Optimizing Global Payments: Creating Efficiencies through Foreign Exchange. April 10, 2012

Transcription

1 Optimizing Global Payments: Creating Efficiencies through Foreign Exchange April 10, 2012

2 Speakers Margaret Wesson, Vice President - Global Rates and Currencies, Bank of America Merrill Lynch Leslie Wong, Director Global Foreign Exchange, Bank of America Merrill Lynch Moderator: Patrick Molloy, Director Global Rates and Currencies, Bank of America Merrill Lynch

3 Patrick Molloy Bank of America Merrill Lynch Director, Global Rates and Currencies Manages specialty team of efx solution consultants, and serves as liaison between Global FX and Global Treasury Services Joined Bank of America Merrill Lynch organization in 2011 to lead integration of electronic Foreign Exchange products with traditional Treasury Services products Has 25 years experience in diverse roles within Global Transaction Services Leverages his experience in Payments, Commercial Cards, Treasury Products, Client Delivery and Operations to help clients design best solutions to meet their global transaction and foreign payment needs Holds B.A. from University of South Florida in Communication, obtained CTP from Association for Financial Professionals in 2002, and is regular speaker at treasury and finance forums on Foreign Exchange, Payments and Commercial Card topics 3

4 Margaret Wesson Bank of America Merrill Lynch Vice President, Global Rates and Currencies Provides expertise on Foreign Exchange online payments and hedging platforms Uses knowledge of international products to help clients customize solutions to meet their global needs Joined Bank of America s Rates and Currencies Origination team as an efx sales consultant in February of 2011 Started career as Foreign Exchange Analyst where she gained 10 years of Foreign Exchange and International Treasury experience Has BA in Business Administration from Furman University 4

5 Leslie Wong Bank of America Merrill Lynch Director, Global Foreign Exchange Works with companies to identify foreign currency exposures, designs and implements risk management solutions, and provides insight into constantly moving foreign exchange markets Advises on operational and accounting issues and offers structuring expertise For past 17 years, has partnered with clients across various industries and sectors throughout New England Holds an undergraduate degree in economics and master s in business administration 5

6 Agenda International Payments Landscape What Platform Best Suits Your Needs? Best Practices: Cross Border Payments / FX Risk Management

7 Your Feedback Does your business conduct cross border transactions? Are cross border transactions in U.S. Dollar or foreign currency? U.S. Dollar (14%) Yes (96%) No (4%) Foreign Currency (6%) Both (80%) 7

8 Corporate Goals in Cross Border Payments Cross-border transactions represented 65% of $4 Trillion average daily FX trading activity in April 2010, and continues to rise* Common corporate goals for cross-border payments Increased visibility, control and reporting Improved processes to reduce resource needs and time/transaction Achieve right mix of Local account payments vs. cross-border payments Payment Instruments for efficiency and cost Simple integration with treasury for hedging and accounting Single partner bank for global coverage, systems integration and servicing Competitive and simplified pricing *Source: Bank for International Settlements 8

9 Local Accounts vs. Centralized Non-Account Based Solutions There is no right solution. You choose the method that works best for your company. Local Account Based Solution: Process payments from your company-owned accounts in foreign countries Ability to deposit/receive funds in local currencies Easily managed by local staff Value of funds on deposit subject to rate shifts Centralized Non-Account Based Solution: Process payments worldwide from your central account Centralized management of all signatories, processes, funding Bank handles compliance and regulatory issues Allows for centralized staffing 9

10 International Payments Landscape

11 Why International is Important Who Why Nearly two out of every three companies are doing business internationally in some fashion 64% of all companies do business internationally 50% buy from foreign markets 48% sell to foreign markets 28% have foreign operations Companies are going global first and foremost to get access to new customers/markets 65% do business internationally to access new markets. 75% manufacturers named this as a main objective of international activities 33% want to access suppliers and/or materials 25% do business internationally to serve domestic customers with global operations Revenue expectations from international business is growing 35% companies polled generate between 11% and 49% of their revenues from international business 58% of all companies think international business will represent greater percentage of total revenues within next three years 11 Resource: 2011 Bank of America CFO Outlook Survey

12 Why International is Important Where Where they re doing business internationally, top foreign markets where respondents are doing business include Canada (83%) Mexico/Central America (78%) Asia (70%) Europe (69%) 12 Resource: 2011 Bank of America CFO Outlook Survey

13 What are FX Payments and Why Use Them? FX Payments refers to a company s ability to complete a wire transaction in a currency other than USD Payments are generally completed through a spot transaction A spot transaction is legally binding agreement to sell one currency and buy another for nearest, standard settlement (value) date Example American fashion designer receives invoice denominated in EUR for their purchase of fabric from Italian fabric manufacturer. Fashion designer sells US Dollars and buys EUR to pay invoice Example American labeling company sells its product into Canada. Invoices in CAD to be more competitive. Upon shipment, labeling company sells CAD and buys USD 13

14 Leveraging FX Payments: Examples of Common Payment Needs Supplier payables Distributor payables Investor Relations Dividend payments Interest payments Commercial Payments Agent/agency payments Insurance payables Expense payables Stock option payouts Business acquisitions Corporate jet landing fees Freight and duty payments Ships port and docking fees Clinical Trials Employee Compensation Expatriate payroll International pension payments Tax payments Sales Commissions Legal Payments Copyright fees Patent payments Global trademark registrations License and royalty fees Court costs or penalties Education College tuition/student payments Fellowships Conference costs Speaker Fees Research grants 14

