Disruption in its various guises was the overarching theme of the 23rd annual EuroFinance International Cash and Treasury Management conference, which took place in Budapest, Hungary on October 15-17.
Events like geopolitical turmoil, global shifts in economic growth and corporate footprints, innovations in technology, market gyrations and regulatory changes have all combined to form an environment where companies and their treasury departments must adapt, take advantage and comply in order to support their business’s survival and growth.
EuroFinance’s plenary sessions tackled the theme from three angles: embracing disruptive innovation, succeeding in a disruptive environment and what can disrupt the disruptor? Dean van Leeuwen, Co-Founder of consultancy TomorrowToday Global talked about innovation measurement; the takeaway was that you choose to measure certain things and not others. “What are you missing with what you have chosen to measure?” This touches on a discussion recently in one of the two NeuGroups for FX managers: are our metrics aligned with what the hedge program is truly meant to achieve or are they chosen because they are simple to use? And if so, does that alter the focus on the goal?
It may be a step too far to expect treasury to be a disruptive force itself, given its role and responsibilities toward the company, but a practitioner panel discussed the characteristics and skills you need to succeed in a disruptive environment: Karen van den Driessche, EMEA treasury director at Avnet noted the importance of learning what the company does, and how, because treasury touches every part of it. It is also important to be your own brand, not play a role, be honest, trustworthy and deliver on promises; this combined with subject matter knowledge will allow you to thrive even through disruptive times.
Disruption comes to treasury in sometimes welcome ways; sometimes not. Volvo Cars’ disruption came from the change in ownership when Chinese Geely bought it. It was decided, however, that Volvo Cars should operate as a separate entity (after always being a division of a larger company). This allowed treasury to completely re-imagine what treasury should be like and build it from scratch. Aspects of the program include FX risk management based on annualized CFaR with hedge ratio flexibility and 15-month tenors and cash management with one bank account per currency, which in turn allows the use of only one bank per currency, a significant streamlining benefit.
The bank panel, an agenda staple, prompted some debate but mostly agreement on banks’ place in an environment, even with their respective strategies differing in response a flood of regulatory constraints on their activities. Rick Striano, Deutsche Bank’s Head of Platforms & Investments, Trade Finance & Cash Management Corporates, said the bank’s clients are looking for partners but the market environment makes it challenging; regulations create an uneven playing field that creates opportunities for shadow banking. He also noted that there may be a lot of good ideas out there for new products and services but how to make a profit on them?
Rajesh Mehta, EMEA Head of Treasury & Trade Solutions at Citi, said that the universal banking model is Citi’s strategic choice and noted that it is alive and well due to Basel III. Bank of America Merill Lynch’s Jennifer Boussuge, Head of Global Transaction Services – EMEA, observed that there is a lot of regs-driven soul searching for banks as they review strategy and relationships to find the right fit. She also pointed out that retail consumers can take advantage of technology innovation using their smartphones but no matter what innovations banks bring to the table, corporates still need a budget for implementation to be able to take advantage of them; this hampers rapid deployment of new technology in the corporate space.
While there was a lot of talk about innovation and disruption on the conference agenda, conversations with practitioners and bankers during the breaks centered more on delivering well-functioning services that ease pain points like documentation and change management. RBS unveiled a streamlined client onboarding process for bank account opening that will significantly reduce the number of documents and signatures required. “We listened to our customers,” said Mike Winn, head of cash product, GTS at RBS. Similarly, Bank of America Merrill Lynch has put more efforts into supporting clients in M&A integrations via a Global Business Solutions Service, a sort of consulting/advisory group which includes ex-corporate practitioners and other specialists, and which aims to ensure that the bank is coordinated internally to clients’ integrations.
The low-to-negative interest rate environment is also the source of frustration for cash-rich companies. This prompts a look at the right levels of cash a company should hold, how it can be better deployed or returned to lenders and shareholders while funding more of the operations with better working capital management and access to dispersed liquidity. Finally, Paula da Silva, head of working capital management at SEB highlighted the drawn out collection period many letter of credit users exposure their companies to as compared to those accepting simpler payment methods. She remarked this is often because cash management and trade finance don’t work as closely together as they should. There is a real opportunity to root out those inefficient processes now while interest rates are low, and not wait until they rise again.
The next EuroFinance event iTreasurer will report from is the December 8-9 conference in San Francisco on managing rapid international growth and finance and treasury’s role in supporting change. In addition to covering the event for this publication, Anne Friberg, one of our senior NeuGroup facilitators and contributor to iTreasurer, will also moderate a panel on FX risk in new markets entitled The Shock of the New.