Treasury Today Webinar - Managing the All Mighty Greenback

MANAGING THE ALL
MIGHTY GREENBACK:
OPTIMIZING YOUR US DOLLAR CASH FLOWS GLOBALLY
WEDNESDAY, JANUARY 18, 2017
11:00 EST / 16:00 GMT / 17:00 CET
TREASURY TODAY

2
AGENDA
WELCOME REMARKS & INTRODUCTION1
TREASURY CONSIDERATIONS FOR
OPTIMIZING USD
 Centralized Structures
 Decentralized Structures
3
USD – THE GLOBAL FUNCTIONAL CURRENCY…
THE YIELD GENERATING CURRENCY
2

WELCOME REMARKS
& INTRODUCTION
1
3
Walid T. Shuman
Head of Cash Management Americas,
Corporate & Institutional Banking

USD is the most dominant global currency
4
52%
3YEARS
80%
International
Trade [Value]
International
Flows [Volume]
Inter-Regional
Flows
78%
Americas to
Europe
92%
Europe to
Americas
49%
Continues to increase over the past
2.5Trillion in
USD*
US + European Corporates Holding
Worldwide Currency Usage and Trends, SWIFT, Dec. 2015
*Capital Economics Sept. 2016

Global importance of USD
5
Why is USD important
 Key currency for global trade
 Key industries trade in USD
globally (e.g. energy, aviation,
commodities)
 Relative stability (reference
currency in emerging markets)
 Banking infrastructure
 Control
 Visibility
 Time zones
 Regulations
 Cost/efficiency
Key challenges

Determining the best approach
6
What are your key drivers
 Cash position (positive or
negative)
 Cost/profitability
 Technology
 Supply chain
 Risk management
 Global treasury infrastructure:
– Decentralized, regionalized,
centralized
– Where is working capital
managed?
– Do you have visibility into your
global cash flows?
 Global vendors – geography
 Legal and tax infrastructure.
Which entities and where?
 Liquidity Management and
Investment strategy
Key considerations

To manage USD efficiently; you need a comprehensive review across all
3 layers of cash management
3 layers of cash management
7
3. Yield Optimization of
Cash Use
• Investment options
• Short-term borrowing
Cash/Yield Optimization
3
Geographic / Currency scope
Cashflow
2. Concentration of
Cash Balances
• Cash Pooling
• Visibility
• Control
Liquidity Management
2
1. Managing Payments
& Collections
• Accounts
• Connectivity
• Transaction processing
Transaction Management
1

What are best practices for establishing USD cash management
structures worldwide?
3 key questions to answer
8
1
What opportunities and benefits can be gained by managing USD
more efficiently?2
Are centralized Treasury structures or decentralized structures better
for increasing investment returns on USD?3

USD – THE GLOBAL
FUNCTIONAL CURRENCY…
THE YIELD GENERATING
CURRENCY
2
9
James Santoro
Head of Liquidity & Investment
Advisory Americas, Corporate &
Institutional Banking

 Centralized structures – seek out consolidating operations as well as institutions
seeking funding
 Decentralized structures – seek out global banks rewarding ‘global’ activity, irrespective of
where cash resides
 Standard principles apply – operational cash is king, forecasting is key, funding needs
help drive price
Centralized vs. Decentralized – many ways to optimize cash
10
3 Pillars of Liquidity
LIQUIDITY
• Payment need will determine
‘liquidity’ requirements.
• Working capital needs require
products offering daily liquidity.
• Reserve/strategic cash can seek
yield in longer tenor options.
YIELD
• Opportunity for yield with every
liquidity product.
• Often not primary ‘driver’ of
investment decisions with
‘Treasury’ cash, but still extremely
important.
• Has to be compelling enough to
compensate for ‘switching’ costs.
RISK
• Principal preservation is often
cited as primary concern
(validated in IPS).
• Treasury cash is for working
capital needs/shareholders, not
generating investment returns.
• Demonstrating soundness of
principal requires ‘right’ product
and provider.

