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The 2012 guide to Liquidity Management: Liquidity survey - Looking to the long term

Faced with an unusually broad and persistent range of challenges, treasurers are looking for sustainable solutions.

Liquidity management has never been more important. Four years on from the onset of the financial crisis, treasurers continue to intensify their efforts to improve the flow of liquidity across their corporate structures. Meanwhile, the ongoing and seemingly intractable debt crisis in the eurozone – and the threat to the euro itself – has added to treasurers’ headaches in managing counterparty risk.

Working capital, funding requirements and the ability to react to economic and political developments – and continue to function in spite of them – are companies’ main concerns. As Lisa Rossi, global head of liquidity management at Deutsche Bank, notes, this has widened the breadth of treasurers’ once chiefly functional roles and forced them not only to think more strategically, but also to find solutions that enable them to do more with less across their organizations.

As further constraints are placed on resources, the management of time, costs, budgets and human capital is requiring the use of technology to enhance and promote operational efficiencies. "Fortunately, technology has become generally cheaper and more readily available, as well as being easier to apply," notes Willem Dokkum, global head of sales payments and cash management at ING. Indeed, advances in technology are accelerating, according to most bankers interviewed for this article, and are delivering practical benefits in the forms of increased transparency and control over working capital and liquidity. "It means organizations are able to better manage risk and maximize internal funding across time zones, currencies and numerous banking relationships," adds Rossi. Practical steps

The economic and financial environment has necessarily prompted treasurers to make changes to how their departments operate. However, Yera Hagopian, liquidity solutions executive, treasury services EMEA, at JP Morgan, says the broad range of challenges facing treasurers – an even deeper and more sustained period of low interest rates and a number of economic tremors ranging from sovereign downgrades to the threat of eurozone member exits – has prompted treasurers to take a longer-term view. "Corporates are looking for sustainable approaches to address their liquidity management challenges rather than a series of knee-jerk reactions," she notes.

Martijn Stocker, global head, liquidity management, transaction banking, at Standard Chartered
Martijn Stocker, global head, liquidity management, transaction banking, at Standard Chartered 

In practical terms, corporates are aiming to achieve broadly the same goals they have pursued for the past few decades – only more effectively. "Clients are increasingly looking to manage their liquidity risks more tightly, and take control of unproductive surplus cash within the organization as they seek more efficient means to channel the funding of their working capital needs," explains Martijn Stocker, global head, liquidity management, transaction banking, at Standard Chartered. "Therefore, there has been a greater demand for more diverse capabilities in liquidity management products as clients’ needs grow." However, as trade flows evolve – with emerging markets becoming relatively more important to the global economy – the range of challenges that liquidity management must address is also changing. "One of the key trends in the market today is the increasing demand and complexity of liquidity management as companies expand beyond their home or current operating sphere," says Elyse Weiner, global head, liquidity and investments, at Citi.

Even companies formerly considered best in class are revisiting their processes to take advantage of new technologies and, in some situations, deregulation, according to Weiner. "In the midst of a succession of financial crises, now primarily centred on the eurozone, risk management is top of mind with treasurers as they consider ways to mitigate both funding and supply chain risk through rationalization of bank relationships and accounts and re-engineering of operational processes, and trade finance options. There is a laser-like focus on de-risking the business and contingency planning."

The 2012 Liquidity Management Survey


A total of 16 banks participated in Euromoney’s 2012 survey, the seven global network banks plus nine leading cash management banks: Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Commerzbank, Deutsche Bank, HSBC, ING, JP Morgan, KBC, RBS, Santander, SEB, Société Générale, Standard Chartered and UniCredit. Each bank completed a questionnaire covering its cash position reporting services, liquidity management infrastructure, sweeping and cash pooling services, investment services and liquidity management support.

Cash position reporting

The strained financial environment continues to highlight the importance of using existing cash from the business more effectively. The growing corporate use of Swift reflects this trend: it had around 900 corporate users at the end of 2011 and has an ambitious goal of 5,000 corporate users by 2015.

As a result of difficult financial conditions, cash position reporting has assumed greater importance and forecasting has become a paramount concern for treasurers: unless they know where cash is, they cannot deploy it effectively. "There is a growing emphasis on accurate cash forecasting and in-depth reporting to enable treasurers to do their job even more effectively than before," says Dokkum at ING.

