Segregation of Duties and Responsibilities

| 28-5-2018 | By Paul Stheeman |

Cash Pooling

 

Compliance is one of the most important factors when establishing and running a Treasury function nowadays. Increased regulatory requirements paired with concerns about fraud and cybercrime mean that CFOs want to ensure that functions and processes are aligned with the Board’s expectations and run according to recognised best practices.

So, what would an ideal departmental structure for Treasury look like? The chart below illustrates the generally accepted best way of setting up a Treasury function.

Group Treasurer.   The Group Treasurer maintains overall responsibility for the function and reports directly up to the CFO. This person will typically not be involved in the day-to-day Treasury activities.

Front Office. Front Office staff often have the not so glamourous title of dealer. These are the people who will execute transactions for the company. These will be FX transactions, but also investing or borrowing funds or executing commodity hedges.

Middle Office. People in the Middle Office are often called Treasury Controllers. Their role is to control the activities of the Front Office. They will check and confirm incoming confirmations, prepare and send outgoing ones and ensure that all transactions are done within prescribed limits and policies.

Back Office. Personnel working here are responsible for the settlement of transactions when due. They will make payments and ensure that expected incoming payments are correctly credited.

This is a rather simplified description and for several reasons will seldom reflect the actual setup at a corporate. Firstly, the activities of a Treasury function are nowadays considerably broader than just completing financial transactions, so that Treasury staff will have other responsibilities such as corporate financing or insurance. In such cases though the requirement for segregating duties is not so compelling.

A further issue is that many smaller or medium-sized companies simply do not need, nor do they have the number of staff required. Back-ups will be needed for the Front, Middle and Back Offices leading to a minimum total of 6 plus the Group Treasurer. Only large organisations with active Treasury functions can afford such a number. To solve that problem, the tasks of Middle and Back Office could be performed by the same persons. It is only the Front Office activities that really do need to be segregated.

CREDIT CARDS EN BUITENLANDSE VALUTA: WAT ZE JE NIET VERTELLEN

| 23-05-2018 | Pieter de Kiewit  | treasuryXL|

Weet jij welk deel, van wat je betaalt aan de buitenlandse winkelier, naar financiële dienstverleners gaat? Het vakantie seizoen is weer gestart en de economie draait goed. Toeristen en zakenmensen vullen de vliegtuigen en Schiphol draait vast. Mede op basis van dit artikel: https://www.forbes.com/sites/geoffreymorrison/2014/07/30/pay-in-local-or-home-currency/#778b32b73307 wil ik jullie met mijn beperkte-leken-blik informeren over de financiële keten die hoort bij jouw aanschaf van een kop koffie in London, New York of Rio de Janeiro.

Allereerst heeft winkelier een deal met een bank en vaak ook nog met een credit card company. Een vast bedrag per maand en een percentage of vast bedrag per transactie is de standaard. Een pinpas (debit card) is goedkoper dan een credit card voor de winkelier. Voor jou als consument maakt het niets uit.

Als je besluit die buitenlandse kop koffie met je credit card betaalt waarbij je alleen geïnformeerd wilt worden over jouw euro’s, dan betaal je daar een service fee over. De meesten van ons hebben geen ponden- of dollarrekening, dus daar ontkom je niet aan. Als je bijvoorbeeld een Mastercard hebt bij de ABN Amro en de winkelier handelt de credit card deal af met zijn bank, bijvoorbeeld de RBS, dan is, afhankelijk van de afspraken tussen die partijen, er een scenario mogelijk dat alle drie de partijen een transactie fee berekenen. Zijn er verschillende valuta in het spel, dan zullen partijen deze fee verhogen.

Dan hebben we het nog niet gehad over de koersen die worden gehanteerd. Wellicht weet je dat de prijs die je betaalt bij de bank voor een dollar hoger is dan wat de bank je er voor terugbetaalt als je hem terug wisselt. Terecht, iedereen verdient zijn marge. In deze deal weet je wat de koers is. Weet je wat de koers is als je je credit card gebruikt? Wie bepaalt deze?

