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Finance & TreasuryI n t e r n a t i o n a l

We e k l y R e p o r t f o r I n t e r n a t i o n a l F i n a n c e E x e c u t i v e sJuly 15, 2003

Vol. 29, No. 17


See Eurogiro, Page 3

The Eurogiro cross-border payment cooperation has shownstrong growth over the past few years, with the number of transac-tions reaching nearly 20 million in 2002 compared to about 6 mil-lion in 1997. Growth is due to low transaction pricing, a strongproduct range covering both credit and cash payments and a coop-eration facilitating low processing costs (high STP).

Eurogiro is uniquely structured. It has shown convincing pastsuccesses and is confidently looking forward to new challenges andopportunities following introduction of the new EU regulation re-garding cross-border payments. A new alliance with the U.S. FederalReserve system, providing a transatlantic payments gateway, isamong its exciting new initiatives.

Eurogiros Last Ten YearsEurogiro was established in 1992 as both cooperation between

postal banks and a cross-border payment system comparable to Swift.The background to this cooperation was partly that the postal banks

Eurogiro Comes of AgeEurogiro provides new opportunities via its transatlantic gate-way in cooperation with the U.S. Federal Reserve system.

Henrik Parl, Eurogiro Network A/S

Article after article has been written, readand eventuallyconsigned to the recycling binabout the recent crisis that cap-italism seems to have inflicted on itself. In this article I will trynot to add to that account, but simply to ask the questions: Whatlessons can finance executives learn from what has happenedin the recent past? In what ways do they need to modify theirstrategies and policies in the aftermath?

Although this is not the place for another survey of the crisis,it is worth pointing out that as long ago as 1998, with the LongTerm Capital Management (LTCM) collapse, there were clear signsthat the financial system could wreck the widespread boom. How-ever, the high-tech spending bubble continued until the dot.combubble burst in early 2000; there followed terrorism, a corporategovernance crisis (Enron, etc.) and major shocks to the system fromgeopolitical risks.

Throughout the U.S., the economy had to take virtually all of thestrain; there was no help from Japan or Europe. It had become abun-

The CFOs New ClothesLike the imaginary robes of Andersens deluded emperor, re-cent events reveal the inadequacy of modern financial theory.

Alan W. Clements, C.B.E.

See Clothes, Page 12

Treasury Operations

A cross-border payments system based on thepostal savings bank system uses technology toensure its continued success.

page 1

Treasury Strategies

When a cutting-edge financial theory like add-ing shareholder value turns on its champions,havoc may ensue.

page 1


Financial institutions acquire asset-managementfirms in a wave of competitive diversification.

page 2


A pause in the dollars recovery seems likely asit treads water against the yen and euro.

page 2

World Value of the Dollar foreign exchangesupplement.

page 5

Indicative options market volatilities for worldcurrencies against the dollar and euro.

page 10

International Financing

Withholding tax reform enhances public bond fi-nancing for Italian issuers and foreign investors.

page 10


The imminent shift to international accountingstandards affects employee benefit programs.

page 15

Capital Markets

Factors affecting unification of Europes capitalmarkets, with comparisons to practices elsewhere.

page 16

International Taxation

There is more to tightening the supply chain thansimply making operational adjustments.

page 20


A new EU tax package; Argentine authorities actagainst hot money flows.

page 24

2 WorldTrade Executive, Inc. 2003 July 15, 2003


Finance & TreasuryEDITORIAL OFFICE

WorldTrade Executive, Inc.P.O. Box 761

Concord, MA 01742-0761/USA

(978) 287-0301 Phone(978) 287-0302 Fax

PUBLISHERGary A. Brown, Esq.



Ken Parker

The International Business Information SourceTM

Vol. 29, No. 17July 15, 2003


Reproduction or photocopying, even for personal or internal use, is prohibited without the publishers prior written consent. All rights reserved under theInternational and PanAmerican Copyright Convention 2003 by WorldTrade Executive, Inc.

