A Thomson Reuters report shows a big slowdown in market activity for investment banks. Send chocolates.
With bank business dropping off a cliff it’s now more important than ever to make sure the company’s banks are onboard for the long-term. According to and Financial Times report citing Thomson Reuters data, banks have seen a sharp drop in deal-making and capital markets activity. With fewer fees from deal-making and other activity, banks may be more inclined to be more selective with their clients.
According to the Thomson Reuters report, the scarcity of transactions drove down advisory fees from M&A as well as debt and equity issuance to $32bn in the first half of 2012, its worst level in three years.
This means it is doubly important for treasurers to meet with banks to make sure they’re on the same page in terms of risk and investment profile. As noted at a spring NeuGroup Global Cash & Banking Group (GCBG) meeting, large banks are becoming more and more risk averse, so treasurers must be diplomatic in how they deal with them. This has prompted some companies to take a more proactive role in the relationship, meeting more often with their banks, even if it means using conference calls to keep in touch. One GCBG member holds a conference call every week, in additional to meeting in person twice every quarter. Another member said they meet more often with the banks post-crisis.
Other GCBG members have made it a requirement that any company-bank contacts go directly through treasury. To that end, a few members have policies prohibiting business units or other non-treasury groups in the company from talking to banks directly. All new business ideas and product implementations are approved from within Treasury.
Of course, companies differ on how they decide which banks to work with (and vice versa), with many relying upon the strength of existing relationships to make decisions. Some GCBG members are more committed to using credit banks if they can provide an ancillary service, while another reviews its treasury’s spending of the previous year and sends out RFPs to the banks in the group, leaving it up to them to bid or pass.
And although the big banks maybe pulling in their heads, treasurers can rely on smaller local or regional banks that are stepping in to fill the void. One member’s company accepts large quantities of cash in its revenue and many large banks do not want to support this part of the business; now the company works with community banks instead.