Cost reduction trumps funding diversification as capital markets rally.
Innovations in treasury management systems that allow companies to manage multiple bank relationships relatively cheaply have not combined with post-crisis funding diversification concerns to stem the tide of bank group rationalization. In fact, many large MNCs are accelerating their efforts to pare their banking groups down to those offering strong relationships with good payments and processing expertise.
At the height of the financial crisis, when corporates were being turned down for loans and urged by banks not to draw on their credit lines, it appeared that the lesson to be learned was the need for a broader set of lenders. The purveyors of new and cheaper TMS options, especially those ASP solutions requiring little upfront investment, could facilitate this by giving treasurers a way to manage relationships with a herd of lenders.
But in fact, some treasurers at major MNCs note that the remarkable recovery of the capital markets has made funding diversification less of a pressing issue, at least for good-quality credits. Now, disintermediating banks and the moribund shadow banking system usually results in a cheaper cost of funds.
And with little yield to be had in the cash investment management side of the business—without taking unwelcome amounts of risk—treasurers are trying to squeeze costs out of payments and processing by building strong relationships with a smaller number of banks, which they have confidence will survive another crisis. Despite the technological advances, this trend is likely to continue.