Corporates are grappling with counterparty concentration risk

A year out from the spectacular failure of Silicon Valley Bank, turmoil in the banking sector still plagues corporations in the Americas and EMEA, according to ICD’s annual client survey.

Four in every five respondents (80%) said they are highly or moderately concerned with bank failures, while 74% are concerned with counterparty concentration risk. Of the 61% who say they have changed the way they have managed counterparty risk since March 2023, 37% have changed their way or frequency of monitoring risk, and 21% have updated investment policy restrictions. Other responses saw 18% change their investment strategy, and 17% add or remove investment products to their available mix.

“The banking turmoil of last March has had a lasting effect on corporates, who remain concerned about the banking sector,” said Tory Hazard, CEO, ICD. 

According to ICD’s client survey, only 30% of respondents in the Americas say they are investing in or planning to invest in demand/bank deposits, down from 49% in 2023. Meanwhile, 90% of all respondents say they are increasing or maintaining investments in money market funds.

Concerns about bank turmoil are not unfounded as New York Community Bank (NYCB) reported a fourth-quarter loss of US$260m in late January. According to Tony Carfang, Managing Director of the Carfang Group, 1,467 of the 4,587 US banks would fail a stress test that defines stress as a 25% loss of a bank’s capital and assumes a severe adverse scenario of a 10% loss in their commercial real estate portfolio and 5% loss on their held-to-maturity securities.

“We’ve worked with our clients over the past year to introduce an automated solution to the arduous, manual process of collecting, aggregating and monitoring positions from bank deposits, direct investments and underlying holdings from fund and separately managed accounts,” added Hazard. “Our cloud solution for portfolio analytics leverages AI to create a single data set of our clients’ entire investment portfolio so they can effectively manage counterparty risk.”

 

Employee compensation to outpace inflation in 2024

Employee compensation is one of the top areas in which CFOs plan to increase budgets, according to a survey by Gartner, Inc. Some 71% of CFOs plan to increase average enterprise-wide employee compensation in 2024 faster than inflation. Employee compensation is second only to technology, with 82% of CFOs planning an increase in 2024.

Although there’s been a shift toward smaller pay increases compared to 2021-2023 when inflation was running near 8%, the majority (71%) of CFOs plan to increase average pay by at least 4%, above the current inflation rate in most major markets. The proportion of CFOs planning to increase average employee compensation by 10% or more fell by 3 percentage points year-over-year. Most CFOs (58%) are planning 4% to 9% increases, a notable drop from the 70% who had planned to do the same last year.

In the finance function, CFOs will also need to meet rising pay expectations, with finance employees surveyed in the fourth quarter of 2023 expecting 7% growth in base pay.

“Finance employees entered 2024 confident in the labour market, and this manifests in high compensation expectations, high job-seeking behaviour, and lower intent to stay in their current role,” said Alexander Bant, chief of research in the Gartner Finance practice. “CFOs know they can’t pay their way to retention forever and meet rising pressure on cost and profitability. Compensation is the top factor driving retention, but there are other levers that CFOs must pull to hold on to staff.”

Gartner experts have identified four talent retention drivers beyond pay that CFOs should invest in to improve retention in their function - work-life balance, location, health benefits and vacation. These give CFOs additional levers beyond relying only on base pay increases.

After compensation, finance employees’ second and third top attraction drivers are work-life balance and location. Although multiple factors influence these drivers, employees’ work patterns play a significant part.

Many organisations are increasing their expectations around employees’ days in the office. This certainly has the potential to disrupt work patterns that finance employees are currently largely satisfied with. Gartner research found that implementing onsite mandates reduced intent to stay by 8% for the average knowledge worker and 16% for high-performing employees.

“Finance leadership should be clear that enforcing return-to-office mandates comes with attrition risk and should be weighed against the potential benefits,” added Bant. “Especially so in the current talent market where replacing those who choose to leave will not be easy or inexpensive.”

 

J.P. Morgan Payments launches system integrator programme

J.P. Morgan Payments has launched a System Integrator Program for companies specialising in payments consulting, implementation, and operations. Clients can build a comprehensive payments strategy using J.P. Morgan payments solutions and their partners to architect and execute using their expertise.

The programme is part of the J.P. Morgan Payments Partner Network and is designed to help meet client business needs for end-to-end payment experiences.

The first to join the program is global professional services company Accenture. Building on more than 25 years of collaboration, Accenture will work with J.P. Morgan Payments to evolve its product offerings by exploring new use cases and business models. The companies will also develop industry-specific solutions to reduce friction and time-to-market when deploying J.P. Morgan Payments products.

“This program is another critical element in how we are continuing to build a modern payments business,” said Takis Georgakopoulos, Global Head of Payments at J.P. Morgan. “Organisations are demanding more deeply integrated and embedded solutions that go beyond traditional payments-related pain points. Working with key partners will help us accelerate the new product development and adoption process.”

 

Marco secures US$12m funding for LatAm SME trade finance

Marco, a trade finance platform catering to the needs of SME exporters in Latin America, has announced the successful closure of a US$12m Series A funding round. The round was led by IDC Ventures, with additional participation from IDB Lab (the innovation and venture laboratory of the Inter-American Development Bank Group), Barn Invest, SquareOne Capital, Arcadia Funds, Florida Funders, Miami Angels, Kayyak Ventures, and Neer Ventures, among others.

