Re-inventing Global Liquidity Management: Can a multinational operate with minimal bank accounts?

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1 Re-inventing Global Liquidity Management: Can a multinational operate with minimal bank accounts? Jim Scurlock Senior Manager Parimal Hemkar Director

2 Agenda Microsoft Overview Life Cycle of the $ In House Cash Center Pay on Behalf Multi-country ZBA Bank Rationalization Summary

3 Microsoft 120K+ employees $86B+ in annual revenue $86B+ in cash & Investments 300+ operational subsidiaries Presence in 126 countries 100+ banking relationships Our mission is enable people and businesses throughout the world to realize their full potential by creating technology that transforms the way people work, play, and communicate.

4 Life Cycle of the $ Risk Management Treasury Operations

5 Before In-House Cash Center Cash required for intercompany settlements Repatriating cash was time consuming Too much cash held in local bank accounts Unfavorable interest rates on local investments Increased risks

6 In House Cash Center (IHCC) The In House Cash Center is a virtual in-house bank Manage intercompany loans Centralized clearinghouse Automated accounting Balances invested in Treasurymanaged portfolio Participation depends on tax & local regulations MSFT #6 MSFT #7 MSFT #5 MSFT #1 Centralized Treasury Portfolio MSFT #4 MSFT #2 MSFT #3

7 Pay on Behalf (POB) Objective: Implement a just-in-time process to centralize A/P disbursements from treasury bank accounts on behalf of subsidiaries. Invoice received & payment approved ERP chooses cheapest payment Payment file sent to bank Bank debits account Vendor receives payment

8 Benefits of Pay on Behalf Simplified bank account structures Reduced cash at subsidiary Increased cash in portfolio Reduction of transaction costs Consolidate invoices by company Consolidate invoices across companies Reduced FX fees

9 Pay on Behalf Lessons Learned Vendor Master File Engage Stakeholder Change Management Review VMF Standardization Treasury Accounts Payable IT Subsidiary Accounting Payment frequency Strategic vendors

10 Multi-Country ZBA Objectives 100% automated accounting! 1. Reduce bank account balances to zero 2. Automate subsidiary funding process 3. Automate cash sweeps to portfolio 4. Automate subsidiary cash concentration Inter-company ZBA structure is the most optimal solution to manage bank account balances

11 ZBA Considerations International ZBA availability Limited customizable text Manual accounting for ZBA Company tax structure Cash forecasting Resident/Non-resident Central bank restrictions or reporting 11

12 ZBA Scope & Benefits Scope More than 30+ countries Hundreds of bank accounts Multiple currencies Benefits Just-in-time subsidiary funding Automation of collection sweeps Reduced average daily balance Improved operational efficiency Increase in monetary gain Decrease in sovereign risks Decrease in bank fees ZBA is the most optimal solution

13 Strategizing Banks Identify statutory or regulatory banking requirements Identify the right partner regionally or globally Identify the right bank per country Strategic customers Banking capabilities

14 Summary - Leverage Technology Focus on long term automation Create scalable solutions Engage internal business partners Develop a clear roadmap Change management Rationalization your banks

15 How a Bank Can Help? Bank View: Citi How bank can help? Global network Enhanced capabilities Customized tools Regulatory requirements Better Controls

16 Citi: Moving $1.5 T in 45 countries Europe Austria Belgium Bulgaria Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy London PLC Luxembourg Netherlands Poland Portugal Romania Romania Russia Slovakia Spain Sweden United Kingdom North America Asia/Pacific Canada United States Latam Puerto Rico Algeria Tunisia Africa Middle East Abu Dhabi Bahrain Dubai Israel Kuwait Lebanon Qatar Sharjah Australia China Hong Kong Indonesia Japan Korea Malaysia New Zealand Singapore Taiwan

17 Global Concentration Service: Moving Every Last Dollar! With the Sun Additional Challenges Difference in timezones Back Valued transactions Holidays Against the Sun

18 Tools for Client Customization Pre-set rules Customized tags Comply with Regulations Assist clients in: Moving exact amounts that they need to Auto reconciliation Keep track of inter company loan movements Comply with country specific regulatory requirements

19 How Proprietary Network Helps Below example shows cost savings when funds are moved through Citi s Network Multi-Bank Structure Bank s Branch Network # of A/Cs Number Number # of A/Cs in 3 rd party bank 80 0 # of A/Cs at Citi- in ZBA Cross Border A/Cs Cross Regional A/Cs 2 2 MBTBA A/C Fee $265 0 Domestic Sweep Fee $25 $25 Cross Border Sweep Fee $100 $100 Cross Regional Sweep Fee $500 $500 In & Outgoing Wire Fees $2 per wire 0 Monthly Cost $23,700 $7,500 Yearly Cost $284,400 $90,000

20 Help Address Regulatory Requirements Examples: Central Banking reporting Limits to inter company lending / periods Regulatory Requirement Compliance Tax approvals for specific amounts / periods China Israel Russia Singapore Taiwan

21 Better Controls & Risk Management Enhanced Risk Management Leaving zero balance in certain jurisdictions Dynamic Limits to subsidiary lending or borrowing Limits on movements to conform with tax requirements Interest Reallocation Services Assist clients : Provide exact amount of funding required no excess balance Control and monitor inter company loan movements Fund movements subject to tax considerations Optional: Keep track of inter company loan positions and interest on arm s-length pricing

22 How Does a Bank Facilitate In-House Banks? Support global network / accounts for subsidiaries Seamless Domestic / X-border Sweeps Assist auto-reconciliation between legal entities & IHB Sharing intra-day Liquidity or DOLs Efficient / Robust Technology platforms

23 Thank you!!! Jim Scurlock Senior Manager Microsoft Corporation Ph: (425) Parimal Hemkar Director Citi Ph: (212)