The Treasurer June 2009

Know your friends

The old put-down that bankers are people who lend you an umbrella but ask for it back when it starts to rain has never seemed truer than in this credit-driven recession. The ACT was suggesting to corporate treasurers in 2005, 2006 and even early in 2007 that where opportunities to put funding in place existed they should be taken – failure to have done so will now be a matter of real regret. The effects of restrictions on credit have been felt away from the straightforward lending market and in trade finance, in the foreign exchange and interest rate markets and in M&A. Treasurers are therefore placed in a quandary: is there an evident lack of relationship banking on which to depend? To take one example: at least part of the recently announced government assistance for small businesses is predicated on a lack of available security. One might reasonably ask what basis is it for a banking relationship when a borrower needs to go cap-in-hand because the lender needs security before considering a loan? Mind you, this has been an issue of debate between lenders and borrowers since lending began, so to put all the blame on the current crop of bankers is perhaps a tad harsh. More subtly, treasurers might wonder about the spreads they are being asked to pay in these markets. Is this a sensible price to pay for a stable and well-capitalised banking system? A relationship needs to be two-way, so when paying higher prices for “repriced” credit (an interesting phrase used by bankers and commentators but unsurprisingly absent from a treasurer’s vocabulary), treasurers are entitled to ask exactly what services they are receiving, who is performing them and what is the measure of achievement. In addition, it remains an area of some contention that banks are seeking a ROCE (return on capital employed) value in excess of traditional non-financial corporate returns for what one treasurer suggested to me was “merely agency functions”! The evidence from the ACT annual conference, however, revealed at least one hugely important benefit from the crisis and recession: everyone has their mind focused on business and that can only help to repair any lingering damage to banks’ reputations. The ACT is interested in readers’ views on developments in the banking system, particularly the debate over the separation of utility-type functions (consumer finance, deposit taking, payment systems) from investment banking (capital markets, risk management), or, indeed, the growth of other models of banking services. Please contact me at pmatza@treasurers.org with your views. PETER MATZA HEAD OF PUBLISHING

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