This content is from: Portfolio

Sharing the wealth

Despite consolidation on Wall Street, corporations are dealing with more banks, not fewer.

The conventional wisdom in investment banking holds that over the next five to ten years, fewer and bigger institutions will control the lion's share of business from corporate clients. But looking solely at the number of banks companies are doing business with today, corporations are spreading the wealth rather than consolidating.

Indeed, corporate chief financial officers report a steady increase in the number of banks to which they give financing and strategic advisory business. Ten years ago almost 60 percent of CFOs used five or fewer firms for such tasks, while 40 percent used six or more. Today the split is 53-47. There has been a steady decline in the number of companies that use fewer than three banks, from 29.8 percent ten years ago to 18.4 percent today.

One reason for the increase in the number of banks used may be that commercial banks, fueled by a spate of acquisitions and deregulation, are making a big push into investment banking. Overwhelming majorities of CFOs say that these banks have been competing more aggressively for their securities and advisory mandates over the past five years (see Cover Story).

How aggressively? Roughly 28 percent of CFOs say that commercial banks have demanded investment banking mandates as a condition of making loans. And 30.4 percent report that commercial banks have offered their companies better loan terms to win investment banking business.

Many CFOs are taking advantage of the eagerness of commercial banks for business. Forty percent say they have demanded credit as a condition for granting investment banking mandates.

So a new bulge bracket of top securities firms may be forming after all. Once in a while, conventional wisdom is indeed wise.

How many commercial and investment banks do you currently use for financing and investment advisory business?

Fewer than three 18.4%

Three to five 34.7

Six to ten 26.5

More than ten 20.4

How many did you use two years ago?

Fewer than three 22.4%

Three to five 32.7

Six to ten 28.6

More than ten 16.3

How many did you use five years ago?

Fewer than three 28.6%

Three to five 28.6

Six to ten 22.4

More than ten 20.4

How many did you use ten years ago?

Fewer than three 29.8%

Three to five 29.8

Six to ten 21.3

More than ten 19.1

How many do you expect to use two years from now?

More 6.1%

Fewer 20.4

The same number 73.5

How are commercial banks competing for your investment banking business compared with a year ago?

Much more aggressively 24.5%

More aggressively 46.9

About the same 26.5

Less aggressively 2.0

Not at all 0.0

How are commercial banks competing for your investment banking business compared with three years ago?

Much more aggressively 44.9%

More aggressively 46.9

About the same 6.1

Less aggressively 2.0

Not at all 0.0

How are commercial banks competing for your investment banking business compared with five years ago?

Much more aggressively 58.3%

More aggressively 35.4

About the same 6.3

Less aggressively 0.0

Not at all 0.0

Do you prefer to use a single financial institution for all your banking needs, or do you shop for the best in a given specialty?

One-stop firms 17.4%

Specialized firms 82.6

If you prefer one-stop firms, do you find it easier to arrange new business because of prior relationships with other units of the financial institution?

Yes 63.2%

No 36.8

Have commercial banks ever conditioned loans to your company on investment banking business?

Yes 27.7%

No 72.3

Have commercial banks ever offered more advantageous loan terms to your company to win investment banking business?

Yes 30.4%

No 69.6

If you prefer one-stop firms, have you ever made credit a condition for investment banking business?

Yes 40.0%

No 60.0

Have you granted any new investment banking business to a commercial bank in the past year?

Yes 60.4%

No 39.6

How likely is it that you would grant any new investment banking business to a traditional commercial bank in the next year?

Very likely 21.3%

Likely 46.8

Not likely 25.5

Not at all likely 6.4

If you prefer specialized institutions, on what basis do you make a selection?

Prior relationships 43.9%

Prior performance with your company 34.1

Quantified performance with a number of other clients 19.5

Reputation 0.0

Other 2.4

The results of CFO Forum are based on quarterly surveys of a universe of 1,600 chief financial officers. Because of rounding, responses may not total 100 percent.

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