The Chance to Bid
Schutte’s attitude is one bankers would dearly like to see more of, particularly as commercial banks reach for more investment-banking business and investment banks increasingly are forced to participate in low-return business such as credit facilities.
Wells Fargo’s Hardy argues that companies can start improving their bank relationships simply by taking an inventory of all financial services purchased throughout the company and making sure that their bank group gets a shot at the business. Many potential bank services, he says, are purchased by the human-resources department, purchasing departments, operating divisions, and the legal department without consulting anyone in finance. “Banks want the opportunity to compete for that business,” he notes.
Fidelity has been using its centralized Bank Services Division to evaluate every bank service purchased throughout the company for more than seven years, says director of bank services Brenda Walsh. “Our responsibility is to make sure management is aware of the full scope of all of Fidelity’s banking arrangements,” says Walsh. “The mere fact that there is a role like mine at Fidelity shows that we take it very seriously.”
But not every company is lucky enough to have Fidelity’s resources, and there are other challenges. “Corralling our foreign subsidiaries to use one of our corporate banks can be a challenge,” says Cabot’s Wagner. “I think the challenge for a lot of multinationals is just the limited amount of bank business that you can allocate back.”
Indeed, 12 percent of CFO survey respondents said they have difficulty giving their banks enough additional business to justify their credit needs. “To be brutally candid, that may be a situation where we are never going to have a profitable relationship,” former Bank of America CFO Oken told CFO earlier this year. “We tend to exit those relationships by mutual agreement.”
But it’s not always the company that’s the problem: After several waves of consolidation in recent years, banks themselves don’t always recognize every stream of revenue in their return models. In CFO‘s survey, only 29 percent of respondents said their bankers were aware of every piece of business from their companies, while almost as many — 27 percent — said bankers were unaware of all of the business their institutions received from the companies. “I have seen numerous occasions where the corporates have a better idea [of the business relationship] than the banks,” notes Mercer Oliver Wyman’s Studer. “The state of data in many of these banks is appalling.”
Wagner says he relies on internal reporting to determine how much Cabot spends with each of the six banks that participate in its revolving credit facility and adds that only one bank in his group, Citigroup, tracks the amount of business Cabot does worldwide.
Likewise, the bank’s return model — or the banker’s incentive plan — may not include or value certain services. Wells Fargo’s Hardy says part of managing a bank group is figuring out which banks value which services. And experts say that after chasing investment-banking fees, many banks are now seeking a more balanced mix after realizing that annuity businesses such as foreign exchange and cash management are also desirable.