Relationship banking
- INTERNATIONAL
CHALLENGE
WHAT'S NEWS Issue 4 April 1998
working relations
3
As one of Ireland's most respected and successful international
corporates, the Jefferson Smurfit Group is in the enviable position of
being able to cherry piek banking services. Yet, for David Brophy and Paul
Regan of the Group's internat bank, building long-term and mutually
advantageous relationships with a core cluster of banks is the best
option. Brophy and Regan on customer needs and expectations.
As Smurfit Capital's treasurer and chief
executive responsible for structured
finance respectively, Regan and Brophy
are more than able to look critically at the
financial services sector in general, and at
our operations in particular. Over recent
years, Smurfit's financial activity has been
increasingly centralized in Dublin. This
means among others that the needs of this
paper-based packaging group with
integrated operations in Europe, Latin
America, the US and some budding
activity in Asia, are changing. The Group's
internal bank requires services and service
providers that are committed to the
company in a number of ways. 'We are
not looking for a primary banking
relationship,' says Regan. 'This can be
dangerous because you can't always be
sure the particular bank will be the same
tomorrow.'
ON THE LINE
Rather, Smurfit Capital looks for quality
and expertise in both product and
personal service from a select group of
financial institutions. 'We have a number
of requirements,' says Regan, 'one is
credit. So we need banks who are
prepared to put their balance sheet on the
line. However, that is less of an issue for
us than for many corporates of our size.
We raise a lot of our rnoney on the
institutional market; 60 percent of our
gross debt is sourced from that market or
the US private placement and bond
markets.' Smurfit's reliance on the banking
fraternity is therefore quite low. There is
also a policy in place whereby the
company holds significant cash balances.
'We have more money on deposit with
banks at present than we have actually
borrowed from them,' comments Regan.
'We don't have a huge credit need, hut we
do need banks who can say: we can make
a significant amount of money available at
very short notice. This is an important
issue. We also need normai banking
services in various countries and we have
corporate finance requirements. In
addition, we're are interested in M&A,
things like that.'
POOLING EXPERTISE
On the structured side, Brophy wants 'a
counterparty who can handle tax-based
and one-off type solutions at international
level with one contact point for our
transnational business. Our centralized
approach means we're looking for serious
players with cross-border capability,
because that is where most of the action is
these days. l.astly, though probably most
importantly, we need them to be realistic
about their capabilities.' The frankness
they expect from their banks is now
reciprocated. 'We have done two
significant transactions with the
David Brophy (left)
and Paul Regan
from Irish packaging
giant Jefferson
Smurfit Group
Rabobank Group,' Brophy says. 'In the
last few years, De Lage Landen, your
leasing product specialist, has certainly
been one of the market leaders in the Irish
tax-based business. For quite some time
now, the Irish tax-based leasing business
has been one of the best games in town
glohally. It no longer is. We now have to
look to other markets, to new types of
structures and at putting those together to
get higher levels of return. The question is,
can your people harness the presumably
other pools of expertise in your network, I
say presumably, because I don't know.
That will determine whether we do any
more structured finance transactions in
the next few years.'
PEOPLE FACTOR
Brophy and Regan are also interested to
see how the Rabobank Group achieves
continuity in relationships. 'We're
convinced personalities play a very
important role,' comments Regan. 'If you
take structured finance, then you'11 see
that it has become increasingly like
commodity business in recent years. And
when the price is just about even, then it's
the people who make the difference.'
People is one factor of a successful
relationship, the other is the vehicle,
according to Smurfit Capital. 'The rating
is obviously attractive and the fact that the
Rabobank Group is in this business in a
very creative way is also a plus,' continues
Regan. 'Altogether, it's a great
combination.' David Brophy adds a rider:
'It remains to be seen whether that
combination can be maintained in a
changing environment.'
NETWORK NEED
Through its recent centralization, Smurfit
knows all about change. In an
environment where momentous events
such as the transition to a single currency
will mean change, change will probably be
the one constant factor, the need for
constancy in relationships grows even
stronger. Corporates like Smurfit, are not
looking for basic lending, hut for account
managers and product specialists alike
who innovate and create individual
solutions which are hugely attractive.
Smurfit Capital clearly has respect for our
prowess in structured finance in Irish tax-
based business. And as a challenging
cliënt, Regan and Brophy have been more
than up-front in what they want to see
from the Rabobank Group. Our people in
Dublin have clearly established a strong
foundation for future business with this
international corporate. It is up to the
network to deliver the transnational
expertise Smurfit needs.
