Banking relations

Like Borrowing
From a Friend
By Jeffrey Wallace
Greenwich Treasury Advisors
Despite the declining importance of bank
funding, banks are still the best source of
quick funding-if properly managed.
Any treasurer_ who cannot provide his CEO
with fund ing is likely to next be calling his
bankers from an outplacement office.
Placing a few call s to banks before funds
are needed helps to ensure that they wi ll
be avai lable. Like a friend, bank relation-
ships must be cultivated to ensure that they
are a reliable source of funds. The public
markets blow too hot and cold to be a
dependable first source-particularly in the
event of a crisis.
Bank relationship management has
always been an important part of a treasur-
er's job. Since the early 1980's, however, it
has not been as necessary to have a large
stable of domestic banks for both credit
and cash management reasons. With the
increased appetite of the public markets,
the l arger funding capacity of the money
center banks, and multi-state banking,
fewer banks are needed.
Another factor is the pro! iferation of profit
centers. Profit centers at banks (and corpo-
rates) cause both to be much more transac-
tionally oriented. Relationship banking is
dying, and no longer can a treasurer auto-
matically expect hi s lead banks to be loyal
through thi ck and thin.
Focus on lending relationships
The chall enge for the today's treasurer is to
sell banks on the company's value, wh il e
forc ing them to sell their worth to him.
Since the w hol e purpose of managing
banks is to ensure funding, relationships
with financ iall y sound institutions possess-
ing deep pockets are the first priority (see
side-bar for more on how to select them).
As lending, and not derivatives capabiliti es,
International Treasurer/ j une 13, 1994
are paramount, don' t over look the best of
your foreign banks. Many st ill think of
themselves as lenders, rather than as risk
intermed iar ies.
Develop loyalty and trust
One way to ensure loyal relationships is
with the proper allocat ion of banking busi-
ness. Treasurers shou ld concentrate prof-
itable business with lead banks and, to a
much lesser extent, backup banks. Don't
spread your business so thinly that you
have minimal leverage on any bank. In
choosing what business to concentrate, be
aware of what generates the most internal
credit for lead account officers.
Concentrating FX and derivatives busi -
ness, for example, is a mistake. It is difficult
to separate transactional profits from posi-
tion profits, so the value of your business
may not be fu lly factored into your rela-
tionship. The traders, who do realize the
value, are not the decision-makers on your
emergency funding needs.
Aggressivel y bidding out your FX and
derivatives business, moreover, often earns
respect from traders. Having their respect
can mean they w ill work harder to earn
your business.
Another effective bank management tool
is informat ion. Be straight w ith your l ead
banks so that they trust you to do what you
say. You also should be seen as a reliable
source of bad-as we ll as good-news
about the company.
There may come a time when the banks
will have to make a quick decision on
what to do, and it just may come down to
whether they trust you.
For example, one treasurer of a BBB-rated
company went out of his way to keep his
banks informed of hi s company's deterio-
rating fi nances. He prompted the banks
with questions to ask hi s senior manage-
ment so that things that might have been
hidden were revealed. While extreme, it
was effect ive. A week after the treasurer left
the company, the banks closed it down
because they didn't have anyone there they
trusted .
Mr. Wa llace is a managing director at
Connecticut-based Greenwich Treasury
Advisors, (203) 53 7-0835.
Professional Guidance
Selecting and
Maintaining Lead Banks
To select lead banks first
review your domestic and
overseas banking business,
quantifying the volume of
business done: credit lines,
actual lending, FX activity,
der ivative business, L/C's, cash
management fees, etc.
Focus the selection process
on your largest domestic and
foreign banks. Evaluate which
banks:
Have proven to be the
most rei iable in the past.
Have large funding capa-
1 biliti es and are financi ally
sound.
Appear eager to expand or
maintain the relationship.
As backup, pick one or two
banks to be on your taxi
squad, so you have fu nding
sources in reserve if for what-
ever reason one of your lead
banks leaves.
Cultivation
After the lead banks have been
selected, relationsh ips must be
solidi fied:
Ensure that they are getting
the profitable business that
they truly want. You need
them to see a P&L risk if they
refuse you credit. Profitable
business is likely to be loans,
custod ial business, and stock
registration-not tightly nego-
tiated CP backup facilities or
even necessarily C?Sh manage-
ment business.
Spend time with your
bankers and their bosses so
that you know each other.
Involve your senior manage-
ment, i.e. your CEO must
know their CEO.
Develop your account offi-
cers into "champions" for your
company, and make sure they
look good within their bank
for the business you give them.
Hold in-house seminars
about your company for your
bankers to attend. Be sure to
include their credit people-
you may need their confi-
dence later.
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