Several topics up for further review came out of this week’s International Treasurer editorial meeting, including companies using multiple in-house banks, share-holder activism and bank structures abroad.
In-house banks proliferate.
Just a few years ago the concept of an in-house bank was an exotic rarity. But the surge in global growth by MNCs has made it necessary for some companies to create several in-house banks. Further to our previous discussion on new regulations and their impact on IHBs, we’ll continue to explore regional shared services centers (or centers of excellence, as they are sometimes called). IHB or SSC there is clearly a decentralization of functions happening. As one member of the NeuGroup’s Assistant Treasurers’ Peer Group noted at a recent meeting, as companies become more global they often realize they cannot keep pace with the international needs of the business from HQ. This also coincides with changing growth projections where many companies believe most of their business will be generated outside of the US (if that hasn’t happened already). Also notable is how these structures are taking over some of the traditional core functions that treasury used to handle, like cash forecasting and FX transactions.
Shareholder activism.
Apple appears to have capitulated on releasing more cash to investors (or at least acknowledging David Einhorn’s Greenlight Capital lawsuit): on Tuesday the company announced it has increased its buyback program to $60 billion from $10 billion and has boosted its dividend 15 percent, from $2.05 to $3.65 a share. This will be a topic of much discussion at the NeuGroup’s Tech20 Treasurers meeting this week. Does activism improve performance and governance of target firms? Does it focus the treasury mind when it comes to what to do with excess cash – Apple for instance reportedly has $145 billion socked away. M&A, dividends and share buybacks: what’s the right answer?
Bank structures abroad.
Regulations are forcing banks to rethink their structure abroad. Banks prefer a branch structure because there is a lesser regulatory burden and lesser capital requirements. The problem is, often times local jurisdictions sometimes require a subsidiary structure in order to be able to fully regulate the bank locally. Bank customers prefer the branch because of the legally binding commitment to the operation by the parent which is not present for subsidiaries which is not explicit for a subsidiary. Regardless of the structure, the key is to know what guarantees are in place for the debt or other cash that might be held by a bank that is an international brand. Is in name only? It may be called “Famous Bank” like it is in the US, but the structure may make it stand-alone.