-
Awaiting the Bad News
When members of the Tech20 Treasurers’ Peer Group met in the spring, the US economy looked to be safely on the road to recovery and capital markets participants were more actively seeking risk than anyone would have anticipated a year ago. At the meeting members discussed this and other topics, including:
1) Update on the Evolution of Capital Markets and Bank Credit. Risk appetite is capable of returning faster than most market observers expect.
Key Takeaway: Don’t get too greedy with CP or extend bank lines past the point of best pricing.
2) Tax Concerns. Of current regulatory issues, tax concerns are most dominant with Tech20 members.
Key Takeaway: Resist the temptation to increase regular dividend payouts and make a special dividend before Bush tax cuts expire instead.
3) Corporate Strategy and Board Involvement. Treasurers at founder-led tech firms usually support and improve strategy implementation; not set the game plan.
Key Takeaway: Corporate strategy tools have evolved little in four decades, so tools treasurers know well can just as easily find their way into the mix as new tools get baked.
4) Compensation. Treasury in tech should look outside corporate ranks for comp benchmarks and be more innovative about how to match up to them.
Key Takeaway: Moving the dials on RSU grants, vesting schedules, with a view to employee tax ramifications, offer tools for comp innovation.
September 08, 2010 -
By Anne Friberg
NeuGroup LatAm Treasury Managers’ Peer Group sees mixed results in Venezuelan bond sale. The same tactic never works twice.
It was a mixed bag for The NeuGroup’s Latin American Treasurers’ Peer Group in Venezuela’s recent bond sale. Some were able to purchase the bonds, and some were not. September 08, 2010 -
Members of the Treasurers’ Group of Thirty met in March 2010, and with credit beginning to flow again, they were able to start thinking of other aspects of running treasury – like cash-flow forecasting and counterparty risk management. Here’s a summary of that meeting...
August 05, 2010 -
By Anne Friberg
Recent Venezuelan government actions with its FX market have treasurers looking for answers.
Venezuela is always a source of concern, so much so that the name itself has become almost synonymous with treasury headaches. But the recent changes to the foreign exchange system, starting with Chávez’s apparent takeover of the parallel market and new threats of government appropriations of private-sector firms have reached another level. Companies that continue to seek to do business in the country are thus scrambling to determine how the new FX regime will work, both in word and in deed. July 07, 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 -
Sovereign risk. Uneven economic recoveries. Currency and commodity volatility. Central bank tightening. The credit crisis may be over but in light of the ongoing troubles bedeviling the global economy, there’s little opportunity for treasury personnel to relax. Last year saw a remarkable recovery in the fixed income markets and some regions stabilized and started to grow again. But as the first quarter of the new decade winds to a close, the members of The NeuGroup’s five peer-member organizations meeting this month still have a lot to discuss. March 07, 2010 -
As temperatures soared over the summer, so did worries that Venezuela was entering such stratospheric levels of inflation that it would force a change to highly inflationary accounting. Several firms in the NeuGroup’s LatAm Treasury Managers’ Peer Group (LATMPG) are watching closely and preparing to possibly transition to hyperinflationary accounting, as it’s also known. It entails a change of Venezuela affiliates’ functional currency to USD, and a translation at the official rate (now 2.15). USD value declines (except PP&E) due to a future devaluation would flow to the P/L, a big negative for earnings (and more so for those with trapped cash). It will also require ERP fixes and add accounting work (manual for some) and scenario analysis to financial planning, members note. August 19, 2009 -
Petróleos de Venezuela, S.A. (PDVSA), the state-owned oil company, announced in late June its intention to issue a $3bn zero-coupon bond in July, maturing in July 2011 that would be payable in USD. Immediately, corporates with cash piles trapped in Venezuelan bolivars perked up at the possibility of getting some of it out using this vehicle. July 24, 2009 -
Latin America is often considered a problem child obstructing the road to global liquidity efficiency. Standing in the way, of course, are local FX controls, tax and other regulations. To some degree, these issues are part of a larger one: the economics of the region do not justify the pursuit of a dedicated, cross-border liquidity management solution. Therefore, to win marginal efficiency gains, many multinationals operating in Latin America have sought to:
1) Limit their cross-border efforts to US dollar funds, and
2) Integrate their LatAm excess USD cash with other (typically, offshore) USD structures.
