Cash Management. Staying ahead of the game. treasurytoday

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1 Staying ahead of the game treasurytoday

2 Paul Donofrio Head of Global Corporate Banking Bank of America Merrill Lynch Staying ahead of the game As the world moves on from the financial crisis, the focus for corporate treasurers has shifted away from damage limitation to the need to adopt a more forward-thinking approach. In this supplement, we look at the opportunities currently available to corporate treasurers looking to optimise their cash management activities. Going global Announced in September 2008, the merger of Bank of America and Merrill Lynch was a milestone in the financial crisis. Two years on, we speak to Paul Donofrio, Head of Global Corporate Banking at Bank of America Merrill Lynch, about the achievements of the past two years, cultural changes following the merger and current investments in product development. How is Bank of America Merrill Lynch positioned to provide global treasury solutions? What makes us unique in Global Treasury Solutions (GTS) is how we are organised. Many of our peers have siloed this function, whereas we view it as another solution that we are providing to our clients around the world. Solutions that range from M&A advice to merchant cards, from GTS to derivatives. We don t push products on a client rather we try to figure out what a client needs, and then provide the best solution. Our structure facilitates that. We have coverage officers corporate and investment bankers who work with clients to understand their requirements, with a view towards bringing in the right specialists to customise the optimum solution. GTS is such a ubiquitous need of corporations that it is usually part of every dialogue we have with clients. In today s world, CFOs and Treasurers are taking a much more holistic view of their company s financial needs and their scope of responsibility, both from a geographic and a functional standpoint. They are spending more time with their Boards and with other business leaders to manage not only their financial flows but also their financial risk and their cost structure. And at Bank of America Merrill Lynch, we are structured to meet these evolving needs. We are talking to companies holistically about the linkages between their requirements, and we are providing the products and solutions that match the spectrum of their goals. This starts with corporate and investment bankers who understand our clients needs, are able to recognise a requirement for a GTS sales product, and can get the right person in the room to design the appropriate solution. Is this a new approach for Bank of America Merrill Lynch? Bank of America has long had a client-first ethos, but in the combination with Merrill Lynch we have expanded our solutions and brought this ethos to a new level. In the past our GTS effort was integrated more with corporate than investment banking, capital markets or other areas of our bank. But our integration with Merrill Lynch made us re-examine our processes and product offerings in every market around the world. One important facet that came out of the merger was the re-dedication to our client-first ethos and the recognition that our client-facing executives needed to be versed in all our product offerings. In essence, every client-facing banker should be product-agnostic and solution-oriented. It has been extremely exciting and rewarding to see, for example, our investment bankers or traders recognising a client need outside of their core area of expertise, and reaching out to our GTS team to pull them into a particular situation where a treasury solution is required. What other cultural changes have taken place following the merger? Prior to the merger, Bank of America had a strong corporate and investment banking business that was global but focused primarily on US companies. Our investment banking solution set, while a little narrow, was very strong in debt products. Merrill Lynch had an investment banking business that was truly global and strong across a broader range of products. The combination of our two entities was a hand-and-glove fit. In the US, the merger gave us leading capabilities in every corporate and investment banking product. Merrill Lynch brought us incredible capabilities in M&A and equity origination, and increased our already strong capability in debt solutions such as loans, high yield and investment grade bonds. Twenty-two months on, we have brought together the best aspects of both organisations. The culture we are creating puts the client at the centre of everything that we do, with a focus on developing customised solutions tailored to 2 treasurytoday October 2010

3 their specific needs. It is a culture that encourages our executives to recognise, develop and aggressively recommend the right solution for a client, even when it doesn t directly benefit their particular product line. I believe this is a true differentiator for our company. As we expand our business, we are also very focused on innovation developing new ideas, thinking outside the box and bringing in diverse expertise from across our company so that we can find the solution that brings the most value to our clients. We are building this culture by talking to our teams about the power of working together and educating them on our different products and opportunities around the world. It s all about getting everyone to realise that if we are going to grow a company of our immense scale we do $40 billion in business with corporations around the globe then we need to be relevant across the entire spectrum of financial products. And that means listening to our clients and helping them to choose the solution that is right for them. How are you developing your products in light of the merger? If you think of our GTS business today, we have a very broad range of clients ranging from large multinational corporations headquartered in Japan to small private