Cash management: Firms prepare for euro break-up
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Cash management: Firms prepare for euro break-up

Corporates sweep out cash ‘every evening’; Banks respond to clients to relocate deposits

For many months, Greek citizens – worried that a possible return to the drachma will slash their savings – have been withdrawing large amounts of cash from banks.

Early last month, finance minister Evangelos Venizelos told the Greek parliament that €65 billion had been withdrawn from banks since 2009: €16 billion is thought to have gone overseas, the remainder has been spent or is underneath the nation’s mattresses.

Throughout this slow-motion bank run, international corporates that operate in Greece have kept quiet about what they are doing with their money. That is business as usual for the world of cash management: while treasurers might be happy to discuss generalities and trophy implementations, the nitty-gritty of such arrangements is rarely mentioned.

Precautions disclosed

Then last month, with painful negotiations on Greece’s second bail-out dragging on, some big names broke ranks and revealed the precautionary measures they have been taking in Greece. In the space of a few days, Vodafone, pharmaceutical group GlaxoSmithKline, consumer products group Reckitt Benckiser and global advertising firm WPP let the world know they won’t be exposed should Greece crash out of the euro.

Vodafone’s CFO Andy Halford said that the company sweeps its cash from Greece and other countries to the UK "every evening". Andrew Witty, CEO at GlaxoSmithKline, revealed that no cash is left "in most European countries" and is funnelled to banks perceived to be "robust and secure". Reckitt Benckiser’s CEO, Rakesh Kapoor, made a similar announcement and said the frequency of sweeps had been increased, while Paul Richardson, finance director at WPP, said that the company’s surplus euros are not only swept out of Europe to the US every night but are swapped for dollars.

Neil Garrod, director of treasury at Vodafone

Neil Garrod, Vodafone

Before Christmas, corporates remained wary of adding to the anxiety around Greece. Speaking at a Euromoney cash-management debate, Neil Garrod, director of treasury at Vodafone, said it was irresponsible to discuss the prospect of Greece exiting the euro or the dangers of holding euros in periphery countries. "The big question regarding the eurozone crisis is how to stop European citizens asking the question: ‘Why would I deposit euros with any bank that is not German?’" he said. "The problem is that even talking about these issues is potentially at the cost of banks in eurozone territories with problems. Careless talk costs lives and creates problems. Banks support us; we have to support them to some extent because the consequences are unthinkable."

However, revealing the dichotomy facing corporates, he admitted he’d had discussions with banks about the challenges posed by at-risk euro members. "At the same time, if there is a disorderly exit of Greece, Portugal and Ireland, how do you justify to your shareholders and your board that you have significant money there?" he said.

So, what prompted a change of heart and an unprecedented display of candour about the usually mundane business of day-to-day cash management? The timing of these revelations was not coincidental. Reports in mid-February said that Germany was becoming comfortable with the idea of Greece exiting the euro. The companies probably calculated that the risk of stoking fear about a Greek euro exit was less than the risk that investors might become alarmed about the potential impact of a departure and their readiness for such an event.

Different euros

At the Euromoney cash management debate, Michael Mueller, who is responsible for the development of Barclays’ cash management business outside the UK, revealed that a client had asked the bank if their money could be located in Germany. "There is a perceived security that comes from the fact we are able to offer a deposit in Germany – a German euro is different to an Irish euro at present," he said.

However, Mueller’s frankness is unusual: while corporates are opening up about the realities of crisis preparations, banks are still keeping quiet. Leading global banks in the business – including those known to service some of the companies that have gone public – declined to comment on the record for this article.

"This has always gone on – it’s good practice to sweep funds to a location that offers security, visibility, control and the ability to invest or use those funds more effectively," says one transaction banker. "However, it is correct to say that interest in the practicalities of where funds are and how frequently they are moved has risen as the eurozone crisis has gathered pace. There is also a new dimension, which is a differentiation between countries within the eurozone in terms of how funds are managed."

Reasons for reticence

The reason for banks’ reticence – even as they brief their corporate clients on the need to make plans – is partly political and partly practical.

Politically, banks remain on the back foot given their unpopularity in many countries. More generally, many bankers are happy to accept advice from their PR officers that there is nothing to be gained – and much to be lost – from discussing whether or not there is the political will in Europe to support Greece remaining in the euro.

Practically, many banks’ hesitancy to go public on the fact that the majority of those in finance and business believe Greece will be forced to leave the euro at some point has much to do with their own institutions’ holdings of European sovereign debt.

Subject to the same test, banks have more to lose by mentioning preparations for a Greek euro exit than by going public.

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