treasury in transformation · treasury is undergoing a profound transformation around the globe. in...

Treasury in TransformationResults of Treasury Strategies’ 2008 Global

Corporate Treasury and Liquidity Research Program

Insights from North America, Europe and Asia-Pacific

across Middle Market, Mid-Corporate and

Large Corporate turnover segments

Treasury Strategies, Inc.

is the leading Treasury consulting firm

working with corporations and financial institutions.

Our experience and thought leadership in treasury

management, working capital management, liquidity and

payments, combined with our comprehensive view of the

market, reward you with a unique perspective, unparalleled

insights and actionable solutions. For more information,

please visit www.TreasuryStrategies.com.

© Treasury Strategies 2008

1

Contents

Study Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Key Treasury Issues and Initiatives . . . . . . . . . . . . . . . . . . . . . . 5

Treasury Staffing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Liquidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Treasury Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Financial Services Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Research Program Background . . . . . . . . . . . . . . . . . . . . . . . . 32

Treasury in TransformationResults of Treasury Strategies’ 2008 Global

Corporate Treasury and Liquidity Research Program

3

The goal of the Corporate Treasury and Liquidity ResearchProgram is to help corporate treasurers and financial servicesproviders better understand the market. Treasury Strategiesbelieves that by understanding the issues that are top of mindfor corporate treasurers, financial services providers will bebetter positioned to deliver value to their corporate customersand, in turn, retain and acquire new business in this dynamic,rapidly changing environment. The research also provides ourcorporate clients around the globe with a benchmark ofcurrent treasury practices and issues.

The research program explores the corporate treasury functionbroadly, encompassing treasury key issues and initiatives,organization and staffing, liquidity management practices,treasury technology and financial services providers.

Segment DefinitionsFor the purposes of analyzing segment differences, respondentswere grouped by annual turnover, as shown below.

Region Definitions

• North America comprises the US and Canada

• Europe comprises Western Europe (Belgium, Denmark,France, Germany, Italy, Netherlands, Norway, Luxembourg,Spain, Sweden, Switzerland and the United Kingdom)

• Asia-Pacific comprises select key Treasury centers within theregion (Australia, Hong Kong, India, Malaysia and Singapore)

Study Objectives

Segment Annual

Middle Market Less than $1 Billion USD

Mid-Corporate $1 to $5 Billion USD

Large Corporate Over $5 Billion USD

4

Introduction

implementing or considering Treasury Management Systems(TMS), Treasurers are also evaluating a broader array oftechnology. They’ve expanded their focus beyond TMS to assessan array of technology solutions that can be integrated intotheir TMS or enterprise resource planning (ERP) — such asmulti-provider execution platforms, digital dashboards, bankrelationship management software, online investment portals,payment factories and corporate access to SWIFTNet.Technology solutions are helping companies centralize keyactivities such as FX and investments. As a result, Treasurers areseeking integrated, global treasury solutions; and the bankingcommunity is responding. Banks are consolidating globally andalso better integrating their solutions across regions. Reflectingthese moves, our research indicates that more banks areemerging with leading market positions in multiple countries.In particular, there has been a rise in both pan-European andtrue global banks. Through technology and more tightlyintegrated global banking solutions, Treasury is improvingefficiency — not to reduce staff, but to free up resources totake on expanded strategic activities. Across all regions, at least10% of respondents noted that they increased treasury staffin 2008, underscoring the strategic importance of Treasury.

• In response to market turmoil, Treasury is rebalancingits cash portfolios and restructuring its bankingrelationships. Market turmoil has led Treasurers to reduceportfolio risk, often by moving money out of activeinvestments and into lower risk, passive investmentssuch as money market funds. In most regions, Treasuryis planning to rely more heavily on banking providers,expanding service usage with a core group of strategicpartners. In 2005, Treasury Strategies outlined the“Next Generation of Treasury Services,” arguing that thetraditional treasury management business had maturedand providers could grow by redefining the business toencompass deeper working capital and liquidity solutions.Now, in 2008, we are seeing the emergence of select banksthat are yielding double digit growth by delivering deeper,more tightly integrated solutions to their corporate clients.

The remainder of this document outlines the above themes ingreater detail.

Treasury is undergoing a profound transformation around theglobe. In response to market turmoil, globalization, bankingconsolidation and the increasingly strategic nature of payments,Treasury is expanding its scope of activities and becoming achange agent within the firm. Our research and consultingwork reveal Treasury is continuing to evolve, characterized byseveral key themes. By understanding and crafting effectiveresponses to these themes, financial services providers can winshare and differentiate themselves in the marketplace.

• Treasury is becoming a strategic business partner, developingcross-functional relationships to help business units globalizeas well as execute and accept new payment media. In somecases, Treasury is helping to integrate the physical andfinancial supply chains to accelerate the speed of business.As part of this effort, Treasury is examining counterpartyrelationships with financial institutions and trading partnersfor their ability to support this integration and driveefficiencies. More aggressive firms are adopting innovativenew solutions that deliver buyer financing, simplify andelectronify the exchange of payment documents, improveworkflow around working capital, and deliver enhancedinformation throughout the lifecycle of a transaction.

• Treasury is managing a broader set of risks, expandingbeyond foreign exchange (FX) and interest-rate risk, toassume responsibility for commodity risk and, in some cases,non-financial risks such as non-insurable business risk as partof a comprehensive enterprise risk management responsibility.Treasurers are rethinking their approaches to identifying,measuring and managing risk, offering financial servicesproviders unprecedented opportunities to differentiate theirideas and solutions. In response to changing financialaccounting standards governing measurement and reportingof risk, as well as heightened sensitivity to counter-party risk,Treasurers are seeking assistance in the form of technologysolutions and advisory services from financial partners.

