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

Blog entry
By jneu, October 19, 2016
As founder and CEO of NeuGroup, I spent several days recently in Hong Kong gaining insight on developments from this international gateway to China. Exchanging knowledge with JP Morgan, Citi, the HKMA, Bosera Asset Management, Thomson Reuters, HSBC and other local contacts, I came away from my visit with several takeaways.

• Cash out of China. The brakes put on outflows of cash and capital at the beginning of the year still have MNCs thinking cash-out vs yield pick-up with cash parked in China. Perceived deval risk could easily wipe out expected yield. The end to explicit guarantees on locally-offered wealth management products has put more remaining cash in time deposits and limited AAA funds.
 
• Prepare for allocations when it's time. Implicit guarantees remain, however, and the trick to sorting out credit risk in China is seeking to understand the nature and strength of them. For example, some SOEs are likely funding SPVs for local Chinese governments, so they are more like quasi-muni risks. Medium-to-longer term any fixed income investor of size will need to get comfortable with China credit risk to catch the inflection point when portfolio allocations to China and RMB holdings will need to ramp up to reflect the size of this market. Getting the pipes, policy and risk perspective in place to pull the trigger on this in a timely way is a job to be doing now, if you’ve not done it already.
 
• Banking challenges with Basel III. Asia jurisdictions will be implementing their interpretations of Basel banking regulations over the next several years. In China, this comes at a time when rates liberalization has compressed NIM and fee business to offset this is still a new phenomenon. Accordingly, foreign banks hope their familiarity with international bank regulations will be a competitive advantage versus local banks, but they nevertheless struggle to operate profitably without the same local government support. Efficiency and consolidation are thus the watchwords for banks and their MNC customers in the region. Shadow banks may fill the breach, as will FinTech innovations. Treasurers should note also that on the banking side, investment in new pipes to support China’s financial liberalization will allow innovations to flow faster once China allows the pendulum to swing back toward reform.
 
• Hong Kong incentives level the playing field. Tax and other incentives are not the only reason to pick the location of your Asia regional treasury center, but Hong Kong has at least taken them off the table as a reason to go with Singapore or a mainland China SPV. 
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information.

 
 
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Blog entry
By brichardson, October 19, 2016
A host of new members gathered for the first meeting of the new Treasurers’ Group of Thirty (T30) to consider the potential impacts of Brexit, Section 385 and other treasury trends. 
 
This was the first of two T30 meetings taking place this fall, as The NeuGroup tests a split-meeting schedule to give members more flexibility to attend. Also new was the inclusion of peer-group alum Ed Scott, the recently retired treasurer from Caterpillar. 
 
Members opened the meeting by sharing their projects and priorities and went on to look at the impact Brexit will have on their treasuries. The general consensus is that it’s too soon to take any significant actions in response, but there is worry that the EU will play hardball with the UK. 
 
Another hot topic is the new regulation known as Section 385, which one session speaker described as the biggest regulatory tax event of the decade. The final rules were released just two days following the meeting, and some who have been closely following the event believe the regulators backed off on at least a few of the more worrisome parts of the rules. Still, there will be a major impact on treasury, with much more rigorous documentation requirements for intercompany lending in place. Failure to comply with the documentation for cross-border loans will result in the loans being converted to equity, denying companies desired tax benefits.
 
Later in the meeting, first-time T30 sponsor Chatham Financial explored Fed policy implications, hedging strategies and accounting solutions for FX. And finally the meeting concluded with a review of highlights from the survey recently conducted by NeuGroup Peer Research on the topic of staffing and compensation. The survey was completed by only treasurer groups and revealed that 35 percent of respondents plan to add staff for 2017, while 9 percent plan to reduce.
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information.
 
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Blog entry
By afriberg, October 18, 2016
Should you hedge to protect your pension plan? What impact will Section 385 of the tax code have on your liquidity management? How can treasury add value across the enterprise? The Treasurers’ Group of Thirty Large-Cap Edition (T30 LC) got answers in a meeting sponsored by Société Générale last month.
 
Pension Funds in Low Interest Rate Environment
 
What are the impacts of low/negative interest rates on pension plans and how are liquid alternatives being used as risk management tools? Société Générale led a discussion on increasing transparency, how to have a holistic view of risk when combining traditional assets and liquid alternative investments using a risk factor approach, and how to isolate one risk factor to hedge a portfolio or to enhance the return of the portfolio. Members pondered whether interest rates are too low to hedge risk today. But by hedging, you reduce the volatility of the pension deficit, which in turns reduces the volatility of the corporate leverage ratio. In the current low-yield scenario, Société Générale posited that an options strategy would reduce risk while keeping the cost of hedging reasonable. 
 
