Cash and liquidity management optimisation delivers big benefits for Baker Hughes
BHGE is the combination of GE Company’s Oil & Gas business and Baker Hughes Incorporated. The combined company had more than 25 bank relationships in Europe, with separate banks at country level providing cash and liquidity management for EUR, GBP, USD and the Nordic currencies, with cash pooling provided on a standalone bank basis.
This resulted in fragmented cash balances across BHGE’s more than 200 European bank accounts, generating sub-optimal liquidity management. Consequently, it was difficult to consolidate liquidity and enhance returns on surplus cash.
BHGE’s decentralised cash pools meant fund movement was a highly manual and time-consuming process. Furthermore, BHGE’s European currency pooling arrangements limited the potential benefits of European liquidity to BHGE at a global level, reducing opportunities to redeploy liquidity across the company.
BHGE sought to improve its cash concentration and cash management processes to optimise operational liquidity and enhance returns regionally within Europe. At the global level, the goals were to enable global liquidity concentration through the European cash balances contributing into BHGE’s global USD pool.
BHGE created a three-layer liquidity structure:
Individual local zero balance account (ZBA) cash pools in various European currencies to consolidate liquidity per currency.
An overlay notional pool with Citi that notionally converts European currencies and enables USD consolidation.
A global USD cash pool that brings together the European notional pool with a broader cash pool structure that includes BHGE’s USD accounts globally.
Best practice and innovation
BHGE’s European objectives were implemented through consolidated cash management for each major currency with a single bank rather than having a single bank for all currencies to manage counterparty risk and share of wallet requirements, selecting banks with strong capabilities across GBP, EUR, Nordic currencies and USD respectively.
BHGE selected Citi to create a liquidity overlay structure that would allow it to optimise cash balances across its bank accounts held across multiple banks. The Citi overlay pooling structure notionally concentrates all currency balances into USD and further pools into a global USD cash pool that BHGE has implemented.
The solution automatically concentrates physical balances from multiple European local ZBA cash pool headers into respective mirroring currency header accounts at Citi, leveraging Citi’s multibank target balancing sweep capability. These currency header accounts are part of a multi-currency notional pool structure with USD as the base currency.
Other currency positions are notionally converted to USD and the full pool balance USD equivalent is available to BHGE. The total pool USD equivalent position is then automatically drained to a global USD banking provider using Citi’s ‘Drain the Pool’ functionality. This provides BHGE with a single global USD position and liquidity.
BHGE can now automatically fund its 200+ European bank accounts, freeing up treasury staff to focus on value-added activity. The CitiDirect BE banking portal delivers enhanced visibility of cash, while the multi-currency notional pool means BHGE does not have to adjust its hedging positions on a daily basis, saving staff time and costs.
Liquidity buffers in European local banks/local currency pools to support day-to-day activity have been reduced by more than US$150m. The liquidity freed up from European operations is further consolidated into BHGE’s global USD cash pool structure, which delivers an additional liquidity benefit globally.
BHGE can now also maximise liquidity concentration without needing to migrate underlying bank account activity, avoiding disruption to customers and existing bank relationships.