Information Evening – Vrije Universiteit Amsterdam

| 07-05-2018 | treasuryXL |

On Wednesday 16th May 2018, the Vrije Universiteit in Amsterdam will be holding an information evening for their Post Graduate programmes, including Treasury Management and Corporate Finance. This is an opportunity for anyone interested in this programme, and will allow participants to get an impression of how the programme works and meet the programme managers, teachers and (ex-) students.

Successful completion of the Post Graduate programme leads to the title of Registered Treasurer (RT). The programme focuses primarily on the practice of treasury departments of large corporations, but is also relevant in other business situations. Programme lecturers come from both the commercial world as well as the academical sphere. It is linked to the Dutch Association Corporate Treasurers (DACT) and the programme is a part time weekly course normally in small groups between 15 – 20 students.

You are welcome as of 17.30 hours. The program for the PGO Treasury Management & Corporate Financestarts at 20.00 hours. Afterwards there will be plenty of opportunity to ask questions.

Program

17.30 hrs. Walk in with coffee / tea and sandwiches

18.00 hrs. Information round 1

19.00 hrs. Information round 2

20.00 hrs. Information round 3 – Treasury Management & Corporate Finance

Location

Vrije Universiteit Amsterdam, Agora Complex, De Boelelaan 1105 (main building, 3rd floor), Amsterdam.

VU bereikbaarheid

VU Accessibility

Register

You can register viaVU PGO Information evening

Contact

Nicole Lijs

020-5982171

[email protected]

www.sbe.vu.nl/treasury

 

 

Commercial Paper – alternative short term funding

| 03-05-2018 | treasuryXL |

Instead of just relying on banks to provide short term funding, large corporations are also able to access the European Commercial Paper market (ECP). This is an alternative market that can assist in meeting short term funding requirements. This provides a good alternative to products previously mentioned – such as lines of credit. In this article we shall look at what ECP is, how it can be issued and what the market for this paper is.

Definition

Commercial Paper is a promissory note that is unsecured with a maturity shorter than 1 year. A corporation will, initially establish a CP programme which determines the terms and conditions – such as maximum allowable issuance amount, termination date of the programme or open ended, currencies, bank dealers etc. The issue is subject to a credit rating and the paper is rated. It is also possible to issue your own paper instead of through a dealer, though this is not used as much.

Issuance

The issuer has 2 approaches: issuing paper as and when funding is needed, or being informed by the dealer that there is demand from the market for additional paper. As the paper is negotiable, clearance and settlement is provided via one of the major clearing houses – Euroclear, DTC etc. Settlement is the same as a spot transaction – taking place two working days after transacting. As ECP is in competition with other forms of short term investment, it is necessary to have an active presence in the market – lenders need to know that there is demand for their funds and issuers are in direct competition with other issuers.

Use

ECP allows issuers to fund themselves in a more flexible manner than traditional bank lending – this can be seen in both the issuance amount and the tenor of the paper. Issuers with the highest credit ratings can often achieve funding below the cost of Euribor/Libor. This allows issuers to fund a significant portion of their total funding requirements on a short term basis. As short term rates are normally lower than long term rates, this leads to a reduction in the average cost of funding. An ECP programme for as little as EUR 250 million can be established, though it is more common to see programmes for more than EUR 1 billion.

Motivation

An issuer needs to ascertain that there is a definite funding requirement and that an ECP programme can successfully be utilised. There are ongoing costs involved, so it is not just a question of setting up a programme and then leaving it there in place without using it.
An issuer needs to know if there is a true appetite in the market for their paper. No issuer wants to find that having established a programme that there is no demand for their paper.
How does the short term funding fit into the funding requirements of the issuer on the whole? Not only do they get access to cheap funds, they also gain access to potential borrowers who could be interested in supplying alternative long dated funding.

Conclusion

ECP offers a lower cost of funding, flexibility in both issuance timing and maturity, and is unsecured. As the paper is tradable, investors can always sell their paper on in the secondary market. This must be weighed up against factors such as cost of programme maintenance, reduction in lines of credit, and the fact that only top rated issuers are accepted.

For large corporations an ECP programme is attractive, but needs constant maintenance and attention. It offers an attractive bespoke alternative to traditional bank funding.

If you have any questions, please feel free to contact us.

 

Brexit – the impact on your business

| 02-05-2018 | Lionel Pavey |

 

As the negotiations between the EU and the UK get ever more complicated, there is a strong possibility that rather than a hard or soft Brexit there will be no agreement whatsoever. For businesses that either export to the UK or import from, this could have a fundamental impact on their survival. The Netherlands exports goods and services to the UK with a value in excess of EUR 40 billion per year; more than 200,000 jobs are directly linked with trade to the UK; Dutch capital investment in the UK is more than EUR 180 billion. We take a look at some of the key areas where business could be affected from the viewpoint of cashflows.

