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Treasury Strategies’ Quarterly Corporate Cash Briefing™ for 1Q 2015

April 9, 2015

Presented by: Monie Lindsey, Managing Director Tony Carfang, Partner

Agenda

Corporate Cash Levels Basel III Game Changers Roundtable:

•  Association of Corporate Treasurers (ACT) •  Citi •  Federated Investors •  Fitch Ratings

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Corporate Cash Levels

Corporate Cash Levels

Source: Federal Reserve, Treasury Strategies

UK corporate cash as of December 31, 2014

£0.57T

4

¥243T €2.03T

$1.99T

Source: Office of National Statistics, Treasury Strategies

0.90 1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70 1.80 1.90 2.00 2.10

0.90 1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70 1.80 1.90 2.00

0.15

0.25

0.35

0.45

0.55

0.65

Source: European Central Bank, Treasury Strategies Source: Bank of Japan, Treasury Strategies

US corporate cash as of December 31, 2014

Eurozone corporate cash as of March 31, 2014

1.75

1.85

1.95

2.05

2.15

2.25

2.35

2.45

Japanese corporate cash as of December 31, 2014

Country/Region December 2000 December 2014

United States 9% 11%

Eurozone 14% 21%

United Kingdom 25% 32%

Japan 37% 50%

Source: Treasury Strategies’ estimate

Corporate Cash as % GDP by Region

5

Reserve Balances

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Source: Federal Reserve H3 Report, Treasury Strategies

Source: European Central Bank, Treasury Strategies

-

500

1,000

1,500

2,000

2,500

3,000

Ban

k R

eser

ve B

alan

ces

at th

e Fe

d

Bank Reserve Balances at the US Federal Reserve

0

50

100

150

200

250

Ban

k R

eser

ve B

alan

ces

at th

e B

OE

Bank Reserve Balances at the BOE

0 100 200 300 400 500 600 700 800 900

1000

Ban

k R

eser

ve B

alan

ces

at th

e EC

B

Bank Reserve Balances at the ECB

0

100

200

300

400

500

600

Ban

k R

eser

ve B

alan

ces

at th

e SN

B (C

HF

B)

Bank Reserve Balances at the Swiss National Bank

Source: Swiss National Bank, Treasury Strategies

Source: Bank of England, Treasury Strategies

Central Bank Reserves to Total Assets

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0 0.5

1 1.5

2 2.5

3 3.5

4 4.5

5

Total US Fed Assets ($T) US Fed Reserves ($T)

US Federal Reserve

Bank of England Bank of Japan

European Central Bank

0

50

100

150

200

250

300

350

Bank of Japan Total Assets (¥T) Bank of Japan Reserves (¥T)

0

0.5

1

1.5

2

2.5

3

3.5

ECB Total Assets (€T) ECB Reserves (€T)

0 0.05

0.1 0.15

0.2 0.25

0.3 0.35 0.4

0.45 0.5

Bank of England Total Assets (£T) Bank of England Reserves (£T)

Central Bank Assets as % GDP by Region

8

0% 5%

10% 15% 20% 25% 30% 35% 40%

Ass

ets

(€T)

ECB - Total Assets as % of GDP December 2000-December 2014

% Assets to GDP

0%

10%

20%

30%

40%

50% A

sset

s (¥

T)

BOJ - Total Assets as % of GDP December 2000-December 2013

% Assets to GDP Source: Bank of Japan, St. Louis Federal Reserve

0% 5%

10% 15% 20% 25% 30% 35% 40%

% A

sset

s to

GD

P ($

T)

US Federal Reserve Total Assets as % of GDP

December 2003-December 2014

% Assets to GDP

Source: U.S. Bureau of Economic Analysis, St. Louis Federal Reserve Source: European Central Bank, St. Louis Federal Reserve

0% 5%

10% 15% 20% 25% 30% 35% 40%

Ass

ets

(£T)

BOE - Total Assets as % of GDP December 2007-December 2014

% Assets to GDP Source: UK Office of National Statistics, Bank of England

Basel III

Basel III’s Liquidity Coverage Ratio

Two quarters ago, we discussed the LCR plank of Basel III and the impact to corporates. The following are key points from that discussion. •  This could be the single most impactful regulation for corporate treasurers in the post-

crisis era. -  To ensure sufficient funding to withstand a crisis, Basel III requires banks to reclassify

corporate deposits into “operational deposits” and “non-operational deposits.” -  Not all banks and not all bank customers will be impacted in the same way.

•  LCR significantly alters the economics of a banking relationship both from your perspective and your bank’s perspective.

•  The attractiveness of your deposits will depend on: -  The volatility of your cash flow -  Your ability to accurately forecast your cash flow -  The mix and amount of services you buy from your bank -  The nature of the business activity which underpins your transactions (e.g., commercial

transactions vs. financial transactions) -  Legal arrangements surrounding your accounts

•  It is likely that at some point, you will need to redesign your operational banking structure

or reallocate your deposits.

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Basel III Strategies

There are four critical questions banks are asking themselves as they develop their Basel III products and client relationship strategies:

•  Do we have the right clients given the post-Basel III economics of our business?

