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

Blog entry
By amichels, July 03, 2018
As volatile commodities markets threaten profit margins, treasurers tap technology to capture exposures and hedge risk.  
 
Technology solutions offer commodity-intensive corporates a leg up by providing a holistic view of risk and exposures, allowing treasury to offset commodities risks with foreign currency positions and other exposures, more effectively cutting costs.
 
In this spotlight feature, learn how to use Openlink’s calculator to track exposures instead of relying on multiple spreadsheets and systems. 

 
 
Read this free report to:
 
• Discover how systems like those offered by Openlink can help paint a clearer picture of your company’s risk exposure portfolio. 
• Hear from the treasurer of Coca-Cola on how his company works with procurement teams to manage commodity risk.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.
 
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Blog entry
By thoward, July 02, 2018
The demise of the London Interbank Offered Rate, better known as Libor, has been discussed frequently in the wake of the rigging scandal during the financial crisis. This is to be expected, as regulators since the scandal have suggested banks, investors and others should think about adopting alternatives to Libor. One alternative, created by the Federal Reserve Bank of New York, is SOFR, or the Secured Overnight Financing Rate.
 
Not so fast, says the Intercontinental Exchange (ICE). The company, which acquired Libor in 2014, plans on keeping it active. Although some banks have committed to ending Libor in 2021, ICE will continue laboring over Libor. “ICE is actively trying to maintain Libor,” one fixed-income specialist told a NeuGroup meeting recently. “The ICE website says Libor will continue to be published past 2021.” Indeed, the ICE website notes the new methodology and integrity of the latest iteration of Libor, touting the use of the “Waterfall Method,” which requires that “each Libor panel bank must ensure that its submissions are determined using an effective methodology based on objective criteria and relevant market information.” Read more about this on page 1 of the July issue of iTreasurer.
 
 
On page 6, we show that while the US high-yield market is in the latter stages of its credit cycle and China is in the midst of an economic slowdown, they will likely have less of an impact on US corporates than might be anticipated.
 
This month’s featured NeuGroup peer group summary is from the Treasurers’ Group of Mega Caps or tMega. Members at the meeting talked capital allocation, pension contributions and activist investors, and waded into a tax “spaghetti bowl” that will take time to digest.
 
In “Rising Commodity Prices and Treasury’s Role In Managing Risk with Help from Technology” on page 11, we take a look at how volatile commodities markets threaten profit margins, and put a new focus on treasurers’ needs and abilities to tap technology to capture exposures and effectively hedge risk. The fact is, a growing number of companies this year are citing rising commodity prices and their potentially negative effects on profit margins and earnings, not to mention stock prices. “The catalysts for commodity and other sources of inflation that threaten P&Ls range from trade war fears (steel and aluminum) to tensions with Iran (oil, gasoline, diesel) to shrinking capacity (freight, shipping) and severe weather and/or rising demand (corn, fruit, grains and nuts),” writes contributor Antony Michels.
 
Finally on page 15, we delve into tax leakage caused by the loss of previously allowed tax ambiguities. The leakage, says Peter Connors of Orrick Herrington & Sutcliffe LLP in New York, “is additional tax cost that is in a way uneconomic or unexpected. It tends to be small—hence the term ‘leakage’ rather than a term indicating a larger magnitude—but these can add up.”
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.
 
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Blog entry
By thoward, July 02, 2018
High-tax countries don’t go after profits that have fled to tax-havens. Instead they chase profits in other high-tax countries.
 
If both a neighbor and a thief from another town steals something from you, who do go after? The neighbor or the other thief? Probably the neighbor, because it’s easier: he’s next door, you don’t have to travel, and you know him. Similarly, countries, when it comes to fleeing profits (and the tax proceeds they could generate), don’t go after those profits that have been shifted to low-tax countries. It’s too hard and complicated.
 
This is one of the observations of a study from the National Bureau of Economic Research. According to the study, the Missing Profits of Nations, almost 40% of MNC profits get moved to low-tax countries every year. In 2015, that equaled $600 billion. But countries did little to chase after it.
 
