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Home > Financing Best Practice > What the Rise of Global Banks Means for Your Company

Financing Best Practice

What the Rise of Global Banks Means for Your Company

by Chris Skinner

Executive Summary

  • Multinational corporations are consolidating their business requirements for financial services into a few core global players.

  • Global banks offer a platform for global access to cash management, liquidity, and risk management, thereby improving the methods by which firms can manage their finances.

  • Global banks are being driven by their customers, with many multinational businesses moving from local to global supply chains, which has demanded global financial support.

  • Global supply chains demand global banking to enable firms to operate effectively across borders with confidence, rather than having to rely on barter or other less reliable forms of value exchange.

  • Global banks face a lack of standards across banks and borders, an area that should be addressed and resolved over time.

Introduction

Over the past decade, it has seemed that big banks have only gotten bigger. This is down to a variety of factors—from mergers and acquisitions through to technological leverage—but the most overriding factor has been the impact of globalization. As corporations and organizations have created global supply chains, so the largest banks have tried to follow their clients’ needs by creating global infrastructures. For most firms, this means is that they can now work in partnership with a bank that reflects their multinational capabilities without having to open separate accounts in each of the countries of operation.

Which Are the Global Banks?

A small number of banks provide global coverage and branding. Obvious examples are Bank of America, Bank of Tokyo–Mitsubishi UFJ, Barclays, BNP Paribas, Citi, Deutsche Bank, HSBC, JP Morgan Chase, Royal Bank of Scotland (RBS), and Santander. All are creating global brands and global presence through acquisitive growth, which is why RBS and Santander acquired the global operations of ABN AMRO outside the Benelux in 2007 and why HSBC acquired Crédit Commercial de France (CCF) in France and Household Finance in the United States.

Obviously, the latest liquidity and credit crisis has changed some of the focus of these banks. By way of example, JP Morgan Chase has had to refocus upon domestic American soil after its acquisitions of Bear Stearns and Washington Mutual, as have Bank of America and Citigroup, but the trend is generally toward global presence and support.

How Do You Recognize a Global Bank?

The easiest way to spot a global bank is by its brand, which will typically be just a symbol and a name acronym.

The reason this is worth mentioning is that many global banks are trying to create nonnational identities as a pure name and logo. For instance, Deutsche Bank has removed the name from its emblem in many branches and operations, and Santander is often just represented by its logo rather than by its name. For the same reason, these bank brands tend to be emblazoned on panels and ramps in many airport terminals. Have you spotted how many HSBC banners there are as you get on and off an aircraft, each panel providing a global and local message? This is to reinforce the global message. While RBS, Barclays JP Morgan Chase and others operate in over 50 countries, HSBC would claim to be the most globalized, with over 80 countries covered. That is not to deny the existence of competition from other specialist regional players, such as Nordea in the Scandinavian region and Standard Chartered across Asia, but the difference between a regional and global player can be important, especially for firms that want to trade across global borders.

What Advantages Do Global Banks Offer?

For multinational firms operating across multiple regions, the main advantage of global banks is that they can offer a consolidated view of all finance across all countries of operation. This is becoming a critical factor as firms expand into globalized structures themselves.

For example, a critical discussion that has been taking place amongst these banks is how to provide effective financial support for supply chains. As many businesses are moving services to India and sourcing of product to China and related Asian countries for supply to Europe and America, there is a need for easy transfer of funds and payments for supplies between countries on either side of the planet. Historically, this has been incredibly difficult. For example, at a major banking convention in 2004, Heidi Miller, JP Morgan Chase’s Head of the Treasury and Securities Services, asked: “Why do we make things so complicated for our clients? … A friend who lives in Europe … bought a boat … When the boat was ready, he called his bank to arrange payment. And his bank told him it would take about six weeks to transfer the funds.”

This example was for a simple payment from the United States to France, and the friend she referred to happened to be the CEO of a major bank. The banking industry now recognizes it has been slow to respond to the need for global financial management and payments. To meet this challenge, many banks are now developing services in this area.

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Further reading

Book:

  • Skinner, Chris. The Future of Banking in a Globalized World. Chichester, UK: Wiley, 2007.

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