CFO virtual round table: Bill Plummer
Corporate treasurers give The Banker their views on banking services.
Bill Plummer: corporate treasurerAlcoa, US
The questions
1. World economic growth remains slow. Has your company taken particular financial measures as a precaution against a prolonged downturn? What are they?
2. Most corporates finance themselves with a combination of loans, bonds and commercial paper. How do you decide on the mix that’s right for your company?
3. Many banks use credit derivatives to transfer their lending risk. How do you feel about banks doing this with your loans?
4. Corporate treasurers are being encouraged to place spare cash in money market funds rather than bank deposits. What is your view of this trend?
5. Has the overall service you get from banks improved, got worse or stayed the same over the past 12 months? What kind of further service improvements would you like to see?
1. We have focused on de-levering our balance sheet to gain greater financial flexibility. By emphasising our efforts to reduce costs, improve working capital, closely manage capital expenditures and divest non-core assets, we are trying to drive debt back down to the levels we have maintained historically.
2. The mix is achieved by the approach we take toward managing the debt portfolio. We target a profile of annual maturities that we believe represents prudent refinancing risk in any given year. Then we select the debt instrument that gives us the lowest cost financing for a given maturity. As a practical matter, that usually means public bonds issued in the US market for maturities greater than one year, and US commercial paper within one year.
3. In general we do not have a problem with it. In fact, if a bank uses derivatives to reduce their Alcoa exposure so that it can then extend additional credit directly to us, such use is a clear positive.
4. We use both but there are good reasons to make greater use of funds. Often we can earn a higher return in a fund with a more diversified credit risk exposure and daily liquidity. Bank deposits are not as flexible and require more effort to manage properly.
5. The net change has been positive, although not without deterioration in some areas. Given today’s challenging global banking environment, many of our banks have increased their calling efforts as they search for more business. As a result, we have seen more new, higher-quality ideas and bankers are more responsive to our requests. On the down side, banks have become more reluctant to offer products that require a commitment of capital and we spend a lot more time talking about how a bank might generate a return on that capital. On balance, however, the improved flow of ideas more than makes up for the greater number of meetings.
