The reporting of risk

Risk management is a challenge. Any treasurer who has sat at a dealing desk understands how risky some instruments and positions can be. This has always given them a particular advantage when it comes to looking at all sorts of risk.

Risk management is now moving towards enterprise risk and the understanding of it is improving. We now have concepts such as risk appetite and managers are beginning to understand the link between the risk in a firm and the returns that its owners seek. We now have risk management committees and risk officers.

Wealth destruction?

Losses/value destruction will arise if/when (long-term) interest rates rise and (fixed rate) bond prices fall, or so many commentators are warning.

I don’t see it entirely like that. I think that that idea is giving far too much weight to mark to market valuation during the holding period or too much preoccupation with bond traders.

Use and misuse of derivatives

Treasurers are always learning and always having to deal with change in their own firms as well as changes in technology, financial markets, economies, fashion and convention, among others.

Two case studies are presented in this month’s faculty offering as cases of good and bad treasury management and in each case there are lessons for today’s treasurer looking for value in the financial markets and the reduction of risk in their firm.

Case Study 1

The real economy matters

The ACT has for a long time been arguing that the real economy matters and that financial regulation should have regard to the consequences for companies operating in the real economy. And at the ACT Annual Conference 2012, that theme seemed to have been wholeheartedly accepted by the corporate side and also in the speech by Douglas Flint, Chairman of HSBC. It was therefore further music to our ears that Paul Tucker, Deputy Governor, Financial Stability at the Bank of England, opened his address with recognition that financial policy and the aim of building stability and resilience was all about

The shift from west to east

The first panel discussion at this year’s ACT Annual Conference looked at the theme of the conference, clarity in a complex world, by asking whether the economic focus of the world is shifting from West to east and if so, what are the implications for treasurers and their organisations in the west? How for example will treasurers cope with differences in regulatory regimes? What will be the impact on the economies of the South?

Current trends in bank relationship management

This faculty often considers the role of banks for the corporate user and borrower, both generally and also from specific aspects of trends in finance.

Corporations cannot do without banks, they are needed for many aspects of business, including money transmission, market making, broking , trade support products, asset finance, bond issuance, M & A, as well as their traditional role as deposit takers and vanilla lenders. They are under particular pressure at the moment from many directions:

Corporations as lenders / supply chain finance

Banks are very much the part of the financial universe under the spotlight at the moment. There are so many changes affecting them, from regulation, retail separation and political pressure on wages and bonuses, to euro zone pressure and recessionary risks of lending, that we are all becoming scared that they will not be able to act like banks and lend to corporations. Much effort, including from the ACT, is therefore to understand the implications of this and one path to follow is to investigate how non bank corporations might fill the gap left by bank lending.