Treasurers should be prepared for ongoing change in bank relationships.
Bank relationships have been in a state of flux since the onset of the financial crisis and treasurers should be prepared for this trend to continue. Faced with unprecedented new financial regulations, banks have to rethink their business models in many cases, and along with them the customers they wish to serve.
Bank customers, too, starting with counterparty risk concerns but also favoring operational efficiency, have changed their bank-services procurement behavior. A new report from Treasury Strategies and IDC Financial Insights, Corporate Treasury Buying Behavior, points to some interesting data in this regard. Perhaps the most interesting trend is the uptick in the number of corporates responding to the report’s survey that are changing the number of banks with which they do business (36 percent). Among large corporates, change is even more likely, with some 50 percent indicating that they changed the number of treasury management service providers in 2009, with slightly more increasing the number than decreasing them.
Shrinking share of the pie
Taken together the corporate responses and the trend reported from banks that they have seen an overall increase in the number of clients with a corresponding decline in revenue, suggests that even when corporates are decreasing the number of relationship banks, they are not increasing spend to make up for it. Given the tilt toward increasing the number of relationship, moreover, banks will be responding more aggressively to lock in wallet from strategic clients and encourage treasurers to consolidate rather than increase the number of bank credit relationships when considering future change.
A proactive response
The proactive response on the part of treasurers to these trends is to tailor their approach to that of their banks. Banks that merely point to reports of lost opportunities can be shunned in favor of those that bring product and service ideas that are the right fit for the firm. Best practice, however, argues for treasurers to gain more of the banks’ perspective and use an understanding of each bank’s position to drive the relationship and share of wallet allocation decisions from the corporate side. Here are a few standard questions to help the process:
- Are you on the strategic client list? For instance, each bank will have some form of strategic client list that helps determine the customers that it favors keeping. Every treasurer should know where it stands with regard to each bank’s list.
- What’s the committee view currently? In addition, each bank will have some form of credit allocation committee and perhaps a separate deal prioritization committee to help determine which customers get priority for scarce balance sheet when real or potential transactions are in the pipeline. A number of factors play into these decisions, including the bank’s exposure to your sector at the time, the geographic footprint of your business in addition to pure share of wallet considerations. Be aware that deal prioritization committees can be even tougher than credit committees, so if you need a bridge for that strategic acquisition it can be critical to have played your cards well with at least two or three banks.
- How lumpy is my share of wallet? Finally, many banks now prefer steady streams of business to lumpier one-off deals. Accordingly, a bank that may have been satisfied with a sexy M&A deal every-once-in-a-while, may want a piece of the global cash management annuity stream to keep your firm on in good standing with the relevant allocation committees. Further, if you tend to have lumpier relationships with certain banks, it may help to sketch out a longer-term picture of your potential business and how they might fit in—e.g., we plan to make a major Asia-Pac acquisition in the next three years and we want your bank to be a part of it. But don’t make empty promises, as these can be counterproductive.