The Forum for Global Corporate Treasury: SWIFT Tools and a Case Study on Multi-currency Notional Cash Pooling

Workshops on the second day of the Forum for Global Corporate Treasury examined the benefits that SWIFT offers corporates and took an in-depth look at managing cross-border liquidity.

One of the first concurrent workshop on day two of the Forum for Global Corporate Treasurers in Amsterdam examined what SWIFT had to offer corporates and also the challenges involved in trying to re-engineer the highway to your banks. Rasmus Heskier Schioenning, partner, Trintco, led off the discussion by looking at the three categories of solutions that corporates are interested in:

Payments, which use FIN and FileAct and can include additional messaging services (interact), other message types, 3SKey security and browsing (not used by corporates at this time).
Treasury: FIN and foreign exchange confirmation via FIN, centralised treasury confirmation matching for corporate treasury and electronic bank account management (eBAM).
Trade: letters of credit (L/Cs) and guarantees, alternative instruments for trade settlements or bank payment obligation (BPO), and electronic invoicing (e-invoicing).

Not many treasurers in the room had implemented SWIFT to date. Historically thought of as an expensive option and for the likes of mega-corporates with lots of resources, Heskier Schioenning said that the SWIFT proposition is now gaining attention from medium-sized corporates, mainly as a result of SWIFT service bureaus.

But there are still challenges to adopting SWIFT, which Heskier Schioenning identified in four stages:

• Initial investigation and building the business case.
• Request for proposal (RFP)/quote (RFQ).
• Implementation.
• Already live with SWIFT and want to use the investment further.

His advice was to address the challenges with a “common sense” approach and put in time at the beginning to investigate the business case and plan the roll out so that everyone’s expectations are realistic. “Expect a number of bombs on the road,” he said. One treasurer in the room that had implemented SWIFT in Europe and was in the process of rolling it out in Africa, agreed that they had had a few set-backs along the way.

“Do not shortcut the process and jump to start,” said Heskier Schioenning. “One pitfall to avoid is not aligning the SWIFT project with other initiatives and missing clear mandates from management.”

Heskier Schioenning also outlined new SWIFT initiatives that are coming down the pipeline, such as:

• SWIFT business intelligence.
• Sanctions screening.
• MyStandards.
• SWIFT reference (managing corporate reference data).

Managing Cross-border Liquidity

In the second set of workshops, Eric Vastenhound, global treasury operations manager, International Flavors & Fragrances (IFF), presented a case study of how treasury changed its cash management infrastructure with Bank Mendes Gans’ (BMG) multi-currency notional pool. The company, which operates in 32 countries, collects money from its entities across the globe and its mantra is “cash is a corporate asset”.

The key drivers for its current cash management infrastructure are that IFF is a net borrower and has overdraft positions in every location. It has a strong and stable cash flow, as all its production entities are profitable and generate cash (business-to-business (B2B)). To treasury, liquidity equals mobility.

At the end of 2009, IFF treasury selected BMG’s multi-currency notional cash pool. To date, the BMG overlay structure includes 36 entities in 22 countries and 114 accounts in 14 currencies. Vastenhound said that the notional pool go-live was very smooth and took only a few months after all the legal documentation was gone over with a fine-toothed comb. Most of the time was spent with client on-boarding.

The credit and debit positions of all participants in the pool are offset irrespective of the currency. Vastenhound said that they notional translation of local currencies to US dollar as the common base currency; therefore there are no foreign exchange (FX) transactions. Any balance in any company/convertible currency is acceptable as the overall balance (at the European Central Bank (ECB) rate) of the pool is zero (or within the credit line). This will, therefore, limit the need for intercompany loans to fund local working capital requirements. Subsidiaries withdraw or deposit funds in any currency they need. Vastenhound said that treasury was quite relaxed about cash transfers because the limit in the use of the cash pool. In this way it is used as an in-house bank (IHB) and money does not leave the company.

Vastenhound said that the cash pool needs a credit line attached to it. The net balance (in US dollar equivalent) should be close to zero. He explained that there is a 1% penalty paid by entity if it borrows from the cash pool and that is paid into the master account. This sparked a debate among the attendees as to how the IHB derives the interest rate and the requirement to be transparent about the process mainly for the auditor’s benefit.

In 2012, IFF treasury plans to:

• Further explore intercompany loan opportunities.
• Introduce new currencies.
• Introduce MT101/103 on domestic accounts with non-core banks.

First published on www.gtnews.com