Banks formalize their tough lines on relationship maintenance issues.
A presenter at The NeuGroup’s Treasurers’ Group of Thirty meeting last week discussed how his bank has added another cull to the client relationship process. Now, along with getting a transaction through the credit committee, a relationship manager has to run it up the flagpole for the “Deal Prioritization Committee”—and that turns out to be the bigger challenge.
The DPC is one of a number of such entities proliferating at banks. It is, essentially, a capital allocation decision body that looks at each transaction’s return in the context of the relationship.
This is a fundamental shift in most banks’ strategies toward a focus on a smaller group of clients. “Most banks are having this sort of conversation about what client makes sense—it depends on footprint, geographic focus, etc.,” the banker says.
The committee’s “yes” decisions come easier when they involve clients that represent a substantial base of business over a long period. When someone’s wallet is lumpier and day-to-day transactions are small that’s a harder sell.
But even for those that have thrown the bank an apparently sizeable annuity over the years, it can be a tough road. That’s because a lot of businesses are hard to size up on a risk-adjusted return basis. Global transaction work, for example, has a huge upfront cost but a sizeable tail of returns, and it’s eminently scalable. Putting that sort of work in the mix with more obvious wins, like M&A or underwriting, may seem like apples and oranges, but those are the sorts of equations banks are trying to solve when deciding whether to keep returning your calls.