Dividing the Spoils

Easy credit conditions may mean companies can spend less time tending to their banking relationships. But they do so at their own risk.

Bill Gerber, senior vice president and CFO of discount broker TD Ameritrade Holding Corp., really likes the people at Bank of New York (BoNY). Their expertise in servicing the broker-dealer industry, he says, was the main reason his $1.8 billion (fiscal 2006 revenue) company chose BoNY last year to administer its $2.2 billion credit facility. “If — and I’m not saying this would happen — Bank of New York took its entire broker-dealer business and sold it to somebody else,” Gerber says, “we would likely follow its people to their new bank. It’s not necessarily the institution we have the relationship with, it’s the people. They are the experts who provide us with what we need.”

Even now, when credit conditions are easy, banking remains very much a relationship business. Most CFOs and treasurers recognize that when the credit cycle finally does turn, they may need the goodwill of a longtime banking partner to ensure access to capital under less-than-ideal conditions.

“It’s not just the fees you’re paying today that are important,” Gerber says. “It’s also knowing that your bank is going to be there when you need it. And you just don’t know when those times are coming.”

How loyal is TD Ameritrade? When the Omaha-based company chose BoNY to administer its credit facility, it bypassed its longtime lender, First National Bank of Omaha, but only because TD Ameritrade was outgrowing First National’s capacity, says Gerber. “We have rewarded First National with our continuing corporate business, such as payroll and accounts payable,” he says, “because of our longstanding relationship going back many moons, to when no one outside the greater Omaha area had even heard of us.”

Days of Prosperity

Despite such professions of loyalty, there is a new dynamic at work between banks and borrowers. Companies are awash in cash, making them good credit risks capable of driving hard bargains (see “Money for Nothing,” CFO, April 2006). But they also have widespread access to new sources of credit: investment banks taking advantage of a 1999 law allowing them to compete with commercial banks; the cornucopia of hedge funds that have sprung up; and the private-equity funds that, despite their name, are now happy to invest in leveraged loans. According to Reuters Loan Pricing Corp., nontraditional buyers, including hedge funds, purchased more than $300 billion in loans last year, up from $50 billion in 2000.

Some firms — like TD Ameritrade — are seizing on this new paradigm as an opportunity to seek out new credit relationships. “We continue to meet with our banks because they’re a good source of ideas,” says Eileen Kamerick, executive vice president, CFO, and chief administrative officer for $433 million (in 2005 sales) executive search firm Heidrick & Struggles International. “For banks that are interested in talking to us, we’ll typically take that call or that meeting.” Kamerick says Heidrick & Struggles has considered some merger-and-acquisition deals brought to it this way, although none has come to fruition. “Often bankers know when a business might be a possible acquisition candidate before it is known in the market,” she notes.


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