Tag Archive for: brexit

Walk the walk into FX exposure: my first baby steps

| 20-06-2016 | Pieter de Kiewit |

Being a treasury recruiter I know how to talk about many aspects in corporate treasury, never having to prove I understand and can execute. Apparently this is not necessary to do a proper recruitment job. As a small business owner I do have my miniature corporate treasury tasks. Below I want to describe the most complex FX issue I encountered so far. Not so much for the readers who are seasoned treasury professionals, but for my fellow entrepreneurs and others not dealing with FX on a daily basis.

A large, listed firm with a presence in various countries asked for my support in finding an interim treasury manager for a transition project. Doing what we do, this task was executed swiftly. The next steps were a bit more complex, given the fact that the assignment will be executed in Switzerland and The Netherlands and the interim manager is from the UK. Our previous cross border, non Euro payments were related to permanent placements, resulting in a single invoice. Most of these can easily be done via electronic banking. I know the bank in that case charges me a fee for the actual transfer and without sending me a quote will earn from making Euro’s out of other currencies. Perhaps I should have asked how much. I suspect I paid over 40 base points.

In this case, there will be many invoices related to one project, resulting in many transfer fees. The interim manager wants to be paid in GBP, if my client would pay in Euro’s this will lead to many Euro-GBP transfers. I am not too keen on that, I expect costs will be substantial. On top of this, the Brexit is in the news constantly creating a blurry situation for me. How to move forward? What is the advise of my bank? What do companies like NBWM or Monex tell me? Spots, forwards, swaps? Without going into detail this is where I stand.

My client is willing to pay me in GBP. With my bank I could open a GBP account quite swiftly. Instead of researching and managing this part of the FX risk I will invoice in GBP, making this a complete GBP project. This way I do not have to think about FX risk during the project. At the end of the whole project I will decide if my bank will convert my GBP in Euro’s or I will ask others. I do have to decide if I will accept the risk of the GBP collapsing or if I will hedge this risk. My costs are in Euro’s, who can predict the future for me?

Pieter de Kiewit

 

 

Pieter de Kiewit
Owner Treasurer Search

 

Lionel Pavey about the German Bund Yield. Is there a solution?

| 17-06-2016 | Lionel Pavey |

This week’s headlines were all about the German Bund Yield hitting a historic low. On Wednesday we also published an article about this subject and asked our experts to respond. Expert Lionel Pavey reacts with a full article on the German Bund Yield and asks himself; is there a solution?

Possible reasons:

  • Flight to quality – investors looking to place their money in a safe place
  • Brexit referendum – polls suggest chance of exit greater than ever leading to uncertainty
  • Quantitative easing – ECB policy of buying government bonds pushes bond prices up and decreases the yield

Since 2008 governments have attempted to kickstart their economies using monetary policy – lower rates and quantitative easing. The sellers of government bonds who receive cash do not appear to be either spending it or investing it – a report from Merrill Lynch states that fund managers are sitting on more cash than at any times since 2001 and have reduced their shareholdings to their lowest level in 4 years.

It would appear that all efforts by central banks via monetary policy have not succeeded. If government yield are persistently negative there is a possibility of stagflation and important investment decisions being deferred to a future date, leading to falling prices and a vicious downward spiral.

Is there a solution?

When I studied economics there were 2 schools of thought at the time – Milton Friedman and John Maynard Keynes. I have always felt that Keynes was discarded rather harshly by the monetarists.

Keynes stated that in recessions the aggregate demand of economies falls. In other words, businesses and people tighten their belts and spend less money. Lower spending results in demand falling further and a vicious circle ensues of job losses and further falls in spending. Keynes’s solution to the problem was that governments should borrow money and boost demand by pushing the money into the economy. Once the economy recovered, and was expanding again, governments should pay back the loans.

It is that last sentence that is pertinent. Keynes’ remedy runs countercyclical to the business cycle –instead of using all the money to buy up Government Debt, Government should borrow the money directly and embark on large projects to improve the infrastructure within a country. When the economy was revived Government should then repay the money borrowed and run a budget surplus.

 

Lionel Pavey

 

Lionel Pavey

Cash Management and Treasury Specialist – Flex Treasurer

 

Talk of the day: German Bund Yield Below 0%

| 15-06-2016 | Udo Rademakers, Rob Söentken, Douwe Dijkstra & Lionel Pavey |

german bund yield below 0

 

For the first time ever the German bund yield hit negative territory. The ‘Deutsche Welle’ writes: “With the prospect of Britain leaving the European Union looming ever larger ahead of referendum in 9 days, global investors are increasingly fleeing to safe havens such as German debt and Japenese currency. As a result, the yield on Germany’s benchmark 10-year debt fell into negative territory for the first time in its history on Tuesday. ” (DW.com) We asked some of our experts to give their opinion on this news:


Udo Rademakers
“Billions of Euro´s are invested into sovereign debt, even if meanwhile investors need to pay for this. German yield prices can meanwhile compete with Japan and Swiss rates (all below 0). The mainstream media explains this development as “concerns about the economic and political risks of a Brexit” and “concerns about the state of global growth”. However, the longer term trend since the 1980´s has been downwards and we now see a kind of (last?) acceleration in price.

