This month we speak to Beat von Gunten about the challenges, opportunities and priorities for treasurers in 2010. We discuss topical issues ranging from credit availability to relationship banking as well as J.P. Morgan Treasury Services’ global strategy for the coming year.

With signs of recovery in the US, Asia and parts of Europe, what is J.P. Morgan doing to help its clients prepare for growth?

Since our Treasury Services franchise is a fully integrated part of J.P. Morgan’s core businesses, we are in a very good position to help our clients better understand where their focus needs to be in order to remain financially stable and market competitive. Working closely with our Investment Banking colleagues, we gain a broader view of the challenges our clients face. Cash management and trade tend to be the fundamental foundation of a company’s ability to operate, having this understanding collectively gives us a greater ability to consult with our clients confidently, and dare I suggest, with prudence.

Going forward, financial stability will be crucial for those companies looking to fully leverage the growth opportunities presented by the recovery. Working in close partnership we are helping our clients to get a head start – after all, why wait for the full recovery to begin before preparing for it?

To that end, one of our roles is to review the client’s processes throughout their supply chain, while looking at their banking structures and related IT platforms. This allows us to identify any problem areas and bottlenecks. We also assist clients in looking beyond basic cash management processes and address a wider spectrum of potential opportunities for efficiency, mitigating risk and unlocking working capital.

Our experience in global markets is in itself an excellent resource for our clients: they are particularly keen to gain our advice on their current arrangements. Therefore we see many requests for analysis and benchmarking of latest trends and opportunities. This is an area that we are continuing to invest in.

Elsewhere, one of the simplest and yet most effective ways of adding value has been in facilitating introductions between clients who may currently have, or have been through, related challenges. These meetings have been received extremely well as it allows the sharing of best practice among those who are experts in the field of treasury.

From our perspective, it allows us to gain a deeper understanding of the challenges they are facing. This gives us the opportunity of offering a broader range of cash and working capital solutions that, combined with a consultative approach, are helping clients to derive efficiencies from their banking, technology and risk management infrastructures.

At J.P. Morgan, we have a proud history dating back over 100 years of supporting our clients and the overall well-being of the financial services industry, throughout all economic conditions. Now, more than ever, we are determined to ensure that this tradition continues to help stimulate recovery and growth going forward.

There was a great deal of discussion around the lack of credit availability during 2009. Are we likely to see an increase in appetite from the banks during 2010?

J.P. Morgan and its peers continue to lend in this environment. I fully appreciate credit to be a critical demonstration of commitment to a sustained relationship. At J.P. Morgan we are in a position to provide the appropriate support to our clients in many different guises. I believe that listening to clients is my most important role. Our business is in a far superior position than where we were five years ago from a product, service and coverage aspect. To that end, we are able to confidently discuss the challenges our clients face, help them take full advantage of opportunities, and provide the necessary solutions (including related capital requirements), allowing them to achieve their ambitions that will add long-term value to their organisation.

Before the crisis, during and well after, J.P. Morgan’s policy is to lend in accordance with prudent risk management and underwriting standards, and be ever mindful of market and credit risks.

Many of the discussions that took place in 2009 around the significant tightening of credit might not have been looked at in the wider context it needs to fully appreciate the situation. In the United States for example, non-bank lenders, such as money market funds and hedge funds, constituted 70% of the credit markets. These institutions provided credit through their holdings in commercial paper. However, as their investors scaled back, the institutions had to do the same, either by not extending credit or by dramatically shortening the duration of the commercial paper they were willing to purchase. The consequence was a tightening of liquidity in the financial markets, which led to concerns over availability of credit.

Given the lessons learnt from the height of the credit crisis 18 months ago, what advice can you give clients in managing their liquidity today?

Our first piece of advice is to ensure that an appropriate set of board, treasury and underlying investment policies should be regularly reviewed and updated to reflect a rapidly changing environment. Counterparty risk management and preservation of capital through secure investments has to be the primary element of managing liquidity.

The improvement of visibility, efficiency and control through centralisation is also a key liquidity lesson. We continue to be proactive in this space by working with clients to assess the most appropriate strategy in reviewing their funding requirements against liquidity. We are therefore advising our clients to look beyond primary investment cash at the centre, and to review options for gaining visibility of, and releasing, trapped cash within the group.

This may be achieved through reducing down the impact of withholding tax, creating integrated global liquidity structures, or simply using cash for more effective working capital management, such as collateralisation. The overall goal then is higher returns, lower costs and simplified information reporting and reconciliation.

