Selecting a lead bank: U.S. and European companies differ.

• Author: Bennett, Jay

When it comes to selecting a lead bank for their domestic and international banking business, companies in the U. S. and Europe have one common requirement: credit. Even in today's relatively easy corporate credit market, the need to maintain consistent access to capital is always foremost in the minds of corporate executives on both sides of the Atlantic when assessing the value of their banking relationships.

The following highlights some of the findings of a recent annual corporate banking research study conducted by Greenwich Associates. CFOs, treasurers and assistant treasurers at 1,601 European companies and 897 U.S. companies were asked about the role credit plays in their evaluations of individual banks and the other criteria they use in selecting a corporate bank.

European Corporate Banking: Less for Financial Services

After several years of favorable credit conditions, European companies now find themselves holding more cash and in less need of certain financial services products than in years past. This situation allows companies the freedom to establish credit relationships with those banks that can best serve their needs for critical M & A and debt capital markets services. In each of these areas, corporate finance executives are focusing to a greater extent than ever before on cross-border capabilities.

For example, while the proportion of European companies reporting that they were planning to pay advisory fees on a domestic M & A transaction in the coming year fell from 40 percent in 2003 to 31 percent in 2004, the percentage planning to use advisory services for a cross-border transaction was stable at 47 percent. In the debt capital markets business, companies likewise report that pan-European distribution capabilities are growing in importance as a necessary factor in choosing lead managers.

Partially as a result of this growing emphasis on cross-border business, European companies are increasingly turning to foreign banks over domestic players when selecting their lead bank. In 2003, foreign banks held only 39 percent of the lead banking relationships with Europe's largest companies. That number surged to 48 percent last year. While domestic banks have maintained their hold on 86 percent of lead bank relationships for the domestic banking business of the largest European companies, foreign competitors in 2004 claimed a full 68 percent of all lead international banking relationships with the FT500.

In particular, foreign...