Luxembourg for Finance, June 2013

Replicating a success story

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“Using Luxembourg’s operational excellence to develop treasury management in the Grand Duchy”: With this argument in their briefcases Ernst &Young and ATEL, the Luxembourg Association of Corporate Treasurers, travelled to New York to promote Luxembourg’s assets in that field.

Brice Lecoustey is Partner at EY Luxembourg and François Masquelier President of ATEL, the Luxembourg Association of Corporate Treasurers. ATEL, with 250 members, is a non-profit organisation representing the so-called real economy but also has members from the financial industry. In New York, both gentlemen met representatives from 50 large US corporations to discuss treasury issues. Half of them already have a presence in Luxembourg, and are thinking about expanding their business in the Grand Duchy. Today the goal of most treasury management departments is to optimise their company’s liquidity, make sound financial investments for the future and enter into hedges against its financial risks. It is a fact that issues around treasury have become increasingly complex, as François Masquelier, head of ATEL explains. “International companies have to repatriate funds and cash pool funds, but it is more complex than just cash management. Treasury is more in the spotlight now because of the financial crisis; we have a liquidity issue and a counterparty issue too. The risks nowadays are different; there is a high volatility in the markets and low interest rates, the latter of which is a concern when you want to invest money. Funding is also an issue because of Basel 3 and other regulations”.

Treasury management is at the heart of the financial operations side of running a business, and thus a strategic function within any large corporation. It is where all the cash from the different subsidiaries is being pooled, where an optimisation from borrowing and lending positions is operated, and where complex hedging and additional techniques are used. Additionally, it utilises what is called a payment factory, which implements the central payment system for the entire group. Brice Lecoustey of EY draws parallels with the fund industry where Luxembourg has become the main back office centre in the world for UCITS funds and others. “This is a kind of replication of the same concept. There are a number of international companies doing this treasury back office activity in Luxembourg. We should be promoting this activity more because there is already an attractive and stable legal, regulatory and fiscal framework in Luxembourg. The key driver for international companies though, is Luxembourg’s operational excellence, where we have developed strong skills in finance, accounting, and also in back office and middle office activities for the last four decades. There is a way of capitalising on that operational excellence in the field of treasury management in order to attract more corporations and their headquarters. So not only is our stable framework key, but our workforce and the long-standing experience that has been developed over the last decades also stand out above all”.

“You can do a lot from Luxembourg”, François Masquelier underlines, and “you can centralise the guarantee, funding, cash management, and the payments. For the US corporations we met in New York it is also important to know that other large players are present too because they need some benchmarks”.

For a global CFO, it is central to work in a stable environment, which gives you the predictability needed to understand your 10-year cash flow. When you know that things will change every five years, you feel insecure moving your operations to another country.

“Another aspect that is of interest to US and other clients: the international environment in Luxembourg – everybody speaks English. Try that somewhere else”, Brice Lecoustey smiles.

Both promoters of treasury add that Luxembourg also has a strong banking industry, solid IT infrastructure and an appealing quality of life. “When we promote Luxembourg and its diverse assets, we also share the same passion for our country because it truly is a great place to live”, both said with one voice. US citizens appreciate that Luxembourg is a safe and clean place and the fact that they can send their kids to the International School.

All in all, Luxembourg possesses many trump cards to attract multinational corporations willing to move their treasury hub to the Grand Duchy. One aspect that is slightly worrying though, is that it is not easy to recruit the right profiles. On the other hand, it is much easier to retain these people once recruited, because over time they become aware of and come to appreciate the exciting environment they work in.