• Treasury is deploying technology and centralizing activitiesto strengthen controls and risk management, maximizeefficiency and improve access to liquidity — a critical objectivein today’s tight credit markets. While many firms are

5

Key Treasury Issues and Initiatives

Middle Market Mid-Corporate Large Corporate

NorthAmerica

1. RiskManagement

2. Credit/Funding

3. LiquidityManagement


2. RiskManagement

3. Credit/Funding


2. RiskManagement

3. Credit/Funding


Europe 1. FX RiskManagement

2. RiskManagement


1. FX RiskManagement


3. RiskManagement

1. RiskManagement




Asia-Pacific 1. FX RiskManagement

2. Credit/Funding

3. MarketConditions


2. Credit/Funding



2. Credit/Funding


In Europe and Asia-Pacific, FX risk management is the otherrecurring, top-three treasury issue cited by respondents. FX riskmanagement is a key issue in both Europe and Asia-Pacific inpart because of the significant decline of the US dollar relativeto the euro, the yen and other Asian currencies.

Concerns around FX, risk, liquidity and funding can be seenthroughout the survey results.

Key IssuesAt the outset of 2007, Treasury Strategies called uponTreasurers to “Bulletproof” Treasury — to safeguard every dollarof cash flow throughout its lifecycle via appropriate controls,policies and procedures that identify, measure, monitor andmanage risk. Treasurers that heeded this advice were wellserved and were able to continue their pursuit of a strategicagenda while minimizing the distraction from market turmoil.As can be seen by the survey results, however, many corporatetreasurers are now revisiting their risk, liquidity and fundingcapabilities in light of recent market events.

Liquidity management, risk management and credit / fundingdominate the 2008 rankings of issues that are keepingTreasurers up at night — no matter what time zone they live in.These three treasury issues dominate all turnover segments inNorth America and reflect the impact of tight credit conditionsfollowing the US mortgage meltdown, as well as extreme USdollar volatility, a struggling economy and heightenedregulatory oversight.

6

Large Corporate Company Interestin Bank Issues (by Region)

a

% Respondents Rated Issue4 or 5 = High Priority

a

0%

10%

20%

30%

40%

50%

60%

CorporateAccess

to SWIFT

OutsourcingTreasuryFunctions

XMLStandardsfor Treasury

Activity

SEPAInitiatives

TradeFinance

%Re

spon

dent

s

Asia-Pacific Europe North America

Mid-Corporate Company Interestin Bank Issues (by Region)

a


a

0%

10%

20%

30%

40%

50%

60%

CorporateAccess

to SWIFT



Activity

SEPAInitiatives

TradeFinance

%Re

spon

dent

s


Middle Market Company Interestin Bank Issues (by Region)

a


a

0%

10%

20%

30%

40%

50%

60%

CorporateAccess

to SWIFT



Activity

SEPAInitiatives

TradeFinance

%Re

spon

dent

s


Large Corporate Company Interestin Bank Issues (by Select Country)

a


a

0%

10%

20%

30%

40%

50%

60%

CorporateAccess

to SWIFT



Activity

SEPAInitiatives

TradeFinance

%Re

spon

dent

s

France UK Canada US

Emerging Industry IssuesParticipants were also asked to evaluate the relative importance of key industry issues. Shown below is a sample of responses fromLarge Corporate Treasurers. Detail on each of these issues is provided on the following page.

7

Corporate Access to SWIFT — Many firms have directlyconnected to SWIFT to achieve straight-through processing ofpayments and financial information. Straight-throughprocessing not only improves efficiency and control, but alsohelps optimize working capital and risk management byaccelerating access to critical information. Interest in CorporateAccess to SWIFT remains strong across all regions, but is ofparticular interest in Canada, Asia-Pacific and Europe, whereroughly one in three Large Corporate Treasurers noted that thistopic was a high or very high priority. This level of interestsuggests that banks can differentiate themselves by helpingfirms understand the costs and benefits of SWIFT connectivityand, if appropriate, assist them in achieving straight-throughprocessing.

Outsourcing of Treasury Functions — Many Treasurers arereluctant to outsource treasury functions given the strategicnature of Treasury, the level of risk inherent in outsourcing andthe one-time resources needed to migrate to an outsourcingarrangement. Despite these obstacles, Large CorporateTreasurers in Asia-Pacific and Canada expressed strong interestin outsourcing, suggesting opportunities for providers todeliver broader solutions that free up resources for Treasurers.

XML Standards — While some Treasurers have aggressivelycalled for standards, only a modest percentage of respondentsexpressed interest in XML standards. To some extent, thisdynamic likely reflects the emerging nature of industrystandards. While efforts are ongoing under the umbrella of ISO20022, many Treasurers are unclear as to how these standardswill operate and how they can benefit from them. Industryassociations, technology providers and leading bankers mustcontinue to advance standards not only to ensure theirinteroperability, but also to communicate how such standardswill operate and the benefits corporations and providers canachieve as a result of these standards.

SEPA Initiatives — The Single European Payment Area is ofgreat interest to Treasurers in Europe, which is no surprise.However, a material percentage of Treasurers in Asia-Pacific,Canada and the US also ranked SEPA as a high priority issue.In its final form, SEPA should enable Treasurers to streamlinebanking structures and the execution of payments. TheTreasurers in these regions that cited SEPA as a high priorityissue likely have, or plan to have, financial activities acrossmultiple countries in the SEPA zone. Financial institutionsshould ensure that they clearly communicate the impact ofSEPA on corporate low value payments into the Eurozone andthe associated pricing dynamics of low value payments. NorthAmerican corporates appear to be expecting that paymentsunder SEPA will carry the same pricing structure as low valuepayments in North America, which will not likely be the case.As a result, banks will need to develop and articulate pricingstrategies that position the value of their global paymentscapabilities and which also avoid customer dissatisfaction orconfusion. For some customer segments, complex pricingschemes that vary by country and region may be effective,while for others, a more uniform pricing structure maymaximize revenues while also aligning pricing structure tocustomer needs.

