The Opportunity to Leapfrog
Introduction: In-house banks (IHB) can help energy players leapfrog to a long-term Treasury set-up with a centralized liquidity model. Setting up and running a next generation IHB isn’t as complex as it may seem on the surface. If done right, the benefits can be considerable.
The current landscape for energy treasury:
- Increased cost of external financing
- Divesture and M&A activity is booming
- Significant volatility in oil and gas revenues
Meaning that energy players need:
- Increased visibility into cash and access to liquidity
- Centralized liquidity and the ability to recycle internal cash
- A framework for further optimization
We believe in-house banks are the first step towards this much needed sophistication, and see scope for increased adoption across the Industry.
In-house bank graphic here
Energy firms with $50bn+ revenues
o Over 60% have adopted an in-house bank
o Only 37% have adopted On-Behalf-Of processing
Energy firms with less than $10bn revenues
o Only 21% have adopted an in-house bank
o Only 5% have adopted On-Behalf-Of processing
Source: J.P. Morgan internal data, August-September 2021
How does this work in the real world?
Corporates can nominate an entity to be their in-house bank. The first step is generally to move to a consolidated liquidity model and then add other functions such risk management and payments and collections. We have worked with several firms who were culturally operating in a decentralized fashion and helped them to leapfrog to a long-term treasury set-up. These players have leveraged the latest IHB tools to initiate and progress their journey towards centralized liquidity models. Clients have adopted full-fledged Virtual Account solutions allowing for immediate visibly and availability of cash at Treasury entity level, and a swift redeployment across the Group. These set-ups can help Clients retain their existing operational processes and ensures scalability and the emergence of a more centralized model.
The significant challenges Energy players are facing advocate for cultural and structural changes in the Treasury field to anticipate and better manage an uncertain future.
J.P. Morgan is well placed to assist you on your transformational journey. Connect with your J.P. Morgan representative to find the right solution for your business.
How does this work in practice?
Corporates can nominate an entity to be their in-house bank. The first step is generally to move to a consolidated liquidity model and then add other functions such risk management and payments and collections. We have partnered with several firms who were culturally operating in a decentralized fashion and helped them to leapfrog to a future-proofed Treasury set-up. These players have leveraged the latest IHB tools to initiate and progress their journey towards centralized liquidity models.
Clients have adopted full-fledged Virtual Account solutions allowing for immediate visibly and availability of cash at Treasury entity level, and a swift redeployment across the Group. These set-ups can help Clients retain their existing operational processes and ensures scalability and the emergence of a more centralized model.
Connect with your J.P. Morgan representative to find the right solution for your business.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of J.P. Morgan, its affiliates, or its employees. The information set forth herein has been obtained or derived from sources believed to be reliable. Neither the author nor J.P. Morgan makes any representations or warranties as to the information’s accuracy or completeness. The information contained herein has been provided solely for informational purposes and does not constitute an offer, solicitation, advice or recommendation, to make any investment decisions or purchase any financial instruments, and may not be construed as such.
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