In a context of positive interest rates, treasurers are acutely aware of the virtuous impact their investments can have on the real economy through the management of their liquidity by banks. How can they balance returns with impact?
Interview with Jean-François Robin, Global Head of Natixis CIB Research, Kim Doll, Cash Management Regional Head at Natixis CIB, and Brian Leuck, Treasurer of Eiffage Group.
Can you tell us more about this treasurer-banker synergy?
Kim Doll
After navigating an environment of very low, even negative rates, treasurers found themselves facing rates approaching a peak of 4.5% in 2023. Cash surpluses have become a powerful lever for financing the real economy, particularly through banks using these funds to finance projects and productive investments. This dynamic is particularly relevant as we approach the end of the rate-cutting cycle.
Where do you see rates stabilizing?
Jean-François Robin
Clearly, we are moving towards the end of the rate cuts, with stabilization expected around 2% for the European Central Bank, which may make one final cut to 1.75% in December. The end of this cycle is near. Conversely, the Fed is likely to further cut its rates until the end of next year, aiming for around 3%.
Strong companies could secure better financing conditions than governments. This occurs in the US and could be mirrored in France due to the relatively higher political risk surrounding government bonds.
Jean-François Robin
You mention that investments have become a powerful lever for financing the real economy; particularly regarding the environmental transition?
Kim Doll
Absolutely, more and more clients are focused not only on financial returns but also on the environmental impact of their investments. A year ago, we launched the Green Deposit, designed to support sustainable initiatives, where funds are directed towards companies and projects with a significant environmental impact.
The results are positive. We have established strict eligibility rules based on our internal rating tool, the Green Weighting Factor, which assigns a score ranging from dark brown to dark green.
Brian Leuck
Green investments are a significant plus, although we believe our main lever of action, being one of the European leaders in construction and concessions, lies in our core businesses and certifications.
We have received validation from the Science Based Targets Initiative (SBTi) for our greenhouse gas emissions reduction goals, aligning with the 1.5°C trajectory and committing to achieve net-zero by 2050. Our climate CDP rating has been upgraded to A- for 2024. We have also published our first sustainability report in line with the Corporate Sustainability Reporting Directive (CSRD).
Another crucial point: these investments stem from the hard work of Eiffage's craftsworkers across numerous projects and construction sites. Thus, we primary focus on the security and liquidity of our investments.
You’re not necessarily seeking the highest returns on your investments?
Brian Leuck
Of course, as a treasurer, I aim to optimize our investments. However, I prioritize building a long-term partnership with a select pool of banks linked to our Revolving Credit Facility (RCF). These institutions support us in our construction and concession activities through financing, cash pooling, equipment leasing, and guarantees. This represents a substantial volume. For instance, we have nearly 4,000 accounts and 60,000 guarantees in France. As a result, we find ourselves at different layers of interest that generate resilience.
Kim Doll
Return is certainly an important criterion for our clients, especially given the current pressure on rates. But it’s not the only factor. As Brian mentioned, capital garantee and availability are also crucial.
To meet these expectations, we have implemented progressive interest accounts, offering a balance between security, liquidity, and yield. The principle is straightforward: the return increases based on the amount and duration of the investment, with immediate access to capital (no notice or penalty required). We plan to extend this to other currencies beyond EUR and USD, as requested by our international clients.
Capital garantee and availability are as crucial criterions as return. The concept of cash equivalent is also key for our clients.
Kim Doll
Liquidity is therefore essential. Fixed or variable rate?
Brian Leuck
In a dynamic sector like ours, our cash must be readily available for opportunities, which rules out the benefit of locking away funds in long-term fixed-rate investments.
To mitigate the impact of rate fluctuations on our results, our short-term financing program (NeuCP) and our investments need to be constantly adjustable. Our investments are a mix of variable and short-term fixed rates, allowing us to track the interest rate curve.
Our medium-term financing program (NeuMTN) is variable rate, and we’re seeing increasing interest from both investors and issuers for this instrument. Bred Banque Populaire (part of Groupe BPCE, like Natixis CIB) plays a key role in supporting us on the brokerage side.
In 2024, we made some slightly longer-term fixed-rate investments in anticipation of upcoming rate decreases, obviously on cash-equivalent instruments.
These investments stem from the hard work of Eiffage's craftsworkers. I prioritize building a long-term partnership with a select pool of banks linked to our Revolving Credit Facility (RCF).
Brian Leuck
This notion of cash equivalent seems crucial for certain companies...
Kim Doll
Indeed, this concept of cash equivalent is a key for our clients. This accounting standard defines the extent to which a financial asset can be classified as cash. Most of our clients need their investments to be classified as cash equivalent so they can be deducted from their gross debt on their balance sheets, thus included in net debt. This classification is validated by auditors and must meet certain criteria (short-term, liquid investments, etc.).
Brian Leuck
For Eiffage, as a listed company, it’s essential that our investments qualify as cash equivalent. Add to that the cyclicality of our cash flow, typical in construction, where we have significant liquidity at the end of the year, which we use from January to August, and then ramp up again until the end of the following year, alongside exceptional events like M&A.
We therefore opt for a range of cash-equivalent investments, including money market funds, interest-bearing current accounts, deposits and term accounts with a maximum maturity of three months or with early withdrawal options. Natixis CIB’s progressive interest account is among my essentials.
Jean-François Robin
These considerations highlight a phenomenon that seems particularly interesting to observe: we are witnessing a genuine inversion of paradigms, where more companies are able to finance themselves at lower rates than governments. The latter are constrained by funding large economic programs, major transitions, defense spending, and political challenges that hinder them from enacting budget cuts.
This increase in deficits and public debt is likely to deteriorate the credit quality of states. Certainly, companies face their own constraints, such as financing the energy transition. However, I ultimately believe that strong companies could secure better financing conditions than governments. We see this in the United States, and it could be mirrored in France due to the relatively higher political risk surrounding government bonds.
Additionally, there are growing concerns regarding a potential and likely ongoing dedollarization, which encourages the search for alternative investments and liabilities outside the US dollar, while also promoting the euro for issuing debt at relatively more attractive rates in a more stable currency - provided that political risk doesn’t outweigh these factors.
