BofA Merrill, who has been providing agency treasury services for 20+ years from their Dublin office, has decided to get out of the agency treasury business (called ‘Managed Treasury and Liquidity Services’ in BofA Merrill speak). Two weeks ago they told their 40+ MTLS clients. However, it came as no surprise to these users, as over the last few months BofA Merrill sales people have been talking about the difficult economics of this low margin business.
MTLS business is longer aligned with overall strategy
Suzanne Janse van Rensburg, Head of Liquidity, GTS EMEA at the bank, explained that, “During a recent review of our GTS products, we made the decision to exit MTLS and focus our resources on solutions that serve a broader client base. Factors considered included use of other BofA Merrill products, volume of transaction activity and potential for additional business.”
Nevertheless, she stressed that, “Although we are exiting this small piece of our corporate treasury operations, BofA Merrill remains fully committed to the EMEA and global market as a key provider of transaction banking and liquidity services. This is shown by how over the last year alone, we have continued to invest heavily in our technology, our global products and our services, e.g.: we continue to provide single- and multi-currency pooling, we’ve secured a branch licence in Switzerland, and we’ve introduced a new virtual account management service plus the first two-way sweep in China.”
BofA Merrill was also keen to stress that the other services that their MTLS clients use, e.g. accounts and liquidity management, are not affected at all by this change.
The bank is working hard to ensure that their MTLS clients have as seamless as possible transition to their new solution, whether it be through another agency treasury service provider or an in-house solution. They have performed due diligence on alternative treasury service and/or TMS providers, and are supportive of these providers or indeed their clients recruiting MTLS staff who have effectively been part of their clients’ teams for many years.
The transition period, i.e. from today until the MTLS service is closed, varies by client, and the bank is allowing clients to go beyond the contracted period to ensure that they are able to adopt the appropriate solution.
The bank, explained van Rensburg, “remains committed to Ireland too,” with the MTLS team representing a small percentage of BofA Merrill’s local headcount.
Agency banking and transaction banking business coming together
BofA Merrill’s agency treasury services have survived longer than any other banks’. One reason is they have focused on providing a simple range of vanilla services. All of their competitors pulled out of the business years ago, many of whom had been offering heavily customised services which were even more uneconomic than BofA Merrill’s.
Some the main reasons why banks have had to get out of agency treasury business include:
- it is a people heavy business that doesn’t fit neatly with how most banks operate, and is low margin
- banks have and are investing heavily in their transaction banking platforms. Now much of what used to be covered by agency services is now included in these platform, e.g. BofA Merrill now offer inter-company loans and cash flow forecasting as part of their CashPro platform
- today corporate treasury departments require less customisation. They increasingly accept that their way of doing things doesn’t need to be unique, so the cloud based treasury management systems, e.g. Reval, Kyriba and Bloomberg’s TRM, and the advanced cash management banking platforms are ‘good enough’ which seems to be cutting the demand for agency treasury services.
CTMfile take: It was almost inevitable that BofA Merrill would exit the agency treasury at some stage, given the basic economics of the business and their ever improving CashPro platform, removed the business justification for providing agency treasury services. The bank is doing ‘the decent thing’ (and doing it well) by helping their clients to move to new solutions, but it doesn’t obscure the lessons for corporate treasury departments. Namely, that this is just the latest example of how vulnerable corporate treasury departments are to changes in the business strategy of their suppliers. Operational risk is major, and for many corporate treasury departments, their suppliers could be their greatest vulnerability.
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