Met deze blog wil ik niet aansluiten bij de vele bank bashers maar je wel uitnodigen door te vragen. Ik heb het gevoel dat sommige partijen misbruik maken van ons kennisgebrek en onzorgvuldigheid. Weet iemand hoeveel van een kop koffie van $2 er bij de US verkoper blijft? Of het verschil in kosten tussen een pinpas en een credit card?

Heb een goede vakantie,

 

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

Stageplek gezocht | Wetenschappelijke onderzoeksvraag op het gebied van treasury

| 18-05-2018 | Roland Koster | treasuryXL

Voor de masteropleiding management MSc, ga ik begin juni een keuze maken welke richting ik op wil gaan in het kader van het afstuderen (eindscriptie). Ik wil dit doen in de richting ‘Financial Decision Making’ op het gebied van financiering en ben daarvoor op zoek naar bedrijf waar ik mijn onderzoeksopdracht kan uitvoeren.

Ik kan dan naast de inhoudelijke rol een probleemstelling wetenschappelijk onderzoeken waar het bedrijf ook wat aan heeft zodat er een win win situatie ontstaat.

Als jij dit leest, zie jij dan mogelijkheden? Reageer dan om een afspraak te maken om onder het genot van een kop koffie hierover van gedachten te wisselen.

Je kunt contact met me opnemen via [email protected] of 06-44480825. Ik ben terug te vinden via LinkedIn https://www.linkedin.com/in/roland-koster/

PS: Ik denk er overigens over om na deze master door te gaan voor RT.

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Best read articles of all time – PSD 2: a lot of opportunities but also big challenges (Part II)

| 16-05-2018 | François de Witte |

After having examined the detailed measures of the PSD2 in my first article, in the 2nd part we will examine the impact of PSD 2 on the market. In order to help you read the text we will once more start with a list of abbreviations.

LIST OF ABBREVIATIONS USED IN THIS ARTICLE

2FA    :   Two-factor authentication
AISP  :    Account Information Service Provider
API :       Application Programming Interface
ASPSP : Account Servicing Payment Service Provider
EBA :     European Banking Authority
PISP :    Payment Initiation Service Provider
PSD1:    Payment Services Directive 2007/64/EC
PSD2  :  Revised Payment Services Directive (EU) 2015/2366
PSP :     Payment Service Provider
PSU:      Payment Service User
RTS :     Regulatory Technical Standards (to be issued by the EBA)
SCA :     Strong Customer Authentication
TPP :     Third Party Provider

Impact on the market

A major implementation journey:

The ASPSP (mostly banks) will have to make large investments in order to comply with the PSD2, in the following fields:

  • Implementing  the infrastructure enabling the application of the PSD2 scheme to the currency transaction in the EU/EEA area, and to the one leg transactions.
  • Ensuring that they can respond to requests for payment initiation and account information from authorized and registered TPPs (third party providers), who have received the explicit consent of their customer for to this. They will have to develop interfaces that enable third party developers to build applications and services around a bank. Internal banking IT systems might need to be able to cope with huge volumes of requests for information and transactions, more than they were originally designed for.
  • Ensuring their security meets the requirements of the SCA (strong customer authentication). This will be a big challenge both for the banks and for the other payment service providers).

PSD2 will make significant demands on the IT infrastructures of banks. On the one hand the IT infrastructure has to be able to be interact with applications developed by the TPPs (PISP and AISP). On the other hand, banks have to develop their systems in such a way that they don’t have to do this from scratch every time a TPP approaches them. This will require a very flexible IT architecture. The banks have to have a middleware that can be used by their internal systems, but also by the applications of the PSP’s.

Although PSD2 does not specifically mention the API (Application Programming Interfaces),  most technology and finance professionals assume that APIs will be the technological standard used to allow banks to comply with the regulation.

