The Expanding Role of Today’s Treasurer in Germany

by Robin Page, Chief Executive

I am delighted to introduce this 2012 edition of A Treasurer’s Guide to Corporate Treasury in Germany - the most industrialised and populated country in Europe. Like the rest of the European Union, Germany has not escaped some of the ravages of the financial crisis, but it is recovering more swiftly than many of its neighbours and the current fortunes of the financial and corporate sectors are of particular interest. The following pages provide an informative and readable mix of articles covering a wide range of topics relevant to corporate treasurers in Europe and beyond.

The Leader article is by Stefan Schneider, Chief International Economist with Deutsche Bank Research, and provides an excellent overview of the German economy today. He notes “a stellar performance” in 2011 when Germany recorded the highest growth among the G7 countries as well as being one of the top performers among all industrialised countries. This Schneider attributes to several factors, notably the benefits of labour market reforms, a fiscal policy of consolidation targeting the social security system in particular, but above all “the active role played by the German corporate sector in the new wave of globalisation, which combined the innovative power of corporate Germany with the cost-saving potential of global value-creation chains.”

Kees Hoving, Head of Trade and Cash Management Corporates, Germany, for Deutsche Bank, considers the changing requirements made of their banks by treasurers as their own remit extends into areas such as working capital, trade and supply chain finance. Treasurers recognise, he says, “that their bank partner must be able to deliver a consistent global message, demonstrate resilience in the face of economic and regulatory uncertainty, and devise and deliver solutions that accommodate both their global objectives and local requirements and constraints”. Quite a tough call, indeed: Hoving considers some of the current priorities amongst corporate treasurers and offers insight into ways the right banking partner can help to address them successfully.

Treasurers in Germany, like their counterparts in other regions of Europe, have a pressing need to optimise liquidity, monitor and manage risk and maximise operational efficiency. However, Andrej Ankerst, Head of Cash Management for Germany with BNP Paribas, notes that while counterparty risk has become a particular issue since the global financial crisis, in many cases the needs of treasurers in Germany are quite different from those in other European countries because of differences in local payment formats, connectivity mechanisms and cultural diversity. His interesting article tackles the question of how they ensure “that they meet their domestic, pan-European and global cash and treasury management requirements” while at the same time avoiding “fragmentation of bank relationships and increasing counterparty risk”. One example of the way the bank is tackling this important subject is its development of successful offerings in the field of bank connectivity, as treasurers look for banking partners to provide a standardised EBICS connection for both domestic and non-German payment files.

Supply chain finance has been a subject well up in the treasury agenda in recent months. Germany has been taking a leading role in global trade since the early 1970s, when it, the US and Japan together accounted for more than a third of the total. By 2010 the picture had shifted radically, with China by then the largest trading partner after the US, and today emerging market countries are accounting for an increasing share of global trade. Christian Nehk of Bank of America Merrill Lynch provides a pertinent analysis of Germany’s place in the mix: it is a top five producer of automobiles and a key player in many other industries, and one of the world’s largest exporters, and thus plays a leading role in Europe. But as he notes, the supply chain in German companies is becoming increasingly global. ”As the market develops and becomes more complex, effective financing solutions are increasingly being seen as vital, not only to individual businesses but to the economy as a whole,” Nehk points out, and he identifies the wide benefits that supply chain financing can offer in a world where the financial crisis has sorely constrained the availability of credit and liquidity has become ever more important to treasury departments and corporate boards.

A snapshot of the use of technology in one of Germany’s major automobile suppliers, ZF Friedrichshafen AG, is provided by the firm’s Head of Cash Management, Christine Schöllhorn. The firm wished to supplement its existing technical infrastructure with a new treasury solution “with embedded electronic banking capabilities with automatic interfaces with all of our systems”. ZF Friedrichshafen has 117 production companies in 26 countries and thus a highly complex and vital relationship with its subsidiaries. Schöllhorn describes how their chosen treasury and risk management system, provided by ecofinance which is now part of Reval, has helped them to streamline their payments processing throughout the group, in tandem with a German electronic banking platform.[[[PAGE]]]

Automating FX dealing to provide enhanced proficiency and control is the subject of a ‘Question and Answer’ dialogue between our Editor, Helen Sanders, and Jochen Hörth of the steel trading firm Coutino & Ferrostaal GmbH, which has operations in 34 countries. Hedging foreign currency risk is an integral part of C&F’s treasury activities, and they needed an automated approach that would enable a high level of STP and systems integration. All FX dealing is carried out in Hamburg, and the nature of the steel trading business means that aligning order-related FX cash flows and hedges can be, as Hörth notes, “challenging”. The firm met the challenges most successfully with the implementation of a dealing platform supplied by 360T, which provides increased efficiency, robust and secure online dealing and an extensive audit trail; C&F now deal more than 90% of their transactions electronically.

Money market funds (MMFs) are another subject of growing interest to treasurers as their use becomes more widely diffused. Mark Stockley of BlackRock describes how one significant effect of the financial crisis was that regulators mandated increasing disclosure to investors and customers over all sectors of the financial markets and the MMF industry was quick to step up to the plate and move towards greater transparency. Firms within the industry have developed analytics tools “that allow investors to combine, analyse and interpret holdings across multiple portfolios,” Stockley says, and he advises that using a high quality analytics tool “in conjunction with an open dialogue with portfolio and credit professionals from fund sponsors” will assist investors to enhance the MMF management practices.

MMFs in China are cited as “an ideal place for your excess cash” by Travis Spence and Dania von Wangenheim of J.P. Morgan Asset Management, who point up the attractions of China as an investment destination for both individual investors and companies opening their portfolios to Asia’s largest economy. China’s money markets have developed significantly in recent years, owing to improvements in the country’s credit rating and regulatory changes. Those doing business there have historically had few options for managing liquidity and excess currency has for a long time been placed in bank deposits, but a key development in recent years has been the introduction of MMFs. The authors give an overview of the market – currently there are 51 MMFs in the Chinese market, with total assets of RMB 126bn – and analyse the success of their own firm’s CIFM RMB MMF which was launched in May 2005 with an AAA- rating from Moody’s and Fitch. This was one of the first institutional/corporate focused liquidity funds in China and the first real alternative to other cash management tools. It has grown substantially since its inception; and, as they point out, as China’s growth is likely to continue, so is the need for investment solutions for the increasing amounts of excess cash on company balance sheets.