liquidity management 09

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The 2009 guide to

September2009

Published in conjunction with:CitiDeutsche Bank

SEBStandard Chartered Bank

LiquidityManagement


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Liquidity management enters a new phase 2-20

By Jack and Wolf Large

Table 1: Liquidity management survey results 4

Table 2: Nature and quality of the banks 8

liquidity management offerings

An integrated approach to liquidity 6

SEB

The new liquidity paradigm: 10

Focus on working capital

Citi Working capital and liquidity management: 16

Saety frst

Standard Chartered Bank

This guide is for the use of professionals only. It states the position of the

market as at the time of going to press and is not a substitute for detailed local

knowledge.

Euromoney Institutional Investor PLC

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Editor: Sarah Minns

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Cover illustration: Sarah Minns / Ray Heath

Printed in the United Kingdom by: St Ives, Roche, UK

Euromoney Institutional Investor PLC London 2007

Euromoney is registered as a trademark in the United States and the United

Kingdom.

Contents


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Liquidity managemententers a new phaseThe global nancial climate has orced treasurers to ocus on making the best use o resources,

wherever they may be. Technological developments are making that easier, but they are also

having to cope with a tighter regulatory environment. By Jack and Wolf Large

Liquidity management and counterparty risk are the corporate

treasurers two biggest problems at present. Over the past 12 months,

the global business environment has really ocused corporate

treasurers minds, with the contraction and scarcity o credit in most

markets and businesses, the diculties o access to capital markets, FX

and interest rate market volatility, low interest rates and the economic

slowdown. Euromoneys 2009 review reveals that this new ocus,

together with the advent o new technologies, is leading to a new

phase in the development o liquidity management.

Thanks to the growing range o automated systems and services, the

basic processes are becoming easier: whether they be ensuring the

visibility o a companys or a groups cash held in bank accounts around

the world, orecasting cash fows, setting and managing terms o trade,

concentrating and pooling cash, optimizing investments or minimizing

unding. Liquidity management, as a whole, is not, however. Fiscal au-

thorities around the world are tightening the restrictions on the move-

ment o cash and counterparty risk is becoming ever more important.

Factoring in company culture, legal and tax structures and company

business practices will always make it dicult.

Trends in liquidity managementOver the past 12 months almost all companies, even those rich in cash,

have been reviewing and rening their structures and processes to

ree up as much liquidity as possible. This, combined with a greater

ocus within companies to release as much working capital as possible,

has led to overall improvements in the usual external and also internal

working capital liquidity, the biggest change in liquidity management

o the past 12 months.

To minimize counterparty risk companies have been:

lDeveloping contingency banking relationships to minimize their

capital, cash and operational risk with any single bank;

lAnalyzing in depth the counterparty risk o each o their banks;

lCredit rating their trading partners; and

lTightening their credit guidelines and policies.

Liquidity management practices evolving over the past

12 months include:

lThe centralization o company liquidity combined with:

mFewer mono-bank global liquidity management solutions

mAn increased move rom national to regional liquidity

management;

lAn increasing demand or transparency and control in all

liquidity management solutions;

lThe so-called fight to quality with companies moving unds rom

small local to larger more secure banks;

lAn increase in the use o cash concentration and sweeping; and

lBanks insisting on ancillary cash and liquidity management

business.

Intra-day liquidity has become a major issue or both

companies and banks as illustrated by:

lBanks charging extra or payments made at the beginning o the day

as swings in intra-day positions have become extreme with liquidity in

short supply;

lThe timing o credit and debit payments within the business day

becoming vital or many companies; and

lBanks managing intra-day credit more tightly.

Although banks are working on intra-day liquidity solutions, which

include the introduction o daylight overdrats, this type o overdrat

is unlikely to be on oer any time soon. The costs o development

and processing are prohibitive in the current nancial climate.

There is mounting evidence o the stabilization o the liquidity crisis,

indicated by recent changes in company policies and priorities or

the investment o surplus cash. During 2008 investment polices

ocused on minimizing risk, preserving capital, fexibility and

access rather than yield, with surplus cash primarily invested in

banks or government securities. Recent research by Citis Financial

Strategy Group and others shows that companies are increasingly

investing their surplus cash, some up to 50% or more o it, in money

market unds as they become more condent about the nancial

environment.

Survey resultsThe questions or this years Euromoney magazine survey were

revised slightly to refect the developments in liquidity management

over the past 12 months. The 15 banks participating in the survey


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include all o the global network and other major cash management

banks around the world: Bank o America, Barclays, BNP Paribas, Citi,

Commerzbank, Deutsche Bank, Fortis, HSBC, ING, JPMorgan, Royal

Bank o Scotland, SEB, Socit Gnerale, Standard Chartered Bank and

UniCredit. Each completed a questionnaire covering its cash position

reporting services, liquidity management inrastructure, sweeping

and cash pooling services, investment services and liquidity manage-

ment support. Their responses are shown in Table 1.

Although BNP Paribas completed its acquisition o Fortis Bank in May

2009 the merger o its cash management and liquidity management

services is not yet complete, so a separate entry was accepted rom

each. Pierre Frezstand, global head o cash management at BNP

Paribas, says, Together we bring a wealth o solutions across the spec-

trum o companies cash management needs, including notional and

physical cash pooling. BNP Paribas and Fortis are strongly committed

to the success o the new bank. Based on BNP Paribas experien ce

integrating BNL, our clients can expect to see rapid and successul

integration and to take rapid benefts rom our global oer.

RBS is also reviewing its liquidity management and cash management

network in the new fnancial environment. Brian Stevenson, CEO,

global transaction services, says, RBS will continue to be a client-

ocused international business with a multi-product, multi-currency

proposit ion. Following our strategic review back in March 2009, we

are gradually right-sizing our network. However, we will remain a

leading global transaction bank with on-ground presence in over 38

countries, as well as a vast network o partner bank agreements.

The main results o the survey are reviewed below.

Cash position reporting servicesAll the banks provide intra-day transaction reporting and end-o-day

bank account balance and transaction reports rom both their own

branches and other banks. The number o countries covered by own

branch intra-day transaction reporting varies rom the 20 or ewer

oered by several o the European banks to the 100-plus covered

by Citi. The number o countries covered by own branch end-o-day

reports is, in several banks, much larger than or intra-day reports with

the number o own branch countries providing end-o-day reports

ranging rom 18 to more than100. Slightly ewer than hal o the

banks provide bank account report monitoring and chasing services,

which is in some cases limited to chasing missing items within their

own bank branches.

Liquidity management infrastructureAll 15 participating banks now have both global and local cash

pooling platorms.

Pool header/master account locationsAll the banks oer single-currency pooling in some countries, the

number o locations varying rom two or three to 44 rom SCB.

UniCredit can make a single-currency pool available at any IBOS bank-

ing club member bank.

The number o locations where the banks oer multi-currency pool

header or master accounts varies considerably. Most are in Europe,

but even in Europe two o the participating banks have none. In Eu-

rope the number o locations varies rom one to 16 by Fortis. Seven

have locations in Asia-Pacifc with three, Deutsche Bank, JPMorgan

and SCB, oering at least 14; the other banks fve or ewer. Only two,

Deutsche Bank and JPMorgan, have locations in Latin America. Six

have locations in North America and two in the Middle East and

Arica, HSBC in one location and SCB in nine.

Sweeping between own branchesThe participating banks end-o-day sweep cut-o times or US dol-

lars and euros vary considerably. Six do not oer overnight return

sweeps. The number o countries covered by intra-day sweeps varies

rom zero to 48 by SCB. All oer intra-region target balance end-o-

day sweeps and all but two inter-regional sweeps.

Multi-bank sweepingAll the participating banks have multiple MT 101 partner bank draw-

down agreements, 11 banks have 200 or more. There are consider-

able dierences in end-o-day sweep cut-o times. The number o

countries covered by intra-day sweeps varies rom zero to 73 by RBS.

The number o countries covered both by intra- and inter-region

target balance end-o-day sweeps varies rom zero to 90 by Citi.

Notional pooling servicesThe participating banks provide a wide range o single and multi-

country notional pooling services. All the banks provide tiers in

their pooling structure, six have more than 11. All oer some orm o

single-currency, single-country notional pooling and multi-currency

single-country pooling (where all the accounts are held in a single

country) . The single-currency pools all oer ull oset; in the multi-

currency, all but three oer partial oset. All but three o the banks

provide single- and multi-currency multi-country notional pools with

partial oset in a varying number o currencies.