An API is a set of commands, routines, protocols and tools which can be used to develop interfacing programs. APIs define how different applications communicate with each other, making available certain data from a particular program in a way that enables other applications to use that data. Through an API, a third party application can make a request with standardized input towards another application and get that second application to perform an operation and deliver a standardized output back to the first application. For example, approved third parties can access your payment account information if mandated by the user and initiate payment transfer directly.

In this framework, the real challenge is to create standards for the APIs specifying the  nomenclature, access protocols and authentication, etc.”. Banks will have to think about how their new API layers interact with their core banking systems and the data models that are implemented alongside this. The EBA (European Banking Authority) will develop RTS (Regulatory Technical Standard) with more detailed requirements regarding the interface between ASPSPs and TPPs. While these are expected to be published early 2017, based on the EBA’s recent draft RTS, the question is whether they will define the interface’s technical specifications.

Emergence of new players and business models

By integrating the role of new third party payment service providers (TPPs) such as the PISP and the AISP, the PSD2 creates a level playing field in the market. Several market experts expect that this will foster innovation and creating new services. For this reason PSD2 should increase competition.

This might lead to a unique open race between traditional players, such as the banks and newcomers for new services and a possible disintermediation of banking services, as illustrated in the figure down below:

Source: Catalyst or threat? The strategic implications of PSD2 for Europe’s banks, by Jörg Sandrock, Alexandra Firnges – http://www.strategyand.pwc.com/reports/catalyst-or-threat

PSD2 is likely to give a boost to the ongoing innovation boom and bring customers more user-friendly services through digital integration. One can expect that the automation, efficiency and competition will also keep the service pricing reasonable. PSD2 will foster improved service offerings to all customer types, especially those operating in the e-commerce area for payment collection. It will enable a simpler management of accounts and transactions. New offerings may also provide deeper integration of ERP functions with financial services, including of their multibank account details under a single portal, and smart dashboards.

PSD2 also enables a simplified processing chain in which the card network can be  disintermediated. The payment can be initiated by the PISP directly from the customer’s bank account through an interface with the ASPSP. In  this scheme, all interchange fees and acquirer fees as well as all the fees received by the processor and card network could be avoided. The market expects that new PISPs will be able to replace partly the transactions of the classic card schemes. A large internet retailer could for example ask permission to the consumers permitting direct account access for payment. They could propose incentive to encourage customers do so. Once permission is granted then the third-parties could bypass existing card schemes and push payments directly to their own accounts.

On the reporting side, the AISP can aggregate consumer financial data and provide consumers with direct money management services. They can be used as multi-bank online electronic banking channel. One can easily imagine that these services will be able to disintermediate existing financial services providers to identify consumer requirements and directly offer them additional products, such as loans and mortgages.

The PSD2 is for banks a compliance subject, but also an opportunity to develop their next generation digital strategy. New TPPs can provide their innovative service offerings and agility to adopt new technologies, enabling to create winning payments propositions for the customer. In turn, traditional players like banks can bring their large customer bases, their reach and credibility. Banks have also broad and deep proven data handling and holding capabilities. This can create winning payments propositions for the customer, the bank and the TPP.

Banks will have to decide whether to merely stick to a compliance approach, or to leverage on the PSD2 to develop these new services. The second approach will require to leave behind the rigid legacy structures and to change their mindset to ensure  quicker adaption to the dynamic customer and market conditions. A first mover strategy can prove to be beneficial.  Consumers and businesses will be confronted with the increased complexity linked to the multitude of disparate offerings. There also, the incumbent banks who will develop new services  can bring added value as trusted partners

Essentially, PSD2 drives down the barriers to entry for new competitors in the banking industry and gives new service providers the potential to attack the banks and disintermediate in one of their primary customer contact points. New players backed by strong investors are ready to give incumbents a serious run for their business. This is an important battle that the incumbent banks are not willing to lose.

The biggest potential benefits will be for the customers, who can access new value propositions, services and solutions that result from banks and new entrants combining their individual strengths or from banks becoming more innovative in the face of increased competition. Market experts also foresee an increased use of online shopping and e-procurement.

