© 2015 Treasury Strategies, Inc. All rights reserved.
Treasury Strategies’ Quarterly Corporate Cash Briefing™ for 4Q 2015
Presented by: Tony Carfang, Treasury Strategies Kevin Ruiz, Treasury Strategies Debbie Cunningham, Federated Investors Peter Matza, ACT Roger Merritt, Fitch Ratings
October 8, 2015
Agenda
Corporate Cash Levels Corporate Focus on Asia Pacific
• Trans-Pacific Partnership
Game Changers
• Central Bank Credibility
• QE Dislocations
• Bond Market Liquidity
• Global Market Volatility
Roundtable
• Federated Investors
• Association of Corporate Treasurers (ACT)
• Fitch Ratings
2
Corporate Cash Levels
Source: Federal Reserve, Treasury Strategies
£0.55T
¥254T
Source: European Central Bank, Treasury Strategies Source: Bank of Japan, Treasury Strategies
€2.3T
Corporate Cash Levels
4
$2.06T
US Corporate Cash
Source: Office of National Statistics, Treasury Strategies
Japanese Corporate Cash Eurozone Corporate Cash
UK Corporate Cash
160
180
200
220
240
260
Cor
pora
te C
ash
(¥T)
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Cor
pora
te C
ash
(€T)
0.2
0.3
0.4
0.5
0.6
Cor
pora
te C
ash
(£T)
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Cor
pora
te C
ash
($T)
Source: Federal Reserve, Treasury Strategies
£0.55T
¥254T
Source: European Central Bank, Treasury Strategies Source: Bank of Japan, Treasury Strategies
€2.3T
Corporate Cash Levels
5
$2.06T
Source: Office of National Statistics, Treasury Strategies
Japanese Corporate Cash Eurozone Corporate Cash
UK Corporate Cash
160
180
200
220
240
260 C
orpo
rate
Cas
h (¥
T)
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Cor
pora
te C
ash
(€T)
0.2
0.3
0.4
0.5
0.6
Cor
pora
te C
ash
(£T)
Slope: £6.3B/quarter
R² = .97
Slope: €25.1B/quarter
R² = .98
Slope: ¥1.03T/quarter
R² = .76
R² = 0.94133
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Cor
pora
te C
ash
($T)
US Corporate Cash
Slope = $18.5B/quarter
Country/Region June 2000 June 2015
United States 9% 11%
Eurozone 14% 23%
United Kingdom 25% 31%
Japan 37% 52%
Source: Treasury Strategies’ estimate
Corporate Cash as % GDP by Region
6
How Cash Trends With Other Economic Variables
7
US Economic Analysis Independent Variable R-Squared
GDP 0.9667
Total Assets (Nonfinancial Corporate Business) 0.9263
M2 Money Stock 0.9061
M1 Money Stock 0.7791
Velocity of M2 Money Stock 0.7302
10 Year T-Bill 0.6311
5 Year T-Bill 0.5323
Velocity of M1 Money Stock 0.4125
3 Month T-Bill 0.3212
Effective Federal Funds Rate 0.3095
Corporate Cash Relative to Nominal GDP
8
R² = 0.95
Slope = €378B/€T
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
6.00 7.00 8.00 9.00 10.00 11.00
EU C
orpo
rate
Cas
h Le
vels
(€T)
EU GDP ( €T)
EU Corporate Cash Level Relative to EU Nominal GDP
R² = 0.96
Slope = $136B/$T
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
8.00 10.00 12.00 14.00 16.00 18.00 20.00
US
corp
orat
e C
ash
Leve
ls ($
T)
US GDP ($T)
US Corporate Cash Level Relative to US Nominal GDP
R² =0.98
Slope = £431B/£T
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.80 1.00 1.20 1.40 1.60 1.80 2.00 2.20
UK
Cor
pora
te C
ash
Leve
ls (£
T)
UK GDP ( £T)
UK Corporate Cash Level Relative to UK Nominal GDP
R² = 0.24
Slope = -¥668B/¥T
160
180
200
220
240
260
460.00 470.00 480.00 490.00 500.00 510.00 520.00
