International Treasurer - October 2008 - The Financial Crisis Heats Up

8/13/2019 International Treasurer - October 2008 - The Financial Crisis Heats Up

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T h e J o u r n a l o f G l o b a l T re a s u r y a n d F i n a n c i a l R i s k M a n a g e m e n t

OCTOBER 2008

SeptemberMadnessBy Joseph Neu

September usheredin new extremes tothe subprime-inspiredfinancial crisis andtreasurers must stayprepared for unprec-edented surprises.

page

Uncle Sam andFair ValueBy Joseph Neu

As the US governmensteps into so manyinactive markets, whawill it do to fair value?

page

AnticipatedExposures

Oversight committee

covenant remindersand dangers in short-selling bans.

page

Money FundConcernsBy Bryan Richardson

Addressing key ques-tions concerning put-ting excess cash intomoney market funds.

page

Banks Investing in

Cash BusinessBy Denise Bedell

With renewed appre-ciation for their transation services businessmore cash banks planto step up investmentin it.

page

Event risk management

September Madness: With October SurprisesTo be AnticipatedBy Joseph Neu

With madness replacing rationality and base fears trumping risk models as the operating

principles in financial markets, treasury professionals are making the best out of hard times.

Where to begin? There is so much happeningthat has never happened or been thought pos-sible, and what is true today may not be true

tomorrow. Thus, for many treasury profession-als in this financial crisis their response started

with a return to base instincts: making sure allthe cash they have is safe. This is one reason why

cash management banks are talking up new in-vestments in cash visibility solutions (see p. 14).

The question then is what besides US govern-

ment paper is safe as a store of value thesedays and how do you know (and how do you

know you can trust the US government)? Withfinancial institutions failing or at risk of failing,

each week, counterparty risk management hasgone off the charts in terms of its importance.And finally, as credit markets seize, as they have,

first financial institution and then some corpo-rate paper, where does a firm go for funding?

It is not merely frightening, it is terrifying,

noted one debt capital markets banker, when

asked about the current environment.

The system is fundamentally broken.

If ever cash can be said to trump all other kings,

and this is said often, it can be said now.Still, as bad as things are (and they may get

worse), treasury professionals that the NeuGrouphas interacted with across its peer groups in

recent weeks have shown that their heads are stillin the game and they are working hard to respondin a crisis. Already working intense schedules, the

treasury professionals weve spoken with havebeen burning their candles at both ends, yet they

have kept their humor (judging from the reactionto the mock September madness bracket that

has been making the rounds, see p. 12).

THE BIG ISSUES IN FOCUS

What follows are highlights from recent discus-sions with treasury professionals (and bankers) in

our network:nHope for corporate funding.While the situ-

ation will worsen and corporate sources of fund-ing, in particular short-term CP and asset-backedsources, are at risk, there is still hope that the

crisis of confidence that has caused fixed-incomeinvestors to stay away from financial institution

paper will not spread in the same way to the non-financial sector. While investors with cash, and

remember there is still a lot of capital out there,have a flight-to-quality instinct like everyone, noteveryone (see below) is going to get all their funds

into Treasurys or money market funds made uppurely of them (see p. 11). Thus, some may look

to diversify into corporate paper. Of course, thefront end of liquidity needs to come back before

many of the shifts can take place.Still, without liquidity to grease the wheels

continued on page 3

Featured Meeting Summa

The Treasurers Groupof Thirty

n

Is immediate funding and liquidity an issue?nWhen would it be?

nAre we over-reliant on short-term funding?

nHow secure is our contingent capital?

nDo we have sufficient cash visibility and an

emergency plan to repatriate offshore cash?

nWhere do we put excess cash, safely?

nHow well are we monitoring counterparty risk?

nHave we shifted holdings/business to institu-

tions with low CDS spreads/scores on our

rating matrix?

n

Are we comfortable with our insurers?nAre we communicating enough with the Board

and senior management?

nDo we need an oversight committee?

nWhat communication plan do we have for

external analysts, particularly from rating

agencies, in response to events?

nHave we examined the fair value accounting

impact on assets and hedges with non-perfor-

mance risk in preparation for year-end?

nWhat are our upside opportunities?

K E Y Q U E S T I O N S O F T H E D A Y


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money cannot move. Thus, treasurers should

take a long hard look at how much they are rely-ing on CP-funding, what they need, and if they

need X, they should lower expectations to Y and

be prepared to make up the difference.

The same holds with other debt issuances,

including asset-backed issuances and convert-ibles. AB issues should be structured extremely

conservatively and with terms tailored to leadinvestors. Plus, with so many arb investors being

sidelined by curbs on short-selling and their ownliquidity constraints, the uptake on convertibles

wont be there.n CP back-stops and new credit pricing.

While CP backup lines are likely to be there so

long as they are with well-capitalized institutions,going forward most providers will re-price them

severely. Banks have realized that this steadybusiness, similar to other types of mono-line in-

surance, represents a substantial concentrationof risk. CP back-stops are probably just the tipof the iceberg with regard to banks reconsider-

ing how they price credit. It may just take a fewweeks or months before credit bankers whose

natural instinct is to say yes, will be forced to sayno to even their best customers.

And when the CP-backups stop, or get cor-rectly priced, the CP market wont be the same.Indeed, bankers would like to set expectations

now for draw rates derived from CDS spreads.n New credit line commitments hard to

find. Several treasurers we have spoken withnoted that they are looking for additional credit

line commitments (some to replace Lehman) orin expectation of a reduction in commitmentfrom BofA/Merrill. Unfortunately, these treasur-

ers report, there is not much appetite out thereat the moment. The one exception mentioned

seems to be Japanese banks, which have gone

from some of the worlds worst credit providers

to the worlds best in just over a year. In additionto new commitments, treasurers are also look-

ing to reallocate credit commitments based oncounterparty concerns, either their own or their

credit insurers.

Problems with credit commitments shouldbecome an ongoing theme as banks are forced

by market conditions, or regulation, to stop treat-ing their balance sheets as a loss leader. Whether

banks are used as contingent capital or as part ofa draw-down, term-out approach to funding, the

cost is going to go up.nWatch the rating matrix.Once the fund-

ing/liquidity questions are answered, the most

important activity for treasurers is monitoringcounterparty risk. Almost everyone is talking

about their own internal ratings grids, or dash-boards (see example on p. 15). These are used to

monitor counterparty risk using some combina-tion of changes in CDS spreads, expected defaultfrequency, changes in market cap, changes in

rating agency rating, rating outlooks, VAR chang-es, change in fair/notional value and a variety of

other inputs. Every firm seems to be using onewith various levels of sophistication. Treasurers

are watching them religiously to track counter-parties on everything from FX trades to deriva-tive overlays on their pension portfolio.

Another matrix of concern is the web of bankaffiliates that an MNC deals with around the

world. One treasurer we spoke with noted con-cern about getting explicit parental guarantees

from banks for their overseas affiliates. A fewnoted having provisions already in place in theirISDA agreements to cover this. Their bank coun-

terparties, meanwhile, are clearly also monitor-ing counterparty risk ever more closely. Banks

have added contingency risk, since in the current

TVA

RATINGS MATTER LESSAs a further sign that firms

are stepping up efforts toreduce rating agency fees

(see IT, September 2008),

we have seen treasurers andtheir investment managers

query each other abouttheir investment policy posi-

tions on high-quality paperthat is rated by just two of

the major agencies (i.e.,

Moodys and Fitch, but notS&P). Most said they would.

Would you invest in me

if . . . ?Thus has begun a

whole series of new what-if

questions that treasurers areasking of each other and

their investors to determinehow relevant ratings have

remained in the currentenvironment.

Notably, in responses

to the two-of-three ratingquestion several treasur-

ers noted that their answerwas at least partly driven by

their increasing reliance on

Expected Default Frequencyand Credit Default Swap

indicators, as opposed toratings.

How long before invest-

ment policies go from two of

three major rating servicesbeing required, to none?

September Madness, continued from page 1

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Risk management

More InternalOversight Needed?

As companies grapple with the fallout

in the financial marketplace, they areevaluating all aspects of their treasury

operations to determine how they canbetter insure they wont be stung in the

midst of a hornets nest. Investment-, FX-and credit policies are all being reviewed

for exposures. But in addition to theseactivities, perhaps in reaction to politi-cians calls for more regulation the role

of an oversight committee is also beingconsidered. While many large companies

have various committees, including riskcommittees that provide oversight and

guidance to the activities of investing,foreign exchange and credit, surprisingly,many other large companies do not.

The purpose behind such an oversightcommittee is simply to provide review

and guidance for the most critical areasof a companys financial risk exposure.

It can act as an internal regulator, or asimple control over those conductingsuch operations who might get lost in

the trees and fail to see the forest. Therole and dynamics of these committees

can vary widely. But they generally con-sist of a handful of senior finance people

who are required to meet on a periodicbasis to review the status and directionof the operation and quite often provide

reporting to the board of directors or atleast the CFO and CEO.

A QUICK REVIEW OF BEST PRACTICE

A few best practices items have arisenfrom a recent e-mail exchange amongmembers of one of the NeuGroups peer

groups, including:

nBoard Authority. Have the boardof directors officially establish the com-mittee with a clear mandate and level

of authority. We have board-deputizedcommittees for both investments andcurrency hedging stated the assistant

treasurer of a large technology firm.nDevelop a governing document

for the committee.In order to ensurethat the committee does not lose sight

of its purpose and expectations, a charter

document is helpful. The document

should address key components of thecommittees purpose, authority and

accountability. As an example, the FordFoundations charter for its investment

committee covers three basic categories:

Mission Statement (what their broadpurpose is), Organization (who and how

they operate) and Roles and Responsi-bilities (the details of their duties).

nGet the right people. Common par-ticipants for committees of this nature

can include the treasurer, CFO, controller,head of tax, and head of internal audit.We have an investment committee

consisting of CFO, treasurer, controller,and head of tax. The committee reviews

the investment portfolio policy only andprovides guidance, noted one assistant

treasurer of a large MNC.nRequire regular meetings. A

requirement to meet at established in-

tervals will ensure the responsibility doesnot get lost in the busy schedules of the

committee members. We are required tomeet at least quarterly but in practice it

is usually 2-to-3 times per quarter, statedanother assistant treasurer from a globaltechnology company.

nConsider specialized committeesand schedule according to their needs.

Different areas of risk may need to beaddressed in a specialized way and on a

different schedule. They may also need toadjust to changing dynamics in the mar-ketplace. A senior treasury official of one

large technology firm related: We have acredit committee that meets monthly to

discuss investment credit lines with thetreasurer. We also have a formal hedging

committee that meets quarterly com-prised of the CFO, the treasurer and anassistant treasurer, to discuss hedging

policies/strategies and review any

current hedging program in place.nOr, consider an all-in-one commit-

tee. With the right people, knowledge

and commitment, a single committeecovering all risks may be an appropriateapproach. There is also benefit to looking

at risk holistically rather than in silos.One assistant treasurer commented: Our

company has an executive risk manage-ment and capital committee comprised

of senior finance and operations

executives that meets at least quarterly.

The committee regularly reviews invest-ment, FX, insurance, and other financial

risks as well as certain capital spendingproposals.

With investment fraud and failure

in the news almost daily, there shouldbe comfort in knowing that a group

of seasoned finance professionals arecollectively monitoring the risks for the

company. Theres wisdom in numbers.

Cash & working capital

Know Thy Covenants

As liquidity continues to evaporateamid a widening and perniciousbanking crisis, there have been reports of

corporations drawing on their credit linesnow as a rainy day fund for situationsthat may arise later.

A recent story in The Wall StreetJournal suggests this is happening, and

names companies, such as GeneralMotors and consumer goods company

Jarden, that are drawing on these linesfor fear that a bank may withhold it orbe unable to deliver the funds down

the road.While this may or may not be a great

strategy, experts remind firms to checkthe covenants first. Thats because banks

are looking for any excuse to chargemore for credit or even to close a facility(see IT, April 2008).

BANKS HAVE THE POWER

Despite its considerably weakened statethe bank sector still holds the upper hand

when it comes to credit. Basically, fomany banks, survival is the primary direc-tive, and they accomplish this by preserv-

ing cash. This means that corporations

shouldnt give their banks any excuses todeny credit.

Corporations ought to be careful

because... most agreements give banksa lot of flexibility to in effect call the loaneven if there isnt a default, said Bob

Wrobel, counsel at law firm Day Pitney.Its better in this environment to keep

your good guy image with the bank anddont play hardball because there are an

awful lot of provisions in the normal loan

ANTICIPATED EXPOSURES

4 International Treasurer / October 2008 nFor additional information visit iTreasurer.com


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ANTICIPATED EXPOSURES

For additional information visit iTreasurer.com nInternational Treasurer / October 2008 5

agreement where either they can find a

technical default if they want to or evenwithout a technical default they could

do things like change credit limits andthings like that.

Mr. Wrobel added that these provi-

sions have been built into loan agree-ments for years but have rarely been

used. But these are different times nowso it is best that corporations play by

the book.

STAYING STRAIGHT

Most companies intend to play by thebook when it comes to tapping their

credit lines; however, most treasurersreview their agreements only about once

a year. Whats worse, according to JimSimpson, managing partner with Corpo-

rate Finance Solutions, is that many firmsdo not have a review process. This wasconfirmed by the survey he conducted

with Bruce Lynn of the Financial Execu-tive Consulting Group, where about

40 percent of 150 companies polledsaid there was no formal review process

to manage debt covenants, whetherfinancial or non-financial.

Messrs. Lynn and Simpson also sur-

veyed banks, asking them what they dowith firms that come to them revealing

theyve breached an agreement. Manysay that if you come in and surprise us

with a breach, well charge you fees, wellincrease your spread and some say theymay even pull the line, according to

Mr. Simpson.So in the current environment it is

critical to have agreements studied andbuttoned up. For those companies that

have a good communication with theirbank and understand their debt agree-ments really well, banks are more than

willing to work with you, Mr. Simpson

said. Dont go to the banks after the factand say Oops! because you may pay.

GIVE IT TIME

Messrs. Lynn and Simpson also suggestthat companies that know they need to

draw on their lines alert the bank aheadof time. Gone are the days where you call

the bank and get the funds the same day.The big question is Will the bank have

the money when [a company] wants it,Mr. Simpson said. The problem could be

that when a bank goes out to its syndi-

cate banks to satisfy a $1bn loan, and itmight be the case in this environment

where only half of them come up withthe money.

And if they cant meet your draw-

down request, theres nothing you canreally do, Mr. Simpson said. Anecdotally

Im hearing of banks who are being askedif they can get the money in three days

but are telling customers they can get itto them in a week and a half.

RAINY DAY FUND A GOOD IDEA?

Whether or not more companies will

draw on funds from their relationshipbanks just to have it remains to be seen.

But given the current crisis and wideningspreads, it probably doesnt make sense.

There are a number of issues doingthis, particularly the negative cost ofcarry, said Mr. Simpson. Hypotheti-

cally, youre borrowing from the bank atmaybe 5 percent and what are you going

to do with it? Youre going to invest it.

But where do you go to invest? In the

current environment, the best a com-pany may do is 2 percent, Mr. Simpsonadded. So its costing you 3 percent to

hold that cash.This strategy might make sense in

certain situations -- perhaps if yourea net borrower trying to cover payroll,

etc. But it is not a good idea if you thinkthe company might face going out ofbusiness. The bank can still try to get its

money back.

Capital markets

Following Shorts

Into China

Despite hedge funds pleas to end the

short-selling ban, the SEC has onlyexpanded its temporary curbs. At presstime, the ban was covering close to 1,000

stocks, 15 percent of total US listings,ranging from manufacturers and infor-mation technology firms such as Ford

and IBM. Other market regulators aroundthe world have followed suit, but have

so far limited their restrictions more tofinancial stocks.

Running counter to this trend isChina. As the Financial Timesreported,

Chinese market regulators chose to

announce the start of a trial to testmargin trading and short-selling of

shares amidst moves by the US andthe UK to shut shorts down.

In its announcement, the China

Securities Regulatory Commission (CSRC)made no reference to its countertrend

timing, but did note it as a move tointroduce new vitality into its financial

markets, the FTreported.In the works since 2006, the timing

of the trial is likely more a political shotacross the bow.

The short-selling, margin-trading

experiment in China will be carefullycontrolled, and only made available with

carefully selected brokerages, so short-selling hedge funds are not likely to all

pick up and move to China soon.Still, with talk of the global financial

epicenter starting to move from New

York and London, China is planting

another seed for people to start think-

ing more about the relative position ofcapital markets in China.

Where to the shorts, there to themarket.

Counterparty risk

Are Hedge Funds Next?

Apart from pension investments, few

corporate treasurers are directly exposedto hedge funds as investors, but thefallout from massive hedge fund failures

would have adverse consequences fortreasury activities, from FX hedging to

using CDS spreads. Hedge funds will behard pressed to earn the returns and fees

that they have become accustomed to incurrent markets (especially if they cannotshort sell), and many face redemptions

from investors that have lowered their

risk appetite. This will eat away certainfunds on the margins.

All hail, collateral.However, what

may keep hedge funds as market par-ticipants viable is the extent to whichthey were required by counterparties

to ratchet up their collateral require-ments over the last 13-14 months. Since

the funds have been posting margin ondaily marks over that period, their risk as

counterparties and concerns about theirliquidity have been lessened.


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Fall 2008 Meeting

FX Managers Peer Group 2

September 1718, 2008

We would like to thank the participants at the Fall 2008

Meeting of the FX Managers Peer Group 2 for their opendialogue and relevant contributions to our discussions.

Your active involvement continues to make the FXMPG2a highly valued contributor to our network of forums forpeer knowledge exchange.

Thank you!

The FXMPG2 is a NeuGroup meeting alternative.SM

Facilitated by:Sponsored by:


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However, while dearer credit maynot always show up in pricing, it willcertainly show up in other aspects of bankrelationships.

5) Still, certain credit departments may

flag you.Pricing aside, certain members

reported that banks participating in a facilitygot cold feet when asked to re-up due to theincreased sensitivity of their credit depart-ments to protecting hard-hit bank balancesheets. This experience was most commonfor members that tried to do somethingfrom February on, particularly when theywere looking for term out options. Forexample, one firm faced a credit departmentred light from a bank in mid-March, whenit was looking to term out its facility fromone to five years. One large bank in thefacility, representing some 17 percent of a

$350mn-plus facility said no. That amountfor "used to be a rubber stamp."

6) Timing is critical, so be proactive.Anecdotes like these underscore the impor-tance of timing in renegotiating credit terms.In the current environment, treasurers haveto anticipate credit needs and negotiate pro-actively. One member who presented on hisrevolver negotiations made this point aboutseeking credit when it is not perceived asneeded: At first glance, it is hard to seewhy [our] firm with 80 percent operating

margins would be all that concerned with itsrevolver. Whats more, the firm has verylow debt and is currently only halfwaythrough its share repurchase authorization.

However, it was planning ahead of itsliquidity needs and wanted ample funds onhand to move forward with any M&A activ-ity that would help it grow.

So when the firm looked at liquidityin its capital structure, it took a 10-year

horizon and started planning its liquidityneeds using Monte Carlo simulation. Thesesimulations resulted in a high level ofconfidence that it would meet its fundingrequirements over the next few years. It hasmodest CAPEX expenditures driven byspending on its HQ expansion and relatedinfrastructure.

Projected cash flow, existing cash andrevenuebarring any issues, such as apatent problemshowed creditors a highprobability that it would avoid a liquidityevent, which is also why the firm has been

deploying cash to buy back shares.

CONCLUSION: It's more important than everto assess your funding needs. Several mem-bers reported being in the debt marketsrecently in hopes of shoring up liquidity inthe midst of an ongoing credit crunch. Themajority of members felt fortunate that theyhad gone into the debt markets last year.The importance placed on having criticalfunding needs addressed reflected membersexpectations that debt markets would be on

a rollercoaster over the next 18 months,meaning any new funding would need tobe timed to increasingly volatile marketwindows or creatively sourced.

REACH OUT TO TAX

AUTHORITIESWith more cash beingthrown off from off-shore operations,MNC liquidity has

also become morevulnerable to changesin tax rules and inter-pretations thereof.

While this is anotherreason for tax andtreasury coordination,members stressed thatit is also a reason toenter into dialoguewith tax authorities inkey markets so thatthey know whatmight be coming and

can figure out how toaddress the changes.Canada, for example,has fundamental taxchanges every fewyears and big changesare coming this year.China is also on manyradar screens.

Dialogue can beextended to advancednegotiation. Forexample: A key areaof concern for manymembers is withtransfer pricing, par-ticularly that concern-ing special incentivesUS firms have withChina, which the IRSis investigating. Beingproactive is critical.One member firmparticipates alongwith 30-plus compa-nies in a complianceassurance program(CAP), whereby theIRS audits the tax

books in real time andsigns off on them.

PEER INSIGHT: T30

Source: NeuGroup Peer Research 2008

FUNDING SOURCES ON THE RISEPercentage of respondents increasing the amounts of funding from key sources

Structured finance

US term debtissuance ex-US

Non-$ debtissuanc ex-US

WC ex-US

Asset sales

LT debt issuance

CP

Bank financing 25%

25%

29%

29%

33%

33%

35%

46%

50%Tappingoffshore cash



9/16

Members have continued to express theirfears that the economy will continue todecline as inflation risk continues to rise.While at the time of the meeting, inflationwas just starting to come on the radar screen

after a period of deflation, key retailers wereexpecting inflation to become a larger issueby the end of the year. Other members con-curred, pointing to rising labor costs in placeslike China, where as consumers they alsohave more money to drive up the price ofconsumer goods globally. Their demand forbetter living standards will also boost com-modity prices, which was viewed at themeeting as already having impacted oil andagricultural goods.

KEY TAKEAWAYS

1) Familiarity will bring finger-pointing.Asmore investors, from private equity to pen-sion funds, become familiar with commodi-ties as an asset class they are likely to raisetheir expectations regarding how firms man-age commodity exposures, and investors willnot allow them to blame commodity priceincreases as a reason for earnings surprises.Along with investors, rating agencies arebecoming increasingly focused on firmsability to mitigate financial risks, which nowincludes commodity risk. Many academic

studies showing how risk management bene-fits share price multiples for companies pointto risk management efforts as a reason onecompany performs better than its peers. Themost common examples are found with FX,but commodity risk is becoming more com-mon, such as airlines and the managementof jet fuel exposure.

Unfortunately, as a few members noted,some of the finger-pointing may comefrom efforts to hedge. Because of the wayFAS 133 forces firms to account for com-modity hedging, more hedging strategies

(compared with FX) must be marked tomarket and thus can generate significantnoise in the P&L for companies with largeexposures. The problem will intensify whencommodity prices fall.

2) Get treasury involved to focus on

liquidity risk and controls. Despite theaccounting and short-term earnings pres-sures, most members conceded that manag-ing commodity risk would make economicsense. To manage it successfully, however,treasury should be involved either directly

or indirectly.What dooms most commodity programs

is liquidity risk, thus commodity risk man-agement should not be buried in procure-ment, which is not part of a firms day-to-

day liquidity management. Also, membersnoted that if you compare the processes andprocedures surrounding risk managementactivities at most firms, you will find goodones around FX and interest rates, but feweraround commodities. ISDA agreements, forexample, tend to leave out provisions forcommodity contracts.

3) Consider as an investment asset class.

With more and more investors turning tocommodities, treasurers might also considerthem for pension or even cash portfolios. Ascommodity markets grow and deepen, there

is an increasing array of more standardized,index-based products that make it easier toparticipate in the asset class while beingdiversified in terms of contracts and counter-parties.

One decision is how much to tie commod-ity exposure on the investment side toagricultural commodities versus energy ormetals. Different index products will letinvestors mix and match depending upontheir view. Investors worried about the vola-tility generated by hedge funds and other

speculators should note that the futuresmarkets, as one member pointed out, areincreasing their limits and margin require-ments in order to curb speculative activity.

Going forward the liquidity constraints onspeculators will be more of a challenge andthe exchange-traded markets, in particular,will become friendlier to volatility-aversecorporate investors and hedgers.

CONCLUSION: With unprecedented risesin commodity prices and renewed fearsof inflation, member firms were also

reprioritizing their risk assessments. Goneare concerns about being under-leveraged,having been replaced by worries aboutavailable liquidity; and without access toready capital, cash investment losses, andrising input costs loom larger. If the top linestalls due to a further economic decline,more firms will be under pressure to man-age rising input prices, including hedgingcommodity risk. In so doing, they willbecome more like their Asian counterparts,whose appetite for managing risk seems

ERM & FX PORTALSOne session at themeeting discussedtrends in ERM and FXportals.

The key ERMthemewas customization:how firms choose tointegrate risk to bemanaged under anERM frameworkshould be determined

by what best fits theculture of the compa-ny, not some standard-ized, best-practiceframework that is one-size-fits-all. The samecan be said for wholeads it. For example,of the members at the

meeting with ERMprograms, half said itwas being led by inter-nal audit and half bytreasury.

For the FX portalsdiscussion, practitio-ners revealed that theyare looking beyondFXall. The reason

behind this trend isthat, perhaps in partas the novelty of elec-tronic trading and STP

have worn off, thefocus has shifted tovalue for money, orpurely cost. The twoleading alternativeson the FX side appearto be 360T andBloomberg.

Responding to New Risks: Rising Prices

PEER INSIGHT: T30



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insatiable. One member company took peergroup colleagues through some of the les-sons his firm had learned in dealing withcash investments during recent turmoil.

KEY TAKEAWAYS1) Boards wake up to investment portfolio

in a crisis.One of the clear lessons from theproblems in fixed income securities broughton by the mortgage crisis, according to thefirm's treasurer, is that Boards will suddenlystart to take an interest in the risk in corpo-rate cash portfolios, and their main focus willbe seeking to avoid headline risk. Whiletreasury can take numerous steps to educatethe Board on its investment policy and themandates it seeks to balance yield enhance-ment with risk/earnings volatility, much of

this will go out the window in a crisis, so it isbest to err on the side of risk mitigation.

2) Having a technical person on the

investment management team who under-

stands this is critical.The treasurer creditshis investment manager for being experi-enced enough to be on top of news thataffected key investments in the portfolio andget the companys money out before theywere hurt. Being a good technical manageralso means he understood the corporateinvestment dynamics, including Board sensi-

tivity to headline risk. For example, the com-pany had in its portfolio significant exposureto equity-linked paper that went from AAAto single-B in three days. The dynamics ofthe waterfall meant that some tranches wereonly getting 40 cents on the dollar if soldimmediately. While on a hold-to-maturityperspective, the company's positions were

over-collateralized and money good, themark-to-market losses were there and theresulting impairments would have impactedearnings, so it was better not to hold them.

You learn the value of a skilled technical

person, the treasurer noted as an outcomeof the crisis. They can save you a lot ofmoney, if you have a lot of cash. Takingthis lesson to heart, members should ensurethey have the personnel in place if they wantto seek extra yield in anything other thansqueaky clean paper. The problem will onlyget worse as FAS 157 gets implemented andfirms consider how they will price anasset class before they consider allowing itin their portfolios.

3) Liquidity needs also driving capital

preservation incentives.Weighing the risks

in the current environment along withliquidity needs, the company was alsoadjusting its investment policies to shortenduration. Like other members it was alsolooking at changing its allocations towardconservative assets like time deposits andagencies and even dropping asset-backedholdings altogether. The company has mostof its liquidity offshore, cash that it maymove onshore, as it has done recently; soit has also been rethinking the idea of corecash being onshore and more structured

excess cash for the offshore portfolio.

CONCLUSION: It's never a good idea to waituntil the Board's attention is diverted in yourdirection to start getting prepared. Have askilled team that understands this and onethat is also able to navigate the market andprep your portfolio for possible worse times.

T30 Conclusions & Next Steps

TO LEARN MORE

Contact:

Joseph Neu

914-232-4069

[email protected]

or

Sandra Shen

203-353-1151

[email protected]

PEER INSIGHT: T30

SUPPLY CHAINS &

LIQUIDITY ISSUESGiven the liquidityand funding concernsof the member firms,and the economicpressures being felt

on their suppliers,it stands to reasonthat more treasuriesshould considerreviewing their firmssupply-chain financeinitiatives.

KEY TAKEAWAYS

1) Note the pressure

on smaller suppliers

and buyers.As bad asit is for T30 members,they should fully con-sider the impact ofactions to squeezetheir balance sheets onsuppliers and buyers,particularly small- andmiddle-market enter-prises (SMEs).

2) Take credit risk

into account across the

size spectrum.WhileSMEs are hit the hard-est, credit risk should

be a considerationacross the spectrum ofsuppliers.

3) Banking partner-

ships under account-

ing scrutiny. Theviability of bank fac-toring/inverse factor-ing-related programsin the US have comeinto question and mayend up back on the

balance sheet as debt.

While all the members had been respond-

ing in various ways to the credit crunchand softening economic situation, allagreed that they will have to be more pro-active going forward with all aspects ofmanaging the balance sheet. Capital struc-ture leverage clearly is no longer the topicdu jour, as one member mused.

And while buybacks and dividends maybe impacted by tax rate changes after theelection, that does not mean members cansimply allow their firms to de-lever and

hoard cash. Treasurers will face major

questions if they sit around and do nothingfor four years and watch 40 percent oftheir balance sheet become cash, thismember noted.

NEXT MEETING

The following topics have been suggested,

so far, for the next T30 meeting:

nCredit markets: where to we go from here?

nM&A on their effect on treasury

nTreasury benchmarking: whats world class.

Investment Management with Internal Capital Needed



11/16

While waiting for the US Congress to

pass a plan to rescue both credit andmoney markets, treasury investment

managers at non-financial corporationsdiscussed some of their key questions

concerning money market funds in aNeuGroup-facilitated conference call.Here are some of those they sought to

address in the aftermath of the ReservePrimary Fund breaking the buck.

nWhat are the details of the govern-ment decision to insure money-market

funds?The US Treasury Department andFederal Reserve announced a numberof programs in September, including

actions aimed at stemming the flows outof money market funds perceived to be at

risk. The objective of the insurance pro-gram to be put in place was to stem the

tide of fund outflows in a panicked flightto quality without creating competitionwith bank deposit insurance.

According to Evergreen Investments,the insurance program would be put in

place for one year to guarantee paymentto investors in a participating money mar-

ket fund should the net asset value (NAV)fall below one dollar. To help protectfunds from dipping below a $1 NAV, the

US Federal Reserve would provide a lend-ing program to enable banks and other

financial institutions to purchase high-quality asset-backed commercial paper

(ABCP) out of money market funds.There are a few important details

about Treasurys insurance program that

treasury investment managers must be

aware of:1) the program is voluntary, so inves-

tors must ensure that their funds are

participating to benefit;2) the program is limited to 2a-7 funds

and excludes government and agency

funds;3) while the insurance has no cap, Trea-

sury will cover the shortfall in NAV onlywhen a fund has been determined to be

liquidated;4) there is no coverage for anyone

investing in the fund subsequent to

September 19.Many money fund observers believe

that once major 2a-7 funds start to par-ticipate, all will avoid the perception that

their holdings are not money good. ICD,a prominent money market fund portal,plans to highlight which of their partici-

pating funds have the insurance.n Should cash investment manag-

ers focus on shopping for new money

market funds or watching each of the

individual holdings in the cash portfo-lio?While some cash investment manag-ers were busy shopping around for the

best safety/rate combination, others werefocused on the relationship element with

fund managers to pull out any problemassets from the portfolio.

For many, shopping for new funds hasbeen a frustrating exercise in trying toshoehorn cash into Treasury-only funds

that are increasingly reluctant to take it.The alternative is a careful approach

based on building a strong relationshipwith their money funds managers and

a corresponding comfort level that theywill do the right thing in periods of stress.Doing the right thing means they are

going through a painstaking review withcorporate clients monthly (or even week-

ly) to ensure that no SIV-holdings or othernon-pure assets have sneaked into some

funds though the back door.This process is too time-consuming

to be applied to too many funds. Plus,

cash investment managers that take this

approach will have little time left to shopfor new funds. We spend more time onthe credit of individual names in the exter-

nal portfolio. There is no time to researchnew funds, cited one treasury investmentmanager.

Better fund transparency would help,but while fund transparency is important

and advantageous, it is very time-con-suming to review the myriad of holdings

within the many funds a large companymay own. The transparency tool offered

by Clearwater (see IT, September 2008

is very attractive but it only includes twofunds reporting once or twice per month

n Are bank funds or independentfunds better in a crisis?When investmen

managers consider the relationship ap

proach to being careful they say they getmuch better service from independent

funds. This may have something to dowith the way they are compensated: they

are motivated by the portfolio results andnot just new asset growth. However, some

treasury investment managers believethat there is more counterparty comfortin going with bank-owned funds, particu

larly if they favor institutions showing thelowest CDS spreads or deemed too big to

fail: e.g., Citi, Wells Fargo and JPMorganBurned by the lack of bank support in

auction-rate securities auctions, howeversome fear a similar support failure couldalso result should banks be called upon

to support the NAV of their money marketfunds as they grow larger.

nWill settlement risk concerns curbportal use? As rate shopping has grown

less important, the convenience of MMFportals has given way to concerns aboutsettlement risks as money funds close and

investors seek redemptions. With a portathere is one more layer between you and

the fund. Another disadvantage to portals is the lack of daylight overdrafts, thus

an investor needs to get out of one fundand collect his money before purchasinganother fund.

nWhere to go for safety and returns?With US Treasurys paying almost noth

ing, money fund investors are looking atgovernment-backed agencies or aban

doning paper from the financial sectoaltogether. One option is corporate paper, in particular the purer industrials. But

the opportunities are limited due to the

lack of qualified issuances, particularly inshorter durations. For instance: Caterpillar recently issued for 3-5 years at 300 bps

over T-bills, but what cash investors wantare terms under 360 days. If you can findindustrial paper inside a year, its a pretty

safe bet, noted one treasury pro.Hey, if every cash rich corporate would

invest in another less fortunate onesshort-term paper, then maybe the corpo

rate sector could keep itself going untithe banks start lending again.


INVESTMENT MANAGEMENT

Risk management

Top MMF Concerns for Treasurys IMsBy Bryan Richardson

Nuts and bolts issues for treasury investment managers in an intensifying crisis

in money markets.


12/16

illiquid market, trades are more likely to have

turned against clients.n Staying with AIG. Many treasurers noted

that they have significant insurance coveragewith AIG. All those we spoke to about this said

they were planning to stick with AIG for now.

One company renewing recently noted that itasked for and received a ratings trigger that al-

lows it to replace AIG without penalty, however.There were also some questions being asked

about New York allowing asset shifts to the

holding company, which AIG made before the

government bailout and the scrutiny surround-ing this. Given the D&O coverage AIG provides,treasurers who negotiate it sounded confident

that key concerns are likely to be assuaged at theBoard level as their Board members communi-

cate with those at AIG.n Non-performance risk and other fair

value accounting a looming nightmare.Giventhe ongoing accumulation of non-performancerisk, and confusion surrounding the (a)symmetry

in the recognition of a bank counterpartys non-performance risk versus the corporates own,

treasurers are not looking forward to accountingin line with FAS 157 at year end. The list of fair

value accounting concerns does not end there.

They extend from the FX hedging portfolio, to

impaired assets in the investment portfolio, andon to the derivative overlays used to manage

pension funds. Treasurers at non-bank firms willikely be joining their bank treasury peers in call-

ing for relief from FAS 157 (see p. 2).

n Offshore cash questions. In a carryover from peer group meetings the NeuGroup

conducted in the spring (see IT, September 2008and p. 7), treasurers have reported continu

ing questions from rating agencies concern-ing offshore cash and more serious discussions

with senior management and Boards regardingrepatriation. Near-term expectations for an HIA2.0 have lowered, if anything; though the recent

IRS relaxation of rules on borrowing from offshore affiliates (from a 30- to 60-day window) is

encouraging.nCommunicate, communicate, communi

cate. Internal communications are on the risebecoming more frequent and more detailedaccording to treasurers. This is in line with

crisis management 101: the more communica-tion the better. One treasurer we spoke with

noted that the latest monthly report on treasuryactivities to the Board was the longest it has eve

been. Other senior treasury professionals noted

TWO TAKESCredit risk can be tracked in a

variety of ways (see below):1) Create a betting pool.

Borrow from a sports book (left;and perhaps assign probabili-

ties from the bets made)

2) Create a dashboard.Thesample from Royal Dutch Shell

(right) combines:

nCredit Default Swap pricing,

used to reflect current risk per-ceptions in the market. Many

treasurers use daily quotes (or

calculate default probabilities)to compare relative risks.

nA Statistical Approachincluding current market value

of company assets. MoodysKMV predictive modeling, for

example, includes asset volatili-ties, equity price and credit data

history.

nEnhanced Ratings:Currentratings are still a valid source

of credit assessment, however,they are slow to change; thus

ratings outlooks should be partof the risk picture.

TVA

12 International Treasurer / October 2008 For additional information visit iTreasurer.com

S E P T E M B E R M A D N E S S

T W O T A K E S O N C O U N T E R P A R T Y R I S K M O N I T O R I N G

Goldman Sachs /

Berkshire Hathaway

Wachovia /

Citigroup

Merrill Lynch (bye)

Bank of America

FHFA

The U.S.Federal Reserve

The U.S. Federal

Reserve / AIG

FHFA /

Fannie Mae

Countrywide /

Bank of America

Merrill Lynch /

Bank of America

FHFA /

Freddie Mac

Wells Fargo (bye)

Freddie Mac (bye)

Barclays

The U.S. Congress

Morgan Stanley /

Mitsubishi

Lehman Brothers /

Barklays

The Bailout Fund /

The U.S. Congress

Washington Mutual

/ PNC MortgageWashington Mutual

/ JP Morgan Chase JP Morgan Chase /

Bear Stearns

The Queen of England

/ Northern RockThe Queen of England/ Lloyds

HBOS /

Lloyds

Barack Obama /

John McCainJP Morgan Chase

Courtesy of Spumonti

September Madness, continued from page 3


13/16

making senior executive or Board-level reports

on the day of each new crisis and issuing follow-ups three days after. ERM risk committees were

also cited as a communication clearinghousethat has proven useful. More firms are thus

considering oversight committees of some

kind to provide internal governance (see p. 4)and coordination of compliance with new and

existing policies and procedures in response tothe crisis.

TVA , CYA, OR SOL

Effective communication, working hard to an-swer the right questions and staying in goodspirits will only carry treasurers so far, however.

Arguably the value added by treasury will neverbe higher for most firms than it is right now. And,

it is moments like these that separates:1)The TVAtreasurers who have added value

to their firms by working with the CFO to be in aposition to weather a perfect financial storm likethis one;

2) The lucky CYA treasurers that can covertheir backsides fast enough to stay in their jobs;

and then there are3)The SOLtreasurers who just will be shown

door (along with the CFO) once senior man-

agement and shareholders realize that they

positioned the firm poorly from a capital struc-ture and liquidity standpoint.

Our hope is that most of the treasury practi-tioners reading this, and certainly the ones that

participate in The NeuGroups peer network fit

into the TVA category. But, not all treasurers will.Perhaps what is terrifying capital markets

bankers is the belief that the capital structureproblems that brought down certain banks,

including too much reliance on short-term fund-ing to cover leveraged asset positions, will start

taking down non-bank corporates, starting withthose with large finance companies.

As one market observer noted, this situation is

going to shed a l ight on weak treasury managersand their CFOs. Unfortunately, there are many

of them that have shown themselves to havea relatively unsophisticated understanding of

financial structures and have put their compa-nies in an extremely compromising position.

As some of the compromised get caught out,

outside of the financial sector, this will put evenmore pressure on all treasurers to get ahead of

the curve by communicating convincingly thatthey are not in a similar position to peers in trou-

ble. Capital (most especially cash) will help.

TVA


T W O TA K E S O N C O U N T E R P A R T Y R I S K M O N I T O R I N G

C O U N T E R P A R T Y R I S K D A S H B O A R D

Acceptable risk Cautionary risk Higher risk

FX Deals - Period to MaturityFX

Total

InvestInvestTotal

GrandTotal

Moodys Rating KMV:ExpectedDefault

Frequency

1 YearCDS

Spread(bps)

0 to6mth

7 to12mth

13 to24mth

15 to36mth

37 to48mth

49 to60mth

60mth+

0 to6mth

Current Outlook Alert

BarclaysBank

Aa1 *- negative R 160.7

BNP Paribas Aa1 stable G 52.1

Citibank Aa3 *- negative R 418.9

Credit Suisse Aa2 stable G 42.7

DeutscheBank

Aa2 stable G 107.6

GoldmanSachs

International

Aa1 stable G 650

Merrill Lynch(B of A)

Aa2 *- negative R 102.6

MorganStanley

A1 stable R 1919.4

StandardChartered

BankA3 stable R 76.2

UBS AG Aa2 stable G 186.7

LIBOR IN TRANSFER

PRICING

Transfer pricing is of growing

concern to treasury (IT, August

2008), and LIBOR volatility and

spreads over Fed rates are

wreaking havoc on MNC effortto set revenue-neutral transfer

pricing on interco loans. In a se

sion at the recent EuroFinance,

Philippe Vyncke, a partner in

PWCs Belgian tax consultancy

noted that firms can:

1) Play it safe and stick wit

the policy document rate, e.g

the 1-month local-currency LI

BOR, no matter its gyrations; o

2) State that the rates are

temporarily irrational, and

use a reasonable rate to beset by treasury, e.g., the prior

months 30-day average rate.

The latter approach will invite

the ire of auditors and taxmen

so take extreme care to docu-

ment the approach and why a

change has been made.

Numbers indicative only. Template Courtesy of Royal Dutch Shel


14/16

It used to be that product heads of transaction

banking services would deliver a healthy andsteady stream of revenue to their banks yet get

little appreciation from their superiors who en-couraged higher returning, albeit riskier busi-

ness. Today, however, the transaction bankingworld is in a state of change, as the fallout fromthe credit crisis, including the most recent round

of failures and banking mergers, begins to befelt. As a result, the annuity stream offered by

transaction banking (including cash manage-ment, payments and trade) is not only being

appreciated, it is warranting new investment asother sources of earnings fall from the table.

This could be good timing for their corporate

customers, who themselves are reeling fromthe fallout of tight credit markets and the need

to balance their external liquidity requirementswith the desire to improve the efficiency of inter-

nal liquidity resources.

A SILVER LINING IN THE CRISIS?

While no transaction banker welcomes thecurrent market situation, if forced to find a silver

lining, it is that transaction banking has become abeacon in the dark waters faced by many banks.

According to Andrew Long, group generalmanager and head of global transaction bank-ing at HSBC, from a group-wide P&L perspective

every bank is looking at where they are makingrevenue and where they are losing money. With

a high degree of volatility in earnings, they arelooking at what is keeping the ship running. And

the answer is transaction banking.For David Conroy, Americas head of trade

finance and cash management for corporates

at Deutsche Banks Global Transaction Banking

unit: Recent events have just made the focusand priority of the transaction banking businesseven greater. Stable revenues that grow organi-

cally are particularly important right now in thefinancial institution space.

Erik Zingmark, global head of cash manage-

ment at SEB, concurred: Although it is unfortu-nate that it took the current crisis to show the

value of our business, this was probably thesingle most important thing that has happened

to our area . . . a leap forward in how transactionbanking is viewed in the bank world.

Of course, the renewed interest in transaction

services is not driven solely by banks. As DavidAldred, managing director, co-head of corpo

rate sales EMEA at JP Morgan noted: Clientshave stressed the importance of improving thei

supply chain in order to access trapped cash, andthey are looking for us to help them mobilizecash so they can ultimately make investment de

cisions around that cash. Never has it been moreimportant for corporates to have that visibility

over cash.

REALITIES THAT STAND IN THE WAYWhile milking more from the transaction services annuity stream at a time when custome

demand for it is high sounds great in theorythere are several realities that stand in the way.

nNot all banks have capabilities that theycan instantly scale up. Because many transac

tion banking units faced a struggle to competefor internal resources, these resource-intensiveunits often received only the investment that

was absolutely necessary and often required for core infrastructure and compliance needs

Transaction banking has a strong history oannuity earnings, but it requires heavy technol

ogy spend which restricts access to a limitednumber of providers. In addition, there is a lim-ited base pool of expertise in the field, which can

limit growth. Thus, more banks will be investingto catch-up to their (remaining) competitors

than investing to keep their lead.

Any bank that wants to compete must invest

in this space, corporates expect us to. We are

working with corporates to try and deliver val-

ue and the question is what banks will be able

to continue to do that as the market continuesto evolve and deal with the current situation.

David Aldred, Managing Director, co-head

of corporate sales EMEA at JP Morgan.

Ability and will are two different things

The challenge most of the transaction servicesorganizations within banks face is getting the

investment money needed to stay competitive,noted SEBs Mr. Zingmark. To make the necessary

investment in transaction banking, he explainedrequires a longer-term perspective: Over a three

WHAT CASH BANKS

ARE INVESTING INRecent comments indicateinvestment in these transac-

tion (cash) services at the

following banks:

nCiti:Focused on improv-

ing and strengtheninginfrastructure, continuing to

innovate, and broadeningthe distribution footprint.

Specifics includes Treasury-

Vision, digital signaturestechnology and Banking-

Vision (a banking platformto be launched in 2009). Citi

Global Transaction Services

has more than a $1 billionannual budget.

nJP Morgan: Recently an-nounced a $1bn plus invest-

ment program aimed at thelaunch of single global trea-

sury platform, expansion of

payments offering, financialsupply chain, prepaid card

expansion, and extension ofits online A/R offering.

nDeutsche Bank:Invest-

ing in financial supply chain,including trade and supply

chain finance, launchedFX4Cash (a cross-border

payments and foreign

exchange solution) and just

announced launch of newp-card business. Budgetcontinues to increase in line

with growth expectations.nHSBC:Investing in pay-

ments infrastructure around

SEPA and other regulatorydevelopments, integrated

payables and receivablesplatform (Lionheart), launch-

ing an integrated supply-

chain platform. Recentlyapproved largest budget

increase in many years for

transaction banking unit.nSEB: Investing in liquid-

ity management, cashvisibility, customer service

platform, and paymentsinfrastructure. SEB also part-

ners with external IT provid-ers to bring new technology

to clients, alongside internal

investment.

GLOBAL CASH MANAGEMENT

Bank relations

Banks Investing in Global Transactions BusinessesBy Denise Bedell

With everyone facing a horrific credit environment, the annuity stream from transaction

services business has become so deeply appreciated by banks as to warrant new investment.



15/16

or five year relationship, then you can create

good value on that investment.Also, while the situation is changing, there

is still the psychological challenge we face toget that complete long-term understanding,

Mr. Zingmark noted. This will be doubly impor-

tant when the current moment passes and in-ternal competition from other areas of the bank

with shorter payoff horizons resumes.n Not all competing projects are gone.

While it is true that competition for resourceshas eased, it is far from true that banks have only

transaction banking to think about. And beforetransaction banking services can be improvedthere is much to sort out from ongoing market

events. Several of the largest transaction bank-ing players have been and will be involved in

hastily agreed-upon acquisitions of other banks,and the fallout from bank failures is still to be felt.

For example, WaMu had correspondent bankingrequirements around the world that will be af-fected by its failure. The competing bids for Wa-

chovia by Citi and Wells Fargo will also have a pro-found impact transforming not only these banks,

but the US transaction banking landscape.At the same time, all the big banks continue to

face huge required investments in their transac-tion services businesses to comply with regula-tory and legislative initiatives that have not gone

away. There is SEPA in Europe and the PaymentServices Directive in the UK, which has forced

massive investments in payments infrastructurefor every bank operating in Europe. Whether

they put through 100 transactions a day or 1000,the infrastructure investment is the same. Thenon the investment side there is MiFID and Target

2 Securities. All affect the cost of doing businessand leave less for other developments.

nNot all customers will get access to bet-ter services. Recent market events will have a

profound impact on corporate-bank relation-ships. From a corporate perspective, the struggleto manage transaction banks has just gotten

more difficult. Ensuring adequate liquidity is a

prime consideration right now. At the same time,ensuring liquidity providers will be around foreven the short term is an even bigger concern.

In other words, credit (funding and credit risk),not transaction services capabilities, still drivesrelationships.

Banks, meanwhile, must be evermore carefulabout the corporates they provide balance sheet

to. Mr. Long at HSBC noted: In the current mar-ket you have to look from a risk perspective at

who your clients and suppliers are. While bankswant more business from both corporate and

institutional customers as they rebalance their

risk profiles, he added: When looking at cashmanagement customers, we have to look at

transaction flows in light of the credit quality ofthat customer in order to keep flows in balance.

And in addition to credit risk concerns, going

forward, the earnings contribution of transactionservices will be closely scrutinized.

Noted one transaction banking head:

The ability to allocate capital to my corporate

customers is directly related to the stable

business growth that we can achieve in

transaction banking.

Seen another way, as the wallet opportunityof existing relationships begins to play a bigger

and bigger role in bank decisions to providebalance sheet, more customers will be asked to

pay up for transaction services, if not also thecredit directly, or take their business elsewhere.

nMore corporates are looking to improve

their own transaction services.While transac-tion services from banks are needed, they only

go so far. As one global cash manager noted:Our banking partners are proposing several

value added services related to cash. . . However,they do not solve the problem of data aggrega-tion in our ERP system where this information is

more useful across several business units.For this reason, he said, his company is leaning

more toward data-warehousing within their ERPand utilizing database analytics tools to run very

similar reports to the bank products. The advan-tage is that it allows the company to populate allbanking data into its ERP system as opposed to

utilizing several different proprietary bank sys-tems. This approach should only get easier as

more corporates join SWIFT and there is furtheradvancement of standards.

In other words, for some new services the in-vestment by banks must complement what cor-porates are doing on their own. Further, as corpo-

rates find alternative ways to gain cash visibility

and manage liquidity, the value added elementsof transaction services may lose some appeal.

Thus, banks should ensure they truly understand

their customers needs before investing.As one global cash manager pointed out, the

more important thing for banks to get right is

the transaction processing itself. Weve lookedto our banks to provide consistency in transac-

tion processing in the current market situation,and their ability to maintain this annuity stream

is dependent on their timely processing of trans-actions in good times and bad.

CAN CITI HOLD ITS

GLOBAL LEAD?With other banks investing to

step up their global transactiobanking platforms, will Citi,

which has traditionally beenable to rely on its global trans-

actions banking footprint,

invest to maintain its coveragelead?

Senior management is committed to this business as part

of the universal bank model,noted Michael Guralnick,

global head of sales for Citis

Treasury and Trade SolutionsUnit. They see Global Transac

tion Services as an invest-ment destination within the

company, and understand tha

we must continue to innovateeven in this challenging time.

According to a recent surveby Treasury Strategies (high-

lighted in the September issu

of the UK publication FX&MM

while Citi is among the top

three transaction banks usedby large corporates in the

US, Asia and Europe, it is onlynumber 1 in Asia (and tied; se

below). If accurate, this survey

would suggest more invest-ment in GTS is a good idea.

Rank Provider %*

Asia

1 Citi 28

1 Standard Chartered 28

1 Maybank 28

4 HSBC 22

Europe

1 RBS 29

2 Deutsche Bank 28

3 Citi 25

US

1 Bank of America 86

2 JPMorgan Chase 62

3 BoNY Mellon 42

3 Citi 42

* Percentage of large corporates (with

turnover greater than USD5bn);

25 percent of the 970 survey respondent

Source: Treasury Strategies

GLOBAL CASH MANAGEMENT



16/16

These are challenging timesso dont look for solutions alone

Join a Peer Group Today!nTreasurers Group of Thirty Peer Group

nTech20 Treasurers Peer Group

nThe Bank Treasurers Peer Group

nLatin American Treasury Managers Peer Group

nFX Managers Peer Groups 1 and 2

nGlobal Cash and Banking Group

nTreasury Investment Managers Peer Group

nInternal Auditors Peer Group

To learn more, go to www.neugroup.com/peergroups

Help us form new groups:

Sr. Exec. Peer Groups:Insurance CFOs, Oil and Gas (Energy) CFOs and Treasurers, CFO 30

Regional Peer Groups: Europe, Asia Pacific, China

Functional Peer Groups: Payments, Risk Finance and ERM, Healthcare Transactions Services

International Treasurer - October 2008 - The Financial Crisis Heats Up

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Transcript of International Treasurer - October 2008 - The Financial Crisis Heats Up