This material is for informational purposes
and not intendedas investment advice.
Cash Management in Today’sMarketplace
Tampa BayAssociation for Financial Professionals
March 15, 2013
TOPICSFORDISCUSSION
I.
II.
III.
IV.
About StoneCastle
The Current State of the Cash Management
Market
What TreasurersAre Seeking Today
Cash Management Beyond the Big Three
About StoneCastle
2
ABOUT STONECASTLEPARTNERS, LLC-ASUMMARY
Long History of Success
Experienced Team
Deep Industry Relationships
Institutional Sponsorship
Founded in 2003
Pioneer of innovative strategies in community banking
30+ professionals dedicated to investing in sector
Core management team together since 1995
Close ties to State and Federal banking regulators
Long-term relationships with ABA, CSBS,other industry groups
Charlesbank and CIBCown minority interests in StoneCastle
Substantial ownership held by senior management
Specialized in-house accounting, legal and regulatory expertise
Proprietary systems designed for community bank investments
Highly Specialized
Investment Platform
RAMPARTwas developed in-house to combine deal
origination, credit underwriting, CRM, risk
management,
investment
monitoring
and
accounting into a single seamless technology
platform, helping StoneCastle overcome the
fragmented nature of the banking industry.
3
MINORITYSHAREHOLDERS
StoneCastle Partners’ Minority Shareholders
• Charlesbank Capital Partners
• Spinout of the former Harvard endowment private equity team
• Founder and CEO, Michael Eisenson, former President of Harvard Private Capital
• Manages $2+ billion of private equity investments
• Canadian Imperial Bank of Commerce (“ CIBC” )
• One of largest and best-capitalized banks in the world
• $391 billion of assets1 / $30 billion market capitalization2
• Weathered and profited from financial crisis (21% ROE1)
• Partnered with StoneCastle to identify and pursue banking opportunities in the U.S.
1
Source: CIBCinvestor presentation (June 2012)
2
As of 8/13/12
4
NATIONALINDUSTRYREACH
•
StoneCastle CashManagement, on behalf its clients, has deposited over $2 Billion in newly
established FICAbank accounts in over 400 banks across the U.S., giving StoneCastle even greater
reach into the community banking sector.
5
Current State of the CashManagement Market
Where we are and where we may be heading
6
YIELDS:A SAD STATEOFAFFAIRS
7
MOST COMMONLYUTILIZED
CASHMANAGEMENT VEHICLES
Observations:
• Bank deposits increased almost equally %that money funds decreased–
a return to money funds?
• Second biggest decrease from 2010-2012 were treasury bills—return to
treasury bills?
• Instruments which show consistent increase are commercial deposits,
separate managed accounts & municipal securities
Source: AFP Liquidity Survey
8
RECENTHEADLINES– EXPIRATION OF
FDIC UNLIMITEDDEPOSITINSURANCE
Then:
BanksLobbying to Extend Financial CrisisDeposit
Guarantee Program
Fox Business, February 15, 2012
Community Bankers Push for TAG Extension
American Banker, February 17, 2012
Now:
Bill to Extend TAGProgram Fails in USSenate
Reuters, December 13, 2012
9
RECENTHEADLINES–
LOW TREASURYYIELDS, GETUSED TO IT
Then:
Bernanke Pledges to Keep Rates Low Thru 2014: A“VeryPessimistic” Outlook, Former
Fed VPSays
Yahoo Finance, January 25, 2012
Now:
Fed’sLacker SaysReaching 6.5% Unemployment May Take 3 Years
Bloomberg, 12/17/12
Fed’sYellen backsholding rates near zero to 2016
Reuters - November 13, 2012
Federal ReserveExpects to Keep Interest Rates Low Through Mid-2015
ABCNews – September 13, 2012
10
RECENTHEADLINES– MONEY MARKET FUNDS
NO SEC-NOW WHAT
Then:
Money Market FundsMay Face More Challenges
New York Times – January 8, 2012
Will the Government Put Money Market FundsOut of Business?
