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

Blog entry
By thoward, May 01, 2018
The May issue of iTreasurer explores the effort that will be needed to decode the recent tax law changes, as well as how financial companies are racing to embrace technology to help in areas like payments and just about all lines of business. In between we take a look at SWIFT’s partnership with SAP and summarize two panel discussions led by NeuGroup’s Anne Friberg that took place at a recent EuroFinance conference in San Francisco.
 
Starting on page 1, iTreasurer delves into some of the tax provisions that went into effect at the end of last year. While it’s a boon for corporates in the long run, realizing that boon will involve a high degree of brain-racking. That’s because the law isn’t fully formed, and many, many questions remain. As members of NeuGroup’s Treasurers’ Group of Thirty have been told, “only limited guidance [has] been released as of mid-March, mainly concerning MNCs’ repatriation tax” and “regulations to clarify other key provisions probably will not start arriving until summer or fall, at the earliest.” So there is a ways to go before details get ironed out.
 
In “Anticipated Exposures” on pages 4-5, iTreasurer looks at how borrower-friendly covenant-lite loans will help some companies in a downturn; how separately managed accounts are still gaining fans despite new short-term products and a smallish return on money market funds; and why companies need capital-allocation frameworks.
 
On page 6, we look at global financial messaging service SWIFT’s recent announcement that it has reached an agreement with SAP to allow corporate clients of the business-software giant’s S/4HANA ERP offering to directly access the global messaging service’s vast network of banks, without intermediaries or the operational challenges of an in-house solution.
 
May’s peer group meeting summary gives insight into NeuGroup’s FX Managers’ Peer Group “summit” which brought together both the FXMPG and FXMPG2 peer groups. This year’s summit topics included an in-depth look at dashboards, the headaches of trading restricted currencies, the implications of new hedge accounting rules and the effects of US tax reform.
 
On page 11, iTreasurer looks at the continuing détente that is occurring between banks and their up-and-coming friends, fintechs. This is becoming increasingly evident in the payments space as well as in areas such as data, artificial intelligence, open banking, client networks, security, crime prevention and identity protection.
 
“Fintech is really exciting for us,” said Joanne Towers, head of payments product for Europe, global liquidity and cash management at HSBC. “At HSBC, we partner with fintech to allow us to strengthen our solutions with more integrated propositions.”
 
Finally, on page 15, contributor Anne Friberg gives an update on EuroFinance’s recent “Managing International Growth” conference in San Francisco, the target audience for which was fast-growing companies on the West Coast. Ms. Friberg moderated two panels on topics that are important to those fast-growing firms: FX risk management and M&A.
 
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, MMFs
By thoward, April 30, 2018
Gearing up for distribution to shareholders and paying down debt, MNCs keep cash in MMFs.
 
Although US dollar institutional assets in money-market funds have leveled off and decreased somewhat after rising over the past 12 or so months, the erosion of assets under management has slowed. This suggests larger companies are parking cash for use in the future, according to JP Morgan Chase.
 
“Relative to the average over 2013-2017 period cumulative net outflows from USD MMF are running about $50bn less, suggesting more money is staying in MMF, either because yields are higher or because corporates are using the MMF as a half-way house between the fixed income market and future payments to shareholders,” JPM said in a recent note to clients. This could all change by the end of the year, with outflows from prime MMFs picking up as companies get a better handle on the tax implications of bringing home the cash. Read more here.
 
Also this week, Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo is looking to make his agency more deliberative. Gone are the days when the CFTC operated in calamity mode, popping out regulations like donut holes. In releasing his so called “Reg Reform 2.0 Agenda” at the International Swaps and Derivatives Association (ISDA) annual meeting, Chairman Giancarlo said now was the time for a more thoughtful process to devising and implementing new swap rules.
 
“I'm committed to a deliberative process and getting back to regular order at the agency,” Mr. Giancarlo said in an interview at the meeting with former CFTC Commissioner and current ISDA Chairman Scott O’Malia. “We're not in the wake of a crisis right now – we need to take the time to get this right.” Read more here.
 
Finally this week, iTreasurer looks at how the relationship between companies and activists has entered détente. Whereas in the old days activists would make outlandish (and often self-serving) demands of companies and their boards, it’s now become more about collaboration. 
 
This was one takeaway from a recent meeting of NeuGroup’s Assistant Treasurers’ Group of Thirty (AT30). One banker at the meeting who leads his firm’s activist defense team said companies and activists are working together more than ever. Activists have modulated their campaigns, offering advice that companies can more easily agree to. Also, many companies have activist playbooks at the ready or are now just managing their cash better. Companies are also getting help from banks, which now have activist-defense advisories to guide companies in dealing with outspoken shareholders. All of this has mellowed the exchange between company and activist. 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 Anonymous, April 30, 2018
The Assistant Treasurers’ Group of Thirty (AT30) April meeting in New York hosted and sponsored by Deutsche Bank featured valuable exchanges on the consequences of US tax reform, including planned uses of repatriated cash as well as capital structure, current trends in blockchain technology and plenty of details on member projects and priorities. Here’s some of what you missed.
 
