Published: May 01, 2010
Barclays has long been a name synonymous with quality, reliability and customer service. With the recent reorganisation of the business, we have the ability to enhance the services we provide to clients even further, delivering the expertise, products, services and international reach that they require. Alongside key business streams in the Barclays Group including Retail Banking, Barclays Capital and Barclays Wealth, the newly created Barclays Corporate, headed by John Winter, provides the full range of capabilities required by corporates with turnover of more than £5m, including distribution and sales, product management and infrastructure. One of the major product groups within Barclays Corporate is Cash and Trade, which sits alongside other debt, FX, investment and related services. This area now has a broader international remit and we are investing significantly to provide industry-leading services solutions at a global level. In this article, we look at some of the current industry trends we are witnessing and the innovative ways in which Barclays Corporate is supporting our clients’ evolving needs.
Although the financial crisis is now easing for most business sectors, some of the implications have been far-reaching and are likely to affect the markets for some time to come. For example, the problem of availability and cost of financing is encouraging treasurers to optimise the use of cash within the business, leveraging surpluses in some parts of the business to fund deficits in another, reducing the reliance on external financing. With pressure continuing in the wholesale funding market, working capital efficiency and liquidity management remains important for every company. We are supporting our clients in taking an holistic view across debt, cash management and investment to build up an individual picture of their cash needs and how best to optimise their financial position.
Post credit crisis, it is no longer clear how all banks will be able to satisfy their clients’ funding needs in the future. Every bank is going through changing and challenging times. With the regulatory obligation to satisfy new capital requirements and hold a capital liquidity buffer in case of named events, the banking environment in which we are now operating would have been inconceivable two years ago. Although banks will of course comply with new regulatory requirements, they are likely to interpret and implement these in different ways. Significant factors such as how to pay for this increased capital requirement will affect how banks operate and their future offering to customers. In every case, banks will need to find a competitive business model, whilst remaining compliant.
The implications of new regulations are not just limited to financing, but also extend to cash management and investment. The central and traditional tenets of investment: security; liquidity and yield, are principles that have returned to the fore for those in corporate treasuries. Two years ago, security and liquidity were considered less significant than yield. The crisis reversed this to a large degree and in the future, we expect more businesses to take a more balanced view of these factors. Banks that clearly align their liquidity management offering to these principles are those that are best positioned for future growth. When they are out of balance, for example if clients are offered higher yields relative to the tenor, corporate treasurers will increasingly question the credit quality of the bank and look more closely at the balance sheet.
The implications of new regulations are not just limited to financing, but also extend to cash management and investment.
However, treasurers still have the dilemma of how to optimise the return on cash in an extraordinarily low interest rate environment, without compromising on security. Many treasurers used the crisis as an opportunity to enhance their cash flow forecasting processes, so they have greater visibility over the cash flow needs of the business. In many cases, this exercise has shown that they are able to invest some of their cash for longer in order to earn an additional return, whilst remaining wary of tying up cash in inflexible instruments should cash be required unexpectedly. Consequently, Barclays Corporate has launched an innovative product called the Flexible Interest-Bearing Current Account. This account pays regular interest, but also provides ongoing bonuses in arrears for longer-term cash holdings. This arrangement enables treasurers to earn higher rates than investing in a bank of a lower credit quality, without compromising on security or access to liquidity. [[[PAGE]]]
The increased focus on counterparty risk management and the downgrading of banks has meant that banks are now seen as just another creditor, and in some cases, clients will have a higher rating than their bank. Consequently, many treasurers have moved their strategy away from appointing a global cash management bank and are now seeking to spread their credit risk across multiple counterparties, although this is not always easy to achieve in practice. For example, corporates may find it difficult to find a sufficient number of high quality names with which to place their cash. Secondly, as the Single Euro Payments Area (SEPA) and the Payment Services Directive (PSD) are now a reality, treasurers want to achieve cash management efficiency and pan-European cohesion whilst still managing their credit risk appropriately.
The global reach and stronger mandate of Barclays Corporate positions the business both to and inspire market demand, and to deliver a comprehensive range of solutions.
One solution is to implement an overlay banking structure, so that the company benefits from the credit diversification of maintaining multiple banking relationships, whilst still being able to achieve global visibility, control and optimisation of cash. This can involve a wide array of solutions from the simple to the highly complex, and clients need appropriate advice and tailored solutions to meet their global needs. Barclays Corporate has developed its capabilities in this area to become best in class, and we have invested significantly in ways of supporting our clients’ cross-border liquidity management requirements and tailoring our liquidity management solutions to the ways clients’ internal systems and practices work.
Another product innovation that we have enhanced for our sophisticated corporate, third party money manager and non-bank financial institution clients is our Integrated Fund Solution (IFS). Early adopter clients include property managers, law firms, healthcare, government departments, and ISA and WRAP providers. The solution enables these organisations to build their own banking capabilities within their own infrastructure, such as opening and closing accounts, applying bespoke rates of interest and managing payments without the need to use large volumes of real accounts. Companies can set up their own bespoke account structures, and as the solution is closely integrated with both Barclays’ systems and clients’ internal infrastructure, processes such as reconciliation can be highly automated. The process of opening and closing accounts can be time-consuming and resource-intensive, so we have seen rapid take-up of this solution as clients recognise the advantages of automation, integration and enhanced customer service. One client already manages over 60,000 virtual accounts using IFS, which would be a major overhead to manage as external accounts with one or a number of banks. [[[PAGE]]]
The new Barclays Corporate business presents an innovative and strategic banking partner for corporate treasurers seeking to leverage new opportunities for funding, investment and cash management. By leveraging solutions that optimise liquidity, clients are in a better position to maximise yield on their cash, without losing sight of the need to ensure its security. The changing regulatory landscape will mean that banks are likely to encourage longer-term investment to reduce capital costs, with both the bank and investor deriving benefits. In the future, some types of cash will become very valuable. For example, holdings up to six months will require a liquidity buffer and the associated costs are likely to push down returns, so it will be in corporate investors’ interests to invest for a longer term.
At Barclays Corporate, we are helping our clients to recognise the implications of a changing economic and regulatory environment and use these to their advantage. The global reach and stronger mandate of Barclays Corporate positions the business both to respond to and inspire market demand, and to deliver a comprehensive range of solutions. We have an ongoing commitment to being a leading cash management bank not only in the UK and Europe, but across the broader reach of territories in which we have a presence. We recognise, however, that our clients may choose to work with multiple banks to satisfy their counterparty risk and treasury policy requirements, so we will continue to invest in our services and technology platforms to support our clients’ multi-banking requirements.
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