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The 822 and BSB Electronic Statements. Are they for me?

Wouldn’t it be nice to have all commercial account bank billing statements, domestic and foreign, available in a standard, electronic format? Then I could use “electronic eyes” to check for billing errors, detect unused services, examine balance usage, bill services to the appropriate departments, aggregate costs on a global basis, budget for the future, analyze trends over time, compare prices, pay bills and get rid of all those mounds of paper statements and 300 page PDFs. This vision has become reality. The US based 822 and now the global BSB provide all this and more – at your fingertips.

It began in the early 1990′s with the advent of the ANSI 822 electronic billing standard. At the urging of major US corporations and with the help of the Association for Financial Professionals (then known as the NCCMA) the 822 standard was developed. Today every national bank and all regional commercial banks offer the 822. Over 1,200 corporations now receive and use the 822 and have experienced major cost savings and analytic benefits. The success of the 822 in the US provides a dramatic “proof of concept” of electronic bank billing statements for commercial accounts.

But what about offshore accounts? The 822 is a US ANSI standard. Companies used to the US standard were disappointed to learn that electronic billing statements in a standard format did not exist outside the US. But now that void has been filled with the BSB, Bank Standard Billing statement, first from TWIST and now under the ISO20022 standard. Read More →

Negotiate, but what about?

Ever look at your monthly bank fee spend and wonder if you are paying too much? Thinking you’d like to negotiate better terms but don’t know where to start?

The first step is to gather the past history of your accounts in terms of fees, rates, errors and balance levels. Knowledge is power when you come to the negotiating table. If you don’t receive statements in an electronic format or you are not a current Montauk Hawkeye client, you shouldn’t underestimate the level of effort required to consolidate this information across all accounts – especially from paper or PDFs.

The next step is to gain competitive data from other banks, from peer companies and from other accounts in your own banks. What are other banks, and my own, charging for my major services? What earnings credit rates are they using? Do they bleed off a reserve requirement? What are their FDIC charges? This information, believe it or not, is available.

The final step, hopefully armed with the truth from the first two steps, is to negotiate. You may have thought certain things like earnings credit rates, reserve rates and FDIC charges were non-negotiable. Think again. Everything about your analysis statements is negotiable: service fee rates, service charging formulae, hard charge versus compensable, earnings credit rates, reserve requirements, FDIC charges/rates, compensation cycles, calendar math, error corrections – all are negotiable.

So if you’re suspicious that you’re not getting the best deal from your banks, you’re probably not. The best negotiations are armed with research, competitive data, and expertise. If you don’t have those in-house or the time to perfect them, I know a company who would be happy to talk to you. Their number is somewhere on this website.

Senior Advisor
The Montauk Group, LLC.
390 Plandome Road, Suite 209, Manhasset, NY 11030

The Compensation Cycle

Let’s say you’re on a monthly Compensation Cycle for your analysis and billing statements. This means that you receive a statement every month and your compensation to the bank, if any, is due every month either by direct debit or by an invoice. If you’re offsetting fees with earnings credits (which means that your fees are “balance compensable”) and if you have an excess of earnings credits, then what happens to this earning credit excess? The answer is that it goes bye-bye. You lose it. Let’s give an example.

Let’s say that in the months of April and May you ran an earnings credit excess (your balance based earned credits exceeds your charges) and in the month of June you ran a deficit (your balance based earnings credits could not cover your charges and you were in a deficit position). Since you are in a monthly compensation cycle you loose your April and May excess credits and you have to pay the bank $70.00 in June.

But now you ask the bank to change your analysis from a monthly compensation cycle to a quarterly compensation cycle. You ask the bank to net your monthly excesses and deficits on a quarterly basis and then ask for compensation, if any, at the end of each quarter. This is the result:

The fact is that you can ask the bank not only for a quarterly compensation cycle but also for a semi-annual or a yearly compensation cycle. This is a very effective way to offset high charge/low balance months with low charge/high balance months and never lose your monthly earnings credit excesses.

Some banks will even aggregate your monthly excesses and deficits over an extended period of time and then cancel any charges due when the aggregate excess exceeds the aggregate deficit. But you must recognize the situation and then negotiate for a change in your compensation cycle.

Senior Advisor
The Montauk Group, LLC.
390 Plandome Road, Suite 209, Manhasset, NY 11030

How Many Days in a Month and a Year?

Simple. Remember what we learned in grammar school: “Thirty days has September, April, June and November. All the rest have 31 except February which has 28 except for leap year when it has 29 days.” Fine. But how many days in a year? It’s 365 normally but 366 for leap year. Now the questions get harder. How do we know if it’s leap year? If the year is evenly divisible by 4 it is leap year, otherwise it is not. So 2000/4 =  500.0 and 2013/4 = 503.25. So 2000 is a leap year and 2013 is not.

