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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.
August 19, 2010 -
A roundup of topics International Treasurer is investigating.
Three topics that International Treasurer will be following stem from The NeuGroup’s Latin American Treasury Managers’ Peer Group meeting this week. The fourth, concerning OTC derivatives, is indicative of the growing consensus that the financial reform legislation addressing them is nearing the finish line.
June 17, 2010 -
A roundup of topics International Treasurer is investigating.
June 03, 2010 -
The bank account management system makes its debut.
SWIFT announced that its Electronic Bank Account Management system has gone live. The system manages account opening, closing, maintenance and reporting. It uses ISO 20022 XML compliant standards and SWIFT’s messaging platform. (See our article on eBAM from the April issue of International Treasurer.)
April 22, 2010 -
Despite Venezuela Uncertainty, Treasurers Renew LatAm Focus
When The NeuGroup’s LatAm Treasury Managers’ Peer Group met in January, many members, despite concerns over Venezuela, were in the midst restarting Latin American projects aimed at achieving more efficiencies in treasury and cash management. Members shared their LatAm views, including:
1) Venezuela Devaluation and Hyper-inflation. Members discussed the impact of the recent currency policy changes.
Key Takeaway: With three de facto exchange rates (2.60, 4.30 and the parallel rate), companies will experience different levels of impact on earnings and balance sheet items, depending on the types of the goods and services they sell in Venezuela.
2) Centralized/Regionalized LatAm and Brazil Cash Management. To what extent can local cash management in the region be centralized?
Key Takeaway: With standardized processes and incentives for local managers, much of treasury can be centralized, but for smooth operations, some local involvement is needed.
3) Cash-Flow Forecasting. Members shared ideas for improving cash management.
Key Takeaway: Due to limitations of automated systems and the multiple sources of input, there is no silver bullet for better forecasting.
4) Contingency Planning. Recent earthquakes and other uncertainties reminded some that contingencies plans are necessary.
Key Takeaway: Create an action plan for market disruptions; set up alternative funding sources.
April 12, 2010 -
By Bryan Richardson
Low costs and operational efficiencies beckon—if implementation is handled correctly.
Treasury’s current cost-cutting mantra can be described as: “automate the simple.” This can be seen in the rush to outsource (or insource) less-sophisticated but manpower-intensive processes like the management of accounts receivable and accounts payable. AP, in particular, is proving to be an area where tech solutions can be brought successfully to bear, and vendors have been making hay with the opportunity. Indeed, for the last decade, e-invoicing solutions have caught on by promising improved operational efficiencies, lower costs and quick returns on investment. The trick, of course, is getting the implementation right.
February 28, 2010 -
A roundup of issues International Treasurer is investigating.
Treasurers shouldn’t take today’s stock market rout as an instant verdict on the Securities and Exchange Commission’s new short-sales rules. True, the major indices were off more than 1.5 percent at mid-day. A looming downgrade for Greece ahead of its big bond sale, and disappointing US jobs and manufacturing data were the proximate causes for declines. But relief over the extent to which the old uptick rule has been watered down may have goaded some bears.
February 25, 2010 -
The enormous volumes seen in the fixed income markets in 2009 gave treasurers a welcome alternative in which to refinance bank credit and otherwise diversify their financing sources in a more balanced fashion. Tenors on bank credits have begun to lengthen and terms are improving. But with concerns that short-term interest rates—at least the benchmark Libor rate, if not Federal Funds—will rise this year, treasurers are sharpening their pencils to calculate whether the higher cost of funds in the bond markets is justified in light of the longer tenors available and, more importantly, the ability to lock in the still historically low rates.
January 07, 2010 -
By Ted Howard
Overseas providers of low-cost treasury services are now pitching their expertise.
Even before the grinding economic crisis made cost-cutting a top priority, companies had been outsourcing an increasing number of basic treasury functions. Now, to meet what they hope will be demand for more sophisticated services—and to build their businesses—outsourcing providers are looking to move their offerings up the value chain.
December 07, 2009 -
Pressure to cut costs in the wake of the financial crisis has heightened corporate interest in shared service centers. But while SSCs have proven useful for standardized, low-skill accounting processes, they’re usually not appropriate for higher-value treasury activities. In fact, attempts to upgrade them to handle tasks beyond those with obvious economies of scale can be self-defeating, according to a discussion at The NeuGroup’s European Treasurers’ Peer Group meeting last month in Geneva.
December 07, 2009 -
By Joseph Neu
It is no small irony that in the wake of government bailouts of banks and automakers (for starters), more firms are taking action to further their self-reliance and avoid the negative and often unanticipated consequences of dependency. Since availability of funds is key to this self-reliance, treasurers stand at the front lines of many of these actions.
