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Dealer of the Year 2001 Back  
In early December the Irish Association of Corporate Treasurers held their annual awards ceremony in the offices of McCann FitzGerald Solicitors. As always the winners of the individual categories were hotly contested. Here the individual category winners and runners up give us an insight into the year in corporate treasury and look forward to what 2002 may bring. Newly appointed IACT president Derek Browne introduces the feature.
The association congratulates all winners of the awards and thanks the membership for their participation. The voting for the 2001 awards was characterised by the large number of corporate members who cast their votes in all categories. While the institutional awards will be dominated by the large associated banks, the individual awards are keenly contested. The big banks by virtue of the size of their dealing rooms will see a large number of their personnel attract votes. A most pleasing aspect this year was the number of personnel from the smaller institutions who received votes. While this may not be reflected in awards it is indicative of the fact that the corporate treasury community is well served by all its providers of services. The format of the awards has changed over time to reflect changing market conditions and practices. The committee continues to monitor changes so as to ensure that the awards appropriately reflect the market place.

Dealer of the Year Winner
Eamonn McManamy, Senior Dealer, Bank of Ireland Treasury & International

Look back on 2001
Euro to march on towards parity against the dollar, continued world economic growth, rising technology stocks and Istabraq to win at Cheltenham. These were amongst the widely touted top tips for 2001 but the lesson learned is that there’s no such thing as a certainty.

The global downturn, oil price volatility, the tragic events and repercussions of September 11 and foot and mouth were to the forefront of a year that few corporate treasurers could have envisaged. Tough decisions soon had to be made to confront sudden inappropriate levels of cover and uncertain future trade flows. Difficult to predict FX markets (where favourable capital flows into USD arguably dominated) added further difficulty to the treasurer’s role.

Borrowers were to have some consolation with opportunities to fix in a rapidly falling interest rate environment, though the extreme value was to disappear late in the year as rates bottomed out.

Outlook for 2002
Lessons have been learned and there is much to concentrate the mind as we enter 2002. Once over the euro implementation, the corporate treasurer will be operating in an environment where uncertain economic conditions, will lead to increased scrutiny of their risk management decisions and treasury policies. An increasingly proactive approach will be required, where one examines the wide range of hedging mechanisms open to the treasurer, rather than just taking the simplistic approach.

Remember you are not alone your treasury provider should provide assistance on a number of levels, from education packages to tailored solutions for your company’s treasury needs. Paramount to this however is a strong relationship, which is the key element to customerdealer success. I would urge you all to develop a close relationship with your dealer that will facilitate better communication and efficient sharing of information. Thus we can better understand your business and provide you with timely and relevant advice and updates, to help us meet your highest service expectations. Help us to help you.

And the top tips for 2002? Euro to continue to struggle for parity, take advantage of any retracement in interest rates towards November levels to fix borrowings, form stronger clientdealer relationships, and of course Istabraq to win at Cheltenham.

Dealer of the Year 1st runner up, John Moclair, BNP Paribas
John Moclair is head of fixed income sales at BNP Paribas. John started his treasury career with ESB in 1987 and in the late 1980s he moved to FTI Finance where he worked as a consultant and portfolio manager. During this period, he was responsible for developing and implementing foreign exchange and debt programmes for a number of Irish companies. He joined BNP in 1995, where the sales team provides risk management solutions to Irish based corporates and institutions.

Commenting on the award he said ‘I am pleased to feature again in the IACT Awards. It is, I believe a reflection on the strength of out sales and interbank team. In addition, it demonstrates the benefits of combining the attributes of a top global bank with a strong locally based sales team.’

Look back on 2001
‘A few things were evident in 2001. Firstly, there appeared to be a trend towards greater usage of non-vanilla based products particularly in managing foreign exchange risks. This was probably due to the solutions on offer being more closely aligned to corporates needs than here-to-fore. Combined with this, the need for treasurers to build more flexibility into their hedging strategies has increased.

