Banks are currently bringing large corporates to the capital markets using private placements, the Eurobond market and high yield bond markets rather than expanding their balance sheets. And because banks pricing is rising due to the higher wholesale funding costs private placements and bond issuance are relatively more attractive and viable. This shift to a greater reliance on capital markets is a natural evolution for the European markets argues Ciaran Kane.
'It is likely that as the European corporate funding market continues to develop, it will increasingly resemble the US model. There, approximately 70 p.c of corporate funding is sourced from non-bank markets, with the equivalent European figure currently at closer to 20 of Developments in the European banking sector as the excesses of the last number of years are addressed and the complexities of Basel III are dealt with would suggest that the capital markets will play a greater role in European corporate funding in the future,” he says.
‘The current funding sources for Irish corporates can be segmented into bank and non-bank solutions. Given the current dis-location in the Irish banking sector, funding will become more challenging, though by no means impossible. A prudent finance director will be looking at his banks to identify their ability to meet his company’s future funding requirements, ideally well ahead of the maturity of existing financing arrangements. He may also be seeking to expand / replace members of his bank group to improve his access to funding. In doing this, he should bear in mind that access to a bank’s balance sheet will be highly correlated with the return on capital that a bank can earn from that business. A company that requires a broader range of banking services and can provide a bank with ancillary revenue opportunities stands a better chance of building new banking relationships. This concept will apply to all corporates, regardless of size.’ says Kane.