De 403-verklaring van Shell inzake de NAM. Een analyse.

| 14-02-2018 | Theo Paardekooper |

 

De juridische en fiscale structuur van een groep van ondernemingen is een belangrijk onderdeel van het framework waarin een treasurer zijn werkzaamheden verricht. Bij het aangaan van aansprakelijkheid voor het uitvoeren van een groot bouwkundig project, het geven van borgstelling voor financieringen en het sluiten van cashpools is deze juridische structuur een belangrijk item. Ook het publiceren van informatie aan de markt is hierin een onderwerp.

 

 

Uit informatie van de Kamer van Koophandel blijkt dat op 8 juni 2017 Shell de voor NAM verstrekte 403-verklaring heeft ingetrokken. De NAM heeft op 2 juni 2017 haar jaarrekening over het boekjaar 2016 gedeponeerd. De Groningse inwoners maken zich echter zorgen. In hoeverre kan hun toekomstige claim betaald worden door de NAM? Wat als deze claim niet financieel gedragen kan worden? Welke rechten hebben partijen met een claim en wat is de impact nu voor Shell? Op deze vragen volgt in dit blog een antwoord.

STERKMAKING AAN DOCHTERMIJEN EN DE 403-VERKLARING

Sterkmakingsverklaringen van moedermijen aan dochtermijen zijn een bron van juridisch conflict. Een bekend voorbeeld hierin is de Ceteco affaire. Moedermij handelshuis Hagemeijer had een sterkmakingsverklaring afgegeven voor de financiering van haar dochtermij Ceteco. Toen deze dochter failleerde bleek dat zowel de banken als de provincie Zuid-Holland een grote oninbare vordering hadden, die uiteindelijk niet verhaald kon worden op de moedermij. De toenmalige Commissaris van de Koningin Leemhuis-Stout moest om deze affaire aftreden.

De 403-verklaring is ook een sterkmaking van de moedermij aan haar dochter. Maar wat betekent deze sterkmaking? Banken sluiten per definitie hun eigen hoofdelijke aansprakelijkheids aktes naast deze 403-verklaring. Omdat de 403-verklaring door de moedermij eenzijdig kan worden opgezegd, willen de banken niet verrast worden door deze plotselinge intrekking van de aansprakelijkheid van de moeder.

De 403-verklaring is in essentie bedoeld om de administratieve lasten te verlagen en biedt de mogelijkheid om informatie van dochters voor concurrenten geheim te houden.
De aansprakelijkheid uit hoofde van de 403-verklaring reikt verder dan vorderingen die rechtstreeks voortvloeien uit rechtshandelingen. Ook vorderingen tot schadevergoeding wegens vernietiging of ontbinding van een overeenkomst vallen hieronder, maar vorderingen uit hoofde van een belastingaanslag of onrechtmatige daad zijn weer uitgesloten.

IMPACT VAN INTREKKING

Terug naar Shell. Wat houdt de door Shell afgegeven 403-verklaring in? De 403-verklaring betreft een verklaring naar aanleiding van art 2:403 van het burgerlijk wetboek. Hierin staat dat een dochtermij geen jaarcijfers hoeft te publiceren mits (lid f) een rechtspersoon (in dit geval Shell) zich hoofdelijk aansprakelijk stelt voor de uit de rechtshandelingen van de vennootschap (NAM) voortvloeiende schulden.

Het intrekken van de 403 verklaring is in artikel 404 beschreven. In lid 2 staat hierin echter vermeld dat de aansprakelijkheid blijft bestaan voor schulden die voortvloeien uit rechtshandelingen die zijn verricht voor de intrekking van de verklaring. Schuldeisers hebben 2 maanden de tijd om zich te verzetten tegen intrekking van een 403 verklaring. Voor bestaande verplichtingen blijft de hoofdelijkheid gehandhaafd.

Het verhalen van de aardbevingsschade op NAM valt echter niet binnen de 403 verklaring van Shell. Deze schade wordt namelijk betiteld als een onrechtmatige daad. Pas als de NAM een schikking zou treffen, dan komt de 403-verklaring weer om de hoek kijken.