Foreign Exchange

It is not known how many Dutch companies actively employ a hedging policy. If GBP was to significantly get weaker, demand in the UK might fall or lead to more contracts having to be settled in GBP. However, at the same time, Dutch companies relying on components from the UK could see their suppliers having their profit margins squeezed – potentially leading to problems in maintaining and fulfilling existing contractual obligations. The biggest concern would involve increased currency volatility. If EUR/GBP does become more volatile, this could lead to clients in the UK shopping further afield to obtain the goods and services they require – leading to a drop in exports for the Netherlands. What are the alternatives available – banking in the UK; offsetting existing supply chains by changing components with UK firms etc?

Funding

At present, the UK receives EU funding and this can be the basis for investment decisions regardless of the location of the business. As this will stop when they leave, there will be an impact on companies that have a multiple presence in both countries. Changes in regulations will bring extra complexity, restrictions and possibly affect the profitability of existing business arrangements. The immediate loss of passporting rights for financial services should not be underestimated.

Supply Chain

All existing supply chains operate under the premise of the single market, with no internal quotas or tariffs. The initial affect will be seen by the imposition of trade barriers, caused by a new trade agreement. This does not just extend to trade tariffs, but also to the implementation of VAT (BTW) on B2B transactions. The dairy industry is one that could be hit especially hard. EU tariffs for non-EU countries are as high as 45 per cent on some dairy products.
Non trade barriers are also a threat – different technical standards, labelling, compliance, together with extended delays in the shipment process (as goods will need to be inspected) will add to both the cost and time of trade.

KYC

All parties will be affected – but do you know what the position is of your clients in the UK? What are their pain thresholds; are they seeking alternatives markets; are they looking for alternative suppliers; how resilient are their logistical chains to change; how will changes in law and regulations affect their operations?
There are a myriad of unanswered questions that need to be addressed – one on one – with every counterparty.

What to do

It is imperative that companies perform a Quick Scan as soon as possible to try and evaluate what their exposure is in the UK and what percentage that makes of all trade for a company. Having ascertained the exposure, it then becomes necessary to stress test the processes and try to model the results on the company by inputting new variables.

With less than 1 year to go, you will need to start very soon!!

Lionel Pavey

Lionel Pavey

Cash Management and Treasury Specialist

 

Make room for the treasury controller!

| 01-05-2018 | Pieter de Kiewit |

Cash PoolingLately we have received an increasing number of calls from companies asking about treasury controllers. For various reasons this is understandable, but they are not the easiest to find and there is appears to be quite a wide variety. Let’s elaborate.

Over the last few years, many corporates have been quite frugal in their investments, also in treasury. Times were hard. Now funds are getting available, there is willingness to hire, also treasury controllers. The rising investments in treasury IT, also related to aforementioned funds, often leads to less work for the back office and possibly also the front office. Platforms like 360T or FXAll are examples, but also algo trading. Choosing the system and taking care of what it should do and what it actually does, is often one of many tasks of the treasury controller.

The chaos in the financial markets made regulators increase the number of rules that banks and also corporates have to follow. Furthermore companies expanding globally, and funding their subsidiaries have to following strict internal and external  (fiscal and banking) rules. Implementing this framework and being compliant can also be an important task of a treasury controller.

F&A and corporate treasury have been quite well at co-existing in separate worlds and not bothering each other. F&A wants to be in control and appreciates predictability. Treasury is motivated by the dynamics of the markets and adrenaline. But companies integrate functionalities and the treasury controller will build the bridge.

Now why is the search quite hard? First of all because of the drivers mentioned in the last paragraph: the treasurer does not like too much predictability and the controller does not (want to) understand the financial markets. And having thorough knowledge of several functionalities: bookkeeping, IT, regulatory and risk management and make them work well together is not easy. Finally not many corporate treasuries are big enough for a qualified treasury controller. This leads to well paid Big4 auditors and bank controllers. And us having search assignments. Any thoughts and are you interested?