Several challenges to overcome

The PSD2 will be transposed in the national legal system of all the member countries. The involved market participants will have to examine the local legislation of their country of incorporation, as there might be some country-based deviations.

The authentication procedure is also an important hot topic. PISPs and AISPs can rely on the authentication procedures provided by the ASPSP (e.g. the banks)  to the customer but there are customer protection rules in place. Hence, they must ensure that the personalized security credentials are not shared with other parties. They also may not store sensitive payment data, and they are obliged to identify themselves to the ASPSP each time a payment is initiated or data is exchanged.

ASPSPs are required according to PS2 to treat payment orders and data requests transmitted via a PISP or AISP “without any discrimination other than for objective reasons”. A practical consequence for credit institutions will be that they must carry out risk assessments prior to granting payment institutions access – taking into account settlement risk, operational risk and business risk. One of  the main issue is the handling of the customer’s bank credentials by third party payment service providers. The bank needs to be able to perform strong authentication to ensure that the authorized account user is behind the initiation message

There are concerns about security aspects related to PSD2. An example hereof is the secure authentication. All the PSPs will have to ensure that they can demonstrate compliance with the new security requirements. How it will be achieved and monitored ? How will TPPs  interact with banks, since there is no need for a contract to be signed?

If something does not work correctly, there will also be discussions on the liability side. The PSD2 states that the TPP has to reimburse customers quickly enough that they are not bearing undue risk, but one will have to determine which TPP had the problem and work with them to resolve it. This will require further clarifications from the regulators.

In addition the PISP and the AISP vulnerable for to potential frauds. Web and mobile applications could become easy target for cybercriminals for various reasons, including the inherent vulnerabilities in the APIs that transfer data and communicate with back-end systems. The openness of the web could allow hackers to view source code and data and learn how to attack it. APIs have been compromised in several high-profile attacks that have caused significant losses and embarrassment for well-known players and their customers. The PSD2’s ‘access to account’  increases not only the number of APIs, but adds layers of complexity to the online banking/payments environment, adding to the risk of fraudulent attacks.

The market is waiting for the RTS (Regulatory Technical Standards) to give guidance on how some remaining security issues will be solved. These include:

  • Treatment of PSU’s (payment service user)security credentials
  • Requirements for secure communication between the PSP and banks
  • Full details and definition of strong authentication
  • Safety of the PSU funds and personal data
  • Availability of license registry for real-time identification of the PSP (PISP or AISP)

It is important that the required clarifications are published soon, in order to avoid a time lag between the implementation of PSD 2 in the national legislations and the real move in the market.

Conclusion

The PSD2 creates challenges, such as the huge investments to be made by the banks, compliance issues and protection against fraud and cybercrime. However several topics need to be clarified such as the RTS and the market players need also to agree on common standards for the interfaces. The clock is ticking in the PSD race.

Traditional players such as the banks appear to have a competitive disadvantage vis-à-vis the new emerging third party payment service providers. However, the Directive opens up new forms of a collaborative approach that can overcome this. New players can provide their innovation and resilience, whilst banks can add value thanks to their large customer base, credibility, reach and ability to cope with high volumes.

The biggest potential benefits might be for customers, who will benefit from new value propositions, services and solutions from new entrants, from banks and new entrants combining their individual strengths, or from banks becoming more innovative in the face of increased and agile competition.

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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Best read articles of all time – PSD 2: a lot of opportunities but also big challenges (Part I)

| 15-05-2018 | François de Witte |

The Directive 2015/2366 on payment services in the internal market (hereinafter PSD2) was adopted by the European Parliament on October 8, 2015, and by the European Union (EU) Council of Ministers on November 16, 2015. The PSD2 updates the first EU Payment Services Directive published in 2007 (PSD1), which laid the legal foundation for the creation of an EU-wide single market for payments. PSD2 came into force on January 13, 2016, and is applicable from January 13, 2018 onwards. By that date the member states must have adopted and published the measures necessary to implement it into their national law.

PSD 2

PSD2 will cause important changes in the market and requires a thorough preparation. In this article, we are summarizing the measures and highlighting the impact on the market participants. In today’s Part I we will focus on abbreviations and main measurers introduced by PSD2.

