Risk Management

CFOs Curbing Treasurers’ Budgets

Despite new, complex financial-market and regulatory risks, U.S. companies don’t plan to raise spending on treasury staffing or IT projects in 2013...
Vincent RyanMarch 6, 2013

Although treasury departments have taken on a broader set of responsibilities and assumed a more strategic role since the financial crisis, most U.S. CFOs continue to run them lean and mean.

About 55% of finance executives are keeping a lid on treasury staffing budgets in 2013 and 9% are cutting them, according to a survey released Wednesday by Greenwich Associates, a financial-services research firm. Budgeted spending on treasury automation will be flat at more than half of the companies, with 9% actually paring the technology budget. Of the minority adding to staffing and information-technology budgets, the increases are small, about 1% to 3%.

The findings reinforce the belief that while treasury is touching more functional areas (including such new ones as investor relations and employee-benefit management) than it did five years ago and is playing a key role in protecting against financial-market volatility and counterparty risk, few companies are investing in or growing this area of finance. But they may not be able to contain costs for long.

By automating some routine treasury functions, some U.S. companies are finding cost efficiencies that are helping to keep budgets stable. But, as is the case with overall IT spending, at many companies automation initiatives are being kept in check.

“The cost of the technology to enable such automation may be beyond the financial means of the many treasury departments that still face budget constraints . . . leaving those treasuries and their companies at a competitive disadvantage,” according to the Greenwich report accompanying the survey results.

One reason CFOs may not think beefing up treasury departments demands urgency is that some of the overriding concerns that arose during the financial crisis are now lower down on the worry list. Of the 177 finance executives (including treasurers and cash managers) polled by Greenwich last November, 52% said overall economic growth was their top concern. Issues such as credit availability (26% concerned), the euro zone’s sovereign-debt crisis (18% concerned), and short-term cash investing (17% concerned) were less prominent. Compared with the finance executives, however, treasurers and cash managers saw things in reverse, with the sovereign-debt crisis and short-term cash investing near the top of their list of concerns. (Greenwich did not provide a breakdown of the job titles of respondents.)

Looming largest for treasury departments, though, and hardly recognized by surveyed CFOs, was regulatory uncertainty in the financial markets. Forty-eight percent of treasury staffers in the Greenwich survey cited this concern, while only 8% of CFOs did. “Treasurers and cash managers anticipate coping with considerable regulatory uncertainty this year as they prepare for new Dodd-Frank regulations on over-the-counter derivatives and face the prospect of additional changes in the rules governing money-market funds,” according to Greenwich.

By requiring many over-the-counter derivatives transactions to be centrally cleared, for example, U.S. regulators may force companies to change the way they hedge market risks. “U.S. banking regulators have not yet decided whether to mandate that banks require corporate customers to post margin on OTC derivative trades,” says the Greenwich report. “If margin is required, companies could end up having considerable sums tied up as collateral on their derivative trades and they would also have to do the work entailed in marking that collateral to market every day.”

Partly because of regulatory pressures, more finance executives see greater treasury budgets in future years than they do in 2013. Sixty percent anticipate increasing staffing outlays by 2016, and 54% predict growth in their IT budget during the same period.

Besides compliance, however, growth in sales outside the United States will push treasury spending higher, as basic capabilities such as visibility into the daily cash position become more complex. According to an Association for Financial Professionals’s study last October, companies that generate more than 10% of sales outside the United States have treasury operations’ costs 60% higher than companies whose revenue is concentrated domestically.