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Huge number of countries with an array of recession forecasts
20-02-2020 | treasuryXL | XE |
Widespread weakness continues to weigh on a huge number of countries with an array of recession forecasts in the wake of global weakness due to pandemic, trade wars and trade deleveraging.
Hong Kong having slipped into recession last year seems as if this is likely to be repeated in the wake of the Coronavirus and months of political unrest. Hong Kong GDP already contracted at an alarming 3.2% in the middle of 2019 and key signals from economic data are already pointing at a continued slow-down of their fiscal situation. Japan is widely believed to enter a recessive environment as well suffering a huge typhoon and then a big tax increase and straight away afterwards the virus also affected their growth. There is a chance the UK could slip into recession following a protracted Brexit process and, if trade deals are not as positive as expected, the additional costs will threaten growth during the course of the year. Germany produced a string of contracting economic figures during the end of 2019 as it wore a sustained decline in manufacturing sector and auto sales. Italy was in a technical recession for half of 2018 and has not really recovered where they have seen weak productivity, big debt figures and unemployment and these do not appear to be being restored quickly. China continued to slow during the trade war and this led to a forecast of GDP growth of 5.8% which sounds very high, but when compared to the figures of 6.6% and 6.1% in the last two years respectively it is certainly a big reduction. Add to these, significant stresses in the economies of Turkey, Argentina, Iran, Mexico and Brazil and the picture for global growth could be gloomy.
In the UK, the situation is finely balanced and after the prolonged Brexit situation our attention returns to stalwart economic data production. We saw prints in jobs and earnings data and there are small positive signs there as earnings rose slightly. We are waiting for inflation data which will be a potent conversation in context of the UK’s buoyancy. Expectations are a significant rise in Retail Price Index figures year on year but a reduction month on month. Consumer Price Index figures are pointing at a slight increase year on year but a big reduction month on month. Lastly, Producer Price Index looks set to largely balance out so that is good news for the near future if forecasts proves to be accurate.
Looking over the pond at the US inflation and housing data, there appears a mixed bag of results expected. Housing starts seem to have an expectation of a big contraction but there looks as if the Producer Price Index data will be a move higher, which will push an increase in costs to consumers over time and increase inflation more generally but this has a likelihood to manifest in the requirement of tools to mute this price pressure, namely interest rate hikes. This would need to be a sustained factor for this conversation to play out in this way within the Federal Reserve.
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Looking for a Treasury & Trade Finance Business Partner
19-02-2020 | Treasurer Search | treasuryXL
Our partner Treasurer Search is looking for a Treasury & Trade Finance Business Partner for a multi-billion $ global market leader in various complex technological project industries.
The Treasury & Trade Finance Business Partner will claim her role in the teams that land complex technological & infrastructure deals in the global market. She will understand the project and help shape the underlying deal from financial risk perspective. In this she will take FX, payments terms, counter party risk and other parameters in consideration. With her toolkit filled with instruments like bank guarantees, letters of credit, commercial contract clauses and derivatives she will structure the best possible solution.
Next to project related tasks, the Business Partner is responsible for regular cash management and other corporate treasury tasks in cooperation with the headquarters that is based abroad.
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Remuneration and Process
The expected annual base salary for this position is €75K. Our client offers freedom and support to shape the position in the best possible way. For candidates that qualify, a more comprehensive job desription is available. The Treasurer Test might be part of the recruitment process.
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Corporate Governance and Treasury | Embrace the Corporate Treasury Policy
| 18-02-2020 | François de Witte | treasuryXL |
Corporate Governance
Corporate Governance is a mechanism through which boards and directors can direct, monitor and supervise the conduct and operation of the corporation and its management in a way that ensures appropriate levels of authority, accountability, stewardship, leadership, direction and control.
The ultimate responsibility for Treasury management within an organization lies with the board of directors. Due to the practicalities and technical aspects involved in corporate treasury, the board typically delegates the daily management of risk to responsible individuals in each department. In the case of financial risks, many of these are delegated to the treasurer.
Whilst, due to its specific activities, the corporate treasurer needs to take a lot of actions and decisions independently, it is important that he does this within a framework and Governance. Quite a lot of corporates have formalized this in a “Corporate Treasury Policy”.
Corporate Treasury Policy
The Corporate Treasury Policy is the mechanisms by which the board, or risk management committee (RMC), can delegate financial decisions in a controlled manner. This document should be a summary of all the principles approved by the Board or the Financial Committee of the Board as a mandate of the Board to the treasurer (the Treasury Mandate).
