Treasury Strategies’ Quarterly Corporate Cash Briefing for ......A Division of Novantas, Inc....

© 2016 Treasury Strategies, A Division of Novantas, Inc.

A Division of Novantas, Inc.

Treasury Strategies’ Quarterly Corporate Cash Briefing™ for 3Q 2016

Treasury Strategies’ Speakers & Panel Moderators • Tony Carfang • Kevin Ruiz

Panel Participants & Institutional Partners • Steve Baseby, Association of Corporate Treasurers• Deborah Cunningham, Federated Investors • Roger Merritt, Fitch Ratings• Brett Friedman, Novantas

July 14, 2016


Agenda

Corporate Cash Levels

Proposed IRS 385 Reform

Disruptors - Panelist Discussion • Money Market Fund Reform• Beyond Brexit• Longer-Term Country/Political Risk

2


0.2

0.3

0.4

0.5

0.6

0.7

Corp

orat

e Ca

sh (£

T)

0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6

Corp

orat

e Ca

sh (€

T)

4


Source: European Central Bank, Treasury Strategies

£0.61T

Source: Bank of Japan, Treasury Strategies

Japanese Corporate Cash

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Corp

orat

e Ca

sh ($

T)

UK Corporate CashUS Corporate Cash

Eurozone Corporate Cash

Source: Federal Reserve, Treasury Strategies

$1.89T

Source: UK Office for National Statistics, Treasury Strategies

€2.4T

160

180

200

220

240

260

280

Corp

orat

e Ca

sh (¥

T)

¥272T


0.2

0.3

0.4

0.5

0.6

0.7

Corp

orat

e Ca

sh (£

T)

0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6

Corp

orat

e Ca

sh (€

T)

5



£0.61T


Japanese Corporate Cash

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Corp

orat

e Ca

sh ($

T)

UK Corporate CashUS Corporate Cash

Eurozone Corporate Cash


$1.89T

Source: UK Office for National Statistics, Treasury Strategies

€2.4T

160

180

200

220

240

260

280

Corp

orat

e Ca

sh (¥

T)

¥272T

R2 = 0.94Slope = $16B/$T

R2 = 0.99Slope = €5.72B/€T

R2 = 0.97

Slope = £23.11B/£T

R2 = 0.78

Slope = ¥1.35B/¥T


Country/Region December 2000 March 2016

United States 9% 10%

Eurozone 15% 23%

United Kingdom 24% 33%

Japan 37% 55%

Source: Treasury Strategies’ estimate

Corporate Cash as % GDP by Region

6


R² = 0.17

160

180

200

220

240

260

280

460.0 470.0 480.0 490.0 500.0 510.0 520.0Japa

n Co

rpor

ate

Cash

(¥T)

Japan GDP (¥T)

Japan Corporate Cash Relative to Japan Nominal GDP

R² = 0.95

0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6

6.0 7.0 8.0 9.0 10.0 11.0

EU C

orpo

rate

Cas

h (€

T)

EU GDP ( €T)

EU Corporate Cash Relative to EU Nominal GDP

R² = 0.94

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

8.0 10.0 12.0 14.0 16.0 18.0 20.0

US C

orpo

rate

Cas

h ($

T)

US GDP ($T)

US Corporate Cash Relative to US Nominal GDP

Corporate Cash Relative to Nominal GDP

7

Slope = $122B/$T

Slope = €392B/€T

Slope = -¥630B/¥T

R² = 0.98

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8 1.0 1.2 1.4 1.6 1.8 2.0

UK C

orpo

rate

Cas

h (£

T)

UK GDP ( £T)

UK Corporate Cash Relative to UK Nominal GDP

Slope = £428B/£T


0

50

100

150

200

250

300

Bank

Res

erve

Bal

ance

s at

th

e BO

J (J

PY T

)

Bank Reserve Balances at the BOJ

0100200300400500600700800900

1,000

Bank

Res

erve

Bal

ance

s at

the

ECB

(€B)

Bank Reserve Balances at the ECB

0

50

100

150

200

250

300

Bank

Res

erve

Bal

ance

s at

th

e BO

E (£

B)

Bank Reserve Balances at the BOE

0

500

1,000

1,500

2,000

2,500

3,000

Bank

Res

erve

Bal

ance

s at

th

e Fe

d ($

B)

