Wed Jul 21, 2004

LONDON, July 21 (Reuters) - Offering credit to corporate clients has become the most important factor in winning other business for banks in Europe and North America, according to a study released on Wednesday.

Companies have increased the number of their banking relationships for the first time in many years and are now specifically allocating business in return for credit, the report by researchers ClientKnowledge said.

For investment banks, this study will further highlight a trend that has taken hold over the last five years, in which so-called universal banks -- such as Citigroup (C.N: Quote, Profile, Research) and UBS (UBSN.VX: Quote, Profile, Research) -- have used their large balance sheets to help grow their investment banking business.

A year ago, the most important factors in a banking relationship were funding, risk management and structured debt products. "Now, however, the provision of credit is ... the key to accessing other corporate product lines in both North America and Europe," the report said.

In Asia Pacific, the most important point of leverage is foreign exchange, followed by credit.

The shift in corporate buying behaviour has happened against a backdrop of much tighter controls placed over credit by banks.

This "has resulted in corporate customers using all of the tools at their access," the study, based on interviews with 1,400 corporations around the world, found.

However, investment banks can still use strengths which are not related to balance sheet power to win business. In Europe, lucrative mergers & acquisitions work is driven by risk management advisory rather than credit.

The study uses the UK as an example of where companies also look to "innovation and creative solutions" as key differentiators. It singles out JP Morgan (JPM.N: Quote, Profile, Research) as a bank which has shown "remarkable strength in this area, despite its less dominant position."

In the United States, M&A and restructuring is driven first by leasing and asset finance, then by structured and issued debt. For equity issuance it is the other way around.

In Asia Pacific, M&A and restructuring is driven chiefly by structured and issued debt, while for equity issuance it is first corporate lending, and then structured and issued debt.

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