“We show theoretically and empirically that in the current international tax system, tax authorities of high-tax countries do not have incentives to combat profit shifting to tax havens,” the authors of the study write. “They instead focus their enforcement effort on relocating profits booked in other high-tax countries—in effect stealing revenue from each other. This policy failure can explain the persistence of profit shifting to low-tax countries despite the high costs involved for high-tax countries.” Read more here.
 
Also this week, lenders continue to push back against borrowers who end up moving their collateral to subsidiaries and mostly out of the reach of the borrower. A long list of companies has pursued the tactic over the last few years, including Claire’s, PetSmart, Toys "R" US, Hilton, and iHeartMedia. The pushback began in 2015 when J.Crew sent a proposal for a distressed debt exchange to its payment-in-kind lenders and later transferred intellectual property to a subsidiary that was not a part of its loan agreement. Read more about it here.
 
Back in May, NeuGroup peer group leader and iTreasurer contributor Anne Friberg moderated a panel discussion on rising interest rates at EuroFinance in Miami. One question that came up was whether now was a good time to refinance. Since rates are rising, the answer might seem like a solid “no.” However panelist Pradipto Bagchi from Allergan noted that although the yield on 10-year US Treasury notes had moved up about 100 bps in the last year or so they are still about 500 bps lower than in the late 1990s. “This is not the end of the world,” he pointed out. What’s more, predicting interest rates is not something that should be expected of a treasury, especially since it’s not a profit center (at most MNCs). What treasury should focus on is (a) enunciating a rate-risk strategy and (b) executing the strategy well by taking advantage of tactical opportunities when possible. Read more here.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.  
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Blog entry
By thoward, June 25, 2018
Recent consolidation and acquisitions leave treasuries unhappy with some TMS service providers.
 
As a group, treasury professionals are usually reliably disappointed with the treasury technology they deal with on a day-to-day basis (except for Excel, which is still a critical tool after all these years). Sure, there are some systems that treasurers are happy with, but there’s always some plug in, update or fix with which they’re not happy. And recently many are not happy with TMS consolidation and in some cases what it's doing to once serviceable offerings (ignoring, letting wither, etc). 
 
Take for example the acquisition of Reval, a provider of treasury and risk management systems and services, by Ion Group. According to several treasury executives at a recent NeuGroup peer group meeting, services offered by Reval have declined markedly since its acquisition. As a result, several members said they have either decided to change providers or are considering it. Similar sentiment was heard at another NeuGroup meeting, this time a group of assistant treasurers. Read more here.
 
Also this week, a report from Standard & Poor’s about the state of the US corporate bond market. US economic expansion has supported corporate growth and profitability in recent years, says S&P, and the 2.9% increase in GDP that the rating agency forecasts for 2018 suggests corporate debt issuance will continue at strong levels. The trend is similar in Europe, where the European Central Bank (ECB) isn’t expected to hike rates before late 2019. Read more here.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.  
 
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Blog entry
iTreasurer, KYC, taxes
By thoward, June 18, 2018
KYC provisions have been dogging companies for years. But new technology is entering to make it all a smoother process.
 
If only the processes involved in know your customer (KYC) were as easy and sweet as the “Getting to Know You” song from the “King and I.” 
 
It’s decidedly not. Instead, KYC requirements are more onerous than ever as regulations governing anti-money laundering, sanctions violations and tax evasion have forced banks to ask for customer information incessantly. What’s worse is that different banks and jurisdictions have differing standards. 
 
Technology solutions—starting with forms that populate with publicly-available information—are something everyone would appreciate—the sooner the better. Judging by a recent Asia Treasurers’ Peer Group meeting in Singapore, it could be sooner. At the meeting members heard from four providers with varying approaches to the problem, including Bloomberg, IBM, IHS Markit and Thomson Reuters. Read more here.
 
Meantime, Moody’s released a report this week saying companies see the new US tax law passed at the end of last year as a positive that will improve cash flow and give them the ability to pay down debt. They also think, to perhaps no one’s surprise, they’ll be better off under the new tax regime. Most respondents also indicated that they will not change financial policies significantly, which likely means their ratings will not be affected, Moody’s said in a sector comment to clients. Read more here.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.  
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Blog entry
By aorwick, June 14, 2018
Institutions like Deutsche Bank are interacting with fintech providers to bring new solutions to banking clients — including treasurers — to harness data, process payments and better meet the needs of customers in the new digital age.
 
