Transcript None - PwC

Treasury Hot Topics Seminar
Technology and controls - ‘Tools for the Credit
Crunch’
19 February 2009
PwC
Things Changed Quickly Over the last couple of Months:
Market Cap
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Slide 2
Things Changed Quickly Over the last couple of Months:
Oil Price
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Slide 3
Things Changed Quickly Over the last couple of Months:
EUR/GBP
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Slide 4
What did we use to say?
Treasury was…
• Isolated from the business
• Misunderstood by the Board and Senior Management
• Considered too expensive and not sufficiently value added
• Struggling to implement new technologies
• Operationally: a mixture of manual / spreadsheet-based processes and
automated but poorly integrated functionalities
• Technology a major drain on resource, but not a core skill-set
• Under pressure from management and auditors to improve controls /
segregation of duties
• Short of skills and career prospects
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Slide 5
And what has the credit crisis changed?
Treasury is no more…
• Isolated from the business
• Misunderstood by the Board and Senior Management
• Considered to expensive and not sufficiently value added
But still..
• Struggling to implement new technologies
• Operationally: a mixture of manual / spreadsheet-based processes and
automated but poorly integrated functionalities
• Technology a major drain on resource, but not a core skill-set
• Under pressure from management and auditors to improve controls /
segregation
• Short of skills and career prospects
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Slide 6
Treasurers’ perspective on most value-adding activities
Bank relationship
Long term funding
Treasury risk management
Cash management
Capital structure
Decision support to management
Working capital management
Support/services to other areas of the business
Credit rating/agency management
Tax
M&A support
Insurances
Pensions
Other
0
10
20
30
40
50
60
70
80
90 100
No. of responses
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Slide 7
What should you have been doing during the Credit Crisis
1. Funding & liquidity
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Slide 8
What challenges need to be tackled in the short term?
1. Funding & liquidity
2. Credit & counterparty risk
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Slide 9
What challenges need to be tackled in the short term?
1. Funding & liquidity
2. Credit & counterparty risk
3. Financial risk management
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Slide 10
What challenges need to be tackled in the short term?
1.
2.
3.
4.
Funding & liquidity
Credit & counterparty risk
Financial risk management
Accounting
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Slide 11
What are the treasury operations and controls that could have
mitigated the impact of the credit crunch on you?
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Slide 12
Counterparty and credit Risk: What Treasury Operations and
Controls could have mitigated impact of the credit crunch on you?
Better/ real-time view on…
1. Counterparty Risk Management
- It’s not good enough to say they are
bigger, therefore they take the risk!
- Set limits per Counterparty,
Counterparty group, Market,
Instrument etc.
- Measure limits on a fair value basis
NOT nominal
- What is your plan if credit rating goes
down or limits are breached?
- Measure credit risk not just to
financial counterparties but also to
commercial counterparties
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Slide 13
Funding & Liquidity Risk: What Treasury Operations and Controls
could have mitigated impact of the credit crunch on you?
2. Funding & Liquidity Risk Management
- How many still have excel forecasts
of cashflows and related FX - once a
month or even once a quarter?
‼ A lot can happen in a month!!
- How accurate are your forecasts? Do
you analyse the variances?
- Headroom calculations – under
different stress scenarios
- WCM monitoring – best use of
existing finance
- Increase centralisation and pooling of
cash to fund deficits/ invest wisely
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Slide 14
Financial Risk Management: What Treasury Operations and
Controls could have mitigated impact of the credit crunch on you?
3. Financial Risk Management
- Single, timely view of all
exposures
- Worst case scenario stress
testing
• Impact if rates moving by
extreme amounts?
• Impact if cashflow pattern
changes drastically?
- Alternative valuation models in
the absence of liquid markets
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Slide 15
Flexible/Balanced KPI’s to suit the environment: What Treasury
Operations and Controls could have mitigated impact of the
credit crunch on you?
4. Flexible/ Balanced KPI’s to suit
the environment
- Last year – How much return
on our investment portfolio?
- This year – How much did we
lose compared to our
competitors?
• Better would be to
measure your maximum
probable loss and your
risk adjusted return?
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Slide 16
Conclusion
• These were all known elements to manage and measure…
• So why weren't we using them ?
1. Budget reasons
2. Priority/ Resource
3. It’ll never happen to me
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Slide 17
Technology Solutions to Credit Crunch Controls?
Controls and measurement of
performance & compliance
“If you don’t measure it … you won’t
manage it”
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Slide 18
Counterparty and credit Risk: How could the use of treasury
systems have reduced the impact of the credit crisis?
1. Counterparty Risk Management
- On demand Counterparty risk
management – Dealer & Middle office
- Multiple limits possible – Counterparty,
Dealer, Position, Settlement etc.
- Multiple measures possible – Nominal,
MTM, Potential Future Exposure
• Need for on-demand rates and
position updates
- Automatic consolidated exposures (are all
deals on central system?)
- Alert reports – go to whom and when? –
Workflow technology
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Slide 19
Funding and Liquidity Risk: How could the use of treasury
systems have reduced the impact of the credit crisis?
2. Liquidity Risk Management
- Accurate cashflow forecasts
• Direct link to AP and
AR - Centralised
payment factory
• Learning capability for
payment behaviour
- Calculation and analysis of
forecast versus actuals
- Headroom calculations
- WCM monitoring
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Slide 20
Financial Risk Management: How could the use of treasury
systems have reduced the impact of the credit crisis?
3. Financial Risk Management
- Worst case scenario stress
testing
• Impact if rates move by
extreme amounts?
• Impact if cashflow
pattern changes
drastically?
- All of the above are possible but
require the set-up and
maintenance of benchmark
portfolios
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Slide 21
Flexible/Balanced KPI’s to suit the environment : How could the
use of treasury systems have reduced the impact of the credit
crisis?
4. Flexible/ Balanced KPI’s to suit
the environment
- “If you don’t measure it you
won’t improve it”
- “If you don’t automate the
calculation … you won’t
measure it!”
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Slide 22
Conclusion
• Applying very well know controls will help you in improving your way of
working
• Implementing the correct software/technology will help you to better
manage and measure your company’s performances
• However, when looking for the right system, pls keep the following in
mind:
• Although very flexible, Excel spreadsheets are not the
best tool to measure and manage your risks
• Before selecting a TMS, pls prepare a proper list of
functional requirements
• When implementing a system, pls make sure you
understand how to use the system to it’s full extent
• In order to make best use of your systems, pls make
sure they are well integrated
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Slide 23
Conclusion
• The spot-light is on
Treasury
• Now is the time to get
things done!!
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Slide 24
Thank you!
Damien McMahon
Director – Finance & Treasury
Solutions Group
[email protected]
+32 2 710 9439
Gunter Geysen
Manager – Finance & Treasury
Solutions Group
[email protected]
+32 2 259 3163
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