We would like to hear from you,

Pieter, Heleen and Kim

Pieter de Kiewit
[email protected] / +31 6 1111 9783

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

Universwiftnet Paris – March 2018

| 30-04-2018 | François de Witte |

On 13/3/2018, I attended the 15th Universwiftnet Paris event, a one-day conference day to discover the recent tendencies in payments, banking connectivity and the relationship between corporates and banks. There were over 1.000 participants, and this was a good opportunity to have an immersion in the latest tendencies in treasury. Down below, you will find some hot topics and takeaways,

KYC (Know Your Customer)

KYC remains high on the attention of banks. There is a new initiative of the KYC – SWIFT registry, which aims to provide an efficient, shared platform for managing and exchanging standardized Know Your Customer (KYC) data. SWIFT has worked with the world’s largest correspondent banks to define a set of data and documentation that addresses KYC requirements across multiple jurisdictions.

SWIFT takes on the task of validating the information and keeping it up to date. That means banks are relieved of this task, while remaining sure that their data is reliable and up to date. The KYC registry also offers a useful set of tools to simplify and enhance risk management procedures. This includes a KYC Advanced Notifications feature that can trigger alerts, if the profile of one of their counterparties changes.

Institutions can upload completely free documentation to the Registry and share it with the institutions you select. SWIFT validates the data rigorously, informs the counterparty if it is incomplete or needs updating, and alerts your correspondents whenever your data changes. The KYC Registry is currently only open for banks, but it this would be opened to corporates to corporates this year, enabling them to deposit documents there. This is welcomed development.

eBAM – management of the bank mandates

eBAM is the SWIFT initiative aiming at rationalizing the bank mandates. This provides standardized messages, which can be used between corporates and banks. BNP Paribas is already using this extensively, but other banks, like Sociét Générale, Citibank and Natixis are also joining the initiative. The further extension of eBAM to other banks would enable to rationalize an area, which remains a pain point for many corporates. One of the projects is to enable to sign digitally bank agreements.

Fraud & cybersecurity

Fraud & cybersecurity also remain high on the agenda. According to a study of Euler Hermes, 80 %, of the corporates have at least experience & fraud attempts, and 25 % over 10 fraud attempts. According to a study of the EU, 80 % of the European corporates have been victim of cyberattacks.

Corporates need to invest in the risk assessment, the browser & app protection, onboarding and password management. The challenge is to payments as frictionless as possible, in a context of increasing authentication cost.

It is important to embed this in processes, which should include whenever possible measures enabling to prevent:

  • Internal fraud: through the secure import of the files and other internal fraud prevention measures (black and white list of beneficiaries, limits on the amounts, banks and countries, check on abnormal transactions, verification of the account of the beneficiaries, etc.)
  • External fraud: through a secure digital signature (multifactor authentication using One time passwords, certificates, etc.) and a secure transfer of the payment files to the banks

PSD2, instant payments and open banking

We are moving to a paradigm whereby we need to combine:

  • The real time of the transaction
  • The request for user-friendly and frictionless payment initiation
  • The controlled opening of the payments landscape to third parties through PSD2
  • The protection of the PSU (Payment Service User) through PSD2 and GDPR

This will also create opportunities, both for the new players and the incumbent banks, who are prepared to develop an active open banking strategy. The retailers look at reducing the collecting costs of the card schemes and are looking at alternative more cost efficient collection methods. The SEPA Instant Payment Scheme could become in the future an interesting alternative.

New multibank solutions will come up. They will provide a more cost efficient technology using APIs. In a first stage, I expect that they will mainly extend to smaller corporates. Larger corporates might stick to the proven SWIFTNET or Host-to-Host solutions, due to the bank independency, the proven track record and the high integration with the existing processes.

There has been an interesting testimony of EDF, who is currently daily retrieving its bank statements through APIs. These are easier to implement, and have enabled a more efficient and quicker process. This new way of working also has a lower impact on the IT environment, identified as a bottleneck in the organization.

In fact, we are currently moving to a real time and digital treasury. This will require new profiles, such as IT developers and AI specialists for the operational tasks and the dash boarding.

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

 

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Hyperledger blockchain projects: from incubation to production-ready status

| 26-04-2018 | Carlo de Meijer |

Last year I wrote a blog on the Hyperledger project and what that could mean for blockchain acceptance (see my blog: Hyperledger Project: collaboration pays off, 9 April 2017). We are now almost a year later and I am wondering if they are meeting my expectations. “2017 was a milestone year for Hyperledger both for new members and for new technical breakthroughs. In 2017 we doubled our membership, gaining companies like American Express, Cisco, Daimler and Baidu, and we’re expecting more companies and organizations to join in 2018.” Brian Behlendorf, Executive Director, Hyperledger.

Many blockchain followers know the Hyperledger Fabric Framework. This is the most used one in the various trials worldwide. But in the meantime the Hyperledger community has developed a whole series of these projects and tools that are less familiar. The purpose of this blog is to get more insight into these offerings and how they are developing from the incubation to the real production-ready status.