Hold on a minute. Due to the earth’s rotation around the sun not conforming to even intervals, there is more to the story. Every year which is evenly divisible by 4 is normally a leap year. However, every year evenly divisible by 100 is not a leap year. However, every year evenly divisible by 400 is a leap year after all. So, 1700, 1800, 1900, 2100, and 2200 are not leap years. But 1600, 2000, and 2400 are leap years. Most readers will be sampling their heavenly reward by 2100 but you can still use this information to win a drink in a bar.

What has this got to do with bank interest calculations? Calendar math – date math – is important when calculating interest over time. To be accurate, the proper number of days in the month and year should be used. For example: the correct interest rate for the month of October, 2012, at 4% per annum is (31/366) * 4% = 0.33880%. If we’re working with millions we arrive at the October, 2012, value of: $100 million * 0.33880% = $338,800.

The problem is that some banks are still using a 30/360 date factor for every month in the year. This is a carry over from pre-computer days when 30/360, or 1/12, was in common use to avoid the accurate but time consuming, correct date math. So now let’s look at what the 30/360 interest rate for October, 2012, would be: (30/360)*4% = 0.33333%.

Now let’s compare the accurate date math value to the 30/360 value:

$100 million * 0.33880% = $338,800 (accurate)
$100 million * 0.33333% = $333,330 (30/360)

There is a $5,470 difference.

What’s the take away? Check your bank’s date math when dealing with large balances. Are they using a 30/360 date factor or true-days-in-month/true-days-in-year?

Senior Advisor
The Montauk Group, LLC.
390 Plandome Road, Suite 209, Manhasset, NY 11030

The Hidden Overdraft Charge

What’s to hide? If I overdrew my account for an average monthly OD balance of $50,000 in October, 2013, at a 6% OD charge, I should pay the bank $50,000 * .06 * (31/365) = $254.79. That’s correct. But what is the proper earnings credit offset amount I should receive in my October analysis statement? The answer is based on the particular balance used to calculate the earnings credit amount. If the wrong balance is used, I suffer a “hidden overdraft charge”.

First, let’s look at the wrong balance. In this case the average daily collected balance (210,000) is used to calculate the Balance to support services – the balance used to calculate the earnings credit. But note that the average balance, by 8th grade math, is the sum of both the daily ending positive and negative balances.

We know that a bank is supposed to pay interest on positive balances and charge interest on negative balances. But, as we see above, the bank is paying earnings credit interest on the average balance in spite of the fact that there was an average OD balance, a negative balance.

Now let’s look at the correct balance. In this case the Average Daily Positive balance is used to calculate the Balance to support services by adding back the negative balance (50,000) to the average resulting in the Average Daily Positive Collected balance.

So in this example in which there was an average OD balance of $50,000, the difference in the balance used to calculate the earnings credit is $45,000:

The take away here is simple. In OD situations, check to see if the bank is using the average collected balance or the positive collected balance to calculate your earnings credit. If the average balance is used, you are being penalized twice: once for the specific OD charge and again for the reduction in the earnings credit based on the Balance to support services. This is the “hidden overdraft charge.”

Senior Advisor
The Montauk Group, LLC.
390 Plandome Road, Suite 209, Manhasset, NY 11030

Cyberattacks – Can Legislation Save Us?

Numerous articles were released this week surrounding potential new government legislation to help prevent fraud and cyber attacks in our financial institutions. J.P. Morgan Bank announced that it is investing $1 billion dollars to increase staff and technology to help them monitor threats. What about the smaller regional banks that are pressured to keep up with the technology of the big banks but without the resources to also invest heavily in the prevention of the additional risks they cause? The Comptroller of the Currency Thomas Curry warns that “hackers will increasingly turn their attentions to small community banks with less sophisticated defenses and a reliance on outside IT vendors.” Already 750 institutions have attended briefings by the Office of the Comptroller to learn ways banks can work together and with the Federal Government to stop the continued Denial of Service and other cyber attacks that continue to plague the industry.

While I doubt that further legislation can truly help the fight against cyber attacks, at least the bad guys are creating jobs in the financial sector. Large corporations are usually slow to adopt new technologies but all have grown increasingly dependent on online banking platforms to perform all kinds of treasury services. As the attached article says, “The spate of DDoS hits on bank websites over the last year may have caused minimal damage but there is the potential for not only disruption but destruction of systems, hitting public confidence in the whole industry.” My confidence is shaken, but not enough to make me switch back to the old manual way of doing things. I think we all need to maintain a healthy balance of efficiency and caution when it comes to our bank relationships – no matter the size.

Read More: US bank regulator raises prospect of cyber-security legislation

Product Manager, Bank Relationship Management Services
The Montauk Group, LLC.
390 Plandome Road, Suite 209, Manhasset, NY 11030

It’s Time To Clean Your BRM Closet

Relationship pricing is a blessing and a curse to those in Treasury. Large companies enjoy getting relationship discounts from a single bank, but at the same time struggle because no two banks’ bills (account analyses) are alike. Determining whether they are getting a fair deal from one bank by comparing it to another is a daunting task that takes time, expertise, and patience to perform.