This time is different. A Deutsche Bank strategist noted that 2018 is different from any post-recession year so far, with a more hawkish Federal Reserve under Powell and the return of volatility. She said that continuing, synchronized global growth (with tax reform providing a big US boost) might be one of the most underappreciated themes driving markets and earnings, while monetary tightening and the Fed’s liquidity unwind are the most prominent factors. And be prepared: even though Deutsche is still revising global growth forecasts higher, it says fundamentals are past peak, meaning there will be more volatility. 
 
Blockchain and digital technology: hype and hope. A Deutsche Bank expert provided a timely tutuorial on blockchain (more than half of members said in the pre-meeting survey they don’t understand blockchain well). She provided useful insights, saying we are currently in a “hype cycle,” that blockchain is “not a panacea” and cited a study showing that 92% of blockchain projects started in the last three years have flopped. But blockchain is a force treasury must follow because of use cases including improved bond issuance, KYC compliance, supply chain management and trading functions. She expects a central bank to test a blockchain pilot program in the “next couple years.” Read more about the future of fintech here. 
 
Activist campaign activity levels expected to remain elevated in 2018. Deutsche Bank explained to members that activists are going after more companies outside the US, and their campaigns are becoming quieter and more collaborative. They’re also more focused on operations than balance sheet-focused. The presenter noted that capital return activist campaigns have achieved a high level of success. Activists have not yet been knocking on doors to demand return of repatriated cash.  One member noted that, "We're likely to get more questions every quarter on this." Members agreed that the best defense is strong performance and good messaging. 
 
Odds and ends: bank fees and hurdle rates. On fees, the consensus seemed to be that the more M&A your company does, the more leverage treasury has to press banks to lower fees on say, revolvers. One went so far as to say, “I find banks, they’re weak,” and wondered why institutions that always tout relationships with clients “don’t’ act like it’s a relationship” adding “they really need you more than you think.” 
 
On hurdle rates, one members aid using CAPM to calculate WAAC is “broken” but is still used because there are no great alternatives, and that some companies use Ibbotson because it generated higher WAAC levels, not because it’s right. Another said there is no hiding the fact in her company that treasury is using a hurdle rate different than indicated by WAAC. The goal of raising the cost of capital is to discourage deals that aren’t likely to meet the overly-optimistic cash flow assumptions of business units. But one member said rather than using an “artificial premium” to calculate WAAC, his company presses business units to justify or lower their cash-flow projections.    
 
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, April 27, 2018
The Internal Auditors’ Peer Group is gearing up for its first meeting of 2018. Members will delve into a wide range of topics, some somewhat new, like agile audits, and some recurring, like the ongoing of challenge of talent management. 
 
Here is a brief synopsis of some of what will be discussed and questions that will be addressed. 
 
Metrics for Measuring Management and Staff Performance. Auditors sometimes struggle to discern between performance results for directors and managers. How do others measure performance at the director and manager level? How have others created accountability on department-wide objectives?
 
The Talent Conundrum. Employers continue to struggle with attracting and retaining critical-skill and top-performing employees.  According to a range of studies, about of half of companies report challenges attracting critical-skill workers, and even more have problems hiring top-performing employees. Talent management always presents a challenge to internal audit departments, too. What are some successful retention programs? What are some best employee evaluation practices? Read more about talent management here. 
 
Agile Audits. Agile auditing is becoming a popular way for IAs to add value. Using predictive data analytics to focus scope, then using iterative testing and sprints in the field, auditors can respond quickly to any recent changes at the company.
 
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, April 27, 2018
Treasurers of large-cap companies meeting in mid-April at Starbucks headquarters discussed topics ranging from the top priority of planning for the effects of tax reform to cyber insurance, interest rate risk management and the effects of new technologies on corporate treasury. Perhaps most interesting was the number of treasurers who mentioned treasury training, not only for their staffs but even at the more senior level, including themselves. While there are training courses out there and the CTP and CertICM, there seemed to be a feeling that there are not enough options and that they’re not accessible enough. NeuGroup will help members connect and exchange knowledge on this topic.
 
Here are some of the takeaways from the meeting:
 
Tax Timing. Sponsor US bank covered the timing of paying tax on deemed repatriation, the potential effects on liquidity structures globally, as well as the aspects of other foreign tax regulations such as BEAT, GILTI and FDII. 
 
• The tax on repatriated cash is spread over 8 years and rises over the last 3 years. Years one through five the tax is 8%, year six 15%, year seven 20% and year eight 25%! 
 
• The ultimate effect of tax reform will be a significant deleveraging as debt matures or is even bought down. 
 
• Overall, tax reform is significantly beneficial to US corporations, and will most likely result in benefits longer lasting than people are factoring in today.
 
Cyber Reality. The cyber insurance practice head for Marsh laid out the big picture on cyber risks and then delved into the cyber insurance market. Before that, the treasurer of a large shipping/transportation company described how its European subsidiary was attacked by malicious Russian cyberware. Unfortunately, the business had no cyber insurance.
 
• Most, if not all, companies will be constantly under cyberattacks and cybersecurity can only do so much. Therefore: 
 
• Cyber insurance should be part of your arsenal to address this ever-growing risk.
 
• Why? In 1975 83% of the S&P market value was tangible assets and in 1985 it flipped completely with 84% being in intangible assets.
 
• Also think about the secondary and tertiary effects of a cyberattack. While computer systems might get resume running in 24 to 72 hours, the lingering effects on the underlying integrity of data could be months or longer.
 
• In today’s cyber insurance market, it is possible to get up to $1 billion of coverage with the average policies being written in the $300-$500 million range.

Read more about cyber insurance here. 

 
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 aorwick, April 26, 2018
Why are today's top treasuries incorporating algorithm trading in their FX programs? NeuGroup counts five reasons you should use FX algorithms right now.
 
Join this live webinar as Ted Howard, NeuGroup Associate Director, sits down with Susan Gammage of Thomson Reuters to discuss the recent explosion in FX algorithms.
 
5 Reasons to Use FX Algorithms Right Now
May 16, 11 a.m. PST/2 p.m. EST
 
During this live event, you will:
 
• Understand how current liquidity models can impact the effectiveness of various algos
• Learn new ways to use algo trading to improve the effectiveness and overall costs of your current FX trading program
• Discover ways to use algos as part of your FX trading strategies to improve trading accuracy and execution speed
 
Register now to participate in this live panel discussion with industry experts and explore ways to use algorithms to ensure the best execution of your FX program.  
 
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 Anonymous, April 26, 2018
At the May meeting of the Global Cash and Banking group, first-time meeting sponsor C2FO will link its liberating working capital mission with the global cash management imperatives imposed by US tax reform to help members learn to do more with less excess cash. More offshore cash from US corporates will be available to return to shareholders, be used for M&A, capex or to fund pensions; so more efficiencies will need to come from treasury to maintain an MNC’s working capital and liquidity and to help suppliers do the same. 
 
Smart discounting to fund suppliers, supported by technology, including technology employing machine learning and artificial intelligence, can be part of the tool kit members will need to maintain working capital for their supply chains with more limited liquidity following repatriation of offshore cash. To improve the liquidity available in general, for their own working capital, members will also share tips and tricks to improve cash flow with better collections management. Read more about working capital optimization here.
 
The window to further optimize liquidity and working capital management is short, as NeuGroup member companies indicate they will tend to repatriate cash later this year and next. Nearly half of GCBG pre-meeting survey respondents say they will deploy all repatriated cash within a year and 20% will in the next two years. For global cash managers, the time is now to get a better handle on cash to ensure it is there to repatriate and then sustain supplier-, customer- and distributor finance programs once it has been sent home. 
 
As tax reform gets reconciled with the current US tax code and the tax rules of other jurisdictions, global cash managers will then need to work on a potential restructuring of current global cash and liquidity management plumbing. And for this task, the improvements made to working capital efficiency, from invoice discounting to improved collections, provide a little extra room to maneuver. So no need to wait for the tax department to weigh in on the restructuring plan to get started on an effort to become more efficient with cash.  
 
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 wchan, April 25, 2018
The big theme of the AsiaCFO meeting at McKinsey’s Digital Capability Center (DCC) in Beijing, China, was digital transformation in manufacturing and the impact of innovation in that space. While digitalization may take some of the human element out of manufacturing, members were equally captivated by their exchange on employee engagement and talent management. Here’s a look at some the knowledge members exchanged.
 
Employee Engagement. Two members shared ways they are engaging with employees to improve performance and retention, prompting member feedback and reciprocal sharing of examples. Engaging with employees is even more critical in the context of digital transformation, because the best talent will naturally be inclined to favor companies perceived as leading digital transformation. To counter this, firms not yet seen as digital leaders must communicate their digital transformation strategy and employees’ place in it—while being sure to make clear the company cares about its people.
 
Keys to Digital Transformation
 
1) Move faster. Global MNCs tend to think in terms of 5-year plans, but to succeed in a digital world they need to be able to make things happen in six months. The pace of change in China is conducive to moving fast, which is why members are encouraging their companies to pilot digital transformation efforts in China. They are preparing their teams for this, too. “We cannot move like an elephant” is the response of some members to the pace of the head office.
 