Investment of surplus cashThe risk profle o all the participating banks is comparatively good, all

with a credit rating o A or greater and a tier one capital ratio o 7.2%

or greater. Almost all oer a range o investment options, including

interest-bearing current accounts, time deposits, corporate sav-

ings accounts and money market unds. The number o currencies

accepted varies rom three to 50 and the number o money market

unds oered varies between two and 152. All but one has an invest-

ment desk and investment portal and nine oer automated sweeps to

money market unds.

Liquidity management supportAll the participating banks provide dedicated operational and cus-

tomer support or their liquidity management services. Many alsoprovide client-activated liquidity management support analyses

and tools.

Nature and quality of the services on offerSimple yes/no responses and an enumeration o the participating

banks liquidity management regional and country coverage, mem-

bership o the clearings, sweeping and pooling acilities, investment

o surplus cash and liquidity management support give little indica-

tion o the nature and quality o the services the banks provide. This

years Euromoney survey also asked the banks to complete a ques-

tionnaire about the advice and consultancy support they oer clients,

implementation, customer service and support, liquidity management

services and products, and what they consider to be their banks over-

all distinguishing actor. The responses are given in Table 2.

GUIDETOLIQUIDITYMANAGEMENT

Continued on page 14


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Bank Name Bank of America Barclays BNP Paribas Citi Commerzbank Deutsche Bank

Cash Position Reporting

Intra-day reporting otransactions:

No. o own bank branch countries reporting 24 6 27 101 20 33

Accept/process 3rd party banks transactions Yes Yes Yes Yes Yes Yes

End o day reports: No. o own bank branch countries reporting 24 18 52 101 20 34

3rd party report monitoring & chasing service Yes No Yes Yes Yes No

Liquidity Management Infrastructure

Global cash pooling platorm Yes Yes Yes Yes Yes Yes

Local cash pooling platorms Yes Yes Yes Yes Yes Yes

Sweeping and Pooling ServicesHeader/Master Account Locations

Single currency pool: 29 countries UK, Spain, Absa Around 30 countries Eight locations 15 countries Customers choice

Multi-currency notional pool(No. sites & currencies):

Asia-Pacifc:1 location;

13 currencies5 locations;9 currencies

2 locations;11 currencies


Europe:1 location; 12

currencies6 locations;3 currencies


1 location;23 currencies



Latin America:1 location;1 currency

NAFTA:1 location;

50 currencies1 location;

4 currencies

Middle East & Arica:

Sweeping Between Own Branches

End o day sweep cut-o times - USD - earliest/latest GMT: USD-10.00/21.00 USD-08.00/18.30 USD-07.00/23.00 USD-07.00/00.00 USD-13.00/16.45 USD-14.00/19.00

EUR - earliest/latest GMT: EUR-15.30/15.30 EUR-08.00/17.00 EUR-07.00/23.00 EUR-07.00/00.00 EUR-20.10/21.00 EUR-14.00/19.00

Overnight return sweeps No No Yes Yes Yes Yes

Intra-day sweeps (No. o countries) Intra-region: 20 6 39 33 17Inter-region: 39 33 17

How sweeps triggered: By balance By balance &/or time By time By balance &/or time By balance &/or time

Target balance end o day sweeps(No. o countries)

Intra-region: 20 6 29 27 33 17

Inter-region: 4 20 27 33 17

Multi-bank Sweeping

No. o existing MT 101 agreements: >50 101-200 101-200 201+ 201+ 50-100

End o day sweep cut-o times - USD - earliest/latest GMT: USD-17.00/21.00 USD-08.00/18.30 USD-08.00/18.00 USD-08.00/19.30 USD-11.30/11.30 USD-08.00/15.00

EUR - earliest/latest GMT: EUR-15.30/15.30 EUR-08.00/17.00 EUR-08.00/18.00 EUR-08.00/16.00 EUR-14.00/14.00 EUR-08.00/15.00

Intra-day sweeps (No. o countries): 21 32 80 90 33 17

How sweeps triggered: By balance By balance &/or time By balance &/or time By time By balance &/or time By balance &/or time

Target balance end o day sweeps (No. o countries)

Intra-region: 21 32 80 90 33 13

Inter-region: 21 80 90 33

Notional Pooling Services

No. o tiers available in a pool: 0-3 11+ 0-3 11+ 11+ 11+Single country (all accounts in same country)

Single currency - Full o set (No. o countries): 20 4 16 8 16 9

Partial o set (No. o countries): 26 16 28

Multi-currency - Full o set (No. o countries): 2 1 3 16 2

Partial o set (No. o countries): 16 26 16 28

No. o pooling currencies supported: 13 15 50 23 11 50

Multi-country (leave unds in each country)

Single currency - Partial o set (No. o countries): 16 90 16 28

Multi-currency - Partial o set (No. o countries): 16 90 16 28

No. o pooling currencies supported: 50 23 11 50

Investment of Excess Cash

Bank risk profle: Credit rating o bank (S&P or Moody rating) A AA- AA A1 A (S&P) Moody Aa1 / S&P A+

Tier one capital ratio 10.10% 8.60% 8.80% 11.92% 10.00% 10.20%

Investment options: No. o currencies accepted or cash investments 20 50 4 18 11 26

% bearing current accounts Yes Yes Yes Yes Yes YesTime deposits Yes Yes Yes Yes Yes Yes

Corporate savings accounts Yes Yes No Yes Yes Yes

Money market unds Yes Yes Yes Yes Yes Yes

No. o unds 6 99 12 129 10 8

Investment channels: Dedicated investment desk Yes Yes Yes Yes Yes Yes

On-line portal Yes Yes Yes Yes Yes Yes

Automated sweep to money market unds Yes No Yes Yes No Yes

Liquidity Management Support

Dedicated operational and customer support: Yes Yes Yes Yes Yes Yes

Client activated liquidity managementmodels -

Analysis o cost o holding cash: Yes No No Yes Yes No

Showing impact o newstructures:

Yes Yes No Yes Yes No

Contact Information

Contact name: Lori Schwartz Stephen Pigney Elisabeth Signes Li Zhang Jasmin Maraslioglu Klaus-Bernd Schalkowski

Country: USA United Kingdom France UK Germany Germany

Telephone number: +1 646.855.5634 +44 7775550183 +33 1 43 16 95 60 +44 20 7500 5234 +49 6913646966 +49 69 910 68436

Email address:lori.schwartz@

bankoamerica.comstephen.pigney@

[email protected]

[email protected]@

commerzbank.comklaus-bernd.

[email protected]

Table 1 - Euromoney 2009 Liquidity Management Survey

Source: Liquidity management banks. Copyright 2009 J&W Associates


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Fortis HSBC ING JPMorgan RBS SEB Socit Gnrale Standard Chartered UniCredit

15 70 25 38 52 15 19 48 16

Yes Yes Yes Yes Yes Yes Yes Yes Yes

18 70 25 38 52 15 56 48 19

No Yes Yes No No Yes No No No



Any European entity 25 countries Europe Where regulations allow All regions - 43 countriesWhere local

regulations allow25 48 countries

Available at anymember bank











1 location;1 currency






9 locations; 50currencies

USD-07.00/15.00 USD-00.00/23.59 USD-13.00/13.30 USD-10.00/01.00 USD-00.00/24.00 USD-09.30/18.00 USD-23.59/23.59 USD-00.00/23.59 USD-09.00/17.00

EUR-07.00/15.00 EUR-16.00/24.00 EUR-14.00/14.30 EUR-10.00/22.00 EUR-00.00/24.00 EUR-09.30/18.00 EUR-23.59/23.59 EUR-00.00/16.30 EUR-09.00/17.00

No Yes No Yes Yes Yes No Yes No

20 21 13 41 10 16 48 167 17 38 41 10 20 48 20

By balance &/or time By balance &/or time By balance &/or time By balance &/or time By balance &/or t ime By balance &/or t ime By balance &/or t ime By balance &/or t ime

16 3 17 38 18 13 15 48 16

3 17 38 21 13 19 48 20

50-100 201+ 201+ 201+ 201+ 50-100 201+ 101-200 101-200

USD-07.00/16.30 USD-00.00/15.00 USD-19.00/19.00 USD-01.00/20.30 USD-06.45/22.00 USD-09.30/16.00 USD-17.00/17.00 USD-00.00/22.00 USD-09.00/17.00

EUR-07.00/15.15 EUR-11.00/15.00 EUR-19.00/19.00 EUR-01.00/22.00 EUR-06.45/15.00 EUR-09.30/16.00 EUR-15.00/15/00 EUR-00.00/16.30 EUR-09.00/17.00

20 15 15 73 15 10 48 20

By balance &/or time By balance &/or time By balance &/or time By balance &/or time By balance &/or t ime By balance &/or t ime By balance &/or t ime By balance &/or t ime

