Cash & Liquidity Management

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Basel III: The Start of a New Era in Corporate Cash Management? Senior treasurers from three leading corporations with treasury centres in the Netherlands discuss the impact that Basel III has had on their treasury activities to date, and how they envisage these activities may be affected in the future.

Basel III: The Start of a New Era in Corporate Cash Management?

A corporate panel discussion hosted by Citi and moderated by TMI

One of the most significant and far-reaching regulatory developments over the past decade has been the introduction of Basel III. Basel III is a regulatory framework that aims to increase resilience in the banking system by strengthening banks’ capital requirements, reducing market liquidity risk, and improving the ability of banks to weather sustained periods of market stress. Banks are now in the process of implementing the new requirements, with an end date of 2019 for most banks, although some are set to complete their implementation before this date. The impact of Basel III is not restricted to banks, however, as their clients will also be affected by changes in their banks’ operating model, capital and liquidity requirements.

In this feature, inspired by a seminar hosted by Citi in association with the Dutch Association of Corporate Treasurers (DACT) in November 2015, senior treasurers from three leading corporations with treasury centres in the Netherlands discuss the impact that Basel III has had on their treasury activities to date, and how they envisage that these may be affected in the future.

Panel

    • Joris Janssen - Treasury Operations Manager EMEA, Mars Nederland B.V.
    • Bob de Vos - Director Treasury, Nielsen
    • Julia Rust - Senior Treasury Analyst, VimpelCom
    • Dimitrios Raptis - EMEA Core Cash Market Management Head, Treasury and Trade Solutions, Citi
    • Peter Cunningham - EMEA Consumer & Healthcare Sector Head, Treasury and Trade Solutions, Citi

    • Moderator - Helen Sanders, Editor, TMI

Sanders, TMI - How do you manage your operational flows today, and how has this been affected by your banks’ need to comply with Basel III and the liquidity coverage ratio (LCR) so far?

Joris Janssen Janssen, Mars
We have a multi-currency notional pool (MCNP) with Citi across around 25 currencies globally. Physical accounts zero balance into header accounts which are then included in the MCNP, which operates on a ‘follow the sun’ basis. As Mars is a US-headquartered company, the MCNP header account is linked into our US cash pool so that funds are available to our headquarters. Our MCNP has proved a highly convenient way of using excess liquidity to fund the business without having to exchange foreign currency balances. We reduce local foreign currency exposures by short-term lending to group companies in their home currency, and centralise exposures at our headquarters where they can be managed at a group level.

de Vos, Nielsen
So far, Basel III has not had an impact on the way that we manage our operational flows; however, we are now hearing more about the potential implications from banks and the wider market, although this is not always consistent.

Julia Rust Rust, VimpelCom
We have a decentralised business organisation, where local treasuries have a relatively high degree of autonomy, particularly as they are located in countries with challenging regulatory characteristics. It is not possible to use cross-border pooling to upstream cash to our headquarters in most countries in which we operate. Instead, we upstream our cash using dividends and intercompany loans, with the aim of minimising our local operational cash buffer. We have a notional pool at our headquarters in the Netherlands to manage operational flows more efficiently among multiple legal entities. So far, Basel III hasn’t had an impact on our notional cash pool and our house bank has assured us that they will continue offering the product to VimpelCom.

Raptis, Citi
We are in the middle of industry-wide adoption of Basel III, in particular the LCR; there are implications for both banks and their corporate clients as banks change the way they fund their balance sheets and their operating model. Some notional pooling structures are likely to be affected, as pooling providers may find it difficult to net pooling balances, and their capital costs will increase. For example, notional pooling structures that do not have full documentation in place between participating entities will need to be formalised with intercompany guarantees etc. Certain models that capture non-LCR friendly balances may also need to be repriced.

Peter Cunningham Cunningham, Citi
One of the challenges for treasurers is that regulations are pulling in different directions: under Basel III, for example, it is easier to maintain notional pooling where accounts are held by a single entity; however, new tax rules such as Base Erosion and Profit Shifting (BEPS) encourage the use of notional structures. In this situation, it is difficult to determine how best to ‘future proof’ treasury.

In the event that new bank liquidity obligations result in changes to existing methods for managing operational flows, what alternatives are you planning?

Janssen, Mars
Despite the ‘noise’ in the market, our understanding is that Basel III will not impact on our MCNP, and as such, we don’t have a defined ‘plan B’. We have engaged with Citi to discuss the potential future environment and the implications for our MCNP, and as accounts are held by a single entity, we are unlikely to experience an impact in the short term. If necessary, we could revert to swapping foreign currencies back to our functional currencies of EUR and USD as we did before implementing the MCNP, but the onus is really on the banks to propose alternatives to MCNP in situations where these are no longer feasible.

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