International Treasurer®Practical Intelligence for Treasury Innovation

Peer Group Update: NeuGroup Treasury Investment Manager Group Sets Agenda

TIMPG members set priorities for October meeting.

Members of The NeuGroup’s Treasury Investment Managers’ Peer group recently came together in a meeting planning call to set the agenda for their peer group meeting in October. It’s perhaps not surprising that with US corporations currently holding record amounts of cash, members of the group were keen on evaluating how that cash is invested. Here's what they had to say.

Developing Issues: China’s Banks, Cash Investment Infrastructure, Risk Oversight

What’s on International Treasurer’s radar screen this week.

On the heels of stress testing banks in Europe, more attention is being paid to the balance sheets of Chinese banks.The recent IPO of Agricultural Bank of China, the last of the four largest Chinese banks to list, has also prompted reviews, since investors other than the Chinese government are on the hook for some of the risk. We will sort out the recent commentary and give treasurers some indication of what they can do.

RBS Splits the Baby

Investment managers seeking flexibility by staying short while ruing the miserable yields on short-term paper could have a new product that solves this conundrum. Royal Bank of Scotland launched a new deposit account that gives corporate investors the liquidity
of a call facility but allows them to earn a higher yield if they decide to keep their funds on deposit for a longer period of time.

Getting the Most Bang for your Buck

The one thing the financial crisis taught was the value of having access to your cash. With bank and capital markets sources of liquidity drying up, companies found it hugely advantageous to have their cash management systems optimized. Rethinking how to improve and deploy cash firepower was therefore a topic of particular interest at this month’s EuroFinance conference in Miami.

Developing Issues: Account Management, Investment Options, Tax Changes

 A roundup of topics International Treasurer is investigating.

The first morning of the EuroFinance conference in Miami yesterday featured a discussion about how to rationalize sprawling numbers of international bank accounts. George Zinn, treasurer of Microsoft, and Lawrence Hirsch, assistant treasurer at AES, recounted how they went about trimming their thousands of overseas bank accounts and standardizing processes and data reporting for the ones that remained. While a work in progress for both companies, they reported that having the process well underway when the financial crisis struck allowed them an important degree of visibility that helped them ride out the storm.

Senate Turns to Derivatives Rules

The Senate’s Easter recess put the discussion of derivatives regulation on hold for the first week of April, but the issue remains top of mind for treasurers. The Restoring American Financial Stability Act of 2010 (RAFSA), which is Senator Christopher Dodd’s latest version of his financial reform bill, came out in mid-March and subsequently passed the Senate Banking Committee. It now has to be thrashed out on the Senate floor.

Purchasing Card Conundrum

Banks may be cracking down on retail users of credit cards. But some corporates are using them to pay multi-million-dollar invoices. The clients doing so are looking to increase revenue share from their card companies, through negotiating discounts or cash-back deals.

Incentives Key to Accurate Cash Forecasts

The financial crisis put an end to the idea that cash forecasting could be a multi-year enterprise with any chance of relevance. Two years, yes. Three? Well, anyone basing business decisions on that time frame may come away burned, given how fast the markets and the larger economy evolve.

World-Class Cash Management Project

In the wake of the successful World-Class FX Management project undertaken by The NeuGroup’s two FX Managers’ Peer Groups, its Global Cash and Banking Group has decided to craft its own set of benchmarks for what constitutes world-class best practices in cash management. The GCBG launched the initiative at its meeting in March, where nearly half of the members reported that it is a high priority. The graph below shows that only about a third of the members feel they’re employing world-class practices or are well on their way.

Developing Issues: World-Class FX and Cash Management

A roundup of issues International Treasurer is investigating. 

The NeuGroup’s two FX manager peer groups have mostly finished their work to develop world class best practices for foreign exchange management. Now for the hard part: implementation. Among the topics discussed by members of the two peer groups (see the upcoming April issue of International Treasurer for more information) were:

Treasury Management: Taming Cash Forecasting Errors

Better forecasts require better management problem solving.

