The Perfect Treasury

Backed by the latest IT advances, treasurers of multinationals in Asia leave nothing to chance.

Scholer’s concern is typical: These platforms are still developing straight-through processing, so for now, dual-entry is necessary to record the transactions. “Our requirement is that this platform links to our front-office system, because we don’t want to do double input. If we input a trade into the multibank system, it has to upload directly to our front-office system for processing,” he says.

Covering FX exposures gives Scholer greater comfort to manage excess liquidity. The treasury center has cash concentration arrangements for Australia, Singapore and US dollars, but it is more active in using loans and deposits for intercompany funding. That means Scholer takes deposits from subsidiaries in surplus, and uses them to offer loans to subsidiaries in deficit. “If Hong Kong is long on cash, they will place deposits with us, which we will use to finance Australia, or Japan, or any other country which will be short,” Scholer says.

As in arranging foreign exchange transactions, the subsidiaries and the treasury center use the intranet for loans and deposits. “If Singapore needs money, they would use our intranet module, where they input the loan they require. We price it, and they get it,” he says. In the unusual event that the treasury center in Singapore falls short on cash and could not extend loans to Asian units, Scholer then borrows funds from the ABB World Treasury Center in Zurich. “We do not use any bank money-market lines for Asia Pacific treasury,” says Scholer. The money remains all in the family.

Despite ABB’s volume of business in Asia, Scholer thinks regional pooling may not be practical for now. First, cross-border pooling is highly regulated, possible only in the five most developed Asian markets. Second, he thinks returns from investment options for the amount concentrated in a regional account will not be much different from yields available through domestic instruments. “It is still very difficult for me to offer a better rate on a cross-border structure, because local markets already pay quite well,” he says. ABB currently invests in money markets in the five developed countries, plus Thailand, South Korea and Taiwan.

This treasury model serves ABB well. Last year, ABB Financial Services, under which the five ABB Treasury Centers belong, contributed $2.1 billion to group revenues, from $1.9 billion in 2000. However, due to a change in accounting and increased provisions against expected claims related to the September 11 attacks, ABB Financial Services posted a loss of US$32 million, from a profit of US$349 million in 2000.

Even so, Scholer says the treasury centers create value because transaction fees that would have gone to external banks stay within the company. “If the subsidiaries pay to the bank, we lose the margin; if they pay to the treasury center, the money stays within the ABB Group,” he says. Given this benefit, ABB Treasury Centers can afford to charge commercial rates for all their services. There are no transfer pricing issues — and consequently, complex tax issues — involved.

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