The dwindling enthusiasm for outsourcing
Why has there been so much noise and so little action in the treasury outsourcing space? Is it just a market that is slow to develop or is it never going to take off?
The trends in corporate treasury are normally very obvious and often result from external change. The introduction of the euro, for example, led to a new focus on cash management in Europe. Over time, this mutated into working capital management projects. This was a very logical sequence, actively encouraged by the banks as they offered supposedly new techniques which were often just the same old products packaged in a new way.
Similarly, the market has had to respond to changes in regulation and emerging standards in corporate governance. Many companies undertook corporate compliance projects last year in the Sarbanes-Oxley influenced environment we were all working in. Meanwhile the introduction of new accounting standards also led, rightly or wrongly, to changes in corporate behaviour.
With technology eliminating distance and facilitating effective control, outsourcing looked to be a great idea which was coming of age in this environment. I will not recite all the arguments for outsourcing here, but they seemed compelling and encouraged the senior management of several big banks to invest a lot of money developing their agency treasury offerings. In fact, so compelling were the arguments that third parties saw a business opportunity operating in the ‘gap’ they saw between bank and customer. Surely corporates would need an independent agency service dealing on their behalf with the banks. Well, maybe.
It seemed to be happening. At every conference there was someone explaining how they were about to outsource part of their treasury operation – not the exciting bits of course, just the boring processes.
So what went wrong? Today there is a lot less noise. The biggest independent, JMHT has changed direction and offers securitisation services. Big banks such as JPMorgan and ABN AMRO have taken a step back from the business and scaled down or closed their operations. So at first glance it is simply a good idea that did not work or for which there was no demand. But it is not that simple. There are still some agency treasury services operating and Bank of America believes there is still real potential in the business.
So the big question remains: is outsourcing here to stay and just slow to develop?
Or is it something that few treasurers will contemplate? It has been described by one senior banker as “turkeys voting for Christmas” – something that just does not happen that often.