Regulation: Basel III focus for banks
11
Counterparty Runoff Rates
Operational Corporate Deposits 25%
Non-operational Corporate Deposits 40%
Financial Institutions 100%
Liquidity Coverage Ratio (LCR)
LCR =
Stock of High Quality Liquid Assets
Net Cash Outflows Over a 30-Day Period
≥ 100%
 Liquid assets requirement to offset 30-day loss of funding.
 Each dollar of run-off requires dollar of liquid asset buffer.
 Deposit types with lower runoff equates to more value.
Net Stable Funding Ratio (NSFR)
1-year ratio requirement designed to improve longer term funding. Deposits
assumed to run off during a one-year stress environment that do not provide
stable funding are required to be held liquid, rather than, deployed against
longer-term assets requiring more stable funding.
 Stable funding requirement over 1-year period.
 Equity and liability (deposit) financing viewed as stable.
 Required amount depends on nature of risky assets.
 Ratio likely to undergo some revisions prior to 2018.
30-day ratio requirement designed to ensure that sufficient high-quality
liquidity exists to manage through an acute stress scenario (e.g., 3-notch
downgrade, partial loss of deposits, etc.) lasting one month.
Laws and
regulations
created and
implemented.
Introduction of
the Net Stable
Funding Ratio.
Basel III fully
implemented.
Tier 1 capital will
take into full effect
on January 2015.
Introduction and
required 60%
LCR.
Corporate
Demand Deposit
Accounts
LCR NFB
Economic
Value
Product Type Maturity
HIGH
MEDIUM
HIGH
MEDIUM
LOW
HIGH
MEDIUM
HIGH
MEDIUM
LOW
HIGH
MEDIUM
MEDIUM
MEDIUM
MEDIUM
Operational
Non
Operational
Beyond 2 months
Between 1 and
2 months
Up to 1 month
Corporate
Term
Deposits
Value to BNP Paribas
The key implication for bank customers is that the Basel III
Liquidity standards will have an overarching impact on how banks
value and provide return on client liquidity.
NSFR =
Available Amount of Stable Funding
Required Amount of Stable Funding
≥ 100%

Which products do banks value highest?
The ability to provide banks with additional transactions or the ability to place funds
‘out along the curve’ will translate into the highest yields.
Banks – not all liquidity is valued equally
12
Time Deposits
(TDs) > 30 Days
Tenor Linked
Stable Non-transactional
Demand Accounts
TDs < 30 Days
Off Balance
Sheet - MMF
DecreasingValuetoBanks
Increasing Ability to Realize Higher Yields
Transactional
Demand Accounts

 Operational flows – increased consolidation/transactions improve position
 Bank funding needs – it pays to shop around
 Forecasting can be key – >30 days yields ‘outsized’ returns
Centralized Treasury – liquidity solutions opportunities
13
Operating Flows – Consolidate/Increase Transactions
Forecasting for Yield
Banking 101 – Liabilities Funding Assets
• ECR – Should I be paying bank fees?
• IB DDA – Reg Q ancient history
• Hybrid – Best of both worlds
• IB DDA/MMDAs – Yield still exists where need
• Structured IB DDAs/MMDAs – ST need/LT gain
• Notice/Evergreen Deposits – Call when needed
• TDs – The longer the better
• CDs – Secondary market backstop
• Other Fixed Income/Private Funds – Hold to maturity endeavor
1
3
2

Solutions example – ‘structured’ demand account
14
$
Daily
X%
Monthly
+Y%
+Z%
Quarterly
X% + Y% + Z%
Total
Min MaxLiquidity
Yield
Security
O/N 6mL
Low High
Maintains daily liquidity available for immediate withdrawal with no “penalty.”
Core+ DDA pays additional yield monthly provided average deposit targets are met.
Core+ DDA pays additional yield quarterly provided stable deposits.
Core+ DDA pays interest on daily balances
just like an IB DDA, but offers the opportunity
to receive ‘add-on’ yield provided monthly
and quarterly average deposit thresholds are
met. Average thresholds are negotiable
depending upon expected levels and stability
of funds.

