What's Neu - News from the The NeuGroup Network of Peer Groups

Blog entry
By afriberg, July 13, 2018
The International SAP Conference for Treasury Management in Ireland showcased the variety of paths offered by SAP. Sidecars, anyone?
 
Dublin showed off its sunniest Irish disposition last week during the International SAP Conference for Treasury Management. The sponsors and exhibitors in attendance included many SAP implementation consultants as well as vendors of add-ons designed to enhance whatever SAP version customers are using. Here are some key observations from the perspective of a treasury person without direct SAP experience:
 
The many flavors of SAP. Companies using SAP find themselves along a spectrum that ranges from early versions of its ERP to the ever-evolving S/4HANA offering.  Where they stand depends on when they implemented SAP and whether they have an installed, on-premise version or use a private or public cloud (SaaS). New functionalities become available first in the public cloud version, which offers quarterly upgrades. Few companies start from scratch to implement S/4HANA. Rather, they need to transition from an earlier, usually on-premise SAP version to the cloud-based S/4HANA. 
 
Ditch the RFP? In a dynamic presentation about the cash and banking transformation at BP, speaker Peter Keenan recommended considering doing away with the RFP. Heresy, you say? Well, the RFP process is a lot of work and assumes you know exactly what you want and need. Instead, why not ask SAP and other vendors to “come and sort it out for us” by identifying what they think is the best path forward, and then compare the solutions offered?
 
Choose the right integrator. Many consultants, of course, are eager to help implement SAP for you. We won’t take sides, but several were represented at the conference and all had happy customers there. Most important is for the consultant to truly understand your starting point, evolving needs and desired end-state—and to be responsive to your timeline and resource constraints. They must also understand the systems and applications with which the SAP implementation needs to integrate.
 
Sidecar: not just an old-school cocktail. Implementation consultants at Serrala (formerly known as Hanse Orga) say there is a middle ground between the “old” SAP ERP and S/4HANA. Serrala’s Jochen Stiebe says as long as you have an S/4HANA database (as your single source of truth) and get the liquidity planner (“the heart of HANA”) to work by properly routing accounting and bank statement data into it, all other treasury modules can be added on to the setup using SAP’s FIORI applications. Mr. Stiebe refers to this middle road as the sidecar, but says not many consultants have experience with it.    This subject deserves a more detailed article—so keep reading iTreasurer and NeuGroup.com. 
 
Add your toppings. One of treasury’s many frustrations is proper governance around data sources and how they get fed into the ERP environment. A company called Brisken offers an add-on data provision and governance solution that uses a “bring your own data” approach, where you have the licensing relationships with Reuters, etc. That means Brisken is not a reseller of the data to you, although “data included” solutions may be developed in the future. 
 
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.
 
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Blog entry
By thoward, July 13, 2018
There’s a lot of talk about transitioning away from Libor but the how-tos are in short supply.
 
For this Friday, some familiar phrases: Easier said than done. Talk is cheap. Easy for you to say. These are likely the thoughts of current holders of debt pegged to Libor, when told they need to “transition away” from the scandalized reference rate to the more reliable Secured Overnight Financing Rate (SOFR) from the Fed or the Sterling Overnight Index Average (Sonia) from the UK. “How about you ‘transition away,’ Mr. Regulator??!!” they might also think. Those regulators are saying Libor will end by 2021.
 
The problem is Libor is deeply entrenched, both in institutional and retail loans. According to Bloomberg, there are $170 trillion of swap contracts alone still tied to Libor rate. Then there are the mortgage-backed securities that involve quite a few more trillions. The contracts for these MBS do provide a “fallback” clause if Libor is temporarily unavailable. But there’s probably nothing about the end of Libor, experts say. So it leaves a lot of haziness when it comes to the legal aspects, and some reports suggest issuers of MBS could be tangled up in years of litigation following the 2021 cutoff.
 
And it’s all the technical and legal stuff that is leading to lethargy on the part of those who should be transitioning away. They know about Libor and SOFR and Sonia and 2021. But they’re just not doing much about it yet. According to Financial Conduct Authority head Andrew Bailey, it’s a challenge. “The biggest obstacle to a smooth transition is inertia [and] hopes that Libor will continue,” he said, according to Bloomberg. 
 
His claim is backed up by recent survey data from the International Swaps and Derivatives Association as well as from informal NeuGroup discussions. ISDA, along with a handful of other major US and European trade associations, released results of their long anticipated “IBOR Global Benchmark Transition Report” in late June. The survey indicates respondents are gearing up for the transition, given 76% have at least started internal discussions about it. However, only 11% of respondents have allocated budget to the initiative and 12% have developed a preliminary project plan, while nearly a quarter of respondents have yet to initiate a program to support the transition. This is the case, the report’s authors note, despite survey participants saying they may have been more aware of the transition to risk-free rates more than the market as a whole, given its “core” consisted of trade association members, and 30% are members of RFR working groups.
 
