Trusting Your Bank

There are different strategies applied by corporate treasurers in the relationships with their banking partners. Some play with the cards close to the chest and reveal information on a need to know basis. Others are very open and share information in a sense of trust. I tend to prefer the latter strategy. Recently I met with a treasurer from a multinational with investment grade rating. He gave empirical evidence that complete openness is the best strategy. I have heard from treasurers all around the globe saying banks are retreating from credit line commitments particularly at roll-overs but he gave a very different picture. His company has had an open attitude sharing information freely with the banks for decades. They have provided banks C-level access on a regular basis and supplying them with highly confidential information to make them participate in the strategic development and understand the risks and funding needs more precisely. The objective is to avoid unpleasant surprises for the banks. This approach facilitates for the banks to package the offerings based on a full understanding of the business and its risks. His guiding principles for the banking relationships.

He gives the banks what they expect:

• Full transparency on strategy, risks and challenges
• Open discussions on issues, risks and opportunities
• Sharing same information to the whole banking group simultaneously
• Fair sharing of wallet between the banks according to credit commitments
• No shopping around of original ideas
• Access to senior management

He expects from the banks:

• Consistent commitment of balance sheet
• Creativity
• Integrity
• Access to senior management

These bank relationship practices have rendered in no bank retreating at roll-overs of facilities and he has a stabile banking group with several banks wanting in. I know some of you say it is easy to do while being investment graded but I would expect it to be true for most companies. The perception of risk is much different if you know the conditions than when you do not know them. If the banks feel secure they understand all the risks and have all information they will be more prone to commit balance sheet. That is only natural. Another reflection I make is that many companies have introduced C-level in the banking relationship only recently being triggered by the crisis. This is appreciated with the banks since it gives them the opportunity to address strategic risk management with those who manages them. Financial risk management is and has always been a C-level and a board issue. For many years even before the crisis. In his company, treasury has been a board and C-level function for ever. This now pays off, he has a stabile banking group and several banks wanting in. Treating your bank as a partner more than a vendor is a clever strategy.