Features : Roundtable: Treasury & Cash Management

With credit conditions tightening around the world, businesses are focusing more than ever on effective liquidity management. Global Finance brought together some of the leaders in the treasury and cash management field to discuss current trends and potential solutions for cash-strapped corporations.

Conroy: We have seen corporates move back to basics in liquidity management and trade finance.gases

GLOBAL FINANCE : Global commerce and finance are in a tumultuous period. How is this affecting the treasury and cash management operations of companies and the banks that serve them?

TONY GANDOLFO , director of treasury services strategy and planning, The Bank of New York Mellon: We’re seeing a couple of trends. Companies are being extremely judicious with whatever capital they can get their hands on at this point. They are willing to take a hit from an expense perspective by using very short-term vehicles—or borrowing under revolving facilities—just to ensure that they have access to that liquidity when they need it. Additionally, we’re seeing a much more risk-averse posture in terms of companies not wanting to overweigh business with just one or two particular providers. In their flight to quality they are allocating business to providers that are more stable and have less risky business models.

AMOL GUPTE , managing director, head of treasury and trade solutions, North America, Citi: We are starting to see what looks like a long-term shift that will change the way clients and banks operate. It is going to take a couple of years before over-leveraged balance sheets of banks get normalized, and the whole relationship between credit and return for credit with our corporate or financial institution client base will change, and receive more attention. On the one hand, there is a flight to safety, but at the same time there is a recognition that it is better to concentrate with the few banks that you feel more confident about, particularly with global liquidity structures spread across countries.

DENNIS SWEENEY , deputy treasurer, General Electric: From the corporate perspective, we look at it as the banks’ hoarding. The liquidity is there in the banks, but it is not coming out to the corporates. Banks are not willing to lend to each other, let alone to lend to corporates right now. GE is a big, established name, so we are probably in a better position than most, but the current situation forces us to think about where can we get liquidity—and that is not necessarily from the banks that are providing the best services and the best technological capabilities. The downside to that is, even if we do obtain the credit that we need, we are going to be operating in a less efficient environment.


Gupte: The liquidity crisis has brought to the fore the latent value of Swift, which can help corporates manage risk.

DAVID CONROY , Americas head of trade finance and cash management corporates, Global Transaction Banking, Deutsche Bank: In the current economic environment, the most important questions our corporate clients are asking each day are “Where is my cash globally? Where is my unused cash, and where do I need cash?” They are also very concerned about the accuracy of cash forecasting from an operational perspective. As banks are reviewing their exposures very closely, our corporate clients are looking for us to recommend optimal account structures and operational processes that will ensure straight-through processing and settlement. In short, our corporate clients need on a global level to identify, access and deploy liquidity as well as ensure their ability to meet all corporate payment obligations.

SWEENEY : It is causing operational problems for us—and I’m sure for the banks—because it makes something like a large transaction harder to do. We have to really plan out where our sources of liquidity are, get pre-clearances for any kind of transaction, explain it to the bankers, much more so than we ever used to. It also makes the cost of having the cash in the wrong pocket at the wrong time much, much higher.

GUPTE : It’s not just knowing where it is, but who it is with and how liquid is it really. How fast can you use it? This crisis has given a whole different dimension to the importance of all these issues. They always existed, but they’ve come to the fore now.

CONROY : Global liquidity management has always been tremendously important to our corporate clients, and this has become a day-to-day priority. Banks and corporates are working together to maximize account structures to ensure that corporates can continue to manage liquidity requirements and meet payment obligations.

GANDOLFO : It is really taking the term “relationship management” to the next level. This has become such an absolutely critical component: You need to be comfortable with the partner across the other side of the table, that it is someone who is dependable and will keep your best interests at heart from a holistic, creative-solutions perspective. If the banks are going to continue to provide funding to their corporates, it involves being consultative with our customers, giving them the tools, the access to the information they need, helping them in all of the aspects of their business on a global basis. We are seeing a step back to fundamentals in terms of some of the types of services that banks really are stepping up and providing to their customers.

GF : One corporate treasury official said for the past year his three main issues have been liquidity, liquidity and liquidity. He’s probably not alone. What are banks doing to help?

