Wednesday, September 27, 2006

Consolidation is in the air

In a taxi last night on the way from Florence airport to my hotel, I was chatting with a banking industry analyst who I know, and in between idle chit chat, we were contemplating the future of European cash management banks. Sad, I know! At that time of night our minds perhaps should have been filled with more interesting thoughts (not ones I can share with you here unfortunately).

Anyway, it struck us as we basked in the warm and breezy Florence evening, that although the European banking industry has spoken about consolidation since the introduction of the euro - you know one currency, one European banking provider and all that. Well, that never happened.

But corporate customers of banks are becoming more technologically sophisticated and demanding more from their banks. At the Eurofinance conference in Florence, yet again corporates spoke about rationalising the number of bank accounts they held. I felt a sense of deja vu. It reminded me of a Eurofinance conference a few years ago before the euro was introduced where corporates said the same thing.

There was one company, Swiss dairy co-op Campina, which had set up a single euro cash pool for all of its operating subsidiaries with a single bank. But they tended to be the exception rather than the norm.

It appears that your average corporate treasurer sitting in his 'ivory tower' hankers for the day when all he needs to do is manage a single bank account for each currency. That probably sounds like music to the ears of the global cash management banks, but what about the regional banks? Where do they fit into all of this? Who are going to be the winners and losers from this consolidation everyone is talking about but we haven't witnessed yet.

As our taxi sped through the streets of Florence, the analyst and I mused, 'Could we end up with just a handful of banks dominating the business globally?'. Hardly a revelation, nevertheless we contemplated that as the global custody business had consolidated into the hands of a few providers, would the payments business follow the same trajectory?

It would be a tad premature though for the global banks to start popping the champagne corks and patting themselves on the back, as the banks themselves, even the so-called global banks, need to get their house in order before they can truly call themselves global in every sense of the word.

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