The Liquidity Maze – Adapting to Regulations 
 
How are treasurers planning to tackle the impact of Section 385? And what impact is being anticipated on cash management/pooling? To introduce the whys and what-fors of Section 385, the T30 LC brought in Peter Connors, Partner, Orrick, Herrington & Sutcliffe LLP, to address the group.
 
Since its arrival on the scene in early April, Section 385 has gotten a lot of attention from MNC treasury departments. The key aspect of the rule aims at eliminating the avoidance of taxes using tax deductions on intercompany-debt interest by allowing the IRS to reclassify debt as equity under certain circumstances. The rule could potentially cost corporations billions in additional tax liabilities unless they can justify the rationale for the intercompany loans and their terms in a way that satisfies the authorities. While some companies have sent representatives to talk directly to regulators at the treasury department and IRS to share their perspective on the potential damage of a full-scale implementation of the proposed rule, most have at least started looking at what kind of administrative effort – and cost thereof – will ensure compliance.
 
Treasury’s Impact on Key Initiatives
 
Treasury hasn’t always had a seat at the table to influence and add value to key corporate initiatives, but the good news is times are changing, and Treasury’s sphere of influence is expanding. In a session on how to raise Treasury’s profile and value-add in the organization, members learned to create a framework to voice Treasury’s reality checks on substantial corporate decisions. Once other departments have their eyes opened to the unique skills that treasury can bring to help projects succeed, they usually call back when something comes up. 
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
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Blog entry
By thoward, October 12, 2016
This month in iTreasurer we discuss capital structure, improving your counterparty risk analytics, the state of payments and how one treasury management system provider is energizing its product line. In between are discussions on how companies should announce cyber breaches, low rates’ impact on pensions and how prime money market funds continue to lose cash to government funds and other vehicles.
 
We start off with a story about capital structure. As most know, persistently low interest rates over the past few years have helped put corporates in fine fettle, improving their cash positions via well-timed debt issuance. But now they want to keep the party going. “There are certainly worse situations than having a solid capital structure in place and wondering what to do with excess cash,” writes contributor John Hintze. “For many companies the goal now is to hold on to their current good fortune as long as possible. To that end, rate swaps on future issuances have come into vogue, enabling corporates to issue bonds in the future while locking in today’s exceptionally low rates.”
 
NeuGroup president Joseph Neu discusses how members of the NeuGroup’s Treasurers’ Group of Mega-Caps (tMega) are thinking about counterparty risk. “The unprecedented conditions in financial markets and the changing nature of how credit risk is being measured, especially at heavily regulated, globally significant financial institutions, are cause for treasurers to review and increase the sophistication of their counterparty risk monitoring, mitigation and reporting frameworks.”
 
In “Are You Ready for Real-Time?” , contributor Geri Westphal discusses the formerly quiet area of corporate payments. While new technology making the movement of money faster has been making inroads into retail banking, in the corporate space, the situation is far slower and, well, antiquated. But things are hotting up and new technologies, most notably blockchain or distributed ledger, will soon make global payments an instantaneous action. “These fundamental changes call for a review of current treasury services, processes and business models,” writes Ms. Westphal. “Now is the time to ensure that your business is ready for this significant structural change as consumers are far more digitally insistent and demand an easier seamless payment experience.”
 
Our peer group meeting summary this month is from The NeuGroup’s European Treasurers’ Peer Group. At the meeting, members discussed how they can leverage technology in a session on treasury management systems and systems infrastructure. Also discussed were the revisions to the Markets in Financial Instruments Directive (MiFID 2), which aims to make financial markets “more efficient, resilient and transparent, and to strengthen the protection of investors.” Members also examined liquidity management amid low—and in some case negative—interest rates, Basel III and coming global tax changes.
 
In “New Solutions and Partnerships for the Next-Generation Corporate Treasurer”, we discuss how treasury services provider 360T is broadening its reach into the US with new products, services and partnerships. One area in which the firm hopes to gain ground is in automated trading, with the introduction of its execution management system.
 
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 jneu, October 12, 2016
A run-through of the proposed Section 385 rules and related international tax/treasury planning trends were key highlights of the Treasurers’ Group of Mega Caps meeting last month. 
 
The Section 385 talk, led by Pam Olson, US Deputy Tax Leader and Washington National Tax Services Leader at PwC, set up sharing on intercompany transaction process and documentation standardization efforts that several member firms are undertaking. It also led to a subsequent discussion of what-ifs and contingency plans for what members might do if offshore cash became untrapped. Another key topic was cross-border, low-value payments to suppliers and from customers. 
 
