Deutsche Bank: Mandate of the Modern Treasurer – Daniel Schmand

Cash remains king and, for multinationals looking to ensure and enhance liquidity levels, the drive for centralisation, global visibility and robust risk management has never been greater. Daniel Schmand, Deutsche Bank's head of corporate trade finance & cash management, EMEA, discusses where the mandate of the modern treasurer lies and why the right banking partner is still an essential component in getting the strategy right.

What is your advice to corporates looking to centralise treasury and cash management?

Daniel Schmand: Do it! Centralise as much as you can to as few hubs as possible in a politically safe environment. Corporates are well aware of the benefits of taking decisions towards a more centralised treasury function, but aren't always so clear on the resources required to get it implemented, the systems, processes and manpower.

First of all you need to collect the data and get a full overview. Doing that from a decentralised set of systems, ensuring availability and consistency, is not as easy as one might think. Treasurers going down this road want to speak with someone who has been there and knows the nitty-gritty first hand. External consultancy firms, perhaps even banks, are very good on structural advice. For the practicalities, advice from people who have lived through the process, highlighting the small things that can so easily be overlooked, is invaluable. It's about drilling down into the practical aspects that come with a process of centralisation.

How should one go about developing a cash management strategy?

Broadly speaking, the strategy is straightforward: bring your cash to a central point and invest it in a very safe, high-return investment. However, that is often counterintuitive. Yes, you try to maximise, but we have seen what happens when people get greedy and try to squeeze out every last penny.

Ultimately, the strategy must fit the underlying operating model. If you sell to Greece and it's a big market for you, advice that Greece is a high-risk country isn't of any great value. It's more a question of how you deal with that risk and what measures to take should things turn sour.

How has the financial risk landscape evolved in corporate treasury departments?

The emphasis now lies with diversity and spreading risk. The major change witnessed in recent months is in investment into sovereign risk; there are certain countries under real financial strain where, right now, you're probably safer investing your money in their major corporates than in the state itself. Treasury is all about ensuring sufficient liquidity at any point in time.

To what extent have corporate treasuries become in-house banks?

The larger a corporate gets the more we see that shift occurring - even to the extent of corporates applying for banking licences. But what part of a bank's function should a treasurer perform? A traditional treasurer is like a transaction banker, doing the operational, day-to-day stuff; short-term assets and liabilities, operations, having a good view on all payables and receivables. They have those skills in-house, but in moving beyond that the problem lies with finding efficiency and resources to implement the thousands of ideas on the table; you still need a banking partner to get those economies of scale.

Every third euro is cleared through Deutsche Bank and corporates need access to a clearing platform. You can theoretically disintermediate a bank, but that requires hundreds of millions invested into technology. Is that the purpose of your company, to become a bank? What added value does it bring to the overall operation? That brings us back to the question of your mandate as treasurer.

We offer systems and processes that further improve efficiency of our corporate customers, whether they are looking to perform banking functions in-house or not. The more standardisation and automation you get, the more economies of scale you have. As our client and transaction numbers grow, the better it is for the end-user and the overall corporate universe.

Overall, what advice would you give to corporate treasurers?

To be flexible enough, and have the resources and processes in place to cope with all the uncertainty and new risks arising every day because the more global you are, the more complex the world becomes. You must have clear, pre-defined parameters and action plans for entering crisis mode. Prepare yourself if you want to operate in certain countries and always have a Plan B.