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Citi Perspectives
| Q1/Q2 2015
Dollar Strengthening And The Outlook For Short-Term Interest
Rates In Europe Creates New Challenges For Treasury
The outlook in Europe raises added considerations for treasury teams. Based on Citi’s
discussions with clients, we outline some of the considerations, which range from cash
pooling setups to implications for broader strategies.
Treasury Considerations
• Arms Length Principles – Need to ensure
alignment with transfer pricing guidelines
on intercompany loans and pooling benefit
Tax
• Revaluation losses – On foreign currency
assets and liabilities
• Intercompany Loans – Cash flow deltas
arising from differences in spot rates on
hedge rollovers
FX
Corporate Finance
Initiatives
• Re-evaluate customer &
supplier commercial terms,
invoicing currencies
• Reassess intercompany
lending programs and
hedge policies
• Review policies for offshore
earnings repatriation, local
debt raising vs. interco funding
Integrating
broader enterprise
perspectives
Today
3-6 months
Longer term
Maintaining
consistency with
liquidity objectives
Cash Management
Processes
• Improve cash positioning
accuracy
• Reassess daily investment &
funding positions: e.g. early
funding of LCY outflows
• Swap out where implied
rates attractive
• Reset cash pool
intercompany rates
Balancing control,
counterparty, and
yield considerations
Treasury
Centralization Profile
• Improve cash flow
forecasting
• Reoptimize banking
structures: e.g.,
“centralize management,
but hold multi-domestically”
• Reassess economics of
working capital financing
tools to avoid excess cash
*
Citi Treasury Advisory Group
Operational & Organizational
• Treasury KPIs & Budgets – pressure on
returns, “use it or lose it”
• Technology – need to ensure treasury
technology capable of dealing negative rates
• Organizational – internal hurdles when
subsidiaries receive negative rates for
intercompany deposits
• Counterparty Management – process
challenges of investing with more
local providers
Zero Interest Rate to Negative Interest Rate Policy
*
: New Challenges
