GFF Podcast
The Global Funding and Financing (GFF) podcast is Clearstream’s podcast series for the funding and financing industry, releasing monthly episodes with senior leaders in the space of secured finance covering all major topics shaping the world of collateral, securities lending, repo and OTC derivates leading up to the 2022 edition of the GFF Summit in Luxembourg. Stay connected with the GFF community across the globe and subscribe to our show. Each of the 30 minutes of lively episodes are hosted by Andrew Keith Walker, Finance and Tech Journalist and Christian Rossler, Senior VP, Securities Lending and Borrowing Products at Clearstream. Legal Information here - https://www.clearstream.com/clearstream-en/imprint-1277756
GFF Podcast
Corporate Treasury Special with Hermès & TreasurySpring
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In this episode, we take an in-depth look into the world of corporate treasury with the legendary fashion brand Hermès and fintech innovator TreasurySpring.
With Thomas Bourbon (Hermès) and Henry Adams (TreasurySpring), we discuss the evolving role of repo and securities lending in corporate treasury operations, joined by Matthieu Topkimoff (Clearstream) and our regular hosts Andrew Keith Walker and Christian Rossler.
Welcome And Guest Introductions
SPEAKER_04Hello and welcome back to the GFF Podcast. Yes, we are here. It's season five. We're coming up to our last couple of episodes, and we really have saved uh the best for last. We have got a very special show for you this week. Joining us finally after years of talking about non-financial counterparties and corporate treasury, but always talking with banks and people working in financial treasuries. We finally have a corporate treasury here with us on the show. We've got a corporate treasury special. I am, uh, as you can probably tell from my voice, very excited about this. We have joining us uh from the uh top flight fashion house and uh design house Hermes in Paris. Uh joining us, we have Thomas Bourman, who is their Treasury Director there. We also have joining us from Treasury Spring, uh Henry Adams, who is going to be here talking about the new connectivity and services on offer by that new layer of platforms that are bringing more corporate treasurers into uh capital markets. And of course, uh joining us from Clearstream, we have a collateral management specialist as well. Uh, Matthew uh Totmikoff is going to be here. I'll introduce them properly in a second. But first of all, uh I need to introduce my co-host, the BFF of GFF, the man without whom there is no GFF podcast. It is, of course, Mr. Christian Rossler. Christian, welcome back. Hi, Andrew, and happy to be back. Good to have you back, Christian, and what a show we have at last. This is very exciting uh as uh for me because uh we're looking at that part of the market that often gets overlooked uh in the sort of securities lending and repo world and the sort of news that we cover here on the show. But it's becoming increasingly important. That is, of course, the role of corporate treasury and corporate cash in overnight money markets and in securities lending and uh all our usual global funding and financing topics. Why don't you tell us a bit more uh about uh our show today?
SPEAKER_02Yeah, I think it's um it's a first for the uh for the podcast, obviously, that we have a corporate on the show, but uh it's not a first for for our trip IT Reappool products to have corporates uh using them. So I think it it all goes back to um after the global financial crisis when the regular enshrined that uh in the future also uh some non-financials um need to actually look at um posting collateral for um OTC derivatives. So we saw some big corporates that were actually falling under the regulation of uh um NFC Plus, so non-financial plus, which had to report uh and had to post some of the collateral to uh CCPs, and uh so regulation actually drove these corporates into triparty. So we saw corporates coming in placing cash to actually receive collateral turnaround and post that collateral to uh the the CCP. We'll talk about that with uh with uh the guests on the show, but then I think we've been uh running the triparty repo for uh more than 30 years, and um a substantial amount of uh the corporates that uh have been uh contributing to the success of uh of the tri-party repo are also on the show today. So so I'm very I'm very glad to do that show.
SPEAKER_04I know it's great news. I know that we have some uh fans of the show at uh ESMA, the European Securities and Markets Authority. I'd just like to give a big shout out to them and say, yes, finally, we've got an NFC Plus on the show. I know they are going to love this. So let's introduce our very special guest, starting with uh Thomas Bourbon, who is the uh director of uh treasury at uh Chez Hermes. Um Thomas uh has been at Hermes for some years now, working uh across the Treasury team. Prior to that, he was a professor at the School of Management at the highly prestigious Sorbonne in Paris, and prior to that worked in Treasury at Air France. So we really couldn't have a more highly qualified person on the show with us. Uh, I'm gonna say, Thomas, thank you very much for joining us.
SPEAKER_01Oh, thank you for uh this introduction. It's a lot of pressure on myself and just uh about my my uh Sorban um uh the Sorban part. Uh actually uh I'm still um it's uh during my spare part I'm doing this. Uh but um before MS I was working for Archos. So so uh I'm okay.
