The Power of Partnerships

by Christian Behaghel, Head of Global Transaction Banking, and Benoit Desserre, Global Head of Payments and Cash Management, Societe Generale 

With SEPA migration now behind us, treasurers and their banks can focus on other issues that are impacting on cash and treasury management, whether market, regulatory, strategic or operational. One of the most significant questions that our clients want to discuss, not only large corporations but mid-cap and smaller corporations too, is how their banks can support their international strategy. In some cases, this involves expanding into new territories while for others, the priority is to leverage new opportunities in existing countries, such as understanding the implications of changes to capital and FX controls in China. Treasurers rely on their banks to deliver comprehensive cash management solutions and services in new and existing territories. Just as importantly, however, they are seeking high-quality advisory services to understand the treasury implications of their corporate growth strategy and help to devise appropriate organisation models, risk and liquidity structures and financial processes.

Simplify, diversify

Complex and volatile market conditions are inevitably prompting discussion between treasurers and their banks on how to increase simplicity and clarity. The extended period of heightened market volatility together with an unprecedented period of low, and in Europe negative, interest rates, is resulting in company boards rethinking their risk and liquidity policies. Banks such as Societe Generale are responding by offering their wealth of market knowledge as well as tools that help treasurers to manage risk and secure access to liquidity. For example, we are helping clients to unlock the value of balance sheet assets as funding collateral, and promote a flexible and nimble approach in the way that assets are used to benefit the business. Ten years ago, only small companies or those in financial distress would engage in factoring. Today, even the largest and most financial stable corporations are using factoring to diversify their funding sources and harness their financial assets as effectively as possible.

It is not only funding mechanisms, but also funding geographies that are changing. Until recently, treasurers would typically rely on their major domestic market to raise funding, often in a G7 currency, even if this was not the currency of their home market or the currency in which they required funding. Today, treasurers are more inclined to raise finance in the currency of the market in which they are investing, resulting in far more local funding in a wider range of currencies, particularly in Asia.

Partners in international growth

Corporations’ evolving international growth and funding strategies have a considerable impact on their banking choices. On one hand, companies are trying to centralise cash and treasury management into regional or global treasury centres, which typically involves rationalising banking partners. On the other, they do not want to lose access to expertise, solutions, local presence and time- zone support in their key markets.

At the same time, banks are also reviewing their strategy to focus on their core strengths rather than attempting to satisfy every client need in every market. This is resulting in some banks exiting specific markets or business lines, which can create significant issues for clients.

The combination of changing corporate demands and more targeted banking strategies creates a new dynamic in treasurers’ relationships with their banks. Treasurers are rarely looking to appoint a single, global cash management bank, and instead are creating small banking panels of five or six banks that combine the strengths of both global and regional banks. In areas such as corporate finance, global liquidity management and supporting centralised payment and collection factories, global banks such as Societe Generale will typically offer the greatest value. For regional cash management and supporting specific local services, regional banks will typically be more effective with both a depth of local presence and the provision of specialist solutions. In some cases, a bank will offer both regional strengths, such as Societe Generale’s pan-European coverage, together with wider global overlay liquidity structures and financing solutions, and can therefore play a dual role as part of treasurers’ banking strategy.

Managing risk, achieving objectives

A balanced approach to banking relationships rather than concentrating cash management with a single bank helps treasurers to diversify their bank risk and secure access to ‘best in class’ capabilities each market, without compromising on financial or operational efficiency. It also benefits their banks as they can focus their resources and investment more precisely.

However, despite treasurers’ - and their banks’ – best efforts, there are times that a company needs to add or change banking partners either through choice or necessity. In some cases, such as a bank’s termination of services in a particular country or region, M&A or geopolitical or economic events, this may need to happen quickly. Corporate treasury teams have often built up considerable experience in change management with a track record in projects such as SEPA migration, centralisation of cash and treasury management and treasury technology implementations. They cannot do this alone, however, so a growing number of treasurers are relying on banks such as Societe Generale that have demonstrated that they excel in supporting clients in large-scale, business-critical projects.

In situations where a corporation needs to appoint a new bank, or extend its activities with an existing bank, the bank’s commitment and ability to respond promptly and efficiently is essential in minimising risk and disruption. At Societe Generale, we have invested significantly in a structured change management process to welcome new clients on board quickly, and expand services to existing clients. This includes implementation teams dedicated to supporting rapid implementation projects, including relationship support, solutions and technology expertise.

Stability and innovation

Looking ahead, although we see disruption in the market of various sorts, both as a result of technology innovation and emerging market players, cash management is a ‘heavy industry’ requiring significant investment in infrastructure and compliance. Consequently, while there are a growing number of examples of banks exiting the business, the cost of entry (or re-entry) is very high. As a result, we are likely to see a decrease in the number of credible cash management banks, both on a pan-European basis and globally. This will have an impact on corporates’ available choice of banks, and treasurers will also be seeking greater assurance from their banks on their long-term commitment to the markets and business lines in which they support them.[[[PAGE]]]

The nature of customer dialogue with this potentially smaller group of cash management banks is also likely to evolve. Security has always been a key priority for both banks and their corporate clients, for example, but growing cybersecurity and fraud risks have amplified the importance of secure transaction and information flows, and the processes that surround them. Added to this, compliance requirements continue to change and become more onerous, requiring accurate, timely, secure and transparent processes and information. Given the severity and mutuality of these issues, banks and corporates are motivated to work together to find solutions to increase transparency, automate processes and increase trust and auditability. Technology has an important role to play in managing these evolving requirements: for example, bank account management (BAM) is one such initiative where we are working closely with corporate clients. Now that SEPA migration projects are complete, treasurers are able to focus more on innovation and optimisation, so we expect both BAM and other innovations that deliver mutual value to both treasurers and their banks to gain momentum.

The power of partnerships

Changing regulatory, compliance and market pressures, the demands of globalisation and companies’ ongoing focus on cost efficiency are compelling treasurers to rethink and refocus their cash and liquidity management policies and strategies. Companies of all sizes have experienced constraints on liquidity at some stage, whether the internet bubble of 2001 when larger businesses suffered the most, to the 2008-9 global financial crisis when smaller and mid-cap companies were most affected. All treasurers therefore need to anticipate their liquidity and risk needs in the future, as well as optimise their current cash and treasury management activities. Targeted partnerships with banks that offer the best in class expertise and solutions in key markets have a powerful role to play in achieving both short term requirements and longer-term strategies, and equipping treasurers for both planned and unanticipated future changes.