00;00;00;11 - 00;00;31;09
Unknown
How do you manage Treasury operations and foreign exchange risk at a large multinational company with operations across the Asia-Pacific region? Welcome to CurrencyCast. My name is Agustin Mackinlay, I'm the Senior Financial Writer at Kantox and your host. In this episode, we have the pleasure to welcome Damian Glendinning, former Treasury manager at IBM and Lenovo in Asia. Damian, a warm welcome to you and thank you for joining us in this episode of CurrencyCast.
00;00;31;09 - 00;01;00;09
Unknown
It's a pleasure to be here. Thank you for having me. Damian, can you start by introducing yourself to our audience? Well, I'll try and keep it short because my favorite topic, people say my favorite topic is myself and I'll try not to get into that too much. But first of all, if I may, a slight correction. Lenovo is a Chinese company with lots of operations in Asia, obviously, but it is a very large global company and I was responsible for the operations globally as well as in Asia.
00;01;00;09 - 00;01;21;00
Unknown
So it's not just Asia. And by the way, we'll come to this later. But I don't think there's a difference in how you manage Asia versus the rest of the world. It's just a bit more complicated. So I spent, I retired six years ago from the position of Group Treasurer of Lenovo, which is a position that held in Singapore for 13 years.
00;01;21;00 - 00;01;48;23
Unknown
Before that I was with IBM and I moved from IBM to Lenovo when IBM sold its PC business to Lenovo. So I got the lucky ones in the career opportunity to actually set everything up from zero, and we'll come back to that. But that was a massive, massive piece of luck for me. It also made life very interesting. At the time of the transition, I was IBM's Global Treasury Director in Armonk, New York, in the corporate headquarters.
00;01;48;25 - 00;02;16;18
Unknown
But before that I've been the Asia Pacific Treasurer for four years, based in Singapore and three years before that doing other things in Singapore. So, and since I retired, I spent a lot of time playing very bad golf. And the more you play, the worse you get. By the way, if anybody is interested. But when I'm not doing that, I'm part of a group called Complex Countries where we organize peer calls among treasurers.
00;02;16;18 - 00;02;37;14
Unknown
I also do various conferences and so on. It's a great way of keeping a) in touch technically, but also keeping in touch with the Treasury community. And for me, one of the biggest things I learned is that treasurers are fantastic people and they create a fantastic community. Right, we're going to to discuss that towards the end of this conversation.
00;02;37;14 - 00;03;09;05
Unknown
Really an interesting topic. Now, Damian you joined Lenovo after four years as IBM Treasury Manager in Asia, tell us about the typical day of a Group Treasurer at a large company there and hasn't changed a lot. Sorry I'm laughing because I would like to think there was such a thing as a typical day for a group treasurer and I'm sure anybody who is a group treasurer who's listening would also have the same reaction.
00;03;09;07 - 00;03;36;06
Unknown
A typical day is something you aim for because a typical day means a certain amount of repetition and that happens when everything's under control. Obviously, as a Treasurer, you're trying to make sure that you're ready for all sorts of things you don't control and lots of things happen that you don't control. And I think this is a very important point, is that the nature of Treasury varies a lot according to the business you're in, according to what it's trying to do, how well you're doing.
00;03;36;08 - 00;03;59;13
Unknown
Just to give you an example, when I first joined Lenovo, Lenovo had just bought IBM's PC business. It was a massive stretch because the IBM PC business was about $10 billion a year, operating in 175 countries. Lenovo's business was $4 billion a year only operating in China. So it's obvious to say that it was a stretch is putting it mildly.
00;03;59;16 - 00;04;20;25
Unknown
And one of the key questions I had when I joined is how is Lenovo going to pay for this? And when I joined, the quick answer was we don't know. It wasa big funding. This was a big issue and there were no accurate cash projections and so on. So for the first year, it was very, very much a question of making sure we get the cash in and that we control the cash going out.
00;04;20;27 - 00;04;44;04
Unknown
I'm very pleased to say that by the time I left 13 years later, and I think most people will be surprised to realize those days existed, today obviously Lenovo is a big powerhouse in the global I.T. industry. So the concerns changed. And when I met my industry peers, for example, the Microsoft and Intel guys, their big concern was wondering how they invest that cash.