Elyse Weiner, global head, liquidity and investments, at Citi
Elyse Weiner, global head, liquidity and investments, at Citi 

Weiner at Citi agrees: "The ability to visualize, mobilize and optimize cash throughout the organization is a prerequisite to improved funding efficiency, full utilization of internal cash assets and improved investment returns," she says. "In addition, transparency is key to governance of corporate policy, ensuring operating subsidiaries are compliant and operating in a risk-aware manner. As companies expand globally, maintaining control is becoming more challenging. [Equally], newly acquired companies may be operating on disparate platforms for some time before they can be fully integrated." At many banks, improving visibility of cash for clients has been a priority for transaction banking investment. "We have continued to invest in products and solutions [to facilitate] ever increasing visibility of cash," explains Jan Rottiers, head of liquidity management products at BNP Paribas. "We are delivering enhanced visibility and forecasting functionality within the liquidity management module of our electronic channels."

All the banks participating in the survey now provide end-of-day reports from their own branches. As in previous surveys, Citi has the largest number of own bank branch countries reporting (101) with HSBC second at 71 – both have added a single country since last year. Ten of the banks – compared to eight last year – provide services to monitor and chase missing reports. All of the banks provide some intra-day reporting of transactions.

Liquidity management infrastructure

Only half of the participating banks offer a single account for all cash management and only 10 provide pooling on the same liquidity management platform for all regions – although JP Morgan does now have all locations except the US on a single international platform.

Opinions on the benefits of a single global platform are divided. "Increasingly, clients are moving to managing a global liquidity position," explains Thomas Schickler, global head of liquidity, global payments and cash management at HSBC. "This makes it important for them to have a consistency of service across the markets in which they operate but, most importantly, it ensures robust connectivity between the developed and developing markets."

Deutsche Bank does not provide pooling on the same liquidity management platform for all regions. Despite this, Rossi says that the bank does manage concentration and pooling services on a global basis but chooses to offer them based on strategic regional financial hubs to support and address local market regulatory and legal requirements. "Many of our clients prefer to combine the two by having a locally managed regional structure that works in conjunction with a centrally managed global overlay," she says. "The chief advantage of this is that transaction-related information and reporting can be viewed centrally or regionally, depending on our clients’ individual requirements."

Sweeping and pooling services

If visibility of cash is essential to be able to deploy cash effectively, then it is sweeping and notional pooling that provide the control that treasurers increasingly require. "Our clients are operating in an environment of multiple currencies, jurisdictions and legal entities," says Greg Kavanaugh, head of global liquidity at Bank of America Merrill Lynch, which has re-launched its single-currency and multi-currency notional pooling offering recently. "By offering both notional and physical cash concentration options, we can help them improve the value they receive from their liquidity balances around the globe."

All the participating banks offer both single-currency physical and notional cash pools. Citi has the largest number of locations for physical pools (69) and Standard Chartered the largest number for notional pools (48). Europe continues to offer the largest number of locations for banks offering multi-currency notional pools: within the region Bank of America Merrill Lynch offers the greatest number of sites (21) while Deutsche Bank, KBC and Standard Chartered tie to offer the greatest number of currencies (50).

In Asia, Standard Chartered has the most multi-currency notional pooling locations with 19 (up from 14 last year). "Enhancements – to deliver fully integrated liquidity management solutions globally – are being made to cross-currency cash concentration, integrated multi-bank sweeping capabilities and multi-currency notional pooling solutions," says Stocker. Interestingly, Standard Chartered also offers online ‘simulation pooling’ capabilities for clients that want to analyse various pooling options.

Weiner at Citi says that expanding and enhancing the bank’s cross-border cash concentration services to provide clients with the highest level of coverage across their operating networks has been the most important liquidity management development at Citi in the past 12 months. "Over the last year, we have extended the application of our concentration engine to over 44 countries, with even more imminently available," she says. "Along with that expansion comes a host of features that allow our clients to customize liquidity structures in respect of regulations and tax considerations as well as unique operational requirements."


All of the banks in the survey can now ensure that a sweep is the last transaction of the day (last year one bank could not): Standard Chartered continues to offer the largest number of countries where this service is available. Two banks do not provide automated back values for transactions with previous value dates. All but five of the banks offer overnight return sweeps, most triggered by balance or time. All the banks offer automated intra-day sweeps within cut-off times, most triggered by balance or time.

Steve Everett, global head of cash management and head of transaction services products EMEA at RBS
Steve Everett, global head of cash management and head of transaction services products EMEA at RBS 

All the participating banks have multiple MT101 partner bank drawdown agreements, 11 banks with 200 partners or more compared to last year’s nine. "This increase may reflect an increasing emphasis by corporates of the need to improve visibility and control while managing counterparty risk," says Steve Everett, global head of cash management and head of transaction services products EMEA at RBS. "The idea that efficiency can only be delivered by working with one bank is no longer widely held." JP Morgan has one of the largest numbers of MT101 agreements (over 1,000) in place for multi-bank sweeping. The bank’s Hagopian says that bilateral agreements are important for the bank’s capabilities. "Multi-bank sweeping leverages these bilateral agreements by issuing MT101 drawdown messages to automatically concentrate funds from a client’s global relationship banks into a single position with an overlay bank, thus enabling more efficient use of the consolidated global position," she explains. JP Morgan can also concentrate funds in countries where Swift is not the standard method of bank-to-bank communication.

