Cash management strategy debate: Cash management in a world of risk and complexity

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Macroeconomic risks, such as the euro crisis, are increasingly impinging on cash management and increased financial regulation is a concern for corporates and their partner banks. Euromoney’s panel of treasurers and bankers examines the issues and the way they are handled.

Cash management strategy debate participants


Corporate boards are demanding more detailed information from treasuries in the face of perceived increased financial risks

• The counterparty risk of bank partners is a close concern of treasuries, with long-term risk an acute concern for some

• Proposed compulsory central clearing for derivatives poses dilemmas for corporate treasuries that are hard to resolve

• The proliferation of new regulations – often far from limpid – is problematic for treasurers and their partner banks

• The upcoming hard deadline for the Single Euro Payment Area is not a cause for concern for most treasuries; for some it is irrelevant and in any case easily handled with existing IT

• Pressure on banks’ capital from Basle III means increased consideration for what is of optimal mutual benefit for corporates and their banks


Laurence Neville, Euromoney How has the role of the treasury, and its relationship with the rest of the business, changed in recent years?

Mike Verrier (MV) is group treasurer at FTSE 100 engineering firm WolseleyMV, Wolseley When I first came into treasury in 1981, exchange controls had only just been removed, so the first FX contracts I settled were compliant with exchange controls. Operationally the treasury has changed vastly over that period, but it still looks after the same things and has the same basic functions. My job is still, and always will be, to arrange the lowest after-tax cost of funding for the group and to make sure the money is always there to pay debts when they fall due. That has not changed in 30 years. The way the treasury interacts with the rest of the business has changed completely over that period – but that is not a treasury issue.

What has changed since the crisis? The most important change is that boards, and nonexecutives in particular, have increased their focus on the peripheral financial risks that treasuries have handled well for a long period of time. One example is counterparty credit risk. In the past, you might get the occasional question about whether we were exposed to a bank that went broke. Now people want to see quite in-depth reports, which are really of little interest for most operational treasuries.

People expect a very quick response to certain questions. Over the summer, some directors wanted to work out our response to a total collapse of the euro. We responded within two days, because we had been thinking about it for years. But what was amazing was the speed with which we were expected to respond once a risk had been perceived. Fortunately, most issues have been thought about extensively, and therefore we can quickly respond.

Malcolm Cooper (MC) is group tax and treasury director for FTSE 100 company National GridMC, National Grid It has gone from: ‘Oh, they’re the people that sit in the office at the end of the corridor and do something’ to: ‘Oh my God, the world is running out of money, are we okay?’

Treasury’s profile and people’s expectations have changed. Before 2007, the idea of a board question about liquidity – do we have enough back-up lines? – just would never have happened. Now we appear in front of the board on a fairly regular basis to discuss in detail which banks provide our liquidity, and whether they will continue to be able to do so. Equally, five years ago most people hadn’t heard of counterparty risk – and then suddenly it is the most important thing in the world, and everyone wants to understand our exposure and how it is managed.

The profile of treasury has changed a great deal: people now understand its importance. It means you can be slightly more demanding. Like many corporates, we have suffered from pretty poor cashflow forecasts in the past. Once you point out that we need to keep £1 billion in cash because we never know when the cashflow forecast will move by £500 million and you are receiving zero return on that money as a deposit in a bank – which may or may not be there tomorrow – then suddenly people do worry about cashflow forecasts. Quality overall has improved dramatically, not just because systems and processes have changed, but because people focus on treasury more, and understand its importance.

Majella O’Boyle (MO’B) is head of transaction services origination, UK & Ireland, at RBSMO’B, RBS Certainly the importance of visibility has increased. Not long ago, many treasuries’ cashflow forecasting was relatively manual. Transaction banks are trying to deliver visibility in an efficient manner so that we can help treasurers with the demands they receive from their boards about counterparty risk, for example.

Mike Verrier (MV) is group treasurer at FTSE 100 engineering firm WolseleyMV, Wolseley The change that has occurred in boards over the past several years is an increased understanding, not of volatility – because I think boards already understood that – but of genuine risk: big market dislocations and the need to prepare for them. While boards were always interested in things like foreign exchange fluctuations there is now an interest in the rare, large-scale events that really disrupt business and how to address them.