May 27, 2009 -
Accounting Recording Rate CitiFX Value Added Services & Products - Risk Advisory Group * Market Commentary CitiFX Value Added Services & Products - Risk Advisory Group Market Commentary Overall, average monthly rate is the most commonly used recording rate (37%). Prior month-end spot is a close second (31%), followe
March 18, 2009 -
Translation Risk – FX-denominated Transactions “At the date the transaction is recognized, each asset, liability, revenue, expense, gain or loss arising from the transaction shall be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date.” FAS
March 18, 2009 -
The NeuGroup's Peer Groups
The NeuGroup's peer group events bring together treasury and finance professionals to share their knowledge and experience within a unique forum that combines meetings, benchmarking studies and online discussions.
March 25, 2008 -
By Joseph Neu
Connectivity is on the minds of many treasury professionals (see IT, September 2006) and one principal area of concern is connectivity with banks. Corporates want better access to the bank network and the relevant information flowing through it; and banks, at least those toeing the line being offered by SWIFT, now want to make it easier.
At least this is the talk out of the SIBOS conference in Sydney earlier this month. And it comes on the heels of the SWIFT decision in June to allow more, but still bank-filtered, corporate access to its network.
Starting next year, corporate access can be achieved through a more simplified arrangement than the cumbersome, member-administered closed user groups (MA-CUGS) offered previously.
Moreover, hoping to establish a new spirit of collaboration, SWIFT is calling on banks to embrace standardization and compete on the basis of their products and services instead of proprietary communication platforms.
A new start for corporate access
Corporates that have fought for greater access to the SWIFT bank network will have the opportunity to test the practical ramifications of the new corporate initiative when it starts its pilot phase in January 2007.
The new access model, SCORE, Standardized Corporate Environment, will “enable corporates listed on a regulated stock exchange in a FATF (Financial Action Task Force) member country to join a single closed user group and interact with all participating financial institutions.“ In other words, corporates will no longer need to enter into separate agreements with each of their SWIFT-member bank gateways, with distinct interfaces for each.
Corporates leading the SCORE pilot program include Alstom, Arcelor Mittal, CIBA, Danone, Gaz de France, General Electric and Microsoft, together with the banks ABN Amro, Bank of America, Barclays, BNP Paribas, Citigroup, Deutsche Bank, HSBC, ING, JPMorgan Chase, Nordea, Société Générale and UBS.
The initial focus of the pilot will be on cash management and treasury. It will also dovetail with SWIFT’s effort to implement the ISO 20022 cash management and payment initiation standards in the second half of next year. These XML-based standards resulted from a joint effort between SWIFT and IFX, OAGi and TWIST to enable the transmission of more comprehensive and structured information via the banking network.
A realistic transformation?
The corporate initiatives are part of a broader SWIFT transformation, and not a moment too soon: At last year’s SIBOS, SAP’s president of global field operations (IT, September 2005) admonished banks to transform themselves, “before someone does it to you.” Clearly, banks want to stay relevant as the transformation away from financial and payments October 21, 2006
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A Focus on Treasury’s Supply-Chain Role
Is this the year treasurers take command—link by link—over the financial supply chain? Attendees of the EuroFinance international cash and treasury management conference held in Florence, Italy, in October would certainly be forgiven for thinking so.
Financial supply chain and working capital management (WCM) played central roles throughout the event. Indeed, they helped HP land the EuroFinance annual award for treasury excellence.
At the event, three ways for improving WCM emerged:
1) Hold the balance sheet upside down and give it a good shake. Treasurers may find inefficiency falling out of receivables and inventory. Eva Gotthardsson, treasury director of Findus Sweden, a food company, recommended that practitioners look for “hidden pockets” that bind capital in the flows from supplier invoice to customer payment. She warned that by focusing too much on benchmarks and ratios (DSO, DPO, etc.), treasurers might aim too low.
2) Tighten the supply chain. According to John Sculley of SCF Capital, there is an estimated EUR400 bn of excess working capital in the EU alone.
Treasurers should bear in mind, however, that forcing suppliers to stomach the cost of WC may result in higher prices; suppliers with weaker balance sheets need to pay more to borrow. The chain’s “anchor” companies (best placed to seek capital) can take advantage of new techniques like reverse factoring to lower the funding costs throughout.
3) Leverage hedge funds’ appetites. Hedge and private equity funds infused new liquidity into certain capital markets niches, e.g., hybrids (see related story on p.1). Marlene Wittman of Hong Kong-based Aquitaine Investment Advisors noted the emergence of hybrid funds combining a liquid-trading hedge fund strategy with illiquid private-equity allocations. An advantage of hedge-fund financing is the faster pace at which decisions are made. The disadvantages include the lack of private-equity expertise (despite recent efforts to beef this up). The bottom line: as the global economy slows, the focus on eking out WC efficiencies is encouraging many treasury groups to take a more active role in the supply chain.
