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Emerging from the Crisis In this month's executive interview, TMI talk to Shahrokh Moinian of Deutsche Bank about how large corporates have managed their treasury and cash management activities in response to the crisis, how their attitudes towards the bank have changed, and how banks are reacting to new demands from their corporate clients as the banking landscape changes. Additionally, Deutsche Bank's position in this new banking landscape is examined in terms of people, geographies, products, and client experience.

Emerging from the Crisis

How have large corporates managed their treasury and cash management activities in response to the crisis and how have their attitudes changed towards the banks?

The crisis has forced treasurers to seek greater efficiency across a range of their activities. Liquidity has become a rarer commodity and commands a higher price. Many treasurers can no longer access the capital markets easily, and bank financing may be prohibitively expensive. Consequently, treasurers are seeking liquidity from internal sources. This requires greater visibility of cash across the business, and then the ability to use this cash by having the right liquidity management structures in place. To achieve this, treasurers have reviewed their cash pools and degree of centralisation to ensure that these are optimal, and sought enhancements to cash flow forecasting processes.

In addition to financial efficiency, treasurers have also been seeking greater cost efficiency in a variety of areas. For example, there has been a greater focus on centralising financial functions such as payments and collections. Automation of internal processes, internal and external interfaces and transactional capability has become a priority to reduce error, leverage resources more effectively and reduce costs, as well as reducing paper flows. Finally, standardisation has moved from concept to action, including increased adoption of XML-based formats such as ISO 20022 to enable information to be exchanged in a consistent way with multiple banks. Related to this, there is greater interest in communicating with banks through a single channel, such as SWIFT Corporate Access. Finally, as SEPA becomes a reality, particularly since the Payment Services Directive came into force in November 2009, the European payments and cash management landscape is becoming harmonised, leading to greater opportunities for cohesion in corporates’ approach to their domestic and cross-border cash and treasury management in the Eurozone.

It is perhaps surprising that the crisis has accelerated these trends, as projects in financial and process optimisation, technology and banking structures require investment. During constrained economic conditions, the expectation was that companies would reduce expenditure in these areas; in reality, innovative corporate treasurers and CFOs have recognised the cost benefits, and continued to focus on enhanced efficiencies.

We have used the crisis as an opportunity to de-leverage our balance sheet, without reducing our commitment to clients.

For these initiatives to be successful, treasurers have looked to their banking partners for greater support, not only in financing terms, but to provide the products and capabilities they need to facilitate their efficiency objectives. As the crisis emerged, however, it became very apparent that a successful banking relationship requires more than simply products and services. Treasurers became very aware of which banks they could rely upon to support them during the crisis, and which they could not. The issue of credit became two-way: while in the past, banks reviewed their corporate clients’ creditworthiness, today, corporates are equally concerned about the credit quality of banks to whom they entrust their cash.

Consequently, we see many corporate treasurers actively reviewing their banking relationships, with a view to working with a banking partner with the credit quality, long-term stability and strategy to support their business successfully, commitment to a partnership through good times and bad, and products and services to facilitate the company’s financial objectives. While these factors have always been significant, the ‘softer’ factors, including credit standing, reputation and long-term strategy have become a higher priority since the crisis.

How does the banking landscape now appear, and how are banks reacting to new demands from their corporate clients?

Although the banking market has shown signs of recovery, in many ways ahead of the economy as whole, growth is still fragile. Banks that were hit hardest now have a significant government stakeholding, which is resulting in difficulties with formulating a long-term strategy, and there is pressure in some cases to focus on domestic lending. These banks are often seeking to regain independence, but this means compromises such as shrinking the balance sheet or selling off business entities or parts of their geographic network. This creates considerable uncertainty for corporate clients who rely on these banks to support their multinational requirements and to provide the innovation and investment they need to remain competitive.

In contrast, banks that are best positioned to partner multinational corporations are those with the reputation, stability, strategy, product set and geographic reach to match the current needs and future plans of their corporate clients. While cash management has traditionally been an area of the business in which banks could expect longevity in their client relationships, the crisis has changed this significantly. Although it will take time for companies to review, select and implement new banking relationships, this looks certain to be a development in the coming years.

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