The Atlantic, February 7, 2012
Money FundsReforms Won’t Stop Next Crisis
MarketWatch, February 15, 2012
Now:
SEC’sGallagher: Money Fund Reform ‘Primary’ Issue
MarketWatch – 1/17/13
Money funds Still Psoe Risks, Fed’sStein
MarketWatch – 12/23/12
Key SECHoldout in MMF Overhaul Reverses Stance
WSJ– 12/7/12
Proposed Money-FundRules Could SendTreasurersFleeing
CFO.com Magazine – 11/16/12
Geithner Steps up Pressure to Make Money Market FundsSafer
Bloomberg News – 11/13/12
Money Fund Reform HasTop Support
New York Times – 11/13/12
SEC’sGallagher Callsfor Floating Price for Money Fund
Bloomberg– 9/27/12
Study: 78 money market funds were at risk of breaking buck
USAToday– 8/13/12
11
What TreasurersAre Seeking Today
12
WHATTREASURERSARESEEKING TODAY
Most Important Short Term Investment Objectives:
2012
2011
201
0
Safety
77%
77%
76
%
Liquidity
21%
18%
22
%
Companies continue
Yield
2% to invest conservatively…
5%
2%
* Source:2012 Association for Financial ProfessionalsLiquidity Survey
13
DRIVING SENTIMENT
•
•
Events of past 3 years
Conservative nature
Source: 2012 Association for Financial Professionals Liquidity Survey
14
CashManagement Beyond the Big Three
15
THENEW REALITY: BEYOND THEBIG THREE
16
THEREIS HOPE (AND OPPORTUNITIES)
"Regular opportunities exist to purchase full faith and
credit instruments of the U.S. government at spreads
of 40 to 50 basis points above otherwise comparable
but more liquid treasury issues.“
- David Swensen, CIO, Yale University
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THENEW REALITY: BEYOND THEBIG THREE
• Separately Managed Accounts
• USGovernment Agency Short Duration MBS Portfolio
• Extended FDIC Insured Programs
• Liquid
• Term
• Others?
18
THENEW REALITY: BEYOND THEBIG THREE
WhyAre Many Corporate TreasurersNow Usingor Considering
Separate Accounts as Part of Their Cash Management Strategy?
• Separate accounts are simple and easy to set up and administer.
• Determine and control liquidity needs.
• Develop a set of investment guidelines for quality, interest rate risk
exposure and liquidity to ensure that portfolio synchronizes with your
investment policies.
• Delegate investment authority internally and/or to outside managers.
• Outside managers generally work with your existing custody
relationships.
19
THENEW REALITY: BEYOND THEBIG THREE
When Selecting Outside Managers – Look for:
Consistent low risk investment approach to emphasizing ultra-high quality
very liquid securities and defined duration parameters.
GIPScompliant long-term performance.
Clear, value-added investment process.
Personal experience in strategy AND managing corporate cash.
Strong communication skills and access to senior management.
Timely reporting in an easy to use format.
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USGovernment Agency Short Duration
MBSStrategy
100% U.S. Government Agency MBSsecurities (Ginnie Mae, Fannie Mae, Freddie Mac)
High Quality Gov/Agency Credit Rating
Highly Liquid Market
Daily Liquidity and Transparency
Stable and Low Volatility
Attractive Yield Over Comparable Treasuries, Muni’s, Corporates, Money Markets etc.
Emphasis on Risk Management: Identifying, Measuring and Controlling Risk
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HIGH QUALITYSHORT DURANTION
FIXED INCOME YIELDPROFILE
22
EXTENDED FDIC INSUREDACCOUNTS
What is an Extended FDICInsured Account?
•
Primarily a series of electronically-linked bank deposit accounts at one or
more banks available within a single account
•
FDIC opinion allows for pass through of Federal Deposit Insurance
Corporation (FDIC)
•
Look for Letter from FDIC Confirming Offering Meets FDIC Requirements
•
Programs can offer extended FDIC insurance as a result of having multiple
banks or savings institutions, each providing up to $250,000 of insurance.
•
Two type of programs-Term (utilizes CDs) and Liquid (utilizes MMDA)
•
Programs can offer from $500,000 to $50 million plus of FDIC insurance via a
single account, per tax id.
23
EXTENDED FDIC INSUREDACCOUNTS:HISTORY
•
Similar path of money funds
• Retail
• Individualswould open accounts at different banks to access FDIC insurance
beyond individual bank limits.