Founded in 2020 by entrepreneurs Jacob Shoihet and Peter D. Spradling, Marco has over 50 employees across its offices in Miami, New York City, and Montevideo, Uruguay. The company is committed to building the operating system for Latin American SME exporters engaged in cross-border trade, providing them with fast, easy access to financing and evolving to offer a suite of services designed to address the unique challenges SMEs face.

Marco says its innovative approach to trade finance addresses the US$350bn trade financing gap in Latin America. By leveraging advanced, proprietary risk models that process data in real-time, Marco dynamically mitigates capital loss, having already surpassed US$540m in cumulative volume funded since inception across more than 63,000 receivables against 1,700+ primarily investment-grade debtors.

“By centralising operations and democratising access to capital, Marco is not just facilitating business growth; it's profoundly impacting lives by catapulting an entire region and industry into the digital age,” commented Bobby Aitkenhead, Managing Director of IDC Ventures.

 

Wells Fargo tops the charts in Nacha’s ACH originators list

Nacha has released its top 50 ranking of financial institution originators and receivers of ACH payments for 2023. The top 50 originating institutions had total ACH Network volume of nearly 27.7 billion payments last year, an increase of 5.7% over 2022. They accounted for 93.1% of the ACH Network’s total commercial payments volume. Wells Fargo topped the list, followed by J.P. Morgan Chase and Bank of America (BofA).

For the top 50 receiving institutions of 2023, ACH Network volume totaled almost 20 billion payments, up 6.4% from 2022. They accounted for 63.3% of total ACH Network volume, which includes payments received from the federal government. In a reverse of the originator podium, BofA was the top ACH receiver by volume, followed by J.P. Morgan Chase and Wells Fargo.

Additionally, Nacha reported 6.1 billion “off-Network” ACH payments last year. These are primarily “on-us” ACH payments for which the originating and receiving financial institution are the same, and therefore not submitted to an ACH Operator. Including these off-Network payments, total ACH payment volume for 2023 was 37.5 billion, up 6.3% over 2022.

“From Direct Deposit, bill payments and account transfers to business-to-business payments and more, American consumer and businesses depend on the ACH Network and the financial institutions that send and receive payments on their behalf,” said Michael Herd, Nacha Executive Vice President, ACH Network Administration.

 

RMB remains fourth most active global payments currency

Swift’s RMB Tracker has shown that in February 2024, the RMB remained the fourth most active currency for global payments by value, with a share of 4%. Overall, RMB payment value decreased by 20.47% compared to January, while all payment currencies decreased by 10.37%. Regarding international payments, excluding payments within the Eurozone, the RMB ranked fifth with a share of 2.78% in February.

The tracker uses data from live and delivered MT 103 and MT 202 - customer-initiated and institutional payments - and ISO equivalent messages exchanged on Swift. RMB’s fourth place out of all international currencies in February saw it behind the US dollar (46.56% of all global payments value), the euro (23.25%), and the British pound (6.90%).

As a global currency in the trade finance market, based on live and delivered inter-group only MT 400 and MT 700 messages exchanged on SWIFT, RMB ranked third based on value, accounting for 3.82% of February’s trade finance transactions. This field remains dominated by the US dollar (85.13%), while RMB also trailed the euro (5.87%).

Regarding FX spot transactions, RMB was February’s sixth most used currency for FX confirmations, slipping below the Canadian dollar. The US dollar was the most used, followed by the euro, pound and yen. In terms of the top economies carrying out FX spot transactions in RMB, the UK came out on top in February (37.86%), followed by the US (14.40%), Hong Kong (11.53%), France (8.41%) and China (7.10%).

 

Centime partners with FNBO for business banking offering

Centime, a Boston-based fintech that offers cash management and banking solutions to small- to midsize-businesses (SMBs), has announced the launch of a banking product in partnership with FNBO (First National Bank of Omaha) aimed at helping businesses take control of their cash, protect their deposits, and maximise their return.

In the months following the collapse of Silicon Valley Bank and other banks, Centime surveyed CFOs to learn more about the challenges that SMBs face when it comes to managing their cash and protecting their funds. The survey found that 95% of SMBs have cash at risk above the US$250,000 FDIC limit, and three out of four CFOs were considering diversifying their deposits to mitigate the risk of bank failure. But the majority also expressed concerns with the inconvenience of diversifying their deposits and reconciling across multiple accounts.

“In the wake of SVB, we've seen a groundswell of CFOs re-evaluating their cash management strategies and looking for ways to diversify their deposits and mitigate the risk of bank failure,” said BC Krishna, CEO and founder of Centime. “CFOs have also told us that manual account diversification by opening new accounts at multiple banks is tedious and difficult to operationalise. At the same time, every business seeks higher yield on their operating accounts, instant liquidity, unrestricted use, and maximum protection against risks. That's why we're proud to introduce a product that not only automatically diversifies deposits, but also delivers high-yield checking, and provides greater line-of-sight across all your banking relationships.”

As a new addition to Centime's cash management suite, Centime Banking is designed to provide growing businesses with this set of features including multi-bank account aggregation, cross-bank and account-to-account transfers, high-yield checking, automated account diversification, and fraud protection.

“Businesses are looking for convenient ways to protect their deposits beyond the US$250,000 FDIC limit,” said Carrie Zoucha, Vice President of Commercial Payments at FNBO. “With Centime, we're able to automate that experience for our customers, supported by the stability of the bank.”