This month Naveed Sultan from Citi talks about the current credit crisis and makes observations about various global trends. He also provides some insights on how organisations can respond to today’s challenges and opportunities.

Naveed Sultan is the Head of Global Transactions Services (GTS) for Europe, Middle East and Africa (EMEA) at Citi. In his role, Naveed is responsible for Treasury and Trade Solutions, and Securities and Fund Services across the region.

Prior to his appointment to his current role in October 2007, Naveed was Head of Cash Management and Treasury Services for GTS in EMEA. Naveed joined Citi with Saudi American Bank (SAMBA), an affiliate of Citibank, in 1993 where he held several senior positions including Global Transaction Banking Group Head and Senior Country Operations Officer. In 1999, he became the business head for Citi’s Cash and Trade product groups in Western Europe, based in London. In August 2003, he was appointed Head of Cash Management in EMEA when Western Europe and CEEMEA were combined to form one region. Before joining Saudi American Bank, Naveed was the Country Corporate Banking Head for Standard Chartered Bank in Pakistan.

Naveed holds an M.S. in Management from M.I.T’s Sloan School of Management as well as an M.B.A. from the University of Punjab in Pakistan.

What are you seeing your customers doing in these difficult times?

We are seeing most corporate clients drawing on the liquidity that has been accumulated in the last few years to finance their internal needs as and when needed. Clients are taking a more conservative view to financing their internal needs considering that there is pressure on the credit that is available in the market.

The role which we play as Global Transaction Services (GTS) is that we help corporations, particularly multinationals, to become more efficient in their cash management, where they have distributed business models around the world and their liquidity happens to be in different geographic jurisdictions, or in different business entities globally. The treasurer and the CFO want to ensure that they have the right visibility on the cash that is sitting in their system and we help them achieve this.

More and more, we are working with our clients to create end-to-end treasury solutions that mobilise liquidity so they can make optimal business decisions around that liquidity, in borrowing and investments. At Citi, that’s what our focus is and we’ve been working on those solutions with our clients for a while now.

Cash has never been more important.

Yes, and this is an opportunity for us to help our clients unlock the trapped liquidity in their businesses around the world, and provide them with the infrastructure to fund and work through the financial supply chain. Globally, we can help them tie up the different bits and pieces, different ends of their business entities or a financial or a commercial flow. If we are able to do that within one institution, I think that really helps our clients improve their working capital cycle.

The markets have been flush with liquidity over many years, but the tide is turning now, and inter-bank liquidity has become severely tightened. As a result, we are seeing corporations looking at their own internal liquidity, drawing upon their cash positions with multiple banks.

Some observers describe the inter-bank and credit markets as being frozen.

Not really frozen, but it’s really become much more expensive. Banks are holding onto their own liquidity to make sure they are able to fund their own client base. Since these banks have very long-standing relationships with their clients and these clients do business with them across multiple products, functional areas and geographies, the top priority of the banks is to continue to fund their own clients first.

Whatever is left, you go and lend into the market. But the issue is that banks are becoming a little more conservative because the outlook is uncertain, and when a situation like that happens, you want to tighten your belt a little. That is naturally creating a dearth of funding in the inter-bank market.

How long do you think until it gets better?

I think it will take a while before it settles down. I think it is a phase. You’re seeing action by the regulators, the Federal Reserve and the Bank of England easing the interest rates and providing greater liquidity in the inter-bank market. Part of it is that this is the reality; another part is the psychological impact on the industry where the banks become more conservative than the actual risks tend to suggest. These things should stabilise. But if you want to put a time frame on it, I think it’s very difficult to say.

At Citi, we have a very strong capital base and we have a good liquidity position. We obviously are closely monitoring intraday credit, so being more selective in our funding decisions, but we are working with our clients to ensure they are being supported.

Emerging markets seem to present some significant opportunities.

Emerging markets grow in cycles, which we believe are very broad and deep and there’s certainly a 15- to 20-year cycle that is impacting every asset class and commodity pricing. And this emerging market cycle – which is really in markets like India, China, the Middle East and Russia – results from the globalisation of trade flows and the shift of the economic centre of gravity to the east. You can call it the industrial revolution of our times.

Moreover, there is somewhat de-coupling of the global economy from the US economy. Historically, if the US economy sneezed, the rest of the world used to catch a cold, as the saying goes. But I think this time around, there are markets like China, India and Russia, who may have significant trade flows into the US, but also have flows with the rest of the world. So they have really become key players in terms of the growth as well as the US.

So, if the US economy were to slow down further, we should have some shock absorbers due to this distributed economic activity around the world, which may not plunge the globe into as deep an economic recession as would have been the case a few years ago.

Globalisation of trade has played to your strengths as a bank.

Being the most global bank, we are able to facilitate flows at both ends of the supply chain because of our integrated technology platforms and distribution network. And we have seen, in many cases, as these clients go and enter into new markets, we are there to help them and it’s just an extension of an operating and business model or a treasury model which we might have put in place for them.

We are also seeing the emergence of large local corporations who are increasingly coming out of China, Russia and India, for example. We expect to see many of these companies develop into the larger global corporations in the world. There are many examples you can talk about. Look at MittalArcelor, now the world’s number-one steel company, or the Tata Group, growing through its recent acquisition of Jaguar/Landrover. These are just a couple of examples out of India, but there are many others.

We are also seeing the big multinationals such as Shell and IBM pushing further out into the emerging markets, and in many cases, we are already there to assist them. If not, we have the appetite to expand into new markets with our clients, establish an on-the-ground presence and provide them with global solutions to support their growth plans.

As a result of this growth, we are seeing a tremendous amount of wealth creation in emerging markets. You look at the sovereign wealth funds, the new exchanges being set-up, and the capital markets growth in these markets, and you will see that creation of wealth very clearly. It’s very visible to a lot of people; the world’s investors, asset managers, brokers and dealers are all rapidly expanding into these markets.

In the US, 80 per cent of the funding of financing for corporates comes from the capital markets, but it’s quite the reverse in emerging markets. So, as the capital markets pick up, that will shift from bank financing to capital markets financing. And once that happens, then Citi’s infrastructures on the securities and fund services side will be there to service those capital flows.

Technology has a big impact on these markets as well.

Yes, technological advancement is really driving innovation; it’s creating break-out industries and enabling business coordination globally. And also, I think this, combined with the ever-increasing focus on risk management and compliance, has increased the need for integrated and secure information flows to enable information access anywhere in the world.

Centralised control is facilitated by the convergence of industry standards and connectivity, such as SWIFTNet and XML, and these are some of the things we are investing in. Also, as one of the leading banks investing in identity management, we are already working with some of the leading corporates to create a risk management environment where identity mechanisms ensure there is a secure commercial and financial transaction environment.

One of the examples I can give you is Merck, who has really used the latest technology and standards to establish universal cash processes across 73 countries worldwide. This was launched in July of 2007 with SWIFTNet SCORE and the first two phases of XML ISO 20022, and it continues to role out in 2008. Merck’s bank rationalisation project is already forecasting interest gains of about €2m, plus several million dollars’ worth of cost avoidance through a combination of IT maintenance savings, process efficiency and improved control of cash.

Would you say that technology enables companies to reach around the world and exercise control?

Absolutely. The world is really shrinking and becoming a global village. And then you’re also seeing a change in the consumer demographics. Consumers have a greater expectation on the side of convenience, mobility, control and immediacy for their transactions.

What we’ve done is that in order for us to facilitate those flows, the remittances flows, we have got a few strategic alliances. For instance, we have done an alliance with Euro Giro that will bring about 61 connections in 50 countries. We are also looking at mobile remittances.

As we reach the end of this interview, what advice would you give to a CFO or a Treasurer operating in this difficult environment?

The key, like I said earlier on, is for a CFO and Treasurer to engage in the most important things. One is visibility of its working capital or operating cycle. The real-time information on its positions and access to tools which allows them to make the right borrowing or investment decisions.

The second thing I would say is, they need to have a very strong focus on the risk management which is an integral part of their operating model.

In other words, you need to start laying the foundation of an operating model, which is technology-driven, which is integrated, which has the right information and analytics and (essentially and obviously) feeds into the risk management processes.

Now, if you were to lay that foundation with the right operating model, it would serve two purposes. It magnifies and multiplies your performance when the economic cycle is favourable and it helps you get through a lot more effectively when the economy turns. So, the advice is really that. And is true not only just for the corporate, but for most of the business enterprise.