Sponsored Roundtable. Treasury & Cash Management Moderated by Joseph Giarraputo

Transcription

1 Sponsored Roundtable Treasury & Cash Management Moderated by Joseph Giarraputo After The Maelstrom At a recent roundtable, Global Finance brought together some of the leaders in the treasury and cash management industry to discuss technology, corporate behavior and the realities of the post-crisis world. Global Finance: Technology has been a key element in the development of contemporary treasury and cash management. What advances and new tools are on the horizon? Michael Fossaceca, managing director, regional head of client sales management for North America corporates at Citi Global Transaction Services: Bank technology has traditionally been driven by demand for enhanced functionality in the execution and reporting of transactions. While treasurers remain focused on visibility, there are three primary forces that are reshaping the future of bank technology. The first is a focus on treasury management and ERP systems. Treasurers have invested heavily in these systems and are looking for holistic solutions that integrate seamlessly with their existing ERP systems to provide straight-through processing, enhanced data and analytics and SWIFT connectivity. The second force is Web 2.0. Banks are expanding and enhancing their capabilities to improve the user experience and provide clients with the ability to connect and communicate through multiple delivery channels. The third and probably most important is electronic bank account management (EBAM). We re doing a lot of work with our clients to migrate traditional, paper-based processes to electronic platforms. The benefits, from improved operational efficiency to greater transparency, are further enhanced by new capabilities that generate sophisticated analytics, enable user-generated content and provide access to platforms through multiple delivery channels. Phillip Lindow, head of global treasury and investment management and head of international cash management for the Americas, RBS: Things that clients used to do manually, they re now doing completely electronically. There s been an increase in the automation of service requests and controls, and clients are asking for flexible banking platforms that work with their existing systems. We re also seeing an increasing convergence of cash and trade to further facilitate end-to-end straight-through processing. Ather Williams, managing director, Western hemisphere regional executive for J.P. Morgan Treasury & Securities Services Liquidity Solutions: We have seen that with limited internal resources and constraints on investment dollars, clients are green-lighting projects that offer quick efficiency paybacks. Some clients are looking to us to take over whole processes, like managing their short-term investments. We have products that automate their investments in a way that meets their guidelines and provides diversification and detailed reporting, while enabling the client to maintain control over investment decisions. Clients are also looking for tools that make administrative and processing functions easier and more efficient. In response, we are rolling out products that leverage Web 2.0 technology so clients can selfadminister and streamline functions associated with account relationships and entitlements. It s about helping them gain more control and alleviate staffing pressures. Jeff Horowitz, managing director, head of sales and relationship management for North American financial institutions, BNY Mellon Treasury Services: Technology s essential, but first you need to know what the objective is and what needs improving. You want to be sure of what you re solving. EBAM, for example, can work wonderfully if you have a myriad of accounts in several countries, or even in one country, if the volume is there. Both front-end and back-end technology need to be considered. On the front end, the application needs to link into back-end systems, data warehousing, exception management and aggregators. Also, mobile technology is taking center stage. We move a great deal of payment volume around the globe, and quite often the recipients have only a PDA or a mobile device. So there is great interest in mobile technology on the retail side. And I believe there will be interest on the wholesale side as well. GF: How are banks using social networking and other emerging technologies? Fossaceca: Web 2.0 has provided the platform for us to transform the way we engage our clients. Video is a great example. We recently launched a Media Channel in conjunction with our electronic banking platform, which provides our clients with instant access to videos of industry experts across the world. Especially in the current 54 Global Finance January 2010 roundtable_tcm_jan_5.dan.indd 54

