Treasurers’ Forum: life after lockdown

Andres Baltar: Hello. Good afternoon, good morning wherever you are. My name is Andres Baltar, and I Head the Corporate Bank for Barclays Europe. Look, we're cautious that with so much trouble and so many events being cancelled, there are very few opportunities for us to check in with our clients, I know, for our support. We've all been firefighting in the last months, and we think it's time to look forward and to get on our front foot. We have created this series of events to look forward and explore what life looks like after lockdown.

So these events build on our longstanding Treasurers Forum in London, and we are making these events virtual and global. Please try and keep them as interactive, and participate in Q&A, and the polling, please. That will be great.

The virtual series consists of four sessions, four regions. This is the first one of four. It's related to there's one in Europe, one in the US, one in Asia Pacific, and one in the UK; and four different treasury topics. Sessions are designed globally with a view from all of the regions, as different countries around the world reach different phases of the reopening. This is to say that Barclays is still here. We're ready to support our clients across the globe. So please reach out to your relationship director if we can help you with anything.

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So without further delay, let's move to our economic update with Fabrice Montagne, who is the Chief UK Economist. He's going to give us a few minutes on the UK and European economy. Fabrice, over to you.

Fabrice Montagne: Yes. Thank you very much, Andres. I hope everybody can hear me. I'm really delighted to be on this call today, not least because life after lockdown is what keeps me really busy right now in terms of booking my summer holidays. And unfortunately, I haven't been able to find a definite answer on whether we're able to travel or not this summer. But it's definitely one of the very, very relevant questions.

Listen, for this session, what I would suggest doing is try to run through the specificities of the shock, of the economic shock we are facing, using the UK as a base case, as a reference. And then widen a little bit the scope of my thinking, for instance to Europe, but also to some point to the US, to see how that might or might not be different. Because after all, the virus doesn't know any borders, and that's a true global shock we're facing. But -- so the first order is likely to be very similar from one country to the other. But the policy reaction and cultural differences, et cetera, probably introduce here some divergence and some disparities. So let's discuss this at the end or in the Q&A, if there are some.

So listen, I think what's very interesting in this shock and that's the object of this first slide, is we have no precedent. This is not a war. This is not a deep recession, as we usually know it. We're not correcting any major economic imbalance. And GDP is dropping by maybe 20% or so on a quarter. And that's something totally unprecedented, which will leave, by the way, our charts scarred for life. The scale of this shock is just unprecedented.

So the object of this first slide is to show you some scenarios: best, worst, central; but to show you how dependent this is on the assumptions. And the assumptions we have to make going into this shock is how low are we dropping during the lockdown, how long are we staying in the lockdown, how quickly are we recovering, and what is the landing area in 2-3 years' time. So you basically have four parameters here that help you to draw the shape of the shock.

Now the length of the lockdown, this is something that has been given to us by the government. And so that is not a question mark anymore. The depth of the fall is still up in the air, and for the UK we get April data on Friday this week. So we'll know how low GDP was in April. For other countries across Europe or in the US, we'll have to wait for quarterly data, which usually comes in a month or 6-weeks after the end of the quarter. And, you know, we still have a long way to go, and to tiptoe in the dark here, before we know how bad the situation actually was during the lockdown. And then that should help us to infer or at least to fine-tune a little bit what the shape of the recovery is.

Regarding the shape of the recovery, I have a couple of slides towards the end of my presentation, which tries to track the recovery more or less in real time. I think what is very visible on this chart, and I can already now give you the number, is that in the first week after the end of a lockdown, and think about this. The first two weeks, you should be able to recover something like 15 percentage points of GDP. So if you've dropped to 70, let's say, within two weeks you recovery to 85. It then, however, takes another month to recovery 5 percentage points. So from 85 to 90, it takes perhaps a month or so. And it then takes a full year to recover another 5 percentage points, and you acknowledge that in this process you maybe have 5 percentage points which are lost forever. So that is really the shape of this recovery. You have a bounce, you have a jump out of the lockdown, and then everything becomes a bit more complicated, and the pace of the recovery, it slows very quickly to basically where we were pre-virus forecast then in terms of growth rate.

The way our views have changed in recent months -- sorry, I'm activating the slides here, as I speak. So the way that those changed in recent months is basically we moved away from forecasting, just to stop and go. And we introduced some scarring, and that's the object of this chart. You see that relative to pre-virus forecasts, what's important to notice is that we are still something like 4% below pre-virus trends at the end of our forecast horizon, which is the end of next year here. And that is very similar from one economy to the other, to be honest. We have some economies dropping less, but rebounding less as well. And net-net, even when you compare to the US or other economies, you want to (ph) think about 3 to 5 percentage points below what we were forecasting before. And that's what's, in the UK at least, referred as long-term scarring, how much of long-term drag or loss in income do we have to suffer because of the virus. And that relates to all sorts of things that are usually best described as nonlinearity.

If a company goes bankrupt, if somebody loses his job, well, that's less investment, that's less skill being built up over the long term. That's a less healthy economy. Let's put it this way, right? So an important thing and as we went through this crisis, is that we had to take into account more and more long-term losses in wealth in our forecast. So the tricky thing is that when you have -- you probably have read all these articles about V-shape, U-shape, W, swoosh, or whatever the various names. Well, a V-shape would have been, to recover to the pre-virus levels, and that's not what we're doing. So this looks like a -- I think that the -- I was about to say the technical word, but it doesn't sound right, technical. This is swoosh kind of U-shaped recovery, because you don't recover fully, and you stay a bit lower, for what it's worth.

The next slide is for you to take home. It's not, per se, to be discussed here, first of all because the numbers are very small. But you have -- this is one snapshot here for the UK, which shows you more or less the entire components of the economy. One component that I will discuss next is unemployment, and there's obviously especially from an audience of treasurers, I would say a huge focus on unemployment. Now, unlike normal recessions, we have to split unemployment into what we usually understand as unemployment, meaning people losing their job, and then -- and that is new in this crisis is people who are not at work, but still on the payrolls. And that is in the UK called a furlough or the Coronavirus Job Retention Scheme. It is "Kurzabeit" in German. It is "chomage partiel" in France, and it has its equivalent in Spain and Italy as well. It's basically the government footing the bill and giving cash to businesses to keep people on the payroll, even though people are at home, but not working.

Now the benefit of that, it's a bit better -- it's better than just sending people -- just firing people and increasing unemployment benefits, because basically what happens here is the distance between people and their job is minimal. And bringing people back in as soon as the situation improves can be done extremely fast, as opposed to if you fire somebody, you still can call him back like a couple of weeks or months later. But that person might have gone for another job elsewhere, so it might be less straightforward. So there is some things really attractive in those schemes, which is to keep people very, very close to their full-time job.

There is something very costly for public finance. I'll come back to that. And there's another thing very attractive, is that you actually compensate for losses in income. The loss in income here is just think about 20%, if you're not capped. Well, if you were to fall in full unemployment, it will be closer to a 50% drop or even less, depending on where you are. So that scheme here protects income a lot to the point that one of the themes that we're discussing very recently is that during lockdowns, when you -- if you believe our GDP forecast that GDP, and with it by the way, consumption dropped something like 30% on a month, or 20% on the quarter, while at the same time income only dropped by much less. And you know, if you have to estimate the drop in income, you'll end up at 5% or 10% on aggregate. It means that over a quarter, households easily built up a buffer of, call it, 10% or 15% of income, built up a financial buffer of that amount. And the question is now, and behind all the bullishness that has been raised by, for instance, non-farm payroll on Friday in the US, there's a discussion on yes, are households now going to spend this amount or are they going to sit on it for the time being, which would give you a very different shape of the recovery, right? So this is currently one of the much discussed topics, you know, how much has been saved by households, how much will be spent.

I mentioned that the cost of all these policies is very high in terms of public finance. In the UK, we are hitting post-war records in terms of deficit. So this table is two weeks old, and believe it or not, it sounds like two months. Because here we're still showing 11% deficit, but we're already at 12 and a bit, and that's taking into account that job retention scheme or the scheme to support income of self-employed has been extended into August. And that comes with extra cost. So we are -- you know, these numbers are there to increase a little bit. What is not fully taken into account are a lot of guarantees that have been handed -- guarantees that have been -- loans that have been guaranteed by the government. And if you have some defaults on that, that number might go a bit higher.

What it means for debt, it means that for a country like the UK, debt jumps by 15-16 points of GDP, so from 83 to 100. That's very similar to other countries. And it stays there. There's no credible outlook here to have the debt amount decrease. It drops a little bit in the next year, because deficits correct a little bit, and especially GDP rebounds. But overall, you know, we have a step-wise increase in debt level, and that is a global phenomenon.

Turning to -- before I turn to the recovery, sorry -- let me at this point say a couple of words on Bank of England. The reason why it is not a standalone slide, but has to be seen in conjuncture with public finance, is that the Governor of the Bank of England himself, Andrew Bailey, has linked the size of the quantitative easing package to the size of the issuance. And what the Treasury told us on one side, is that they would be issuing 180 billion of debt over the first three months of the shock. And what the bank told us is, guess what? We're doing GBP 200 billion QE over the same period. And the bank sees itself as a fiscal enabler, as enabling the policy response of the government. And that is in order to allow for the economy to survive the shock, and for us to be able to discuss whatever inflation outlook we'll have afterwards. But at least we will have an inflation outlook, as opposed to a completely broken economy.

So all the usual reasoning on where is inflation going to go, is the monetary policy stance accommodative enough, et cetera; have been kind of sidelined in the first instances of the crisis. And the Bank of England has been really just supporting institutions, supporting the fiscal response.

Now it is not that clear in Europe, because of treaties and because of a different approach to independence and to central banking. But it goes without saying that when the ECB intervenes on bund markets, it is there to allow those bund markets to remain open and spreads to remain civilized, and rates in general to continue to reflect low interest rates. And that is exactly the same as saying that the central banks steps in to support the fiscal response, right? So it might be introduced in different terms. It might have to do with -- you might have to deal with complication from the German Constitution Court or what have you. But fundamentally, you have to see this as a very similar policy reaction.

In terms of recovery, and that's the purpose of those last two slides here, we are very lucky in the UK to have launched recently actually what we call a spend trend. Spend trend is a signal produced by our Barclays card unit. It's basically leveraging all the transactions we are seeing on credit and debit cards across the UK, and I'm talking here about a market share of 20% or so. So it's a good sample.

And what this allows us to do is track on a daily basis, how much and where households are spending the money. And I think I'll just highlight two or three points here in the interest of time, is that first of all, the lockdown has not been a static state of being frozen. There's a life during the lockdown. And even though consumption dropped something like 30% in the initial stages, in the initial weeks of April, it did recover thereafter, and people started to spend again. Now interestingly, there is spend on very different items. Food grew double-digit on the year. Interestingly, as some items relating to furnishing and housing improvements, or anything that has to do with furnishing inside the house, house maintenance, garden, et cetera; also grew double digits going into May, late April and early May. That's probably reflective of the fact that we're now all working from home, or because the weather was so amazing that we did keep busy in the garden.

Anyhow, the other chart, the last chart I wanted to show you here on the UK is that the channel of spending has been radically different. People are now spending online, or at least virus compliant, whether that is takeaway, off-store, or online, or whatever the shape or form of it. While everything that's face-to-face in the traditional sense of the term, struggles. It is recovering, but struggles. We are talking here about a year-on-year drop of 60% and a very slow recovery, while online everything is already above last year's level.

Now I promised you some views on Europe, and the rest of the world. Listen, at least when it comes to Western economies, the shock is fairly similar. It might be presented in different terms. You have examples where the drop may be a bit more shallow, and the recovery a bit faster. Think about Germany, because the approach, the medical and clinical reaction was maybe better shaped up in a better form or you know, I won't go into the details. You know exactly what I'm talking about. But basically the impact on some economies is a bit less. Impact on other economies, take France for instance, is quite deep, because the policy reaction was very stringent. I mean the lockdown was very strict. You were not allowed to go and walk in the forest or walk on the beach even if you lived in the middle of nowhere, and that was fully enforced. So there we might have a sharpened dropdown. But interestingly, the rebound out of the lockdown is, if anywhere, much more visible in France. And when we compare this with the UK, I challenge anybody on the call to let me know what are we not able to do -- what are we able to do and what are we not able to do in the current times, because it's very unclear where we stand on lockdown measures.

The last and final point, because I will leave you on a positive note here; non-farm payrolls released on Friday in the US, came with a glimpse of hope that we might have overestimated the depth and the impact of this crisis. We saw the US economy creating some jobs, or at least the unemployment rate being much better than it was expected. And this, in conjunction with the savings buffer I mentioned earlier, could allow you to build a more positive scenario where households feel relatively confident and willing to spend their savings. And that means the recovery might be a bit stronger.

I mention this because that's new. You know, we've been in depression mode over the past three months, not being able to come up with any upside to our scenarios. And I think for the first time here, we have like a glimpse of hope that, you know, at least if someday that continues to come in constructively, we might have been too pessimistic, and I would be very happy to be caught on the wrong foot here, and to being too pessimistic on my forecast at least.

I've been talking a bit too much, so I'll end here. And I hand right back to Andres.

Andres Baltar: Thank you, Fabrice. Very insightful, thank you so much. So just briefly, before we go into the panel, I'm going give you the results of the survey. So 51% of you think that COVID-19 has had the most notable effect on your liquidity strategy. So most of you think about that. 86% of you think that COVID-19 has dramatically accelerated the trend toward digital. It's more mixed on the next question, so not as clear. COVID-19 has dramatically accelerated the trend towards real-time payments. So most of you say kind of agree or neither agree or disagree. And finally, a strong agree, 90% of you strongly agree or agree that COVID-19 has dramatically accelerated the trend towards a paperless society.

So with this framing the discussion, let me introduce you to our three panelists today. Daniela Eder is our Head of Payments and Cash Management in Europe. We have Luis Pascual, who is the Group Treasurer of the large infrastructure company, Ferrovial; and Martin Runow, who is our Global Head of Payments on Digital at Barclays. I'll ask, when I ask you the first question, to give you a brief introduction of yourself, if you don't mind.

Martin, maybe the first question is to you, seeing the results of the survey. In terms of digital adoption, what have been your observations during COVID?

Martin Runow: Thanks, Andres. Nice one, and welcome, everybody, or hi, everybody. We had plenty of welcomes. My name is Martin. I am looking after all of the digital stuff across the corporate bank, and in additional actually all of the payments products, and the transactional FX. I've been with Barclays a bit longer than a year, and come from another large transaction bank, and basically spent most of my life somewhere between payments, cash management, Europe and the US.

So digital adoption, we have seen that spike, and I guess that's not a surprise to anyone really, as most of us are sitting at home or have been sitting at home, working with WebEx, Zoom, or whatever else you may have seen. So obviously clients across Europe and in the UK as well have not been writing as many checks as some of them used to. Cash usage has gone down, and all of the self-service things, the online things, the digital things that we have in scope have massively spiked, right? So that was something that we observed. Again, that's not going to be much of a surprise.