NeuGroup members’ responses to queries by Bloomberg executives leading a session on the issue at a late May meeting suggested most corporates fall in the quartile that has yet to initiate a program. Half of the 20 corporate attendees acknowledged that their companies held debt or derivatives maturing past 2021, but none mentioned any definitive plans to prepare for the transition. Read more about it here.
 
Meanwhile, the scope of the Committee on Foreign Investment in the United States or CFIUS, which weighs in on whether a transaction is kosher for national security purposes, is creeping outward. The Gerald Ford-created agency has been very active in the last 18 months or more, examining, kyboshing, holding up and occasionally approving foreign purchases of US assets. It stopped China's Ant Financial's attempt to acquire Moneygram, prevented a Chinese investment firm from buying US semiconductor company Lattice, and more recently, aided in President Trump’s decision to block Broadcomm’s attempt at a hostile takeover of US chipmaker Qualcomm. The message here? Be very careful. As a tool, it seems to fit president Trump’s hands very well, to the extent that any transaction, no matter how seemingly unrelated to national security, is subject to review by CFIUS. Less understood is that even minority investments by foreign investors can result in the US company itself being classified as a “foreign person,” subjecting it to CFIUS review as if it were a foreign firm.
 
“That means that future investments or acquisitions by the American company, of US businesses will be subject to CFIUS review, just as if the American company were a Chinese, or German or Canadian firm,” according to a report recently published by Pillsbury Winthrop Shaw Pittman LLP. Read more about it here.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.
 
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Blog entry
By thoward, July 12, 2018
The global swaps and derivatives watchdog adds France and Ireland to its dispute resolution destinations.
 
When a company hedges its FX risk, it uses derivatives to cover itself against the possibility of an adverse change in currency exchange rates. The International Swaps and Derivatives Association, the group that governs derivative use worldwide, decided this week to do a little hedging of its own with the release of French and Irish versions of its master agreements. This was done, it said, in order to guard against the possibility that EU users might not want to employ English law after Brexit. Adding France and Ireland to the available dispute centers – currently the UK, New York State or Japan – allowed the association to “prepare for some of the possible outcomes” following Brexit, ISDA chief exec Scott O’Malia said. 
 
But they might not be needed, according to Marc A. Horwitz, an attorney for DLA Piper. “These agreements may be useful for two domestic parties (e.g., a French bank trading with a French corporate) who wish to resolve disputes in local courts under local law, but otherwise [they] likely will not have much application.” Read more here.
 
Also this week, despite new benchmarks announced to step in if and when the infamous and tainted London Interbank Offered Rate exits, there are not a lot of products out there to help MNCs transition from the scandalized benchmark. Of the prevailing new benchmarks, there is the Secured Overnight Funding Rate, or SOFR, from the New York Fed, and the Sterling Overnight Index Average, or SONIA, from the Bank of England. However, there are not yet many products based on either one. Meantime many companies are uncomfortable continuing to use longer-term Libor-based loans given regulators globally have set 2021 as a deadline beyond which banks no longer must contribute to Libor panels. Read more here.
 
Finally, treasurers know there are great benefits to automation and moving to cloud solutions. But they should be careful in their considerations because TMSs can be expensive and end up not working out; or they include functions that aren’t needed. That was one of the takeaways from results of a broad survey of US and Canadian corporate finance executives by staffing firm Robert Half.
 
“What is the cost in relation to the potential benefits?” said Kenneth Kirk, CFO of Sepro Mineral Systems, in Langley, British Columbia, who participated in the survey. He added that the cost can be high because some automation software is pricey. “And a lot of the solutions are overkill. They look nice but aren’t practical. Vendors often make these solutions look a lot easier to operate than they are.” Read more here.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.
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Blog entry
By aorwick, July 06, 2018
With big data, treasurers can analyze a larger data-set across a larger number of years, giving a better view of cyclical trends and other important analysis. NeuGroup explores how you can integrate AI and big data to meet the unique needs of your treasury department.
 
Ted Howard, iTreasurer Managing Editor and NeuGroup Associate Director, sat down with experts from C2FO and Microsoft to review applications for treasury management leaders looking to take AI and big data to the next level – smartly, efficiently and safely.
 
 
During this event, you will:
 
• Understand how to simplify AI to create a compelling repository of information that can be used across your entire business
• Learn how to incorporate AI into existing processes to increase efficiency and complement your workforce; not replace it with a machine
 
Watch the webinar on demand and discover what you should be focused on NOW to prepare for the wave of AI and big data.
 
