Members of The NeuGroup Assistant Treasurer’s Group of Thirty have been hearing from banks for several years that pain from financial regulation is going to trickle down to treasury and it appears to already be at the doorstep. Members are nearly unanimous in wanting to hear from Bank of America Merrill Lynch (BAML), sponsor of the next AT30 meeting its views on how Dodd-Frank, Basel III and money-market reform are going to impact the bank and ultimately them.
Generally, AT30 members are struggling with the lack of viable options for placing cash deposits, which is compounded by many of them generating increasing amounts of cash. The problem is further exacerbated in Europe where cash often grows or is pooled and interest rates are negative. The group is anxious to hear the banks views on how long these issues, particularly low / negative interest rates, will continue.
And there is added pressure of a domino effect in place. With cash earning nothing companies are faced with more pressure to return it to shareholders unless there is a compelling strategic reason not to. And we are certainly seeing a banner year for M&A deals which put that cash to presumably good use. Apart from acquisitions or strategic capital expenditures, companies need to make good use of their cash assets. Consequently, members will discuss how much cash should be kept on the balance sheet. Is there a model for determining the answer to that question?
Another domino is regulations not only impacting companies operationally but also how banks view and value these companies as customers. Many members are eager to learn how banks are measuring client value, such as how profitable are clients by product and services used? One member noted the conundrum is that some bank products are low value to the bank but very high value to the client. Corporates want to understand how they can expect to be viewed and treated in the future based on the relationship they have and how they might need to shuffle business to the banks they prefer most.
And speaking of shuffling business: BAML notes that they are seeing a lot of interest in the notion of bank inter-operability. SWIFT has been pushing the idea of having connectivity that is bank-agnostic and can be switched very quickly because of common protocols. The actual ease of this ability has proven to be a bit more mythical in reality. However, new innovations are supposedly making it more feasible. So, if you and your bank have a falling out, packing your bags should be more like a tote than a steamer trunk.
The dollar is expected to remain strong in 2016 which will continue to challenge earnings overseas. Companies are evaluating their FX hedging policies and strategies to best determine how to best adjust their programs. Not surprisingly, the group is interested to discuss this topic and compare notes on how each are responding to this ongoing challenge.
The AT30 will next meet at the end of September, hosted by founding member Bechtel in San Francisco. For more information, please contact Bryan Richardson at [email protected]