SPEAKER_04So you're the director of treasury and you teach at exactly, exactly.
unknownYeah.
SPEAKER_04Well, I'm I'm sorry. You're you're just showing off now. I mean, you know, that's one of those is a career, two of them is uh just frankly being lavish. Uh no, that's fantastic. Well done. Well, no, but it's only during the weekend, so that's okay. Oh I I sadly don't spend my weekends teaching at any highly prestigious business school, so I I feel like I'm letting myself down there.
SPEAKER_01No, but only more than months of uh January and February, so I'm I'm relief from that now.
SPEAKER_04Yeah. Okay. Okay, we're still massively impressed. I'm just gonna I'll leave it there. Moving on, of course, I'd like to introduce Henry Adams. Uh, you probably know Henry uh if you've been around the world of uh fintech and uh corporate treasury uh over the last eight years, because uh Henry is the US CEO and the global head of capital markets at Treasury Spring. Prior to that, uh you might know Henry from uh his time in Capital Markets at BlackRock, uh his time working in repo at RBC Capital Markets. Um, but most likely uh he's very active, especially in the New York circuit and a regular participant at events. Henry, welcome to the show.
SPEAKER_03Thank you very much, Henry, for likely to be here. And uh yeah, what a great uh bunch of people to bring together to talk about this very pertinent topic.
SPEAKER_04And uh to finish our trio of experts, we have Mathieu Tomikoff uh joining us from ClearStream. Uh, you probably know Mathieu, he's been with the collateral uh liquidities lending solutions side at Clearstream for the last 15 years, specialist in uh collateral management operations and uh uh repo uh straight out of university, a graduate trainee who has specialized in it from day one. And uh I'm gonna say uh he everyone on this podcast, apart from Christian and myself, is wearing a beautifully immaculate uh uh shirt and Christian and I are in t-shirts. That's terrible. And just to give you an idea of what's going on, I've got a woolly top on as well. It's freezing here at the minute. Mateo, uh, welcome to the show. It's good to have you on board.
SPEAKER_00Thank you very much, Andrew, for the intro. Uh, thank you for having me today. It's uh it's a great pleasure for me to join the show. As you say, we've been planning this podcast, this podcast for quite some time now. So very happy to be here today.
SPEAKER_04So I want to come to you, uh Thomas,
Corporate Treasury Meets Money Markets
SPEAKER_04and um let's set the scene a little bit for our listeners. Because there is a big picture here, isn't there? You know, since obviously the financial crisis, there's been a lot of moves to structure securities markets and money markets within the EU and uh in the states as well. And this has led uh treasurers to look for more interesting and effective ways to manage liquidity. So uh tell us, I mean, from your point of view, where does uh treasury operations uh interface with money markets?
SPEAKER_01Um yes. Uh regarding the the global picture, um honestly, since 2008 or even before, I don't think the scope of products for for Treasurer uh has changed much. Uh uh Treasurer are still doing uh a lot of money market funds, a lot of term deposits with their banks, uh their uh remunerated current accounts as well. And and um maybe remunerated current account, uh this is a bit new, uh at least in France. Um but but that that's still uh pretty strong uh within the corporate, and uh these are still the main uh products. Um the the big change um for I started my my career in 2003, and and the big change for me obviously was was um was Lima and realizing that that the bank uh could go uh bankrupt uh during a weekend, obviously, yeah. It's always a weekend. Um clearly it was a trauma, and and uh this is something um which is now uh clearly in the mind of all the treasurer, and and uh uh and and that's a big change, uh clearly, yes. Um that that's the big one. Um now um that being said, um maybe what has changed as well since 2008 uh is um that we have many uh more um intermediaries, brokers maybe who are now offering um are in between I would say the banks and the corporates, uh which was maybe not the case um uh before 2007, eight, or even it started, let's say in 2010. Um and and why these people maybe are bringing some some added value and and are offering uh offering um some more sophisticated um product to corporates is because sometimes um what what what I have noticed is that the banks are not necessarily equipped uh in terms of sales uh salespeople uh to to talk to the corporate. What I want to say is that maybe they have their their um banker who is going to offer them uh term deposits and and vanilla stuff, and then you have the asset management team of sales who is going to offer uh money market funds, but then uh you have nobody uh in the financial institution part of the bank, I mean people dealing with insurance uh company with banks. Uh you don't have any people who are even authorized to talk to corporates. And you have these intermediaries now, uh, and and it's clearly the case in France, who are sitting there talking to the financial institution desk of the bank, the structuring desk of the bank as well, and um the as well as the the asset management of the bank. And they say, okay, uh asset management of the bank, maybe you need corporates, uh liquidity would be nice. Uh financial institution, uh, people sales, maybe you could propose this product to to corporates, it might be uh a good idea. And so these people as bring uh to the treasurer a lot of new products, more sophisticated and and more collateralized, obviously, uh, because that's uh that's um uh when you talk to financial institutions, uh uh the market is is uh very collateralized. Uh so so yes that's that's a change, but I would say it didn't start uh right after 2008.
