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  • Copenhagen 2019

Treasurers prepare for global disruption, new risks

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Maintaining resilience against a credit downturn, supply chain disruption and threats to business continuity stand out as priorities, treasurers at the EuroFinance International Treasury conference in Copenhagen said.

by Ben Poole & Julian Lewis

Published: 17 October 2019

In a year in which populist outrage against globalisation and fears of slowing growth have dominated headlines, treasurers have sought to build in resilience against such threats while not missing opportunities.

Holding cash may be the obvious defensive strategy going into a downturn but treasurers should accept some risk in order to earn decent returns, pointed out Philip Maton, head of risk at telecommunications conglomerate Liberty Global. “Your instinct is to retrench and maybe invest in just sovereign securities, but then you’re not going to have cash working for you. Find the organisation’s consensus risk tolerance and don’t just go for the lowest common denominator”.

Naomi Holland, Assistant Treasurer, Intel Corporation, Ireland

Delegates in Copenhagen were warned to get ready for supply chain disruption. Some companies are moving operations out of China, for example. The advice from the plenary panel was for treasurers to speak to their suppliers on this subject, as they may feel the early effects of market trends, allowing corporates to have a better picture of what is on the horizon.

Corporate hedging policy and exposure management is also in sharp focus. Hedging policy has to be both robust and flexible enough to manage the ups and downs of the market and also to cope with future shifts in factory or customer location, noted Naomi Holland, assistant treasurer at technology giant Intel.

“Treasurers need to be talking to their colleagues on the trade side about what’s going on with the US, China and Europe to understand what they think might happen and how it might affect the company’s supply chain” she said. “Then you can go back and say what might this do to my hedging programme”. The company currently has $23 billion of FX hedges according to recent filings.

Cuan Duncan, Head of Treasury & Corporate Finance, Al-Futtaim, UAE

While access to financing markets remains a core discipline for treasurers, speakers at the conference framed this in terms of a broader response to a worsening environment, as Cuan Duncan, head of Treasury and Corporate Finance at Dubai-based conglomerate Al-Futtaim, put it.

“Access to credit is only one part of an overall balanced, programmatic defensive positioning that corporates should be looking at putting in place.”

Business continuity

Treasurers highlighted varying approaches to managing bank relationships as part of their business continuity planning. These range from Intel’s use of a single global bank (outside of ‘complex’ local markets) to Prologis’s general requirement to have at least two operational bank providers in each region.

The latter stance reflects the industrial real estate company’s past experience. In 2015, the company had to move no fewer than 1,600 bank accounts within nine months when its cash management bank in Europe decided to exit the business, according to assistant treasurer Regina Ochev.

Regina Ochev, VP, Assistant Treasurer, Prologis, US

In response, Prologis (which like others in its sector operates as many as 2,500 accounts) now seeks to be “bank-agnostic”, Ochev said. “We’re able to work essentially with any bank. It’s very important to manage them efficiently.”

For Intel, Holland said that having the deep relationship with one bank has worked well. “You benefit from having people that are familiar with your business that you can work through challenges, opportunities and improvements with, and a large robust IT infrastructure that you can have confidence will not fall short of your many needs”.

In terms of managing the counterparty risk arising from having just one major banking partner, Intel reviews the financial risk from and effectively consolidating around the bank, and then takes this into account in standard risk management practices. “Additionally, we carry out regular assessments of the bank’s performance as if they are in a competitive environment for our business, which in effect they are” Holland said. “We score them with this lens and communicate accordingly”. She also acknowledged that the evolution of IT infrastructure augments corporate’s capability to switch banks in future.

With business continuity, it is vital to test your internal continuity as well as that of external partners. “We ran a disaster recovery test with a business partner at the weekend and it turned out that they failed to meet expectations per SLA” Holland noted. “It is great we are testing this and have the space and time to now address it”.

Frustrating fraud

Fraud is an increasing concern for treasurers. One new threat highlighted in the session is the risk of would-be fraudsters gaining access to important business processes through third-party providers.

In one striking instance Prologis came very close to fraudsters diverting rent receipts on one lease by inserting themselves into a lease negotiation as the result of a compromised private e-mail account of a third-party broker.

The experience has led the company to impose strict rules on its own communication and to ban private e-mails from third parties.

International Treasury Management in Copenhagen 2019

As Holland put it, fraud and cyber risk management is a must-do, rather than a nice-to-do, for treasurers. Having recently upgraded their core treasury management system. Holland noted that this results in you relying on both third-party providers and internal IT to manage a level of the infrastructure security, so corporates need to choose vendors using a robust risk assessment.

“While we have internal firewalls in place, despite this, humans remain the weakest link” Holland observed. “Get your teams educated to understand and identify rogue approaches. This, combined with processes and procedures, will offer a degree of protection to our business”.

Deepening the talent pool

Several companies cited recruitment as an increasingly key treasury initiative. Treasury’s growing inter-connection with other departments within companies makes broad skill sets ever more valuable.

“The theme across business is that areas of responsibility and the opportunity to influence are expanding for treasurers” Holland noted. “Operating in a treasury silo will not deliver success. Treasury teams need to be IT savvy and commercially savvy to both implement an effective treasury function and add value to the business”.

Ochev highlighted the value of a “diversity of opinions”. Prologis promotes this by offering short job swaps of two to three months within its treasury team.

“It’s not easy, but they are a great investment in your people,” she said, noting that collaboration across regions within treasury is reinforced greatly by team members having experienced their colleagues’ roles.