Gtnews December 2012 GTB

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Global Treasury BriefingDecember 2012 - Winter EditionExpert Commentary on Global Treasury and Finance

US finance professionals remain cautious in their economic outlook, believing the US economy will grow at modest pace of 1.7% in the coming year, creating an additional 1.3 million jobs, according to a business outlook survey released by the Association for Financial Professionals (AFP).

The ‘AFP Business Outlook Survey’, which has tracked business predictions of chief financial officers (CFOs), corporate treasurers and other finan-cial executives for the last nine years, found that nearly half of survey respondents (46%) anticipate improved business conditions in 2013, with much of this growth occurring in the second half of the year. However, they temper their prediction with a caveat: Growth is in jeopardy if US budget issues cannot be resolved quickly.

Respondents indicated that Congress and the White House must act immediately to resolve long-term budget deficits, with over 60% believing the solution

In T

hIs

Issu

e 1 News

6 News Focus: UK Parliament Lambasts Corporations Over Tax Avoidance

8 Insurance Column

10 AFP Conference 2012: Full Report

20 Treasurer Interview: Mentor’s Patricia Hui

22 Treasurer Interview: Avnet’s Karen Van den Driessche

24 Treasurer Interview: Microsoft’s Colin Kerr

26 gtnews Awards Case Study continued

US Treasurers Predict Slow 2013

“US ‘fiscal cliff’ is already affecting some organisations”

AFP Survey Foresees Modest Growth for US Economy

is expanding

> Features> Commentary> Research> Interviews> Case Studies

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Drawing from results of an in-depth survey of gtnews corporate readers, each issue will explore a significant topic for treasurers, along with emerging topics, expert opinion and editorial perspective.

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Global Treasury BriefingAutum 2012Expert Commentary on Global Treasury and Finance

In ThIs Issue

Credit Crunch 2.0Learning the Treasury Leasons of the Last Downturn

EuropEan TrEasurErs CounCil rEporT: sEpaFocus on RiskInterview: Indesit’s Treasurer Discusses RiskResearch: unpredictable Risks a Growing Concern to TreasurersCorporate View: how to Monitor and Mitigate Counterparty Risk

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must be a combination of spending cuts and increased tax revenues.

The threat of a so-called US ‘fiscal cliff’ is already affecting some organisations’ decisions on hiring and capital investments. Any agree-ment that defers decisions on fiscal issues would not be acceptable to corporate financial executives. Almost two-thirds of organisations say Washington’s inability to reach consensus on a number of issues of economic importance makes them at least somewhat more hesitant to make investments for growth.

“Many companies are poised on the brink of growth,” said Jim Kaitz, AFP’s president and chief executive officer (CEO), “but political theatre is having a crippling effect on corporate spending and hiring, even corporate decision-making.”

In order to improve business con-ditions and stimulate hiring and investment, respondents believe Washington must agree on a long-term plan to reduce the federal budget deficit. While a majority

believes this should be done with a blended approach, 35% believe the deficit should be reduced primarily or exclusively with spending cuts, while only 4% of respondents emphasized tax revenue increases as the solution to reducing the deficit.

Other actions that could trigger increased corporate growth include reforming corporate taxes and addressing the regulatory burden on corporations, survey respondents said.

A plurality of companies expects to expand payrolls next year, both within and outside the US. Forty-two percent of organisations will expand employ-ment in the US during 2013. Among companies that have employees outside the US, 41% plan to expand further internationally.

The survey was conducted between 26 November and 7 December and generated over 1,300 responses from corporate practitioners holding a variety of positions. The typical respondent is employed by an organization with annual revenues of US$1.5bn.

US Treasurers Predict Slow 2013 continued

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The Association for Financial Professionals® (AFP) serves a network of more than 16,000 treasury and finance professionals. Headquartered just outside of Washington DC, AFP provides members with breaking news, economic research and data on the evolving world of treasury and finance, as well as world-class treasury certification programs, networking events, financial analytical tools, training, and public policy representation to legislators and regulators. AFP is the daily resource for treasury and finance professionals. AFP’s global reach extends to over 150,000 treasury and financial professionals worldwide, including AFP of Canada; London-based gtnews, an on-line resource for the treasury and finance community; and the London-based bobsguide, a financial IT solutions network.

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2 | Global Treasury Briefing | December 2012 Copyright © 2012 Association for Financial Professionals, Inc. All Rights Reserved www.gtnews.com

EBF Urges One-year Delay in Introduction of Basel IIIThe European Bank Federation (EBF) is lobbying the European Commission to postpone the introduction of the Basel III global bank capital adequacy regime by a year to 2014, after US regulators earlier delayed application of the new requirements.

The EBF fears European banks could be at a competi-tive disadvantage if they implement Basel III first and is adamant it does want to see this happen.

According to ‘Reuters’ and other reports, the EBF issued a letter on 21 November to EU internal market commis-sioner, Michel Barnier, in which it formally requested that the application of Basel III be put back by a year to 1 January 2014 on the basis that EU banks would be at a competitive disadvantage if they introduced the new rules before their US counterparts.

“We are now very troubled over the possible repercussions that the most recent statement from the US Authorities may have for the international competitiveness of Europe’s banks,” the letter is reported to state, adding that EU banks face significant regulatory changes including new capital requirements and liquidity buffers, and the creation of a EU supervisory authority.

“All the while, our US competitors will not have matching obligations imposed on them in parallel, or in a foreseeable future,” it added.

On 23 November, German central bank vice-president, Sabine Lautenschlager, was quoted by German daily paper ‘Handelsblatt’ as saying that Germany could impose tougher regulations on US banks in Europe if the US did not partici-pate in Basel III.

Any escalation of the dispute could add to the pressure on the Australian Prudential Regulatory Authority (APRA) to delay its planned 1 January 2013 introduction of the Basel III rules.

European banks have long complained that protracted nego-tiations on the new rules meant they would not have enough time to start implementing them from next year, as planned.

Now they have stepped up calls for a postponement, arguing the recent US decision to delay application of Basel III risked creating a trend whereby Europe tightens the regulatory noose around its banks while other jurisdictions hold back.

A spokesman for Barnier said the EU would seek a coordi-nated stance with the US. “We will wrap up negotiations in the coming weeks between countries and parliament (on Basel III) and Michel Barnier will seek clarity from the US and work for a coordinated US/EU approach. Basel III norms are important for sound and competitive banks in Europe.”

When asked about the possibility of a delay, the spokesman

told ‘Reuters’: “The important thing now is to conclude trilogue (talks between the Commission, EU countries and the European Parliament) so that the EU can start applying Basel III rules in 2013. In any case, the various norms come into force gradually up until 2019.”

The Basel III rules are meant to be phased in from 1 January 2013 but US regulators cast doubt on the timeframe due to a flood of industry comments on the proposals. The tougher capital adequacy regime will have significant impacts for treasurers as they could lead to higher bank lending prices, more expensive and/or complicated hedging instruments and reduce the easy availability of letters of credit (L/Cs) due to the present unfavourable risk weighting of the instrument.

“Basel III must be postponed, full stop” said the head of Italy’s ABI banking association, Giuseppe Mussari, at a conference in the central Italian town of Gubbio: “Clearly there is no worldwide agreement, so we wouldn’t be start-ing on a level playing field.”

Argentina Resists Order to Pay Hedge Funds $1.3bn after 2001 DefaultArgentina’s economic minister, Hernan Lorenzino, said that his country will resist a US court ruling on 20 November, that it must pay US$1.3bn to hedge funds that refused to restructure their debts following Argentina’s 2001 sovereign default, when it makes regular payments to its restructured bondholders in December.

New York federal judge, Thomas Griesa, ordered Buenos Aires to immediately pay sovereign bondholders who rejected two exchanges of defaulted debt in 2005 and 2010 in the latest episode of a years-long legal battle.

Argentina’s Lorenzino told reporters that the country was willing to appeal to the US Supreme Court “or whatever international body that might be necessary” to press its case.

“We don’t believe that this was a fair decision, as Judge Griesa says it is, to pay the vulture funds. We believe that on the contrary, to do so is in some way at the expense of all those who did everything possible to make it so that Argentina today is in a position to pay its debt,” he added.

Lorenzino’s stance has raised concerns that the country might default again, with Argentina due to pay around US$3.4bn in total next month to various restructured bondholders, which include NML Capital, part of Elliott Capital Management, headed by founder and chief execu-tive officer Paul Elliott Singer. The potential instability is something corporate treasurers should be aware of.

news briefs

continued


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A small payment due on 2 December will be able to proceed as normal, but if Argentina does not make a further payment due on 15 December payment to NML and others, it will not be allowed to make regular payments to its restructured bondholders, increasing the risk of default.

Argentina has also resisted past judgments against it, arguing that the funds were “vultures” and “scavengers”. Its president, Cristina Fernandez, has stated that her govern-ment will not pay “one dollar” to the holdouts. However, this week’s ruling not only directed an injunction at the country, but also its agents “and other persons who are in active concert or participation with the parties or their agents”.

This includes Bank of New York Mellon (BNY Mellon) as trustee of Argentina’s restructured bonds, which directs the country’s payments to investors in these securities. The judge argued that when BNY Mellon pays restructured bondhold-ers, those creditors that refused to join the restructuring should also be paid what they are due.

Schapiro Steps Down as SEC ChairMary Schapiro, who took over as chair of the US Securities and Exchange Commission (SEC) in the wake of the 2008 financial crisis, plans to step down from the US regulatory post on 14 December after nearly four years in the job.

President Barack Obama, who appointed Schapiro shortly after taking office in January 2009 and was himself recently re-elected of course, named current SEC com-missioner Elisse Walter as her successor. Walter, whose promotion is subject to confirmation by the Senate, joined the SEC board in 2008 and briefly served as interim chair before Schapiro’s appointment. She previously worked at the Financial Industry Regulatory Authority (FIRA).

“When Mary agreed to serve nearly four years ago, she was fully aware of the difficulties facing the SEC and our economy as a whole,” said Obama said in a statement. “But she accepted the challenge, and today, the SEC is stronger and our financial system is safer and better able to serve the American people - thanks in large part to Mary’s hard work.”

Schapiro took over at the SEC when it was under pressure to repair financial markets damaged by the financial crisis and faced criticism for failing to detect the Ponzi scheme instigated by investment advisor Bernard Madoff. She also handled fallout from the algo trading systems that trig-gered a stock market ‘flash crash’ in 2010, a contentious Republican House majority and the task of implementing complex regulations mandated by Dodd-Frank. The SEC also launched a whistleblower programme to encourage and reward informants on major violations of securities laws.

Schapiro is also giving up her position as one of the five members of the agency’s commission, which oversees Wall

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Street and the broader financial markets. In August she abandoned attempts to reform the structure of money market funds (MMFs) after three commissioners indicated they would not support the proposed reforms. MMFs are, of course, often used by treasurers in the US.

Standard Chartered Launches Global RMB Index Standard Chartered has launched the Renminbi Globalisation Index (RGI), an industry benchmark that effectively tracks the progress of renminbi (RMB)-based business activity worldwide. Scheduled for release on a monthly basis, the index offers corporates and investors a quantifiable view of the latest trends, size and levels of offshore activity that are driving the adoption of the RMB as an international reserve currency. SWIFT and others offer similar overviews that may be helpful to treasurers.

To complement the index, Standard Chartered announced the results of its first quarterly ‘Offshore RMB Corporate Survey’, wherein companies across Asia and Europe shared their motivations and expressed a strong appetite for using RMB offshore in the next six months. Going forward, the survey will provide a qualitative indicator to forecast the direction of the market, says the bank.

The index covers three markets which dominate the off-shore RMB business: Hong Kong, London and Singapore. It measures business growth in four key areas:

1. Deposits (denoting store of wealth).

2. Dim sum bonds and certificate of deposits (as vehicles for capital raising).

3. Trade settlement and other international payments (unit of international commerce).

4. Foreign exchange (FX) (unit of exchange).

As RMB internationalises, there is capacity to include additional parameters and markets, aligning the index with future development. The index works by sourcing data from several industry and official sources and leading providers of market data.

