Michael Guralnick, Citigroup Global Transaction Services talks to us about the bank’s GTS strategy in Europe, including Eastern Europe. He also discusses the themes under discussion with clients as well as the key challenges facing treasurers today.

Michael Guralnick has been with Citigroup for over 21 years. During that time he has held senior roles in transaction services in Asia Pacific, CEEMEA (Central Eastern Europe, the Middle East and Africa), and Western Europe. Currently, Mr Guralnick has responsibility for designing the strategy and leading Citigroup’s Global Transaction Services (GTS) client relationship management business with corporate and public sector clients based in the 50+ countries across the EMEA region (Europe, Central Eastern Europe, and the Middle East and Africa). He is a member of the GTS EMEA Senior Management Operating Committee, the UK Association of Corporate Treasurers, and the British American Business Inc.

Prior to joining Citigroup, Mr Guralnick worked in Korea from 1978-1982 – first with the US Peace Corps and then with LG Ad Inc., where he was in charge of client development for key foreign subsidiaries based in Korea. Mr Guralnick graduated with honours from Georgetown University, in Washington D.C., from where he attained his Master’s of Science in Foreign Service (MSFS).

How would you describe Citigroup’s Global Transaction Services (GTS) strategy in Europe?

The cornerstone of Citigroup’s Transaction Services strategy in Europe is a client first approach to deliver the highest quality solutions and services to our clients. We meet this commitment by offering three core competencies to empower clients to meet their supply chain and working capital requirements: Cash Management, Trade Services and Finance, and Securities and Fund Services. In today’s complex transaction banking environment, these components are increasingly connected, uniquely positioning Citigroup to deliver the integrated solutions our clients require.

Citigroup has an established transaction services franchise in over 50 presence countries across Europe, the Middle East, Africa (EMEA), and over 100 countries globally. Central to our strategy across the EMEA region is a four-pronged goal: to be the employer of choice to our people; the provider of choice to our clients; the business partner of choice to our suppliers; and the neighbour of choice to the communities everywhere that we do business.

At Citigroup we are playing a leading role in numerous strategic initiatives across the EMEA region such as developing new liquidity structures for EU accession countries, enabling our clients’ shared service activities in Central and Eastern Europe, Africa and the Middle East, and designing new risk mitigation solutions in emerging countries such as Russia, Ukraine and Kazakhstan.

In Western Europe, we are already recognised by major multinationals, local corporates and the public sector as a strong partner, working with clients to streamline and optimise their liquidity management structures, helping them establish shared service centres and payment factories and providing multi-country receivables solutions. We see an opportunity to expand our domestic footprint through alliance partnerships with large local banks (eg Lloyds TSB in the UK and DZ Bank in Germany). By joining forces with these partners, we can better serve our clients with a robust integrated domestic offering that augments our regional and global cash management solutions.

In Central and Eastern Europe (ie; Poland, Hungary, Czech Republic, Slovakia, Romania) and beyond, we have long-established embedded domestic solutions and we continue to invest in partnerships with local banks, post offices, and our clients to innovate in these emerging markets. For example, in Poland we designed a domestic collections strategy called Unikasa allowing consumers to pay utility bills at kiosks and stores in addition to a collections, consolidation, reconciliation and receivables matching innovation called SpeedCollect Plus. The opportunity here is to transfer these emerging market innovations into Western Europe, which we are doing at a growing pace. The fact that Citigroup manages both Western Europe and the emerging European countries as one region helps us deliver new innovations to our clients quickly and seamlessly, regardless of where the ideas are generated.

What are the most important trends in treasury in 2006?

The following themes are centre of the plate in many of the discussions we are having with our clients:

1. Bank relationship consolidation.

   A key area of focus for many clients is the consolidation of banks and bank accounts within the region and globally. Many clients are in the midst of a strategic review of the feasibility of having a single primary bank per region. Some of their stated objectives include: leveraging their buying power with one bank, streamlining future price negotiations, controlling integration and regulatory reporting costs – which continue to increase – and ensuring their core transactional activity is shared amongst their core credit relationships.

2. Liquidity and investments.

   Clients are reviewing their ability to globally concentrate cash or achieve interest optimisation in markets where there is trapped cash. Once achieved they want to actively do something with it while diversifying their investment vehicles. We are in the midst of many discussions with clients who want to adopt a ‘follow the sun’ liquidity management strategy, moving liquidity from region to region throughout the day.

3. Changing role of treasury organisation.

   Our clients are focusing on how they can provide more extensive in-house banking and shared services to their own organisations and our long-term experience in supporting shared service centres allows us to provide tailored recommendations to our clients. TreasuryVision, Citigroup’s web-based cash management tool for corporate treasurers, has several key variables embedded within its architecture to assist these processes, such as cash flow forecasting, the ability to track debt and asset management positions, investments and bank accounts on a real-time basis. The regulatory environment and market infrastructure changes as well as growth in emerging markets have added a new complexity to the role of treasury.

4. Working capital management and supply chain optimisation.

   Clients are asking banking partners to assume more risk or provide faster information in order to help them do more business, especially in the emerging markets.

5. Regulatory changes.

   The regulatory changes across the European Union, ie SEPA, MiFID (the Markets in Financial Instruments Directive), and Basel II, are leading clients to move from a decentralised approach to a pan-regional payment, collection and liquidity management strategy

6. Strategic cost management.

   The increasing competitiveness within the industry is driving our clients to look at reducing transaction fees and speeding up collections. There is renewed focus on end-to-end outsourcing wherever possible.