Earthport was presented as an example of a FinTech company offering innovative cross-border payment services. Member companies are starting to use FinTech alternatives via their partnerships with relationship banks to create value-adding business support solutions.
 
Asked to share their key takeaways before leaving the meeting, most members cited the Section 385 discussion, noting that they had already requested that their team start digging for answers and looking into additional documentation concerns triggered by the presentations and subsequent dialogue. “Using Section 385 to clean up processes and documentation regardless of the final rule outcome is solid advice,” one member noted.  
 
A number of treasurers also cited the cross-border payments session as helpful. If they are overly reliant on one bank for their existing solution, the range of alternatives presented, including the non-bank payment offerings, can provide alternatives to both improve services and mitigate operational risk. Finally, the open forum discussions on TMS selection and ways treasury can add value in DC plans provided scope for further discussion within the group.
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
 
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Blog entry
By Anonymous, October 07, 2016
The Latin American Treasury Managers’ Peer Group looks for answers on what to expect from Section 385 and how to best prepare in advance of the rule’s publication. 
 
With members ranking Section 385 as a top concern, the LATMPG chose to make it the focus of its upcoming conference call. New corporate rules will reach far beyond the few companies that moved their legal addresses to low-tax countries, forcing many US firms to change their internal financing strategies and tax planning. With input from an expert speaker, the group will consider the possible implications of Section 385 for regional treasury operations and how to prepare. The rule, expected to be published before the end of the year, could have a significant impact on cash management/pooling and intercompany funding.
 
Members will also spend time reviewing the main challenges they have encountered in Argentina, Brazil and Venezuela since their last meeting. Overseeing treasury operations in Latin America is not for the faint of heart, as the group well knows. The LATMPG will discuss its medium- to long-term expectations for the region and solutions to effectively managing business. 
 
The conference call will be held October 13 at 12 p.m. EST.
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
 
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Blog entry
By Anonymous, October 04, 2016
The uncertainty surrounding Section 385 persists, but there are steps cash managers can begin taking to prepare.  
 
The Global Cash and Banking Group (GCBG) gathered last month to discuss top priorities, which include preparing for Section 385 and changes to the payment landscape.
 
Section 385 is a Big Deal 
 
The final rule is now expected to be published by year end. As currently written, it would change the taxation for many common cash-management practices by reclassifying debt as equity, even for those that don’t involve inversions, and impose extensive documentation requirements. The Treasury department is expected to ease up on some components that would otherwise dramatically impact corporate cash management structures and corporate inter-company lending arrangements. However, the documentation requirements are expected to remain in place.  
 
And You Better Be Prepared 
 
Some corporates are taking a wait-and-see approach, while others are actively preparing by reviewing all documentation related to intercompany transactions. Meeting sponsor HSBC recommended coordinating with tax and legal departments, engaging cross-functional teams to assess implications, evaluating system and reporting capabilities, and strengthening internal controls.
 
As an example of what needs to be done to prepare for Section 385 (or for that matter, the OECD’s BEPS rules), a member shared the details of an intercompany funding process recently implemented at her company. The method — which received high praise from attendees — involves rating the creditworthiness of corporate entities involved in inter-company lending and helps identify a market-base, arms-length interest rate, while providing the documentation needed.
 
Start Planning for Upcoming Payment Changes 
 
As shared by an expert panel led by HSBC, real-time payments are coming soon. In fact, the UK and 18 other countries offer real-time payments today. The Clearing House will be testing such a service with US banks next year and rolling it out more broadly in 2018. 
 
Banks will shoulder much of the burden in the shift to new technology and systems. However, corporates must be ready to process payments throughout the day instead of via overnight batches. This could pose a challenge when controlling intraday funding and processing surges of transactions by clients at the end of the day.  
 
The group will gather again in May 2017 for a meeting sponsored by Deutsche Bank. 
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
 
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Blog entry
By brichardson, October 03, 2016
The Assistant Treasurers’ Group or Thirty (AT30) met last month in New York where members discussed a diverse range of topics, from geo-political risk and forthcoming tax regulation to acquisition integration and treasury reporting.
 
Tom Joyce, Managing Director, CIB Capital Markets Strategist with Deutsche Bank, kicked things off with a wide-ranging presentation on global market themes, which he noted are pretty much the same as they were in January. The outcome of the Brexit vote was clearly a shock, but equally shocking was the calm aftermath in the markets. Brexit was the beginning of what Tom described as a forthcoming 18 months “loaded with global political risk.” Events such as the Plenum of China’s Communist Party and elections in the US, The Netherlands, France and Germany over the next 12 months have the potential to significantly alter the global landscape.
 