•  What is the optimal mix of spread vs. fee revenue?

•  How do we protect or improve the value of clients we have (and want to keep)?

•  How can we attract the clients we don’t have?

As corporates, it is important to understand your banks’ answers to these questions to determine the impact to your banking relationships and the degree to which you will need to redesign your operational banking structure or reallocate your deposits.

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Game Changers

Potential Game Changers

Operationalizing Ring-fencing

EU MMF Regulations/ MMF Variations and

Alternatives

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Taxing Excess Corporate Cash

Banks Trimming Deposits and Lines of

Business

Diverging Central Bank Policies and Exchange

Rate Volatility

Speakers

Tony Carfang Partner 312.628.6921 Tony_Carfang@TreasuryStrategies.com Monie Lindsey Managing Director +44 (0) 207 872 5551 Monie_Lindsey@TreasuryStrategies.com Peter Matza Engagement Director +44 (0)20 7847 2580 pmatza@treasurers.org

Susan Hill Senior Portfolio Manager shill@federatedinv.com 412.288.1900

Alastair Sewell Senior Director EMEA/APAC +44 203 230 1147 Alastair.sewell@fitchratings.com

Michael Berkowitz Managing Director 212.816.0981 michael.n.berkowitz@citi.com

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Who We Are Treasury Strategies, Inc. is the leading treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions.

What We Do Corporations We help you maximize worldwide treasury performance and navigate regulatory and payment system changes through a focus on best practices, technology, liquidity and controls.

Treasury Technology We provide guidance through every step of the technology process. Our expert approach will uncover opportunities to optimize the value of your treasury through fully integrated technology solutions.

Financial Services Our experience, analytic approach and benchmarks provide unique consulting solutions to help you strengthen and grow your business.

www.TreasuryStrategies.com/ content/networking-communities

@TreasuryStrat

Accreditations

Connect with Us

Locations Chicago • London • New York

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About Treasury Strategies, Inc.

About the ACT

Who we are The Association of Corporate Treasurers (ACT) sets the benchmark for international treasury excellence. As the Chartered body for treasury, we lead the profession through our internationally recognised suite of treasury qualifications, define standards and support continuing professional development. We are the voice of corporate treasury representing the interests of our members.

twitter.com/actupdate

youtube.com/treasurersorg

facebook.com/actupdate

www.treasurers.org/linkedin

www.treasurers.org

What we do ACT supports the growth and professional development of treasurers and finance professionals. We are an active global network of treasury, risk and finance professionals with members and students in 98 countries.

•  We promote treasury as a discipline, as a profession and as a career.

•  We provide informed and unbiased technical advice.

•  We teach, examine and qualify treasury professionals and offer ongoing CPD.

•  We stimulate debate and facilitate the exchange of ideas and information through our events, conferences, webinars and forums.

•  We represent the real economy and influence relevant regulation and market practice.

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About Citi

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About Citi: Citi, the leading global bank, has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services, and wealth management. Additional information may be found at: www.citigroup.com or http://blog.citigroup.com/ @Citi

www.youtube.com/cit

www.linkedin.com/company/citi

www.facebook.com/citi

75.0%

9.2%

15.8%*

Firm-Wide

Liquidity Management Equity Fixed Income

History of Quality and Innovation •  Founded and headquartered in Pittsburgh, PA, 1955 •  Offices in New York, Rochester, Boston, Dublin,

Frankfurt, London and Melbourne •  1,400+ employees worldwide, including 223 investment

professionals and 84 Chartered Financial Analysts •  Pioneer of money market and fixed income funds

Publicly Traded

•  NYSE listed: FII •  Employees share in approximately 20% of firm’s

ownership

Investment Management Singular Focus •  Committed to delivering long-term outperformance •  Strategies utilize risk management process and maintain

style consistency

Well-Resourced Investment Teams •  Experienced specialized teams committed to delivering

long-term outperformance •  Deep historical commitment to proprietary research •  Majority of investment professionals’ compensation

directly tied to performance

About Federated Investors, Inc.

$ 3 7 9 . 8 B I L L I O N I N A U M F I R M P R O F I L E

46.9%

30.4%

22.7%

4Q Revenue by Source

Liquidity Management Equity Fixed Income

Asset breakdown as of 12/31/12

*Liquidation portfolios comprise of 12.2% of firm-wide fixed income total.

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About Fitch Ratings

Fitch Ratings is a leading provider of credit ratings, commentary, and research. Dedicated to providing value beyond the rating through independent and prospective credit opinions, Fitch Ratings offers global perspectives shaped by the strong local market experience and credit market expertise. The additional context, perspective and insights we provide help investors to make important credit judgments with confidence. Fitch Group is a global leader in financial information services with operations in more than 30 countries. In addition to Fitch Ratings, the group includes Fitch Solutions, an industry-leading provider of credit risk products and services, and Fitch Learning, a preeminent training and professional development firm. Fitch Group is jointly owned by Paris-based Fimalac, S.A. and New York-based Hearst Corporation. For additional information, please visit www.fitchratings.com.

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