Ted Howard, iTreasurer Managing Editor and NeuGroup Associate Director, sat down with a panel of experts from Deutsche Bank and Hyperwallet to discuss fintech trends and solutions for treasury. 
 
Click here to watch a replay of the live webinar. 
 
During this event, you will: 
 
• Learn how leading institutions like Deutsche Bank are taking a community-based approach to solving client problems with fintechs to better meet the needs of customers in the digital age.
• Better understand the role of fintech in treasury transformation projects.
• Discover the ways in which banks and fintechs are serving their stakeholders by working together as collaborators.
 
Watch the recording to learn more about Deutsche Bank's community-based approach to serving clients. 
 
For more than two decades, NeuGroup has lead the way in peer knowledge exchange for treasury and finance professionals. With an unrivaled network of 18 invitation-only peer groups, NeuGroup facilitates more than 30 face-to-face meetings that connect peers, exchange knowledge and distill discussions. These face-to-face interactions, coupled with formal benchmarking, inform actions, transform practices, and enhance careers for the 440 members of the NeuGroup Network. Find out how you can connect at www.Neugroup.com.
 
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Blog entry
By afriberg, June 13, 2018
Members of the EuroTPG convened for their H1 meeting in sunny Stockholm recently and the themes that captured the most attention were the advantages that treasury can leverage from information technology; trends and innovation in cash management, including the pros and cons of virtual accounts; and how to deal with sanctioned countries, a significant issue for a subset of the members. Here’s some of what you missed.
 
Key Takeaways:
 
• Wait, what? Virtual accounts will not solve all my problems? Following a lively debate over virtual accounts in a session led by guest speakers from Danske Bank Sweden, members concluded that the supposed panacea of virtual accounts was, well, not quite there. The selling point of virtual accounts is that many physical accounts can be eliminated, saving fees, and virtual subaccounts with their own account numbers will allow easier reconciliations as well as POBO and ROBO. But much can be achieved through setting up an in-house bank and IHB account structure in the ERP (not at the bank) to deliver the same benefits. One member said his business case for virtual accounts just “went from yes to no,” so members are advised to do the cost-benefit analysis carefully and assess alternatives for meeting the same objectives. Read more about the rise of virtual accounts here. 
 
• Creativity to deal with sanctions. Several members have no choice but to sell to countries that are under trade sanctions, making collecting from customers a challenge; a couple of members mentioned not being able to collect and take out significant amounts of money from Iran. Sometimes, opportunities open up to get cash out indirectly via another country, but these windows are not consistently reliable. Some cite creative ways to use the cash, like holding meetings and events in a trapped-cash country, or buying and exporting commodities. Given a choice, members steer away from customers in sanctioned countries, usually relying on trade compliance or in-house legal teams to identify potential transgressions rather than making this a treasury responsibility. However, some argue treasury should be involved to limit the credit risk posed by sanctioned countries.
 
• How to leverage first-generation dashboards? Static reporting via spreadsheets or ERP outputs is increasingly being replaced or complemented by real-time dashboards which create opportunities for more dynamic discussions around liquidity needs, FX exposures and counterparty risk levels, for example. But what’s the next frontier? What additional data—internal or third-party—is required (economic forecasts, FP&A, etc.) to automate more of the forecasting aspects of treasury’s work by way of second-generation dashboards that provide predictive analytics? We heard what’s on the drawing board for one member who is grappling with the predictive capabilities of dashboards. And we look forward to learning about other members’ progress on this at coming meetings (with demos!).
 
For more than two decades, NeuGroup has lead the way in peer knowledge exchange for treasury and finance professionals. With an unrivaled network of 18 invitation-only peer groups, NeuGroup facilitates more than 30 face-to-face meetings that connect peers, exchange knowledge and distill discussions. These face-to-face interactions, coupled with formal benchmarking, inform actions, transform practices, and enhance careers for the 440 members of the NeuGroup Network. Find out how you can connect at www.Neugroup.com.
 