Trade Finance — A “perfect storm” has raised interest in tradefinance solutions across all regions. First, trade flows continueto grow and expand, with many companies now trading withemerging economies in Africa and Latin America, wherebanking infrastructures are less mature and risks are harderto identify and manage. These conditions make open accountstructures less feasible, leading to a resurgent interest intraditional trade solutions. Secondly, tightening credit marketshave led firms both to seek alternative sources of financing aswell as to re-evaluate their own credit exposures with theircustomers. In response to these trends, we are witnessingcreative new trade solutions and a more aggressive cross-saleof trade finance services.

8

Projects During the Next 12 Months:Large Corporate (by Region)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Re-Bid/Review BankServices

TechnologyEnhancement

Technology Selection/Implementation

Business Development/Expansion

Internal Process/Policy Review

Cash Management

Credit/Funding

Risk Management


Projects During the Next 12 Months:Large Corporate (by Select Country)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Re-Bid/Review BankServices

TechnologyEnhancement

Technology Selection/Implementation

Business Development/Expansion

Internal Process/Policy Review

Cash Management

Credit/Funding

Risk Management

Liquidity Management

France UK Canada US

Many Treasurers also cited process and policy reviews as keyinitiatives, including:

• Centralization of key treasury functions and the merging ofdisparate treasury units

• Migration to electronic payments and electronic invoicing

• Imaging of physical documents and checks to streamlinecollections

• Establishment of shared service centers

• Documentation of existing procedures

• Efficiency initiatives to automate or expand reporting

Financial services providers can assist companies with manyof these initiatives through enhanced reporting, consultativeadvice on optimal banking account structure, and newpayment solutions such as electronic invoice presentment /receipt, accounts payable processing, and check / documentimaging solutions.

Planned InitiativesThe initiatives Treasurers have planned for the next 12 monthsreflect both current concerns and the emerging strategicnature of Treasury. A significant number of firms are eitherselecting or implementing treasury technology or are workingto enhance their current treasury technology. In many cases,the focus on technology is driven by a desire to address thekey issues cited earlier — improved risk and liquiditymanagement. By automating functions and improving accessto information, Treasury can better control and monitor thefinancial activities of the firm. Technology also provides aplatform for centralization, a critical component in controllingrisk and gaining visibility to liquidity. Lastly, through automationand access to information, technology helps Treasurers freeup resources for strategic activities and gain access to keyinformation needed to support strategic decision making. Theone exception to the focus on technology is the Asia-Pacificregion — this dynamic is somewhat surprising as firms in thisregion exhibit a low rate of adoption of treasury technologyand have relatively high treasury staffing levels.

9

Treasury staffing levels remain lean. In each of the three majorregions covered by the study, median treasury staffs are lessthan 10 full-time equivalent (FTE) employees for both theMiddle Market and Mid-Corporate segments. This lean staffingcontinues to prevail despite treasury departments being taskedto do more than ever across a range of operational, analyticaland strategic activities.

Median Worldwide Treasury FTE(by Region)

0

5

10

15

20



Median Worldwide Treasury FTE(by Select Country)

0

5

10

15

20

France UK Canada US


Treasury staffing exhibits the least variance by firm size inAsia-Pacific. The consistency of staffing levels in Asia-Pacificacross firms of varying size results largely from the complexityof the banking and treasury environment as well as theexpanded scope of such Treasuries. The Asia-Pacific region ischaracterized by multiple currencies, varied banking practices,and complex legal and regulatory requirements. Thiscomplexity tends to introduce a fixed cost component toTreasury as even relatively modest-sized firms must grapplewith resource demands related to multiple currencies and legal/ regulatory environments. Furthermore, it is not uncommonfor treasury units in Asia-Pacific to be responsible for financingand even sales and operating activities.

Given the dynamics outlined above, the relatively modest sizeof Large Corporate Treasuries in Asia-Pacific is surprising.Because Asia-Pacific Treasuries have lower levels of adoption oftreasury technology, many are burdened with higher levels ofmanual activities. At the same time, many Treasurers in theAsia-Pacific region cited business development initiatives askey issues. These dynamics point to a disconnect, as Asia-PacificTreasuries are being asked to do more in a complexenvironment with relatively lean staff levels and without thebenefit of technology. Consistent with this dynamic, we haveencountered in our corporate consulting engagements thattreasury staffs in Asia-Pacific work considerable overtime.

Faced with limited resources and expanding responsibilities,financial services providers have opportunities to expand thescope of services delivered to Treasury. For those Treasurieslacking access to technology, the bank web platform can serveas a limited TMS, delivering enhanced information, executionand decision-support around cash management. Providers canalso serve as an outsource provider for various Treasuryactivities, including reporting, reconciliation, liquiditymanagement, investment, policy attestation, paymentdecisioning and management of various functions across theaccounts payable and accounts receivable value chain.

Treasury Staffing

10

50%

40%

30%

20%

10%

0%Asia-Pacific Europe North America

Companies Reporting an Increase in FTE(by Region)


Companies Reporting an Increase in FTE(by Select Country)

50%

40%

30%

20%

10%

0%France UK Canada US


While the vast majority of respondents in all three regionsreported that treasury staffing remained stable for the pastyear, a significant number of firms reported increases intreasury staffing levels. In many cases, Treasury has been ableto acquire additional staff in response to risk concerns orbusiness expansion.

A significant percentage of Canadian firms across all marketsegments increased treasury staff levels. Many Canadian firmsadded staff as part of an effort to increase their risk managementcapabilities in light of a weakening US dollar, volatile andincreasing commodity price levels, and heightened risk in thefinancial markets. Because government entities in Canadahave generated surpluses, which reduced the inventory ofgovernment securities, Canadian Treasurers have increasinglypurchased direct instruments. In some cases, they purchasedstructured investment vehicles and other instruments thatlater became credit and liquidity-impaired. The recent marketdisruption has led many Canadian Treasurers to strengthentheir risk management infrastructure and capabilities.

