This week’s International Treasurer editorial meeting produced several topics we’ll look into over the next several weeks. First off is a look at alternative funding for corporations. We’ll also take a look at how recent Basel liquidity coverage ratio (LCR) and timeline decision won’t have a big impact on bank product pricing and also, has the corporate cash hoard topped out?
Alternative funding.
One agenda item for next week’s NeuGroup Latin American Treasurers’ Peer Group meeting will be different ways of funding operations. In a dedicated session, members will discuss structured solutions to support/replace intercompany loans, cross-border structured asset swaps, monetizations or to enhance yields on global liquidity.
Seeking alternative funding appears to be growing as companies look at ways to take banks, currently burdened with loads of regulations, out of the picture. For instance, Dell, which has embarked on a quest to privatize, is considering repatriation of overseas funds to help fund the deal. Also, through another recent NeuGroup meeting, we’ve learned of on major tech company lending cash to another US multinational. Both sides felt the deal worth doing and, perhaps more importantly, worth sidestepping banking partners.
Basel LCR and fees.
There was a lot grousing from just about everyone that “banks got their way” with the Basel Committee as it concerned the easing of coming Basel edicts, including on LCR and an extended timeline. One would be mistaken if these less burdensome rules would cause banks to rethink their fee structures. As it turns out, they will raise fees in the next year.
One banker said he expects banks’ cost of capital for some products will go up 30-40 percent in the next year. “The regulations will impact the cost and availability of banking services from cash management to trade finance to credit,” and banks will be more selective in picking partners.
Cash hoarding slows.
A recent post on ZeroHedge captured our attention. First, the post establishes the decline in US corporate cash levels (S&P500), which, as shown in a chart from Goldman, have again started to decline as percentage of total assets (from an all-time high of 11.2 percent). Coupled with the reality that corporate profit margins also appear to have peaked, two quarters ago, along with a decline in revenues and EPS, the post argues that “the natural cash generation capacity of US companies is also declining in parallel.” International Treasurer will keep an eye on this as our peer group meeting season gets underway.