The big question for me is really how much of that will stick. And our assumption, of course, is that we want to double-down on digital, because the assumption is that people, they are getting used to the benefits of doing things remotely, doing things online that haven't done that before, are not very likely to go back, right? So people that move cashless, that move into the digital space, they're going to mobile; are very likely to want to continue to live with that convenience, even in the future, right? So that's going to be one of the questions. And I think that's what we're going to discuss a little bit in this panel anyway, right? How much of this is going to be around after lockdown?

Andres Baltar: Thank you, Martin. That's very insightful. Maybe Luis, as a follow-up of Martin's question, just an introduction of yourself, and ask you maybe, what have you seen as -- what have been the main challenges for companies like Ferrovial? But in the market, what do you think have been the challenges to adapting to COVID and what is here to stay after COVID? What do you think?

Luis Pascual: Okay, thank you, Andres. And hi, everyone. Well, I mean challenges for COVID, on the business side, you know, especially for a company like ours, basically focused on transport infrastructure assets, as you can imagine. I mean airports and toll roads, well, it has been terrible. I mean the impact has been terrible.

From the financial side, I mean obviously it's more interesting for the audience and for this event, it's been challenging, really challenging just working from home for the whole team. I think that the whole team has worked like clockwork, which is good news. So it means that we were well-prepared for things like this, even though we didn't know that something like this could happen. But in the end, we have managed now to survive and to do the right thing, and not to make any mistake, and to work properly; even though we have all these issues concerning working from home, and not having everybody with proper access to the tools, and so on and so forth. This is the first comment.

As far as we know, or as we have experienced this crisis, really during this past three months, I think that being prepared for the utilization for become more digital and more 24/7 ready to work, and to pay, and to interact, and so on and so forth has been an asset, a real asset for us. Because otherwise, we could have entered in the terrible territory of making mistakes or something like that.

 So what we've learned is that we need to improve these type of things, and definitely what we see especially out of this experience is -- and following Martin's comments -- is that for sure, neither the company nor the employees are going to behave the same, or I point to think about certain things, the same as they did before. The working from home or things like different -- more flexibility when working and the different workspaces is something that is here to stay. So it won't change. I mean it can be motivated or it can happen in one way or another. But in the end, I think that we have a clear transformation that is here to stay. And it will accelerate, definitely accelerate processes and things that we're going to come in any case.

As you probably know, Ferrovial has been deeply and heavily involved in this digitalization process and transformation process, and just trying to face a new era, meaning robotics, 3D printing, Internet of Things, drones, artificial intelligence, big data; I mean all these things were already in place, work in progress, of course, a long way to run and to go, but we were already working with these. Now what we see is a clear acceleration of all these processes. And moving forward, which means that we need to get everybody adapted to this. And the main challenge is, in my opinion, are going to be not necessarily the tools, not necessarily the technology itself; but also the perception of these technologies, the behavior, the attitude towards these types of tools, rather than the tool itself

I mean it's important, and I can foresee at least in my opinion, a kind of struggle between the IT departments and also the functional areas. Because in the end, we need to change processes, architecture of systems, and things like that; rather than choosing a tool or another one. So the acceleration is more in the processes, in the procedures, and in the attitude towards this new era, I mean in everybody's mind. I mean as long as the company is concerned, as long as the employees are concerned, the different departments and so on; rather than tools. It's a matter of attitude.

So we have learned how to buy things more online, how to survive and not doing things that we did before, and so on a so forth. Now we need to learn how to work, especially with these new tools, in a different environment. And it's not a matter of getting new tools or new systems. It's a matter of matching what everybody's expecting from us and the attitude of all people involved, and all the stakeholders, (inaudible) stakeholders. That's my view on this.

Andres Baltar: Thank you. That is really interesting, Luis. And I'll maybe ask Daniela. You were mentioning the acceleration of the digitalization, the tools being there. And what do you think, Daniela, what the new digital tools will have a bigger impact in the future? Because Luis was mentioning that they were already there. We needed to start using them more efficiently.

Daniela Eder: Thank you, Andres. Daniela Eder here. I look after our payments and cash management in Europe. I'm delighted to be here with you this afternoon. I hope everyone is well. I have to echo, of course, what Luis and Martin has said. We've been on a digital journey for quite some time. Maybe by the time you realize that we were on the journey, and all of the buzz words around blockchain and artificial intelligence and so forth, became very popular; I think many of us were already looking to standardize, optimize, and actually the four buzz words that I reflect on digitalization is speed, efficiency, transparency, and also security.

And we've seen some early adoption, as Luis was referencing already, of some of this emerging technology. I think of cloud services. I think of artificial intelligence, robotics, that will improve our efficiency and processes, and of course the APIs. And what's interesting to see around the globe is also that infrastructures are changing as well as we see many of the markets around the globe adapting an interoperability and standardization and formatting, the ISO format and so forth, which also has an effect on how we use these tools going forward.

I think every crisis allows us also the opportunity to leapfrog, to jump forward on some of these initiatives and speed, transparency, and efficiency; and compiled with security around that as well. So I think every industry is also in a different space when it comes to this technology. And as Luis has referenced, I think it's also a mixture of technology and human interaction that's necessary. It's not one or the other. And so change of mindset is very important, the psychological aspect of having these tools available, but without a threat of losing your job, because of robotics or artificial intelligence. So there's a lot of psychological effects involved in implementing these tools, and making sure that it's a joint journey, as well.

But I think at least for these four emerging technologies that are already much in use today, I think there's no way of stopping it. And I think there's much to gain from them, and I do believe the crisis will accelerate that as well. Back to you, Andres.

Andres Baltar: Yeah. Makes a lot of sense, Daniela. So you mentioned security. Maybe a question for Martin again, so what do you think has been happening to the cybersecurity fraud prevention area? What have you seen in the last months?

Martin Runow: Yeah, we were actually a bit concerned when this started, because a lockdown happened. I mean we could all see it, but it all happened in a bit of a rush at the end of the day. So we made as a firm, and I'm sure that's true for a lot of us out there, we all made a lot of concessions relatively quickly. So for example, we went ahead and basically rushed through our electronic signature program that we had running anyway. We just went and accelerated it massively. And all of a sudden, we are accepting DocuSign and other means for electronic signature, because we were just not able to, or it was very inconvenient to move paper. So we did that with a lot of control around and trying to make sure that no one takes advantage of that.

What we have seen, of course, is that across a lot of the government programs in Europe, across the UK, et cetera, where a lot of payments were generated quickly; there was heightened fraud risk. And we've seen more cases there. But I will say generally speaking, for the corporate time space, we have, despite our concerns, we have not seen fraud numbers go up massively. Just I mean for all of us, we still have the same issues around. So we have impersonation CEO fraud. We've seen a couple of cases of invoice fraud. But in general, sort of levels of cybersecurity are relatively the same. We have obviously seen way more usage of biometric devices like our fingerprint (ph) readers or other things around the globe. So in general, electronic payments and digital payments or digital access means are more secure than sending faxes or other things. But we've caught a few things where people were taking advantage of unsecured means of payment like faxes.

But overall, our concerns largely have not been met so far, and we've taken obviously quite a lot of interest in making sure that our fraud detection engines that run basically on all the payments that go through our systems are running nicely. So there's probably more to come. Maybe just to touch on one thing, in the UK we've just -- we are going live with something that's called confirmation of payee. We see different -- or we see similar, sorry -- things and initiatives happening across Europe as well. We've seen in the Netherlands, we have something like that where when you enter a payment into an online screen, it will actually go and ping the other bank through an API, and do a name-number check. And then it comes back and gives you sort of green everything's fine, or don't know, or a red, this is not right. So there is more convenience and more consumer protection built in, and some of our corporate clients are also seeing that.

So net-net, it's okay. We've seen in certain corridors more fraud attempts happening, but it's not been sort of as bad as we had feared really.

Andres Baltar: Okay, thanks. Martin, thank you so much. It makes a lot of sense. Luis, what are you seeing in that space? Have you seen an increase in fraud or have you been worried? What have you been seeing in the last couple of months? Luis? We might have lost him. Okay, so let's move to another question for Daniela. How do think the relationship between treasurers and banks will change in the future after these two months, three months lockdown period?

Daniela Eder: Thank you, Andres. This is a different scenario than we had --

Luis Pascual: Can you hear me now? Sorry, sorry.

Daniela Eder: Ah, Luis, you're back. I would like to give the floor back to Luis.

Luis Pascual: Sorry. Sorry, it's my fault, because I was on mute. Sorry. And I didn't realize about that. Sorry about that. It's my fault. Sorry, Andres.

Andres Baltar: And then my question was around -- we were talking about (inaudible).

Luis Pascual: Yeah, yeah. Yeah, I heard you. I  heard you. And yes, no I was talking, but you couldn't hear me, and I didn't realize that I was on mute. Okay, no, yes of course. We've seen a tremendous amount of attempts of several attacks. We've been under attack quite a few times over the last three months. All of them have been properly countered. Precisely, no, as I said before, because we were prepared for things like this, which is good. But we need to be cautious. And of course, all these things have accelerated again, not only the consciousness and awareness of these type of things, but also security measures. And two or three, for instance, we have put together different -- or we have taken different actions. For instance, if you remember, we were working on a (inaudible) tool or a scheme, and in the end this is something which is crucial also for security reasons as well, because we are going to concentrate users duly trained in order to make payments in a centralized way, and with additional security measures. We are also double-checking things, and implementing digital ID systems now which are different from what we had before, as also Martin mentioned in a way. We are running double-checks on also coming up with a black list, in some cases of suppliers and some other clients, and some other story (ph) is the holders.

We suffered from attacks and attempts of fraud using the Outlook system and the Google as well, and email, the email (inaudible), trying to replace the right person and in a very difficult way to identify, which is very scary in a way. But now we know how to avoid these types of things. So I think that definitely we of course now have experienced now this increase, in especially attempts, of several attacks, fraud or whatever. But you need to react on this. I think we are doing it through all these things.

Then we have the IT guys also working on reinforcing or enhancing the IT security systems. But it also has to do with attitudes and behaviors, as I said before. Some things that leads me to mention the training courses or training actions we are taking with all the employees in order to make them aware of the necessity of being more cautious and taking more measures, not only in terms of our technical staff like payments or central payments, or whatever which is something else, as I mentioned before; but also in the current exchange of emails, for instance. Because we have identified these attempts and these problems. So we need everybody aware of this situation, and the training courses now have been put together very quickly, and all the employees are now or have been warned about this, and also trained about how to react and how to proceed, and how to inform immediately whenever something like this happens.

 I think that the things, like for instance, and I mean just trying to link this comment to my previous comment, I think that we were putting together or whatever new technologies and so on; the distributed ledger, for instance, or technology like a blockchain or whatever you can all it; I think it's important as well in order to enhance the security. But this is something that is more difficult for me to foresee coming very quickly, because it requires a lot of development. But it's important, because a lot of intermediate layers and a lot of people -- and people should be removed, not only for efficiency reasons, not only efficiency reasons not only, because companies need to reduce cost, not only because of the awareness of a world which will become more paperless, as said also in the poll, and also because of this new era with less contact, physical contact, but also because it's philosophically more logical and more secure, in my opinion. But it's going to take time. Some other things not, like training, double-check, payment concentration, digitalization and so on. But other things like the distributed ledger applicable to something more ambitious and strategic is going to take longer, in my opinion. But it could be crucial for the future. That's my view, and sorry for that -- for delaying (inaudible).

Andres Baltar: Thank you so much. And Martin, we have a question -- a question of time, we've got seven minutes left. We have a question on the future of fraud, considering the push towards digital during the COVID era in countries like Germany, where the usage of credit cards is still lower compared to the rest of the regions. Someone is asking us, wanted to know if you have seen an increase in the shopper's option of credits cards as a means of payment. That's a question for you, Martin.

Martin Runow: Yeah, happy to take that, right? So I mean we are seeing a big trend shift for the COVID (ph) that is  still relatively low use of credit card for Germany. I mean that has not fundamentally shifted at the moment. But obviously people are shopping way more from home, so you are seeing wallets used more. You are actually seeing credit cards used more a bit. But in countries like Germany, it's relatively low and in the UK that would be quite different. You are also seeing obviously contactless, so credit cards and debit cards being used way more across many countries actually, as in the UK and also in Germany and some other countries, the industry has reacted and has increased the contactless amounts, right? So you can pay higher amounts with a tap without having to enter you pin. So that has had quite an impact.

 What we are seeing is some of the more modern, so real-time payments. We had a few topics about that earlier. We are seeing, if I look across COVID impact across payment volumes, we're seeing high value payments (inaudible) payments in general taking quite a hit across basically every country in Europe. Faster Payments in the UK is the first one that we see really coming back. And I actually haven't seen (inaudible) instant numbers. It will be interesting to see. But Faster Payments obviously is much more mature and has been around longer. So that's the first of this payment class that has fully -- or is not fully recovered, that would be a dream -- but is actually recovering already.

And since we're totally running out of time, I'm going to just say one thing. Luis, you are spot on, right? Training and making people aware on the whole fraud topic is super, super important. The fraud that we do see happening is because people did something in good faith that in hindsight was maybe a bit naïve or could have been prevented, right? So that's just my advice to everyone is just make sure that you sensitize people, right?

Back to you.

Andres Baltar:  Yeah, thank you. Yeah, I agree with you. Training is hugely important in these circumstances. So maybe Daniela, a question for you. So a comment is made. You've had mixed real-time payments and real-time reporting. While we see a strong towards real-time reporting, we see no change for real-time payments. What's your opinion there, Daniela?

Daniela Eder: Thank you, Andres. That's a really good point that was called out from the audience, and that largely has to do with the fact that many of the low-value systems around the globe are not open to B2B type of transactions yet, or there are still restrictions around the rulebooks and so forth. But actually real-time reporting with real-time payments does go hand in hand, but one supports the other. But absolutely depending on which industry you're in, you might not feel the positive effects of real-time payments just yet, because you're in the B2B space. But definitely the peer-to-peer and obviously the B to consumer and so forth, every time there's a consumer involved in real-time payments nowadays, there's also real-time reporting, right? When I have a debit to my account, I'm also notified immediately of that debit. We do see, and a lot of what we're developing in the future and a lot of things that Martin has mentioned on the digital journey are geared at how these rulebooks and how these schemes will open up, and how we've seen already in the crisis just speaking out of my own experience, being based in Germany, how the contactless pay limits for consumers has gone up within just a couple of weeks, what was unthinkable just a couple of months ago. So a lot of things are being expedited, and there's going to be a lot of lobbying going forward to open the real-time value payments also to wider businesses. And take advantage of the immediately settlement and the immediate reporting that's associated with that as well.