Wat gebeurt er nu bij een claim? Kan NAM zelf de schadevergoedingen van de Groningers betalen?
Uit de jaarrekening over 2016 blijkt dat NAM 60% van de schadevergoeding voor haar rekening neemt. In 2016 is EUR 98 miljoen onttrokken aan een voorziening; groot EUR 495 miljoen.
In 2016 is het personeelsbestand met ca. 500 fte ingekrompen. Deze reorganisatie was ingezet als gevolg van lagere omzet en hogere operationele kosten, o.a. voor schadevergoeding van het Groninger gasveld. De netto winst over 2016 bedroeg EUR 526 miljoen. Hiervan is EUR 469 miljoen aan dividend uitbetaald aan de aandeelouders Shell en Exxon. Het eigen vermogen van NAM is met EUR 197 miljoen bescheiden. De bezittingen van NAM betreffen met name de waarde van de toekomstig winbare reserves van EUR 3 miljard. Ergo, NAM kan alleen betalen als het gas uit de grond blijft halen en daarom is een 403-verklaring van Shell voor de inwoners van Groningen een belangrijk zekerheidsinstrument, mits een schikking wordt getroffen.

Maar is de terugbetaalcapaciteit van NAM relevant bij een 403-verklaring? Feitelijk is het antwoord “nee”. De Hoge Raad heeft bepaald in het AKZO-ING arrest dat er geen sprake is van een borgtocht, maar dat sprake is van hoofdelijkheid van de moeder. Dit betekent dat niet eerst NAM de verplichting hoeft te voldoen, maar direct Shell kan worden aangesproken op een schadeclaim.
Praktisch zal eerst NAM een claim krijgen, maar Shell kan zich niet verschuilen achter NAM.

IFRS IMPACT

Shell consolideert NAM in haar jaarcijfers. NAM wordt als een joint operation in IFRS geclassificeerd. Na het intrekken van de 403-verklaring zal Shell de NAM blijven mee consolideren. Het wordt nog wel interessant of de accountant in staat blijft om een goedkeurende verklaring aan NAM te blijven geven. De huidige voorzieningen voor de aardbevingsschade zijn immers te laag. Als de gaskraan verder wordt gesloten, dan kan de NAM niet anders, dan hulp van haar moedermijen vragen, voor de waarborging van haar continuïteit.

What’s in it for Shell? Doelstelling was om het publiek duidelijk te maken hoeveel de staat aan de gaswinning verdient en hoeveel NAM. In de verdeling van de schade is informatievoorziening belangrijk. Echter, het intrekken van de 403-verklaring was hiervoor helemaal niet nodig.
Subsidiair is het verkrijgen van een betere onderhandelingspositie tegenover de overheid een uitgangspunt. Maar het is echt naïef van Shell/NAM om te veronderstellen dat hierin enig voordeel te behalen valt. De publieke opinie doet hierin haar werk.

CONCLUSIE:

Nu Shell heeft verklaard om op papier garanties te verstrekken voor de aardbevingsschade is mijn advies aan Shell om de 403-verklaring weer bij de KvK te deponeren. Alle beperkingen aan de garantie zullen via politieke en publicitaire druk worden aangevallen, leidend tot een veel grotere imagoschade.

De Brent Spar ontmanteling en de daaraan gekoppelde boycot van Shell producten in Nederland en Duitsland zal menig oud gediende bij Shell nog goed in het geheugen liggen.

Een geruststellende gedachte voor de Groningers.

 

Theo Paardekoper 

Independent treasury specialist

Can it all be about the Treasury yield?

| 13-02-2018 | treasuryXL |

Since the beginning of February there has seen large declines in all the major stock markets – Dow Jones down 9%, AEX down 7%, DAX down 7%, FTSE down 5%. The major reason given is that the market has been disturbed by the thought that interest rates in the US will rise more quickly than previously expected as prospects of inflation come to the fore. Going counter to this thought is the explanation that stock markets achieved good growth in 2017 – all major markets were up with some growing by 15% – and that this is a bout of profit taking, before participants will buy on the dip.

There is a major rethink as to the predicted treasury yields for the end of 2018. The German 10year Treasury yield, which is seen as a benchmark in the Eurozone, had an average yield in 2017 of about 0.30%. In the first six weeks of 2018 this has more than doubled and the yield is now 0.72%. Reports that had been published at the end of 2017 are rapidly being updated as the predictions are adjusted for the reality of the current market. A quick look at the websites of major banks show a consensus that the yield could easily be 1% at the end of 2018.

As the German 10year Treasury is a benchmark for pricing other long dated instruments within the Eurozone, this implies that all other rates will be rising faster than expected. If we assume that spreads between Interest rate swaps (IRS) and Treasury remains fairly constant, this would imply that 10year EUR IRS will have a fixed rate around 1.50% by the end of 2018 having averaged around 0.80% for 2017.

