Next Peer Group Meetings

We are organizing our next meetings for the European Treasurers' Peer Group (ETPG) scheduled for March and May. The ETPG consists of two separate groups of treasury managers from the world's leading corporates with around 20 participants for each meeting. We usually discuss specific topics such as cash flow forecasting, KPI, bank relationship management and credit risk management. We proud ourselves of developing the treasury profession with each topic we discuss. What else can you expect with so much competence and experience gathered in one place at the same time?

However these times are special and the circumstances change constantly so it is hard to find a specific topic. In our meeting last November we therefore decided to learn from each other and draw conclusions from how the turmoil will affect the treasury profession. Honestly I think that was one of the best sessions we have ever had.

This time we will dig a bit deeper and have a one-day workshop to develop a new Treasury Policy Framework more adaptable to the present market conditions. A new policy framework would need to be more dynamic and receptive to the volatility of the markets, constant changing conditions, and probably include a substantial focus on a cash cushion strategy, just to mention a few parameters.

If you are interested to apply for a membership in any of the ETPG groups, please contact me.

Recommending Treasury Today's "Banking Crisis Special 2008"

A brief note recommending you to read the recent supplement to the Treasury Today named "Banking Crisis Special 2008". Certainly well written with a timeline of events from September 14 to November 4, interviews with a number of market practitioners, a very interesting description of the monetary background of the crisis (by ECR Research) and a good presentation of the events surrounding the Great Depression.

If you do not already have a copy of your own you can order it here.

SLY or LSY?

The most conservative approach to an investment portfolio according to common wisdom is SLY (Security, Liquidity, Yield – in that order). But maybe LSY is more appropriate with the liquidity problems from investing in AAA Money Market Funds without being able to redeem the cash ? I met with a Funds manager the other day and he told me that his bank has developed Funds that ensure high Liquidity with high Security as a given. (I guess the Y is not worth discussing). They have as much as 30% of the Funds liquid at any point in time to be able to pay out even on the same day.

These times are interesting – old perceptions and best practices are challenged every day. In the big perspective we are fortunate to experience and learn from this meltdown.

The Value of Hedge Accounting?

I recently assisted in evaluating a FX exposure strategy. The problem for this corporate was that for different reasons it could not use hedge accounting thus creating PL volatility. The conclusion was that communicating the volatility to stakeholders with the risk of appearing not being in control outweighed the value of the hedge. The corporate therefore decided to stop hedging.

This is not the first time I’ve encountered this phenomena. In one of our peer meetings we surveyed how the peers would choose to manage a risk if hedge accounting could not be applied. A large part actually said that they would not hedge at all (interestingly the US based corporates were in a majority here). So how has hedge accounting increased transparency? I have heard many philosophical reasons defending hedge accounting but cannot see how it has made the accounts more transparent. But I know how much work the corporates had to do to comply and how much efforts they have to remain compliant. And I see risks that remain unhedged. So I still do not see any tangible value for corporates and its stakeholders from hedge accounting. And I don’t see how the transparency has increased.

The problem with financial risk is that it is regarded as something else than a business risk. The board delegates it to treasury to eradicate it. But we treasury professionals do know it is not possible. The only thing you in best case can do is to postpone the effects. And why shall you postpone it if you do not use that time to adjust to the new conditions?

Financial risks, I believe, shall be managed as a separate risk/opportunity in the same way as all other business risks. It is not a good idea for the board to bury and forget it in a hedge policy. A risk is a risk is a risk, manage it!