Despite fallout from the global financial crisis and pressure to comply with new Basel III capital rules, U.S. large corporate banks have remained intact, according to a report from Greenwich Associates called “2013 Greenwich Leaders: U.S. Large Corporate Finance and Transaction Services.” At the top of the market is J.P. Morgan, used for corporate banking by 86% of large U.S. companies.
Close behind is Bank of America Merrill Lynch, used by 82% of large companies, followed by Wells Fargo at 72%, Citi at 60% and Barclays at 40%. These banks are the 2013 Greenwich Share Leaders in U.S. Large Corporate Banking. J.P. Morgan is also the 2013 Greenwich Quality Leader in U.S. Large Corporate Banking — a designation awarded to banks whose corporate clients give them quality ratings that top those of competitors by a statistically significant margin.
Although the picture has been largely unchanged at the top of the market, the competitive landscape is being altered by changes in bank strategies and business practices resulting from the new capital rules. In many business lines, banks are targeting capital and other resources at a shrinking number of clients they deem as having the best profit potential. “Banks are focusing on accounts in which they are the lead provider, or at least a very important relationship, and scaling back commitments or even shedding relationships with companies where they serve as tertiary providers,” says Greenwich Associates consultant Andrew Grant. “The message to companies is that whether your goal is to secure the best cash management service or to leverage the maximum amount of credit provision from your cash management mandates, it is important to be perceived as an important client to the bank in question.”
For companies that don’t count themselves among their banks’ most important clients, alternative sources of credit might be required. “Over the past five years a number of credit providers outside the major U.S. banks have expanded their footprints among large U.S. corporates, who are increasingly open to forming new banking relationships as a means of securing credit lines,” says Greenwich Associates consultant John Colon. “This includes Canadian banks, Asian banks, one or two European banks, several leading investment banks and some of the larger, regional, U.S. banks.”
Debt Capital Markets
Companies are also trying to motivate banks to be more generous with balance sheets by setting more stringent requirements that investment banking and capital markets mandates be awarded largely to lenders. Among the large companies participating in Greenwich Associates 2013 research, “significant participation in the company’s credit facilities” is now the No. 1 criterion used when selecting a debt capital markets provider. “There is definitely some tension here as companies are trying to extract the maximum amount of credit and banks are trying to allocate balance sheet based not just on returns they generate on a product-by-product basis, but rather on the profitability of the account as a whole,” says Greenwich Associates consultant Don Raftery.
In such an environment, it’s not a surprise that the top five banks in this market in terms of market penetration are all large universal banks with strong franchises as corporate lenders. J.P. Morgan, which is used as a debt capital market provider by nearly-three quarters of large U.S. companies, has the largest franchise, followed by Bank of America Merrill Lynch at 64%, Citi at 44% and Wells Fargo and Barclays, tied with market penetration scores of approximately 31–32%. These firms are the 2013 Greenwich Share Leaders in U.S. Debt Capital Markets. The 2013 Greenwich Quality Leader in U.S. Debt Capital Markets is J.P. Morgan.
Until recently, cash management was rarely seen as an exciting high- growth strategic priority for the major banks. That changed with the arrival of Basel III and the subsequent margin contraction in other banking, trading and investment banking business lines. Today, banks are increasingly and aggressively competing for cash management business, which is seen as providing steady revenues and decent returns on investment—especially in the international business.
The undisputed leaders in this market are Bank of America Merrill Lynch and J.P. Morgan, which are used as cash management providers by 67% and 63% of large U.S. companies, respectively. About half of companies use Wells Fargo, followed by Citi at 43%, and HSBC at approximately 29%. These firms are the 2013 Greenwich Share Leaders in U.S. Large Corporate Cash Management.
The 2013 Greenwich Quality Leaders in U.S. Large Corporate Cash Management are Bank of America Merrill Lynch and J.P. Morgan. These firms, along with Wells Fargo and some of the major U.S. regional banks are making substantial investments in technology, talent and training programs designed to help clients more efficiently manage cash-flows. Due to these investments, a gap is emerging between these leading firms and the rest of the market in terms of the quality of service they are delivering to companies.
“As a result, in a business where mandates are significantly influenced by credit provision, the biggest credit providers in the U.S. also enjoy a competitive advantage in terms of quality,” says Raftery.