Insight & Analysis

TT’s 25th anniversary: how the financial turmoil of the GFC focused minds on treasury value

Published: Jun 2023

This year, Treasury Today celebrates its 25th birthday. We’ve reported on so many things since the first copies of Treasury Today rolled off the printing press back in 1998, but the GFC and its fall out was perhaps the biggest story. In this Insight, treasurers reflect on how the GFC elevated the role of the corporate treasurer and continues to affect financial strategy to this day.

Various studies have examined how the global financial crisis affected corporate treasurers. For example, in 2012 a group of academics from the University of Brunei Darussalam published a paper suggesting the crisis changed the basics of cash and liquidity management, with corporate treasuries realising they needed to develop more reliable alternatives for funding and raising liquidity.

A 2015 survey by BNP Paribas and Boston Consulting Group found treasury managers were taking a more global view of their business and its finances, and were more concerned than ever about mitigating risk and boosting predictability of their business’ money.

A group from RMIT University and Stockholm University documented the behaviour of Australian corporate treasurers in their decision-making process in the areas of cash, inventory, accounts receivable, accounts payable and risk management in the immediate aftermath of the crisis. They reported that these treasurers were prone to various behavioural biases that affected their decisions.

So how do corporate treasurers reflect on the global financial crisis 15 years on? Annabel Farlow is Group Treasurer at Dominos Pizza. But in 2008 she had just joined Thomas Cook following its merger with MyTravel and the decision to move the corporate treasury team from Germany to the UK.

“The newly formed company had a revolving credit facility of approximately £1.6bn and it was a case of drawing everything down just in case,” she recalls. “One of the big jobs was renegotiating all the ISDAs because Thomas Cook had a huge foreign exchange exposure with 20-30 agreements that hedged its currency and commodity exposure out over 18 months to two years.”

As the realisation dawned that banks would be allowed to fail, corporate treasurers realised that they needed to spread their cash around and make sure it was in the banks with the highest credit rating to avoid losing large parts of their debt facilities.

“At the time the trend was for companies to fund themselves by debt and suddenly access to cash and credit disappeared,” says Farlow. “The realisation that banks were trading instruments no one really understood pushed treasury into focus because cash became king again and this hasn’t really changed over the subsequent period.”

Companies realised how important treasury teams are because they are the ones who make sure the cash is in the right place and the right currency at the right time, she adds.

“When everything is going well, people don’t think treasury is important, but as soon as there is a tremor in the market or something strange happens, suddenly it is very important again,” says Farlow. “The companies who have weathered these storms successfully are those who have kept treasury in the spotlight and made sure that their CFO-level really understand the physical cash that is moving around their organisation.”

Richard Garry, Group Treasurer at Informa, was working at the largest automaker in the world at the time and recalls that it simply did not know how liquidity would flow the next day given banks had gone bust.

In the event, the company leveraged its global reach to secure liquidity to be used anywhere in the world that had an issue and there was no problem.

“The issue of counterparty risk became very real,” he adds. “Large banks were in trouble and nothing was too big to fail, so managing counterparty risk was not just a technical exercise. The other issues that come to mind from that time were the ushering in of ultra-low interest rates and how that impacted decisions on interest rate hedging, and the enormous widening of corporate bond spreads.”

Garry says he is not sure whether the events of 2007-8 precipitated a long-term change in the operational approach of treasury teams.

“The reality is confidence comes from the macro environment we operate in and to what extent investors want to put money to work, which until 2022, ran from 2009 as ultra-loose monetary policy driven investment,” he says.

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