Japa
n C
orpo
rate
Cas
h Le
vel (
¥T)
Japan GDP (¥T)
Japan Corporate Cash Level Relative to Japan Nominal GDP
Reserve Balances
Source: Federal Reserve, Treasury Strategies
Source: European Central Bank, Treasury Strategies Source: Swiss National Bank, Treasury Strategies
Source: Bank of England, Treasury Strategies
9
£188B
-
500
1,000
1,500
2,000
2,500
3,000
Ban
k R
eser
ve B
alan
ces
at th
e Fe
d ($
B)
Bank Reserve Balances at the US Federal Reserve
$2,590B
€403B
¥207T
0
100
200
300
400
500
600
700
800
900
1000
Ban
k R
eser
ve B
alan
ces
at th
e EC
B (€
B)
Bank Reserve Balances at the ECB
0
50
100
150
200
250
300
Ban
k R
eser
ve B
alan
ces
at th
e B
OE
(£B
)
Bank Reserve Balances at the BOE
0
50
100
150
200
250
300
Ban
k R
eser
ve B
alan
ces
at th
e B
OJ
(JPY
T)
Bank Reserve Balances at the BOJ
Central Bank Assets as % GDP by Region
Source: U.S. Bureau of Economic Analysis, St. Louis Federal Reserve, Treasury Strategies
Source: European Central Bank, St. Louis Federal Reserve, Treasury Strategies
10
Source: UK Office of National Statistics, Bank of England, Treasury Strategies Source: Bank of Japan, St. Louis Federal Reserve, Treasury Strategies
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15
% A
sset
s to
GD
P
BOE - Total Assets as % of GDP
0%
10%
20%
30%
40%
50%
60%
70%
80%
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
% A
sset
s to
GD
P
Bank of Japan - Total Assets as % of GDP
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
% A
sset
s to
GD
P
US Federal Reserve Total Assets as % of GDP
0%
5%
10%
15%
20%
25%
30%
35%
40%
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
% A
sset
s to
GD
P
European Central Bank - Total Assets as % of GDP
Corporate Focus on Asia Pacific
Pacific Rim – Situation
12
Source: The New York Times http://www.nytimes.com/2015/10/06/business/trans-pacific-partnership-trade-deal-is-reached.html?_r=0
Complications for Corporate Treasurers
13
• Increased currency and FX exposure
• Increased business and supply chain exposure
• Increased operational exposure
• Increased country/political risk exposure
Source: The Economist https://espresso.economist.com/466243a3c03d2a592bb4ebed94b42e13
Potential Solutions
14
• No risk = no business
• Visibility and forecasting for smart, risk-informed decision-making • Greater attention to global cash and currency positions/repatriation
• Greater attention to FX volatility, hedging strategy
• Use of treasury technology and focus on control environment
• Use of treasury centralization strategies (i.e., regional treasury centers)
• “Business Hedging” and natural hedging strategies
Game Changers
Potential Game Changers
Central Bank Credibility
Global Market Volatility
QE Dislocations
16
Bond Market Liquidity
Speakers
Tony Carfang Partner 312.628.6921 [email protected] Kevin Ruiz Principal 312.320.0398 [email protected]
Debbie Cunningham Chief Investment Officer 412.288.8481 [email protected]
Peter Matza Engagement Director +44 (0)20 7847 2580 [email protected] Roger Merritt Managing Director 212.908.0636 [email protected]
17
About Treasury Strategies, Inc.
Who We Are Treasury Strategies, Inc. is the leading treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions.