So while our question might have been a little bit in advance of what we see in the future coming, the one is very closely associated with others. And then we get into digital receivables and so forth. And there's a lot of tools around that that we can use in the future as well, to really have a clearer view of our positions, the cash flow liquidity, which as we've seen in the crisis, is so important. And those industries that have already jumped ahead into the digital era and is using a lot of these tools, obviously has an advantage during this time. So real-time payments is the automatic extension of real-time reporting as well. Thank you.

Andres Baltar: Okay. Maybe, I think we've got time for one more question to answer, and then we'll close it. So Martin, maybe the last one for you here. So someone is telling us, Barclays has been very proactive on digitalization around the use of DocuSign and the updates for trade finals on the iPortal. What's next? What is Barclays doing internally to make sure that e-signature is more widely across the bank?

Martin Runow:  Yeah, I saw that one, and that's a good one, right? So I kind of mentioned that earlier just a little bit, right? So we did a lot of things sort of tactically. And now the trick for us is to actually get it back into a proper roadmap and make it just a complete standard digital front to back. And that's -- for those of you who know me, I mean I'm talking about this quite a lot. Make sure that every product, every solution, every service that provide is a digital journey all the way through, and it's not just digital on the front end. It looks nice and then it hits the STP, straight to print, on our end. So for me, we're already working on making these tactical changes that we did to support us, our clients and us through COVID, long-term strategic and have it on the digital change agenda.

In general, we are committed to and we're on a journey to -- a multiyear digital transformational journey to bringing all of our services into iPortal, since it's mentioned, and other means like APIs or SWIFT for corporates, or whatever else there may be out there that is interesting, right? So we are definitely on the journey and we are working hard to sustainably keep these things -- these achievements I would say -- around. And they are definitely part of my roadmap.

Andres Baltar: Okay. Thank you, Martin. Question of time, so we've still got a couple of questions to answer, but I will get back to you regarding the questions, and we'll go back to you directly. So thank you so much.

So look, there will a replay of this session, in case you want to see it. Thank you for taking the time. We have another session next Thursday. We'll be discussing managing risk with geopolitical uncertainty. And our host will be Lauren Franklin Hogan, joined by a few FX economists and public (inaudible) research, The Treasury or Coca-Cola and Marsh and McLennan. So an invitation will follow very soon.

Please feel free to share any feedback or suggestions for things you'd like to see in the future, and I will be delighted to address them. So thank you so much, and have a nice rest of the day.

Uni Par: Lauren, we are now live. Please go ahead.

Lauren Franklin Hogan: Thank you. Good morning and good afternoon. Thank you very much for joining today. I hope you're all staying safe, and it's great to see so many registrants and attendees from across the globe. I'm Lauren Franklin Hogan, a global relationship director based in New York, covering the FinTech industry. The Treasurers' Forum was launched by Barclays in 2017, hosted in the UK and New York, with the purpose of bringing our clients together quarterly to discuss the challenges across the industry.

Well, forward to 2020, and this year has certainly thrown many surprise challenges so far, including the inability to collaborate in person. Yet, one of the benefits of lockdown life is bringing the Treasurers' Forum global, and I'm honored to host the inaugural US forum. I hope you've had the opportunity to listen to last week's first stop on our global talks, where we discussed liquidity, payments, and the digital future in Europe. Next week, we head to Asia to discuss the impact of COVID on manufacturing, and the economic outlook for China and India, and we'll be concluding in the UK to discuss the evolution of corporate financing.

Today's agenda will be addressing managing risk with geopolitical uncertainty. We'll first be exploring the political outlook ahead of the US election, how this and COVID is impacting the economy, and then we'll be joined by our panelists to discuss how this uncertainty has actually translated into actions from a treasurers' perspective. I'm aiming for this to be as interactive as virtually possible, and so we'll be gauging the audience's opinion throughout, so you should see a polling box come up throughout, and we'll get your take.

So let's get started. First off, it's a pleasure to introduce Shawn Golhar, Head of US Public Policy at Barclays. Thank you very much for joining, Shawn. Whilst I know everyone is having trouble keeping track of time these days, here we are in June. Less than five months out from the Presidential Election. We're going to kick it off with the audience input on their prediction come November.

So you should see a question popping up on your screen now on who you think will win come November. Will President Trump hold onto the White House, or will Vice President Biden be successful in his bid to unseat Trump?

So just seeing the polls come in. Don't worry. This is all anonymous, so we won't be following up on your political persuasions. We should give it a few seconds. Results coming in, we all know how successful polls were in 2016, so we'll see how accurate the audience poll is. Okay, just a few more seconds.

Okay, a lot more divided than I thought. We are showing that the audience thinks that Vice President Biden will win by a small margin. Shawn, what's your take? Do you think the audience is right or wrong? And what lies ahead come November? And Shawn, just so you can see as well, we're showing Vice President Biden winning with 57%.

Shawn-Pavan Golhar: Great. Thank you for much. Yeah, the survey section isn't working to show that poll. That's -- and thank you very much. I'm really excited to join today. That's in line where I see the polls right now. If the election were held today on the national polls, Vice President Biden's up by 8 to 9 percentage points in some polls, even as high as 10. You see from high-quality pollsters, states that have gone Republican, even states like Texas, which was 9 percentage points for Donald Trump in 2016, a statistical tie between the two of them. You see in the betting markets, an average where Vice President Biden has a significant lead over Donald Trump in terms of winning the election.

And in all, the sort of swing states that matter, if you go through the sort of, quote-unquote, "Democratic blue wall," of Michigan, Wisconsin, Pennsylvania; three states that if you put those three states together, President Trump won those by only 78,000 votes, and that gave him the Electoral College. And in all three of those states, Vice President Biden is leading by anywhere as much as 6 percentage points, including places like Florida, he's up by 4.6. Arizona and North Carolina, there's a tie.

So I think the audience perception right now I think is correct. Let's keep one thing in mind. It's extremely volatile. I mean, do you remember the impeachment hearings? It feels like that was an eternity ago. So if you begin to think about it and you look at some of these polling, you're seeing large swings. President Trump's approval rating according to Gallup dropped by 10 percentage points in just one month, given the protests and with COVID. That is a remarkable drop, something that you don't see. You almost never see that in just one month of time. So it's a long way to November.

I think what to keep in mind going forward are a couple things. One, is clearly COVID, Congress, and any additional stimulus. We're seeing potential increase -- not potential, but we're seeing actual data in increases in COVID-related cases in the Sun Belt and then in parts of the South, decreases in areas like New York and some of the hard-hit Northeast areas. If that translates to additional social measures, or social distancing measures, or problems in terms of people blaming various parties -- you know, there was a reckoning I think for local politicians that may be for the President on that. If you ask generally Americans on the federal government's response, they would say it's negative. But once you apply presidents and vice presidents and political party affiliation, it does fall on partisan lines.

I think going forward now, we do expect to see a space for stimulus package from Congress. It could be as high as about a trillion dollars. This is on top of over $3 trillion in the first three and even phase 3.5. That will have an enormous impact on the economy, especially if this money is used for state and local governments to help them plug their budget holes.

There are some risks to this fiscal stimulus, which have risks to the economy, which I'll let Mike talk about in a little bit. But that will have a direct consequence, I think, an impact on the political outlook. And those risks are this spectra of a bailout. The Paycheck Protection Program put out for small and medium-sized businesses, an enormous program put out, the US government is not revealing who actually applied and received money. That is a remarkable change from what we're seen in terms of transparency from before. There's a political liability to these things, and individuals that are running for Congress are worried about being blamed for the idea of being part of a bailout. So that is one of the big risks.

Obviously the deficit and debt hitting levels that we haven't seen since World War II, you know, I always joke that politicians often get religious when it comes to deficits and debt in an election year. But really, a lot of these folks don't really care as much about it. It doesn't have as much of an impact. But there is a political component to that. And I think one thing to keep in mind is US-China relations. That is one of the sort of big elephants in the room as the election approaches. You're going to see China play an outsized role this year on both sides. President Trump is really sharpening some of his rhetoric about what to do about China when it comes to manufacturing jobs, and also the origins of the virus, saying that he's going to withdraw from the WHO, threatening to withdraw from other multilateral institutions. And for Vice President Biden, he's got to articulate a stance on China I think that's sufficient and different. So watch that issue as well.

And then lastly, I just want to touch on the social unrest that we've been seeing. Be very careful as to the impact of what's happening right now come November. Remember, a lot of it comes down to voter turnout. So even if Vice President Biden wins the general election by 4 percentage points nationally, he could easily still lose the Electoral College. If you remember, Secretary Hillary Clinton won the popular vote by over 2 percentage points and still lost the Electoral College. I think that is absolutely a possibility this time as well. And if you look at evidence for that, just point to the Georgia primary that recently happened. It was a disaster by all accounts. The machines weren't working, long ballot lines. Poll workers were not well educated on how the ballot machines were supposed to work, and voting was supposed to work that day. You saw concerns about virus and outbreak as well. When November rolls around, if you see certain states, like a place like Florida, have an outbreak in the virus or regional outbreak in the virus; you could see certain counties under additional lockdown measures, which makes voting very difficult. Mail-in ballots could be decertified, and you could see a lot of sort of interference on that as well. So keep in mind that the voter turnout issue on mail-in ballots will be incredibly important, regardless of what the polls say.

The last thing is to keep in mind important dates. We do expect to see Congress come together and pass this fiscal stimulus bill, probably in mid-July. August 1, we expect to see Vice President Biden name his Vice Presidential nominee. There's obviously a lot of interest in that, probably more interest than in a normal year. And following that in August, both parties will have their convention. After that, the debate schedule between the two have not been set. It will probably -- I mean there will be a lot of debating about whether to debate. But if they move forward, there's a good chance there will be no audience, which will be a different sort of flavor as to how to think about it. But again, we don't have enough info on that, because they haven't put out the schedules. But there are all the sort of elements I think we're watching, and I think all of you should be watching as November rolls around.

With that, let me pass it back over to you.

Lauren Franklin Hogan: Thanks, Shawn, fascinating. Well, so (inaudible) go virtual, there will be some twists and turns for 2020. One thing I know that a lot of people are watching, one of the drivers which we'll encounter in the results come November is how the economy evolves after life after lockdown. With that in mind, next up with we have Michael Gapen, Head of US Economics at Barclays, to give his take on where we are now, where we're going, and what to expect from the Fed. But before we hear from Michael, it would be great to hear from the audience, and what you think the economic recovery will look like over the next 6 to 12 months.

So the second poll should be coming up on the screen now, and whether or not you will be expecting the economy to have a V-shape recovery, U-shape, or L-shape recovery. It should be coming up now. Okay, the votes are coming in. Yeah, 2020 is certainly the year of uncertainty, with many factors in play, pre-March I know we were just thinking it would be the election driving this. But, okay. Let's give it a few more seconds, and a majority, 71% of people believe that it will be U-shape recovery. So continued, tough 2020, and then we'll see some recovery.

Michael, what's your take?

Michael Gapen: So I think that's about as near unanimity as you get in these types of polls. Look, I agree with that. I think what we're dealing with here is lockdowns obviously are set to cause the worst hit to GDP that we've seen in decades. But this is a recession that was largely deliberately induced by government policies. There wasn't quite an imbalance that could create a boom-bust type of cycle. So I think there is some reason to suspect the path back can be faster than in previous contractions. So I do think that there is some reason to suspect this could be different than normal, in terms of a boom-bust cycle and a very prolonged recovery. The fact that it was deliberately induced by government policies, and as you pull those lockdowns back, activity can bounce back fairly quickly in at least some sectors of the economy.

We have certainly also had unprecedented fiscal and monetary support. This has of course been put into place globally to avoid second-round effects, keep or reduce the risk of liquidity-driven contagion to replace lost income wages primarily for households, and to keep balance sheets liquid. And globally, these effects have largely succeeded. Corporates and sovereigns have issued trillions of dollars in debt at low yield. Financial markets stabilized after a period of instability. Job losses, at least outside the US, have been limited. So efforts of retaining workers on payroll seems to have been fairly successful, and the stimulus has been largely front-loaded. And a lot of it's already landed on household balance sheets already. So there is reason for some optimism, and there is reason to suspect that as states and countries emerge from lockdown, there will be an initial rebound in activity.

But I would agree that I don't think that this is a V-shaped rebound in the sense, when an economist thinks about a V-shaped rebound, it's more in level terms. Can we get the level of activity back to where it was in a very short period of time? Our Barclays economics team globally doesn't see that. We have global GDP down around 3.5% for this year, on average, across developed economies it's down 6.7%. For the US, we're looking at down about 6.5%, so we're in line with that forecast. And we think it's largely a multiyear turnaround. GDP at the global level, we don't have getting back to the Q4 '19 level until the end of '21. And for the US economy, I think that number is probably closer to the end of 2022.

And then looking ahead, I mean we don't see lockdowns coming back, or certainly we're not saying we think the coronavirus has gone away. Certainly that's not the case in the US, where the national level cases have plateaued. They're falling in the Northeast, but they're rising in the West and the South. So we're still dealing with that initial round or the first wave. I don't even think we're onto the second wave. And I think the key question for the outlook is, do we return to lockdowns. I don't think we do. Now, I certainly don't think we'll get to 42 states with simultaneous stay-at-home orders. We may have some cities or high-density counties put in some additional measures to contain local outbreaks. But we don't assume lockdowns. But there are certainly geopolitical tensions on the horizon, mainly between the US and China. Anytime we see a surge in government borrowing like we've had, there's also a risk down the road that we need to increase revenue. So those are two potential downside risks to the global outlook. The upside largely comes, of course, from science and medicine.

But where we are for the US in this types of environment is we think growth declines 40% at an annualized basis in the second quarter. It rebounds 25% in the third quarter. So we get an initial snapback. The data is very consistent with that. The retail sales data in May, auto sales data in May, suggests households are spending at least some of the additional resources that government benefits have provided. The social safety net is holding for now in the US and most of the developed world. But we're also seeing a very cautious business sector. The industrial production data that came out alongside the retail sales data suggests business remains cautious. They didn't ramp up production, as households increased their spending. The business sector seems content to wait this out, to make sure that there is follow-through, that this isn't just a snapback in demand, that this is pent-up demand and then there's a swathing off.

And so the key question really is, how much employment are we in the US and across the developed world, going to get in the next 3 to 4 months. Will high unemployment outlast the provision of government resources and the social safety net may by holding now, but it may not hold later? So I think we're looking at a prolonged period of at least an initial snapback, followed by what I'll call a longer and plodding recovery, to get the rest of the unemployed back into the labor market. We have the unemployment rate at about 9.5% in Q4 this year, about 7% at the end of 2021, inflation falling down to about a half a percent year-on-year by Q1 of next year, and still below the Fed's target at the end of 2022. This is a very similar baseline forecast to what the Fed just issued, and it suggests they'll be buying bonds well into 2022, and with the funds rate, at the zero lower bound probably into 2023.

