Expanding into Global Markets
An introduction into the world of
international treasury management,
global liquidity, regulations and
industry key trends
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Economic Trends
International Market Growth
CFO Survey
 CFO Outlook Resources www.bankofamerica.com/cfooutlook
 CFO Survey
 73% of U.S. companies surveyed do business
internationally
 10 minute Learning module – link
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Proprietary and Confidential
Macro Trends
Growth Varies Significantly by Region, Uncertainty, Corporate Cash All Time High
The global economic outlook is mixed





Emerging markets 2013 GDP growth forecasted to outpace developed markets (5.5% vs. 0.9%)
US will see mid 1% GDP growth. Continued high unemployment, despite low interest rates
Europe will see slow growth, with EU flat
Pacific Rim slowing to 5.9%, but still driven by India and China expansion
Latin America remains solid in the 3% range
Driven by aforementioned concerns, corporate cash is now greater than $1.7 trillion, a 20%+
increase since 2009
US Corporate Cash
US Interest Rates
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2010
Fed Funds
Source: Bank of America Merrill Lynch Global Research, iQdatabase as of Nov 27, 2012
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Proprietary and Confidential
2011
1 ML
2012
3 ML
2013
2014
5 Yr Rolling Swap
2015
Globalization of business into new markets creates…
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Expansion
Opportunities
Companies are discovering new locations to set up manufacturing, distribution and
sales offices. These opportunities require upfront capital in an attempt to generate
positive cash flows and returns.
Access to
New
Suppliers
Global sourcing has been one of the biggest drivers of international growth with
more goods and services being imported every day.
New
Customers
Emerging market economies are experiencing tremendous growth, despite the
current slowdown in the global economy. Companies are discovering new
customer bases to market to.
And leads to…
New
Entering new markets brings entrance into new business climates and cultures.
These cultures often bring new and “foreign” complexities, particularly from
Business
Environments the liquidity management and funds movement perspective.
Currency
Exposure
For USD-functional companies, doing business in foreign countries creates
exposure to currency fluctuations.
Trapped Cash Due to restrictions on certain currencies, companies that operate in these
jurisdictions may have difficulty in moving funds across borders.
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The Basics
7
Why is International CM Different?
Every Country is Different
• Regulations
• Business Practices
• Tax Issues
• Currency
• Risk – Country, Commercial, FX, etc.
• Cash Management Products and Practices
• Banking Systems
• Clearing Systems
• Time Zone
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Global Expansion Life Cycle
Local
Currency
Accounts
Liquidity
Management
Centralized
Currency
Accounts
Foreign
Exchange
and Cross
Border
Payments
Occasional
International
Sale
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Regular
International
Sale
Paying and
receiving in
same currency
Overseas
operations
Multiple
overseas
locations
Cross Border Payment Considerations
 Type of Payment (Commercial, treasury, payroll, tax, intercompany)
 Currency
 Value and urgency
 Frequency and volume
 Logistics and control
 Information
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International Payment Challenges
 Settlement across different time zones
 Holiday Schedules
 Cut off times
 Value dates
 Lifting charges / intermediary bank charges
 Exchange control regulations
 Foreign language & characters
 Information
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The Role of SWIFT
Society for Worldwide Financial Telecommunication (SWIFT)
 A highly secure telecommunications network that facilitates the exchange of
financial messages
 A co-operative organization founded in 1973 created and owned by its members
 A standards body
 NOT a payment system
Most common SWIFT message types for International Cash Management
 MT100 Series - Customer Payments
• MT103 (Single Customer Credit Transfer)
• MT101 (Request for Transfer)
 MT900 Series - Balance and Transaction Reporting
• MT940 (Customer Statement Message – Previous Day)
• MT941 (Balance Report - Intraday)
• MT942 (Interim Transaction Report- Intraday)
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Single Euro Payment Area
SEPA
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Single European Payments Area (SEPA)
The Single European Payments Area (SEPA)
project was designed to:
The Project

Create a single platform for electronic cross-border
EUR payments within Europe

Allow Corporates & Individuals to make EUR
payments from a single account to anywhere within
the SEPA environment under consistent rules and
costs.