00;04;44;06 - 00;05;07;13
Unknown
Well, my issue was I'd love to have that issue. So it really depends on the company, what's going on and, you know, during that period, the 13 years we went through a couple of minor crises. So it's at the end of the day, your objective as Treasurer is to get ahead of the things to make sure that you're ready to handle all the crises, but things happen. Right.
00;05;07;17 - 00;05;31;24
Unknown
And there's another dimension there that makes it so, so different. According to companies right? And we're going to come back to that, namely profit margins right? And you've been through their different situations, of course. Now, what are some of the main challenges of a Group Treasurer at a large multinational company? So for example, when it comes to foreign exchange policy, who sets policy?
00;05;31;24 - 00;05;56;23
Unknown
Is it always the head office? What's the role of regional Treasury managers. If I may, I think you've asked two very different questions in there. So the question of the regional Treasury manager, that depends an awful lot on the size of the organisation and the organisation’s culture. How it does things like, for example, in Lenovo I decided not to have regional treasury managers.
00;05;56;23 - 00;06;18;16
Unknown
We did everything from the center, in the center with Singapore. I'll get back to the reasons why I did that, but you may or may not choose to have a degree of devolution to regional managers. The real question, though, is what is the role of Treasury? And that depends on a lot of things. One of them is the company, how profitable it is.
00;06;18;18 - 00;06;42;20
Unknown
So again, in a company which is struggling to pay its bills, which has got serious financial challenges, the Treasury is automatically going to be somebody that is very important because that person is negotiating the banking guys. In a company which is very profitable, which is generating tons and tons of cash. It's an important role, but it's much less existential.
00;06;42;20 - 00;07;07;05
Unknown
So again, a lot depends on the nature of the company, how well it's doing, where it is in its cycle, because, you know, companies move between in these situations as well. But the thing I would say, which is absolutely crucial, is it's very, very important to communicate. The thing with Treasury is that a lot of what we do let me step back a bit.
00;07;07;08 - 00;07;32;09
Unknown
I always said on FX that in another we tools again, we have 50,000 employees of whom 49,998 were currency experts. Everybody has a view. Everybody knows where it's going. There are only two people who had no idea where it was going, and that was me and the guy who looked after the Treasury programs in my team. So what happens is you get the thing where everybody thinks they know something.
00;07;32;11 - 00;07;55;12
Unknown
Everybody's prepared to offer you advice. And unfortunately, very few people are prepared to take the time to listen to and understand all the technical issues that come with all of these problems. So for me, a big part of the Treasurer's job is communicate, communicate, communicate, make sure people understand. And I suspect we're going to get there. You know, my boss's big thing was make currency disappear.
00;07;55;13 - 00;08;24;09
Unknown
Well, I'm sorry, can't do that. But it is very, very important that a lot of what and also in many cases Treasury's talk about being risk managers, being risk manager means you become the business prevention officer because you keep saying, don't do that. And those can be very difficult discussions. And so it's very important to have the relationship where you can say to the guys, I don't think that's a good idea.
00;08;24;11 - 00;08;49;11
Unknown
So bottom line is it's absolutely essential to make sure that you spend time communicating on things which are not necessarily easily understood. Absolutely. Yes. Well, we'll come back to that, of course. In a previous conversation, Damian, you mentioned also the importance of having access to two relevant lean data as well. There's talk these days of centralized data lakes.
00;08;49;14 - 00;09;13;14
Unknown
What's your view on this and what kind of data are we talking about, really? Well, my view on this is a little bit conflicted because on the one hand, I think this is absolutely wonderful and the way forward. On the other hand, I think you've got to be very careful and it's extremely dangerous. If we take the lake analogy, a lot of the most dangerous bodies of water in the world are lakes, and it's very easy to drown in a lake if you don't understand it.
00;09;13;17 - 00;09;40;11
Unknown
So I think you need to be very careful that you understand what you are doing. In other words, for me, big data and a massive step forward and it's got all sorts of promises is the ability to analyze and format unstructured data. And that's what big data is about. And it's very good for marketing, very good for understanding trends and all that kind of stuff.
00;09;40;13 - 00;10;00;09
Unknown
If it comes to executing financial transactions, it's very important that you understand exactly what it is and that you make sure that it is very accurate. Now, the big problem with data lakes is, as I believe I've just said, they're very good at showing trends. But when it comes to hedging, you need to hedge your precise amount and that's not a trend.