Now just a few points on the remainder of the global outlook, and then I'll be happy to turn this back. We do see divergence between China and the rest of emerging markets globally. Certainly there is reason to suspect China could be more V-shaped. Obviously they're dealing with another potential outbreak in Beijing. But the property sector has rebounded. Exports have looked better than expected. Credit growth has picked up. And China as a whole should still see positive growth this year. But that optimism about a rebound in China, in our view anyway, does not extend to the rest of emerging markets. There may be a few in Asia that certainly will benefit from China doing okay. But Brazil, India, Mexico, Russia were all looking at steep declines there, around 4.5% to 5.5%. We just think emerging markets don't have the monetary and fiscal firepower that the developed markets have in countries like Brazil, South Africa, Turkey. They all have challenges that leave them vulnerable. And EM as a whole, they have higher population density, generally poorer health care systems, and we know that there's been a multiyear move to deglobalization, and there's a deterioration in fiscal profiles.

So general optimism in the short run for the developed world and China, concerns and uncertainty about the medium term, and then I'd say our optimism doesn’t extend through all parts of the emerging market world. And that's how we're seeing things right now. And with that, I'd like to turn it back to you.

Lauren Franklin Hogan: Great. Thank you very much for the update, Michael. And thank you, as well to the audience who are submitting questions throughout. You should be able to submit on the bottom corner of your panel. We'll try and incorporate those questions in the panel. And so the panel discussion will be focused on how this uncertainty that Shawn and Michael talked to you is actually impacting business and day-to-day. So I'd like to welcome our panelists.

We have Ferdinand Jahnel, Treasurer at Marsh & McLennan, he's been Treasurer since 2015; Michael Murray, Director of Treasury initiatives at Coca-Cola, previously he spent nine years managing currency risk, so it will be great to hear his insights; and Mimi Rushton, Co-Head of Global FX Sales. Mimi relocated back to London late last year, so she has a transatlantic perspective when looking at the geopolitical risk.

So Ferdinand, we'll start with you. It's a treasurer's job to plan for the unexpected, given all of this risk. What actions did Marsh & McLennan take in the immediate aftermath of COVID in March, and how has your response evolved in the recent weeks?

Ferdinand Jahnel: Yeah, good morning to everybody, and thank you for that question. These are obviously extraordinary times for all of us, and when our company went into lockdown in March, like most economies around the world as well, we immediately had internal discussions around the question, what do we need to do in the near term in order to keep the company safe? And from a treasury perspective, that of course means primarily a focus on liquidity, access to cash around the world where we are present. You should know that our organization is present in over 130 countries around the world, basically everywhere where our clients are on our continent. We have 75,000 people around the globe, and basically the vast majority of them switched to a home-office work model that pretty much persists to this day, and that also accounts for my treasury team that is based in New York City and in London. It consists in total of about 40 people that to this day all work from home.

And it has been an interesting experience, where I have to say I was very positively surprised how robust our systems are in these days that allow us to not only communicate online via various means of communication, but also how our internal infrastructure just continues to chug along and works well. And even more importantly, that the transactional part that we execute on a day-to-day basis together with our banking partners, continues to work. So I keep on making that comment to folks that if this crisis had hit us 20 or 25 years ago, it would have been much, much worse, and we would struggle to send faxes around and everything.

But having said all that, so our focus on liquidity was basically driven by the concern that obviously our revenues could potentially be impacted by this crisis. But even more so, that the ability of our collecting outstanding invoices and billings from our clients on time could potentially be more challenging going forward, especially through the second and third quarter, than we've ever seen before. And just to give you kind of the order of magnitude we were looking at, is that our days receivable outstanding would extend just by 10 days on average, that would cost us liquidity to the tune of half a billion dollars, so a very significant number.

Now we do have an existing committed credit facility with our bank group, 18 banks that are in there, to the tune of $1.8 billion that we established in 2018. It's a five-year revolver, so we have still good runway on that. But we felt it's just a prudent thing to see that we get an additional line of credit in place in order to have an additional safety net available for the company. So we went to our bank group right away in March, and explained to them what we are trying to accomplish and why we are doing that. We also explained that we don't necessarily see the need in drawing on this facility, and we have found various scenarios of severity, just to analyze how we would respond to those scenarios. And I would say nine out of the 10 scenarios, we realized that we don't necessarily have to draw on this facility. But we felt this is the prudent thing to do at this point, in making sure that we have this additional safety net available. And we were actually able, by early April, so we were relatively early to get commitments from our bank group to secure an additional billion dollars on the basis of a 364-day line. And we actually also were able to get a term-out option for an additional year for a second year that gives us comfort that if the crisis takes a little longer, we have that committed access to liquidity.

Maybe I'll pause here and get your reaction.

Lauren Franklin Hogan: Yes, it's interesting to hear. So I know we've seen record debt issuance certainly in March, April, May and into June; as well as drawing down revolvers. So March was definitely quick out the gate, just post COVID's kind of attack in the US.

Pivoting to the risk management topic, keen to hear from the audience in how they changed their approach to hedging in the wake of COVID. So the third polling question should be coming up on the screen now. How has your risk management approach changed since March? Has there been no change? Have you stopped hedging, hedging less? Are you hedging more, or are you reassessing? We're just getting the results in now. And then then we'll hear from a truly global company how their hedging has looked. Okay, just a few more seconds. I think the vote's in.

Interesting. Okay, we can finish the poll now. So 25% of the audience had no change in the risk management approach, which is interesting. And the majority are reassessing. Michael Murray, it will be great to hear from you at Coca Cola, a truly global company. How has your approach to hedging evolved in the wake of COVID?

Michael Murray: Yeah, I think we at Coca Cola, we're right aligned with these results. We are definitely reassessing what we've done, what we have on from a hedge standpoint. But at the same time, I kind of view that as a no-change to our risk management approach, because we're always reassessing what we're doing.

I think back in March, when it broke out, and oil bottomed out. It was kind of what Ferdinand said. It was also on the FX side, it was hedge for certainty, extend tenor. Let's go ahead and lock up 2020 and just provide the certainty that we can in the markets. Now that we've kind of given it some time and we're seeing how the consumer and the business is reacting, as China is reopening, as the US is reopening, and what it really means to our business; we're kind of reassessing, what do we have on the books, as even Gapen said, what are the countries that are going to come out of this maybe a little bit faster than others. And maybe we should be looking at optionality in the FX world versus forwards. But I think it's really reassessing what we're doing.

We want to provide certainty in uncertain times. But it's also thinking from a risk management standpoint, a little bit more than just FX. Because as much as it doesn't feel great to hedge at these levels, given historical prices, I also have commodity risk and interest rate risk. And the prices in those right now are very good to a corporate like us. So it's also looking at those risk buckets and making sure what we're doing there aligns with what we're doing in FX. And again, being that 80% of our revenue is overseas, hedging is something that we focus on every day. And I think in this environment, it also goes to forecasting, and we're in constant communication right now with our business unit presidents, with the CFO, with everybody we could talk to in the business to figure out what are the forecasts. And in a U-shaped recovery and a V-shaped recovery or an L, or the term I like is the swoosh recovery; what does our business look like in those? And is our hedging program effective in all of them?

Lauren Franklin Hogan: And so when you were saying 80% of the revenues are overseas, are you looking -- are you modeling a different recovery in each market? How are you looking at that?

Michael Murray: Yes. Yes, so you're definitely going to see different recoveries in each market. And there's a lot of emerging markets that are going to have a much slower recovery. But there's also other levers as a business that we can pull. In a lot of emerging markets, maybe we just let the business run instead of reinvesting a ton of money into the business just yet. There will be time to do it, to come out of this much stronger than we are now. But maybe the time right now is just to try to figure out how long this impact is going to be and just like you said, what is the impact to the revenues? And it's going to be different in every country. So we also have to just keep in touch with out banks and every information resource that we have to try to help us along this path.

Lauren Franklin Hogan: Yeah. And Mimi, it would be great to hear from your perspective. You've got your clients based both in the US, UK, and global exposures. Have you seen any differences in the approach of clients in how they're looking to develop their risk management program?

Mimi Rushton: Thanks, Lauren. Yeah, it's been really interesting, actually, to see feedback from our clients, and actually also how this has evolved. So the really interesting thing for me, when we look at the response from the participants on this call on this particular poll, is that I feel that things have moved on even from where we were or where companies felt that they were at the start of Q2. And just to give some context, as Lauren said, we sort of look at clients across the globe. And we saw sort of particularly in April, that there was real regional variation in the way in which some people were approaching risk management overall. By far the standout topic of conversation which Ferdinand alluded to perfectly was that around liquidity.

But then it became around, okay, how can companies really think about the uncertainty that they're managing and a lot to sort of Michael's point, in terms of thinking about the modeling, the visibility, et cetera. And the universal theme has been one around a lack of visibility and a lack of real clarity to allow forecasting to happen. And that's not surprising in that with the best [will] in the world, Michael Gapen has given us his perspectives about what might happen in the US economy. But even his job has become that much more challenging in the last few months in terms of trying to predict what would happen in the economy. So extrapolate that to corporates, and it's with vast geographical dispersion and that, and that it's hugely difficult to navigate.

So we've seen a lot of uncertainty and lots of concern around forecast uncertainty, and the lack of visibility in companies. So if any of our clients have sat there thinking that actually maybe other companies have 20/20 vision and are able to navigate this or see things more clearly, I assure you that that is not the case. What is interesting is that, at the start of Q2, we'd seen the US firms had disproportionately chosen not to necessarily change their hedging approach. And they weren't even necessarily in the reassessing camp. And that was by far the theme that we were picking up at that time. But contrast that with companies in Europe where they absolutely were reassessing and in some cases had stopped hedging completely.

But over time, this has evolved, and you've seen some of the evolution in this poll here. We describe sort of what we've been seeing across with the corporate space specifically as the 3 Rs; so rolling, reducing, and restructuring. So we have corporates who have risk management solutions in place. It might be on the FX side. It might be on the currency side. But actually they just need to shift the time. Nothing is going to happen in Q2. It might not happen in Q3 for them. They might not take delivery of what they were going to. So they'll just roll it out to 2021 or beyond, and just adjust timing. So that's in the rolling camp.

There are some, and predominantly this is prevalent in the airline space, in leisure, in retail; where we've just seen outright reducing of exposure management. And again, it seems completely practical and in line with what's happening in the underlying economy, that people are taking off hedges that they no longer have a requirement for. And it's fair to say that in the vast majority of cases, that has coincided with companies who have really needed cash as well, where hedges have been in the money.

And then finally is restructuring. This comes into this idea of reassessing as well. Maybe it's not just about timing. Maybe it's about the fact that a supply chain has changed or the future just won't look the same as it did at the end of 2019 and the start of 2020. So therefore, we're seeing some material restructuring. People are thinking about which currencies they will be exposed to in the future, and in which proportion.

And to just finally pick up on Michael's point around the divergence between different economies and how you might choose to interpret that, we see a big distinction between the way in which people are thinking about their developed market exposures and their emerging market exposures. And really the latter is the one which is causing the most concern, partly because as Gapen mentioned, you know this is where it seems that there will be a more prolonged downturn and more uncertainty, but also because for some hedging emerging markets hadn't been as much of a focus previously, where you were in an environment of relatively benign volatility, and maybe the exposures in and of themselves were not as material. But suddenly when it becomes so much more uncertain, the cumulative effects of those are, you know, are more poignant for a company.

Lauren Franklin Hogan: Great. And thanks, Mimi. On your point about emerging, do you-- much still the center of the next style of topic, but I think it's important hear how the US-China tensions are driving further uncertainty. So Michael and Shawn, both of you, what should we be looking out for as the tensions persist?

Shawn-Pavan Golhar: This is Shawn. I think as you talk about tensions persisting, I think it's on a few different levels. And this is really driven by the US national security establishment, and the concern there is the US has been able to stay ahead in terms of the military by having an overwhelming superiority in technology. In previous generations, what we call the first like nuclear weapons or space-based communications, there was a clear differentiation between what was used for military and what was used for civilians. But going forward, video game technology, for instance, it is you know, the state-of-the-art is not military. It now ends up being what individuals have in their households and their teenagers play. But the military uses that for simulation.

When you think about facial recognition, it's really what users have or individuals have on their iPhones. But those are things that the military really needs to become experts in. So when you see this fusion of military and civilian, the worry is China is leapfrogging ahead in technology, and therefore will be able to win the next race for technology, be it 5G, quantum computing, synthetic biology, AI, robotics; all those things that we call like dual-use emerging technologies. It's driven by that, and this worry has been there for about a decade, building every year, and as the Chinese government puts out its made-in-China report and other strategic plans. And then on top of that, you have this hollowing out of America's manufacturing base, this feeling that the Chinese government has not lived up to some of the sort of thoughts that were going to take place by opening up in trade with the WTO. And then you toss in an election year right now, and it's a pretty explosive combination.

And lastly, the origins of the virus, and there's going to be a lot of folks who have talked about, was it militarized, was it an accidental leak; my take is there's mysteries and secrets. A mystery, not so sure where the virus came from. It clearly came from bats in the Wuhan region. But did it originate in a lab accident that was leaked out? That will always be a secret that we'll never know. And I don't think most folks, government officials even in China, will know the answer to that.

So I think as rising issues in the US in terms of unfavorable views toward China and literally 66% of Americans now have an unfavorable view towards the Chinese government. And as that's rising, you can see how politicians can begin to use that as a, quote-unquote, "base boogieman" going into an election, not unlike what we saw during the Cold War.

Michael Gapen: What I would just add to that, I'll take just a slightly different -- yeah, just take a slightly different tact with this, which is when I think of how the outlook could evolve, what I hear Shawn essentially saying is, even in the good state of the world, where we get, for example, better than expected science and medical outcomes, we're going to return to a world that has a high level of uncertainty. So either the coronavirus will be with us for a while, distorting our ability to operate and function more normally; or we're going to revert back to a world where we have kind of nationalistic policies and tensions between two of the world's largest economies. But we will now be in a multiyear period.

If we look back to 2018-2019, we had trade policy uncertainty. 2020, at the moment, is a COVID uncertainty story. 2021 and '22 will have either COVID or multilateral friction. And to me, that's makes for a very weak capital spending environment. So I do worry about structural issues that intertwine, that various points of uncertainty, if you will, mean that for a multiyear period, businesses don't invest capital deepen (ph), and we could have negative effects on potential growth going forward. So what I hear Shawn essentially saying is don't think we're ultimately in the clear. We're just going to return to a world that was pretty uncertain and had a lot of frictions, even in the good state of the world.

Lauren Franklin Hogan: And which feeds in nicely to one of our questions from the audience. So with the US-China tensions and de-risking by multinationals, which countries do you think would benefit from this?

Michael Gapen: Is that a question for me?

Lauren Franklin Hogan: Yes.