Globalization and the pace of regulatory / banking change inEurope has led many Large Corporate firms to expand treasurystaff. In particular, nearly one in three UK Large Corporatesreported an increase in treasury staff levels.

Notably, the region with the most apparent staffing pressures,Asia-Pacific, exhibited relatively modest growth in staff levels.In contrast, while very few firms in France increased treasurystaff levels, treasury units in France enjoy some of the highestlevels of adoption of treasury technology, minimizing the needfor additional staff.

11

Conversely, Canadiancorporations hold the lowestpercentage of their portfoliosin bank deposits. Despitehaving the ability to offerinterest on operatingaccounts, as well as the abilityto market term deposits andother instruments to theircorporate clients, Canadianfinancial institutions have notbeen aggressive in marketingliquidity solutions to theircorporate customers. As aresult, Canadian Treasurershave turned to directinstruments, despite the costsand risks inherent in such anapproach. While the Canadianmarket has seemed to be anatural fit for money market funds — which offer efficiency,convenience and risk minimization — Canadian Treasurers donot heavily invest in funds. We suspect this is due to the focusof the fund companies on the larger market opportunity inthe US.

Liquidity Portfolio by InstrumentLarge Corporate (by Region)

0%

20%

40%

60%

80%

100%


OtherDirect Instruments

Money Market FundsActively ManagedBank Deposits

Liquidity Portfolio by InstrumentLarge Corporate (by Select Country)

0%

20%

40%

60%

80%

100%

France UK Canada US

OtherDirect Instruments

Money Market FundsActively ManagedBank Deposits

Instruments• Bank Deposits and Sweep

– DDA / Current Accounts– Offshore Deposits– Time Deposits / CDs– Savings / MMDAs– Sweep Off Accounts

• Actively ManagedPortfolios

• Money Market MutualFunds

• Direct Instruments– Commercial Paper– Repo’s– Government / Sovereign

Instruments– Notes / Bonds

• Other– Enhanced Cash Funds– Banker’s Acceptances– Overnight Investments– Equities / Mutual Funds– Loans

As noted earlier, liquidity management is a top concern forTreasurers across most regions and turnover segments. In bothour consulting work and our research, we’ve seen thatTreasurers have not only rebalanced their portfolios in responseto market conditions, but they have also continued to developtheir internal liquidity practices to better monitor, aggregateand manage liquidity. Going forward, Treasurers note they willfurther rebalance their portfolios, which presents opportunitiesand threats to financial services providers.

Portfolio CompositionReflecting varied regulatory environments and traditionalmarket practices, portfolio compositions vary widely by regionand country.

Corporations in Asia-Pacific proportionally invest the greatestamount in bank deposits, reflecting strong relationships withtheir banks, less developed secondary markets for fixed incomeinstruments, and the lack of penetration in money marketfunds. The fact that treasury technology is not widely deployedin the region also accounts for the choice of less complexinvestment instruments.

Liquidity

12


1. Advisory Services

2. UnderlyingInstruments

3. Value-AddedServices

1. Offered throughConcentration Bank


3. Value-AddedServices


2. Offered throughConcentration Bank

3. Size of Fund

Risk: Unsurprisingly, given the recent troubles with mortgage-backed and auction rate securities, corporations in all regionscited underlying instruments as a top-2 criterion for determining

Money market funds represent a growing and significantpercentage of Treasury portfolios, as these instruments offer anattractive yield while diversifying or minimizing credit riskexposures. Long a mainstay of cash portfolios of Frenchcorporations, money market funds have gained an increasingshare of corporate cash throughout the US and Europe,particularly in the UK. In most cases, where money funds havebeen adopted they displaced direct instruments. The reasonsfor this are multiple. First, money market funds, due to theirscale, can aggregate multiple investments into a large portfolioand thus diversify credit and other risk. Secondly, the largestand most competitive money funds can offer attractive yields.Lastly, money funds are a convenient investment option —many are now easily accessible through both proprietary andnon-proprietary online portals and most offer corporations theability to make purchases and redemptions later in the day,when they have greater certainty as to their cash position.

Several banks have taken advantage of the recent marketturmoil to market deposit products aggressively. Time depositshave enjoyed a resurgence and there has also been amovement from direct commercial paper investments intorepurchase agreements, in order to minimize risk.

Money Fund SelectionTreasurers select money funds based on risk, value-addedservices, advice and convenience.

which money fund they select. Underlying instruments was thetop criterion in North America and the second most populardeterminant in Europe and Asia-Pacific. Also reflecting a focuson risk minimization and stability, North American Treasurerscited the size of the fund as a selection criterion.

Value-Added Services: Treasurers in Europe and Asia-Pacificcited value-added services as a primary selection criterion.Increasingly, money funds are being sold not only asinstruments, but also as part of the internal liquidity processesof a corporation. Fund providers are delivering value to theircustomers through enhanced reporting, ease of execution, andalignment of the fund with policy guidelines combined withtransparency of reporting on underlying instruments.

Advice: Given the relatively emerging nature of money fundsin Asia-Pacific, it is unsurprising that advisory services is thenumber one selection criterion for Corporate Treasurers in Asia-Pacific. Because bank deposits have dominated the Asia-Pacificmarket, fund providers must articulate the benefits of moneyfunds, anticipate and overcome potential purchase objections,and educate the market on the use of such products. Notably,advisory services ranked as a high priority in Canada, which haslimited experience with funds, but a low priority in Europe andthe US, reflecting the relatively high level of comfort with funds.

Convenience: Consistent with prior research and our experiencein consulting engagements, we find that the concentrationbank is “king.” All things being equal, the concentration bankcaptures the majority of a corporations’ liquidity because theyprovide a convenient channel for investments. Furthermore,corporations — especially those with large cash portfolios — areincreasingly selecting their concentration banks on the basis oftheir liquidity management capabilities. By understanding theircustomers’ liquidity needs and offering value-added tools —such as investment portals, online policy management, cashpooling management and investment advice — providers cancommand a position as the primary concentration bank andgain share of money funds and other cash investments.