16 9 15 15 15 48 20

16 15 15 15 48 20

0-3 11+ 0-3 4-10 4-10 4-10 11+ 4-10 0-3

5 7 2 21 14 12 12 48 7

11 26 11 27 3 12 1 25 10

5 7 1 2 12 0

11 26 11 27 3 12 25 12

25 50 5 26 29 50 50 10

16 26 15 14 37 12 48 16

16 26 15 14 37 12 48 16

25 50 5 26 29 50 50 16

A1/P-1 AA AA- AA A+/A-1 A (S&P) A+ S&P A+ A

10.70% 8.30% 9.70% 9.20% 9.90% 12.0% 9.20% 10.10% 7.20%

40 3 10 4 33 23 0 50 5

Yes Yes Yes Yes Yes Yes No Yes YesYes Yes Yes Yes Yes Yes No Yes Yes

Yes Yes Yes Yes Yes Yes No Yes Yes

No Yes Yes Yes Yes Yes No Yes Yes

2 5 25 152 10 3 20



No Yes No Yes Yes No No Yes Yes


No Yes No Yes No No No No Yes

Yes Yes No Yes No Yes No No Yes

Peter Pollaert Ian Blackburn Jean Pinte Nicholas Blake Phillip Lindow Erik Zingmark Anne-Claire Gorge Martijn Stoker Jrgen Lutz

Belgium UK Belgium United Kingdom The Netherlands Sweden France Singapore Germany

+32 25650020 +44 207 991 8446 +32 3227382386 +44 20 7859 6665 +31 20 3837 042 +46 87638435 +33 33142148087 +65 65170165 +49 498937820779

[email protected]

[email protected]

[email protected]@jpmorgan.com

[email protected] [email protected]@

[email protected]

[email protected]

GUIDETOLIQUIDITYMANAGEMENT


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An integrated approach

to liquidityTreasurers believe liquidity management is the area or which they are responsible that oers themost potential or improvement. Now more than ever they are ocusing on how to do this.By Erik Zingmark, global head of cash management

Liquidity management has always been an integral element o the

treasury unction, but in recent months, it has become many treasurers

top priority. However, according to the SEB/gtnews Cash Management

Survey 2008, treasurers believe that liquidity management represents

the aspect o treasury with the greatest potential or improvement

(34%). Liquidity management is not simply a case o ne-tuning

orecasts, it involves securing unds rom customers in a timely ashion

and ensuring that key suppliers continue to perorm. The diculty or

treasurers is not only to identiy areas or improvement, but to take

control over the relevant processes and prioritize the initiatives that will

deliver the greatest value. This is the essence o SEBs Corporate Value

Chain approach, which explores the nancial supply chain as a whole

to identiy, prioritize, develop and deliver concrete solutions to the chal-

lenges acing corporate treasurers today.

Theory and realityAlthough the tools or liquidity management are oten amiliar, there

are invariably challenges which conspire to thwart initiatives to opti-

mize liquidity.

Lack o centralizationAccording to the SEB/gtnews Cash Management Survey 2008, a

surprising 28% o companies currently have a decentralized cash

management structure, although the majority plan to centralize cash

management in the uture, ideally on a global scale. While there are

inevitable challenges in extracting cash rom some countries, prag-

matic use o cash management structures such as notional pooling

and cash concentration can deliver substantial benets. Centralization

takes a variety o orms, and treasurers best equipped to unlock liquid-

ity are those who seek visibility and control over the cash held in bankaccounts globally, and the processes that contribute to working capital.

Lack o control over the fnancial supply chainAccording to the same survey, the majority o respondents believe that

the processes which contribute to working capital (such as purchase-

to-pay, order-to-cash and inventory cycle) are average or good, with ew

considering them to be best practice.

Although there has been a trend towards the expanding role o treas-

ury, only 24% o treasurers, according to the SEB/gtnews Cash Manage-

ment Survey 2008, have a leading role in working capital management,

with 11% having no involvement at all. This creates a serious dilemma

or treasurers: on the one hand, they are responsible or ensuring

sucient levels o liquidity or the business, which requires a ocus on

working capital; on the other, they are not oten in a position to direct

the activities that contribute to it. SEB takes a holistic view o liquidity

management, and seeks to help companies not only with the activities

or which treasurers are traditionally responsible, such as FX, debt and

investment, but also the processes that make up the wider nancial

supply chain.

An area in which many treasurers need to take greater control is trade

nance, specically trade-related fows, to manage working capital bet-

ter. According to the SEB/gtnews Trade Finance Survey 2009, only 14%

o treasurers have a leading role in trade nance, with a urther 65%

either partially involved or occasionally consulted. Delays and errors

that would not be tolerated or other types o cash transaction fows

are common in many trade nance processes. For example, according

to SEBs analysis o companies letter o credit portolio, the average lead

time rom shipment to payment is 41 days, against best practice o 10

days, creating a working capital lag o 31 days. There is clearly an op-

portunity or improving the eciency and visibility o trade fows, but

a greater opportunity still is to consider trade fows and cash manage-

ment fows together: by isolating trade nance and cash management

into separate departments or areas o responsibility, the potential value

is reduced.

Creating a new realityWith signicant potential in many companies or rening nancial

structures and processes to optimize liquidity, the next challenge is to

identiy and implement potential solutions.

Improving centralizationWe are working with our clients to implement not only regional cash

centralization, but also global cash management strategies. At aregional level, with SEPA (Single Euro Payments Area) now in eect,

we see greater harmonization o cash concentration opportunities,

leading to treasurers being able to take a more consistent approach

to pan-European cash centralization. Although there are some excep-

tions, SEPA has not been a priority or most corporates, and most SEPA

fows we see today are cross-border payments as opposed to replac-

ing domestic euro payments. SEPA presents two key opportunities to

corporate treasurers.

Firstly, most companies today have local cash pools within each EU

country, with balances then swept into a central cash pool. Instead,

fows can be routed directly through a single, pan-European cash pool,

eliminating the need or local pools and cross-border sweeping, reduc-

ing costs and enabling ar better intraday liquidity management with

more immediate access to unds.


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Secondly, and a highly compelling proposition or many rms, is the

ability to centralize nancial processes through shared service centres

(SSCs) across the Eurozone, based on consistent processes and message

types. Today, establishing pan-European SSCs and common processes

can be dicult due to the need to support local payment and collec-

tion types with a variety o ormats and local requirements.

The opportunities or managing global liquidity are also increasing. In

some cases, this could mean cross-border cash pooling solutions, but

there can be challenges when dealing with non-convertible currencies

and regulatory restrictions in some countries. Achieving a global view

o cash, however, does not always require complex cash concentration

solutions. A treasurer ultimately needs global visibility, timely access and

the ability to mobilize cash globally. Bank connectivity solutions, such as

SWIFT Corporate Access, working with banking partners with the right

international network and building a relationship with the bank can be

crucial steps towards achieving a global cash and liquidity strategy.

Enhancing trade fows or process eciency andliquidity optimizationFor many companies with a heavy reliance on imports or exports, trade

nance is a crucial element o the nancial supply chain. According to

the results o the SEB/gtnews Trade Finance Survey 2009, however, only

27% o companies take an integrated approach to trade and cash. Op-

timizing trade fows assists considerably in risk management, process

eciency and working capital. A payment impacts on the companys

cash position equally, whether or not generated through open account

or using trade instruments, and treasurers need the same visibility,

predictability and eciency o cash fow to manage liquidity eectively.

By becoming an agent o change in cash management, trade fows and

potentially also in procurement, the treasurers role becomes ar more

active in the business as a whole, and essentially becomes that o a

sales support unction.

Extracting liquidity rom the nancial supplychainEvery step o the nancial supply chain represents an asset which could

be used as a means o creating liquidity. For example, invoices, trade

receivables or even purchase orders can be used as collateral or nanc-

ing or cash fow enhancement. In an environment where companies o

all sizes have ound it more dicult to source credit through traditional

mechanisms, alternative nancing arrangements can be a valuable tool.

Another way in which treasurers can contribute to the core activities

o the business is supply chain nancing, which is an excellent way or

companies with a stronger credit rating to support their suppliers, with

advantages or both sides. Buyers benet rom longer payment terms

and thereore greater cash fexibility ; suppliers gain earlier, predictable

payment and eectively a credit line rom their buyers bank. One SEB

client, or example, a large buyer based in Sweden, has increased its

average payment period rom 44 days to 77 days, without compromis-

ing suppliers cash fow, and indeed building stronger relationships with

them. For a company with a turnover o approximately Skr40 billion,

this represents an important contribution to working capital.

