Strategic Treasury

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Liquidity Management Plotting Progress in a Turbulent Market This article is based on findings from Treasury Strategies’ 2008 Global Corporate Treasury Research Program. It reveals how, in response to financial instability, treasurers in North America, Europe and Asia are rebalancing their cash portfolios and restructuring their banking relationships, with the intention of relying more heavily in future on banking providers. Europe and North America are also increasingly turning to technological solutions, while in Asia the focus is on business development. The author examines the implications of the research findings for the providers of services: in brief, “deliver enhanced banking solutions that optimise liquidity and manage risk”.

Liquidity Management - Plotting Progress in a Turbulent Market

by Chrystal Pozin, Principal, Treasury Strategies

The global credit crunch has forced companies to rebalance their liquidity portfolios and reevaluate cash management processes and providers. Corporate treasurers are reducing credit exposures in their cash portfolios and reviewing and enhancing processes to ‘bullet-proof’ treasury operations so that they can safeguard every dollar that flows through the financial value chain. By strengthening controls, treasurers will also ensure that they can continue to focus on emerging strategic responsibilities and not be distracted by ‘the crisis of the week’.

Going forward, treasurers note that they will be further balancing their portfolio, presenting opportunities and threats to financial services providers.

As corporations look to automate and strengthen basic liquidity functions and focus on opportunities to create value, banks have unprecedented opportunities to deepen relationships. Banks are assuming a greater role in helping companies consolidate, monitor and invest liquidity through new information services and enhanced sweep and investment offerings. By helping their treasury clients automate and safeguard liquidity activities, banks are laying a foundation to support the development and delivery of the next generation of treasury service products that meet the emerging strategic needs of corporate treasurers.

Throughout this article we have drawn upon findings gathered from Treasury Strategies’ 2008 Global Corporate Treasury Research Program. This research is undertaken to help our corporate treasurer and financial services provider clients understand key market trends. Our corporate treasury clients use the insights from this to optimise their treasury functions and stay abreast of key market issues. Our financial services clients leverage the research to understand and respond to the needs of corporate treasurers and the dynamics of the market. The 2008 Global Corporate Treasury Research Program surveys over 970 senior corporate treasury leaders in North America, Europe and, for the first time this year, the Asia-Pacific region.

Liquidity - the flight to quality

In our research, we’ve seen that treasurers have not only rebalanced their portfolios in response to market conditions, but that they have also continued to develop their internal liquidity practices to better monitor, aggregate and manage liquidity. Going forward, treasurers note that they will be further rebalancing their portfolio, presenting opportunities and threats to financial services providers.

The composition of cash portfolios varies widely by region and is driven by differences in regulatory environments and traditional market practices. While bank deposits dominate Asia and some countries in the European market, direct instruments are the most popular category of short-term investment instruments in North America.

Corporations in the Asia-Pacific region proportionally invest the greatest amount in bank deposits, reflecting strong relationships with their banks, less developed secondary markets for fixed income instruments, and the lack of penetration in money market funds.

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