By Holly Harrison, SVP, Group Manager, Treasury Management, PNC Bank
The last few years have been a volatile era for liquidity. In March 2020, interest rates took a spectacular fall and the Fed Funds Rate landed in the zero to 25 basis points (bps) range. Stimulus programs, cheap capital markets, loan drawdowns and enhanced profitability left many organizations (but not all) with more cash on hand than ever before.
But 2022 is throwing more unexpected scenarios than even this panel planned for months ago. As the year kicked off, expectations were for marginal Fed activity (four 25bps rate hikes), moderating inflation, and continued strong economic growth. When my fellow panelists and I launched the idea for the AFP 2022 session “Liquidity Yearbook: Learning How to Pivot,” the goal was to bring together diverse entities every few months to discuss how each organization was navigating rising interest rates and levels of cash that were likely above historical averages. We were hoping to track how our mindsets and actions changed over the course of the year to take advantage of market conditions.
But already at the midpoint of the year, things are wildly different than expectations.
Equity markets are having a horrible showing, with the S&P 500 down 16%. Longer term bond markets remain weak in the face of higher interest rates. The Fed raised rates four times to a current level of 2.25-2.50%. These four moves included one 25bps, one 50bps, and two 75bps hikes … a speed and magnitude of increase not seen since the 1980s. Inflation is near double-digits and the highest since 1981 (all data as of July 27, 2022). How should you be navigating these gyrations when even experts cannot predict what’s next?
When we began, we thought this would be a discussion of how the market environment was impacting liquidity decisions, but we have learned the picture is complex and multifactorial. One thing has become abundantly clear: There is no one single best path that every institution can follow. Not only do the cash positions differ for every company, but so do the structures, philosophies, people, sophistication, systems, accessibility and requirements.
In the session, you will hear from organizations across different states of growth, structure and cash position. We will explore how decisions were made and actions were taken throughout the course of the year, but we will also dig into the market conditions and organizational structures that influenced those decisions. Our panel includes an organization just building its treasury infrastructure, one that is newly flush with cash, and another with sophisticated systems and capital structure — each facing different questions and opportunities.
The panelists will share their personal experiences looking back at the year (like a yearbook) and provide insights to help you navigate questions, including:
- What is your liquidity structure today and where do you want it to be?
- What is your organizational view of cash and how can you use it to set priorities?
- How can you best position to take advantage of market conditions?
- Do you have more or less cash than usual and what do you do?
- How can you use tools like cash flow forecasts, ERP systems, bank relationships, capital structure and liquidity guidelines to drive business decisions?
However, the most important takeaway will be acknowledging that your organization’s approach to liquidity will be as unique as a fingerprint and there is no single way to success.