00;10;00;11 - 00;10;24;13
Unknown
So I do think you need to be very careful about making sure you understand what it is that you're doing, that you verify before you enter any financial transaction that you make, doubly sure, triply sure. Be sure that the data is accurate. And certainly from my point of view, one of the big questions that we suspect when we come back to this is automating affects and automating hedging.
00;10;24;15 - 00;10;47;07
Unknown
Wonderful idea. But for example, are you going to do this based on the accounting records? Right? If the accounting is real time and up to date, if it's not up to date, maybe you need to be a little bit careful. And also accountants, these things maybe will change over time. But my experience with accountants, by the way, I am an accountant, so I do understand the problem.
00;10;47;09 - 00;11;06;17
Unknown
They tend to correct things afterwards. So if you hedge or do a conversion based on an entry on the 15th of the month and then on the 28th, the guys come back and say, Oops, sorry, that's wrong, I reversed it. Well, you can't reverse that. Absolutely. So I do think there's a lot to be done in these areas.
00;11;06;17 - 00;11;36;06
Unknown
But there is still a big resistance in business to doing everything in real time. And I think, you know, this is all going to really come into its own when it's all real time. Yes, here our view on that aspect is that automation also means traceability. So for example, each element in the transaction journey has its own unique reference number and that task is the job of of reconciliation and accounting.
00;11;36;09 - 00;11;58;18
Unknown
Now, Damian… Sorry, but by the way, if I may, just one other thing in there which I think is very important and it's a general concern. On the one hand, I'm very much in favor of technology. On the other hand, I dislike black boxes. And, you know, I was lucky enough to have to go through learning lots of things at the lower levels, which means that you understand how things work.
00;11;58;20 - 00;12;15;26
Unknown
I'm very concerned that we have a generation with kids who are used to pressing a button and then stuff comes out the other end and they have no idea what's going on inside. There's not a black box has to have manual manual check points at each point of the workflow. That's obvious. And we are in agreement, That's obvious.
00;12;15;28 - 00;13;02;22
Unknown
We are in agreement about that. Damian let’s bring the discussion to the subject of bank relationships, there's of course much talk about about counterparty risk these days. And we know that some corporate treasurers watch, for example, credit default swaps on bank debt to assess solvency and all of that. What’s your view or do you think there's the treasurers should also be concerned to have a few bank relationships only? Again and I hope I'm going to be consistent on this, it depends on the company, it depends on the Treasurer, it depends on the banks.
00;13;02;25 - 00;13;23;03
Unknown
In Lenovo I run a single bank system with the largest company in the world to use a single bank which most treasurers view as being heresy. It actually worked very well. There was a reason why I did it at the beginning and it worked so well. We kept it. But the thing, there's two separate questions here.
00;13;23;03 - 00;13;45;08
Unknown
The first is counterparty risk and the second is bank relationships. So bank relationships, how you manage them is very much a question of culture is how you do things. And you have the choice between building trusted relationships, recognising you may not get the best deal on every on every single thing, but the bank will be there for you.
00;13;45;08 - 00;14;09;20
Unknown
Or you basically nickel and dime everything and do an RFP on everything. Both methods work. It just depends on how you like to do things. Counterparty risk is a very different thing. Even with a single bank relationship, we always manage counterparty risk very, very carefully. And my philosophy on that is very simple, which is every time there's a crisis in the banking system, everybody says, Why didn't we see that coming?
00;14;09;23 - 00;14;39;02
Unknown
Now, the quick answer is generally somebody did, and there's always something that comes afterwards and people say, Yeah, I saw that coming, but it's very difficult to fire a bank just because there's doubts about their liquidity. So for me, the question is twofold. The first is always make sure that you never have anything that's in a place where it will cause you a massive problem if it's lost.
00;14;39;05 - 00;15;02;17
Unknown
So the way we manage that counterparty risk limits, even with the biggest banks, even with the most solid banks, was there's an amount that we're prepared to lose. Now, obviously, it's a big amount and it would have been inconvenient, but it would be an amount that we could recover from. I was not going to put the survival of Lenovo dependent on another bank’s, on a bank's ability to survive.
