Q&A with Bank of America Merrill Lynch: Transaction banking and the art of treasury

GTNews speaks to Jonathon Traer-Clark, treasury practitioner executive at Bank of America Merrill Lynch about the role of the treasurer and how current trends are affecting relationships between banks and corporates in the transaction banking sector.

How would you describe transaction banking?

Transaction banking is simply the facilitation of a transfer of value between one party and another. A bank enables this by providing services and instruments such as accounts, financing and so on. Furthermore banks also provide warranties and insurance underpinning the transaction flow as a function of its license given to them by the regulator. In any bank, a transaction is usually a consequence of any other value added service, be that FX, trade finance, debt financing and so on.

Has the financial crisis changed the role of the treasurer?

The key word for me is risk. I think the financial crisis made financial institutions realise that who you trade and transact with is just as important as the facilities and services they can offer. In the same way that the bank would provide credit or services and make an assessment of clients, corporates are doing the same to us, which is why we’re being transparent about our own capabilities as well. Banks often discuss KYC with their clients, but for corporate, knowing their banks and other counterparties is more important than ever. The focus on risk management of corporate financial assets has elevated the treasurer’s role to be more strategic, and consequently the function has also matured and evolved. It’s important to consider scale in regards to the application of this focus. To a half a billion dollar company, risk management is key, but to a hundred billion dollar corporation with sophisticated hedging programs, $10 billion in investments and flows in 50 countries around the world, then as a result of this magnitude the treasurer is likely to have a more heightened involvement. A corporate’s transaction bank will also be engaged here to advise on risk parameters, be they operational, financial, reputational, structural or systemic risks.

How involved does a treasurer need to be?

I think it’s related to maturity, not the maturity of the individual or the function, but simply the size of the organisation. If you’re a small shop or a retail outfit in a city with 50 employees, then you probably don’t have the scale to warrant a dedicated treasury function, so to some extent, it depends on the balance between time and value. We usually find that as scale and size increases within an organisation, treasury usually sits in the finance department. In this case, the focus is normally very much on liquidity management, which was probably something conducted by the finance department as and when required. I don’t think that treasury needs to be involved in every part of the business but I do think that it needs to be able to influence, particularly with regards to areas such as working capital management and M&A.

What is the most important skill for a treasurer to have?

A treasurer can influence the business by the application of good stakeholder management, but that is simply the expanded role of the treasurer, where they understand their ecosystem of the business operating model and how they connect to it. We’ve seen treasurers move into investor relations, which is a great demonstration of how strategic they’ve become in the organisation. The insight they have on the whole company is also becoming increasingly more valuable to the corporate. Communication is a very important skill for a treasurer. I always say that treasury is an art and as a treasurer, you can never have enough information, but at some point, you have to make the leap and provide some advice. Everyone says that hindsight is a wonderful thing and in treasury, it’s really true. You can make the wrong decision and it can cause a big effect but you can also get a lot of praise for looking after the company’s assets correctly. It’s a position of huge privilege.

Why is communication so important between a bank and a corporation?

Communication is key, but it is a two way street. In the same way that a business has objectives and strategies, so does a bank. The client may wish to put a branch in a country where there may not be markets that the transaction bank can operate in and ask us what advice their bank can give, but you just have to be honest – that’s what healthy dialogue is about. Treasurers, corporates and banks having conversations about where they can collaborate more and are honest about where the future is heading.

How do you feel about TMS systems being implemented more?

A treasury management system has a very specific purpose. As the role of the treasurer has evolved, so have TMS systems and the information they provide. As a consequence, their function has expanded – I think it’s a sign of a healthy and growing profession.


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