The new face of banking.

• Author: Elko, Pat Andreoni
• Position: Cover Story

The changes transforming the banking industry are rippling out to the offices of many corporate customers. Read how you should position your company for what's ahead.

What comes to mind when you think of a bank? Square, solid brick buildings, with cupola tops and stately columns? Or huge, gleaming glass and granite skyscrapers, with polished wood and marble interiors? Banks have always come in all shapes and sizes, to suit both individual and corporate needs. But today, there are growing cracks in the once-solid image of traditional banking.

Bank mergers - trumpeting news of cost savings, increased capacity and global reach - get the lion's share of the financial press about the banking industry. But they aren't the only visible signs of change. Several other trends are helping to remodel the banking world and could even shake the very foundations of the industry:

* Continued globalization and deregulation of capital markets. This trend is expanding the financing capabilities of major U.S. banks, allowing them to create national and global networks and branches to serve the needs of increasingly global corporations.

* Newly emerging technologies. These can provide CFOs with more flexible, immediate and efficient access to financial information and markets.

* Innovative new products and services. Offerings will proliferate as banks increasingly compete with each other and with other financial institutions to capture - and keep - a wider range of their corporate clients' business.

* An increased emphasis on relation. ship banking. This will occur on the part of both banking institutions and the corporations they seek to serve.

These trends are interrelated in many respects. For example, the cost of technology and the need for round-the-clock, round-the-world service is a major push behind bank consolidations. Financial Executive culled the expertise of bankers, corporate treasurers and chief financial officers to document how these industry trends are impacting corporate finance departments and treasury operations. What do they think of the changing tides, and how are they positioning their Companies now to take maximum advantage of the changes ahead?

MERGER MANIA

In its August 25, 1995 issue, Kiplinger's Washington Newsletter forecast a raft of new bank mergers. That general prediction took on new meaning just three days later with the announcement of the Chase Manhattan and Chemical Bank mega-merger. When that deal is completed this spring, three former banks with global powers - Chase Manhattan, Chemical Bank and Manufacturer's Hanover, which merged with Chemical in 1991 - will be collapsed into one new superpower. The new Chase will be one of the largest wholesale banks in the world, and number one in global custody, trading and loan syndication.

Kiplinger's also predicted that by the year 2000, there will be only 2,000 chartered banks in the United States, down from 9,000 now. Of those, about 300 banking companies will control approximately 85 percent of the assets. So we'll have a half-dozen giant banks and several regionals, and the rest will be community banks.

Are CFOs worried about the prospect of fewer banks? After all, no one likes to keep all of their eggs in one basket - and there's little chance that savvy CFOs ever will. The idea of fewer banks sits well with $30-billion global giant Procter & Gamble Co. The company is looking to decrease the number of banks it's currently doing business with. That's no small feat: It means going from 400 banks today to 200 banks by the end of the decade! So it's not surprising that Clayton Daley Jr., vice president and treasurer at the company's Cincinnati headquarters, sees bank mergers as a real positive. "We're currently dealing with one or more local banks in each country we do business with," he says. "For us, mergers can simplify this process by bringing in more consistent service on a global basis."

Of course, not many companies have the scope or size of global Procter & Gamble. In December, Gerry Najarian, a principal with the Remington Group, a manufacturing management consulting firm in Princeton, N.J., led a discussion group on the implications for the banking industry of current consolidations and restructurings. The audience was the manufacturing industry group of FEI's New Jersey Chapter.

According to Najarian, the group had nothing but praise for the current trend toward bank consolidations and restructurings. "There was a general consensus that bigger and stronger banks will be able to serve the manufacturing market better than in the past, particularly in the area of asset-based lending that is so important to this segment," he says.

GET IN WHILE THE GETTING'S GOOD

Najarian claims that companies should take advantage now of the way banks are organizing to serve...