Take Control of Your Bankers

Tired of being at the mercy of their banks, CFOs are working hard to regain the upper hand.

Using account-analysis statements, a company can examine almost the entire mix of service-based activities it employs, says Mike Gallanis, a partner at Treasury Strategies, including such things as checks issued for disbursements, customer payments into depository accounts, wire transfers, and the information-reporting services provided by the bank. ProLogis’s Sullivan closely tracks which banks get his capital-markets business and how they benefit from a profit and league-table standpoint.

Adding up those expenditures will enlighten CFOs as to how much business they actually bring each bank provider. Such information is power, because banks and corporations tend to hew to an unwritten rule that a borrower will also tap its lenders for other, more lucrative products.

“The day-to-day transactional business is the foundation of a [company-bank] relationship,” says Greg Becker, president of Silicon Valley Bank and SVB Financial Group. “If you have a client’s core banking, you will keep that client longer” and the lifetime value of the client will be higher. SVB doesn’t “deliver” credit unless the ties extend past the credit facility alone, Becker says. “We want it to be part of a piece.”

Diane Quinn, managing director of large corporate banking at JPMorgan Chase, says treasury teams are scrutinizing banking business awarded to noncredit providers. For example, corporate marketing departments that issue customer rebates often pick a third-party payment provider without consulting their finance departments, and the same often happens when procurement departments choose credit-card issuers. But as capital has become scarcer, finance departments are insisting that these “back-end” financial providers be among the company’s lenders, says Quinn.

That kind of rigor can bolster banking relationships but may also present a dilemma: CFOs want their cash management, treasury, and other services to be cost-effective and efficient, but if a firm has multiple lending banks and tries to share the wealth, efficiency can suffer. “One could argue that the more banks you involve the less efficient the process will be,” says Gallanis. On top of that is concern about counterparty risk exposure. If a company has all its cash management with one or two banks because they are its only lenders, but those banks don’t have stellar economic profiles, the board of directors may pressure the CFO to diversify, says Gallanis.

Almost all of the banks in Pegasus Solutions’s credit syndicate provide other services to the company, but the finance department separates that from the banks’ status as a lender, says Mark Dubrow, CFO of the technology and marketing services provider. “I’m not giving them the business because they’re part of the syndicate, [nor am I] trying to buy favoritism,” says Dubrow. “But if they can provide the best service at the best price, I’ll award them the contract.”

Dubrow’s approach did not hinder the company’s pursuit of amendments to a term loan in 2008. “The banks could have said, ‘I’m tired of this — they haven’t thrown me a bone in two years so I’m not voting for an amendment,’” Dubrow says, but they didn’t. CFOs who don’t separate borrowing and the provision of other services leave room for their decision-making to be questioned, Dubrow insists. But that stance must be established early in the bank relationship.

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