00;15;02;19 - 00;15;26;16
Unknown
So it doesn't matter how solid the thing is. You go through all sorts of very silly discussions. We'll never fail, don't care. We are going to limit the exposure to you, to something that we can bear. And I think that's an important thing to look at yourself. You can control that. You can't control the other guys. And so what we ended up doing is that we did end up, so that basically says you need to spread if you need to spread the risk.
00;15;26;16 - 00;15;48;07
Unknown
If you got cash. Yes, you deposit it with banks, but there's other places deposit cash as well. You don't need to just use banks. So spread it around, that way if any one thing goes under, it's going to be inconvenient, but it's not gonna kill the company. All right. Now, yeah, that's the definition of prudence right now.
00;15;48;09 - 00;16;16;03
Unknown
Let's discuss a little bit foreign exchange management and there always seems to be a dominant story. And these days there seem to be in Asia, the Japanese yen grabbing all the headlines. But there is some nervous talk about the Chinese currency as well. Now I think I know we're you're going to take this answer right.
00;16;16;05 - 00;16;25;06
Unknown
What is your, do you advise treasurers to pay attention at all to exchange rate forecasts?
00;16;25;09 - 00;16;52;27
Unknown
Well, I used to get lots of exchange rate forecasts and, you know, they used to be very good for scrap paper. So basically my view on this is, as I always used to say, because I used to get people coming to me saying you should do this or that because this currency is going in this direction. And my answer was always, listen, if I knew which way the currencies were going, do you think I'd be sitting here?
00;16;52;29 - 00;17;25;00
Unknown
You going, I’d be somewhere else making a lot more money without having to waste my time listening to people like you? I didn't put that. I thought the last bit, but I didn't say it, obviously. But the simple thing is that we are all very, very bad at forecasting currencies. Absolutely. So you spend your time in this business, you're aware of bias and all of this kind of thing that you've got, because the currency has been strengthening.
00;17;25;00 - 00;17;57;12
Unknown
you think it's going to carry on, strengthening, etc., etc., etc., or you've got some political disagreement with the government of the country and you think they're going to come, they're going to fall. Yeah, well, that may or may not be true, but the reality is you just don't know. So for me it's very simple. And most interestingly, you know, talking to lots of other treasurers, especially in the Complex Countries peer group, people still have views, people say. I remember one banker once said to me, laughing about corporate treasurers.
00;17;57;12 - 00;18;22;04
Unknown
He said, one of my favorite cards is a treasurer who said, we never speculate. We always hedge impartially, but I'm not going to hedge at this rate. Excuse me, which says at the end of the day, we think we're being prudent. We don't want to lock in a rate because we think it's unfavorable. But by doing that, we are actually speculating.
00;18;22;06 - 00;18;40;22
Unknown
So at the end of the day, for me, hedging and this is a big problem and big intellectual problem that people have is you've got a process, you follow it, you recognize that sometimes it's going to give you a good answer or a good outcome. Sometimes it's going to give you a bad outcome.
00;18;40;25 - 00;19;00;09
Unknown
But once you start deviating, oh but by the way, I think all the historical analysis says as long as you do this, the law of averages will apply and over time you'll end up being neutral. The minute you start playing with that and introducing your bias, you are inevitably going to be one side or the other of the average.
00;19;00;09 - 00;19;20;12
Unknown
And statistically there's a higher chance you'll be on the wrong side than the right side. And as I said, if I was good enough to know which side how to do this, I would have made a lot more money doing other things. Yes, we're on the same page here. Exactly. We don't think exchange rates are predictable at all. You previously mentioned. Sorry to interrupt you, but
00;19;20;12 - 00;19;51;09
Unknown
if I may, if there's one currency that I would really mistrust is the US dollar. You just mentioned the odd position treasurers are in with regards to foreign exchange management. On the one hand, the CEO tells them make the problem go away, but that presumably means we just deal, we just have our commercial operations in the group's functional currency and that's that.
00;19;51;11 - 00;20;16;15
Unknown
But then you go to then the commercial team comes back to you and complains about FX markups. So what's the Treasurer going to do there? Well, first of all, if I may, and I know you would agree with me that selling in your own currency doesn't make FX risk go away. On the contrary, it creates a massive counterparty risk.
