While this summer’s credit wipe-out and the resulting panic that seized many quarters of the global financial markets appears to be subsiding, it would be a mistake to assume that all has returned to normal. Governments, regulators and market participants should all be looking to learn some lessons. Memories fade all too quickly as the strong human instinct to move on takes over – all too often in the belief that it won’t happen again. One of the ways that the recent turmoil may have altered the corporate landscape is the realignment of the long-term relationship that corporate treasurers enjoy with banks.
It comes after years of easy credit. If the value of a relationship with a bank has any currency at all, then it lies in the fact that the corporate will stick with a bank in good times. The well understood quid pro quo is that when the going gets tougher, the bank will stick with the corporate. Treasurers well understand the risks of ending a bank relationship and need convincing that the benefits outweigh those risks. There is a natural reluctance to move away from long-established relationships; severing one and attempting to develop a new one demands significant time and attention that make it a course of action to be adopted only as a last resort. As one of the contributors to our article on changing banking relationships on page 32 observes, it is far better to shift some business away from a bank that doesn’t come up to scratch and give it the opportunity to improve its performance.
Even if it is not perfect, both banker and treasurer have every incentive to make the existing relationship work. And with some of the transaction banks less hungry for business as a result of the latest credit squeeze, the traditional relationship banks will be keen to reinforce their reputation for keeping their facilities open in both good times and bad. However, the well-understood concept of the long-term and relatively open relationship between a bank and a corporate was already shifting before the credit crunch.
The rise of private equity, along with the accompanying gearing, has shifted some of the fundamentals. Before a buy-out, banks are viewed as suppliers and service providers. After a buy-out, the bank has a different role, with the company accepting the need to provide reporting to syndicate banks and meet performance targets. The corporate must also accept a degree of control previously unheard of from the banks over day-to-day matters. And even for companies neither owned by private equity nor highly geared, longer established treasurers have witnessed a change in bank/treasurer relationships. The traditional relationship bankers are under pressure to extract more from the relationship. As in other sectors, banks want to maximise profits and competition in the banking industry has grown. There may be regular shifts in their relationship, but both treasurers and bankers know how crucial a relationship is. And whatever the strains and stresses both sides need to ensure that it is preserved.
PETER WILLIAMS
Editor