Trésorier/Treasurer magazine - N°89 - April/May/June 2015 - (Page 13)

FOCUS Negative interest rates and deflation It is a fair bet that the negative interest rates that some of the biggest banks have started to apply will now spread throughout Europe. We are entering hitherto unknown territory. We need to get used to the idea of monetary assets falling in value as time goes by. Such a thing would seem unthinkable to the man or woman on the street. They know that the banknote in their wallet, paradoxically, will always be worth its face or nominal value. "We are entering unknown territory" might be the title of this new post-financial crisis episode. Of course, the deflation (the structurally downward trend in prices) that, sadly, we are observing today is reflected in these negative interest rates. Corporate cash surpluses, formerly much sought-after, are now shunned and are no longer of interest to the banks. The EONIA or overnight rate has regularly been flirting with negative territory for a few months now. Taking France as an example, according to the Bank of France, the 77 biggest non-financial and non-real estate companies are thought to have a total of €177 billion to invest. That is quite some problem for treasurers who don't know where to invest their cash surpluses. Paradoxically, now is the time that they need to reinvest massively in assets, provided they expect to produce an operating margin. This would stop the haemorrhaging and this massive value destruction. This deflation should give consumption a boost. "Should" rather than "will", because the psychological element is very important and lack of confidence by consumers will tend to cause them to delay making their purchases. The most surprising thing is that this value des- truction looks as if it will not be impacted by the inverse effect of withholding. They are quite prepared to tax income from capital, but not to deduct the theoretical negative tax on interest that has now become negative. Here again we find a technical paradox and fiscal mismatch which seemed so improbable but which is nevertheless now a reality. The frightening question in everyone's minds is: are we seeing a "Japanization" of the European economy? Almost 25 years of low or negative interest rates... Let us try not to think about it to stop it tormenting our minds. "Treasurers' Kitchen Nightmares" For many years treasurers have been battling against the falling interest rates received on deposits and other financial instruments. Paradoxically, and this is the main difficulty of the task, the cash LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE - N°89 - APR Treasurers have recently found themselves confronted with something completely new in modern economic history: negative interest rates. This situation obviously creates new technical and financial headaches. The situation is something of a paradox. Never before have companies accumulated as much cash as they have today, while at the same time interest rates are They are beavering away in rock bottom and counterparty risk is still ever present. This presents a real the treasurer's kitchen to find dilemma: higher return in exchange for a bit more risk, that is the question. In miracle recipes that do not such an environment, we have to change our approach at the risk of racking exist in the real world up losses. What is the best asset allocation in a downbeat economic environment which could last for several years yet? / MAY / JUN 2015 Treasurers' Kitchen Nightmares 13

Table des matières de la publication Trésorier/Treasurer magazine - N°89 - April/May/June 2015

Table of contents
Treasurers' kitchen nightmare
FATCA the next hassle for corporate treasurers?
Treasury is becoming much more...
One year on - EMIRage or EMIRate?
Making the most of trade reporting data
EMIR, where do we stand?
Surety bonds - gaining acceptance globally as performance security
The colour of money
Money Market Funds - adapting to a challenging landscape
Comment offrir un meilleur rendement monétaire dans un univers de taux bas?
A repolution - The new Repurchase Conditions
Finding a technology partner in a world of change
Raising your Cyber Security level with Cyber Threat Intelligence

Trésorier/Treasurer magazine - N°89 - April/May/June 2015