Bank Reserve Balances at the US Federal Reserve

Reserve Balances



8

€787B

$2,460B

£178B

¥251T


Source: Bank of England, Treasury Strategies


0%

5%

10%

15%

20%

25%

30%

% A

sset

s to

GDP

US Federal Reserve Total Assets as % of GDP

0%

5%

10%

15%

20%

25%

30%

35%

40%

% A

sset

s to

GDP

BOE - Total Assets as % of GDP

0%10%20%30%40%50%60%70%80%90%

% A

sset

s to

GDP

Bank of Japan - Total Assets as % of GDP

Central Bank Assets as % GDP by Region

9

Source: UK Office of National Statistics, Bank of England, Treasury StrategiesSource: U.S. Bureau of Economic Analysis, St. Louis Federal Reserve, Treasury Strategies

Source: Bank of Japan, St. Louis Federal Reserve, Treasury Strategies

0%

5%

10%

15%

20%

25%

30%

35%

40%

% A

sset

s to

GDP

European Central Bank - Total Assets as % of GDP

Source: St. Louis Federal Reserve, Treasury Strategies

US Dept. of the TreasuryIRS Rule 385


Overview of the Proposed Regulations

Treatment of Certain Interests in Corporations as Stock or Indebtedness (REG-108060-15)

Primary intent is to reduce or eliminate corporate inversions in which a US company merges into a non-US company.

Secondary intent is to penalize certain intercompany cost allocations which Treasury refers to as “earnings stripping.”

Practical effect is to put at risk most corporate treasury management programs and the supporting bank services.

• Corporate cash commingling that fails several complex IRS tests will be subject to serious penalties. • Debt involved in routine corporate cash management transactions could be reclassified as equity or a

hybrid, resulting in lost of interest deductions, tax credits, etc.

“The proposed rules apply to purported indebtedness issued to certain related parties, without regard to whether the parties are domestic or foreign. “

11

Source: www.irs.gov

http://www.irs.gov


Areas of Concern for Corporations and Financial Institutions

1. Impact on routine cash management practices and banking structures

2. Extensive documentation for commingling intra-corporate funds

3. Low threshold of $50M

4. Three-year look back and three-year look ahead

5. Draconian penalties

12


Unintended Consequences

1. The rules go far beyond the scope of corporate inversions and potentially impacts most mid-sized and large American businesses, increasing costs and reducing capital efficiency.

2. The rules will decrease bank lending to businesses and consumers by forcing commercial banks to incur higher capital requirements, and an increase in “high quality liquid assets” (HQLA) required under Basel III.

3. The rules will add a further drag to capital efficiency. Corporations will set aside additional capital to fund routine transactions rather than risk tripping a violation of these far-reaching rules. Banks will then need to set aside more capital and HQLA to support the increase in corporate deposits. Together, this additional stranded corporate and bank capital will depress economic activity.

13


A Path Forward

Treasury Strategies proposes that Rule 385 be drafted more narrowly to avoid these draconian unintended consequences. The new draft should:

1. Enumerate the cash management principles we outlined above as being outside the scope of 385.

2. Define a specific safe harbor for companies so they will not need to take extreme measures to avoidaccidentally triggering a reclassification.

3. Eliminate the three-year look back and the three-year look ahead for transactions that take place solelywithin a corporation’s operating cash pool.

See http://www.treasurystrategies.com/sites/default/files/TreasuryStrategies385PathForward.pdf

Email us at [email protected] to be included in our 385 email updates.

14

http://www.treasurystrategies.com/sites/default/files/TreasuryStrategies385PathForward.pdf

mailto:[email protected]

Panelist Discussion


Panelist Discussion

16

Disruptors

MMF REFORM

BREXIT

BEYOND BREXIT

1

2

3

Brexit and Beyond Brexit


Meet Our Speakers

Tony CarfangManaging [email protected]

Kevin [email protected]

Brett [email protected]

18

Debbie CunninghamChief Investment [email protected]

Steve BasebyAssociate Policy and Technical Director+44 (0) 78 874 623 [email protected]

Roger MerrittManaging [email protected]








About Treasury Strategies

Treasury Strategies, A Division of Novantas, Inc., is the leading treasury consulting firm. Armed with decades of experience, we’ve developed solutions and delivered insights on leading practices, treasury operations, technology, and risk management for hundreds of companies around the globe.

We serve corporate treasurers, their financial services providers and technology providers for the complete 360° view of of treasury.

