About Me

My photo
I am deputy editor at The Banker, a Financial Times publication. I joined the magazine in August 2015 as transaction banking and technology editor, which remain the beats I cover. Previously I was features editor at Profit & Loss, an FX and derivatives publication and events company. Before that I was editorial director of Treasury Today following a period as editor of gtnews.com. I also worked on Banking Technology, Computer Weekly, and IBM Computer Today. I have a BSc from the University of Victoria, Canada.

Friday, 23 October 2009

"It's Important Not to Miss a Good Crisis"

9 October 2009

BNP Paribas' third annual Cash Management University examines liquidity and risk management in today's changing environment.
IBM’s June Felix, general manager, global banking solutions, summed up a general business axiom doing the rounds currently: “It’s important not to miss a good crisis - and it has been a good crisis.” Speaking to just under 200 senior executives, including many corporate treasurers, at BNP Paribas’ third Cash Management University in Paris, she highlighted the opportunities created by this financial crisis for some companies to emerge stronger and gain more market share. In her presentation, she outlined IBM’s global credit strategy - IBM makes 250,000 credit recommendation/decisions annually - and the need for a global integrated process in order to make sound, rigorous decisions, adding that IBM learned to be “very paranoid from its near-death experience in the early 1990s”.

BNP Paribas appears to be grabbing this idea with both hands. In the opening plenary, François Villeroy de Galhau, member of the executive committee and head of French retail banking, BNP Paribas, outlined the bank’s commitment to its cash management business and its strategy moving forward. The bank is 10 years old and, since its inception in 1999, has tripled in size, not least due to its acquisition of Fortis as of 12 May which has “dramatically” extended its coverage.

In order to prove its commitment, BNP Paribas is creating four competency centres in Brussels - one of which will be a cash management centre headed by Pierre Fersztand, global head of cash management. The bank’s strategy for 2010 is to develop channel and web solutions to fully exploit web opportunities, while continuing to develop and extend its 2009 priorities: electronic bank account management (eBAM), the Connexis platform, SWIFTNet extension in the Middle East and north Africa, and the NetCast web solution in France.

Back to Basics: Cash and Treasury Management Strategies

Back to basics was the theme of the second plenary session looking at cash and treasury management strategies. Two corporate treasurers from very different industries talked about how they have managed their treasuries in the new financial climate.

Publicis, a media and communications company in 104 countries with three autonomous global advertising networks - Leo Burnett, Saachi&Saachi and Publicis - has a group treasury based in Paris, with country treasurers in local shared service centres (SSCs) looking after accounts receivable (A/R), cash management, tax, etc.

Pierre Boisselier, international treasurer, believes that a treasurer’s main job is to preserve cash generation during the financial crisis. He said that there were three areas to look at:

Upstream: developing strong trade working capital and chasing overdues.
Ongoing: set up efficient cash management processes to get visibility and manoeuvrability of cash.
Downstream: set up efficient investment policy that includes secure cash (with who; in what) and leverage cash (cash pooling, cash recycling, etc).


In his experience, treasury needs to look at:

Setting up a clear corporate policy that drives the bank relationship, cash management and investment policy.
Incentivising operational stakeholders to support financial objectives, i.e. trade working capital, chasing overdues, etc).
Building a bridge between controlling/reporting and treasury needs.
Including a cash component in all systems, i.e. treasury management systems (TMS), collection tools, enterprise resource planning (ERP) systems, reporting tools, etc.
And last, remembering that the best counterpart for a corporate is the corporate itself.


The second case study was presented by the group treasurer of Panalpina, which is an air and shipping freight company that has obviously suffered over the last 12-18 months. It has 500 offices in 80 countries. The company is asset light and cash rich. The treasury set-up is an in-house bank approach, where its bank deals with cash management, corporate finance and risk management; it does not manage A/R, which is a separate department. The global cash management model is a regional set-up with payments factories. Zero balancing is practiced in Europe, while notional pooling is done in Asia.

Group treasurer Marcel Kellerhals said that the financial crisis made the treasury focus on:

Counterparty risk: i.e. operational risk and credit limits.
Financial instruments: the company stopped investing in fancy instruments.
Own financials.


"One of the questions the company asked is do we pay too much for bank charges? Well, the answer was yes,” said Kellerhals, “but we wanted to improve our business, not just by squeezing our banks, but by improving our processes.”

Panalpina took the following actions:

Immediate: implemented a cash investment adjustment; re-confirm and spread credit lines; back-up solutions for payment factory (80-90% of payments was processed by one bank in one SSC); expand treasury reporting to chief financial officer (CFO); and spread the business over several banks (one bank won the payment factory contract for Europe, so there was pressure from within the company to stick with that bank).
Mid-term: wanted to move to a situation of payment factory independence; get a global overview of local cash positions; and achieve rolling cash forecasts per currency.
Cash management vision: single global IT platform; true in-house bank with treasury vehicle; global cash pools per currency in respective clearing countries; and a global payment factory (SSC), including collection “on behalf of”.


Kellerhals said: “We do the treasury job every day, crisis or not - we have to focus on profit and loss [P&L] and link it to the financial result. Every cent we can save is linked to making sure FTEs [full-time equivalents] are not laid off.”

Also in this session, Vincent Le Bellac, partner, PricewaterhouseCoopers, looked at where the industry is in terms of International Association of Standards (IAS) 39 - and it is looking like a "heart transplant". There will be a full replacement of IAS 39 during 2010 involving three phases: classification and measurement, to be completed for financial statements as of December this year; impairment - the exposure draft (ED) is to be released this month; and hedge accounting ED will come out in December. The big breakthrough is that there may be no effectiveness test for hedge accounting.

Although this overhaul will have a mandatory effective date no earlier than January 2012, companies will probably be allowed to move to early application of the standard.

The corporate treasurers’ associations have objected to a number of issues, such as the prohibition of reclassification between categories and the removal of the possibility to keep equity instruments at cost when fair value cannot be reliably measured. Le Bellac stressed that corporate treasurers need to engage and lobby the International Accounting Standards Board (IASB), even if they have been that successful in the past, because the standard’s re-draft will be completed in 2010.

Innovation Through eBAM

In the session, ‘Innovative Solutions for Improving Corporate Treasury Efficiency and Risk Management’, electronic bank account management (eBAM) was the main innovation under scrutiny.

Gilbert Labbé, head of treasury and subsidiaries and financing department, EDF, discussed why the company had joined SWIFT in developing this initiative in 2007. Ultimately, Labbé wanted to dematerialise bank mandates, or take the paper out of the power of attorney process, but the side effects were: a single database to monitor mandates, a tool making research easier and improving security, and traceability for external auditors.

SWIFT, Alsyon and EDF formed a validation group that has focused on message contents. The pilot programme ran from April to September and looked at three kinds of messages: account opening, opening return receipt and account opening reporting. Although things are moving forward, Labbé said that the project will take some more time to complete.

Elie Lasker, head of corporate market, SWIFT, also spoke about the eBAM initiative, outlining the scope and deliverables:

Scope: for existing customers (after know your customer (KYC); account opening and account maintenance; account closing; and account features reporting (for the auditor).
Deliverables: draft schemes December last year; pilot testing 2Q09; SWIFT solutions and ISO certificate end 2009; and ongoing vendor programme.


Lasker announced that SWIFT is to launch a new personal digital identity solution in early 2010, which he believes is an essential component of an eBAM solution.

Innovation in Emerging Markets

The discussion on innovation spilled over into one of the workshops: ‘Cash and Treasury Management in Rapidly Growing Countries’. Based in Turkey, Mustafa Kilic, group treasury manager, cash and insurance management, Indesit, an Italian home appliance firm, talked about the concept of treasury management 2.0 and how the company decided to re-think its treasury platform. As the company’s business started to shift from western Europe eastward, it selected three solutions specifically for high growth emerging markets:

Direct buyer finance solution (DBFS).
Direct supplier finance solution (DSFS).
Hybrid cash pooling solution (HCPS).


Indesit developed DBFS because it was concerned about A/R: 65% of total assets, 34% of total liabilities and 27% of net sales resided in A/R. The benefits of DBFS are:

Collections on time.
Reduction in collaterising, assuring and risk monitoring, as well as clearance costs and operational workload.
Boosts order-to-cash (O2C) speed.
Improves quality of receivables.
Ability to better forecast cash flows.
Creates potential for extending payment terms without burdening buyers with high financing costs.


DBFS has been rolled out in Turkey, while the Czech Republic and Hungary will be launched soon.

In addition, Indesit saw that suppliers factoring requests had risen by 273% in the past year, so there was a definite need for a DSFS. The reasons behind looking to such a solution similar are to DBFS. At the present, the DSFS solution is only live in Turkey.

With €72m average daily cash balance in 11 currencies, Indesit needed a consolidated view of its cash. The HCPS allows the company to have one negotiated cash pool in the Czech Republic, Hungary and Poland; Russia will be added in January next year.

Soo Tat Kua, head of cash management Asia, BNP Paribas, added an Asia-region perspective to this session, looking specifically at developments in the region with a focus on China. The most interesting development is that China has introduced cash pooling in local currencies. Banks in Asia can now offer renminbi accounts, which is the first step towards the internationalisation of the renminbi.

The session’s questions and discussion revolved around quite specific legal aspects of cash pooling and sweeping - country specifics, continually changing to laws surrounding these aspects of cash management. Kilic said that Indesit was spending a huge amount of money in fees to expert legal firms because not even they can keep up with the regimes, particularly with regards to Russia.

Conclusion

Similar to last year’s university, risk management continues to be at the forefront of treasurers’ minds. This year, however, it went hand-in-hand with liquidity management, as illustrated in the event’s theme: successful liquidity and risk management in an ever-changing world.

