Case Study: Large Insurance Group
One notable example of our Banking Optimization process involved a large insurance group whose team was based in Quebec City. This company maintained relationships with two banks, spread across a dozen business units, each managing their banking independently. As a result, the company’s pricing for deposits and fees was inconsistent at best, and their negotiating power was severely diluted.
Working together, we assessed the situation and estimated the potential gains if the company consolidated its banking relationships into a single, all-encompassing pricing structure. By collecting all relevant information across business units and understanding our actual liquidity levels and properties, we were able to leverage the banking significance of the entire company to negotiate a new deal.
The result: the insurance group had approximately $900 million in total deposits, with $400 million in overall working capital across all business units. After negotiations, the client secured a deal that netted them $2 million more, annually. The project was completed within four weeks at a cost of under $25,000, delivering a substantial return on investment.
This example highlights the importance of centralized negotiation and leveraging the full financial weight of the organization to achieve the best possible banking terms.
The takeaways are summarized below.
CHALLENGES
- One of the largest insurance groups in Canada was dealing with the repercussions of its decentralized structure:
- Cash was held between 2 banks, spread between approximately 20 business entities
- The business entities were negotiating pricing (fees) and credit interest individually which led to inconsistent and disadvantageous deals, unbeknownst to any party (banker and client)
- No one in the company within the treasury department had enough banking knowledge to recognize the inefficiency.
- Furthermore, any potential SME had very little time to dedicate to the investigation and calculation.
ACTIONS
- Sierra Consulting began the investigation by working with finance leadership in order to uncover the full banking footprint.
- Reviewed all compensation statements, along with corroborating bank statements to determine the amount of fees paid.
- We recovered the price list for each business unit (BU) to uncover all discrepancies in pricing between.
- We did the same for credit interest rates over all their accounts (approximately 300 accounts, held between the two banks).
- We outlined their cash management habits– for incoming and outgoing cash, and what methods were used for each BU.
- We also established their yearly cash trends to determine their ”peaks & valleys” in their cash levels and identify the overall working capital sum.
- An analysis was performed by Sierra Consulting, using all of the information collected to estimate how much could be gained in opening a discussion with our banker.
OUTCOMES
- We worked directly with the banker at their main syndication bank (their top lender) and showed our findings.
- The information showed the banker that there was a lot more liquidity to gain (new deposits for the bank) if they are capable of providing:
- Consistent pricing taking into account the massive volumes
- A beneficial credit interest arrangement that accounts for their working capital minimum balances- which are extremely valuable to the banker
- We repeated the process with the second syndication bank.
- Both bankers came through with much better pricing on both the fees and credit interest.
IN SHORT
This mandate cost the client approximately $25,000 in time & material and netted approximately $2,000,000 per year in savings/credit earnings in total.