companies in California. That breadth of client is driving continuous innovation across an incredibly diverse set of GTS product solutions. As we look at our business we know we have natural advantages in the US. But we are not resting on that strength. We are investing in a whole host of GTS capabilities around the world. In May 2008, for example, we announced a joint venture with Wells Fargo that is expected to dramatically improve our ACH programme. This will see us establish a joint company, Pariter, that will build out an ACH capability on the latest technology that both Wells Fargo and Bank of America Merrill Lynch intend to leverage. The design and development are largely complete and testing is currently taking place. The economies of scale that this larger platform will deliver is expected to ultimately lead to cost efficiencies, improved functionalities and hopefully faster turnaround times for Treasurers as they look to move to electronic transactions. In addition, now that we have integrated Merrill Lynch, we are offering our GTS solutions to an expanded set of multinational and indigenous companies in Europe and Asia. We know we can provide GTS solutions to these companies and that represents an enormous opportunity for us. To meet the needs of this new client set, we are investing in language and specific market capabilities to ensure that we cater to the nuances of local market regulation and formats. We are also investing in CashPro Online, our strategic online portal for clients to manage their global treasury transactions and overall working capital solutions. CashPro Online provides global access to our comprehensive set of online capabilities. We are expanding both the portal and the services that deliver key functionality for clients to manage their business. We made what I perceive to be one of the single largest investments in the transaction banking industry by moving to web 2.0 the technology that allows us to develop highly dynamic user interfaces to greatly enhance the client experience. Approximately 200,000 individuals are using CashPro Online as their treasury management solution today, and we expect this number to double by year-end as we complete client conversions to this strategic solution. How successful has the merger been and how much is left to do? The merger has been a tremendous success. As part of the transition team, I helped to integrate Bank of America and Merrill Lynch s corporate and investment banking businesses so I had a great seat from which to observe our progress. Obviously we bought Merrill Lynch at the height of the credit crunch and we were integrating the company in one of the worst financial crises since the Great Depression, so it was a pretty stressful period. Nevertheless, we are exceeding all our transition goals. To give you sense of this, 22 months after the merger, we are number one in the US and number two globally for investment banking. We dramatically exceeded our target revenue in investment banking last year. We also exceeded our market share goals. In terms of our coverage teams and our teams that execute on our solutions, these are fully integrated and working seamlessly together around the world. Do we still have benefits that we are going to reap from the merger? Absolutely. We may be ahead of plan, but there is still more to come because some integration issues take years like the merging of back office systems, office relocations etc. However, in terms of client delivery, I think we are completely done and can declare victory. treasurytoday October

4 Foundations for efficient liquidity management In the current economic environment, treasurers are looking to maximise efficiencies, improve cash flows and returns and rein in funding costs all while tackling the challenges brought by additional responsibilities, reduced staffing levels, low interest rates and an evolving regulatory framework. In a credit drought, every drop of liquidity counts, and the banks are responding to treasurer s requirements for improved cash management with the next generation of treasury portals and sweeping solutions. Treasury Today spoke to Jose Franco, Global Liquidity Executive, Bank of America Merrill Lynch about the obstacles treasurers are currently facing and the latest solutions they can draw upon when building an efficient liquidity management structure. Jose Franco Global Liquidity Executive Challenges in 2010: the story so far The increased profile of corporate treasury in the wake of the financial crisis has been well documented. While taking on a more prominent role has given treasurers an opportunity to assume additional responsibilities and gather more support for treasury projects, treasurers are also facing a range of new challenges: Doing more with less. In the past months, corporate treasurers have had to expand their scope of expertise to encompass more strategic and risk based activities. At the same time, many treasuries have had to shed staff as a result of the challenging economic conditions. Ultimately this means that treasurers have to do more work with fewer resources. Low interest rate environment. Treasurers are still expected to deliver returns to shareholders, but the low interest rate environment means that yields on investments remain low. In the current climate, even if treasurers are prepared to increase their short-term investment risk, the payoff may not be worth it. You might be able to pick-up another five to ten basis points, but the risk and the potential impact to your business could be significant, comments Jose Franco. From local to global. In many cases, cutbacks have focused on reducing or eliminating finance and/or treasury functions in local countries and taking on the management of these functions on a regional or global basis. While such restructuring gives treasurers central control over treasury activities, it also reduces local expertise, which is particularly critical in light of today s evolving regulatory landscape. Working