Citi advocates centralising liquidity

The right liquidity tools and investment options can help treasurers to optimise the return on a company's cash, says Elyse Weiner of Citi.
Elyse Weiner is managing director and global product head of liquidity and investments at Citi, based in New York. She heads a global product team responsible for delivery of an integrated suite of global liquidity and investment products worldwide. Here she discusses the role of liquidity and investments in cash management.

So how do you go about your job?
The global liquidity and investments product team has two mandates. Internally the group manages cash on CitiÆs balance sheet in terms of our relationship with treasury and hedging programs.

Externally, we provide a range of products and services to help our clients manage cash assets. By that I mean helping them gain better access to their cash, obtain information about their global cash positions and helping treasurers to optimise the return on that cash within the organisation. So the products and services run the gamut from global target balancing on an automated basis, to notional pooling, multi-currency structures, and information reporting.

We also run the online investment portal, which provides investment options for short-term cash through a web-based platform. Additionally, we have a network of local liquidity service desks around the world staffed by our customer service teams and traders where clients can call in to execute short-term investments.

How does what you do relate to what is being done at the country level?
Obviously there are certain capabilities which are country specific and localised. But at a global level, we ensure that there is consistency and standardisation in terms of the product that we offer and we are creating additional efficiencies within our own technology platforms.

So, for example, where we had pooling and target balancing capabilities that had been built locally on local systems, we have consolidated these capabilities within a global engine that can service all locations. It is an open architecture approach containing different service modules. Using this approach, a single global target-balancing engine contains the transaction logic and can be linked into any country in the world, pull a balance and from that balance generate a transaction. Rather than having multiple local instances of the capability, that may have different features and functionality, we are looking to standardise and globalise.

Of course, we will keep local capabilities where it is absolutely necessary in a particular market. But where you have something that is really a global capability we are trying to centralise it. So the customer gets a standard product around the world. We find it easier from an architecture point of view to build a central capability and then it is a matter of just linking it in to the local account system.

As a global head I look at our service architecture and product offering from a strategic level. The global team coordinates the requirements and basic capabilities we need for liquidity and investment management. Then, we work to build those capabilities on a global platform and offer them to each of the locations depending on their needs

What would be an example of these capabilities?
Target balancing is one, notional pooling is another. Our investment platform û our entire desk network and the online system û are all linked to a central processing engine. All of the trades are executed through that engine. So whether you are calling a desk in Singapore to do a time deposit transaction, or going online to invest in a money market mutual fund, those transactions will be processed through a global engine.

How does this benefit the client?
Centralised platforms help our clients to operate more efficiently and manage their cash more efficiently, on a real-time basis. Our central processing engines and databases provide a company with the ability to view cash balances in Hong Kong, Singapore, China, Germany, France and London, as an example, and can provide the bank with the ability to aggregate balances globally for interest calculation purposes through an interest optimisation program. Or, the pooling engine may perform a notional pool calculation on balances held in a central pooling location. Ultimately you are helping the client to view his consolidated cash assets and to centrally manage them. Because when you centrally manage cash, you are able to apply that cash internally or enhance its yield and get a better return.

Many of the companies also find that once they get a handle on their cash around the world, it helps to reduce their external borrowings and reduce their interest expense. Many companies have experienced control and other problems due to lack of visibility into the cash positions of their operating subsidiaries. There may be trapped liquidity they have not been able to access. Once you have a liquidity crisis you never want to have one again, so optimal liquidity management is top of mind with corporate treasurers. Most sees the value of putting a structure in place where liquidity is centrally managed and there is management oversight within the global treasury organisation so it can plan funding and debt issuance.

There must be a number of impediments to that kind of activity in Asia?
There are a lot of challenges, particularly regulatory challenges. There are certain countries within Asia where because of monetary and exchange regulations and controls, you cannot move money out of the country. So in those instances we try and provide local capabilities that are specific to the market. But there are locations where you can do pooling within the country but canÆt take the money out of the country. So the same global engine discussed previously can operate within a single country as well as cross-border. It provides the same visibility û but you might just have local usage of that engine.

Are you seeing strong demand for centralising cash management?
Absolutely. In most countries when you talk to clients, liquidity management or working capital management is a top priority. Centralisation, standardisation, consolidation, globally- thatÆs what they want. The technology is available to do this and there is pressure to squeeze more out of the business to achieve value for shareholders. To meet those needs, clients are demanding better technology and improved connectivity between the company and the bank and also between buyers and suppliers that are communicating with each other on an ongoing basis. And these requirements are also being driven in response to the changing regulatory environment.

Are regulations changing that fast?
The regulatory environment is changing everyday. With our local presence, we are in constant touch with central banks and regulators, tracking these changes and what can be done that couldnÆt be done previously. For example, Bank of Thailand amended the threshold amount to overseas investments early this year. And Russia significantly liberalised its foreign exchange regulations recently, moving the Russian rouble much closer to full convertibility. You can now perform a wider range of activities (hold rouble accounts, book deliverable FX) in offshore centres such as London, although some restrictions remain. Brazil has also introduced a significant tax change. Can our systems accommodate these changes? I feel if you build a good standardised system it can incorporate and take advantage of these changes as they occur.

Look at the changes in the Eurozone ûyou originally had 11 participating countries, now grown to 13. ThereÆs another nine awaiting accession, including many in Eastern Europe. After the euro was launched in 1999, many companies established a Euro liquidity structure. Now they are looking to expand those structures across the expanding euro zone, incorporating the new participants. They are also considering multi-currency structures. We do multi-currency pooling in London and are considering other locations, possibly Hong Kong and Singapore. We have pools running with 15 currencies within a notional pool. So, things are getting quite sophisticated - but itÆs all run through the same pooling engine.

What are the issues involved in rolling it out in Hong Kong?
From the bankÆs perspective itÆs primarily our ability to perfect the offset on the bankÆs books. We look at restrictions on inter-company lending that might be perceived within the pool and related tax implications. We follow through each venue very carefully as to the potential implications of doing that kind of structure. Some countries will allow offsetting of assets and liabilities within a single currency, but may have reservations when you are crossing currencies.
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