This month we speak to Karsten Sieber, Head of Cash Management & International Business at Commerzbank about the merger with Dresdner Bank and how clients have benefited from expanded international cash management services. We also discuss the role of technology in the development of cash management services and look at what the remainder of 2010 has in store for the treasury world.

What is the structure and strategy of the Cash Management and International Business (CMIB) unit within Commerzbank?

Firstly, it is important to understand that Commerzbank is a customer focused bank, not a product focused bank. We have a relationship orientated business model, and the product lines follow this model. My product line, which is cash management and international business, is part of the corporate banking unit. To explain what is behind cash management and international business worldwide: on one side there is the customer focus, and on the other is the product orientated organisation. Cash management and international business really means worldwide responsibility from New York, via our domestic network here in Germany for example, to Central and Eastern Europe and Asia.

We combined the business of cash management services, payment services, pooling structures, treasury and advisory services, together with our international business in 2004. The international side covers structured export and trade finance alongside our documentary and guarantee business. We therefore cover the following areas:

• Corporate accounts.
• Information management.
• Cash pooling.
• Payment services.
• Documentary and guarantee business.
• ECA-based finance.
• Trade finance.

Our general strategy is to establish Commerzbank as a leading German bank for cash management solutions in Europe, and when we are talking about Europe, we are also talking about the Eastern European countries which will sooner or later become part of the Eurozone. We have the main customer relationships for German corporates within the International Business unit, and what is important for us is the link between domestic and international branches. If you look at the German market, you can see that savings and loan associations are not in a position to have this link between domestic and international branches because they are regionally focused, not internationally focused.

What has changed for CMIB over the past two years?

The biggest change for us was the merger of Commerzbank and Dresdner Bank. It is by far the biggest merger of any German bank, and very successful for us since the international cash management service of Dresdner Bank is first rate. As a result of the merger we have opened two additional branches – one in Vienna and one in Zurich, which will greatly improve our cash management reach.

Cash management is really an IT-driven business. I think the IT integration between the two businesses is the biggest challenge we face on the cash management side. The business case for integrating both systems is driven by cost savings: if you work with the same IT system on the operational side, processes can be carried out more effectively and economies of scale can be achieved.

What changes have clients seen as a result of the merger?

What is important for the customer is that the new Commerzbank has more geographical presence as a result of the merger. Dresdner customers benefit from the expertise and reach that Commerzbank has in Central and Eastern Europe as well as in other regions globally. Commerzbank customers can benefit from the international cash management structures Dresdner has in place, which will be fully integrated into the Commerzbank system.

Do you think SEPA is starting to make a difference for clients?

We have a strong commitment to SEPA and have invested in it significantly. This means that we adapted our internal structures, processes and platforms in time for the introduction of both the SEPA Credit Transfer and SEPA Direct Debit. As such, we are well prepared for our customers and fulfil the necessary SEPA requirements. We are of the opinion that by actively promoting the adoption of SEPA, banks can offer new solutions to their customers.

SEPA is not only an issue for the banking sector however, it also has a profound impact on how the corporate sectors administer their business. As well as creating opportunities for sharing the development and implementation of standardisation projects within the economy, corporates will also benefit directly from the cost savings associated with standardised payments.

Certainly, SEPA will have its benefits, but corporates will have to invest in the consolidation and adaptation of their systems to make use of the new formats. As the existing formats are not yet being phased out, with no set end-date, nothing is really pushing corporates to use the new SEPA formats.

Nevertheless, SEPA will, given time, deliver benefits to the economy as a whole. I believe that SEPA offers opportunities to the corporate sphere and banking sector to overcome some of the key challenges they are now facing.

How is technology developing and facilitating Commerzbank’s approach to cash management?

