How To Play Smart With Your Banks

As mergers shrink the number of syndicated loan participants, corporate treasuries are getting shrewder about allocating their banking business.

More than ever, good corporate treasury strategy involves correctly reading your banks' shifting business objectives and doling out work to the financial institutions with the greatest appetite -- and the most appreciation -- for each piece of business you have.

Banks lead eventful lives these days. Since technology and market forces are constantly changing, the business-allocation process has to be dynamic, says Henry Waszkowski, senior vice president and practice director at Wachovia Treasury and Financial Consulting in Atlanta. "You can't just set up your banking relationships and let them ride," he says. Getting the right service at a good price takes continuous dialogue and discovery.

Some finance staffs are smarter than others at scoping out the marketplace and playing their cards right. "There is a real range of sophistication," Waszkowski notes. Many treasury managers have only vague ideas of their banks' appetites for business, based on what they hear from calling officers. But others go so far as to create shadow versions of their banks' risk-adjusted return on capital (RAROC) models so they can see their business as their banks see it, he explains.

It's important to know not only what business your banks want now, but also where they are going in the future, explains David Robertson, a partner with Treasury Strategies Inc., a consulting firm that has offices in Chicago and New York City. "For example, when you choose a wholesale lockbox network bank, you want to be sure that bank is committed to delivering enhancements year after year as the technology develops. If you bet on the wrong horse, you won't have all the benefits your competitors have," Robertson points out.

Successful treasury departments' betting strategies revolve around trying to spread their business among the right mix of providers so that the company gets the service it needs and the banks stay happy. But different organizations must embrace different tactics to reach that goal.