Included is a graph showing the price movement of 10Y EUR IRS since start of 2017

At the moment headline inflation is remaining stable, but it appears that the market is expecting inflation to move higher in 2018. The increase in the yield of US 10 year Treasury rates has been more rapid than expected – at the moment the yield is almost 2.90%. It would appear that the increase in US rates is pulling other currency yields higher. Furthermore rises in US interest rates will have an impact on FX hedging policies for companies.

Treasury yields have been in a bull market for almost 40 years – in the early 1980s the yield on 10year German treasury was around 10%. This fell gradually and actually turned negative in 2016. Are we entering a new bear market?

TREASURY FOR NON-TREASURERS: The good, the bad and the ugly of outsourcing

| 12-02-2018 | treasuryXL |

Planning & OperationsIn January 2018, Carillion – a British construction, engineering and facilities company – entered into liquidation. They had been in existence since 1999 after a demerger from Tarmac, which had been founded in 1903. They were the second largest construction company in the British isles, employing more than 40,000 people and were listed on the London Stock Exchange. They were known for their role in Private Finance Initiative (PFI) schemes – a form of Government outsourcing. Their insolvency has led to the loss of jobs, shutdowns of ongoing projects, and financial losses to more than 25,000 pensioners and 30,000 suppliers.

Outsourcing is a method used by most Governments in Europe to buy a particular service as opposed to providing the service directly. This allows a Government (or a company) to identify their core competencies and to buy in the ancillary services they need to perform all their tasks. A big motivator is of course related to cost. For a company this means only employing those staff that are needed for the core operations and hiring in those needed for non-core functions, such as pay roll. For Governments it allows large direct capital expenditure to be removed from the balance sheet whilst still providing necessary services for maintenance and construction in the general infrastructure within the country.

In simple terms, however frustrated we might be with builders or manufacturers, we generally recognise that it is more efficient – both financially and economically – to have external suppliers perform these functions. We do not possess the knowledge or proficiency to undertake building our own homes or designing and fitting our own kitchens. It is more acceptable to hand complex tasks over to others, and so make the procedure more accountable and manageable.

Likewise for companies it is imperative to determine whether to employ permanent staff to undertake their treasury and cash management operations, or to look at buying in the relevant knowledge and expertise. Many companies do not have a dedicated treasury team. Regularly, the work of a treasurer is incorporated into the work of another existing role within the organisation. This can be performed by the CFO, a controller, or the head of planning and control. Invariably, none of these people actually have the complete skill set to perform the treasury task.

When financing is needed for long term investment, contacting 3 banks and just taking the cheapest quote is not actually the same as getting the best deal. The individual banks could have different standard terms and conditions. The ratios expressed in the bank covenants could also differ from bank to bank. Implementing a hedging strategy for foreign currency requires a deep knowledge of the company’s cash flows, sales and purchases, and comprehensive understanding of the different financial products that can be used to hedge the risks.

Employing someone fulltime to perform these tasks is counterintuitive if there is not enough work for that person to be employed full time. Other staff could be resentful; the person could become disenchanted if there is not enough of a challenge in the work; a lack of continuity within the company could exist.

However, employing someone on a flexible basis to do the work that needs to be done and nothing else, allows direct payroll to be cut, a dedicated and proficient person is employed to perform the tasks, and the company can yet again focus on their core competencies.

Are you facing these issues? Are you looking for a professional solution?
Flex treasurer offer you a bespoke solution to address your individual needs.
Contact us for more information and answers.

 

Lionel PaveyLionel Pavey – Cash Management and Treasury Specialist

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IBM-Maersk Blockchain Platform: Breakthrough for Supply Chain?

| 09-02-2018 | Carlo de Meijer |

There are various signals that a number of corporates are moving their blockchain projects towards production. We recently have seen the announcement of the IBM – Maersk project, to create a blockchain based corporate. If accepted in a sufficient way by the various players in the shipping industry supply chain that could mean a real breakthrough for blockchain and other distributed ledger technologies. “The big thing that is missing from this industry to digitize and unleash the potential of the technology is really to create a form of utility that brings standards across the entire ecosystem,” Maersk’s Chief Commercial Officer Vincent Clerc.

Present challenges in the shipping industry

This announcement is an answer to the growing demand across the shipping industry for efficiency gains and opportunities coming from streamlining and standardising information flows using digital solutions.

The world’s shipping ecosystems with more than $4 trillion of goods shipped every year have grown in complexity. One major challenge with supply chain management in the shipping industry today involves record keeping. A lot of record keeping is still based on inefficient outdated systems. Along with paper legal documents, much of the international shipping industry’s information has been transmitted via very old technologies.

