Global Cash Management (Pooling) Date: 30 August 2016 By: Bachir El Nakib Senior Consultant Compliance Alert (SARL), Lebanon, Qatar

1

What’s Com

pliance Risk? 

2016 AML TRAINING WORKSHOP

The Role of Treasury 

Investment 

Global Cash Management Pooling 2

The Treasurer

Funding

Cash Management

Bank Relations

Foreign Exchange

Risk Management

Benefits of Good Cash Management 

Control of financial risk Opportunity for profit  Strengthened balance sheet  Increased customer, supplier, and shareholder confidence 

  

Global Cash Management Pooling 3

Nature of Cash Flows 

   Different industries have different cash flow characteristics 

• Timing and mismatches • Fluctuations • Predictability • Currency • Location  

Global Cash Management Pooling 4

The Cash Cycle 

    

Profit?                                                       Cash Balance? 

Global Cash Management Pooling 5

Stock Stock

£20

£20

£40

purchases

Sale £80

labour

Operating Cycle 

Purchase Resources      Pay                        Sell on Credit                         Receive Cash               Inventory Conversion                                        Receivables Conversion              Payables Period                       Cash Conversion Cycle                                                        Operating Cycle     From: Fundamentals of Contemporary Financial Management, 2nd ed , by Moyer, McGuigan and 

Rao 

 Global Cash Management Pooling 6

Float 

  Definition of bank float  

  The time lost between a payor making a payment and a beneficiary receiving value 

 * Cost of Float 

   Principal amount due x No. of days  x cost of funds                                                 360 or 365     This formula is important and should be used if issues of float arise 

  

Global Cash Management Pooling 7

Operating Cycle                      

  Purchase Resources      Pay                        Sell on Credit               Receive Cash               Inventory Conversion  78 days                    Receivables Conversion                                                                                                    65 days             Payables Period                       Cash Conversion Cycle                  69 days                                        74 days                                                       Operating Cycle                                                            143    From:Fundamentals of Contemporary Financial Management, 2nd ed           , by Moyer, McGuigan and Rao 

Global Cash Management Pooling 8

9

Notional Pooling 

• With notional pooling, the autonomy of the accounts is maintained, while debit and credit balances are offset for interest purposes. 

Bank Account 1

+USD 1000

Bank Account 3

+USD 1500

Bank Account 2

-USD 2100

Bank Account 4

-USD 500

Bank Account 5

+USD 400

Without Notional Pooling

With Notional Pooling

Interest = + 40 - 126 + 60 - 30 + 16 = - USD 40

Bank Rates

Credit Interest = 4%, Debit Interest = 6%

Bank Account 1

+USD 1000

Bank Account 2

-USD 2100

Bank Rates

Credit Interest = 4%, Debit Interest = 6%

Bank Net Position

+USD 300

Interest earned by pooling accounts = USD 300 x 4% = USD 12

Advantage to customer = USD 12 - (- USD 40) = USD 52

Bank Account 3

+USD 1500

Bank Account 4

-USD 500

Bank Account 5

+USD 400

Single Currency Notional Pooling – Example.

10

Optimisation – Multi Currency Notional Pooling 

Optimises short term (overnight) cash positions, by notionally pooling balances with London bank , across eligible currencies 

Fully automated process applies to full closing balances, so treasury can focus on managing strategic hedging and structural positions 

Flexibility to transact in any pooled currency, without FX conversion  Integrate with target balancing to maximise cash upstreamed into pool 

- EUR 40mn eqv.

+ EUR 20mn eqv. + EUR 60mn eqv.

Available Balance = EUR 40mn equivalent, in any pool CCY

London

x Group EUR

Sub D EUR

Sub C EUR

London

x Group LCY

Sub B LCY

Sub A LCY

London

Individual Currency Pools or TBAs in London

Net Multi Currency Pool Balances

(EUR Equiv)

Net Customer Position

(EUR Equiv)

Cross Currency Balance Sheet Set-Off

x Group GBP

Sub F GBP

Sub E GBP

11

Multi‐Currency Pooling: Participation 

Asia: Australia, Hong Kong, Japan, New Zealand, Singapore, Indonesia*, Philippines***, Taiwan*

EMEA: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany (gmbh), Greece, Hungary, Ireland, Israel*, Italy, Netherlands, Poland, Portugal, Slovakia Spain, Switzerland, Turkey, UK

Americas: Bahamas, Bermuda, Canada (Ontario/Quebec), USA

Currencies (19): USD, EUR, GBP, CHF, NOK, SEK, DKK, CAD, AUD, NZD, JPY, PLN**, CZK**, HUF**, HKD**, SKK** RON**

Positive balances only: ZAR, TRY, SGD**

Approved Jurisdictions

Additionally, on-going legal reviews Slovakia, for which external counsel have advised they expect a favorable outcome. * FCY only **pilot phase ***FCY not sourced from local currency FX

12

Integrating Investments with Liquidity Solutions 

Liquidity structures facilitate concentration into a single position, which can be invested in a choice of investments on an automated or active basis:

1. High Interest Yield Account or end-of-day sweep, as per market environment

2. Money market mutual funds via daily automated sweep

3. Time deposits

Automated Investment Solutions

Active Investment Solutions

Bank High Interest Yield Account (HIYA) or Overnight Sweep

Sub 2 Sub 3 Sub 4

Money Market Funds Time Deposits

1

2 3

Sub 1

Tight integration of investments with global liquidity structures optimizes both cash balances and cash investments

Liquidity structure (TBA or Notional Pool) to optimise investments