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.
 
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Blog entry
By amichels, July 03, 2018
As volatile commodities markets threaten profit margins, treasurers tap technology to capture exposures and hedge risk.  
 
Technology solutions offer commodity-intensive corporates a leg up by providing a holistic view of risk and exposures, allowing treasury to offset commodities risks with foreign currency positions and other exposures, more effectively cutting costs.
 
In this spotlight feature, learn how to use Openlink’s calculator to track exposures instead of relying on multiple spreadsheets and systems. 

 
 
Read this free report to:
 
• Discover how systems like those offered by Openlink can help paint a clearer picture of your company’s risk exposure portfolio. 
• Hear from the treasurer of Coca-Cola on how his company works with procurement teams to manage commodity risk.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.
 
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Blog entry
By thoward, July 02, 2018
The demise of the London Interbank Offered Rate, better known as Libor, has been discussed frequently in the wake of the rigging scandal during the financial crisis. This is to be expected, as regulators since the scandal have suggested banks, investors and others should think about adopting alternatives to Libor. One alternative, created by the Federal Reserve Bank of New York, is SOFR, or the Secured Overnight Financing Rate.
 
Not so fast, says the Intercontinental Exchange (ICE). The company, which acquired Libor in 2014, plans on keeping it active. Although some banks have committed to ending Libor in 2021, ICE will continue laboring over Libor. “ICE is actively trying to maintain Libor,” one fixed-income specialist told a NeuGroup meeting recently. “The ICE website says Libor will continue to be published past 2021.” Indeed, the ICE website notes the new methodology and integrity of the latest iteration of Libor, touting the use of the “Waterfall Method,” which requires that “each Libor panel bank must ensure that its submissions are determined using an effective methodology based on objective criteria and relevant market information.” Read more about this on page 1 of the July issue of iTreasurer.
 
 
On page 6, we show that while the US high-yield market is in the latter stages of its credit cycle and China is in the midst of an economic slowdown, they will likely have less of an impact on US corporates than might be anticipated.
 
This month’s featured NeuGroup peer group summary is from the Treasurers’ Group of Mega Caps or tMega. Members at the meeting talked capital allocation, pension contributions and activist investors, and waded into a tax “spaghetti bowl” that will take time to digest.
 
In “Rising Commodity Prices and Treasury’s Role In Managing Risk with Help from Technology” on page 11, we take a look at how volatile commodities markets threaten profit margins, and put a new focus on treasurers’ needs and abilities to tap technology to capture exposures and effectively hedge risk. The fact is, a growing number of companies this year are citing rising commodity prices and their potentially negative effects on profit margins and earnings, not to mention stock prices. “The catalysts for commodity and other sources of inflation that threaten P&Ls range from trade war fears (steel and aluminum) to tensions with Iran (oil, gasoline, diesel) to shrinking capacity (freight, shipping) and severe weather and/or rising demand (corn, fruit, grains and nuts),” writes contributor Antony Michels.
 
Finally on page 15, we delve into tax leakage caused by the loss of previously allowed tax ambiguities. The leakage, says Peter Connors of Orrick Herrington & Sutcliffe LLP in New York, “is additional tax cost that is in a way uneconomic or unexpected. It tends to be small—hence the term ‘leakage’ rather than a term indicating a larger magnitude—but these can add up.”
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.
 
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Blog entry
By thoward, July 02, 2018
High-tax countries don’t go after profits that have fled to tax-havens. Instead they chase profits in other high-tax countries.
 
If both a neighbor and a thief from another town steals something from you, who do go after? The neighbor or the other thief? Probably the neighbor, because it’s easier: he’s next door, you don’t have to travel, and you know him. Similarly, countries, when it comes to fleeing profits (and the tax proceeds they could generate), don’t go after those profits that have been shifted to low-tax countries. It’s too hard and complicated.
 
This is one of the observations of a study from the National Bureau of Economic Research. According to the study, the Missing Profits of Nations, almost 40% of MNC profits get moved to low-tax countries every year. In 2015, that equaled $600 billion. But countries did little to chase after it.
 
“We show theoretically and empirically that in the current international tax system, tax authorities of high-tax countries do not have incentives to combat profit shifting to tax havens,” the authors of the study write. “They instead focus their enforcement effort on relocating profits booked in other high-tax countries—in effect stealing revenue from each other. This policy failure can explain the persistence of profit shifting to low-tax countries despite the high costs involved for high-tax countries.” Read more here.
 
