Recent months have surely demonstrated the value of sound financial strategy in treasury. Experience has emphasised the importance of modelling and planning for financial flexibility in bad times as well as good. Despite the dire comments in the media and the regular news of financial institutions reporting large loss provisions, our soundings show that treasurers have reacted calmly, whilst clearly remaining circumspect.
Certainly it is wise to take precautionary measures – to conserve cash, to diversify funding sources and to review your company’s own investment credit criteria. Given the hugely favourable market conditions over the past year most companies should not have any urgent re-financing needs but if required the message is that investment grade corporate deals can still be done, as evidenced by the recent large issues by E.ON and Veolia. That said, the funding markets are unsettled and no doubt issuers and their lead managers are holding back. Perhaps the start of 2008 will trigger renewed activity.
We have recently mailed the ACT’s Annual Review and I hope that despite the UK postal problems, all members have received their copy by now. The Review is available on our website. We are also mailing our Training Course Catalogue for 2008. I do encourage you to look at the wide range of courses we are offering and consider whether you or colleagues could benefit from updating your knowledge or acquiring new skills. We are introducing a number of new courses in the areas of risk management, borrowing techniques, corporate finance fundamentals and corporate financial analysis. We work with exceptionally well qualified trainers, many of whom are ACT members.
For those new to treasury or working in related areas, our annual Treasury Fundamentals Conference on 6-7 December also has an excellent line-up of corporate treasurers sharing their experience through case studies.
Formally, Basel II comes into effect as a reporting standard for EU and G10 banks on 1 January 2008 – with the exception of the US where the introduction is delayed until 1 January 2009. The aim is to deliver a more risk-sensitive regime which on balance should not alter regulatory capital requirements for the banking sector, after including the new operational risk capital charge. In practice it is likely that most banks in advanced economies will have already taken steps to address their internal credit practices and may well have included Basel II in any credit offered to borrowers over the past couple of years. The ACT’s view is that treasurers should be aware of the potential impact of Basel II - not solely in loan margins - and, more specifically, should keep a close watch on other costs arising from its formal introduction.
Hidden away in a rather innocuous sounding EU proposal to repeal the Second Company Law Directive is the implication that the EU no longer supports the pre-emption right of shareholders, requiring new shares issued for cash to be offered first to existing shareholders. This is an absolutely fundamental right that protects shareholders from management issuing new shares and diluting their ownership or, even worse, issuing at a discount and thereby transferring value from the old owners to the new.
Although this may have the backing of some young and growing companies, particularly in the bio-tech sector, pre-emption enjoys strong support in the UK and it should still be possible for it to be maintained in UK law. Nonetheless, in our response to the EU Commission the ACT is adding its voice to those supporting the continuation of pre-emption rights, but with the ability of companies to build in flexibility for small non pre-emptive issues through advance shareholder approvals.