DuPont is no exception. At a EuroFinance conference in Miami last April, regional treasurer for Latin America, Alexandre G. Carvalho, outlined how DuPont—with JPMorgan’s help—had integrated its LatAm USD accounts with a global, notional US dollar pool. August 29, 2007 -
Treasury’s core skill set is in increasingly high demand, revealed the “30,000-foot” view of the multi-tracked EuroFinance conference in Miami in April. Through various sessions and the eyes of corporate and bank presenters, the emergent theme was that treasury has a lot to offer within the current global economic and business environment. Here’s why:
1) As MNCs shift growth gears into emerging markets, treasury’s risk and financing know-how can enhance risk-adjusted returns through “early intervention” and ongoing volatility insulation;
2) Looking forward to a tightening in credit markets, and slower economic growth, treasurers can reconfigure their cost of capital to support growth using cheaper funds; and
3) Finally, with the growing focus on cash as the true indicator of financial resiliency, treasury’s work to optimize cash and working capital will help surface more free cash flow, and the effort
to improve forecasting can translate into better visibility to investors. June 11, 2007 -
When Tyco International’s Board of Directors adopted a strong diversity focus, SVP & Corporate Treasurer, Martina Hund-Mejean, faced a serious challenge: she had to identify the service providers in her space that would meet the minority-owned requirements but add value to Tyco’s treasury operations.
Treasurers at other large companies, such as General Electric and McDonald’s Corp., share that challenge. They and other large MNCs, notably Pepsi, P&G, Colgate-Palmolive, Merck and J&J, are looking to match their increasingly diverse customer base and workforce with a more diverse list of suppliers. Treasury must do its part to help in that effort.
”When we talk about diversity, we talk about a mix of differences and similarities,” Ms. Hund-Mejean said, ”including gender, ethnicity, religion and geography.”
At Tyco, the diversity mandate was part of a broader overhaul in the wake of a corporate scandal. However, the cause is far from altruistic or PR-minded. By employing a diverse workforce and hiring diverse suppliers, the company ensures that it better understands its highly diverse customer base. This means better product development and more effective sales and marketing strategies.
”We believe that for our business proposition to be successful, we need to market to an extremely diverse spectrum of customers,” said Ms. Hund-Mejean
At the same time, Tyco and other MNCs are also genuinely trying to be good corporate citizens. ”It’s the right thing to do from a social and economic standpoint; we want to open doors,” the Tyco treasurer said.
Most diversity activists say that to become fully realized, the diversity mandate must come from the top. That’s certainly the case at companies like Pepsi and Tyco. ”Diversity is reviewed at every Board meeting,” said Ms. Hund-Mejean.
But the push to include minority-owned firms in the financial supply chain is broader. ”I’ve seen directors in treasury and assistant treasurers who have led the mission,” reported Ron Blaylock, founder, chairman and CEO of Blaylock & Company, a New York-based investment banking firm.
Riding the 401(k) wave
These efforts are making a difference. ”I have definitely seen a change,” said Mr. Blaylock. ”There’s more interest among large corporations seeking diversity in their financial suppliers. I think it’s a combination of awareness from corporations that financial supply chain diversity is an area where they can achieve some of their broader objectives, as well as a growing level of comfort that minority firms are able to execute.”
While there’s good news and greater awareness, it’s also true that professional services remain a small fraction of the diversity map, compared to other minority-owned firms.
”The notion of adding diversity to the supplier base has been slow to catch on in the area of professional services,” reported Mello September 19, 2006 -
New legislation heading toward President Bush’s desk will likely result in greater involvement by treasurers in managing their companies’ pension plans.
That’s because the new rules may require treasury’s expertise in cash planning and forecasting—including managing the funding ratios and fine-tuning portfolio investments.
In early August, after five months of negotiation, Congress approved a pension reform bill that made some pension rules more uniform. But in doing so, Congress also created a host of new challenges for pension managers.
Challenge #1: volatility
Under the new rules, a shorter amortization periods may result in greater volatility in required contributions, creating forecasting difficulties.
“Cash planning for treasurers is going to be more difficult because they’re going to have more volatility in their required contributions,” said Michael Archer, a principal at TowersPerrin.
“That’s because the amortization period is shorter than what they’ve dealt with in the past. Under the old rules, that period was anywhere from 30 years to a shorter period of time, depending on how well funded you were. Now it’s seven years,” he said.
According to Mr. Archer, although the new rules could be onerous for troubled pension funds, on the bright side, they impose a uniform way of funding. “The funding rules are going to be simpler and easier to understand,” he said.
Another factor that will generate greater volatility is the shortening of the period allowed for asset smoothing from the current five years to two years. Similarly, interest rate smoothing is shrinking from four years to two years.
What all of this means is that bad news—e.g., a bad quarter in the stock market—will more quickly show up in the pension accounts. Previously, a company could take as long as five years to smooth things out.
Challenge #2: a new ratio
One of the more controversial aspects of the old pension rules was the concept of credit balances. Under the old rules, if in one year a company’s required contribution was $1 mn and the company paid in $3 mn, it could claim a credit balance of $2 mn; in addition, that credit balance would earn interest at whatever rate the pension plan was earning. At a later point, the company could use that credit balance to offset a required contribution.