One of the main things we are doing in terms of International Business is supporting clients through our TREASURY product, which is part of our Corporate Banking Portal. This special product allows the customer to access their liquidity positions and all of their forecasts together so that they really have a set-up for a worldwide liquidity forecast in such a system. TREASURY is web-based, so can be accessed anywhere using a standard web browser. It is a multi-bank solution, which allows bank accounts from all over the world to be integrated into the system, provided they use SWIFT MT940 messages.

Delivering efficient cash pooling structures that are tailored to the needs of each company is really a core focus for us. We will continue to offer small and medium enterprises and large corporations all the cash pooling, target and zero balancing and notional pooling they would expect of a bank like Commerzbank. What we are also offering is domestic and international cash pooling services, including multicurrency capabilities, because that’s simply what our customers are asking of us. We support physical and virtual pooling, like margin compensating, where these are allowed. Due to the circumstances I think this is an area where only large banks are in a position to offer this service to the customer.

What’s also important are supply chain management solutions because, especially in the conditions of the financial market crisis, we see that traders and those companies which do not have much equity on their balance sheet need solutions where they can put the ends of the supply chain finance together. Within the scope of financial supply chain management our main focus is not on the technical aspect but on a holistic approach putting together various financial instruments for improving the cash flow within the value chain of the exporting and importing company.

Together with other international banks, Commerzbank is a member of the workgroup SWIFT TSU (Trade Service Utility), which is an online platform offered by SWIFT for matching and financing invoices via an open account.

What we see in the cash management service is that customers are not putting all their eggs in one basket. Before the financial market crisis customers went for one stop, one bank solutions. And due to the financial market crisis customers now wonder whether this is really a good solution, and if it is not better perhaps to put euro into one pooling structure, US dollar into another pooling structure and the Asian currencies – you cannot really pool them – into one virtual structure. And you are doing this with three different banks rather than one, because then the risk for the corporate is not the same. So I think what you can see in the market is that things have changed a little bit; the customer is thinking about the risks involved and how technology can minimise these.

Do you think companies will be investing more in risk technology?

We talked to treasury departments and they said, ‘Yes, we want to invest a lot of money.’ But the real story behind this is they are not investing because of the effect of the economic crisis on budgets. If you invest in a really good treasury system within a company, and in the straight through processing infrastructure behind, you have to invest a lot of money. But corporates feel in many cases is, ‘OK it would be a good solution for us, but please come later when times are not so hard.’

What corporates are doing instead is a lot of information management and cash concentrating; they can do without large investments on the corporate side. Understandably, corporates are deciding to wait rather than invest now because they really do not know about the economic situation they will be facing in 2010 or 2011.

What do you believe 2010 has in store for the world of cash management?

The key focus for treasurers now is to concentrate cash and to get all the information they possibly can about the company’s cash flows. And why is this important? One of the main reasons is that it’s difficult for treasurers to get enough credit facilities, so they have to focus on collecting their cash and managing their cash position because it’s not possible to get all liquidity from the market.

At Commerzbank, we believe that the movement towards centralisation of cash and treasury management offices will become stronger during the course of 2010. We think the trend for consolidation will also continue to apply to related finance functions, such as payables and receivables. While this may take some time to filter through to clients, we firmly believe that it simply does not make sense to concentrate all your cash if you’re not doing the same with your payables and receivables.

I think we will also witness a further development of payment factories. In the market for outgoing payments, from the corporate view, we see a lot of payment factories. But I imagine the payment factories will get further developed into the incoming payments side. The question is – as always – when?

What we also expect to see throughout the year, especially for larger companies, is that SWIFT for Corporates will become more popular. For the large companies, this is an excellent, viable solution to eliminate the need for multiple proprietary bank connectivity.

While we have heard it said many times, cash is still king in 2010. This is really the driver of cash management and also of the treasury information behind this. Risk management is another key driver for treasury – what you can see is that a lot of large companies are looking at the risk coming from abroad, so they are thinking about what is the right risk structure, or what is the risk appetite they have for business abroad. I believe this will be something new to watch out for in the cash management space this year.