13

Portfolio RebalancingCorporate Treasurers plan to shift the compositions of theircash portfolios in response to market conditions.

To understand how portfolios might shift, we asked participantsto identify the instruments they planned to increase or decreaseby 20% or more. In general, firms are reducing risk whilelooking to enhance yield, primarily via shifts into interest-bearing vehicles such as time deposits and money funds.

Consistent with their prior investing behavior, Asia-Pacific firmsthat project a 20% or more increase in their instrument profileplan to direct these funds into deposits. A small number ofMiddle Market firms noted an intention to invest increasedliquidity in repurchase agreements. Across the Middle Marketand Mid-Corporate segments, a material number of firms noteda plan to increase holdings in foreign currency time deposits,reflecting the global nature of these firms’ treasury activities.

Within Europe, we see two key trends — firms are planning toinvest money further out on the yield curve via time deposits,and all segments show an interest in directing additionalliquidity into money market funds. This dynamic underscoresthe increasing adoption of money funds by European Treasurers.


Europe 1. Time Deposits2. Interest-Bearing

CurrentAccounts

3. Money MarketFunds

1. Time Deposits2. Money Market

Funds3. Interest-Bearing

CurrentAccounts

1. Time Deposits2. Interest-Bearing

CurrentAccounts



Asia-Pacific 1. ForeignCurrency TimeDeposits

2. Interest-BearingCurrentAccounts

3. RepurchaseAgreements

1. Time Deposits2. Foreign

Currency TimeDeposits


1. Time Deposits

French Corporate Treasurers show distinctive differences byfirm size. While all segments show an intention to directadditional liquidity into money funds and time deposits, thesegments vary in how they intend to invest in short-term cash.Middle Market firms, possibly due to the lack of scale, willinvest this liquidity in non-interest bearing current accountsand Mid-Corporates plan to direct incremental liquidity intointerest-bearing current accounts. In contrast, Large Corporatefirms plan to invest in repurchase agreements.

Within the UK, firms that plan to increase liquidity instrumentsproject increases in time deposits, interest-bearing currentaccounts and money funds. Large Corporate Treasurersexpecting increased liquidity also cited commercial paper as aplanned area of increase.


UK 1. Time Deposits



1. Time Deposits



1. Time Deposits


3. CommercialPaper


France 1. Money MarketFunds

2. Non-interestBearing CurrentAccounts

3. Time Deposits


2. Time Deposits3. Interest-

Bearing CurrentAccounts

1. Time Deposits2. Money Market

Funds3. Repurchase

Agreements

14

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BankThird PartyInternal


Pooling ManagementLarge Corporate (by Region)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BankThird PartyInternal

France UK Canada US

Pooling ManagementLarge Corporate (by Select Country)

PoolingOf those corporations that pool their investments, the majority manage their pooling internally. Most of the remainingrespondents pool through banks, and only a very few respondents in Europe and North America pool through a third party. Theexception to this dynamic is Canada, where the majority of firms that pool reported the use of a bank or third party while lessthan one-third of those firms that pool manage the pool internally. Canadian respondents in all turnover segments were mostlikely to have their banks manage pooling and also most likely to turn to a third-party non-bank to manage their pooling.

The use of local banks is consistently the lowest among largecorporations and the highest among Middle Market firms.Nearly twice as many Middle Market firms with global bankingneeds report the exclusive use of local banks.

15

Bank Relationship Structure by RegionWhile most respondents use a mix of local, regional and globalbanks for their financial needs, a surprising percentage of LargeCorporate firms in each region use only local banks. This trendsignals a tremendous opportunity for companies to consolidatetheir activities to a regional or global banking structure tomake it easier to control and manage cash. Banks have anopportunity to provide the services those clients need to realizethese efficiencies.

Within the Large Corporate segment, Canadian firms are mostlikely to use local banks and most likely to use a single globalbank across all regions. US firms are most likely to report theuse of a regionally consolidated banking structure. WithinNorth America, this dynamic suggests an opportunity forCanadian banks to expand their local relationships to regionalor global delivery of services.

Bank Relationship StructureMiddle Market (by Region)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


MixSingle Global Bank

Local Banks in each Region One Regional Bank across Regions

Bank Relationship StructureLarge Corporate (by Region)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%




Bank Relationship StructureLarge Corporate (by Select Country)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

France UK Canada US



16

Technology continues to be viewed as a critical tool by whichcorporations can improve treasury processes. In fact, our researchsuggests that more corporations are broadening their use oftreasury technology. The two clear favorite types of treasurytechnology among respondents are stand-alone, best-of-breedTMS applications and bank account reconciliation technology.Adoption of treasury technology continues to increase, drivenby the demand by Treasury for solutions that improveefficiency, better control risk, and deliver critical informationand insights needed to support strategic decision making.

Most Popular FormsTMS applications continue to be more popular than treasurymanagement system modules of ERP systems. While ERP

treasury modules continue to improve, TMS technology is stillviewed by many treasurers as being more robust and worth theadditional effort needed to integrate the TMS into the ERP.

Almost half (47%) of North American respondents use TMStechnology. Dedicated, stand-alone TMS platforms are nearly aspopular with European companies (36%) and have beenadopted by about one in five (22%) Asia-Pacific companies.

Far fewer North American companies, only about 11%, areusing ERP Treasury modules, which are more popular in Europe(32%) and Asia-Pacific (27%).

Treasury Technology


TMS Usage(by Region)

0%

20%

40%

60%

80%


%Re

spon

dent

s


ERP Treasury Module Usage(by Region)

0%

20%

40%

60%

80%


%Re

spon

dent

s

17

As can be seen in the charts below, the usage of TreasuryManagement Systems is more common with larger firms.(Note: some firms noted the use of both stand-alone TMS andERP Treasury Modules).