Presently, many shipping supply chains are still confronted with enormous bulk of paperwork and bureaucracy involving many intermediaries in cross-border trade. Especially the traditional cross-border shipping processes usually involve manually transporting and verifying paper documents for each shipment. Just as an example: “a shipment of refrigerated goods for instance from East Africa to Europe can go through nearly 30 people and organizations and involve more than 200 different communications”.

This means that today, a vast amount of resources are wasted due to inefficient and error-prone manual processes. This could lead to lost documentation or delays in delivering. goods. These costs of the required trade documentation to process and administer many of these goods are estimated to reach one fifth of the total costs of moving a container. By the way, the cost of global trade is estimated at $1.8 trillion annually.

Why blockchain?

The attributes of blockchain technology are said to be ideally suited to large networks of disparate partners like the shipping industry. This technology opens up an entirely new set of possibilities and an innovative opportunity to engage the entire global shipping ecosystem.

Blockchain technology addresses the many supply chain challenges as it establishes an immutable record shared of all the transactions among network participants that is updated in real time, enabling permissioned parties in a private blockchain environment access to trusted data in real time.

Read the full article of our expert Carlo de Meijer on Finextra

 

Carlo de Meijer

Economist and researcher

 

 

  

Davos, interest rates and secular stagnation

| 08-02-2018 | Lionel Pavey |

 

Two weeks ago there was the annual meeting of more than 2,000 politicians, business people, economists etc. at the World Economic Forum. For 4 days the most pressing and urgent topics facing the world were discussed. Sifting through all the speeches and press statements, I saw a lot of articles relating to a rather old theme of secular stagnation.

What is it?

It is a theory dating back to the 1930s stating that developed countries can suffer from a period of too small investment and too large savings. This can be the result not only of an economic recession but, more importantly, as the result of changes in the underlying demographics within a country. This would in turn imply that growth would be low to negligible within the economy. As growth slows down, so demand for investment would also slow down, leading to more savings etc.

Normal theory would demand a reduction in interest rates (the cost of money) leading to an increase in long term investments by companies, a comparative feeling of wealth amongst the people and a kick start to the economy.

Since the crisis of 2008, we have experienced an extended period of low interest rates and low inflation. The expected increase in investment, leading to improved production processes and new goods does not appear to have materialised. Furthermore, the effect that the crisis has had on individual people – job losses, house repossessions, insecurity – has made them reticent to indulge in large bouts of consumer spending.

Even with negative interest rates there has been no rush to invest in productivity. Instead funds are invested in financial assets – shares, bonds etc. Whilst offering goods returns, such investments do not add to potential economic productivity and growth in the industries that provide it.

Furthermore, when consumers tighten their belts – restricting spending and increasing savings – they are not actually directly providing funds for investment. Banks operate as intermediaries and extend credit – individual investors do not in the present system.

The economy is growing – GDP forecasts are all up among the major developed countries and inflation appears to be restrained. So have we broken the long existing chain of recognised monetary theory – could we see a prolonged period of steady growth, backed by low interest rates and low inflation?

At this stage of the proceedings an added element was thrown into the debates – demographics.

Europe is experiencing a period of shifting demographics. The long term replacement fertility rate is 2.1 children per woman. There has been a steep decline of this rate within Europe, with the rate in Germany being as low as 1.4 children. At the same time people are living longer, which means they are retired for longer. In 2006 there were 4 active workers for every retiree – by 2050 this could be down to only 2. The median age in Europe is expected to rise from 37 to 52 by 2050. EU studies have forecast that by 2050 there will be a reduction of 48 million in the working age population and an increase of 58 million in the retirees.

At the same time other studies suggest there will be a 14% decrease in working population against a 7% decrease in total population. All these projections are based on the current situation and that the trend continues.

If this was to continue, then there would be significant challenges for Europe. The expectation of governments to be able to finance the existing outstanding debt by increases in national GDP will stall. Increased burdens will be placed on the state to provide the necessary facilities to an ageing population whilst the pool of available workers is shrinking, leading to lower productivity per capita. Within the last 10 years the distribution of wealth has been skewed – there is more inequality with the super rich having proportionally even more of the total wealth than before the crisis.

New technology has the ability to change the existing concept of productivity. However, if this could be more than enough to offset the expected developments caused by an ageing population is unclear. It could mean that we are entering a prolonged period of low interest rates, low inflation and low growth. If so, all the economic models – even within companies – will need to be reappraised and a new long term policy initiated.