The index is based from December 2010, the point from which sufficient meaningful information became available to produce a reliable measure. The RGI shows that between December 2010 and September 2012 the internation-alisation of the RMB saw a seven-fold increase. All four parameters and the emergence of new markets contributed to the impressive growth, with trade-settlement and other international payments being the key driving force behind the increase.

“The launch for the first time offers market participants access to a global offshore RMB benchmark that provides insights into the developments in three of the largest offshore markets covering the main product sets,” said Karen Fawcett, Standard Chartered’s group head of transac-tion banking, who also sits on Standard Chartered’s RMB

steering committee. “Our conversations with clients reveal their keen interest of how the currency is gaining traction and to better understand how to leverage key trends for further business development. This index will provide a critical view of the currency’s acceptance and offer clients various factors to consider while managing the RMB within their basket of working capital currencies.”

The index shows that Hong Kong dominates the offshore RMB business, with a four-fifth share, while Singapore and London are emerging as the upcoming centres.

Microsoft Adopts Experian SEPA Service Microsoft has adopted Experian’s Bank Wizard Global payment validation solution to handle accurate and timely commission payments to the Microsoft international network of re-sellers and supply vendors. The treasury-administered payments will be compliant with the single euro payments area (SEPA) rules ahead of the 1 February 2014 SEPA migration deadline for eurozone countries, which is now fast approaching and demands corporate attention. Non-eurozone countries follow in February 2016.

Under the new SEPA rules, the use of the International Bank Account Numbers (IBANs) to uniquely identify the bank and account of payment beneficiaries will soon become mandatory for all international and domestic euro payments. Major corpo-rate treasuries, such as Microsoft, are proactively implement-ing solutions to ensure compliance in advance of the deadline and turning to vendors and banks for help.

Experian’s Bank Wizard Global offering validates and con-verts bank account data for Microsoft across 228 territories to the appropriate format for use at the point of collection or payment initiation, helping Microsoft to ensure smooth and timely delivery of payments using multiple payment mecha-nisms via various banking associates and payment service providers (PSPs). It will also enable Microsoft to correctly configure bank account information to the standard IBAN format, ensuring full compliance with the SEPA formats.

“Supply chains for organisations with a global business are complex,” said Colin Kerr, industry solutions manager, worldwide financial services, Microsoft (see the gtnews interview on page 24). “Payments need to be delivered in a timely and reliable manner to all participants regard-less of their global location. The Experian solution helps cut through that complexity, improves service levels and enables supply associates to receive payments as quickly and painlessly as possible.”

“Hong Kong dominates the offshore

rMb business…Singapore and

London are upcoming centres”


News Focusgtnews regularly takes an in-depth look at an important news story to investigate the possible consequences for corporate treasurers. Going behind the headlines the gtnews ‘News Focus’ analysis article looks at the implications of important trends, technologies, regulations or other developments impacting the treasury sector, explaining the significance of the headlines and potential issues to ponder for our treasury readers.

UK Parliament lambasts corporations over Tax avoidance: are Treasurers the new Bankers?Senior executives from Google, Amazon and Starbucks, including the latter’s chief financial officer (CFO) Troy Alstead, have been lambasted by Members of Parliament (MPs) in the UK over the issue of tax avoidance. The coffee chain attracted widespread derision, in particular, for only report-ing a taxable profit once during its very successful 15 years of operation in the UK, so much so that it is now meeting with UK tax authorities to see if a com-promise can be reached to redeem its public image and it is likely to change its tax arrangements.

The intensity of the Parliamentary grilling, with consumer boycotts against all three firms called for, has not been seen since the height of the banking crisis and subse-quent ‘banker bashing’. It raises the prospect of cash-rich treasuries and their cross-border tax practices becoming the next targets of abuse and central to the public debate about the wisdom or otherwise of ‘austerity’ measures, which the UK has pursued in recent years in common with many of its European neighbours.

The corporations’ top managers, including Amazon’s director of public policy, Andrew Cecil and Matt

Brittin, who runs Google’s northern European businesses, were aggres-sively grilled by Parliament’s Public Accounts Committee (PAC) on 12 November. The chair, Margaret Hodge MP, attracted particular atten-tion, when in response to Brittin’s denial of any wrong-doing she said: “We’re not accusing you of being illegal; we’re accusing you of being immoral.”

Hodge added that she thought it was justifiable for UK consumers to boycott all three companies. “One of our concerns is the ability of global companies to choose where they put their costs,” she said after the hearing. “Their profits give them an unfair tax advantage that damages UK-based businesses.”

UK business secretary, Vince Cable, said after the hearing that the govern-ment should “beef up” its ability to deal with such tax avoidance and told ‘BBC TV’ that there was “appalling abuse of company taxation in the UK” citing multinationals in particular and internal accounting procedures that cut domestic tax liabilities. The Mayor of London, Boris Johnson, called on Starbucks, Google and Amazon to give jobs to unemployed British youngsters in recompense.

Payroll Taxes no DefenceStarbucks, Google and Amazon all pointed out that they pay hundreds of millions of pounds every year in the UK on their large operations in the country, but this did not abate the fierce attack with it being correctly pointed out by MPs on the PAC that most of this was in payroll tax, not corporation tax.

Amazon generated sales of more than £3.3bn in the UK last year but paid no corporation tax at all on any of the profits, and is presently under investigation by the UK tax authori-ties for this. Cecil also confirmed to MPs that the MNC had received a EUR200m payment demand from French tax authorities. In addition, Cecil divulged that the Dutch govern-ment had granted a special tax deal on Amazon’s European headquarters, which receives royalty payments from its UK business. Amazon’s UK business employs 15,000 people to manage deliveries, warehousing and other aspects of its business, but the UK firm operates as a service provider to the European company, which is ‘brass plated’ in Luxembourg for tax reasons, employing only 500 people.

Similarly, Google also operates its European business out of a favourable


tax jurisdiction – the Republic of Ireland in its case – with Brittin, can-didly admitting to MPs that this was due to Ireland’s favourable 12.5% corporation tax rate. Google UK only paid £6m to the British Treasury in 2011 on UK turnover of £395m, according to ‘The Daily Telegraph’ newspaper, yet it derives a large percentage of its European busi-ness from the UK and employs 700 marketing consultants there, although they do refer clients to an Ireland-based sales team of 3,000 people.

The combative Brittin presented a stern defence of Google’s tax poli-cies, painting them as normal for any MNC. However, under questioning by the MPs on the PAC he did admit that the rights to the company’s non-US intellectual property rights were owned in the tax haven of Bermuda, because “the company has a duty to shareholders to minimise its costs”. He further freely accepted that until recently, the Irish company was paying a fee to a separate Dutch company within Google, purely for the purpose of reducing its taxes – again citing the fair argument that any MNC treasury would do the same.

starbucks’ Reputation Most DamagedStarbucks, perhaps the US-based MNC to have come out worst after the MPs committee hearing, has report-edly paid just £8.6m in corporation tax in the UK over the last 14 years, according to a four-month investiga-tion by ‘Reuters’. Damagingly, this includes a report of losses when it was actually profitable and telling investors it was making money. It is this admission that is likely to bring further public anger down upon the coffee chain, with the contrast between its public and its private statements laid bare for all to see. The taxable profits of its UK business are calculated net of a royalty paid to its Netherlands regional headquar-ters. Placards have already been seen outside many Starbucks shops across the country, while activist group UK Uncut announced a ‘day of action’

on 8 December with plans to use the shops as refuges for women and chil-dren’s crèches. The argument being that all these services face cuts due to the non-payment of tax.

The dichotomy between the corpora-tion’s public and investor statements was exacerbated by Starbucks CFO, Troy Alstead, telling the committee: “We’re not at all pleased about our financial performance here [in the UK]. The most competitive coffee and espresso market we face is here in the UK.”

This prompted the PAC chair Hodge to question why the company contin-ued to do business in the UK at all, if it was making such constant losses and it was such a difficult market to succeed in? A pertinent question that captured the public’s imagination considering the firm’s outlets can now be seen all across the country.

news AnalysisThe genuine public anger about MNC tax avoidance, channelled and strengthened by the PAC in the UK, is easy to dismiss as inevitable in an austerity world where governments are forced to cut public spending and raise taxes to alleviate high sovereign debt levels, However, to adopt such a ‘wait and let it blow over’ position would be a mistake for the offending companies. It is a stance that many banks adopted after the great 2008 crash when taxpayer bailouts saved many financial institutions from going bankrupt. The banks’ response was to claim that the rescues were necessary and that they were only maximising returns within the laws of the lands where they operated, and that they should be allowed to get on with their business as usual, after the bailouts.

All this is perfectly true of course – in the main, no laws were broken, barring a few obvious exceptions where large compensation claims have been paid. Collateralised debt obligations (CDOs), mortgage backed securities and lending and securitisa-tion practices of all stripes were all supposedly legal, but as Hodge noted that does not make them moral.

Confidentiality clauses surrounding some of the post-crash compensa-tion clauses also open up the debate about legality.

The thing to remember is that the basis of all business since time imme-morial is trust. Trust that goods will be delivered, money paid will clear, the counterparty will live up to its word and so forth, and while hedges are taken out against all these things defaulting by treasurers around the world, the public still believes in such funda-mentals. If public anger is sustained for long enough it will have business consequences. Just look at the raft of new regulations and increased capital adequacy requirements, such as Basel III and Solvency II, facing financial institutions post-crash – this has been driven by public anger, feeding into political action. New MNC tax rules and a greater focus on public ‘naming and shaming’ may result if MNC trea-suries continue to push the tax laws to their limit.

Corporates Fight BackThe counter argument of course is that MNCs provide jobs, money and investment, and that if the UK wants to attract MNCs to base themselves in the country it should reduce its corpo-rate tax rate further.

The tax affairs of mobile internet trading companies – and franchisee operations such as Starbucks UK – are also notoriously difficult to tax due to a lack of international coopera-tion and rules covering tax havens and agreed standards. If governments truly want to do something therefore, rather than just grandstand to the gallery, then obtaining global stan-dards in this field would be a good place to start. Until then blaming corporations, and their CFOs and treasurers, for maximising profits as is their duty seems like a pointless activity. International co-operation is required if the practice is ever to stop and that takes a lot of hard work and global negotiation to establish an agreed global tax standard that everyone can follow.


> iNSUraNcE

gtnews will regularly be running an insurance column in its new monthly global treasury briefing (GTB) title throughout 2013, bringing you all the latest news and developments relevant to treasurers from this important sector.

The long-running Project Sorrento discussions in London finally bore fruit when Xchanging, and its project partners Deutsche Bank and ACORD, unveiled the Netsett multilateral netting and settlement engine for the global insurance market.

The ‘soft launch’ of the new platform in Q3 2012, however, means that Netsett is unlikely to be fully rolled out until next year. It therefore came with a plea for brokers, carriers and others in the insurance and reinsur-ance sector to use the market utility once the netting and settlement engine becomes available in 2013. Much corporate treasury business could flow across the platform and attract volume too.

As Max Pell, managing director of the London market business for Xchanging, explained at the press conference in London on 21 September the pricing for the market utility is yet to be announced because each package will be sold to reflect the value created for participants. The idea of the ‘soft launch’ is obviously to get this process started and to attract users as quickly as possible, so that a virtuous circle of high volumes and consequently low prices can be established before the funding runs out. In this way the platform will work in a similar way to SWIFT’s payments messaging platform, with Xchanging obviously taking its cut as the operator.

“It’s a volume play we’re launching as want to establish a large global utility,” says Pell. “We’ve a very scal-able platform that means as volumes rise, prices can fall as benchmarks are reached. Our intention is to be cheaper

than the London bureau.” The new platform will operate on a subscription and transaction charging basis.

Preparing to LaunchNetsett is open standard and uses ACORD’s standardised insurance sector messaging technology, allied to Deutsche Bank’s clearing, netting and settlement engine capabilities. The latter will be the bank’s main contri-bution to the project, in addition to its foreign exchange (FX) services and optional value-adding cash manage-ment services.

