Solution of the Year 2010 Transcript

From Treasury & Risk's 15th Annual Alexander Hamilton Best Practices Awards

MARY ANN DOWLING:  Good afternoon. Treasury Strategies is very pleased to be part of the Alexander Hamilton Awards, and to moderate the Solution of the Year segment. The finalists here to my left are: Jamie Ballingall, Courtlandt Gates and Ron Chakravarti. Thank you.

I’ve been asked to give our vision, Treasury Strategies vision, of what treasury is. Treasury is today now the nerve center of a company, and it interfaces with both internal and external stakeholders. Now more than ever, it needs to provide business intelligence and analysis to these stakeholders. Because of changes in regulations and disclosure, treasury is called upon now more than ever to provide essential analysis for decision-making, and to be a payment liquidity and risk adviser to the business.

If we were to look at the technology for a Generation 1.0, it’s very limited. It’s usually very manual, and it’s very convoluted and data doesn’t rely and reside in one place. In a Generation 2.0, we have a more automated process. You have treasury workstations, you have the ability to send information back and forth electronically, but there’s still manual processes occurring. You have Excel spreadsheets, and you have some of the businesses using the phone to request a transaction. This is where we find a lot of treasuries today:stuck in this Treasury 2.0, and what we work on with these treasuries is to move them into the architecture for Treasury 3.0.

We do best practices studies with other companies. We look at enhancing their policies and strengthening them, and we look at what technology will help to automate the manual processes.

We’ve been successful because we solve an urgent and pervasive problem: and that is the need for accurate, timely, actionable investment portfolio reporting and analytics. That is the need to know and understand what you own. As mentioned a number of times today, the financial crisis has elevated the profile of treasury within the organization, and it has also elevated the importance of understanding the investment portfolio. The financial crisis has also exposed the shortcomings of spreadsheets and manual processes in generating actionable information. Finally, treasury departments are understaffed, and it’s vital to make the best and highest uses of those precious human resources.

Ron Chakravarti will be representing Citi. He is responsible for global solutions management for Citi’s enterprise liquidity management. He joined Citi in 2006. Prior to Citi, he was with ABN AMRO, heading its North and Latin American liquidity management advisory teams, and with Treasury Strategies, my organization, as a principal in the global corporate consulting practice.

In a nutshell, going forward, we’re going to continue to certainly provide it to our clients, but we’re looking at additional cuts, we’re providing additional industry cuts. The first version was very much corporate nonfinancial corporate oriented. Our financial institutional clients and nonbank financial institutional clients have been expressing interest, and we’ve started doing cuts for that. The public sector, which is sort of governments, NGOs; it’s a very wide field that expresses a lot of interest. We’ll be continuing to develop that, and it’s really sort of evolving into a whole series of other initiatives, and discussion forums that’s coming out of that. So that’s it in a nutshell.

So in the interest of time, and simplicity and confidentiality, let’s imagine three currencies for a hypothetical company here. So I’m sitting there in the treasury department, I’ve got these three different currencies, and I’ve got a $100 million worth of exposure to each of them. And I do some simulation, maybe I look historically and do an historical simulation, maybe as we do, I calibrate to forward-looking option prices, and I come up with some kind of simulation of the euro, U.S. dollar exchange rate of sterling and of yen.

I’ve thrown around the word ‘risk’ quite a lot here without really discussing it or explaining what it might mean, because it’s a room full of treasury professionals, we all know what risk means. But we need to quantify risk, particularly within any kind of modeling framework. And the standard on the Street at the moment is very much to use Value-at-Risk. I’ve had it measured a couple of times, and on a diagram like this you would start out at a particular -- this distribution is supposed to be a distribution of gains or losses versus some benchmark. So you’re benchmarking off of zero, I’ve already done the benchmarking part here, and Value-at-Risk is very simply the distance between the zero line and the fifth percentile. And that’s fine, it’s widely used. I think we’ve all been fighting a battle to get it recognized as a useful risk measure over the last couple of years.

So again thank you very much Treasury & Risk magazine, thank you very much to everybody here for listening to my speech. Thank you.

DOWLING:  Ron, on your tool, is that available globally, and is that in different languages or is it just English?

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