Volatile Times Call For Innovative Actions

Aside from our own clients, in 17 years of helping guide Treasurers through the cash investment markets, I have never seen the corporate landscape littered with more casualties than today. Of all of the companies holding auction rate securities (ARS) today, an estimated 70% are experiencing regular auction failures and severe liquidity issues. In some instances, companies cash lives have been shortened by 90%, leaving them desperately scrambling for options.

Audit committees everywhere are examining cash holdings, exposures and the credit selection process like never before. All of this audit scrutiny has put a spotlight on best (and worst) practices in the Industry and has highlighted the depth and methodology, both good and bad, of credit processes for all managers. Auditors who view holdings such Lehman Brothers and Household Finance may begin to question the thought process behind these types of exposures in this market.

In this environment, the Fed has become progressively more unconventional in its attempts to contain the self-perpetuating cycle of collateral repayment that has recently shattered market confidence. As markets have frozen and major securities firms have had to be supported, we, as a cash manager, have worked to maintain pace with the rapidly evolving credit environment to ensure liquidity and credit strength above all else for our clients.

Over the past five years we have conveyed our concerns to clients about the potential liquidity risks of popular investment classes. We’ve published warnings and held public conference calls and Webcasts to discuss the intricacies and risks of investments that may not have been evident to many Treasurers. Throughout this time frame we’ve also sent our clients various bulletins and updates outlining precautionary measures we took to control risk exposures for their accounts.

Uncertain times call for innovative measures and when anxiety runs high in the credit markets, communication to clients is key and conservatism takes precedence. While we’re not yet out of this crisis, we plan to continue to practice what we preach in communicating developing risks to our clients and remaining steadfast in our pledge to pursue capital preservation.

We are hopeful that the difficult lessons learned during this cycle will redefine the criteria for how Treasury functions are outsourced and managed and will help to shed light on which decisions result in the best practices in the industry.

Best Regards,

Ben Campbell
President & CEO