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1 An introduction into the world of international treasury management, global liquidity, regulations and industry key trends Expanding into Global Markets.

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Presentation on theme: "1 An introduction into the world of international treasury management, global liquidity, regulations and industry key trends Expanding into Global Markets."— Presentation transcript:

1 1 An introduction into the world of international treasury management, global liquidity, regulations and industry key trends Expanding into Global Markets

2 Economic Trends International Market Growth

3 3 CFO Survey  CFO Outlook Resources -  CFO Survey  73% of U.S. companies surveyed do business internationally  10 minute Learning module – linklink Proprietary and Confidential

4 4 Macro Trends Growth Varies Significantly by Region, Uncertainty, Corporate Cash All Time High The global economic outlook is mixed  Emerging markets 2013 GDP growth forecasted to outpace developed markets (5.5% vs. 0.9%)  US will see mid 1% GDP growth. Continued high unemployment, despite low interest rates  Europe will see slow growth, with EU flat  Pacific Rim slowing to 5.9%, but still driven by India and China expansion  Latin America remains solid in the 3% range Source: Bank of America Merrill Lynch Global Research, iQdatabase as of Nov 27, % 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% US Interest Rates Fed Funds1 ML3 ML5 Yr Rolling Swap Driven by aforementioned concerns, corporate cash is now greater than $1.7 trillion, a 20%+ increase since 2009 US Corporate Cash Proprietary and Confidential

5 5 Globalization of business into new markets creates… Expansion Opportunities New Customers Access to New Suppliers Companies are discovering new locations to set up manufacturing, distribution and sales offices. These opportunities require upfront capital in an attempt to generate positive cash flows and returns. Global sourcing has been one of the biggest drivers of international growth with more goods and services being imported every day. Emerging market economies are experiencing tremendous growth, despite the current slowdown in the global economy. Companies are discovering new customer bases to market to.

6 6 And leads to… Trapped Cash Due to restrictions on certain currencies, companies that operate in these jurisdictions may have difficulty in moving funds across borders. For USD-functional companies, doing business in foreign countries creates exposure to currency fluctuations. Currency Exposure Entering new markets brings entrance into new business climates and cultures. These cultures often bring new and “foreign” complexities, particularly from the liquidity management and funds movement perspective. New Business Environments

7 7 The Basics

8 8 Regulations Business Practices Tax Issues Currency Risk – Country, Commercial, FX, etc. Cash Management Products and Practices Banking Systems Clearing Systems Time Zone Why is International CM Different? Every Country is Different

9 9 Foreign Exchange and Cross Border Payments Centralized Currency Accounts Local Currency Accounts Liquidity Management International CM Needs Occasional International Sale Paying and receiving in same currency Overseas operations Regular International Sale Global Expansion Life Cycle Multiple overseas locations Company Life Cycle

10 10 Cross Border Payment Considerations Type of Payment (Commercial, treasury, payroll, tax, intercompany) Currency Value and urgency Frequency and volume Logistics and control Information

11 11 International Payment Challenges Settlement across different time zones Holiday Schedules Cut off times Value dates Lifting charges / intermediary bank charges Exchange control regulations Foreign language & characters Information

12 12 The Role of SWIFT Society for Worldwide Financial Telecommunication (SWIFT) A highly secure telecommunications network that facilitates the exchange of financial messages A co-operative organization founded in 1973 created and owned by its members A standards body NOT a payment system Most common SWIFT message types for International Cash Management MT100 Series - Customer Payments MT103 (Single Customer Credit Transfer) MT101 (Request for Transfer) MT900 Series - Balance and Transaction Reporting MT940 (Customer Statement Message – Previous Day) MT941 (Balance Report - Intraday) MT942 (Interim Transaction Report- Intraday)

13 13 Single Euro Payment Area SEPA

14 14 The Single European Payments Area (SEPA) project was designed to:  Create a single platform for electronic cross-border EUR payments within Europe  Allow Corporates & Individuals to make EUR payments from a single account to anywhere within the SEPA environment under consistent rules and costs.  Eventually replace local, domestic EUR clearing with a single clearing structure SEPA consists of:  32 countries – All EU members (27), and: Switzerland, Monaco, Liechtenstein, Iceland, Norway.  SEPA Credit Transfers  SEPA Direct Debits Single European Payments Area (SEPA) The Project