Lionel Pavey

 

 

Lionel Pavey

Cash Management and Treasury Specialist

 

 

 

 

 

 

 

 

 

 

The strength of the EUR or the weakness of the USD

| 07-02-2018 | treasuryXL |

There has been a significant rise in the value of the EUR in the last year compared to the USD. From a low of USD 1.05 around the end of February 2017, the EUR has climbed up to USD 1.25 – representing an increase of around 20 per cent. Analysts are talking about the price rising above USD 1.30 later this year. All very good from the EUR side, but what is causing the EUR to appear so strong and the USD so weak?

It is fairly well known that the Fed could be looking to increase interest rates in 2018 – consensus is for 3 small rises throughout 2018. As EUR interest rates are negative, initially one would expect a large movement out of EUR and into USD. But it looks as if the economies are aligned in the same way and any rise in USD rates could later be followed by a rise in EUR rates.

A lot will depend on the announcements by the ECB to taper off its QE programme. Long term EUR yields are rising in possible anticipation, but are still far behind USD yields. There is a 2 per cent yield pickup in 10 year USD treasuries over Germany who act as the benchmark for the EUR.

The posturing of the US administration and the words of President Trump appear to be having a negative impact on the value of the USD. Statements from Washington about a weaker USD being good for the US trade have impacted on the market. Trump has been very critical about trade relationships with other countries. The words being uttered by the administration are certainly having a reaction on the markets.

The Dow Jones saw a sell off on Friday – it lost more than 650 points. The job report that was published showed that the US had added 200,000 jobs in January but, despite this good news, fear is growing that this will put upward pressure on inflation, leading to further rises in treasury bond yields.

However, there are potential hazards in the future for the EUR. General elections in Italy are due to take place on the 4th March 2018. Current sentiment within Italy shows a growing negative appreciation of the EU. The trials and tribulations concerning Brexit could also seriously undermine the strength of the EUR.

Whilst it appears that the USD is weak at present, any adverse news from with the EU could lead to a swift reversal in fortunes. The underlying sentiment would imply a weaker dollar, but fundamental changes in economic policy on both sides of the Atlantic could lead to rapid changes in sentiment.

 

If you want more information please feel free to contact us via email [email protected]

Bank fee monitoring – more than just “penny pinching”

| 06-02-2018 | TIPCO | Sponsored content |

The electronic analysis of bank fees not only cuts costs but also helps to sustainably improve the quality of treasury processes.
Monitoring bank fees is not a task which is particularly popular in treasury departments. The idea of working through stacks of paper in the hope of understanding confusing bank fee nomenclature doesn’t usually generate much enthusiasm. This onerous task is often delegated, or statements are just blindly signed off on by the accounts department. That’s a shame. Why? Because the systematic analysis of bank fees can not only save considerable sums of money but can also lead to real improvements in treasury processes.

Evil intentions are not the only reason behind incorrectly charged items. Banks claim that updates of their fee calculation systems are sometimes responsible for standard fees being charged rather than those which have been specially negotiated with certain clients. Simply on the grounds of human error, there is a need to regularly check whether agreed fees are always taken into account by the software that banks use.

What do you need to do to retain an overview?

First of all, you need a bank which is capable of providing you with electronic statements in either the TWIST BSB or camt.086 formats. The gentle pressure that major corporates have put on their banks in recent years has paid off. Banks are increasingly responding positively to relevant customer requests. We will be happy to provide a list of those banks which can already provide these statements and in which countries.

On the other hand, your systems need to be able to read and process these formats. While you can open the statements relatively easily in Excel, special system support is necessary in order to perform in-depth analyses. Many corporates use web-based and TMS-independent platforms for this which have specially developed to monitor bank fees. Bespoke interfaces guarantee integration into your existing system landscape. A good example of such a system is the treasury information platform TIP, which is already in use at corporates such as Deutsche Post DHL Group or Lufthansa.

How will you benefit from regular checks?

The first benefit comes from checking that agreed fees are actually charged in practice. The press of a button is all it should take to highlight all discrepancies and provide a basis for demanding reimbursement from the bank. But this is just the beginning. Once transparency has been established about the services and fees charged, it doesn’t take long to draw conclusions about suboptimal payment processes. For example, if your analysis frequently highlights expensive “non-STP” or “repair” fees, you would be well advised to take a closer look at your payment processes. Perhaps there is simply a need to update incorrect master data. On the other hand, it might be necessary to brief your personnel on correct payment processes.

