risk management Archives - Page 7 of 8 - treasuryXL

Interesting transfer Joop Wijn from ABN to Adyen

| 16-1-2017 | Pieter de Kiewit |

Last Thursday I attended a very interesting breakfast meeting about PSD2, organized by Alexander Huiskes of EY with support from DNB. I will write about this in a separate blog. Not being up-to-date on my Financieele Dagblad reading, I was surprised by the question what my opinion is about the transfer of Joop Wijn from ABN Amro to Adyen. I replied to my best knowledge, digested the question and decided upon this blog.

Not being involved at all, I think there are two aspects in this transfer: industry developments and his strategic career management. Fact is that Joop Wijn surprised us before with career changes from banking into politics and back.

We all know banks have to rethink their place in the value chain and their proposition. New services appear and replace traditional banking services. Also traditional services are executed better or cheaper by new suppliers. Adyen , as a payment services provider, offers a perfect example of these developments. Risk management within Fintech gets, just so, increasing attention. Topics like anti money laundering, authentication, fraud and hacking should be addressed. Not only because regulators want this but of course clients see this as essential. My first thought was that Joop Wijn is too senior, as board member of ABN, to be responsible just for risk. As risk management is essential, I can understand Adyen aims this high and Joop accepted.

From a strategic career perspective I have two assumptions. The first is that one of the motivators of Joop might be the impact he can have. Not being considered as chairman of a Dutch bank stops his career advancement, thus the possibility to increase his impact. Being responsible for a strategic topic within a global market leader in a growing market, might be more appealing. The second assumption is that he made a reshuffle of what is important. I often see this with candidates with a longer track record. This move might enable him to change his priorities.

Perhaps he will inform us about the above, perhaps he will keep this to himself. Fact is, it is an interesting career move.

Pieter de Kiewit
Owner Treasurer Search

treasuryXL Resources (part II): education & training

| 5-1-2017 | Annette Gillhart |

In december we called in your help to refer to our page ‘Resources‘ and complete our list of associations. We have received interesting suggestions which will be added to the list shortly. Today we would like to give you an overview of the treasury education and training organisations that we have listed on this same page under the tab ‘education and training‘. Of course you are again most welcome to send in suggestions, as we do not claim that this list is complete.

As our list is rather long we will start with 3 organisations:

1. Alex van Groningen

Since 1994 Alex van Groningen is one of the leading partners for finance professionals. They also built several major communities with their partners. Within those communities knowledge, network and career meet, support and enforce each other. More than 100.000 professionals meet online and in class rooms.

Training programs comprise amongst others Financial analysis, Strategic financial management, Controller in one week and Business valuation.

2. NCOI

Education and training for working people in The Netherlands.

NCOI stands for keeping skills on a high level or improving these skills and their target group is the working population. Every year they enlarge the knowledge, skills and competence of thousands of working people. Their approach is strongly related to the working practice and offers a high extend of flexiblity to combine job and study. They offer various starting dates, different study types, top lecturers, group lessons and a valuable diploma.

A short summary of the programs they have for treasurers and finance professionals (courses are in Dutch):

Masterclass Financing & Treasury, Module treasury management, Master Finance & Control

3. NIBE-SVV

NIBE-SVV offers education and training for bank, insurance and stock exchange professionals throughout The Netherlands. According to their information they are the leading institute for finance professionals. Courses and programs are matched with the existing knowledge and competences of participants.

Their approach is practical and they provide profession-oriented training on MBO (intermediate vocacional education) , HBO- (higher vocational education) and Master level.

They offer the following programs for treasurers and finance professionals (in Dutch):
Introduction riskmanagement, Financial riskmanagement, Cashmanagement, Financial risk and regulation, Foundation of financial risk, Cashmanagment and Tradefinance

The complete list of education and training organisations on our website can be found under ‘education and training‘.

For more information about a particular organisation and the most recent programs please visit their websites.

Have you been following an interesting and valuable training lately that you want to tell us about? Please feel free to share it with us and the treasury community!

