Cash & Working CapitalRegionalRisk ManagementTreasury Management

Founder’s KTAs from NeuGroup for European Treasury Peer Group 2020 H1 Meeting

By June 2, 2020No Comments

By Joseph Neu
The European Treasury Peer Group 2020 H1 meeting took place last week, sponsored by HSBC. Here are some takeaways that I wanted to share:
COVID-19 validates regional treasury centers. HSBC said the case for regional treasury centers has been further validated by the pandemic. In comments on how clients have shown resilience and are preparing for markets to reopen, the bank noted the importance of real-time global exposure information, including a centralized liquidity and risk management framework; but also critical is the existence of treasury hubs to execute in regional markets. 

  • The value of regional centers stems from the need for MNCs to be agile and respond quickly in the new normal. That’s because the predictability of cash flows, FX markets and thus exposures are substantially diminished. So are the diversification of risk portfolios, natural hedges and the capacity to take risk more generally.
  • One result is that the comfort zone in which treasurers can wait for local context to get relayed to headquarters and for risk managers there to respond is likely to be gone for a while. 

Work from home works. All members reported that working from home (WFH) has worked well and better than expected. But some participants admitted to missing the office. Two reasons:

  • The ability to communicate on small things without scheduling a phone call or web conference is a disadvantage of WFH. 
  • Onboarding and training new hires remotely remains a big challenge. 

At the next meeting, members will share how their plans to return to the office have evolved. Most expect the additional flexibility of working remotely to persist post-pandemic. How this plays out for regional centers located in tax advantaged locations with substance requirements will be something to watch.
The virtues of virtual accounts. Two members shared rollouts of virtual account (VA) projects in EMEA. All members noted that their banks have been selling them hard.

  • The tangible advantage described so far is for companies with multiple ERPs, since virtual accounts allow them to identify payments and separate account statements, helping to automate posting and reconciliation across various systems.
  • VAs can bring more efficiency to liquidity sweeping arrangements with fewer accounts to manage and audit. 

Tax departments at several member companies are leery of assigning virtual accounts to multiple entities, which would help transform pay-on-behalf-of and receive-on-behalf-on structures, and allow in-house banks to fully leverage them. But the bottom line is that virtual account penetration in EMEA continues. 

Ted Howard

Author Ted Howard

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