A pilot phrase is now underway for Netsett with the RSA insurance group using the new platform for the remainder of the year to:

•Validateitsbusinessprocesses.

•Testthetechnologycomponentsand connectivity.

•Demonstratetheclaimedben-efits of straight-through process-ing (STP) enhanced operational efficiency, allied to reduced bank fees via increased netting, less working capital requirements, and so forth. Better transpar-ency and control should also be key benefits as the platform can eliminate unallocated cash and the centralised ledger function. This should be particularly useful for treasurers, as it can provide

matching information, analysis and forecasting, as well as an audit trail to aid compliance with the Solvency II capital adequacy rules for the insurance sector.

•Finalpricingandcommercialproposition. This will be finalised once the RSA pilot ends and Netsett is rolled out to the wider global market, outside of London and internationally, next year.

According to Pell, the London market processed £54bn of insurance business last year but only £11bn actually moved because of netting. Netting off saves on bank transaction charges and inefficiencies, offering crucial benefits to corporate treasur-ers and businesses across all spec-trums. “This happens in London at the moment and we want to make this functionality global,” adds Pell, when discussing the purpose of the platform.

There are three key technology ele-ments to the new Netsett insurance platform, covering:

•Themessaginggateway: this relies on standardised ACORD messag-ing. Xchanging is neutral about how users plug-in to the platform and wants to make it as easy as possible, using standardised insurance sector messaging technology.

Xchanging and deutsche Bank launch netsett Settlement Engine for insurers

“Netsett is open standard and uses acord’s

standardised insurance sector messaging, allied to db’s

clearing, netting and settlement engine capabilities”


graham Buck, editor at gtnews, will be the editor of Global Treasury Briefing from January 2013. He joined gtnews in June 2012 from the Association of Corporate Treasurers’ magazine, The Treasurer. He has nearly 20 years of experience in financial journalism and has both edited and written for a range of publications, including titles specialising in risk management, insurance/ reinsurance and pensions. Buck has a BA degree in English Literature from the University of Bristol.

•Referenceledger: the in-built trea-sury features in the central ledger application let users instantly know their net position across all currencies and markets, claimed Pell. There is also an analyti-cal capability to predict future positions.

•Settlementengine: this is pro-vided by Deutsche Bank and is the firm’s key contribution to the venture. The bank will run and validate all netting processes and offer optional FX services and cash management value-added services. There is also an optional translation service to try to encourage the global take-up required to make this market utility work.

As Paul Duffy, director of capital markets and treasury solutions at Deutsche Bank, explained during the Q&A session at the London press conference on 21 September: “We process something like $1.4 trillion to $1.5 trillion in payments every day so there should be no concerns about Deutsche Bank’s ability to deliver on the promise of this platform.”

new Analysis All that is needed now for Netsett to work is for the volume and the users to take it up, but this is of course often the difficult bit. It didn’t help that the presentational video broke down during the ‘soft launch’ in London on 21 September in front of the assembled press, but that is the problem with all live technology, of course, and the partners involved from the operators Xchanging, to ACORD and Deutsche Bank are all long-standing players with well-established offerings and platforms, so there should be no major concerns

about reliability. Next year will be the crucial test as the full platform is launched and the market waits to see which players flock towards the hoped for global market utility. Corporate treasurers may be providing some of the volume directly, or more likely via a broker assisting with a risk and resiliency programme.

Tim Yorke, the programme director at Xchanging, summed it up nicely at the London launch of Netsett. Skirting the pricing issue, he said that, of course, the firm is target-ing brokers. “We need carriers to get brokers and vice versa, and we are talking to both, as we want both on our platform. There is no point having the only telephone in the world. This is a [planned] market utility that needs everyone.”

It will be interesting to see what the uptake of Netsett is next year and how the platform progresses in the New Year. With earthquakes disrupting Japanese supply chains and integrated partners around the world in recent years, not to mention Superstorm Sandy wreaking havoc in New York and the Eastern seaboard of the US recently, insurance and its place in guarding against risks to a corporation’s business is once more front and central in many a trea-surer’s mind.

Fed Outlines Tougher Capital Rules for non-us BanksDaniel Tarullo, governor of the US Federal Reserve, has outlined stricter capital and liquidity rules for foreign banks operating in the US. His plan would force them to adhere to the same attitudes toward cash invest-ment standards as domestic US insti-tutions, and could have implications for corporate funding and lending.

According to Tarullo the US central bank will in future require foreign firms to create intermediate holding companies to house all of their US subsidiaries, which would reduce the ability of foreign banks to avoid US consolidated capital regulations and make supervision more consistent across foreign banks.

Other enhanced prudential standards required by the Dodd-Frank Act including stress testing requirements, risk management requirements, single counterparty credit limits, and early remediation requirements should be applied to the US operations of large foreign banks, he added.

Tarullo acknowledged that added capital and liquidity requirements could “increase cost and reduce flex-ibility of internationally active banks that manage their capital and liquid-ity on a centralised basis.” However, he supported tougher rules because “managing liquidity and capital on a local basis can have benefits not just for financial stability generally, but also for firms themselves.”

A total of 23 foreign banks with at least US$50bn in assets operate in the US compared with 25 US firms. Five of the top 10 US broker-dealers are owned by foreign banks. “For the foreseeable future, then, our regula-tory system must recognise that while internationally active banks live glob-ally, they may well die locally,” said Tarullo, adding that a proposed rule will follow before year end.

The new rules are unlikely to find favour internationally, especially as the US has only recently announced a delay on its implementation of the global Basel III capital adequacy rules (see page 2), which are due to start next year. The reasons for this delay are now perhaps clear.


Florida is one of the key ‘home states’ of the US space programme and Miami, host to the 2012 AFP Conference, is of course its premier city. It is perhaps appropriate there-fore that the event, with its theme of boldness, should be held in such an energetic space-age place. As Jim Kaitz, the president and chief execu-tive officer (CEO) of the Association for Financial Professionals (AFP), said during his welcome address at the Miami Beach Convention Centre, US, on 14 October, the astronaut Neil Armstrong set off on his bold leap forward to land on the moon from nearby Cape Canaveral in Florida, obtaining just reward for his audac-ity. Boldness does pay, he stressed, despite whatever economic or practical difficulties might lie in our way.

According to Kaitz, Neil Armstrong, who sadly died this summer, was also a humble man, however, who liked to remind everyone that his famous “one small step” on the moon was only made possible by the collaborative

efforts of countless others; it wasn’t just reliant on his boldness. Thousands of “small steps” had to be made by scientists, engineers and others to successfully advance the space programme, and indeed humanity, over the years. The point being that you don’t get anywhere without teamwork, added Kaitz, and that goes for treasur-ers talking at a conference and sharing experience and knowledge as much as it does for anyone else.

Kaitz’ welcome speech during the opening session of the AFP Conference 2012 pointed out how close the 6,000 plus treasury attendees were to the launchpad for that famous inaugu-ral moon landing and exhorted the audience to tap into the same kind of energy. “It is amazing what we can achieve if we all pull together [like Armstrong encouraged us to do],” he said, before going on to thank all the treasury speakers, workers and volunteers who put the four-day AFP Conference together, encouraging attendees to “learn from the great

speakers and sessions we have lined up for you [over the coming days].”

The Pinnacle Award With knowledge sharing, collabora-tive effort and education in mind, the Pinnacle Award recognising the best treasury project of the last year was then handed out to Toyota Financial Services (TFS) during the opening session of the AFP Conference. The corporation received the grand prize for a treasury-led cross-organisational effort to establish consistent transfer pricing across product lines. Instead of using a benchmark rate as an approxi-mate cost of funds, each loan at TFS is now match-funded based on its char-acteristics and expected monthly cash flows. The impact has helped treasury, finance, analytics, sales, and marketing at TFS make better informed decisions, enabling more-accurate funds transfer pricing and an additional US$10m in income per year.

The 2012 Pinnacle Award was handed out by Steve Ellis, executive

aFP conference 2012 Show report: Being BoldThe tough economic situation means that treasurers need to keep a tight rein on cash and liquidity, a short leash on risk and regulatory compliance, and constantly seek out best practice to ensure efficiency, but that doesn’t negate the need to be bold. More than 6,000 delegates gathered for the Association for Financial Professionals (AFP) Conference in Miami, on 14-17 October, to access presentations on all these topics and listen to the keynote speaker Michael J Fox discourage timidity, as well as hear about award-winning Pinnacle treasury projects which rewarded boldness.

reporting: By graham Buck, Joy Macknight and neil ainger, gtnews editorial.

>afP 2012 aNNUaL coNfErENcE


vice president and head of wholesale services at the sponsors Wells Fargo. The bank also donated US$10,000 to TFS’ charity of choice, the Boys & Girls Clubs of America. (To read more about the innovative practices at TFS please download our ‘gtnews’ Awards 2012 Winners Book http://www.gtnews.com/pdf/gtnews_Awards_Winners_Book_2012.pdf, which contains two TFS winning projects).

The runners up for the 2012 Pinnacle Award at the AFP Conference were Microsoft, which introduced a completely automated international zero balance account (ZBA) structure into its global liquidity management function (see the case study online via http://www.gtnews.com/Articles/2012/Case_Study__Microsoft_Takes_its_Liquidity_Structure_to_a_Whole_New_Level.html), and Cliffs Natural Resources. The latter grew its treasury team from four to 14 people over the last year or more and imple-mented a global risk management policy to better manage its foreign exchange (FX) exposures after it acquired new business units as part of its international expansion.

“The AFP is extremely proud to honour the 2012 Pinnacle Award grand prize winner,” said Kaitz. “Toyota Financial Services’ solution certainly meets the high standards we expect of our winners and con-forms to the theme of this year’s AFP Conference, which is to encourage bold visions for the future.”

new Chair and Keynote Speaker:MichaelJFoxThe opening keynote speaker of the AFP Conference 2012, Michael J Fox, was introduced by Michael Connolly, vice president and treasurer at Tiffany & Co, and the outgoing chair-man of the board of directors at the AFP. He lauded Michael J Fox as a speaker who had lived a remarkable life as an author, actor and activist specialising in raising awareness and treatment for Parkinson’s disease from which he suffers.

In one of his last acts before vacating the position of AFP chair in favour of the newly elected Susan Glass, global cash manager at Hallmark Cards Inc, who has been on the AFP board since 2006 and was previously vice chair, Connolly promised that “[Fox] will take you on a unique, inspiring journey that draws on his own experiences to make a case that real learning and growth can happen when life takes a challeng-ing turn [such as an illness].”

It amounted to quite a billing for Michael J Fox to live up to as he finally took to the stage. His speech entitled ‘A Funny Thing Happened on the Way to the Future’, referenc-ing his famous ‘Back to the Future’ movie trilogy, more than lived up to the introduction, however. The actor’s enduring popularity was also evidenced by the big crowds that had gathered outside the conference hall doors well before they opened 30 minutes before the speech.

Fox entertained the audience with an inspirational speech well-stocked with one-liners. Referring to the film that propelled him to the big time, he joked: “The one question that I’m always asked is ‘Where can I get a hover board?’”, although this wish is set to become a reality following Mattel’s recent announcement of plans to create a replica.

Fox said that once he had made the decision to go public with the news that he was suffering from Parkinson’s, the two vehicles he used were television broadcaster Barbara Walters and ‘People’ maga-zine, which ensured maximum pub-licity. “I then saw myself on the TV in slow motion, which usually means only one of two things - you’re either dead or under indictment.”

More seriously, he realised that he was in a position to educate people about Parkinson’s and its effects and founded the Michael J Fox Foundation to champion research and assemble a knowledgeable team. To date, the Foundation has raised nearly US$3m and is the second-big-gest funder of Parkinson’s research after the US Federal government.

As Fox’s speech came to an end the 6,000 plus corporate treasury delegates at the AFP Conference 2012 exited via the newly opened exhibition floor where hundreds of banks, technology vendors, consult-ing and ratings agencies are gath-ered to display the latest products, models and ideas in the treasury sector. Many then went on to the opening night welcome party at the famous Fontainebleau Hotel, where Elvis Presley and the Rat Pack once played, on Miami Beach.

opening speaker Michael J Fox speaks to Michael connolly, vP and treasurer of Tiffany & co, during the 2012 aFP conference.