Annette Gillhart – Community Manager treasuryXL

[button url=”https://www.treasuryxl.com/about/” text=”View profile” size=”small” type=”primary” icon=”” external=”1″]

[separator type=”” size=”” icon=””]

How can you protect your company against fraud?

| 16-12-2016 | Treasury Intelligence Solutions GmbH (TIS) | sponsored content |

Dangers lurk in the online banking and electronic payments world for private consumers. However, the risks can be even more devastating for companies that are not properly protected, in some cases even leading to bankruptcy. Have you experienced phishing or “CFO trick” e-mails in your organization? Do you know, prior to the end of the month, how much money has perhaps been transferred out of each of the many subsidiaries in your organization? What happens when an employee has left the company, yet is still active in your systems, in some cases even still being listed with signatory rights?

“How to protect your company against fraud”, provides insights into how you can gain a clear and central overview of your bank relationships, how you can arrange your cash positions and liquidity in a transparent way, and how you can standardize your electronic signatory authorizations.

To help you maneuver the payments and banking jungle, TIS GmbH reviewed the solutions that enable you to consolidate central processes through a Software as a Service platform. If you want to read more about this subject please click on in this whitepaper.

Treasury Intelligence Solutions GmbH (TIS)

Since 2010, Treasury Intelligence Solutions GmbH (TIS) has been combining their treasury management experience and know-how with their cloud computing and virtualisation expertise. The TIS solution is the result of these efforts: comprehensive, highly scalable and extremely secure SaaS solution to process, analyse and document all treasury management processes.

Beleggen in obligaties met een hoge rente – een bespiegeling

| 15-12-2016 | Douwe Dijkstra – Fastned- Het Financieele Dagblad |

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..

Douwe Dijkstra

Owner of Albatros Beheer & Management

Rentederivaten in de ban… of toch niet?!

| 9-12-2016 | Rob Bekker |

Er staat op dit moment veel in het nieuws over rentederivaten en de ontwikkelingen rond deze producten. Rentederivaten kunnen nuttig zijn om het renterisico af te dekken, het zijn echter ingewikkelde producten. Als treasurer zult u de werking en de risico’s van het product goed begrijpen. Als u toch behoefte heeft aan voorlichting kunt u zich laten informeren door uw bank. Daarnaast kunt u kennis over de werking van deze producten in huis halen, bijvoorbeeld bij een advieskantoor dat zich specialiseert op het gebied van rentederivaten.

Wij hebben onze expert Rob Bekker gevraagd om kort in te gaan op de ontwikkelingen rond rentederivaten:

Al enige jaren lijken rentederivaten volledig in de ban gedaan, wellicht mede door de veelal negatieve aandacht in de media. Daarnaast gaven de ontwikkelingen op geld- en kapitaalmarkt niet direct aanleiding om in te dekken tegen stijgende rentes (vanuit leningperspectief bekeken dan). Nu het er (opnieuw) op lijkt dat de rentebodem is bereikt, is het toch zinvol om concreet na te denken over de renteafdekkingsstrategie die men binnen een onderneming wil toepassen.

Staan er toekomstige investeringen op stapel die financiering behoeven, dan zijn er prima renteproducten te hanteren om binnen het risicoprofiel (én strategie) van een onderneming de rentelasten op flexibele wijze in toom te houden. Zorg dat u weet wat u te doen staat als de rente daadwerkelijk weer gaat oplopen. Regeren is vooruit zien.

Met de binnenkort van de Derivatencommissie te verwachten nadere uitwerking van het herstelkader zal in elk geval duidelijk worden hoe de toepassing van rentederivaten, die in het verleden op onjuiste basis of onjuiste gronden heeft plaatsgevonden, dient te worden gecorrigeerd. Daarbij zullen de banken dan een passende compensatie moeten gaan aanbieden aan haar cliënten binnen de specifieke doelgroep. Dit zal naar verwachting opnieuw veel aandacht in de media opeisen, maar hopelijk in het juiste perspectief en dus zonder rentederivaten in de ban te doen.

