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Editor’s blog: Strong arming the banks

THESE are my first few days in charge at Financial Director but already I am struck by the tension between FDs and their companies, on the one hand, and banks on the other.

Our survey published this week, ably handled by my colleague Richard Crump, pores over the relationship with banks in some detail.

As a critical strategic area for FDs, even more so in these troubled times, the relationship is worth reviewing.

Sadly, the research seems to suggest that though FDs might do exactly that, they rarely do anything about it.

Anecdotal evidence suggests fewer than 2% of companies change their main relationship bank in any given year.

This is a shocking figure given the complaints about banks that have dominated the business and City pages.

But we seem to have found a paradox underlying the problem. FDs and companies change banks based on relationships and yet it’s the relationship that deters most companies from seeking out a new bank.

What on earth is going on there? How could FDs get themselves so tied up in knots?

One thing I think might be happening is that company executives have come to equate long-standing relationships with a “good” relationship. The two are not the same by any stretch of the imagination. And, of course, the longer a thing is in place, the more it appears to be an unassailable institution and the FD soon finds him or herself in a nasty spiral from which there appears no escape.

The other thing I think might be happening is that FDs perhaps manage these relationships, on balance, passively. In short they wait for the bank to come to them.

So let me share an anecdote I recently heard (I shall mention no names to preserve a confidence). A few years ago there were two very large companies coming together in a deal that required significant sums in funding. On Monday the company execs called their bankers and told them what sums were required but refused to reveal what for until the following Friday. The banks, of course, were livid but went along after some cajoling. On the Friday they were informed of the details and then told by the company executives that they had the weekend to sign up to the deal or the clients would seek out new bankers. Once again the banks were furious but the clients stood firm. Come Monday the banks had found the funds, put pen to paper and signed up. The clients got what they wanted without being pushed around by the bankers – a fine example of taking the relationship initiative.

I was at first surprised by this and commented that there couldn’t be many clients in a position to manage their bankers so aggressively. I was flatly contradicted. There was ample opportunity for clients to take this approach, my source said.

Now, I wouldn’t recommend everyone strong-arm tactics like this. Such a tale should come with a health warning. But it illustrates the point that being clear about what you want and actively going on the offensive to get it might actually bring the relationship you really want with your bank.

 

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