AFP Blogs

According to a recent PwC IFRS survey, nearly 50% of US-based multinational companies are either currently using IFRS somewhere in the world, have completed an initial impact assessment, or are planning to do an assessment.

Global Capital Markets

Cisco Systems and U.S. wireless carrier Clearwire led $96.9 billion of bond sales this month, the busiest November since 2006, as companies took advantage of near-zero interest rates.

U.S. corporate bond sales reached an annual record of $1.171 trillion as borrowers took advantage of low interest rates and surging demand for debt securities following last year’s credit freeze. Sales of investment-grade and high-yield, high risk debt compare with the more than $1.167 trillion that companies sold in all of 2007, the previous record. Last year, the total was $874 billion.

Companies sold a record $385.9 billion in the first quarter of this year as borrowers accessed the thawing credit markets. Corporate issuance was $331.9 billion in the second quarter and $268.4 billion in the third quarter.

Volkswagen and Vivendi led a more than three-fold increase in non-financial bond sales this week as companies rushed to take advantage of the lowest yields in four years.

China’s finance ministry completed its first sale of 50-year debt at a lower-than-expected yield as brokerages said life insurers purchased the securities.

U.S. Treasuries

Treasuries advanced the most this month after a proposal from Dubai to delay debt payments set off a slide in stocks and higher-yielding assets worldwide.

The Treasury sold $44 billion of two-year notes at a yield of 0.802 percent, the lowest on record, as demand for the safety of U.S. government securities surges going into year-end.

Swaps

Interest-rate swap spreads widened after Dubai’s attempt to reschedule its debt payments rattled investors and reduced demand for higher-yielding assets.

The difference between the rate to exchange floating- for fixed-interest payments and U.S. Treasury yields for two years, known as the two-year swap spread, widened 3.94 basis points to 33.19 basis points. Swap spreads are based in part on expectations for the London interbank offered rate, or Libor, and are used as a gauge of investor perceptions of credit risk.

Commercial Paper Update

The U.S. CP market contracted in the latest week, Federal Reserve data showed on Friday. It was the third weekly contraction in four weeks. For the week ended Wednesday Nov. 25, the size of the U.S. CP market fell by $10.7 billion to $1.257 trillion outstanding.

LIBOR

The cost of borrowing between banks fell. The British Bankers’ Association said the rate on three-month loans in dollars, the London Interbank Offered Rate, or Libor, fell to 0.2556 percent from 0.2606 percent

Money Market Funds

A group of investors including Ameriprise Financial Inc. won a victory when a federal judge ordered the Reserve Primary Fund to distribute its assets equally among all shareholders. 

Central Banks

Russia’s central bank cut its key interest rates to a record low in the ninth reduction since April.

Hungary’s central bank cut its benchmark interest rate to the lowest in more than three years today to speed the country’s recovery from its worst recession in 18 years, which helped slow inflation.

Vietnam raised the benchmark interest rate to 8 percent, the first increase since January, and narrowed the dong’s trading band to 3 percent from 5 percent.

Banking

U.S. “problem” lenders climbed to the most in 16 years and the Federal Deposit Insurance Corp.’s fund protecting customers against bank failures slipped into a deficit in the third quarter, the agency said.

Credit Ratings

Mexico’s investment-grade credit rating was lowered by Fitch. Fitch cut Mexico’s foreign debt rating one level to BBB, the second-lowest investment grade and in line with countries including Russia and Thailand, and changed the outlook to stable from negative. The downgrade was the first by Fitch since it gave Mexico an initial rating of BB in 1995 and the first by any ratings company since S&P cut it in the wake of the 1994 peso devaluation.

Los Angeles, the largest city in California by population, had its credit rating lowered on $2.94 billion of debt by Fitch, which said the city’s deficit next year will exceed 9 percent of revenue. Fitch said in a statement it lowered ratings to AA- from AA on $1.5 billon of general obligation bonds and to A+ from AA- on $1 billon of the city’s certificates of participation, or municipal bonds backed by the general fund, $25 million of judgment obligation bonds and $419.7 million of debt sold for the Los Angeles Convention and Exhibition Center Authority.