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Blog entry
By thoward, June 12, 2018
The Internal Auditors’ Peer Group began its 2018 calendar with a lengthy opening session to kick off its meeting at Uber in Palo Alto, California.
 
Members and guests discussed a wide range of topics, including a look at technology to address various challenges, including SOX controls and audit hours. Participants exchanged ideas on educating management in what they actually do (and how business units shouldn’t be afraid of IA); they also talked about the challenges of diversity in internal audit and finding qualified candidates. 
 
Talking technology. Members discussed the various systems they have used and, in many cases, the failings of each. Protiviti got high marks for control rationalization but got less than stellar ratings for documentation. Others mentioned Workiva as good for reporting. One system that most agree does a good job with SOX is SoxHub from a company called AuditBoard. Read more about SOX and Protiviti here.  
 
• Takeaway: Find what works for you. Finding the right system for your department always comes down to what your department needs vs. what the industry says or peers say you need (or what they use). Unfortunately, trial and error (and the expense thereof) is still the norm. Nonetheless, based on member input, SoxHub sounds like an effective tool.
 
Educating management. Despite the growing importance of IA’s role, what the function does is in many companies still is misunderstood. There are other audit-like functions or ones that get confused with audit. IA may also be perceived as being brought in because of a problem. “People still aren’t used to audit,” said one member. “Some ask, ‘why audit? What did I do wrong?” 
 
But now the function is gaining wider acceptance as audit’s skills – for example in data analytics – become more widely known. Through data analysis, IA can offer insights as to what’s going on in the company in tangible ways. Some members report being called upon to do non-audit reviews. They’re also being tasked with helping build enterprise risk management functions (although the goal here is not to be seen as the owner of ERM). All of this is leading to some audit departments being able to add headcount. 
 
• Takeaway: Proselytize. It doesn’t hurt to market yourself to let management know what you do and what you are capable of doing—in non-audit ways, as in data analytics and mining. Several members of the group have done work for business units with the understanding that it is not an audit and won’t be an audit unless something egregious is discovered. Communication is best, and letting internal “clients” know how you can help the business, and in some cases strategy, can do wonders for budgets and headcount.
 
Diversity. Like the rest of the world, internal audit departments are trying to figure out the best path to creating a diverse environment. As members discussed, it’s a very complicated issue, involving not only race and gender but just as importantly, age. All the challenges can run up against one another as managers try to solve one or the other. 
 
A challenge many IAs face is recruitment. One member suggested the idea of word-of-mouth recruitment vs. just sending out a job description to a website (which, while generating lots of resumes, rarely produces the right candidate). IA “has to be proactive about recruiting,” said the member. “Ask colleagues who they know vs. just going on fishing expeditions.”
 
• Takeaway: Seek and you shall find. There is a lot of competition out there for creating a diverse department. Instead of just posting job descriptions, IAs must be more proactive in recruitment. They also have to be sensitive to each part of the diversity strategy and how tweaking one part may create problems with another.  
 
For more than two decades, NeuGroup has lead the way in peer knowledge exchange for treasury and finance professionals. With an unrivaled network of 18 invitation-only peer groups, NeuGroup facilitates more than 30 face-to-face meetings that connect peers, exchange knowledge and distill discussions. These face-to-face interactions, coupled with formal benchmarking, inform actions, transform practices, and enhance careers for the 440 members of the NeuGroup Network. Find out how you can connect at www.Neugroup.com.
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Blog entry
By thoward, June 11, 2018
Fitch Ratings says there are noticeable differences that negate recession red flags.
 
“If we're in the sixth inning, we have our sluggers coming to bat.” That was Warren Buffet this week telling CNBC that there was “no question” that the economy is strong. It’s a good thing because there are indicators out there that suggest the economy is at a tipping point. According to some, the expansion that started in 2009 is way past its sell-by date. That is, since expansions usually last around five years or so, this latest one is on borrowed time. 
 
And according to Fitch Ratings, the credit cycle is elderly and default rates are low, which in the past meant that a recession was around the corner. On top of this China is slowing. However, Fitch says, there are “notable differences” this time around and in any case, companies could handle whatever comes.
 
