“I’d be very interested to know if anyone in this treasury audience was mitigating US sovereign debt risk?” asked George Zinn, Microsoft’s vice president and group treasurer, ahead of his presentation about the US computer giant’s treasury improvement project, which won the EuroFinance 2013 Treasury Excellence award.
Only one hand went up in response to the query out of a room of at least 300 treasurers gathered to hear Zinn’s presentation in Barcelona, Spain. “Were you sweeping US dollars out as some US corporate treasurers were doing at the height of the eurozone crisis with Greek emergency risk models sometimes being activated?” he added, before commenting on the “fascinating result” of only one hand going up.
Perhaps next time when the US debt ceiling debate and example of locked government comes around again in February 2014 European treasurers will have risk models in place for dealing with the threat of a US debt default and the turmoil this would unleash upon the world economy, akin to the collapse of Lehman Brothers five years ago? Unless a more comprehensive form of bipartisan cooperation unexpectedly breaks out it seems likely. Interestingly, a subsequent question about how many treasurers at EuroFinance 2013 had run US default risk models gained a few more ‘yes’ votes with 10 to 20 treasurers putting their hand up in the room, illustrating that while the doomsday scenario of sweeping cash out of the US isn’t yet a realistic prospect the threat is considered to be real by some European treasurers. It also seemed to be a case of ‘schadenfreude’ for some Europeans at EuroFinance 2013 perhaps after the destabilising eurozone crisis.
What would have happened if the US Bill temporarily alleviating the problem hadn’t been signed overnight? Zinn was asked. “I don’t know”, he candidly admitted, before going on to compare it to the situation five years ago in 2008 when the question was what would have happened if AIG (with its CDS exposures) hadn’t been saved? “Disaster was predicted then too, but it is impossible to know how it would have played out.”
Microsoft’s Award-winning Treasury Project
Zinn went on to outline his corporate’s treasury improvement project, which involved Microsoft implementing SWIFT XML ISO 20022 messaging for its international payments and installing Reval and Misys software to feed into its enterprise resource planning (ERP) system, aid automation, and then “allow data to be dumped into Excel spreadsheets to enable data analysis”. Real-time data reporting to improve cash flow forecasting, track the lifecycle of the dollar around the world and improve treasury efficiency and control was also a key part of the long-running and on-going project. [for a comprehensive overview of the treasury transformation project undertaken please see the gtnews case studies on Microsoft’s efforts focusing on cash forecasting and its liquidity structure overhaul. The Day 1 EuroFinance 2013 show report can also be seen here].
The genesis of the project was a few years ago when he was asked ‘how much cash do we have’, said Zinn, who went on to explain that there were two answers to that answer when the project started last decade – there was the domestic US balance sheet and international balance sheet, with lots of trapped cash in between. The international cash position is now better understood and the project has since moved on, explained Zinn: “We now use the new system and procedures on our investments as well, and to quantify our exposures for foreign exchange (FX), counterparty and other risks.”
The project provided a good example of how treasury technology, organisation and good management and structures can help treasuries meet the increasingly strategic and risk-focused role that they are expected to play. With the US debt crisis providing just the latest example in a series of potential risks to businesses, following on from the eurozone crisis, the promise of US Fed support eventually tapering off and other risk factors treasurers increasingly need to consider, the presentation was a timely reminder to automate as many procedures as possible to free up time for these additional responsibilities.