Anthony Barnes, Director of Corporate Finance, Experian tells all at the ACT’s Cash Management Conference.
Experian is a leading global information services company, providing data and analytical tools to clients around the world with annual revenues of US$4.8bn globally. They have considerable experience of working with banks as has Barnes who has also worked with banks when he was at Toyota and Amersham. This extensive experience of working with banks world-wide was the input to Barnes’s delightful presentation on the most effective way of managing bank relationships. He explained that, in his opinion, what is needed in bank relationship management is:
- in building a banking group to support your operations you have to be alert to:
- new bank entrants and what they provide
- the impact of regulations on how banks understand the impact on what they can/cannot provide
- the diversity in bank’s range of products and services
- cement your bank relationships by:
- having an open door policy with banks and expect them to need access to corporate treasury, cash managers and CFO (when needed)
- invite banks to your bi-annual results presentations which helps them to write internal briefings on your company
- engage with banks when they come to you with new idea/proposal don’t just ‘bin it’, be prepared to engage with them
- be wary of telling a bank that you no longer need them because “in this business banks have long memories”. Instead say, “I’m not sure we have any ancillary business for you at this stage.” This allows the bank to come back and say, “In that case we are not sure we want to, are able to extend the same terms to help you at the moment.”
- understand what banks look for*:
- long-term profitable relationships
- Experian have found that it is very difficult to determine what profit a bank makes out of our relationship, so they have tried to assess the basic strategic importance of the relationship by asking questions such as: If they were to stop dealing with us how big a problem would it be? And on the other hand, what do we mean to them?
- relationships to be a win:win on both sides.
- need to see that there “might be light (profit) at end of the tunnel”. This might include accepting your name on a tombstone advert.
- long term relationships, they don’t like to exit relationships.
Barnes finished with his list of the charcteristics of a ‘good’ relationship manager:
- has appropriately frequent contact which is enough to be sure that they know and understand what you are working on and need next
- brings relevant ideas to the company and ensures that they involve the ‘right level’ of person in the bank, so you don’t have “wasted meetings about products that you are never going to buy”
- ensures that corporate treasury knows about discussions that the bank is having with other parts of your business.
Barnes also stressed that good relationship managers are worth hanging onto and cultivating because, in ‘key moments’, “they can and will deliver the bank.”
Optimum number of bank relationships
In the Q&A Barnes was asked what he felt was the optimum number of bank relationships. His reponse was that the temptation is to accept any bank for their credit because it is cheaper and easier than issuing bonds, but you also need to be able to manage the group of banks you sign up to. He feels that having 1-3 banks and doing most of your business with them is risky, given current market conditions with some banks exiting the business. Many corporate treasurers feel that the optimum size is 8-10 banks, but in Experian they need to accommodate the banks who are also their customers. Overall, Barnes feels that the 8-12 banks range “probably works” for them.
* Barnes quoted FT journalist, Lucy Kellaway, as to what banks look for: “All those years ago, there was a principle that I followed: Try to make as much money as possible for the bank, in a way that does not break the law, or rip off the customer too shamelessly. I might have been only 22 at the time, but even I could see that the trick to banking was to rip customers off only up to a point. If they realised you had ripped them off, then you had screwed up.” He then went on to say that this was a long time ago.
CTMfile take: Canny comments, from a canny experienced corporate treasurer.
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