IPS 2012 Report: Prepare for Change

In his keynote address to the 300 bank, vendor and corporate treasurer attendees, economist Hamish McRae highlighted the shift of power to not just Asia but other emerging markets, his hopes that Nigeria could spark a real African renaissance, and the future of the fragmenting eurozone. McRae somewhat mischievously and jokingly predicted that Greece would exit in 2017 … in July … when any good currency crisis always happens, to show how unpredictable the whole debt situation in Europe was, but while understandably reluctant to put dates on outcomes he was insistent that Greece will eventually depart the eurozone, and not necessarily just them either.

“Globalisation and debt overlay everything I say and will shape our next decade,” added McRae, before going on to point out that there was still growth in the world but that it is now a two-speed world with the emerging BRIC (Brazil, Russia, India and China) economies and others regions, like Africa, leading the way. Technology too will play a part in fuelling growth, particularly for those not weighed down with legacy systems.

The consequences of these radical shifts in the global economy were highlighted and discussed by the next speaker Wilco Dado, global head of payments and commercial cards at RBS, who considered the implications for corporates and banks of a [western] world in which minimal growth is expected.

One answer to counter minimal growth is to invest in new technologies and markets, of course, where tight budgets allow and return on investment (ROI) can be proven. The mobile channel and other innovations were discussed in the following roundtable dedicated to transaction banking, which included Richard Martin, managing director of payments and cash management at Barclays Corporate, who later spoke exclusively to gtnews about the bank’s recent Pingit mobile payment launch, pointing out that while the peer-to-peer free service, which lets customers send and receive money using mobile phone numbers only, is initially focused at the retail banking market, “it will have applications in the corporate market too”.

Of more immediate interest for corporate treasurers, excepting the entertaining digital native speech looking at the impact of the rise of Generation Y from Peter Hinssen, was the mid-day panel looking at the challenges facing corporate treasurers now. There are, of course, numerous ‘pain points’ at the moment, not the least of which is the need for effective treasury management risk in the face of the aforementioned eurozone crisis. This was referenced by the panel of bankers and KPMG consultant Liz Oakes, who also mentioned the impact of regulations, such as Basel III on trade finance pricing for instance, and of a world where increased transparency is a necessity.

Afternoon: Treasury Forum

For a view on what corporate treasurers themselves were thinking, attendees could turn to a special four-hour treasury forum in the afternoon. Packed full of treasurers, and sponsored by Barclays Corporate, the forum looked at the challenges facing corporate treasurers in the new economic landscape outlined earlier by Hamish McRae, where counterparty risk, maintaining the supply chain, and meeting other challenges, such as increased regulation, are prevalent. As the chairman of the forum, Oliver Brissaud managing director of Volkswagen Finance, explained when highlighting the risk management pain points: “VW has a huge supply chain so we cannot afford for one of them to go bust. If banks cannot help them, we will.”

The single euro payments area (SEPA) was also discussed, with Gianfranco Tabasso, chairman of the Payments Commission, European Association of Corporate Treasurers (EACT), outlining where the SEPA project now is, in a follow-up presentation to his involvement in the payments regulatory boot camp. The impact of the 1 February 2014 end date on corporations and treasurers was discussed, as was the fact that they should now be thinking about how best to achieve efficient compliance rather than installing a last minute expensive off-the-shelf system. Although going first – and being the guinea pig – isn’t necessarily the best policy either, some management attention must now be paid towards SEPA compliance.

A strategy roundtable was up next examining what treasurers can do to effectively manage their cash in an uncertain environment and to leverage the large cash reserves that many multinationals possess. Brissaud referenced the trend to centralise treasury operations but pointed out, “there are risks in placing all your eggs in one basket (i.e. bank risk) that you need to think about”.

Marcus Ceglarek, director and head of European treasury at KPMG, suggested diversifying investments into corporate bonds and other non-traditional sectors to improve investment returns and using performance metrics to check cash reserves are being used wisely. “There is a lot of trapped cash about too, so you need to improve visibility using MT940 messaging and whatever other technology can help,” he added.

Maarten Rust, sector treasurer at Philips Lighting, claimed that SEPA wasn’t such a big deal for his firm because Philips has long had a payment factory and centralised operations, making compliance and obtaining efficiency benefits easier than for those starting from scratch, although as he also said: “It is still damn hard to get good billing information off some banks. I hope the TWIST standards body can help here.” He also said there are less and less triple-AAA rated banks – and indeed countries – so a reassessment process is underway about where to place your cash and what is and isn’t risky. It was a point that Kostas Evangelidis, senior manager for global treasury at PwC, returned to when he emphasised the need to be conservative in turbulent markets. “The fundamentals of maximising your cash don’t change – it must be secure, available when needed, able to be invested to ensure maximum yield, and you’ll need good systems, forecasting and counterparty risk procedures.”

Too true but as Maciej Müldner, treasurer and risk manager at construction firm, Skanska, also said when discussing the time pressures upon corporate treasurers: “Please, dear bankers, we only have 10% of our time for you!” The threat of a reduction in bank competition, due to liquidity pressures and changing capital adequacy regulations such as Basel III, were also referenced by Müldner, which is understandably a concern for construction firms that rely on large upfront capital support to get huge infrastructure or building projects off the ground. It is an issue that Stephen Pigney, head of international market management, Barclays global cash management, returned to when he gave a later presentation on managing buyer/supplier relationships. His banking colleague, Jose Luis Calderon, head of European product management, GTB, Santander, followed up with a presentation about the challenges of implementing a supply chain finance (SCF) programme and what lessons can be learned from Spain.

Andre Casterman, head of banking, trade and supply chain at SWIFT, then presented on mitigating late payment risks, referencing new trade finance rules and tools such as the bank payment obligation (BPO). Casterman is also co-chair of the International Chamber of Commerce BPO project and explained how the ICC is now adopting the BPO initiative started by SWIFT a couple of years ago, and how it makes trade “irrevocable” and can be used as a “letter of credit [L/C] replacement”.

Other SWIFT projects such as the Trade Services Utility (TSU) and creating an electronic framework for bank account management (eBAM), receivables, and so forth were also discussed, before Casterman joined a panel to bring the afternoon’s treasury forum to a close with an open talk about how the latest innovative products can help corporate treasurers do their job. Inevitably the mobile channel was mentioned, but thankfully not over-hyped by the panel which included Peter Hazou, head of business development, GTB, UniCredit, and two consultants Monie Lindsey of Treasury Strategies and independent advisor, Hugh Davies. The importance of multibank tools that do not lock treasurers into one single bank, provided by SWIFT and others – for example, the BPO and the 3SKey digital identity scheme that allows electronic payments to be ‘signed’ – was highlighted, alongside the need to develop better liquidity management and payment receivable tools.

Technology is never a panacea, of course, but it can help corporate treasurers achieve their goals if it is properly assessed, specified and installed. Again, as Evangelidis, the treasurer at PwC, alluded to earlier, the fundamentals always apply and this is as true for technology installations and innovations as it is for corporate treasury operations.

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