The Ever-Changing World of Cash Management
by Robin Page, Chief Executive, Treasury Management International
Our Guide to Cash Management for 2008 deals with some of the most pressing topics that treasurers are currently having to deal with, and reveals a great deal of just how they and their peers are coping with the many and varied pressures which are currently bearing upon them and their - often reduced - staff.
Writing on the subject of money market funds and how they are viewed after the dire events of last August, and the ensuing credit crunch, Alexander de Giorgio and David Rothon of Northern Trust point out that these funds were previously regarded as being “at the safer end of the risk/reward spectrum. But the financial crisis made treasurers question the degree of principal protection inherent in the funds - and not all of them are the same.
The authors give a summary of how the market developed over the last ten years, and explain how the recent dislocation has resulted in a significant divergence between various strategies available. Money market funds are not risk free, they emphasise, and it is vital that investment decisions should be active and fully informed. Treasurers must make the distinction between enhanced and short bond funds as they have a different risk profile from the safer ‘treasury style’ AAA funds. And most importantly, the risk appetite of investors and the objectives of the funds’ strategy should be in line with one another.
The Guide also gives the results of two recent surveys, one by JPMorgan Asset Management in conjunction with the European Associations of Corporate Treasurers (EACT) and one by TMI. JPMorgan had 339 responses from corporate treasurers around the world to their annual Global Cash Management Survey, which are of particular interest because the questioning took place during the summer last year at the start of the difficulties in the credit market. The results not surprisingly show some differences between responses submitted before September, and those completed from September onwards - and JPMorgan point out that greater changes are likely to emerge next year when the impact of the credit crunch have been more fully absorbed. Among the highlights of the Survey are the facts that money market funds remain the most used pooled investments, that bank deposits remain the most common instrument for surplus cash and that the largest proportions of cash holdings are in euros.
Firms need to make up their own minds whether their bank has adequate capabilities not only to support SEPA but its wider payments and connectivity requirements.
Our own TMI survey was on a different theme - we contacted 20 of the top banks operating in Europe to find out what SEPA capabilities banks are currently making available to their corporate customers and what plans they have to develop these in the future. All of them started offering SEPA Credit Transfers on the launch date of January 28 this year, and most do expect to offer the full range of SEPA products in time, with a very few exceptions.
One thing that clearly emerged from the results of the survey was that banks are not quite as ‘SEPA ready’ as we may think - and the banks themselves do not think that their corporate customers are ready either. Ten per cent of banks thought that their corporate clients had made no SEPA preparations at all, while 50 per cent thought that minimum preparations had been made and 40 per cent ‘some preparations’. Our editor Helen Sanders, who masterminded the survey, notes that this is very much in line with what has emerged from our own discussions with corporates. It is also evident that most corporates will not be willing to move to SEPA unless the investment can be “shared with another initiative” such as changing banks, reviewing bank connectivity or embarking on a payments centralisation project. SEPA is still in its early stages, and neither banks nor regulators have all the answers yet - but firms need to make up their own minds whether their bank has adequate capabilities not only to support SEPA but its wider payments and connectivity requirements.
There is a lot to ponder in these pages and we hope that you will find them both useful and illuminating.