Rob Bekker

Associate Partner at Treasury-linQ”

EUR/USD beweging na de verkiezingen in Italië

| 6-12-2016 | Udo Rademakers |

Waar zondagnacht (11 PM Amsterdamse tijd) de EUR/USD nog een aardige push omlaag kreeg vanwege de ‘Italië-uitkomst’, is dit weer ongedaan gemaakt tijdens de Europese openingsuren. Van paniek is geen sprake, aangezien een beweging van een cent relatief gezien gering is.

Politici haasten zich wederom met uitspraken dat Italië een sterk land is, er is toewijding alom, en er wordt gezegd dat een ‘nee-stem van Italië geen stem is tegen de EU’ enzovoorts. Echter, het valt moeilijk te ontkennen dat Europa in instabiel vaarwater verkeert. Forex koersen op de (zeer) korte termijn worden vooral door de publicatie van economische data, politieke onzekerheid, aanslagen en dergelijke beïnvloed. Deze bewegingen vinden plaats binnen langere termijn trends (waves).

De EUR/USD beweegt zich sinds februari 2015 grofweg in een range van 1,05 (onderkant) en 1,15 (bovenkant). Vooral in de laatste 3 weken is de EUR/USD relatief sterk gedaald (van 1,11 naar 1,05). De support heeft daardoor (tijdelijk?) zijn werk gedaan. Echter, ik verwacht dat binnenkort richting wordt gekozen (en dan richting het Zuiden) , de volatiliteit toeneemt en ‘sell the rallies’ een interessante strategie kan zijn op het huidige niveau van 1,0720.

Een sensibilisatie van ‘risk awareness’ bij de afdelingen inkoop, verkoop en de CFO heeft een sleutelrol. Mede gezien bovenstaande, bied mij dit een gelegenheid om ook in mijn huidige opdracht een nadruk te leggen op valutarisico´s en dit een integraal onderdeel te maken van een degelijke, actuele ‘STP multi currency forecast’ die snel te implementeren is om bij toenemende volatiliteit de kans op „negatieve verrassingen“ beperkt te houden. De volgende stap is om met SMART indicatoren de risico´s waar nodig af te dekken en zelfs te kunnen profiteren van de huidige omstandigheden (middels opties bijvoorbeeld).

Udo Rademakers – Independent Treasury Consultant & Interim Manager

[button url=”https://www.treasuryxl.com/community/experts/udo-rademakers/” text=”View expert profile” size=”small” type=”primary” icon=”” external=”1″]

[separator type=”” size=”” icon=””]

Commodity price risks deserve a spot within Treasury Management

| 26-09-2016 | Sjoerd Schneider |

Market price risks traditionally managed by a central Treasury department cover company-wide interest rates and currency risks. Commodity price risks have many of the same characteristics, however only few companies manage these risks within Treasury. Shouldn’t commodity price risks also be addressed by a central Treasury department?

Commodities are typically handled and processed throughout multiple departments, resulting in their price risks also being run in many different sections and locations. These risks are consequently almost always initially managed locally. When production companies centralize their Procurement departments, central management of price risks often follows within a few years.

The question for production companies without a dedicated Trading department is whether commodity price risk management belongs to Procurement or to central Treasury? Treasury classically lacks insight knowledge of commodities, but does have a company-wide view on price risks. In contrast, Procurement is far better informed on commodities but less on market prices. In any case, either part of the company will need to invest in building expertise.

Many mid-sized and large production companies I have spoken to in recent years have chosen to add risk management to their Procurement department. The main reason is keeping know-how of commodities close to the associated (purchase) contracts. The main drawback of this construction on the other hand is that these price risks are managed in a different place and possibly with a different strategy than interest rate and currency risks.

Managing highly correlated comparable risks in separate departments will lead to sub-optimal behavior: inefficiency, incorrect risk (VaR) numbers, inferior hedges and possibly even contrary hedges. For example, a separate approach to a USD position and a Copper position for a EUR based company would result in different hedges than a combined centrally managed approach. That is why, from a portfolio perspective, I strongly recommend funneling all market price risks to one central Treasury department. Diversification effects will be fully appreciated when all positions are managed as one portfolio. To be successful it is essential to create continuous interaction between the treasurers and purchasers: Treasury shall need to be much more embedded in the business than they are accustomed to.