The importance of multi-bank sweeping is increasingly reflected in the design of other products. Among the services launched in the past year by Société Générale’s newly created Global Transaction Banking business line is a re-designed cross-border cross-currency notional pooling solution, which allows clients to notionally manage their global cash position in a unique reference currency, without any need for FX transactions or swaps. Crucially, it "can adapt to any multi-bank cash concentration structure already in place and include the countries of the clients’ choice," notes Sophie Tarralle, head of cash pooling products, global transaction banking, at the bank. Additional enhancements in the coming months will include an integrated reporting service to facilitate intercompany loans management in a multi-bank environment.

More generally, sweeping has come to the fore in the past year with a number of leading companies announcing – presumably for the benefit of investors – that they are taking precautions against the threat of an exit by a eurozone member or even a break-up of the currency union: Vodafone says it sweeps funds daily; GSK that it keeps nothing in the eurozone overnight and WPP says that it not only keeps nothing in the eurozone overnight, but swaps it all to dollars every night (see box on Diageo case study). "For global companies with the ability to sweep and hold cash in different countries, the quest for security means that cash balances are frequently being swept out of continental European countries and into UK bank accounts on a nightly basis by many of the world’s largest companies," says David Manson, global head of liquidity management at Barclays.


This year’s liquidity management survey shows that all but one of the banks accept a range of 10 currencies or more for cash investments. A handful of banks – HSBC, KBC, Société Générale, Standard Chartered and UniCredit accept 50 currencies. "Our cash investment capabilities complement our cash management services," explains HSBC’s Schickler. "As we offer deep local payable and receivables solutions in nearly every market in which we operate, it is necessary to offer local currency services that correlate accordingly. As most developed market interest rates remain low if not close to zero, some companies are choosing to accept heightened FX exposure in order to generate increased returns on their cash portfolio."

In line with the 2011 survey, this year’s survey shows that all the banks provide both an investment desk and an investment portal, with just over half providing investment instruments from other financial institutions as well as their own bank.

Sophie Tarralle, head of cash pooling products, global transaction banking, at SG
Sophie Tarralle, head of cash pooling products, global transaction banking, at SG

For corporates, the turbulent macro-economic and financial environment has created a conundrum in relation to investment. According to Tarralle at Société Générale, they have been unwilling to invest in the business because of uncertain macro-economic conditions and consequently have relatively elevated cash levels. It is estimated than European corporates have as much as €1.3 trillion in cash while Apple alone is reported to have $100 billion of cash. Barclays’ Manson agrees: "With economic uncertainty seemingly the new norm, businesses have become significantly more conservative. Indeed, over the past four years it has been much easier to say no to major investment, no to ambitious growth plans and, conversely, yes to building up cash as a buffer to protect operations in case things were to take a major turn for the worse," he notes. "What to do with this built-up cash, particularly where to put it, has become one of the key questions of the day."

The same turbulent macro-economic and financial environment conditions make it more challenging to invest that cash. As a result, many corporates have reassessed their investment policies, which detail which markets, instruments and counterparties are acceptable, according to JP Morgan’s Hagopian. "How quickly can they access their cash? They know now that even hours may be critical. Does the yield pick-up of longer-dated investments adequately compensate for reduced liquidity? Almost certainly not. Are there potential regulatory changes that could create new challenges for a market or instrument? The inevitable result of all these deliberations is almost certainly a reduction in the number of eligible instruments and counterparties and ever shorter weighted average maturities, all putting further pressure on yield."

Suzanne Barry, EMEA head of liquidity and investments, GTS, at Bank of America Merrill Lynch
Suzanne Barry, EMEA head of liquidity and investments, GTS, at Bank of America Merrill Lynch

Given the environment, companies are understandably continuing to prioritize security and liquidity over yield when choosing the best place to hold their deposits. Suzanne Barry, EMEA head of liquidity and investments, GTS, at Bank of America Merrill Lynch says that the optimism evident in mid-2011 that macro-economic conditions would improve in 2012 prompted some corporate treasurers to search for yield. "However, this optimism was short-lived," she adds. "With continued signs of global stalling, corporates continue to seek low-risk bank deposits to safely harbour their excess liquidity." Indeed, Barry notes that "ongoing discussions on proposed regulatory reform for other investment alternatives such as money market funds [in the US] and the closure of some funds in certain regions to new clients as a result of deteriorating market conditions and falling interest rates [in Europe]" has prompted "an increasing shift to bank liabilities" and a reduction in money market fund exposure over the past 24 months.