Also this week, lenders continue to push back against borrowers who end up moving their collateral to subsidiaries and mostly out of the reach of the borrower. A long list of companies has pursued the tactic over the last few years, including Claire’s, PetSmart, Toys "R" US, Hilton, and iHeartMedia. The pushback began in 2015 when J.Crew sent a proposal for a distressed debt exchange to its payment-in-kind lenders and later transferred intellectual property to a subsidiary that was not a part of its loan agreement. Read more about it here.
 
Back in May, NeuGroup peer group leader and iTreasurer contributor Anne Friberg moderated a panel discussion on rising interest rates at EuroFinance in Miami. One question that came up was whether now was a good time to refinance. Since rates are rising, the answer might seem like a solid “no.” However panelist Pradipto Bagchi from Allergan noted that although the yield on 10-year US Treasury notes had moved up about 100 bps in the last year or so they are still about 500 bps lower than in the late 1990s. “This is not the end of the world,” he pointed out. What’s more, predicting interest rates is not something that should be expected of a treasury, especially since it’s not a profit center (at most MNCs). What treasury should focus on is (a) enunciating a rate-risk strategy and (b) executing the strategy well by taking advantage of tactical opportunities when possible. Read more here.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.  
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Blog entry
By thoward, June 25, 2018
Recent consolidation and acquisitions leave treasuries unhappy with some TMS service providers.
 
As a group, treasury professionals are usually reliably disappointed with the treasury technology they deal with on a day-to-day basis (except for Excel, which is still a critical tool after all these years). Sure, there are some systems that treasurers are happy with, but there’s always some plug in, update or fix with which they’re not happy. And recently many are not happy with TMS consolidation and in some cases what it's doing to once serviceable offerings (ignoring, letting wither, etc). 
 
Take for example the acquisition of Reval, a provider of treasury and risk management systems and services, by Ion Group. According to several treasury executives at a recent NeuGroup peer group meeting, services offered by Reval have declined markedly since its acquisition. As a result, several members said they have either decided to change providers or are considering it. Similar sentiment was heard at another NeuGroup meeting, this time a group of assistant treasurers. Read more here.
 
Also this week, a report from Standard & Poor’s about the state of the US corporate bond market. US economic expansion has supported corporate growth and profitability in recent years, says S&P, and the 2.9% increase in GDP that the rating agency forecasts for 2018 suggests corporate debt issuance will continue at strong levels. The trend is similar in Europe, where the European Central Bank (ECB) isn’t expected to hike rates before late 2019. Read more here.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.  
 
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Blog entry
iTreasurer, KYC, taxes
By thoward, June 18, 2018
KYC provisions have been dogging companies for years. But new technology is entering to make it all a smoother process.
 
If only the processes involved in know your customer (KYC) were as easy and sweet as the “Getting to Know You” song from the “King and I.” 
 
It’s decidedly not. Instead, KYC requirements are more onerous than ever as regulations governing anti-money laundering, sanctions violations and tax evasion have forced banks to ask for customer information incessantly. What’s worse is that different banks and jurisdictions have differing standards. 
 
Technology solutions—starting with forms that populate with publicly-available information—are something everyone would appreciate—the sooner the better. Judging by a recent Asia Treasurers’ Peer Group meeting in Singapore, it could be sooner. At the meeting members heard from four providers with varying approaches to the problem, including Bloomberg, IBM, IHS Markit and Thomson Reuters. Read more here.
 
Meantime, Moody’s released a report this week saying companies see the new US tax law passed at the end of last year as a positive that will improve cash flow and give them the ability to pay down debt. They also think, to perhaps no one’s surprise, they’ll be better off under the new tax regime. Most respondents also indicated that they will not change financial policies significantly, which likely means their ratings will not be affected, Moody’s said in a sector comment to clients. Read more here.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.  
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Blog entry
By aorwick, June 14, 2018
Institutions like Deutsche Bank are interacting with fintech providers to bring new solutions to banking clients — including treasurers — to harness data, process payments and better meet the needs of customers in the new digital age.
 
Ted Howard, iTreasurer Managing Editor and NeuGroup Associate Director, sat down with a panel of experts from Deutsche Bank and Hyperwallet to discuss fintech trends and solutions for treasury. 
 
Click here to watch a replay of the live webinar. 
 
During this event, you will: 
 
• Learn how leading institutions like Deutsche Bank are taking a community-based approach to solving client problems with fintechs to better meet the needs of customers in the digital age.
• Better understand the role of fintech in treasury transformation projects.
• Discover the ways in which banks and fintechs are serving their stakeholders by working together as collaborators.
 
Watch the recording to learn more about Deutsche Bank's community-based approach to serving clients. 
 
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.
 
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