Not us, say the banks. “We don’t tie,” says a Bank of America spokesperson.
In fact, both the Federal Reserve and the Office of the Comptroller of the Currency have concluded that bank tying is not an issue. But the Government Accountability Office has complained that neither regulator contacted any corporate borrowers or analyzed loan pricing before drawing that conclusion.
Complicating the issue, clients themselves regularly (and legally) engage in tying — demanding, for example, syndicate participation in exchange for underwriting work. As one investment banker wrote to CFO, “I was in a meeting recently where a treasurer of a $50 billion-plus market-cap company told us that participation in its credit facility was a requirement to take part in related permanent financing to take out the drawn facility. So it clearly works both ways. Companies are clearly using the carrot of potential banking fees to get inexpensive loans.”
Indeed, Greg Lyons, of the finance-services practice of Boston-based Goodwin Procter LLP, argues that at least some tying accusations may reflect corporate misunderstanding of banks’ efforts to compete successfully against the capital markets by providing superior service. “Banks are increasingly working to understand their customers’ industries and tailor products and services accordingly,” observes Lyons, “and that could be perceived by a customer as pushing too hard. There are no bright lines between proper cross-marketing and improper tying.”
But the debate may soon be moot. In November 2003, the Department of Justice sent a letter to the Fed urging the bank regulator to exempt all large corporate relationships from anti-tying regulations on the grounds that banks’ market power is insufficient for tying to be anticompetitive. “Borrowers in [the syndicated loan] market are large corporations with well-trained and sophisticated staff fully capable of negotiating favorable terms,” wrote assistant attorney general R. Hewitt Pate.
If, as widely expected, the Fed adopts the DoJ’s suggestion this year, those sophisticated staffs had better sharpen their negotiating skills. “The banks clearly have pushed as hard as they could,” says Lyons, “and this would obviously allow them to push farther.”
Many borrowers are already used to a tough negotiating environment. The most widespread complaint among AFP survey respondents was banks’ requiring that they generate a set amount of banking fees. That’s legal, although no less irritating to some treasurers.
Moreover, larger banks increasingly market themselves as one-stop shops. The repeal of Glass-Steagall and the mergers in its wake have created what Oken calls “three universal banks” — BofA, Citigroup, and JPMorgan Chase — “that have significant products and capital and can offer one-stop shopping to middle-market and corporate customers.”
Such claims aren’t necessarily welcomed by treasurers, who in recent years have also seen banks walk away from their business entirely if denied a lead role in a transaction.
A bank that insists it’s a one-stop shop is “the number-one turnoff for me,” says Rob Zimmerman, treasurer of Greif Inc., a Delaware, Ohio-based global industrial-packaging firm with more than $2 billion in revenues. “There are a handful that can do most of the things you need, but they also have their weaknesses.”