In tandem with this the reporting and regulatory environment for treasurers has become more onerous. The challenge for both banks and their clients will be to continue to devise solutions that are compatible with this reporting environment.’

Outlook on 2002
‘In terms of market developments, 2001 was not the most volatile year in terms of FX movements. As the year progressed, the ranges on the major currencies became ever tighter. These ranges don’t tend to last forever, so unless ‘another’ new paradigm is to befall us 2002 should see a more volatile FX environment.

Certainly, the interest rate environment has been very volatile. This is likely to persist in 2002 as the market tries to establish whether US is in a recovery mode or not. Looking at the curve at present, the market is betting on a quick recovery early in 2002. Our feeling is that this optimism is a little premature.’

Dealer of the Year 2nd runner up, Brian Kelleher, AIB Corporate & Commerical Treasury
Brian Kelleher has been a member of the AIB Treasury Team for the past 15 years. He previously won the Dealer of the Year award in 2000 and in 1998.

Look back at 2001
The year 2001 has been most notable in the foreign exchange and money markets in that the number of cuts in USD interest rates has taken the market by surprise while at the same time the USD currency has maintained its dominant position on the exchanges. Even allowing for the slowdown in the US economy and the tragic events of September 11, the USD remains relatively strong versus the EUR & Gbp. There was USD weakness at the beginning of the year with Eur/Usd at .9500 but since then USD has favoured sellers of the currency. Many corporate treasurers considered buying USD at these levels but with falling interest rates held out only to see the currency rebound. The USD has also remained strong versus the GBP. Having broken out of the 1.5500 to 1.6500 range early in the year the ‘cable’ rate fell as low as 1.3720 in mid June. Overall the Eur has failed to perform in 2001.

Outlook for 2002
Looking ahead to 2002. It is difficult to call markets. For corporate treasurers we envisage another volatile year on the exchanges. The USD looks set to remain strong. Most commentators are forecasting a recovery in the US economy during 2002 and with that the likelihood is that the USD will appreciate further against major currencies. A resolution to the war in Afghanistan would look to be Usd positive. Interest rates in the major currencies look set to remain low. We anticipate also that regulatory issues will be as important as ever. Most forecasters are predicting that the Irish economy will grow by 4 percent in 2002. This should keep treasurers on their toes, setting appropriate budget rates will be crucial.

Dealer of the Year 2nd runner up, Ricky Vaughan, Ulster Bank Financial Markets
Ricky Vaughan is head of large corporate sales at Ulster Bank Financial Markets and has worked in treasury for 20 years. Commenting on his award Vaughan said ‘I feel that having worked as a trader for a number of years has given me a different perspective and a good feel for the markets. So the challenge for my team and me will be to continue to work hard in 2002 to improve our overall service to our customers. Hopefully, if we get it right, we’ll be in a position to improve on our performance in the IACT awards next year.’

Look back on 2001
‘2001 has seen a turn around in the world economies. On September 11th the world witnessed an atrocity of mammoth proportions, up to this point countries had already experienced a huge slowdown in growth, stock markets had faltered, interest rates had fallen and companies had closed down. Then, from what had previously been a sectoral slowdown, a global slowdown and in many cases an all out recession emerged and interest rates plummeted to unprecedented levels.

In the face of all this it has been a blessing that corporates are now more focussed on their risk management policies, but as a direct result of this they now demand more from their banks. Companies are looking for views and opinions on movements in the markets and they are also looking for ideas. When I took up my new position of head of large corporate sales early in the year after having spent a number of years focussing on financial institutions I was genuinely surprised at the number of changes that had taken place in the corporate market. Companies are adopting a more dynamic and innovative approaches to hedging their financial exposures. It would seem strange therefore, given all the events that happened in the year, to attribute a large percentage of this change to the euro. Essentially though, the euro has had two dramatic effects on companies that remained exposed to foreign exchange fluctuations. Firstly, pricing is much more transparent and secondly, a new world of hedging products has opened up, which had previously been unavailable to Irish companies. Theoretically, some of these products had always been available, but in reality, because of the prohibitive costs associated with pricing them in a small but volatile Irish pound market, they were virtually unused.