In his presentation, Andrew Woods, group vice president, global treasury solutions, SunGard, said there were three ways to increase liquidity and reduce risk:

Apply a systematic approach to risk.
Automate O2C workflow.
Obtain enterprise-wide visibility of cash.


Sounds easy, yes?

Tomorrow the attendees will hear a global economic overview from Christian Dargnat, chief executive officer (CEO) and chief investment officer, BNP Paribas Asset Management, and there will also be a session on new business and cash management opportunities from the single euro payments area (SEPA), which, so far, has not received much attention, but is surely not forgotten.

First published on www.gtnews.com 

Many Chinese Corporates Don't Understand Cash Pooling, Finds Survey

29 September 2009

Only 43% of participating corporates in KPMG's inaugural Cash Management in China survey said that they use cash pooling, while 57% of those who don't (33% of total respondents) said this was because they did not understand the concept of cash pooling. Close to one-fifth don't use it because they believe the administration of cash pooling is too burdensome.

The property and infrastructure sector, which sees more of an emphasis on large capital based projects, is the most common user of cash pooling, with 61.5% of respondents having used entrustment loans in the past. This compares to an average 43% of corporates from other sectors.

Yet overall, the importance of treasury best practice is gaining traction in China. Close to half (48.3%) of respondents said they plan on increasing their investment in cash and treasury management technology. And despite the fact that 90% of respondents believe that Chinese growth fundamentals are still in place and of those who fall into this category, 94.7% also go on to say that their company is going to expand their cash operations in China in the future, many realise that tough times are still to come: 54.2% of respondents expect to see reduced access to finance, while 41.6% have highlighted the risks of increased bad debt exposure in the coming 12 months.

Fergal Power, partner, cash management advisory services, KPMG China, said: "During the global economic downturn, companies with strong and flexible balance sheets appear to have faired better in adapting to and surviving the crisis. Having visibility and control over cash has gained importance in China during this economic climate. As the de-stocking cycle in the US comes to an end, Chinese export corporates will be faced with the need to raise more capital to finance increased trade. The situation has encouraged many domestic companies to adopt best practice cash and treasury management techniques in order to catch up in terms of improving cash management. In the absence of freely available debt, unlocking cash from within the business is key for continued growth."

Additional key findings:

Companies with higher turnovers are more likely to stress test their cash forecasts - 85.7% of businesses with over US$5bn in turnover do so, compared to just 54.5% of firms with turnovers of less than US$500m.
Only 55.4% of PRC-domiciled businesses note that cash/working capital management is a component of executive compensation, compared to 77.6% of multinationals respondents.
Just over half (53.1%) of respondents whose turnover was less than US$500m note that cash/working capital management is a component of executive compensation compared to 66.7% of respondents whose turnover was more than US$5bn.
60.3% of multinational respondents have completed a working capital improvement programme in China; 70.5% of PRC-domiciled businesses have also done so. On the other hand, of those who didn't, only 37.3% also described cash flow transparency as such.


The cash management survey involved interviews with 180 multinational and large corporates based in the People's Republic of China (PRC). Two-thirds were PRC domiciled and one-third were multinationals from across sectors. Respondents had an average turnover between US$500m and US$5bn.

First published on www.gtnews.com 

SEPA and PSD Loom Large at Sibos Hong Kong

29 September 2009

SEPA and the PSD were the talk of Sibos, even though this year it was held in Hong Kong. What are the outstanding issues being addressed?

With just under half (41.4%) of the 5,804 participants at Sibos 2009 from the Asia-Pacific region, it may surprise some that the single euro payments area (SEPA) and the Payment Services Directive (PSD) had such a high profile during the week. But significant factors, such as the pressing November deadlines for the PSD and SEPA Direct Debit (SDD) scheme and the majority (45.3%) of Europe, Middle East and Africa (EMEA) delegates at the conference, meant that eurozone payment developments loomed large in the sessions, and saw a flurry of announcements and reports released in and around the conference.

In the week before Sibos, three reports were released, the most significant being the European Commission’s communication ‘Completing SEPA: a Roadmap for 2009-2012’, which was seen as a signal of political will that hasn’t really been there to date. The communication, which is also in line with the view of the European Central Bank (ECB) and will be endorsed by the ECOFIN Council in December, presented a series of actions to be undertaken by EU and national authorities, industry and users over the next three years.

This communication is significant because for many, whether corporate, bank or public sector, the move to SEPA instruments has lacked a sense of urgency. In July 2009, one and a half years after the launch of SEPA Credit Transfer (SCT) scheme, only 4,4% of all credit transfers used SEPA standards. As Charlie McCreevy, Internal Market Commissioner, said: "By providing a roadmap where actions, actors and deadlines are clearly identified, this communication will play a decisive contribution in helping SEPA successfully achieving its last miles." In particular, this means bringing on board the public administrators.

The EC set two important deadlines that will drive forward public sector SEPA adoption: the migration of European institutions by June 2010 and the migration of national public administrations by end-2010. With nearly 50% of EU gross domestic product (GDP) and around 20% of all cashless payments made, the public sector has not played the leading role it should in SEPA migration.

At a Sibos session entitled ‘SEPA: Have We Reached Cruising Altitude?’, the consensus was that, although the SEPA aircraft has taken off, cruising altitude was still some ways - and some effort - away. Gerard Hartsink, senior executive vice president, ABN Amro and chairman of the European Payments Council (EPC), wants to see more action from the public sector. “It is clear that public administrators are not making enough progress in all member states,” he said, adding that technology vendors also had to step up and provide the technology for small and medium-sized enterprises (SMEs) in order to help them migrate their payments to SEPA.

Progress Made but Issues Still Lingering

The fifth World Payments Report (WPR), from the Royal Bank of Scotland, Capgemini and the European Financial Management and Marketing Association (EFMA), said that clearly progress had been made on positioning the building blocks needed for SEPA to succeed in the long run, despite the financial crisis, but outlined a number of unresolved issues that still needed to be addressed:

SEPA cards face certain hurdles, such as issues over scheme compliance. It is too soon to contemplate any additional type of end date for cards beyond the currently agreed deadline of end-2010 for migration to EMV standards (for cards, POS terminals and ATMs), even though some market players are already arguing in favour of it. Interchange fees and standardisation present significant practical hurdles to the SEPA Cards Framework (SCF), with MasterCard having reached an interim solution for calculating fees (after being forced to act by the EC).
For SEPA migration to speed up, each set of stakeholders needs to overcome their concerns. Banks need to be convinced of the business case for moving forward aggressively and corporates need more information to justify the necessary investments (for example in IT) required for SEPA compliance. Public administrations, prime potential users, have yet to become SEPA advocates.
The risk of a mini-SEPA remains real, unless stakeholders get certainty on key overarching issues:
A wide range of stakeholders are increasingly agreeing that setting an end-date for full migration to the SCT and SDD Schemes will be an essential step. Earlier in 2009, a European Parliament resolution called for an end date of no later than end-2012 and the EC has since launched a wide-ranging public consultation on the end date question.
SEPA solutions must demonstrate their potential to offer tangible improvements in operational performance. National authorities may have a role to play at a practical level to support and ease SEPA implementation in their local markets.
Banks and corporates need clarity on all the standards to be used for SEPA payments (e.g. around data) in order to prioritise relevant IT investments and progress with SEPA implementation plans.


The report also stressed the need for corporates to be convinced of the benefits of migrating to SEPA instruments. The corporates surveyed gave SEPA only three out of 10 on the priority scale. And yet corporates identified these benefits in the following order:

Improved reconciliation capabilities.
Reorganisation/optimisation opportunities.
Decline in transaction costs (although one respondent said transaction costs could increase as individual incentive deals disappear).
Alignment of domestic/cross-border transaction prices.
Enhancement of card acceptance and lower fees.


None of the corporates cited account reduction possibilities. As long as corporates are unclear of the business benefits of SEPA, they are likely to delay switching to SEPA payment instruments, at least in the short term - and especially in the absence of a stated end-date for migration.

The issue of an end date or dates for SEPA is still overshadowing other issues. In an interview with gtnews, Bertrand Lavayssière, managing director global financial services, Capgemini, was very clear: “SEPA has taken some good first steps but we need an end date.” The consensus seems to be that the timeframe needs to be near term enough to stimulate adoption, but far enough away to allow for the refreshment cycle of technology.

In the WPR, corporate executives cited a few specific prerequisites for SEPA to succeed from their perspective:

More clarity on the impact of the SEPA/PSD, i.e. more communication and information from banks and European authorities.
More clarity on the benefits of using SDDs, and ways to safeguard the advantages that currently exist in national payment means.
Card standardisation.
A single European automated clearing house (ACH) for all participating countries.


Interestingly, SEPA was viewed in a more positive way by non-European, global corporates surveyed than by domestic European corporates - SEPA is seen as facilitating a reduction in their transaction costs, reducing business difference between countries, and allowing a better integration in enterprise resource planning (ERP) systems.

A Land of Confusion

Another report released in the week before Sibos summed up its findings in the title: ‘European Payments: A Land of Confusion’. Commissioned by BT, Earthport and Logica, the Financial Services Club research found that Europe’s policymakers, banks, corporates and infrastructure providers have become increasingly frustrated with 58% of them saying that the PSD is being transposed inconsistently and 63% stating that this is because of different interpretations at the country level. Only 13% believe it is being implemented correctly.

The research surveyed over 350 global payments professionals about SEPA and the PSD’s progress, as well as conducting over 25 interviews with the key organisations involved, including the EC, ECB, EPC, Euro Banking Association (EBA) and European Association of Corporate Treasurers (EACT), as well as leading banks, infrastructures, payment institutions, corporates, vendors, consultancies and more.

