AFP day 2: Trump’s tax reform and synthetic euro debt

On the second day of this year’s AFP conference Trump’s potential tax reform, using synthetic debt and the expected benefits of SWIFT gpi were all hotly discussed topics.

Synthetic debt: the ‘trade du jour’

With rising interest rates being a keenly discussed topic at this year’s event in San Diego, many treasurers were discussing how they can structure their portfolios to minimise interest expenses.

“Many multinationals are thinking of taking their US dollar debt capital structure and using cross-currency swaps to turn it into synthetic euro debt,” Amol Dhargalkar, managing director of Chatham Financial, told GTNews.

“This lowers their interest expense pretty significantly. Treasurers can save 2+ points on interest per annum by synthetically doing euro debt. I would call it the ‘trade du jour’.

“The combination of this strategy with the new US hedging accounting standard that has come out is really beneficial for these multinationals in allowing them to lower interest expense,” he added.

Pelican’s innovation hub

Pelican announced the launch of its ‘Innovation Hub’, a fintech partnership model for banks, at the AFP and SIBOS conference.

It is designed to create a sandbox environment for banks to explore new technology products from proof of concept through to service deployment.

It allows banks to experiment with new tools before making a financial commitment.

The Pelican Innovation Hub incorporates multiple technologies including the artificial intelligence (AI) disciplines of machine learning and natural language processing, real-time payments, open APIs, and omni-channel user experience (UX).

Bill North, global head of sales at Pelican, told GTNews: “Banks really desire this because it is lower risk and lower investment. There is a lot more creativity than with the historic model – software companies selling banks technology which the banks then have to configure and run.”

Trump’s tax reform

US treasurers are slowing down some operations as they are hopeful that President Trump’s proposed tax reform will come into play in 2018.

“Most treasurers are quite hopeful that the corporate tax rate will come down,” Dhargalkar said.

The current administration has made plenty of noise, not only about corporate taxes being lower but about tax reform as well.

However, some treasurers are concerned whether it will actually happen, Dhargalkar said.

“Many treasurers were expecting it would already have happened by now. It is nine months into this new administration. It is worth remembering that it is a four-year term so you can’t get everything done right away,” he said.

“If the tax reform didn’t happen in 2018, there will be a lot of frustration. There are a lot of things treasury are waiting to do, such as repatriation.

“The tax reform proposals suggest a repatriation holiday and perhaps a one time tax on excess funds held offshore, so why repatriate now when you have to pay the full tax instead of waiting for the reforms? There is a bit of wait and see happening,” Dhargalkar explained.

SWIFT gpi  is picking up speed but corporates must understand the benefit 

It is important that corporates understand how SWIFT gpi can benefit them as it is corporate demand that will provide banks with the business case to extend the technology, argued Sebastian Rojas, global corporate engagement manager, SWIFT.

SWIFT gpi will allow treasurers with payment traceability, visibility of fees and remittance data.

With more than 110 banks that are gpi members and subscribing to the services, SWIFT is starting to see banks integrating gpi payment feedback to their clients through their portals, meaning their clients can track their payments at any moment.

Ultimately cross-border payments will be available in real-time, Rojas told GTNews. However, he argued that real-time will never be a priority to treasurers over cross-border payments.

“Treasurers may be able to receive real-time information on their payments but treasury departments do not work 24/7,” he said. ” They are not processing all of the information in real-time.”

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