Day2:AsianOperations,Globalisation,Risk&ReportingtotheBoardThe second day of the AFP Conference in Miami on 15 October focused on the growth of treasury in Asia with Pfizer and McDonald’s providing respective case studies about introducing regional operations and using renminbi (RMB) cross-border services during the treasury and finance track. A fascinating joint speech from the chief financial officer (CFO) and treasurer at Carnival Corporation at the end of the day outlined how to communicate and report to the board.

foreign exchange (FX) and liquidity to all Pfizer’s Asian units. As more nations are integrated into Pfizer’s new Asian treasury infrastructure over the seven year project, then all accounts payable (A/P) and receiv-able (A/R) will be added into the Dalian RTC and SSC.

“We have established one regional bank, one regional enterprise resource planning (ERP) system and one global treasury management system (TMS) thanks to lots of inte-gration work,” explained Chen. “It’s a very automated and efficient opera-tion we’ve established ... it gives us real-time cash visibility and has improved our cash forecasting.”

The Dalian SSC in China operates an in-country zero balance account (ZBA) cash pool, which feeds into a regional multi-currency cash pool. The whole operation has been set up with the assistance of JP Morgan, which is the banking partner for the project architecture, explained co-speaker Mark Sims, executive direc-tor, JP Morgan Treasury Services.

The new Asian treasury structure at Pfizer fits into the SSC in Pfizer’s trea-sury headquarters in New York, US, and its SSC and in-house bank (IHB) in Dublin, Ireland. More responsibility

is being devolved to the Dalian centre as it comes on-stream and more coun-tries are added to the architecture. “The RTC model must be continually evolving,” said Pfizer’s Chen, before setting out the ‘key learnings’ required for any RTC rollout:

•Remembertoover-communicateand get each country involved as you centralise operations.

•Don’tcompromisetheregionalstandard solution for customised country-specific models.

•ReviewtheRTCmodelregularlyso you are aware of any regulatory changes or opportunities/chal-lenges as you progress.

McDonald’s Case studyThe next presentation in the trea-sury and finance track at the AFP Conference was again Asian focused. Entitled ‘New Treasury Solutions for Reminbi (RMB) - Analysis on RMB Cross-border Services’ the case study presentation from Marc Monyek, senior director, global funding, APMEA, McDonald’s was so popular that people were being turned away at the entrance door due to over-crowd-ing. The presentation examined the work McDonald’s has done with its banking partner ICBI to access RMB funding domestically and internation-ally, remembering that the burger giant was the first MNC to issue an RMB-dominated bond in Hong Kong in August 2010 to help fund its Chinese expansion - a path many other MNCs have since followed. “It received just a little attention at the time,” joked Monyek, referencing the more than 800 news stories written about the first ever RMB bond issu-ance and 500 million website hits it got. “The bond was five and half times oversubscribed.”

The Asian tiger is still roaring. Despite an economic slowdown in the China and elsewhere in the region Asia is still posting impressive growth numbers in comparison to other parts of the world and its importance as a site for regional treasury centres (RTCs) is continuing to grow as multinational corporations (MNCs) look to finance their operations and trade in the locality and integrate Asia into global operations. Pfizer provided a fascinat-ing case study about how to go about doing precisely this during a session at 8.30-9.30am on day two of the Association for Financial Professionals (AFP) Conference 2012 entitled ‘Managing Disparate Regional Treasury Operations in Asia’.

Ping Chen, director, international treasury, Pfizer Inc, explained how the pharmaceutical giant is imple-menting and managing a seven year project, started in 2010, to rollout a centralised treasury operation across 15 countries in Asia, including ultimately to Japan in 2014 and then on to 10 other Asian countries. Four nations have already been integrated into Pfizer’s treasury operations, principally China where a new shared service centre (SSC) and RTC has been set up in Dalian. This acts as a regional hub for Asia, providing

Treasurerstakingnotesduringthe2012AFPConferenceinMiami,US,duringOctober.

afP 2012 aNNUaL coNfErENcE continued


McDonald’s replicates the same treasury structure in China, as it uses in the US and elsewhere, explained Monyek, with treasury employees and departments dedicated to specific responsibilities, covering:

•Cashmanagement.

•Finance.

•Franchiseefinancing.

•Cross-borderservices.

Cross-Border RMBThe RBM bond was necessary as McDonald’s wants to have 2,000 res-taurants in China by 2013, up from 1,500 currently. RMB is needed for funding and to make its treasury more efficient. Doing this with the restric-tions in place around the Chinese cur-rency is not easy, however, even with the increasing pace of liberalisation. “We couldn’t have done the bond in 2008/9,” explained Monyek, before going on to add that McDonald’s has an RMB-denominated inter-company lending structure that means it can eventually take funds out of China, avoiding a trapped cash scenario. “This can only happen, of course, with State Administration of Foreign Exchange [SAFE] approval.”

Co-speaker Xi Luo, executive vice president of ICBC’s head office in China, talking via a live translator in some sections of the AFP Conference session, explained how ICBC is helping McDonald’s to access the RMB cross-border services it needs, as well as handling its cash pooling, payroll and other internal cash management needs. He also provided a fascinating overview of the trade trends between China and the US, explaining why RMB currency swaps, accounts and settlement services, among other offer-ings, are so popular at the moment by pointing to the latest figures, such as US$1.7 trillion in swaps.

“In 2011 the US and China trade figure was US$415bn,” added Luo, before going on to state that the total amount of assets owned by US banks in China hit RMB180bn in 2010 with the reverse figure for Chinese

banks owning US assets standing at RMB140bn. With the US presidential election imminent at the time, and much controversy among the candi-dates over alleged Chinese currency manipulation and ascendancy, this timely reminder of the interdepen-dence of the two economies - and of the need for cross-border RMB services - was welcome.

“Our destination is to finally have one currency,” added Luo. “RMB is not fully convertible yet of course, but some baby steps have been taken.” While overseas companies cannot directly invest in the Chinese capital markets, however, then the special circum-stances surrounding RMB will remain.

ExecutiveInstitute:Dealingwith the BoardFor treasurers at the second day of the AFP Conference looking for something outside of the treasury and finance track, one of the final ses-sions was at 4-5pm in the Executive Institute (EI) gathering, which is restricted to senior level attendees, entitled ‘What is the Board and your CFO Looking to Treasury to Deliver?’.

best to report to the board. As the general pointed out: “We rely on the treasurer and the CFO to do the homework and advise us what to do. The board doesn’t want detail - we want to know what is the cost, what is the risk and so forth. You have to have good people that you can rely on for the detail.”

David Bernstein, senior vice president (SVP) and CFO at Carnival, advised the CTC members at the interactive Executive Institute session to, “take a one and half hour-long presenta-tion and boil it down to 10 minutes with executive highlights and bullet points. The board don’t want the detail. They want to know that you’ve done your job. They’ll probably ques-tion you on it but if you’ve got the answers then that isn’t a problem.”

The ex-treasurer then deferred to his replacement Josh Weinstein, who is the vice president and treasurer at Carnival, joining just as the financial crisis of 2008 was brewing. He can-didly admitted that good boardroom reporting mechanisms from treasuries are helped by having an ex-treasurer boss in his CFO and fostering good communication. “If David has a ques-tion for me he will pop into my office next door and vice versa. Only then, once we have discussed any pertinent issues and just how important or other-wise it is, will we cross the aisle to see a senior level board member.”

Risk Management Risk management remains a major concern for corporate treasurers attempting to steer their companies through choppy economic waters. Many are looking to uncover best practices in identifying, measuring, mitigating and measuring risk, but also trying to discover ways to turn risk into opportunity.

In a session during the risk manage-ment track at the AFP Conference 2012 entitled ‘Best Practices in Corporate Financial Risk Management: Market Study and Case Study with Pepsi’, Jiro Okochi, chief executive officer (CEO) and co-founder, Reval,

In a fascinating discussion moder-ated by the AFP’s Craig Martin, executive director of the organiser’s Corporate Treasurers’ Council (CTC), the treasurer and CFO at the Carnival cruise line, discussed with General James Conway, 34th commandant of the US Marine Corps and a board member at Textron Systems, how

GeneralJamesConway.


presented recent survey results. Ada Cheng, vice president and assistant treasurer, Pepsi Co, joined him on the panel to illustrate treasury best practice in risk management.

The main findings of the survey include:

•Thevastmajority(92%)ofchieffinancialofficers(CFOs) see the main objective of risk management is to reduce earnings volatility. Forty-one percent of treasurers chose reduction in profit and loss volatility, while an equal amount said that protecting cash flow was of paramount importance.

•Mostreview/updatetheirriskmanagementpolicyatleast once a year. Still 12% say that they don’t have a formal risk management policy.

•Theoverallhedgingstrategyhasreturnedtoatradi-tional conservative approach, compared with 2010 when treasurers used selective hedging in reaction to market volatility.

•Exposuremeasurementisstillathornintreasurers’sides. Over half (58%) find measuring bank counter-party exposure difficult, whereas 63% find foreign exchange (FX) exposure difficult to measure. For most companies, FX is still not fully hedged.

•Only20%useeitheratreasuryriskmanagement(TRM) system or a treasury management system (TSM) to hedge. Almost half (45%) still rely on spreadsheets for hedging.

CaseStudy:PepsiCoCheng said that PepsiCo, which operates in more than 200 countries and has 60-70 employees working in a centralised treasury structure, has generic risk manage-ment policies that are reviewed once a year. This does not mean that they are updated every year, but are regularly reviewed. It employs a conservative hedging strategy for underlying exposures.

Commodities risk is a focus area for PepsiCo, as volatil-ity in commodity pricing increased dramatically between 2007-2012. These market changes, as well as changes within PepsiCo itself, in the past two to three years drove the need for change in commodities risk management (CRM) approach. The main CRM questions revolved around the global scope of the company, transparency, clarity of roles and simplicity.

PepsiCo developed a new centre of excellence (COE) model and upgraded the CRM model in order to put in place key risk management processes. The CRM was global in scope and approach. It defined coverage stan-dards, defined governance process and standardised per-formance tracking across geographies and commodities.

Treasury and accounting, in partnership with global procure-ment, played key roles in executing risk management as defined by the COE. The COE developed global commodity

playbooks, a new governance model, global reporting and an underlying data infrastructure. The playbooks included category insights, market groupings, strategy and coverage horizons, as well as detailed geographic background. Cheng stressed the importance of understanding the business manufacturing side in order to hedge. As a result, PepsiCo treasury works very closely with business, for any change in the manufacturing cycle or country specific issues will have an impact on the hedging strategy.

ParagKhanna:GlobalisationPresentationA senior fellow of the New America Foundation and co-director of the Hybrid Reality Institute, Parag Khanna, was a guest speaker on the second day of the AFP Conference. His presentation, entitled ‘Bold Vision: The Future of the World Economy’, began by noting an increasing scepticism in the US and elsewhere on the future of globalisation. Three specific events; the shock of 9/11, the failure of the lengthy Doha negotiations on the world trade and the world economic malaise of 2007-09 have encouraged the view that the trend towards greater globalisation has halted and is even reversing. “However I believe the contrary, that glo-balisation is about to enter a new and exciting phase,” said Khanna. Technology would be essential to this new phase.

The term, globalisation, has only been in common usage for around 50 years and even a decade ago entire conti-nents such as Africa and Latin America were overlooked in any conversations about globalisation. This is no longer the case and the 21st century will have six powerful main players: Europe, North America, Latin America, Africa, Asia and the Middle East. “Latin America should be regarded as the third pillar of the West,” Khanna suggested. “Its popu-lation is 900 million and its gross domestic product [GDP] two thirds that of China. Yet it still tends to get ignored, even though its resources are vital to the future of the US.”

Khanna also argued that the US should be stepping up its investment overseas on the basis that infrastructure spend-ing delivers strong and sustained economic growth rates. There was scope for far more infrastructure spending even in major emerging economies such as Brazil and China.