The research found that European member states are implementing the PSD in an inconsistent manner that threatens to derail the progress of SEPA. Certain member states were particularly cited as at issue more than others, with Germany and Italy seen to be actively blocking progress while France and Spain are viewed as delaying the process.

On a more positive note, participants do expect new payments institutions to gain market share, particularly money transfer service providers, and that these changes have motivated many banks to look for more innovative services for their clients, particularly around corporate information services, e-payments, m-payments and e-invoicing.

Announcements Round Up

Sibos is the place to announce new products and alliances, and VocaLink led the press release charge, making three announcements mainly around SEPA interoperability. The week before Sibos began, VocaLink announced an interoperability agreement with Krajowa Izba Rozliczeniowa (KIR), the national clearing house for Poland, for SCTs, establishing a bilateral link for the exchange of SCT payments based on the European Automated Clearing House Association (EACHA) interoperability standards. This is despite the fact that Poland is not currently a member of the eurozone.

Additionally, VocaLink and STET confirmed that they are working together to establish a bilateral link for the exchange of SEPA payments based on the EACHA interoperability standards. The provision of reciprocal interconnection services will allow the two organisations to mutually exchange SEPA-compliant payment messages on behalf of their respective clients. The agreement will further enhance their reach within the eurozone.

Lastly, VocaLink announced that it has extended the bilateral agreement with Equens to include SDD payment processing, in addition to the SCT service already offered. The interoperability agreement helps to create a more competitive payments market as banks will be able to choose which processor they want to use for SDDs, as well as SCTs. It is the intention to go-live with the extended interconnection with the start of SDD on 2 November 2009.

Next, EBA Clearing made two announcements. First, it announced that the preparations for the launch of its SDD services on 2 November 2009 continue to be fully on track. The first three scripted testing windows in May, June and July were successfully completed by 19 banks for the STEP2 SDD core service and by 15 banks for the STEP2 B2B service. The number of direct participants signing up for the remaining testing windows prior to the SDD services go-live continues to grow: by early August, EBA Clearing had counted 73 registrations for its SDD core testing and 51 registrations for its SDD B2B testing on the STEP2 platform.

Second, EBA Clearing announced that its new EURO1/STEP1 Directory lists close to 2,400 reachable banks, in addition to the 10,000 participating banks’ bank identifier codes (BICs), a year after the agreement to jointly deliver the payments directory was signed by EBA Clearing and SWIFT at Sibos in Vienna. This means that participant banks are now able to use EURO1/STEP1 for the routing of transactions to close to 7,500 additional BICs across the world. This represents an increase in the reach of the EURO1/STEP1 services by almost 75%.

In other news, Fundtech and Microsoft introduced the SEPA Integration Suite, a new suite of service-oriented architecture (SOA) services that adds SEPA transaction processing to a bank’s existing payments infrastructure with minimal disruption and risk. While Distra launched its universal switch, which includes advanced payment switching applications capable of performing a variety of payment processing rules including multi-leg transactions, and supporting multiple payment channel types such as ISO 8583, ISO 20022 and batch. It runs on an intelligent fault tolerant platform proven in a tier one environment, supports Payment Card Industry (PCI) and PSD compliance, and enables real-time transaction metrics and performance reporting.

And finally, Bank of Tokyo-Mitsubishi UFJ (BTMU) has become the first financial institution to adopt Pelican for SEPA software-as-a-service (SaaS). ACE Software Solutions and Capgemini BAS, a provider of application services in the Dutch market, offers the service jointly. Initially BTMU has adopted the service in the Netherlands, for Amsterdam and Paris. Following this implementation, the service will be rolled-out to branches in London and the rest of BTMU’s European network.

Conclusion

In the build up to the November 2009 deadlines, SEPA and the PSD are on everyone’s lips. Sibos 2010 in Amsterdam will be the real test, where the financial industry will come together again to discuss what has happened almost one year after implementation. (Despite it being traditionally the American region's turn to host SWIFT’s user conference, Amsterdam has pipped Toronto to the post.) How will the financial industry and corporates view SEPA and the PSD? Will the SEPA project be at cruising altitude, or will it be grounded? Today, most believe that the European payments industry has come too far to turn back, but the flightpath is still uncertain.

First published on www.gtnews.com 

The 'Hair of the Dog' Cure

17 September 2009

As the fourth and final day of Sibos comes to a close, it is important to take stock of the week, as well as pick out the conference's key messages in a slightly more frivolous way.

Quote of the Week: “Green shoots are out there, but what fertiliser is being used?” - William White, chief of the economic and development review committee, the Organisation for Economic Co-operation and Development (OECD) in the Big Issue Debate on Day 1

Although Sibos saw a significant drop in attendance this year - over 2000 fewer delegates compared to last year in Vienna - and the general mood was sombre, many said that they were pleasantly surprised at how productive the event was for them and their company, whether technology vendor or bank.

Most said that the foot traffic past their booth was low to non-existent, but that the meetings that they had set up in the run-up to the event were rewarding mainly because the people that had been allowed to attend - due to the cutbacks in travel budget, etc. - were the most senior people and the ones that were ready to conduct business. As one participant said: “The effects of the recession has eliminated the tourists,” but that may have been the effects of the typhoon as well.

The ability to do business and the many references to ‘the end of the crisis’ and ‘green shoots’ lifted the mood on the conference floor, which meant that many were feeling more optimistic than they had felt in the past year or so. But there were still enough sceptics in the audience and on the platforms to keep everyone’s feet firmly on the ground.

As well as White’s comment above, a senior executive from a large European bank related an astute - and appropriate - analogy by comparing the governments’ willingness to throw money at the serious underlying problems of the financial system with the ‘hair of the dog’ cure for an alcoholic’s hangover. He said that for someone suffering from being - let’s say - ‘over-refreshed’, the headache comes from not only dehydration but also the fact that the brain has been happily swilling in a bath of alcohol for hours and in the morning suffers from withdrawal.

Therefore, taking a drink in the morning - the ‘hair of the dog’ - actually does help, but it does not address the problem of alcohol dependency. This is analogous to watching a system driven into crisis as a result of being awash with credit - and the only solution that the governments can come up with is to print more money and release more lines of credit. It could be a recipe for disaster – and inflation, which is a key future concern of corporate treasurers, according to Kathleen Gowin, senior vice president, global financial institutions treasury, Bank of America, in a video interview with gtnews.

Noteworthy Afterthoughts

Transaction banking: is it sexy?
Just to put the record straight and stop the endless twittering, the definitive answer to the question of whether or not transaction banking is sexy is ‘no’ - and this comes from the global transaction banking (GTB) guys themselves. Nor is it the ‘engine of growth’ in a bank, according to a leading analyst, but remains the solid foundations of a stable business... yawn. Thus, GTB’s moment in the limelight should slowly ebb away.

Deutsche Bank leads the green brigade
The most unique press release received this week was from Deutsche Bank (DB) announcing that its Sibos booth was 100% recyclable. Building on last year’s first paperless booth at Sibos, DB took this objective further by being completely carbon neutral at Sibos. In addition to the focus on environmental responsibility, the building and design concept of this year’s Sibos booth also included social responsibility aspects:

  • Environmental responsibility: Prefabricated, frameless lightweight modular materials were used to reduce transport space and weight thus significantly reducing the carbon footprint in transportation. Recyclable and reusable materials were used for the booth that, following the conference, will be donated to a local charity. When choosing the stand’s technical equipment, reduction of energy consumption was a top priority.
  • Social responsibility: Materials and elements were screened for their origin, production, trade routes and practices, etc. The bank aimed to source from fair trade suppliers using manufacturing processes that were ecologically, socially and culturally responsible. Following the conference, the modular elements of the bank’s booth will be donated locally to be reused at the Christian Zheng Sheng College, a Hong Kong-based social development school for youngsters.

First published on www.gtnews.com 

Corporates Take a Firm Stand on Day Two of Corporate Forum

16 September 2009

The second day of the corporate forum at Sibos saw corporates getting rather feisty, making demands of the SWIFT community that need to be met to ensure further collaboration.

Day two of the corporate forum at Sibos saw the corporate participants boldly taking a stand, making demands of the SWIFT community in order to move real collaboration forward. It was quite clear that, as customers, they are fed up with the proprietary or individualised aspects of banking solutions - specifically with regards to the way that standards are implemented differently at each bank, effectively defeating the purpose of a single standard.

In the session entitled ‘Corporate Requirements for Collaborative Bank Solutions’, David Blair, vice president treasury at Huawei, a global telecom provider, bluntly stated that corporates must play a role in forcing standards acceptance by refusing to accept variants from banks. Vipul Shah, senior director and head of financial services, PayPal/eBay, also agreed, saying that proprietary solutions are “like cement" and reduce competition.

Even the bankers sitting beside them on the panel, Neal Livingston, global head of client access, transaction banking at Standard Chartered Bank, and John Laurens, head of payments and cash management Asia-Pacific, HSBC, agreed, with Laurens adding that only demand from the corporate community will give the impetus for a breakthrough in the XML standard development and adoption.

Christina Easton, senior manager, global cash operations, Microsoft Treasury, took this message and re-iterated it in a later case study session discussing global implementations of SWIFT. Relating to Microsoft’s decision to move to the XML standard, she said: “We have told our potential banking partners that if they are not able to use XML format for messages in the next 12 months, then we will not open an account with you.” Obviously, Microsoft has the global strength to make its banks listen, but the general mood is that if corporates take a firm stand, then the banks will be forced to re-think how they normally operate.

Microsoft, which has a centralised treasury in Redmond, Washington, and oversees 108 subsidiaries, is a relative newcomer to SWIFT, joining in 2005. Today it has 99% electronic visibility (e-visibility) over its cash flows, and is still expanding its usage of SWIFT. In a video interview with gtnews, Easton mentioned that treasury was looking at CAMT XML message types, as well as looking at its billing analysis sent over FileAct. Microsoft also plans to have treasury payments go through SWIFT in the future and is implementing a pilot programme for electronic bank account management (eBAM).