A further example: document-based payment methods. If your Canadian subsidiary in-structs a bank by fax to perform 800 transfers a month, this is not only a problem for your internal audit team but generally also extremely expensive. Here is another case relevant in the context of compliance which can be highlighted by bank fee monitoring: Cash withdrawals from company accounts at a bank branch may be above board in certain cases but should certainly be queried.

Another positive side effect of a transparent overview of bank fees is a comparison between different subsidiaries: Do all your subsidiaries in a particular country pay the same fee for the same service, and if not, why not?

Another situation: Imagine that you asked the general manager of your Spanish subsidiary three months ago to close two unnecessary EUR accounts, but the account management fee keep appearing on the statements. Electronic statements can therefore help you to insist on compliance with your cash management policy.

However, this issue is not only suitable as a means of slapping the wrists of banks and in-ternal troublemakers. The systematic processing of bank statements also provides you with exactly the data you need for your next payment service RFP: The relevant products you use and volumes are presented on a silver platter; meaning that you don’t need to painstakingly collect these data from your subsidiaries. Besides the quantitative factors, the analysis of bank fees also provides you with a better impression of the quality of the services provided by your banks. Armed with these data, you are far better prepared for bank negotiations.

What will the future bring?

What might still sound far-fetched today may soon become reality: Work is already ongoing in some pilot projects to directly book fee-based information from electronic account statements in ERP systems. This is based on statements prepared using the ZUGFeRD format, a standard developed by the Forum for Electronic Invoicing Germany (FeRD), which will make it possible to send invoices in a defined PDF format which can then be automatically read and processed.

Parallel to this, the German Association of Corporate Treasurers (vdt) has formed a working group to establish an XML format proposal which meets the minimum requirements necessary for bank fees to be VAT deductible. And, in the near future, electronic statements may also include all of the key elements of banks’ year-end summaries.

Efforts to introduce electronic bank fee statements are also being intensified internationally: The Common Global Implementation (CGI) initiative, investigating the standardisation of payment formats, has set up a working group to further develop camt.086, the ISO standard for cash management statements. Numerous other initiatives in Germany, Austria and France are also regularly bringing banks, corporates and system providers together for meetings. Increasing numbers of medium and large corporates are starting relevant projects and sharing their experiences at fairs such as those of the Association of Financial Profes-sionals (AFP) in Denver and at the Finance Symposium organised by Schwabe, Ley & Greiner. This issue is also being addressed in academia, highlighted by the numerous dis-sertations and theses focussing on how theory and practice should be combined. Last but not least, system providers are increasingly integrating bank fee monitoring into their solutions.

How can you help?

Rising demand from corporates is ensuring that this issue remains firmly at the top of credit institution agendas. While banks of course are keen to pass on the necessary investment costs to their customers, don’t let yourself get caught up in any discussions on this issue. After all, you don’t pay other suppliers to send you electronic invoices that you can understand.

TIPCO Treasury & Technology GmbH

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Digital currency – to bitcoin a phrase

| 05-02-2018 | treasuryXL |

These are volatile times in the world of Bitcoin and all other cryptocurrencies. Over the last 2 months there have been large swings in the price – price opened up around USD 10,000 at the start of December 2017 and then roared ahead to over USD 19,000; this was followed by continual declines with the price dropping below USD 9,000 at the end of last week. This morning the price has gone under USD 8,000. Bitcoin has been renowned for its volatility, but are there fundamental factors at work that are affecting the price?

Theft

Yet another hack in the cryptocurrency world– this time of NEM at Coindesk – led to the theft of around USD 500 million. Security seems to be a factor and is having an effect on confidence and sustainability.

Lack of regulation

As a currency and industry that is still very young, there is a lack of proper regulation. When compared to legal tender currencies there is a distinct lack of consumer protection and regulatory framework. Losing all your savings is a high risk that is prevalent in an industry that is so lacking in clear and concise regulations. The Commodity Futures Trading Commission, a regulatory agency in the United States, recently subpoenaed Bitfinex – a cryptocurrency exchange – for possible price manipulation. Their currency – Tether – is supposed to be backed by traditional money, though it appears that Tether has been created without the backing of physical money.

Intervention

The Indian Finance Ministry has spoken about banning cryptocurrency – China is looking at blocking access to exchanges. In South Korea illegal foreign exchange trading using cryptocurrency has been discovered. Possible government intervention is detrimental to the development of digital currency.

Futures market

Whilst it is still too early to report in great detail, opinion is being voiced that the introduction of futures contracts are having an adverse impact on the pricing of cryptocurrency.

Banning

Major US banks have started banning their customers from buying cryptocurrency with their credit cards. The banks are worried about the price volatility and people purchasing investment products via credit.