Moving on to his main theme, Khanna said that the shift of power in the world had been initiated by geopolitics,


Think global, urged Parag Khanna.


followed by a period of geoeconomics. The next phase, that of geotechnology, was already underway and had been the driver of China’s economic growth. It is likely to be marked by what was once the stuff of science fiction becoming fact. He cited recent developments such as South Korea producing robotic teaching assistants; Japan’s pop idol Hatsune Miku, a major star and concert sell-out - although ‘she’ is a hologram - and IBM’s super computer, Watson, which last year soundly trounced human contestants on the TV quiz show ‘Jeopardy’.

Khanna is hopeful that the age of geotechnology will produce multiple interdependent centres of activity and excellence, provided that a series of checks and balances are in place to shape future development. “We all have a role in managing this system,” he concluded.

Cash Forecasting and AccuracyAfter this vision of the future, it was a return to some of the bread-and-butter issues of the present. One well-attended session at the AFP Conference was that on cash flow fore-casting, hosted by Cindy Gerhard, global product head for liquidity and investments, Citi Transaction Services (CTS). She began by asking how many in the audience had an established cash forecasting process at their company and around nine in ten of the audience raised their hand. This was followed by a request for those who were happy with their existing system to keep them raised. Very few hands remained aloft. It was evident that only a handful of those present believed that their existing system was provided more 90%-plus accuracy.

“There are always opportunities to improvement and to learn from other practitioners,” noted Gerhard, who com-mended the many constructive ideas contained in the recently-published ‘AFP Guide to Strategic Global Cash Position Forecasting’ produced in partnership with Reval, and distributed at the show.

The session offered case studies of changes to cash man-agement strategy at three very different organisations. Mattel’s assistant treasurer, Kabir Bhattia, outlined the chal-lenges faced by one of the world’s largest toy manufacturers with a US$12bn market capitalisation. Not surprisingly, Mattel’s business is highly seasonal with Q411 accounting for more than 50% of annual revenue, while nearly half of sales are derived from outside the US.

Jeff Clennon, director, cash management and funding at Discover Financial Services outlined policy at the US’s fourth-largest card issuing company and Belden’s assis-tant treasurer, Chad Kibler, described how the cable and wire producer has shifted from regional to global forecast-ing of cash to gain greater consistency. As Gerhard noted, all of the measures involved greater interaction between the treasury department and the rest of the business so that colleagues “understand exactly what cash is about and how to get it forecast more accurately.”

Day3:Governance,CareerDevelopmentandTreasury TransformationIt is often said that there are only two certainties in life:

death and taxes. But perhaps a third could be added for

business people - regulation. The third day of the AFP

Conference in Miami on 16 October addressed the issue as

part of its governance, accounting and compliance track with

Standard & Poor’s (S&P) outlining its planned new ratings

system and the treasurer at Timex discussing anti-money

laundering (AML) procedures and regulatory challenges. The

former US Secretary of Defence, Robert Gates, closed the day

with an overview of the political scene and risk assessment,

while there were also presentations from Coca-Cola, BP and

on career development.

The opening session of the governance, accounting and compliance track at the third day of the Association for Financial Professionals AFP Conference 2012 was from Steven Dreyer, managing director and lead analytical manager at Standard & Poor’s (S&P) who unveiled a new ratings system that S&P is going put into effect before the end of the year. “It is imminent and will be here soon,” confirmed Dreyer to ‘gtnews’ after his presentation entitled ‘Management and Governance Credit Factors’.

S&P will explicitly score insurance companies and non-finan-cial corporations on management and governance criteria in the future under its new ratings system, whereas these factors were previously only implicit. So you will not only get a triple B or a single A rating for your company in future, for example, but also a stated assessment of whether S&P con-siders the management and governance of a corporation as:

•Strong

•Satisfactory

•Fair

•Weak

Dreyer went on to explain what corporations, and their treasurers, have to do to get these assessments - such as a single A Satisfactory rating, for example - by outlining the criteria that S&P will use under its new ratings system. Issues such as the effectiveness of companies financial reporting and transparency will scored against metrics, and the internal control environment will be assessed alongside other defined topics. Any delays or mistakes in filings, for instance, could lead to a weak rating.

“We’re putting management and governance together into one overall score,” explained Dreyer, “so if you have great management but poor governance you will suffer.”

“It’s a fine-tuning of existing procedures, a new approach if you like [rather than a revolution],” he continued in an interview with ‘gtnews’ after his presentation.


In response to questioning about whether this new system was designed as a response to concerns raised about the validity and rigour of credit ratings agencies’ (CRAs) procedures after the 2008 financial crash, Dreyer said that: “It’s not going to be easy to implement this and we will need to make a judgement call against our criteria after first explain-ing it [at shows like this].”

Regulations:AMLandProtecting Your Business The huge US$340m fine against Standard Chartered bank, imposed earlier this year in August by US regulators for breaking sanctions by facilitating trading with Iran, has made anti-money laundering (AML) a hot topic for many finance profes-sionals. The spectre of organised financial crime and ever-increasing regulatory burden in this area is one of the primary challenges facing corporate treasurers at the moment, with the US Patriot Act and other such rules mandating specific actions and safeguards from corpora-tions and their banking partners.

John Farrell, senior vice president (SVP), Financial Services CGI, and James Fried, assistant treasurer at Timex Group, outlined the key respon-sibilities that respectively fall on both communities to achieve compliance in the next governance, accounting and compliance track session entitled ‘Combating Money Laundering: Are you Managing Your Company’s Risk’.

The former listed the “alphabet soup” of government agencies and regula-tions that treasurers have to be aware of and comply with:

•OFAC:Office of Foreign Asset Control. This has more than 5,000 entries on it covering banned people and countries.

•SDN: Special Designation Nationals. This is an alert, con-cerning people of interest, which treasurers should always take notice of immediately.

• FinCen: The Financial Crimes Enforcement Network is part of the US Department of the Treasury and enforces the US Patriot Act, which seeks to restrict criminal and terrorist funding, among other things.

• FAFT: The Financial Action Task Force is an inter-governmental body covering AML.

• FCPA: The Foreign Corrupt Practices Act is designed to battle global bribery and corrup-tion by following the money trial.

There are many many more, as Farrell admitted. “Remember that the AML and Know Your Customer [KYC] rules also cover corporations,” added Fried, after it was pointed out that many of the above mentioned regula-tions are bank-specific. “Corporations must do KYC and ensure they don’t deal with banned people.”

The red flags that treasurers should look out for advised Fried include: if people are reluctant to give you any information or if a deal or transaction involves a product outside the coun-terparty’s normal line of business. Treasurers should also check to see if service offerings, like maintenance and records, are declined and watch out for abnormal supply routes - if freight is forwarded, leaving its final destination unclear, then this should be a red flag.

“Always maintain your documents and files, and protect yourself with good due diligence,” added Fried. “The gov-ernment won’t care about your excuses - you need to be able to demonstrate a good process and good practice.”

TransformingTreasury:Coca-Cola The day three morning session enti-tled ‘Strategy for Success in a Global Treasury Project’, which featured Sharon Petrey, assistant treasurer for Coca-Cola, described the beverage giant’s global treasury transformation project and alignment with SWIFT.

The presentation was introduced by Rene Schuurman, director, global product management for connectiv-ity services at Citi, who described the industry drivers for a treasury trans-formation project as the need to keep abreast of rapidly changing market conditions; thinking strategically of opportunities to transform treasury; implementing robust control processes and reassessing banking relationships.

It is vital for corporates to understand what is happening to their money and this means accessing the information that can provide the basis for making the right decisions. One of the main transformative drivers is reducing the number of banking relationships. Schuurman said that many of Citi’s corporate clients will typically have


listening intently to the case studies and presentations at the 2012 aFP conference.


50 or 60 banking relationships world-wide, which are set to become more costly in the future. Coca-Cola has around 150 in all.

The beverages group is two years into its 2020 Vision project, which has a roadmap setting out various corporate goals that it aims to accomplish by the end of the decade. Treasury’s task has also been increased by the deal in early 2010 that saw it acquire the North American operations of its main bottler, Coca-Cola Enterprises, which further increased the complexity of its banking structure and created additional risk.

Coca-Cola manages much of its cash from head office, but still needs a number of pooling structures with maximum efficiencies. Petrey said that those created by SWIFT connectivity was something that really caught the attention of Coca-Cola’s leadership, and will assist in treasury’s target of attaining 80% visibility of cash by April 2013. “We’re still coming to terms with all the ways that we can leverage all the benefits of SWIFT,” she added.

Coke’s global treasury transformation project was influenced by the fact that although the group had adopted an SAP model more than 10 years ago it did not have a great deal of technology or a full solution that met with all of its needs. As a result, it decided to start afresh rather than attempt to add on to the existing system.

Petrey’s advice for ensuring success in such an undertaking: “I can’t stress the importance of regularly talking to

the banks and also to your vendors. And the scale of such a project means that you can’t expect to do everything at once, so develop a transformational roadmap. Talk to as many people as you can as some will have experiences that are very pertinent to your project. Insist on an A-team with a good fit of personality, so that you have a cohe-sive group that can work together. Be forthcoming with your vendors and if something isn’t working, then bring the issue up.”

sePA CountdownA mid-morning session entitled ‘SEPA 2014 Compliance - The Time to Act is Now’ examined the impact on eurozone countries of the 1 February 2014 deadline for implementa-tion of the single euro payments area (SEPA). Ably hosted by Martin Runow, North America head of cash management corporates, global trans-action banking at Deutsche Bank, and Michel Verholen, global directory, treasury for Greif, the Belgium-based industrial packaging group, it was structured as a roundtable but devel-oped rather more into a SEPA advice clinic. Delegates raised various issues on the impact and implementation of the new regime and the hosts were able to clear up a number of uncer-tainties, among the American and international audience.

Verholen said that Greif has grown steadily through acquisition over recent years and first started think-ing about the company’s own SEPA

implementation as early as 2006, starting the process the following year. As Runow observed, the concept of SEPA to standardise pricing, rules and regulations goes back many years and has much to commend it. However, it lacked traction in its early years and only the imposition of the 1 February 2014 deadline by the European Commission (EC) has made the concept a reality.

A show of hands from delegates on those whose companies have yet to start work on preparing for SEPA suggests that the rapidly-approaching deadline is only slowly beginning to make an impact. Lack of resources and lack of a sense of urgency appear to be the main reasons for the lack of activity. Some banks have demon-strated willingness to carry out SEPA conversions for their corporate clients said Verholen, but the EC has made it clear that it’s not a service that com-panies should expect their banks to provide for them. The key take away was that treasurers should start their SEPA compliance project now, if they haven’t already done so.

BP’sGlobalAmbitions:L/CsYann-Alexandre Brulé, structured finance manager for BP International and Luana Slenk, treasury services manager for BP America, gave a presentation at the AFP Conference entitled ‘The Benefits of a Global Approach to L/C Management’. It outlined how the oil and gas giant has

a packed out session at the aFP conference in Miami shows that corporate treasurers are keen to listen to their colleagues and peers.


standardised its letter of credit (L/C) management activi-ties in the past few years, replacing a fragmented regional approach with a global solution.

Brulé said that the objectives of a global, real-time approach were to improve management of all types of risk, standardise multiple processes through facility creation and instrument issuance, and achieve cost savings.

The main achievements of the project have been:

•De-riskingofBP’sportfoliothroughcreationofanL/C toolbox and bank diversification.

•AcentralisedmodelforsettingandmonitoringL/Cfacilities.

•Providingreal-timeutilisationthroughtheuseoftechnology.

•Thestandardisationoftermsandconditionsacrossthe portfolio.

•Astrongernegotiatingpositionforthegroup.

Not that the project is yet completed. The next steps include achieving enhanced reporting capabilities and standardising operational processes across the banks.

Career Development In order to succeed in raising treasury’s profile and influ-ence within an organisation, treasurers should look at three areas: initiation, education and communication. In a world where being strategic is becoming a burning imperative for treasury, the question of how to raise the department’s profile within the organisation and develop your career is one that resonates with many treasurers.