Counterparty risk

The increasing shift to bank deposits poses additional problems for treasurers. Counterparty risk has been a dominant theme since the onset of the financial crisis and the collapse of Lehman Brothers but the eurozone crisis has exacerbated the problems facing corporates given the dramatic lowering of many banks’ credit rating. The transaction banks that participated in this year’s survey have not been immune from downgrades. But all have maintained the investment grade ratings that are essential to retain the confidence of corporates with regard to investment.

"Given the market conditions and unprecedented regulatory change, corporates are reviewing their current counterparties," says Manson at Barclays. "This increased focus on counterparty risk management and the current ratings of banks has led treasurers to review their policies. There is an increasing view however that banks are treated in many ways as just another debtor, as some financial institutions have lower credit ratings than their corporate clients. The current emphasis on counterparty risk is leading companies to look more closely at where they are placing deposits, depending on the nature of their business flows, payment obligations and geographical footprint," he adds. "Many clients are then placing their structural cash surpluses into a banking location of choice, based on their treasury policy and risk appetites."

Of course, counterparty risk is just one consideration for treasurers when devising an investment policy. They also are faced with the difficult task of optimizing surplus liquidity in an extremely low interest rate environment. "As current interest rates are effectively negligible across the globe – and even turning negative – it has become increasingly challenging for treasurers to earn any yield on their investments," says Deutsche Bank’s Rossi. "This means that many are often left with large amounts of idle cash, and it is of the utmost importance that banks develop investment options to provide clients with higher interest rates on stable, longer-term cash balances."

Impact of regulatory change

Fortunately, regulatory changes – most notably Basel III – are prompting major change in the world of bank deposits and spurring innovation among bank providers. "While risk is a top concern, innovation in the world of bank deposits is offering companies some new opportunities – most notably the ability to improve yield by drawing on the more flexible products on offer," explains Barclays’ Manson.

Manson says that once security and liquidity requirements have been satisfied, treasurers have to make their money work. "With banks competing for deposits to boost balance sheets, there are excellent rates that can be secured on even overnight money today," he notes. "Rates depend on several factors, but the overall relationship a corporate has with its banks and what else this business wants from its cash deposits is key."

One crucial change is that under Basel III, stable operational corporate balances have the greatest value for banks. "Balances which are more volatile (such as discretionary balances) will attract lower returns because banks holding those deposits will have higher capital requirements to ensure sufficient liquidity in times of stress," says Manson. "As Basel III moves closer there will be an increasing polarisation between how we value operational balances and discretionary balances. This will in time lead to a dilution of the return on investment for discretionary balances, increasingly forcing the hand of corporate treasurers to either surrender yield for liquidity; or conversely to term out deposits for greater returns. Operational cash balances will be increasingly the bedrock of the bank/client relationship and will represent an increasing source of value between clients and their bankers."

Changing relationships

The 2012 Liquidity Management Surveyprovides a number of insights about the capabilities of the participating transaction banks that are helpful to any corporate treasurer considering their liquidity management options. However, as a quantitative survey it does not track an increasingly important factor in liquidity management – how the customer is supported and how a relationship is built with clients. To be sure, all participating banks in this year’s survey offer dedicated operational and customer support. But many banks say that clients now expect their banks to go further in supporting them.

"In the context of changing cash management requirements, businesses are looking to build strong relationships with their banks," says Manson at Barclays. "Banks that can demonstrate a solid understanding of their clients’ requirements and business environment are better placed to support a risk-conscious cash management policy." He adds: "Service quality is a top priority for the majority of companies and many are making more strategic decisions based on service, technology, reporting and management information."

Deutsche Bank’s Rossi says that, over the past year, the changing regulatory and credit landscape has heightened the need for corporates to manage their banking relationships more closely, and underscored the importance of strong banking partnerships. "While further regulatory oversight has been created to strengthen the global banking system and financial landscape, navigating the resulting changes is a significant challenge," she says. "Understanding and preparing for the impact of the proposed measures requires increased dialogue between corporates and their bank partners – and this dialogue must be maintained as regulatory requirements continue to evolve."

Inevitably, deepening relationships will continue to be a major focus of investment for transaction banking. Barry at Bank of America Merrill Lynch says that the bank’s most significant development in liquidity management over the past year is the growth of its client-focused liquidity management advisory services business. "In good times, efficient liquidity management across countries, currencies and regulations is complex," she notes. "So in our continued challenged environment, corporate treasurers are increasingly looking to their banking partners to provide strategic advice and solutions on a global scale."

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