15 Advantages of Local Currency Payment vs. U.S. Dollar Payments: Wiring Funds Overseas USD vs. Foreign Currency Companies who choose to wire payments overseas in USD can benefit greatly from wiring funds in local currency Wiring in local currency potentially allows company to: Increase Cost Efficiencies International suppliers often increase prices in USD to protect themselves from currency rate movement between billing and payment date Charge can be more than 10% of total invoice Visibility to FX Rates Obtain competitive exchange rate from your relationship bank and know exact amount of foreign currency paid to supplier Gain favorable payment terms Payments in local currency typically credited to supplier more quickly (foreign bank does not have to stop payment for conversion) There is potential to negotiate more favorable payment terms Please note: There are appropriate scenarios in which USD must be remitted 15

16 Advantages of Local Currency Payment vs. U.S. Dollar Key Benefits of remitting in local currency: Cost, Efficiency, Speed, Transparency Traditional USD Wire Local Currency Wire Pay out of US$1,000 Company sends USD wire from their account at their bank Wire is sent via CHIPS or through their bank s USD correspondent USD correspondent passes on transaction to beneficiary bank s USD correspondent US correspondent for beneficiary bank may levy lifting charge then sends out wire Beneficiary's bank converts USD to EUR at unknown exchange EUR proceeds are credited to beneficiary s EUR account Payment can take 3-5 days and beneficiary bank may impose hold time when funds are not available for withdrawal Pay out of US$1,000 Company sends EUR payment instruction to BACML BACML converts net amount from USD to EUR. Both USD and EUR amounts are known before payment is released from bank BACML routes payment directly to beneficiary s account via local wire network in Europe Beneficiary s account is credited in 1-2 days in EUR, and EUR is available for immediate withdrawal Potential Savings on $1000 wire sent in local currency rather than USD Traditional Local currency Timing 3-5 days 1-2 days Cost to payer $45.00 $17.50 Net proceeds $ $

17 What Platform Best Suits Your Needs?

18 Channels for Executing Foreign Exchange Online Banking Platform primary online banking platform that encompasses domestic & international wire payments capable of all payment types Bulk Payment electronic file submission allows companies to make large volume of cross-border payments with a single file (file based connectivity) FX Trading Platform allows spot, FX forwards, swaps, typically online confirmation & straight-thru-processing (STP) of trades FX Advisory Desk Speak with FX advisor to obtain live pricing, market updates and hedging advice Gain access to other resources including currency strategy accounting consultation risk management advisory 18

19 Considerations for Transacting Foreign Exchange FX can be managed at different places within a company What types of channels are available? How can they be used in an efficient manner? FX Payment Options Accounts Payable Treasury Cash Mgt Treasury Risk Mgt Online Banking Platform X X Bulk Payment X FX Trading Platform X X X FX Advisory Desk X X X 19

20 Best Practices: Cross Border Payments / FX Risk Management

21 FX Best Practices Focus on Control, Efficiency, and Automation Achieve convenience and efficiencies Reduce risks and the potential for error Lower costs Centralize reporting Leverage multiple payment channels Increase internal controls Managing cross border payments process: Trend toward centralization? Can internal processes help improve bottom line? 21

22 FX Best Practices The Risk Management Cycle/Process: Exposure Identification Exposure Quantification Hedge Decision Hedge Evaluation Policy Review Foreign payables Foreign receivables Cross-border acquisitions or divestitures Repatriation of foreign funds Inter-company cash flows Sensitivity analysis (Value-at-Risk) Scenario analysis Other methods Analysis of accounting and economic impact on the financial statements Type of hedge: Forward Swaps Options Option Structures Natural or operational hedges Performance against a benchmark (e.g., budget rate) Accounting effectiveness testing Is the policy still applicable Has business mix / strategy changed Update Foreign debt Review and Formulate FX Policy 22

23 Case Study Opportunity Client had a large number of USD wires being sent to Mexico Operations in Mexico created a mismatch on company s payables and all revenue is generated in USD Until recently, company has been sending $200,000-$400,000/month to Mexico in USD with no visibility/control on exchange rate Recent change in financial managers, as well as 60% revenue growth, brought added attention to FX exposure, making it a priority Outcome Bank of America Merrill Lynch discussed benefits of dealing directly in MXN currency and using hedges to lock in operating costs Provided solution for one of biggest issues: no visibility or control of exchange rates Company was also relying on Mexican accounting firm to communicate USD amounts that needed to be transferred Currently executing MXN forwards, as well as spot payments for remaining amounts that weren t pre-purchased In 2011, client saved 2-3% in FX related costs Uses Bank of America Merrill Lynch online product, as well as our FX advisory services 23

24 Q&A Have a question? Please click on the question box, type your question, and send.

25 Wrap Up Cash Pro Foreign Exchange Services enables you to: Initiate payments to anyone/anywhere, with multiple payment instrument choices Make payments in over 140 currencies via integrated foreign exchange Choose right connectivity or input model to best support your business model Repatriate funds received from foreign customers Manage hedge execution transactions with forwards, swaps, or drawdowns Aggregate FX positions from multiple entities worldwide Access to our top-rated FX Advisory team for research, hedging and trading support Next steps Create an action plan for FX and Cross Border Payments based on what you heard today Contact your Treasury or Client Manager to get more details on Bank of America Merrill Lynch solutions 25

26 Global solutions. Client commitment. Total connectivity.

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