France stands out as a major user of both TMS and ERP Moduletechnology. One reason for this dynamic is that French firmshistorically did not have access to interest-bearing currentaccounts. As a result, these firms had to monitor liquiditybalances in order to efficiently mobilize cash.

80%

60%

40%

20%

0%

TMS Usage (by Region)



TMS Usage (by Select Country)

80%

60%

40%

20%



80%

60%

40%

20%

0%

ERP Treasury Module Usage(by Region)



ERP Treasury Module Usage(by Select Country)

80%

60%

40%

20%



18

Inter-Company Netting Usage(by Region)

0%

20%

40%

60%

80%


%Re

spon

dent

s

Bank Account Reconciliation Usage(by Region)

0%

20%

40%

60%

80%


%Re

spon

dent

s

80%

60%

40%

20%

0%

Bank Account Reconciliation Usage(by Region)



Bank Account Reconciliation Usage(by Select Country)

80%

60%

40%

20%



Beyond Treasury Management SystemsTreasurers are taking a more holistic view of technology. Asthey pursue goals such as increasing cash visibility, improvingcontrol over transactions and producing more flexiblereporting, more Treasurers are evaluating an array oftechnology options with an eye toward integrating thosetechnologies with their TMS. For instance, 20% or more ofrespondents across all regions are using inter-company nettingtechnology. In Europe, netting and financial risk managementtechnology is emerging due to the abundance of inter-company transactions and the classification of FX as thebiggest risk management issue in treasury operations.

The usage numbers for bank account reconciliation technologyare similar to those for TMS technology across regions. NorthAmerica is the top user (50%), followed by Europe (41%) andAsia-Pacific (21%). France again is noteworthy, having a higherpercentage of users of this technology than the United States,Canada and the United Kingdom.

19

80%

60%

40%

20%

0%

Inter-Company Netting Usage(by Region)



Inter-Company Netting Usage(by Select Country)

80%

60%

40%

20%



80%

60%

40%

20%

0%

FX Execution Systems Usage(by Region)

Asia-Pacific Europe North AmericaMiddle Market Mid-Corporate Large Corporate

FX Execution Systems Usage(by Select Country)

80%

60%

40%

20%



Another example of increasing adoption of broader technologysolutions is the fact that more than a third of Mid-Corporatesin Canada report using financial risk management technology.This trend reflects the need of many firms to analyze andmanage commodity exposures.

About 40% of Mid- and Large Corporates in the UK are usingFX execution systems, and about one-quarter of Mid- andLarge Corporates in the US are using online investment portals.The growth of online investment portals has been rapid —reflecting demand for efficiency, improved advice and easeof execution.

20

80%

60%

40%

20%

0%

Online Investment Portal Usage(by Region)

Asia-Pacific Europe North AmericaMiddle Market Mid-Corporate Large Corporate

Online Investment Portal Usage(by Select Country)

80%

60%

40%

20%



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Treasury Technology Selection(by Region)

ERP Treasury Module FX Execution TMSAccount Reconciliation Netting Financial Risk Mgmt

Investment portals are growing in popularity as greaterfunctionality is being added to these Web sites in the form ofperformance analytics, more fund choices, more timelyperformance reporting and investment policy management,including parameter controls on tenor and instrument limits.

Plans through 2009Over the next 12 to 18 months, a significant number of firmsplan to select treasury technology, with most looking to adedicated TMS and, in Asia-Pacific, bank account reconciliationtechnology platforms. Many firms are also exploring enhancedtechnology tools, including electronic bank accountmanagement systems, with which firms can better monitor andmanage bank account mandates and authorized signers.

21

As we have found in our corporate consulting experience, mostfirms are not using the full capabilities of their TMS, whether itis a dedicated system or an ERP treasury module. Unsurprisingly,of those firms planning to enhance existing technology, thevast majority is focusing on the use of their TMS. These activitiesinclude integrating additional banking relationships into theTMS reporting structure, automating additional treasuryactivities, and using additional modules — such as debtmanagement and investment management.

Among those firms planning to implement treasury technologyin that time frame, TMS is by far the leading form they plan toimplement across all regions.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Treasury Technology Implementation(by Region)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Treasury Technology Enhancement(by Region)


22

Because firms in North America and Europe primarily plan toreduce the number of transaction providers, banks in theseregions must make a concerted effort to become moreimportant to their clients. One key trend we have seen is thetendency of firms to consolidate more of their business withbanks that can deliver a global solution. For regional banks thathave tended to cede global business to larger banks, it is clearthat this strategy will result in significant client loss in theyears to come unless they expand their global capabilities.

In the United States, the need to deepen relationships is mostapparent, as over 40% of large corporates noted an intentionto reduce the number of transaction banking providers.Historically, the US market was characterized by significantfragmentation so that companies with a national footprintrequired multiple collection banks. Recently, many banks havedeveloped national capabilities through virtual vault (currency)services and remote deposit capture solutions. As a result, firmsare now able to consolidate their collection activities with asingle, national provider.

The turnover segments most likely to reduce their number ofbanking relationships in the coming year are the Middle Marketin the United Kingdom (66%) and the Mid-Corporate (47%)and Large Corporate (42%) segments in the United States.

Conversely, the market segments with the greatest percentagesof companies expecting to increase banking relationships areAsia-Pacific Mid-Corporate (26%) and Large Corporate (25%)and United Kingdom Middle Market (22%). The latter is theleast stable market segment, with only 13% expecting toremain the same with their banking relationships.

With lean staffing and a growing list of challenges,particularly in the areas of risk and liquidity management,many corporations are looking to deepen their relationshipswith their primary banking providers. While many LargeCorporate firms have sizable Treasury staffs, the majority ofMiddle Market and Mid-Corporate firms operate with relativelysmall Treasury staffs. As a result, these firms lack functionalspecialization in key areas such as global cash management,financial risk management and optimization of global liquidity.Accordingly, these firms are turning to their financial servicesproviders for assistance as they grow and optimize theirtreasury operations.

