Three Strategic Reasons Why Corporate Treasurers Should Consider Partnering with an Investment Bank

The world's financial markets continue to shift with the increasing globalisation of business, an emerging digital economy and an evolving regulatory framework. The industry has responded with an array of new technology solutions and business models that, while opening up opportunities, are also impacting the liquidity and payments landscape.

It is these factors that have led HSBC to begin shaping the "Dealing Room of Tomorrow." Our vision is to create a long-term strategy and environment for innovation that translates into banking solutions and services that not only make it easy to adapt to change but help anticipate it as well. For corporate treasurers in particular, this kind of forward-looking approach meets today's needs and lay the foundation for future success in three strategic areas.

#1: Managing risk with dynamic hedging strategies

In today's post-crisis economic environment market volatility, liquidity risk and sluggish growth are making it more challenging to implement an effective risk management strategy.

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Many companies, for instance, are focusing on consolidating earnings and optimising their balance sheets by further developing their core markets. To achieve this, they are disposing of non-core foreign assets to repay debt and release trapped cash with the ultimate goal of reducing funding costs. Treasury is responsible for maximising the value of these disposals by managing balance sheet translation risk, which has traditionally been considered an accounting risk and therefore excluded from the overall hedging strategy. As companies divest these foreign assets, however, a currency mismatch occurs — and can result in an economic risk and create a need for hedging. This type of ongoing, anticipated risk is combined with sudden market events such as the UK's Brexit referendum that can lead to unexpected currency risk.

To better manage risk in both these scenarios, HSBC works with its clients to adopt a strategic hedging programme that strikes a balance between stability and dynamism to reflect changing market conditions. For translation risk, this means a strategy that dynamically chooses the timing and the notional to be hedged using a rules-based approach. By hedging dynamically, treasurers might not pay the full carry if they are gradually hedging as the currency starts depreciating, or they may not pay any carry at all when the currency continues to move in their favour. Event-type exposures such as Brexit calls for a different set of hedging solutions. In this case, regular disciplined hedging using a mix of different mechanisms such as forward contracts and flexible option-linked solutions can reduce volatility over the long term, establishing in a pre-emptive rather than reactionary strategy.

#2: Optimising cross-border operations

As the world's economy is likely to continue to become increasingly global, companies of all types and sizes have to effectively manage cross-border payments and collections. The key is minimising foreign exchange fees to protect the value of each transaction as well as improving transparency of FX rates on both outgoing and incoming flows for improved reconciliation. While these objectives are the same for the largest multinationals through to today's microbusinesses, there are clear differences in the resources and technology they have in place to realise them. The challenge for the banking industry is to meet the needs of this varied range of companies with solutions that are scalable and appropriate to different customer segments and use cases.

That's exactly how HSBC has developed its Transactional FX offering, a suite of solutions designed with the flexibility to adapt and grow with each business.

• HSBC FlexRate embeds foreign exchange conversion directly into each transaction for more transparent pricing at the point of purchase and an improved the customer experience

• HSBC Global Disbursements makes cross-border payments in more than 130 local currencies from a single operating account, delivering enhanced control over foreign exchange conversion on outgoing payments and giving suppliers greater transparency of receivables

• HSBCnet Get Rate, a free service on HSBCnet, allows users to view and instantly book foreign exchange rates for Priority Payments and inter-account transfers for real-time visibility into the foreign exchange rate, the amount to be paid in the foreign currency and the exact amount to be debited from the operating account

These solutions are complemented by our new platform, HSBC evolve, which offers a high degree of automation for ease of execution and enhanced transparency into positions. Using evolve, treasurers can get competitive quotes on a variety of currency pairs and product lines, transact online and easily integrate deal and quote information into their Treasury Management Systems. At the same time, evolve has been built on flexible technology — giving us the flexibility to eventually expand it into a distribution channel for payments, trades and an array of business tools to support the Treasury of tomorrow.

#3: Creating solutions for tomorrow, today

While HSBC develops its solutions to meet today's needs, they are also designed to keep pace with the changing economic landscape and new market players such as Fintechs. For example, fintechs that specialise in streamlining transactional information flows between buyers and suppliers have typically used other fintech solutions for payments processing or worked through local and regional banks. The result is different systems and processes in each country, and information coming from many sources and in several formats. HSBC FlexRate allows fintechs to add payments and foreign exchange into their existing systems, helping tie information and payment flows together. Delivering a single, seamless process for financial transactions in this way further helps their clients consolidate payments coming into and out of their organisations for better visibility and control over cash flows.

FlexRate is also a strategic solution for the growing 'gig economy', which is made up of freelancers — working for a range of different companies including mid-market and large corporates — and that typically distribute their goods and services via online marketplaces. This includes peer-to-peer marketplaces, large sellers who aggregate their own goods and services with those of others and subscription-based services. Regardless, payments in this environment are likely to become increasingly global and micro — and foreign exchange fees can erode the principle and payment amount significantly. Since FlexRate integrates the foreign exchange conversion into each transaction, marketplace customers have a clear view of the transaction cost in their own currency. At the same time, participants know up front what they will be receiving in their home currency as well — so there are no surprises on either end once the transaction is complete.

The value of an international banking partner

Treasurers have the technology available to them to help quantify and model potential risks for hedging as well as for optimising payments and minimising the impact of foreign exchange risk. However, leveraging the local experience and global reach of an international banking partner such as HSBC is equally important. From a hedging standpoint, having a global banking partner can help treasurers gain greater visibility and control in mitigating risks and managing key ratios, enhance the management of liquidity and optimise the cost of funding. A knowledgeable investment bank can also help navigate the complex regulatory landscape that impacts day-to-day business.

That's why HSBC has strengthened its offering to corporate clients with the creation of Global Markets Corporate Services which aims at improving the service to clients and leverage the bank's strengths to adapt to their changing needs. The new entity comprises a Corporate Treasury Solutions team of specialists dedicated to the operational risk management needs of treasurer clients and also offers multi-asset risk management, execution and working capital solutions.

In addition, a Corporate Risk Solutions team focusses on supporting clients to better understand and solve structural balance sheet risk issues. The team also assists clients at responding to the market risk arising from major corporate events. This risk management expertise is combined with innovative foreign exchange solutions, giving treasurers the ability to maximise efficiency by centralising incoming and outgoing payments for more control over cash flows organisation wide on an on-going, strategic basis.