Both Easton and Blair were also forthcoming in terms of what they thought the next steps for SWIFT were. Blair was keen to have the ability to send direct messages to benefiting banks, instead of waiting for the message to travel through a number of corresponding banks. He also hoped that SWIFT’s Trade Services Utility (TSU) for open account trading takes off to - again - solve the problem of every industry having its own standards, but acknowledged that the challenge is that 98% of corporates haven’t heard about it. “The banks have defined the collaborative space, but if this is to work, SWIFT will have to talk to the corporates too,” Blair said.

Easton had a longer wish list, even though she believes that SWIFT is doing a good job ‘evangelising’ connectivity capabilities. She thinks that now is the time for SWIFT and the banks to address merchant services and acquiring, which is currently very difficult for treasury - she proposed a type of Merchant Services Utility (MSU). Maybe even more immediately, Easton suggested that SWIFT should develop a playbook to understand different message types and how they can benefit from business process improvements; benchmark SWIFT service agreements and number of pages; provide more guidance around the platform ecosystem and the partners that corporates are able to use; and, finally, develop a more proscriptive guidance for corporates that are beginning implementation so that they start with more detail of what is involved.

At the end of the day, the banks that make up the SWIFT community have to heed the words of Ignacio Escudero, vice president, global cash management sales, BBVA: “Developing SWIFT corporate connectivity means much more than being connected to SWIFT.”

First published on www.gtnews.com 

SWIFT: On a Diet but Still Reaching for a Slice of the Corporate Pie

15 September 2009

The two-day corporate forum at Sibos has attracted 490 participants, 122 of which are corporates, with 183 vendors and 185 financial institutions participating in the stream as well. It is the first corporate forum to be held in Asia and also the first that participants battled a cyclone in order to attend.

In the opening session of the corporate forum at Sibos 2009, Marilyn Spearing, chairperson SWIFT corporate access group and global head of trade finance & cash management corporates, Deutsche Bank, gave an update on SWIFT for corporates and future developments. She also identified what corporates were voicing in terms of their needs:

Better implementation support and service from SWIFT.
Reducing the differences in bank offerings.
A clear business case because of scarce investment money.
An enriched proposition.


With just 512 corporates connected to SWIFT, which is more than a two-fold increase in the past three years but still a small drop in the global corporate ocean, these issues need to be addressed. Spearing said that service bureaus, where the technology and management is outsourced to a third party, either a bank or a technology vendor, is key to greater take-up of SWIFT for corporates.

Only 20% of corporates on SWIFT are directly connected, while the majority (70%) use an indirect method through a service bureau or member concentrator, according to Luc Meurant, head of banking, supply chain and corporate markets, SWIFT. What was interesting is that Alliance Lite, the low-cost, low-tech connectivity option launched at last year’s conference, now makes up 10% of corporate connectivity. Meurant said that Lite users were all new to SWIFT and could be divided into two types: smaller corporates that are content with the pricing structure and usability of Lite, and large corporates, which he called testers, that don’t plan to stay with Lite but are using it to test out the SWIFT offering.

In the future, SWIFT plans a number of new products for corporates, including electronic bank account management (eBAM), which will be launched at the end of this year, and also a personal digital identity solution, which will be launched in early 2010. But beyond products that are already in the pipeline, new developments may be slower to come to fruition in the future, due to the new ‘lean’ SWIFT that was promoted by chairman and chief executive Lázaro Campos at SWIFT’s opening plenary yesterday.

Campos spoke about the business efficiency programme, called Lean@SWIFT, which will aim for a 30% reduction in every department. In developing its new plan for 2015, Campos said: “We are weathering the storm. We should look at it more in the way similar to a diet – we are exercising and becoming lean. SWIFT is in the gym, getting leaner for 2015.” Although he promised that this wouldn’t degrade the service SWIFT provides to its membership, it is hard to imagine that this will not have some effect on innovation.

Demystifying SWIFT

The second session in the corporate forum focused on the value proposition of SWIFT for corporates. In a straw poll of gtnews readers taken a few days before the conference, 40% of respondents said they would adopt SWIFT, while 50% said they were not considering this option for bank connectivity. Only 10% said they were already using this method. This shows that the benefits of SWIFT, such as global visibility on cash and cost reduction through rationalisation and automation, are not recognised by corporates.

But momentum is growing and expanding into hitherto untapped areas. Wim Raymaekers, senior market manager at SWIFT, said that although historically SWIFT has been seen as in the realm of the banks and very large multinational corporates only, what SWIFT was beginning to see was greater number of smaller sized corporates with fewer banking relationships using SWIFT, as well as some corporates that are mainly domestic players.

Wolfgang Ratheiser, corporate treasury at Johnson Controls (JC), a provider of automotive interiors, spoke about why his company chose SWIFT connectivity. With three business units, the JC treasury was complex and wanted visibility over its multi-currency cash pools in Australia, Canada, Germany, Japan and the Czech Republic. In March 2008, it embarked on a SWIFTNet infrastructure programme to get SWIFT capability for payment channels and distribution of payments; the single euro payments area (SEPA) also gave impetus to this project. It chose SunGard’s service bureau and Standardised Corporate Environment (SCORE) as its connectivity method.

The advantages of SWIFT meant that JC treasury focussed on the right banks - ones that gave them credit and support - and reduced the number of bank accounts. The challenges the company faced in getting the project going were:

Explaining to the top management and getting buy-in from the business units.
Getting a strong commitment from all partners, banks and internal resources.
Planning and agreeing on a global roll-out.
Local banking requirements.
Involving the firm’s divisions since the inception of the project.
Aligning the enterprise resource planning (ERP) systems of the three different divisions.
Ensuring that the set-up of the solution matches the infrastructure/organisation and that the solution was scalable.


Ratheiser said that the benefits revolved around: the ability to focus on the right things; risk mitigation; efficiency; and a reduction in bank fees and IT costs. “Now the solution is scalable, flexible and bank independent,” he said.

Financial Crisis: Challenges and Opportunities for Corporates Treasurers

The next session in the forum concentrated the financial crisis: challenges and opportunities for the corporate treasurer. Focusing more on the pain of the global crisis, Dennis Tosh, director of global trading and automotive risk, Ford Motor Company, joked that throughout the crisis he slept like a baby: he woke up every two hours and cried.

The other panellists, Richard Martin, head of payments and cash management, international cash and trade, Barclays Bank, Lloyd O’Connor, managing director, regional product executive treasury services, JPMorgan, Tjun Tang, partner and managing director, the Boston Consulting Group, and Peter Wong, founding chairman and president, IACCT China, also spoke of the pain points corporate treasurers faced, such as the tightened credit availability and increased risk and regulation.

Joking aside, Tosh said that the key take-aways for a treasurer to survive the crisis were:

The importance of transparency of exposures and seamless systems of real-time information.
Risk management is an art, not a discipline.
Liquidity and having access to cash is key.
Maintaining strategic relationships with your banks.


He noted that there had been a significant paradigm shift in terms of the role of the treasury in the organisation. “Treasury used to be seen as this black box that treasurers looked after,” he said. “Now boards recognise the central role treasury plays, particularly in a capital-intensive, cyclical business such as the automotive industry.”

First published on www.gtnews.com 

One Year On... Out of Intensive Care, but Still in Hospital

14 September 2009

A year after Sibos 2008 coincided with the dramatic collapse of Lehmans, there was a lot to take stock of on the opening day of Sibos 2009.

With every media publication and news channel running retrospectives of what went wrong with Lehman Brothers one year ago, the mood at SWIFT’s annual conference was subdued but somewhat optimistic. Many believe that the global recession has hit bottom and things are beginning to get better, particularly in Asia, but no one has been rash enough to say that the world financial system has completely 'healed'.

In the first ‘Big Debate’ plenary session, entitled “Sibos One Year on: Leading Through Uncertainty”, Peter Sands, group executive, Standard Chartered, spoke about three issues that were still outstanding and needed to be addressed: the scale of the imbalances in the global markets; the governments’ exit strategies from this quagmire; and the regulatory architecture needed to move forward. “Healed - no. Out of intensive care, but still in the hospital,” was his assessment of the present situation.

Ronnie Chan, chairman, Hang Lung Properties, was more sceptical. He believes that not only is the financial system not healthy yet, but “we haven’t even gone to see the doctor”, meaning that the underlying problems haven’t been identified, let alone addressed, and because of that he fears that the crisis will return again.

William White, chief of the economic and development review committee, the Organisation for Economic Co-operation and Development (OECD), said that there has been an incredible inventiveness by central banks, etc, to normalise the situation, but “we haven’t made it back to normal. Is the worst behind us? Clearly no one knows how big this is,” he said, explaining that as the financial side of the equation hits the “real”, or manufacturing, side, the downturn in the real side will also take its toll on the financial side, effectively generating a vicious cycle.

During the session, the banks were heavily criticised. White made the point that before the crisis, many people were worried that banks were too big and complex - and now they are even bigger and more complex. He said the current concerns are that the big banks which are supported by governments will turn into zombie banks and stifle innovative new products; or just the opposite: as governments pull out the stops to keep them afloat, these banks become more cavalier and credit standards will reach a new low.

All panellists agreed that the jury was still out as to how long the recovery was going to take. With debt to GDP rations doubling over the next few years for many countries, the question still remains: how we will get through?

Asia Focus
This year in Hong Kong, Sibos has attracted 5335 participants, 37% of which are from Asia. Although this is a 33% drop from the conference in Vienna last year, which saw 8114 attendees registered, the importance of the Asian representation was highlighted in the opening session.

