A Love-Hate Relationship

Banks and their customers have grown closer to, and more wary of, each other.

That’s a big issue for treasurers whose growing responsibilities demand that they rely heavily on their banks’ ancillary services. At Greif, for example, the three-person treasury department manages a working-capital initiative to standardize business and administrative practices around the world. “We literally spend 15 percent of our time performing treasury functions,” says Zimmerman. Daily cash management, he says, is reduced to a five-minute funding decision. “It is critical to have a good core group of banks that we can almost turn on autopilot, because we don’t have time to handle it.”

Greif, says Zimmerman, also seeks long-term partners. “If you are constantly rolling your bank group, it’s risky and costly. There’s a lot of behind-the-scenes pain and cost associated with constantly moving services around.”

A natural wariness of putting all banking business in one basket leads to what he calls his second-biggest turnoff: “The bank that is always crying and whining that it deserves more ancillary business.” His complaint: “They should earn it.”

How? By justifying their fees. Yet this is rarely done. “No one will tell you what their model is,” says Zimmerman. “The hard part is trying to figure out their cost structure for each of those services.” That, however, may be changing.

Oken, for example, says bluntly that BofA will cut off unprofitable relationships, but also points out that its cost structure is no secret. “Our cost of capital is 11 percent,” he says. “We will either give a customer our model or tell them why their model is wrong.”

And more companies are building such models. In 2001, for instance, Columbus, Ohio-based Worthington Industries, a diversified metal-processing company with revenues of more than $2 billion, convinced a handful of its closest banks to help it quantify the return on regulatory capital for each piece of banking business, including nontraditional offerings such as insurance brokerage services and freight payment systems that have grown since the repeal of Glass-Steagall. “We have worked diligently to shift business away from nonbank providers when the same is available within our bank group,” says treasurer Randal Rombeiro. The resulting model, he says, is now the “centerpiece” of Worthington’s bank relationship management strategy.

Not only is it easier to plan changes in ancillary services, he says, “we can show each one of our banks their own page of the report, with the trailing 12 months and pro forma returns vis-à-vis the consolidated bank group.” Indeed, he says the model has dramatically decreased the “solicitation noise level” and improved “the quality of our conversations.”

With Friends Like These

Soon, however, such models will have to be risk-adjusted, as the degree of risk posed by a corporate customer will play an increasingly important role in credit decisions. In three years’ time, the 8 largest banks in the United States, as well as about 20 others, will adopt Basel II, an international banking accord that allows banks to set capital-reserve levels according to their own risk models, and that can’t help but affect pricing.

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