Michael Gapen: I think one that I would point to, I still think that if the economic spheres are breaking up a little bit, I think one obvious potential beneficiary on that could be Mexico. In a world where we're trying to re-shore at least some activity or as Shawn is saying, at least some parts of the economies could be disconnected. But we still need kind of low-cost producers. I think Mexico could be a strong beneficiary of that. And I think that's the one that I would point to on the top of the list. Certainly Mexico has its issues at present, just like many other countries. But that's one I think could be a clear winner in this.

I would say for other economies; it will depend on whether we take a multilateral approach or a unilateral approach. I can envision a world where we kind of impose a NATO in the Pacific. And Shawn has written and discussed a lot about this. Do we try and approach China from a multilateral perspective and get Japan, and Australia, and Taiwan, and South Korea and everybody on the same page? If that's the case, and we do do that, and we re-shore in a way that just puts supply chains and production within that sphere, then you could talk about maybe a Western style democracy-oriented zone that looks and sounds a lot like TPP, which you could get some benefit from. So I would kind of look at it that way, and I think Mexico could be a beneficiary. But beyond that, I think the answer is whether we take a multilateral approach or we continue to, at the present, use the go-it-alone approach.

Lauren Franklin Hogan: Okay. Ferdinand and Michael Murray, Michael Gapen and Golhar were talking about continued uncertainty and whether or not you manage short term versus further investment. How are you looking at modeling both survivalist, keeping liquidity, and keeping the business afloat; versus future investments over the medium and long term?

Ferdinand Jahnel: Yeah, this is Ferdinand. We did a couple of things. So in the second quarter, as soon as we were out of our blackout after reporting our financial results and issuing the 10Q, we also decided to further shore up liquidity and go into the US bond market, and we issued a 10-year note with very good investor demand that ultimately allowed us to repay any short-term borrowings that we had on our existing revolver that I mentioned earlier, thereby basically freeing up the liquidity capacity that we have available on the revolver, plus that additional credit line that I mentioned earlier.

Going forward, what is equally important for us is getting understanding how our cash generation is actually tracking according to plans that we established now in light of the coronavirus crisis globally. I mentioned we are a very global business. We are advising our clients in the area of strategy, risk, and people really across all industries. And that includes certainly also very distressed industries such as airlines, hospitality, retail. I think everybody knows what's going on in these industries, where companies experienced significant drop-offs of revenues. And we are tracking those industries specifically in terms of their ability to pay us on time. And we basically established an early-warning system that reports up to our executive management, to our CEO and CFO and other senior executives on a weekly basis, where we are in our cash cycle, how we are tracking. And if we see any material deviation from the past that we forecasted, how we are responding to that. So I think that is still going to become very important as we go deeper into the crisis.

I think the first quarter starting this July is probably the most severe one that we will see in terms of impact on the global economy. And we would hope very much of course that moving towards the fourth quarter we see somewhat of a normalization and healing of global economies as they're in the process of opening up again. But we will basically track very, very closely what is going on within our own infrastructure, and we have ongoing communications within the organization, and I have to say very good buy-in from all finance leaders around the world. But that is important. You have to engage. You have to make colleagues aware of the importance of cash in times like these. And you cannot overcommunicate that. And that's what we are doing on an ongoing basis, and I would say so far, so good. But like I said, I think the pain is still to a large extent ahead of us.

Michael Murray:  Yeah, this is Michael. I do agree with that about the pain being still ahead of us. To the question, I think in the short term, it really was all about liquidity and making sure that we had enough to meet our short-term commitments. And just like Ferdinand explained, it was the same for Coca Cola. Once we were able to tap into the external debt markets, then we were able to kind of adjust our debt duration mix to the longer term, and that kind of has freed up some cash to get us through this uncertain time. It does give us capital to reinvest. But if we do, that allocation will be greatly scrutinized by senior management. It's going to have to be a very strong business case for right now. I mean, there's going to be opportunities. We know there will be opportunities in this environment at some point to reinvest somewhere in the world. But right now I just think there's still too much uncertainty and cash is king. So just I think it's more prudent to hold onto that liquidity for now.

Lauren Franklin Hogan: Yeah. And Mimi, you talked of the three Rs and the immediate response from clients. Have you seen clients shift now to a more medium to long-term focus, or are clients still dealing with the immediate uncertainty?

Mimi Rushton: I think that we are firmly in this reassessing camp. I think that there are a couple of things. First of all, it's not clear whether you're sat within a bank like Barclays or sort of like Ferdinand and Michael within a corporate, as to whether the exposures that you had or the things that you were risk managing a couple of months ago are still going to be exactly the same in a year's time. And we also don't have the luxury of having the stability, whether it's in the markets environment or from a geopolitical perspective, to be able to make some predictions. So you heard from both Michael and Ferdinand that really prudence is the key. But in that reassessing camp is a case of saying, well, I don't really know what things will look like necessarily in the future. So how can I make sure that I give myself sufficient flexibility? And reassess some of the things that may be, as I said before, you know I alluded to emerging markets, and the reason that I repeat it is because it has been such a dominance in terms of theme, because the volatility has crouched back.

And none of us had really anticipated the return to volatility with quite such an aggressive tack. And I think that it has also made people think about the simplest of things in terms of, maybe I don't want so many manual processes in my treasury. Maybe I want to automate more, because I'm going to work from home, to Ferdinand's point earlier, and have an infrastructure and a setup which going to be demonstrably different into the future. So that reassessing is taking many different guises. And that's really sort of what's interesting from my perspective in the seat that I sit in. We sit in a largely consultative role, where we don't presume to have all of the answers, but we can try and think about different ways in which people can predict or even better than predict, I guess, risk manage appropriately from what might be there and what we might not be able to see.

You know, when we're thinking about what Shawn and Michael have alluded to, in terms of the multifaceted geopolitical issues that exist, let alone just COVID-related impact, it's quite dramatic when you think about having to navigate all of that.

Lauren Franklin Hogan: Yeah. Interesting. And we've got a lot of questions coming from the audience on a second wave. Michael, do you think that the potential of the second wave is accounted for when we look at the recovery of the economy? And what impact do you think that will be, that we'll have in terms of a recovery?

Michael Gapen: So I think a second wave, by what I would interpret as a second wave, is like the previous decades' flu pandemics or the outbreak in the fall, is more severe than the outbreak in the spring. So that, I would say, would be our downside scenario in more of a W-style recession, if you will, where we've got declines in Q2, a rebound in Q3, but somewhere in November-December, the outbreak comes with such ferocity that even though we may not see a return to lockdowns, there would just be a lot of informal social distancing by households and business again. So there would just be a retrenchment, whether states impose lockdowns or not, or countries did the same. And of course that would kind of prolong and kick everything out in terms of the recovery. And my guess is that it would outlast the social safety nets that have been put into place, and we would be wondering whether or not we would need more fiscal support, and to what degree that can be provided, given what's already been put into place.

So I don't think that type of outcome has certainly been priced into the median forecast or what financial markets at present are thinking. I think markets are kind of pricing in a world where we're going to have to live with the coronavirus for a while, which could even be a multiyear period. But we're not going to have these major lockdowns. So it's more of what I'll call a wide-path scenario, where we can have COVID outbreaks and the virus can continue to spread and move around, but not in ways that severely disrupt economic activity. And if we have a resurgence in the fall that happens across the developed world, not just in the US, then certainly we would be looking at downward revision, and I think others would be, too. And so it would be a halting story that way. It would be a false dawn, and maybe the collapse in confidence would be even more pronounced than it was the first time around.

Lauren Franklin Hogan: Okay. And there's opposite- this second wave we're able to recover and countries open up their borders again. Do you think if that happens sooner than expected, it will accelerate the recovery?

Michael Gapen: I'm sorry. It broke up there. Could you ask that again?

Lauren Franklin Hogan: So we're either going down the track of the second wave or hopefully the nation will be able to recover and deal with COVID, and we're able to open up the borders again, and countries will be able to travel in between. Will that accelerate the recovery of the economy, do you think, or not much impact when we look at the US?

Michael Gapen: I mean I think it will. So certainly I'd say the second scenario you described there is our baseline. And just we think though that there will be -- I think of the economy right now as essentially composed of two parts, two sectors; a virus-affected sector and one that generally isn't. And the one that isn't could see more of a V-shaped recovery, something that is a more quicker return to normal. But there will certainly virus-affected sectors, all the ones that we mentioned in the services sector and travel and leisure, hospitality, restaurants; and I think the effects will be much more prolonged and multiyear in nature. So the economy is kind of a combination of both of those. And so I do think it will take probably about three years for the economy to full rebound from this.

The upside scenario, of course, is we get progress on medicine, either through treatments that reduce the case fatality rate, or we could get progress on a vaccine. In that world, then things can rebound much quicker. We probably won't have information on that for another 6 to 9 months, though, improvement in treatments and preventative measures could come first. The vaccine is probably more in the 18 to 24 month horizon, whether or not we get that. We could get some information on the medical front, but probably not before the end of the year, given what I have read and the epidemiologists that we've spoken to.

Lauren Franklin Hogan: Thank you, Michael. I'm conscious of time. I know we could go on for hours with all of this uncertainty that 2020 keeps on throwing at us. And thank you very much to our speakers. I'm now going to hand it over to Keith Mackie, Head of International Corporate Banking, Americas, to close out the session. Thank you.

Keith Mackie: Thank you, Lauren. That was a fascinating discussion. The first question around who will be sitting in the White House was interesting. 57% looking for Vice President Biden to occupy that seat. 70% of the respondents thought there would be a U-shaped recovery, and fascinating to hear Ferdinand talk about the need to address liquidity needs immediately after the COVID situation came to light in March. Michael, very interesting to hear the Coca-Cola view to always reassessing FX risks. Mimi spoke very eloquently about the three Rs: rolling, reducing and restructuring FX positions. In the Q&A session, it was fascinating to talk about a potential Western alliance and dealing with China, important to shore up liquidity. Ferdinand spoke also about the weekly reports going to C level suite on the cash analysis; and Michael talking about how cash is available for investments, but really cash is king.

I really want to thank Ferdinand and Michael, Ferdinand from Marsh and Michael from the Coca-Cola Company, for spending time with us. It was just fascinating to hear your views in particular. Mimi, Michael, Shawn from the Barclays team; thank you. Lauren, amazing job hosting, and Sarah, Philip, and Nancy for making this facility available to us. Very importantly, to thank our audience, terrific that you could spend an hour with us. Please do reach out to your Barclays relationship team for help and guidance, as you go through the coming days and weeks ahead.

The next Treasurers' Forum is going to be on Thursday, next week, June the 25th. Lauren told us this already, just reaffirming: Manufacturing, trade finance and the changing attitudes to the global supply chain. Speakers will be Ben Simpfendorfer, who is CEO, a founder of Silk Road Associates. We've got Raul from the Barclays Economist team, and James Binns, Head of Trade and Working Capital. I'm going to close up now. The final session is going to be in London, the London-based session on July the 2nd, focusing on corporate financing and capital structures. But I would like bring today's session to an end. Thank you very much, everybody, for joining.

Alex Harrison: Thank you very much, and a very good day to everybody on the call. I hope you are all keeping safe, and we're delighted to have you join us for what should have been an enthralling discussion for you all.

As an introduction, I'm Alex Harrison. I lead the corporate banking business for Asia Pacific and the Middle East, and I've been based in Singapore since 2015.

As background, the Treasurers' Forum was launched in the U.K. by Barclays back in 2017, with the task of bringing the prevailing and pertinent issues to the table for discussion, with relevant experts alongside our client base. Taking this winning formula, we are now delighted to be able to utilize technology to open the content up to a global audience by virtual interaction. Thus, welcome to the global and virtual version of the Treasurers' Forum.

Clearly, it's an understatement for me to say this, but 2020 has had many issues to address. And as such, we are delivering a series of webinars to help discuss the impact of the pandemic and, more importantly, how we move forward.

I hope you've had the opportunity to listen to previous talks hosted in Europe, where we discussed liquidity, payments, and the digital future of Europe, and the one in New York last week, where we covered managing risk with geopolitical uncertainty, which also included a very stimulating discussion around the audience's view on the likely winner of the November elections, which was much closer than I thought it would be. Next week, we will conclude the series with a webcast in the U.K. covering the evolution of corporate financing, hosted by my colleague, Simon Ollerenshaw.

For today's agenda, we will be discussing the impacts of the pandemic on the region's manufacturing base, how global supply chains have been disrupted. We are also going to hear opinions about whether China can maintain its status as the world's factory and the associated impact to globalization, as well as the domestic opportunity this may create in countries such as India.

As such, to help set the scene for the panel and to help stimulate your intellectual matter, we will firstly be hearing from Ben Simpfendorfer, CEO of Silk Road Associates, before moving on to Rahul Bajoria, Barclays economist. Following their presentations, we will immediately head into our panel discussion, where Ben and Rahul will be joined by James Binns, Global Head of Trade and Working Capital for Barclays.

As the host, I have one ask of you all. We would really like this to be an interactive session. So, please post questions throughout, and I will feed these into the relevant person during the panel discussion. Equally, we will be gauging your opinions at various junctures. So, when you see a polling box on your screen we'll be delighted for you to action the poll's questions and, as such, we'll be using your responses in our respective discussions.

So, let us begin. First off, I'm delighted to welcome Ben Simpfendorfer to the discussion. Ben, thank you for joining us today. Ben, if you could just do me a favour and help set the scene for us? Please, could you just cover off and help us understand the drivers for global supply chains and, particularly, the role that China has played?

Ben Simpfendorfer: Alex, thank you very much. Thank you also to Barclays for the invitation to speak on what is such a fascinating subject. Good day to everyone on the call.

Global supply chains face historic disruption. We are going to see more change over the next two years than we saw over the last 20 years. Now, many of these changes were already happening, largely because of China's rising costs. The clothing and footwear sector, for example, has been moving to mainly Bangladesh and Vietnam for over a decade. Many companies have realized they're overexposed to China and have been trying to diversify. Firms call this a "China, plus one" strategy.

But COVID-19 and, more importantly, the U.S.-China trade war, has accelerated the change. Factories are moving out of China faster than ever. Last year, China lost more than 2% global market share in over 78 product categories. Over the past month, I've had the fortune to speak with more than 30 senior executives at global multinationals across a range of industries. We've also run analysis of trade data sets across 350 products to identify changes in the global supply chain.

Two key things to keep in mind. COVID-19 has shaken global companies up to the fact that they are overdependent on Chinese suppliers. Many companies source from a single supplier. The Wuhan outbreak was so disruptive because Wuhan is a major supplier of, for example, automotive air filters. It's a simple product, but you can't build a car without them. So, companies are now thinking to source from multiple suppliers. Now, that might mean a second Chinese supplier in a different part of the country or a supplier in another country altogether, such as Mexico or Vietnam.

COVID-19 has captured headlines, but it is the U.S.-China trade war which is having the larger impact. Again in my conversations with senior executives, many say that COVID-19 has impacted demand, but it's the trade war that is forcing them to change the way they think about their supply chain, as they seek to avoid tariffs or import bans.