One reason is that the US Federal Reserve loan officer survey continues to show easing standards for large and middle-market firms, whereas credit was starting to tighten in the later stages of the previous two credit cycles. In addition, the US high-yield distressed yield ratio stands today at just over 4% and has remained below 10% since the fourth-quarter 2016. Read more here.
 
Also this week, May was a banner month for stock repurchases, driven in large part by one company: Apple. According to Birinyi Associates, there were 107 new repurchase authorizations made in May for a total of $176.8 billion. The firm said “a significant portion” of May’s total value was Apple’s announcement of $100 billion in planned repurchases. “This announcement was the single largest share repurchase authorization ever,” Birinyi said in its June 4 bulletin. Read more here.
 
For over 20 years, iTreasurer has delivered intelligence for treasurers. Based on exclusive access to senior treasury executives who are members of The NeuGroup Network of treasury peer groups, iTreasurer takes their real-world experience to produce articles, case studies and reports that are specifically meaningful to treasury best practice. www.iTreasurer.com.  
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Blog entry
By aorwick, June 07, 2018
Here’s some of what you missed at the ATLG 2018 H1 Meeting in Summit, N.J. 
 
Move Over, Libor. On April 3, the Federal Reserve Bank of New York began publishing the new Secured Overnight Financing Rate (SOFR), and in early May the CME launched SOFR futures. Now SOFR’s fate depends largely on the market’s willingness to accept the Libor substitute. 
 
• Takeaway: Futures indicate SOFR’s future. Liquidity in the CME’s one-month and three-month SOFR futures has been light, but watch for growth. Trading in them will enable the development of curves to price other derivatives.
 
• Takeaway: Corporate impact is now. Half of ATLG survey respondents said their companies have Libor-based debt and derivatives extending past 2021. That’s the target date for SOFR adoption, and pricing Libor-based products may become difficult. 
 
The New Tax Puzzle. Pushed by the need for tax revenue, congressional Republicans’ new tax law retains elements of worldwide taxation, although it does eliminate the “stranded cash” bugaboo. Section 956, which treats loans by foreign affiliates back to the US parent as taxable distributions unless strict conditions are met, was almost repealed but mysteriously reappeared in the bill at the eleventh hour, thus narrowing the exemption for returning overseas earnings tax-free. And the law’s new GILTI and BEAT provisions guaranty the US will collect taxes on at least some non-US earnings. The trick for corporate tax and treasury departments will be juggling those components. 
 
KPMG recommends treasury top three issues treasury should discuss with tax colleagues:
 
• To what extent is the company legally restrained or facing withholding taxes or other financial penalties in terms of bringing cash back, which costs can be controlled, and are there offsetting foreign tax credits?
 
• In which currencies is previously taxed income (PTI) denominated, and how much will it cost at any given time to bring it back in dollars?
 
• Is this the correct time to repatriate cash given specific FX rates, and is it better to monitor the currency markets opportunistically?
 
Bring It On, Bloomberg. Bloomberg terminals may be pervasive, but many ATLG members haven’t been using them to their full potential. Executives from meeting sponsor Bloomberg provided a high-level overview of the latest tools. New currency valuation tools can reveal counterintuitive intelligence—China’s renminbi is now overvalued from a historical perspective. Treasury executives can query their companies’ bank group in the traditional way to generate a median FX forecast, then gauge its likelihood by doing scenario analysis using Bloomberg’s FX Probability Calculator. 
 
• Takeaway: The euro’s many faces. It is important for corporate treasury to recognize that behind the front-page number there are multiple prices and levels of competitiveness that impact where to build a factory and other strategic decisions. 

Following are NeuGroup Founder Joseph Neu's key takeaways from the meeting:
 
For more than two decades, NeuGroup has lead the way in peer knowledge exchange for treasury and finance professionals. With an unrivaled network of 18 invitation-only peer groups, NeuGroup facilitates more than 30 face-to-face meetings that connect peers, exchange knowledge and distill discussions. These face-to-face interactions, coupled with formal benchmarking, inform actions, transform practices, and enhance careers for the 440 members of the NeuGroup Network. Find out how you can connect at www.Neugroup.com.
 

 

 
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