Despite being well on the (slow) road to economic recovery, US multinational treasurers are still looking to trim the fat in their organizations. That’s one of the takeaways from The NeuGroup’s recent Treasurers’ Group of Thirty meeting held in late April. Members were also focuses audit scrutiny and optimizing hedge strategies.
Here is a quick summary of those takeaways and more from the meeting.
Rationalization still matters. Although economic statistics show that the worst of the crisis is behind us, members are still feeling the pinch to rationalize their global treasury structures and eliminate expenses where possible. This includes the number of bank accounts that are needed to manage global cash, the number of unique bank relationships required to maintain their global structure, and the number of headcount needed to perform treasury related duties. Everything is on the table and open to review. If it’s not essential, it’s likely to be eliminated.
APB23 – It has only just begun. Many members voiced concern over the amount of audit scrutiny they’ve gotten over the past audit season as it relates to the APB23 certification that requires US multinationals to assert that its foreign investment is permanently reinvested so there is no current or deferred US tax liability. The auditors are requiring a deeper dive into this assertion and have requested documentation down to the legal entity level. Although the increased scrutiny seems more prevalent by certain audit firms, most believe it’s a matter of time before the others jump on the band wagon and require a significant amount of review and documentation. One member described this new paradigm as an outcome of the too many failed audits by the audit firms themselves. Members discussed tactical processes they are putting in place to collect data required to produce the new documentation as requested by their audit firms.
The trend toward “Less is More.” When considering market trends for FX Hedge Strategies, meeting sponsor Standard Chartered shared information that showed companies are focusing more on optimizing hedges of material exposures over systematic approaches that previously focused on hedging everything. Large sophisticated corporate clients are taking time to identify and understand their company’s efficient frontier and are using simpler products to manage these risks for G10 currencies. Layered programs are more popular than static approaches, and most members seek 133 hedge accounting on all hedges.
At the corner of Fixed and Floating. Over the past several years we have continued to poll members on when they felt the Fed was likely to begin raising rates and during that time the most prominent answer was always “sometime next year.” Well, five years later and the most prominent answer remains “sometime next year,” except that this time it feels real! It is no longer a debate of if but rather when and to what extent. Members have varied opinions on the amount of debt that should be held fixed with the typical range falling between 70-80 percent fixed and 20-30 percent floating. Based on pre-meeting survey results, nearly fifty-percent of members were looking to lock in fixed rates soon, with an additional twenty-five percent considering it.
RMB breaks into Top Ten. Given the rapid pace of renminbi regulatory changes, and the uptick in global MNC adoption of these new measures, there has been a significant increase in the use of RMB for payments, moving the RMB into the #8 spot as a SWIFT payment currency. Although it remains 1.3 percent of the total, the market views the upward movement as a positive sign of what’s to come as internationalization efforts continue. RMB can now be integrated as a part of a corporation’s overall liquidity management strategies with pooling of RMB and cross-border RMB lending becoming common place.