Itau

Approaches to Investing short-term cash in Corporate Treasury

Report date: 
22 Apr 2025

Commentary

Risk versus reward. 

Treasurers face this eternal trade-off directly when investing short term cash. There is pressure to increase earnings, and a constant search for new solutions, but the priorities remain, in order:

  1. Safety
  2. Liquidity
  3. Yield

Companies put a lot of effort into making money and bringing in cash: the potential downside to losing money outweighs any yield benefit risky investments may bring.

As always, there is a lot of complex detail, depending on the size, the cash balance and the culture of the company.

  • Most companies have a formal investment policy, often approved by the board.
  • One of the benefits of centralising cash is to avoid paying the bid/offer spread of having cash in one place, and debt in another. Several peers used notional pooling (BMG and JPMorgan were mentioned) to achieve this. Both banks offer deposits for the cash in the pool.
  • The most used instruments are bank deposits and MMFs (Money Market Funds). A few peers invest directly in high quality sovereign bonds, as well as repos. The rules can be more flexible in highly regulated countries, such as Turkey and Angola.
  • Some peers used bank deposits as a means of balancing wallet share with relationship banks, but most take advantage of the higher rates provided by MMFs.
  • Others left pools of cash in different countries and regions: in these cases, the short term investments were frequently managed by a team in central treasury.
  • One peer managing Latin America was pleased with the better yield offered by some currencies with higher nominal interest rates, though this was not a common approach. Most of the commonly used instruments are available in...

 

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Topics covered in this report: 
Money Market Funds, Investing, Risk - counterparty, Bank Accounts
Service providers discussed in this report: 
Westpac, Bloomberg, JP Morgan, Bank Mendes Gans, spotfire, Blackrock, Cachematrix, FIS, 360T, Santander, Itau, Citi, Bank of America, Deutsche Bank, Credit Suisse, Pictet Asset Management

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Brazil Corporate Treasury Update

Report date: 
27 Mar 2024

Commentary

Brazil is a success story. It often does not receive the credit it deserves, because it remains a difficult and complicated place to do business. But all the treasurers involved in this discussion have large and profitable businesses there – there was a time when most people lost money. On the political front, Brazil has recently seen both left and right wing governments, but both have respected election results, and the economy has continued to progress through it all.

Of course, it is not all rosy: though many rules and administrative processes have been relaxed, much complexity remains. In the past, a local treasury presence was required: it is now possible to run the country from offshore, though a specialist team may still be necessary.

The challenges discussed in the call:

  • Boletos: many customers in Brazil pay using boletos. These are a form of bill of exchange, where a document is prepared, usually by the seller, with all the payment information, including a barcode. This can then be presented by the payer in any location, and payment will be received by the seller in their bank account. This is a good system, but participants complained vehemently about the cost, and banks’ unwillingness to reduce the fees. Other issues:
  • Boletos are often cancelled when they are not paid on time and a new one is issued, instead of charging the intended late payment fees. 
  • Payment of a single invoice is often spread over several boletos, each with different due dates: this causes the very accounts receivable reconciliation issues the system is designed to avoid.
  • Boletos can be issued electronically (e-boletos): these reduce the amount of paper but, disappointingly, the fee reduction is not significant.
  • Some participants regularly do RFPs for this business, and frequently change banks. But fees remain high, and banks are often unwilling to continue.
  • Frequent changes in the process and rules present challenges in keeping the systems updated – this often results in manual processing.
  • One participant noted an improvement in service and processing efficiency.
  • PIX: the good news is that a form of on-line payment, PIX, is available and becoming increasingly popular, even for B2B transactions – and the fees are paid by the payor. The bad news is that the fees are also high, though not as high as for boletos. 
  • Tax payments: there is a requirement to maintain accounts with many local banks to make payments to tax authorities around the country. One participant is very happy with a JPMorgan tool to manage this and eliminate the related local accounts. Another used this tool in the past, but is now achieving the same result with Citi.
  • FX documentation

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Topics covered in this report: 
Bank Relationships, FX, Hedging FX, Receivables, Boletos, payroll, PIX, Tax, Supply Chain Finance
Service providers discussed in this report: 
Bradesco, Itau, Citi, Bank of America, JP Morgan, Santander, FXall

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Treasury & Banking in Brazil

Report date: 
10 Mar 2023

Commentary

Brazil never disappoints: the term “complex country” applies to it in nearly every respect.

Apart from the usual updates to the constantly changing environment, the purpose of this call was to see whether there is any improvement in the economic situation (inflation has recently been even higher than usual), and whether there is any visible impact from  the recent political turmoil and change of government.

The bottom line is that it is very much business as usual. The Brazilian economy continues to perform well, even if inflation persists and interest rates remain high. However, inflation and interest rates do seem to be levelling off, and the BRL has been relatively stable recently. The country remains a main engine of growth for the LATAM region, and most participants have significant operations there – though everyone finds it to be a tough and highly competitive market.

Brazil is continuing its efforts to simplify its complex tax laws and currency regulations: most people are managing to do cross border intercompany loans, both in and out, and the taxes are being reduced or eliminated. In the meantime, of course, there are still some significant taxes on some types of transactions, and daily operations remain burdensome and complex.

The country is also making big strides in electronic payments: boletos are widely used, and come participants are beginning to use PIX, at least for receipts. Electronic boletos are increasingly supported by even the international banks.

Banking in Brazil is very competitive: many participants use Citi, with varying levels of satisfaction, while JPMorgan are viewed as being aggressive and increasingly

 

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Topics covered in this report: 
Hedging FX, FX, Funding, Investments, Collections - domestic, Tax, payroll, Offshore accounts
Service providers discussed in this report: 
JP Morgan, Citi, Banco de Brasil, Itau, Bradesco

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