Cash & Liquidity Management
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Top Priorities for 2010: Maximising the value of your treasury

by Elyse Wiener, Global Head, Liquidity and Investments, Citi, and Ron Chakravarti, Global Liquidity and Investments, Global Transaction Services, Citi

Economic windstorms that have swept through the globe over the past few years show signs of subsiding, although they continue to stir in certain pockets. Swirling market volatilities, vagaries in capital markets access, bank defaults and safeguarding cash buffers have shaped a full agenda for treasurers in 2010. Recent Citi research shed light on seven top treasury management priorities among major corporations as they prepare to seize growth opportunities that are lurking around the corner.

#1 Establishing the right level of liquidity

It’s indisputable and understandable: companies have been hoarding cash. The cash-to-asset ratio for the S&P 1500 hovered around 5% for almost a decade between 1994 and 2003, while in the last five years it hit nearly 10%. By other accounts, US, European and Asian firms collectively hold almost $300bn more in cash on their balance sheets than they did in 2007. As we look forward, strong organic cash generation and liquidity positions will separate the losers from the winners, setting apart firms that are fuelled for growth driven by capital investments and acquisitions.

For treasurers, 2010 is a critical time to get their shops in order. Towards this end, they must:

  • Understand how and where their companies plan to restart their growth engines, so they can plan liquidity levels accordingly.
  • Examine the global dispersion of cash across countries and currencies, and the degree to which associated inflows and outflows are well matched.
  • Optimise internal use of liquidity to fund activities and reduce reliance on external funding.
  • Manage capital planning aggressively, given interest-rate volatility and expected rate increases over the next 12 to 18 months.

#2 Releasing cash trapped in emerging markets

Companies with extensive operations in emerging markets with capital-controls, such as China or Brazil, face continued pressure to get greater value from cash trapped in these markets. While they are more actively managing the repatriation of profits, the best defence is a good offence. Putting in place accurate and efficient forecasting systems helps avert costly missteps such as pumping liquidity into a country where it will get trapped. Active inter-company netting programmes and advanced treasury structures such as re-invoicing centres help restrain the build-up of cash where repatriating funds is a challenge.