The Corporate Treasury Policy is a framework document, which covers the following areas:
Organization of the Treasury Function
In most of the companies, the Corporate Treasury Reports to the CFO. The CFO is usually himself a Member of the Executive Committee, which itself reports directly to the Board of Directors. (Treasurer – CFO – Treasury Committee – Audit Committee – Board):
A policy should set out clearly which decisions are delegated to the treasurer and when the treasurer should refer a decision back to the board or other person within the organization. Within several corporate, the Board of Directors have delegated the decision process to dedicated committee, like the Risk Committee, and the Liquidity and Funding Committee.
Treasury Control Framework (including the Code of Conduct)
Procedures and controls to manage the risk should be put in place to provide an overall framework for decision-making by the treasury team.
Ideally, this should also include a code of conduct. The Corporate Treasurer should act as a Corporate Custodian. In other words, he is Protector of the company’s assets, and should act according to a strict Code of Conduct and Ethics. There exist examples of codes developed by professional organizations such as IGTA, ATEB, AFTE, ACT and ATEL.
Liquidity and funding
The board should be informed about funding possibilities to put currency, maturity, cost and equity/debt character into a wider context. The board should decide on the strategy but can delegate fund raising decisions and actions to treasury. However, I recommend that Treasury asks the final board approval for strategic decisions (e.g. major syndicated loans, bond issues, etc.).
The board should have an overall view on the liquidity risk of the company. The Board should also define the financial policy, covering the gearing and maturity issues, fixed and variable interest rate obligations, dividend policy and covenants.
Banking Relationship
Banks chosen by the treasurer must be able to meet the needs of the organization, both domestically and internationally. I recommend that the Board approves annually criteria for selecting the banks with whom it will work.
Risk Management
The Treasurer must identify the various risks to which the company is exposed, quantify the impact, and should inform the Board thereof. He should estimate the size of these exposure risks and their impact on the he overall operations and financial performance of the company, and make recommendations in these areas
The board must approve the hedging policy, the company’s foreign exchange, interest rate and commodity risk management policy and its attitude to risk. It should define which part of the risks must be hedged and the hedging horizon. I recommend that the Treasurer submits at regular intervals to the Board the list of authorized instruments, the amount per instrument and their term
Investment Policy – Counterparty Credit Risk
The board should approve the treasury’s Investment policy including the choice of instruments, the list of counterparties used + the maximum amount/counterparty & maturity. It is recommended that the Board provides guidelines and limits per instrument.
It is recommended that the Board approves the guidelines for fixing counterparty limits, and maximum exposure per counterparty.
Authorized instruments and Arrangements – Authorized Approvers
The Treasurer should make sure that the board must understands and approve the strategies and instruments used and sets guidelines for the appropriate limits for their use. These guidelines need to ensure that treasury has not sacrificed long-term flexibility or
survival for short-term gain, especially in view of the volatile financial market’s situation.
Treasury Operational Risk
The treasurer should make the Board aware of the operational risks to which the company is exposed. He should provide recommendations in this area. Furthermore, the treasurer should also submit recommendations to the board on the treasury organization and the ways to reduce the operational risks.
Monitoring
A Corporate Treasury Policy has only sense, if there is a regular follow up and control framework; Hence procedures and controls to manage the risk should be put in place to provide an overall framework for decision-making by the treasury team.
It is also important to provide to the Board a regular update on the way the treasurer complies with the policy. The policy should also be regularly reviewed.
Treasury must alert the board to external changes and internal strategic developments, which may have long-term implications for the organization and make proposals for managing them.
The policy needs also to be reviewed at regular intervals each “Policy” in function of the market and of other internal or external developments. I recommend having treasury on the Board’s agenda on a quarterly basis.
Conclusion
Treasury is not an island in the company. It is closely linked to the corporate governance. Hence it is important to define the right framework.
I recommend to corporates to put in place a treasury policy validated by the Board of Directors and reviewed regularly. It is important to update the Board at regular intervals about strategic topics, such as strategic financing topics and risk management.
The treasurer has also an important educational role, as he must be able to make complex treasury topics understandable for the board members.
Hence there must be a good interaction between the treasurer, the CFO and the Board is key, where the Treasurer is the linking pin.
Founder & Senior Consultant at FDW Consult
Managing Director and CFO at SafeTrade Holding S.A.
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