Cash Management

Banks Jack Up Treasury Fees

List prices for corporate account and transaction services rose 3.6% on average in 2009, despite the plunge in inflation in 2008.
Vincent RyanDecember 7, 2009

In a year when corporate treasury departments are straining to conserve cash, more of that money may be going to pay banks — not for credit, but for cash-management services such as wire transfer, lockbox, account reconciliation, and check and ACH handling.

That’s because banks introduced larger-than-normal price hikes for cash-management services in 2009, according to the latest edition of The Blue Book of Bank Prices, released this fall by Phoenix-Hecht, a financial-services research firm.

The list prices of 49% of treasury products increased more than 3%, with 22% of service fees rising more than 6%, according to the account-analysis statements Phoenix-Hecht collected from corporate banking customers last April. The highest one-year increases occurred in account-reconciliation and lockbox services, but many transaction fees also rose. For example, list prices on ledger overdrafts rose 8.4%, to $41; those on internal automated wire transfers climbed 5.6%, to $4.94; and fees on intraday balance reporting rose 5%, to $61.67.

Although it’s not unusual for treasury-management fees to rise year-over-year, they usually track the previous year’s movement in the Consumer Price Index. Not so for 2009. While CPI growth in 2008 was nearly flat at 0.1%, banks raised service fees an average of 3.6% this year, says Phoenix-Hecht. “Banks appeared to have completely ignored inflation as a price determinant for 2009,” the report says.

“The banks did it because they could,” observes David Bochnovic, an executive vice president of Phoenix-Hecht. “They needed any kind of earnings they could get.”

The only good news for treasurers: banks offered discounts more often in 2009, based on volume and how much they valued the customer relationship. Discounting frequency rose to 43%, after declining in 2007 and 2008. The average depth of discounts, however, remained largely unchanged, at 37%.

The higher fees the Federal Deposit Insurance Corp. is assessing banks, and the additional cost of the Transaction Account Guarantee Program — which provides FDIC insurance on noninterest-bearing accounts of more than $250,000 — are also causing banking costs to rise. Banks passed on insurance-related costs of 10 to 33 basis points, based on corporate customers’ ledger balances, in the first quarter of 2009. FDIC premiums are risk-based and change quarterly.

“FDIC/TAGP assessments have become a major cost of doing business to the banks, and as these fees are passed to corporate customers, they have caused total account analysis charges to rise significantly in cases where the company has significant checking-account balances,” says Phoenix-Hecht.

While the credit crunch provided banks an opportunity to charge more for services, industry consolidation and the failure of 149 thrifts and banks in the past two years could give them even more pricing power. The top five banks already command more than 60% of the treasury-management revenues from companies with annual sales greater than $40 million, says Phoenix-Hecht. “Only competition for market share among the largest and the next tier of banks for companies with the highest credit ratings likely kept the services increases in check,” concludes the report.