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No principal lending entity, whether it be a bank, institutional investor or otherwise, can truthfully make the aforementioned statement. As required by banking regulations and internal business guidelines, a lending bank must put its own balance sheet before that of its clients. In other words, there is a clear conflict of interest in a bank being both agent and principal to the same client.
This is an extremely important issue, particularly when negotiating a covenant package, an inter-creditor agreement and structuring a repayment schedule. If a bank is looking out for its own interest then who is looking out for the client's best interest? Only a truly independent agent with no ulterior motives or money at risk can put the client first at all times.
"Relationship banking" today and going forward appears to be a one way street where a bank may extend illusory facilities for "balance sheet window dressing" but expect its client to keep those lines of credit undrawn. Furthermore, relationship banking is designed to compel egregious compensation for resetting terms in the form of modification fees. Overall, relationship banking is an over-used expression employed to coerce clients into agreeing to pay a multitude of superfluous bank charges. Where is the mutual benefit to the client?
Schechter & Co. Limited is a family business owned by Stephen and Lawrence Schechter. Over time, "government controlled" banks may be instructed by their largest shareholders as to whom they can and cannot lend, how much they can lend, for what purposes and in what countries.
Today, more than ever before, a company must pose the question – will our relationship banker be there when we need them for a modification on a private placement or, for that matter, will the bank be there at all?
Being a family owned, independent and regulated investment bank has its advantages. |
Schechter & Co. Limited