• Then Brokerage
• In 1999, Merrill Lynch began ‘bankerage’ trend within brokerage community
• And Today, Institutional
• Recognized in 2012 AFPLiquidity Survey
•
•
CDARS:depositsplaced in CDs
FICA: Deposits placed in MMDA
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WHY ATTRACTIVE
•
Safety
• Deposits FDIC Insured
• “No insured depositor has ever lost a penny of FDICinsured deposits— and none
ever will.” – FDIC Statement
• FDIC insurance is funded by fees assessed to banks
•
Liquidity
• MMDAprograms have no term commitments
•
Yield
• Can offer a premium over all types of money funds, treasuries and short term CDs
•
Transparency
• Ability to view where all deposits placed
• All deposits placed in US, FDIC insured banks/savingsinstitutions
•
Control
• Unlike a money fund or pool, have direct ownership of underlying deposit (vs. own a %of
a fund/pool),not impacted by actions of others
• Ability to opt out of specific banks
•
Diversification
• No one institution has more then $250,000 per Tax ID
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TODAY’SYIELDADVANTAGE
HISTORICAL YIELDS(Cumulative)
For informational purposes only. Pastperformanceis not a guarantee of future results.Ratesare subject to changewithout notice. Sources: Bloomberg.com,iMoneyNet. &
Bankrate.comMMA Overnight Average
Performanceis based on the top performing Institutional Prime Money Market Fund according to iMoneyNet. As provided by sourcesthought to be reliable.Ratescan and do
differ acrossindividual clients. Rate reflected is for informational purposes only
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ASCOMPAREDTO MONEYFUNDS
Extended FDIC Insured Account
Money Market Funds
Account Opening
Governing Document
Deposits/Redemptions
Underlying Portfolio
Single Application
Single Application
Terms and Conditions
Prospectus
Via wire
Via wire
FDIC-insured bank deposit accounts;
only “well capitalized” banks (as
defined by
the FDIC)permitted
Asset-backed Securities
Bank Deposit Accounts, CDs and TDs
Collateralized LoanAgreements
Commercial Paper
Corporate Bonds
Floating-rate Products
Government Agency Notes
U.S. Treasuries
Portfolio Transparency
Safety
Daily
Monthly
Principal and interest backed by full
faith and credit of the U.S.
government
Seeksto maintain $1 NAV
(not guaranteed)
Liquidity
Every Monday
Same-day settlement
Income
Interest
Dividend
Year End Tax Form
Yield (as of 03.01.13)
1099–INT
1099–DIV
.27% (balances up to $15mm)
.05%
For informational purposes only. Past performance is not a guarantee of future results. Rates are subject to change without notice.
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ASCOMPARED TO MOST COMMON
CASHMANAGEMENT VEHICLES
Product
Problems
The FICA Solution
Treasuries
Money market mutual
fund sweeps
Little to no yield
Little to no compensation for
introducing bank
Provides an attractive yield
Fully Insured
Not insured
Potential headline risk- European
Debt Exposure, Floating NAV
Historically low yields
Little to no compensation for
introducing bank
Offer access to multi-million-dollar
protection that is backed by the full faith
and credit of the federal government
Attractive yields
CDARs
CD programs have term constraints
Costly set up and maintenance fees
Need for reciprocity of deposits
Expense for each dollar introduced
into program
Not reciprical
Simple and easy account set up and
support
Work with an industry leader and resource
No set up, maintenance or other fees.
Repo sweeps /
Collateralized deposits
No ongoing collateralization and
Eligible assets required
tracking burdens
Assets must be marked-to-market
Improve margins by reducing
Pledging requirements reduce
collateral requirements
asset liquidity
and administrative
burden
Easytotochange
explain,
easy
For informational purposes only. Cost
Past performance
is not a guarantee
of future results. Rates are subject
without
notice.to understand
affect profit potential
28
HOW EXTENDED FDIC INSUREDPROGRAMS WORKS
1. Clients deposit funds via wire
directly into a single custodial
account.
2. The appointed administrator
provides the Custodian with
instructions that direct the
allocation of the funds across
the Program Banks. The
instructions are verified by the
Custodian prior to execution.
3. Upon verification of the
allocation instructions, the
Custodian allocates the funds as
deposits across the Program
Banks.
4. Client receives a single
confirmation, with ability to
view deposits by bank.
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Disclosures
30
DISCLOSURES
U.S. Bank, N. A. is not affiliated with StoneCastle Partners, LLC. and is not responsible for, and
does not guarantee the products, services or performance of its affiliates and third party
providers.
This document is for informational purposes only and does not constitute an offer to sell or a
solicitation of an offer to buy. It contains a preliminary summary of the purpose and principal
business purpose of FICA®; this summary does not purport to be complete and is qualified in
its entirety by reference to the more detailed discussions contained in the FICA®Account
CustodyAgreement, Terms and Conditions, and Investor Representations and Contact
(“Agreements”).
For additional information:
Eric Lansky
(212) 354-6500 ext 388
elansky@stonecastlepartners.com
Before making a decision with respect to StoneCastle Cash Management’sFICA®, potential
clients are advised to carefully read the respective Agreements and to consult with their tax,
legal and financial advisers.
This document is being provided to you on a confidential basis solely to assist you in deciding
whether or not the FICA® Program is appropriate for you. Accordingly, this document may not
be reproduced in whole or part, and may not be delivered to any person without the consent
of StoneCastle Cash Management, LLC.
StoneCastle Cash Management, LLC,is an affiliate of StoneCastle Partners, LLC, a leading
asset management and financial services firm. StoneCastle Cash Management is an
investment adviser registered with the U.S. Securities and Exchange Commission (SEC).
Registration with the SECdoes not imply a particular level of skill or training. For more
information regarding the firm, please see our Form ADV Parts I and 2 on file with the SEC.
31