International Treasurer®Practical Intelligence for Treasury Innovation

Peer Group Update: T30 Agenda Items for Fall 2010

Treasurers face big questions on economy, market and treasury impact.

The NeuGroup’s Treasurers’ Group of Thirty looks forward to its BNP Paribas-sponsored fall 2010 meeting next month. The agenda underscores the major questions of uncertainty confronting treasurers currently. 

Developing Issues: More Venezuela Bond; Economic Impacts; Herz Resigns

What’s on International Treasurers’ radar.

Discussion this week started with a recap of the NeuGroup’s Latin American Treasury Managers’ post-mortem discussion on the Venezuelan bond offering. We will be reporting on some of the takeaways in our upcoming issue, but for MNCs the allocations were almost totally weighted towards those importing vital necessities into the country and those that sought too much of the offering still lost out, as is typical, even if the definition of too much seemed to have gone up a bit.

Treasury Management: Uphill Climb Likely Awaits New Ratings Entrant

Kroll buys bond rating firm Lace Financial, but it’s likely not the better mouse trap the market wants.

Love them or hate them, the big guns of the credit ratings world are here to stay. To be sure much has been made of the evils rating agencies rained down upon the markets with their misguidance on CDOs and other dodgy instruments. But they are not going away and companies still need them.

Treasury Management: Continued M&A Activity in Tech Shows Treasury On the Ball

With M&A action continuing to heat up it’s a sure bet treasury has been in the strategic mix.

The masters of the M&A universe continue to shuffle the cards. Last week saw Dell offering big dollars for storage company 3PAR. This week, H-P entered that fray by countering Dell’s offer. While this and other deals means that companies are taking advantage of low financing rates and the cash in their coffers, it also likely means that corporate treasuries have been busy with a lot of preparation.

Market Update: In China, a New Funding Tool Emerges

McDonald’s is first non-financial foreign company to issue yuan-denominated bonds; other MNCs are sure to follow.

Looking to locally fund its expansion in China, McDonald’s became the first Western non-financial company to issue yuan-denominated bonds. This is sure to attract other Western MNCs, who in February became eligible to issue yuan bonds.

Treasury Management: Dusting Off the Share Buyback How-To Book

 Time for a refresher on buyback best practices.

It was only a matter of time. Corporates that have been allowing cash to pile up on the balance sheet—while seeing cheap debt financing available to them in capital markets if the need to stockpile more to, say, make an acquisition arises—are now not just thinking about but announcing share repurchase plans or the resumption of repurchases put on hold. What questions should treasurers be asking before they get back on the share repurchase treadmill?

Treasury Management: Keeping Tabs on Counterparty Collateral

What do crisis lessons on rehypothecation tell us about collateral management going forward?

Posting collateral is going to be much more widespread under Dodd-Frank and related derivatives markets reform. Therefore, corporate treasurers, not as well versed in dealing with prime brokerage desks, thus should move up the learning curve quickly. Here's why.

Developing Issues: Treasury 3.0, ERM Dissatisfaction, Venezuela Bond

What’s on International Treasurer’s radar screen.
 
This week’s editorial discussion revisited a number of familiar themes. One steadily growing theme is the realization that treasury management as a discipline is jumping to a new plane in the aftermath of the financial crisis. So what is in store for new treasury going forward and how should they position themselves?

Treasury management: Realizing the Importance of a Risk-Free Rate

A recent academic paper explores what happens to finance without a risk-free rate.

Investigating further the idea that corporate debt is coming closer to sovereign debt (see here), we stumbled upon a recent paper by NYU Finance Professor Aswath Damodaran, “Into the Abyss: What if nothing is risk free?” His conclusions suggest a profound impact for capital structure, investment decisions and even derivative use. Here's how...

Developing Issues: FinReg Agenda, SSCs in LatAm, Justifying No ERM

Issues on International Treasurer’s radar screen this week.

Peer group discussion items formed the bulk of our editorial discussion. We started with a major theme emerging from the development of the Treasurers’ Group of Thirty (T30) fall meeting agenda. Interestingly, there was mixed reaction to topics involving the impact of Dodd-Frank implementation.

Helping Chinese Banks Play for Real

By Joseph Neu

It’s in every treasurer’s interest to interact with Chinese banks in ways that help make the case for reform. To that end, here are a few suggestions...

