* Bankers trash-talked competitors ahead of downgrades
* Corporate treasurers review deposit relationships
* Companies recall their desperation after Lehman collapse
By Jed Horowitz
NEW YORK, June 21 In the weeks leading up to
Moody's downgrade of major global banks, corporate treasurers
quietly acccelerated their own reviews of where to put their
bank deposits, who they trade swaps with and who they borrow
On Thursday, their caution was validated, as Moody's
Investors Service (MCO.N) downgraded the ratings of 15 banks,
with the deepest hits taken by Bank of America (BAC.N),
Citigroup (C.N), Morgan Stanley (MS.N) and Royal Bank of
Scotland (RBS.L). [ID:nL1E8H7FPZ]
Some treasurers had prepared by adding more banks to their
credit facilities to diversify the risk of a Lehman
Brothers-like bank failure. S ome also adjusted their deposit
Banks, for their part, had been reaching out to treasurers
b oth offensively and defensively, trying to keep clients and win
new business ahead of potential turmoil from Moody's review.
"They occasionally mention that they don't know how Morgan
Stanley (MS.N) or someone is going to survive, " said Nicholas
Bijur, treasurer of PG&E Corp (PCG.N), the San Francisco-based
gas and electric company. "All the banks call me all the time to
tell me what great shape they are in."
Bijur, a former Morgan Stanley employee, said he does not
believe that any of the 19 banks in the utility company's $4.2
billion credit facility are at risk of going under, including
some European ones. "It is an opportunity, though, to be more
critical of their credit quality," he said.
Morgan Stanley Chief Executive James Gorman said before the
announcement that the downgrade of two to three notches that
Moody's had telegraphed would be undeserved but "manageable."
The company and its bank subsidiary were clipped two rungs to
three steps above junk status.
The ratings agency cut Citigroup Inc (C.N) and Bank of
America Corp (BAC.N) to just two steps above "junk" status.
Kim Leary, director of finance at Honeywell International
Inc (HON.N), said the conglomerate regularly revises its
investment, trading and bank guidelines based on credit ratings
and other criteria. Honeywell, which had $36.5 billion of 2011
revenue, in April replaced some players in its 29-bank, $3
billion revolving credit facility.
"We have done a lot to prepare and are always thinking of
what's next in managing our banks," she said. "If we feel there
is no path forward, or there is too much concentration, we work
to transition them out. We're still tweaking because we have
some Italian banks we're not too comfortable with."
Honeywell has no corporate bylaws prohibiting it from doing
business with low-rated companies, and sometimes differs with
views of rating agency analysts, Leary said. She also said she
takes trash-talking by rival banks with a grain of salt.
When Bank of New York (BK.N) last summer threatened to
charge large companies for deposits, it became "the butt of the
jokes of all the other bankers who came in to see us," she said.
Honeywell does not keep deposits with Bank of New York.
Some companies said they were carefully monitoring the
downgrades but had not taken any action before the expected
"We have limitations prescribed by our investment policies
on working with banks below certain ratings," said the treasurer
of a $3-billion midwestern consumer products company who asked
for anonymity. The company was in "wait-and-see mode" before the
A perverse effect of a downgrade, he said, is that it could
inhibit the company's efforts to find more large multinational
banks in its lending group in order to mitigate risk.
When Lehman Brothers filed for bankruptcy in September 2008,
it sent corporations such as PG&E and Sunoco Corp (SUN.N)
scurrying to find replacements in their bank groups. Lehman, in
return for getting investment banking assignments, represented
more than 10 percent of some companies' revolving credit lines.
A revolving credit line allows a company to borrow up to a
maximum limit after repaying an earlier loan.
Many companies today include "yank a bank" provisions in
their credit agreements that allow them to replace at will banks
in danger of reneging on a loan, bank line or other commitment.
"It's one thing everyone is focused on since the financial
crisis," said Thomas Deas, chairman of the National Association
of Corporate Treasurers and treasurer of FMC Corp (FMC.N), a
Philadelphia-based chemical manufacturer.
The downside of such provisions is that replacement banks
aware of a company's desperation may charge higher rates or
include more restrictive clauses in a loan agreement, he said.
Another major concern for treasurers is that a bank company
or its subsidiary whose long-term rating slips below A2 suffers
a downgrade in the short-term rating it issues to guarantee
companies' commercial paper and in deposit ratings. Deas said
some companies may adjust their investment policies to allow for
lower-A ratings to qualify banks that back their short-term
However, the Moody's review put corporations on general
alert. "The riskiness of banks is something treasurers are
worried about," he said. "With these historically low interest
rates it's one reason why we are borrowing less from banks and
getting funding from the public bond market."
(Reporting By Jed Horowitz; Editing by Alwyn Scott and Clive
((firstname.lastname@example.org)(+1 646 223 6826))
Keywords: FINANCIAL MOODYS/CORPORATE
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