SPEAKER_04I want to bring Henry in here, just because you've touched on something that Henry's talked about quite a lot as well, which is this idea that you know uh many financial institutions don't have the uh sales operations quite in place to offer that full range of products to corporates. I mean, Henry, you you've talked about this because it's not just uh a yield story, is it? It's a much more strategic picture that's emerging uh about how corporates need to participate in securities marking markets and capital markets uh uh to um uh uh you know get into a sort of business as usual with new tools. I'm sorry, I'll rephrase that question. Um so Henry, you have talked about this, haven't you? The way that uh organizations uh aren't always geared up to sell the right products into corporates, the way traditional financial institutions don't always engage. And actually, this isn't just about yield and you know getting better returns on your your cash. It's actually about building uh treasury operations, business as usual, into uh capital markets and securities.
SPEAKER_03Yeah, absolutely. And uh thanks, Andrew. Great question. And Thomas, very insightful to hear it from yourself with that corporate treasury hat on. It's certainly a story we are very familiar with here. Um and so probably best to start with a couple of things that have changed. One, Thomas rightly has highlighted around Lehman Brothers, um, which changed the markets forever as we know, sometimes more subtly than one may realize. And so one thing that's certainly happened is that banks no longer question whether or not to lend to one another under repo, taking collateral, over-collateralized, um, and engaging with the market in that way to provide liquidity to other financial institutions. The question has more become how, i.e., are you going to centrally clear who are you going to use for that clearing centrally? Um and then the shift that's happened, particularly also since COVID, we've obviously had a period of very low interest rates where actually you talk to someone about a couple of basis points, not particularly exciting. You talk to them about several percent, it all of a c all of a sudden becomes very exciting. So we've entered a new world where rates are certainly higher. We left that abnormal abnormality of 10 years uh prior where rates were just um not really worth talking about. And since COVID, the other thing that we've seen is uh more often than not corporates running larger cash balances. And so all of a sudden you've got a world where banks are all lending against security with one another, you've got far higher cash balances in corporations, um, and you've got far higher yields. And this combination of factors means that you know more and more people are thinking about how do I best manage all of my liquidity, both overnight, but then further out. And so there are tools out there that that deal with some of that longer dated strategic cash in the form of SMAs and other structures. You have your money market funds that do a great job of um assisting uplift of yield with working capital. Um, but then yeah, really in the middle, you do have that issue where corporates are trying to find a solution to potentially lock in where they know you know they have certain dates that um cash needs to be backed by, but it can be three, six, nine, twelve months in the future. Um and you in a rising rate environment which we now find ourselves in, and equally in a cussing rate environment, to be able to lock into a return is a good thing. You can either, of course, lock into that steepening curve, or as rates are coming down, capture a higher rate for longer. What we've also seen is the return of the credit spread. Now, these are all things that in an investment bank trading desk you kind of take for granted. It's all there, it's set up, you can express your view, you can manage your liquidity exactly how you want. Um and I do understand the issue around coverage, but it's really hard. I do feel for those sales folk on the repo and the money market desks because there's several things that need to happen before anyone can even execute in a transaction. Now, these prices can be shown to the world, not a problem. The the the real problem is the infrastructure, the lift, and the fact that actually what we
Why Regulation Pulls Cash Into Repo
SPEAKER_03find is that corporate treasury typically is um a very tight team. The the expectations on those folks is far ranging. In order to prioritize, a lot of work needs to be done, and then you know, some things just never get done. If you think about how complicated it is to set repo up, actually, it's a heck of a lot of work. Not only in terms of expertise, sector expertise, but then ongoing. You know, you have legal documentation, which you know, ClearStream have done a fantastic job with the CRC, but that's one part of the puzzle. You need dealers, you need custody, you need triparty, you need a middle office, a back office, all of these things, and all of a sudden you're building something out. And you start looking more like a bank than a high-end fashion company if you're not careful.
SPEAKER_02Yes, uh I would like to to come to Mathieu on uh on this um and particularly looking at um the start of uh when corporates moved into triparty repo. I think we we already touched upon it. We said that uh the regulator enshrined certain regulations which uh drove corporates into into the repo market and into the tri-party repo market. So banks on the other side of the trade were actually looking to borrow cash from corporates and no longer from banks. What's the reason behind this?
