Risico’s van crowdfunding

| 2-12-2016 | Lionel Pavey |

moneyii

 

Crowdfunding is een nieuwe financieringsdienst die nog aan het ontwikkelen is. Er zijn 2 grote vormen – investeren in bedrijven (equity funding) en lenen van geld (loan funding). Geldvragers en geldgevers vinden elkaar via een crowdfunding platform. Maar wat zijn de huidige risico’s?

10 Aandachtspunten bij de keuze van Crowdfunding

Ik heb me er even in verdiept en kom er op de volgende 10:

  1. Toezicht – voorlopig zijn er geen toezichthouders of kaders om de markt te reguleren
  2. Due diligence (boekenonderzoek) – voorheen was dit een taak van een bank. Met al hun kennis en expertise waren banken in staat om een goede schatting te maken van de haalbaarheid van de aanvraag van een lening. Nu moet de geldgever dat allemaal zelf gaan onderzoeken – het is de vraag of de gemiddelde geldgever hierover de juiste kennis heeft.
  3. Stabiliteit van een platform – dit gebeurt bijna volledig online en heeft een sterke ICT structuur nodig om alles goed te waarborgen. Vaste gegevens van partijen, lening administratie etc. staat allemaal online. Wat gebeurt als de platform failliet gaat?
  4. Fraude – zowel bij de platform, als de geldvrager of geldgever. Zo kan een geldgever bijvoorbeeld proberen zijn geld wit te wassen.
  5. Secundaire markt – er is geen secundaire markt waardoor een huidige lening/investering niet verhandelbaar zijn.
  6. Voorwaarden – de contracten worden opgesteld door de platform. Zijn alle voorwaarden acceptabel voor iedereen?
  7. Kosten – wat zijn de kosten voor de platform? Zijn deze transparant en redelijk?
  8. Intermediair – een crowdfunding platform is een intermediair tussen geldvragers en geldgevers. De intermediair moet onpartijdig zijn voor iedereen – waar is de controle?
  9. Samenwerking – alle platforms zijn onafhankelijk van elkaar, dus geen uniformiteit en standaardisering
  10. Markt informatie – wat zijn de resultaten van iedere platform. Zijn er cijfers over defaults, behaalde rendement en kosten

10 punten om goed over na te denken als je overweegt om crowdfunding in te zetten. Maar, gezien de huidige bank deposito tarieven zijn rendementen tussen 6 en 10% via crowdfunding wellicht toch aantrekkelijk.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

To be or not to be – what happens next to the Euro?

| 22-11-2016 | Lionel Pavey |


In the last few weeks, there have been many news articles published, by well-known people, about the state of the union:

  • Frits Bolkestein (former European Commissioner) – monetary union has failed. In 10 years there will be a large D-mark block in northern Europe
  • Joseph Stiglitz (Nobel prize winner Economics) – the euro’s days are numbered
  • Otmar Issing (former chief economist ECB) – one day the Euro “house of cards” will collapse
  • Jacques Delors (former president of the EC) –  at some point, Europe will be hit by a new economic crisis. We do not know whether this will be in six weeks, six months, or six years. But in its current set-up, the euro is unlikely to survive that coming crisis.

End of the Euro?

More than 15 years after its creation, has the Euro run its course? After countries put all their effort into meeting the convergence criteria, did they forget to look at the diverging competitiveness between themselves?

There are numerous political elections and referendums in the next year – Italian constitutional referendum, elections in Austria, France, Germany and the Netherlands. There appears to be a rise in anti-European sentiment expressed by both voters and politicians. After the perceived surprise results in the Brexit referendum and the presidential elections in America, it would be prudent to consider all possible outcomes.

So what would happen if the currency union ceased to exist? We can look back in recent history to the breakup of both the Soviet Union in the 1990’s and the Austro-Hungarian Empire in the 1920’s. A split in the current Eurozone would appear to follow a North-South divide, leading to a revaluation of the currencies in the North and a devaluation in the South. Thanks to modern technology it would be possible to sell bonds of southern countries and move the proceeds to the north almost instantaneously. Despite the huge upheaval – rising inflation and unemployment, declining growth and investment, the situation would eventually normalize as can be seen in the new countries that were previously part of the Soviet Union. But this would all come at a very large price.

