3Proprietary and Confidential CFO SurveyCFO Outlook Resources -CFO Survey73% of U.S. companies surveyed do business internationally10 minute Learning module – linkProprietary and Confidential
4Proprietary and Confidential Macro Trends Growth Varies Significantly by Region, Uncertainty, Corporate Cash All Time HighThe global economic outlook is mixedEmerging 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 ratesEurope will see slow growth, with EU flatPacific Rim slowing to 5.9%, but still driven by India and China expansionLatin America remains solid in the 3% rangeDriven by aforementioned concerns, corporate cash is now greater than $1.7 trillion, a 20%+ increase since 2009US Corporate Cash0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%201020112012201320142015US Interest RatesFed Funds1 ML3 ML5 Yr Rolling SwapDriversEmerging market growthTechnology innovationReduction in poverty, emergence of global middle classHigh levels of Corporate Cash to investHeadwindsEuro crisisChanging tax policiesMiddle East unrestPotential global recessionSource: Bank of America Merrill Lynch Global Research, iQdatabase as of Nov 27, 20122Proprietary and Confidential
5Globalization of business into new markets creates… 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.Expansion OpportunitiesAccess to New SuppliersGlobal sourcing has been one of the biggest drivers of international growth with more goods and services being imported every day.New CustomersEmerging market economies are experiencing tremendous growth, despite the current slowdown in the global economy. Companies are discovering new customer bases to market to.1
6And leads to… 2 New Business Environments 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.Currency ExposureFor USD-functional companies, doing business in foreign countries creates exposure to currency fluctuations.Trapped CashDue to restrictions on certain currencies, companies that operate in these jurisdictions may have difficulty in moving funds across borders.2
8Why is International CM Different? Every Country is DifferentRegulationsBusiness PracticesTax IssuesCurrencyRisk – Country, Commercial, FX, etc.Cash Management Products and PracticesBanking SystemsClearing SystemsTime Zone
9Global Expansion Life Cycle Foreign Exchange and Cross Border PaymentsCentralized Currency AccountsLocal Currency AccountsLiquidityManagementInternational CM NeedsOccasional InternationalSaleRegularInternationalSalePaying andreceiving insame currencyOverseasoperationsMultipleoverseaslocationsCompany Life Cycle
10Cross Border Payment Considerations Type of Payment (Commercial, treasury, payroll, tax, intercompany)CurrencyValue and urgencyFrequency and volumeLogistics and controlInformationTreasury Alliance Group, LLC10
11International Payment Challenges Settlement across different time zonesHoliday SchedulesCut off timesValue datesLifting charges / intermediary bank chargesExchange control regulationsForeign language & charactersInformationTreasury Alliance Group, LLC11
12The Role of SWIFTSociety for Worldwide Financial Telecommunication (SWIFT)A highly secure telecommunications network that facilitates the exchange of financial messagesA co-operative organization founded in 1973 created and owned by its membersA standards bodyNOT a payment systemMost common SWIFT message types for International Cash ManagementMT100 Series - Customer PaymentsMT103 (Single Customer Credit Transfer)MT101 (Request for Transfer)MT900 Series - Balance and Transaction ReportingMT940 (Customer Statement Message – Previous Day)MT941 (Balance Report - Intraday)MT942 (Interim Transaction Report- Intraday)
14Single European Payments Area (SEPA) The Single European Payments Area (SEPA) project was designed to:Create a single platform for electronic cross-border EUR payments within EuropeAllow 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 structureSEPA consists of:32 countries – All EU members (27), and: Switzerland, Monaco, Liechtenstein, Iceland, Norway.SEPA Credit TransfersSEPA Direct DebitsThe Project
15Improved efficiency and scale SEPA complements key treasury trendsCentralisationPathway to a single account, in a single location. Natural balance consolidation.Standardisation and interoperabilityCommon instruments and technical standards, standardised clearing, settlement and value dating; harmonised legal basis.Improved efficiency and scaleRationalisation of relationshipsPotentially no need to maintain local banking relationships. All 32 countries reachable to/from a single location.Systems integrationERP vendors have invested in response to SEPA. Single file format. Facilitates automated reconciliation.
17Going Global…Being Global GlobalizationTreasury 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 technologyIncreased automation, outsourcing and centralization of cash and liquidity management. Increased efficiency and doing more with less.Risk managementCash is King – the lifeblood of our clients’ organizations. Who has access to what?Foreign Exchange Risk ManagementMarket forces – ‘credit crunch’ & ‘European contagion’Increased need to gain control over internal liquidity, decrease dependency on external funding and manage risk.
