June 21, 2009

SIDEBAR: 5 Treasury Services That Are Driving Revenue

Deposits are down, and lending is in the gutter. But banks' treasury services businesses seem to be humming along just fine. Indeed, with retail banking and lending under intense pressure amid fallout from the financial crisis, treasury services seems to be one of the few bright spots for banks in a hostile business and regulatory environment, experts agree. Still, insiders stress, it's important to look at this business as it fits into the overall banking picture.

Nancy Atkinson, senior analyst with Boston-based Aite Group, is quick to indicate that treasury services, although profitable, typically only makes up about 2 percent of a bank's revenue. "It's a small part of a financial institution's revenue," she says. "But it's a fee-based service, so there's a lot of good to be said about this. In all the gloom, treasury is excited. It's a bad economy, but people still need to buy and sell." According to Al Briand, global product and strategy manager, treasury services, with The Bank of New York Mellon ($928 billion in assets under management), the New York-based institution's 2009 first-quarter earnings are a testament to the growing importance of treasury services to the bottom line. "In our recent earnings, the treasury services line of business had a very strong first quarter," he reports, revealing that fee-related revenue from BNY Mellon's treasury services group increased 5 percent year over year.

"But it's not immune to different economic factors," Briand cautions. "There's a lower level of global payments volumes."

Dub Newman, global product management executive at Bank of America (Charlotte, N.C.; $2.3 trillion in assets), also acknowledges that the global economic downturn is hurting payments, but he stresses that treasury services are more important in the current environment than ever before. "There's a decline in commerce, which is leading to less payments and less volume flowing through. We're seeing this in checks, ACH and card volumes," he relates. "However, the importance of what we're doing for clients has never been greater — accelerating receivables, controlling payables and managing working capital."

As corporate clients seek to improve efficiencies enterprisewide, cash management offers increased value and banks' role as trusted advisers has taken on new meaning. Annette Hazapis, SVP and director, product management, with Cleveland-based KeyBank ($98 billion in assets), says savvy banks can take advantage of this trend to expand relationships and, ultimately, profits. "During these times, our clients really look at their business processes to see how they can optimize their working capital," she explains. "Treasury plays right into this. It's an opportune time to talk to clients about better cash management."

Stability Amid Turmoil

According to Richard Winston, a Dallas-based payments expert and senior executive in Accenture's financial services group, the stability of the treasury management business and its ability to cement relationships with corporate customers are at the heart of its value to banks amid the economic crisis. "It's a steady business," he asserts. "It's not flashy like the products that got us into trouble. But it's something that helps with relationship development. It's also sticky because it's difficult for a corporate to break these complex relationships."

But while there can be some pain involved in switching treasury management providers, this stickiness could be losing some of its grip as corporates continue to rationalize their banking relationships. Although the typical practice has been for treasury services clients to deal with several banks around the world, the need to simplify these relationships is greater today as companies seek to improve efficiencies and reduce costs. Meanwhile each bank must realize that it doesn't operate in isolation at each of its corporate clients.

"Now there's a demand from the corporates for a multibank approach" to treasury management, says David Pryce, managing director, Americas, with SWIFT, which is headquartered in New York and Brussels. "Faster access to a consolidated view of all their providers is a driver now more than before. So we are seeing a big increase in interest in SWIFT's shared community."

Pryce claims that the interest by corporates in SWIFT's standardized messaging services has greatly increased over the past several months. "We're actually receiving more requests to speak at treasury seminars held by associations like the AFP [Association for Financial Professionals] — both in the U.S. and globally. The trends are just as strong in Europe as they are here — a movement to standards, reducing costs and liquidity management."

BNY Mellon's Briand confirms an increased interest among corporates in SWIFT's value proposition, especially around creating a standard language for payments messaging globally. "Standards let corporates use the inherent benefits of technology," he explains. "Previously in the corporate world the focus was on being different, proprietary. Now the shift is toward seeing how close we can come to the standards. The connection is not a bank's differentiator."