This is a key area for every treasurer, so we had two very lively and full discussions. These were very consistent in the concerns, views and approaches – but the session with the America’s time zone was a little more focused on using numbers to share banking business.
Price is not the main factor for any of the treasurers on the call. Those who assigned a rank placed it around fifth or sixth. The relationship is actually the most important factor: most participants have regular relationship meetings. Other important factors are service levels, the availability of credit, technology, geographic presence and commitment.
The relationship has to work for both sides. This leads all participants to evaluate wallet share, and try to balance it fairly – North American based treasurers tended to be more formal and numeric in their approach. It is not easy to assign a value to FX, lending or the interest earned from cash float – most participants estimate a number and share this with their banks.
Some treasurers allow non credit facility banks if they have a special capability which none of the facility banks can match. Other factors can lead to business being given to non preferred banks. These include regulatory requirements, such as taxes having to be paid from a specific bank in some emerging markets, the need for local banks for cash management or bank guarantees, or even the CEO or CFO having a relationship with investment banks.
Bank fees: some participants use specialised software to analyse and control fees. It is not unusual to find billing errors – mostly in the bank’s favour. One participant had negotiated a single price for all transactions. There was some discussion about the quality of the fee analysis software.
As price is not the main factor, RFPs are used less to drive down cost than to enforce discipline and stay aware of what is available in the market.
FX is the area which is mostly driven by price through competitive bidding, generally through on-line portals. But many participants also use it to manage wallet share towards banks who otherwise do not get enough business – though the banks tend to view this as a low margin business. One participant managed to increase the number of banks bidding on a popular on-line platform from six to twelve. Practices varied over rotating the less competitive banks off the list.
The relationship manager is important. Some participants ask for poor RMs to be removed; most are happy they get senior RMs.
Most participants practice a form of tiering in their relationships, with core banks and then second or third tier. They also have international and local groups.
I recommend reading the full report – if you would like a copy, please get in touch.
The posting on the follow up call on this topic, comprising a deeper dive into bank fee analysis and wallet share can be read here.
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