with local banks. Corporate treasurers today realise that no bank has a domestic presence across the whole of Europe, says Franco. In certain instances, they are utilising local banks for local business. The challenge here is to ensure visibility and control over the funds that are managed locally, at a time when bank counterparty risk continues to be a fundamental concern for many treasurers. Funding. Credit remains limited and expensive and the focus is on recycling cash internally while saving credit for a rainy day. This approach became particularly attractive when credit lines dried up at the height of the crisis: corporates looked to tap their own working capital and began to move to a self-funding model. Since then this trend has continued, but for large companies with large legacy systems and infrastructures, the task of rounding up all of the group s idle cash can be formidable. Building an efficient liquidity structure In order to get the most out of their cash, treasurers need a liquidity structure that provides full visibility and control over the company s cash. Utilisation of credit lines is reduced compared to what we would have anticipated even five years ago, says Franco. Clients have seen that by utilising liquidity solutions to concentrate global cash, they can effectively move money whether it s in the same currency or cross-currencies between their group companies, and have use of cash at a group level. Of course, one size does not fit all when it comes to liquidity models. Every company has its own challenges, its own treasury objectives and its own geographical footprint. Some companies might be looking to sweep cash from Asia to EMEA and from EMEA to North America (the follow the sun model); others may simply be looking to sweep cash from local subsidiaries in Spain, for example, to a concentration structure at the pan-european level. Flexible plug and play solutions can be useful in accommodating these varying needs, according to Franco: As a corporation s model becomes more sophisticated, plug and play makes it easy to add more entities, currencies and countries into the structure a building block approach. It is also crucial to avoid focusing on the big picture at the expense of local concerns, such as payables, receivables and regulations. While an all-encompassing, single global liquidity structure might sound ideal to a treasurer, the reality is that any liquidity structure has to work on a micro as well as a macro level. There is no one bank that does everything globally for everybody, says Franco. There has to be a mix of utilising local banks and strategic locations, and then using automated multibank sweeping capabilities to draw funds from local banks and concentrate them into a counterparty within the corporates global relationship. 4 treasurytoday October 2010

5 For example, Bank of America Merrill Lynch was recently approached by the treasurer of a large multinational company that had 600 bank accounts globally, was working with 50 different banks, and had multiple different ERP systems. The treasurer was looking to gain control over and ultimately to enhance use of the group s funds. With a challenge of this magnitude, where does one start? With visibility, according to Franco: The first step is to get information from all the providers through one portal in order to see what cash is being held around the world. Only then is it possible to make use of sophisticated forecasting models and decide how to control the cash. Obtaining visibility Banks have been moving towards a vision of a single portal, through which corporates can see their cash balances across all of their banks, manage payments and receivables and access a range of services such as trade finance, foreign exchange and investments. Such portals are now becoming a reality, but may not be the best solution for everyone. Larger corporates may view SWIFT connectivity as a more attractive alternative. Minimising counterparty risk remains high on the agenda for most treasurers as a result of the financial crisis, and as a bank-neutral solution, SWIFT may position corporate users to switch banks with minimal disruption. However, for corporates that are not large enough to justify SWIFT connectivity, these next-generation portals can streamline information and provide a clearer view of the company s global bank accounts and liquidity. Controlling the cash Once the treasurer has visibility over the company s cash, the next step is to concentrate it. This is where enhanced sweeping solutions may come in: Multi-bank pooling. By using multi-bank sweeps, treasurers can sweep cash from a number of third party banks to a single concentration bank. Zero-touch. Bank of America Merrill Lynch aims to provide zero touch concentration, whereby cash is concentrated into a single account or pooling structure without intervention by the treasurer (other than standard reconciliation, which could be automated using the treasurer s systems). This is attractive to corporates who are looking for a passive structure. Others may be looking for a more active structure, in which they manage the cash themselves. In this case, the bank s role is to provide richness of information combined with attractive solutions to optimise the cash. Once cash has been concentrated, enhanced investments solutions can be brought in. Account-based solutions have given way to on and off balance sheet solutions including sweep investments, offshore sweeps, money market funds and more. Beyond multinationals Traditionally the preserve of large multinationals, these proactive approaches to cash management are increasingly being adopted by middle market companies. In the last four or five years, regional and middle market companies have been looking to embrace best practices in liquidity management, says Franco. They don t have the complex technical infrastructure that these larger companies do, Corporate wish-list What do treasurers want from their banks? Consultative