The science and art of treasury management

In amongst the current financial market turmoil, suggests Peter Matza, there has been plenty of press comment about financial engineering, leverage and a whole host of other terms, familiar to treasurers but considered ‘toxic’ by market commentators.

In many cases of course the press has discovered perfect hindsight but alas, it’s not available to all. I happen to be of the view that financial journalism bears a responsibility both to explain and comment, to even be critical perhaps, but within a relevant context. For example, there has always been a traditional press view that ‘hedging = clever’ without a firm understanding of what hedging is, what it does, and more importantly what it does not do.

At the recent Düsseldorf talkingtreasury event, I was struck by how treasurers from a wide range of European corporates – of all sizes and forms of ownership and capital structure – appear to be sanguine about the world they are facing. That’s not to say that they are complacent, far from it, but more that the science and art of treasury management is now better understood by treasurers giving them the tools to rise to contemporary challenges. In particular it seems that treasurers are much clearer on their responsibility to their colleagues, their investors and other stakeholders – especially banks - to de-mystify the language of finance.

What treasurers are also doing is challenging their traditional service providers – their house banks – to adapt to a much more competitive world. Treasurers are working with (and in some cases sponsoring) technology and systems providers, alternative payment channels and advisory firms to create new sources of supply chain finance or to support customer facing activities. There seems to be a realisation that non-financial companies making 12%ROCE are not always getting the best value from banks targeting 25%ROCE.

My own view is that banks have been slow to justify to their corporate customers their need for high returns, often using regulatory edicts as suitable cover. Talking to treasurers over coffee in Düsseldorf reinforced this opinion as most of those I spoke with confirmed that very few of their banks engage with them in a detailed understanding of the necessary level of return needed to offset their (the banks’) capital cost of credit. It was gratifying to hear so many treasurers challenge their banks to look at all aspects of the value derived from service provision not just the sexy investment banking sector. I don’t believe in bashing banks for sport but I do believe in encouraging treasurers to establish a principle of value for money!

By Peter Matza