SPEAKER_00Um indeed. So well, basically post-financial crisis, uh regulators have introduced new rules and and ratio to prevent the banks from relying too heavily on volatile short-term funding, which was a key problem during the the 2008 uh crisis. So now this creates a challenge for banks because a lot of the traditional funding, including the very short-term repo trade, was not considered stable under this new regulation. So this forced them to look for uh funding sources that the regulation treats more favorably. And this is where the corporate cash uh comes in. Uh you were talking about the the NSFR, so the the net stable funding ratio. So this uh this NSFR ratio is defined as the amount of uh available stable funding, so the ASF ASF uh relative to the amount of the required uh stable funding, so the RSF. And the bank must always keep this available stable funding greater than the required stable funding. And because NSFR assign very different ASF score depending on who provides the funding, uh a bank will receive a positive ASF ASF when borrowing from non-financial institutions like a corporate, even uh with a short maturity. So that's why banks increasingly seek corporate cash via repo because it improves the uh NSFR profile, it it makes the funding more stable in the eyes of the regulator. I mean this a significant balance should benefit from the banks, and in returns, a corporate, especially those with uh uh a broad credit appetite, can secure a good yield on the cash.
SPEAKER_02So so what you're saying actually is is banks are prepared to pay a higher price for the cash coming from corporates because they receive the opportunity to a mobilize uh or move off their balance sheet collateral, which is not high quality, so which will improve obviously their LCR because uh high quality liquid assets are are cash or near cash items, and uh so some of the assets they would like to finance corporates take. And um and why is is is ClearStream the meeting place for this in particular? What is um what is making our offer so attractive here?
SPEAKER_00Her role as Triparty is is really to help our clients navigate those through uh those challenges. So banks need corporate because NSFR rewards them for it, and liquidity scarcity forces them towards new cash sources. On the other side, we have the corporates who need repo because managing risk is on top of their agenda and push them to a more secure product. Uh counterparty risk is still represents a challenge for them, it's quite complex. So diversifying their investment is a good way for corporate to mitigate that risk. And repo is known as one of the severe short-term investments. So effectively, triparty fishing become really the platform where corporate cash and the bank demand meet uh scale.
SPEAKER_04So let's sort of uh get down to a little bit of hands-on, nitty-gritty sort of breakdown here. Because uh traditionally, when you think about corporate treasuries, you think about fairly standard tools. You've got cash on deposit, there are money market funds, uh government bonds, maybe some commercial paper, but that that it's always been traditionally considered to be a fairly standard sort of toolkit. How should we start thinking about repo in that mix? Where does the sort of repo uh sort of body of uh tools come into uh corporate treasury thinking now?
SPEAKER_01If you are uh if you are a cover and and you want to uh you have too much exposure to other financial institutions and to banks, uh uh and and uh you say, okay, um I have temp deposits, I have the remunerated current account. Uh, what can I do if I want to diversify? Because my my my credit exposure to this bank and this bank is full, and I need to diversify. So you say, okay, uh, let's go and see uh money market funds. Uh but then so it's a good way to diversify. Uh but you look what is inside the most of the money market funds and uh Maybe 90% of the lines you see are banks, financial, or financial institutions. And you end up saying, okay, I want to diversify and I have too much bank exposure. But I will end up maybe increasing my exposure towards the banks I already are, because in this money market zone, these are the same lines, obviously. Maybe you will add other banks you would not be ready to work with. Maybe you are going to add as well as some limited corporate names you would not want to work with. Some contrarys you you are not necessarily ready to take and to have. Then you say, okay, I can invest directly into bonds, uh, maybe corporate bonds, maybe uh go vis as well. Uh but you say, okay, um uh if I do that, uh I will need to um first have custody, uh, do a lot of transactions, manage all these bonds, but manage all these lines. Uh it would be very time consuming for middle office, back office, and I'm not a money market uh fan. So uh basically uh if I want to be very selective and very picky, uh it would be very complex to do. Uh and even if you you want to find Govis with uh short-term maturities, uh it can be very uh complex. Um so at the end, um clearly repo um is as for Hermes, uh it was a must. Um because um you can choose uh what collateral you want and you have full flexibility to manage it. Um so so so there is no comparison with the other products. Okay, if you want to say I don't want any financial institution as a collateral, it's up to you. And and and and and you say, Okay, I want only Govis, and you have only Govis in your set on collateral. And your exposure, even if you are dealing with your your um your banker, uh then at the end you can consider your that your exposure would be French bond of uh and whatsoever, Gov's only. Uh but then uh if you want to move to corporate risk, you can take uh equity
Repo Versus Deposits And Money Funds
SPEAKER_01and you move from one day to another to a corporate risk. Uh and so the ability to change and to control and your risk, your exposure is is pretty unlimited and very flexible. And that's why uh for us repo was clearly the best option. Uh and and um and it was the easiest way to diversify your risk and to make sure that we have the full control of our uh our exposure.