2 environment, that can be a very powerful tool for treasurers. Horowitz: We re using technology to enable thought leadership. Where we used to host face-to-face forums, we re now using webinars as a vehicle for thought leadership, using technology as a driving force to share information. Lindow: These new channels are a great way to get feedback right away and to be able to adapt what you re doing to clients needs. streamline the process by being able to redeem and subscribe more shares throughout Europe. Williams: While the business case for investing in SEPA is clear, constraints on internal resources and capital during the financial crisis have made it less of a priority. Also, many of the regulatory bodies that were pushing it forward had to shift their attention during the crisis, which caused things to slow down a bit. As we start moving forward again, we should see faster adoption rates and begin to realize the benefits. Fossaceca: Uptake has been further compromised by country delays in SEPA implementation. The lack of consistency in SEPA adoption across the eurozone has contributed to growing complications in this process. Lindow: One of the biggest challenges is the lack of a definitive end date for the legacy instruments. This affects the adoption rate of SEPA Direct Debits and also requires banks to support a dual infrastructure until the local instruments expire. In order to reach a critical mass, we ll need to see more entities such as governments and large insurance companies getting involved. GF: Direct debits under SEPA are now available. How is this being accepted? Lindow: SEPA finally being available is very exciting. It creates a great opportunity to automate payments, consolidate accounts and increase efficiencies in payment processing and treasury management overall. But at the moment we re seeing a fairly slow take-up.you ll see movement when people start doing a new mandate or reinvigorating their treasury. Fossaceca: Ultimately, the standardized framework for the free flow of capital facilitated by SEPA will revolutionize the way payments are handled across borders. Thus far, SEPA take-up has been slow. We re only seeing around 5% adoption in credit transfers. However, we expect to see major pick-up with the SEPA Direct Debit offering as it provides significant benefits to consumers. A critical driver of broad SEPA implementation will be country deadlines for migration. Once governments accelerate programs to adopt SEPA as the standard for disbursements, we will see tremendous growth in implementation. Michael Fossaceca Horowitz: The euro was introduced Citi Global Transaction Services Michael Fossaceca is the regional head of client over a decade ago, so it actually surprises sales management for large corporates for me some that SEPA and SDD [SEPA Citi s Global Transaction Services organization Direct Debits] are just now gaining in North America. He is responsible for leading sales and client management activities for US some momentum albeit gradual. multinational corporations globally. He is also There needs to be a business case a responsible for GTS client management for key return on investment in particular, for subsidiaries of foreign multinationals based in North America. legacy structures currently in place so Fossaceca has more than 20 years of new entrants will see more immediate treasury management experience and has benefits. For example, if an organization developed and implemented innovative treasury management solutions for clients globally. isn t in, say, 27 markets, instead of needing Fossaceca joined Citi in Prior to to link into all 27, it can virtually link joining Citi, he was the large corporate treasury into one for low-value clearing. For executive in the Global Treasury Services business at Bank of America. Prior to that, he example, non-bank financial institutions headed large corporate sales in the Americas such as asset managers, hedge funds and for treasury services at JPMorgan Chase. mutual funds can gain added value and GF: What are corporates doing to reduce costs in transaction processing, and how can their providers assist them? Horowitz: As with technology, you want to have an end in mind before you start. Three key areas we encourage our clients to consider are (1) quality, (2) impact on client service and (3) the enhancements (ROI) they ll gain once they ve implemented cost controls.we ve seen the most benefit over the years in paper and process-heavy payment applications.two areas where our clients have looked to us to help them reduce costs are accounts payable and accounts receivable by digitizing invoices and by streamlining applications like refund payments and utility/energy payments. We have also seen cost reduction efficiencies in trade processing in North America and Europe as well as in Asia. In some cases, clients will partner with us in adopting enhancements, and in other cases they see a benefit in an outsourcing arrangement, either on a private-label or disclosed basis. Fossaceca: Many organizations responded to the pressure of the financial January 2010 Global Finance 55 roundtable_tcm_jan_5.dan.indd 55

3 Sponsored Roundtable: Treasury & Cash Management crisis by cutting costs across the board corporates and financial institutions without considering the long-term predominantly around North America, impact of these decisions. Actually, a and across many industries; 80% recent McKinsey survey showed that were publicly held companies, and 79% of all companies have cut costs in most were investment grade. From response to the global economic crisis, the study, 84% said safety of principal but only 53% of executives believe that was the most important investment doing so has helped their companies objective; 78% are invested primarily weather the storm. Over the past in three instruments bank deposits, year, we ve worked with our clients to treasury bills and money market mutual understand their strategic long-term funds and 93% of survey respondents objectives and identify opportunities indicated that their organizations had to drive fundamental changes across taken at least one action, such as a flight their organizations. We ve helped several to quality or strength, as a direct result Jeff Horowitz clients to automate their processes with of the credit crisis. I believe most will BNY Mellon Treasury Services end-to-end supply chain solutions. not forget the past 18 months and will Jeff Horowitz is managing