advice. With lower staffing levels, there is an opportunity for banks to add value by offering an increasingly advisory role. Flexible solutions. In a dynamic environment it is crucial to have solutions that can evolve with the company s needs and that will not need replacing in a few months time. Spreading the risk. In order to mitigate counterparty risk and in response to internal limits per institution, which may have been reduced for the same reason many treasurers have moved away from the single bank model to using two or three global or regional banks. A single portal that can bring all of the banks data together in a single view is therefore desirable. Tailor made solutions. Off-the-shelf is off the menu treasurers want solutions that are tailored to their individual needs. Relationship banking. Treasurers are looking for solutions that will work not just today, but also tomorrow and in ten years time. Rather than focusing on closing a particular deal, banks are therefore increasingly taking the time to understand their clients and their cash flows in other words, practising strategic relationship banking, rather than transactional banking. but this means that they are nimble and they often implement these solutions more quickly than larger companies. Non-Bank Financial Institutions (NBFIs) is another group that is paying closer attention to liquidity management techniques. These institutions have very sophisticated treasury departments themselves, continues Franco. Once they have the visibility and the control, they will do their own enhancements. They have historically been so cash rich that they haven t worried about this so much in the past. Now every cent and every penny counts. treasurytoday October

6 Cindy Murray Global Corporate Banking ecommerce Executive ebam: more transparency, security and control As most treasurers and financial executives can attest, bank account management has been, with too few exceptions, a world dominated by paper. Despite more automation in other areas, opening and managing accounts has remained mostly a manual process. We may be able to send s, instant messages and texts to the other side of the planet in seconds, but companies can t seem to escape the paper shuffling required to make changes to an account. Given the other advances in banking in the 21st century, this cumbersome, paperintensive and time consuming process is becoming harder and harder for companies with multiple banking relationships to tolerate. The pace of business has never been faster, with corporates opening and modifying accounts around the world with expedited expectations. In this climate, the margin for error has shrunk significantly, demanding a better solution. To address this frustration among treasurers who sometimes must take several steps for something as simple as an address change banks must be more aggressive in exploring electronic bank account management (ebam). By employing more standardised processes and enhanced interaction through ebam, financial institutions can not only create more streamlined processes but can also give clients more transparency, more robust security features and better control, including anytime access to accommodate their schedules. With a web-enabled ebam system, treasurers and other users would gain more visibility and control over such tasks as opening accounts, changing signer authorisations and limits, and digitally signing documents. On top of transparency, users would benefit from shorter cycle times and reduced risk related to these actions. More strategic use of resources Those potential gains for clients led Bank of America Merrill Lynch to embrace ebam and work with IdenTrust TM to bring a solution to corporate clients. This venture is consistent with our overall goal of bringing the most innovative technology to the bank s customers around the world, and the benefits of reducing the manual, paper-based account process should free up treasury resources for more strategic functions. We also believe that enhanced account management capabilities could be a significant factor for corporates when evaluating financial service providers. Large multinational corporations often work with several financial institutions across multiple regions, and the different systems used by those institutions mean corporates must manage many different processes separate from the others. Since this activity is mostly paper-based and handled manually, bank account management can be costly for a company, and efficiency and security remain constant concerns for both clients and banks. It is easy to see why those concerns exist when you consider the aspects of paper-based account management: long cycle times, unreconciled records, paper, printing and postage costs, and unproductive customer interactions. With so much risk of error, or even fraud, treasurers have no choice but to focus more heavily on visibility and security, joining the ongoing quest for increased efficiency. Installing straight-through processing can significantly cut the long implementation cycles in bank account management, giving banks and corporates more consistency and speed. That, in turn, should lead to more stable and robust long-term relationships. Standardise through technology Imagine a system in which corporates can deal with each of their financial institutions on the same level, enjoying more standardised banking processes. Through ebam, onboarding and ongoing account management should be easier. Banks will be better able to provide corporate customers with consistent messages, as well as a standard way of communicating those messages, when opening and maintaining accounts. Banks and corporates can then continue to expand their interactions to other treasury services and other lines of business, such as capital markets or leasing. As for the specific technology employed by ebam as offered by Bank of America Merrill Lynch, features of the system include encryption, digital signing and real-time request tracking. Instead of manual data entry, treasurers would benefit from the re-use of existing information in electronic documents. In addition, companies would have centralised audit trails, aided by an improved confirmation process for messages received and changes to accounts. 6 treasurytoday October 2010