When all price risks are managed centrally and internal collaboration is optimized, the company shall reap its rewards by having one single source of full insight into its exposures and by being able to swiftly manage all of them. This will lead to enhanced risk management and lower overall transaction costs.

Sjoerd Schneider

Founder of Insposure

FX Global Code of Conduct

| 09-06-2016 | Simon Knappstein |

Last month the BIS published the first phase of the FX Global Code. The final version is planned for completion by May 2017. What is this Global Code and what is the BIS trying to achieve by the establishment of this Code?

Recent history

In the wake of the Libor Scandal a similar rate rigging scandal emerged in the FX market. This related to fraudulent actions around the fixing process of FX Benchmarks. In 2013 the Financial Stability Board commissioned a working group to firstly analyse the structure of the FX Market and the incentives that might promote inappropriate trading activity around a benchmark fixing, and then come up with some potential remedies to address the problems found.

In September 2014 a report was published by the FSB containing 15 recommendations to reform the FX Benchmark process. A number of these recommendations concerned market conduct, specifically related to the fixing process. To further restore trust in the foreign exchange market and make this market function as effectively and efficiently as possible the BIS commissioned a working group to facilitate the establishment of a single global code of conduct for the FX Market and to come up with mechanisms to promote greater adherence to the code. The first phase of this global code is now published and I will share some observations with you.

What is the Global Code?

The Global Code is a set of global principles, not rules as rules are easier to arbitrage than principles. It is meant to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale FX Market, i.e. a robust, fair, liquid, open, and appropriately transparent market

Unlike for instance the Model Code by the ACI Forex, which is only intended for the sell side and more rule based, this Global Code is developed by a partnership between Central Banks and Market Participants from both sell- and buy-side globally.

The Global Code is organised around six leading principles:

· Ethics

· Governance

· Information Sharing

· Execution

· Risk Management and Compliance

· Confirmation and Settlement Processes

Furthermore it is emphasized that this Global Code does not supplant the applicable laws and regulations for the relevant jurisdictions. It should serve as a reference when conducting business in the FX Market.

So far, so good.

The good thing in this Global Code is that it applies to all organisations and persons active in the wholesale FX Market globally and thus creates a level playing field. The more cynical observer could argue that codes of conduct are around for decades and that these have not been very successful in preventing scandals.

Obviously, thinking of myself as an ethical and honest ex-salesperson and trader, most of these principles are a no-brainer. There is only one principle and related good practices that leaves me a bit puzzled, and that concerns Execution, sub-principle 5: The Mark Up applied to Client transactions by Market Participants acting as Principal should be fair and reasonable. Sounds fair enough, but in a competitive world with Clients comparing quoted prices and trading the most advantageous price to them, hasn’t mark-up already ceased to exist? So what is fair and reasonable about zero mark-up? Or shouldn’t Clients trade the most advantageous?

I wonder, dear reader, what your thoughts are on this?

Reference:
Speech by Mr Guy Debelle, Assistant Governor (Financial Markets) of the Reserve Bank of Australia, at the FX Week Europe conference, London, 25 November 2015.
FX Global Code: May 2016 update

Simon Knappstein

Owner of FX Prospect

Is this the solution to solving the derivatives mis-selling issue?

12-05-2016 | by Victor Macrae |

Recently the Dutch Ministry of Finance appointed three independent experts to solve the long-lasting issue of derivatives mis-selling in the Netherlands. This is important for both firms and banks as the dispute puts severe pressure on their relationship. Moreover, judges are reaching more and more verdicts in favour of SME’s. In several cases interest rate swap transactions were declared void and the firm was compensated for its losses. Therefore the stakes are high. Is this last step permanently going to solve the issue?

