Treasury Today Country Profiles in association with Citi
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Nov/December 2009

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Not a pretty sight

We are reaching the end of the year and the banking system has survived. At the beginning of 2009 it was far from clear what would happen. The fears of a financial Armageddon were fading but it was difficult to tell how, and if, bank balance sheets would be repaired. As this year draws to a close however, the shape and future of the banking industry is becoming clearer.

It is not a pretty sight.

The banking industry is badly wounded and it will take many years to recover. Meanwhile, governments around the world, having pumped billions into the industry, are deciding what additional regulations to apply.

This leads to a big question – what impact will this have on us as commercial users of banking services? What do we need to watch out for?

As our Talking Treasury Forum earlier this year demonstrated, the concept of the universal bank is certainly dead. Even the largest global banks will not be able to service our needs everywhere. But the capability of our existing banks to look after us in the way that they do today may reduce as ‘non-core’ businesses are sold to raise capital; as balance sheet constraints bite or as regulators force a break up of ‘too big to fail’ banking groups.

Watching what your major banking partners are doing in this regard will be an essential item on any treasurer’s agenda. And communicating this to the board will be another important task.

That said, just because the industry is damaged does not mean that we should not still take advantage of the markets and use the products and services that work for our companies. These can include many of the products and services that have become tarnished by the banking crisis. Securitisation remains a very relevant financing technique and even hedge funds have a place in the financial markets, as one of this month’s articles explains.

Wise treasurers will also be explaining this to their board. It was not the concepts and the techniques that were faulty; it was the application of them that led to mis-priced risk, which then facilitated excess leverage.

So, at this high profile time for the treasury function, the best treasurers will not retrench. They will use their technical skills to cherry pick relevant products and services from the banks that are capable of delivering them, thus demonstrating the real value they are adding to the business.