7 Through this increased visibility, treasurers and executives will have a much better ability to predict trends, allowing them to do more strategic business planning. At the same time, internal costs can be reduced through expedited processing and accelerated response times. These reasons and more are why Bank of America Merrill Lynch has pursued ebam as part of its drive to provide corporate and commercial clients with the next generation in online banking services. In 2009, Bank of America Merrill Lynch launched CashPro Online, a web-based banking channel that provides a single point of access to global treasury, debt, cash management, investments, trade finance, foreign exchange services and other financial capabilities. CashPro Online also will include a new payments hub that will allow Bank of America Merrill Lynch to integrate common payments processes, react quickly to evolving standards and regulatory changes, and leverage payments capabilities to boost efficiency. This intuitive technology will allow clients to move beyond transactions and increase productivity and profitability. The design of CashPro Online aims to give businesses access to their financial products anytime and from anywhere, with real-time feedback and instant client support through , chat, and mobile alerts. Through this increased visibility, treasurers and executives will have a much better ability to predict trends, allowing them to do more strategic business planning. Our ebam effort with IdenTrust TM will complement this goal by enabling us to develop strong relationships when clients open accounts online. Those initial interactions are crucial in the current banking environment, when customers may be less tolerant of subpar service or product offerings. A bank that can trim the onboarding time from weeks to days or even hours is much better positioned to cultivate a long-term, mutually beneficial relationship with its client. Banks that want to commit to building a successful ebam system should know that it requires a tremendous amount of work. We believe such initiatives are worth the effort, and Bank of America Merrill Lynch is focused on being a leader in ebam. Between improved service and stronger relationships, our clients deserve that kind of investment. Amid difficult economic conditions that have tested financial institutions around the world, Bank of America Merrill Lynch not only has survived but is thriving, expanding its global reach with the power of two successful corporations. As one of the world s largest financial institutions, Bank of America Merrill Lynch provides a full range of banking, investing, asset management and other financial products and services. Clients include consumers, small and middle-market businesses and large corporations, which have access to innovative services in mergers and acquisitions, equity and debt capital raising, lending, trading, risk management, research, and liquidity and payments management. All of that adds up to an organisation that serves more than 140,000 corporate clients in more than 150 countries. Bank of America Merrill Lynch has relationships with 99% of the US Fortune 500 companies and 88% of the Fortune Global 500. The joining of Bank of America and Merrill Lynch has created a leading global banking and wealth management franchise, as well as a premier corporate and investment banking and capital markets business. The union has enabled the bank to deliver an even wider breadth of world-class products and services to clients through its unparalleled size, scale and global presence. In the world of cash management, Bank of America Merrill Lynch offers treasury services in 68 countries. These services include comprehensive clearing services in all major currencies, a full range of treasury management services and comprehensive foreign exchange services. For an idea of Bank of America Merrill Lynch s reach, consider that it executes more than 20,000 transactions per day in nearly 100 currencies with average daily notional volume of $70 billion. Other services include liquidity management, banknote services and a full complement of trade services. All told, more than 7,500 Bank of America Merrill Lynch associates manage clients cash flow worldwide, supporting businesses around the globe with local language payment solutions. Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ( Investment Banking Affiliates ), including, in the United States, Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, which are both registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed. CashPro is a registered trademark of Bank of America Corporation. IdenTrust TM is a trademark and service Mark of IdenTrust, Inc., and is protected under the laws of the United States and other countries. treasurytoday October

8 It s a new world. Make your mark. Success in today s world demands more than a business-as-usual approach. At Bank of America Merrill Lynch, we combine the breadth and depth of our platform with innovative solutions to help our corporate and institutional clients win. Working together, we re taking your opportunity further. That s return on relationship. Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation ( Investment Banking Affiliates ), including, in the United States, Banc of America Securities LLC, Merrill Lynch Professional Clearing Corp., and Merrill Lynch, Pierce, Fenner & Smith Incorporated, all of which are registered as broker-dealers and members of FINRA and SIPC, and in other jurisdictions, Merrill Lynch International or other locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured *May Lose Value *Are Not Bank Guaranteed Bank of America Corporation AB-AA-0202ED