Cash & Liquidity Management

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A New Environment for Cash & Trade In this monthís Executive Interview, Vivek Ramachandran, Head of Cash & Trade at Barclays Corporate, discusses some of the key trends relating to cash, liquidity management and trade in the current climate.

A New Environment for Cash & Trade

An interview with Vivek Ramachandran, Head of Cash & Trade, Barclays Corporate

This month’s Executive Interview features Vivek Ramachandran, Head of Cash & Trade at Barclays Corporate. An important element of the reorganisation within the group has been the creation of Barclays Corporate, with a view to delivering cohesive solutions to corporate customers. In this interview, Vivek discusses some of the key trends relating to cash, liquidity management and trade in the current climate. He joined Barclays in August 2008 to head the Cash and Trade team within Barclays Corporate. Prior to joining Barclays, he held various senior management roles and began his career as a management consultant with Marakon Associates, covering the financial services sector, with clients across Western Europe, Asia and the US.Vivek has a PhD in Economics from Carnegie Mellon University, Pittsburgh, USA, where he both studied and taught.

How is the current crisis in southern Europe affecting treasurers’ approach to cash management?

The past 12-18 months have seen corporate treasurers adopt a ‘back-to-basics’ approach to ensure that the company has sufficient liquidity to continue its activities during the economic downturn. A key lesson from the financial crisis is that corporates need better control of and access to liquidity. In our experience, many treasurers do not know exactly how much cash they have or have difficulty accessing it when they need it.

Large corporates are rethinking how to make best use of their cash, with their search for security, liquidity and yield prompting them to increase the focus on their cash management practices. Given the current market uncertainty, there is a huge premium on security of cash; this is not to say that treasurers are ignoring the potential for earning a return on surplus cash, but security of capital is non-negotiable. This creates a challenge for corporate treasurers, emphasising the importance of making cash management and investment decisions that achieve the right balance of risk and reward. For example, sovereign risk is now a greater issue than in the past, which impacts on the counterparty banks with which a treasurer may choose to hold funds.

We have recently enhanced our range of solutions to provide a range of complement-ary services for our corporate clients.

How would you suggest that treasurers achieve this risk-reward balance?

In reality, there should not need to be a trade-off between risk and reward, if treasurers are committed to relationship banking with a high quality, highly rated bank such as Barclays. Corporate treasurers should not be seeking to invest opportunistically when a higher yield arises; rather, they should be selecting their banking partners and working closely with them to construct a holistic framework for cash management and investment. 

For example, at Barclays Corporate, we have not made our name by offering the highest rates to any potential investor; rather, we establish strong and lasting relationships with our clients that allow us to offer preferential rates linked to customer behaviour. Furthermore, we have recently enhanced our range of solutions to provide a range of complementary services for our corporate clients. One example of this is our Money Transmission Advantage scheme. Corporate treasurers have various cash management dynamics that occur in parallel: they pay transactional costs, they have working capital flows which are often unpredictable, and they may have surplus cash that they wish to invest. By bringing all these dynamics together, we are able to offset transactional costs and pay a return on cash balances. This means that costs are taken out of the P&L, and a competitive return is still achieved even in situations where balances are unpredictable. 

Another example of our relationship-based approach to our clients is our Flexible Interest-Bearing Current Account product. This account not only pays regular interest, but also provides ongoing bonuses for longer-term cash holdings. This arrangement enables treasurers to earn higher rates than investing in a bank of a lower credit quality or subject to greater sovereign risk, without compromising on security or access to liquidity.

A focus on relationship banking and high credit quality are clearly important factors for treasurers when selecting a cash management banking partner, but what other issues should they take into account?

Corporate treasurers have re-evaluated their criteria for awarding cash management business to a bank, which is now more closely linked to banks’ willingness to lend their balance sheets. Beyond this, and the clear preference for banks with a focus on relationship banking, treasurers will have a variety of considerations when deciding to work with a bank: client service, technology, geographic reach etc. and each bank brings its own differentiators. 

To ensure that these needs will be met, a potential bank needs to deliver products that are easy to understand and to implement, with a clear value proposition. These products should not be the result of an intellectual exercise within the bank, but demand-driven according to the needs and priorities of clients. To do this, banks need to have the ability and willingness to understand their customers’ needs, to design and deliver cash management solutions in a way that supports the company during good times and bad.

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