Changes in Transaction Services ProvidersA significant number of companies in all regions projectchanges in their transaction services providers. Nearly four inten companies in North America expect changes to theirtransaction banking rosters, and roughly 25% in Europe alsoexpect change. Even in the Asia-Pacific region, which ischaracterized by long-standing banking relationships, one inseven companies expect changes to its banking roster.

Transaction Services Provider # Expectations(by Region)

0%

20%

40%

60%

80%

100%


Increase Remain the same Decrease

3%

85%

12%

15%

76%

9%

26%

62%

12%

Financial Services Providers

23

Mid-CorporateTransaction Services Provider # Expectations

(by Region)

0%

20%

40%

60%

80%

100%



74%

26%

28%

65%

7%

45%

55%

Mid-CorporateTransaction Services Provider # Expectations

(by Select Country)

0%

20%

40%

60%

80%

100%

France UK Canada US


22%

70%

7%

20%

77%

3%

47%

53%

29%

71%

Large CorporateTransaction Services Provider # Expectations

(by Region)

0%

20%

40%

60%

80%

100%



75%

25%

24%

71%

4%

37%

56%

7%

Large CorporateTransaction Services Provider # Expectations

(by Select Country)

0%

20%

40%

60%

80%

100%

France UK Canada US


29%

68%

3%

16%

79%

5%

100%

42%

50%

8%

24

For example, in the United States, the largest percentage ofMiddle Market respondents are spending $51,000 to $250,000a year on transaction services, while the top category is$251,000 to $1 million a year for Mid-Corporate firms andover $1 million for Large Corporates.

Transaction Services Spend & UsageTransaction services spend is widely distributed across the threeregions, indicating that spend is driven more by company sizeand transaction volumes than by location or industry.

Transaction Services Spendin 2008 (USD) (by Region)

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Under 50k

51k -250k

251k - 1mm

Over 1mm

North America Europe Asia-Pacific

Middle MarketTransaction Services Provider # Expectations

(by Region)

0%

20%

40%

60%

80%

100%



14%

76%

10%

18%

82%

4%

87%

9%

Middle MarketTransaction Services Provider # Expectations

(by Select Country)

0%

20%

40%

60%

80%

100%

France UK Canada US


66%

13%

22%

7%

88%

5%

20%

80%

7%

93%

25

Mid-CorporateTransaction Services Spendin 2008 (USD) (by Region)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm


Mid-CorporateTransaction Services Spend

in 2008 (USD) (by Select Country)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm

US Canada UK France

Middle MarketTransaction Services Spendin 2008 (USD) (by Region)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm


Middle MarketTransaction Services Spend


0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm

US Canada UK France

Large CorporateTransaction Services Spendin 2008 (USD) (by Region)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm


Large CorporateTransaction Services Spend


0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm

US Canada UK France

26

Transaction Services Usage Expectations(by Region)

0%

20%

40%

60%

80%

100%



11%

68%

21%

5%

78%

17%

19%

54%

28%

Liquidity Services Providers Expectations #(by Region)

0%

20%

40%

60%

80%

100%



5%

83%

13%

90%

10%

13%

73%

14%

In each region, half to three-quarters of respondents expecttransaction services usage to remain the same over the next12 months. But in all three regions there are more respondentswho expect to increase usage in the next year than there arerespondents who expect to decrease usage.

North America is the region with the highest percentage ofrespondents expecting to increase usage (28%), followed byEurope (21%). This is interesting because these are the sameregions where more companies expect to drop bankingrelationships rather than add them. The net effect of thesetwo dynamics is that primary banks will see significant gainsin revenue. The call to action for banks in all regions, particularlyNorth America, is clear — deepen and strengthen your relationshipposition to protect against attrition and enjoy the benefits ofincreased spend.

Across all regions, firms expecting to increase their transactionservices spend over the next 12 months cited M&A activity

and consolidation of internal processes / systems as the mostpopular reason.

Liquidity Services ProvidersRelative to plans to change transaction banking providers, asmaller number of firms are expecting to add or drop liquidityservice providers; this is a significant change from prior years,when change in liquidity provider was typically the highestfrequency response. This shift reflects the current marketenvironment. Burned by credit and liquidity disruptions, morecompanies may be sticking with proven and trusted providers.In Asia-Pacific, 90% of respondents expect to make no change,in Europe 83%, and in North America 73%.

27

Large Corporate – Liquidity Services ProvidersExpectations # (by Region)

0%

20%

40%

60%

80%

100%



8%

83%

10%

80%

20%

9%

65%

26%

Large Corporate – Liquidity Services Provider# Expectations (by Select Country)

0%

20%

40%

60%

80%

100%

France UK Canada US


3%

84%

13%

16%

84%

71%

29%

10%

64%

26%

Mid-Corporate – Liquidity Services ProvidersExpectations # (by Region)

0%

20%

40%

60%

80%

100%



8%

83%

10%

87%

13%

13%

71%

17%

Mid-Corporate – Liquidity Services Provider# Expectations (by Select Country)

0%

20%

40%

60%

80%

100%

France UK Canada US


4%

78%

19%

7%

93%

14%

69%

18%

5%

85%

10%

One notable finding about the companies that reported plansto make a change in liquidity providers is that they are alsomore likely to consider a change in transaction providers thanthose companies that have no plans to make a change in theirliquidity providers. Thus, it appears that to win new relationships,banks must promote integrated solutions that address both

transaction banking and liquidity management needs.

The market segments most likely to add liquidity servicesproviders are Large Corporates in Canada (29%) and the UnitedStates (26%), as well as Middle Market companies in the UnitedKingdom (22%).

Bank Service LinkagesApproximately two-thirds of corporations in all regions use asingle bank for their primary concentration, disbursement andcollections provider. This strong majority is driven by the largeportion of Middle Market firms in the survey that only haveone or two banking relationships.