List of abbreviations used in this article

2FA    : Two-factor authentication

AISP  :  Account Information Service Provider

API : Application Programming Interface

ASPSP : Account Servicing Payment Service Provider

EBA :  European Banking Authority

EBF :  European Banking Federation

EEA :  European Economic Area

PISP :  Payment Initiation Service Provider

PSD1:  Payment Services Directive 2007/64/EC

PSD2  :  Revised Payment Services Directive (EU) 2015/2366

PSP : Payment Service Provider

PSU:   Payment Service User

RTS : Regulatory Technical Standards (to be issued by the EBA)

SCA : Strong Customer Authentication

TPP :  Third Party Provider

Main Measures introduced by PSD2:

The  PSD2 expands the reach of PSD1, to the following payments:

  • Payments in all currencies (beyond EU/EEA), provided that the two PSP (Payment Service Provider) are located in the EU /EEA (two legs)
  • Payments where at least one PSP (and not both anymore)  is located within EU borders for the part of the payment transaction carried out in the EU/EEA (one leg transactions)

A second important measure is the creation of the Third Party Providers (TPP). One of the main aims of the PSD2 is to encourage new players to enter the payment market and to provide their services to the PSU (Payment Service Users). To this end, it creates the obligation for the ASPSP (Account Servicing Payment Service Provider – mainly the banks) to “open up the bank account” to external parties, the so-called, third-party account access. These TPP (Third Party Providers) are divided in two types:

·        AISP (Account Information Service Provider) : In order to be authorized, an AISP is required to hold professional indemnity insurance and be registered by their member state and by the EBA. There is no requirement for any initial capital or own funds. The EBA (European Banking Authority) will publish guidelines on conditions to be included in the indemnity insurance (e.g. the minimum sum to be insured), although it is as yet unknown what further conditions insurers will impose.

·        PISP (Payment Initiation Service Providers): PISPs are players that can initiate payment transactions. This is an important change, as currently there are not many payment options that can take money from one’s account and send them elsewhere. The minimum requirements for authorization as a PISP are significantly higher. In addition to being registered, a PISP must also be licensed by the competent authority, and it must have an initial and on-going minimum capital of EUR 50,000.

Banks will have to implement interfaces, so they can interact with the AISPs and PISPs. However, payment initiation service providers will only be able to receive information from the payer’s bank on the availability of the funds on the account which results in a simple yes or no answer before initiating the payment, with the explicit consent of the payer. Account information service providers will only receive the information explicitly consented by the payer and only to the extent the information is necessary for the service provided to the payer. This compliance with PSD2 is mandatory and all banks will have to make changes to their infrastructure deployments.

A third important change is the obligation for the Payment Service Providers to place the SCA (Strong Customer Authentication) for electronic payment transactions based in at least 2 different sources (2FA: Two-factor authentication) :

  • Something which only the client knows (e.g. password)
  • A device (e.g. card reader, authentication code generating device, token)
  • Inherence (e.g. fingerprint or voice recognition)

 

The EBA (European Banking Authority will provide further guidance on this notion in a later stage. It remains to be seen whether the current bank card with pin code is sufficient to qualify as “strong customer authentication”. This “strong customer authentication” needs to take place with every payment transaction. EBA will also be able to provide exemptions based on the risk/amount/recurrence/payment channel involved in the payment service (e.g. for paying the toll on the motorway or the parking).

PSD2 also introduces some other measures:

  • Retailers will be authorized to ask to the consumers for permission to use their contact details, so as to receive the payment directly from the bank without intermediaries
  • There will be a ban on surcharges on card payments
  • There will be new limitations on the customer liability for unauthorized payment transactions

In a second article soon to be published on treasuryXL, François de Witte will focus on the impact PSD2 has on market participants. 

