Europe’s Plight Under Scrutiny: Global Corporate Treasurers Forum – Europe Preview

For four years, the Association for Financial Professionals’ (AFP’s) Global Corporate Treasurers Forum in North America has brought together senior figures in treasury and finance to tackle the most significant issues facing the profession. Now this established event is moving to the next stage, with a new conference in London for a European audience, organised by gtnews.

Global Corporate Treasurers Forum – Europe (GCTFE) will take place at the Grosvenor House hotel in London across 23-25 June, giving the 100-strong assembled group of senior treasurers the chance to hear from some of the key protagonists in the payments, banking, and regulatory worlds. In addition, the Forum has a focus on smaller breakout groups, with time specifically given over to workshops on issues such as funding, setting up a payment factory, risk management, and IFRS. This preview commentary looks at a few of the talking points that could dominate conversation at the event next month.

Forum Proves Timely For European Issues

The post-credit crisis financial landscape in Europe is possibly just as uncertain as it was during the crisis itself. The Greece debt and bailout has been the lead headline, with debt troubles in Ireland, Spain, Portugal and the UK, among others, also generating concern within the financial community. One of the main players in the attempt to stabilise the financial situation in Europe has of course been the European Central Bank (ECB), and delegates at GCTFE will have the chance to hear from Paul Mercier, principal adviser, market operations at the ECB in the closing keynote speech of the Forum. Mercier will be discussing the ECB’s reaction to the financial crisis, from the effect the crisis has had on monetary policy, to the strategy the ECB is pursuing on its quest for economic growth.

One action that has come under attack in some quarters is the suspension by the ECB of the minimum credit rating required for Greek government-backed assets used in its liquidity-providing operations. By doing this, the ECB has taken away the risk of Greek government bonds being excluded, should the credit ratings agencies react unfavourably towards the rescue programme. The action, which is due to remain in force “until further notice”, has come under fire for seemingly going against the stance of ECB president, Jean-Claude Trichet, who has stated that the bank would never show preferential treatment to any individual country within the eurozone. The counter-argument is that the benefits this provides for the financial markets are good for both the eurozone and Greece – this programme effectively tells banks that Greek assets can continue to be used to access ECB liquidity.

SEPA – Continuing, Stuck, or Reversing?

So with all the turmoil in Europe, where do things stand with the single euro payments area (SEPA)? The future of the euro has been called into question by some of the continent’s most senior politicians – from French president Sarkozy’s apparent threat to pull France out of the euro in a row with Germany’s president Merkel, to Merkel herself using comments such as “the euro is in danger”. While the currency is once again being used as a political football, where does this leave innovations such as SEPA? SEPA Credit Transfers (SCTs) and SEPA Direct Debits (SDDs) have been brought in and the Payments Services Directive (PSD) ratified, all of which has taken a large amount of political will and financial commitment – not only from the eurozone countries but also from the banks, who’ve needed to invest in replacing their payment infrastructures.

Speaking at GCTFE, Gerard Hartsink, chairman of the European Payments Council (EPC), will provide his perspective on the current expectations of the regulators, the commitment and deliverables of the EPC, and how a co-operation model can be established so that corporates can realise the business benefits of SEPA.

But what of the banks? A pragmatic view was given by Werner Steinmuller, head of global transaction services at Deutsche Bank, during major research on SEPA and the PSD undertaken by the Financial Services Club last year:

“Deutsche Bank is in a comfortable situation. We spent quite a sizable amount on SEPA infrastructure and have a brand new system that is extremely capable of doing this that is also highly scalable. Others have not made this investment so this gives us a price advantage. We have built some conversion solutions for handling old volumes and now can run both old instruments and the new SEPA instruments so, if SEPA is coming, we are extremely well positioned. If SEPA fails, I can write off the investments and still win.”

SEPA has instigated the spend banks have had to make on their infrastructure – but if the SEPA systems, or even the euro, are repealed, the banks still have efficient transaction solutions in place.

Bank Relationships Under the Spotlight

The credit crisis has added great stress to the relationships between corporates and their banks. Banks see the corporate’s cash management business as an attractive proposition and so are beginning to bargain for part of this business in return for continued credit lines. In addition, as the banks have shrunk in size as a result of the credit crisis, large multinational corporates are faced with the prospect of not having one global bank capable of managing all their activities worldwide, and so are reassessing their bank relationships, post-crisis.

A panel of treasurers from Europe, Asia-Pacific and North America will discuss how they are managing their banking relationships in the new ‘normal’ business environment in a key panel discussion at GCTFE, moderated by Gillian Tett, US managing editor of the Financial Times. One topic that may well come up during the discussion is the use of SWIFT for corporates, and the possibilities for bank independence that this can provide.

SWIFT’s corporate offerings have gained an increasing take-up in the past couple of years, but it would be hard to say that it has yet made a significant breakthrough in the northern European market. Again, it is easy to see the influence of SEPA as a reason for this. While taking an overall look at their payment infrastructure, corporates are asking whether SEPA is something they should invest in, or whether they should wait to see how the first-movers in this area perform. If anything, corporates are still waiting for the business case for SEPA to be put to them, before they’re willing to invest time and resource into becoming SEPA-ready. Where SWIFT for corporates may well see its best growth this year will be with organisations in countries that aren’t as sophisticated, in terms of formats, processes and clearing.

Translation Risk a Major Concern

Risk takes on a variety of different forms in treasury these days, such as liquidity risk, counterparty risk and foreign exchange (FX) risk. When it comes to FX risk management, translation risk is one of the key challenges for corporate treasury. The greater the FX swing between quarterly financial statements, the greater the risk to corporates – something that is all too clear in today’s volatile currency markets, where the euro, US dollar and UK pound have proven to be fragile.

Best practice for managing translation risk is the theme of one of the many workshops that are key to the GCTFE programme. Sander van Tol, partner at Zanders, and
Gary Williams, general manager treasury at Mitsubishi Corporation, will drill down into best practice for managing translation risk, asking questions including:

  • When is the best time to hedge your translation risk?
  • Whose responsibility is it to set the budget rate – treasury or management?

In these smaller workshop groups, delegates will have the chance to drive the debate, share personal experiences and interact with peers. Other workshop topics at GCTFE cover how to maximise sources of finance, the treasurer’s role in the management of risk, the impact of IFRS, why corporates should care about pension risk management, and the benefits and pitfalls of shared services.

To find out more about the programme at GCTFE or to register to attend, follow this link.

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