However, a noteworthy percentage of corporations select adedicated concentration bank — particularly in Asia-Pacificand Europe, where one in five firms selects a stand-aloneconcentration provider. These firms tend to have more complexliquidity needs and larger portfolios.

28

Companies Using Their Concentration Banksfor Other Cash Management Services

(by Region)

0%

20%

40%

60%

80%

100%


Neither Disbursement OnlyCollection Only Collection and Disbursement

65%

9%

5%

21%

62%

10%

8%

21%

68%

7%

10%

15%

Middle MarketLiquidity Services Providers Expectations #

(by Region)

0%

20%

40%

60%

80%

100%



5%

83%

13%

90%

10%

13%

74%

13%

Middle MarketLiquidity Services Provider # Expectations

(by Select Country)

0%

20%

40%

60%

80%

100%

France UK Canada US


9%

69%

22%

95%

5%

14%

73%

13%

6%

81%

13%

29

Trade Services Spend in 2008 (USD)Large Corporate (by Region)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm


Large corporations in Asia-Pacific expect to be the biggestspenders, with more than 40% planning to spend more than$1 million on trade services in 2008.

Trade Services Spend in 2008 (USD)Large Corporate (by Select Country)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm

US Canada UK France

Trade Services Spend in 2008 (USD)Mid-Corporate (by Region)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm


Trade Services Spend in 2008 (USD)Mid-Corporate (by Select Country)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm

US Canada UK France

Trade Services SpendAs firms migrate to open account solutions, many in theindustry project a decline in trade spend. However, therespondents in our survey plan increased trade spend, likelyreflecting the continued globalization of economies.

Trade spend is significantly lower than transaction spend, aswould be expected. Only 10% of corporations in Europe andAsia-Pacific, and less than half that in North America, expectto spend more than $1 million on trade services in 2008. Infact, between 40% and 65% of companies in each region areplanning to spend less than $50,000 this year on trade services.

Trade Services Spend in 2008 (USD)(by Region)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm


30

seeing significant trade flows between Asia-Pacific andemerging markets such as Africa and Latin America.

M&A activity is the primary driver for increased tradeservices spend in all regions. Additionally, more than half ofNorth American firms that expect to increase spend also citedincreased volumes or business expansion as a reason for theincrease.

A significant percentage of firms in each region are expectingto increase their spend and very few firms plan decreases intrade spend. Planned increases in trade spend are mostcommon in the Asia-Pacific region, where nearly one-fifth offirms, including 40% of the Large Corporate respondents,expect to increase their trade services spend this year. Firms inthe Asia-Pacific region have generally outpaced other regionsin their drive toward globalization, and many of our clients are

Expected Change in Trade Spend(by Region)

0%

20%

40%

60%

80%

100%



4%

82%

14%

3%

83%

14%

2%

79%

19%

Expected Change in Trade SpendLarge Corporate (by Region)

0%

20%

40%

60%

80%

100%



4%

80%

16%

7%

83%

10%

60%

40%

Trade Services Spend in 2008 (USD)Middle Market (by Region)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm


Trade Services Spend in 2008 (USD)Middle Market (by Select Country)

0% 10% 20% 30% 40% 50% 60% 70% 80%

Under 50k

51k -250k

251k - 1mm

Over 1mm

US Canada UK France

31

Pan-European and Global BanksOur research highlights the continuing consolidation of thebanking industry. The geographic consolidation that has beenoccurring in North America for several years is taking hold inEurope, leading to the emergence of Pan-European banks.Whereas five years ago we saw different lead banks in mostcountries, now there are a handful of banks with a top 5position in the Large Corporate segment in every region acrossevery product but Liquidity.

Royal Bank of Scotland, for instance, has become a top tierprovider, as measured by client penetration, in every service(trade, transaction, credit and liquidity) in Europe.

Additionally, global banks are beginning to emerge, whichshould help corporations address their need for moreintegrated global solutions. HSBC, for instance, now ranks inthe top 10 for every service across every region we studied —North America, Asia-Pacific and Europe. Citibank, meanwhile,

ranks in the top 20 for every service in every region and has a

top position in the Large Corporate sector in both Asia-Pacific

and North America. Evidencing the increasingly global nature

of the banking industry, this year, Barclays, BNP Paribas,

Deutsche Bank, JPMorgan and RBS all posted a top 10 position

in at least one product line in two or more regions.

Other key findings regarding the roles of major banking

providers include:

• Credit is still a driver of relationships — 80% of the top 10

European short-term credit providers are also top-10

transaction, trade and liquidity service providers. Similarly, 90%

of the top 10 Canadian short-term credit providers are also

top-10 providers of transaction, trade and liquidity services.

• Global banks are major players in North America — 20% of

short-term credit service providers in the United States are

foreign banks. On the other hand, no US bank ranks among

the top 10 European providers of short-term credit.

32

To understand the market, we surveyed senior treasury leadersfrom over 970 unique firms across North America, WesternEurope and the Asia-Pacific region.

To illustrate region-wide dynamics, responses were rebalancedby country and turnover segment to approximate the actualdistribution of firms within each region.

Treasury Strategies interviewed corporate treasury professionalsat nearly 1,000 companies, including 369 in North America,500 in Europe and 104 in Asia-Pacific. About 25% of

respondents were from large corporations, defined ascompanies with annual turnover exceeding $5 billion (or thelocal currency equivalent); 31% were Mid-Corporate firms,with annual turnover ranging from $1 billion to $5 billion; and44% were Middle Market companies with turnover between$250 million and $1 billion.

Treasury Strategies interviewed Asia-Pacific and EuropeanTreasurers by telephone, while surveys of North AmericanTreasurers were conducted online and by fax. All surveys wereconducted during the second quarter of 2008.

Research Program Background

To learn more about the research program,discuss the ideas in this paper, or to purchase

the full, detailed study, please contactTreasury Strategies at 312.443.0840

treasury in transformation · treasury is undergoing a profound transformation around the globe. in...

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