In his keynote speech, Joseph Yam, chief executive, Hong Kong Monetary Authority, recalled the last time Sibos was in Hong Kong in 1991. He remarked on the significant developments, not just in Hong Kong but across the region, over the past 18 years. He identified four challenging issues that are present in the region, but not limited to it: the conflict between private financial intermediaries and public interest; the dilemma experienced by the emerging markets in terms of market openness and financial stability; the reality of no market being perfect; and the tension created by authorities’ involvement in the financial system. He said that the primary purpose of the financial system is financial intermediation that promotes financial development.

But while Sibos delegates were being buffeted by a Level 8 typhoon, Koppu, in Asia the financial tsunami seems to have died down somewhat. In a video interview with gtnews, Patrick de Courcy, head, markets & solutions, Asia-Pacific, SWIFT, pointed to the positive signs emanating from Asia. “ While Asia definitely hasn’t been immune to the crisis, what we have seen exports taking a hard hit and several countries go into recession. What we are seeing seems to point to a faster and stronger recovery from the recession. The IMF has revised GDP growth forecasts for India and China - close to 6% for India and 7.5% for China - and what we are seeing in SWIFT statistics, which are a good indicator of global economic and financial activity points to the same. In the second quarter this year versus the first quarter, we have had a 10% growth in Asia. That figure was 5% in the Americas and 3% in Europe,” he said.

However, Chan said that money flowing into Asia made it look a bit better than the West, but it is still not great, pointing to the recent US tyre tariff that will be highly damaging to China’s tyre industry. He also debunked the idea that China is soon set to become the world’s economic locomotive. The fiscal stimuli may not be working as well as many believed: most of the money in China’s fiscal stimulus package has gone into infrastructure investments, even though the Chinese government has told the banks to lend to corporates. “Banks have had a hard time pushing money out to manufacturing because production has been cut, therefore much of the money goes into the financial markets instead,” he said. Also domestic consumption has not increased dramatically: “You can’t change a culture that sees frugality as a virtue in three months,” he added.

First published on www.gtnews.com 

Hunting Signs Up to SWIFT Through SMA's Service Bureau

14 September 2009

Hunting, an international energy services provider, has connected to SWIFT using SMA Financial's SWIFT service bureau and IT2 Treasury Solutions, with Barclays Commercial as its lead bank. The project aims to deliver greater automation and straight-through processing (STP) enabling Hunting to gain better visibility and control over its global cash management.

Hunting has a number of subsidiary companies located in different countries across the globe. Before implementing the SWIFT connectivity solution, the company was still receiving cash forecasting reports from the subsidiaries in Excel spreadsheets via email. At an industry conference 18 months ago, Hunting learned that it could enhance the functionality of the IT2 treasury management system (TMS), in place since 2001, and use it to generate payments from IT2 through the SMA service bureau and onto the SWIFT network.

In an interview with gtnews, Chris Berris, assistant group treasurer, Hunting, said: "One of the main benefits was around STP, which has become a prevalent issue in treasury technology and is the concept that forms the main objective of this project. From a compliance point of view, it is useful that the board of directors and then the auditors can look at our policies and procedures and see that there are reduced levels of human intervention, effectively improving accuracy and efficiency. Another pain point we wanted to address was transaction cost. By going directly through SWIFT connectivity, we could reduce the tariff charged by our banks to transmit payments using their proprietary systems. We also have greater visibility over the payments themselves in terms of the messages we receive from SWIFT. However, above all, we hope that this functionality will help us to deliver a truly global cash management solution as we, as an organisation, continue to expand."

Hunting did not consider purchasing the hardware itself mainly because of the overhead associated with the technology, both in terms of implementation and maintenance. "We don't have a dedicated IT department - all that responsibility is outsourced. Discussions held early on with SMA Financial revealed that the technology required would be quite cumbersome and expensive, and quite simply we don't have the resource to install and maintain it. We felt it was far easier to outsource to SMA Financial," said Berris.

With the assistance of SMA and Barclays Commercial Bank, Hunting has joined SWIFT as a corporate member via the Standardised Corporate Environment (SCORE), which will provide access to most of their leading cash management banks. It has also joined Barclays' member administered closed user group (MA-CUG) because it needs to receive a specific message type MT998, which is not available on the SCORE model, in order to receive relayed bank statements from other banks.

Phase 1 of the project to establish SWIFT connectivity in the UK is on target to be completed by October, if not before, which is a six-month roll-out period. Once that has been completed, Hunting will look at extending it to their 10-12 overseas offices within another six months.

Berris explained that the group is on an acquisition trail and has bought two new companies this year - National Coupling Company and PT SMB Industri - which is another reason why Hunting looked towards a SWIFT solution. "We have a sizeable cash surplus that we are looking to re-invest in growing the company. We implemented this solution so that we can easily obtain an accurate and timely view of the bank accounts held by any companies brought in to the group. With SWIFT, we aim to communicate with all our banks from one central point from one platform, so we don't need to implement a number of banking systems. We knew that we would be acquiring companies and that they would probably have banking structures locally - SWIFT can help us connect to them relatively easily with just some minor configuration to the static data held in our TMS," he said.

First published on www.gtnews.com 

Only 43% of CIOs and CFOs Try to Quantify Financial Benefits of Outsourcing

18 August 2009

Less than half (43%) of chief information officers (CIOs) and chief financial officers (CFOs) surveyed have tried to quantify the financial contribution of outsourcing to their businesses, according to research by Warwick Business School and Cognizant. The study found that more than a third (37%) simply do not bother and 20% cannot remember if they have tried or not. Of those who have tried, only 19% are very confident in their calculation.

The survey of 263 CFOs and CIOs from large European corporates across five regions (the UK, Germany, Switzerland, Benelux, France and the Nordics) found that the majority of respondents spend between US$5m and US$100m annually on outsourcing (29% over US$50m). Of the 40% of companies which cut back on outsourcing last year, over three-quarters (78%) cited 'unclear value for money', but without any clear evidence or means to quantify the decision.

"[The results are] quite striking because the outsourcing industry as a whole is growing very fast," said Dr. IIan Oshri, fellow at Warwick Business School, professor at the Rotterdam School of Management in the Netherlands, in an interview with gtnews. "The overall revenues are in excess of US$250bn in revenues for ITO [information technology outsourcing] and US$150bn for BPO [business process outsourcing], and yet only 57% actually try to find out if there is any financial benefits involved."

The survey also found:

CIOs get vote of 'no confidence' from finance: only 37% of CFO respondents rate their CIO's ability to communicate outsourcing's benefits to the business.
37% believe that the business value of outsourcing cannot be assessed beyond the one-time cost saving.
Only 8% are very confident that they know what their companies are spending in terms of time and money on their outsourcing arrangements.
61% plan to either maintain or increase their outsourcing investments in the coming months.
51% want to see return on investment (ROI) from outsourcing arrangements within the first year; 13% in six months or less.
37% do not believe outsourcing's financial contribution to the business can be properly assessed beyond a one time cost saving, while 29% believe it can.
42% of all respondents believe outsourcing strategies are effective to dealing with the challenges of the economic environment ahead.


"The second important angle uncovered by this survey is the CFO's perception of CIO when it comes to bringing the business value of an outsourcing activity to the board," said Oshri. "Here we find that over 60% of the CFOs believe that CIOs are not doing a good job in conceptualising the financial benefits that can be gained from outsourcing activity and then delivering that to the board. The outsourcing industry as a whole, in our opinion, is showing that they need to do better in promoting the benefits and helping CIOs articulate them."

In addition to reporting the findings of the survey, the study highlights seven questions for firms that are pursuing the outsourcing path, particularly if they consider that the CIO is a central figure in this activity. "They need to think of the CIO as a strategist and there are additional tools than just trying to figure out a one-off cost saving. A number of the CFOs we talked with pointed out that one of the real challenges for CIOs is to move beyond the one-off cost saving. That is not to say that all companies doing outsourcing do not understand this message, but the majority of them don't and there are outsourcers out there that can help them improve their performance," said Oshri.

The seven questions are:

  1. What are you trying to achieve with outsourcing? What services do you want to outsource and how critical are they for your competitive advantage?
  2. What kind of metrics are you going to use and how precise are they?
  3. What type of sourcing model are you going to apply and do you have the in-house capabilities to support that?
  4. What are you benchmarking against? Benchmarking is about understanding the critical business factors in the industry and then a company can outline its service level agreement (SLA) with a service provider.
  5. How will your business grow and what changes will need to be made in the SLA?
  6. What do you focus on: IT continuity or improvement and innovation?
  7. What can you learn from your outsourcing vendor?
Commenting on the last point, Oshri said: "This is where clients should be heading - they should be looking into learning from their vendors and should be focusing on those vendors that can provide them with advanced methodologies to help them to measure the financial benefits from the interactions they are getting into, as well as how to divert resources from focusing on service performance to improvements in innovation performance."

First published on www.gtnews.com 

Syncada Breaks New Ground in B2B Payments

4 August 2009

Visa and US Bank have created a joint venture called Syncada that provides a business-to-business (B2B) network for corporations and governments to process and track invoices, make and receive payments around the world, as well as have payables or receivables financed through local and global financial institutions.

Syncada combines Visa's experience in delivering commercial payment services to financial institutions and managing a multi-bank network, with US Bank's PowerTrack, an automated B2B electronic invoicing (e-invoicing), payment processing and trade finance network. The venture allows financial institutions of all sizes to offer their commercial clients standardised B2B invoice processing, financing and payment services across a variety of payment types and local currencies. Financial institutions can also build transaction and credit-based treasury management business by offering the network's services to buyer and supplier clients.

Syncada has begun operations and initially serves US Bank and its legacy client base from the PowerTrack network, which was launched in July 1998. Research firm the Aite Group believes Syncada will offer appealing supply chain solutions for global Tier 2 banks, as well as selective Tier 1 banks.