But first of all a reminder!

The Hyperledger Project

The Hyperledger project that was launched end 2015, is the international blockchain consortium of companies and organizations hosted by the Linux Foundation. Their goal is to collectively build an open source platform for the development of blockchains. Hyperledger thereby aims to enable organizations to build robust, industry-specific applications, platforms and hardware systems to support their individual business transactions by creating enterprise grade, open source distributed ledger frameworks and code bases.

The project has attracted the attention of several large companies that were early adopters of distributed ledger technologies at that time. The consortium nearly doubled in size last year to reach almost 200 members. Today, more than 220 organizations now support the Hyperledger initiative, including leading companies in finance, banking, Internet of Things, supply chains, manufacturing and technology development.

Pros of the Hyperledger project

The Hyperledger project has a number of pros that distinct them from other blockchain consortia. First of all Hyperledger is open-source, offering a “neutral home” for incubating technology. They are developing codes as open-source and bringing enterprises together to share knowledge and experience. This may lead to much faster adoption and better solutions than if it is simply built in-house. Second, Hyperledger is not focusing on one area of appliance, but on universal use cases. The software developed at Hyperledger has been adopted in many industries including supply chain, healthcare, finance etc. But what is more important, the Hyperledger Fabric, one of the (considered) most mature, extensive, flexible and active developed frameworks, allows users to create private channels in public settings, enabling the security and privacy that is needed.

Umbrella strategy

Hyperledger operates under an “umbrella” strategy. It is set up as a specialized hub for blockchain projects that facilitates not only the development, but also the commercialization of enterprise-grade blockchain based projects. Hyperledger “incubates” and promotes blockchain technologies for business, including distributed ledgers, client libraries, graphical interfaces and smart contract engines.

This strategy nowadays encompasses a (growing) number of blockchain projects, including blockchain frameworks, in addition to a number of development tools. At the moment Hyperledger incubates nine business blockchain and distributed ledger technologies, of which five blockchain frameworks and three development tools. These are in various stages of development and cover unique blockchain applications.

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

 

Carlo de Meijer

Economist and researcher

 

 

Rising bond yields – winners and losers

| 25-04-2018 | treasuryXL |

It is the talk of the town – US 10 year Government bond yields are rising and testing the perceived psychological level of 3 per cent. At the same time the whole yield curve is flattening – the spreads are diminishing. There are growing concerns about rising inflation, along with fears of trade wars and rising oil prices. When the threat of inflation occurs, there is a selloff in bonds and their yield goes higher. At the same time as the yield curve is flattening there is talk of the yield curve becoming inverted which, historically, is seen as the precursor to a recession. Conflicting signals – what does it all mean?

The rise in bond yields is a global trend – the same is being seen in Europe and the UK. In the last week data from the EU zone showed that the economy appears to be slowing down – or increasing at a slower rate than was previously seen. However the effects of Quantitative Easing programmes in the different countries has led to a great divergence in rates.

  • For the period from 1999 to 2008 the average 10 year bond yields were as follows:
  • Germany 3%
  • United States 8%
  • United Kingdom 8%

 

  • For the period from 2008 to 2018 the average 10 year bond yields were:
  • Germany 7%
  • United States 5%
  • United Kingdom 5%

However at present the yields are 0.6% for Germany; 3.0% for United States; and 1.5% for United Kingdom

It is clear that the due to this large divergence the effects of rising US bond yield will have a very large impact on bond yields in other countries and the exchange rates.

Recession?

Classical economic theory states that inverted yield curves are a sign of recessions and down turns in the economy. Yield curves invert when the short term rates exceed the long term rates. However an inverted yield curve is not the cause of a recession. As the Fed has been pursuing a policy of gradual interest rate rises, it is not unrealistic to expect that to lead to a tightening over the whole curve. As investors expect short term yields to rise – leading to an eventual rise in long term rates – their area of focus changes and they position themselves by selling long dated bonds, causing a rise in long dated yields.

At the same time market analysts are saying that the global economy has reached a new departure point – there has been a significant shift in interest rate perceptions and that whilst rates can and will rise, they will not revert to the mean. However, as investors chase yield a major rise in US bond yields will impact on other bond markets. When the US bonds are yielding 400% more than their Eurozone counterparts, there are serious worries that investors will flock to the US market, unless the ECB announces the end of QE, which would lead to rising Euro yields.

There is also a possible knock on effect to the equity markets. Rising bond yields suddenly make equities less attractive. It could be that volatility is about to return and that Treasurers will need to look at their hedging policies.