The new rules change all that.
• First, a company would not be able to use the credits if the pension is less than 80 percent funded; and
• Second, the credit balance would be counted against the company’s assets. So if a company had $10 mn in liabilities, $10 mn in assets and $4 mn in credit, it would actually have to reduce its asset base to $6 mn. This would make its pension 60 percent funded, in which case it would lose its ability to use the credits.
August 15, 2006 -
By Susan A. Hillman, Treasury Alliance Group LLC
An organized approach for the review (or the creation) of the optimal liquidity structure in Europe.
Along the evolution curve of treasury development, European treasury centralization is perhaps among the most evolved.
However, recent changes to the payments landscape in Europe (e.g., SEPA), the emergence of new web-based technologies and liquidity structures (see IT, April 2006) as well as the increased visibility of overseas cash provided by the repatriation tax break under the American Job Creation Act (AJCA) have refreshed treasury’s interest in European structure. July 18, 2006 -
The dollar’s pronounced slide against the euro and Asian currencies (see IT, May 2006 and related story) has had a direct impact on derivatives. FX bankers report—and BIS data supports—that their US corporate clients are keeping to the sidelines.
According to the BIS’s most recent, half-yearly recap of activity in the world’s over-the-counter (OTC) derivatives markets, “the share of the dollar in the OTC foreign exchange derivatives market declined tAo 83 percent (in the second half of 2005), the lowest since data collection began in 1998.” Overall, FX derivatives activity remained unchanged from the previous period, with notional amounts at $32 trillion; gross market values, however, declined 13 percent. In contrast, trading in commodity and equity derivatives surged during the second half of 2005. June 22, 2006 -
By Ted Howard
The key theme at the April 2006 EuroFinance conference in Miami was that treasurers must balance their tactical responsibilities with a growing strategic role.
For a couple of years, “good ole” treasury management was overshadowed by regulatory and compliance concerns; so much so that some treasurers were worried that their quest for a more strategic role within the organization would be derailed by the likes of SOX.
The good news emerging from the April EuroFinance event in Miami was that regulatory pressures appear to be receding. Indeed, but for one FASB-led session, regulatory pressures were not billed as a chief concern. Instead, the focus of the 70-odd sessions was squarely back on the core treasury dilemma of how to improve operational processes on a tactical basis (e.g., banking relations, FX hedging) so that treasury can play a strategic role within the organization.
None of this is big news; however, the conference did provide some fresh perspectives: as one attendee put it, “there’s really been nothing new discussed, just new ways of approaching old problems.”
Reach up (C-Suite) and out (BUs)
The key message to the 600 or so attendees was that becoming a strategic treasury is not a one-dimensional quest. To be able to free-up time to focus on the big picture, treasuries must pay attention to the small-picture details—e.g., tighten up cash forecasting, improve straight-through-processing (STP) and more efficiently manage their bank relationships.
Yet at the same time, practitioners were encouraged to be cognizant of the evolution of treasury’s role beyond transaction management; increasingly, treasurers are invited to take a seat at the “grown-ups” table (see IT, February 2006), and participate in broad finance initiatives, e.g., capital-allocation decisions, which influence shareholder value.
|
Crisis management
When companies’ financials hit the rocks, treasurers are often the ones called in to help navigate into safer water—in particular by working with banks and other creditors.
During a panel discussion on bank relationships and crisis management, panelists shared the following two hints:
1) Call the banks early. It’s generally best to alert the banks as soon as possible of any liquidity strains.
Jan Martin Nufer of SWISS International Airlines also said it was important to keep banks abreast of the company’s woes: “Get very close to the bank,” he said. “Make it so that if it’s a problem for [the company], then it’s a problem for them.”
Of course, the risk in sharing the bad news early is that banks may bail out even sooner, cautioned Neil Peaco April 20, 2006 -
Foreign multinationals with operations in China are watching with interest China’s recent effort to develop a local corporate bond market.
If the efforts succeed, non-Chinese firms would be able to issue yuan-denominated debt to both fund operations (vs. infusing them with dollar or euro-denominated funds), and to offset long-yuan exposures.
This may be a ways off, but it’s certainly under consideration: In a meeting in the Fall in Kunming, China, Asia-Pacific central bankers, academics and market participants from Europe and the US met to discuss the merits of developing a corporate bond market.
Currently, China offers a very limited menu of funding and investment tools: the yuan is not freely traded; banks offer low rates, markets are tightly controlled and inter-company loans are illegal. Companies with multiple affiliates in the country have gotten around this constraint with back-to-back loans and through a third party (entrusted loans). But if a local sub needs external funding, the options are few and costly.
