Cash Management: What Lehman Brothers Wrought

by Cesar Bacani, 30 August 2011

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topics:
Cash and Liquidity Management Treasury Management

tags:
cash management global treasury centre regional treasury centre treasury management treasury management system

When the venerable Lehman Brothers imploded in 2008, the unthinkable event sent shock waves to corporate treasuries everywhere. Suddenly, the trend of companies moving towards using one single global banking provider for cash and treasury management was stopped in its tracks.

“Now the trend is very much around one provider per region,” says Victor Penna, Head of Regional Solutions & Advisory Team, Asia Pacific, at J.P.Morgan Treasury Services. “I would say, in 80-85% of cases, treasurers are awarding their business to different banks in each region.”

In Part 1 of an interview he did with CFO Innovation’s Cesar Bacani, Penna outlines the post-crisis cash and treasury landscape in Asia, the impact on cash visibility and the dynamics between global and regional treasury centres, and other issues. Excerpts:

What are the trends in Asia that you are seeing in terms of the way treasurers are buying transactional banking services?

At a global level, treasurers are looking to diversify their counterparty risk. The way that’s actually expressing itself in the market is that they are tending to bundle their banking by region.

In the past, the trend was moving towards one single global provider. Now the trend is very much around one provider per region. I would say, in 80-85% of cases, treasurers are awarding their business to different banks in each region.

So they’ll use one bank for Asia, a different bank for Europe, a different bank for North America, and another bank in the Middle East, depending on how many regions they deal with.

Because if Lehman Brothers can fail . . .

That’s right. There were some companies that were with one bank and they felt very exposed [during the global financial crisis].

A smaller number of treasurers are actually breaking it up further, saying, ‘I’ll have different payments and receivables banks, or I might even use multiple banks within one region.’ But that’s less common. The most common model is really one bank per region.

That raises the question of inter-operability and visibility of cash positions. Is SWIFT for corporates the answer?

I think SWIFT for corporates is playing a role in the market, but it is probably most strong among the European corporates. Some of them use many banks around the world and they use SWIFT for corporates as their single pipe. What SWIFT for corporates gives them is a very efficient way of transacting on accounts, and getting account data for many banks.

But the more predominant model is that corporate treasurers will use one bank per region, and they’ll have one host-to-host link in Asia, for example, another host-to-host link in North America, another one in Europe. Those host-to-host links would tend to be proprietary links with each bank.

So how do treasurers get a global view of all the company’s bank accounts if each region is serviced by a separate bank?

It’s more important that the regional treasury center has the view around that region. If you’re using one bank in the region, the regional treasurer can see everything happening in that region.

The way companies construct the global view is through the treasury management system. It doesn’t matter that they’re using three or four different host-to-host links because all those links are feeding data into the same global treasury management system. The treasury management system is what’s giving them a global view through the data that each host-to-host link is feeding into the treasury management system.

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