Times are a-changin’ for corporate treasurers

By:
Rebecca Brace
Published on:

A growing number of political, regulatory and institutional shifts have reshaped the role of the corporate treasurer since the onset of the global financial crisis.

At the start of the financial crisis, the credit squeeze prompted companies to focus more closely on harnessing their own idle cash to reduce borrowing needs, while the collapse of Lehman Brothers and other financial institutions led to a greater emphasis on counterparty risk.

CFOs started to demand more from their treasurers in terms of up-to-date balance information and risk monitoring. The treasurer’s role became more visible both within the organization and in the boardroom, where treasurers were being more valued in an advisory capacity, rather than being perceived simply as cash managers.

Today, this trend shows no signs of slowing. Where risk management is concerned, treasurers used to focus predominantly on FX and interest rate risk – but now the spectrum of risk that treasurers must tackle is much wider.

Having learnt to manage counterparty risk more effectively, treasurers in Europe have more recently been confronted with concerns about the stability of the single currency and the Cypriot banking system, for example.

Carole Berndt, head of global transaction services, EMEA at Bank of America Merrill Lynch, says that with the complexity of today’s operating environment, “the treasurer has to balance and judge political, credit and contagion risk against yield on cash, striking a fine balance between efficiency and risk management, to ascertain what best serves the business most effectively right now”.

Mark Tweedie, of Citi Transaction Services
Having greater influence is all very well – but the treasurer’s role has changed in other ways too. The treasurer’s expertise is being used in the context of the company’s commercial activity, according to Mark Tweedie, EMEA region head of corporates, client sales management at Citi Transaction Services.

“Treasurers are getting more involved in checking the covenants in financing contracts and receivables discounting contracts between counterparties, in the same way they check the covenants in loan agreements,” says Tweedie. “Equally we are seeing a dramatic uplift in collaboration between treasury and procurement.”

Meanwhile, regulatory changes from Sepa to Basel III are placing an additional burden on treasurers, who have to find time to understand and act on the new requirements while still keeping their day-to-day activities running smoothly – often with fewer resources.

Institutional shifts

While the role of the treasurer has evolved to encompass more collaboration within the organization and greater visibility at board level, as well as the raft of economic and regulatory challenges of the past few years, these developments have also had a knock-on effect for the world of transaction banking.

Most banks have consolidated their trade finance and cash management activities into a single unit to reflect the treasurer’s range of responsibilities more accurately – including JPMorgan, which recently combined its corporate banking, investment banking and treasury services to form its corporate and investment bank.

As such, those working in transaction banking in a relationship management role have had to expand their knowledge and expertise to encompass more product areas.

In addition, the challenges faced by treasurers have led them to look to their banks for more support than previously, which has prompted transaction bankers to move into a more advisory role. To meet their clients’ needs, they must be prepared to offer the information that treasurers need on everything from cash management structures to the regulatory climate.

With corporate treasurers keen to expand their knowledge and adopt more sophisticated solutions, there is also a growing emphasis on sharing best practice based on banks’ knowledge of other clients.

Tweedie says Citi views a core part of its role as helping treasurers demonstrate how they represent the lifeblood of a given institution, by showing the linkages between treasury activity and commercial initiatives, imperatives and objectives.

Meanwhile, the bank allows clients to benchmark themselves against each other in activities ranging from liquidity management to FX using the bank’s benchmarking tool, Citi Treasury Diagnostics.

FX products

And as companies become more globalized, treasurers are required to make cross-currency payments in exotic currencies – which is leading to additional demands for FX products from their banks.

“Transaction banking solutions in FX, as in other product areas, need to be flexible enough to accommodate corporates’ individual operating models and offer the range of currencies that international companies increasingly need,” says John Gibbons, head of treasury services, EMEA at JPMorgan.

The evolving role of the treasurer is inevitably having a knock-on impact for transaction bankers – but some might ask whether the changes are here to stay or whether treasurers will retreat back to the ivory tower they inhabited once the economic situation improves and markets become less volatile.

“The insight that treasurers are now uniquely positioned to share with their CFOs means this trend is set to become a permanent state of affairs,” says Diane Reyes, global head of payments and cash management at HSBC, noting that this is creating opportunities for treasurers to add value to their organizations.

It seems the treasurer’s broader role is here to stay – which means the treasurers will continue to require a wider range of services and a more advisory role from their transaction bankers.

And with the treasurer’s importance within the organization valued more today than ever, transaction banking is likewise gaining in status.