TREASURY AND LIQUIDITY

MANAGEMENT
IN EUROPE

Michèle Allman-Ward
Allman-Ward Associates, Inc.
SCAFP
March 9, 2007
 OBJECTIVES FOR TODAY

 Provide an overview of European:

– Payment options
– Liquidity management solutions
– What to expect next

But first, WHY DO WE CARE?

©Allman-Ward Associates, Inc.

 IT’S NOT JUST THE EURO ZONE!

 European Union (EU) 27 member

countries
 European Economic Area (EEA) 31
member countries
 Accession countries 10 and counting
 Euro zone 13 countries

©Allman-Ward Associates Inc.

 EURO ZONE
Euro zone

Euro zone 2008

Committed to join

Right to join

©Allman-Ward Associates Inc.

 BAFFLING PIGSS!

©Allman-Ward Associates Inc.

 WHY DO WE CARE?
 It’s getting bigger
 It’s an important trading partner
 It’s where many of us do business
 It’s a template of things to come
 It’s a great place to visit

©Allman-Ward Associates Inc.

 Options in Cross-Border Funds
Movements

©Allman-Ward Associates Inc.

 EURO PAYMENT OPTIONS
RTGS SYSTEMS Non-RTGS Correspondent TARGET
Banks

ARTIS EBK Network EURO1

ELLIPS UVC/CEC Banks EBA – STEP2
KRONOS Sumclearingen
PMJ
BOF
PNS/SIT
TBF
RPS
RTGS plus
DIAS
HERMES
EFTCo
IRIS
BI-COMP
BI-REL
LIPS-net
LIPS-gross
Interpay
TOPS
Telecompensacao
SPGT
SEPI
SLBE
BGC
E-RIX
BACS
NewCHAPS
Etc. etc.
Etc. etc.

©Allman-Ward Associates Inc.

 TARGET

©Allman-Ward Associates Inc.

 RTGSplus

DIRECT
REMITTER FINANCIAL INSTITUTION PARTICIPANT
BANK
T
A
REAL TIME R
Deutsche GROSS
RTGSplus G
Bundesbank SETTLEMENT
E
T
BENEFICIARY
LOCAL
NCB
BANK

LOCAL
RTGS

©Allman-Ward Associates Inc.

 NET SETTLEMENT – EURO 1

REMITTER LOCAL US EBA MEMBER

IN US BANK BANK

T
A
European END OF DAY EBA R
NET
Central SETTLEMENT
Euro 1 G
Bank Clearing E
T
BENEFICIARY EBA MEMBER
BANK NCB

LOCAL
RTGS

©Allman-Ward Associates Inc.

 BICS & IBANS
 Introduced to standardize identification of
European bank accounts
 SWIFT has mandated that all MT102+ and
MT103+ messages need to contain the
beneficiary’s correct IBAN to be valid
instruction
 Use of BICS and IBANs obligatory for all
cross-border EUR payments
 In 2007 banks will have the right to EUR
reject payments without correct BICs and
IBANs

©Allman-Ward Associates Inc.

 LIQUIDITY MANAGEMENT
SOLUTIONS

©Allman-Ward Associates, Inc.

 NOTIONAL POOLING VS CASH
CONCENTRATION
NOTIONAL POOLING
 Balances never move
 Balances are offset
notionally, preserving
integrity of accounts
 No concentration
 No commingling
 Treated as bank lending
 Interest is debited or credited
to master account
 Credit facilities required to
cover any net negative
position
 Requires interest
reallocation
©Allman-Ward Associates Inc.
CASH CONCENTRATION
 Funds move physically
 Cross-border transfers are
more expensive
 Change of ownership
creates intercompany
lending issues
 Provides greater flexibility as
to how funds are used
 Can be manual or
automated
 Also used as a zero balance
function to fund business
units
 Requires interest
reallocation
 SINGLE CURRENCY, CROSS-BORDER
Notional Pool or Concentration
CORPORATE TREASURY
€ CASH POOL

NOTIONAL POOL OR
CONCENTRATION
SUBSIDIARY
CURRENCY
ACCOUNTS
FRANCE BELGIUM NETHERLANDS UK

©Allman-Ward Associates Inc.

 SINGLE COUNTRY, CROSS CURRENCY
NOTIONAL POOL
CORPORATE TREASURY
USUALLY € CASH POOL
SINGLE
COUNTRY,
RARELY
CROSS
BORDER
NOTIONAL OFFSET

SUBSIDIARY
CURRENCY
ACCOUNTS

©Allman-Ward Associates Inc.

 MULTI CURRENCY, CROSS-BORDER (1)
Pool Sandwich
TREASURY
POOL CASH POOL
ACCOUNT

CURRENCY
ACCOUNTS

CROSS-BORDER CONCENTRATION

LOCAL
CURRENCY
POOLS

©Allman-Ward Associates Inc.

 MULTI CURRENCY, CROSS-BORDER (2)

CASH POOL

MIRROR
CURRENCY
ACCOUNTS

NOTIONAL POOL
LOCAL
CURRENCY
POOLS FOR
OVERSEAS
SUBSIDIARIES

©Allman-Ward Associates Inc.

 MT101 – THE FUTURE?
CORPORATE
TREASURY

MT 103 ICM BANK

MT 101

LOCAL BANKS
BRANCHES
FUNDS
SWIFT MT101 INSTRUCTIONS
FUNDS AND DEFUNDS ACCOUNTS

BENEFICIARY BANKS

©Allman-Ward Associates Inc.

 REAL-TIME CROSS-BORDER SWEEP

EURO CENTRAL ACCOUNT

LOCAL LOCAL
ACCOUNT A ACCOUNT B

PAYMENTS OUT PAYMENTS IN

SUBSIDIARY A SUBSIDIARY B

©Allman-Ward Associates Inc.

 INTEREST ENHANCEMENT
GERMANY
FRANCE
SPAIN

AUSTRIA
INTERNATIONAL
INTEREST OPTIMIZATION
ITALY

BELGIUM UK
PORTUGAL

©Allman-Ward Associates Inc.

 MULTI-BANK NOTIONAL POOLING

NOTIONAL POOL

MIRROR
CORPORATE
ACCOUNTS
Cross Border

CM BANK NOSTRO
ACCOUNTS

BOOK TRANSFER TO NOSTRO

CORPORATE
ACCOUNTS WITH
LOCAL BANKS
PORTUGAL GERMANY FRANCE UK

©Allman-Ward Associates Inc.

 LIQUIDITY MANAGEMENT ISSUES

 Arm’s length directive

 Legal
 Resident/non-resident
 Taxes: withholding, stamp duties
 Thin capitalization
 Central bank requirements
 Internal company issues

©Allman-Ward Associates Inc.

 WHAT’S COMING NEXT?

©Allman-Ward Associates, Inc.

 WHAT’S NEXT?
UK
 BACS 1 day cycle
 FPS
 Check clearing 2 – 4 - 6
TARGET 2
 Scheduled to go live in end of 2007, it
will provide an IT platform that can be
shared by the NCBs

©Allman-Ward Associates Inc.

 WHAT’S NEXT
SEPA
 Single Euro Payment Area by 2008
 Credit Transfer Scheme will replace the
Credeuro (unlimited value)
 Speed of value and finality will
differentiate payment types (not
amount)
 Standardized Electronic Direct Debit
across Euro zone
©Allman-Ward Associates Inc.
 THE END

©Allman-Ward Associates Inc.