However, while we are seeing increasing interest in supplier nanc-

ing and sales support nancing, which could take the orm o external

payment terms or vendor nancing arrangements there are many more

companies that could take advantage o this type o opportunity. There

are various reasons why treasurers and nance managers have chosen

not to do so until now. Firstly, there may be a lack o awareness o these

opportunities. Secondly, companies inevitably have limited resources.

Setting up a nancing programme takes time and resourcing, and

treasurers have to prioritize their activities. Thirdly, companies oten

overestimate their ability to extend payment terms with suppliers, so

they do not consider that alternative nancing has value or them.

Grasping the opportunityAs we have established, treasurers have a wealth o opportunity available

to them or enhancing liquidity, but they have limited resources available

to them to deliver these improvements. Furthermore, with the liquidity

agenda infuenced by dierent departments or subsidiaries, it can be

dicult to gain internal consensus on what areas to prioritise, and co-

ordinate resources rom dierent parts o the business. SEBs Corporate

Value Chain approach helps treasurers and CFOs gain a pragmatic,

objective view o their activities across the nancial supply chain, and

identiy projects that can deliver the greatest value. Since launching the

Corporate Value Chain, we have seen signicant interest rom clients and

implemented projects that have achieved substantial tangible benets.

With liquidity optimization likely to remain a priority or treasurers o

companies o all sizes or the oreseeable uture, adopting a methodical,

consistent and measurable approach to eective liquidity management

is a vital way that treasurers can add value to the business.

For urther inormation, please contact

Erik Zingmark, Global Head o Cash Management

Email: [email protected]

SE

B

-Ani

ntegrated

approach

toliquidity

Erik Zingmark, Global Head o Cash Management


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Bank Name Bank of America Barclays BNP Paribas Citibank Commerzbank Deutsche Bank

Keydierentiatorsin the natureand quality oyour banksliquiditymanagement:

Advice andconsultancysupport

Work directly withclients to optimizeaccount locations,ownership andappropriate liquiditymanagementpooling/sweepingtechniques to bestmeet treasuryobjectives.

Through in depthdiscussions withthe business,obtain thoroughunderstanding ocorporate liquidityows and locations todetermine the mostefcient structure isprovided to meetexisting and uturedemands.

Cash Managementis strategic to BNPParibas. Liquidityis key. Dedicatedcash managementexperts are presentat a central level andlocally to accompanyclients throughall stages o theirprojects.

Citi provides accessto our in-countryand regional productand solution expertswho provide regularindustry advicethrough clientconerences, webinars,etc. as well as tailoredadvice to our clientson a one-to one basis.

We maintain highproessional cashmanagementspecialists locally ineach country as wellas high proessionalscentrally. This enablesus to analyse Treasuryorganisationsfnding individualsolutions or theircash and treasurymanagement.

DB has a dedicatedTreasury Solutionsteam th at reviewsclient accountstructures, debit/interest rates, intra-day/EOD investmentsoptions and undingrequirements. Theyanalyze services tocreate efcient andintegrated workingcapital solutions.

Implementation Assign dedicatedimplementationcoordinators as asingle point o contactto manage globalsolutions across allregions.

For all stucturesagreed with ourcustomers, a projectimplementationmanager will leadthe implementation,working inconjunction with thecorporate treasuryand all areas o the

bank to ensure thebenefts are realisedas quickly as possible.

An implementationteam (ISO 9001certifed) will appointa dedicated teamto coordinate,implement andintegrate theircustomised liquiditymanagement project.

The Citi team oproject managers ishighly experiencedin cash managementand banking, coveringareas such as productmanagement anddevelopment, delivery(operations andclient services) and

technology. Eachhas successullymanaged the ullimplementation omajor global projects.

Successulimplementationdepends on excellentproject management.Commerzbankprovides a singlecontact during theimplementationprocess. This will beachieved via close

liaison with thecustomer in orderto ensure high levelimplementation.

Implementationteams are localbut with globalcounterparts toaddress all businessrequirements.Dedicatedimplementationmanagers are alignedwith each project.

Quality, support andtimeliness are keycomponents o ourImplementationprocess.

Customer serviceand support

Assign dedicated localclient service advisorswho coordinate withour client servicesteams across theglobe.

Through dedicatedrelationship teamwith electronicaccess to liquidityplatorm, supportedby cash managementspecialist andoperationalmanagement team.

Our cashmanagementcustomer serviceis a centralised,multilingual,dedicated Europeansupport or our clients.It is also ISO 9001certifed.

Client servicesis involved withthe client duringthe Liquidityimplementationphase ensuring aseamless hand-o tothe team taking on-going responsibilityor service andtechnical assistance.

This ensures ourservice team builds anin-depth knowledgeo the liquiditysolution.

All customers receiveexemplary clientservice rom ourteam o proessionals,whose perormanceis key to maintainingprocess integrityand security in allCommerzbanksystems. O course weadditionally provide

our customers withhelp desks.

DBs dedicatedoperations area andaccount managementservices work with ourclients to understandtheir liquiditystructures. DBs stateo the art technologyto view/communicateclients activity ona real time basis.

Extensive on-goingtraining.

Services andproducts

Suite o globalliquidity products andservices addressing alltechniques.

Our oering uses thelatest technologyto provide a ullrange o domesticand cross borderliquidity managementsolutions, providingautomated liquiditymanagementand reportingunctionality.

A range o variousproducts romnotional to physicalpooling, one to severalcountries, currenciesand banks. A strengtho the oer isreporting around thelending/borrowingrelationshipsdelivered by mail: a

value added serviceexible and adaptableto all clientsconfgurations.

Citis portolio oproducts span 100+countries oeringmulti-currency,multi-location, andmulti-bank solutions.Our clients takeadvantage o ourability to aggregatetheir global liquidity,create customized

investments,supported bypowerul inormationand analytic tools.

State-o-the-artservices and products: advanced treasury

portal technology sophisticated cross-

border (margin)pooling

virtual accounts intelligent payment

transaction, routing, conversion, and

processing

Extensive regionalcash concentrationcapabilitiesintegrated into globalconcentrationsstructures. Full rangeo multicurrency,notional structures,third party bankintegration andinvestment options to

compliment clientsrequirements.

The overall actor that distinguishesyour banks liquidity managementsolutions rom your competitors:

Bank o Americasglobal liquiditymanagementsolutions aredistinguished throughour industry-leadingsingle global platormapproach.

A thoroughunderstanding oliquidity managementrom a corporateperspective togetherwith the range oservices, both singleand cross currency, toenable our customersto manage theirglobal liquiditypositions.

Our global coverageextends our cashmanagementcapacities up to 70countries all over theworld.

Best-in-classsolutions: wellover 7000 globally.These solutionsinclude access toaward winningproducts including:multi-currencypooling (over 20currencies), CitibankOnline Investments(22 countries/18currencies), andTreasuryVision(superior analytics andmulti-banking).

CommerzbankTREASURY supportscentralised grouptreasury organisationswith integratedaspects o subsidiariesrequirements. Incombination withDresdner Bank weare oering an evenbroader range o top-class services or allliquidity matters.

Priority productarea or investmentand developmentover the next fveyears. Global andregional connectivity.Integrated withour ull suite otransaction bankingproducts.

Table 2 - Nature and quality of the banks liquidity management offerings 2009

Source: Liquidity management banks. Copyright 2009 J&W Associates


11/24

HSBC ING JPMorgan RBS SEB Standard Chartered

Bank

UniCredit

Tailored solutions. Adetailed understandingo the clients business,quidity management

objectives and fnancialows is obtained.nteractive pricing

and solution scenariosare presented listinghe benefts and

efciencies.

Dedicated teamcombining short termand long term needanalysis. The analysiscombines workingcapital managementapproach withliquidity management.Expertise and quickanswers respectingthe risk profle o thecustomer are our keydierentiators

JPMorgan works withthe client to identiythe most appropriatesolution so that therelative importance oliquidity risk, yield andconvenience can beconsistently rebalancedalongside their unding,risk managementand operationalrequirements.

Specialist liquidityadvisors in London,Amsterdam, New York,Chicago, Singapore

Cross-regionalapproach todevelopinginvestment strategiesand portolios; strongemphasis on riskmanagement

Single contact pointor pooling andinvestments.

Understanding ourcustomers businessis a key goal or SEB,acilitating personalisedsolutions in cashmanagement and SEBswider services. Ourunique Corporate ValueChain approach is astructured way to refnefnancial structures andprocesses.

Dedicated liquiditymanagementspecialists andconsultants to providecustomised solutionsor each client based ontheir specifc objectives,geographies, operationsplus tax & regulatoryconsiderations toensure viability andoptimal beneft or theclient.

UniCredit Groupsupports its customersby teams o expertscovering each cashmanagement &e-banking relatedtopic. Based on regularexchange o know-howand best-practice casesinternally, we are able toprovide state-o-the-artsolutions.