October 21, 2006 -
Is the Low-Vol Environment a Fluke? | A New Drive for connectivity | Auction-rate securities catch the SEC’s
eye—again | ESO expensing | Finding Diversity in
the Treasury Supply Chain | When FX is Part of
the Sourcing Decision
September 19, 2006 -
Treasury Kicks BCP Into Action in Israel
As the violence in the Middle East escalated during July and August ahead of the August 11 cease fire, treasurers of US companies were watching the unfolding conflict with trepidation; most reported that the war had no immediate impact on their operations.
“At the moment, this had not affected our operations or our financial risk management strategies,” one treasurer said. He acknowledged, however, that things could change, quickly.
This company actively hedges its expected FX exposures, and its strategy is driven in large part by its risk committee’s view of the direction of exchange rates. “We are certainly cognizant that if the war expands to include other players, it would have a significant impact on the market,” said this treasurer.
The impact may not only be on oil prices, but also on the fate of the US dollar. “We are proactive hedgers,” said the treasurer, “but before this conflict can have a significant effect on the dollar it needs to expand to include, for example, Iran or Syria.”
Benefit of planning
This view was echoed by other treasurers; the exceptions, however, were US companies with on-the-ground operations in Israel, e.g., high-tech firms that have R&D or manufacturing centers often in Israel’s northern city of Haifa, which has been on the receiving end of the lion’s share of the missile attacks. That’s because Haifa is home to Israel’s equivalent of MIT, and it thus attracts high-tech employers.
“From a strict financial-risk standpoint,” noted the VP treasurer of one such tech firm, “the exposure to the Israeli shekel is relatively small; we are short the currency and simply monitor the impact and the potential impact but we do not actively hedge,” he said.
As to the company’s local subsidiary, it continues to operate: “All banking operations are intact and we have had no impact on flow of funds into, or out of, our Israeli operations,” he said.
And even though the war erupted in the midst of the company’s P&C insurance renewal period, “war and acts of terrorism are specifically excluded. Thus, these events had no apparent impact on our renewal,” he said.
That is not to say that the company or others in the country have been insulated. The impact has mostly been to trigger the local operations’ business continuity plan (BCP), often managed by treasury as part of the risk management function.
“Business continuity plans and related teams have been engaged since the start of escalation,” one treasurer reported. “Regular updates from the ‘on the ground team’ are provided to corporate and other internal stakeholders.”
Fortunately for this company, “the [BCP] is a well-defined process and places our personnel and customer/visitors’ safety as a top priority,” the treasurer rep
August 15, 2006 -
Sell in May and go away; that’s a common Wall Street adage, but this time around, the bulk of the selling was going on in the exchanges and bourses in emerging markets from India to Brazil.
As inflation fears sent global investors into high-quality/strong-credit assets, emerging markets took a nosedive on May 22, in what the market labeled Manic Monday.
But while corporate treasuries do not invest in emerging markets’ equities (indeed, corporate investment policies almost always prohibit investment in any equities), treasury is by no means insulated from the late-May meltdown in emerging nations.
A red flag for EMR risk?
The sharp decline in emerging market equities, including Brazil, India and Russia, indicate a shift in investors’ appetites and risk perceptions. That shift will affect currency exchange rates as well as interest-rate expectations for the dollar. “In general there are a few factors that are negative for emerging markets,” said one seasoned practitioner:
• Risk appetites seem to be decreasing, which is bearish for LatAm and other emerging markets from a risk perspective; and
• US Inflation and interest rates are on the rise, which is bearish for LatAm and other emerging markets from an IR differential perspective.
While the dollar has been weaker against other major currencies, as EMR equities tanked, so did their local currencies. That sort of correlation is typical.
Indeed, while “in LatAm there are different levels of liquidity within the local equity markets, in most markets the country risk aversion is most clearly evinced in the fixed income and currency markets,” noted one FX risk manager.
Like other US companies with operations in the region, “we tend to be long the currency (either via actual currency holding or currency denominated assets). For us, it’s generally good when the currencies strengthen, though they haven’t been with this week’s sell offs.”
The spill-over effect
The meltdown in emerging market currencies had a knock-on effect in the fixed income and equity markets of developed countries as well, but the impact was temporary only (see related story ).
“In the emerging markets,” one banker noted, “currency was a big factor. Investors got a whiff of inflation and those sectors got hit hard.” But while some asset classes got dragged down for the ride, credit spreads in high-quality assets quickly recovered.
June 22, 2006 -
The recent weakness in the US dollar has been a boon for many US multinationals. It has increased their pricing power and translated into heftier US dollar revenues at home—at least for those companies that did not fully hedge their offshore revenues with forwards.
May 25, 2006