The global outbreak of COVID-19 is a fast-evolving situation, with widespread ramifications across industries, including financial services. As the economic consequences of the outbreak unfold, the priority for corporate treasurers is to establish ongoing and clear communication with bank providers. Treasurers should remain in close contact with bank providers across a range of topics including payments, credit-line availability, and cash management, while monitoring market indicators of the financial strength of key relationship banks, according to Lindsey Naylor, Rebecca Emerson and Jai Sookal, Partners at Oliver Wyman. Oliver Wyman is an affiliate of Guy Carpenter.
In particular, corporate treasurers should consider these eight actions:
1. Payments: Monitor payment activities to ensure banks’ attempts to manage intraday liquidity through throttling of payments do not impact time-sensitive obligations (nor other payments for that matter).
2. Cash-management services: Review and confirm that any cash sweeps/investments are being made to sufficiently conservative investment instruments.
3. Trade financing capacity: Make certain banks have provided a critical role in facilitating global trade through the provisions of trade financing services, such as documentary letters of credit and import/export bills.
4. Deposit availability: Treasurers have traditionally utilized banks as points at which to aggregate surplus cash on both a short term as well as longer-term basis. As COVID-19 impacts revenue and cash generation across sectors, the availability of those deposits needs to be continuously confirmed.
5. Currency services: Some corporates rely on their “relationship banks” as a source of currency payments – the unimpeded availability of currency needs to be assured at reasonable rates. This may also raise the question of reviewing currency-hedging strategies.
6. Credit line availability: Committed credit and liquidity facilities are a key mainstay of banks’ service offerings. As mentioned above, banks’ liquidity positions have been materially enhanced through post-financial-crisis regulations, and that, coupled with central bank aggressive support, should make drawing on facilities simply to “hoard cash” an expensive proposition that is not worth it.
7. Guarantees and Letters of Credit: The availability of these should continue uninterrupted. Monitoring for any indications of capacity reductions or increased pricing should be in place.
8. Conduits/Securitizations: Banks facilitate the asset financing needs of corporates through a number of key roles, such as sponsor of single or multi-seller conduits, participation in conduit-liquidity facilities, or underwriting securitization transactions. Corporate treasurers need to stay informed on the conditions of financing markets for maturing conduit-issued commercial paper. Any disruption in financing markets may result in corporate treasurers having to seek alternative financing sources for their assets. Similarly, should a bank sponsor suffer a ratings downgrade, that could impede its ability to continue in its role as a conduit sponsor, resulting in potential loss of financing capacity for corporate assets.