More than 150 financial professionals packed into an AFP Conference session entitled ‘How Treasury Can Increase its Organisational Influence’, led off by Carrie Moore, manag-ing director, treasury sales executive, energy and power at Bank of America Merrill Lynch (BofA Merrill). She was joined on the discussion panel by Kim Sipes, certified trea-sury professional (CTP), director of treasury, Duke Energy; David Symons, treasury manager, Southern Company Services; and Rene Bustamante, staff vice president and assistant treasurer global cash management, FedEx.

Bustamante tackled the first topic: initiation. FedEx, which is divided into four operating companies, operates in more than 200 countries and has 300 treasury team members in three treasury centres in Memphis, Brussels and Hong Kong. Bustamante has been at the company in different roles for the past 19 years; two years ago he was promoted to his current role. At this point he decided that it was critical to get to know everyone in treasury and set a time limit of 60-90 days to meet all that reported up to him. “The pulse of any company is at the bottom,” he said. “I wanted to build bridges and hear what treasury employees have to say - the good, the bad and the ugly. Clearly, what

they were saying was that they wanted to have more strate-gic input in business operations.

Bustamante said that it was important to educate the chief financial officers (CFOs) of the different business divisions as to what treasury did. “It is an invisible function that is the lifeblood of the company but no one understands what exactly we do,” he explained. However, he did not just stop at educating company CFOs, but also built bridges with tax, legal, accounting, HR and sales.

Duke Energy’s Sipes continued on the theme of educa-tion. With seven million customers, Duke Energy’s busi-ness relies on customer service and satisfaction, and the treasury should be no different. “Treasury’s customers are internal business customers; therefore they should be treated the same as external customers. We work in part-nership with many company parts. Education is a two-way street and it is important not just to educate others but also to be educated by them.”

Symons from Southern Company Services pointed out that for treasury to achieve its goals, it needs a communica-tion plan to get across what it wants at the right level. It is important to identify whom you are speaking to and what do they know/expect from treasury. He highlighted a number of useful tools such as networking and mentoring groups, which can be used to promote cross-functional understanding. “It’s not just about saying this is what we do, but a great opportunity to sell treasury by connecting it to something meaningful to what they do,” he said.

Symons used the example of a mentor meeting when he was asked if treasury could help with a remittance project. “Even if it is just a minor part of your job, this is an opening to do something more. Don’t throw away such opportunities,” he warned.

Duke Energy’s Sipes outlined a number of tips for the audience:

•Communicatebothtopdownandbottomup.

•Knowyouraudience.

•Sharewebinars,articles,etcthatwillhelpinunder-standing treasury’s role and offer shadowing opportuni-ties to help with knowledge sharing. Bring in business partners for bank and vendor meetings.

•Listenwell,bepatientandenthusiastic,andfollowthrough.

Sipes concluded with a specific example of how treasury was engaged to review the company’s card programme, which was made up of three completely separate schemes - management, providers, etc. Duke Energy wanted to bring all divisions onto a single card programme. One divi-sion had to be brought kicking and screaming to the table. But as soon as they truly understood the benefits, they became the biggest proponents of the card programme and of treasury.



ConcludingSpeech:RobertGatesThe concluding speech on day three of the AFP Conference was given by Dr Robert Gates, the 22nd US Secretary of Defence and ex-head of the Central Intelligence Agency (CIA), who served eight different presi-dents. He provided an overview of his leadership philosophy and the present political scene and started with a pointed joke when he commented that “it was a pleasure to be here in Miami; it’s a pleasure to be anywhere except Washington DC where so many people are lost in thought because it is such unfamiliar territory to them.” The barbed comment drew an audible gasp from the audience, while he’s next one about “people in Washington walking down lovers lane holding their own hand”, drew a laugh.

As to what threats to saw to the world - and its economy - Gates talked about the threat from a growing China, which he said is sometimes exagger-ated, while still stressing that the lack of democracy means its leadership needs to grow a middle class to stay in power. The country is also susceptible to nationalistic fervour as the recent dispute with Japan proves, and this may well manifest itself more as its export-led economy slows due to the slowdown in the world economy. Other risks to the global stability, such as Ian’s nuclear programme and diminish-ing oil reserves were also identified in Gates’ risk overview.

Show Reaction Quotes“I’ve really enjoyed the AFP Conference 2012, particularly the financial plan-ning and analysis [FP&A] track, which is not something I’ve really focused on before,” said Sharon Petrey, assistant treasurer at Coca-Cola, when asked for her highlights of the show. “FP&A really forces you to throw out traditional budgeting activities and reactive routines and to rely more on forecasting procedures. It changes the formula, and forecasting should be to the forefront for treasurers as it is such a critical function.”

For the new chair of the AFP of Canada, Alberto Nunez, treasurer at the I Am Gold Corporation, he was just looking forward to starting his two-year tenure as head of the group. “I want to encourage more members and have been encouraged to see many of them here in Miami,” he said, when explaining his plans for the future to ‘gtnews’, which also includes growing the number of people with the AFP’s certified treasury professional (CTP) qualification.

In regard to the actual show, Gareth Lodge, a senior analyst with Celent, noted that, “while electronic bank account management (eBAM) is still a hot topic of conversation for many, there does seem to be a growing number of people who are underwhelmed and unimpressed with what’s happened in its development so far; perhaps a C- for effort, but no more.”

For Michael Bosacco, vice president of treasury solutions at SunGard’s AvantGard, speaking from the company’s stand on the exhibition floor: “The conference reaffirmed our opinion and research, which shows that corporate treasurers are increasingly focused on more sophisticated risk [and associated mitigation practices].”

The treasurer at the National Council on Compensation Insurance (NCCI) in the US, Craig Ehrnst, brought the conversation back to the core purpose of any conference, which is to inform and to encourage debate and knowledge-sharing among peers. “General James Conway’s comments, on leadership during Monday’s Executive Institute lunch will help to shape AFP Conference attendees into rational global treasury leaders - he was, after all, the 34th Commandant of the US Marine Corps.”

Other show highlights for Ehrnst included the delicious Cuban food available in the many bars and restaurants in Miami Beach and the hot sunny weather. A happy notion that many of the attendees would no doubt share, as they headed towards the exit, perhaps already thinking about next year’s conference in Las Vegas and what might be the highlights and jackpot topics of conversation there.

20 | Global Treasury Briefing | Autumn 2012 Copyright © 2012 Association for Financial Professionals, Inc. All Rights Reserved www.gtnews.com

aFP conference: Mentor graphics interview – Making the connection

Treasurer inTervieW //////////////////////////////////////////////////////////////////////////////

When Patricia Hui, senior corporate treasury manager at Mentor Graphics, first joined the US$1bn revenue corporation in 2009 she might have recognised some old faces having worked for the company that it was originally spun out of, Tektronix, for 12 years. In her short-time at Mentor, the Hong Kong-born US citizen has overseen the move of a shared service centre (SSC) from Ireland to Poland, new SSCs established in Singapore and India, and negotiated a US$125m credit facility as part of a full bank risk / partner review, she recently explained to gtnews’ Neil Ainger at the AFP Conference. Hui is also keen on enhancing bank connectivity. Patricia Hui is the senior

corporate treasury manager at Mentor Graphics corporation. the Hong Kong-born US citizen is a member of the treasury team at the multinational electronic design automation (Eda) firm. She has recently overseen the opening of new shared service centres (SScs) in Poland, Singapore, and india, and is a keen observer of fast-developing asian markets. counterparty risk and electron-ic bank account management (ebaM) are particular interests.

“There is still so much to do,” says Hui despite introducing new SSCs to Mentor Graphics, citing electronic bank account management (eBAM) as a particular interest of hers and something that she wants to implement in 2013 with the objective to streamline and standardise the bank account opening and closing requirements, as well as the authorised signatory update process.

The senior treasurer at Mentor has already overseen the corporation’s first ever US$1bn revenue figure in 2012 but she thinks eBAM could help the electronic design automation (EDA) firm, whose software helps engineers make network, semiconductor and electronic goods, improve its relations with banks and the efficiency of its treasury procedures.

Hui has already been busy on the banking front having made improving Mentor Graphics’ relations with its credit banks one of her first priorities after joining in January 2009. The Wilsonville, Oregon, US, headquartered company now has five credit banks after Hui renegotiated with HSBC, US Bank, KeyBank, Bank of America (BofA) and Citi, renewing the US$125m credit facility with favourable terms and making the latter its primary international bank for Europe and Asia. All the banks’ financial stability and reliability were reassessed as part of the review, with some former partners being dropped or reassigned roles, as part of a wide-ranging counterparty risk assessment overview.

The CitiConnect system and the Payment Network file-based transfer solu-tions, supported by Citi and BofA respectively, are primarily used for straight-through processing (STP) of payments and information reporting, although Hui says she “might look at SWIFT later on down the line to further enhance multibank connectivity”.

“As part of the bank overhaul, I used the Association for Financial Professionals (AFP) scorecard to conduct a formal bank relationship review and continue to do so on an annual basis,” says the AFP board member and certified treasury professional (CTP).

Commenting on her use of the AFP bank scorecard, Hui says “it offers feedback for our banking partners to better understand how we perceive the value, quality, and cost of the services received. In addition, it provides clarity on how well issues and services are dealt with, and allows both parties to explore new busi-ness opportunities as a result of the review.” It is much quicker than doing a

www.gtnews.com Copyright © 2012 Association for Financial Professionals, Inc. All Rights Reserved Autumn 2012 | Global Treasury Briefing | 21

full request for proposal (RFP) programme and can tell you what banks are good or bad, and for what procedures.

“You need to be continually looking at counterparty risk, including banks, as part of your job as a treasurer and also ensuring that the best available rates are being obtained for your company – whether that is interest or savings rates,” Hui continues, stressing that the low interest rates avail-able at the moment are too good an opportunity for any firm to turn down. “Of course, on the flip-side it does mean that finding good places to invest your money [as a treasurer] is more difficult, especially with the spectre of increased regulations possibly surrounding money market funds (MMFs) and the like.” The new capital adequacy rules coming in post-crash, such as Basel III, could also impact bank relationships and encourage more bank-independent investments in the future.

Instability Instability is a given at the moment it seems with Hui first saying that it is “a very interesting environment for corpo-rate treasurers at the moment with threats and opportuni-ties out there”, before going on to admit that actually a “challenging time” might be a better word for it, “where you constantly need to talk to your bank, peers and supply chain” to survive a tough business environment.

A non-finance related instance of instability that Hui has been through since joining Mentor Graphics involved the corporation’s legal entity in Pakistan. The company wanted to name an Indian national, a finance controller of the India SSC, as the company director of the Pakistani legal entity. However, it found out that the Pakistani government was questioning the company’s intent of appointing a non-resident, particularly an Indian national, to the directorship of a Pakistani company. “Being a multinational company, we obviously have to be aware of international sensitivi-ties,” explains Hui diplomatically. The high-tech nature of electronics design sometimes has national security implica-tions it seems.

The fluctuations in the various currencies across the 29 countries where Mentor Graphics has a presence is perhaps of more interest to the senior corporate treasury manager of the corporation as 59% of the firm’s revenue comes from outside of the US.

Hui is a member of a four-person treasury team at the multi-national EDA firm’s headquarters in Oregon, US, overseeing a cash manager who ensures that finance is in the right place, at the right time, and a treasury manager who runs a foreign exchange (FX) hedging programme across 29 countries with the US$ as the base currency. Additional staff are based at three shared service centres (SSCs) around the world.

“We’re not immune to FX risk, but we have a really good hedging programme to alleviate it,” explains Hui. “Repatriating offshore cash is also a big issue for us as much of the technology world has extended chains linking design teams and customers in the West with manufacturing

bases in the East.” Shuffling finance around these chains is sometimes not easy with restrictions surrounding the Chinese and Indian currencies, for example.

ssCs Presumably the new shared services centres (SSCs) that Hui has established in Singapore, India and Poland at Mentor Graphics will help in this regard, as well as in introducing greater efficiency to the firm’s treasury opera-tions. In her short-time at Mentor the Hong Kong-born US citizen has moved one SSC from Ireland to Poland, and overseen the establishment of new SSCs in Singapore and in India to deal with its operations on the sub-conti-nent and the surrounding area.

