Treasurers from leading F500 companies and executives from top banks gathered at the Harvard Club in New York to discuss how treasurers are leveraging new market developments to improve treasury operations.

Moderated By Joseph Giarraputo

Global Finance: A key role of the treasurer has always been managing risk. How has your focus on counterparty risk developed in the face of regulatory and market changes?

John Tus, vice president and treasurer, Honeywell International: For us the primary focus is on our investment area, where we have very conservative policies. For particular banks we’ll look at a number of different metrics, including credit default swaps, stress test results and credit ratings. We also consider the risks in countries where deposits may not be protected by government guarantees in the event of a bank default.

Ashok Madhavan, vice president and treasurer, Campbell Soup: The primary tool we use is the credit rating. We all know that’s a very dated measure, as we saw in 2009—but it’s the best we have. I don’t have a huge staff to do a deep analysis of every bank’s balance sheet, so we rely on published credit ratings and keep abreast of any changes. Ultimately, our best tool is ensuring that our mark-to-market position with a counterparty is always controlled within acceptable limits.

Stefan James, managing director, head of corporate banking coverage, North America, Deutsche Bank: Banks are in the counterparty risk assessment business, so that’s our strong suit. We want to help treasury teams think about alternative means of deploying liquidity that allows them to remain within their risk protocols.

Our job is to communicate clearly how we operate in various jurisdictions around the world and explain to treasurers what they can expect of their key financial counterparties so they can build out their capabilities appropriately.

Banks can provide access to data for corporates, giving visibility into cash across their footprints and contributing to analytical work across multiple financial partners and operations.

Michael Berkowitz, managing director, Treasury and Trade Solutions, Citi: Twenty years ago, companies primarily looked at the major credit ratings when evaluating fixed-income counterparties. Now they utilize a whole range of different measurements, which can include credit default swap spreads and profitability. They are also looking at things like capital ratios, which are now available under the new regulations.

GF: Moving on to geopolitical risks, how are corporate treasurers planning around this type of risk, and how are banks working on this topic with corporate clients?

Tus: We think about the implications for us with respect to our business in a particular country. We also look at our exposure from the standpoint of our net investment in the country. We ask what cash we have in the country and how able we are to dividend or lend that cash out of the country at short notice. In addition we look at currency implications: Is cash being held in the local currency or in US dollars?

I would add that in business you are focused on driving growth that may be challenging, given the country you are in. Many countries that have gone through war, significant economic and political instability including regime change, ultimately are in a state of rebuilding. So there may be opportunities for infrastructure companies to build roads, bridges, airports, buildings or power plants.

Madhavan: For us, geopolitical risks are more about trapped cash than political stability. We are more focused on entities that have nonconvertible currencies or trapped cash that we are not able to access. Then it becomes a question of moving that cash out of the country and converting it to a hard currency.

James: Banks have seen an increasing focus by treasury teams on how they are capitalizing and funding their subsidiaries in problematic areas of the world. Increasingly they are looking at how to fund operating entities locally, with trapped liquidity and the convertibility of currency being the driving force.

Berkowitz: As a global bank, we have an on-the-ground presence in a number of developed and developing markets, including, for example, Russia, Ukraine and many of the Middle Eastern countries. We have established risk councils in the problem areas and are spending a lot of time advising clients how to minimize idle cash balances.

Treasuries are also increasingly using multibank target balancing structures to move cash out of various countries and into regional treasury centers, using visibility tools to know exactly what they have in each of those countries.


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