SPEAKER_04And Henry, I mean you obviously see a sort of helicopter view of a lot of different corporates. Do you find that this is the same picture all over? That it's that that flexibility more than the idea of clearing that Angela is is bringing them more into repo markets.
SPEAKER_03Yeah, a lot of what Thomas says here resonates heavily with us and certainly corroborates what we see across the board, really. And one thing to say is that repo you know still feels somewhat like an aspirational product because of some of the barriers to entry I've talked about. Um, Thomas, I really do agree around what you've said uh with regards to diversification using money market funds. Time and time again, our clients come to us having analysed those portfolios and what they find is whilst it's a different name on the tin. Actually, the contents all look 70 to 95% the same in terms of the names, the issuers, and then naturally you come across concentration limits. And if you're really managing treasury and your lines correctly, look, this just needs to be taken into account. Just because it's in a portfolio somewhere doesn't mean that you don't have the risk. Um and then, you know, certainly around liquidity, we've obviously seen regulation come in to um support that industry because of course what we have seen historically is some runs on those products. Um so it's good that they're getting safer. Um but absolutely for our client base and for our prospects, it is that transparency, it's the flexibility, it's knowing exactly what you're getting. Um, if you can do it simply, all the better. Um and if you think about what we're actually doing here as well by bringing more corporates to the secured markets, collectively, we're doing a great thing, which is we're making financial markets better, safer, more stable.
SPEAKER_04And uh I want to ask you, Matthew, about this as well, because obviously you are interfacing with uh clients all the time. Is is this again, it's the flexibility that they're looking for, and and that must guide your product development process.
SPEAKER_00Yes, exactly. So, yeah, as Tomai and Henry say, so we have a different kind of uh corporate uh uh treasurer that is looking for different things. So some of them are really looking for a pure secured uh product, so when they will define the basket, so the type of collateral they're willing to accept, uh uh they they will be looking for pure uh HQLA portfolio, for example, collateral baskets, but or they are more looking for yield. So with them we are trying to build a more open basket where they can uh uh earn better return on the cash. So this is also part of our day-to-day job. So because we are talking on the other side of the trade to the banks, so we know which type of asset they are looking to finance. And so we can help, we can bring color to the to the to the market, to the coffee treasurer by helping them creating a basket that will meet their their requirement. So we don't have any standardized basket, everything is tailor-made, and it really depends on what the clients want in terms of uh uh what the liquidity provider is looking for in terms of uh return and what the the liquidity takers the banks are looking to.
SPEAKER_02Well, we could say that we we can always do better. I mean, we we have been uh seeing um corporates coming into our Triumph Art Repo program for more than 15 years now, so we have um a uh substantial amount of outstanding in in the program which is uh hoovering uh around 30 billion. But um if there's anything uh that um we could do uh to get more uh corporates into the program, what uh what would it be?
SPEAKER_00So one of the main barriers to entry initially was the legal infrastructure. So I think uh we we help uh the market here by creating the CRC. So I think uh we we when we create the CRC uh it was quite a success with the corporate uh treasurer because we have, I think, onboarding at that time more than 20-25 uh corporate treasurer under the CRC. Uh the operational uh infrastructure was also a challenge for them. Uh that's why we have created at that time a partnership with external platforms like Bloomberg and 360T to enable the corporate treasurer to access the repo market more easily, so without implementing all the the Swift connectivity with a tri-party agent that anyway would have been impossible for a corporate. Uh we have also this uh marriage broking. So as I said earlier, so we we we we we have a quite a holistic view on what's going on in the market so we can bring colour to the corporate treasurer on on market trends on what the the bank are looking to finance so we could help them uh uh engaging uh with uh with existing bank relationships or introduce them new relationships. Uh so we are doing uh quite a lot, I think, in this space, but um I think yeah, there there are still uh some education to be made on the market, so we probably need to be more uh visible to that community uh and uh and engage more with them.
SPEAKER_04Now I I want to ask that same question actually, but to the other side of the fence, to Thomas, and then also to Henry, who it sees both sides of the fence as well. So we're covering the whole sort of gamut here. But I mean, Thomas, what do you think are the barriers to entry for for corporates? Why that why they aren't as active in the market as perhaps they could be? Maybe talking about your own sort of uh experiences uh in the treasury world over you know uh career Air France as well as here, so very different markets, but very large industries with with cash. What do you think holds uh these really important players in in the future European saving and investments union and capital markets? I mean, what's holding them back from engaging in these two?
