The Association of Corporate Treasurers (ACT) Annual Conference 2021 delivered expert positions and informed debate on treasurers’ top preoccupations and concerns. Here are just some of the messages…
USD term SOFR will happen. The Alternate Reference Rates Committee has announced that we can expect to see term SOFR in the next few weeks. This should address a lot of the issues brewing in the US, and hopefully enable transition for UK corporates to pick up the pace.
Tough legacy is a ‘work in progress’. Different jurisdictions are taking different approaches, but at least the regulators all seem to recognise that there is a real problem for those contracts that cannot be amended. And something must be done to avoid litigation on a grand scale.
Don’t leave everything until the last minute. There is a Q3 deadline set for transition in the sterling markets, primarily to avoid a year-end ‘crush’ as all the elephants head for the exit – as I think one person referred to it… Make a plan and ensure you schedule plenty of time to talk to all the relevant stakeholders. For example, do you need board approval for transition? If so, it’s probably something for the next available date, not the November board.
There are costs involved and you will need to have commercial conversations with your lenders about legal fees, among other things.
The more we hear about inflationary pressures, the less clear it is whether this is real or temporary, while the economy recovers from the shocks caused by the global pandemic. Many speakers, including Andrew Bailey, governor of the Bank of England, suggested that this is a temporary phenomenon, largely the effect of cycling 2021 data and supply-side shortage as a result of global shutdowns.
However, the real economy continues to raise the spectre of skills shortages and supply chain challenges (not only product shortages such as semi-conductors, but also delays in delivery of product and increased freight costs), none of which are likely to be solved in the short term.
There is a great deal of talk about sustainable finance in all its forms, but the benefit of issuing this sort of debt, given the additional workload both on inception and throughout the life of the transaction, mean it’s still not for everyone – yet…
Money market funds (MMFs) are back under the spotlight. The Financial Stability Board (FSB) was concerned by events surrounding MMFs in the ‘dash for cash’ in March 2020 as the pandemic hit, and have concluded that they still may not be as resilient as the FSB would like. Bailey explained that the principal concern is the slightly schizophrenic nature of the product – more technically the liquidity mismatch. MMFs are considered as liquid (cash) deposits by investors, but in reality are made up of longer-term investments whose redemption terms are not ‘immediate’. Ideally, redemption terms should be aligned with the underlying liquidity of the fund.
Final thoughts
• Take the opportunity to revisit treasury policies, as discussed in Lessons Learned: the impact of 2020 on corporate risk management, with a panel from Lloyds Bank. Are they still appropriate? Does risk management need rebalancing (for example, does fixed/floating mix need to be reviewed, or FX transaction hedging), having got out of step during the quick-fire events of 2020?
• Remember that technology is an enabler as discussed in Treasury Transformation: e-commerce models, with Mila Harger, head of cash and banking at British American Tobacco and speakers from Deutsche Bank. Understand the needs of the business and then apply the tech to support the solution. Set clear objectives and revisit regularly – it’s easy to be beguiled.
• Deposits may switch from the traditional SLY (security, liquidity, yield) to SLS (security, liquidity, sustainability), as discussed by panellists from HSBC in a session on Cultural and Policy Considerations in a post-COVID treasury.
Sarah Boyce is associate director, policy & technical at the Association of Corporate Treasurers