Corporate Treasury Management: Credit Driving Bank Selection
Credit conditions are creating a divide among large US companies in terms of the way they manage internal cash and treasury operations and select their cash management providers.
The results of the 2010 Greenwich Associates US Large Corporate Treasury Management Study reveal that companies with annual sales of less than $2.5bn added new cash management banks to their rosters from 2009 to 2010 while larger companies pared back on their lists of cash management providers. The difference between the two groups: credit availability. (See figure 1)
The smallest companies participating in the Greenwich Associates Study - those with annual sales of $500m to $999m - expanded their cash management rosters significantly last year.
The smallest companies participating in the Greenwich Associates Study — those with annual sales of $500m to $999m — expanded their cash management rosters significantly last year. Among these companies, the average number of cash management providers increased to 4.4 in 2010 from 3.5 in 2009 — a notable expansion in what has traditionally been a very stable industry. Among companies with annual sales of $1bn to $2.4bn, the average number of cash management providers increased to 4.6 from 4.2. Meanwhile, the average number of cash management providers declined to 4.7 in 2010 from 4.9 in 2009 among companies with $2.5–$5bn in annual sales and to 5.4 from 5.7 among companies with annual sales of more than $5bn.
Setting these two groups apart is the fact that, for the largest US companies, credit is more readily available. In fact, historically low rates on corporate bond issues have contributed to a glut of capital for highly rated, Fortune 500 companies. Research from Greenwich Associates’ Corporate Banking Research and Consulting Program suggests that banks eager to lend in this segment have begun competing aggressively with one another for business in the face of low demand from these companies, many of which are sitting on large cash positions and have opportunistically tapped bond markets throughout 2010.
Absent any credit-related constraints, these large US companies seem to have resumed an effort begun prior to the financial crisis to improve the efficiency of their cash and treasury management relationships. In many cases, these efforts involve building deeper relationships with a few, highly capable providers. Indeed, approximately 40% of large US companies with investment-grade ratings say they plan to concentrate more on their relationships with their lead cash management providers in the coming year.