The collapse of Lehman Brothers in 2008 shocked not only the financial but also the corporate world. The idea that a well-rated bank could collapse overnight was a risk corporate treasurers had not envisaged. The treasurers and CFOs we interviewed for this white paper indicate that they are reviewing their relationships with banks in order to strengthen them and diversify their counterparty exposure. The changing regulatory environment is transforming the interaction between corporates and their banking clients; corporate treasurers believe that the cost of compliance for financial institutions will ultimately be passed on to them.
According to Lane Silverman, vice president and group treasurer at the multinational tobacco manufacturer Japan Tobacco International (JTI), in addition to the “calamity” of a bank going bankrupt, there are other risks: a bank may pull out of a particular country, stop supporting a particular service or product line, or simply become poor at what it does. “We try to deal only with highly rated banks, but with global operations, that is not always possible.”
Andrew Nash, senior vice president and group treasurer at Dutch multinational food retailer Royal Ahold, says that managing bank relationships has always been important. “Many treasurers are limiting the number of their relationship banks. We often have a thin wallet of business to share around, so it is important to have good, long-term relationships with our banks.”
Andrew Baranowsky, treasurer at Canada-based multinational aerospace and transport company Bombardier, takes the allocation of business to banks very seriously and is careful to ensure that banks have no complaints about meeting their return metrics. “We have a big wallet and 70 committed banking relationships. We are concerned that the Basel capital charges will make it difficult for some of our bank partners to provide the same level of commitment to us in the future.”
Jonathan Leon, treasurer at US-based multinational security services firm The Brink’s Company, fears that trust in counterparties such as banks “has gone for the most part”. Corporate treasurers no longer take it for granted that capital will be easy to get. “It is imperative that treasurers always know what is going on in the various capital markets. They need to understand the prices, terms and conditions of every deal that is being done in the public debt and bank markets. They also have to talk to banks much more often because the market is more fluid than it ever has been.”
Despite the growing importance of solid bank-business relationships, only just over one-quarter of respondents in our survey believe they have sufficient time and resources to devote to building good relationships with banks and treasury suppliers.
