BIG BANK THEORY
The tools banks develop for their biggest clients are now available to you.
By Mitch Devine
Your good fortune began with the Wall Street financial collapse of 2008. That’s when many major banks, stung by the implosion in consumer banking—in risky mortgages and credit cards with sky-high limits and only modest minimum monthlies—began their slow return to the rock-solid business of business banking.
Business banking is where those bee-stung financial-industry execs figure the real money is—and not just any business, but export-oriented business.
“A cross-border company brings three times the volume of a purely domestic company,” says Mark Luppi, executive VP and head of business banking for HSBC.
Ditto, says Maureen Sullivan, head of North American trade sales for Bank of America Merrill Lynch: “Exporting is both an area of sustainable business for U.S. banks and a source of growth for the nation’s economy.”
Sullivan reviews the recent history: “For a number of years, higher consumer spending in the U.S. bolstered domestic demand and fueled economic growth. However, in recent years, net exports have become an important driver of economic expansion as the growth from foreign demand has exceeded domestic demand for goods and services.”
Her bottom line: “Conditions are ripe around the globe for a continued and permanent shift toward more exports.”
The Export-Import Bank of the United States (Ex-Im Bank)—the official export-credit agency of the United States—confirms the rise in exports. It reports that year-over-year growth of U.S. exports of goods and services over the past three years has been about 17 percent, exceeding the pace needed to meet President Obama’s National Export Initiative (NEI) goal to double U.S. exports by 2015.
Ex-Im Bank maintains that no international transaction is too large or small—that almost everybody can go global. And, sure, your neighborhood pizza guy could ship an XL pepperoni on dry ice anywhere you’ve got overnight shipping. But it helps to have a certain level of sales in order to be taken seriously by a reputable export-banking partner. Smaller banks may have a lower threshold, but Luppi says HSBC is looking for companies with a minimum of about $3 million in annual sales. “That’s our sweet spot.”
So, you’re ready for the banks. The question is: Which bank do you want?
“Given the complexities associated with embarking on an export growth strategy, companies need to choose the right strategic partner that supports an integrated approach of financing, risk mitigation and process optimization,” Sullivan says. “Such an integrated perspective and approach requires intellectual capital—experience and expertise in global solutions and local nuance.”
1. Financial Strength and Stability
Size matters. “Of crucial importance are the size of a bank’s balance sheet, its global credit standing and its ability to assume credit risk”—and not just on your behalf. The bank ought to be able to assume risk “on behalf of the buyer and the buyer’s bank, too,” says Sullivan. “Additionally, the bank should demonstrate reasonable and appropriate country-risk appetite to help mitigate supply chain risk.
“Global supply chains typically lengthen payment terms, thereby extending Days Sales Outstanding and applying pressure on cash resources,” she continues. “There may be incremental costs associated with exporting that require companies to increase efficiencies and have greater transparency about the underlying trade transaction. Companies looking to grow exports will need cost-effective and cost-saving solutions that increase efficiency around global trade and supply chain processes.”
HSBC has some of the world’s largest multinationals as customers; like most big banks, in handling those behemoths, HSBC has created some impressive infrastructure. It leverages that infrastructure to help smaller exporters. The bank’s financial analysts, for example, are in-house to support major players; they’re also available to help smaller exporters “plot out cash flow,” to take just one example, to identify what the smaller exporter will actually need to sustain business. So, imagine this team of well-trained, worldly finance people working on your global cash flow: “We want you to see the entire cycle,” Luppi says, “from taking an order, production to delivery.”
2. Global Reach
“Your banking partner should understand the markets you’re hoping to enter,” says Luppi. For instance, HSBC runs a global network of relationship managers: if you want to do business in a particular market, just ask and HSBC RMs will help you understand trade flows, available market share, cost of doing business, and the economic/tax/legal environment.
Your banking partner ought to have connections with local financial institutions, too. As Sullivan explains, an expansive network of correspondent banking relationships “enables your provider to extend reach beyond its physical footprint. Also vital are strong relationships with export credit agencies and multilateral agencies in multiple regions across the globe.”
3. Local Presence
“We’re in 60 countries,” Luppi says. “There’s a high likelihood that you’ll be introduced to an HSBC relationship manager working in your target market.” A local presence “really helps you know your customers” and understand key differences in culture. As an example, Mr. Luppi recalls how he “learned the hard way” that Indians regard “as an insult” the failure to return a call in one hour.
Connections should also include helping you become part of that bank’s local business community. “You never want to rely on one trading partner,” Luppi advises. HSBC’s RMs can help you “line up multiple partners,” he says. “We can help you uncover solid companies in that market.” It’s always good to have a Plan B.
Sullivan agrees: “An ideal partner knows counterparties on both side of a transaction (that is, buyer and seller) and can work to facilitate payment, mitigate risk, provide cost-effective financing, and resolve disputes that impede timely payment,” Sullivan says. “This requires an ability to obtain business intelligence though on-the-ground staff located in a buyer’s country and all around the world.”
4. Trusted Advisor
Sullivan says, “The ability to be a trusted advisor should span the range of trade services—from simple, short-term transaction to complex structured trade financing solutions. A bank should be able to apply its intellectual capital to replicate best practices around the world.”
As Luppi puts it, you want a bank that will become “an integral part of your team.” Luppi cites HSBC’s Forex services designed to track cash from date of sale to pay day. “I run into so many [U.S. exporters] that don’t even begin to think about their need for these services,” says Luppi. “And they shouldn’t have to. That’s why we’re here.”
5. Knowing What You Need Before You Ask
Both HSBC and Bank of America Merrill Lynch provide access to the Export-Import Bank of the U.S., the Small Business Administration, lines of credit, and more. And if you don’t know why these are important, that, too, is why you need a banking partner.
As Luppi puts it, “You shouldn’t have to ask for specific banking products or services. You don’t need to know what to ask for. Tell us what you’re trying to accomplish. We’ll handle it.”
He recommends simply telling your banker what you want—and don’t be afraid to bottom line it: “Try these five words: ‘I want to get paid.’ Let your bank handle the rest,” he suggests. “That’s what we’re for.”
Banking On Exports