SPEAKER_01Maybe first uh it's habits. Uh I mean, if all of your um um uh trader um uh you are meeting at the French Association of Treasure at your final whatsoever, are not doing uh any repo, then uh why you should do it. I mean, uh it's like you know, the economists when they are doing a macro forecast, you know, you are trying to forecast the GDP, you look at what your your colleagues are doing and you try to match it because uh if you don't match uh the consensus um and if you you are right and everybody is wrong, uh people will told you will tell you uh you are lucky. But uh if you are wrong and everybody were right, uh then you are going to be fired and and uh well and that so so um yeah that's true that there is a kind of uh it's it's uh you have a natural inertia, you know, when everybody is doing the same, people are looking at what they are doing, and let's do the same. Um so those so that's in uh an important point, but um a legal part. Um it's true that uh if you you are using uh tri-party agent service, you the documentation is pretty heavy, but but for me that's that's not the most uh difficult part. Uh because because the risk there um uh is is is pretty according to me uh is is more limited. Uh then you have to negotiate the the um the GMRA uh with with your counterparts. Uh if you go if you go direct and and do not choose the Clearstream solution, uh GMRA or um FBF repo can be cumbersome to negotiate, but that's not too complex, honestly. For me, uh the tough part uh is the custodian part. Um to to manage um the custodian part and several uh custodies, subcustodies, um is pretty it's an obscure uh world for a corporate.
Barriers To Entry And How Platforms Help
SPEAKER_01And and um I don't think it's pretty hard to get the full spectrum of what the banks are doing and what the financial institutions are doing, and and how this market of uh safekeeping securities is is uh really working. And and when you read uh custodian agreements and and you it can be very scary, and and usually um it can be scary and pretty heavy. So for me, the the custody part uh is is uh yes, it's pretty hard uh to understand and to really assess uh it's it's hard to assess the risk. Uh but legal documentation, let's say okay, it's manageable. Um but then when you enter the trade, um for me, um okay, then how do you uh enter the trade? And do you have the system? Do you use the system or with your tri-party agent? Do you use a third-party system? How do you connect all this with your TMS? Uh let's say okay, you you want to make it simple, you use the the platform of uh Class Team, and that's it, and you don't try to make any fancy connection with Swift because uh you are not ready to do it and you want to okay, so it's manageable. But then at the end, you need a middle office to follow all the trades, to follow all the collateral, to assess what the valuation which has been done by um uh by the tripartite agent, uh by your counterparty as well. And and um and so this can start to be a bit complex. And then when you think about liquidation of the assets, if something goes bad with your counterparty, you need to liquidate the assets. Uh that's where uh also no corporates are equip are equipped to manage uh if you have a significant um size of repo and and and um underlying and collateral, you are not um used to trade. For instance, uh at RMS we don't have a trade uh desk managing uh uh Goviz, for instance. We don't have a desk managing equities. So if you have to liquidate uh a portfolio, what are the procedures uh you need to put in place to make sure that you you you you do it quickly and and and uh and in order? And and clearly here there is a gap between the financial institution world equipped with all the desks to handle all these assets and a corporate, which clearly do not have desks to manage the diversity of assets you uh you can take in a in a repo trade. So for me, the big barriers are not so much the legal documentation and the systems, because legal documentation, if you really want to invest time on it, you you you you will survive to it. Systems as well, because usually you can find nice platforms, but middle office and then back office and and and uh liquidation uh if something goes bad is really points you need to address. Yeah.
SPEAKER_04And Henry, uh, this I mean clearly seems like a natural place for you to come in because managing the custody chain, dealing with the the the administrative burden, uh the mid-office and the back office, that's kind of where Treasury Spring comes in, right?
SPEAKER_03Yeah, so look, I the reason we have a business is exactly all of those pain points and more that Thomas has highlighted here around the complexity, around the fact that I love the word obscure. It's an obscure world for a corporate treasurer. It's true. Like we on this call, we live and breathe repo. We just have a natural level of knowledge that we forget. Even other desks in banks, frankly, struggle with if you really press them on how a repo works, what's a tri-party agent, all of these other things. And so, you know, where we come into this as to have built front to back all of that infrastructure. We act as principal. You on board with us once, we're a fund manager. You can access all of our repo counterparties as well as you know, those Govies that um Thomas Wrigley has mentioned are hard to access, SSAs, non-financial corporations, everything highly rated. Um, but for a moment now, let's also put the hat on of a bank. Were they here, which is obviously part of my checkered history? And so for the banks, it's really important that any repo counterparty comes to them with a stable balance, a balance that is sizable. We're talking about a few hundred million at least in dollar terms. Um and so then as a corporate, what you need to be thinking is can I make sure that I can feed my banking relationship a minimum balance? That also means that all of that build we've talked about and ongoing running cost and the ability to do that, even if I'm not using it, is still going to stack up and make sense financially. You then want to diversify because, like Thomas says, um you need to know and be able to access and execute were there an event of liquidation. Now, I was there for Lehman, I certainly learnt a lot for those that don't know me and it's a podcast. My joke is I traded through the Lehman crisis and all I got was this silly haircut. Like it's pretty short because it's a stressful thing to have to do. And frankly, you need to have several counterparties that, to Thomas's point, have a diverse range of uh market participants, traders on those decks that are specialists in those markets to be able to liquidate and get your money back quickly. Um and so it's balance, it's diversification, it's stability. So, really, you know, it it the barriers to entry are also just a size question and a diversification question. Are you big enough? Are you stable enough to feed the banks the way they want to to also justify that spend for yourself? Okay, good.
