The state of the relationship between banks and corporate treasury could be the difference between the survival and death of a company, says Swag Ganguly, head of European debt advisory at Evercore.
Ganguly, who was speaking at the recent Irish Association of Corporate Treasurers (IACT) conference in Dublin, said that as an independent investment bank, Evercore has acted as a disruptor within the banking industry, however most of its players have not embraced change. “Technology has impacted every part of our lives, but corporate banking in that space has not moved as much,” he notes.
A focus on technology has become vital. During the financial crisis of 2008, treasurers were more focused on liquidity, working capital and counterparty risk, but since then, long-term diversified funding, cash management and optimisation has been a priority, alongside reducing costs with the use of newer technology.
As well as this, Ganguly says that a treasurer is now a strategic member of the board, which ties into how important banking relationships are for the treasury department and the corporation as a whole. In order to avoid another crisis occurring, “regulators transformed banks into an efficient form of lending” in various ways.
With improved balance sheets and new liquidity constraints in place, the dynamic merger and acquisition (M&A) activity seen in 2014 and 2015 will continue, despite a growing scrutiny of anti-money laundering (AML) issues. This should also help to produce revenue and asset growth which has been an obstacle for banks, but Ganguly believes that introducing digital initiatives into business would be beneficial.
An example that was provided for the digitalisation of treasury was to create mobile cash management tools – although the banking sector would then have to compete with the non-traditional lenders, who have already moved into this space.
Alternative lenders move in
Ganguly suggests that within many banks an appetite for underwriting is returning and lending for interest income could become fashionable again – although there is inconsistency across banks. In 2014, 35% of all primary European leveraged loans were provided by banks and the traditional players want to retain their position at the top in the face of increasingly fierce competition.
This may be difficult as 111 deals were financed by alternative lenders in the first half of 2015, an increase of 51% from the 71 deals made in H1 of 2014. Half of these deals were made in the UK,
“Is fintech real?” Ganguly asks, citing statistics showing that US$14bn of funding given to fintech companies in the first three months of 2015, and “blockchain is at the heart of it.” It remains to be seen whether the collaboration of both industries will result in fintech banks, or whether new players will take to the stage.
Ganguly concludes that treasurers should manage relationships in a sophisticated way and with trust and enjoyment. “Business is about money, but also human relationships and those are the ones that will win.”