00;20;16;18 - 00;20;35;06
Unknown
Because if I've sold in euros or U.S. dollars to somebody and in India, for example, and there's a big devaluation of the Indian rupee, then guess what? They can't pay. So you've still got the problem. Even if you do that, you don't make it go away. Well, so if there's a big devaluation, your products suddenly become a lot more expensive.
00;20;35;09 - 00;21;03;22
Unknown
So my view on this and again, this comes back to what I was saying earlier, is this comes back to communicating. Let's be very clear about this. If I've got my cost or expense in one currency, say euros or say renminbi or whatever, and I'm selling it in a different country where the currency is different, that's selling in the U.S., or I'm selling it in India or wherever.
00;21;03;25 - 00;21;25;22
Unknown
By definition I have an exchange rate problem because then that I need to get paid in the country where I'm producing is going to vary in the other country depending on the exchange rate. Like it or not, you know, you will not make that fundamental difference, you know, that fundamental problem go away again. If I was able to do that, would be running the world.
00;21;25;22 - 00;21;55;19
Unknown
I wouldn't be sitting here talking to you, but I can't do it and neither can anybody else. So whether you like it or not, FX has to be managed. And once you're doing business in another country, you need to understand the consequences. And to give you an example, one of the biggest pieces of currency hedging that's taken place over the years is why does everybody why does every foreign car manufacturer, make cars in the United States?
00;21;55;21 - 00;22;16;13
Unknown
It's not because it's a cheap production location. It's not because the workforce is especially skilled. It's improved, it's okay now. But at the beginning the result was terrible. It was simply because this is a long term currency management issue. So you might like it not to exist, but it does exist, so get over it. Never goes away.
00;22;16;15 - 00;22;52;26
Unknown
Right, you mentioned the or we mentioned the story of all different levels of profit margins. I think you were confronted at IBM in some divisions with enormous profit margins than at Lenovo, rather thin profit margins. At Kantox we like to think of this in terms of a concept that we call FX sensitivity. So, for example, a business will be more sensitive to the currencies if it has lots of operations in foreign currencies and thin profit margins.
00;22;52;29 - 00;23;17;26
Unknown
Discuss that a little bit more, if you will. Well, absolutely. You know, hedging and people's approach to FX management and hedging does depend an awful lot on how much money they're making and how healthy the business is. So if I go back to when I joined IBM, I joined IBM in the 1980s when the main business was selling mainframes, the gross profit margins on mainframes was 70%.
00;23;18;02 - 00;23;38;28
Unknown
In other words, the cost was 30%. So if we sold a computer for $1,000,000, it cost us $300,000 to make it. Now, usually the factory wasn't in the same country as the place we were selling it to, we were selling it in local currency. So there was a big housing mismatch. But who cares if you get a 10% devaluation on time but on 30% of your cost?
00;23;38;28 - 00;23;59;11
Unknown
Yes, it's inconvenient, but it's not going to threaten the business. When you move to Lenovo, and of course, you know, IBM sold the PC business because it struggled with the issue of managing low profit margin businesses, which is why it got out. Gross profit margin on a good day is 20% and it's often as low as 50 or 60.
00;23;59;12 - 00;24;31;13
Unknown
And a net profit margin is, I think we're pleased with managing to get it up towards 5% A 10% currency devaluation wipes you out. I'm sorry, your view on this tends to be somewhat less diminished. Right. Well, let's discuss a little bit. These. So, by the way, if I may, just one other thing, because the other thing that you then get into is once you're in a very low profit margin business, you end up with a real problem, which is how do you do your hedging?
00;24;31;13 - 00;24;55;04
Unknown
Because if you want to do the hedging using options, that's great. But the options still generally will leave you with a fairly substantial margin that you have to absorb, which you can't afford. Now if you use, so you tend to use forwards, but if you use it for going out too long, you can lock in an exchange rate which can turn out to be very unfavorable and in a highly competitive market that can kill you.
00;24;55;06 - 00;25;20;18
Unknown
So again, this you know, this feeds in not only to the need to hedge, but it also ends up dictating how you do your hedging. Right. You mentioned the problem of the currency mismatch and so let's discuss that a little bit. So there's financial crisis. We all know some of them start with maybe a maturity mismatch.
