What's Neu - News from the The NeuGroup Network of Peer Groups

Blog entry
By brichardson, December 17, 2012

The Engineering and Construction Treasurers’ Peer Group (ECTPG) met on December 5-6 in Pasadena with Parsons as the meeting host and Bank of America Merrill Lynch (BAML) as the sponsor. The group covered several of the topics on everyone’s mind, including an update on the banking sector and debt capital markets in light of Basel III and Dodd-Frank, as well as the effect on FX markets of the resulting regulation, and an updated view of the Eurozone crisis. Members also discussed strategies for public bond issuance, optimizing shared service centers and the future of public/private partnerships. Some highlights of the meeting are below.

  • Exercise caution with employee stock ownership. While employee stock ownership offers an incentive to employees to ensure their activities are making value-add contributions to the company, there is a risk if employees hold too much of the company stock in their retirement plans.
  • “Regarding regulations, everything is uncertain.” This is how Bill MacDonald from BAML summed up the regulatory environment. He also assured the group that “banks’ capital will become more expensive,” even if it hasn’t yet.  
  • Banks are eager to lend and provide services. In spite of regulatory uncertainty, 2011 was in fact a record year for lending at BAML, but 2012 has been slower and 2013 is expected to be more like 2012 than 2011. Additionally, BAML expects future credit business to be more specialized, such as for M&A deals and term debt for capital expenditures rather than unfunded revolvers. Bank focus on ancillary business and broader profitability is real.
  • Dodd-Frank and FX. ISDA protocol and “business conduct rules” seek to put documentation and standardization around current trading activity and allow for full automation. The protocol can be utilized even without using ISDAs. Also, counterparties technically will not be able to trade beyond spot transactions outside of the rules after January 2, 2013.
  • When issuing bonds, a good sales pitch yields results. One member recorded an “electronic road show” a week prior to its bond offering, outlining the details of the offering and compelling reasons to invest. The result was an offering 4 times oversubscribed with $2 billion in commitments. The other factor investors liked was that the company was committed to a maximum limit for the issue, which signaled that the company would not respond to investor enthusiasm by adding to the issue and over-leveraging itself.
  • Is single A the new triple A? The large too big to fail banks have lost their AAA ratings with some dropping into single A status. If this is characteristic of the industry then all financial counterparties are likely to be out of compliance with policies. Since there is no place to go for mitigation there is no option but to lower your hurdle.
  • The SSC concept may need to be sold internally. Business units with a history of decentralized independence are often reluctant to give up control of any part of their operation. However, one member has had success in rolling out SSCs in multiple locations by giving BUs input and buy-in into the initiative. Consensus is that it is easier to start from scratch when opening an SSC, rather than leveraging existing operations.
  • P3 projects need special treatment. Several members noted that their P3 activities are run in a separate organization, which are tasked with scrutinizing potential deals for returns and risk, and ensuring the counterparties are appropriate for the company. Designing and sticking to your deal parameters will improve the likelihood of better returns with lower risks.
  • The worst eurozone fears are not materializing. With the peripheral credit crunch we can expect to see corporate lending rates remain elevated in the periphery for some time. These countries need to export their way out of debt, but they cannot become globally competitive overnight. However, the ECB is doing its best to contain euro-exit risk.  Notably, the eurozone as a whole can actually afford the crisis. So we are unlikely to see any break-up in the near future provided the wealthier countries remain as such and are amenable to further support of the struggling countries.

A special thank you to Bank of America Merrill Lynch for sponsoring and Parsons for hosting.

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Blog entry
By jneu, November 15, 2012

The Tech20 2012 Annual Meeting took place last week with BNP Paribas returning as sponsor for the fifth consecutive year. We thank them for their continuing support. Following closely on the US presidential election, members heard and discussed a variety of mostly sanguine opinions on the impact of the election results on the fiscal cliff negotiations, the US and global economies and US tax reform among other things. Members also discussed stress testing and contingency plans to help cope with future crisis, heard an update on the banking environment, shared thoughts on how treasury supports the business through change and reached further consensus on the importance of IT support models in treasury systems selection and successful implementations. To close the meeting, members also got some practical guidance from Ernst & Young on how they should be preparing to comply with the end-user exception and other aspects of OTC derivatives reform being implemented in accordance with Dodd-Frank.

Some key takeaways:

  • G-SIB is a league table nobody wants to top. The SIFI or, now, Global Systemically Important Banks table indicating the banks that need to retain additional capital buffers is one that no bank wants to top. BNP Paribas, for instance, is pleased to have dropped one place in the November list from last October.
  • IHBs are the way to go. Discussion with members on treasury support models, as well as the member session leader presentation, further validated the pre-meeting survey results indicating that in-house banks are a best practice organizational tool offering flexibility to support business change in response to new growth, tax and regulatory drivers (see related article here).
  • Bring global operational efficiency best practices to new markets. Increasingly banks are seeking to fit globalized solutions, with their efficiency and leveraging of technology to the new, developing markets that MNCs are entering. Unlike in the past—where  MNCs were entering these markets to conduct low-cost manufacturing, R&D or support services—current market-entry plans are often to generate new revenue with real business being conducted.
  • Understand your treasury IT support model first. One member emphasized and elaborated on a point made at a prior Annual Meeting about the importance of treasury technology support in the success of a treasury management system. The support model is probably more important to the success of system than the selection of a given tool, he said. As part of their treasury end-state vision, treasurers should be realistic about what support model is sustainable.
  • Tax reform will be about give to get. MNCs with off-shore cash should work together to ensure that efforts to reduce the corporate tax rate (see here) don't come totally at the expense of tax treatment on off-shore earnings.
  • Start work with your board now on Dodd-Frank-related derivatives compliance. It is better to ensure this gets done in the natural sequence of board meetings before next summer. 
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Blog entry
By brichardson, November 09, 2012
The Treasury Investment Managers’ Peer Group (TIMPG) met October 24 – 25 in Palo Alto at the offices of VMware. The meeting was sponsored by DB Advisors and had a strong turnout with 25 member companies present along with the sponsor guest, Symantec.  The group welcomed new member from SanDisk and a returning founding member from Procter & Gamble.
 

Meeting highlights

  • Repos and covered bonds. The meeting began with an overview and drill down into two asset types, repurchase agreements (repos) and covered bonds. The sessions were led by DB Advisors who impressed the group with their in-depth knowledge of the mechanics, markets and history of both products.
  • Focus on an emerging market: Turkey. Later, a member walked the group through his recent trip to Turkey with an asset manager to research the methodology for researching and performing credit analysis on emerging market debt.
  • Portfolio modifications discussion. The group also had a roundtable discussion on what modifications they have been making to their portfolios since the last meeting. Most have held steady but those who have made adjustments have centered on extending duration and increasing credit risk offshore and adding a few new asset classes onshore.
  • The "really big concerns:" Europe, the US and China. The first day concluded with DB Advisors reviewing with the group their views on what they consider to be the “really big concerns” in the global economy. Their top three included the prolonged problems in Europe, the prolonged economic sluggishness in the US (including a worst-case Fiscal Cliff outcome) and the economic slowdown in China.
  • In-sourcing client entertainment. While many members are outsourcing more of their asset management, they saw their meeting sponsor break new ground by in-sourcing the after-group dinner musical entertainment, illustrating that at least some financial types have interesting lives outside of work.
  • MMF reform: a place for variable NAV. The final session covered the current state of money fund reform and  DB Advisors, which has been deeply involved with regulators in this matter since the beginning, outlined the current reform scenarios and how variable NAV fits into the mix. With the later topic, they drew on their experience with the launch of their vNAV fund (see video clip here or iDevice version here).
The meeting also had an open forum where The NeuGroup did a demonstration of the new peer group website and several of its key features. The group also used this time to discuss the group’s current size and how to manage future inquiries for membership.
 
Overall the meeting was very successful and we thank VMware for hosting and DB Advisors for sponsoring the 16th meeting of the TIMPG.
 
[This post has been updated]
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Blog entry
By jneu, October 16, 2012

McKinsey’s Financial Institutions Group has released its second annual review on the banking industry, encouraging banks to undergo a “triple transformation.”  The NeuGroup sees at least five ways that we can assist them as they engage in this process.

McKinsey explains “triple transformation” as follows:

Banks should aim high, fundamentally transforming their economics, business models, and culture—what we call a “triple transformation.”

First, with regard to changing the economics of banking, McKinsey notes that banks need to find new revenues:  “Growth is becoming more granular and banks must identify and mine individual areas of expertise.” On the cost side, McKinsdy finds an irrefutable case for industrialization:

To achieve sector-wide productivity improvement, banks need to embrace the changes already seen in other industries, such as automotive, starting with simplified businesses—reflecting customers’ needs—streamlined operating models with strategic sourcing and digitized processes. An entirely new culture of full process transparency and control needs to be established. The time is right for a giant leap forward, with economic pressure and technological potential creating the conditions for change. [emphasis ours]

Of course, as banks look to create more sustainable business models in the wake of financial crisis and new regulation in response, they will need to explain these new models to customers.  McKinsey suggests that:

“Business models will become more differentiated, with an increasingly important role for specialist players.”

As part of the third element, one of the more pertinent cultural transformations McKinsey recommends is dedication to true customer focus:

Banks need to redouble their commitment to creating value for their customer, ensuring transparency and meeting best-practice standards for products and services.

With this in mind, NeuGroups offer a transforming bank a strategic sourcing alternative to:

  1. share how it will differentiate itself
  2. articulate how it plans to add value for customers
  3. get input on customer needs
  4. find new revenue ideas
  5. exchange ideas on its approach to existing products and services, including how to implement best practices and cost-reducing industrialization of transaction processing without alienating its best customers. 
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Blog entry
By admin, October 03, 2012

We are looking forward to the Treasury Investment Managers’ Peer Group (TIMPG) Fall Meeting on October 24-25, 2012, where members will check in with one another on how they’re dealing with the ongoing volatility and risk concerns around geographies, investments and institutions.

The NeuGroup is pleased to welcome back DB Advisors as the meeting sponsor. Operating then under the Deutsche Asset Management name, they sponsored the group’s very first meeting in September 2004. This fall’s meeting is hosted by first-time host VMware.

Highlights on the agenda include:

  • Repos and covered bonds in-depth. A deep dive into the specific structures, benefits and risks associated with repurchase agreements and covered bonds.
  • Tagging along with asset manager on EM trip. In a commentary on the risks of sovereign debt and perhaps a bit of mistrust with asset managers, members will hear a report from a member, whose assistant treasurer recently accompanied an asset manager to Turkey to learn first-hand how they perform credit analysis on emerging market sovereign debt.
  • Asset allocation update. The standing topic of asset allocation, where members review their changes in thinking and strategy since the last meeting.
  • “The Really Big Concerns.” DB Advisors will share their views on such macro events as the US elections, the fiscal cliff, and tensions in Asia and the Middle East.

As usual, the meeting should prove to be a robust exchange of knowledge between some of the most sophisticated corporate cash investors in the country.

The Treasury Investment Managers’ Peer Group is the NeuGroup for investment managers at cash-rich MNCs. It includes senior treasury professionals from 30 companies with oversight responsibilities for treasury investment management at corporates with at least $2.5bn in excess cash. The TIMPG is an invitation-only membership group that meets twice per year to exchange knowledge in person and anytime on the NeuGroup Exchange.
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Blog entry
By brichardson, September 28, 2012

We are excited about the 2013 meeting of The Corporate ERM Group when it will be hosted by Walmart at their facilities in Bentonville, AR. The meeting is scheduled for May 1-2 and is sure to include another robust agenda and a few ancillary activities such as a tour of the original Walton 5 and 10 and the Walmart visitors center and museum the evening before the meeting. Also scheduled is a tour at the end of day one of the new and highly acclaimed Crystal Bridges Art Museum which was initiated and primarily supported by Alice Walton.

Past meeting highlights

The group had its 2012 annual meeting on May 9-10 which was hosted by Archer Daniels Midland in their Chicago office. The meeting was well attended with 14 companies present. Included in the group was The NeuGroup's spotlight guest, Caterpillar, which gave an overview of their "Business Risk Management" (BRM) program. Caterpillar subsequently joined the group as a member. The meeting agenda featured the following topics:

  •  Effective dynamics between ERM, corporate strategy and the businsess units.
  •  A Glass Half Full, which was a member-led discussion on the positive side of ERM versus being viewed as the wet blanket.
  •  The ERM Makeover, which addressed how ERM programs have been modified since their inception.
  •  Defining Risk Tolerance and Appetite.

The group was also treated to an address on risk by ADM's CFO, Ray Young, as well as a fascinating floor tour of the Chicago Board of Trade at the opening bell.

Overall, it was an excellent meeting with several members saying it was the best one yet. The NeuGroup for Corporate ERM is for ERM professionals at large MNC's which have an established ERM program. To learn more about participation contact Bryan Richardson at brichardson@neugroup.com.
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Blog entry
By jneu, September 24, 2012

Last week marked the first time that The NeuGroup led three group meetings simultaneously. And one of these meetings, the pilot for our Assistant Treasurers Group of Thirty, represented the successful launch of the 15th group in the NeuGroup Network. That's two significant milestones to end the summer.

A quick recap of the three meetings

Our FX Managers’ Peer Group 2 met in Silicon Valley with Chatham Financial sponsoring and shed additional light on the end-user exemption from Dodd-Frank derivatives clearing requirements and the related ISDA Protocol. The Global Cash and Banking Group met outside Dallas with J.P. Morgan sponsoring and elevated members’ realization of the impact new bank regulations will have on their banking services and product pricing. This was also a theme at the Assistant Treasurers’ Group of Thirty meeting sponsored by Citi in Armonk, NY.  AT30 practitioners for the most part have not felt the impacts yet, and several reported some counterintuitive recent pricing reductions based in part on competing bank liquidity needs in the near term. Over the medium to longer-term, however, the expectation should remain that the adverse consequences of Basel III, Dodd-Frank and related financial reform efforts across the G-20 will eventually make it harder for banks to deliver the same level of service at pricing levels MNC treasuries have grown accustomed to.  

Another issue the AT30 shared with the Global Cash and Bank Group was cash forecasting, which is getting a new round of interest from firms facing pressures on free cash flow as well as companies looking to deploy new analytics applications to the perennial problem of improving accuracy without overburdening human staff across the enterprise.  Freeing up human resources was also a key reason why enhancing treasury technology was a discussion point across all three groups.

Of course, this just scratches the surface of what was discussed at these three NeuZGroup meetings last week. We thus want to thank the participants from all three groups for their open discussion and engagement along with the representatives from the meeting sponsors. Your efforts made these simultaneous meeting and network expansion milestones possible.

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Blog entry
By jneu, September 19, 2012

We are happy to have the support of Deutsche Bank as meeting sponsor for our Asia Treasurers' Peer Group meeting in Singapore on October 10-11. We have been pleased to work with Deutsche Bank in conjunction with our Tech20, GCBG and T30-2 groups this year and are excited to extend this relationship to Asia -- a region of strategic importance to all involved.

Highlights from the ATPG meeting agenda:

  • Talent Acquisition and Retention. Singapore has two percent unemployment and standards of living are improving in other regional markets such as China and India. This places a strain on treasury's HR management and has companies looking at salary and other forms of compensation.
  • Fostering a new strategic vsion for regional treasury management. The growing importance of the region should be translating into more strategic decisionmaking by MNC treasury professionals heading regional centers.
  • Supporting business growth. A prominent theme at prior meetings is revisited with a member case study on supply chain finance and discussion of specific tools members have deployed successfully to support the expansion of business iniatives in the region.
  • The evolving economic landscape in the region. Members will hear an update on the latest economic outlook, but also discuss what economic data they receive, how they use it and how they coordinate actions with headquarters.
  • Cash pooling in China. Members will discuss both pilot programs for cross-border RMB pooling and how they will fit into increasingly streamlined gobal cash pooling infrastructure.
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Blog entry
By jneu, September 18, 2012

We want to say a big thank you to the FX Managers’ Peer Group members for their active participation at the FXMPG meeting last week in San Francisco. We also want to acknowledge Standard Chartered for their sponsorship and valued contributions during the meeting sessions. This successful meeting marks the start of the second-half of the NeuGroup season, which continues this week with meetings of our second FX Managers’ Peer Group (sponsored by Chatham Financial), The Global Cash and Banking Group (sponsored by JP Morgan) and launch of our Assistant Treasurers’ Group of Thirty (sponsored by Citi).

Anne Friberg, who leads the FXMPG, reports that last week’s meeting covered further ground toward understanding the recently-released final language on the Dodd-Frank end-user exemption (EUE) for clearing derivatives, as well as implementation of the related ISDA Protocol. The group also discussed the impact on their hedging programs stemming from the increased cost with these new regulations. An update on the euro crisis and possible scenarios going forward were presented by Standard Chartered and complemented with a member presentation on the latest contingency planning and actions taken. Standard Chartered also provided an in-depth look at currency issues in emerging markets, focusing heavily on China and its CNY, CNH and NDF markets. The treasury systems discussion, finally, yielded some important updates, shedding new light on two vendors in particular.

It will be interesting to see how the FXMPG2 members react to similar topics later this week.

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Blog entry
Shanghai
By jneu, September 18, 2012

The NeuGroup is conducting an exploratory meeting for MNC treasury professionals in Shanghai on October 16, 2012. This half-day meeting will provide an opportunity for practitioners in China to exchange practical knowledge on local and cross-border treasury and banking activities and explore how the NeuGroup Network can support them in this challenging and rapidly developing environment. China treasurers from member companies including Ford, Intel, Merck and Nokia will be participating with PwC hosting.

If you have colleagues who may wish to participate, please contact Bryan Richardson (brichardson at neugroup dot com).

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