A good crisis
Talking to treasurers over the last week or so, a constant theme has emerged: treasurers are enjoying themselves. Such a message may come as a surprise, enjoying yourself in the midst of a financial crisis and economic downturn may seem bizarre. But there are good reasons.
Treasurers across many different industry sectors have risen to the challenge thrown down by current business conditions. In doing so, they have enhanced their reputation in the organisation and are clearly enjoying their new-found status among their colleagues, who are seeing treasurer skills and competencies used to good effect at a testing time.
It is the same for the ACT, which has always been well regarded and is now also seen as invaluable source of advice on market conditions and corporate thinking by governments and regulators.
But let’s not get complacent, or take our eyes off the ball. Unprecedented challenges remain and treasurers must continue to adapt. Take, for instance, the issue of raising finance in the current climate. Wherever treasurers look for finance they have to ensure the organisation is able to articulate its business strategy. When dealing with potential investors, treasurers should ensure their organisations follow three key principles: transparency, accountability and upholding best-in-class corporate governance. Funding will only be forthcoming for those organisations with high standards.
It is a rapidly changing world and treasurers may have to revise the way they look at the cost of funding. It may be time to move away from thinking of cost in terms of spreads, and instead focus again on the cash cost and the charge to the profit and loss account. Why bother with the price that your debt instrument is trading at on secondary markets?
Treasurers understand that the years of excess liquidity – when banks would be endlessly flexible on the way they did business – have gone. As far as the banks are concerned the days when their balance sheet was an entry ticket to ancillary services are over. Lending now has to wash its face in its own right, and the vague promise from treasurers of other business coming the banks’ way at some point down the track is no longer good enough.
As well as this changed environment, treasurers have to be careful in the way they choose their banking partners. With the current trend towards nationalisation or part-nationalisation, banks are under pressure from governments to direct lending towards a domestic rather than an international market and treasurers need to ensure that they don’t get caught out by a politically inspired funding gap.
As treasurers gather in Manchester for the ACT Annual Conference it is fair to say that so far the treasury profession has had a good crisis. But it’s not over yet and the profession must continue to meet the high standards it has set itself.
PETER WILLIAMS
EDITOR
A major shake-up of regulation of corporate legal work is overdue, an independent report has suggested.
The rising level of corporate insolvencies is posing a tough dilemma for members of final salary pension schemes, according to employee risk and benefits management firm Aon Consulting.
Recent market volatility has persuaded asset managers to accept the need for change in their industry.
Hector Sants, chief executive of the Financial Services Association (FSA), has said that company owners need to engage actively with the senior management and non-executive directors of the company, and even organise themselves more effectively for collective action.
Fair value and the impairment of financial instruments have long been tricky issues for accountants, but the banking crisis has pushed them into the political and regulatory limelight.
The government is proposing to extend the disregard regulations to cover the hedging of certain share capital-related transactions.
It may have been announced just before Valentine’s Day, but the market was unable to stop swooning about a €4bn issue by German industrial giant Siemens. The deal was not remarkable just for its size; the demand for it was pretty breathtaking too.
Retail investors were also alerted to an issue from another solid non-financial European giant as Unilever sought to raise £350m in a sterling-denominated bond.
Also in the sterling bond market but priced substantially higher was a £275m 10-year bond from the John Lewis Partnership.
The incoming president of the ACT believes that this is an extraordinarily interesting time for treasurers. Gerry Bacon takes over the role from David Swann on 1 May and says:
Talking to treasurers and people here at the ACT, such as the CEO and the policy and technical team, one realises that the credit crisis is making organisations more aware of the value contributed by good treasurers.
And while some treasurers have always been highly involved in the business, Bacon says the current economic conditions offer a good opportunity for those treasurers who were further removed to become more integrated with, and closer to, the business units and to understand what drives sales and cashflow.
A treasurer and two bankers preview the themes and the market background that look set to colour the thinking at the ACT annual conference 2009.
The dramatic events in the financial markets during the past year have placed enormous pressure on corporates’ supply chains and working capital management. Once reliable sources of liquidity, such as asset-backed commercial paper, which provided short-term funding for daily activities, have all but disappeared, and it is now much more difficult for companies to raise money, with the pressure being felt along the entire supply chain.
Atheme that was apparent in the survey results given the turmoil in the credit markets was a concern over credit risk and thus a heightened aversion to risk. Within the treasurer panel this theme came to the fore as well and to an extent seemed to be influencing other behaviours and concerns. However, as with many treasury management decisions, the ways in which companies react depend heavily on their own specific circumstances.
The theme of this year’s ACT annual conference (ACTAC) is “dealing with the new normal”. The continuing uncertainty in political and economic life means that although we do not know what “normal” will mean, we do know it will be different from the past. Treasurers and other finance professionals have never had such a key role to play in their organisations, ensuring that their companies can access the financial resources and financial markets that are needed to execute strategic plans.
ACTAC’s four keynote speakers – Barbara Cassani, Alastair Clark, Jon Moulton and Dev Sanyal – and a range of other expert speakers will all help you get to grips with the new normal.
The ACT has reported on the impact of changed banking and market conditions on the treasury activities of large UK corporates following a series of in-depth interviews with members in FTSE 350 companies. Amid the generally gloomy views there was some good news and a few surprises. Well-prepared treasury teams took advantage of the benign markets in 2007 and, if anything, overfunded. Even after the start of the credit crisis it paid to take advantage of any funding windows that appeared. More often than not it does not pay to wait for times to get better, it seems.
As a sign of the tougher times we are in, a growing number of organisations are either announcing plans for rights issues or are actively considering tapping investors for additional funding. Between the start of 2009 and late March, companies had already managed to raise more than £22bn this way.
As the recession deepens, the issue of covenants in debt facilities (and the potential for them to be breached) has occupied the headlines. Companies in sectors that have borne the brunt of the recession – principally retail, construction and property – are particularly at risk, with Woolworths and Zavvi among the recent high-profile casualties.
Overgenerous or unmanaged bonuses, it is now clear, can damage an organisation’s wealth and credibility. And while the initial panic over bonuses has run its course, the damage it has done will last for a long time and many bystanders, people not involved in the financial services world, will suffer from it for some years to come.
The fifth in the RBS-sponsored series of talkingtreasury forums and the 10th overall was the ACT’s farthest eastward expansion in continental Europe. The event also marked the first occasion when we have employed simultaneous translation – all the preceding events have been solely in English. As a result, this report concentrates more on the themes and discussions of the day than individual comments.
In 1997 the Labour party returned to power after a prolonged period out of office and Jon Moulton set up his private equity vehicle Alchemy Partners, which is perhaps best known as the potential rescuer of Rover at the start of the decade. Alchemy has invested nearly £2bn since it was formed and has developed a reputation for rescuing troubled companies. However, the medicine Moulton was proposing for the car maker a decade ago proved unpalatable for the unions, which, at the time, were relieved by Alchemy’s failure to strike a deal with Rover’s owner BMW.
Three recruitment experts give their analysis on the current market conditions.
the pressure on senior management has obliterated any introduction period. New recruits are expected to make an impact from day one and savings by the end of week one.
