The number of banking relationships is difficult to expand since every bank is deleveraging and only keeping ongoing relations and sometimes even exercising the market disruption clause to get out. Only 8 months ago our peer groups discussed how to decrease the number of banking partners. The aim was to filter out those relationships that you want to build on for the long term but now the situation is totally opposite. The previous concept of sharing the wallet to incentivize the banks has been replaced by sharing the collaterals.
We see more banks receiving state guarantees. This means that banks not being under any form of government protection will be having a hard time financing and there are crowding out effects of non state protected debt. There will still be the same amount to invest and that will channel itself through to highest security and liquidity. Giving a state guarantee just saves the banks but does not add liquidity. However unlike the 30-ties this time there is sufficient liquidity in the market, but the money does not get around. The money stays put and does not create a significant multiplication effect to kick start the credit markets.
State controlled banks will focus on their local markets abandoning the global scene with a back to basics strategy. It will take considerable time before we will see any more complex financial products instead the banks and corporates focus on plain vanilla products instead. The treasuries need to explore new financing parties outside the banking system, e.g. the European Investment Bank or banks in other regions such as the Middle East.
Banks are more humble now than only 6 months ago and previously the corporates were the credit risk but now it is the banks being scrutinized by corporates. Treasuries have requested guarantees and statements from foreign banks for support of the bank’s subsidiaries in emerging markets. It has been partly successful but not always.
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