Last week we spoke at the TEXPO conference with FISERV/Open Solutions and AT&T about this very subject. In two weeks, Steve Weiland, representing The Montauk Group, will be speaking again on the topic in Chicago at the Windy City Summit. No matter how you sugar-coat the project, or claim it can all be automated, or swear by the effectiveness of AFP codes, cross-bank comparison projects are a chore.

Going through the exercise is like taking every piece of clothing out of your closet, looking at it, sorting it, and thinking about how much you’ve used/worn it. After all shorts, pants, shirts, shoes, belts, hats, etc have been properly classified by color, use, and effectiveness, you have to make the decision to keep, donate, or trash each item, and in some cases buy new items. Some decisions are obvious – “Do I really need 10 blue shirts?” Some are hard – “This shirt has a lot of sentimental value but I’ll never wear it, do I keep it?” Some discoveries are fun- “Oh, I forgot about that!” Some lead to shopping to replace things that are just worn out. At the end of the exercise, you will be exhausted, but you’ll know exactly what and why you have everything in your closet.

A cross-bank comparison exercise is a cleaning of your banking services closet. Each company needs to take a hard look at each line item to determine what they have and why they have it. You won’t be tempted to add new services you don’t need if you know and understand what you already have. Instead, you’ll shop to replace services that are outdated or worn out and make your overall experience more efficient, less costly, and sensible.

Are you ready to dive in?

Product Manager, Bank Relationship Management Services
The Montauk Group, LLC.
390 Plandome Road, Suite 209, Manhasset, NY 11030

Who is the best bank for me today? Ask me tomorrow.

At Montauk, our clients often ask us “Who is the most competitive bank for my company today?”

The problem with the possible answer to that question is that what may be the case today may be the complete opposite tomorrow.

Deposits are a simple example of this erraticism. One day banks are aggressively pursuing deposits. The next day they need to shed deposits.

How could this be? Shouldn’t banks have an insatiable appetite for cash deposits? Not necessarily. The attached article demonstrates the balancing act that all banks – large and small – must perform each and every day. In this case, Citibank needs to reduce it’s cash on deposit so that it isn’t paying out interest on cash that it can’t put to use.

So how do these necessary ebbs and flows push down to your relationship managers? Retracted proposals, reduced ECR’s, and higher fees.

Who is the best bank for you today? Ask me tomorrow.

Read More:  Analysis: Citigroup looks to cut cash holdings to boost earnings

Managing Partner
The Montauk Group, LLC.
390 Plandome Road, Suite 209, Manhasset, NY 11030

A Stark Reminder From Cyprus

When you look at the blog postings and news at the end of 2012, the hot topic was the expiration of unlimited FDIC coverage. Treasurers scrambled to determine what, if anything, to do with their millions in cash held on deposit. Three months later, the FDIC expiration is “old news” and very few treasurers would admit that they made any real changes. Banks continue to pass through an FDIC assessment on full balances yet the corporation is only receiving $250,000 in insurance. Even with that disparity, a sense of general acceptance has already replaced the fourth quarter sense of urgency as priorities shift to other projects scheduled for 2013.

Today’s announcement from Cyprus should shake up our complacency as companies and individuals face enormous losses with the closure of largely state-owned Popular Bank of Cyprus, also known as Laiki. The government will shift deposits below 100,000 euros to the Bank of Cyprus while the level of losses on uninsured depositors will be “under or around 30 percent.” While Cyprus has had a myriad of problems and some may say they had this coming, can we truly say that our banking network has fully recovered and is flawless?

Read More: Cyprus reaches last-minute deal on 10 billion euro bailout

Managing Partner
The Montauk Group, LLC.
390 Plandome Road, Suite 209, Manhasset, NY 11030

Where Dodd-Frank has not succeeded yet (or possibly ever), a new bill may fill in some of the gaps.

But will Congress agree to collaborate and do something?

In an effort to level the playing field for regional banks and eliminate the ever-growing systemic risk to the economy from Too Big To Fail banks, U.S. Representative John Campbell introduced a bill that requires banks with at least $50 billion in assets to hold an additional layer of capital in the form of subordinated long-term bonds totaling at least 15 percent of consolidated assets. The move will make doing business more expensive for these “super-sized” banks, and the Congressman is hoping the result will be a contraction of the nation’s largest banks. JPMC, Bank of America, and Wells Fargo have steadily grown since 2007 and will continue to be a threat to the economy if they are allowed to continue – at least that is what the attached article and the proposed bill are implying.

If you are a corporate treasurer, how would this bill affect you? Our opinion is that the impact will be that these super-sized banks will do what they always have done: pass on their increased costs via an increase in pricing of treasury services. In other words, these super-sized banks will need to find ways to compensate for the loss of income imposed by a Federal Regulation. Risk ratings and profitability will need to be closely monitored as the banks struggle to adjust and comply. If the bill is passed, you might want to help in their “contraction” by moving some of your business to other banks whose safety is not mitigated nor costs impacted by such regulations.

Read More: Bill to Limit Too-Big-to-Fail Risk Is Readied in U.S. House

Managing Partner
The Montauk Group, LLC.
390 Plandome Road, Suite 209, Manhasset, NY 11030

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