Treasury Strategy & Transformation
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Six Pillars of Banking Wisdom

Cash Management Strategies in Turbulent Times

by Nick Diamond, Treasury Product Delivery Executive, EMEA

Bank of America Global Product Solutions

With debt capital markets nearly frozen and the global economy sliding into a recession of uncertain magnitude and length, two topics are dominating boardroom agendas: the adequate supply and efficient management of corporate liquidity, and access to sufficient new capital at the lowest possible expense.

Companies with approaching maturities have historically expected that the debt capital markets and their banks would be accessible when the time came to refinance these liabilities. But lending criteria are tightening as banks seek to safeguard their vital replenished capital in the face of an uncertain outlook for many potential borrowers. Bank consolidation is further removing the pool of potential lenders that, in good times, contributed to a ready flow of capital at historically attractive rates. The remaining banks that do have capital to lend are now fixated on achieving market-based pricing. The market for commercial paper, which once provided $1.6 trillion in short-term financing, can no longer be relied upon as a viable funding tool, while bond investors have a reduced appetite for high quality, non-cyclical issuers.

Here are several considerations for companies managing surplus liquidity:

Practice the basics of efficient cash management. Corporate treasurers might have once enjoyed the luxury of leaving credit balances on the accounts of subsidiaries. Now, they should look to centralise surplus cash on a regular basis. Banks have increasingly sophisticated cash management tools that can help corporates consolidate cash under their control. Internal financial restructuring may be necessary, including inter-company lending or dividends. We have also seen a trend among multi-national corporate clients to repatriate all surplus capital back to the corporate headquarters. This is consistent with the heightened strategic importance of maintaining adequate liquidity.