director and head of North American financial institutions sales within These solutions are particularly effective invest in short-term cash accordingly. BNY Mellon s Treasury Services division. His because they not only drive operational Fossaceca: Prior to the crisis, group focuses on providing payments, trade cost savings, they also provide businesses corporates were focused on yield, and treasury management solutions for banks and non-bank financial institutions that include with significant opportunities to improve liquidity and risk in that order. Today, insurance companies, investment managers, working capital, which often result in the same businesses have adjusted their hedge funds, private equity firms, brokersavings that can be three to four times priorities, placing a greater emphasis dealers and mortgage companies. Horowitz also serves as a board member greater than operational cost savings. on risk, liquidity and then yield. We are for the BNY Mellon Trust Company and as a Lindow: In addition to helping clients seeing a fundamental shift in strategies member of the trust company s fiduciary board. cut costs, we re looking at how they can and priorities with our corporate clients His career spans over 20 years with ABN AMRO Bank in the US and Europe, Dreyfus improve their payments cycle. Despite across the spectrum. One treasurer Corporation, Standard Chartered Bank and the the renewed focus on optimizing said to me, It s not about a return on Walt Disney Company. He has held positions as working capital, a EuroFinance survey capital. It s return of capital. For today s an adjunct faculty member with the University of Pittsburgh and the New York Institute of showed that in the past year 75% of leading corporations, the focus is on Technology. respondents have made no improvement capital preservation and risk mitigation. in reducing their days sales outstanding. Our customers are staying invested in And two-thirds were paying their invoices at the same time short-term, highly rated, liquid instruments. The mindset has or earlier than they were a year ago. So there is still ample shifted and I think it s permanent. opportunity to help our clients optimize their working capital. Lindow: We re beginning to see clients look for ways to Williams: Electronification has been a key theme with our increase yield while still managing risk conservatively and clients.we ve found that companies migrating 60% to 80% of maintaining liquidity. A number of corporates are using their payables and receivables processing volume to electronics account products with slightly longer durations products have seen savings of 50% or more. Companies are looking at that apply a term-type rate to cash that s left as a stable various forms of card solutions, bringing commercial cards or core in the current account. These products have more of single-use accounts into the A/P transaction flow to provide a time-deposit type flavor but provide the liquidity of a the treasurer with better controls, improved reconciliation current account. So instead of rolling overnight time deposits, and attractive financial returns. We are also seeing that companies are using an account-based solution that can get automation can help clients pay suppliers early within a 10- into the one- or three-month type earnings keeping the day discount window, delivering risk-free returns of up to money short-term but also looking for a bit more yield than 36%, while providing suppliers with critical access to off- we saw immediately post-crisis. balance-sheet liquidity. Williams: We are finding that cash levels vary by sector and geography. In sectors such as natural resources and GF: Recent reports indicate corporations are trying to technology, for example, we ve seen a huge build-up of stockpile cash. Why are they doing this? How long will this capital in the past 12 months as they continue to focus on trend continue? What are they doing with their excess cash? principal preservation. Mid-size corporates are starting to go a little bit longer on the yield curve. They re holding extra Are they more interested in safety or yield for their cash? Horowitz: In 2009, BNY Mellon sponsored a survey cash because they don t see immediate opportunities in the conducted by the Association for Financial Professionals next 12 months for additional yield pick-up from short-term [AFP] on short-term investments. AFP interviewed 360 rates or for reinvesting that capital in their businesses. Cash 56 Global Finance January 2010 roundtable_tcm_jan_5.dan.indd 56

4 Sponsored Roundtable: Treasury & Cash Management is also being held because there s still uncertainty about the that momentum has actually picked up because clients very 18-month horizon, particularly around what will happen as much want to get in control of where their cash is. If a company bank and government schemes start to roll off. Many non- has money sitting idle in a network of 15 different banks in 15 US-based corporates in countries such as Mexico and Brazil different countries, they really have to know those banks to are holding cash as well but have very strong local investment understand what s happening with their cash. If you centralize options, with relatively attractive rates in vehicles such as time the cash, you can then control diversification at a group level. deposits. Their challenges are around managing currency risk Rather than having local treasuries managing it, you move it and tax issues, rather than relative yield on investments or the out centrally. Another change is that as counterparty limits have been reduced by many banks, in-country operating