Treasury verdict: low-key optimism amidst treasury challenges

May 2013

A majority of the 350 attendees at the EuroFinance Miami conference, held from 8-10^th May, feel more confident about their ability to do business in today’s environment, compared with 12 months ago. However, that confidence level did not quite extend to their view of global economic prospects. A panel session looked at the fact that centralisation and efficiency gains figure high on the treasurer’s agenda and explored how this is affecting their banking relationships.

In a straw poll of the audience at the 2013 EuroFinance Miami conference, 60% of treasury and banking professionals said that they feel more confident about their business prospects this year compare with the past 12 months. Only 18% reported feeling less confident and one in four felt the same.

Debra Hinds, Director, Global Cash Management at Bombardier, who participated in the panel entitled ‘The treasury verdict: your views make the debate’, said that she agreed with the majority result. “Bombardier, for example, is having a better year. Although we haven’t seen huge gains, we are much more optimistic because governments are starting to build up infrastructure on the transport side. We have heard this for a number of years but now governments are really starting to move on these projects.”

Interestingly, the level of optimism was more subdued in terms of the global economic prospects: only 43% said that they felt more optimistic about the situation this year, whereas one in five said they were less optimistic and 28% said they felt no different.

Still, this is a much better result than at the EuroFinance conference in Monaco eight months ago, when 71% of the attendees said they felt less confident about the global economic outlook than they had in 2011.

Diane Quinn, Managing Director and Sales Segment Executive, J.P. Morgan Treasury Services, reminded the audience that there was much to be buoyant about, such as:

• Global GDP is expected to rise at 5% per year to $93 trillion by 2017.
• Global growth is going to drive 57% more investment in infrastructure.
• By 2050 more than 70% will be living in large urban centres, again acting as a driver for investment in schools, hospitals, roads, etc.

“Although we are facing challenges with increased regulatory pressures and the cost of compliance, as a bank we remain confident about future growth,” said Quinn.

In a separate poll question, 44% of the audience said they thought the euro would depreciate 5-15% against the US dollar over the next 12 months. Only 13% thought the euro would appreciate by the same amount within that timeframe.

 

Banking relationships: less is more

When asked about the expected change in the number of banking relationships corporates have, 40% of the corporates in the audience stated that they will decrease the number of banks they work with, 18% said that they will look to increase the number and 16% reported that they expected no change, whereas 28% said the while the number will remain the same, they expect the composition to change.

Speaking from the platform, Nishat Grover, Director, Treasury, Yum! Brands, said that the company had recently renewed its credit facility and reduced the number of banking relationships, as well as changed its composition. About 70% of the banks were the same and 30% had changed, which reflected the company’s growing global footprint. “We conversed with the banks to determine what they are good at, where their interest lies, where they make money and whether there is an overlap of where we can work together,” says Grover. “For example, we are growing very rapidly in China and we now have several Chinese banks in our facility, which is not surprising for us. I think we are going to see the composition change over time as we continue to expand internationally and have relationships with more international banks, rather than US-based domestic banks.”

Bombardier has two credit facilities – the one in Europe for its transport group had recently been extended. According to Hinds, the composition was similar with just slight changes. The company is in the midst of extending its North American letter of credit (LC) facility which will happen at the end of May, and she expects that there might be a decrease in the number of banking relationships.
Grover made the point that there are bank relationships and then there are credit facilities, and although these two are correlated they are not entirely synonymous. “For corporates that are continuing to expand internationally, the number of banking relationships will continue to increase. But how that is translated into group credit facilities depends on the size of the facility , who your key partners are and how many mouths you want to feed,” he explains.

For companies that are cash rich, it makes sense to reduce the number of banks they work with. But if a company is debt heavy and looking to access credit, then it might be difficult to get that done without finding ways to increase the number of banks it works with. There is also the potential to approach non-bank entities for funding needs.

When questioned as to whether they are looking for alternatives to bank financing, 41% of the audience said no, while slightly less (35%) said yes. One member of the audience said that in Latin America where they operate some of the banks charge quite high spreads for the financing that they need, so they look for other corporates that are cash rich and may have trapped cash issues. Therefore this is an opportunity to avoid using banks in this instance, or to explore different ways to use the banks for business in those countries.

The vast majority (86%) of corporates in the room reported that they did not expect to have problems accessing long-term funding in the foreseeable future. In addition, 64% said that they did not expect Basel III or Dodd-Frank regulations to harm their access to funding.

This insight was first published on www.treasurytoday.com