Consequences for companies

But what about the consequences for companies? If a contract existed between a Dutch company and an Italian company many questions would need to be answered – which contract law takes preference, in what currency should the contract continue, who bears the risks involved? What happens to a loan extended to a Spanish company by an Austrian bank and denominated in Euros that are no longer legal tender? It would be prudent to look at all the possible risks that a company could face if the Euro were to replaced by national currencies – what cross border contracts do they have, what is the impact to the company’s profit if the new currency devalues, what are the terms and conditions in existing loan documentation regarding covenants, how many new bank accounts would need to be opened to allow trading to continue.

Can the Euro survive? Personally, whilst the idea was good, the reality has been different. It requires a complete “One Europe” – monetary, fiscal, political, defence, law etc. Could this ever be achieved and do the people of Europe really wants this – now that is the question.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

 

 

Where does America go from here – what are Trump’s policies and how will they affect the economy?

| 14-11-2016 | Lionel Pavey |

photo-1432164245265-ab19a48c3d09

 

 

Infrastructure – a massive investment programme (a trillion dollar rebuilding programme).Trade – renegotiating NAFTA, opposition to TTP AND TTIP. Increase in tariffs on Chinese goods. Taxes – reduce and simplify taxes for individuals. Reduce corporate tax to 15%. Repatriate corporate cash held overseas with a one off 10% tax and then close all the existing loopholes. Spending – increase in Defence spending. Reduce current Government spending through efficiencies. Economy – increase annual GDP growth to 4%.

 

 

So how does it add up?

Investment in infrastructure is a positive – it leads to extra jobs and improvements in the country. Taking a more restrictive stance on trade treaties, whilst protecting America, could lead a reciprocal trade wars. Simplification and reduction in direct taxes will increase wealth and should lead to higher expenditure. Would be perfect if that money was used to buy American goods. Increasing annual GDP by 4% is very ambitious – has rarely been achieved in the last 40 – 50 years.

These policies would lead to a large increase to the Budget deficit – it would be a huge risk to expect increases in American productivity to be more than enough to cover the gap. We could expect to see interest rate rise, though the market was already expecting that.Trade wars would have a negative effect on the dollar.

The big problem is that Trump is a “known unknown”, a maverick and not someone that can be easily read by political experts.

If his actual stance is as strong as his political campaign then there could be serious consequences for global growth and trade. Interest rates will rise and the dollar will be volatile for the foreseeable future, and things will change. Whether it leads to improved growth in Europe – we shall have to wait and see.

Lionel Pavey

 

 

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

 

Experts talk about a DIY Approach to Corporate Borrowing

| 07-11-2016 | Douwe Dijkstra, Lionel Pavey |

corporateborrowing

 

Last week we came across an article about DIY Corporate Borrowing (gtnews.com). The author stated that: “A do-it-yourself (DIY) credit application using publicly available information can help corporations better understand how they are seen by lenders and cuts the risk of financing not being available when it’s most needed.” We have asked our cash management experts Douwe Dijkstra and Lionel Pavey to give us their opinion on this approach. 

 

 

douwedijkstrarondDouwe Dijkstra
“I would like to react to the paragraph: “Services, such as cash management, trade finance and other fee-based services, require little or no equity for the bank to sell them and can appear to be much more profitable. From time to time a bank will instruct its sales force to push the products and services that require less capital and restrict sales of capital intensive ones such as loans.”

In my opinion banks nowadays already include exclusive provisions in their loan documentation for additional side business when providing finance to corporates. As a consequence you find yourself condemned to the cash management solution of a bank which is far from efficient for your purposes i.e. they do not have a presence in your area or one of the areas where you are active. The same is true for the “no further indebtedness” clauses in their loan documentation that prevents you, as a treasurer, selecting the best fitting financial product for your company. As an interim treasurer working for several private equity owned companies I am often faced with these restrictions. Regularly private equity companies have already signed the loan documentation without properly assessing side business terms in the contract. ”

lionelrondLionel Pavey
“Money is a commodity that is fungible – it is homogeneous and can be exchanged or replaced by a similar unit of currency and we would be indifferent to this change.

However, loan documentation is certainly not homogeneous – a quick scan through the documentation of different lenders will show different terms and conditions.

A DIY credit application therefore requires the existence of a standard set of documents. There are certain examples, such as the Loan Market Association, who do attempt to make standard documentation.

Up to now banks have traditionally been the suppliers of credit to companies, though there is no law or reason stating that they have the sole right to do this. To open up the loan market to third parties would require clearly defined documentation, along with criteria that must be met to engage with the market – detailed accounts that have been signed off and approved by independent auditors etc.