While there is never a time when cash forecasting improvements are not given lip service by senior management, concerns about liquidity risk are still too fresh for any treasurer to say openly that redoubling efforts to improve cash forecasting is a waste of time. Though, just for fun, it might be worth quantifying the relative value of treasury efforts to support new business initiatives, rather than ensuring every penny expected from existing ones is identified before it comes across the collections transom.  Still, when going after cash flow forecasting improvements it pays to focus on what is a fairly defined management problem.

Selling Help for Supply-Chain Finance

By Joseph Neu

Simple analytical tools can help sell supply-chain finance while supporting working capital improvement mandates.

While the worst of the credit crunch may over, and inventory whipsaw is helping revitalize some supply chains, key suppliers can still be at risk. This has many treasurers and financial service providers seeking better mechanisms to help. But at the same time, every buyer and seller is looking to improve its own working capital. Thus, purveyors of supply-chain financing need to tie together the incentives for purchasers and suppliers to arrive at a win-win.

GCBG Update: 2010 Meeting Sponsors

On behalf of The NeuGroup and the Global Cash and Banking Group, it is our my pleasure to announce the 2010 meeting sponsorships. Deutsche Bank has agreed to sponsor the Winter 2010 meeting scheduled for March 17-18 and hosted by Hasbro in Pawtucket, RI, while Citibank has agreed to to sponsor the Fall 2010 meeting scheduled for September 29 - 30. 

Also, we are pleased to announce several new members to the group for 2010 including EMC, Genentech, Herbalife and from the north country, Agrium and Research In Motion.  We are delighted to welcome these marquis names to the group.

For more information about the Global Cash and Banking Group (GCBG), click here.

Calculator: Should You Repatriate Your Overseas Cash?

By Dwight Cass

Despite taxes, there are times when it makes sense to bring it home.

Corporate treasurers should determine if the amount they pay in interest on domestic borrowings used to replace overseas cash, net of what they earn by investing their overseas profits, is bigger than the potential tax hit of repatriating that cash. The attached calculator helps frame the question.

The New Search for Yield

By Bryan Richardson

Seven ideas for boosting returns on cash investments.

Short-term interest rates are expected to remain low in 2010. That’s good news for creditworthy borrowers, but for those tasked with investing corporate cash stockpiles, it means a continuing struggle to find sources of positive returns. With competition for short-term government paper running high—and returns on it still at near-record lows—treasurers are being forced to look under every rock for reasonably safe opportunities.

Developing Issues: Chasing Yield, Dollar Worries, Bank Capital

Ultra-low interest rates in the US, the Eurozone and Japan have forced cash managers to take more risk in search of yield. This often means going further out on the yield curve, especially because most quality 12-month-and-under investments get snatched up by money market funds. Treasurers have to tread cautiously in this endeavor, though. Some may find their investments don’t conform to accountants’ definition of cash or cash equivalents. Also, higher-duration securities are more sensitive to inflation and there are signs that the ZIRP-fuelled commodity bubble could leak into the broader economy.

Treasurers on the Defensive

Rebuilding balance sheets and bolstering short-term investments and cash are the principal concerns of most financial professionals polled by the Association for Financial Professionals for its 2009 Liquidity Survey.

Sourcing Better Cash Data

By Bryan Richardson

Getting better visibility of data on cash is the key to better forecasting.

“The tools are a small piece of the puzzle, the quality of the information is more of the driver,” noted one treasury professional at The NeuGroup’s Global Cash and Banking Group meeting last June. This aptly summarizes the meeting session on cash forecasting tools led by Deutsche Bank’s Lisa Rossi, a managing director and global head of liquidity management and investments for cash management, global transaction banking. “Cash management,” after all, as Ms. Rossi noted in her presentation, “turns information into execution points to optimize the firm’s liquidity usage. If you do not have the information, how are you going to mobilize your cash and make investment or disbursement decisions?”

Broken Buck Prompts Money Market Reform

By Bryan Richardson

ISO 20022 XML Global Standard at Risk?

The recent introduction of FedGlobal ACH Services by the US Federal Reserve banks, to compete with “complementary” cross-border ACH services, has rekindled the debate on why the US is forging ahead with the streamlined X.12 820 (aka STP 820) EDI payment message format. Some would rather it endorse the XML-based ISO 20022 standard that has become the nucleus for SEPA in Europe and XML-messages on SWIFT.