15 15 SEPA complements key treasury trends Centralisation Standardisation and interoperability Rationalisation of relationships Systems integration Pathway to a single account, in a single location. Natural balance consolidation. Common instruments and technical standards, standardised clearing, settlement and value dating; harmonised legal basis. Potentially no need to maintain local banking relationships. All 32 countries reachable to/from a single location. ERP vendors have invested in response to SEPA. Single file format. Facilitates automated reconciliation. Improved efficiency and scale

16 16 Key Trends

17 17 Globalization Treasury operating models are changing from local to regional to global, with a spotlight on increasing control. Rationalization and consolidation of providers is a key focus. Global banking technology Increased automation, outsourcing and centralization of cash and liquidity management. Increased efficiency and doing more with less. Risk management Cash is King – the lifeblood of our clients’ organizations. Who has access to what? Foreign Exchange Risk Management Market forces – ‘credit crunch’ & ‘European contagion’ Increased need to gain control over internal liquidity, decrease dependency on external funding and manage risk. Going Global…Being Global

18 18 Trends in Banking Examinations Rationalization What is purpose of each bank account? Can we close or consolidate any accounts? Do we have any pockets of idle cash? How many systems must we log into around the world? Global Control & Consistently Ensure all account ownership and fully visibility exists from head office. Establish proper controls and permissions on all bank accounts around the world. Create a standardized structure allowing for quick movement on any changes. Increase Efficiency Leverage technology to produce STP environment which will eliminate manual functions and allow treasury to focus strategically. Reduce Costs Leverage global volumes for reduced fees while eliminating unnecessary or redundant bank accounts. Utilize a global bank to reduce “hidden” transaction and correspondent fees.

19 19 Best Practices

20 20 International Cash Management Best Practices ● Involve key partners early; be proactive Coordination and communication among tax, legal, accounting, and treasury is key Build a highly capable treasury staff with strategic thinking skills, project management acumen, international knowledge and the ability to work in a dynamic environment ● It is essential to build a capital and repatriation strategy from the outset of your expansion into these markets. It i critical to think through exactly how you wish to incorporate in a specific market, including how you fund the initial capital injection. The decisions made at the start impact your options throughout the future. ● Continue migration from paper to electronic payments and receipts and leveraging banking relationships and tools that can enhance straight-through processing ● Automate information reporting and analytics and improve visibility into your cash positions globally with a fully integrated web-based global banking portal. ● Create an efficient global bank structure that enables you to view, manage and optimize your funds everywhere and effectively position your business for success in foreign markets. ● Leverage your local banking, accounting, legal, and tax advisors to build as much knowledge of each market prior to expansion

21 21 Global Liquidity Management

22 22 Global Liquidity Management Cash manager’s basic responsibility is to ensure that the company has sufficient liquidity to meet all known obligations and allow it to continue to function. Liquidity Management Objectives: Visibility and clear reporting over the organization's cash position Technology: systems provide the required information (including multi-bank reporting) Strong global liquidity management strategy Recent developments such as automated rules-based sweeping take the uncertainty out of the process while allowing treasurers to focus on strategic initiatives Investing cash can be an effective means of maintaining sufficient funds for the company’s short-term requirements, while benefiting from yield pick-up by investing strategic cash in longer-term investments A strong investment policy, accurate cash flow forecasting capability and centralized control over the company’s cash are all important ingredients of best practice liquidity management.