Eventually replace local, domestic EUR clearing
with a single clearing structure
SEPA consists of:
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
32 countries – All EU members (27), and:
Switzerland, Monaco, Liechtenstein, Iceland,
Norway.

SEPA Credit Transfers

SEPA Direct Debits
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Centralisation
Pathway to a single account, in a
single location. Natural balance
consolidation.
Standardisation
and
interoperability
Common instruments and technical
standards, standardised clearing,
settlement and value dating;
harmonised legal basis.
Rationalisation of
relationships
Potentially no need to maintain
local banking relationships.
All 32 countries reachable to/from
a single location.
Systems
integration
ERP vendors have invested in
response to SEPA. Single file
format. Facilitates automated
reconciliation.
Improved efficiency
and scale
SEPA complements key treasury trends
Key Trends
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Going Global…Being Global
Globalization
 Treasury operating models are changing from local to regional to global, with a
spotlight on increasing control. Rationalization and consolidation of providers is a
key focus.
Global banking technology
 Increased automation, outsourcing and centralization of cash and liquidity
management. Increased efficiency and doing more with less.
Risk management
 Cash is King – the lifeblood of our clients’ organizations. Who has access to what?
 Foreign Exchange Risk Management
Market forces – ‘credit crunch’ & ‘European contagion’
 Increased need to gain control over internal liquidity, decrease dependency on
external funding and manage risk.
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Trends in Banking Examinations
Rationalization
 What is purpose of each bank account? Can we close or consolidate any accounts? Do we
have any pockets of idle cash? How many systems must we log into around the world?
Global Control & Consistently
 Ensure all account ownership and fully visibility exists from head office. Establish proper
controls and permissions on all bank accounts around the world. Create a standardized
structure allowing for quick movement on any changes.
Increase Efficiency
 Leverage technology to produce STP environment which will eliminate manual functions
and allow treasury to focus strategically.
Reduce Costs
 Leverage global volumes for reduced fees while eliminating unnecessary or redundant
bank accounts. Utilize a global bank to reduce “hidden” transaction and correspondent
fees.
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Best Practices
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International Cash Management Best Practices
● Involve key partners early; be proactive
 Coordination and communication among tax, legal, accounting, and treasury is key
 Build a highly capable treasury staff with strategic thinking skills, project management
acumen, international knowledge and the ability to work in a dynamic environment
● It is essential to build a capital and repatriation strategy from the outset of your expansion into
these markets. It i critical to think through exactly how you wish to incorporate in a specific
market, including how you fund the initial capital injection. The decisions made at the start impact
your options throughout the future.
● Continue migration from paper to electronic payments and receipts and leveraging banking
relationships and tools that can enhance straight-through processing
● Automate information reporting and analytics and improve visibility into your cash positions
globally with a fully integrated web-based global banking portal.
● Create an efficient global bank structure that enables you to view, manage and optimize your
funds everywhere and effectively position your business for success in foreign markets.
● Leverage your local banking, accounting, legal, and tax advisors to build as much knowledge of
each market prior to expansion
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Global Liquidity Management
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Global Liquidity Management
Cash manager’s basic responsibility is to ensure that the company has sufficient liquidity to
meet all known obligations and allow it to continue to function.
Liquidity Management Objectives:
 Visibility and clear reporting over the organization's cash position
 Technology: systems provide the required information (including multi-bank
reporting)
 Strong global liquidity management strategy
 Recent developments such as automated rules-based sweeping take the uncertainty out
of the process while allowing treasurers to focus on strategic initiatives
 Investing cash can be an effective means of maintaining sufficient funds for the
company’s short-term requirements, while benefiting from yield pick-up by investing
strategic cash in longer-term investments
 A strong investment policy, accurate cash flow forecasting capability and centralized
control over the company’s cash are all important ingredients of best practice liquidity
management.
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Global Liquidity Management
Risk
Mitigation
Long-term operating and
reserve cash management:
 Regional concentration of
funds
 Transparency and visibility
of cash positions
 Flexibility to manage
liquidity across
units/regions
 Effective risk management,
improved working capital
and investment returns
Enhance Liquidity Optimization
Working
Capital
Efficiencies
Investment
Alternatives
Managed Treasury and Liquidity Solutions
Cross Region
Sweeping
In-country
sweeping
Multi Currency
Notional Pooling
Cross-border
sweeping
Multi Bank
Sweeping
Cash Inflow
Receipts
Single Currency
Notional Pooling
Interest
Optimisation
Cash Outflow
Accounts
Debt
Transactions
Portal(s) and Information Reporting
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Payments
Global Liquidity Management
Essential cash management techniques are used by companies for cross-border liquidity management:
notional pooling & cash concentration
 Balances are consolidated to optimize
interest, but there is no physical
movement of funds.
 Bank allows positive balances in the
accounts of a company or its subsidiaries
to offset debit balances in other company
accounts for the purpose of determining
interest earned or owed.
 Notional pooling is also referred to as
interest offset pooling or interest
compensation.
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 Balances in participating accounts
concentration are swept to a
concentration account (or cash pool) in
order to better manage liquidity.
 Surplus funds are physically concentrated
into the account and debit balances are
covered by transfers from the
concentration account in order to
minimize overdraft interest.
 Cash concentration is also referred to as
zero-balancing, target balancing or
sweeping.
Globalization of the
Chinese Renminbi
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Local Currency: To Pay or Not to Pay . . .
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Trend
Impact
Globalization of the Renminbi
Advent of the CNH Market
Local Currency Invoicing
Foreign suppliers are no longer content with
receiving USD
Risk Management
More companies are accessing the local markets for
hedging
Central Bank Agendas
Active management in currency markets and
regulations
RMB Cross-border Settlement
Background
 Pilot Program for Cross-border Trade settlement in RMB
launched in July 2009
 In August 2011, RMB cross border settlement expanded to all the
provinces and cities in Mainland China
 All the enterprise in Mainland China are eligible for RMB
settlement for import of goods, service trade and other current
account settlement
 Approved MDEs in Mainland China are eligible for RMB
settlement for export of goods
67,359 MDEs (Mainland Designated Enterprises)
 Participating Banks