As part of the joint venture, Visa has made a capital investment in Syncada and will provide its experience in building and managing a multi-bank network, as well as marketing, sales and risk management support. US Bank contributed assets - including its technology platform and certain personnel - and will provide expertise in automating general payables/receivables spend, in addition to focused expertise in multiple spend categories, including freight, utility, telecom and global trade payments.

"Syncada is an attempt to leverage the data that Visa and US Bank have regarding both the payable and receivable sides in order to be able to provide trade financing in a way that is done intelligently based on the data that they have. They use the term 'arbitraging the payables company to be able to do financing for the receivables company' and I think that is a good term for it," said Aite Group senior analyst Nancy Atkinson in an interview with gtnews.

Although there remain significant challenges in gaining volumes and acceptance because Syncada has 'competitors' in the market, including MasterCard Payments Gateway, JPMorgan Chase, Citigroup, Deutsche Bank/Bottomline Technologies, and BNY Mellon/SourceNet, Atkinson believes that this venture is a significant market changer for two reasons.

On the one hand, it moves Visa beyond being solely a card network to being involved in a much broader supply chain network, including electronic invoices, matching invoices to purchase orders, facilitating the payments and even leading into trade financing, which is unique when compared to other major card players, such as MasterCard, American Express and Discover.

On the other hand, accessing Visa's global reach and brand recognition will broaden PowerTrack's reach and US Bank's trade finance capabilities. US Bank will also benefit from Visa's expertise and experience in managing a multi-bank network. "That includes things like setting policies and procedures that anyone who chooses to participate agrees to follow. These policies are important because the industry is lacking standards in general, so if there are at least some business rules and agreement, that helps a great deal," said Atkinson.

Both Visa and US Bank are gearing Syncada towards building volumes as quickly as they can through two approaches. "They would love to get a global non-US player involved, whether a bank in Asia or Europe. Another way to grow, however, is to bring in some regional players that have a strong cash management base," said Atkinson. "I don't think they have a mutually exclusive situation but are looking at growing in both directions. Their purpose is to start to build out this network and to build on what they have."

First published on www.gtnews.com 

Releasing Cash Through Improved Working Capital

21 July 2009

Citi's Financial Strategy Group (FSG) has released a new report ‘Putting Working Capital to Work: Releasing Capital by Accelerating the Cash Conversion Cycle’, which examines why companies should focus on working capital during the economic downturn.

As production and orders slow down, cash is released through the working capital cycle. Presently this is happening but perhaps not as rapidly as many corporates had hoped. Therefore, working capital management and accelerating cash conversion cycles (CCCs) have become priorities for corporates. (CCC is the time it takes from when an order is given to a supplier or a sale is made to a customer, through the manufacturing and sales process, to the time cash is collected from a customer or paid to a supplier.)

Yet most firms have seen their cash conversion cycle lengthened over the past year. Among US firms in working capital intensive industries, the median cash conversion cycle increased in both the fourth quarter of 2008 as well as the first quarter of 2009, amounting to an annual median increase of seven days, or 9%. This reflects the difficulty of improving cash conversion cycles during severe economic downturns where firms recognise the need to support important suppliers and customers who may need working capital relief to survive.

Citi surveyed 22 working capital-intensive industries, covering 828 of the largest global firms. The report’s main findings are:

• Almost half of the firms kept stable cash conversion cycles across five years, with only a quarter of firms improving their cycles by more than 25%.

• A small portion of firms saw dramatic changes to their working capital usage: 10% of firms shortened their conversion cycle by an impressive 81 days, a 50% improvement. Conversely, 10% of firms lengthened their cash conversion cycle by 83 days, a 124% deterioration.

• Improving the cash conversion cycle had a direct and positive impact on return on invested capital (ROIC) with an increase of 84bps for the average firm. The top 10% of firms in terms of working capital improvement were able to outpace their peers in investment, sales, and earnings growth, and experienced a remarkable 30% excess stock return.

• Industries with complex supply chains and global operations typically have the largest potential for working capital savings. But even within industries, there is a surprising degree of disparity in working capital practices, suggesting large improvement potential for many companies.

In an interview with gtnews, Shams Butt, managing director for FSG EMEA at Citi and co-author of the report, commented: “It is important to improve working capital management, which in turn can help ROIC. We have also seen that in this environment where liquidity is at a premium, companies that have better working capital management schemes can improve their liquidity which is equity market positive.”

He was clear that improving the cash conversion cycle was not a panacea for all business problems but had to go hand-in-hand with other aspects. “If a firm improves its cash conversion cycle, it is not necessarily a more profitable company, or a company that sees increased sales or capital expenditure, automatically - rather that these things are related. Improvements in working capital efficiency and correlated improvements in sales, income or capital expenditure and investment are integral to a company that has all cylinders working at the same pace. Working capital is one of the cylinders that a firm needs to be working full tilt, certainly in this environment.”

By adopting best practices, Citi estimates the working capital improvement potential to be up to 30% for the typical large multinational firm, which translates into 2-3% earnings per share (EPS) improvement.

The research also helped to de-bunk seven working capital ‘myths’, said Butt. These are:

1. Myth: Investors don’t care about working capital – Truth: When liquidity has become key in stock evaluation in the past few years, it is clear that investors care about working capital.

2. Myth: Working capital hurts top-line growth – Truth: Improving working capital doesn’t hurt top line growth.

3. Myth: Impact on the bottom line is limited - Truth: Net income numbers are improved when working capital is more efficient.

4. Myth: Working capital is not relevant for healthy companies - Truth: It is relevant for all companies.

5. Myth: The impact of working capital trends is the same for every company in the sector – Truth: There are competitive benefits within a sector.

6. Myth: Working capital necessarily hurts long-term relationships in the supply chain – Truth: The research did not support that assumption.

7. Myth: Working capital management can be left to individual business units and does not need a centralised focus - Truth: Citi believes that it needs a centralised focus across the company.

“Working capital shouldn’t be managed as a project somewhere in the back of a company - it is key to the financial strategy of a company, certainly at a time like this,” said Butt.

First published on www.gtnews.com 

UK FS Industry Responds Positively to Walker Review

16 July 2009

The UK financial services industry has responded positively to the Walker Review, an independent review of corporate governance in the UK banking industry which has recommended substantial changes to the way the boards of banks and other financial institutions (BOFIs) function in particular through boosting the role of non-executives in the risk and remuneration process.

In the report, Sir David Walker identified weaknesses in risk management, board quality and practice, control of remuneration, and in the exercise of ownership rights that need to be addressed in the UK and internationally to minimise the risk of a financial crisis recurrence. Better governance will not guarantee that there will be no repetition of the recent highly negative experience for the economy and for society as a whole, but will make a re-run of these events materially less likely.

Sir David Walker said: “These proposals are designed to improve the professionalism and diligence of bank boards, increasing the importance of challenge in the board environment. If this means that boards operate in a somewhat less collegial way than in the past, that will be a small price to pay for better governance.”

The review process has led to 39 recommendations grouped together under five main headings:
1. Board size, composition and qualification.
2. Functioning of the board and evaluation of performance.
3. The role of institutional shareholders: communication and engagement.
4. Governance of risk.
5. Remuneration.

Specific proposals include:
• Board level risk committees chaired by a non-executive director (NED).
• Risk committees to have power to scrutinise and if necessary block big transactions.
• More power for remuneration committees to scrutinise firm-wide pay.
• Remuneration committee to oversee pay of high-paid executives not on the board.
• Significant deferred element in bonus schemes for all high-paid executives.
• Increased public disclosure about pay of high-paid executives.
• Chairman of remuneration committee to face re-election if report gets less than 75% approval.
• NEDs to spend up to 50% more time on the job.
• NEDs to face tougher scrutiny under Financial Services Authority (FSA) authorisation process.
• Chairman of board to face annual re-election.
• Financial Reporting Council (FRC) to sponsor institutional shareholder code.
• FSA to monitor conformity and disclosure by fund managers.
• Institutional shareholders to agree memorandum of understanding (MOU) on collective action.

The FRC was quick to welcome the Walker Review. Sir Christopher Hogg, chairman of the FRC, said: “While Sir David has made it clear that his principal focus is on the governance practices of banks and other financial institutions, the FRC will need to consider to what extent his recommendations are also applicable for some or all listed companies in other sectors and how best to implement them. We will also seek views on these questions as part of our review of the Combined Code.”

The FRC will issue a progress report on its own review of the impact and effectiveness of the Combined Code before the end of the July, with a final report before the end of the year. Any proposed changes to the Combined Code will be subject to a separate consultation.

The second phase of the consultative process is to seek comment and reaction, and interested parties are invited to comment not only on the recommendations here, but also on any relevant issues that they do not cover.

Need for International Uptake

The Government ‘strongly’ welcomed Walker’s proposals but highlighted the need for international uptake of similar recommendations. Lord Myners, the financial services secretary to the Treasury said: “Corporate governance failures were a major contributor to the financial crisis. The responsibility for the actions that led the global financial sector to the brink of collapse ultimately rests with the people who sat around the bank board tables and those who approved their appointment. Board members in future must ask tougher questions of their chief executives. They need to spend far more time fulfilling their responsibilities. Shareholders must ensure that directors have the skills necessary for the tasks required.”

“International adoption of similar measures would also reinforce corporate governance and contribute significantly to financial stability. Therefore, the Government will take steps to ensure that proposals to improve corporate governance are considered internationally,” he said.

British Bankers’ Association (BBA) has a similar response. Chief executive Angela Knight said: "The Walker Review is about strong governance - it is about ensuring leadership by boards and proper risk controls across the business in both banks and other financial institutions, and it is also about getting the debate on pay packages into the right place by ensuring reward structures look to the long term. It is also about addressing thee responsibilities of the major investors to look at long-term strategies and not just short-term returns. They are owners, not just investors.