stability of their local banking partners.. Lindow: We re seeing that with currencies as well and not accounts need funding up early in the day. So we re seeing just the major currencies. In countries where clients may be more timed funding, where cash is drawn out of the local less comfortable with the banking system, we re seeing them banks at the end of the day but then pushed back into those pull currencies out of local banks and putting them in the banks at the beginning of the next day. larger banks. Companies are also going back into funds, but Williams: Even before the crisis, the role of the treasurer very selectively and they re taking very deep looks at what was becoming more strategic. It is even more so now, with the funds are invested in. the treasury function having board-level visibility. The Fossaceca: There s a lot more scrutiny around the details crisis prompted financial managers to better understand of investments. Treasurers are spending more time reviewing their internal liquidity and their ability to self-fund. They investment guidelines and examining fund prospectuses to are looking to tap into pools of liquidity around the world ensure their investment strategies are aligned with the fund s and are using tools like multi-currency pooling to leverage internal funds, reduce borrowing costs and add transparency objectives. Williams: Our clients are asking us to spend a lot more time among entities.they are also looking to improve partnerships with them to review their investment with other areas that impact working guidelines globally. The goal is to capital, such as sales or operations. minimize regional differences and Fossaceca: The credit crisis has played harmonize processes across regions so a major role in substantiating the value they have more consistency and control. treasury delivers through effective Horowitz: This is all bringing renewed liquidity management. More and more focus on liquidity portals technology corporates are relying on treasurers to that enables you to pivot from one examine their organization s current family of funds to another or move processes and execute more judicious into short-term investment options management of internal resources in different currencies. A new look at including more efficient use of funds available portal technologies seems that reduce reliance on external funding. imminent, particularly since we can Our Financial Strategy Group recently now build investment objectives into conducted an analysis of the world s top the technology and assist users with 1,000 companies. The study showed Phillip Lindow RBS International Cash Management their investment strategies. that over the past 18 months, corporates Phillip Lindow is head of global treasury that are liquid and have a high degree Fossaceca: With the very significant and investment management for RBS International Cash Management, where he of funding from internal sources have focus on counterparty risk, the directs product management, strategy and on average generated 15%+ more portals have provided our clients an solutions development in liquidity management, incremental returns than their less liquid opportunity to really invest across transactional FX/netting and investment advisory services for the bank s clients. rivals. In light of today s focus on liquidity, multiple families multiple financial Lindow also serves as the head of several corporates are using crossinstitutions with the click of a mouse. international cash management for the currency solutions to mobilize cash and Americas. In this capacity, he is responsible for overseeing the development and deployment GF: Liquidity management is more control counterparty exposure. These of payments, delivery channels and liquidity critical than ever. How has the function solutions provide the infrastructure to management solutions for the bank s corporate changed in the past 18 months, and how identify and extract pools of cash across clients across the region. Previously, Lindow was managing director might it change in the future? countries and currencies, which is and head of global treasury and investment critical in the current environment. Lindow: Early in the crisis we were management in the Transaction Banking concerned that much of the momentum Horowitz: Having access is hugely Business Unit of ABN AMRO and held positions at JPMorgan (and its predecessor Chase toward centralization would slow important from a reporting perspective, Manhattan Bank) and Deutsche Bank (and its as clients focused on diversifying and SWIFT as well as proprietary predecessor Bankers Trust). counterparty risk. Interestingly, though, / continued, p Global Finance January 2010 roundtable_tcm_jan_5.dan.indd 58 12/18/09 9:52 AM

5 Sponsored Roundtable: Treasury & Cash Management systems can provide that to help ensure not only intraday reporting, but intraday understanding of exposures. Also, you need to be sure you have the appropriate intraday facilities in place, country by country, currency by currency, and with your counterparty. High-volume users especially need true treasury settlements throughout the course of the day and need to have intraday credit in place. And they often need what we call a redirection model, with which they can move the payments they need to make for liquidity purposes from one partner to another. Lindow: If you re in a very challenging credit position, and you need that money to be mobilized, you need to have the flexibility to break that pool apart intra-day and to move that liquidity very rapidly with great efficiency. GF: More than ever, corporates are looking for ways