Many European corporate treasurers reportedly still giving certain banks a wide berth.
Comical, tragic, a whitewash, a fiasco. These were just a few of the words and phrases used to describe the European stress tests after the results were released in late July. Of the 90 some-odd European lenders tested, only seven failed. And even though European monetary officials recently have suggested more testing may be on the horizon in order to restore investor and counterparty confidence, it might be too late.
That’s because some corporate treasurers are still shying away from questionable European banks, according to a report in the Financial Times. The article quotes several European treasurers expressing their concerns about credit risk and wanting to know more about the banks they deal with. The stress tests didn’t help in that effort, as treasurers reportedly are staying away from banks in Spain, Italy and Germany.
In these times of increasing counterparty scrutiny, it does not take much for companies to start shopping around for other banks to do business with, whether a bank relationship is strong or not nor whether the bank is making enticing offers. Banks currently are getting very aggressive when it comes to share-of-wallet (see related story here). Likewise, the roadblocks for switching banks are becoming fewer and fewer. For instance, banks have been making system implementation that much easier (see related story here). Plus, eurozone integration increasing reduces the need to stay exposed to questionable local players.
Although it’s never good news to hear that banks continue to labor with underperforming balance sheets and operate under clouds of suspicion – that pain can spread everywhere – despite being given a passing grade from regulators, it is good that treasurers are being choosy. Regulators do them no favors when they don’t adequately assess bank risk. It just drives home the lesson that counterparty risk management is something every treasurer must do for themselves.