Marvin Goodfriend, a professor of economics at the Tepper School of Business at Carnegie Mellon University in Pittsburgh and a participant in the November conference, says there are a number of forces pressuring the Chinese government to pursue a debt market. One big driver is the emergence of local firms that need access to capital to grow, combined with the availability of “investors” in the form of an aging population with savings.
“It’s costly for firms to borrow from banks,” Dr. Goodfriend explains. As firms get large enough to develop brand recognition, they can access third-party capital directly, e.g., from insurance companies or even households. “Then everybody wins, because you take the middle man [banks] out of the credit market,” he says.
Meanwhile, MNCs accumulating yuan-denominated earnings would be able to create a natural offset in the form of yuan interest expense and principal repayment.
How soon?
Just when China will open up a corporate debt market is the “$64,000 question,” says the Carnegie Mellon professor. But it is not unrealistic to think it could be within two to three years, he says. The necessary precursor is the establishment of a solid financial markets infrastructure—a task not to be underestimated in China: “It’s not a trivial thing for [China] to set up some kind of rules of the game that are believable and enforceable and work,” he says. “There’s a lot that has to go right for this to work.”
Susan Hillman, a partner at consultancy Treasury Alliance Group, says that because of World Trade Organization issues, “China is trying to further open things up.” But a corporate debt market is “definitely something that is needed and is on the table.”
But even if China creates a debt market for local companies, there’s no telling how long it would take to extend that market to foreign MNCs.
March 21, 2006 -
Introduction: Finding a Common Ground
In October 2005, the Treasurers Group of Thirty met for the second time; sponsored by Deutsche Bank, the meeting brought together over 20 treasurers from a cross-section of industries to focus on two primary topics:
(1) Treasurers' role in the capital-allocation process; and
(2) Best practices in integrating JVs, acquisitions and offshore treasury centers
The discussion of these, as well as breakout session topics, reflected the companies’ unique backgrounds: e.g., veteran industrial or multi-industry companies with pension liability "baggage" vs. fast-growing firms with growing cash stockpiles.
Yet on the subject of capital allocation, just about everyone—regardless of growth mode—reported growing pressures from investors and Boards to return cash to shareholders and make well-grounded choices about capital deployment (including eking out post-M&A efficiencies to justify capital spending).
As a result, treasurers say that they are working harder to inject discipline into the capital-allocation process, while applying a greater urgency to quick and efficient absorption of new "entities" into an increasingly centralized treasury operations infrastructure.
In addition to the main forums, treasurers also participated in four breakout sessions, reflecting the diverse nature of this group. Breakout session topics included: (1) building a treasury platform for fast growth; (2) managing pensions and investments; (3) investing excess cash; and (4) managing the relationship with credit-rating agencies during a down-cycle as well as times of recovery. February 21, 2006 -
Treasury is typically leanly staffed, and treasurers often complain that their resources are stretched thin, just to meet current demands. But as companies grow, particularly overseas (where most growth tends to be), treasury faces the challenges of scaling up quickly, while still doing its “day job.” December 21, 2005 -
The past several years has been witness to a slew of multinational companies rushing to set up operations in China, hoping to tap the country’s growth rate to shore up their own. But many treasurers still struggle with myriad of challenges that China presents. December 21, 2005 -
Getting a Global View
In June 2005 the Global Cash & Banking Group convened for the group’s third semi-annual meeting. Sponsored by Bank of America, the gathering brought together cash managers and treasurers to share their views in three areas: automating the treasury and bank interface link, enhancing treasury and tax relations and finally, their five-year plan for global cash and banking relationships. On all three fronts, technology was a primary theme, i.e., how best to utilize IT to further its goal of global—and fast—access to cash information.
- Automation: The number-one hurdle to cash automation is getting a global, real-time view of cash. Yet, based on the survey and the discussions at the meeting, this appeared less a hurdle than the outcome of the current state of automation infrastructure.
- Bank Interface: The focus of the cash visibility discussion was on ways companies and banks can work together to automate the exchange of “richer” data, so that treasury will end up with cash information that is reported earlier and is more accurate.
| “With someone dedicated full-time to this role [dedicated IT support], treasury can begin lobbying corporate IT six to nine months in advance, to ensure the resources are available once the upgrade is released." ~Tom Delany, BofA |
- Tax & Legal Entity Structure: Generally, tax does not report into treasury, but all agreed an effective relationship between the two is critical. Members noted that treasury was getting more involved in tax discussions and relationships were becoming more formalized.
- Looking Ahead: GCBG members’ plans reflected broader trends in corporate treasury, such as creating repositories for treasury policy (to help standardize global practices), incorporating SOX into all aspects of the treasury function and getting to “no-touch” STP payments systems.
November 17, 2005 | | [First] [Previous] [Next] [Last] |
|