*Cashing in on coordination
n
product news
It's easy to label oneself a 'global player' - quite another to lend substance to
that claim. One area in which this has shown itself to be painfully true is cash
and securities management. Now, we are taking the first real steps to truly
coordinate our activities in this technical but quite crucial aspect of our ongoing
operations. A new cash clearing initiative was kicked off this year for
US dollars, with our New York office acting as the pilot for a project that will
soon expand, both in scale and scope, and is expected to generate substantial
^ost savings and mitigate risks.
orking review
Dollar balance
Greater volume
Rapid consolidation
Around the doek
Far-reaching scheme
What's NewS Issue 9 October/November 1999
The bank borrows and lends cash
and/or securities on the interbank
ntarket to clear our internal and external
positions at the end of each day, using
banks that specialize in brokering this
service in all major currency markets.
However, the process has been quite frag-
mented within Rabobank to date, with
different branches of the bank using quite
different counterparties in the same cur
rency. Thus, says Michael Zultowski,
'instead of netting positions at the end of
the day, we are forced either to borrow
overnight funds with some counterparties
or to leave assets on interest free or
low-interest deposit deposit with others.'
As a result, the fragmentation and lack of
centralized oversight proved costly, and
also entailed a certain vulnerability to
oversights and mistakes in this complex
and interconnected set of relationships. It
was these and other factors that led to the
creation of a special Review Committee,
spearheaded by Alain Younes, and
involving Marcel Gerritsen and Michel
Zultowski of Rl as well as many other
colleagues with specialized expertise
within RI, and representatives of the Pay-
ments Division of Rabobank Nederland.
The initial outcome was a decision to
handle the US dollar cash clearing require-
kinents of our four major branches with a
Pingle counterparty. After a rigorous
bidding process, the Bank of New York
(BoNY) was selected out of an original
short list of candidates. New York will
Cash managers - Zultowski (left) and Gerritsen
coordinate the relationship with BoNY as
a regional centre of competence operating
under global oversight and control; at the
same time, Gerritsen is keen to stress that
'each branch will stil! be responsible for
managing their US dollar requirements,
according to their business needs, but
control over the end-of-day process is to
be handled out of New York, which will
ensure the end-of-day balances are prop-
erly funded. This way we can make best
use of the knowledge developed from
experience within the main dollar zone.'
The advantage of this arrangement is that
it enables us to concentrate our volume in
order to attain economies of scale and ne-
gotiate more advantageous terms for this
crucial service - estimates of the net cost
savings as a result of rationalizing the
dollar accounts range from USD 7-11 rnil-
lion on an annual basis compared with
the 1998 costs - and also to improve over
sight and reduce risks.
Under a staggered implementation
Schedule, the New York pilot is expected
to be followed by London this month.
Utrecht next month, and Singapore hope-
fully soon afterwards, so that the overall
US dollar position for cash for these four
leading branches is Consolidated under the
new process as quickly as possible. (In
deed, the fact that RI and RN operate as a
single entity from a legal - never mind
strategie - standpoint explains the early
involvement of RN's Payments Division
managers in an effort to engineer an effi
ciënt solution.)
Dollars are only one of several major
currencies in which we deal: Yen, Sterling
and Euro are next on the list. Again, says
Zultowski, 'the ambition is to become
genuinely global for all currencies and
time zones. We will regionalize the process
and the relationship with our correspon
dent banks, while globalizing the manage
ment and standardizing the overall
process. Thus, we will present a single ne-
gotiating face to the market. At the same
time, we intend to erect a structure that
will make it possible for unfinished busi
ness in one trading/time zone to be picked
up by professionals operating in the next.
Thus, we would be operational in cash
clearing virtually around the clock.'
Rabobank branches deal not only in cur
rencies but in collateral in the form of
securities as well; eg. New York branch
needs settlement services not only for
currency but US government securities as
well. What's more, the settlement of such
securities is inextricably entwined with
our positions in cash, and should ideally
be coordinated with it. Thus, the modest
New York pilot represents the first step in
a far-reaching scheme to rationalize the
management of our daily settlements, and
to put real substance behind the claim of
acting regionally while thinking globally.
