A look at what’s on International Treasurer’s radar screen this week.
Several topics arose from this week’s International Treasurer editorial meeting, including a preview of what members of the NeuGroup’s Latin American Treasurers’ Peer Group will discussing at its meeting in a few weeks, more discussion on the impact on contracts that a Europe breakup would have, and the use of treasury locks. We’ll also be taking a look at how banks are adjusting (or not) as regulations start to kick and how some new tax issues will have an impact.
LatAm look. LATMPG members are putting aside Venezuela for a moment and looking at new risks in Argentina (a new currency regime) and a potential change in economic outlook for Brazil (will your cash-flow forecasts stand up against the high cost of hedging?). These are the big economies that will determine if the LatAm portion of the positive emerging market growth story can continue. Particularly, at a time when there is so much gloom and doom in Europe and elsewhere.
Another topic is bank relationships. While the spring 2011 pre-meeting survey showed 60 per cent of respondents noting that geographic footprint was most important in deciding a banking partner, now that same amount put “Risk profile of the bank” and “relationship management” as the most important factors in choosing a banking partner.
Legal ramifications of euro break. Many members of the NeuGroup Peer Group universe have wondered about the contractual issues a euro breakup or one-country exit would create. So just how will a New York State court look at a euro-denominated obligation? According to a note on the legal ramifications from the law firm Orrick, it will view the obligation through New York eyes. “Where a New York State court has jurisdiction over the debt obligation, in the first instance, the court will follow New York State law which provides that, generally, the parties to an obligation arising out of a transaction covering, in the aggregate, not less than $250,000 may agree that the laws of New York shall govern their rights and duties, whether or not such contract bears a ‘reasonable relationship’ to New York State.” So a good idea to check jurisdictional status of the company’s contracts. Better get legal!
Treasury locks. Members of both NeuGroup Treasurers’ Group of Thirty groups (T30, T30-2) have been asking each other at meetings over last year about whether they were using treasury-locks to hedge anticipated issuance of debt. Apparently this action by corporates has been significant enough to move the needle on Treasury yields. According to the Wall Street Journal, which reports that recent treasury yield creep is a result of treasuries “suffering from hedges being put on amid an absolute deluge of new corporate borrowing.”
Banking industry changes. We’ll also take a look at how coming regulatory changes — from Basel III to Dodd-Frank to even the new US Consumer Financial Protection Bureau — will continue to impact the way banks and companies do business. Banks are facing a world where margins are shrinking and their global growth outlooks continue grim. Banks are now shedding employees at a rapid clip and pulling back on services around the world — even in Asia. What impact will that have on treasurers?
FBAR and Fatca. Two new US tax rules are beginning to roil the international tax world. For instance, FBAR, or Report of Foreign Bank and Financial Accounts, looms large for companies and their treasurers. The new IRS form 8938 needs to be prepared along with 2011 income forms, and closer scrutiny on FBAR compliance is expected. Also, new FATCA implementation guidelines are promised by the end of the year. Although there have been reservations for some time, it seems suddenly the world has awoken to the burden that the coming Foreign Account Tax Compliance Act (Fatca) will be. And the IRS not backing down despite global pressures to do so.