Rating Agencies

Connecticut plans to join Ohio in suing credit-rating companies for “negligent, reckless and incompetent work” in grading debt purchased by state pension funds.

M&A

Reliance Industries made a cash offer to buy a controlling stake in closely held LyondellBasell Industries AF, the bankrupt chemicals and fuels maker.

Windstream Corp., the rural U.S. home-phone carrier, agreed to buy Iowa Telecommunications Services Inc. for about $530 million in cash and stock to expand into Iowa and Minnesota.

CDS

Dubai’s attempts to delay debt repayments spurred an increase in the cost of insuring government and company bonds from default around the world and may curb lending throughout the Persian Gulf. The cost to protect U.S. corporate bonds from default rose to the highest in almost a month.

Currencies

The dollar dropped to a 14-year low against the yen.

Commodities

Gold climbed to the highest price ever, capping the longest rally in 27 years, as the dollar’s slump deepened and on a report that India’s central bank may add to last month’s 200 metric-ton purchase. Gold reached a record $1,189 an ounce and has rallied 13 percent since Nov. 2, after India said it bought bullion from the International Monetary Fund.

The challenge for today’s North American corporate treasury doing business along the Pacific Rim is working with a multitude of local banks and losing some transparency, according to one banking executive. Jess Villarina, senior regional sales representative – Asia Pacific, HSBC, says, “Right now, companies are worried about the sovereignty of some local banks in light of the current market conditions. They are reviewing these local banks, and looking for operational efficiencies, tighter management of working capital, leveraging of technology, and increased transparency of cash that they’re not getting now.”

Transparency is top of mind with many firms who have completed their Asia-Pacific acquisitions and are moving in to the next phase of doing business along the Pacific Rim. “They’re worried about the control of these accounts that are located at multiple banks—the challenges of getting a handle on a transactional level, that real-time of information,” says Villarina. “Right now, they’re getting a plethora of information from various banks, which may not be the most optimal situation.”

Villarina will discuss working with your banking providers on how to improve operations in the Pacific Rim and building better transparency as well as risk management and cash management in an AFP webinar, “Cash, Liquidity and Risk Management in Asia,” November 4, at 3:30 pm.

This webinar is approved for CTP/CCM and CPE credits. For more information on requirements for obtaining CE credits through AFP webinars, please view the re-certification requirements.

How often do you leave your office and check in with your treasury and finance staff? How often do you break bread with them?

John J. Tus, vice president and treasurer with Honeywell, says he spends 90 percent of his time meeting with staff. But he insists he isn’t micro-managing.

“I’m finding out what they’re doing, their problems, checking the data as it calls up,” he says. “I think it helps people make decisions because the decisions aren’t being made in a vacuum. Fostering that collaborative culture not only helps with getting to the right answer, it also provides people with a developmental opportunity because they can see how the decision is made.”

If, for example, the data shows s an unexpected cash flow shortage, Tus visits the staff member with oversight of this area to discuss the implications for treasury and the company bottom line. Note the tone of the visit — it’s collaborative, not accusatory. Tus wants to work with the staffer to figure out a solution, not assign blame.

Because Tus is constantly visiting with staff, larger group meetings aren’t necessary, so he says he still has time to return to his office and focus on big-picture items like acquistion funding.

As for lunch, Tus eats with roughly five to 10 treasury staff at Honeywell headquarters every day (Honeywell has 29 treasury staff globally). Lunch topics aren’t necessarily business-related. “It’s a partnership,” Tus explains. “The ideal model is a partnership between the corporation and the person, and I want to maximize that relationship.”

Tus and Craig Jeffery, managing partner with Strategic Treasury, will host “Seven Keys to Building a Resilient Treasury,” October 29, 3:30 ET. Their 60-minute webinar will tackle risk, transparency, visibility, automation, staff, and more. This webinar has been approved for CTP/CCM and CPE credits. For more information on obtaining CE credits by participating in AFP webinars, please view the re-certifictation requirements.