As the eurozone sovereign debt crisis continues to eat away at the solvency of the region’s banks, the patience of its investment-grade corporates is wearing thin.
Flush with cash, many of these firms are losing confidence in the strength of some of their banking counterparties and are casting around for alternatives.
One initiative in the pipeline is the Corporate Funding Association, a project to set up a new corporate bank sponsored by 22 investment-grade-equivalent firms in Europe. The idea was first mooted in 2009 and has taken some time to get past the rating agencies. It also lost some momentum when the credit markets seemed to recover their poise at the beginning of this year. But the market paralysis generated by the intensified sovereign turmoil over the summer has re-invigorated the scheme with a new sense of urgency.
The plan is to set up a bank sponsored by corporates that will lend to those corporates – along the lines of the co-operative Genossenschaftsbanks in Germany or Rabobank in the Netherlands. But this is a multinational initiative, including companies from France, the UK, the US, Germany, Ireland, the Netherlands and Switzerland.
The bank will lend exclusively in euros and will be domiciled in France under the supervision of French financial regulator the Autorité de Contrôle Prudentiel. Philippe Roca, one of the two-man project team tasked with establishing the bank, tells Euromoney. Roca, along with Arnaud Chambriard, is a veteran of Natixis. “Twenty-two firms have sponsored this project not only to diversify their funding but also to anticipate the consequences of Basle III on banks’ regulatory capital and liquidity,” says Roca.
“This will be a simple, transparent bank that will function solely as a tool for corporates. It will not have the same return on equity objectives as a traditional bank and will be strongly capitalized.”
The bank will offer term loans and credit facilities to corporates that are also shareholders.
The CFA needs at least 100 corporate members to start operations but may launch before year-end. Roca explains that “for a contribution of €10 million to the capital of the bank, along with the rights attached, a corporate member rated triple-B plus can expect a credit facility of €140 million.”
“This leverage of 14:1 for a triple-B plus borrower should be for the first four or five years roughly, as long as the bank is subject to the Basle II standardised approach,” says Roca. “Once CFA is allowed to use its internal rating models, the leverage for a triple-B plus rated borrower should range between 20 and 25 instead of 14.”
As companies become more nervous about some of the banks with which they deal this may become an increasingly attractive proposition.