In your view, what are the priorities for corporate treasurers during 2010 and beyond?

The role of the corporate treasurer continues to evolve and become an ever more significant position in a company’s hierarchy. Before the downturn, there were not many people other than the CEO and CFO who had a complete 360 degree view of the supply chain. Increasingly we’re seeing treasurers taking on more of that responsibility, receiving a wider remit within the business and therefore a greater opportunity to impact the bottom line.

The constant priority though must be ensuring that an appropriate funding strategy is in place to safeguard the growth ambitions that a company may have and at the same time maintain an adequate level of liquidity which is accessible should conditions deteriorate. As such, treasurers should be asking themselves a number of tough questions this year, such as:

• What is the right amount of liquidity to make sure we can meet all of our expected and unexpected funding needs?
• How frequently do we have to tap into reserve cash and is it too often?
• Is our cash flow forecasting accurate enough to be truly useful?
• Do we have a complete picture of where, when and how payments across the organisation are being made?

Increased visibility and optimal forecasting are a must in being able to accurately understand how cash flows will adjust the need for seeking alternative funding sources if not immediately accessible.

Therefore, cash and working capital management will undoubtedly dominate in 2010 and beyond, with the corporate treasurer focused on ensuring that they have an established banking group that can provide a broad range of services to address the ongoing thirst for efficiency and risk management.

In what ways is J.P. Morgan helping its clients to increase their working capital?

Effective working capital management is achieved through a variety of disciplines, all of which ultimately contribute to the bottom line, although some are more obvious than others. Recently, we’ve witnessed an increased focus on the basics of cash management; whether effective account structuring through rationalisation, appropriate currency account location and the tools to facilitate visibility, or simply reduction of overall bank fees.

As I alluded to, the more challenged capital markets have also led to more focus on alternative funding sources, whether through structured trade solutions or ‘internal’ cash. J.P. Morgan has developed a broad range of options from receivables financing through to pre-export finance and supply chain financing, as well as a range of payment instruments that are integrated together to realise significant working capital management improvements for our clients.

Over five years ago, our Treasury Services franchise developed a strong and comprehensive strategy to look at active working capital management throughout the supply chain. This strategy has been built upon to the extent that it’s not just a trade proposition; it encompasses everything that a corporate does on a daily basis. This means that at each stage of the physical and financial supply chain, whether that’s during the development, production, distribution or settlement stages, we have developed products and services that are aligned to deliver value.

Working together with our clients through a structured set of analytics, including industry and peer based comparisons; we help identify opportunities for enhancement of existing structures or implementation of new ones, to drive improved working capital ratios.

What is J.P. Morgan’s approach in managing relationships with its clients?

This has been a particular topic of interest since the onset of the financial crisis as many banks have found it hard to give their clients the support they need through the tough times. At J.P. Morgan, we view all relationships with our clients as long-term and sustainable.

By integrating with the other core J.P. Morgan lines of business, our Treasury Services franchise is able to take a more holistic view of the client’s overall relationship with the bank and demonstrate to our clients that their business is understood and valued across our firm.

Through the consultative approach that we have already discussed, we hope to create more value through understanding a client’s business drivers and priorities, matching solutions that address these needs and are appropriate to the particular industry, geography and sector that they operate in.

J.P. Morgan’s approach to relationships, therefore, is one of tremendous discipline and focus, through regular dialogue and proactive actions. Above all, we are strategic advisors as well as providers of value added solutions.

What can the market expect from J.P. Morgan Treasury Services in the coming year?

In a nutshell, the market can expect ongoing commitment; J.P. Morgan will continue to enhance its global footprint, and its technology, payment, reporting and investment platforms. The momentum that commenced during 2008 of increased local coverage and capability will also propel Treasury Services forward. We want to go where our clients want, need and expect us to be. We want them to have the right support, speak to local knowledgeable people who will listen and are empowered to take action.

By adopting this more open and proactive approach to corporate banking, we can make sure that the relationship is really working both ways. For example, one of the greatest advantages for us of facilitating the client meetings, which I mentioned earlier, has been the ability to increase our value proposition by developing solutions our clients need, rather than what we think is best.

In addition, we are constantly seeking innovation in the supply chain space, an area where we continue to see opportunities for the corporate treasurer to be involved in assessing opportunities to unlock working capital.

Essentially, we are here for our clients in a consultative manner and believe we are operating from a position of strength and stability. After all, this is our business.