Credit has become a still more powerful consideration among U.S. corporations in awarding other product and transaction mandates to their banks. This is a key finding of a summer 2002 study by Greenwich Associates.
This increased business as a result of credit is primarily in the form of operations business and debt capital raising mandates rather than equity capital raising, investment management, or M&A business. This linkage of credit by the companies themselves (as opposed to linkage by the banks) is most apparent in the declining percentage of companies who say credit is not necessary to become a lead bond manager, from 31% in 2000 to 18% in 2002.
While many corporations are willing to reward reliable providers of credit with certain types of additional business, there is evidence other companies are chafing against the concept of coercive capital.
“Banking clients appear to understand that their credit providers want some sort of quid pro quo for this, and they are willing to direct some forms of business in recognition of that,” John Colon notes. “But they also have real concerns about the risks of doing a concentrated amount of business with a single provider and beyond that, about being constrained from choosing their lead banks for specific types of business based on talent, idea flow, execution capability, and so forth. They prefer to be willing volunteers rather than reluctant conscripts.”
U.S. corporations are also taking an increasingly transactional view of their business. “In the current environment where there is simply less business for corporations to spread among their relationships, there continues to be a core group of banks that they award business to, but within that they are going to make decisions based on the specifics of the transaction,” consultant Jay Bennett says.
This reveals itself in the fact that there appears to be significant turnover even in M&A lead relationships year-over-year, suggesting that corporations are rotating their business among their top relationships in order to optimize the services they receive for the dollars they spend.
One way that corporations accomplish this is through their review processes. Just under 40% of the corporations interviewed have a review process in place for awarding new business.