Alternative Treasury Solutions to support Commercial Operations

It is principle of Finalysis that Banking arrangements should follow a corporate’s Business arrangements, not the other way round. It is accordingly important that selected Treasury arrangements should accommodate and mimic a corporate’s commercial arrangements.

Finalysis reviewed one multinational with some 35 companies across the US and Europe , using the US$ as its functional currency and experiencing high currency losses, transactional  and translation.

The company then operated two treasury systems, one in Euro, centralised in Dublin the other in US$, centralised in New York, reporting across a large number of Banks. It was also noted that, notwithstanding US$ borrowings of some €50m, combined average bank surpluses amounted to €7m, with a high implied opportunity cost, together with significant avoidable currency exposures.

To enable the consolidation and rationalisation of these arrangement Finalysis mapped the corporate’s requirements and invited six banks, including two major US Banks, to tender for the corporates borrowing and treasury system. Alternative configurations canvassed included:

A Notional and Actual Pooling systems, the Concentration Account, and the (then popular) Swift system.

Happily, the corporate enjoyed high credit standing and proved attractive to the US Banks, which   provided very positive pooling arrangement, across the various countries, eliminating the former bank surpluses and reducing borrowings on a rolling basis.

The Client selected between the two US banks, which relationship continues today.

Resulting benefits included: Reduced Interest rates negotiated on combined cross currency borrowings, Immediate transfers of funds from local banks, Transparency of value positions to the main Bank and to the Corporate itself, Opportunities for the natural currency hedging were identified and deployed. The forward  growth of the company into other countries was  also accommodated  and the internal administration of accounts was simplified.  Bank Charges were greatly reduced.

The client estimated combined benefits in the following year at €3m, repeating annually.