Lenders would have to submit their audited figures within an agreed timeframe so as not to be in default on their loans.

If such a market did come into existence and it was truly open to all contributors, it would also lead to fair greater transparency of the pricing policy that lenders use. The price of debt for each and every level of credit rating could be observed, together with implied premiums for country, industry etc. This is the opaque area where banks have a clear advantage – they have their own internal guidelines and pricing mechanics that no one else gets to see. The pricing should be more transparent – this would enable potential borrowers to have greater insight into price discovery which is a cause of concern for many funding issues as, for many companies, it is difficult to passively see what the potential price of debt for them would be.

An opening up of any financial market should be welcomed and make it easier for other potential lenders to see what risks the rest of the market are prepared to accept and also price changes. This would then allow companies to better manage their external relationships – they can separate their loan relationships from their core banking relationships.”

 

Has the Bond bull market run out of steam?

| 02-11-2016 | Lionel Pavey |

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The yield on Dutch 10 year government bonds has increased sharply in the last month (October 2016) –from 0.02% at the start of the month to 0.28% at the end – bond prices of course move in the other direction and have gone down. Why?

Possibility that the Federal Reserve will raise rates in America? Uncertainty over when the ECB will end their QE programme and the knock-on effects in the market?



ECB president Draghi has not said if the programme will end in March 2017 as originally envisaged. As monetary policy has not delivered the boost to the economy that was expected, maybe it is time for Government to look at changes to the fiscal policy via a Keynesian stimulus leading to lower taxes and an increase in direct government spending.

So if the bond market has reached the bottom and prices will start to rise, what will be the consequences?

The ECB is holding over EUR 1 trillion worth of bonds – can they unwind this position? Immediate selling would lead to a collapse in prices and a large increase in interest rates – deflating an already fragile economy and withdrawing liquidity from the financial system. Could the debt be monetized – the scale involved has never been seen before, so difficult to say.

But, what will happen to bond prices when yields start to rise?

If the yield on 20 year government bonds in the EU was to increase by 2% from their current levels, this would lead to a fall in price of 25%. If the yield on 30 year government bonds in the EU was to increase by 3% from their current levels, this would lead to a fall in price of 44%.

As the ECB would have to sell their existing bond holding at lower prices, there would be a huge loss on their portfolio – who ultimately would have to bear this loss?

What would be the effects on the equity markets – there has to be a knock-on effect if bond yields rise leading to a fall in equity prices. Is the current fragile market able to absorb these transactions – is there enough liquidity in the market?

Very worrying times ahead – companies will have to review their funding strategies, but this can lead to opportunities.

Lionel Pavey

 

 

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

Uitgelicht: Tobintaks

| 20-10-2016 | Lionel Pavey |

robintaks-lionelpaveyDe Europese Commissie heeft van tien lidstaten de opdracht gekregen om voor het eind van het jaar een richtlijn voor de Europese Tobintaks op te stellen. Oostenrijk, België, Frankrijk, Duitsland, Griekenland, Italië, Portugal, Slowakije, Slovenië en Spanje zijn het op 10 oktober eens geworden, de Europese versie van de transactie belasting gaat er komen. We vroegen Lionel Pavey wat hij hiervan denkt.

De tobintaks of financiële transactietaks (FTT) is een kleine belasting op valutatransacties, die in 1971 naar aanleiding van het de facto afschaffen van het systeem van Bretton Woods, door de Amerikaanse econoom en Nobelprijswinnaar James Tobin werd voorgesteld.

Welke financieel producten zijn belastbaar – valuta, obligaties, aandelen, derivaten? En wat is het doel van de Tobintaks – inkomst genereren of speculatieve handel verminderen? Denk hier aan flitshandel.

Waar gaan de opbrengsten naar toe? BIS onderzoek (2016) ziet een dagelijkse omzet voor valutatransacties van USD 5 biljoen. Meer dan 75% van deze handel is buiten de Europese Unie: Verenigd Koninkrijk, Verenigde Staten, Japan, Singapore en Hong Kong. Allemaal dus buiten beschouwing van de Tobintaks.

Met een belasting van 0.01% (omgerekend 1 pip op een valutatransactie) wordt een opbrengst gegenereerd van maximaal EUR 30 Miljard. De handel zal zich echter ook verplaatsen naar landen waar geen belasting is (weer Verenigd Koninkrijk in Europa) – dus nog minder opbrengst.

