by Georg Ehrhart, Partner, SLG
Every two years Schwabe, Ley & Greiner (SLG), the leading treasury consulting company, conducts the most comprehensive survey in Germany on banking relationships and corporate treasury management. It asks all corporations with sales between EUR 50 million and 10 billion and serves as an anonymous ‘multi-client study’ supported by major banks. It provides a lot of ‘food for thought’ and ideas for the banks´ product developments, organisational improvements and marketing strategies to offer what corporates are really looking for.
For the first time in a decade the number of banking relationships has remained unchanged compared to the previous studies.
The following article focuses on some banking aspects of those corporations with sales exceeding EUR 125 million. From this level onwards treasury management traditionally starts to ‘emancipate’ itself from the accounting department and justifies its own, more effective structures and responsibilities within the company to address the treasury affairs.
In Germany, about 75% of corporate treasury departments of this segment only have between one and three employees. This implies a high pressure on efficiency since the number of subsidiaries (usually handled centrally) has been constantly increasing due to increasing globalisation - but the number of employees in group treasury has scarcely risen. So where do savings or capacity gains come from? As well as increasing automation, the amount of time and money to be spent on banking relations is a key area.
The mix that counts
In order to analyse this we first need to take a brief look behind the scenes in the field of financing and depositing on behalf of corporate treasurers. What are the trends in where corporate funds are coming from or where their liquidity is going?
The importance of financing or depositing internal funds has reduced slightly as compared to 2005 due to increasing internal use of funds in order to support expansion or group investments. This accounts for about 20% of total funding volume and is expected to remain at this level until 2009. Short- and long-term financing accounts for, in total, 71% of funds while capital market and other financing instruments account for the remainder.
When it comes to excess liquidity less funds (22%) are deposited within the group as compared to 2005. The vast remainder (62%) accounts for money market deposits and 12% for capital market products. Until 2009 no real change is expected with respect to this composition. [[[PAGE]]]
‘Banking relationships temporarily under construction’
For the first time in a decade the number of banking relationships has remained unchanged compared to the previous studies. But the pause is now over (because corporate treasurers now want to continue to cut down the number of their banks until 2009). The corporations of this segment continue to maintain, on average, 8.4 banking relations in Germany. By 2009 this number is expected to be reduced to 7.2.
The key factors remain 'transparency / partnership approach', 'competence' and 'price-to-service-relation'.
Apparently the high uncertainty of the consolidation within the German banking market has put a brake on the decision as to which bank to bet on. Almost all Landesbanks have been either in talks with each other, were on sale or have been partly bought by others during the past two years. Other major private banks such as HVB were bought by Unicredito or have been repeatedly rumoured to be takeover targets. And the list continues to be filled as shown by recent scandals or disasters at IKB Bank, LB Sachsen, WestLB or NordLB, putting these banks under severe pressure.
With this in mind no wonder all corporations tend to have a banking relationship with at least one of the four private major banks (Commerzbank, Deutsche Bank, Dresdner Bank and HVB). Seventy-one per cent of companies maintain banking relationships with other domestic banks, around 45% with foreign banks, Landesbanks or Savings Banks respectively and 26% with Cooperative Banks. Are there any changes to be expected in this mix?
‘Killing me softly’
Looking at the major ‘soft facts’ for a banking relationship from a corporate point of view there is indeed potential for further changes in their banking policy. The key factors remain ‘transparency/partnership approach’, ‘competence’ and ‘price-to-service-relation’. This ranking still leaves the banks with options to excel in specific services areas (or ‘work on unique selling propositions’) as there are still differences between the competing products and services besides price.
Comparing these results with countries which already have a consolidated corporate banking environment the ‘price aspect’ ranks first there followed by the other factors. This also implies indirectly that there is still sufficient room for further consolidation in Germany. And those banks fulfilling the above criteria will have a decisive edge over the others to become a major banking relation to a corporation.
‘Thrill me, chill me, fulfill me!’
When does a bank become a major bank? The transaction volume is one aspect, another is the cross-selling ratio, showing how thrilled clients are by their major bank´s products. As a result you can calculate a percentage that reflects the number of customers of a bank which use a specific product - but transact it with other banks. While in the field of payments the best banks can reach up to 85% of their clients using their ‘best sellers’, in most other areas the best rate is a maximum of 75% to 80%. That means that some 20% to 25% of clients always tend to go elsewhere to satisfy their needs. And looking at these ratios of the leading dozen banks in Germany highlights that there is still scope for providing even better deals (and thus satisfaction) for corporate treasurers to address their needs.
So, watch out for further excitement and competition at the 20th Finance Symposium in Mannheim from April 16 -18 2008 where you can experience it all yourself. We would be delighted to see you!