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| Maurice Cleaves, head of global cash management, Barclays Corporate |
"Being a trusted partner is about having a long-standing relationship with a client that endures through both the positive and negative economic cycles," says Maurice Cleaves, global head of cash management at Barclays Corporate. "It’s about developing a reciprocal relationship whereby a bank is able to anticipate their client’s needs and conversely, the client is able to anticipate their bank’s reaction. Corporates need to know which bank to approach for specific requirements: essentially it’s a meeting of minds."
While the financial crisis has proved a test of many banks’ ability to remain a trusted partner to their corporate clients, the long-term nature of such relationships inevitably means that there are more frequent tests to the relationship that arise in less dramatic circumstances.
Individual industry segments, for example, may suffer cyclical issues within their sector that test financial providers’ appetite for specific types of risk.
A bank’s geographical footprint or industry-specific expertise, may impact their ability to provide financial solutions and hence the depth of the relationship undertaken with the client. Similarly this may impact their appetite for specific types of risk.
"Personal interaction is the key to the relationship," says Cleaves. "From a corporate’s perspective, it’s about much more than just lending, deposits and the security of the financial provider. Though those are important, we want our clients to build a relationship with us for the creation of long-term value rather than short-term benefits. And if that relationship is truly reciprocal, it should generate long-term benefits for the bank’s shareholders as well."
Developing relationships
While the term ‘trusted partner’ is one readily used but not easily defined, the importance of developing strong and trusted relationships between banks and their clients is highlighted in the client surveys conducted by Barclays. Many observers might assume that, when asked what they most want from their bank when they are expanding into a new market, corporates would state start-up funding or other lending commitments. However, the surveys suggest that companies see this concept of a ‘trusted adviser’ as a key priority. Corporates need and want a partner that will help them to facilitate their expansion through the provision of appropriate solutions.
In cash management, the decision about which banks occupy the position of trusted partner has been substantially clarified by the financial crisis. "It comes down to which banks showed strength during the tough times and were able to support their clients," says Cleaves. Barclays’ commitment to its clients remained steadfast throughout the crisis: the bank never sought government capital; it retained its AA rating; and it did not withdraw from any geographical or product markets as a result of the crisis.
The long-term nature of cash management means the decision about which banks to work with as a trusted partner is especially important. "Often clients are seeking to integrate their back office with their chosen bank through complex solutions such as cash pooling," says Cleaves. "Such a decision is a major commitment – both in economic terms and as a statement of trust – and implies a long-term partnership."
The importance of visibility of cash
Efficiency within the corporate treasury ultimately comes down to visibility. "Early visibility of in-bound payments facilitates just-in-time outbound payments," says Cleaves. "A good view of what is happening both at bank level and with business counterparties is essential." Similarly, visibility of cash is important for assessing counterparty risk and understanding the payment cycle. "You can only manage what you measure: without clear visibility forecasting cannot be accurate," says Cleaves.
Moreover, visibility of cash is critical to any liquidity management strategy. There is no single liquidity structure that suits all companies. It inevitably depends on their business area, cash flow characteristics and the complexity of their counterparties (both the number of external counterparties and the nature – centralized or autonomous – of internal counterparties). "However, despite the multiple variables of any liquidity solution, visibility of cash must underpin it," says Cleaves.
The interaction of technology and talented people is at the heart of all liquidity solutions. "Ultimately, the objective must be to create a single structure, with a single visibility and forecasting ability that gives an understanding of cycle times and the ability to make just-in-time payments," says Cleaves. "Once you’ve controlled your cash you then have the opportunity to optimize it. That doesn’t necessarily have to mean moving it – for example, often it’s just a question of offsetting certain balances against fees. Again, none of this is possible – or at least worthwhile – without visibility of cash."
Ensuring the financial provider understands clients’ cash requirements and can support the development of a visible cash management process is key. This would support the development of a trusted partner relationship.
Managing counterparty risks
After their experiences over the past two years, most corporate treasurers are acutely aware of their counterparty risks in a way that was never previously the case. "Risk is now much more integral to how the treasury is managed. Treasurers now have to further consider the stability of their financial provider. This includes thinking about the banks’ own rating, obtaining information from paid sources, reviewing CDS pricing or indeed a mix of all, to understand which banks are the safest," says Cleaves.
Risk is not just a bank or corporate issue, as the sovereign debt crisis in periphery European countries in 2010 has made clear.
The realisation that a default on a payment – as a result of corporate, bank or sovereign risk – can be destructive for a company, has made it essential to have a backup plan in place. "The environment has focused minds – especially in riskier industries," says Cleaves. Plans often involve working with additional banks, ensuring standby facilities are established or even implementing supplier finance strategies.
In response to companies’ concerns, Barclays – which recognizes that some of its clients are now rated more highly than it is – has revisited its product range. "Many companies have extremely strict corporate governance requirements and we have worked to address them," says Cleaves. Specifically, Barclays has created opportunities for corporates to be rewarded with increased yield when funds are maintained at an agreed level but still retain instant access to cash to enable complete flexibility in continuing volatile conditions.
Flexibility of approach, understanding of changing environments and the impacts for corporates are again key tenets of the trusted partner position.
Building and driving efficiencies in transaction management
Transaction banking is essentially about moving value – whether intra-day or cross-border, in open account or documentary guarantee environment.
"Our experience in Europe with SEPA and especially the UK, where there has been a regulatory drive to increase trade through the Faster Payments initiative, has given us a unique insight into efficient transaction management," says Cleaves.
Faster Payments, which reduces payment times from three days to near real-time, promotes greater efficiencies for corporate treasurers’ workflow and Barclays is eager to bring those benefits to companies worldwide.
"It ties back into meeting corporates’ goals in terms of just-in-time payments and controlling counterparty risk," says Cleaves. "It frees up companies because they no longer have to build in as much contingency."
Similarly, the SWIFT Corporate Access service ensures that clients have confidence that when payments are executed, they will get to their customers without any unforeseen complications.
Other initiatives to drive efficiencies in transaction management include the ability of clients to operate a multitude of accounts in their own offices, giving them complete control. Also, clients now have access to information to enable them to monitor every stage of a transaction using email or instant alerts rather than needing to telephone their bank.
"We’ve introduced self-service options allowing our clients to take control and make greater efficiencies in their back office – we’ve effectively become IT consultants in terms of our integration with our clients," says Cleaves. "Ultimately, as a trusted partner, it is our responsibility to help our clients work better in any way that we can."
A trusted partner in Africa
When companies expand outside their home market or region, they need to ensure that their new operations are effective and meet the needs of that market, while realizing the goals that led them to expand in the first place.
After decades of setbacks, many African countries are now experiencing rapid GDP growth and expectations of political stability are rising. "The mining and commodities wealth of Africa is helping to change the dynamic of the region and helping to attract record international investment," says Cleaves.
"We also believe that we have a unique proposition in Africa, being recognized as a bank with significant in-country banking facilities in many African countries. The African countries were historically a very difficult place to do business but, over time, Barclays has built up a solid and secure network for cash management and trade business there.
"We’re ready to put our knowledge and experience to work with existing and new clients to help them achieve their goals in Africa."
Meeting our client’s needs
The world is continuously changing, providing corporates with both opportunities and challenges. It is essential that they have a financial provider who understands their requirements and can help them drive their financial success.
Such a partnership approach can benefit both banks and their clients and is becoming increasingly important against a backdrop of both continued fragility and opportunity.