Ook zal er minder liquiditeit zijn in de markt waardoor het moeilijker wordt om een transactie te sluiten. Moet er een verschil zijn tussen een speculatieve transactie en een “hedging” transactie?

Er zijn, voorlopig, meer vragen dan antwoorden.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

 

 

 

Uitgelicht: Staatsschuld

| 04-10-2016 | Lionel Pavey |

buildingafmHet ziet er goed uit in Nederland; financieringsbehoefte voor 2016 valt EUR 9 miljard lager uit dan verwacht; begrotingstekort in 2017 naar EUR 3 miljard – een verbetering van EUR 5 miljard ten opzicht van 2016; rentelasten in 2017 EUR 1,4 miljard minder dan in 2016; de staatsschuld daalt naar 62% van het bbp. Van de andere kant komen de volgende feiten; de staatsschuld is opgelopen van circa EUR 250 miljard in 2006 tot ongeveer EUR 440 miljard in 2016; de lasten zijn omhoog gegaan (BTW verhoogd) terwijl de uitgaven zijn verminderd; sinds 2009 zijn de overheidsuitgaven bijna onveranderd terwijl de staatsschuld is opgelopen.

Nederland heeft meer dan EUR 300 miljard in uitstaande staatsobligaties. In de periode 2017 tot en met 2020 wordt er voor bijna EUR 150 miljard aan staatsleningen afgelost. Deze worden grotendeels vervangen door nieuwe staatsleningen. Dit zijn geen nieuwe investeringen in Nederland – het geld is al eerder uitgegeven.

Minister Dijsselbloem geeft aan dat Nederland moet investeren om de economische groei in Nederland aan te jagen, terwijl de overheid nog geen stimulerend beleid kan voeren. De huidige staatsschuld is een beroep op de toekomstige inkomsten van alle Nederlanders – vooral de jongere generatie. Dit impliceert dat er minder geld beschikbaar zal zijn voor investeringen die nodig zijn voor infrastructuur, onderwijs, enzovoorts.

In een normale economische cyclus zal de staatsschuld verminderd worden als een land niet meer in een recessie zit maar, gezien de omvang van de staatsschuld en de wens om te investeren in de toekomst, is het de vraag of Nederland daadwerkelijk de staatsschuld kan terugdringen.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

Cash is king. Profit is an opinion.

| 23-09-2016 | Lionel Pavey |

business-361488_960_720Afgelopen week stuitten we op het bericht dat ruim 20 miljard aan liquide middelen vast zit in het werkkapitaal van toonaangevende organisaties in Nederland en België. PwC deed een werkkapitaal onderzoek en ontdekte dat er nog genoeg mogelijkheden zijn om de werkkapitaal situatie van deze organisaties te verbeteren.(Bron: creditexpo.nl) treasuryXL vroeg expert Lionel Pavey naar zijn visie op dit onderwerp.

Het is zeer belangrijk voor bedrijven om liquide middelen vrij te maken. Meestal concludeert men dat dit leidt tot een verbetering wat betreft de openstaande posten op crediteuren en debiteuren.

Echter, er zijn veel meer voordelen: Operationeel gezien leidt dit tot een verbeterde relatie met klanten, hogere waardering van de data rapportages en vaak een goed inzicht in de juiste processen, die ook efficiënter worden.

Qua geld gezien, wordt minder vreemd vermogen nodig in de vorm van leningen, bestaande leningen kunnen sneller afgelost worden, geld komt vrij voor eigen investeringen en het behaalde rendement op eigen vermogen kan hoger liggen.

Om dit allemaal te realiseren moet er een goed plan komen met directe input van inkoop en verkoop afdelingen, voorraden, crediteuren en debiteuren administraties. Hierna moet er 1 eigenaar zijn van het hele proces die input krijgt van controllers, business managers en inkopers.

Nil volentibus arduum – of – niets is onmogelijk voor hen die willen

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

How long can interest rates stay so low?

| 08-09-2016 | Lionel Pavey |

rating

How long can interest rates stay so low? When we talk about interest rates, it is helpful if we know the basic theory of how the level of an interest rate is determined.Classical thinking states that there are 5 components in interest rates (x).

 

5 Components in interest rates:

  • Risk free rate – a constant rate with no inflation
  • Inflation – the future expectation for inflation is added to the risk free rate.
    These, together, are called the nominal interest rate
  • Default risk premium – the individual credit score of the borrow
  • Liquidity premium – compensation for offering a product that can be difficult to sell on
  • Maturity premium – in a normal positive yield curve, longer maturities have a higher interest rate

A review of various data providers show that the “indicative rate” for a bullet loan with a maturity of 5 years for a Dutch local authority would be 0.06% per annum. Let us look as this rate compared to the 5 components already mentioned.

