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

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).

The NeuGroup’s newest peer group, The Assistant Treasurers’ Group of Thirty, will have its pilot meeting in September. This group is for assistant treasurers of large cap companies and is referred to as the AT30. It is our 15^th group. Pilot participants were recently polled on a list of agenda topics to determine which were of greatest interest. The following is a summary of the results.

Given that this is the pilot meeting, members will have the opportunity to present their company’s respective treasury department structure and their personal responsibilities as Assistant Treasurers. This will provide background for a highly requested discussion of treasury technology, where members will  learn about each other’s technological infrastructure, including systems, continuity plans, plans for new implementations, challenges and suggested technologies to try.

Members also expressed some interest in the ongoing Eurozone crisis, even though the topic has been discussed and written about ad nauseum for many months. Although relegated to a lunch address, the desire to have the topic on the agenda at all indicates members aren’t ready to take their eye off this ball. Our sponsor Citi will highlight their recommendations based on what their clients in Europe and the US are doing to protect themselves.

The most anticipated session is a review of the new regulations that will affect treasury either directly or indirectly through their banking relationships, including Basel III, Dodd-Frank, MMF rules from the SEC, and CFTC regulatory changes on ISDAs and CSAs. We will have Citi’s insight on how clients are preparing for new regulations, as well as overviews from two of our members on preparations being made.

Relatedly, bank counterparty risk is a widely shared concern and is a common topic on many peer group agendas. We will have a member-led discussion on monitoring financial and operational risks of financial institutions, triggers for terminating relationships and approaches to measuring and allocating the treasury wallet. We will also discuss the technological solutions available to support these activities.  

Cash flow forecasting is another popular area of interest, and several members will present their forecasting models and related technology as part of a discussion on managing input contributors, variance analysis, automation and reconciling to forecasts generated by other groups.

This will lead to a session on global liquidity planning that will address numerous issues such as deploying optimal in-house bank structures for liquidity risk management;  pooling, netting and payment factories; managing trapped cash and cash in highly regulated markets such as China; the global organizational design using treasury centers; and the necessary technology to bring everything  together.

This is posted in the NeuGroup Exchange as an FYI for all NeuGroup members:

The two NeuGroups for MNC foreign exchange managers will both meet in California in September; the first hosted by Bechtel in San Francisco on Sep. 12-13, sponsored by Standard Chartered, and the second hosted by Google in Mountain View on Sep. 19-20, sponsored by Chatham Financial.

The two groups share several topics of interest on their agendas; among them:

Regulatory update: what to do now that a “swap” is defined, including seeking board approval for claiming the end-user exemption from clearing. And, what will you really need to do with your ISDAs and CSAs, and how soon?

Optimized hedging strategies for cash-flow and balance-sheet risks, especially in light of new regulations (Dodd-Frank and Basel III) and process and cost changes resulting from these. Market uncertainty and pricing failures (e.g., Libor benchmarks) also contribute to increased monitoring of hedge programs and their efficacy.

Emerging markets, with a particular focus on China and LatAm: managing volatility at a reasonable price and dealing with cumbersome restrictions in these for MNCs increasingly important markets.

FX systems continue to be an active discussion and members seek to determine what really constitutes a “state of the art” systems architecture for treasury and FX risk management. Member case studies will anchor these sessions.

In addition, the first group will have a Eurozone-related session with a member case study on managing this risk by way of more vigilance and flexibility in where to put cash balances. The second group will talk about best-in-class trade execution and educating the business for the benefit of the business and its goals.

For information on how to join either of the two groups, please contact Anne Friberg at afriberg[at]neugroup.com.

This post is being shared via the NeuGroup Exchange with all members.