The Polish centre looks after all the European entities, including Israel and Morocco, having replaced the old Irish SSC due to tax and efficiency reasons, while the new Indian SSC looks after Pakistan and Egypt, and processes all account receivable (A/R) and payable (A/P) processes. The Singapore SSC manages key finance functions for Japan, Korea, Taiwan, and China.

“We don’t generate so much surplus cash in China pres-ently, although this is changing, but repatriating cash from Europe and India – where many of the same restric-tions that impact China apply – is our biggest challenge,” says Hui. With the growth of China as an electronics design centre, as opposed to an assembly centre, this pattern is already changing and the Hong Kong-born Hui is excited about the possibilities this opens up.

The Rise of the east “I’ve been back to Hong Kong lots of times to see family, and to Beijing and Shanghai on five or six occasions, to participate in business meetings and I love to go there because it is changing and expanding so rapidly,” says Hui. “I remember moving to Oregon in 1982 as a small child and being shocked at how advanced it was, as well as how green and quiet it was in comparison to Hong Kong.”

The island was still under British administrative control at that time of course and was just getting into its stride as an advanced beachhead for the later development of mainland China itself, once control of Hong Kong was handed back in 1997.

Hui has an interesting perspective having spent her early years in a Chinese environment and then had an American education through high school and on to obtaining an MBA from Portland State University in 1994. The drive and ambition of the two countries is certainly something that she recognises in both cultures and she is genuinely excited about seeing how they both develop over the coming years and, hopefully, come to understand each other better. “America has such experience and knowledge and China is the growing country at the moment so their relationship will set the template for my company, and indeed the world for the foreseeable future.”



Karen Van den Driessche as the director of treasury for Europe, Middle-East and africa (EMEa) at the electronics component and design services firm, avnet, Karen Van den driessche is responsible for a four person team that runs an in-house bank (iHb) and is providing guidance in the expansion and upgrading of the firm’s treasury operations, particularly in asia. Van den driessche joined the corporation in february 2011, having previously worked at Monsanto, inbev and coca cola Enterprises. She has spent all her career of over 20 years in treasury.

avnet interview: The Start of a Beautiful FriendshipKaren Van den Driessche, director of treasury, EMEA, at the international electronics component and design services firm Avnet, joined the company last year when its annual revenue hit US$26.1bn, and immediately established a close working relationship with Doug Adams, the firm’s European supplier finance director, who is based in the same Tongeren office in Belgium. As the pair explained to gtnews’ Neil Ainger at EuroFinance 2012 it was the start of a mutually beneficial relationship between a supply finance specialist, working on the operational side of the business, and a treasurer looking after the cash position – an all too rare occurrence.

“As a treasurer I have to explain to my corporation and to my colleague Doug Adams, on the supply finance side, why cash forecasting is so vital,” explains Karen Van den Driessche, director of treasury, Europe, Middle-east and Africa (EMEA), at Avnet. “It’s not that he doesn’t understand it, of course, it is just that on the operational side of the business working capital is what is really important to Doug.”

From what was previously a passive relationship with no value-add, Adams, the European supplier finance director at Avnet, now says that he enjoys a much more productive relationship with the firm’s treasurer. “It’s not that I had a bad treasury relationship before Karen joined in February 2011, but rather that we talk more now and she challenges us – to report our cash positions better, to think more long-term, and to present our case for finance more fully,” says Adams. “The infrastructure is now there for us to communicate better. The operational side of the business and treasury now talk much more constructively than they have in the past; to the benefit of both of us.”

As an example Adams cites a daily balance sheet hedging programme in US dollars (USD), introduced by the in-house bank (IHB) that treasury runs in EMEA to help deal with the dollar’s recent volatility. As Van den Driessche explains, moving from a weekly to a daily programme is unusual and it consists of many forward swaps worth approximately EUR15bn (US$19bn) annually over a three-month tenure, with no options, but the project brought the partners together. “It’s not a treasury or a supply issue, but a business issue,” she says.

From Adams’ point of view, understanding that improving ‘house-keeping’ in terms of timely account updates and reports will help the treasury and, ulti-mately, himself, has improved attention to detail. “The foreign exchange (FX) programme can be much more targeted and treasury can forecast our overall cash position much better with better reporting, which is useful considering the economic situation at the moment.”

In what is a notoriously acquisitive sector, with mergers and acquisitions (M&A) common in the tech world, and ‘callable’ cash sometimes needed, it also helps to instantly know your position. “I had 15 deals to push through last year,” says Van den Driessche when attempting to illustrate the importance of good cash management. With the EMEA operations, which she controls with four employees, being relatively cash rich but debt elsewhere in the company Van


den Driessche admits accurate cash management is essential.

The fact that the two functions of the business – supply and trea-sury – use two different enterprise resource planning (ERP) systems complicates matters further, forcing constant reconciliations between the business and the treasury. All the more reason, however, for the two colleagues to talk together frequently. “Even if we don’t agree – for instance, say Doug thinks we are sitting on too much cash that he believes he can use more fruitfully – then we can always work together to find a mutually agreeable solution,” says Van den Driessche, “or at least a common understanding.”

CompanyOverview:AvnetAvnet is a Fortune 500 electronics company, with annual revenues of US$26.1bn, which employs almost 17,000 people around the world. It operates a technology solutions (TS) division that supplies comput-ing products and services and an electronics marketing (EM) unit that supplies components, supply chain and design services to electronic original equipment manufacturers (EOEMs).

The firm runs a fairly centralised operation with 12 treasury-related staff in total. The treasury head-quarters in Phoenix, Arizona, US, is staffed by three people, while a further five treasury staff are based in Brussels, Belgium, running the European, Middle-east and African (EMEA) offices and an in-house bank (IHB) under Van den Driessche’s control. The Brussels office also acts a bridgehead to three more people who are based out in Asia, provid-ing treasury services to the region, although change is afoot here.

The EMEA team is currently driving forward the company’s Asian expan-sion and the establishment of regional treasury centres (RTCs), replacing the less centralised arrangement at the moment whereby the three existing

Asian-based treasury staff co-ordinate local teams. “This is a very rewarding project for me at the moment,” says Van den Driessche, “and it is great that the Phoenix HQ is letting EMEA drive it.”

Asia has become such a hub for the manufacturer of electronics parts that being allowed to provide guidance and drive the group’s treasury central-isation project there, while ensuring a smooth interaction between design teams in the West and assembly teams in the East, is a compliment to Van den Driessche’s experience.

A treasury professional for 20 years, who started out at Monsanto, InBev and Coca Cola Enterprises before attaining her present position in February 2011, Van den Driessche currently controls 365 bank accounts in EMEA for Avnet and is responsible for 145 legal entity identifiers (LEIs); 70 of which are holding entities, with the rest being operational entities. She handles 21 different curren-cies in EMEA across 31 banks in 22 different countries and, naturally, wants to close down as many of those European bank accounts as she can in order to improve efficiency and simplify procedures, using SWIFT and other means.

Future PlansAs she reflects on the work she has already undertaken to overhaul Avnet’s treasury operations and improve cash management report-ing, Van den Driessche outlines what she plans to do as the second year of her employment with the company comes to its end. “I’d like to move towards a payment-on-behalf-of (POBO) structure and a payments factory ultimately,” she says, “but first things first, we need a new trea-sury management system (TMS).”

Avnet currently has a TMS in EMEA but it is old and the firm still relies on Excel-based spreadsheets in the US and Asia. “We need a global TMS quickly and this is a major project for me at the moment,” says Van

den Driessche. “There hasn’t been a request for proposal (RFP) yet as I still need to get boardroom approval and we’re in the very, very early stages. We’ll get there though, and I’m hopeful of having a global TMS in place by 2014, especially as we don’t need a ‘Rolls Royce’ solution that can handle derivatives or the like; just a ‘simple’ implementation and integration.”

CareerVan den Driessche is experienced enough to know that introducing such a global TMS is never ‘simple’ – hence her own quotation marks – but she also has the confidence and the knowledge to know that it can be done from her previous firms, where she saw such implementa-tions. She jokes that she only moved away InBev and Coca Cola “because I wanted to move away from liquids”, but really the pull of establishing her own set-up was the draw towards becoming Avnet’s EMEA director of treasury.

“I’ve worked across tax, legal and treasury-related functions over my career and mainly for a succession of women bosses, who have given me the ability and time to see the con-nections between all of them,” she says. “I’ve been given the freedom and independence to run projects and learn, taking lessons from each of my previous bosses, and I try to give the same freedom with responsi-bilities to my own staff now.”

It’s the organisation that is important and the people within it, not technol-ogy alone, compliance projects or the like, believes Van den Driessche. “You always need to be able to adapt to changes,” she says. “There has not been a single big change that I can point to over the last 20 years that has revolutionised the job – rather a series of technological and business changes have changed trea-sury since I started out as the 1990s dawned. The need to adapt is what stands out.”



Colin KerrMicrosoft Worldwide Financial services Industry solution Directorcolin Kerr has responsibility for defining Microsoft’s vision, solutions, and partner strategy for payments and core banking across the worldwide financial services sector. He has over 20 years of financial services industry experience in the de-velopment of banking and pay-ments solutions; ranging from providing industry advisory services, to payments product and technology management roles in Europe and the US. Microsoft is a founding member of the banking industry archi-tecture Network (biaN), whose primary aim is to define a common service-oriented archi-tecture (Soa) for banks so that internal and external shared services, for use by treasuries and other end points, is made far simpler. Kerr participates in biaN through the communica-tions working group, and is a member of the strategy advi-sory board.

interview: Microsoft Technologists Explain How Big data adds Big value to TreasuryBig data was among the hot topics at this year’s Sibos 2012 trade show, so gtnews’ Richard Hartung sat down with a trio of technologists from Microsoft for their take on how financial institutions and corporates alike can best leverage big data. Hear from industry solution director Colin Kerr, industry technology strategist for banking, Victor Dossey, and SQL server senior project manager, Sherri Brouwer.

“If there’s one thing the banks have, it is data,” said Microsoft’s industry solu-tion director, Colin Kerr. On the one hand, that data means they can understand their customers and manage their risks better, while hopefully connecting better with treasuries. On the other hand, it can be harder to manage because much of the data is unstructured data, such as email and pictures, which can create reputational issues. According to Kerr banks are now looking at how to harness big data and turn it into something that manages customer connections and ups their revenue per customer.

“Using that data can require new ways of thinking,” says Kerr, while speaking to gtnews with his Microsoft colleagues at the Sibos 2012 trade show in Osaka, Japan, in November. For many years banks have become used to receiving monthly or quarterly reports and tweaking them, he said. The data explosion means that they need a new model, since opportunities can come and go in milliseconds. The new model can offer master data management, which enables the user to pull data in or access it better and aids the move towards real-time analytics. The same applies to treasuries, although if banks utilise big data first the reporting services available to treasurers should automatically improve.

Once a bank gets control of its data, explains Microsoft’s industry technology strategist for banking, Victor Dossey, then the next step is to get it out to the people to serve them. It’s often a self-service solution, since more business user tools are available.

The Microsoft example Kerr explains how Microsoft itself provides a good example of how a large cor-porate treasury department can use big data effectively. Microsoft has approxi-mately US$70bn spread across 1,000 accounts at 100 banks.

“In the last year we have gone through a risk management exercise that includes cash reporting, the creditworthiness of our suppliers and our portfolio of investments. In the past we had a team of analysts who built spreadsheets and external reports. Now that’s being funnelled into Paraview [the open-source, multi-platform application] for visualisation.” Microsoft staff are using self-service tools to build graphs of how trading partners are changing, or producing bubble charts to show the exposure. Treasury staff do not have to be specialists to set up a query.

Another example comes from Premier Bankcards. In the past, Kerr said,


understanding how a change in their scoring mechanism might affect default rates could take months and months to understand. Now, they can do it in hours, thanks to big data technology and analysis tools.

