These days, banks are more interested in investment banking where the deals are bigger, the fees more lucrative and the administration less labor-intensive and costly. As a result, the financial services companies are increasingly asking for baskets of business from corporations in return for sought-after credit facilities–cash management being only one of the golden eggs. The trick from the corporation's perspective is to give enough business to a bank at the right price so that the bank considers the company a "must keep." "Banks are looking more rigorously at return on capital," says Mike Watts, manager of international treasury at Eastman Chemical Co. in Kingsport, Tenn., "and they now have the information technology to see that return on a total relationship basis."

What's more, banks are realizing that they can invest in Treasury securities at a 2% or 3% spread and make a respectable return without taking any risk or incurring the overhead of corporate relationships, Sagner observes. "More of them are moving in that direction," he notes.

Midsize Companies Hurt

The result: There are fewer providers, and the biggest ones are enjoying an increasingly bigger slice of the market. Over the past five years, the top five cash management banks increased their share of the market from 34% to 51% and their revenue from $6 million each, on average, to $1.3 billion apiece, according to an annual survey of cash management by consulting firm Ernst & Young.

Midsize companies are usually hit hardest by consolidation and this new banker indifference to cash management. Take FreeMarkets Inc., a Pittsburgh provider of sourcing software with $167 million in sales. FreeMarkets needs sophisticated global services, but has relatively small transaction volumes to offer a bank. With a $100 million surplus left from a successful 1999 IPO, it has all the cash it needs for some time and is unlikely to be venturing into the capital markets again soon. Just keeping the cash management services it currently gets from J.P. Morgan Chase & Co. will be a challenge, says Jerry Bernard, FreeMarkets' assistant treasurer. "It's tough to keep a big global bank interested in serving us with our low volumes. It's an issue we'll have to confront." He's hoping that he can seal the company's relationship with the bank by offering it the business of managing FreeMarket's $100 million investment portfolio.

This shift in power is translating into a sea change at the treasury level in terms of the qualities most valued in cash managers. Assistant treasurers, who once haggled over every nickel and dime and scolded bankers for poor service, now find themselves punished and not praised for this kind of bare-knuckle bargaining. "The CFO is trying to negotiate a multi-billion-dollar financing deal with the bank, while the mid-level treasury folks are operating in an adversarial relationship, pushing the bank to provide more service or arguing that the bank overcharged the corporation by a few dollars on the account analysis statement. When the CFO finds out, he or she is not pleased," says Anthony J. Carfang, a Chicago-based partner of Treasury Strategies Inc., a consulting firm with business split between corporate and bank clients. As a result, "a real disconnect has developed between senior financial management and the people who manage the bank operating services at many companies."

Not surprisingly, the stressful marketplace is reflected in Treasury & Risk Management's annual cash management survey: The Siamese-twin relationship between credit and cash management now tops the list of treasury managers' biggest concerns, and a growing number of cash managers report that they are being asked for and are giving cash management business to their credit banks.

All this comes at a time when corporations–slammed in equities and debt markets because of weak balance sheets–are seeking to stabilize relationships with their bankers. Even investment-grade Eastman Chemical, for instance, which does its borrowing in the capital markets, still needs bank lines to back its commercial paper. The trick, says Watts, is to try to screen banks both for their willingness to lend and provide non-credit corporate services. Then, the business awarded must match a bank's appetite for that particular business, he says. "You need banks in your credit group with a strong appetite to sell the non-credit services that you need to buy. Not every bank that offers a service puts the same priority on selling it," he observes.

Obviously, it wasn't always like that. In fact, when quid pro quo bank deals began a year or so ago, there was outrage among clients and even some bankers who felt banks were getting business not on merit but through gentle coercion. "Tying" services remains controversial and sometimes illegal. Rep. John Dingell (D-Mich.) recently goaded bank regulators, including Federal Reserve Chairman Alan Greenspan, to enforce anti-tying laws.

But banks are good at walking the fine line: They seldom explicitly demand non-credit business in return for credit, but ask for a chance to bid on cash management or investment banking business, explain their profit hurdles and then drop out of the credit group if they don't get other business. Besides, corporate financial executives are deft at bulking up their business with a specific bank and then using that leverage to get better service or lower prices. Both sides like to package services to their advantage.

In the bankers' defense, there is logic to developing a package relationship, particularly as treasurers want technology that provides end-to-end solutions. "We're not a set of products on the fringe of the bank," says Kevin Kehoe, senior vice president and Western Hemisphere regional executive for J.P. Morgan Treasury Services. "We're part of a core relationship that includes both cash management and credit."

Ann Cairns, chief operating officer of Citibank's e-business unit, says products should lead to a network of services. Take electronic invoice presentment and payment. That is a fairly simple cash management gambit, but by providing on-line dispute resolution, it can help manage working capital more efficiently. When the EIPP solution is payer-centric and the payer is the bank's customer, it can go to the suppliers with receivables-based financing. That's thinking outside the box, she argues.

Sellers' Viewpoint

Corporate interest also is high on converting incoming checks to electronic ACH transactions, notes J.P. Morgan's Kehoe. Banks have moved forward in adopting push technology to get images to cash managers of both receipts and disbursements–notifying them by beeper or cell phone, for example, when a particular incoming payment hits the bank.

Reflecting business strategies that increasingly see cash management as part of a "relationship" bundle of market-oriented services, Chicago-based Harris Bank earlier this year untied cash management from an operating services group and moved it to Harris Nesbitt, making it part of BMO Nesbitt Burns, the corporate investment banking operation of Bank of Montreal Group of Cos., says Julie Curran, senior vice president for product management. "This moves us closer to our clients, gives us a stronger package to offer and better integrates the services they receive," she says.

That said, the bottom line in cash management these days is about establishing a symbiotic relationship and the finesse once needed to put together a nifty foreign exchange deal are now better applied to dealings with your bankers. Otherwise, you may find your company looking for new ones.