CONROY : The tools that banks continue to provide for our customers in terms of visibility, deployment and access to cash are critically important. There’s clearly a convergence of the tightening of the credit markets and the integration and convergence of our cash management activities and our trade finance activities. Among multinational corporates now, there is a real movement to convert assets to cash as quickly as possible, to find opportunities to provide working capital and sources of non-debt liquidity, whether it’s through techniques like account receivable financing or vendor financing. Most companies are still focused on top-line revenue growth, and many are looking for the banks to assist by injecting liquidity into their distribution channels.


Gandolfo: Anything governments and central banks can do to minimize the paralysis is going to be well received.

GUPTE : It’s not that we’re doing a bunch of new things but that whole solution set now has a different degree of importance. Corporates are clearly recognizing their supply chain is beginning to feel the pain, so anything banks can do to help by providing liquidity and lubrication into their supply chain is an important business priority at the highest level, beyond treasury as well.

CONROY : Ensuring the financial viability of the supply chain for our corporate clients has a direct impact on their ability to remain competitive and achieve their financial goals.

SWEENEY : From a corporate perspective, when banks help lubricate the supply chain, it does two things. It helps get financing into the process, and, from a bank perspective, it’s diversifying who your risk is. It’s not just GE in our case; it’s a variety of suppliers to GE.

GF : What impact will the actions by various governments around the world have in solving the credit crisis and spurring growth? What else is needed?

GUPTE : So far we’ve seen a lot of monetary policy with the injection of all this liquidity. What will also help is some fiscal policy measures, such as spending on infrastructure, which will create jobs and opportunities for the private sector.

GANDOLFO : Anything that governments and central banks can do to mitigate or minimize the fear and the paralysis is going to be well received. We’ve got to get people spending. There are hordes of dollars out there; unfortunately they’re just not flowing. Trying to encourage that is something governments should really focus on.

SWEENEY : Fiscal stimulus is the next step because right now we’re sliding into recession; jobs are going to be the most important thing. If people lose their jobs, they’re obviously not going to spend. Unless we get some kind of spending geared toward job creation and retention, it will be dismal. Governments are also going to browbeat the banks into opening up the spigots, particularly in the consumer area, like mortgages.

GUPTE : We’ve seen in the recent past a shortage of dollars in the emerging markets, which could affect the amount and velocity of global trade. There is possibly room for some injection of dollars into the emerging markets. It has been done in the past, and it would help provide more liquidity where it is needed.


Sweeney: Managing your receivables so that you’re not experiencing write-offs is of paramount importance.

GANDOLFO : The focused and coordinated effort of central banks that transpired early in this crisis is hopefully a telltale sign of more to come. It’s evidence that everybody realizes we are a global, interconnected series of economies now. Whether it be through monetary or fiscal policy, a stimulus package or coordinated rate cuts by central banks, it’s all part of a paradigm shift. There’s such a series of global factors that led to this; it’s going to take continued coordinated efforts on the part of all of the economies to get us out of this.

GF : The credit crisis has made counterparty risk and supplier finance more important than ever. What’s happening in these areas?

GUPTE : If you have assets that you are depending on liquidating, but if you haven’t understood the credit risk behind those assets and the valuation of those assets now is substantially changed, it affects how much liquidity they generate for you. Suddenly, you have credit risk that has also now converted itself into a liquidity risk. Separately, supplier finance is a huge focus for every corporate today.

SWEENEY : Managing your receivables so that you’re not experiencing write-offs is of paramount importance, but you also have to worry about whether your suppliers will be there tomorrow. Are they going to fail in this downturn? There is heightened sensitivity; you’re really monitoring your supply chain as well as your customers.

CONROY : Companies are looking to financial institutions for alternative sources of liquidity and working capital. For example, many of our clients are converting account receivables to cash as a source of short-term working capital. In addition, financial institutions and government agencies are actively providing risk mitigation structures to stimulate global import and export trade activity.

GF : SEPA [Single Euro Payments Area] seems to be moving in fits and starts. What developments should we expect over the near term?

SWEENEY : I expect current market conditions will slow down SEPA implementation. Banks are focused on the credit crisis at the moment, not on internal projects to advance standards and so forth.

GUPTE : I agree, but if you had a fully functioning SEPA, it would provide clients the benefits of scale, cost, speed and efficiency in making payments. But there still is parallel infrastructure in every country, and as long as that remains, it will slow down the full adoption of SEPA. The transition is going to take longer than people estimated. Eventually, for SEPA to succeed, it will need volumes, and those can come from the consolidation of the old and the new infrastructure.

GANDOLFO : The payment services directive is aimed at addressing that, but even that is unclear in terms of when exactly it is going to be fully enacted. You’ve still got the issue of pushing it down to the individual member countries, with their different legislative systems. In the best case, you are probably still talking an extended cycle.

CONROY : We hear from multinational clients that SEPA will be a focal point for the consolidation and harmonization of payment activity across Europe. In the long term there is tremendous potential and promise for SEPA. The volumes are growing, and more customers are asking for guidance on SEPA strategy and execution. One related impact of the financial crisis could be the inability of the smaller banks to invest in the SEPA infrastructure. Some have already chosen to outsource their European payments processing to a bank such as Deutsche Bank, which has sufficient volume to create economies of scale and can make the necessary investments to remain a leader in payment processing during periods of market turbulence.

SWEENEY : I think you will see the smaller banks essentially will be forced to outsource. The problem is, though, you will see resistance and slow adoption because they feel this is a big bank initiative that will benefit the big guys, not the little guys. From a corporate perspective, this brings all kinds of efficiencies—dealing with the fragmented payment markets, the different clearing systems, the different formats. The lack of straight-through processing for a corporate is just unacceptably expensive. We would like to see it progress and will do everything we can to push XML and standards development.

GUPTE : If you really map what SEPA brings and what a treasurer’s objectives are—standardize, centralize, automate—it’s all there. In an ideal nirvana situation, if you operate all of Europe through one account and made payments in and out of that account, you don’t need liquidity solutions in every country. The issue is that different countries have not yet normalized their view on how to handle central bank reporting on cross-border transactions.

GF: What is happening with Swift access for corporates?

SWEENEY : There is continuing growth in the number of corporates using it, helped by the development of service bureaus that provide access for the small to medium-size corporate that does not want to invest the money and the time it takes to get up on Swift. Swift is also taking steps to try to make it easier for corporates to access. The liquidity crunch sounded a wake-up call to companies that they need this information, and the only way they are going to get it is through Swift or something very like Swift because you need to know where your cash is in every country, and, ideally, you need to be able to move it through Swift. That is going to drive a lot of corporates to get all of their accounts reported through Swift. I know several banks are pursuing initiatives that are part internal infrastructure, part Swift, to reach other banks. While banks want to keep as much inside the bank as they can, they’ve recognized that not all of it is going to be within. That is a very positive development.

GANDOLFO : In this case the overall relationship between a bank and its customer really comes to the fore. Banks should not view corporate access—and some of the disintermediation that may result—as a bad thing but, rather, a good thing from a relationship perspective. Swift provides not just information and reporting flexibility, but it provides efficiencies to the corporates from an operational perspective. Offering solutions that add value and act in the best interest of the customer is what helps build and further relationships. This is absolutely something that is growing, and we are a very big proponent of it.

GUPTE : The liquidity crisis has brought to fore a latent value of Swift, which is that it can help corporates manage risk because of the standardized format and the greater visibility. That is a big benefit that should hopefully help more and more corporates understand the cost/benefit equation of using Swift as a channel to access banks’ products.


Giarraputo: The credit crisis has made counterparty risk and supplier finance more important than ever.

GF : Have any new solutions emerged as a result of this crisis?

SWEENEY : It’s not about new products; it’s more about cash management 101—going back to basics. There’s a heavier emphasis on forecasting cash needs and on the degree of accuracy that’s required now because the penalty is so much higher when you miss.

GANDOLFO : The old is what’s new. Cash and working capital management 101 and some of the basic tools that have been in use for quite some time, such as treasury workstations, are back in vogue and are playing an increasingly important role in helping companies manage through this environment.

GUPTE : There is room for improvement in everything we all do. The standards can be simplified even further, for example, and our reach could be substantially improved so corporations don’t have to deal with so many banks in local markets.

SWEENEY : There are other initiatives that may help, such as CLS [continuous-linked settlement]. That was always a bank-to-bank system, but now you’re seeing much more corporate interest in joining CLS as a way of mitigating risk. That should also lessen the banks’ risk to their corporate counterparts. We’re looking at how we optimize everything, how we can really make use of tools that we always had.

CONROY : In the current market we have seen corporate movement to back to basics in areas such as liquidity management and trade finance. Given the market need for working capital and standardized processing, we are also seeing significant interest from our clients in the continued development of our financial supply-chain programs as well as strategic corporate initiatives such as Swift corporate access.

SWEENEY : GE has been pushing with Swift and with our major banks the idea that Swift’s closed user group system—they call it Standardized Corporate Environment (Score)—ought to be a corporate standard, and it literally should be plug and play. If you agree to be part of Score, you have to use standard documents; there are no variations or little tweaks. I think Score offers the opportunity for the larger banks and the corporates that want to play in this field to participate. Once we all agree that these are standard fields and we’re not going to play with them, it really will be plug and play. Adding a new bank or new branch of an existing bank will be a no-brainer.

GF : How are corporations that have excess cash dealing with it in the current environment?

GUPTE : Corporate risk appetite has changed, at least for the short term. They want to stay far more liquid. That will probably change again over time, but corporates are going to be far more choosy about where they invest and will want to fully understand the risk of the asset.

SWEENEY : To the extent we can, we are hoarding it a little, just like the banks are. People want to have a little something in their rainy-day fund because things are so volatile right now. Our investments are extremely conservative—bank deposits, treasuries—and we want to know more about what we are investing in. If you want to be in mutual funds, you have to dig in and figure out what kinds of investments they are making because you are worried about getting your principal back.

CONROY : In the supply chain, many cash-rich buyers are leveraging those positions to drive down costs by negotiating discounts for paying vendors earlier who in turn may need cash. These cash discounts translate into cheaper cost of goods sold and reduced prices on what they are importing.

GF : Until recently the march toward greater globalization of trade and finance seemed unstoppable. Is that still the case? And how will the new globalization affect treasury and cash management functions?

GANDOLFO : The train has left the station; we are one world already. Economies are so intertwined, causes and effects are so pronounced, that I don’t believe there is any turning back. If you look at middle-market companies, whether they like it or not, they are dealing with suppliers, with vendors, with institutions overseas. Jobs have moved to lower cost production centers. I don’t see those trends as being reversible. It’s just a matter of how rapidly things can get back into gear and thus accelerate that pace again.

CONROY : Our customers in the large corporate segment are sourcing, manufacturing and selling all over the world. They are looking for new markets and top-line revenue growth. They are looking for cheaper costs of goods sold on the procurement side. The challenge for us as financial institutions is to set up structures from both a cash management and a trade finance perspective that deal with counterparty risk, sovereign risk, currency risk and a variable regulatory environment. In addition, we must provide capabilities that allow these companies to identify and mobilize trapped cash and liquidity on a global basis.

GUPTE : It is not just a trend, and it is not going away. Banks are going to have to be smarter about their trade finance solutions. Physical supply chains will get more extended, and banks will have to try to figure out intelligent solutions that provide an appropriate return. We’ll need more-sophisticated solutions, which will only drive more volume that will translate into the need for financing solutions.

SWEENEY : The way we source, where we manufacture and where we sell has changed. It has changed fundamentally, and it is not going back. The economic downturn may slow us down a little, but fundamentally it is not going to change globalization. That is why some of these initiatives that we have talked about are so important. As we sell and manufacture and source from more and more countries, I need access to banks in those countries. So Swift becomes so important. Standardization initiatives like SEPA are important to the efficiency of straight-through processing. I see the multinational banks playing a very valuable role for corporates, keeping us attuned to regulatory changes. That is valuable, and that is part of the relationship, but I think it is maybe something banks have not really thought about—just how much we need that now, especially in a nervous, volatile environment.

Joseph Giarraputo