage your risks very well.
For the readers’ benefit, can you take us through the challenges within the financial/banking sector while assessing clients in the G&J industry. And of course, how the Funding Banks benefit with good returns by financing a niche industry like G&J industry.
What I said earlier, the challenge is the fact that one needs to understand the flow of goods and the flow of funds. Same for your counterparts and your clients’ counterparts. Thus 'KYC', Know Your Customer, but also 'KYT', Know Your Transaction. Finance takes place on receivables, inventory and is provided as working capital. Also, goods itself are small and relatively easy to move around. In for instance factoring or commodity business that is not the case and in case of insolvency or distressed clients you have easier access to the underlying goods as collateral you can work out. In diamonds that's different although I still don't see the need to have all your polished goods in your own custody. With modern techniques, our clients could have the polished goods for instance in an independent vault with goods registered with 3D technology and certificates. When a buyer comes in goods can be quickly delivered, or part of inventory shipped in and out during the day, creating sufficient buffers to finance. Thus, more asset based!
What changes have you have seen in the Finance sector of late? Investors and non-bank financial institutions are also now entering the scene in large numbers. So, does it mean more competition among lenders and therefore funds available easily? Does it also mean Finance is available; and that it's the companies that have to be bankable to benefit? Your comments please.
Well I honestly don't see investors and non-banks entering the scene in large numbers. Fortunately, we see a few new players in Dubai and Antwerp but that is still step by step and in most cases replacement finance from the banks leaving the scene. I do believe it is healthy to have more players and more competition. But I am afraid some of those new comers provide finance too quickly and at too easy terms, creating another leverage on the sector, and if so accidents are bound to happen. These parties will run out quickly then and leave the industry behind with no finance at all I'm afraid. Pressure is on the financial sector by the regulators when it concerns financing the diamond industry so change towards a better bankability must come from inside, not from outside the industry. Therefore, I was happy to see the sense of urgency expressed by the industry during the Finance Seminar organised by the WFDB and GJEPC during the Presidents Meeting in Mumbai early February.
So, if there's no dearth of Finance, what according to you is the biggest challenge and real debate in the diamond financing scenario? Is it adaptability; a change in mindset; or most importantly a clean reputation of the industry? What's your take on this?
What I said during my speech, bankability is one thing, but reputation and perception is another, and perhaps even more important. That indeed takes a shift in mind set by the industry but also by the regulators, NGO's, banks etc. That can only be achieved if the industry is united to solve a few challenges and shrug away the sometimes dodgy reputation and it polarization. And let's not forget that is also key for consumer confidence, after all, they are expected to keep buying the end product. I feel that people sometimes forget this, too busy with their own environment rather than looking at the consumer.
You touched upon 'Blockchain Technology' too but can you briefly explain how this will benefit the industry on the whole? And finally, your advice to the G&J industry to keep it transparent and robust for it to last longer?
As I mentioned, if applied correctly, blockchain is the most impactful digital transformation in our life time. Changing the way we record and process data. I'm happy to see already different initiatives in the industry. It creates a perfect watertight change of custody. Provenance tracking and understanding origin and identity of the diamonds, mined, traded, polished, distributed, is key for all stakeholders. More importantly for the end consumer to create trust and ultimate transparency. But also for the financial sector as underlying goods are traceable which creates more asset based finance options I talked about and thus visibility. It’s all about trust and comfort with respect to authenticity. Can you imagine the whole debate around fraud with for instance KP certificates or with synthetics, would disappear? Or the whole blood diamond theme, which is still out there as well, gone? Regulators, law enforcement, NGO's, UN, OECD, Civil Society, etc., will applaud! More financial institutions will be attracted to the industry as we will see almost perfect transparency and strongly improved reputation also as a result of tightened self-regulation. And the millennials will know better in the future they are buying a cool and modern product, experience. I know this is a dream, and if we can't put the whole valuechain on blockchain, let’s do parts of the chain first and connect them later into one chain of custody.
Wrapping up, this is an unrelated question. Recent media reports mentioned that Italian banks including major lenders Intesa Sanpaolo, Unicredit, Ubi Banca, and Banco Popolare missold diamonds to their clients. What's your opinion as a banker, on 'Banks acting as Agents for Investment Diamonds'?
I really don't have a view on this. The only thing I know is that when people deal with diamonds as investment, people should buy them because they like them, just like when buying art. Also, realise that the investment is not very liquid, but best to be used as asset diversification.
Aruna Gaitonde, Editor-in-Chief of Asian Bureau, Rough & Polished