00;25;20;18 - 00;25;50;19
Unknown
So, for example, the Lehman Brothers case, banks borrowing short term and lending out that very long maturities. There's also, of course, the currency mismatch, namely, you borrow in U.S. dollars and you buy assets, productive assets that throw cash flows in a domestic currency, and that gives rise to, of course, that type of currency risk. Tell us about some memorable episodes of in your career.
00;25;50;26 - 00;26;17;27
Unknown
And I'm but maybe even more important, have the lessons been learned? Do you think? All right. Let me start with the last one, which is anybody that thinks humans learn lessons from history clearly has never studied history. So the quick answer to that question is no. No way. No. What happened, by the way, when the Asian currency crisis happened, I was actually on holiday in Indonesia.
00;26;17;27 - 00;26;36;25
Unknown
And of course, Indonesia is one of the countries where it first came out. So we've flown out and after two weeks we were flying back and I was in Denpasar airport in Bali and I went to buy some chocolate and they were asking me the price was quoted in dollars and they were converting it into rupiah at 18,000.
00;26;36;28 - 00;27;21;03
Unknown
Two weeks ago when I left it was 1,500. What? No way. That was the beginning of the crisis. That was a crisis but what was happening is that interestingly and this was in IBM at the time, we invoiced usually in local currency, Indonesia was one of the few countries where we invoiced in dollars. And the general view is no currency problem because it's only dollars. When of course you sell through distributors because it's mostly a PC business in Indonesia, the distributors had sold Indonesian rupiah, so they needed to pay US dollars. But they'd collected rupiah from the customers and they came to us and said, we'd love to pay you, but we can't.
00;27;21;03 - 00;27;42;06
Unknown
We just can't buy the dollars. The very definition of the currency mismatch. So a massive currency mismatch. So but the real lesson in there. So the only country where we actually took a loss, and this was 1998, was the country where we were billing in dollars. All the other countries. That's a great, great story there and great lesson.
00;27;42;08 - 00;28;05;08
Unknown
So Thailand, we were selling in Thai baht. We managed the currency exposure. We had hedged it. Right. And the credit risk as well. Right. It diminishes if you sell in local currencies. Well, all that happens is that if you sell in your own currency, the currency risk is simply transformed into a credit risk. Into credit risk absolutely. And by the way, that is one of the key.
00;28;05;08 - 00;28;24;20
Unknown
And if I may just go a bit further, because one of the big challenges when you come into really managing currency exposure is hidden currency exposures. One of the biggest challenges and I'd like to say, I got on top of it, but I never really did, is what are the currency exposures that procurements are hiding?
00;28;24;22 - 00;28;43;22
Unknown
I mean, so then hiding is an emotional term. Procurement thing they're doing a good job by negotiating a price in a given currency. Now that supplier has costs in other currencies so that either billing and hedging or whatever. And the when there's a big currency mismatch, they have to come back and say, sorry, we got to change the price.
00;28;43;25 - 00;29;17;21
Unknown
So again, you've got currency exposures which are disguised because they being closed in agreements which are in different rates. So bottom line on all of this is, yes, there's the obvious currency exposure, but it's very important to dig underneath and to understand what is really going on. And again, when you agree with a supplier or a customer that they're going to pay you in a currency which is not their own, you are really delegating the currency management to them.
00;29;17;24 - 00;29;49;06
Unknown
And you might want to think twice about that. Absolutely. Yes. Damian, let's discuss a little bit here your work at Complex Countries Global Treasury intelligence. Tell us before we go into some of the details there or some of the sessions that you moderate. Tell us a little bit more about about this initiative. Well, actually, this happened because I have an old friend called Rupert Keenlyside who established a company, a newsletter called GT News.
00;29;49;06 - 00;30;20;26
Unknown
You may be familiar with it, which was the first electronic newsletter for treasurers. He sold that and then he sort of set up some, a peer group. And so he asked me if I'd like to join. So I, it's his company and he owns it and I’m a part shareholderthe, but I'm chairman of the advisory board. What we do is that generally once a week, except during school holidays or other periods, we get a group of 8 to 12 treasurers together on the phone.
