Fishburn Hedges

17.05.2010 | (1 comment)

There is an interesting story in today’s Financial Times about corporate treasurers, which sheds light on the relationship between corporate reputation and behaviour change.

As unlikely as this may sound, please bear with me. Corporate reputation and behaviour change are both core areas of specialism at Fishburn Hedges, so it’s interesting to show how one may affect the other.

Neither lenders nor borrowers be

Working behind the scenes and without fanfare, corporate treasurers are tasked with maintaining companies’ liquidity. In other words, ensuring they don’t suffer from “cash flow problems”. In today’s financial reality, this is a magnificently important role.

According to today's article, research from PwC suggests companies are less likely in future to go to banks to fund growth and development. The corporate treasurers surveyed said they “felt that they had been let down by their banks during the crisis and therefore wanted to reduce their reliance on bank funding”.

Instead, companies will get better at using the cash they generate through everyday operations to feed those cash-hungry projects they believe will deliver strategic success. In the words of one unnamed corporate treasurer, he would be “refinancing away from the banking market over the long term”.

This marks a massive behavioural shift, as short term borrowing was a fundamental source of corporate funding before the credit crunch. It therefore marks something quite sinister to banks, which are generally still in recovery mode after the financial crisis.

Banking on banks no longer

These institutions used to be a first port of call for companies seeking funding. Now companies have lost faith in their financial support. In effect, the damaged reputation of the banks as corporate lenders is now leading to a major shift in behaviour by corporate borrowers.

The cost of this reputational damage to banks may at some stage be quantified. But even anecdotal evidence that corporates plan to borrow less from banks should have them thinking hard about how to turn the taps of corporate funding back on.

Incidentally, this post may sound unfair: the banks have hardly been sitting idly by while this has all been going on. They are no doubt working very hard to prove to their corporate customers their desire to be long-term financial partners. But the message from corporate treasurers is clear: prove it.

Posted by Peter Sigrist

Richard Raeburn on 17.05.2010

There's a lot of corporate interest in diversifying away from 'traditional' reliance on banks for funding. In a sense there's nothing new in this - capital markets have always been an attractive alternative for treasurers - but the events of the last two years have highlighted the dangers of fair weather banking relationships. The smarter banks must be working hard to ensure that they retain their 'share of the wallet', whilst the competition from those looking for well-rated homes for their investible funds grows apace.