As treasurer of lTT Corp., a big part of Ann Reese's job is managing the New York conglomerate| banking relationships. And as a former banker herself. Ms. Reese appreciates that relationship banking is a two-way street.

"I believe the best relationship banking is something that's profitable for us and profitable for our banks," she said.

Her approach was in evidence recently, when ITT obtained its first syndicated credit line, a $7 billion deal led by Chemical Bank.

"We wanted a relationshiptype loan agreement done in syndicate's clothing," Ms. Reese said in an interview with American Banker. She also discussed ITT's other banking needs, including her company's use of derivatives.

Q.: What prompted ITT to consolidate its bilateral credit lines with a syndicated credit?

REESE: It started from a desire on ITT's part to pull all our worldwide bank relationships together. We had bank relationships that were set up to accommodate our old organizational structure, and they. really had not kept pace with the ITT that exists today. We decided there were a lot of benefits to be gained from approaching the market as one buyer.

It's no secret that there are more and more people who have gone to syndicated credits. We wanted to do it in such a way that we didn't lose the benefits of one-on-one relationships, which everyone in ITT, no matter what subsidiary they're. in, really carefully cultivated.

We were very concerned that we somehow manage to do what I call a hybrid syndication. We wanted a relationship-type loan agreement done in syndicate's clothing.

Q.: How did you accomplish that?

REESE: Last summer, we retained McKinsey & Co. to look at the most efficient way to run the treasury function. As part of that, we looked at where we do business - where every dollar of financial fees goes.

Chemical Bank had actually started to pull much of that information together for us on their own years ago. They talked to us about the syndicate process, and we came up with a blueprint of who do we business with today and how that compares with who we want to do business with tomorrow, in terms ofwho's going to meet our future needs.

We looked at how fees paid for credit and noncredit services relate to one another and how that compares to where we think we want it to be. Pulling all of that information together gave us a real plan for how we wanted to approach the bank group.

Starting from the very beginning, I approached the banks individually, explaining to them the process, that there was not going to be a change in our feeling about one-on-one relationship banking, but we needed to realize that things have changed - that it's more efficient to have one document that we discuss at one time with everyone. I think our relationship banks really accepted that, and Chemical was a real partner in doing the deal the way we wanted to do it.

Q: Did you also want to reduce the number of your relationship banks?

REESE: No. We had actually gone through the press of paring our bank group earlier on, as part of one-on-one negotiations. We really approached this with no preconceived notions about how many banks we were going to work with. The criteria were more, how do we get the right balance of services - credit and noncredit - that can be supplied to ITT and how do we realistically give the proper combination of business to the entire bank group.

I believe the best relationship banking is something that's profitable for us and profitable for our banks. So we started to think about how many banks we could work with that would have a chance to get enough business from us to satisfy their own profitability criteria. We've had pretty in-depth discussions with a number of banks as to how they evaluate corporate relationships.

We used a lot of those criteria for determining how to cull the bank group.

Q.: Apart from credit, what are the other services that you look for commercial banks to provide.

REESE: Cash management is very important, foreign exchange, interest rate management. And not just on the liability side of balance sheet, because we have the Hartford [insurance business].

Hartford's got roughly $50 billion of invested assets. There's tremendous opportunity there for using swaps, derivatives for enhancing investment policy. And that's one of the things that we pulled together in this approach to our banking relationships too - that it's not just the treasurer worrying about the liability part of the balance sheet; iet's talk to the asset side as well.

Q.: What's your approach to the' use of derivatives.

REESE: We would only use any kind of financial instrument, including derivatives, as hedges of our positions. The primary users of derivatives at ITT are Hartford's investment department, where we've got people who have a lot of experience in the financial markets and a lot of experience with the derivatives that they use.

They're constantly involved in reassessing the positions they have. Some of the positions that they take are designed specifically to hedge a particular liability, so they're match-funding their assets and liabilities.

In terms of what we would do at ITT headquarters, or any of the other borrowing units, we use much simpler instruments. What you'll find here are primarily interest rate swaps or borrowings in a foreign currency that are then swapped to another foreign currency, or to dollars, just to better match assets and liabilities, and take advantage of markets at a particular point in time.

The treasury is not a profit center at ITT. We're not expected to take bets. Our role is to obtain access to capital to support the businesses at predictable and effective financing costs over time. And that doesn't mean taking big bets to make shortterm gains. It's just not part of what we think our role is.

Q: Do you have any concerns that corporations in general either misunderstand or misuse derivatives?

REESE: I think most corporations have in place enough checks and balances that people are not just going out and entering into contracts that are not fully understood or at least vetted by a management team.

Q: Commercial banks, as you know, are trying to win more investment-banking-type business. Have you used a commercial bank for a securities underwriting assignment?

REESE: We have, on more than one occasion.

Q: How would you assess their performance compared with investment banks?

REESE: Our experience has been very positive. In all the deals in which commercial banks have participated, they have participated alongside investment banks and have done equally good jobs in the situations that we've used them.

The commercial banks didn't pitch us until they were in a position to perform.

Q: You started your career at Bankers Trust. Tell us about that.

REESE: I went into Bankers Trust's commercial lending training program in 1974, right out of college. It was great credit experience. Only when I got out of the training program in 1975, there was no loan demand.

It was pretty clear to me I was going to sit on the lending platform writing reports. I asked for an assignment in the money market area. I happened to hit foreign exchange right before FAS 8, which was the first accounting pronouncement that forced explicit recognition of the effect of currency fluctuations on earnings. I did a lot of work while I was at BT with cott3orations, and ultimately left to do foreign exchange management for Union Carbide.

Q: Having started out in banking do you think that has helped you in your dealings with hanks in your job as a corporate treasurer?

REESE: Sure. Whenever you've been on the other side of the table, it helps you in having that perspective. Although I have to say that banking today is radically different from when I was a banker. The credit side has changed considerably. And foreign exchange is light years different today.

Q: Some view commercial banks as almost an endangered species. Where do you see your own banking relationships heading?

REESE: All of those financial institutions have demonstrated a pretty consistent ability to reinvent themselves to meet customer needs. Some of them arc better than others, which is why some have survived in original form, while others have combined.

There are really terrific people in that industry, and those people find a way to talk to you about what else they can be doing and pretty soon ifs a new business within some of the better banks. So I see us having relationships with commercial banks for a long time.

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