A summary of the sessions from day 3:
An update on the transition from LIBOR
The highlights:
The key message is that by the end of 2021 everyone needs to be ready for the end of LIBOR. The change is going to happen!
It’s important to get ahead of the curve – so don’t be left without a plan.
Reasons for the transition:
• Markets just don’t work in the same way post-2008 – banks have moved away from unsecured interbank lending
• The behaviour of LIBOR over the last few weeks has shown how much it can differ from RFRs will thus be a relief for lenders that moved early in the transition in the loan market
Where are we at:
• In floating rate bonds – the transition from LIBOR for new business in sterling is complete. Bonds lend themselves more easily for overnight rates
• Good progress being made in derivatives e.g. new swaps outweigh LIBOR swaps
• Market has been slowest in the loan market, where there a wider range of counterparties
• COVID-19 has thus had the greatest effect on the transition in this market due to the slow progression and the priority to keep credit flowing. The timeline has been relaxed for loans in sterling markets: cease in new loans under LIBOR – 1Q21; alternative needs to be given for loans under LIBOR by the end of 3Q20, and this needs to be an explicit arrangement to move away from LIBOR prior to the end of 2021 rather than a fallback clause
• Infrastructure: derivatives world has received a lot of investment in infrastructure so although not trivial, it lends itself to transition or modification
• Do not rely on potential legislation if you want control of your interest rate entitlements – if you can convert, then do so
• Approach the transition proactively and as a partnership with your banks
• Banks will not define and present the solution – banks and corporates need to work together and each take ownership of it.
Tackling the regulatory hurdles
The highlights:
• Policy makers are trying to prevent an economic crisis turning into a financial crisis – there is a need to maintain getting liquidity into the economy, and banks and asset managers have the key role in this
• Delays expected in corporate reporting, however, it is important to maintain audit quality
• Regulatory priorities across Europe, US and Asia, e.g. Basel III reforms implementation, delayed to January 2023
• In Europe expected reopening of the benchmarks regulations as well as MiFID II with fixes to bring them into law quickly to assist with the COVID-19 response
• A precedence of the trajectory of Brexit discussions in next 6 months will be set regarding market access for the rest of the world with the EU, although the UK is a test case for EU flexing market access rules
The future:
• COVID-19 has shown the value of ‘S’ (of ESG) in financial services, particularly in relation to conduct and relationship management
• Digital and cyber issues, as well as AML; and the depth of the COVID-19 crisis will require policy responses
• The crisis has demonstrated the importance of the treasury function for both financial services and corporations.
Deal or No Deal? The EU’s Green Ambitions in a Post-COVID world
The highlights:
• The EU’s drive for carbon neutrality by 2050 is undeterred by COVID-19, although interim commitments towards the goal will be impacted
• Some sectors, such as automotive and aviation, are pushing back on stricter environmental standards and commitments amid the COVID-19 crisis
• Changing consumer habits and preferences in a COVID-19 recovery could push companies and governments to do more in terms of greening the economy.
• The role of the EU green deal: €1 trillion investment to achieve climate neutrality by 2050. In conjunction with this is the taxonomy: the unified EU classification system for sustainable economic activities
• As a result of the crisis, the use of proceeds bonds for social causes are becoming much more favourable for investors, more so than green bonds
• There will be a shift in the market as it’s been realised that sustainable portfolios are more resilient and often outperform
Mental Health challenges and coping mechanisms in lockdown
The highlights:
Working remotely has its challenges
There is no hard stop of business whilst working from home, whereas commuting provides the break between home and work life. This period has been the busiest of many our careers by having to provide the ongoing visibility of cash. Risk assessments have meant providing the worse case scenarios, which can be very stressful for teams. Nevertheless, the stress levels are very much dependant on sector as market volatility varies. Finding the appropriate ways to interact with teams and clients can also be difficult, as the process and progress of communication is not linear - there is a potential for over-communication!
Many have experienced no break at all as they are working at full capacity and, as a result, there is no time to exercise and quality of sleep suffers - some feel they are permanently on calls.
Coping mechanisms
• Ensure you are properly equipped to work at home
• Record and monitor exercise by building it into your routine
• Plan adequate sleep into the day – don’t leave it to chance!
• Build creative activities into your day e.g: art, music
• Don’t forget to move from your seat frequently.