23 23 Global Liquidity Management Long-term operating and reserve cash management: Regional concentration of funds Transparency and visibility of cash positions Flexibility to manage liquidity across units/regions Effective risk management, improved working capital and investment returns Portal(s) and Information Reporting Enhance Liquidity Optimization Risk Mitigation Investment Alternatives Working Capital Efficiencies Cross-border sweeping Debt Multi Currency Notional Pooling Cross Region Sweeping In-country sweeping Multi Bank Sweeping Interest Optimisation Managed Treasury and Liquidity Solutions Receipts Accounts Payments Cash Inflow Cash Outflow Transactions Single Currency Notional Pooling

24 24 Essential cash management techniques are used by companies for cross-border liquidity management: notional pooling & cash concentration Balances in participating accounts concentration are swept to a concentration account (or cash pool) in order to better manage liquidity. Surplus funds are physically concentrated into the account and debit balances are covered by transfers from the concentration account in order to minimize overdraft interest. Cash concentration is also referred to as zero-balancing, target balancing or sweeping. Balances are consolidated to optimize interest, but there is no physical movement of funds. Bank allows positive balances in the accounts of a company or its subsidiaries to offset debit balances in other company accounts for the purpose of determining interest earned or owed. Notional pooling is also referred to as interest offset pooling or interest compensation. Global Liquidity Management

25 25 Globalization of the Chinese Renminbi

26 26 Local Currency: To Pay or Not to Pay... TrendImpact Globalization of the RenminbiAdvent of the CNH Market Local Currency Invoicing Foreign suppliers are no longer content with receiving USD Risk Management More companies are accessing the local markets for hedging Central Bank Agendas Active management in currency markets and regulations

27 27 Pilot Program for Cross-border Trade settlement in RMB launched in July 2009 In August 2011, RMB cross border settlement expanded to all the provinces and cities in Mainland China All the enterprise in Mainland China are eligible for RMB settlement for import of goods, service trade and other current account settlement Approved MDEs in Mainland China are eligible for RMB settlement for export of goods  67,359 MDEs (Mainland Designated Enterprises) Background Participating Banks  All banks, including their branches, registered in the pilot provinces are permitted to apply to become settlement banks and clearing banks  Bank of China serves as the sole clearing bank in Hong Kong and Macau  Offshore banks, including branches, can open an account with clearing bank and become participating banks in the respective regions Onshore 5 cities Offshore Hong Kong, Macau and 10 ASEAN countries Onshore 20 provinces Offshore All countries Onshore Whole country Offshore All countries RMB Cross-border Settlement

28 28 CNY versus CNH markets “CNY” and “CNH” both refer to “RMB” as a currency and the nomenclature is used just for the convenience. “CNY” continues to designate Chinese Yuan trading, both in Mainland and offshore markets. “CNH” is newly designated for Chinese Yuan offshore trading. “CNH” is not regulated by the PBOC, hence will reflect market conditions in Hong Kong and other offshore markets. 1 CNY = 1 CNH To settle payments of eligible Chinese enterprises in RMB for trade transactions Supporting documents required for Mainland China bank and regulatory review to ensure genuine trade transactions Onshore Trade RelatedOffshore Activities Free movement of funds outside of Mainland China RMB is subject to liquidity conditions in the offshore market No requirement for supporting documents RMB Transactions – Onshore vs. Offshore

29 29 Questions?

30 30 John Mullett Vice President, International Treasury Solutions Officer Bank of America Merrill Lynch Office: John Mullett is the east coast Regional Vice President of Global Commercial Banking International Treasury Services for Bank of America Merrill Lynch and is based in Miami, FL. In this role, he works with multinational corporations to deliver treasury, liquidity and custody solutions to clients across the globe, including Middle Market Banking and Business Banking. Mr. Mullett joined Bank of America in Prior to this position, he worked as a Portfolio Management Analyst for an international mutual fund of Columbia Management, based in Chicago, IL. John has spoken on international banking topics at numerous events around the country including the Windy City Treasury Management Conference, EuroFinance Miami, the Wisconsin Treasury Management Association Annual Conference, the Washington DC AFP Conference, and numerous other industry events. John is a graduate of the College of Charleston School of Business.

