Corporates attending EuroFinance Copenhagen have been urged to diversify their banking partners, in case any of them exits from segments or countries as a result of tightened regulations.
RBS’ sudden announcement that it was shutting down its transaction banking services outside of the UK and Ireland at the start of this year has been said to have had massive repercussions for its clients. Speaking at the conference, Shell vice-president of treasury Frances Hinden said the change of banks would represent US$3-6mn in additional costs.
“RBS gave us an enormous shock when they said they would no longer do cash management. It was a major surprise because they had been assuring us frequently that they were ‘here for the long term’ to support us,” she added.
As a result, when Shell ran a request for proposal (RFP) to find a new bank, it took a very different approach: “We asked questions we would have never dreamed of asking before, about the bank’s strategy, number of staff, commitments in countries, profitability of the cash management business, investment plans, technology outlook, etc,” Hinden explained.
The company is also focusing more on platform standardisation and moving away from banks’ proprietary solutions in order to make another potential bank migration smoother.
Jeff van Osta, chairman of Belgium’s association of corporate treasurers (ATEB), hailed Shell for managing to retrieve extensive information from banks during the RFP process, but warned that relationship managers, while answering with integrity, may not be aware of what is decided at board level.
Basel III is going to rock the sustainability boat. Dan Blumen, Treasury Alliance Group
He added that the strategy would not necessarily be applicable for smaller companies, which may not have the same leverage on banks. Therefore, he advised midcaps and small firms to have a contingency plan and diversify their bank partners, pointing out that “there is so much pressure on the financial sector that we never know how they will react”.
Other speakers urged corporates to perform a RAROC (risk-adjusted return on capital) analysis on their banks, the way most banks perform it on corporates. “Basel III is going to rock the sustainability boat. Requirements are incredibly difficult to understand and banks guarantee they are prepared, but I don’t think that’s the case,” said Dan Blumen, a partner at Treasury Alliance Group.
He encouraged treasurers not to rely even on long-term banking relationships, but rather to identify a number of banks they could do business with and be prepared for a change.
Evolving bank/corporate relationships were a strong topic at this year’s EuroFinance. Most speakers and delegates agreed on the fact that the traditional banking model was being dramatically challenged by regulation and technology developments, and would never look the same again.
One banker went as far as telling GTR on the sideline of the event that relationship banking was “dead”, citing platforms such as Mitigram – where banks can bid for corporate’s trade finance business on a case-by-case basis – as the future of banking models.