Interview with Deutsche Bank: Managing Cash under Regulation

By Madhvi Mavadiya | 20 October 2016

Lisa Rossi, Global Head of Liquidity and Investment Products for Global Transaction Banking, Deutsche Bank, spoke to us about how treasurers have had to adapt post-financial crisis and how other events in the future could result in uncertainty.

What is your role at Deutsche Bank?

I’m responsible for Liquidity and Investment Products within the Global Transactions Bank. This includes cash concentration structures, which help create efficiencies via multiple accounts across the globe. We also manage notional pooling, cross currency structures and investment products that can help optimise fund positions. At the end of the day, it is all about working out how effectively a treasurer can optimise their balance position, regionally and globally.

Post financial crisis, how has the way chief financial officers (CFOs) and corporate treasurers (CTs) manage cash changed?

There has been a change in how banks look at liquidity products. With the regulatory changes that were introduced as a result of the financial crisis, regulators want to see banks increase the size of their stable funding. This requires banks to create different products to support stress-compliant funding options for clients, and requires CFOs and Treasurers to look at deposits differently as they manage their own cash positions. Historically, treasurers could leave money on their current account at any bank and they would be able to earn a return. Since the financial crisis, overnight money has been of less value to banks, and that affects the interest earnings on deposits that treasurers receive.

As banks, we are looking to have longer-term deposits that create more liquidity value and then pass that added-value onto the corporate treasurer. What this means is that increased visibility is essential, as is having an understanding of when treasurers have money and when they will need their money for operational requirements – which all boils down to better forecasting. This will help them to understand how long and where to invest their money, and to optimise it more efficiently than they did in the past. In addition to all the regulatory changes, the negative interest rates in the Eurozone and other regions are also an issue – another challenge that treasurers have to navigate.

Why is retaining excess cash a bad idea?

Of course, having excess cash is not, in itself, bad for corporates. It’s not bad for banks either, provided it has sufficient duration and longevity. Let me explain: with overnight cash, generally a bank would have to place it in a central bank. If placing it there represents no value or a negative value to that bank, that is of course neither good for the bank nor its customer. If, on the other hand, you have balances placed on term deposits of over 30 or 60 days, these may actually help banks meet their liquidity coverage ratio and improve the results of a stress test, which would then provide a positive contribution to the bank’s balance sheet. Obviously, this means that the bank can offer a far better rate of return to its customer on these types of deposit. So the crucial questions to ask are: what kind of cash is this, and what kind of investment should I place it in?

How would treasury be affected by a potential interest rate cut?

We have seen interest rates dip into negative territory in the Eurozone, Switzerland and Japan. That has had a substantial effect, as treasurers are going to have to re-evaluate how they manage their end-of-day positions and look for other, safe, alternatives that sit within their investment parameters or criteria.

One of the key things that we are noticing when talking to treasurers is that some of them are reviewing their investment guidelines. Traditionally, treasurers had very conservative or short terms for investing. Now, treasurers are telling CFOs on the boards of their companies that it may be a good time to review certain areas of their guidelines such as extending the time they can invest to go beyond the 30 or 60-day time period for a deposit in order to achieve a positive, or even less negative, number.

That is not to say that they are going to change investment parameters to riskier investments, but they are certainly looking at durations that are longer, and also different options and different investment products.

Should companies worry about regulations that affect banks?

Absolutely, yes! At conferences that I have attended recently, many of the discussions that we are having are exactly like the one that I am having with you. I am sitting down with treasurers and explaining to them what the regulations are and how they have affected banks – and how that directly and indirectly affects products and the way we do business with our corporate treasurers. Having this dialogue is really important because I believe, as a corporate treasurer, you’re going to get frustrated if you expect the same thing you’ve had historically, but you’re not getting that anymore.

How can CTs optimise their company’s liquidity position?

Our number one priority at the moment is helping them to improve cash forecasting in order to better understand how long they will be in a particular excess cash position. Treasurers have to deal with different types of cash, from the day-to-day operating cash that you need on-hand, to the work cash that is needed once in a while. Knowing precisely how long a particular sum is available allows a treasurer to optimise its use. This all ties into managing your working capital effectively. It is also critical to let your bank help manage flows and cash concentration structures in an automated process to realise better efficiencies. We are also seeing corporate treasurers swapping currencies; for example, swapping into dollars in order to maximise earnings instead of maintaining the money in a negative-yielding currency.

Going forwards, we will see increased sophistication in hedging and the ways that different currency positions are managed in order to achieve yield. As well as this, treasurers will look at investment parameters to see how positions could be termed-out a bit longer so that better interest rates can be achieved.

Any concluding remarks?

It is really important for treasurers to understand the consequences of financial regulation, and you can’t be complacent anymore. In the old world, you could leave your money on current account and you could still earn a return. Those days are gone and I don’t expect to see them back soon. 

By Madhvi Mavadiya.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development