31 31 Disclaimer “Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking activities are performed globally by investment banking affiliates of Bank of America Corporation (“Investment Banking Affiliates”), including, in the United States, Banc of America Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, which are both registered broker-dealers and members of FINRA and SIPC, and, in other jurisdictions, locally registered entities. Investment products offered by Investment Banking Affiliates: Are Not FDIC Insured * May Lose Value * Are Not Bank Guaranteed. These materials have been prepared by one or more subsidiaries of Bank of America Corporation for the client or potential client to whom such materials are directly addressed and delivered (the “Company”) in connection with an actual or potential mandate or engagement and may not be used or relied upon for any purpose other than as specifically contemplated by a written agreement with us. These materials are based on information provided by or on behalf of the Company and/or other potential transaction participants, from public sources or otherwise reviewed by us. We assume no responsibility for independent investigation or verification of such information (including, without limitation, data from third party suppliers) and have relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance prepared by or reviewed with the managements of the Company and/or other potential transaction participants or obtained from public sources, we have assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of such managements (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. These materials were designed for use by specific persons familiar with the business and affairs of the Company and are being furnished and should be considered only in connection with other information, oral or written, being provided by us in connection herewith. These materials are not intended to provide the sole basis for evaluating, and should not be considered a recommendation with respect to, any transaction or other matter. These materials do not constitute an offer or solicitation to sell or purchase any securities and are not a commitment by Bank of America Corporation or any of its affiliates to provide or arrange any financing for any transaction or to purchase any security in connection therewith. These materials are for discussion purposes only and are subject to our review and assessment from a legal, compliance, accounting policy and risk perspective, as appropriate, following our discussion with the Company. We assume no obligation to update or otherwise revise these materials. These materials have not been prepared with a view toward public disclosure under applicable securities laws or otherwise, are intended for the benefit and use of the Company, and may not be reproduced, disseminated, quoted or referred to, in whole or in part, without our prior written consent. These materials may not reflect information known to other professionals in other business areas of Bank of America Corporation and its affiliates. Bank of America Corporation and its affiliates (collectively, the “BAC Group”) comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and strategic advisory services and other commercial services and products to a wide range of corporations, governments and individuals, domestically and offshore, from which conflicting interests or duties, or a perception thereof, may arise. In the ordinary course of these activities, parts of the BAC Group at any time may invest on a principal basis or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions, for their own accounts or the accounts of customers, in debt, equity or other securities or financial instruments (including derivatives, bank loans or other obligations) of the Company, potential counterparties or any other company that may be involved in a transaction. Products and services that may be referenced in the accompanying materials may be provided through one or more affiliates of Bank of America Corporation. We have adopted policies and guidelines designed to preserve the independence of our research analysts. These policies prohibit employees from offering research coverage, a favorable research rating or a specific price target or offering to change a research rating or price target as consideration for or an inducement to obtain business or other compensation. We are required to obtain, verify and record certain information that identifies the Company, which information includes the name and address of the Company and other information that will allow us to identify the Company in accordance, as applicable, with the USA Patriot Act (Title III of Pub. L (signed into law October 26, 2001)) and such other laws, rules and regulations as applicable within and outside the United States. We do not provide legal, compliance, tax or accounting advice. Accordingly, any statements contained herein as to tax matters were neither written nor intended by us to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on such taxpayer. If any person uses or refers to any such tax statement in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the statement expressed herein is being delivered to support the promotion or marketing of the transaction or matter addressed and the recipient should seek advice based on its particular circumstances from an independent tax advisor. Notwithstanding anything that may appear herein or in other materials to the contrary, the Company shall be permitted to disclose the tax treatment and tax structure of a transaction (including any materials, opinions or analyses relating to such tax treatment or tax structure, but without disclosure of identifying information or, except to the extent relating to such tax structure or tax treatment, any nonpublic commercial or financial information) on and after the earliest to occur of the date of (i) public announcement of discussions relating to such transaction, (ii) public announcement of such transaction or (iii) execution of a definitive agreement (with or without conditions) to enter into such transaction; provided, however, that if such transaction is not consummated for any reason, the provisions of this sentence shall cease to apply. Copyright 2009 Bank of America Corporation. Bank of America Merrill Lynch Proprietary


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