Analysing Data to Build Better services and RelationshipsMicrosoft’s Sherri Brouwer, SQL server senior project manager at the technology giant, says that corporates are also leveraging big data to interact with their customers in entirely new ways. Companies can take ideas and look at them from new contexts, including using social data. The car industry, for example, can now respond directly to consumers in real time using the power of data and ana-lytic tools. Banks can also use a cloud platform to segment where data is stored and managed, so that they can parse it for information and ensure they only use the parts that are legal for them to access. The big power is taking in new data types and using it in the context of new business sce-narios to create new opportunities.

What makes this customer and busi-ness analysis possible is the three layers of big data and the big comput-ing power to interrogate it. The three layers are:

1. Data management.

2. Analytics.

3. Visualisation.

“Using parallel processing power,” says Dossey, “means that getting query results back from massive amounts of data is now far faster and easier than ever before.”

Behind the scenes, Apache Hadoop software, an open source framework that enables the distributed process-ing of large datasets, allows users to take in poorly-structured data, iden-tify sentiment or impact, and then use connectors to structure unstruc-tured data and move it into analytical tools, says Dossey.

One example from the social realm was the Occupy movement, which

sent out a message asking support-ers to move their money out of banks on a single day as an act of protest against the bank bailouts. Research by Javelin showed that 640,000 people moved their money on a single Saturday, and millions more sub-sequently followed their lead. Only by penetrating the data and finding the sentiment could a big financial institution find out what happened, he added.

In transaction banking, Kerr believes banks have a tremendous opportunity to offer new services to their custom-ers and those that monetise their data best will be the most success-ful. Excel remains the number one cash positioning tool. However, every customer can process large data streams. If a bank is able to gather information, it can offer services that provide details such as senti-ment analysis, profiles of ageing of accounts receivable (A/R) or invest-ment portfolio data. It can package and deliver these services, enabling customers to make better deci-sions - often in ways corporates can’t manage themselves.

Big Data for Marketing Marketing can also take advantage of big data. For example, a publisher can publish data and make it avail-able to consumers on a subscrip-tion basis in a standardised format. Similarly, cash management can think beyond traditional reporting products and deliver business intel-ligence (BI) as a commercial offering. Banks and corporates can provide new revenue streams by monetising their data, adds Dossey.

If banks want to move a level up in supporting their customers, they can map in factors such as credit risk information, internal receivables, swings in currency rates or geopoliti-cal risk. So a corporate with a supply chain could map in geopolitical factors, weather patterns and ship-ments from China to the US, while also becoming predictive about contextual data.

Better Risk Management with Big DataBig data produces new tools for the banks, retailers and other corporations and their treasuries. Banks can access search engines’ social networks within appropriate privacy policies by using key words, explains Dossey. Risk man-agement can then get a far better pulse on their customers, just if the noise or chatter about the company goes up. If they dig down a little, they might start to create triggers that can identify risk even better and share fraud alerts with corporate customers. “We have seen banks cleansing the data,” he says, “taking credit card data by spending and demographics and providing it to the social networks. Back-end tech-nologies allow customers to decouple the information to ensure that the bank meets compliance standards and geographic constraints.”

The availability of this data will also result in a change in how treasur-ers think, since they will be able to connect disparate data points, make decisions based on the analysis and be proactive about how to manage the business.

What is next?While many of these services are available from Microsoft and other software vendors, most banks and corporates have yet to take full advantage of the possibilities of big data, says Kerr. Microsoft manages its risks and cash position in its internal treasury, for example, but not factors such as the impact of weather on its operations.

“Our perspective has been to drive operational efficiency and manage risk,” explains Kerr. “Streamline operations and you get a better view of the cash position. You don’t have to embark on a big data project per se, as you can build up to this to find value-add later on. You can slowly start to consume elements of big data; you start with cleaning operations up, look at how to frame it and move on from there.” The important element is to have an end vision in place.


> aWardS caSE StUdy | MErcK KGaa

The Awards for Global Corporate Treasury

Merck Kgaa global guarantee Management – l/c Management

Headline sponsor

This case study, which won the Supply Chain/Trade Finance Project of the Year and the overall Gold Award for the highest scoring entry across of the all categories at the gtnews Awards 2012, explains how a small treasury team at Merck KGaA introduced a single global, consolidated bank guarantee facility worth €150m. Valid for all 250 subsidiaries, the system uses a single procedure and bank platform to minimise letter of credit (L/C) errors and has automated reconciliation and fee management, cutting the required documents from 575 to five, banks from 103 to just one, and time taken to issue a guarantee from two weeks to a day.

The pharmaceutical and chemical corporation Merck KGaA wanted to break new ground and introduce a consolidated bank guarantee facil-ity to help improve the speed and efficiency of its supply chain and internal financing. Like every busi-ness the corporation has to rely on bank guarantees or letters of credit (L/Cs) issued by financial institutions to ensure that beneficiaries in its supply chain get payment undertak-ings and notifications. With 250 subsidiaries across the globe the complexity and cost of the process was something the firm wanted to improve. The procedure is, of course, a prerequisite for any operations unit at a multinational treasury and is required by customs and tax authori-ties, not to mention tender organisa-tions if you are looking to win new business or prove bona fides.

The previous workflow relied on local terms and conditions with the individual banks that Merck KGaA’s 250 subsidiaries dealt with, with the onus being on local units to sort themselves out. This was not an effi-cient procedure, however, and Merck saw an opportunity to centralise the group-wide bank guarantee business at its main German treasury unit and establish a standardised global process that had better transparency, quicker turnaround times and was scalable for the future.

The problem was that, as far as it is aware, Merck is the first multinational company to attempt to introduce a global guarantee and L/C manage-ment system so it couldn’t simply copy best practice or install ‘off-the-shelf’ technology, instead having to rely on developing its own system, with an internal team of only two people and

no budget for external consultants. Another challenge was that whatever was introduced had to comply with the local trade finance legal rules and regulations in each and every country around the world where the pharma-ceutical and chemical giant operates.

An unconventional approach was therefore needed and the small treasury project team of two people embarked on a seven month long exercise, in addition to daily responsi-bilities, that ran from February 2011 until the end of the year. The team, led by Joerg Bermueller, head of cash and risk management at Merck KGaA, questioned each Merck subsidiary to scope out the project and developed a request for proposal (RFP). This led to a competitive tender and the selec-tion of a single banking partner, and ultimately a new infrastructure for the start of 2012.


There were seven distinct project phases:

1.Datacollectionandanalysis:The Merck KGaA treasury project team surveyed all 250 subsidiaries and discovered that 300 guaran-tees are issued each year, worth €150m. Bank fees from the 103 local banking partners used to run into the low millions per annum. The portfolio covered more than 900 guarantees or L/Cs across 43 countries, with 67 subsidiaries having guarantees outstanding.

2.Marketscreening: No existing con-solidated bank guarantee solution could be found so the project team talked to five global trade finance banks about the feasibility of them developing one.

3.Requestforproposal: A 14-page RFP was created by Merck from

scratch containing 66 detailed questions. No template existed before and Merck has since become a valued advisor to other treasury departments, looking to emulate their achievements.

4.Shortlist:Five trade finance banks were whittled down to three after responding to the FRP, which prioritised two requirements - namely, a presence in the coun-tries where Merck needs L/Cs and the availability of an online tool to handle subsidiary requests and oversight reporting.

5.Beautycontest: The three shortlisted banks had to answer an additional 35 questions, 15 follow-up queries and present a compelling case as to why they should be selected as Merck’s partner, as well as meeting the

prime precondition of providing a price reduction.

6.Selectionofbankingpartner:Each bank was tested against the clear selection criteria that Merck’s treasury project team developed. The winning bank would have to offer full country coverage; provide an online tool to suit Merck’s needs; ensure that the issuance, booking and management procedures for guarantees fitted with Merck’s requirements; demonstrate com-mitment; a clear non-complex implementation plan; and reduced pricing. All the compet-ing banks received extensive feedback on their performance from the Merck treasury project team, but no bank was able to

Michael connolly (left), vice president and treasurer of Tiffany & co, and compere of the gtnews awards 2012, with Jennifer Boussuge, head of global treasury sales at the sponsors Bank of america Merrill lynch (Bofa Merrill, on the right), present the trophy for the Supply chain/Trade Finance Project of the year – and for the overall gold award for the highest scoring entry across all categories – to Joerg Bermueller, head of cash and risk management at Merck Kgaa.

continued


meet all the requirements. The winner, Deutsche Bank, had to develop a tailored online solution for Merck.

7.Projectimplementation: Merck and Deutsche Bank finalised the terms and conditions of the consolidated credit facility agreement and embarked upon the implementation phase which was completed at the turn of this year. Training for 150 users across Merck’s subsidiaries was provided using webex teleconfer-ence sessions and onsite ses-sions in Darmstadt, Rome and Madrid to ensure that everyone could use the new computer systems and consolidated data-base. Extensive training materi-als and booklets were provided and a bank IT specialist was seconded to provide support and programme the online request, reporting and management tool.

The solutionAfter the seven-month project, Merck was left with a single worldwide bank guarantee facility worth over €150m, valid for all 250 subsidiaries. The global online pricing grid also does away with the myriad of different platforms that each subsidiary used to use, delivering a single web-based tool. Other benefits include:

•Oneglobalguaranteeissuanceprocess for all types of L/Cs across all jurisdictions.

•Onestraight-throughprocess(STP) that eliminates error-prone paperwork stages.

•Onesourceoftruthforreportingto ensure 100% transparency in the future.

•Oneinterfacewiththein-housebank (IHB) cash manage-ment system for automated fee payments.

•Oneinterfacewiththebook-keeping system for automated reconciliation.

Benefits The benefits of Merck’s new consoli-dated bank guarantee solution is that it has enhanced internal processes, meaning that paper has been elimi-nated and the time taken to submit an L/C request has been reduced from 60 minutes to 12. The issuance timeframe has been slashed from 14 days to just 24 hours.

Increased transparency has also resulted with all guarantees now residing in one online system, so the database can be mined and inter-rogated more easily. In addition, email notifications are now sent for required actions such as requests for authorisations and pre-notifications go out for expiring guarantees to ensure a smoother, easier proce-dure. The group accounting manual guarantee reporting process at the end of the year has naturally been made redundant. Global monitoring of fees and commissions is also now possible and, crucially, financial risk positions in the supply chain can also now be included at group level much more easily.

Complexity has also been reduced with the number of banks Merck uses for guarantees falling from 103 to one. The amount of required documents has been cut from 575 to just five per year, covering balance sheets to signature cards, profit and loss sheets, passport copies and commercial registers. More than 60 previously local-only processes have been eliminated.

significant Cost savingsAs a result of the project, on-going bank fees have been reduced by almost half, so that they are now

much less than €1m per year. The number of work hours needed for guarantee handling has also been cut from 250 hours every year to 25 hours per annum now, freeing up treasury staff and others to under-take other tasks. Courier fees in the procurement unit have been cut and Merck is estimating it will save€2m in extra efficiency savings resulting from the improved workflow.

The small project team of just two people achieved a lot, working in conjunction with their banking partner, and did so for an imple-mentation cost of only €15,000, although Deutsche Bank will still receive reduced on-going fees of course. The seven month imple-mentation timeframe, equating to approximately 200 work days on top of the project team’s usual everyday responsibilities, was also impressive. Merck is now enjoying the benefits of its new global, fully automated, and standardised solution.

• This case study is based upon an entry into the gtnews Awards for Global Corporate Treasury 2012, sponsored by Bank of America Merrill Lynch (BofA Merrill). The winners of this year’s annual awards, now in its third staging, were only revealed at a gala dinner on 24 May at the Sofitel Grand Hotel in Amsterdam, the Netherlands, after the opening of the two-day gtnews Forum for Global Corporate Treasury conference. This winning Merck entry is shared here from the Supply Chain/Trade Finance Project of the Year category as a best practice guideline and commentary. It also won the overall Gold Award for the highest scoring entry across all the categories at the gtnews Awards 2012. To see a full report on all the Awards winners and the gala dinner on 24 May please visit www.gtnews.com.

Awards continued

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Documents

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