19

www.TreasuryStrategies.com +1 312.443-0840

www.TreasuryStrategies.com/content/networkingcommunities11

@TreasuryStrat

www.youtube.com/c/treasurystrategiesincconsulting

• RFP Support for Banking Services• Technology Business Requirements and Gap Analysis• Technology Optimization and Updates• Technology Selection• Technology Implementation and Connectivity• Treasury Change Management and Resource Support

• Global Cash and Liquidity Management• Cash Forecasting• Financial Risk Management• Treasury Organization • Payments Strategy• Leading Practices Review and Benchmarking

Connect With Us

Solutions

http://www.TreasuryStrategies.com

http://www.TreasuryStrategies.com/content/networking

http://www.youtube.com/c/treasurystrategiesincconsulting


About the ACT

Who We AreThe Association of Corporate Treasurers (ACT) sets the benchmark for international treasury excellence. As the chartered body for treasury, we lead the profession through our internationally recognised suite of treasury qualifications, define standards and support continuing professional development. We are the voice of corporate treasury representing the interests of our members.

20

What We DoACT supports the growth and professional development of treasurers and finance professionals. We are an active global network of treasury, risk and finance professionals with members and students in 98 countries.

• We promote treasury as a discipline, as a profession and as a career.

• We provide informed and unbiased technical advice.

• We teach, examine and qualify treasury professionals and offer ongoingCPD.

• We stimulate debate and facilitate the exchange of ideas and information through our events, conferences, webinars and forums.

• We represent the real economy and influence relevant regulation and market practice. youtube.com/treasurersorg

facebook.com/actupdate

www.treasurers.org/linkedin

twitter.com/actupdate

www.treasurers.org

http://www.treasurers.org

http://www.treasurers.org/linkedin


About Federated Investors, Inc.

21

L i q u i d i t y M a n a g e m e n t

§ Pioneer in liquidity management for more than 40 years and one of the largest institutional money market fund managers in the industry*

§ 34 liquidity management professionals with 19 years working together at Federated

§ Have never bought a security out of or infused capital into a money market fund to maintain a stable $1.00 NAV

• Prime• Government

• Tax-Free• Non-U.S Domiciled

Equity Management

§ Independent investment teams each focused on a specific style or approach with commitment to proprietary research

§ Portfolio managers average 23 years of experience, nearly 11 with Federated

§ Strategies are a result of both carefully cultivated homegrown initiatives as well as key strategic acquisitions

• Value (Clover)• International Equity• Dividend Oriented

• Quantitative (MDT)• Growth/Income• Growth (Kaufmann)

• Balanced/Macro• Alternatives (Prudent Bear)• Managed Risk

F i x e d - I n c o m e M a n a g e m e n t

§ Experienced, specialized teams with strength across the yield curve

§ Portfolio managers average 25 years of experience, nearly 18 with Federated

§ Modular process is portable across fixed-income styles and lends itself to portfolio customization

• Multi-Sector: Active Cash, Short, Intermediate• Sector Specific: Corporate, High-Yield, Emerging Markets, Trade Finance, Municipals

Founded: 1955

Headquarters: Pittsburgh

Global Operations: New York, Rochester, Boston, Houston, Dublin, Frankfurt, London and Tokyo

AUM: Approximately $355 billion

Ownership: § Publicly traded, privately held (NYSE: FII)

§ 20% employee ownership

Revenue Distribution Equity 46%

Liquidity 32%

Fixed-income 22%

RepresentativeClients

• Corporate/Public Defined Benefit

• Defined Contribution

• Endowment/Foundation

• Taft-Hartley

• Insurance

• Sub-Advisory

• Local Government Investment Pools (LGIP)

• Financial Intermediaries

All information is as of 3/31/15 unless stated otherwise.*Source: iMoneyNet, Inc. February 28, 2015

Delivering investment solutions since 1955


About Fitch Ratings

Fitch Ratings is a leading provider of credit ratings, commentary, and research. Dedicated to providing value beyond the rating through independent and prospective credit opinions, Fitch Ratings offers global perspectives shaped by the strong local market experience and credit market expertise. The additional context, perspective and insights we provide help investors to make important credit judgments with confidence.

Fitch Group is a global leader in financial information services with operations in more than 30 countries. In addition to Fitch Ratings, the group includes Fitch Solutions, an industry-leading provider of credit risk products and services, and Fitch Learning, a preeminent training and professional development firm. Fitch Group is jointly owned by Paris-based Fimalac, S.A. and New York-based Hearst Corporation.

For additional information, please visit www.fitchratings.com.

22

http://www.fitchratings.com


About Novantas, Inc.

Novantas is the industry leader in analytic advisory services and technology solutions for retail and commercial banks. We create superior value for our clients through deep and insightful analysis of the information that drives the financial services industry — across pricing, product development, treasury and risk management, distribution, marketing, and sales management.

For additional information, please visit Novantas.com

23

Treasury Strategies’ Quarterly Corporate Cash Briefing for ......A Division of Novantas, Inc....

Documents

Transcript of Treasury Strategies’ Quarterly Corporate Cash Briefing for ......A Division of Novantas, Inc....