Photo of Jason Li, J.P. Morgan with Debbie Quinn and Anna Sjoedin, Broadcom Inc.

Broadcom implements an automated FX sweep, notional pooling and cash concentration solution

The challenge

The corporate treasury team faced considerable challenges in managing liquidity and reducing foreign exchange (FX) costs and risks. The team was incurring negative interest in EUR balances and, as a result, was searching for solutions to reduce costs and streamline operational processes. The treasury team began by scoping out its current practices, looking at account structures and cash balances. Part of this review involved examining global euro account fees, which were deemed to be excessive. The team set about finding a solution to optimise the yield across the company’s major currency, USD, the EUR, as well as GBP. At the same time, treasury was interested in streamlining the cash process by introducing automation.

Another area of focus was on the manually executed FX trades, when repatriating excess cash in euros back to the US in dollars. This left treasury facing the prospect of investing cash to generate more interest on the balances. One of the objectives of this review was to ultimately achieve process improvement, automating these processes, which in turn would deliver greater visibility on the company’s liquidity and enable centralisation of cash for the EMEA region.

The solution

The treasury team carried out a thorough market assessment of banking partners to determine the best cost structure for reducing the negative yield charge on the company’s euro accounts. Based on this assessment, J.P. Morgan was selected to provide its automated FX sweeps and notional pooling/cash concentration solution, which enabled Broadcom to achieve its mission-critical treasury objectives. This automation has eliminated the need to have a treasury professional execute the FX trades once they are approved, reducing all treasury involvement in the process. Since these flows are fully automated, straight through processing for liquidity management is now possible.

Best practice and innovation

Broadcom’s treasury took an innovative approach to solving its FX challenges and the negative interest charges it was incurring on euro balances. The company partnered with J.P. Morgan to implement a cross-currency sweep in conjunction with a multicurrency notional pool to create a synthetic short euro position. As payables and receivables occur across the course of the month, the cross-currency sweep is triggered to keep balances under zero. As a result, treasury can leverage balances in other currencies in the notional pool to avoid overdraft charges.

Implementation took just two months, from initial project scoping to finalisation of documents and then execution. Treasury worked with a dedicated implementation team at the bank to ensure a seamless process. Prior to rollout, a deep analysis was conducted to evaluate the impact of the solution on FX processes. Legal also reviewed all agreements.

Key to the success of this initiative is the implementation of process automations. Broadcom leveraged this solution to establish and maintain a EUR short position with a negative target balance to avoid negative interest charges. With this fully automated end-to-end solution, Broadcom effectively manages its cash positions to mitigate negative interest with no manual intervention and no overdraft charges.

The unique best practice used by the team was the negotiation of FX spreads, which effectively streamlined the process. Now this process does not have to be done manually.

Key benefits

• Cost savings (circa US$285,000 p.a.).
• Productivity gains.
• Number of banking partners/bank accounts reduced.
• Process efficiencies.
• Increased automation.
• Risk mitigated.
• Improved visibility.
• Manual intervention reduced.
• Future proof solution.

“The beauty of this solution is that treasury has access to euros, but doesn’t have to hold on to physical balances, thus generating negative interest. Instead, the bank advances the company euros automatically the same day,” concludes Karen Kong, Treasurer.