There has since been a thirst for knowledge as companies have wanted to know more about the financial risks they face and the risk management strategies that can be used to mitigate it. The introduction of the IACT diploma was an important development and the role it has, and continues to play in the education of corporate treasuries has presented its own challenges to a bank’s treasury sales team. Treasury sales teams have had to re-train and re-invent themselves to ensure that they can provide the type of service that is now required and can meet and exceed the demands of it’s customers. All sales staff now need a broad-based knowledge of treasury products and their application, while having access to specific areas of expertise within the dealing room. We have been very fortunate in this regard. While Ulster Bank Financial Markets is autonomous, we are also part of the second largest banking group in Europe - The Royal Bank of Scotland group. This in turn has given us access to a depth and breadth of market and product knowledge, information, training and innovation that we believe is second to none in the Irish banking system.’

Outlook for 2002
‘Looking forward towards 2002 the key component will continue to be growth. The recent surge in equity markets suggests that investors believe we will see the US come out of recession in 2002. If this is the case then Ireland is poised to take advantage of the up turn and with that will come new and exciting opportunities for businesses and banks alike.’

Economist of the Year Winner, Aziz McMahon, Ulster Bank Financial Markets
Aziz McMahon is treasury economist at Ulster Bank Financial Markets. Commenting on the award he said ŒIt is a great privilege to be voted Economist of the Year by The Irish Association of Corporate Treasurers (IACT). Amid, at times, extreme market uncertainty this year the sales team at Ulster Bank Financial Markets (UBFM) has endeavoured to keep customers informed of developments and to provide them with forecasts and hedging solutions which we believe will contribute to significant savings. I would like to take this opportunity to thank the IACT and UBFM sales team for their tremendous support.’

Look back on 2001
‘2001 was an eventful year in financial markets but unfortunately for many of the wrong reasons. The resilience of the dollar and the yen in spite of recessions in both the US and Japan appeared to defy the predictions of conventional theory and caught many market participants off guard. The depth and speed of interest rate cuts from the Federal Reserve and the lack thereof from the ECB also confounded many forecasters.

Focusing on FX, this year's performance indicates that rather than being the main influence on currency movements, as it was in the past, the economic cycle is now just one among many influences. Real money flows to finance imports and exports were once the dominant influence on exchange rates. For example, during the 1980s the US trade balance was arguably the most important data release for currency traders whereas today the monthly US trade numbers rarely have much impact. The inexorable growth in global capital flows throughout the 1990s has meant that investor and speculative turnover now dwarfs the volume of real money flows and has a stronger influence on currencies.

When forecasting exchange rates it is no longer sufficient to correctly predict relative economic cycles and hence growth rates of different currency zones. The often counterintuitive reaction of the global investment community to relative growth performance also needs to be anticipated. The best example of this has been the performance of the yen throughout the slump of the Japanese 1990s. On a trade weighted basis, the yen ended the 1990s over sixty percent stronger than at the start of the decade when the Japanese economy began its decline. To be sure, this was partly the result of a large export surplus, but equally, repatriation of capital invested abroad to shore up ailing domestic balance sheets had a major influence. The latter effect confounded past forecasts for rapid yen depreciation based on accurate forecasts of a prolonged Japanese recession.

The resilience of the dollar this year has also been noteworthy. Having correctly predicted a US recession many forecasters also predicted a significant depreciation of the dollar that has, so far, not materialised. The only noticeable impact has been a break in its steady appreciation against European currencies that has been ongoing since 1990. Once more the focus of many analyses is on the likely relative performance of the US and European economies next year rather than trying to explain the broader issue of the decade-long decline of European currencies against the dollar. The most likely explanation is the relative economic rigidity of mainland European economies compared to the US. Another factor is the relatively undeveloped European capital market compared to the US where a greater variety of financial instruments continues to attract investors. These factors are unlikely to change significantly in the near future making a sustained euro appreciation against the dollar next year unlikely in my view.’

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