"These proposals added together make very substantial changes to the rules. The next step - and the key step - will be to get similar high standards adopted internationally," she added.

PricewaterhouseCoopers agreed that these were necessary steps but not without challenges - the firm warned that care was needed if the UK is not to be put at a competitive disadvantage as a result of remuneration proposals.

Phil Rivett, financial services assurance practice leader at PwC, said: “This is an important review and we particularly welcome the recommendations for non-executive directors to receive increased support, training and access to external experts in areas such as risk and remuneration. The long-term result should be greater understanding of the impact of risk on the strategy of BOFIs and an enhanced ability to challenge in board discussions. The requirement for a board level risk committee to be established is already best practice. However, identifying an adequate number of NEDs with relevant experience and knowledge to fulfil the roles may present, at least in the short term, a major challenge.”

Jon Terry, reward practice leader at PwC, said: “We support the concept that significant periods of deferral can support a culture of prudent risk-taking. However, we believe that the importance of risk adjustment of performance to determine incentive compensation in the first place is under-emphasised, and actually more important in terms of developing a risk-aware culture. The formulaic approach proposed is also unlikely to be fit for purpose across all aspects of banking operations. Care needs to be taken that overly prescriptive requirements do not put UK institutions at a competitive disadvantage. Seeking advice from the board risk committee should help reinforce the role of risk-adjusted performance.”

First published on www.gtnews.com 

Preparing for Sibos 2009 in Hong Kong

16 Jun 2009

Sibos, SWIFT's user conference, will be held in Hong Kong from 14-18 September. Why should corporate treasurers attend?

The financial landscape looks very different one year on from Sibos in Vienna, where the first day - coined ‘Sibos Monday’ by SWIFT CEO Lazaro Campos - was overshadowed by Lehman Brothers’ collapse. Although no more banks have been allowed to fail, some of the biggest names have dropped from sight after being swallowed by another - such as Bank of America’s UD$50bn purchase of Merrill Lynch, which was also announced on that fateful Monday.

“It was a very interesting week for Sibos to be convened,” says Marilyn Spearing, global head of trade finance and cash management corporates at Deutsche Bank and chair of SWIFT’s Corporate Access Group. “The impact of events that transpired has hit the corporates now fully, in terms of credit availability and price, across traditional means of access as well as trade. Plus, obviously, there are certain industries that are feeling the full recessionary brunt. What we are seeing is what we have always called in cash management a counter-cyclical activity - when the economy is down, treasurers look to cash solutions even more.”

SWIFT, the Brussels-based bank financial messaging standards consortium, hosts its user conference with a triennial rotation between the major regions: Americas, Europe and Asia. This year it will be held in Hong Kong, known as Asia’s world city or the ‘Big Lychee’, from 14-18 September. The event is seen as the premier conference of the year from the back office payments industry through to the front office trading systems, covering payments, securities, cash management, trade services, foreign exchange and money markets, and derivatives.

The conference’s high esteem stems from its breadth and depth in terms of industry knowledge, as well as the ability to participate in and learn from debate around the issues facing financial institutions and corporates. The opportunity for high-level networking is also a big draw.

Already over 1800 people have registered, 163 companies are committed to coming and 95% of the exhibition hall is sold. Wim Raymaekers, senior product manager at SWIFT, says that registration was only down 61 attendees compared to last year, but he warns that the number this time will be lower in comparison with Vienna, which saw 8114 attendees registered, 240 companies exhibiting and 80 firms that had specific products for corporates.

When Sibos is in Europe, it sees a bump in numbers, mainly because it is SWIFT’s home turf, but this year the main negative effect on numbers will be the financial crisis. “In terms of attendance, my expectation is that there will be less corporates than last year,” Raymaekers says, citing the financial constraints that many firms are under, such as travel bans. But he is optimistic that Sibos will attract quite a number of prospective corporates from the Asia-Pacific region.

Brian Wedge, executive director, treasury services at JPMorgan, shares this optimism. Based on a continued increase in the numbers of large corporates asking about or implementing SWIFT, he expects that to translate into an increased number of Sibos attendees. “It may be that multinationals, not headquartered in Asia-Pacific but who have adopted SWIFT, will be represented by their local treasury staff,” he says.

Attempting to intersect with the general issues facing corporates and banks alike, the big issue debates this year in the main Sibos forum will be:

Sibos one year on - leading through uncertainty.
The Asian century - implications for the financial industry.
Will transaction banking be the engine for sustainable growth?


There will also be a number of sessions dealing specifically with Asia, looking at country-specific market developments in China, Japan and India, as well as progression towards a regional economic bloc - Asean. Plus, two of particular interest to corporates coping with the downturn in global trade: ‘Demand or supply: will the shortage of trade credit reverse globalisation?’ and ‘Financing the supply chain in Asia: the weakest link?’.

Two-day Sibos Forum for Corporates

This is the third year in a row that Sibos will include a corporates’ forum - on Tuesday 15 September and Wednesday 16 September - bringing together corporates, the financial community and vendors to address issues in the corporate-to-bank space. In Vienna, 630 attendees signed up for the forum, around 32% of which were corporates.

Although corporates only made up 4.3% of the attendees in Vienna, SWIFT is determined in its efforts to include the corporate community. Currently 440 corporates are connected to SWIFT through the Standardised Corporate Environment (SCORE). The corporate forum is aimed at corporate treasurers, regional treasurers, treasury managers, finance directors, global bank cash management and transaction services managers, accounts payable and receivable managers, as well as existing SWIFT corporate users or corporates seeking to optimise their communications platforms with their financial institutions.

The corporate forum sessions are:

Demystifying SWIFT: why, how, when.
The financial crisis: challenges and opportunities for the corporate treasurer.
Corporate case studies - Asian corporates.
Providing value to your corporate clients.
Your questions - answered: one to ones book in advance or arrange onsite.
Corporate requirements for collaborative bank solutions -'Corporate Treasury 3.0'.
Corporate case studies - global implementations.


Raymaekers explains that SWIFT tries to cater to two corporate audiences. “One interest group is existing corporates on SWIFT, the experienced users, and they will get something new. The other group is prospective corporates, whose main question is still what 'SWIFT for corporates' is all about. These central treasury centres service multiple legal entities within the group, and deal with multiple banks and communication systems, and they ask ‘can’t this be easier, better and cheaper?’ They wonder if SWIFT can be the one gateway to all their banks,” he says.

Deutsche Bank’s Spearing agrees that the forum needs to be of value to both experienced corporates and the novices. “The Sibos forum is very broad - it has always been both an educational meeting as well as a venue for industry debate. The corporate forum is going to be similar and based on the current stage of each corporate.”

That is why the forum takes the corporate from the start of how does one connect, right through to how does it benefit. Spearing points out that one of the sessions is even called Corporate Treasury 3.0, copying US university courses where 101 is the very basics. “The forum will take people right from the start of how do you connect, and what is the value of this, right through to how do you get the efficiencies into your shared service centre and liquidity models, and be able to benefit at the core of your cash management activities in your treasury. So the theme will be the start-to-finish how might I get value from this?” she said.

“Everyone, whether corporate or bank, is under cost pressures and what will draw them in is answering the question ‘where does this fit in my master plan?'," she adds.

JPMorgan’s Wedge says: “I think the first main theme will be continuing to ‘get the word out’ about how corporates can use and leverage SWIFT as a non-proprietary channel for bank communications. The second will be about how SWIFT and its network can and should be extended to address the specific needs of corporates.”

For the more experienced corporates, Spearing believes that one issue that will be discussed at the forum will be around the value-adds for the SCORE model and where will it go from here - corporates need to try to influence this process.

Another discussion area will be around the progress of Alliance Lite, which is the ‘cheap and simple’ connectivity option launched at last year’s Sibos. At the recent Universwiftnet in London, hosted by SWIFT, HSBC and UTSIT, the first company to use Lite, Fenice, was very positive. The low cost flat fee is attractive for corporates, which have always complained that they are priced out of connecting to SWIFT, but another big plus was the implementation: Fenice claimed that the USB stick solution was rolled out in one week with banks already using FileAct. The intricate and complex technical set-up of SWIFTnet has always been a bugbear for corporates.

What’s always popular at Sibos are case studies - and Raymaekers assures all attendees that these will make up a significant part of the forum.

Asia - Regional Specific Issues

This is the second time Sibos will visit Hong Kong: the first was in 1991, 18 years after SWIFT was born and 13 years after the first Sibos. SWIFT’s Raymaekers reports that out of the 440 corporates on SWIFT, about 10-12% are based in Asia - the likes of Samsung and Panasonic, but also multinationals, such as Nestle, Daimler and Shell, their Asia-Pacific entities and regional treasury centres. SWIFT is makinga a concerted effort to increase its presence by having a dedicated person in Asia, and the consortium is seeing a good response in terms of banks. Raymaekers believes that it is the corporates pushing their banks to offer SWIFT that is making the banks sit up and take notice.

When asked if there were regional-specific issues, Raymaekers thinks that the overarching issues for corporates aren’t much different from anywhere else - they need to know where their money is. “We met with a large multinational corporate in Japan that has about 40 units that represent 90% of their business. But those units operate very independently; they each get statements from their banks and they feed them into a system, such as a spreadsheet. So they may have visibility of their working capital but the central treasurer may only get a full picture once a week - in the current economic environment, that is no longer acceptable.”

Spearing believes that one area that is different about the Asia region is trade. “There are huge volumes of trade that are still happening and in fact intra-regional trade has sustained fairly well, given the overall declines globally. Therefore, there could be higher interest from the corporates in terms of SWIFT’s use of the SCORE model and how it could facilitate trade transactions. This is a particular area that could come to the fore.”