Dedicated projectmanager andcomprehensivetatement o works

covering all on-boarding activities andimelines. Preflling o

client documentationand on site consultancyand support.

Implementations areperormed by a teamo experts, all details areagreed upon with thecustomer and defnedin the Implementationcharter -includingtiming - to avoidunpleasant surprises.

JPMorgan has a globalliquidity managementbusiness with dedicatedteams o specialists inEurope, the Middle East,the US, Latin Americaand Asia Pacifc todesign and implementliquidity solutions inpartnership with the

client.

Dedicated teamimplements allliquidity solutionsin agreement withtimelines and clientrequirements

Skilled proessionalswith an average o12 years experienceimplementing

complex liquiditystructures.

Thorough projectevaluation, detailedproject scoping,disciplined projectmanagement andull accountability arevital components oSEBs implementationapproach, withcontinuity o customer

knowledge throughoutthe implementationprocess.

Streamlined &standardised globalclient documentation;dedicated globalimplementationmanager as single pointo contact; proessionalproject managementmethodology.

Implementation onUniCredit Grouplevel is coordinatedby our customerprojects teams, whichare available in eachcountry. Dedicatedcontact persons manageday-to-day queries andcomplex projects on

local and cross-bordertopics.

Front line dedicatedaccount managersn clients region andimezone supported byecond line operational

centres o excellence

Concept o Single PointO Contact (SPOC)is generalised in ourorganisation to helpour customer in all thequestions thay couldhave around theirliquidity management.

The breadth oexpertise in liquidityacross the globeenables JPMorganto provide timely,localised support tomultiple customersegments includingmulti-national andregional corporations,governments, central

banks and sovereignwealth unds.

Client service modelstructured to provideclients with dedicatedcontact points atall levels in theirorganisation locally,regionally and globally

First-line supportservices augmentedby specialist liquiditymanagement support

team.

Every SEB customerreceives a level osupport appropriate totheir needs. We haveadvanced systems toensure transparencyand responsiveness tosupport queries, and weare proactive in helpingcustomers to gain themaximum beneft rom

our solutions.

Dedicated primarypoint o contact ormulti country supportand 24x7 dedicatedglobal help desk orissue escallation; locallanguage support orlocal point o contact.

The customer servicecentres support thesales units and customerprojects teams. Eachservice rom preparingdocuments, via internaltechnical set-ups up toreliability o the help-desk is managed there.

Consistent globalproduct oering.Building blockapproach rom accountationalisation and

multi bank on-lineaccount reporting tocomplex regional/global multi currencypooling and ZBAtructures. Solutions

or highly regulatedmarkets

As top player in themarket, we havedevelop a large rangeo products andcontinue to extend it,but our main ocus isanswering customerneeds. This is whereliquidity managementspecialists bring valueto our customers.

JPMorgans servicesenable clients tomanage liquidity risk,notionally or physically,consolidate cashpositions, and invest ina variety o instruments.This is to maximize thevalue o cash, regardlesso treasury size orstructure.

Strong heritageo innovation andmarket leadership

Global expertiseto leverage bestpractices romdierent regions tolaunch new solutionsaround the world

Focus on extendingservices and adding

unctionality to meetclients evolving needs.

SEB has a collaborativeapproach to productdevelopment, workingclosely with customersto ensure that oursolutions address theirreal-lie challenges. Weleverage third partyresources to helprefne our productsand acilitate global

adoption.

Market innovators oremerging marketssolutions; broadestcoverage or crossregional liquiditymanagement solutionson a single globalplatorm includinghighly regulatedcountries; best bank orliquidity management

in Middle East andArica.

Motivated by customers,we develop newsolutions within a shortperiod o time, e.g. beingfrst bank with cross-border cash poolingswith Poland (2005),Russia and Romania(2009). Next to productinnovation we ocusintensively on customer

support.

Range and depth oquidity and wider

banking solutionsacross developed andemerging markets.Tailored solutions tomatch clients ootprintand local regulatoryequirements.

One trusty advisorcombined withoperational exellence.Combined withour ability to bethe concentrationbank (including theconcentration rom 3rdparty banks)

JPMorgan providesglobal liquiditysolutions to move,manage and investunds. We oer a broadrange o investments,including J.P. MorganAsset Managementproducts and weprovide specialistsupport to clients inevery region o theworld.

As a leading globaltransaction bank, RBScontinues to be at theoreront in developinginnovative regionaland global liquiditymanagement solutionsthat help clients unlockand leverage trappedcash to optimise theirworking capital.

For 150 years, SEB hasworked with the worldsmost sophisticatedcorporations. Weare committed tounderstanding ourcustomers needs, so wecan tailor solutions toaddress real challengesand deliver tangiblevalue across thefnancial supply chain.

The best bank orliquidity managementin and or Asia, Arica& ME with emergingmarkets centric, globalliquidity managementsolutions that are ullyaligned with our clientsgrowth profle.

We oer multi-bank-capable solutions,enabling our customersto keep already existingaccounts at third partybanks. Our SWIFTNetor Corporates solutionsare unique by havingimplemented this accessdirectly in our new e-banking sotware.

G

UIDETOLIQUIDITYMANAGE

MENT

9


12/24

The new liquidity paradigm:

Focus on working capitalThe economic crisis that has enguled much o the world in the past two years has promptedtreasurers to take a more strategic view o their activities. While oreign exchange and interestrate risk mitigation have long been considered central to the corporate fnance strategy, in todaysenvironment, liquidity risk bears equal signifcance or both treasurers and CFOs

The past two years have demonstrated that much o the liquidity

previously taken or granted can disappear in an instant. Additionally,

the ability to raise unds quickly through money markets or borrowing

rom banks is no longer guaranteed. This renewed ocus on liquidity

has inspired treasurers to ocus on better management o internal re-

sources to reduce reliance on external unding. In alignment with those

eorts, businesses are increasingly ocused on leveraging opportunities

to optimize working capital and extract liquidity otherwise trapped

internally within the business cash conversion cycle.

However, evidence rom Citis Treasury Diagnostics benchmarking sur-

vey, which collated treasury practices rom 150 leading multinational

corporations in its frst round, shows that there is a need or greater

ocus. Measuring company eectiveness in the area o working capital

management, the survey ound that it is one o the weaker perorming

unctions - relative to other treasury tasks, as well as on an absolute

basis compared to Citis research on corporate best practices. This inor-

mation is quite surprising given the heightened emphasis on liquidity

management in recent months and years.

Why improving working capital managementis difcult

Eective working capital management is the result o strategically coordi-

nated initiatives across several processes, unctions, entities and geogra-

phies. As you can imagine, this is no easy eat. Even or the most sophisti-

cated organizations, achieving sufcient levels o coordination is a challenge.

Many organizations also ace several sel-imposed barriers to achieving

results. While the signifcance o working capital optimization is em-braced in concept especially in the current environment concerns

persist about the broader impact o tightening practices.

Some o the common misperceptions about working capital optimiza-

tion initiatives include:

l Equity investors dont really reward working capital efciency

l Working capital improvement initiatives (e.g., ocusing on DSO im-

provement) hurts top line growth

lThe impact on the bottom-line is limited

lIt is o limited relevance or healthy companies with strong access

to fnancing

l Within an industry, working capital patterns largely aect all, so there

are ew commercial benefts

l It hurts long-term relationships in the supply chain, with suppliers,

customers and distributors

l Working capital improvement initiatives can be let to individual

business units and does not need a centralized, senior ocus

While these notions are widespread, there is compelling evidence to

dispel these myths about working capital management.

Citis Financial Strategy Group conducted an in-depth analysis o 22

working capital-intensive industries, covering 828 o the largest global

frms. The analysis determined the ollowing:

l Investors do care

The 10% o frms who shortened their cash conversion cycle most

requently over Citis fve year analysis (top cash conversion cycle short-

eners) were rewarded by an excess return o up to 30%. Companies

with high liquidity and organic unding capacity relative to peers enjoy

signifcant equity valuation premiums.

l It is possible to grow top line and improve working capital

The top cash conversion cycle shorteners enjoyed sales growth o 700

basis points more than the worst 10% o frms, i.e., those that suered

the largest working capital deterioration over fve years (top cash con-version cycle lengtheners)

l The impact on the bottom line is signifcant

The typical company can improve return on invested capital by 84 basis

points by improving working capital efciency by a quartile relative to

its industry

l It is relevant even or healthy companies with strong access

to fnancing

The typical investment grade company stands to gain 78 basis points

on return on invested capital by improving working capital efciency

by a quartile relative to its industry


13/24

l Working capital trends dier markedly across close peers and

improvements oer many competitive benefts

There is a sizeable disparity in cash conversion cycles within industries.