Mexico and Vietnam are the biggest winners here. They have captured the largest share of the movement of those factories out of China. Together, the two countries have grown their global market share in consumer goods to near 12% and ICT products to 9% by last year. These are big movements in terms of global supply.

Southeast Asia and Mexico are clearly the destination of choice for now. Vietnam and Mexico will capture the largest share of the shift. Infrastructure, favourable tariff, labour supply, an established supply base with specialities across key products are compelling. But where are the other opportunities? Well, it's Southeast Asia, in particular, that will capture that large share of production.

So, the region's global market share for key consumer products has already risen by three percentage points since 2015. And yes, Vietnam has captured a large part of that share, but there are other emerging hot spots. Thailand's strength, for instance, is in the machinery sector. Industrial parks tend to be large, well-organized, it's simple to set up operations so long as you're in a Board of Investment industrial park. Now, I'm currently seeing Chinese and Hong Kong medical device manufacturers, precision machinery manufacturers, all on the ground in Thailand, all looking to set up factories.

Indonesia is the larger opportunity, of course, because of the country's labour supply, but the country faces some real constraints related to labour laws, labour productivity, raw materials, infrastructure, especially relative to China. So, it will take time for companies to develop the country's supply base. And we're not talking just years; it could be a multi-decade process.  It’s no different to the time it took for the same companies to develop China as a major supplier.

Now, Latin America is another alternative outside of Southeast Asia. Fast-moving buyers have reportedly already secured supply from countries such as Colombia. In fact, I heard just the other day that a major supplier of Happy Meal toys to McDonald's had managed to shift supply from China to Colombia. But these are exceptional stories, because manufacturing bases in Latin America and outside of Mexico tend to be very small and there just isn't enough supply of semi-finished inputs to satisfy many manufacturers. I was on a call just the other day with a large American sportswear company who said, "We'd love to source more from Latin America, but we can't get the type of glue that we need in order to produce our products. Ultimately, we have to buy it from China." And that's a constraint on their ability to move.

There is also no simple substitute for China's scale and capabilities. If we could move to the next slide, I have a number of charts here that help to underscore the scale of China. You can see here that the country accounts for 46% of total consumer goods exports; another 41% are global ICT exports. These are significant figures. Our geospatial analytics shows that China's southern manufacturing hub in the Pearl River Delta has as much established industrial land as all of Southeast Asia combined.

And so, factories are leaving, but they're finding that their options are far more limited than they might have expected. Vietnam, for instance, is filling up fast. And what we are finding is that land acquisition is particularly problematic. I heard that on a recent trip to Ho Chi Minh, for instance, from one of the country's largest industrial park developers, and they're beginning to face constraints on where they can find new land and looking for or looking to move further north, if only because it's less developed.

Much the same, I recently caught up with a major European brand owner who said that he'd skipped Vietnam entirely and went to Indonesia. Why? He said, "Look, we just can't compete. The clothing and footwear manufacturers have successfully moved into Vietnam, but now the electronics factories are moving in. The competition for labour is just too fierce. We don't think we have a future there. And so, better for us to move to Indonesia now, rather than get squeezed out of Vietnam in the next few years." So, scale really matters.

Now, select critical industries will definitely reshore. Medical will be the first to go. Global brands are unlikely to bring back their entire manufacturing base to Europe and the U.S., but products such as medical PPE, there's very good motivation to bring that type of production back.

Now, China's role in the medical sector is often overhyped – it actually only accounts for around about 6% of global exports – but it does have, or accounts for, a significant share of key PPE products, including face masks, protective goggles, protective gowns, as well as pharmaceutical APIs. These are the things you need to make medicines. So, it's growing concern in Europe, the United States, as well as other economies about their exposure, their dependence on imports from China for these products that will help to reshore medical manufacturing. In fact, China has scale in these products and can produce significant volumes at an attractive price, but the competitive thresholds to bringing this manufacturing back home, in fact, aren't that high. If governments are prepared to commit to long-term contracts or other regulatory barriers to trade, then the production can come home.

 The redevelopment, though, of supply bases – particularly, industrial supply bases – in the United States is a multiyear, multi-decade process. Companies will start to source more industrial machinery products from the United States, especially if they're selling to the United States or where COVID-19 disrupted their supply chain. And there is capacity to bring manufacturing back. Don't forget – and as you can see on the lower part of that chart – that America and Europe still have significant industrial goods manufacturing capabilities. They account for a significant share of global exports.

But it's a gradual process. What you'll typically find is that companies will look at their portfolio of products – they might pick five products – and they'll look through those products and say which of the parts and components needed to produce these goods can be sourced from home? And as they work through a single product and then multiple products across their portfolio, they will begin to find success, but it will take years, if not decades; no different to when these companies looked to develop their supply bases back in China.

And it's also not necessarily that the product will – the manufacturing will be reshored to either Europe or the United States. For instance, Taiwanese manufacturers are major players in China. And while they are leaving the country, they are primarily investing back in Taiwan. We have seen a significant shift, for instance, in manufacturing of laptop and server production being moved back to Taiwan over the last 12 months, largely as these Taiwanese companies were concerned about export bans on their products being shipped to the United States. They need to be able to produce products that have a "Made in Taiwan" label on the box.

Now, the wildcard of course in all this process is not tariffs, so far, but it's executive orders issued by the president. We've had a number of conversations with trade lawyers in Washington who've emphasized that, in fact, companies are often able to get exclusions to the tariffs. Their real concern, though, are executive orders such as that imposing a ban on the use of foreign-made parts in the energy sector. While these orders can be legally challenged, it creates uncertainty for many companies, and it is a driving factor, at least in the long term, to over time find ways to source more product and develop your supply base in the United States.

My final point here – and it really is an important one – the U.S. is a big market, but it's not the only market. Multinationals will still produce in China for China. And in my conversations with senior executives of American, European, Japanese multinationals, they've all described China's large and growing market as a reason to retain manufacturing in the country. For example, GM sells more cars in China than in the U.S. We've heard similar stories from a German chemicals company, a Japanese electronics company, an American industrial goods company. China is their fastest growing market. So, if they plan to build a new factory it's most likely to be in China.

So, again, just to conclude, we are witnessing a major change in globalization, the end of it as we've known it over the last 30 years. The global trading system will look very different over the next 30 years. But factories won't simply relocate back to Europe or the U.S. or even Korea or Japan. Asia will remain the world's manufacturing hub, and China will remain critical to global trade. And we will increasingly produce in China for China, and Southeast Asia for the world.

Thank you very much, Alex. Back to you.

Alex Harrison: Thank you. Thank you very much, Ben. Some fascinating insights there, from trade wars to impacts of supply chain to COVID through to intricacies to supply chain through to domestic movement of manufacturing due to the U.S. market and, obviously, government interactions. So, wide ranging and fulsome. Thank you.

Rahul, I'm looking to now bring you into the conversation, please. You would have seen and heard, obviously, Ben's comments, particularly focusing around the Chinese economy. So, it would be really interesting to get your perspective for myself and the audience around the global supply chains in other emerging markets and Asian economies, in particular. Over to you, Rahul.

Rahul Bajoria: Thank you, Alex. It's a pleasure to speak at the Treasurers' Forum.

I think Ben has really set the context here about China's significant role that it plays, not just initially as the producer and the exporter to the world but also now, increasingly, as a consumer. And when we think about in my conversations with policymakers around the region, I think the view on China has effectively shifted from one where it was – Asian economies have always been very open, they've always been very prone to sort of an export-led growth model. And hence, the role of global value chains has always been very, very high.

And so, clearly, while there are opportunities for them – as Ben laid out, countries are benefiting from the very slow-moving but very consistent movement in global supply chains – they also have to be very mindful of the fact that the interdependencies on China for these small economies across the region has increased quite significantly over the last two decades. And they both see China as a source of a high-end technology, but also as a source of a high-end technological demand, right? So, China's role as a consumer economy is only going to keep on increasing.

And so, it is something that most countries in the region are sort of approaching, I would say, with caution. They don't want to miss out on the opportunity that's presented by the Chinese market, to ensure that the access is theirs. The value chains are going to take longer to kind of get redistributed, and I think it will largely be dependent on economic reasons, rather than just being completely dependent on political reasons.

Now, within this particular context as we sort of look at – if we can move to maybe Slide #8 – what we find is that there's clearly – there has been an impact across the region, even before COVID has been laid out, that supply chains were starting to move around. I would completely echo the point that it's a political uncertainty and the uncertainty around sourcing which probably was a bigger driver of the redistribution of supply chains that we have seen.

And this is not a new factor. We have seen this happening time and again in the past, as well. If we go back and, say, look at what happened after the Asian crisis, what happened after the 2011 floods in Thailand, or the earthquake in Japan, companies who do have distributed production bases and who rely on multiple suppliers do tend to look at the impacts from these disruptions quite carefully, because it can have significant knock-on effects on both their ability to produce and ability to manage their commitments from a delivery perspective.

And so, the distribution of supply chains is something that probably will continue, but it is going to take time and it will also be a function of what is the underlying demand situation looking like and what are the final consumption markets that these countries are looking at. So, to give you an example, where we have seen very significant amount of movement possibly has been in the high-tech electronics manufacturing space, right? So, say, companies, Taiwanese companies, who have been very large manufacturers in China, they have taken the advantage of some of the schemes that were rolled out by the government in Taiwan to sort of bring back some of the investments in manufacturing sector. They are easier to do so, because these are machines producing other machines. And so, there has been some movement, but any kind of a large-scale shift has not completely been felt.

Now, within that context, when we think of large-scale shifts, India is often touted as a country which could be a possible – I won't say a replacement, but certainly an alternative. And in this particular context, this has been a longstanding story, in some sense. And if we can move to look at India's own integration into the supply chains, it has been very slow, and it has been very, very gradual. And I think in my experience, most companies that we talk to still sort of look at India as a large market, rather than a large production base.

But it is starting to change, and the government has had some successes in attracting investment through the correction of inverted duty structures, where domestic taxes are not above what the import taxes are like. So, it sort of gives you incentives to produce within the country. There has also been significant progress made on the ease of doing business. Tax structures have been corrected.

But I would say in the very near term – sort of bringing it back to the discussion around COVID – what we find is that India now has the largest number of cases within Asia. And so far, there has not been any clear signs of the case count peaking out. There has also been the most stringent lockdown that was imposed in India, which has had a very, very material knock-on effect on supply chains, on both domestic and international supply chains.

So, I think the COVID response for the country is going to be very keenly watched by global international investors, simply because it gives you a sense of the state capacity of operating in a post-COVID world where you could have risks of rolling infections. How do you tackle that from a health perspective? Do you have frequent lock downs? And these near-term signposts will probably have a reasonable amount of long-term impact on the way I think global manufacturers would sort of look at India and sort of think about whether it's the next big place to kind of invest in.

But my own personal thinking on this is that I think India will, at the margin, benefit. We have seen certain types of investments come back to the country, particularly for consumer goods. But I would say, like, my own personal bias is to say that India will always tend to probably disappoint at the margin, given that there are multiple layers of government, multiple layers of bureaucracy. And so, until the time we see some more streamlining and sort of improving the actual ease of doing business on the ground, the promise of being a large manufacturing centre for India will always, at the margin, disappoint India watchers. And that is something that probably will set the context in the way India can reasonably deliver as being an alternative to these large, glacial shifts that are happening at the global level when it comes to global value chains.

Maybe I'll stop here and pass it back to Alex.

Alex Harrison:  Rahul, thank you very much, and great insights there. Interesting dynamics around India, large market, less sort of production house, some very interesting commentary around that. And I think the commentary around the bureaucratic change for palatial shift that needs to happen to make India a manufacturing powerhouse of the future is just a fascinating insight and, hopefully, will prompt some questions from our audience.

So, on that note, I'm very keen now that we do actually get some audience engagement and we get everybody involved. So, I think we should move to our first poll question. So, if we could just upload the question onto the screens, please? That would be fantastic.

The question we're just going to pose for you initially is very straightforward. "During the past few months, have you experienced or seen disruption in the supply chains?" That can be for your own company or for the clients, clearly, that you serve. Very straightforward responses needed: "yes," "no," or "can't say." We're hoping for a "yes" or a "no," please. That would help the discussion.

What I'm going to do, though, is whilst we collect the answers I'm going to introduce James Binns. Of course, James, I would like you to cover this question for us initially, if that's okay. James was already covered in the introduction. James is our Global Head of Trade and Working Capital for Barclays. He has a deep understanding of global supply chains and, as well, he's well-versed with the regional dynamics. So, welcome to the discussion, James.

If we could just post the results to the audience, please? That would be very helpful. So, just see the results are going to pop through, James. So, James, the results are coming through loud and fast. As expected, a large number of people have faced disruption or seen disruption in their supply chain over the last few months. It would be super if we could get your views on the response to this, as well as actually if you could give your perspective from what you're seeing from other markets and other clients around the globe.

James, over to you.

James Binns: Thank you very much, Alex, and hello to everybody and I hope this finds you all well in these difficult times.

No surprises on the result there. I would have been worried if the results had been different. But I think the interesting thing that I've seen in terms of disruption is it's been a region-by-region story. Obviously, everything started with China and the lockdown in China. And then as lockdowns spread, different supply chains were impacted at different times and with different intensities, while others started to open up again, to some extent.

But equally, the other thing I found interesting was some of the knock-on impacts of one supply chain being impacted or one region being impacted and the knock-on impact on other regions. A good example was with China and the initial lockdown that happened in China. There was a shortage of containers and, particularly, refrigerated containers in the rest of the world because so many containers in terms of the world container supply got trapped in China. So, I thought that was quite interesting.

In terms of if I was a treasurer and some of the risks I would be looking at, the discussions I've had with treasurers in the past, I don't think the subject matter really is different in terms of the underlying risks. But the difference now is the level of urgency and intensity around some of the discussions that we're having with clients.

First and foremost, if I'm a Treasurer I want to understand the impacts on my own working capital cycle and my own cash conversion cycle. Are my buyers demanding different terms? Is that going to change my own cash flow? Do my suppliers need support? Do I need to extend payment terms? So, do I have the financial firepower to be able to support my supply chain and my working capital cycle?

Secondly – and this is again a topic which I've had varied answers on in the past – is do I have real visibility into my supply chain? Do I understand where my suppliers are, what the average terms are? Do I have standardization? Do I have segmentation of my suppliers across strategic, nonstrategic, etc.? And again, I think that's something that companies are really trying to get on top of with a much greater sense of urgency than before.

In terms of the risks, for me, the five key areas when looking at supply chain – and the interesting thing is here whereas that was previously done with a lens of geopolitical and trade wars and regulation, now obviously we've got the additional COVID lens. FX risk is an interesting one, not just from a direct point of view, but an indirect point of view. So, if you're a buyer in the U.K., buying and selling from a producer in China, it doesn't mean there isn't an FX risk in your supply chain. Because clearly, the supplier may be facing FX risk.