18Trends in Banking Examinations RationalizationWhat 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 & ConsistentlyEnsure 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 EfficiencyLeverage technology to produce STP environment which will eliminate manual functions and allow treasury to focus strategically.Reduce CostsLeverage global volumes for reduced fees while eliminating unnecessary or redundant bank accounts. Utilize a global bank to reduce “hidden” transaction and correspondent fees.
20International Cash Management Best Practices Involve key partners early; be proactiveCoordination and communication among tax, legal, accounting, and treasury is keyBuild a highly capable treasury staff with strategic thinking skills, project management acumen, international knowledge and the ability to work in a dynamic environmentIt 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 processingAutomate 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
22Global 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 positionTechnology: systems provide the required information (including multi-bank reporting)Strong global liquidity management strategyRecent developments such as automated rules-based sweeping take the uncertainty out of the process while allowing treasurers to focus on strategic initiativesInvesting 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 investmentsA 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.Strong global liquidity management strategy should enable cash to be repatriated to a regional hub or to the central treasuryInvesting - (i.e. segmenting of cash into tiers including strategic, reserve and operational )
23Global Liquidity Management Risk MitigationEnhance Liquidity OptimizationWorking Capital EfficienciesInvestment AlternativesLong-term operating and reserve cash management:Regional concentration of fundsTransparency and visibility of cash positionsFlexibility to manage liquidity across units/regionsEffective risk management, improved working capital and investment returnsManaged Treasury and Liquidity SolutionsCross Region SweepingMulti Currency Notional PoolingSingle Currency Notional PoolingIn-country sweepingCross-border sweepingMulti Bank SweepingInterest OptimisationCash InflowCash OutflowReceiptsAccountsPaymentsDebtTransactionsPortal(s) and Information Reporting33
24Global Liquidity Management Essential cash management techniques are used by companies for cross-border liquidity management: notional pooling & cash concentrationBalances 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.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.
26Local Currency: To Pay or Not to Pay . . . TrendImpactGlobalization of the RenminbiAdvent of the CNH MarketLocal Currency InvoicingForeign suppliers are no longer content with receiving USDRisk ManagementMore companies are accessing the local markets for hedgingCentral Bank AgendasActive management in currency markets and regulationsShortage of credit and higher cost of funds resulting in increased focus on maintaining excess cash and improving efficiency of balance sheet activitiesCentralization of treasury activities for effective governance and cutting of costsImproved visibility of payments and receipts to manage daily liquidity and optimize returnsGeography/time zonesFragmented technology platformsSegregation of treasury and financial processes across international units of the companyLack of real-time informationOrganizational issues: decentralized, non-standard processes, corporate culture, local routinesResourcesTax/Legal/RegulatorySenior Management Buy-In23
27RMB Cross-border Settlement BackgroundPilot Program for Cross-border Trade settlement in RMB launched in July 2009In August 2011, RMB cross border settlement expanded to all the provinces and cities in Mainland ChinaAll the enterprise in Mainland China are eligible for RMB settlement for import of goods, service trade and other current account settlementApproved MDEs in Mainland China are eligible for RMB settlement for export of goods 67,359 MDEs (Mainland Designated Enterprises)Participating BanksAll banks, including their branches, registered in the pilot provinces are permitted to apply to become settlement banks and clearing banksBank of China serves as the sole clearing bank in Hong Kong and MacauOffshore banks, including branches, can open an account with clearing bank and become participating banks in the respective regions200920102011Onshore5 citiesOffshoreHong Kong , Macau and 10 ASEAN countriesOnshore20 provincesOffshoreAll countriesOnshoreWhole countryOffshoreAll countries
28RMB Transactions – Onshore vs. Offshore 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 CNHRMB Transactions – Onshore vs. OffshoreOnshore Trade RelatedOffshore ActivitiesTo settle payments of eligible Chinese enterprises in RMB for trade transactionsSupporting documents required for Mainland China bank and regulatory review to ensure genuine trade transactionsFree movement of funds outside of Mainland ChinaRMB is subject to liquidity conditions in the offshore marketNo requirement for supporting documentsAbility to open RMB Non-Resident Accounts in China and Hong KongAbility for offshore companies to conduct trade in RMB without the need of an account in ChinaAbility to buy and hold RMB off-shore for investment purposesCompetitive, non-regulated RMB interest rates available in off-shore marketsAbility for RMB to participate in liquidity structures (off-shore)RMB Bond Market in Hong Kong is developing (Dim Sum Bonds) as an avenue for raising capital and additional investment alternativesOnce off-shore RMB can be freely converted
30John Mullett Vice President, International Treasury Solutions Officer Bank of America Merrill LynchOffice: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.
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