Tight credit conditions have helped Wells Fargo enter the top tier of US cash management providers in terms of number of large corporate clients, along with Bank of America Merrill Lynch (BAML), JP Morgan and Citi. These companies are the 2010 Greenwich share leaders in US large corporate treasury management.
The results of Greenwich Associates 2010 US Large Corporate Treasury Management Study show BAML is used as a domestic or international cash management provider by 73% of large US companies, while JP Morgan is used by 72% of companies, Citi is used by 58% and Wells Fargo is used by 57%.
However, Wells Fargo’s ability to retain cash management clients throughout the difficult market environment must also be attributed to the bank’s superior cash management capabilities. Wells Fargo joins BAML as a 2010 Greenwich quality leader in US large corporate treasury management. Greenwich quality leaders are firms that have distinguished themselves by receiving quality ratings from corporate clients that exceed those awarded to competitors by a statistically significant margin. “Bank of America Merrill Lynch increased its quality meaningfully during a period when many banks were cutting costs,” said Greenwich Associates consultant Don Raftery.
Credit Driving Bank Selection
Credit conditions are creating a divide among large US companies in terms of the way they manage internal treasury operations and select their cash management providers. The study results reveal that companies with annual sales of less than US$2.5bn added new cash management banks to their rosters from 2009 to 2010 while larger companies pared back on their lists of cash management providers. The difference between the two groups: credit availability.
Research from Greenwich Associates’ US Corporate Banking Research and Consulting Programme suggests that banks eager to lend to companies in the Fortune 500 have begun competing aggressively with one another for business in the face of low demand from these companies, many of which are sitting on large cash positions and have opportunistically tapped bond markets throughout 2010 to lock in low rates.
Absent any credit-related constraints, these large US companies seem to have resumed an effort begun prior to the financial crisis to improve the efficiency of their cash and treasury management relationships. In many cases, these efforts involve building deeper relationships with a few, highly capable providers. Indeed, approximately 40% of large US companies with investment-grade ratings say they plan to concentrate more on their relationships with their lead cash management providers in the coming year.
Currency for Credit Providers
The situation among smaller companies is almost entirely reversed. Companies with US$2.5bn or less in annual revenues began expanding their lists of treasury and cash management providers during the market crisis for two reasons. First, the balance sheet woes of global banks that served as core providers necessitated that companies diversify their business and cash balances as a means of managing counterparty risk. Second, with the credit crunch taking hold, companies sought to use every weapon at their disposal to maximise liquidity.
Companies have often used cash management business as a means of rewarding reliable lenders but the connection between treasury management and credit has grown even stronger over the past two years. Among companies with annual sales of US$2.5bn or less, the size of a bank’s credit commitment now ranks as the single most important factor considered in selecting a cash management provider.
Greenwich Associates consultant Chris McDonnell said: “The study results show that companies are increasingly centralising the allocation of cash management business in an effort to make themselves as valuable as possible to large potential lenders.”
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