Knowing the challenges Europe (and Germany) is facing, I think it is a matter of time before we could expect a spike in the rates again….. .I would place my bet in other markets.

Every trend is coming to an end…….”

Rob Söentken                                                                                                   
“Not even a month ago markets were discounting the impact of the Brexit referendum. Now in a matter of weeks the odds have swung back from around 25% in favor of leaving to 42%. The increased media attention and figures (true or false) being thrown around are making voters run to register to vote. Apparently it’s mostly younger voters, who tend to be more in favor of staying. It is said that a turnup above 60% is favorable to the ‘remain’ vote. Still both camps are becoming more and more committed.

The downside for GBP vs EUR is probably the biggest risk. If the UK leaves the EUR, UK equities may dip sharply, but will likely recover because of the prospect of more independent monetary and economic policy. Interest rates will probably start rising to incorporate the increased independence risks. But the GBP as a currency may dip an absolute 10% or more, anticipating asset sales from foreign investors. Investors will fear the UK will become like Italy and France in the past: a country that needs to devalue its currency on a regular basis to offset internal rigidities and inefficiencies.”
                 Douwe Dijkstradouwedijkstrarond
“Who would have thought this a few years ago, the interest rate on 10- year German government bonds below zero percent. For some time we hear our banks and advisors recommending to fix our interest rate exposure because its “now or never”.

However, anyone who has fixed already acted too early. For one of my clients I’m busy to Blend & Extend their current IRS contracts, fixing the interest rate for 7 years. Afterwards too early? Nobody knows. I think my client will have no regrets rather ” sooner than later”!”

Lionel Pavey

lionelrond
“Possible reasons:

  • Flight to quality – investors looking to place their money in a safe place
  • Brexit referendum – polls suggest chance of exit greater than ever leading to uncertainty
  • Quantitative easing – ECB policy of buying government bonds pushes bond prices up and decreases the yield

More on this topic in my article which will be published on Friday.”

What’s your opinion on this news? Let us know in the comment section below.

Uitgelicht: Angst voor brexit jaagt bedrijven naar de beurs

| 20-05-2016 | treasuryXL |

brexit

 

Recentelijk lazen we een aantal berichten over de angst voor Brexit die meerdere bedrijven naar de beurs jaagt. (bron: FD, NRC) Onder andere Philips, Basic Fit en ASR kondigden aan naar de beurs te gaan.  treasuryXL vroeg een drietal experts om hun mening;

 

Is het inderdaad de angst voor Brexit die bedrijven naar de beurs drijft?

Douwe Dijkstra

 

Douwe Dijkstra – Owner of Albatros Beheer & Management
“Angst voor een Brexit jaagt bedrijven naar de beurs” lees ik op een aantal sites en hoorde ik in het journaal. En de beoogde investeerders dan? Die hebben dit nog niet door? Ik geloof wel in een Brexit en daardoor een eenmalige spike naar beneden van GBP en beurzen maar verwacht daarna snel herstel. Naar mijn gevoel zijn beurzen wel toe aan een rit naar boven.

 

Roger Boxman

 

Roger Boxman – Interim Risk Management Consultant
Bedrijven houden rekening met een ongunstig beursklimaat. De verwachte opbrengst zal tegenvallen bij een ‘no’ vanwege een lagere Britse Pond en een hogere vereiste risicopremie bij beleggers. Enige nuancering is op zijn plaats. Zo is Zwitserland geen lid van de EU, maar herbergt vele succesvolle multinationals. En zo heeft de Griekse toetreding tot de EU en de Euro na aanvankelijk succes de nodige rampspoed gebracht.

 

Rob Soentken

 

Rob Soëntken – ex-derivates trader
De komende maanden gaan er verscheidene Nederlandse bedrijven naar de beurs. De onzekerheden omtrent een mogelijk Brexit spelen daarbij zeker een rol. Helemaal nu het kiezer sentiment in de VS de republikeinse kandidaat Trump sterk in de kaart speelt, lijkt ook een door het volk afgedwongen Brexit een reëel mogelijke ontwikkeling. Toch moet niet vergeten worden dat deze informatie reeds in de markt is verwerkt. Dus zou men kunnen stellen dat zodra dit achter de rug is, ongeacht het resultaat, de neerwaartse druk op de beurs zou wegvallen. Niet direct, maar langzaamaan. Natuurlijk zijn er momenteel risico’s, maar die zijn ingeprijsd.