Treasurers face big questions on economy, market and treasury impact.
The NeuGroup’s Treasurers’ Group of Thirty looks forward to its BNP Paribas-sponsored fall 2010 meeting next month. The agenda underscores the major questions of uncertainty confronting treasurers currently.
What’s happening to the recovery?
Directly or indirectly, most of these questions are tied to the current outlook on global economic recovery and what impact this will have on treasury activities into 2011. For example, where are we now with inflation/deflation scenarios and the turning point for interest rates? Not only does this guide residual funding decisions, capitalizing on the remaining opportunities in capital markets and appetite for corporate debt before a worse outlook become clear, but how picky to be with swap rates when rebalancing the fixed-to-floating mix.
Translating this exposure to their banking partners, who are about to be hit with new regulatory capital and liquidity requirements, treasurers are also keen to explore in detail how credit banks are assessing their customer commitments and gaining further insight into how much banks value (read profit from) each piece of business given to reward these commitments. This is part of the larger question: How will the current economic uncertainty and changes to bank business models forced by regulation and the new reality of financial markets impact the perennially important treasury job of managing bank relations?
And what do the relative circumstances of various economies tell us about the prospects for key rates of foreign exchange and commodity prices? Faced with new rules on derivatives, from reform of OTC markets to hedge accounting, can I afford to hedge? Can I afford not to? And perhaps, most importantly, how do I present my firm’s evaluation of the trade-offs intelligently in disclosures made in financial reporting?
Sustaining the ability to weather a very weak or failed recovery is a big reason corporates have built up and held onto their cash. Keeping all or most of these cash hoards will depend on the degree to which shareholders want firms to keep cash as a hedge. The more firms that ramp up distributions to their shareholders, the more difficult it will become to stay demands from one’s own holders to return it. Of course, it helps if they, too, are uncertain as to where else to best invest it. This underscores the benefit of being aware of what others are hearing, thinking and doing this fall.