Leaving Libor, the Tax Reform Saga Continues and Bloomberg’s Overlooked Treasury Tools
Here’s some of what you missed at the ATLG 2018 H1 Meeting in Summit, N.J.
Move Over, Libor. On April 3, the Federal Reserve Bank of New York began publishing the new Secured Overnight Financing Rate (SOFR), and in early May the CME launched SOFR futures. Now SOFR’s fate depends largely on the market’s willingness to accept the Libor substitute.
• Takeaway: Futures indicate SOFR’s future. Liquidity in the CME’s one-month and three-month SOFR futures has been light, but watch for growth. Trading in them will enable the development of curves to price other derivatives.
• Takeaway: Corporate impact is now. Half of ATLG survey respondents said their companies have Libor-based debt and derivatives extending past 2021. That’s the target date for SOFR adoption, and pricing Libor-based products may become difficult.
The New Tax Puzzle. Pushed by the need for tax revenue, congressional Republicans’ new tax law retains elements of worldwide taxation, although it does eliminate the “stranded cash” bugaboo. Section 956, which treats loans by foreign affiliates back to the US parent as taxable distributions unless strict conditions are met, was almost repealed but mysteriously reappeared in the bill at the eleventh hour, thus narrowing the exemption for returning overseas earnings tax-free. And the law’s new GILTI and BEAT provisions guaranty the US will collect taxes on at least some non-US earnings. The trick for corporate tax and treasury departments will be juggling those components.
KPMG recommends treasury top three issues treasury should discuss with tax colleagues:
• To what extent is the company legally restrained or facing withholding taxes or other financial penalties in terms of bringing cash back, which costs can be controlled, and are there offsetting foreign tax credits?
• In which currencies is previously taxed income (PTI) denominated, and how much will it cost at any given time to bring it back in dollars?
• Is this the correct time to repatriate cash given specific FX rates, and is it better to monitor the currency markets opportunistically?
Bring It On, Bloomberg. Bloomberg terminals may be pervasive, but many ATLG members haven’t been using them to their full potential. Executives from meeting sponsor Bloomberg provided a high-level overview of the latest tools. New currency valuation tools can reveal counterintuitive intelligence—China’s renminbi is now overvalued from a historical perspective. Treasury executives can query their companies’ bank group in the traditional way to generate a median FX forecast, then gauge its likelihood by doing scenario analysis using Bloomberg’s FX Probability Calculator.
• Takeaway: The euro’s many faces. It is important for corporate treasury to recognize that behind the front-page number there are multiple prices and levels of competitiveness that impact where to build a factory and other strategic decisions.
Following are NeuGroup Founder Joseph Neu's key takeaways from the meeting:
For more than two decades, NeuGroup has lead the way in peer knowledge exchange for treasury and finance professionals. With an unrivaled network of 18 invitation-only peer groups, NeuGroup facilitates more than 30 face-to-face meetings that connect peers, exchange knowledge and distill discussions. These face-to-face interactions, coupled with formal benchmarking, inform actions, transform practices, and enhance careers for the 440 members of the NeuGroup Network. Find out how you can connect at www.Neugroup.com.