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All banks, including their branches, registered in
the pilot provinces are permitted to apply to
become settlement banks and clearing banks

Bank of China serves as the sole clearing bank in
Hong Kong and Macau

Offshore banks, including branches, can open an
account with clearing bank and become
participating banks in the respective regions
2009
Onshore
5 cities
Offshore
Hong Kong ,
Macau and 10
ASEAN
countries
2010
2011
Onshore
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provinces
Onshore
Whole
country
Offshore
All
countries
Offshore
All countries
CNY versus CNH markets
 “CNY” and “CNH” both refer to “RMB” as a currency and the nomenclature is used just for the convenience.
 “CNY” continues to designate Chinese Yuan trading, both in Mainland and offshore markets.
 “CNH” is newly designated for Chinese Yuan offshore trading.
 “CNH” is not regulated by the PBOC, hence will reflect market conditions in Hong Kong and other offshore
markets.
 1 CNY = 1 CNH
RMB Transactions – Onshore vs. Offshore
Onshore Trade Related
Offshore Activities
 To settle payments of eligible Chinese enterprises
 Free movement of funds outside of Mainland
 Supporting documents required for Mainland
 RMB is subject to liquidity conditions in the
in RMB for trade transactions
China bank and regulatory review to ensure
genuine trade transactions
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China
offshore market
 No requirement for supporting documents
Questions?
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John Mullett
Vice President, International
Treasury Solutions Officer
Bank of America Merrill Lynch
Email: john.m.mullett@baml.com
Office: 305-347-2761
John Mullett is the east coast Regional Vice President of Global
Commercial Banking International Treasury Services for Bank of
America Merrill Lynch and is based in Miami, FL. In this role, he works
with multinational corporations to deliver treasury, liquidity and custody
solutions to clients across the globe, including Middle Market Banking
and Business Banking.
Mr. Mullett joined Bank of America in 2008. Prior to this position, he
worked as a Portfolio Management Analyst for an international mutual
fund of Columbia Management, based in Chicago, IL.
John has spoken on international banking topics at numerous events
around the country including the Windy City Treasury Management
Conference, EuroFinance Miami, the Wisconsin Treasury Management
Association Annual Conference, the Washington DC AFP Conference,
and numerous other industry events.
John is a graduate of the College of Charleston School of Business.
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