A universal theme running through the economic difficulties in much of Europe in the last few years has been how banks have been seen to have contributed to the problems because of their reluctance to lend to businesses.
Whether this is the case or not, most banks – although admitting that there have been problems – say they are making just as much capital available to businesses as they were back before the crisis in 2007. Banks add that they are listening to their clients and are taking their concerns on board.
But many businesses might not agree, with a large group of them saying bank finance has been more difficult to secure than at any time since they have been running their business. They say banks aren’t listening and need to do more to mend relationships and show their commitment. Many businesses say that even when banks do lend, they are profiteering by lending at much higher interest rates than the funding costs for the banks.
So, is there a big misconception between what banks are offering and what family businesses are expecting?
CampdenFB has attempted to gauge the relationship between banks/financial service providers and family businesses in Europe for the last two years by carrying out a detailed survey of what family businesses feel. As might be expected, with the financial crisis of 2008-2009 fresh in the minds of many businesses, last year’s survey revealed the widespread frustration and even anger that family businesses were feeling towards their banking relations.
One year on, unfortunately for the banks, not much has changed. In this year’s survey, asked whether family businesses have become more trusting of the relationship towards their financial services provider over the year, 76% said no. Some of the written responses to that question have ranged from deeply enraged, like: “I have received deplorable service from my bank, and have needed the help of the financial ombudsman to gain redress” to the more instructive, like: “As long as you are absolutely clear about who you are dealing with. And it’s absolutely key to demand total transparency...”
Turning the question around in an attempt to try to establish some misconception in expectations, CampdenFB also asked whether family businesses might have an unrealistic expectation of their banking relationships. Depressingly for banks, no such misconception was there from the point of view of family businesses, with 85% of respondents saying no to this question.
Nevertheless, it wasn’t universally bad for banks. Fifty percent of the respondents said they feel banks are making more effort to regain their trust. A lot of family businesses also feel banks have the necessary level of expertise to understand their financial matters and concerns, with 46% saying this.
The banking sector as a whole might be taking a pounding from disgruntled business owners across Europe, but that doesn’t mean all banks can be lumped together in under-servicing this important part of the business community. CampdenFB found a number of them doing more than others to engage with family businesses and are being praised for doing so. Financial institutions like Berenberg Bank in Germany, which has a specialist unit dealing with family businesses, comes out well. So do bigger ones like Barclays, Credit Suisse and BNP Paribas.
Andreas Brodtmann, one of the senior partners at Berenberg, reckons that bankers have to do more than offer products and services to family businesses if they are to regain trust. “We need to really show that commitment and be prepared to work closely with family businesses in an advisory capacity, without necessarily expecting a fee at the onset,” he says.
Brodtmann says Berenberg engages with many family businesses throughout Germany, which has one of the highest concentrations of family businesses in the world, in various ways. Uppermost with these efforts is the bank’s specialist private business unit called its Unternehmer office, which deals especially with family businesses. The office employs six full-time staff that, according to Brodtmann, are constantly visiting family businesses throughout Germany. The staff at the unit also help to focus expertise within the bank to deal with the specific financial issues of a family business, says Brodtmann.
“That could range from providing advice on the appropriate level of financial engineering for a business, to helping with succession issues.” Berenberg also hosts an annual symposium to engage with family businesses and talk through the most pressing issues they are currently facing with senior bankers.
Robert von Finckenstein, head of debt advisory and restructuring at the Frankfurt and Munich-based bank Hauck & Aufhäuser, reckons that when it comes to corporate and investment banking, three things are crucial for family businesses – merger & acquisition expertise and advice; debt advisory and restructuring expertise; and institutional research.
“These are areas we have traditionally specialised in and make a difference for our offering to family businesses,” he says. Like Berenberg, Hauck & Aufhäuser is organised on a partnership basis, which gives it an advantage in building trust with family businesses.
And if longevity of service is anything to go by when it comes to building trust with family businesses, the bank points to the fact that it has been around since the late 18th century. Moreover, Hauck & Aufhäuser has a number of prominent family business part owners, including the German pharmaceutical company Merck and trading company Heraeus.
Von Finckenstein says Hauck & Aufhäuser doesn’t just rest on its history and ownership structure to engage with family businesses, it also provides many sophisticated financial engineering solutions. Typical expertise includes structuring bond issues for family businesses wanting to tap capital markets. “These are mostly between €50 million and €500 million in value and are issued on the Stuttgart Stock Exchange,” he says.
Just like Berenberg and Hauck & Aufhäuser, Coutts, the main private banking arm of the UK-based Royal Bank of Scotland, has built strong relations with many family businesses over its long history. It has established these by having dedicated in-house experts represented by a number of senior managers, most prominently, Mark Evans, who heads up the bank’s family business unit.
Evans says that Coutts’ commitment has been established over many years with a coherent plan to embrace family businesses by, among other things, championing the business model.