Shipping and logistics, understanding the various risks in your supply chain and again back to my point over the lockdown spread.

Funding and finance. Does your supply chain have the funding and finance it needs? Is the cost of funding to your supply chain optimal? And again, I think large buyers can help with supply chain finance schemes and really working and collaborating more with suppliers in that regard.

Local regulation, tariffs, and quotas. Clearly, another big area to focus on.

And then, finally, the emerging one around supply chain risks, which is ESG.

So, for me, none of the underlying risks or categorizations have changed. It's more about the intensity and urgency and priority of the underlying risks.

Alex, back to you.

Alex Harrison: Thank you, James. Some fantastic insights there.

We've actually had a question from the audience on a technical point around supply chain, James, and I'd be grateful if you could cover that. I'll just cover it off for you. "Post COVID, it brings to the surface the concern of supply chain efficiency, cost of production versus resilience on supplies. Would just-in-time and zero-inventory type of solutions be a thing of the past?" Any comments on that, James?

James Binns: Yeah, no, thanks, Alex. I don't think they will be a thing of the past. The big thing I'm hearing now from treasurers is they need a greater degree of diversification and balance in their supply chains. Whereas before, perhaps, the supply chains were too skewed towards cost of production and cost efficiency, I think now people are realizing that there needs to be a greater balance. So, to use the zero-inventory type solutions maybe there will be more of a mix, where there's less zero-inventory but still an element of it. And that's what I'm hearing at the moment.

Alex Harrison: Fantastic. Thank you. Hopefully that answered the question for our audience member.

I'd like to actually move to the second poll question, if I may, now. If you could just upload that onto the screen? Again, just to repeat the question for you, "Do you feel that China will maintain its status as the world's factory or premier production house?" Again, "yes," "no," or "can't say." If we can just get that up and running? Again, do you feel that China will maintain its premier status as the world's factory: yes, no, or can't say.

Ben, I'm going to be coming to you with the response of the results. So, if you could just get ready with us, if we could just post those results as well, please, to the audience, that would be super. So, Ben, we can see that. And a resounding 60-plus percent of people believe that China will maintain its premier status, very much in line with some of your early comments. But any surprises with that result from your side? Or is there any additional colour you would like to add?

Ben Simpfendorfer: No, it doesn't surprise me. China clearly is one of the world's largest, fastest-growing markets. Again, to repeat, many multinationals will say to me in conversations when they have the capital to invest in a new factory, most likely it will be in China. That's where the growth is, that's where much of their R&D is being spent.

But equally, many of these multinationals are using China as a hub to export into the emerging markets. China has captured significant market share of global exports into the emerging markets, especially Asia, Middle East, Africa, especially in the industrial machinery sector. And look, that's partly Belt and Road related, but it's also owing to the fact that many big American industrial goods companies are now producing goods in China for sale into the emerging markets. So, China and emerging markets combined is a market of significance, and you would expect it to see or retain significant market share.

I'd also add to that, that smart manufacturing is much talked about. It is difficult to implement, but leading firms are. And within five, 10 years it will become a significant differentiator for many manufacturers. The fact that China is investing into its smart manufacturing capabilities, developing their 5G infrastructure, developing software capabilities around that area, also puts it at an advantage, certainly in the long term, and maybe another reason it will retain manufacturing even when factories are looking to diversify into other markets.

Alex Harrison: Fantastic, Ben. Thank you for that.

On a similar theme – we're going to stay on China, Ben – I'm going to ask that you stay on the line, actually. Again we've had a couple of questions that have come in from the audience, relating actually to the U.S.-China trade war. So, "How would the U.S.-China trade war evolve in the current COVID situation? And how will it continue to impact Asia?" That's kind of the first question. And then just a slight follow-up from that, as well, which I think will help add context to China, "How much of foreign companies' that manufacture in China product is sold to the Chinese consumers, actually, domestically rather than internationally?" If you could comment on those, that would be--

Ben Simpfendorfer: Two great questions.

So, we are in an election year. Presidential elections are due in November. So, there's obviously a good deal of uncertainty about how that trade war will evolve. But nevertheless, our base case is relations will remain tense. I do meet with quite a number of U.S. Congressional officials as they pass through Hong Kong. What's so striking is that cross-party support for a pushback on China is quite – is significant. China, for better or worse, has very few friends in Washington at the moment. And so, relations will remain tense.

But the war is evolving beyond pure tariffs, into techno-nationalism. And the focus increasingly on 5G, artificial intelligence, is where the real flash point will be. American firms are finding – again, just to repeat an earlier remark – American firms are certainly finding that it is possible to get exclusions to tariffs. If your competitor gets an exclusion, everyone in that product category enjoys the same exclusion. So, it really is, in my view, sort of 5G, artificial intelligence, where the potential flash point is.

How does it impact the rest of Asia? To the earlier remarks, the sheer uncertainty around the trade relationship. The impact of executive orders, whether legal or not, on the supply chain, though, are forcing companies to say, yes, as James mentioned, "It's no longer about costs. We need to build some resilience. And to do that we need to be at least adding capacity in other markets, whether that's in Southeast Asia or Mexico." So, we will see factories continue to leave, at the margin.

Foreign companies that manufacture in China, the large share of their product is, in fact, sold to China. In our analysis, it is typically where they've invested in their own production lines. They produce in China, for China. It is the factories – particularly, OEM factories – that are producing for American brands, such as the clothing and footwear companies. They tend to be producing more for the export markets, and that's where it's a dislocation in the supply chain, because the clothing and footwear manufacturers, for instance, would like to leave, would like to relocate to other markets, but they need to bring their Chinese manufacturing supply base with them. Until the last few years, we haven't seen a movement in that supply base. Over the last 12 months, we've finally getting to see some traction with those OEM manufacturers are willing to move. But for the other foreign companies manufacturing in China, the large share is actually sold to China.

Alex Harrison: Thank you. Thank you, Ben. Great insights, as ever.

Rahul, I'm going to turn to you now and continue on a similar theme, actually, because I really want to cover off how the West views their dependence on China. So, Western economies clearly wish to reduce their dependence on China as a manufacturing production base. But I think one of the key challenges here is, how do you think they'll be able to convince the private sector to enable that to happen? Rahul, over to you.

Rahul Bajoria: So, I would say it's much harder to convince the private sector to necessarily do the government's bidding. I think, as Ben kind of indicated, that the use of tariffs has been the preferred,  you know, [unkown], but it has not fundamentally worked because the trade deficit of, say, the United States with China has actually expanded just in the aftermath of these tariffs when they were put on. And so it's probably more the executive order part which tends to create significant amount of uncertainty.

There could also be – in the post-COVID world, we have seen countries sort of model production incentives, giving subsidies to their companies to bring back some of critical care production, but also to sort of think about what could be the implication of reliance on one country.

So, I think the resiliency argument is probably something that the Western economies might kind of use to sort of incentivize their companies to sort of reduce their dependence. But at the end of the day, private companies will take and should take, decisions which are in their shareholders' best interest, right? And so, it will probably be a much longer process than what ideally the governments in the West would want it to be.

Alex Harrison: Super. I guess one of the key challenges there is the debate of cheap imported goods versus locally produced but expensive products, right? So, it's a key challenge. And again, the political versus the shareholder debate is an interesting dynamic to explore, as well. Thank you for that, Rahul.

James, again just continuing this thread around supply chains and movement of production, etc., just in your experience and what you've seen from your global role, it would be really good to get a view around how long in reality it does take to create systemic change around a supply chain and actually moving production to another market, the challenges that that creates. Any thoughts from you on that?

James Binns: Certainly, Alex. Thank you. So, the answer depends to some extent on the sector you're talking about. I think that there's great variance between different sectors. If you've got a company like Airbus, for example, which has very sophisticated, specialized suppliers, finding alternative suppliers is very complex and a very long-dated exercise. Whereas if you've got a general manufacturer of light goods, unbranded, then clearly they are potentially at the other end of the spectrum.

But generally – and Ben referenced this earlier on about the movement of garments from China to Bangladesh – it takes a long time to diversify a supply chain and find new suppliers, etc., etc. But I do think, though, that what can change more quickly is the balance of levels of inventory and just-in-time versus having more stock. So, I think what we will see as a result of this quite quickly is – again, relevant to sectors – sectors stocking more and inventory levels going up.

Alex Harrison: Thank you, James. Interesting from a sectorial perspective how we have a very broad-based question, but actually you've really got to delve into the detail and understand the dynamics of the particular industry.

And on that theme, there's been a specific question from the audience around a sector, and I'll quote. "There is emerging evidence that COVID-19 is related to the meat and fish production industry. Do you see food supply chains being impacted if this does indeed prove to be the case?" Rahul, I'll send that slightly challenging and political question over to you, please.

Rahul Bajoria: So, I'd say there's been disruption across all supply chains for the last few months. Clearly, now that some parts of the world are starting to recover from the first wave of the virus, we are seeing these supply chains getting reintegrated again, and there have been some concerns about food contamination and things like that.

I would say this probably fits into the broader trends that we have seen across – Asia is a very large exporter of food, as well, particularly in Southeast Asia. Countries like Thailand, Malaysia, India, to a certain extent, export very large, vast amounts of meat and seafood and stuff like that. And so, I think the whole ESG debate might kind of come into this picture quite quickly, and not only from a hygiene, from a sanitation perspective, but also from a sustainability perspective. I think these issues are going to be looked at very closely, not just at the company level but also at the country level, about how do you prevent significant damage, possible systemic issues cropping up from your food importers or food supplies.

So, yes, definitely, this is something that this particular supply chain will have to be looked at very closely.

Alex Harrison: Super. Thank you for that. You raised within your answer a point that's come up one or two times already on this call, around ESG. Do you just want to give some brief commentary for the audience, please, around the growing importance of ESG to corporates and to supply chains and how much that's being factored into future planning and strategy, Rahul?

Rahul, do you want to cover that one?

Rahul Bajoria: Yes, sure. So, I would say my sense is that it is something that's coming up pretty frequently nowadays. As a research house, we have started to sort of look at ESG as a standalone issue, not just on some of these specific sectors but also looking at it more from a sector level and also as a separate theme. We see also a development in financial markets about specific funds being launched, looking at ESG as a key topic.

So, from that perspective I think the importance is going to keep on coming up. And as we look at what – another factor maybe to add here is that when we look at trade data and we look at supply chains, one of the biggest non-tariff-based measures that countries are now using against each other is around phytosanitary barriers. They are looking at non-tariff barriers. And ESG could be used as one of those barriers on a very, very large scale.

So, it's important that companies think about their ESG mandates and how are they meeting some of the global standards that are fairly preliminary and still being debated upon.

Alex Harrison: Thank you, Rahul. It's a very sharp topic of discussion at the moment. I'm seeing it across the Asian client base that I deal with, as well. And I'm sure Ben and James have got some views they'd like to share. So, Ben, I'll move to you first. If you'd just give us a perspective from your side on ESG, that would be very helpful. And then, James, I'm going to follow up with you on it, as well. So, Ben, over to you.

Ben Simpfendorfer: ESG is critical. Again in my conversations with clothing and footwear manufacturers, ESG is really the biggest barrier to being able to source from a new country. I recently was on a trade delegation with a number of large American brands in India, and the Indian manufacturers would often want to talk about labour costs, and that's understandable. But the American brands were instead much more interested to talk about, "Do we – can you provide industrial parks that have 100% water recyclability? Do they provide high levels of renewable energy?" because this is what matters today.

And some have often remarked that Bangladesh's success is in part because the supply base was developed when ESG was less important, but it would be much harder, if not impossible in some cases, to develop Bangladesh today with ESG standards where they are. It's often overlooked, but it really is critical, especially for global brands who are very aware of their social role and their social media presence.

Alex Harrison: Fantastic. Thank you. A great perspective, as ever. James?

James Binns: Thanks, Alex. Yes, I'd just want to add really to some of the points that what we are definitely seeing is a move to start including ESG criteria in supply chain finance programs and really looking to try and incentivize suppliers to move to stricter ESG criteria by offering them cheaper supply chain finance. And I think that's really a growing trend and something we'll start to see a lot more of, going forwards.

And equally, as we talked about earlier on, as large buyers start to diversify and balance their supply chains more, as they look to select new suppliers, I think there's a good opportunity for them to select some of those suppliers on different criteria to the ones they had maybe previously used.

Back to you, Alex.

Alex Harrison: Yes, agree completely with those comments, James. It's becoming such a deciding factor into a corporate's decision making process around its supply chain, and I think it will just ever evolve.

I'm now going to move to another audience question, actually, and I'm going to pass this to Rahul, firstly, and then probably get some comments from Ben, as well, if I may. And surprise, surprise, we've had a question around the Silk Road. So, "Would China continue with their Silk Road projects? Also, would the projects shift into different types?" I guess that means different types of projects or a different change in their strategy. So, Rahul, if you could just provide commentary? And then, Ben, we'll pass it to you, please.

Rahul Bajoria: I think the Belt and Road initiative from our perspective is a very, very long term, you know, [unknown] that the Chinese government has been looking at, and there is plenty of support still there. I think in a post-COVID environment, we could see a bit of reprioritisation of some of the projects, but I don't think there's going to be any dramatic change in the size and the scale and the vision and the objectives around this particular thing.

I think from a projects shift perspective, I think securing supply lines is going to become more important. It's not just foreign companies or Western companies, but also I think Chinese companies could also think about how do they distribute their supply chains at the margin. So, it could see a more variety of players looking to leverage the Belt and Road initiative in order to make sure that their resilience also increases at the margin.

Alex Harrison: Thank you, Rahul. Ben?

Ben Simpfendorfer: For me, Belt and Road was already evolving, and quite rapidly. The U.S.-China trade war has only accelerated that change. I've had a chance to visit and conduct field research in sort of 30-plus Belt and Road countries over the last years and, in fact, sit on a foreign experts group advising the Chinese State Council on the policy. What was clear is that many Chinese companies – state companies, in particular – had realized that they were trapped into many low-income, small-sized economies and were struggling to earn a viable return. Many of the larger projects had been cherry picked. And so, it was difficult to build scale. And so, we were already starting to see these same companies flex back into Southeast Asia, because it's here where there is commercial scale. It's also here where there is supply chain connectivity back into China.

The U.S.-China trade war has only accelerated that shift, because as we now see Chinese manufacturers move into the region it makes many of these projects more commercially viable. And so, we're seeing many of the state companies now begin to focus on the types of ancillary projects that support industrial parks – and that's power, road, rail, ports, and so forth – and to build out effectively what are ecosystems that will ultimately be populated by Chinese manufacturers. So, a significant shift in the policy itself and perhaps a welcomed shift, because it ultimately means a greater focus on viable projects, projects that are more directly linked to an existing supply chain, but also projects where there's greater private sector participation and greater collaboration with foreign companies. So, as I say, a welcome shift.