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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Best read articles of all time – FX Swaps vs Libor and EURIBOR: Arbitrage opportunities?

| 10-05-2018 | Rob Söentken |

fxswaps

As we are getting closer to the end of the month, end of Q2 and end of H1 of 2016, it is interesting to see financial markets are maneuvering to get the right liquidity on board for the balance sheet. Or get rid of the unwanted liquidity. For firms with liquidity in various currencies the best means for liquidity management is FX swaps.

What is an FX swap?

In a very simple definition the FX swap is like an exchange of deposits. The big advantage is that the counterparty risk is reduced due to the exchange of notional. Operationally an FX swap is booked as two FX transactions: one to convert and another to revert. The conversion rate is against the prevailing exchange rate. The reversion rate is against the conversion rate plus or minus some ‘swap points’, which reflect the interest rate differential between the respective currencies. During the tenor the exchange rate could change, which creates counterparty risk on the mark-to-market value of the reversion. Mark-to-market risk for tenors up to 1 year is still a small when compared to full notional risk.

How would an FX swap work in theory?

In diagram 1 the Libor and Euribor fixings for USD and EUR are listed for the respective tenors. Now if we would consider exchanging a USD deposit versus a EUR deposit for 1 year the cash flows would be as follows:
For the conversion date we take value spot (ie 2 days, in this case that is per June 30th) and we agree to exchange EUR 1 Mio vs USD 1.1048 Mio (because EUR 1 Mio at current spot of 1.1048 is USD 1.1048 Mio)

For the reversion date we take the value date for 1 year from today’s spot date. We calculate the following amounts including interest:

EUR 1 Mio x (1 + -0.05% x 365 / 360) =                     EUR 999,493.06

USD 1.1048 Mio x (1 + 1.20% x 365 / 360) =         USD 1,118,241.73

Dividing the USD amount by the EUR amount gives the exchange rate for the reversion on the forward date, in this case that is 1.1188089. This is called the ‘forward rate’ The difference to the spot exchange rate is 0.0140089. For simplicity reasons this is multiplied by 10,000 to 140.089. This reflects the interest differential.

When executing an FX swap the EUR amounts are kept constant for both the spot and forward dates. But the USD amounts are calculated using the spot and forward exchange rates as calculated above. Therefor the interest differential is reflected in the USD amount being different between spot and forward date.

How does it work in reality?

As I mentioned at the beginning of this article, the current situation is special because we are getting close to a date special and important for balance sheet reporting. Supply and demand may push the market in a direction.

When looking at the actual FX swap rates and taking the EUR Euribor fixings as given, we can deduce the implied USD funding rates (see diagram 2). First observation is that the FX swaps appear to reflect either a substantial demand for USD from June 30th to July 1st, or a EUR supply. It is interesting to see that the 1 week fixing for EUR was not affected, while the 1 week FX swap was affected maybe 20 bppa. One reason could be the timing of the rates. Euribor is taken at one moment during the day, while FX swaps are affected by events during the day. Because wdiagram2e are looking at a single day FX swap, the annualized rate could swing a lot.

Another observation is that the interest rate differential between EUR and USD is actually bigger than implied by the fixings. For one month tenor the difference is 0.59% p.a.. It would seem possible that supply – demand forces can push FX swaps away from the deposit markets. Likely the counterparty limit constraints on pure deposits keep them from being arbitrages vs FX swaps, like they used to be many years ago.

How can a treasurer benefit from FX swaps?

Each individual and organization should determine for itself what he/she or it needs. And I do not want abstract from discussions around documentation requirements, collateral financing and administration, and the operational extra work. It seems obvious that there are opportunities to investigate.

One key area would be to look at the bid-offer spreads on cash liquidity in various currencies as provided by house-banks and compare those rates with and without using FX swaps. Also I could imagine non-house banks could be more competitive in providing FX swaps, while the counterparty risk is substantially smaller than when pure lending is concerned.