Mental wellbeing and top tips for thinking in a resilient way
The highlights:
We always need to take care of our mental health, but even more so in situations like the current one. Often we focus on our immediate rather than long-term needs, especially when it comes to mental health, and whilst some of us take the time for self-development, soft skills are often missed out, which can be self- limiting. We are not always good at examining our own coping systems, especially during difficult times.
4 pillars to health: nutrition, sleep, exercise, environment.
Resilience is the best tool for when your environment changes, and this is a skill that can be learned.
6 ways to practice resilience:
• Attitude – understand your motivational state and how to change it
• Responses to stress – awareness enables control
• Commitment – what are your motivations?
• Control – understand what can and can’t be controlled in your environment
• Relationships – maintain clear and consistent communication
• Health – mental and physical
4 ways to practice resilience during
COVID-19:
• Maintain boundaries between home and work especially when working from home
• Be transparent
• Manage your positivity
• Look out for verbal and non-verbal clues in your work relationships
Business of Treasury - Changing World: Shifting priorities
Business of Treasury is the ACT’s annual survey of contemporary treasurers and the research is published every year in order to look at shifting priorities in a changing world.
This year we interviewed 200 treasurers during the pre/early stages of COVID-19.
The highlights:
Treasurers are still passionate about their role. Cash management and liquidity remain their main focus, and most would say they've provided sufficient liquidity to deal with the current situation. As expected, treasurers are busier than ever in the current crisis, but have generally transitioned smoothly to working from home.
The findings in summary:
Cash Management
• There has been an increase in the frequency of cash flow forecasting
• Cash flow is not always looked at in disaster recovery programmes, but is needed in the current situation
• Treasurers provide leadership in discussions on the draw down of finances, including RCFs
Technology
• There are concerns on cybersecurity
• Automation is seen to enhance roles and aid a more strategic focus
• Levels of investment are causing concern as most non-critical spend has been paused during the current situation
• AI & Machine Learning are not currently on the horizon for most treasurers
• A wide range of views were presented on the pace of change
Development
• Treasurers focussed on building leadership skills including communication skills, relationship management and change management.
• The current environment is driving the need for leadership and the ability to make the right decisions
• Treasurers now better able to deal with challenges because of the development of skills
• There is a now the potential to increase the treasury position to a strategic business partner
Funding
Debt capital markets and bank funding still centralEquity markets and Govt. funding may come to the fore in next year’s research ESG may come to the fore in future investments – definitely an area to watch
To download the Business of Treasury 2020 supplement, visit our business of treasury page.
Future Leaders in Treasury - Millennial perspective on current crisis
Future Leaders of Treasury is a forum supporting ACT members in the early stages of their career, providing encouragement, support, events and resources relevant to the leaders of tomorrow.
The highlights:
Millennials were not involved in the previous Global Financial Crisis (GFC), and as such it felt like a thing of the past. Learning from the ACT helped to give them insight.
Dealing with the COVID-19 crisis
There was a short sense of panic as controls were tested but yielded positive results. Experience from taking ACT qualifications helped put the learnings into practice as the spotlight from their respective organisations was on treasury.
Mix of BAU and crisis management
BAU
• Focus on liquidity and FX risk
• Opportunities created for re-financing
• Review of BAU processes, including cash flow, credit control, due diligence on AR and taking a responsible attitude on AP
Crisis
• Sensitivity analysis
• Scenario planning
• Covenant checking and forecast planning shows there is still a strong potential for severe recessions
A review of the ‘softer’ aspects
Working from home (WFH) has helped to 'humanise' colleagues by seeing them in their home environments. As a result, WFH has lost its stigma as it has clearly demonstrated to be effective, providing different opportunities to communicate via different methods, e.g. Zoom and WhatsApp/WeChat. Businesses are seen to have been proactive in engaging with wider teams and checking on their wellbeing.
There is a rising need to understand the variation of moods in clients, customers and oneself, and to empathise. Enthusiasm (or lack of it) is infectious. The ACT has supported this with a focus on softer skills and mental health.
International Treasury Week took place online on 11-14 May. Current delegates can access recordings from the event until 11 June.
Details of our next online event - The Festival of Treasury Transformation, 13-16 July, will be announced soon.