Peter Connors, partner and tax attorney with the law firm Orrick, Herrington & Sutcliffe, addressed the group on a topic that is getting the attention of all MNC treasury departments: Section 385. This regulation, being jointly developed by the IRS and Treasury Department, is intended to eliminate tax avoidance by companies using inter-company debt. The rule threatens to require, in certain cases, that the debt be converted to equity, thereby eliminating the tax benefit. Member companies are quite worried, as the rule has the potential to cost them billions in additional tax liabilities and administrative cost for compliance. Most have already held planning meetings with their tax and legal departments, and some have directly addressed the treasury department and IRS to explain the damage this rule could potentially do.
 
The group spent the rest of its time focused on more traditional treasury topics, including mergers and acquisitions. With 2015 being a record year for M&A, 2016 is surely loaded with integration activity. The group heard from a panel of three members on their approaches to integration, and wrapped up with discussions on treasury reporting and working capital. 
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
 
 
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Blog entry
By brichardson, September 29, 2016
The Asia CFOs’ Peer Group meets in Shanghai next month to explore how digital technology can bring value to business. 
 
Founding member The Walt Disney Company will host the ACFO meeting, but not at the usual head office location. Instead, the meeting will take place at the Disneyland Hotel, adjacent to the brand new Disneyland theme park. Fortunately, a short trip to the park has found its way on to the meeting agenda.
 
But all of that is just icing on the cake, as the group gathers to focus its energy on top treasury challenges. The meeting will open with the traditional sharing of member projects and priorities, when members dig into the matters occupying the majority of their time.
 
The bulk of the meeting, however, will be focused on how new technology is being utilized to bring value to the business. As the world becomes increasingly digitized, opportunities to leverage technology can emerge in ever broader applications, including expense management, revenue generation, operations, customer relations and interfaces. In Session 2, members will review how they have deployed digital technology to improve the way they do business. 
 
This session will serve as a starting point for a later discussion on ways to enhance productivity. Regardless of how well your operation is run, there is always room for improvement. Productive operations will inevitably be disrupted or become outdated over time by M&A, new regulations, changes in business priorities and new tools. Members will showcase examples of that productivity devolution and how their companies have responded with improvements.
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information. 
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Blog entry
By Anonymous, September 28, 2016
MNC FX Managers discuss ways to optimize their hedge programs, including instrument selection and tenors.
 
The FXMPG and FXMPG2 held their respective meetings earlier this month, sponsored by Standard Chartered. One of the main themes for both meetings was how to design a new hedge program or optimize an existing one. Members showcased studies on how they evaluate their programs for M&A activity, new management or routine review. Standard Chartered contributed to the conversation by highlighting the analytical and quantitative tools that can be used to evaluate the programs and the help banks can provide during the process. Key takeaways on the topic include:
 
• It’s all relative… to your program’s objectives. As evidenced by the members’ case studies, understanding the objectives of your program as well as the company’s risk tolerance is key in designing a new hedge program or optimizing an existing one. This point really hit home in Standard Chartered’s examples that highlighted how recommended hedge programs, including instrument selections and hedge tenors, changed based on the program’s objectives. 
 
• Take a fresh look at the tenor of your balance sheet hedges. Standard Chartered ‘s presentation revealed that, especially in emerging markets, balance sheet hedges could go out longer for less cost and acceptable increase in volatility. 
 
• There is still ambivalence regarding “at-risk methodologies.” While some members have adopted a portfolio approach to their hedge program using “at-risk” measurements, some are still cautious. The main concerns are potential drawbacks like black swans and correlation breakdown risk, which would mean losing the hedge protection when most needed. 
 
• Keep it simple. It’s easy to get lost in the FX jargon. Keeping message and metrics simple helps drive the points across. For example, simple questions/metrics can make it simple for higher ups to understand what hedging does and does not do and why some currencies are not or cannot be hedged. Also, leverage data analytic tools you might have available to prepare dashboards for your FX activity. After all, a picture is worth a thousand words… or numbers.
 
For more than two decades, The NeuGroup has been a trusted thought leader and respected advocate for global finance and treasury professionals. The NeuGroup leads the way in peer knowledge exchange through its flagship publication, iTreasurer, and The NeuGroup Network, which includes 18 invitation-only groups serving more than 400 treasury and finance professionals across functions, industries and global regions. Visit NeuGroup.com for more information.
 
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