Some Banks Win Big Under New Regulations

Source Article: (LA Times, 11 August 2010)

The anxiety around the financial reform bill is starting to dissipate on Wall Street, and many of the predicted risks don’t appear to be surfacing.
Our View: On the surface, it appears that credit markets have normalized. Banks are no longer tightening lending standards and both the number and median size of new loans are approaching pre-crisis levels. However, our credit facility analysis suggests that overall pricing is still significantly worse than it was prior to the crisis. It’s no longer just the shortage of market liquidity that makes credit expensive for our client companies; it’s a fundamental business shift by the banks to maintain profitability. CEB Alliance Partner, EA Markets LLC, urges companies not to rely on financial reform to improve their capital markets results; the largest financial institutions will either pass along higher costs, or develop businesses to replace lost revenues. Either way, corporate clients will pay the price. With this in mind, we advise finance executives to prepare for challenges in three areas: 1) pricing: less competition among banks, leading to greater pricing power and higher prices for all services; 2) services: fewer alternatives and execution strategies, more homogeneous recommendations across providers, and fewer creative financial solutions; and 3) information: less availability of true market pricing and unbiased insight.
What We Are Hearing: Companies are gearing up for regulatory changes the same way they would a merger.
How We Can Help CFO Clients: Follow the banks’ lead and redeploy resources to more profitable projects/businesses.
How We Can Help Treasury Clients: Let us help you make bank relationships more transparent and materially reduce banking fees. Use our tools to monitor bank default risk.