Cash management debate: Know who your friends are

TW, Motorola It has forced us to focus on where we invest our cash. Motorola has always followed a conservative investment policy but what is considered risky has changed. ‘Triple-A money market fund’ means something different to a year ago. Corporate treasurers have moved to become more conservative.

MS, Deutsche Bank With increased conservatism we’re looking at how we are perceived as a liquidity provider and gatherer of funds. Are we using our strengths to position ourselves as a strong financial intermediary? Our focus used to be to keep the wheels turning, and all through this crisis, payment systems have worked and stocks have settled. But that is taken for granted now. So we are concentrating on how to make sure intraday limits are clear for the counterparty from all sides and that everyone understands the risk.

DJ, Shell Everybody is looking at investments more closely. Our strategy has been to diversify against our investment counterparties and look at the credit remits we have with those banks. We have had excess cash during this period, so it has been important to focus on a risk of return rather than a rate of return.

DM, RBS That said, banks are seeing clients increasingly direct funds towards triple-A-rated vehicles now, where perhaps they had been happy to keep things with their banks overnight, or for an extended period of overnight monies. We experience a lot of risk diversification on counterparties as corporate clients are less likely to be sole banked. Our strategy is to support that diversification and facilitate it.

JL, J&W Associates Olivier, how has your strategy moved?

OB, Volkswagen Happily, the group is liquid, so we could invest in short-term secure instruments to ensure liquidity stayed safe. On the other hand, the treasury centre in Brussels financing exports is structurally short. Some banks carried on lending us money. Some didn’t. We used to be more relaxed about reciprocity but my strategy has changed. Now the response is: ‘If you lend me your balance sheet I will lend you my monies’.

FT, ING Corporates are putting more emphasis on cutting costs and we are looking at products that can help them. We see a move towards national and regional solutions.

CH, Lloyds TSB The credit crunch hasn’t changed our strategy but the market has enabled it. It’s clear that over the last 12 months strategies and priorities for corporate treasurers have changed. Of course, maximizing income and reducing cost are still important but managing risk has shot right to the top of their agenda. This focus on capital protection and counterparty risk plays right to Lloyds TSB’s strengths, making treasurers far more responsive to challenges about comfort levels with current providers and receptive to the solutions we can offer.

RM, Citi The strategy at Citi is unchanged but the balance of solutions that customers are asking for has. Liquidity is king, and there is innovation around working with customers to release trapped liquidity, and that includes managing associated risks. There is concern about particular countries, particular banking systems. Advising customers on how to manage those risks that trap liquidity is new. There is a resurgence of trade instruments for risk mitigation. There has also been a shift in emphasis towards transparency, CDS, how reflective spreads are and how much they are based on the market as opposed to fundamental factors.

Supplier investment

JL, J&W AssociatesWhat about increasing your investment in this business?

MS, Deutsche Bank Nobody has argued with the transaction bank budget this year, because the only thing that kept the wheels turning is the investments that we have already made. The investment spend is not even a discussion.

DM, RBS Our investment appetite is undiminished – you can’t do this business without substantial investment in technology.

JL, J&W Associates How are you managing your relationships with banks?

OB, Volkswagen We have a centralized risk management department in Germany and we’ve been working more closely than ever with them. We’re watching things evolve and how the banks behave in the turmoil and you draw lessons from it. You make a note of who stood by you and who didn’t, and that stays with you for years. There are banks that Volkswagen blacklisted years ago. We’ve been through three group treasurers and two CFOs, but some are still blacklisted.

DM, RBS There is deleveraging of balance sheets in the banking sector, and a lot of counterparty risk is being dropped, but that is vastly outweighed by the additional network services and products being provided. We are seeing a diluting of relationships. Clients are spreading their risk across a variety of banks, and banks are in turn walking away from some relationships. We are dependent on relationships being strong, so inevitably there will be some attrition.

TW, Motorola We have always placed high reliance on building long-term, strong bank relationships and that allows for changes in the business cycle. We want to be fair and equitable in how we distribute our business. We hope there is such a thing as reciprocity and long-term trust, and that if you behave correctly your business partners will behave likewise.

CH, Lloyds TSB In recent years with liquidity and credit readily and relatively cheaply available, there has been a tendency for corporates to spread their ancillary business among niche providers who perhaps don’t make a wider commitment to the corporate. As more treasurers become conscious that credit lines are up for renewal, however, many are asking if a bank is putting in a substantial contribution to the credit, then should a corporate treasurer place cash business elsewhere, if there is a credible offer?