Decentralized Treasury – liquidity solutions opportunities
15
 Operational flows still rule – global opportunities and yield ‘leverage’
 Global view of funding – whole equals sum of the parts
 Centralized products still apply – dialogue helps uncover best opportunities
depending on need
Operating Flows – Consolidate/Increase Transactions
• Global ECR – Global balance benefit on fee offset
• Remunerated Current Accounts – Do transactions warrant yield concessions?
1
Regional Preferences Dialogue
• Bank Deposit Products – What currency/region is preferred?
• Other Fixed Income – Does where incorporated create opportunity?
3
Global View of Excess/Trapped Cash
• Global Balance Aggregating – More is usually better
• Multiple Currencies Considerations – JPY + USD
2

 In establishing a Decentralized Treasury function, the ability to aggregate funds notionally
across the globe can provide an investment advantage.
 Certain products and bank funding needs enable Treasurers to receive greater
remuneration by notionally aggregating funds
Solutions example – global balances
16
USD20MM
USD10MM
USD30MM
USD5MM
USD15MM
USD80MM

TREASURY CONSIDERATIONS
FOR OPTIMIZING USD
STRUCTURES
3
17
Jan Rottiers
Head of Liquidity Management
Products & Projects

Liquidity centralization
18
Enablers of Centralization
 Physical Cash Pool allowing regional
or global centralization of group
liquidity to a designated master
account
 In-House Bank cash concentration,
an in-house alternative to bank
sweeping services
 Notional cash pool overlay structure
(if legally possible), allowing negative
and positive group’s balances
offsetting
 Payment factory leveraging
PoBo/RoBo schemes
 A combination of the solutions above
 Reduce borrowing costs
 Maximize opportunity for investment
 Improve control over cash
 Increase real availability of cash
 Eliminate interest spread paid
to banks
 Centralize FX risk management
Benefits

Centralization is not a goal in itself
19
Enablers of Decentralization
 Channels/connectivity delivering
real time information over cash
positions across regions and banks
 Harmonized reporting
 Local physical cash pooling
 Domestic or cross boarder notional
cash pooling allowing interest
optimization
 Ability to make local payments
quickly/seamlessly
 Possibility to match a decentralized
treasury model at customer’s side,
leaving required autonomy to the
subsidiaries
Benefits

Influencing factors:
 Currency and location of transaction flows
 Company structure
 Strategic planning
 Functional versus non-functional currency
…and, a more general point of discussion: proactive FX currency exposure
management or automated multiple currency pooling solutions?
USD balances management
20

CENTRALIZED MODEL
Global USD structures
21
REGIONAL MODEL
Americas (New York)
USD Master
Account
EMEA (London)
USD, GBP, CHF
Master Accounts
Entity 1 Entity 2 Entity 3
ZBA(s)
APAC (Singapore)
USD, HKD, SGD
Master Accounts
ZBA(s)
ZBA
Entity 1 Entity 2 Entity 3 Entity 4 Entity 5
New York
USD Master
Account
ZBA
Considerations:
 USD denominated industry
 High value/low volume
 Time sensitive transactions
Benefits:
 Centralized liquidity
 Lower cost & better cut-offs
 Ease of management
Considerations:
 USD functional
currency
 Transactions flows in
USD as well as in local
currencies across over
70 countries globally
Benefits:
 Global view/control on cash and
system harmonization
 Multiple currency balances
management via notional cash pool
 Optimized yield on USD excess
cash investments in USA

In conclusion – 3 key questions answered
22
What are best practices for establishing USD cash management
structures worldwide?1
What opportunities and benefits can be gained by managing USD
more efficiently?2
Are centralized Treasury structures or decentralized structures better
for increasing investment returns on USD?3
 Degree of centralization
 Key drivers and considerations
 Cost/Benefit
 Optimize yield
 Cost efficiencies
 Working capital
 Non-economic benefits
 Opportunities exist, irrespective of structure
 Decentralized structure - products that enable ‘aggregating’ cash
 Centralized structure - products/providers that value incremental cash

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