Addressing issues that Asian corporates specifically may bring up at this Sibos, JPMorgan’s Wedge says: “I expect that the issue of support for non-Latin character sets will be one of the issues that Asia-Pacific corporates will raise. This in turn will probably lead into discussions of FileAct and ISO 20022 standards - which can support such character sets.”

First Time Corporate Attendees

For those that have yet to experience Sibos, it can be a very overwhelming - but extremely rewarding - experience. Remembering her first Sibos, Deutsche Bank’s Spearing says that corporate attendees need a very clear idea of what they want to achieve and would benefit from booking appointments ahead of time. “It is a fantastic forum and you can achieve so much by having a clear idea of the top software providers or top banks that you want to sit down with and have a concentrated discussion. Each of these providers will have many content specialists at the event."

“An additional pointer is to really use the networking that is available because this conference covers an enormous range of issues, including trade, cash, securities, both globally and regionally, and then the regulatory world as well,” she adds.

Wedge agrees, particularly with regards to the networking and the global experts on hand, and adds: “Finally, I would always advise any Sibos attendee to bring a good pair of shoes as we all spend much more time on our feet than we do back in our offices.”

First published on www.gtnews.com 

Challenges Facing Multinationals' Subsidiaries

09 Jun 2009

Robert Snell, head of global subsidiaries group at Citi, talks about the challenges facing multinationals' subsidiaries operating in the emerging markets, including liquidity and funding risk and local counterparty risk.

Snell, previously representative director and president of Citibank Japan and head of the corporate banking division, took up his new role as head of global subsidiaries group (GSG) in January. The function of the business unit is to serve the subsidiaries of Citi’s multinational corporate clients. With dedicated teams, the GSG covers 79 out of the 109 countries in which Citi has a presence; in the other 30 countries, Citi's GSG deals with partner organisations within the bank. Snell has spent the first few months of his new position travelling to more than 20 countries to get a sense of the issues that subsidiaries are facing in these turbulent economic times.

Q (gtnews): What are the biggest challenges facing multinationals’ subsidiaries?

A (Robert Snell, head of global subsidiaries group, Citi): Multinational companies have blossomed because of globalisation, specifically through free trade, reduced national tariffs and a general blossoming of the global middle class. For OECD [Organisation for Economic Co-operation and Development] parent companies, growth has generally come from developing markets and globalisation has been critical for their success.

With the crisis, multinational companies, and many of the world’s banks, have entered a tunnel. We were driving down a highway, in some cases very quickly, and have now entered a period of darkness. We don’t know what is going to happen to globalisation - is there a light at the end of the tunnel; is it near or far away, or is it a train coming our way?

I am convinced that the period of crisis with respect to globalisation and rhetoric around nationalisation is not going to last long. Therefore, how do companies make sure they don’t get lost, take the wrong turn or hit the brakes too hard?

There are three themes companies need to focus on:

From a financial perspective, the availability of capital and liquidity is critical.
Companies need insight and access to useful information so management in local, regional offices can effect change.
In many cases, local or regional offices need to act somewhat more independently than in the past. Head office is in crisis mode and distraction can be overwhelming. So in order to run an effective business across markets at varying stages of crisis, a willingness to act locally is critical.
Q (gtnews): What are the main risks facing subsidiaries operating in regional and local markets, and what can they do to mitigate this risk?

A (Snell): There are two risks that are paramount: the liquidity and funding risk, and the local counterparty risk. The first half of the risk equation is basic funding and there are two sources of this - either from head office or in the local market by accessing the banking market, whether through global, regional or local banks, or the capital markets in some of the developing markets.

Presently, many parent companies are far less able to move money into the subsidiaries because they need it at home. And it is also true that they have always been reluctant to do this since, in certain jurisdictions, it is hard to get the money out again.

Obviously, the global banking market is under severe pressure, particularly in markets supported by the large OECD banking groups. However, in a number of markets, the local banks - or banking groups with large local branch networks - have abundant liquidity. In some countries, such as China and India, the central bank is aggressively pumping liquidity into the system . Many local market participants can take advantage of the higher relative savings rate, and lower levels of leverage, to more efficiently sustain investment spending.

Citi tries to provide balanced guidance to its multinational clients - if we can provide liquidity then we will, or if we are unable to do so at the right price, we will intermediate. Many local banks are worried much more about credit risk and dealing with the certain local industries or SMEs. Therefore, doing business with a multinational upgrades the risk of the local bank’s portfolios. Citi can help our clients arbitrage this for maximum advantage.

The other risk issue is that our clients are now much more worried about their suppliers or distributors, which has a direct impact on their ability to sustain their local business. Believe it or not, companies are now looking at basic letters of credit (LCs). Even if previously a company had confidence in its supplier or customer, out of prudence, that dynamic has been eroded, so I am now seeing a large increase in demand for LCs in the developing markets, as well as more innovative approaches to what is called ‘channel finance’.

But because open account transactions have been popular now for many years, the treasury of multinational companies are not as knowledgeable about LCs, or about today’s channel finance innovations - so staff need to be re-educated. It is interesting to see this very old instrument become active again.

Q (gtnews): How is the liquidity crisis affecting the relationship between the multinational and its subsidiary?

A (Snell): Head office needs more liquidity and they are calling on their subsidiaries to repatriate funds aggressively. There is some tension between the drive to repatriate funds in order to help fund the mother ship and the need of local companies to hold on to their cash for local growth opportunities.

Add to the mix the volatility of currencies today, compared to the relative stability of the currency markets up until 16 months ago. This is important to consider because once a company makes the decision to repatriate money, a fluctuation in the currency markets can change the outcome quite significantly. One way to address the issue of sovereign risk is just to have less capital floating around in certain markets - but at what cost?

Whether or not to repatriate funds is a tough decision to make at this juncture because, on the one hand, head offices are very distracted by their own issues, but, on the other hand, if a corporate doesn’t continue to invest or even double up in these developing markets, someone else will. A corporate can lose the war by withdrawing too much capital from the emerging markets. Plus, the classic BRIC [Brazil, Russia, India, China] markets are much more important today because of their contribution to the overall company profitability - to withdraw from them would be quite dramatic in terms of proportion of business today versus even five years ago.

In terms of wholesale withdrawal or decision to stall in a market such as Russia, we haven’t seen companies withdraw - all the companies we have talked to say that the demographics of the Russian market, as one example, have good long-term prospects. The wealth creation is taking a step back but there is a long-term market for consumer businesses. We are seeing hardly any wholesale timeouts, particularly compared to 1998 when many companies bailed out, or sharply curtailed investment emphasis in certain markets.

The market volatility is so disturbing that unless you have the right local insight for the local and regional market, it still remains too easy for companies to make strategically bad long-term decisions and under-invest at the wrong time. For example, a company in India may say that the market is no longer growing at 12% and so it is going to scale back its operations. Yet India will probably plod along at 5-7% growth this year, which is not so bad and it’s probably only a matter of time before it rebounds robustly.

Q (gtnews): How important is payables and receivables management in this economic climate? What are the main issues for corporates?

A (Snell): Payables and receivables management has always been important but now particularly so as the credit markets continue to be difficult. The further away you get from the head office of a multinational, the more the credit market is withdrawing. Managing receivables is a complicated job because a company will be under pressure to extend terms and increase company financing because the bank in the region is not lending as much money. So receivables management is very important to make sure companies can access the money they need.

For example, a big brand company that sold consumer goods asked us if we could see a point in the immediate horizon when banks in the CEE countries were going to start lending again. Every couple of weeks they were getting one of their distributors saying that they couldn’t pay the next day but needed another few weeks. And then they would call in two weeks and say they couldn’t pay then either. So this company has seen a frightening extension of receivables and that just heaps more pressure on. This goes back to the number one issue we are dealing with - the issue of funding.

At head office, the multinational will see that the CEE financial markets are, generally, becoming more conservative. As they see this happening, they are going to have to put pressure on their global banking relationships to develop solutions.

Another thing they can do is inject capital themselves - they can raise capital efficiently in their domestic market and move it intra-company. They can also put in more equity capital but, as I said, that's tough since once you inject equity capital into your subsidiary, the tax issues make it harder to pull that money out.

Q (gtnews): Do you have specific areas that you will tackle in your new role? Have you got big plans in the pipeline?

A (Snell): Well, I will be touring Latin America over the next weeks - Buenos Aires, Bogotá, Santiago, and more. Everywhere I go, whether Istanbul, Algeria, Ireland, which are all very different places, I meet with the subsidiaries of the same company and begin to put together a picture and get a sense of how they are thinking.

My business strategy is what Citi calls the network business. We are an important part of that - the GSG defines the elements alongside our global transaction services (GTS) platform, our products, and FX capabilities. Doing basic banking is now back in vogue for our multinational clients.

We are in a good position but we have to extend and invest in the business, just like our customers. One of the things we have been doing is sponsoring thought leadership events in a number of markets to address issues around capital and funding; around counterparty risks; and around issues as complex as politics and the new role of ‘government as players’... and then try to offer solutions and insight - here is what we think we know about the industry or sector.

We also play the role of a so-called information pipe back to the multinational’s headquarters. We sometimes under-appreciate this aspect of our job. We connect everything together through the relationships that we have at headquarters, alongside the regional and local levels. This enables a treasurer in India, for example, to stand a better chance of getting the attention they need. And in dynamic markets, with high risk but high reward, this is crucial. And Citi tries in many cases to give our subsidiary clients the information they need to position themselves and their plans within their own company, thus ideally ensuring that they don’t miss critical opportunities. That is what we do: support the network for the benefit of our customers’ growth strategy.

First published on www.gtnews.com