In the rapidly evolving financial landscape, businesses are seeking innovative solutions to streamline operations, optimise cash flows, and mitigate risks. Jeremy Hamon sheds light on the transformative power of in-house banking
In the world of finance, the winds of change are blowing.
As businesses grapple with the complexities of a globalised economy, the need for centralised, efficient, and transparent financial systems has never been greater.
Primetals Technologies, a leader in its industry, recently embarked on a journey to centralise its treasury management system. The results? A game-changer, according to Jeremy Hamon, the company’s Financial Subsidiaries CFO.
Primetals is an engineering and plant construction company headquartered in London. The company was founded in 2015 as a joint venture between Siemens VAI Metals Technologies and Mitsubishi-Hitachi Metals Machinery and employs over 7000 people worldwide.
Hamon was appointed Head of the group’s treasury operations at the time of founding, taking up a broader CFO role for the organisation’s financial subsidiaries arm in December 2020.
In an interview with The CFO, Hamon explains a shift from custom-built tools and a centralised in-house bank to a more streamlined treasury management system was driven by a desire for efficiency.
The company sought a solution that would optimise group-wide cash management, intercompany clearing, and FX trading. The answer lay in Coupa Treasury, which, in a record six weeks, transformed Primetals’ financial operations.
“Our non-trapped cash on a group level is concentrated at 99% on one bank account without inadequate local balances or even central balances spread in different currencies where keeping non-operational balances would be highly inefficient,” he explains.
Hamon is a staunch advocate for centralised trading, emphasising the importance of scale effects in banking. “There cannot be an optimized financial risk management structure without a great cash management setup,” he asserts.
The benefits of in-house banking, according to Hamon, are manifold: transparency across affiliates, a unified system for managing internal stakeholders, and a scale effect with banking partners.
The new system allows Primetals’ finance team direct unlimited access to all the available cash in the company to perform investments or manage external debts.
“When reaching this centralised structure, we managed to close over 100 bank accounts with the in-house bank and replaced them with internal accounts, meaning a large share of banking administration has gone to allow our teams to focus on more qualitative tasks,” he says.
In today’s unpredictable economic climate, having a bird’s-eye view of one’s financial position is invaluable.
The adoption of in-house banking has also significantly improved Primetals’ visibility into financial data, facilitating more informed decision-making, especially during market volatility.
Hamon highlights the efficiency of the new system, noting that “in a couple of clicks” he has “full transparency” on Primetals’ bank account positions, derivative valuations, and more.
“This enables us to foresee potential issues, especially in a globalised world which is nowadays impacted by geopolitical tensions,” he says.
Hamon notes that over a decade ago, it would have taken weeks for most corporates to identify their exposure to Lehman Brothers after their bankruptcy.
Primetals’ new system enables the finance team to change on-the-fly transactions so they can rapidly move away from a specific counterpart, should the need arise.
“As soon as public information comes out showing clear worries about a financial partner, we are able in minutes to draw our complete exposure,” he says.
Transitioning from a traditional banking model to an in-house structure is not without its challenges.
Hamon urges any corporate considering the shift to evaluate opportunity costs in being fully dependent on a banking partner or granting a monopoly to a banking partner on a specific corporate banking product.
“This could be through multicurrency notional pooling with a bank single-handedly pricing your currency derivatives or simply through cash pooling across several currencies, bank guarantees or actually pretty much
“As soon as a group has an international footprint, the benefits of the in-house bank can be striking,” he notes. The key lies in avoiding dependency and the opportunity costs derived from it.
In-house banking often involves working closely with treasury and financial departments and Primetals’ integrated approach has helped to influence collaboration and efficiency within its two teams.
There are two types of stakeholders in this case. Entities participating in the in-house bank and the finance team powering centrally the in-house bank.
Hamon notes that for the former, the implementation of the new system has resembled switching banking partners.
“The entity implements a payment format (when not using the central ERP) and enables its internal accounts to perform payment runs as well as to upload internal statements sent from the system for clearing purposes,” he explains.
For the finance team, the implementation of the new system allows them to create internal statements adjusted to specific rules. As a result, the central team can use a lot more automatic clearing rules, Hamon says.
“This is extremely supportive as operationally the accounting team then focus on exception management over booking journals for each transaction.”
And there are benefits for working capital management – and financial performance more broadly – too. Hamon says the introduction of nostro bank accounts for the in-house bank in multiple currency markets has improved the businesses’ access to clearing.
This has widened the time within which customers can make their foreign currency payments, allowing Primetals to optimise its interest gains. “This represents a seven-figure positive improvement per year,” Hamon says, excluding additional benefits such as access to local ACH banking fees.
For a global business like Primetals, in-house banking offers a distinct competitive advantage.
The businesses’ treasury function is no longer seen as a support function and instead is viewed as a profit centre within the wider group.
The new system has also allowed Primetals to offer more competitive pricing in its customer contracts due to its scaling FX trading.
“All our steel engineering projects would bear foreign currency risk ultimately as the business is international in nature,” Hamon explains.
“Our exposure to foreign currency risk is so substantial that the benefit of the in-house bank in scaling trading via a centralised entity in a competitive manner would make our ROI positive in the first year of implementation of the Treasury Management System and the In-House Bank.”
Reflecting on his journey, Hamon offers sage advice for CFOs considering a similar transformation.
“I would definitely recommend opting for a user-friendly tool,” he says. He notes most TMS’ options in the market struggle to meet a business’s cash management, financial market and trade finance needs in a single tool.
“I do hope to see some development [in this space] so all our financial requirements could be met by a TMS which would limit our core infrastructure to an ERP+TMS acting as central pivots in the financial ecosystem of our corporate,” he says.
Regarding ROI, Hamon says CFOs should not focus on the cost of the tool but instead forecast the savings made should a shift to a new platform or in-house banking provider take place. “Too many times I hear my peers say budget is a problem,” he says.