to extract cash from their operations and increase working capital. What s working for them and what s not? Horowitz: We work with our clients to help them meet four main objectives: (1) turning collections into available deposits as quickly and efficiently as we can, (2) controlling disbursements, (3) managing information reporting on an intraday basis (sometimes minute-by-minute) and (4) ensuring liquidity management tools are in place whether for a net borrower or net short-term investor. Based on meeting these main objectives, we can assess how to improve each function by building metrics or by deploying technology. This typically involves how to handle the payment and trade stream and the information flow. Fossaceca: Treasurers are relying heavily on solutions that provide enhanced visibility, control and centralization to optimize their working capital and extract liquidity otherwise trapped internally within the business cash conversion cycle. Throughout this period, our clients have leveraged a broad range of tools including electronic payments, commercial cards, automated supply chain solutions and enhanced data analytics to reduce costs, streamline operations, mitigate risk and optimize working capital. We ve seen many companies look to supply chain finance solutions not only to extend their payables but also simultaneously improve the health of their supply chains by providing superior financing rates for suppliers. Williams: We ve been working with clients to implement technology with minimal footprint automating purchase order delivery, invoice and payment processing, and discount management. In particular, there are a lot of benefits to automating the accounts payable function, such as eliminating paper invoices, streamlining payments, connecting buyers to a shared network of suppliers ready to transact, and reducing calls to A/P by using a self-service supplier portal that provides real-time invoice and payment status. The end-game is to transform A/P into a profit center. Lindow: The intense focus on self-funding is forcing companies to continually look for greater efficiencies in extracting their own cash. To do this, you need to implement solutions broadly across your organization. You need to have your external accountants, your legal team, your tax team, your trade finance team all working together. If you leave out any of these key components, you re going to see much less success. GF: The economic crisis has made counterparty risk a prime concern for treasurers. How are they dealing with this and with their bank partners, vendors and customers? Horowitz: Non-banks are looking at KYB know your bank. It has become an important issue for many of the corporates we work with as well as those of our client banks who have corporates as their counterparty. Both the banks and the non-banks are scrutinizing the balance sheet and trying, from a partner perspective, to understand the ratings: What s the tier-1 capital ratio? What leadership positions are they taking? Are they investing in the business? Is the information transparent? These have become the foremost topics of conversation in the bank forums that we run. Fossaceca: The landscape of risk management has drastically changed. There s no doubt that concern about counterparty risk has intensified and expanded over the past year and a half, with implications that extend across clients, buyers, suppliers and banks. Throughout this period, corporates have focused on establishing contingency plans and reexamining their exposure to risk, constantly asking themselves, Am I diversified enough? Do I have contingency plans in place? We have seen several clients leverage the opportunities afforded by SWIFT connectivity to connect to multiple banks through a single point of access in order to lower switching costs and enhance their contingency strategies. Williams: We ask clients to look at counterparty risk along four dimensions investment risk; FX risk, as well as interest rate exposure; accounts receivables exposure; and operating risk. We talk to them about the quantitative and qualitative measures they should think about in evaluating these risks. On the quantitative side, we discuss everything from CDS spreads to looking at third-party research, rating agencies and key metrics. On the qualitative side, it s about understanding the countries they operate in what s the country risk and so on. We ve also started to make some of our own internal products available to clients. For example, we have a unique product called Cash Trade Execution that gives clients access to the research of J.P. Morgan s asset management company to help them assess counterparty risk. Lindow: Corporates are reviewing their counterparties much more regularly. They re also reviewing investment policies and taking a much closer look at the underlying instruments in their investments. The automated tools that treasuries use can create dramatic savings, but they also free up staff to do more of this risk analysis. Some of the solutions have been around for a while, but they re getting much more intelligent. The bank s providing real added value in an automated way so that treasury staff have the time to focus on these new priorities. Horowitz: Earlier I spoke about liquidity portals. Counterparty 60 Global Finance January 2010 roundtable_tcm_jan_5.dan.indd 60