What We Do Corporations We help you maximize worldwide treasury performance and navigate regulatory and payment system changes through a focus on best practices, technology, liquidity and controls. Treasury Technology We provide guidance through every step of the technology process – which includes creating a roadmap, selection, implementation and optimization. Our expert approach will uncover opportunities to optimize the value of your treasury through fully integrated technology solutions. Financial Services Our experience, analytic approach and benchmarks provide unique consulting solutions to help you strengthen and grow your business.
www.TreasuryStrategies.com/ content/networking-communities
www.youtube.com/c/treasurystrategiesincconsulting
@TreasuryStrat
Accreditations
Connect with Us
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Who We Are The Association of Corporate Treasurers (ACT) sets the benchmark for international treasury excellence. As the Chartered body for treasury, we lead the profession through our internationally recognised suite of treasury qualifications, define standards and support continuing professional development. We are the voice of corporate treasury representing the interests of our members.
What We Do ACT supports the growth and professional development of treasurers and finance professionals. We are an active global network of treasury, risk and finance professionals with members and students in 98 countries.
• We promote treasury as a discipline, as a profession and as a career.
• We provide informed and unbiased technical advice.
• We teach, examine and qualify treasury professionals and offer ongoing CPD.
• We stimulate debate and facilitate the exchange of ideas and information through our events, conferences, webinars and forums.
• We represent the real economy and influence relevant regulation and market practice.
About the ACT
youtube.com/treasurersorg
facebook.com/actupdate
www.treasurers.org/linkedin
twitter.com/actupdate
www.treasurers.org
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About Federated Investors, Inc.
Liquidity Management
§ Pioneer in liquidity management for more than 40 years and one of the largest institutional money market fund managers in the industry*
§ 34 liquidity management professionals with 19 years working together at Federated
§ Have never bought a security out of or infused capital into a money market fund to maintain a stable $1.00 NAV
• Prime • Government
• Tax-Free • Non-U.S Domiciled
Equity Management
§ Independent investment teams each focused on a specific style or approach with commitment to proprietary research
§ Portfolio managers average 23 years of experience, nearly 11 with Federated
§ Strategies are a result of both carefully cultivated homegrown initiatives as well as key strategic acquisitions
• Value (Clover) • International Equity
• Dividend Oriented
• Quantitative (MDT) • Growth/Income • Growth (Kaufmann)
• Balanced/Macro • Alternatives (Prudent Bear)
• Managed Risk
Fixed-Income Management
§ Experienced, specialized teams with strength across the yield curve
§ Portfolio managers average 25 years of experience, nearly 18 with Federated
§ Modular process is portable across fixed-income styles and lends itself to portfolio customization
• Multi-Sector: Active Cash, Short, Intermediate • Sector Specific: Corporate, High-Yield, Emerging Markets, Trade Finance, Municipals
Founded: 1955
Headquarters: Pittsburgh
Global Operations: New York, Rochester, Boston, Houston, Dublin, Frankfurt, London and Tokyo
AUM: Approximately $355 billion
Ownership: § Publicly traded, privately held (NYSE: FII)
§ 20% employee ownership
Revenue Distribution Equity 46%
Liquidity 32%
Fixed-income 22%
Representative Clients
• Corporate/Public Defined Benefit
• Defined Contribution
• Endowment/Foundation
• Taft-Hartley
• Insurance
• Sub-Advisory
• Local Government Investment Pools (LGIP)
• Financial Intermediaries
All information is as of 3/31/15 unless stated otherwise. *Source: iMoneyNet, Inc. February 28, 2015
Delivering investment solutions since 1955
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About Fitch Ratings
Fitch Ratings is a leading provider of credit ratings, commentary, and research. Dedicated to providing value beyond the rating through independent and prospective credit opinions, Fitch Ratings offers global perspectives shaped by the strong local market experience and credit market expertise. The additional context, perspective and insights we provide help investors to make important credit judgments with confidence. Fitch Group is a global leader in financial information services with operations in more than 30 countries. In addition to Fitch Ratings, the group includes Fitch Solutions, an industry-leading provider of credit risk products and services, and Fitch Learning, a preeminent training and professional development firm. Fitch Group is jointly owned by Paris-based Fimalac, S.A. and New York-based Hearst Corporation. For additional information, please visit www.fitchratings.com.
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