Published: January 01, 2000
If we accept the premise that there is no going back – that the role of global treasury was forever changed by the financial crisis, then it isn’t a big leap to recognise that the way we used to do things may no longer be the way we should be doing things. ‘One-dimensional banking’ – or the reliance on individual products to address specific needs – may have worked even three short years ago, but today, it feels a bit like mailing a paper letter to convey time-sensitive information. Why would you do it?
What’s behind this new imperative? Time – or rather, the lack of time – which pushes a treasurer to have more solid solutions and bank relationships in place.
Today's treasurer needs access to a wealth of expertise that isn't limited to a single individual or source.
Treasury’s ability to rely on the luxury of lead time to adjust to the implications of an emerging risk, or to react to a new opportunity or expanding market is gone – probably forever. Responding in the little time allotted isn’t helped by the existence of siloed operating components, or disconnected expertise. Today’s treasurer needs solutions that are interconnected and deliver specific capability – but without excessive hard wiring – so they can be modified, added onto, or replaced quickly to respond to a new imperative – without upsetting the operation of the greater whole. Just as important, today’s treasurer needs access to a wealth of expertise that isn’t limited to a single individual or source. They can’t be shopping around for that expertise when it’s needed. They need a speed dial. And they need expertise that is based on a deep knowledge of the company itself – its strengths, limitations, goals and objectives. What today’s treasurer needs is access to a full scale consultancy practice – so that regardless of the actual immediate need they can get at it with one phone call.
Perhaps what used to work may still be adequate for smaller, single-region companies. But for a global enterprise, with diverse operations, and even more diverse aspirations, we say, out with the old, in with the new!
To keep pace with the pressure to fuel corporate growth and protect corporate assets, treasurers need to ‘leverage the interdependencies’ in a way that would not be possible if they had to manage via disconnected solutions. Take, for example, that transaction banking typically focuses on the task of optimising the collection and payment of funds, while making the most efficient use of excess cash.
Maximising the efficiency and accuracy of repetitive payment and collection transactions can generate impressive savings, but looking at this through the lens of a truly integrated treasury model can yield much greater benefits. In that scenario, transaction banking can become the vehicle for gaining access to cash, which in turn can lead to a host of more powerful and long-lasting benefits, such as faster debt reduction, improved risk management and stricter adherence to treasury and risk policies. The benefits are obvious. The question is – how does a company achieve this level of integrated management quickly?
A truly integrated bank model – one that has expertise and talent across multiple business lines – can be invaluable in helping to navigate the financial landscape. In many respects such a banking provider has become a necessity in this era of globalisation. What is clear is that key banking providers need to have a full service offering. However, simply offering a long list of products is not always the answer. A banking provider needs to understand the client need, and have the ability to tailor solutions appropriately. This is best achieved with an appropriately constructed coverage model, but it takes a lot to get it right.
The tide has turned as banks search for new ways to better respond to the changing needs of global treasury functions. Most corporations now realise that post-crisis, priorities have changed. What is now required is an integrated solution that mirrors the geographical footprint of a company, blending a mix of local knowledge with global know-how, and accessible via a single interface.
The optimal integrated bank operating model begins with an integrated approach to investment and corporate banking – integrated from coverage through deployment of solutions. Having the capabilities to deliver a broad array of top tier financing and advisory solutions opens the door to a wider range of powerful operational benefits (e.g., in transaction banking). Such an holistic approach, where the bank can truly provide for the client and seamlessly deliver a range of integrated solutions, helps overcome and anticipate challenges.
With a broad geographic reach, Diageo is an example of a corporation that has a number of banking requirements across the globe where the value of a solutions driven approach can be helpful. “Sure, there are many ways in which banks can suggest single solutions or help us address specific transaction-based challenges,” confirms Alberto Ibeas, assistant treasurer at Diageo Plc, the world’s leading premium beverage company. “But we look for support from our banking providers on a global basis and across multiple areas. In this respect, we appreciate the integrated, seamless and efficient approach that Bank of America Merrill Lynch takes. The difference is not only the capabilities, but also the coordinated global client coverage.” [[[PAGE]]]
As the bank-client relationship grows, there are ways that a provider bank with an end-to-end coverage model can help with broader corporate strategic objectives. The Diageo story is an excellent example. Diageo selected for this joint venture one of its relationship banks and made the selection based on our bank’s history of providing services across a number of areas within investment banking and capital markets, as well as significant treasury management services and solutions delivered throughout Europe. The value-added proposition of such a bank-client relationship is evidenced in the ability to tap into the bank’s institutional knowledge base to help solve a wider array of problems using a combination of products offered by the bank.
A banking provider needs to understand the client need, and have the ability to tailor solutions appropriately.
In this case, Diageo had a specific focus on global cash visibility and mobilisation. Based on best practices learned through our global experience, we helped the client analyse many of the key challenges it faced. Some of the solutions and process improvements implemented have helped Diageo better understand, manage and optimise its daily cash positions. In addition, we were able to help Diageo gain a better handle on its counterparty risk exposure and take the necessary steps to mitigate that risk.
The end-to-end coverage model, as a result, leveraged in this scenario facilitated the comprehensive review of Diageo’s global structures and processes. The banking team assembled to work with Diageo spanned product lines including the lead corporate banker and treasury management experts as working capital and business process improvement consultants.
“The fact that Bank of America Merrill Lynch is involved in so many areas of our business gave them a deep understanding of our broader strategic objectives,” explains Alberto Ibeas. “Beyond that, the ability to bring in expertise from so many different areas was illustrated by the solutions they were able to craft specifically for our situation and fit our needs.”
How else does this dual coverage model potentially extend benefits in the real world? If a company wants to ensure that it is optimising its free cash flow generation – and who doesn’t in this credit-restricted environment? – a bank that has a broad platform can look at a wider variety of potential solutions. These solutions might include improving working capital and cash management techniques.
Looking at this through the lens of the integrated banking model, transaction banking becomes the vehicle for gaining greater visibility and access to cash, to optimise paying down debt, and for reducing the overall cost to the company.
Such was the case, recently, when Diageo completed a sale-leaseback deal on its vineyards and facilities in Northern California. Bank of America Merrill Lynch played an important role in helping execute the transaction, valued at more than $250m. The transaction was strategic in nature, and it is estimated that the benefit to free cash flow was approximately $200m for the fiscal year ended June 30 2010. The transaction should also improve the return on invested capital for Diageo’s wine business.
This not only exemplifies the unique and extensive client-bank relationship between Diageo and its bank provider, Bank of America Merrill Lynch, but it also illustrates the power of the integrated bank model. [[[PAGE]]]
Any silo-operated bank that does not have the ability to offer a broad enough range of products and services will naturally limit the depth of the bank-client relationship. In turn, that will also limit the potential benefits that a client can leverage from its bank.
But it’s not just about having the broad service offerings. It’s also about having the talent and technical expertise, not only across both corporate and investment banking, but also on the ground in local markets. And most importantly, it’s about being able to structure and deliver coordinated solutions, recognising which services make sense, and delivering those in a manner that advance the client’s strategic initiatives.
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
