1. SPONSORED INTERVIEW
Building a
successful
long-term
relationship
Stefan Hattenkofer, Division Head Corporates at
BayernLB, discusses how the bank has repositioned
itself for growth in the wake of the financial crisis and
the current and future challenges for both large and
middle-market corporates.
The financial crisis was a watershed large and middle-market corporates. We is putting companies in a difficult situation.
moment for the banking sector. What classify the middle-market sector as being On the one hand, they want to reduce bank
has BayernLB done to reposition itself corporates in Bavaria with annual turnover dependency, either by bond issuance or
for growth in the years since? of €50 million or more and corporates in raising other debts. On the other hand, with
the rest of Germany with annual turnover the situation the way that it currently is, it is
Over the past three years we have moved to between €100 million and €1 billion. difficult to issue a bond and they are again
almost completely focus on our customer The large corporates sector covers all at the ‘mercy’ of the banks. In this situation,
business. If an activity has nothing to do corporates with turnover of over €1 billion. the relationship approach to banking is
with our customers – investment in ABS Our approach is that we want to be still a very relevant idea for our corporate
papers or proprietary trading, to name two among the top five banks in Germany customers, even for the larger corporates.
examples – we don’t do it any more. This in the middle-market (€50 million to €1 They have reduced banking relationships in
is the main way that we have repositioned billion in turnover) and also for corporates recent years by concentrating on a limited
ourselves, a move that is in line with with a turnover of up to €15 billion, and number of banks, which can help them and
the structural changes we have made at one of the top 10 banks in Germany for serve their needs in the best way. The core
the bank. In addition, we are under new larger corporates with greater than €15 bank approach is still valid. In the past,
management – the longest serving member billion turnover. With our core customers by contrast, they may have had business
of the Board of Management joined the we’re able to take a proficient approach with up to 40 banks, but had no clear
board as recently as 2009 – while we have in Europe as well. Our main focus is on relationship focus.
worked hard to become a leaner bank by Germany and German-related business The second issue, on the other side
reducing employee numbers and assets, abroad and foreign corporates with an of the coin, is that many large corporates
all towards our goal of a core focus on existing or potential footprint in Germany. have excess liquidity because of the
customer business. attractiveness of the capital markets in
It is important to stress that this What are the current concerns for the last year. Where can they get a good
realignment is not just about putting the treasurers at large corporates? rate of interest on this cash? Interest rates
customer relationship first, but that we’re are low. They don’t have to pay much to
no longer doing any business that has Large corporates are facing two main manage this cash, but by contrast they
nothing to do with our customers. Our sole issues at the moment. The first is that do not get anything for their liquidity.
focus is on customer business and we plan current market turbulence has created a Additionally, following the financial crisis,
to increase our market share among both closed or more difficult bond market. This the corporate risk department is looking at
More information can be found at www.bayernlb.com

2. SPONSORED INTERVIEW
the banks they are dealing with, carrying stop solution that suits the specific needs are actively renewing their facilities at the
out a thorough counterparty risk analysis of their organisation. For example, we could moment – banks are currently not able to
and imposing limits on the amount of combine a merger and acquisition (M&A) completely price in the real costs of Basel
business that they give to their banks. issue with a classic credit piece, and deliver III, so back-up facilities are still fairly cheap.
This makes it more difficult to get higher one solution directly to the customer. We However, in one or two years this will change
levels of interest, because the banks that think that, with this approach, we can and the pricing will go up. Some research
are paying more are usually the banks be a good partner in the middle-market, on this topic predicts a price increase of at
with more risk involved, which limits especially as the finance departments least 50-75 basis points, which is obviously
the business available from the corporate in companies of this size are not that quite a lot. However, results such as this
risk departments. well staffed. Our main focus, not only for can only provide an assumption, as nobody
We are trying to develop products that middle-market customers but also for knows the exact figure that will be in Basel
offer corporates more flexibility in their large corporates, is to try to help them to III. But there will definitely be a jump in
liquidity management – products that can do their business. It is not their business to back-up facilities.
operate in the short-term and offer a higher develop new financing products – that is our
rate of interest. We are also investing job as a bank. We should provide them with This sounds like it could place strain
in products that offer solutions for our the products and solutions to help them on the corporate-bank relationship
customers. We can provide our customers to do their business. dynamic. What steps can banks take
with the financing and solutions that they to ensure that they don’t alienate their
need, whether this is short-term or long- Looking ahead to the next 12 months, corporate customers?
term credit, or other solutions to support what do treasurers need to be
their business. prepared for? At BayernLB, we actively pursue a long-
term relationship approach with our
Are middle-market corporates facing A massive challenge that corporates will customers. We support our customers
different challenges to their larger face in the next year is Basel III. With the through the whole business cycle, in good
counterparts? implementation of Basel III, the equity costs times and bad. This is an approach we have
for banks will increase, and this will also be always had – if we see a good customer that
In general, middle-market companies are felt by the corporates. Back-up facilities and is facing problems with credit or financing,
not as experienced in the capital markets credit lines for corporates in Europe and the we will work with them on a solution.
as larger corporates are. Most of them US will be more expensive in the future as From a German perspective, we have
are not issuing bonds, because there is no banks have to hold increased equity, capital seen many foreign banks disappear –
market for that, indeed most of them have and liquid assets. For example, if a bank some well-known examples have found
little, if any, access to the capital markets. provides a customer with a reserve facility themselves facing serious problems that
However, even without this exposure, of €100 million, that bank could need to have forced them to retrench into their
people working in the finance department have at least €20 million of liquid paper in home markets. This creates uncertainty
of this size of corporate are still dealing with their trading book – for this example, let for our corporate customers. We regard a
all the complicated products that are on us say that these are German bonds. This long-term relationship as being one that
the market. This provides a challenge, and means that, if the corporate customer is endures throughout the cycle. We did not
their banking partners have an important drawing on the reserve facility, the bank has have a single credit line withdrawal during
role to play here. It is vital that the banking to make sure it can go to the Bundesbank the financial crisis from our long-term
partners work closely with treasurers in and sell them the paper, getting the money relationship customers. Our corporate
an organisation of this size, to give them to provide to the customer. customers know that it is a long-term
advice and to let them know about the risk This is one of the main points about approach – we continue to provide credit
inherent in certain financial products. Basel III that corporates need to be ready lines, but equally we have to make some
At BayernLB, we have a specialised for – it is making life more expensive for the money as well. Customers understand this
corporate finance approach when working banks on the one side, but the banks will and usually don’t mind giving some money
with a middle-market customer just as we pass these costs on to the customer. All back if they know that we will go with them
do for larger corporates. With this detail, customers will face increased costs in future, through the cycle and provide them with
we listen to the specific problems that the especially for back-up facilities. This is one credit and help in difficult times. This is the
customer has, and work to deliver a one- of the reasons why so many corporates relationship approach.
More information can be found at www.bayernlb.com