SUBSCRIPTION INFORMATION: Annual subscription: US$1295 (add $50 for nonUS postage) Single copy: US$65

(ISSN 1070-9215)

Robert J. BaldoniErnst & Young, LLP

Fred CohenPricewaterhouseCoopers, LLP

Michael DarbyAnderson School, UCLA

Advisory BoardWalter H. DiamondThe Offshore Institute

Geoff HenneyBank Relationship Consultancy

Andrew HodgeBanque Brussels Lambert

Marie HolleinRuesch International

Al JirkovskyBank of America

Lionel LavigneErnst & Young Conseil, S.A.

Johann MllerDeBrauw Blackstone Westbroek

Daniel M. PerkinsPricewaterhouseCoopers, LLP

Hans PohlschroederColgatePalmolive

Anthony ReganPutnam Investments, Inc.

George SanbornBorden, Inc.

Philip SantoriellaPfizer

Sandra ShaberThe WEFA Group

Franoise Soares-KempBank of New York

Jeffrey WallaceGreenwich Treasury Advisors

See Strategies, Page 4

See Frontiers, Page 4

Banking/Exchange Strategies

In recent weeks, several major banks andsecurities companies have purchased asset man-agement companies. Additional transactions aresurely in the works.

Financial firms that normally manage theirown capital, through extending loans or tradingsecurities, are always on the lookout for lines ofbusiness that generate a steady stream of income.This is especially true when profit margins shrinkin their core businesses, as is the case now.

Banks cant make much of a spread on loanswhen interest rates are low. Bond-trading firmsmade good money as interest rates fell, but that ral-

New Frontiers for Asset ManagementFinancial institutions are engaged in a grab for asset management companies asa new leg on the cash flow stool.

Scott E. Pardee

ly is over. Stock prices have rebounded, but brokershavent seen a revival of commission income. In-vestment banking revenues from mergers, acquisi-tions, IPOs and venture capital deals are still small.

Thus, financial firms are seeking to gain fee in-come by managing other peoples money (OPM). Itis cheaper and quicker to buy an asset managementcompany than to build one from scratch.

The business model is to accumulate fundsunder management and charge a fee, however as-sessed, for managing them. The first job is to at-tract investors, by establishing a promising invest-

Financial firms areseeking to gain feeincome by manag-ing other peoples

money. It is cheaperand quicker to buyan asset manage-

ment company thanto build one from


Conditions are remaining favorable forfurther correction to the euro-dollar overval-uation, but the current consolidation of themove into the $1.12 to $1.14 range could beextended. This would occur as senior tradersand institutional portfolio managers takeleave for summer holidays.

Nevertheless, we believe the market haslocked onto $1.10 as a fair-value target for thepair, so the danger of a reversal on grounds

Exchange StrategiesExtrapolating from the greenbacks laggard performance against the yen, lookfor a short-term consolidation against the euro.

Brendan Murphy,, Inc.

other than a major exogenous shock, i.e., ter-rorism, seems minimal.

All the same, thin markets are volatile mar-kets, so readers are advised to maintain widestops at the top and bottom of the range withrelatively tight trailing stops in the oppositedirection on any sudden breakaway to the euroupside (probably short-lived) or downside(more sustainable). On a somewhat longer-

We believe themarket has locked

onto $1.10 as a fair-value target for the

(euro-dollar) pair, sothe danger of a

reversal on groundsother than a majorexogenous shock

seems minimal.

International Finance & Treasury WorldTrade Executive, Inc. 2003 3

saw great opportunities for cost efficiencies byworking closely together. Cooperation wouldpermit them to secure low processing costs anddevelop value added products. An additionalincentive was the fact that, at that time, a num-ber of postal banks were not eligible to partic-ipate in the S.W.I.F.T. payments system.

Cooperation was based on a simple prin-ciple: how can members add value by work-ing together, rather than individually?

The cooperation now comprises 41 mem-bers in 39 countries, of which 15 Western Eu-ropean members are shareholders. The mainreason for the closed club structure is that alimited number of members expedites highquality processing of payments and query han-dling, as well as rapid decision making.

Eurogiro is predominantly European-based, but is in the process of expanding glo-bally. New members have recently been add-ed in China, Canada, Brazil and the Baltic coun-tries. Taken as a whole, Eurogiro representssome 200,000 banks and post offices in Great-er Europe and more than 200 milli