6 risk concerns have caused treasurers to refocus their efforts around these types of applications. Overall, our clients tell us they are looking for up to six key things to allow them to automate the process of moving liquidity from a cash concentration account into various short-term investments. First, they want trading flexibility to make sure they re able to trade from one short-term investment into another. Second, robust reporting capabilities built into whatever tools they use, and third, a straightthrough process. Fourth is customization, including account monitoring and ensuring the account complies with the organization s investment policies. Fifth is risk mitigation knowing the fund data, the credit rating, the average maturity, the holdings. All the information a treasurer needs for short-term investment has to be embedded in the tool. Finally, it has to be multi-currency. Lindow: In the past an investment portal would have been a nice added feature. Now it s the central part of any cash concentration solution you re putting into place. Fossaceca: Being able to provide a portal where clients can invest across multiple counterparties is extremely valuable. Whether clients invest all of their money with us or have investment guidelines that dictate the diversification of investments across multiple counterparties, we provide tools to make investing easy and effective. That s really key taking a consultative approach and working with clients to implement customized solutions that address their specific needs. regional, there s also a huge opportunity to globalize these activities. Horowitz: When you look at a global or regional scheme, there are a few elements necessary to incorporate into your analysis. Understanding the value dating embedded in any kind of global cash management solution is vastly important. It s different in each country and different from a cross-border perspective. Secondly, you have to be clear about payment movement whether it s construed as an international or domestic transaction so the account structure is important, Ather Williams whether it s a resident or non-resident J.P. Morgan Treasury & Securities Services Ather Williams, managing director, is Western account. You also need to be aware of hemisphere liquidity solutions executive for J.P. the FX implications and exposure in an Morgan s Treasury & Securities Services (TSS) international solution. Finally, the tax business, which markets treasury management and securities services globally. He is and legal frameworks need to be in place. responsible for strategic product development Fossaceca: Whether businesses are and for the sale of comprehensive liquidity and buying or selling goods, managing investment solutions to J.P. Morgan s corporate and institutional clients. liquidity, or accessing capital markets, Williams previous leadership roles within every company is global to some TSS have included global head of strategy and extent today. As corporations continue business development. In this position, Williams leveraged TSS broad capabilities, as well as to expand their operations and enter those of J.P. Morgan s investment bank and new markets, they need a bank that can asset management businesses, to develop provide seamless global functionality, effective strategies for growing revenue and deepening client relationships. He was also transparency across borders and on-theresponsible for business development activities ground support across the world. such as acquisitions and divestitures. Williams Williams: In addition to country has also served as global segment executive for J.P. Morgan Treasury Services and as head differences, there are definitely sector of strategic planning for the firm s Worldwide and industry differences. We spend a lot Securities Services business. of time with clients to understand and Before joining J.P. Morgan in 2003, Williams served in several strategic and evaluate those differences. It s relatively financial management roles. He worked as a easy to put together a global solution management consultant with First Manhattan for a company in a global industry Consulting Group and in the financial institutions practice of A.T. Kearney, where he specialized like oil and gas, or for a company that in corporate and operations strategy for banks manufactures and sources everything and insurance companies. essentially in one location and distributes globally out of a hub. But you also have large companies with subsidiaries all over the globe, with local treasuries and so on. In that case, our work GF: Businesses are looking for global solutions for cash is less about finding a global solution and more about simply management. What does this mean, and what progress has helping them to regionalize their operation creating an inbeen made? house bank, for example so they can start to pull together Lindow: The issue seems to be as much about centralization liquidity. as globalization, and gaining visibility and control of your Lindow: More medium-size companies are sourcing cash no matter where it is or who it s with. It s important internationally and have a diverse supply chain or sales base. for banks to have the capabilities at a local and regional level While they tend to have more control over treasury functions, so they can deliver their global solutions in an automated, the treasurers tend to be stretched because there are only seamless way. We re seeing quite a significant pick-up in one or two of them. We re helping these companies leverage global optimization schemes not necessarily pooling, but solutions that are already working effectively for larger optimization, where you can start doing a global play with the companies. For these clients, an automated global solution balances. While payment technologies are still predominantly can have a tremendous impact. January 2010 Global Finance 61 roundtable_tcm_jan_5.dan.indd 61