SME and bank lending – a dying market?

Read more

Static Data – unsexy, but imperative to workflows

| 23-04-2018 | treasuryXL |

We live in the world of Big Data – we are told that there is so much potential that can be unleashed by embracing Big Data. This can lead to business efficiency, increased revenue, reduced expenditure, earlier identification of fraud etc. But for all this to reach fruition, we need to rely on the most basic building block – Static Data. Many companies have grand ideas of how to maximise revenue with data streams, yet fail to grasp the essential need for good, sound, structured Static Data.

Definition

This is data that remains constant (mostly) during the lifetime of its use; once input and recorded it becomes static and is used as reference data. The most logical example would be the data on relationships – when a company starts trading with a new supplier, a new record needs to be added to the bookkeeping system.

Types of data include:

  • Legal name of counterparty
  • Short name
  • Legal address
  • Telephone number
  • Fax number
  • Email
  • Contact persons
  • IBAN
  • BIC Code
  • KvK number
  • BTW number

Once the Static Data has been input it should only be changed by authorized staff. Dynamic data – the lifeblood of Big Data – can later be input (trades, invoice numbers, delivery dates, amounts etc.), but it needs good Static Data to make the data consistent. The complete data set for a counterparty must always be unique – there can not be 2 entities with the same set of data.

The structure of the data is also important – it could quite easily be the case that a company has one large client with the same bank details, but relationships with 5 different divisions. It is therefore essential that the correct protocols are in place for consistent data – whilst the legal name will be the same the importance of the short name becomes evident.

When it goes wrong

Inter company communication does not always involve use of a bookkeeping system. If staff start referring to a counterparty by another name than is in the system or use a name that is in the system but not the name they mean, problems can occur. Incorrect bookings arise which can lead to incorrect exposure levels or limits being breached. It can also be that a legal entity in a different country is referenced as they have offices in more than 1 country and issues such as VAT (BTW) can suddenly appear.

The need for secure Static Data is very high – the consequences of errors should never be underestimated. Data entry should be undertaken by people who do not enter any other data into the systems – in other words it should not be undertaken by the same staff that work in debtor and creditor administration.

Furthermore, a clearly defined protocol needs to be implemented to determine when and how Static Data can be changed.

In a little more than 1 month from now, GDPR comes into effect. The urgency to understand Static Data and to appreciate its significant contribution to daily operations has never been greater.

If you have any questions, please feel free to contact us.

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The Bank of England – a fintech company?

| 20-04-2018 | treasuryXL |

The Old Lady has a long history – the second oldest central bank, who has always kept the market in check. Whilst the financial Big Bang of 1986 changed the landscape in the Square Mile, her power and influence are still very evident. On Wednesday, she surprised the banking market by granting direct access to her interbank payments system to a Fintech company. This means that they can process their payments without having to use a commercial bank as an intermediary. What is the motivation for this step and what are the consequences?

Transferwise is a peer-to-peer money transfer service with its main head office in London, whilst being based in Estonia. Turnover per month reached in excess of EUR 1 billion in May 2017. They have developed a money transfer systems that reduces the amount of cross border payments but trying to match supply and demand in different countries. By reducing the actual number of cross border payments and using mid-rates for FX calculations, they are able to offer a competitive alternative to traditional bank transfers.

They have now be granted direct access via the Faster Payments Scheme to the Real Time Gross Settlement system run by the Bank of England. Allowing direct settlement will lead to reductions in costs whilst, at the same time, speeding up the money transfers. This means that Transferwise can compete evenly with large commercial banks.

The Bank of England stated “by stimulating competition and innovation, we anticipate increased diversity and risk-reducing payment technologies will reinforce financial stability while enhancing customer service.” Fintech is having a clear impact on the revenue of traditional banks in London. A survey by Accenture shows that non banks now account for 14 per cent of the annual revenue in the payment sector.

This is forcing banks to design and adopt new solutions – mainly built around the blockchain. What is remarkable is that the Bank of England appear to be taking a very proactive approach to how the payments market will develop in the future, and recognising the role that Fintech has to offer in this area. They are looking at ways to increase efficiency and transparency in financial markets.

The Bank of England is leading the central bank market in providing new solutions. A policy of first adoption could lead to a huge advantage in the payment transfer market. As these solutions are cross border, other central banks would do well to investigate this trend and come up with their own solutions as soon as possible.

It also provides a counterpoint to MiFID II, and shows how the payments industry could be structured in the future.

If you have any questions, please feel free to contact us.

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