Cashing In on the Yen for Euros
Want an easy way to invest in foreign currencies? EverBank CEO Frank Trotter made it possible--and profitable.
By Paul Sloan

(Business 2.0) – Tom Higgins called his Morgan Stanley broker a few months ago with what seemed like a reasonable request. Interested in dabbling more in overseas investments, Higgins, who runs a private equity firm in San Francisco, asked how he could buy into foreign currencies, which had been on the rise against the sagging U.S. dollar. But when the broker explained what it would take--opening new accounts, paying various fees--Higgins reached a quick conclusion: "It's basically impossible," he says.

Undeterred, Higgins kept looking. He landed at EverBank, a five-year-old Internet company that has created a flourishing business bringing the complex world of currencies to the masses. No other bank sells such a range of foreign currency products aimed at individual investors. Higgins was so impressed with EverBank's offerings that he invested $200,000. He put half into a three-month CD holding the Mexican peso (attracted by the 6.5 percent interest rate) and the rest in a money-market-type account linked to the Chinese yuan (a bet that the government will raise the value of its currency).

More impressed than Higgins, perhaps, is Frank O. Trotter III, EverBank's national banking CEO, who has spent more than a decade developing a market that others have ignored. Deposits in EverBank's currency accounts have ballooned from $35 million in June 2000 to more than $850 million today, roughly a third of the bank's $2.5 billion in deposits. Market conditions explain some of the allure: a lukewarm stock market, low U.S. interest rates, and the falling dollar. But what's especially impressive is that EverBank is succeeding in selling products typically reserved for Fortune 500 companies and professional investors. How? By keeping costs at bay and delivering the kind of customer hand-holding service that other banks, offline or on, can't.

From Chickens to Francs

Trotter's business has surprisingly deep roots. He was running the currency division of St. Louis-based Mark Twain Bank in 1992 when a local chicken broker came to him with a problem. He was buying chickens in the United States, selling them throughout Canada, and getting slammed with fees each time he had to convert currencies. Trotter looked at the situation, thought of other small-business owners faced with similar issues, and figured there had to be a solution. "This is kind of silly," Trotter recalls himself thinking. "We have to get in the middle of this."

Trotter and his team began developing money market accounts that let customers invest in different currencies: Want to open an account in Canadian dollars or Swiss francs? For a small transaction fee, they could tap into that account whenever they needed to do business in Canada or Switzerland. Sound easy? It wasn't, which is why most banks haven't tried to duplicate Trotter's efforts. Trotter built the business from scratch, working out details with the Federal Reserve and conquering huge operational issues. In-house technology workers, for instance, developed accounting software to handle accounts in multiple currencies.

Waiting It Out

The business grew, but, Mark Twain sold out in 1997, and the new corporate parent took little interest in currency products. Trotter left to create Everbank.com, which launched in January 2000. Still convinced that this was a market worth developing, Trotter bought back the currency business for $35 million (the value of the accounts) and made it a key part of EverBank's strategy. (EverBank later merged with a Florida-based holding entity, now called EverBank Financial.)

Today currencies make up one of EverBank's hottest product lines. The bank offers three main types of accounts: standard CDs in 20 currencies, CDs the bank has created that hold a combination of currencies, and money market accounts like those inspired by the chicken broker.

The customers vary. Some are the owners of small businesses. Some are universities that want to lock in the cost of sending a student to study abroad. But most are individuals looking at currencies to round out their investment portfolios, the same way a company would. With a $10,000 minimum for CDs and a $2,500 minimum for money market accounts, the products are priced to attract all types. "People like to test-drive," Trotter says.

EverBank makes that test-drive surprisingly simple and inexpensive. Few online banks are known for their customer service; virtual bank ING even cancels accounts if people make too many calls to the help desk. EverBank's St. Louis-based help desk, in contrast, is staffed by 15 people, some with currency-trading experience going back to the '70s. EverBank president Chuck Butler, who runs the trading desk, e-mails customers a daily newsletter about the latest currency trends--something he started doing in 1992 with pen, paper, and fax--and personally answers e-mailed queries.

It's that kind of expertise that gives EverBank an edge over rivals that might consider jumping into currency products. A bank with branches couldn't sell currencies, Trotter argues. Besides the expense of maintaining storefronts, training so many employees about the world's currency markets would be extremely costly and make little sense. "This is one of those things that only an online bank could do," says George Tubin, an analyst with TowerGroup, a financial services research consulting firm.

Privately held EverBank says its overall net income rose 49 percent last year to $25 million. Its currency division is profitable, Trotter says (though he declines to break out the figures), but he admits that the margins are slim. Growth, then, is the clearest measure of success, and for now Trotter looks well positioned: EverBank expects its currency accounts to hit $1 billion by the end of this year. Another bonus: Currency investors often sign up for other EverBank products, driving overall growth.

Of course, economic conditions could change. The dollar could rebound, for instance, and investors would start pouring their money back into U.S. stocks. EverBank does offer stock trading, but that would leave it facing difficult competition from the likes of Ameritrade and Schwab. Butler argues that the dollar has historically traded in seven-year swings: seven years of a weak dollar, followed by seven years of strong, then weak, and so on. By that measure, he says, "we're not anywhere close to where this bear market trend would end." But when the market does change, EverBank will be ready. It just rolled out what it calls "dollar bull" CDs, designed to appreciate as the greenback climbs.