Lack of commercial acceptance

Until cryptocurrency is accepted by major retailers, it will not be seen as a genuine alternative to fiat currency. Yet again, the price volatility appears to be holding back major stores in embracing the digital coins.

Obsolescence

As a pioneer in the cryptocurrency world, Bitcoin is starting to shows its age. Its file size – 1 megabyte containing about 2500 transactions – is being superseded. Bitcoin cash is 8 times larger and far quicker. It is taking a lot of time for transactions to be verified and the costs to send Bitcoin has increased dramatically – more than USD 100.

Bitcoin is still up around 700 per cent from the beginning of 2017, but the enthusiasm and positive belief seem to be evaporating as the market becomes more mature.

 

If you want more information please feel free to contact us via email [email protected]

Cash Pooling – where is the money

| 01-02-2018 | François de Witte |

The main objectives of the cash & liquidity management are to:

  • Have the cash funds available to meet all known and unknown commitments
    • In the right currency
    • In the right place
    • At the right time
  • Optimize the return of the cash and/or minimize the cost of the short term financing
  • Minimize external financing by using internal funding

One of the most important techniques to achieve a better utilization of the available cash is the “cash pooling” or, in other words, the concentration of the cash to make it centrally available. The commonly used techniques in the market are the following:

  • Manual cash concentration: Intercompany payments
  • Automated Cash Concentration: requires physical movement of funds
  • Notional Pooling: without movement of funds

In the present article, we will outline the current types of cash management tools, their advantages and the attention points.

Manual cash concentration: Intercompany payments

For companies, who have only a limited number of accounts to overview, it is recommended to set up a manual cash pooling. In this case, the treasurer overviews daily or weekly the balances of the different accounts, and when there are important debit or credit positions, he will initiate manual payments to balance the positions, and or to concentrate them on the central treasury account. If during the day, important movements take place, the treasurer can make some additional intra-company payments to balance the debit and credit positions. In order to avoid float, it is recommended to use the urgent payments clearing.

The main advantages of the manual cash balancing are the following:

  • The easy set up
  • The possibility take into account the cash forecasting
  • You do not always make daily movements, which facilitates the intercompany loan administration.

However there are some drawbacks / attention points:

  • There is a daily / weekly need to make manual interventions. However some treasury software packages provide a solution to automate this process (bank independent cash pooling)
  • The banks take additional charges for use of the urgent payments clearing, except if the payments are processed within the same bank
  • The overdraft credit lines of the participants are qualified as full lending limits, and hence for the banks there is a higher capital weighting
  • When different legal entities are involved, you create a lending /borrowing relationship between the participants. Hence there are legal and tax issues:
    • You need to foresee a intra-group lending agreement
    • There are possibly withholding tax, transfer pricing and thin capitalization issues
    • Within your group, you need to manager the intercompany loan administration.

Automated cash concentration

The automated cash concentration, also called cash balancing, is a pooling technique requiring a physical transfer of funds to or from the participating accounts to concentrator account. The pooling movements are operated automatically by the bank

The most commonly used cash concentration is the zero balance cash balancing, as illustrated in the drawing down below. In this solution, the balances of the participants are daily or weekly swept to a concentrating account.

Figure 1: Outline of the zero balance cash balancing

Automated cash concentrationThere are also other forms of cash concentration:

  • Target cash balancing, to keep a specific amount in each account
  • Threshold cash balancing, to move funds only when an account moves in excess of a figure
  • Trigger cash balancing, whereby the movements are only initiated if the balance of an account (debit or credit) exceeds a certain amount
  • End-of-day or intraday cash balancing
  • Domestic or cross-border cash balancing.

There are several advantages to this system, such as:

  • There are no manual interventions, as the system is automated
  • Several features are possible (multi-layer, domestic and cross-border, target balancing, …)
  • There exist a possibility to integrate accounts from third banks
  • The system discipline to participants
  • With several banks, the intra-day lines, and the intra-day debit positions do not require a capital weighting.

However there are also drawbacks / attention points:

  • For value-based cash balancing, there can occur reconciliation issues with ERP systems or treasury management systems, as they usually work on accounting balances
  • The cash balancing works only within the same currency. When you manage different currencies, different physical cash balancing structures need to be set up for each currency
  • When different legal entities are involved, you create a lending /borrowing relationship between the participants – see also point 2 hereabove
  • The automated cash balancing can only work within the same currency (mono-currency).

Notional cash pooling

The Notional cash Pooling is a cash pooling where there is no movement of funds. In such a pooling the credit balances of the participants are offset against debit balances of the participants. Hence the net balance of the group is used to calculate the debit or credit interest paid or received.