SPEAKER_04Now, sadly, uh we have to start drawing our threads together here. And we never like to finish the show without our famous uh crystal ball question, uh, which uh is going to be asking you to look forward a year maybe or two down the line and you know, predict what are gonna be the big stories in this space uh a couple of years from now. And uh I'm gonna start with you, Thomas, as our very special guest. Um uh and I'm really interested in your view. Where do you think the corporate treasury uh mood will be a couple of years from now? Should we expect to see a lot more market participants coming from that side? Uh or do you think we're gonna see uh more of the uh established and experienced players like Hermes uh expanding their operations into broader areas? Uh what would you predict?
SPEAKER_01My prediction is that if uh really um um solution like the one Harry is providing, is is getting traction, is getting more and more popular, um then clearly corporate we will easily understand that if you have to choose between a current account remunerated, if you are lucky, at uh interbank rate uh ester, but without any collateral. Basically, for a current account, uh cash should live in your current account, you you are fully exposed to the bank. And basically, if you can get the same uh remuneration Ester Plus or Ester, but with Govis as collateral, with uh equities whatsoever, uh and and you are you have something um pretty easy to handle uh in terms of IT integration with your TMS. Uh and you have somewhere so as well someone next to you uh you can trust. Basically, it it can be uh Treasury spinning, it can be a bank acting as an agent, as Matthew uh mentioned as well. Uh clearly um you you will have traction and you will have more and more corporates uh who uh will want to enter this market, clearly. Uh it's a no-brainer. But um you corporate it's it's hard uh for corporates uh of smaller size uh to be alone in this market. Uh and and clearly you need as well, even if you you have experienced a lot um quite uh a big treasury uh department, you need to have someone from the financial institution uh side who will be able to guide you and to tell you, okay, uh volatility speaking, uh in the Govis, inequities, maybe the aircut needs to be there, maybe the remuneration needs to be there, and that's where the market is. If you are on your own, you will be lost, and uh clearly um uh it can be very cumbersome. So so uh that that I'm coming back to my first comment. Uh I think these people uh sitting between the financial institution space and the corporates clearly can help to develop um these solutions. So so and and we see more and more and more and more solutions coming in, and even if we talk about total return swap funds uh uh investing in total return swap, it's the same story. It's the same story.
SPEAKER_04Great, thank you very much. And I I pass the crystal ball over to you, Henry. Um, from your point of view, uh, where do you see this market evolving in the next couple of years? Is Treasury Spring going to be working across uh more organizations? Uh is there going to be a much uh more uh lively corporate uh NFC uh minus NFC plus uh repo world out there?
SPEAKER_03Yeah, thanks Andrew and thanks, Thomas. I do agree with you and also commend you, sir, for taking
What Changes Next For Corporates
SPEAKER_03That lonely path, well done, because it's not straightforward and to to be first is never easy. Um, we know that from yeah, having developed what we have. Um, I think that yeah, certainly for us, we see lots of traction out there, um, in part driven by the return of something called credit spread. Uh, the return of a steepening yield curve, um, people getting paid fairly, not that people are paid necessarily unfairly, but if the liquidity is going to a place that is being tailored uh to that receiver for said funds, then all the better. Um which does of course require a degree of expertise um and some balance behind it. In terms of predicting the future, I'm pretty sure many people have said don't do it, you're gonna be wrong. I think yeah, prediction would be that actually there's probably not gonna be a great deal of change in our market, because if you think about how heavily regulated it is, if you think about what are some of the purposes are, um like change can be a bad thing. And so what I do think is that yeah, the change will be to to Thomas' point, how and who do you partner with best and stick to what you're good at to grow the collective benefits of this market. I think that that's the future. Things that might accelerate, so to say, well, if you know, status quo or rewind six weeks ago, if if we had a status quo of the world looks like this, fast forward to what are the things that would be an accelerant? Um, I think continued conflict, of course. Um when we see where inflation and some of these macro things are going in terms of economic slowdown, uh in terms of continued spread uh credit deterioration, you know, perhaps we lose another bank, hopefully not, but we've even seen it in good times with the likes of SVB. We obviously saw an acquisition in in Switzerland, um and so this was when things seemed to be working. Um and so if we continue to see things starting to break and we've seen, you know, signs of things in private credit, not my area of expertise, but I guess headwinds will create and and more risk and more perceived risk and actual fruition, crystallization of events um can can help bring people to this market because it's exactly what we do. We make it better, we make it more stable, we make it safer together.
SPEAKER_04Great. And finally, uh Matthew, I give you the crystal ball. Uh from your point of view, two years down the line, what does ClearStream's uh ecosystem for all that lovely corporate lolly look like?
SPEAKER_00Sure. Well, uh the future I believe will be about making this this market even more accessible, intelligent, and strategic for for corporate treasurer. Looking at uh what we've done already in the past, the innovative solution to facilitate access to the repo market, the different partnerships like the one between UREX and Treasury Spring. I think we need to move away from the historical fragmented model toward a more plug-and-play system. Uh I think regulation is and will still have an impact, you know, with T plus one coming into the picture next year. This will have an impact on the repo market with increased liquidity demand and inter-defunding. And at Classroom, we already have a product ready to meet this requirement. AI definitely will continue to help uh the operational function of the organization. New sophisticated tool can help forecasting future liquidity needs. Uh in the digital world, at Classroom, a corporate treasurer can now make eligible crypto asset as collateral. So, you know, it's quite exciting to evolve in such a dynamic environment, and I think it can be only positive.
SPEAKER_04Okay, well, sadly, that is it now for this very, very special Paris Catwalk edition of the GFF podcast. Uh, we've had a fantastic show with uh three guests in beautifully tailored uh white shirts. I've got to say they look great. Um, Christian and I, frankly, have have let the side down terribly. And that's not like Christian. Normally he's he's the fashion and fashionable one. I live in I live in the countryside. I don't I never have to look smart. I'm just covered in dog hair and and grass. Uh so well, I'm going to uh if you've been to Suffolk, by the way, if you're listening to that, you'll know that every word is true. I'm going to uh tie up the show now and say thank you very much to our special guest, and that is in no particular order, uh the director of uh treasury at uh Hermes there in Paris. Uh thank you very much, Thomas Bourbon. Thank you, thank you, thank you. And a huge thank you as well to the US CEO and global head of capital markets for Treasury Spring. Thanks for your time today, Henry Adams.
SPEAKER_03Thank you all on the call for yeah, what was uh yeah, really interesting conversation, very much enjoyed it. What I do want to say is a big thank you to ClearStream, a massive thank you to URX for all of your support over the years to together deliver some solutions that are going to really help scale our markets.
SPEAKER_04That's great. And of course, uh also thank you to someone at Clearstream, uh, Mathieu Top McCoff and Mathieu from the Collateral Liquidities and Lending Solutions team, the uh collateral management expert. Thank you very much for joining us today.
SPEAKER_00Thank you very much, Andrew.
SPEAKER_04Christian, that's it. That's us for uh another show. We've only got one left in the season. Uh, do you have any spoilers for what's coming up next time?
SPEAKER_02Well, I'm heading to the US uh in 10 days, so um, I think uh we we're gonna get some uh some feedback from um from that trip because I think uh we're looking forward to the to the IMF spring meetings and um to bring some uh some of that back to Europe. So let's see. But um we have still one show and um and then it's the end of the season. So we we're season five is uh coming to an end. We're close to what now 50 episodes. I mean, this is five years we've been doing this.
SPEAKER_04That's right, we are, and it's great to think that we're ending with uh some news from the IMF, not of course Tom Cruise's organization in uh the Mission Impossible Movies. This podcast will not self-destruct in five seconds. Um we will be back next month, and in the meantime, do join us on our LinkedIn page. That's LinkedIn.com slash company slash clear stream, where you can network with Thomas and with uh Henry Adams and with Mathieu Top McCoff, and of course with Christian and with myself and all our other guests on the show. And do stay tuned. Uh we will be back next month. And in the meantime, from me, Keith Walker, and from my co-host, the BFF GFF, Mr. Christian Russler. Bye-bye.
SPEAKER_02Thank you.
SPEAKER_04Bye-bye. And don't forget, this show is brought to you by ClearStream Banking, one of the main sponsors of the GFF Summit in Luxembourg every year. And features members of the ClearStream team and special guests offering their personal opinions, not the opinions of ClearStream as an organization. There's no representation made as to the accuracy or completeness of information in this podcast, and nor should it be taken as any legal attacks or other professional advice.