C, D and E are all premia and would, therefore, have a positive value. Even if their collective value was zero, it would imply that “nominal” 5 year interest rate would be 0.06%. This nominal rate, as previously stated, comprises both the risk free rate and the expected inflation.This leads to the presumption that either risk free rates are zero or that future expectations of inflation are negative.

According to the ECB inflation (HICP) index in July 2016 prices rose by 0.2% as an annual percentage change. The target inflation rate for the ECB is below, but close to, 2% over the medium term. Central banks set interest rates whilst keeping a watchful eye on headline and expected future inflation (it is a lagging indicator). Many studies claim that inflation indices overstate the true inflation figure, which would imply that the true inflation change would be zero or slightly negative.

If we were to enter a recession now there would be no room to use monetary policy as done previously as there is no space to lower rates any further. This would then only leave fiscal policy, but there is no unity within the Euro zone on fiscal policy.

It would appear that the present policy of quantitive easing (QE) has lead us to very low interest rates coupled with minimal inflation and no significant growth in GDP. Therefore, it is not improbable to envisage the current period of very low interest rates being maintained for quite some time in the future.

Furthermore, when QE stops, the ECB will eventually have to sell the bonds they are holding. Such an action could, conceivably, lead to a large rise in interest rates causing disruptions in the economic cycle. In the current environment, monetary policy can not revive the economy.

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

Why companies still use Excel

| 25-08-2016 | Lionel Pavey |

spreadsheet2
Do you still rely on spreadsheets in your daily treasury operations? We have read multiple articles on this subject lately and we decided to ask our community: Why do treasurers still rely on spreadsheets? Yesterday Jan Meulendijks gave us his opinion on the topic. Today expert Lionel Pavey talks about the benefits of using Excel in your company.

Why do companies use Excel?

Cost – it is part of the Microsoft Office Package; low maintenance costs

Use – everyone has some level of proficiency with Excel

Versatile – data can be customized to your own requirements

Simplicity – comes preloaded with over 400 different formulae, though far less than 100 are truly needed for Treasury purposes

Training – most people learn on the job, no need for expensive courses to help people use the software

Flexible – give the same data to different people and see how they uniquely extract the data they need to answer their queries

Compatibility – all relevant data that is present on standalone accounting software etc. can be exported into Excel and adjusted for individual purposes to achieve the desired results

Problems with Excel?

Ignorance – getting staff to comprehend the route from input to output

Errors – not incorporating checks and balances that can highlight discrepancies

Individualism – is the output only for your consumption or is it passed on down through the chain, enhanced and then passed on again?

Disarray – everyone applies different fonts, layouts, conditional formatting. Should be a company policy in place to determine how data is collated and presented

Uncertainty – why do people insist on hiding columns and rows?

Duplication – the same spreadsheet data is present on many PC’s at the same time with subtle but significant differences. Someone has to own the original document

Solutions?

Dedicated BI software – expensive, no value outside of the present company normally, requires regular maintenance, multiple departments have to sign off before it can even be implemented, constant reviews of whether the correct modules are present, system updates

Design Structure – implement a company policy clearly dictating how “shared” spreadsheets are to be designed.

Input Structure – agree who delivers what, to whom, when and in the agreed format

Share results – allow other people to see how their data has been incorporated into the final reports so they can appreciate the significance of their contribution

Ownership – define who owns what part of the process (their level of responsibility) and who owns the spreadsheet

Reports – ensure that the end users clearly define what they require at the start. 10 versions of a spreadsheet before they get what they wanted means they did not know what they wanted or did not communicate clearly

Conclusion

Excel is well known, robust, versatile and understood. For cash flow forecasting 4 or 5 secure “master” spreadsheets can allow for most situations – daily cash flow recording, future cash flow forecasting, agreed budget, capital expenditure plans, funding commitments. These have to be well protected and isolated on the hard drive. Everything is a trade off – nothing will give you 100 per cent accuracy. However, if you can relatively simply design the required spreadsheets then data is always up to date and available when needed. This covers the 80 per cent of the time maxim– the other 20 per cent you will have to work harder to achieve. Excel is not going away – every new versions even more functionality that allows us to achieve the required level of input more easily whilst ensuring that the output can be better analysed and interpreted.

 

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist