Trésorier/Treasurer magazine - n°80 - 1er trimestre 2013 - (Page 58)

The Financial Risk Observatory AWARENESS IS THE FIRST STEP... Confidence and Liquidity We start the first edition of this column in a morose environment. The latest IMF Global Financial Stability report is eloquent: reforms are slow, regulators and politicians needs to work on restoring confidence more directly, and the discussions on the Eurozone keep feeding fear to all about the real financial stability of the system. But apart from the discussion on the stress-tests on the Eurozone, the section on «global debt overhang» is of interest to corporate treasurers, as liquidity remains (again) the first objective. Well, liquidity should be the first requirement of any financial system since it is its first weakness. From the LTCM default in 1998, through the Russian default that triggered a vent of panic in emerging markets like in Chile, to the case of complex derivatives impossible to value in illiquid markets, we have been taught back the hard way. In 2006, corporate treasurers from some lowly levered multinational companies were still contacted by bankers that were trying to convince them to take on more debt «to maximise shareholder value» through tax shield better optimization. The problem of liquidity is liquidity itself, i.e. you might not get access to some markets even by paying a higher cost. And many quants in many rooms were not (anymore) aware that their models, as complex as they were, were relying on the full liquidity assumption. The real challenge will be therefore in the future to bring more awareness on how far we can be exposed to some risks, whatever their probability of occurence could be. Going back to IMF’s report, it is mentioned that the combination of a fragmentation effect inside the Eurozone, tight funding market and the promoted fear from bank deleveraging can still put a lot of stress on the funding capabilities. Sometimes, we must admit that it is hard to understand how far the fear from deleveraging is fed by banks themselves. We know bank’s reluctance to consider higher equity buffers. They say that bank shareholders want high ROEs. Well, if the cost of equity of some banks is high, it is because it has endogenously been driven by business risk maximisation and extreme leverages, made possible only thanks to state guarantees and their specific regime. This is corporate finance 101. Another argument they advance is that it will be hard to find new equity money. Well, it it not necessarily new money but money that would have been otherwise in the form of debt. So, it could be just a form of replacement. And with more equity, we know that many issues will be alleviated: lower equity costs, lower debt agency costs, lower incentive to take extreme on other’s shoulders, etc... What is really key for the bank deleveraging not to affect liquidity financing too directly, is the confidence we can inspire about banks for the future. And there, we should urge some of our politicians to learn another lesson of finance 101: lack of decision is worse than no decision. The signalling effect of no decision brings more volatility and uncertainty which then might render very difficult the new fresh start we need. Other News On November 28, the IASB has announced its proposal for the classification and measurement requirements of the IFRS 9 rule for financial instruments. The changes are said to be limited and mainly focused on making this rule more compatible with what is developed by the US FASB. On September 27, ESMA issued its final report on OTC Derivatives, CCPs and Trade receivables, required under EMIR. Articles 55 and 56 are particularly relevant for corporate treasuries and might be seen at the final good news of this column as they announce the following (to avoid you to read 197 pages): «55...As a result, these OTC derivative contracts that protect the NFCs against risks directly related to their commercial activities and treasury financing activities (hedgeable risks, ed.) as well as those that, for different purposes, do not exceed the clearing thresholds are not subject to the clearing obligation. However, it is well established that when the clearing thresholds would be exceeded, the clearing obligation would apply to all future OTC derivatives concluded by the NFC after it has exceeded the clearing thresholds, no matter which purpose they have. 56.In order to calculate whether it exceeds the clearing thresholds, a NFC does not include in its calculation the OTC derivative contracts which are objectively measurable as reducing [hedgeable risks].... The linking corner... • The IMF Global Financial Stability Report (October 2012) www.imf.org • The IFRS.org website • EMIR: http://www.esma.europa. eu/ system/files/2012-600_0.pdf http://www.imf.org http://www.IFRS.org http://www.esma.europa.eu/system/files/2012-600_0.pdf

Table des matières de la publication Trésorier/Treasurer magazine - n°80 - 1er trimestre 2013

Couverture
EDITORIAL
SOMMAIRE
FINANCIAL HIGHLIGHTS
INTERVIEW - Jimmy Doyle
FOCUS
FORUM OF ADVERTISERS
CORPORATE FINANCE
15 MINUTES WITH - Philippe Debatty, Fuchs & Associés Finance
TREASURERS' ASSOCIATIONS
NEWS
The Financial Risk Observatory

Trésorier/Treasurer magazine - n°80 - 1er trimestre 2013