2) See through the eyes of the customer. A key element of digital transformation is to experience the digital world and your business’ place in it through the eyes of the customer. This is what differentiates digital leaders from laggards.  
 
3) Bust silos. Most members already see finance as an integrated part of the business management team and this sort of silo busting is critical to digital transformation.
 
4) Embrace risk. The other key to digital transformation is a proper attitude toward risk. Sometimes you must embrace it. If there is concern about putting the whole department or all employees in China on WeChat, dispense with it, and just do it.   
 
Digital Manufacturing: A Long Way from Frederick Taylor’s Stopwatch. The most telling value created by digitalization of the factory is the data capture. Sensors can be attached to everything and the workflow and process steps can be monitored continuously in real time. Tapping into this data will improve processes, from how workers move through the factory to how efficient they are at retrieving parts from a bin. Continuous improvement and the scientific management will never be left to guesswork again. 
 
Why You Should Appoint a Simplification Czar. To expand a company without adding resources, firms need to simplify their processes. “We were doing a lot of things that created complexity with no good reason,” one member noted. “For example, we’re doing LIFO accounting for the supposed tax benefit, but how much of a benefit is that really generating? Firms have to stop doing things a certain way just because they always did them that way,” the member noted. There are also silly things, like using a rigorous procurement policy to order office snacks. To fix the problem and simplify things, he made his head of business services the regional simplification czar.
 
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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Blog entry
By thoward, April 24, 2018
While not ready for prime time, companies should be learning more about blockchain.
 
Blockchain for the most part is still in the testing stage but it can be said that ultimately it will bring foundational change to businesses. Only last year, most treasury executives of nonfinancial corporates would likely have scoffed at such a notion. They probably also would have pled ignorance about how the technology even worked. But that’s changing rapidly, as indicated by a session at a recent NeuGroup Treasurers’ Group of Thirty (T30) meeting.
 
At the Cognizant-hosted meeting, T30 members were presented with the professional-services company’s view on the technology and its future.
 
The upshot: “What the Internet did to information, blockchain will do to value transfer,” said Lata Varghese, head of blockchain and distributed-ledger-technology (DLT) consulting at Cognizant. Those value transfers could include assets, currencies or data, over networks in a peer-to-peer manner that reduces the need to pay a “trusted party” intermediary. Read more here.
 
Also this week, integrated SaaS treasury and risk management provider GTreasury announced it will acquire Australian risk-software company Visual Risk. The acquisition will bring needed coverage for risk to the company. GTreasury said it is making good on its promise to expand and beef up its product offering after in an infusion of cash from growth equity firm Mainsail Partners in October of 2017.
 
Visualization has become a buzzword in corporate finance, as more companies look for better offerings for things like clearer post-trade visualization capability for trade benchmarking and bank analysis. At a NeuGroup Assistant Treasurers’ Group of Thirty (AT30) meeting this week, several members said it was encouraging that the company was investing in risk analysis, as it was much needed in the company product line. Several members use the GTreasury platform for cash management and intercompany loans. Read more here.
 
Finally, how should a global company design its FX risk management program to protect its business from the impact of foreign exchange fluctuations?
 
With FX in flux, there is continued debate over the ideal organizational structure for achieving the best results in managing risk. The vast majority of NeuGroup members favor a highly centralized model that increasingly takes advantage of better reporting and forecasting processes, enabled by technology to support hedge decisions. 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, April 18, 2018
How should a global company design its FX risk management program to protect its business from the impact of foreign exchange fluctuations?
 
With FX in flux, there is continued debate over the ideal organizational structure for achieving the best results in managing risk. The vast majority of NeuGroup members favor a highly centralized model that increasingly takes advantage of better reporting and forecasting processes, enabled by technology to support hedge decisions. 
 
But does that mean the same number take a portfolio approach to hedging, one which nets out global exposures to hedge as little as possible, or one that considers earnings at risk and hedged exposures are chosen based on maximum risk reduction? Not at all. In fact, there’s a good deal of variance. Some NeuGroup members hedge exposures individually, while others use sophisticated value-at-risk models and manage risk to within well-understood tolerance levels. 
 
Where along this spectrum is eBay, and why? Look for Shan Anwar – NeuGroup member and Director of FX for eBay – to share his risk management philosophy with Senior Director Anne Friberg at next month’s San Francisco Treasury Symposium. Mr. Anwar will touch on how the business drives exposures, policy and objectives, hedge decisions and instrument choices, and how this all ties into results, metrics and compensation. 
 
The 29th San Francisco Treasury Symposium, taking place May 18, will feature top-level corporate treasury insights from the world’s leading companies based in the Bay Area. Don’t miss Anne Friberg as she leads Session 5B, covering FX strategies to address real world risk management challenges.
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