00;30;21;01 - 00;30;43;03
Unknown
We discuss topics of general interest and it can be just about anything Complex Countries, as the name applies, we tend to focus on places like China, Argentina, Brazil and so on. But we go beyond that. We get into topic, which we've been discussing a lot is banking relations. We like to talk about technology. Again, that's an area which is very interesting.
00;30;43;03 - 00;31;07;13
Unknown
So we spend some time going through APIs. The conclusion on that, by the way, is that you've got some companies that are very new and very enthusiastic adopters. Others who've got traditional treasury systems who simply view an API as a way of replacing the 8940, which is fine, understand? But at the end of the day, the API can do a lot more than that.
00;31;07;16 - 00;31;39;19
Unknown
Right, now in one of the discussions that you recently moderated this. The topic was was geopolitical risk or political risk and you mentioned potential implications in terms of cash repatriation, changing the business model, changing the funding structure and of course managing the related accounting exposure. Discuss that a little bit in more detail with us as well.
00;31;39;21 - 00;32;14;29
Unknown
And if you like, again, I was very lucky in Lenovo that we managed to set things up with a clean piece of paper. So I was able to put in place a structure which I thought was clean. The issue that you find for companies that have been dealing in these countries for a very long time is that they have structures, which it's not easy to change. Now if you, but if you sit and look at it, for example, Argentina recently had to devalued from $420 to the dollar to $840-850, you know, a massive devaluation.
00;32;15;01 - 00;32;36;04
Unknown
Now, for a long time there'd been a parallel market which was actually showing something like this kind of thing. But there's a huge reluctance to say, you know, people we spend a lot of time discussing, well, can I get the money out? Can I hedge? and the answer is, well, maybe, but I don't want to take the haircut. Because I don't,
00;32;36;06 - 00;33;01;06
Unknown
doing it would involve transacting at six when the peso was at $400. It would have involved transacting in $600 or $700. And I don't want to incur the loss. Well, guess what? You wait till the devaluation and then you get the devaluation to $800. So it's an extremely difficult discussion because you, as the Treasurer, have to go and convince your CFO.
00;33;01;09 - 00;33;29;11
Unknown
You can take a year, you can take a 60% hit now or you can wait and take 100% hit. Is not an easy discussion and you understand why the CFOs, they're always looking at quarterly earnings and so on, and they're not anxious to do this. Similarly, you end up in this situation where there's awful great opportunities in these markets and the business people, again
00;33;29;11 - 00;33;46;11
Unknown
and let's come back to what I said at the beginning, unless you spend the time educating them, they're going to say, hey, there's a massive market that we can sell all this stuff. And the answer is yes, but I can't get paid for it. Or I can get paid for it in Argentine pesos, or I can get paid for it in Nigerian
00;33;46;11 - 00;34;17;07
Unknown
naira. Now, if you wan't, I'll pay your salary in naira in Lagos. Please send me a postcard of this. So somehow, somehow they're not very interested in that. But now about a year and a half ago, all the talk was about poly crises, mega threats and predictable unpredictability. So it would seem that pundits were competing for the bleakest headline, and we just took the position automate, keep calm and automate.
00;34;17;07 - 00;34;46;28
Unknown
And it was I think, the right decision. Now, Damian, we've been through a lot of different subjects. We discussed currency risk in volatile times, we discussed the structure of the Treasury operations in Asia during your experience there at Lenovo and IBM, and bank relations and all of that. Is there something that you would like to add?
00;34;47;00 - 00;35;19;12
Unknown
No, I think you've summarised it very well. And I think if I can just take what you said and build on it, it's don't wait for the crisis. Make sure that you have looked at redundancy. As I said it earlier on, everything, not just banks, not just counterparty risk, try to make sure that you don't have any exposure that would wipe you out. In other words, make sure that you can afford, bad
00;35;19;12 - 00;35;39;17
Unknown
things happen. Trying to make sure that your business is not dependent on any one thing so that you make sure that you thought these things through, that you've been through thinking, Well, how do I do this? How do I manage in this situation and act on it before the crisis comes? Because when the crisis comes, it's too late.
00;35;39;19 - 00;35;57;25
Unknown
I think we're saying the same thing. Absolutely. All right. Damian Glendinning, former Treasury Manager at IBM and Lenovo in the Asia-Pacific region. Thanks a lot for joining us today on CurrencyCast. And I'm sure we'll see you next time. Thank you.
