We caught up with John Sweetman, Senior Director, Pfizer Treasury (formerly APAC Treasury Director) at the J.P. Morgan APAC CFO and Treasurers Forum in Singapore. He told us about the challenges of regulation and how this world-leading pharmaceutical company, which is headquartered in New York, is considering using new bank account structures and technology to manage liquidity in the region.
Senior Director, Pfizer Treasury
What are the main issues you face in the region?
The regulatory nuances across each country in the region are a big challenge, and most prominently this is an issue in China, given the proliferation of “window guidance” in recent years. We manage this by talking to our banking partners to try and get a consensus on what is happening in the market. In addition, we have worked hard to develop strong bilateral relationships with the regulators, and in particular the People’s Bank of China (PBOC), and meet them regularly to discuss developments.
Another notable issue is around liquidity optimisation. We are always looking for efficient ways to mobilise pockets of trapped cash as well as managing our counterparty credit risk.
Otherwise, there are ‘nuts and bolts’ treasury issues such as trying to minimise the number of bank accounts we have, and also making sure we are not running any unhedged FX positions in our business.
What are going to be your main priorities going forward?
The digital side of things is very important for us now. Getting an understanding of new technologies is key. I’ve recently come across an interesting novel concept that positions the treasurer as a technologist, in addition to needing the traditional areas of expertise, such as FX, bank relationship management, liquidity planning, international tax planning, etc. I am not a techie per se, but the way the environment is shaping up, you would need to have some basic appreciation of how these new technologies work, and how they may impact your business.
Within Pfizer we have a corporate-wide initiative around digital finance where treasury plays a key part. We are very interested in exploring opportunities such as virtual bank accounts, for example. We’d also like to improve our cash flow forecasting, so we are looking at how certain new technologies can help us support that objective.
After digital, another key priority – as we are a US headquartered firm – is understanding the impact of recent US corporate tax reforms. What will happen in terms of liquidity management models or opportunities to repatriate cash? What does it mean from a capital structure perspective? These are some of the questions that we have been reviewing in recent months.
How would you sum up your relationship with banks?
I think the banking fraternity’s mind-set of the past has evolved. With banks, it’s more of a partnership than it used to be. Pfizer has had a very strong partnership with J.P. Morgan, particularly in Asia in recent years as we centralised our cash management business with them. We have an ongoing dialogue and feel that the team there has a very good understanding of our business and operating model. The onus I think is on corporates to understand which are the strong banks in the respective regions, as not all of the bank offerings are the same. My advice to corporates is to work with your local treasury association, talk to peers, and understand where the proficiencies exist for which banks. Whether your needs are cash management, trade or innovation, make sure that you are working with the right partner bank for the region.
Do you have a philosophy at Pfizer about using a number of banks?
We took an informed decision after the financial crisis in 2008 to run a bunch of RFPs on a regional basis to diversify our banking risk. The result is that although we use a specific bank in Asia Pacific, we may not use the same one for Europe or North America. But we are big enough and have critical mass in each of those regions to justify that. For smaller organisations that could be a difficult strategy to action.
However, the structure can result in some additional complexity. For example, we run bank account reporting repositories through each regional partner bank, whereas if you had a single global partner bank, it would be one repository and a fairly straightforward task of taking your MT940s into your treasury management system. Having multiple repositories means we have to pull our reports from multiple sources, which involves extra upfront IT work, and ongoing maintenance. We are getting the diversification that we desire, but it does come at a price in terms of increased complexity.