On a recent conference call with our Advisory Board, we asked them to identify the key issues they were confronting that would likely be of interest to our member network and readers. They covered a range of topics, most of which resonated with other advisors on the call. All are consistent with topics that came up over the course of NeuGroup meetings in the first half of the year and that are likely to emerge again in our meetings over the second half. Here are some highlights:

• Managing human capital. There are three principal elements to this: 1) time management—working through continual crisis and the day-to-day tasks of finance practitioner mean that people don’t have time to manage all their demands; 2) talent management—it is simply getting harder and harder to find and retain good talent; and 3) shifting to a growth focus—so much attention gets paid to reducing costs and other austerity measures in response to the global economic downturn that firms are forgetting that finance is also about helping businesses grow; plus, focusing on growth is more exciting and motivating.
• Anti-growth measures being imposed in developing markets. Growing the business is all the more challenging and needing additional resources thanks to policy changes in countries like Argentina, where parallel-to-official currency rates are surpassing those of Venezuela (and CDS spreads are higher too), and India, where the RBI is forcing in-bound investors to convert to rupees so that they stand little chance of getting their money out. Indeed, capital and FX controls are starting to creep into the picture in more and more places, from African nations like Angola to perhaps even developed countries in the eurozone.
• Inflation as a global concern. While central banks have pumped the financial system full of liquidity to avoid deflation in the face of crisis, several advisors fear that inflation is the only foreseeable way for heavily-indebted governments to get out from under their obligations. Other advisors were less inclined to think central banks will give up their core inflation-fighting mandate, however, the unprecedented levels of money in the system may make it difficult, if not impossible for central bankers to reign in the inflationary forces set forth by their unprecedented, expansionary monetary policy.  As one of our advisors noted, data found on the St. Louis Fed’s website shows that M1 has doubled since 2000 and the increase in M1 from then to now has been as much as the entire supply history of the US dollar, from 1792.
• Mounting compliance costs for banks. Along with Dodd-Frank, Basel III and related capital and liquidity rules, banks are also be forced to comply with the Foreign Account Tax Compliance Act (FATCA), which is the US Treasury’s effort to ensure US taxpayers aren’t using off-shore accounts to avoid paying tax. Under FATCA, banks will have to report directly to the IRS on accounts held by US taxpayers. The systems costs required to comply by January 2014 run in the hundreds of millions of dollars. The costs of these marginal compliance issues, following KYC and other Anti-Money Laundering rules, followed by additional capital and liquidity requirements will all be passed on to customers eventually.
• Private equity and VC funds holding back. While better than the worst of the post-crisis doldrums, private capital is still showing a reluctance to commit in many areas of the market, which makes it difficult for private firms to get deals done and for sellers to see fair value on their transactions. The Facebook IPO also has discouraged many, if not most of the IPOs in the pipeline to pull out.
• Risk management as a treasury constant. With risk management an ever-growing portion of treasury’s brief, starting with managing the counterparty risk at the banks (a fresh issue again with the Moody’s downgrades) and ending with the risk to business profits due to capital and currency controls, treasurers should step back and see what role their departments should ideally play in the more integrated and constant risk management approach that MNCs today require.
• CCP exemption for corporate end-users of OTC derivatives no certainty.  The political calculation currently holding sway with Democrats is that they should run on having implemented Dodd-Frank without compromises. This will make it extremely difficult for corporates lobbying for exemption legislation to win the bi-partisan support needed to pass the bills that have been proposed. Meanwhile, a study sponsored by the CME shows that in the FX space, which presumably will be exempt from clearing, there has been a tilt in recent years toward CME FX futures as opposed to OTC FX forwards. This suggests that even if given an exemption, market participants may choose to transact via a centralized clearing counterparty because of counterparty risk concerns dealing with OTC dealers directly.
• What impact will the US election have? While there is a sense that some of the issues concerning treasurers, like inflation, are likely to happen regardless of who wins the election in November. However, a second Obama term is more likely to adversely affect international tax reform, which is all-important from the perspective of most US MNC treasurers who see cash building up offshore. Next up, rather than a repatriation tax holiday, might be further curbs to the ability to utilize foreign tax credits and the extension of the sub-part F income regime to transfers using payments on intellectual property from high-tax to low-tax jurisdictions.  The IRS has typically lost in tax court when it has sought to challenge the transfer pricing on intercompany IP, so with a sympathetic Administration the White House it will move to just change the rules.