The derivatives mis-selling problem originates from the fact that banks have been selling interest rate swaps to SME’s as an alternative to fixed rate loans. If market interest rates would not have dramatically decreased to unprecedented lows, there might have been no issue at all! But the reality is that buyers of interest rate swaps face various problems that they were apparently not aware of when signing the contract. For instance, in contrast to fixed rate loans, a bank can increase the interest margin when it deems a higher counterparty risk. Furthermore, when a firm wants to repay the underlying loan, it will also have to pay a possible negative market value of the swap. Also, a swap’s negative market value can decrease the firm’s access to liquidity.

MiFID strongly protects non-professionals

A key fact in this issue is that SME’s are deemed to be non-professional investors according to MiFID, a powerful EU directive that protects customers that purchase financial instruments. When selling interest rate swaps to non-professionals, banks should in advance inform them whether it acts as an advisor or as product seller. Furthermore, the bank should upfront provide sufficient information about all risks involved. Last but not least, banks should check that the non-professional investor understands the proposition and that the product is in the best interest of the customer.

Overarching solution

The Dutch financial conduct authority AFM first asked the banks to review their files of derivatives sales to SME’s and to pay compensation if necessary. Thereafter, the AFM concluded that the reviews were not ‘in the best interest of the customers’ and demanded that banks do it all over again. Recently the Dutch Minister of Finance intervened because he was unhappy with this process. As a consequence, to solve the issue once and for all the Ministry of Finance appointed three independent experts. I’m pleased with the idea of appointing three ‘outsiders’ as it makes it easier to reach a sound overall solution for all parties involved. SME’s would be fairly compensated and further financial and reputational damage of banks would be limited.

Disturbing signals

What bothers me is the fact that in the procedure set up by the AFM the banks will create an overall recovery plan together with the independent experts. This gives far too much power to the banks and undermines the independency of the experts! Having said that, the Minister of Finance has already softened this statement of the AFM. We will see how it works in practice. As an alternative SME’s can always go to court as judges have reached verdicts that are beneficial to them…

Victor Macrae

Owner of Macrae Finance

Option Tales: ATM or OTM?

10-05-2016 | By Rob Soentken |

When uncertainty is substantial and the decision was made to hedge with options, should the strike be put ‘At The Money’ (ATM) or ‘Out of The Money’ (OTM)? Diagram 1 shows the dilemma.

An ATM call option on USD with strike at 1.1400 costs about 2% while a 4% OTM option with the strike at 1.0944 costs only about 0.6%. The latter is substantially cheaper but the protection only kicks in once the USD has appreciated 4%.

We know the premiums and the strikes, but each strike / premium combination has its merits. It would help if we would know the amount of Risk we are running. To speak in terms of insurance: We know the premium, but we do not know the potential loss. One thing we do know is the chance on that loss. This chance factor is called Delta. It is the chance of the USD appreciating below the strike of the option. The premium divided by the chance on the loss is the potential loss. It could be more, it could be less, but it is the estimated average loss. For example: The 1.14 strike costs 2% premium and has a 50% chance of being worth anything. Therefore the 2% is the premium on an insurance contract potentially worth 2% : 50% = 4%. Lets call this Risk.

Diagram 2 shows Premiums, Delta and Risk for various OTM strikes. Risk appears fairly stabile across strikes, which makes sense because the premiums are calculated with one volatility on one underlying. The Risk on OTM is lower than that for ATM options. It appears that OTM premiums are relatively more expensive, they give protection against less potential loss.

Knowing the Risk to be around 3.5-4% on the USD to be purchased, it does not come as a surprise that in real life many option strikes are bought to protect for losses beyond this percentage amount. Hedgers are looking for protection beyond the expected potential loss on the underlying. These are OTM strikes in this case 3-4% OTM, with a Delta (chance of exercise) between 20-25%.

Diagram 3 shows Premiums, Delta and Risk for different tenors. ‘Time’ is the time to expiry of the options in fractions of years. Its shows that for longer tenors, the Risk is higher. But disproportionally. For the same chance on exercise a hedger could double the premium to buy a hedge for a 4x longer tenor.

Rob Soentken

Ex-derivatives trader

Tag Archive for: risk management