The system has a flat structure, which means that all the participating Accounts are basically equal to each other. However usually corporates designate one account as the treasury Account, which is then used to manage the system.

Figure 2:  Outline of the notional cash pooling

Notional cash pooling

 

 

 

 

 

 

 

 

The main advantages of the notional pooling are the following:

  • The notional pooling does not require to move funds, and hence:
    • No intercompany loan administration
    • Less legal and tax issues
  • In some jurisdictions (e.g. the UK and NL) the notional pooling can, under certain conditions improve the balance sheet by offsetting surplus balances against group debt
  • The notional pooling can include different currencies.

However there are also attention points:

  • The full legal offset of debit and credit positions of different legal entities is an issue in several countries
  • In some countries notional pooling is not allowed
  • Basel III does not always allow that liquidity ratios are calculated by means of netting the outstanding balances of accounts in the notional pool. This means that banks must calculate their ratios based on the gross balances of the individual accounts. Hence they will also look to translate this cost in the pricing of the notional cash pooling.

Legal and tax aspects of cash pooling

Setting up a pooling requires some preparation, and some legal and tax issues need to be addressed, such as:

  • Is automated cash pooling (cash balancing or notional) authorized ?
  • For cash balancing with different entities
    • Transfer pricing issues – Arm’s length rule
    • Is debit interest an allowable deduction?
    • Withholding tax issues
    • Is thin capitalization an issue?

When setting up such structures, in particular when different countries are involved, you need to foresee a due diligence with legal/tax advisors and banks

For cash balancing with different legal entities, a requirement is also to be able to manage intercompany loan administration. There are banks and providers who come up with solutions in this area.

 

François de Witte

Founder & Senior Consultant at FDW Consult and Senior Expert – Product, Business development and sales manager at Isabel Group

 

Liquidity Management – show me the money

| 31-01-2018 | treasuryXL |

Treasury is a function which entails many different roles and responsibilities. The main task is to monitor and manage the cash within a company ensuring there is sufficient liquidity. This means monitoring all the cash flows – both inflow and outflow, together with the sources of the flows – current operations, investments, borrowing etc. There must be enough liquidity to maintain the daily operations, whilst excess funds need to be invested. At the same time, Treasury must ensure that excess funds are invested in a safe and prudent manner and that future assets and liabilities are hedged where appropriate.

It has been said many times over – for a company cash can be compared to blood in the body or oil in an engine. Without it, a company ceases to be. When liquidity management is properly exercised, it allows a company to establish the maximum benefit from its cash flow, for the minimum of expenditure.

So, what happens to a company when liquidity management is not implemented?

  • Cash tied up in operational processes
  • Unable to define the bank balance
  • Difficulty in managing the existing bank accounts
  • Impossible to project cash flow forecasts accurately
  • Volatility in actual cash flow versus expected cash flow
  • Reconciliation is a time-consuming process
  • Inability to optimize the cash flow for working capital
  • Lack of agreed procedures for risk management, hedging policies and cash management
  • Banks are averse to lending the company money as there is a lack of control
  • Failure to comply with operational, accounting and governmental regulations
  • Difficulty in funding internal operations and investments

Advantages of liquidity management

  • Improved cash flow
  • Awareness of all bank balances
  • Ability to aggregate bank balances efficiently
  • Internal investment and funding operations for subsidiaries
  • Reduction in external borrowings
  • Faster payment of creditors
  • Optimization of working capital
  • Netting and cash concentrations can be applied
  • A heightened appreciation and recognition of cash within the company
  • Less reliance on short term external funding to meet day-to-day needs
  • Increase in profits
  • Increase in efficiency within the whole business cycle
  • Staff can devote more time to projects and procedures that have a higher value
  • Able to implement and monitor agreed risk policies

Designing and implementing liquidity management

  • Inspect and document existing procedures
  • Discover the short falls and dangers
  • Design specific procedures to enhance and capture the processes
  • Create an action plan and implement
  • Review constantly

Everything needs to be documented and signed off by the directors – it must be a policy. One of the greatest – if not the greatest – dangers for a company is not being able to forecast and maintain liquidity. However, in many companies the policy is only lightly enforced. Difficulties in forecasting cash flow are well known and documented, but the consequences are potentially very severe. It should be part of the monthly management reporting cycle and critically observed. Where necessary, actions need to be taken by the directors to ensure that the whole company is aware of the liquidity risks and procedures.

Next: Risk Management

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist