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

Blog entry
By mkmoore, October 22, 2013

Bank of America Merrill Lynch has released its 18th annual corporate risk management survey, with insights from over 200 firms across the globe. The survey focuses on interest rate and foreign exchange, while also touching on derivative accounting and execution. John Shin, the BAML FX strategist who runs the survey, was recently a guest speaker at The NeuGroup Network’s Engineering and Construction Treasurers’ Peer Group meeting, where he presented insights into the US economy.

Here are some of the survey highlights:

A conservative, status quo approach to risk management

Almost two-thirds of the respondents agree that their primary interest rate risk management objective is to reduce economic risk; with optimization of cash flows and stabilization of earnings also popular objectives.

The survey showed that overall fixed debt levels have not changed much over the past year. LIBOR continues to be used overwhelming for a floating rate index (88%) and hedges from 1-6 months are the most popular duration, dwindling off rapidly past 12 months.

Corporates remain conservative, using hedges to reduce risk and not for internal positioning as evidenced by the 2/3 of respondents that do not terminate hedged positions early for mark-to-market purposes. One-third use pre-issuance hedges; a combo of treasury and swap locks or used individually being the most common and options less frequently used.

Minimizing balance sheet exposure is by far the most common objective of FX risk management.

77% of respondents had no change in instrument use, and there was a very slight pickup in FX hedging in general with slightly longer tenors for some respondents. The survey reports option hedging is used more often for contingent exposures due to M&A activity and bids, and currency swaps more often for net investment hedges.

Exposure uncertainty is driving corporate treasury to be shy on full coverage.

Of those respondents who do hedge balance sheets, the majority report less than 100% exposure hedging due to “exposure uncertainty." Further breaking down the results, for FX exposures survey respondents noted the uncertainty of forecasted exposures limit coverage. This is a common complaint among treasury groups. FX forecast variability (64%) and concern over forecast error, as evidenced in the survey, is the primary driver for final hedge coverage being below the 100% mark.
 
FX forwards remain the instrument of choice (74%)

No surprise here with FX options a scant second choice. Most frequent FX hedge tenor reported was less than three months (62%).

An overwhelming majority (90% range) reported no effect on hedging types and methods because of Dodd-Frank, while a smaller majority plans on filing for an end-user exemption on clearing/margining.
 

The NeuGroup Network’s Engineering & Construction Treasurers’ Peer Group (E&CTPG) bring together treasurers from the largest multinational companies in the engineering and construction industry to share experiences and best practices with their peers. E&CTPG is one of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.

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Blog entry
By mkmoore, October 16, 2013

Thank you to Bank of America Merrill Lynch for sponsoring and hosting the fall meeting of the Engineering & Construction Treasurers Peer Group in Chicago.

The member-driven agenda included topics such as security, US regulatory impact on capital markets and bank business models, public and private bond placements, acquisition integration, treasury strategy planning, the use and growth of card programs. Here are a few highlights from the very active discussions:

“Common Sense is the Best Protection against Fraud” says BAML’s Milton Santiago who gave an eye-opening presentation on security in ecommerce and banking. The weakest link in fraud protection is typically companies with inadequate controls and not the banks. Having robust controls to prevent fraud can also stop most phishing, smishing and other hacker attacks. While members remain timid on adopting mobile means for treasury transactions, Milton interestingly noted that annually, $8.1 trillion in B2B transactions are being settled with mobile applications today.

Rating Agencies & Road Shows – A member-led session described their forays into the public bond market, including the process and the many lessons learned. One particular point was emphasized - “do not assume that rating agencies are easy to deal with.” Both S&P and Moody’s were engaged to review and rate the inaugural bond issuance which raised acquisition capital. In comparison, another member used a Canadian rating agency (DBRS) familiar and friendly with the E&C industry to obtain a favorable private rating for a bond placement to support their acquisition. Both members did road shows to attract investors.

2018 is Fast Approaching – Forget the long lead time (2018) on the proposed US regs for bank capital requirements. According to BAML’s Bill MacDonald, banks are already calculating the impact today. And the affect on available capital and banks business models, if passed as is, is “very significant”. Bill gave a rather dismal view of the impact of proposed liquidity and leverage ratio requirements on GSIB (globally systematic important banks), and he noted that he has already seen nine large industrial deals in the last 90 days that banks have walked away from. Given this pressure, key relationships and share of the wallet will be of primary importance.

The NeuGroup Network’s Engineering & Construction Treasurers’ Peer Group (E&CTPG) bring together treasurers from the largest multinational companies in the engineering and construction industry to share experiences and best practices with their peers. E&CTPG is one of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.

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Blog entry
By afriberg, October 15, 2013

Members of the NeuGroup’s European Treasurers’ Peer Group (EUROTPG) set the agenda last week for its upcoming autumn meeting which will be held at sponsor Bank Mendes Gans’ offices in Amsterdam. BMG, jointly with member company United Parcel Service (UPS), will share the case study of the UPS cross-border pooling set-up and meeting participants will have a chance to drill into the details to thoroughly understand the ins and outs of this liquidity management tool and the way BMG delivers it.

REGS, REGS, REGS: An area of keen interest and timeliness is the status and progress of members’ compliance with SEPA; ditto for derivatives regs in Europe (EMIR) and the US (Dodd-Frank). On the latter topic, they are particularly concerned with reporting and reconciliation mandates, and the interplay of the European and US rules.

FIRST-CLASS TREASURY TO INTEGRATE WITH ANOTHER: Whether on the giving or receiving end of M&A activity, treasury plays an important role in the integration of two entities, particularly if they are both of significant global heft. A member from one such company will share various tips and lessons learned for smoother integrations of the treasury “machinery.”

The meeting will also have time allocated for members to share their current priority projects and an open forum for timely topics that did not get full sessions dedicated to them. The meeting will run for a full day on November 21 (with a group dinner the night before). BMG’s representatives will be present in the morning while the afternoon is reserved for members-only peer-to-peer exchange.

JOIN THE GROUP: For information about joining the EUROTPG, please contact afriberg@neugroup.com. Participants in this week’s EuroFinance in Barcelona are encouraged to get in touch to arrange a face-to-face meeting. I will also be tweeting from the Barcelona event: @AFribergNeuGrp

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Blog entry
By mkmoore, September 30, 2013

The NeuGroup would like to thank Standard Chartered for sponsoring the recent 2013 Global Cash and Banking Group meeting, hosted by Oracle in Reno. Their session provided members with the latest updates on the evolution of the Renminbi and the opportunities that exist as this market continues its rapid expansion. In addition, they provided members with insight into the latest liquidity management capabilities across Asia as emerging liquidity structures like USD cash concentration, Regional Multicurrency Notional Pooling and RMB linked structures continue to develop.

Highlights of their remarks include:

  • As companies grow in Asia, it’s sensible to keep some money there. Standard Chartered suggested that members consider pulling excess cash into the global pool in London, New York or the Netherlands, and park non-excess cash in lightly-regulated markets such as Hong Kong or Singapore. This way instead of over-funding local operations, you can just-in-time fund without having to bring money East against the sun.
  • Since regulatory approval is no longer required to move RMB off shore, it can be pooled and moved from a pool header through one RMB special account, which has the same general opening process as a regular RMB account.
  • There is an increased interest in using the In-House Bank model to drive greater efficiency and improved liquidity management for organizations globally. Services provided by In-House Banks vary from company to company, with the most common being payment factories, FX netting and Interco funding. This model drives further efficiency when the “pay-on-behalf-of” and “receive-on-behalf-of” structures are used.  

Thank you to the GCBG members who participated in the meeting preparation and discussions. Your shared insights and experiences continue to drive excellence in peer knowledge exchange.

The NeuGroup’s Global Cash and Banking Group (GCBG) is an invitation-only group that brings together senior treasury professionals with responsibility for global cash management or treasury/banking operations to share challenges, solutions and knowledge. GCBG is part of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.
 

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Blog entry
By mkmoore, September 26, 2013

We would like to thank returning sponsors Reval and FXall for jointly supporting the summer 2013 FX Managers’ Peer Group 2 meeting last week, hosted by member Thomson Reuters in New York City. Similar to the previous week’s meeting with FXMPG2’s sister group FXMPG, Reval anchored a session on hedge metrics and risk analytics.

In a different angle on the metrics topic, FXall took the group through the reporting capabilities by which FX managers can track performance on trades executed on the FXall platform. These Execution Quality Analysis (EQA) reports are designed to answer questions like “how does my trading compare to the highs and lows of the day or with a reference rate?” and “when is the best time to execute orders by currency and size?”

Per the Dodd-Frank Act, all platforms that intermediate swaps on a multiple to multiple-basis must register as a swap execution facility (SEF) by October 2, 2013. Representatives from FXall, which expects its approval as a SEF by this deadline, highlighted adjustments to the system that will allow users to comply with requirements of the law, for example whether they elect the end-user exemption or not, and whether the specific entity for which the trade is executed needs to designate it as a SEF trade or not. If a corporate elects to join a SEF, FXall or another one, the speaker noted several to-dos in preparation, including reviewing processes for confirming, clearing and settlement for regulated and non-regulated trading, and how SDR reporting obligations will be handled.

At this event, two members gave well-received “from soup to nuts” descriptions of their companies’ FX programs; other case studies dealt with hedge reporting and metrics (a theme mirrored by the sponsors) and the pros and cons of net investment hedging.

Thank you to all of the FXMPG2 members who participated in the discussions. Your shared insights and experiences continue to drive excellence in peer knowledge exchange.

The NeuGroup’s FX Managers’ Peer Groups (FXMPG and FXMPG2) bring together senior treasury professionals with responsibility for corporate foreign exchange management to share experiences and best practices with their peers. FXMPG1 & FXMPG2 are part of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.
 

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Blog entry
By mkmoore, September 25, 2013

We would like to thank Citi for sponsoring the Treasurers’ Group of Thirty meeting last week, hosted by member Levi Strauss.

Their presentation on Liquidity Management brought new context to the ongoing discussion related to the growing level of trapped cash, while their presentation on Optimal Treasury Structures showcased that although treasury models vary, they share the similar objectives of identifying and mitigating Liquidity, FX, Interest, and Commodity risks in the context of corporate objectives.

Presentation highlights include:

  • Corporate treasury retains priority focus on global visibility and control with 71% of treasury organizations having a direct involvement in working capital management

  •  Proactive structures including Regional Treasury Centers, Netting and In-House Banking are growing in popularity


  • Corporates are increasingly using ERP TMS modules, based on Citi Treasury Diagnostics statistics

Thank you to all of the T30 members who participated in the discussions. Your shared insights and experiences continue to drive excellence in peer knowledge exchange.

The NeuGroup’s Treasurers’ Group of Thirty (T30) brings together 30+ strategically-minded treasurers at large MNCs across a wide variety of industries to share experiences and best practices with their peers. The T30 is part of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.
 

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Blog entry
By brichardson, September 24, 2013

The AT30 meeting had its third meeting on September 18 – 19 which was hosted by Google and sponsored by Citi. There was an excellent agenda covering a wide variety of topics but the one that resonated most across the membership was on the matter of bank relationships, specifically using scorecards and share of wallet analysis’ to effectively manage those relationships. The discussion was broken into three parts beginning with samples of member scorecards and input from Citi on their views of being on the receiving end of these tools. The second part of the discussion focused on bank consolidation strategies and how these management tools play a role in those sometimes difficult decisions. The final segment was closed to the sponsor anticipating that members might have some additional thoughts to share were the sponsor bank not in the room.

Key Highlights:

  • Share of wallet trumps the report card. Members are far more likely to track the allocation of business with their banks than maintaining a report card on their performance. The report card tends to be more qualitative and anecdotal in nature, relying on input from many sources, while the share of wallet analysis is more data oriented and useful in revealing which banks have what business and determining how to reallocate that business when necessary.
  • Sharing the data with the banks. Members are divided on whether or not to share their information with their banks. Those who do expect that this action will help develop, deepen and improve those key relationships. Sharing the data communicates that the bank is important enough for the client to go to this trouble, but also communicates that the client is watching and is serious about having strong healthy relationships. Those banks who value the strategic relationship take it seriously and value the feedback. “We love to receive this feedback” stated Mike Fossaceca with Citi.
  • Ask the bank what they want. Banks have a variety of product offerings, which vary by profitability, level of competence and relevance to the client. Members and bankers agree that there should be a discussion about the business banks want most from a client. Elyse Weiner, managing director at Citi, noted, for example, that clients often assume that lockbox services is a desirable piece of business, when in fact, for a lot of banks, it is not.
  • New questions about the role of credit. It is no surprise to here a treasury practitioner say, “we award business only to banks in our credit group” or that “it is a challenge keep all of our banks happy with business.” It is for that reason that one member challenged Citi, whose practices are industry standard, on why banks always use credit as a loss leader and then clamor for the real revenue generating business. Why not simply price the credit accordingly and therefore not be so dependent on the other sources of business. This could end up in higher costs for corporates but less headaches with managing relationships.

The other big, and multi-part, discussion came on day 2 and focused on managing liquidity in highly regulated markets, specifically Argentina, Brazil and China. Citi began the session by giving a laundry list of approaches for getting money out of such countries including the use of a “netting center”, “procurement center”, a re-invoicing center” and creating “special vehicles” such as an offshore fund. The remaining discussions were led by a member who shared their experiences in all three countries.

Other topics covered included a roundtable discussion on adding value to the business units and a presentation from Oracle on their investment portfolio evolution from very conservative to a somewhat more liberal approach to investing, a shift that is driven by a fire hose of cash buildup. 

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Blog entry
By mkmoore, September 18, 2013

The NeuGroup would like to thank Reval  for sponsoring the summer 2013 FX Managers’ Peer Group meeting last week, hosted by member UPS. Their anchor session mirrored a couple of member presentations on hedge reporting and metrics and dealt with risk analytics. The key theme was that not all exposures should be treated equally and in the same fashion, but rather as a portfolio of exposures. Diversification of risks and how they are correlated, or not, bring benefits such as allowing the hedger to prioritize exposures based on which hedges remove the most risk. This brought a new context to ongoing discussions on analyzing risk, reporting them accurately and optimizing hedge decisions rather than just hedging all exposures according to same formula.

Highlights of their remarks include:

  • Risk is reduced when considered together as a portfolio because of natural offsets; some exposures are riskier than others and hedging them first has disproportional benefits.
  • In contrast, “safe,” systematic layering of hedges across all exposures eliminates the opportunity for these portfolio benefits to occur.
  • Metrics like Cash Flow at Risk (CFaR) can quantify these benefits. The concept of CFaR is, however, a complex one that requires educating senior management and external stakeholders to promote awareness and comfort with the portfolio approach. Members who employ similar approaches noted that they require ongoing internal commitment and education.

Thank you to all of the FXMPG members who participated in the discussions. Your shared insights and experiences continue to drive excellence in peer knowledge exchange.

The NeuGroup’s FX Managers’ Peer Groups (FXMPG and FXMPG2) bring together senior treasury professionals with responsibility for corporate foreign exchange management to share experiences and best practices with their peers. FXMPG1 and FXMPG2 are part of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.
 

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Blog entry
By mkmoore, August 30, 2013

PIMCO and TIMPG members will shed light on this and more at their meeting in October.

The Treasury Investment Managers’ Peer Group (TIMPG) will be having their 2013 fall meeting on October 22-23. The meeting will be sponsored by PIMCO, a first-time sponsor, so members are eager to hear from the bond experts at this rocky time for fixed income investors. TIMPG members have also put on the meeting agenda a number of other topics that must be seen in the context of anticipated tapering of Fed asset purchases and rising rates. These include:

  1. Asset allocation and portfolio changes. How are other members positioning their cash portfolios and what does PIMCO recommend as the ideal fixed income allocation in this market environment? Since many member utilize external managers, what flexibility are they being given to invest in what’s right for these times?
     
  2. Risk factor allocation. Adding to the asset-allocation discussion, the group will also explore risk factor asset allocation and decide for themselves if this methodology should replace Modern Portfolio Theory.
     
  3. Monitoring investment compliance. As if market conditions are not trouble enough, TIMPG members are facing tighter regulations and increasing scrutiny from investment boards and senior management. How should they be monitoring investment compliance, from system use to reporting?

These topics and more are on the minds of TIMPG members and should be on the radar screen for any corporate treasury with excess cash to invest. Other NeuGroup members may want to discuss them in the context of their groups and non-members may want to consider becoming a part of NeuGroup.

The Treasury Investment Managers' Peer Group (TIMPG) was launched in September 2004. This NeuGroup has since become the leading forum for peer knowledge exchange on cash investment practices at corporates with the largest cash portfolios.It is a star in the constellation of over 15 groups in the NeuGroup Network.

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Blog entry
By mkmoore, August 29, 2013

Standard Chartered, which specializes in the Asian market, is joining the Asia Treasurers' Peer Group (ATPG) as the sponsor of the Fall 2013 meeting on October 21, 2013. The meeting is being hosted by member company Caterpillar in their Singapore offices.

Standard Chartered is the sponsor of multiple NeuGroup Network meetings, including the Fall 2012 meeting of the Treasurers' Group of Thirty 2.

"I am very pleased to have Standard Chartered Bank participating in this meeting. As a leading bank in the region, Standard Chartered Bank has been requested by the members to be a meeting sponsor. I am very pleased that they will be engaging with the group and bringing their expertise specifically on the matters liquidity management in China and their vision of the future of banking in Asia," says Bryan Richardson, Senior Director of Peer Knowledge Exchange and NeuGroup leader of ATPG.

Standard Chartered is a leading international banking group. It has operated for over 150 years and earns 90 percent of its income and profits in Asia, Africa and the Middle East.

The NeuGroup Network's Asia Treasurers' Peer Group (ATPG) brings together like-minded senior treasury practitioners in Asia to share experiences and best practices with their peers. All members are senior treasury practitioners with responsibility for Asian treasury and risk management operations at global corporations. ATPG is one of 15+ NeuGroups (www.neugroup.com) representing more than 300 members at 180+ companies.

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