GREENWICH, Conn. -- "The importance of being important" is a key consideration for companies choosing which corporate and investment banks they want to work with, just as it is a key consideration for those banks when they decide which companies to pursue as clients, according to a new report from Greenwich Associates.
If companies aren't important to their banks, they won't get the best service and ideas, just as banks that are not very important to their clients won't get to participate in the biggest deals.
"The provision of credit to corporations in most parts of the world is at best a marginally profitable business per se -- and it is only an attractive one when it produces ancillary business that is profitable in itself," said consultant Phil Kemp in the report, "Choosing Your 'Bank Model' for the New Millennium."
But corporations in a great majority of major markets, according to consultant Berndt Perl, are linking their award of non-credit business more closely to their banks' provision of credit.
In keeping with this policy, said consultant Emile Farhi in the report, "corporations are both consolidating their business by using fewer banks and concentrating their business at the banks they are most determined to retain."
Domestic credit is still the most important need "for nine in 10 large companies in virtually all markets we research," said Mr. Perl. The need for credit is now more important than ever in the relationship between corporations and their bankers.
Just as in corporate banking, a relatively small number of banks dominate the cash management area; corporations are now concentrating their cash management business and cutting back on the number of cash management banks they use.
According to the report, "only five or six banks -- most, but not all, the same as those at the top in corporate banking -- are making the investments needed to be truly global in cash management."
Although price is the No. 1 factor among both European and U.S. companies in selection of banks for cash management, said consultant Don Raferty in the report, "more and more companies, in all areas, are beginning to realize that they must pay up to obtain high quality."
Lure of investment side
Investment banking is different from corporate banking mainly in that "the basic business is extraordinarily profitable -- so the sell side is willing to fall on its sword to get it," said consultant Jay Bennett.
"The leading American investment banks have established an extraordinary aura of success," according to Mr. Bennett, which has helped them attract talented people around the world.
"The sheer size of the American markets gives U.S. firms an overwhelming advantage," said Mr. Kemp. Because so many of the world's largest companies are U.S.-based, the U.S. investment banks have more opportunities to handle big mergers, acquisitions and leveraged buyouts, which bring in very large fees.
In selling stocks and bonds, institutional distribution capability is the most important factor among companies worldwide when selecting the book-running manager for equity issues.
When doing mergers and acquisitions, "creative and innovative ideas are at or near the top of just about everyone's list, and that is an area in which the leading U.S. firms are universally seen to be strong," said Mr. Kemp.