What do you see as the key challenges currently faced by treasurers?

This is a very broad question and has specific answers for each client we work with. The key themes we are discussing with our clients centre on three areas.

The first challenge surrounds the topic of risk management and controls. The amount of time our clients spend today on regulatory reporting means that they need more knowledge-based tools to do their jobs faster and more efficiently to enhance their risk management approach to generate a more pristine control environment with enhanced due diligence.

A second challenge is the issue of global competitiveness and how our clients can achieve sustainable competitive advantage. Traditionally, our client’s competitors have been other global multinationals, yet, with today’s interconnected world, they can also be smaller international competitors from any continent or any country. Intensified global competitiveness is driving a focus on strategic cost management. Global cost management is a two-sided coin which requires a balancing act between having enough capital for sustainable profitability, and also having the ability to continue to invest in innovation, geographic expansion and continuous service quality improvements – critical components to achieving sustainable competitive advantage.

The last challenge is supporting the new, emerging treasury management models. Our clients are evolving country or regional treasury models to global structures and are seeking open messaging standards. There is increased focus on straight through processing and a need for flexibility in technology driven solutions.

How do you expect the introduction of the Single Euro Payments Area (SEPA) to impact the European competitive landscape and your clients?

SEPA is going to be an enabler for many of our clients’ objectives over the next few years. Broadly speaking, some of those goals and objectives are:

• Centralisation – centralised treasury, shared services and fewer bank accounts.
• Liquidity optimisation – cash flow forecasting, interest optimisation and ease of reconciliation.
• Efficiency – improved straight through processing, payment processes and reduced bank account fees.

Over the past 10 years, many of our clients have invested heavily in enterprise resource planning systems and treasury workstations and these new technologies are assisting them in gaining greater control over transactional activity, from connecting accounts globally to effecting payments centrally. Additionally, these new technologies, in conjunction with new global Internet banking platforms such as CitiDirect, provide clients access to information so they can make proactive liquidity management decisions. Citigroup’s GTS business is working hand-in-hand with many of these third party technology suppliers – many of whom are our clients as well – to ensure the banking technology and their technology seamlessly integrate to allow clients to derive maximum value from their investments. We are working with our clients in Europe to integrate our knowledge-based tools to help them realise the full potential of their systems. The approach Citigroup is taking is very much a consultative one, where our GTS relationship managers are in constant dialogue with clients to fully understand their corporate goals and discuss a structure to deliver the required results. As no two clients have the same goals, we feel it is important to take a personalised relationship management approach.

Some of our key SEPA related recommendations are for clients to fully embed the use of BIC and IBANs in their supply chain on both the sell and buy-side. SEPA will naturally lead to a simplification of account structures within Europe, and it will result in changes in the banking system (infrastructure, number of players, transaction costs) which will generate incremental value in the long-term. There may be a short-term cost of exploiting new instruments but long-term efficiencies will arise through process standardisation, centralisation and rationalisation of bank relationships.

SEPA supports Citigroup’s European strategy of offering single bank euro solutions, more simple account structures, enhanced remittance data and industry standard messages, providing us with a unique opportunity to create value-added payment services, enhanced reconciliation services and information reporting and financial supply chain integration tools for our clients.

The concept of supply chain management is being talked about a lot at the moment – is this something that GTS has focused on?

Structurally, our plan is to assist our clients in connecting their buyers and sellers – this is what drives our strategy – and is the foundation of our development of new innovative technology platforms to achieve these goals. We are very focused on developing new techniques that leverage our existing cash management solution components and services, and are developing a wide range of trade finance tools, which specifically pertain to emerging trends in supply chain management. Our approach focuses on the way our clients manage their global supply chains. In addition, the deployment of new trade capabilities within the supply chain addresses the primary goals for driving our clients’ businesses.

To start, we focus on the injection of liquidity into the supply chain to balance the dual goals of importers (buyers) and exporters (sellers), which facilitates inventory management objectives. Next is our approach to provide risk mitigation related to two primary risks – country and counterparty.

Our primary objective is to integrate existing and new trade-based solutions and services into the way that clients acquire, move, monitor and pay for goods in the supply chain. Successful deployment of financial supply chain solutions requires close coordination with multiple client stakeholders including procurement, logistics, finance, accounting, risk, and treasury with financial services partners, to complete their commercial cycle. In addressing the financial supply chain objectives of our clients, the Citigroup approach segments the goals of both importers and exporters.

There are three main aspects to supply chain optimisation: information management, technology connectivity and service. Information management and technology connectivity require providing clients maximum visibility with knowledge-based tools.

To assist our clients we have launched a knowledge-based information management tool called TreasuryVision. TreasuryVision allows clients to see their run accounts with us and with other banks they may use in a real time basis. Once clients have access to the information from all of their banking partners they can pay down debt, invest it, and move it to centres in order to use it more efficiently. TreasuryVision increases visibility and control so that treasury management professionals are able to make informed decisions relating to their overall financial positions. Not only does TreasuryVision aggregate the information flows in real time, it also provides robust analytic measurements allowing our clients to focus on optimising financial performance – not data gathering.

Over the last 15 years, we have seen a dramatic evolution in treasury management, and much of the change is driven by the advancements in technologies to allow treasury professionals to do their jobs faster, more efficiently and more effectively with more security and control. Today, our clients are looking for partners such as Citigroup who have the breadth of network, commitment to technology investment and importantly, skilled transaction services professionals, to help them design the right model for tomorrow, today.