Greenwich Associates says that large US companies are concentrating an extraordinary amount of credit and other financial service business with a small number of the nation’s biggest banks.
A handful of large banks are each named as lead bank or co-lead bank by 30 percent to 40 percent of US companies with revenues and market capital over USD2.5 billion. On a national basis, the data suggests these banks together hold roughly 60 percent of lead corporate banking relationships and 70 percent of lead credit relationships with these companies.
“Looking at the degree to which this business is concentrated with these banks, one would assume that this is a seller’s market,” says John Colon, a consultant at Greenwich Associates. “There are a number of reasons why these banks, after accumulating such huge market shares, are not able to more forcefully dictate terms: among them easy money.”
These comments are based on the results of Greenwich Associates’ 2006 US Corporate Banking Study. A new Greenwich Report presents the key findings of this research, including the implications of increasing credit concentration among US companies, predictions about future levels of M&A activity, and an examination of compensation levels for finance and treasury professionals at corporations in the United States.
However, there is little evidence to suggest that corporations are taking advantage of the widespread availability of financing to diversify their credit bases. At the typical company, lead and second credit banks combined hold nearly two-thirds of outstanding bilateral credit, with the third bank holding another 15 percent. Even in syndicated credit lead banks hold about 22 percent of the average company’s debt, with second banks holding another 15 percent. When Greenwich asked US companies if their current level of credit concentration raises risk management concerns, 97 percent said “no”.
“Rather than using the increasing competition among lenders to secure new credit relationships that can be called on in the future, it appears that the easy credit environment is encouraging companies to become less rigorous in the monitoring and managing of their bank relationships,” adds Don Raftery, a consultant at Greenwich Associates.