Treasury Management: Managing Competitive Bidding Among FX Banks

What’s best practice when it comes to allocating FX business?
 
With FX banks again fighting for more flow, FX managers should consider anew how to best allocate their FX business to their banks (or even non-bank counterparties). With large MNCs, it is not unusual to allocate FX business to a dozen or more banks, which means it can be a challenge to share the FX wallet optimally without a tried and true method. Unfortunately even sophisticated shops lack a method they have confidence in.

Treasury Management: Goldman Gets Into OTC Derivatives Clearing

Competition for post-trade derivatives business heating up.

With Dodd-Frank now law, the post-trade piece of the derivatives market is where the action is. Joining other dealer banks, Goldman Sachs has thrown its hat into the ring by announcing on July 27 the launch of its Derivatives Clearing Services (DCS) business. DCS will provide OTC clearing service for interest rates, credit, foreign exchange, equities and commodities. What will it mean for treasury?

Breaking News: Rating Agencies Not Permitting Use of Their Ratings

As a consequence of Dodd-Frank, rating agencies worried about expert liability. But should their concerns go further?

Dodd-Frank contains a provision that spells bad news for rating agencies and issuers that are required to include credit ratings in official registration statements. The financial reform bill, which was signed into law today, removes the exemption rating agencies have enjoyed form Securities Act rules that deem those parties who prepare or certify a registration statement as being subject to expert liability. Issuers thus much seek consent, which the rating agencies are reluctant to give until they consider the consequences.

Treasury Management: Including Shadow Banking System in Bank Relationship Management

Treasurers concerned with managing their credit relationships need to look beyond traditional banks.

One outcome of the financial crisis easily overlooked is the spotlight it put on the so-called shadow banking system—and not all of it is bad. While many regulations are being written in response to the crisis, they mainly apply to actual banks. Thus, certain non-banks, which have managed to recede back into the shadows, will continue to avoid regulations making it more costly for actual banks to intermediate credit. These “shadow banks” will pick off business as a result. How should corporate treasurers respond?

Treasury Management: NeuGroup FX Groups Set Agendas

FX Managers set top priority for September meeting agendas.

Members of The NeuGroup’s FX Managers’ Peer Groups 1 & 2 set agendas last week for their meetings in September. The resulting agendas overlap on topics of high import, starting with

Unburdening the Routine with Outsourcing

As treasury gets more strategic, outsourcing the routine, non-strategic functions gets more important. Often this starts with treasury systems as evidenced by SWIFT service bureaus.

Like never before market pressures are forcing multinational treasury organizations to re-examine their day-to-day functions to meet and exceed the requirements of their customers — both internally and externally. The pressures come from many sources but the main drivers are the advances in automation along with the growth of internet technologies, cost reduction and efficiency mandates, further centralization demands, calls for more strategic input and rapid regulatory changes and compliance requirements related to FAS 133, IAS 39 and Sarbanes-Oxley (SOX) among others.

A New Post-Treasurer Path

By Joseph Neu

Deep within the fires of enterprise risk management frameworks and related corporate governance mandates, a new title is being forged: that of the Chief Financial Risk Officer (CFRO). Before this, according to “tradition,” a senior treasurer that took on more strategic activities—or had non-core treasury areas reporting into him—could jump up to a VP, Finance (or SVP) title, acting formally or informally as a deputy CFO, while waiting for the call to become CFO somewhere. But now there is a new path for treasurers to follow, one with this new title.

Treasury Management: Banking Relationships to More Aggressively Court Share of Wallet

Treasurers should be prepared for on-going change in bank relationships.

Bank relationships have been in a state of flux since the onset of the financial crisis and treasurers should be prepared for this trend to continue.  Faced with unprecedented new financial regulations, banks have to rethink their business models in many cases, and along with them the customers they wish to serve.

Developing Issues: FX Concerns, Custodial Bank Risk and Bank Procurement

Issues on International Treasurer’s radar screen.

This week’s editorial meeting raised a number of issues starting with FX items being considered for upcoming peer group meetings, further consideration of issues related to procurement of banking services, including the potential need for treasurers to be focusing their bank counterparty and operational risk concerns on custodial banks.