The median dierence across industries in cash cycle between the frst

and third quartile is 62 days, with the most tightly distributed industry

having a dispersion o 29 days. In act, both the top cash conversion

cycle shorteners and lengtheners were evenly distributed across

industries.

Getting resultsWhile there is always a balance to strike between improving working

capital management and commercial practicalities, once companies

accept the eectiveness and overall benefts o good working capital

management, the next question is how that goal can be achieved.

Relationship banks help frms collect, invest and pay out cash along

the fnancial supply chain in three broad areas: procure to pay

(associated with accounts payable), order to cash (associated withaccounts receivable) and treasury and cash management processes.

Consequently, they are critical partners in the realisation o working

capital management improvements, or example in accelerating the

cash conversion cycle. Doing so involves ocusing on the compo-

nents o working capital and addressing each individually:

l Procure to pay reers to the collective set o processes that begins

with issuance o purchase orders to suppliers and ends with payment

to these suppliers. M any companies have procurement processes

that are managed at a business line or subsidiary level across many

markets and do not beneft rom centralized internal processes and

technology or example, shared service centres and banking ar-

rangements. Doing so generates several benefts:

mConsolidation reduces processing costs, bank ees, and errors

mCoordination o payment cycles improve cash orecasting and

liquidity management

mAutomation provides real-time inormation and analytics allow-

ing or better decision-making

The combination o process centralisation and associated technology

support can have powerul impacts.

l Additionally, irms in a stronger inancial position than their

vendors can sponsor supplier inancing programmes through a

relationship bank partner. Su ppliers selected or the programme

CITI-Thenewliquidityparadigm:Focusonworkingcapital

11

Order to cash cycleProcure to payment cycle

Purchase order Invoice

Cash

outflow

Payment

issuance

Sale Invoice

Cash inflow Cash

application

Cash management

Processes & structures

Firm

Streamline accounts payable

Supply chain processesLEVERS

Streamline cash management

Processes and structures

Streamline accounts receivable

Supply chain processes

Release liquidity

Citis Global Transaction Services oers innovative, end-to-end

global liquidity and investments solutions that help you centralize

and invest your cash. Our solutions link global working capital

management, liquidity management, and a ull range o short-term

investment services to maximise yields and control risk.

With an on-the-ground presence in over 100 countries, and having

implemented more than 7,000 liquidity management client

solutions, Citi has unparalleled experience and the capabilities to

help you achieve your objectives rom local to regional to global.

Citis Global Liquidity

Management capabilities

Extracting liquidity rom the cash conversion cycle


14/24

take advantage o the creditworthiness o their buyer to access

relatively cheaper inancing through the bank. Exp ort Credit

Agency inancing programmes supported by governments in many

countries have urther helped increase banks appetite to provide

such inancing.

As a result, the buyer can receive extended pay ment terms. The

lower-cost inancing provided to vendors also strengthens business

relationships or the longer term having the buyers relationship

bank in the chain provides greater comort to the vendors than

traditional, one-o, actoring programm es. This can eed back

into more advantageous sourci ng costs or the buyer. Thereore, a

supplier inancing programme has the potential to transorm what

would otherwise be diicult discussions between a buyer and their

vendors on better payment terms into a win-win outcome or all.

lOrder to cash reers to processes on the revenue generation

side, rom customer order ulilment to the receipt o cash and

applicatio n to outstanding receivable s. As the number o custom-

ers and distributors involved in cross-border trade has increased,

many companies have ended up with processes that are even more

ragmented than on the procurement side. By centralising and

automating this process, irms enjoy several beneits:

mImprovement in timeliness and predictability o cash

collection by eliminating loat in internal processes as well as in

banking procedures

mReduction in internal process costs and banking ees

mEnhanced decision-making rom improved inormation

and analytics.

Also, through receivables portolio nancing and distribution nanc-

ing programmes, rms can support sales growth without extending

the cash conversion cycle. The seller partners with a relationship

bank, which purchases selected customer accounts receivables on an

ongoing basis. The bank t ypically also provides automated servicing

I you run out o liquidityyou havent got much elseBy Elyse Weiner, managing director and global head of

liquidity and investments at Citi

From mid-2007 onwards, as market conditions deteriorated, liquidity

risk rose in treasurers and CFOs estimation until it became regarded as,

perhaps, the primary risk acing a company.

As access to capital markets dried up, banks simultaneously began to

shrink their balance sheets and many companies had no choice but to

turn inwards to sel-und by improving liquidity and working capital

management practices. Even many highly-rated companies, able

to raise cash through the worst o the nancial crisis, demonstrated

a preerence to und internally where easible. This is a signicant

change in mindset rom the period beore the crisis. Now, there is clear

acknowledgment o the risk - i you run out o liquidity you havent got

much else. The key is to retain fexibility to adjust to evolving business

and nancial circumstances.

Many companies miss opportunities to release liquidity through

improving working capital management by not thinking broadly about

the implications or the entire cash conversion cycle. For example, a

sole ocus on payments eciency ails to address liquidity implications

or supply chain risk. Or, a change in pricing strategy supported by the

procurement department might impact treasurys oreign exchange

risk management and liquidity planning.

Treasury has come o age as the owner o corporate liquidity, with

responsibility or applying a corporate nance mindset to drive holistic

working capital management initiatives across the rm. While it

remains important not to dictate to operating subsidiaries on issues

that are best managed at the business level, there is recognition that

eective liquidity and working capital management is o rm-wide

importance.

Banks are integral to the process o improving these practices. As

nancial intermediaries, banks can intermediate between buyers

and suppliers to help both achieve their goals. For example, a trade

nancing solution can provide liquidity to suppliers, while allowing

the sponsoring company to conserve cash by extending days payable.

Similarly, a global cash centralization and pooling structure enables the

company to allocate internal liquidity more eectively across operating

entities and thereby reduce external unding.

At Citi, we leverage our experience and expertise to help clients assess

and realise potential opportunities, by engaging with them in in-depth

inormation-gathering on their current practices and operating proc-

esses across treasury and commercial activity. The rst objective is to

identiy gaps and risks inherent in their current operating environment.

By clearly identiying sources o risk, or areas where perormance sub-

optimal as compared to their peer group, we can then help identiy

means by which to mitigate, oset or negate these risks and improve

perormance. The solution may involve recommended changes in the

clients internal structures, processes and technology platorms, as well

as the application o Citi capabilities to enable the client to optimize

their liquidity and working capital management in an integrated way.

Good working capital management is an eective liquidity lever andthe impact o improvement is measurable and substantial: weve seen

large multinationals enjoy a reduction in working capital requirements

o up to 30%, translating to 2-3% EPS accretion.

Elyse Weiner, managing director and global head of liquidity

and investments at Citi


15/24

and reporting tools. The seller may also choose to give its customers

more advantageous payment terms, in turn enabling them to extend

their days payable outstanding to the seller.

The use o inancial intermediaries can create a win-win situation

and strengthen relationships in the supply chain. The seller is usu-

ally able to increase sales to existing customers without maintain-

ing and inancing more and more receivables on its balance sheet.

The related technology tools also enable the seller to better moni-

tor and mitigate credit risks. The seller can also oer its customers

more competitive payment terms, which enables customers to

continue to buy using the liquidity gained between purchase

and payment.

Cash ManagementLeading treasuries are taking the lead in driving working capital im-

provement initiati ves. As a irst step, this is about embeddi ng cash

low and liquidity risk thinking into the responsibilities and incen-

tives o business unctions across the irm. But many treasuries also

need to look inward to assess the adequacy o its own operations.

Most companies have centralized decisions relating to corporate

inance, capital markets activity, and oreign exchange hedging.

Cash management, on the other hand, has oten been regarded as

a tactical unction that is best managed at in-country levels or rea-

sons o commercial considerati ons. With the increasing importance

o liquidity, more and more treasuries are moving toward ully cen-

tralized approache s to cash management. In doing so, companies

are eliminating many persistent sub-optimal practices, such as:

lToo many operating banks, which limits purchasing power and

ragments internal liquidity

lLimited global visibility into cash positions and lows, which

makes it diicult to do eective cash orecasting, liquidity planning

and risk mitigation

lAd-hoc unding and repatriation o cash between subsidiaries,

which hinders eicient up-or down-streaming o cash within the

organisation and leads to unnecessary external unding costs or

oregone yield.

Where these sub-optimal practices exist, the consequence is that

pools o liquidity are trapped within the system and irms struggle

with monitoring and mitigating oreign exchange, interest rate,

and counterparty credit risks. To overcome these ineiciencies,

treasury departments are working with global banking partners to

consolidate inancial institution operating relationships, rationalise

and integrate cash management processes, and using bank

and technology platorms to support global cash visibility and

centralization.

In surveys by Citi, many treasurers expressed a desire to improve

how perormance is defned and measured. With measurement

essential to management, Citis Treasury Diagnostics research

identifed some o the key perormance indicators used by

leading treasuries:

Income statementlInterest income vs. benchm arks

mMoney market unds (benchmark set by currency)

mBank time deposits (by currency and tenor)

mDemand deposits (by currency)

lInterest expense vs. benchm arks

mShort Term Debt mostly loating rate

mLong Term Debt ixed and loating rate

lBank ees vs. b udget

lForeign exchange gain/(loss) Realised and unrealised

Balance SheetlFinancing/capital structure

mDebt, equity, credit rating vs. target

lInternal liquidity

mCash, short-term investments, and long-term investments

vs. target

lWorking capital utilisation efciency vs. target

mMobilise and centralize cash or all ungible currencies

mMinimise trapped cash in regulated countries

mBank overdrats minimise requency and amount

OtherlCounterparty exposures vs. limits

lExternal liquidity

mBank credit lines utilized vs. available

lInternal unding vehicle fnancials

lContingent liabilities (parent company guarantees, bank

guarantees, surety bonds)

CITI-Thenewliquidityparadigm:Focusonworkingcapital

13 2009 Citibank, N.A. All rights reserved. Citi and Arc Design and Citibank are trademarks and

service marks o Citigroup Inc. or its afliates, used and registered throughout the world. All

other trademarks are the property o their respective owners.

Treasury Diagnostics: Measure to Manage

For urther inormation, please contact

www.transactionservices.citi.com


16/24

Advice and consultancy supportAll o the banks claim they work closely with their corporate clients to

determine the most appropriate liquidity management structure and

processes to meet the companys objectives. Examples o the advice

and consultancy support they oer include ongoing industry advice, a

ocus on the clients end-o-day investment and unding options, build-

ing their clients attitudes to risk into the liquidity management solution,

developing company-specic customized solutions and having a close

regard or diering tax and regulatory considerations around the world.

ImplementationCost-eective liquidity management solutions require high-quality,

speedy implementation. All the participating banks provide dedi-

cated implementation managers and teams using well-proven project

management techniques. BNP Paribas oers an ISO 9001 certied im-

plementation team. Other banks stress the importance o experienced

sta to carry out implementation and the balance between local and

central implementation sta.

Customer service and supportOnce a liquidity management solution has been implemented, cus-

tomer service and support are vital. BNP Paribas oer centralized, multi-

lingual, dedicated, European, again ISO 9001 certied, support. All o the

banks appoint a single customer service contact point or each liquiditymanagement solution. Considerable emphasis is put on the provision

o ongoing training and the integration o specialist liquidity manage-

ment support into the customer service team and on 24/7 support.

Services and products, and distinguishing factorsThe liquidity management services and products the participating

banks provide are all very similar. The descriptions o their overall

distinguishing actors thereore oer the only insight into their thinking

and strategies.

Global liquidity solutionsThe basic model o classic global sweeping, either with or against the

sun, and multi-currency pools typically located either in New York or

London, provided by the large global network banks is now beginning

to be being used innovatively in the Middle East and Asia-Pacic.

Asian energy companyA ast-growing energy company headquartered in Asia with opera-

tions in the US, Europe, Asia, Latin America and the Middle East has

recently rationalized the account structure and cash fows o about 20

o its Asian and European entities. Beore the new structure was im-

plemented the company had managed around 60 US dollar accounts

held with multiple banks, which ailed to optimize its dollar position

across entities and time zones.

The company implemented a cash concentration account structure

with JPMorgan or US dollars rom its Asian and European operations,

opening one account or each o its 20 entities. The accounts are

maintained with JPMorgan in New York and are used primarily or pay-

ments. The company also maintains local currency accounts in Asia, as

well as some dollar accounts. Cash rom the regional dollar accounts

is swept into the concentration account in New York each day and

surplus cash is invested overnight.

This classic liquidity management structure has enhanced the visibility

o cash fows rom the groups regional entities, improved the manage-

ment o cash fows across time zones, reduced the number o banks

by more than 60% and improved the yield on dollar cash balances by

centralizing investment. The company is now looking to extend this

solution to cover all its entities in the Western Hemisphere.

Global metals groupNyrstar is a leading global multi-metals business, producing signicant

quantities o zinc and lead plus other products including silver, gold

and copper. Nyrstar claims to be the worlds largest producer o zinc,

with plants in Europe, Australia and the US.

Nyrstar is introducing a new business organization, in which the metal

(rom the concentrate to the nished product) is owned by a central

commercial entity. The metals business is primarily US dollar-based

and dollar accounts have been set up or making and collecting pay-

ments in Australia, Singapore and the US. Nyrstar uses a Belgian legal

entity to manage centrally the local collections and payments and to

concentrate globally and invest the unds in the US market. The unds

are managed by the groups corporate treasury HQ in Belgium using

Figure 1: Nyrstar local USD pooling and overnight investment sweep

Overnightinvestment

Deutsche Bank Trust Company Americas New York

Nyrstar Sales& Marketing Ltd(operating a/c)

Global USD cash concentrationUS cash concentration account structure

3 2

NyrstarClarksville Inc

(Operating a/c)

Nyrstar FinanceInternational NV(operating a/c)

Nyrstar Sales &Marketing Ltd

Nyrstar FinanceInternational NV

1

Deutsche Bank AG Singapore

Investment ofexcess cash

ZBA intoconcentrationaccount

Local cashconcentrationin Singapore

Nyrstaraccounts

DB Partner bank Sydney

Local partner-bankrelationship in Australia

Global USDcash concentration

Local cashconcentration &

investments in New York

ZBA intoconcentrationaccount

44 3 1

Source: Nyrstar


17/24


18/24

Working capital and

liquidity management:saety rstLosses in the US sub-prime market have had a global impact on corporate liquidity, which hasdriven corporate treasuries to take measures ranging rom squeezing internal liquidity to tighterrisk management o banking relationships. These and other initiatives were discussed duringthe ongoing series o thought leadership orums organised or senior Asian corporate treasurypersonnel by Standard Chartered Banks Transaction Banking team

The sub-prime debt crisis has obviously had a proound eect on

economic activity, which in turn has undamentally aected the way in

which corporations are managing their working capital and liquidity. In

many cases, existing approaches to risk, investment and unding have

had to change radically to cope with a new and very uncertain world.

Bank liquidityOne o the most noticeable environmental changes or treasurers over

the past 18 months has been the drastic reduction and repricing o bank

liquidity. One consequence o the government bail-outs o certain global

banks has been the pressure on those banks to concentrate their lending

in their domestic markets. In conjunction with the more general decline

in lending condence among banks, this has resulted in renancing rates

increasing, despite lower base rates.

Against this backdrop, treasurers are taking various steps to protect their

existing bank liquidity sources. A common strategy is to increase the

requency o contact and disclosure with banks in order to enhance their

comort actor. Another strategy is to pre-empt the possible withdrawal o

unused credit lines by drawing on them even i they are not immediately

required. The negative margin achieved ater depositing this surplus cash

is seen by some treasurers as a liquidity risk premium well worth paying.

One bright spot amid the current liquidity gloom is the role o local

banks. Many local banks in Asia had minimal or no exposure to sub-prime and also have strong retail deposit bases. (For example, in China

local banks hold some 90% o all retail deposits.) They are thereore in

a stronger position as regards both liquidity and lending appetite. As a

result, both multinationals and large Asian companies are supplement-

ing some o their global bank relationships with additional local banks

or both unding and transactional business.

Liquidity timelinesGiven the uncertain market conditions it is perhaps understandable

that treasuries have become very ocused on maximizing the immedi-

ate availability o liquidity. To some extent this goes hand in hand

with risk management, but the overriding concern is to have as much

instantly-deployable cash as possible. Short-term balance sheet cash

levels that would have been seen as inecient two years ago are now

regarded as provident.

I corporates are moving their surplus cash to the short end, the exact

opposite applies in the case o their borrowing, where the overwhelm-

ing trend is to lock in liquidity or as long as possible. This has become

particularly apparent in areas such as trade nance, where companies

that typically roll their requirements over on a three or six month cycle

are now trying to x rates and commitments beyond three years.

Liquidity structuresOther sources o liquidity, such as commercial paper and bond issuance,

have also been drying up. As a result, treasuries have again been ocus-

ing on maximizing the availability and utilization o internal liquidity.

However, attendee consensus at the orums was that only those compa-

nies with intercompany loan and in-house banking structures already in

place could quickly implement processes to enhance internal cash fow.

Unortunately, many corporations that considered establishing in-house

banks in recent years decided that the expense could not be justied, as

bank lending was then cheap and accessible.

With the benet o hindsight, any review o the merits o such projects

would be wise to take into account both the prevailing environment and

a stressed environment. It would have been easier to get such projects

approved i the benets o such a structure were considered in the con-

text o a liquidity drought.

Trapped cashThe question o trapped cash was inevitably a signicant part o attend-

ees discussions and there was a airly immediate consensus that in Asia

this was simply a act o lie. Nevertheless, there were various courses o

action open to treasury that could help minimize the problem. One basic

requirement was to remain abreast o current regulation in each country;

no small task in view o the act that it was constantly changing and that

requent shits in interest rates were increasingly unpredictable.

The next step lay in understanding how this mix o shiting regulation

and interest rates aected what was actually possible in terms o liquid-

ity management. In this respect attendees identied the overwhelming

need or a tool (possibly bank-provided) that would allow them to model

the benets o a regional/global pooling structure incorporating what-

ever was permissible in each country.


19/24

Trapped capitalWhile the question o trapped cash is a common concern or treasuries

in Asia, the orum attendees also discussed the problem o trapped capi-

tal in considerable detail. Corporations hold substantial inventories in

restricted countries as well as plant and equipment, which they regard as

trapped capital. As liquidity rom global banks has evaporated, treasuries

have turned to local/regional banks and have been able to leverage the

value o their trapped capital assets as collateral to support new local

lending rom these banks.

The discussions also covered the question o how the trapped capital

issue might infuence the choice o business models or new markets.

The conventional model o putting plant, people and equipment in a

restricted country to expand the business might be ill advised at present,

as the valuable capital involved would then be trapped. A possible alter-

native was the distributor/agent model, which would support expansion

plans but without needlessly tying up capital.

Bank advisoryThe discussions relating to trapped cash and capital also covered the

advisory role that banks needed to play in these areas. One attendee

outlined her corporations approach to this. We have two categories o

bank: day-to-day transaction banks and relationship banks, she said. We

expect the latter to network with governments and regulators on our

behal. Local banks can help to infuence local regulation, which is invalu-

able - especially in countries such as India and China.

There is an expectation that relationship banks will also provide early

warning o pending or proposed regulatory changes. In the current

environment, with governments likely to be making more requent

changes to protect tax revenues, this is particularly critical. As a result, a

corporations overall opinion o a banking partner tended to be heavily

infuenced by its perception o its regulatory relationships. I a bank was

requently in the headlines or inringing regulations then this did not

bode well or the quality o its regulatory relationships, to say nothing o

the potential risk o guilt by association when using that bank.

Customer liquidity riskWith liquidity tight, most corporates are experiencing opposing settle-

ment pressure rom suppliers and customers. Apart rom attempting to

shorten credit terms, more suppliers are requesting letters o credit and

advance payments. On the other side o the ence, customers are seeking

longer credit periods.

This has been a actor in growing concern over the liquidity implicationso customer settlement risk. To minimize this, some corporates have

been keen to increase direct debit usage by their customers. As a result,

there has been growing interest in bank outsourcing tools that relate to

large-scale management o direct debit portolios.

The ideal is to have a consolidated enterprise-wide picture o all cus-

tomer direct debits that allows portolio-level metrics on risk exposure.

This obviously also provides early warning o any likely deaults and

liquidity shortalls.

Bank liquidity riskWhen it comes to investing surplus liquidity, the emphasis is now very

much on SLY (security, liquidity, yield - in that order). To minimize the

deault risk o deposit-taking institutions (as well as customers), treasur-

ies have radically overhauled their risk proling methods. The requency

o such proling has increased signicantly, with several orum attendees

now monitoring their counterparties on a daily or intraday basis.

This increased requency has been accompanied by a change in the data

used. Conventional credit ratings are now largely seen as irrelevant by

larger corporations, as they are ar too lagging an indicator to be o prac-

tical use. Stock prices, market caps, general daily news and (especially)

credit deault swap rates are generally seen as ar more relevant or this

purpose.

ConclusionCurrent treasury liquidity strategies give an overwhelming but entirely

understandable impression o extreme caution. Yield is o ar less im-

portance than it was, and in virtually every respect cash availability and

de-risking are the main priorities.

That aside, or corporations active in Asia, trapped cash and capital

remain major priorities and this is where they increasingly look to their

banks. Whether it is in encouraging more relaxed regulation to release

existing cash or providing early warning o tighter regulation to avoid

urther cash/capital entrapment, banks are expected to deliver. With

liquidity currently at such a high premium, those that do are likely to nd

themselves rewarded.

ST

ANDARDCHARTERED-Wor

kingcapitalandliquidityma

nagement:Safetyrst

17

For urther inormation, please contact:

Richard Challinor

Managing Director, Transaction Banking

Standard Chartered Bank

Email: [email protected]

Tel: +44 20 78857134

The major shift to the short end of the yield curve


20/24

New specialist solutionsWell-established basic structures, processes and systems are now being

applied to solve diering liquidity management problems such as mini-

mizing the severest impacts o the credit crunch and the development

o the rst Islamic liquidity management solution.

Surviving the credit crunchOver the past 18 months RBS has been helping corporate clients to

adapt their liquidity management structures and procedures to cope

with the changing liquidity environment.

One client was able to preserve its liquidity structure, enable its subsidi-

aries to maintain access to liquidity and remain in ull control o its cash

balances even though bank unding was greatly reduced.

Beore the credit crunch the company had a euro and US dollar

notional pool in Europe with a signicant overdrat limit, in-country ac-

counts in several countries in Europe with an overall material intra-day

limit and an end-o-day ZBA to a central pool. The impact o the credit

crunch was decreased spend and a weak short-term outlook, which

led to a downgrading o the companys credit rating and a signicant

reduction to its bank groups credit support.

The solution RBS provided includes preserving the companys liquidity

structure using its credit balances to cover the reduction in its overdrat

acility, in-country cash balances replacing intra-day credit lines ena-

bling subsidiaries to maintain access to liquidity and ZBAs remaining

end-o-day but with early morning automated unding transactions to

send cash rom concentration to operating accounts.

A second client suered a major business slowdown, which meant it

needed to reduce its use o bank acilities. Working with RBS it was able

to enhance its processes, achieve greater control o intra-day unding

requirements and eliminate dependence on overdrat limits.

Beore the credit crunch the company had dozens o accounts in a

global overlay account structure in RBS branches and other local banks

around the world, a cross-currency notional pool into which the com-

panys RBS branch balances were swept via ZBAs and other local bank

balances via multi-bank sweeps with pool surpluses swept to the home

country to minimize short-term debt. The company also had a large

overdrat limit and even larger intra-day credit limit including some

intra-country limits.

The solution RBS now provides has led to the company enhancing its

internal processes and cash fow control to reduce the use o intra-day

credit limits and bank pre-unding and the earlier release o unds to

und the companys European pool. The companys in-country limits

have been considerably reduced but still cover 90% o cases with the

modication o in-country ZBAs to work on an intra-day basis and,

where suitable, the replacement o automated structures by manual

structures.

Phillip Lindow, head o global treasury and investment management

at RBS, says, For each o these cl ients we were able to work with them

to identiy pain points in their cash pools during the day, and adapt

our solutions to assure that intra-day and end-o-day liquidity were

deployed as needed.

The frst Islamic banking liquidity managementsolutionIn mid-2009 Standard Chartered Bank (SCB) developed the Middle

Easts rst ully Islamic liquidity management solution or a Middle

Eastern conglomerate with diverse business interests including auto

dealerships, real estate, leasing, interiors, logistics and IT consultancy

across the region. The conglomerates liquidity management objectives

were to implement single-point, real-time visibility o all bank account

balances, streamline account structures to improve operational e-

ciency and optimize liquidity management through cross-border cash

concentration and enhanced yields.

These are not unusual objectives or a liquidity management structure.

The challenge or SCB lay in developing a notional pool made up o Is-

lamic accounts. This required signicant changes to SCBs systems and

calculations. SCBs dedicated Islamic banking product team advised

on the changes required to the core banking, liquidity management

and reporting systems to make them ully Shariah-compliant with the

Islamic banking concept, murabah.

UAE, Dubai

Dubai

LCY

Sub A A/C

LCY

Sub A A/C

LCY

Islamic A/C

LCY

HoldingIslamic A/C

LCY

Sub B A/C

LCY

Sub B A/C

LCY

Islamic A/C

Oman

LCY

Islamic A/C

Notionalpooling

str

liquidity management 09

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