Rob Soentken

Rob Söentken

Ex-derivatives trader

 

Best read articles of all time – Beleggen in obligaties met een hoge rente – een bespiegeling

|09-05-2018 | Douwe Dijkstra – Fastned- Het Financieele Dagblad |

pile-of-money

 

Hoe interessant is beleggen in bedrijfsobligaties met een hoge rente? Hoe aantrekkelijk is deze financieringsoptie voor ondernemingen? Wij  hebben onze experts Douwe Dijkstra en Pieter de Kiewit om een kort commentaar gevraagd naar aanleiding van de obligatie uitgifte van Fastned.

 

 

Op de site van Fastned was begin december 2016 te lezen:
‘U kunt nu investeren in Obligaties Fastned met 6% rente’. Later in de maand ging de tekst verder: ‘We zijn verheugd u te kunnen mededelen dat Fastned de inschrijving is gestart voor de uitgifte van obligaties. De obligaties hebben een looptijd van 5 jaar en keren per jaar 6% rente uit. Dit is een mooie kans om (verder) te investeren in de groei van Fastned en een duurzame wereld.’
Vervolgens werden de belangrijkste kenmerken van Obligaties Fastned genoemd.
Dat de obligaties zeer gewild waren blijkt vandaag. Op de site van Fastned verschijnt nu een tekst dat alle obligaties geplaatst zijn. En Fastned vervolgt:
‘Gezien de grote interesse in obligaties Fastned zijn er zeker voornemens om binnenkort nog een uitgifte te doen.’

In het Financieele Dagblad kon men op 6 december een Bartjens commentaar lezen over de Fastned obligaties:  Het principe is simpel: een wankel bedrijf leent geld. Beleggers willen de relatief grote kans op wanbetaling gecompenseerd zien met een behoorlijke vergoeding: dus een hoge rente. In de VS zijn junkbonds populair, hier is het een kleine markt. Maar deze week is er weer een onvervalst speculatieve obligatie uitgegeven. Fastned. Het bedrijf dat een Europees netwerk van snellaadstations voor elektrische auto’s bouwt, leende € 2,5 mln. De lening heeft een looptijd van vijf jaar. De couponrente is 6%. Ter vergelijking: de Nederlandse Staat (superveilig) leent voor vijf jaar tegen 0%, Shell (behoorlijk veilig) leent voor vijf jaar tegen een coupon van 1,25% en Gazprom (Russisch, iets minder veilig) leent in Zwitserse frank voor vijf jaar tegen 2,75%. De 6% van Fastned impliceert dus behoorlijke risico’s. Het bedrijf is klein, jong en verlieslatend. Het heeft geen reserves en een negatief eigen vermogen, zo blijkt uit het prospectus. Maar goed, ‘de cost gaet voor de baet uyt’ en juist nu moet Fastned investeren.’

Expert Douwe Dijkstra vult hierop aan:
Voor beleggen in Fastned obligaties geldt hetzelfde als voor elke andere investering. Het rendement is omgekeerd evenredig aan het risico. Zolang niemand weet of de koers van aandelen Koninklijke Olie omhoog of naar beneden gaan, weet zeker niemand of beleggen in een 6% obligatie van Fastned achteraf wel of geen goede investering zal blijken te zijn geweest. Het lijkt mij enkel aantrekkelijk voor beleggers die wel een gokje durven te wagen met een te overziene inzet die ze wel kunnen missen. Of voor beleggers met een ideologische wereldvisie. Vorige week las ik in een ander artikel nog dat die investeerders met een loep gezocht moeten worden.

En Pieter de Kiewit zegt:
Investeren in start-ups gaat mijns inziens gepaard met een andere investeringsanalyse dan in volwassen ondernemingen. Daarbij is de ‘groene factor’ voor vele beleggers reden anders naar een onderneming te kijken. Dit is bijvoorbeeld heel zichtbaar bij Tesla. Persoonlijk vraag ik me af of een avontuurlijke investeerder in dit geval niet beter een equity investering kan doen.
Vanuit Fastned perspectief kan ik, met hun vertrouwen in hun business case, begrijpen dat ze liever obligaties uitgeven dan nieuwe aandelen..

douwedijkstra

 

Douwe Dijkstra

Owner of Albatros Beheer & Management

 

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