MANAGING THE ALL MIGHTY GREENBACK:OPTIMIZING YOUR US DOLLAR CASH FLOWS GLOBALLY

WEDNESDAY, JANUARY 18, 201711:00 EST / 16:00 GMT / 17:00 CET

TREASURY TODAY

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AGENDA

WELCOME REMARKS & INTRODUCTION1

TREASURY CONSIDERATIONS FOR OPTIMIZING USD Centralized Structures Decentralized Structures

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USD – THE GLOBAL FUNCTIONAL CURRENCY… THE YIELD GENERATING CURRENCY

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3

WELCOME REMARKS& INTRODUCTION

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Walid T. ShumanHead of Cash Management Americas, Corporate & Institutional Banking

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USD is the most dominant global currency

52%

3YEARS

80%International Trade [Value]

International Flows [Volume]

Inter-Regional Flows

78%Americas to

Europe

92%Europe toAmericas

49%

Continues to increase over the past

2.5Trillion in

USD*US + European Corporates Holding

Worldwide Currency Usage and Trends, SWIFT, Dec. 2015

*Capital Economics Sept. 2016

Global importance of USD

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Why is USD important

Key currency for global trade Key industries trade in USD

globally (e.g. energy, aviation, commodities)

Relative stability (reference currency in emerging markets)

Banking infrastructure

Control Visibility Time zones Regulations Cost/efficiency

Key challenges

Determining the best approach

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What are your key drivers

Cash position (positive or negative)

Cost/profitability Technology Supply chain Risk management

Global treasury infrastructure:– Decentralized, regionalized,

centralized– Where is working capital

managed?– Do you have visibility into your

global cash flows? Global vendors – geography Legal and tax infrastructure.

Which entities and where? Liquidity Management and

Investment strategy

Key considerations

To manage USD efficiently; you need a comprehensive review across all 3 layers of cash management

3 layers of cash management

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3. Yield Optimization of Cash Use• Investment options• Short-term borrowing

Cash/Yield Optimization3

Geographic / Currency scope

Cas

h flo

w

2. Concentration ofCash Balances • Cash Pooling• Visibility• Control

Liquidity Management2

1. Managing Payments & Collections • Accounts• Connectivity• Transaction processing

Transaction Management1

What are best practices for establishing USD cash management structures worldwide?

3 key questions to answer

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1

What opportunities and benefits can be gained by managing USD more efficiently?2

Are centralized Treasury structures or decentralized structures better for increasing investment returns on USD?3

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USD – THE GLOBAL FUNCTIONAL CURRENCY… THE YIELD GENERATING CURRENCY

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James SantoroHead of Liquidity & Investment Advisory Americas, Corporate & Institutional Banking

Centralized structures – seek out consolidating operations as well as institutions seeking funding

Decentralized structures – seek out global banks rewarding ‘global’ activity, irrespective of where cash resides

Standard principles apply – operational cash is king, forecasting is key, funding needs help drive price

Centralized vs. Decentralized – many ways to optimize cash

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3 Pillars of Liquidity

LIQUIDITY• Payment need will determine

‘liquidity’ requirements.

• Working capital needs require products offering daily liquidity.

• Reserve/strategic cash can seek yield in longer tenor options.

YIELD• Opportunity for yield with every

liquidity product.

• Often not primary ‘driver’ of investment decisions with ‘Treasury’ cash, but still extremely important.

• Has to be compelling enough to compensate for ‘switching’ costs.

RISK• Principal preservation is often

cited as primary concern (validated in IPS).

• Treasury cash is for working capital needs/shareholders, not generating investment returns.

• Demonstrating soundness of principal requires ‘right’ product and provider.

Regulation: Basel III focus for banks

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Counterparty Runoff Rates

Operational Corporate Deposits 25%

Non-operational Corporate Deposits 40%

Financial Institutions 100%

Liquidity Coverage Ratio (LCR)

LCR =Stock of High Quality Liquid Assets

Net Cash Outflows Over a 30-Day Period≥ 100%

Liquid assets requirement to offset 30-day loss of funding. Each dollar of run-off requires dollar of liquid asset buffer. Deposit types with lower runoff equates to more value.

Net Stable Funding Ratio (NSFR)

1-year ratio requirement designed to improve longer term funding. Deposits assumed to run off during a one-year stress environment that do not provide stable funding are required to be held liquid, rather than, deployed against longer-term assets requiring more stable funding.

Stable funding requirement over 1-year period. Equity and liability (deposit) financing viewed as stable. Required amount depends on nature of risky assets. Ratio likely to undergo some revisions prior to 2018.

30-day ratio requirement designed to ensure that sufficient high-quality liquidity exists to manage through an acute stress scenario (e.g., 3-notch downgrade, partial loss of deposits, etc.) lasting one month.

Laws and regulations created and implemented.

Introduction of the Net Stable Funding Ratio.

Basel III fully implemented.

2011

2015

2018

2019

Tier 1 capital will take into full effect on January 2015.

Introduction and required 60% LCR.

Corporate Demand Deposit

Accounts

LCR NFB Economic ValueProduct Type Maturity

HIGH

MEDIUM

HIGH

MEDIUM

LOW

HIGH

MEDIUM

HIGH

MEDIUM

LOW

HIGH

MEDIUM

MEDIUM

MEDIUM

MEDIUM

Operational

Non Operational

Beyond 2 months

Between 1 and 2 months

Up to 1 month

Corporate Term

Deposits

Value to BNP Paribas

The key implication for bank customers is that the Basel III Liquidity standards will have an overarching impact on how banks value and provide return on client liquidity.

NSFR =Available Amount of Stable Funding

Required Amount of Stable Funding≥ 100%

Which products do banks value highest? The ability to provide banks with additional transactions or the ability to place funds ‘out along the curve’ will translate into the highest yields.

Banks – not all liquidity is valued equally

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Time Deposits (TDs) > 30 Days

Tenor Linked

Stable Non-transactional Demand Accounts

TDs < 30 Days

Off Balance Sheet - MMF

Dec

reas

ing

Valu

e to

Ban

ks

Increasing Ability to Realize Higher Yields

Transactional Demand Accounts

Operational flows – increased consolidation/transactions improve position Bank funding needs – it pays to shop around Forecasting can be key – >30 days yields ‘outsized’ returns

Centralized Treasury – liquidity solutions opportunities

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Operating Flows – Consolidate/Increase Transactions

Forecasting for Yield

Banking 101 – Liabilities Funding Assets

• ECR – Should I be paying bank fees?• IB DDA – Reg Q ancient history• Hybrid – Best of both worlds

• IB DDA/MMDAs – Yield still exists where need• Structured IB DDAs/MMDAs – ST need/LT gain• Notice/Evergreen Deposits – Call when needed

• TDs – The longer the better• CDs – Secondary market backstop• Other Fixed Income/Private Funds – Hold to maturity endeavor

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3

2

Solutions example – ‘structured’ demand account

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$

Daily

X%

Monthly

+Y%

+Z%

Quarterly

X% + Y% + Z%

Total

Min MaxLiquidity

Yield

Security

O/N 6mL

Low High

Maintains daily liquidity available for immediate withdrawal with no “penalty.”

Core+ DDA pays additional yield monthly provided average deposit targets are met.

Core+ DDA pays additional yield quarterly provided stable deposits.

Core+ DDA pays interest on daily balances just like an IB DDA, but offers the opportunity to receive ‘add-on’ yield provided monthly and quarterly average deposit thresholds are met. Average thresholds are negotiable depending upon expected levels and stability of funds.

Decentralized Treasury – liquidity solutions opportunities

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Operational flows still rule – global opportunities and yield ‘leverage’ Global view of funding – whole equals sum of the parts Centralized products still apply – dialogue helps uncover best opportunities

depending on need

Operating Flows – Consolidate/Increase Transactions • Global ECR – Global balance benefit on fee offset• Remunerated Current Accounts – Do transactions warrant yield concessions?

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Regional Preferences Dialogue• Bank Deposit Products – What currency/region is preferred?• Other Fixed Income – Does where incorporated create opportunity?

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Global View of Excess/Trapped Cash• Global Balance Aggregating – More is usually better• Multiple Currencies Considerations – JPY + USD

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In establishing a Decentralized Treasury function, the ability to aggregate funds notionally across the globe can provide an investment advantage.

Certain products and bank funding needs enable Treasurers to receive greater remuneration by notionally aggregating funds

Solutions example – global balances

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USD20MM

USD10MM

USD30MM

USD5MM

USD15MM

USD80MM

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TREASURY CONSIDERATIONS FOR OPTIMIZING USD STRUCTURES

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Jan RottiersHead of Liquidity Management Products & Projects

Liquidity centralization

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Enablers of Centralization

Physical Cash Pool allowing regional or global centralization of group liquidity to a designated master account

In-House Bank cash concentration, an in-house alternative to bank sweeping services 

Notional cash pool overlay structure (if legally possible), allowing negative and positive group’s balances offsetting

Payment factory leveraging PoBo/RoBo schemes

A combination of the solutions above

Reduce borrowing costs Maximize opportunity for investment Improve control over cash Increase real availability of cash Eliminate interest spread paid

to banks Centralize FX risk management

Benefits

Centralization is not a goal in itself

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Enablers of Decentralization

Channels/connectivity delivering real time information over cash positions across regions and banks

Harmonized reporting Local physical cash pooling Domestic or cross boarder notional

cash pooling allowing interest optimization

Ability to make local payments quickly/seamlessly

Possibility to match a decentralized treasury model at customer’s side, leaving required autonomy to the subsidiaries

Benefits

Influencing factors: Currency and location of transaction flows Company structure Strategic planning Functional versus non-functional currency

…and, a more general point of discussion: proactive FX currency exposure management or automated multiple currency pooling solutions?

USD balances management

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CENTRALIZED MODEL

Global USD structures

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REGIONAL MODEL

USD balances

USD

balances

Americas (New York)

USD Master Account

EMEA (London)

USD, GBP, CHFMaster Accounts

Entity 1 Entity 2 Entity 3

ZBA(s)

APAC (Singapore)

USD, HKD, SGD Master Accounts

Entity 1 Entity 2 Entity 3

ZBA(s)

Entity 1 Entity 2 Entity 3

ZBA

Entity 1 Entity 2 Entity 3 Entity 4 Entity 5

New York

USD Master Account

ZBA

Considerations: USD denominated industry High value/low volume Time sensitive transactions

Benefits: Centralized liquidity Lower cost & better cut-offs Ease of management

Considerations: USD functional

currency Transactions flows in

USD as well as in local currencies across over 70 countries globally

Benefits: Global view/control on cash and

system harmonization Multiple currency balances

management via notional cash pool Optimized yield on USD excess

cash investments in USA

In conclusion – 3 key questions answered

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What are best practices for establishing USD cash management structures worldwide?1

What opportunities and benefits can be gained by managing USD more efficiently?2

Are centralized Treasury structures or decentralized structures better for increasing investment returns on USD?3

Degree of centralization Key drivers and considerations Cost/Benefit

Optimize yield Cost efficiencies Working capital Non-economic benefits

Opportunities exist, irrespective of structure Decentralized structure - products that enable ‘aggregating’ cash Centralized structure - products/providers that value incremental cash

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