Alex, back to you.

Alex Harrison: Thank you, Ben. Great insight. I think the viability of the projects and the interconnectivity with private enterprise is long overdue. So, good to see that those signs are coming through.

We've had a great question come in from the audience, as well, and changing tack slightly. And Rahul, I'm going to be pushing this one your way. "Post COVID, second half 2020 and into next year and 2022, will the recovery be a 'V,' 'U,' or 'W' shape?" And from my perspective, you can choose any letter you like. Over to you.

Rahul Bajoria: Sure. So, I'd say it's going to be quite disjointed across the world. One of the consequences of each country managing its own version of the pandemic is that their economic recoveries are going to look very disparate. I think if you're just looking at China, you're clearly seeing the V-shaped recovery in activity, which could eventually turn into a "W," depending on what the global backdrop looks like. It could play a moderating factor.

But then I would say for most of the world it looks like they are going to be in a fairly extended U-shaped recovery. It's going to take time. We still don't understand what's the amount of economic scarring that has happened in terms of the capital stock. And there is still a lack of understanding on what are the risks of growing infections, right?

So, I would say the shape of the recovery remains a work in progress, in some sense.

Alex Harrison: Fantastic that you didn't stick to any specific letter, and grateful that you didn't call it an L-shaped recovery, which would probably be a disaster for all of us. But thank you for that insight.

Rahul, I'd like you to stay on the line, actually. We posted up a question, again changing tack, to the audience, and if we could actually post the results of that question out, please, if we could push that out, that would be fantastic. But the question was, "Will the U.S. dollar continue getting stronger and maintain its status as the world's reserve currency over the next decade?" I guess the interesting dynamic here is- is, Rahul, is the political dynamic where Trump is often quoted as saying he wants a weaker exchange rate and move away from the longstanding bipartisan position of favouring a strong dollar, above all.

I'd be really interested in your views. The audience, 72.5% have clearly said they believe it will be. I'd be really grateful for your opinion.

Rahul Bajoria: Sure. So, I would say there are two parts in this question. I think in the near term the U.S. dollar probably will remain relatively strong, given the risk aversion that's there within financial markets, despite the monetary policy differentiation, the extent of policy support that's there in the U.S. and which is probably going to keep people relatively comfortable holding the dollar.

I think the bigger question really is around the maintaining of the status of the world reserve currency. And this is where the big disconnect between, to a certain extent, between U.S. and China might come through. And something that most emerging economies will have to kind of grapple with, is this idea that China, from a real economy perspective, remains very, very important, probably the most important economy for most countries from a trade perspective.

But then the dominance and the freehold nature of the reserve currency of the world is-  doesn't look like that's going to change anytime soon. And how does China sort of increase its – how does it sort of build confidence around reducing the dominance of the U.S. dollar? It's going to be a very interesting issue and something that could dominate a large part of the next decade, right? It could be one of the big themes that we have to look out for in the next stage of China's development.

Alex Harrison: Thank you. Thank you, Rahul. I'm probably going to draw a line there now around questions, moving forward, and probably would just like to summarize where we've got to.

I guess we had an overwhelming view from the audience that they are seeing severe disruption across the supply chain and have done, obviously, during COVID.

We've obviously seen some real thought-provoking commentary around China maintaining its status as a premier manufacturer or the world's factory. We had our experts comment on the challenges it brings in removing that capability elsewhere. There will be pockets of opportunity in other markets. There will be some winners that come out off the back of that. But it's intransient in its position, and we'll see that maintained for a long time. Remember, China produces for China, as well.

And I guess the kind of final piece is the ongoing debate around the U.S. dollar and, obviously, the audience believing it will maintain its dominance, its position in the marketplace, the world currency of choice. And I guess that will bring some interesting dynamics for China as it evolves its Silk Road initiative and looks to expand cross-border.

So, I've just got a comment that I've really welcomed the conversation today. I think we've covered some hugely wide-ranging topics. I would like to thank our panel experts, please. That's Ben Simpfendorfer. I would like to thank Rahul Bajoria, as well as James Binns. I think you've provided excellent content today, gentlemen, and thank you very much for joining.

And equally, as well, I would like to thank the audience for so heavily participating in the conversation that we've had today and look forward to you joining the next webinar, next week, where we'll be discussing the evolution of corporate finance.

On that note, thank you.

Simon Ollerenshaw: It's Simon Ollerenshaw speaking. I run UK and Swiss Multinational Coverage for Barclays in the Corporate Bank. Delighted to welcome everybody – a slightly belated start – to the fourth and final instalment of our Treasurers' Forum series on life after lockdown. We're going to be talking today on "Corporate finance, the new normal."

I'm delighted to have with me a great panel. We have Brendan Boucher, who is Group Treasurer at the Compass Group. Many of you on the call will know Compass. For those who don't, it's a FTSE 100-incorporated, FTSE 100-listed, U.K.-incorporated global business, providing support services in 45 countries worldwide, employing pre-COVID at a half-million people worldwide. And I believe I'm right in saying right in saying, serving about five and a half billion meals per year.

We have Alisdair Gayne. Alisdair is Head of our U.K. Investment Banking business at Barclays – and so, our advisory, M&A, and capital markets businesses – and has lived through the full range of financing discussions that we've had with clients during the crisis period.

Ray Travis heads our Credit Rating Advisory team in Europe and is  the key part of the advisory discussions that we have with clients around balance sheet structure.

And we also have Henk Potts, who is a senior member of our Investment Strategy team.

As we run through the call, you should see on your screens there's a box to enter questions. You can do that at any time during the call, and we'll try to incorporate it into the discussion.

And before I turn it to Henk for an overview of how we see the economy at the moment and prospects for a recovery, I'd like to do a quick test of how we're feeling, if we could publish the first survey. You should see a question on your screen about how we see the impact of COVID. Is there going to be a short-term impact and we'll return to previous normal? Will there be an acceleration in structural changes in the economy which were already happening and will end up stronger? Or lastly, will it be a long-lasting slowdown and take a considerable time for the world to recover?

So, I think the answer is we're feeling optimistic in the audience, and Henk can work with that frame to our discussion. But the results I see at the moment, we were starting optimistic, we were starting optimistic, and now we're getting a little bit more pessimistic as the results come in.

Henk Potts: Well, good afternoon everyone. It's a pleasure to be with you. It will be interesting to see whether those numbers alter as I go through my discussion this afternoon. To be honest with you, I thought the majority of people probably would have gone for "B." That's kind of how we see the world. There's plenty of evidence of the V-shaped recovery that's shining through. But as we know, there's a range of potential risks out there to that outlook and, indeed, a number of caveats that we would need to make in order to get to that assumption. But let's see how we go and whether we can change your views a little bit and become perhaps a little bit more optimistic in the outlook for the global economy.

So, I've got 15 minutes, or so, this afternoon to discuss the outlook, and I thought that we'd focus on three major areas: number one, the impact of the coronavirus on the global economy and the policy response that we've been seeing; number two, the U.K. economy, but also what we can expect from the Bank of England, and of course COVID-19 has overshadowed Brexit, that continues to bubble away in the background – I'll give you an update on that; then, perhaps consider what the post COVID-19 world looks like.

One thing we do know is of course that COVID-19 lockdown has thrown the global economy into recession. The pandemic has resulted in millions of infections, hundreds of thousands of deaths around the world. The outbreak has placed enormous pressure on national health services. Governments have been forced to impose aggressive measures, including social distancing, self-isolation, and of course restrictions on travel, all in an effort to try and contain the spread of disease. The locking down of economies has resulted in an unprecedented drop in economic activity, surging unemployment, permanent losses in output, and temporarily slower potential growth.

As a result of the disruption we now expect the global economy to contract by somewhere around 3.7% during the course of this year. To put that in some sort of context, at the start of the year we were expecting a year of growth of somewhere around 3.3%. So, it's a dramatic change in course for the global economy as a result of the coronavirus.

The scale of the risks to the global economy has encouraged central banks to slash interest rates, as we know, and inject huge amounts of liquidity into the financial system. Governments have embarked upon an extraordinary fiscal response, including allowing companies to furlough staff, to as well as pledging vast sums in loans, grants, and credit guarantees.

The reality is future growth prospects will inevitably be determined by the lifespan, the intensity, and the geographical spread of the virus. However, a controlled lifting of restrictions should help to alleviate some of the economic pressure, although activity will, as we've said before, continue to be vulnerable to the development of a second wave.

A true normalization of activity will only occur when a vaccine has been developed. And given the time required to develop, test, and distribute a vaccine, it's unlikely to be widely available in the next 12 to 18 months. But I think with the tentative reopening of economies, the vast level of stimulus instigated by policymakers, we are projecting a recovery as you look through the second half of this year and into 2021. For example, next year we've got global growth penciled in for 5.2%. But certain sectors – airlines, hospitality, non-food retail – will, in many cases, I think take years to recover. And we also think there's likely to be permanent changes to working patterns, supply chains, and indeed global trade.

Moving on to the U.K. economy, the pandemic, as we know, has disrupted the U.K. economy. The country is facing the highest number of deaths in Europe, although of course there is a debate about exactly how comparable those numbers are, how indeed they are calculated, but that's the headline that we continue to see.

First quarter GDP was slightly worse than the original forecasts were suggesting; it contracted by 2.2%. Remember, that only contained a few days of the lockdown. Second quarter, as we know from the data we've been seeing, is going to be significantly worse. April retail sales volumes, I'll remind you, on a month-on-month basis fell 18.1%, the worst that we've seen on record. For the second quarter, we are forecasting a significant contraction: 17%, widely regarded as the worst that we've seen in three centuries, although probably better than was feared only a couple of months ago.

And we do know that the U.K. data has been improving, activity is rebounding as the economy reopens. Mobility indicators show a pickup in public transport indicators and driving activity. Electrical power load usage has rapidly recovered from the April lows. There's also signs that households are willing to normalize their spending patterns fairly quickly. So, we've seen a rise in footfall levels in stores. Sales volumes in May rebounded; they jumped a record 12%, although we should remind ourselves still 13.1% down on a year ago.

Moving on to U.K. inflation, it fell to a four-year low in May. Consumer prices rose just 0.5% from a year earlier. Amid the weaker demand that we've been seeing alongside that, the falling prices for fuel, was down 16.7%; weakness in transport, recreation, and cultural goods; only a modest upward pressure from food and non-alcoholic beverage prices.

In terms of the outlook for inflation, CPI is expected to fall slightly further than the Bank of England's forecast in the near term as the drag from COVID-related shock continues to build, but then is expected to rise during the course of 2021. The direct impact of the recent fall in the oil price drops out of the annual comparison, and the downward pressure from domestic factors wanes as demand starts to recover.

To give you some of the headline figures, we expect a contraction of 7.5% during the course of this year. For 2021, we say we think it will be supported by that significant fiscal stimulus and monetary easing. Therefore, we expect the bounce back, with growth of 5.8%.

Moving on to the Bank of England, well, we know we've seen an aggressive response coming through from them. The Bank of England had already cut interest rates to a record low of 0.1%. They increased the size of the bond buying program by £100 billion, taking the total amount to £745 billion, but they did slow the pace of the purchases quite sharply, seeing as there is improvement in the high-frequency data pointing to a faster recovery and also benefiting from the stabilization of financial markets looking better certainly than the Bank was previously predicting, allowing them to make that move. They said the plan is to stretch the program out until the end of the year. But it's still an aggressive timetable, we should remember, by any historic standard.

What are they hoping to achieve through the quantitative easing? Of course, boost economic activity and reflate the economy. To remind you, large-scale purchases of government bonds lowers the interest rates, or yields, on those bonds, thus pushing down the interest rates offered on loans, particularly mortgages and business loans. Cheaper borrowing should encourage spending.

We should also remember QE also boosts asset prices, drives the wealth effect, and also leads to an increase in spending.

There are some unintended consequences that we should be aware of, particularly putting pressure on investment strategies around long-term interest rates for returns, particularly pension funds, and encourages investors to take on more risk to generate a return, inflating asset prices. It can also generate further income inequality.

Negative rates, of course, has been one of the big topics that we've seen in the headlines, and market participants have been watching developments here very carefully, indeed. To remind you, it's where the central bank charges retail banks on the deposit excess reserves with the central bank, instead of paying an interest rate, the theory being it makes it expensive for banks to sit on those reserves, forcing them to lend the money, thereby stimulating growth and reflating the economy.

The question is, of course, would it work if they were to do it? Well, even the threat of negative interest rates pushes borrowing costs lower: Britain sold a bond with a yield below zero for the first time recently. There is some evidence that introducing negative interest rates can be counterproductive, can lead to changes in behavior, particularly amongst consumers, suggesting actually it could discourage activity, and there's a range of academic reviews taking place particularly on that subject.

Perhaps more importantly, though, there are again a range of unintended consequences: causes havoc in the banking system, leads to declines in net interest margins – Europe has been a good example of that; discourages companies from holding adequate buffers against financial stress; encourages individuals and businesses to take on more debt, which may not be sustainable; encourages investors to take on more and more risks that we've been talking about, which can lead through to asset bubbles; and creates zombie companies which are detrimental to long-term development of the economy.

I think from our perspective we would need to see a massive deterioration in growth expectations for the Bank of England to consider such a move. Policymakers, in our view, are more likely to remain focused on the coordinated monetary and fiscal approach that's been taking place, with those—with that focus very much on measures that enhance liquidity, address dysfunctional markets, boost confidence, and stimulate demand.

Let me quickly pick up on where we are in terms of Brexit. Boris Johnson's conservatives of course came to power in December, pledging to get Brexit done. Britain officially left the European Union on 31^st of January, formally entered this period of transition. However, the fourth and final round of official talks on the future trading relationship between the U.K. and E.U. concluded recently with little progress. So, the risk of a no-deal Brexit has been rising, although there have been some pledges to pick up the intensity of negotiations to try to get a deal done when we saw political leaders meeting in the past couple of weeks.

There are a number of key sticking points that remain. The level playing field commitment. The U.K. continues to reject the E.U.'s demand for a level playing field which would see the U.K. aligned with E.U. standards in areas such as the environment and workers' rights. There's also disagreements over the government and the form of the agreement, along with things such as the sovereignty of U.K. fishing waters, financial services equivalents, and the role of the European Convention on Human Rights. And finally, of course, the Northern Ireland protocol.

So, where does this leave us? Under the withdrawal agreement and the extension, needed to have been agreed by July 1, that deadline of course has gone. However, there continues to be speculation about what might happen towards the end of the year, with a possibility of a short technical implementation extension if an agreement hasn't been reached in time. I think, realistically, we can expect little progress in the negotiations until near the end of October, with each side holding off as long as possible before moving on those key positions.

I think we should be cognisant – and the Bank of England has certainly been warning banks to prepare for a no-deal Brexit. The impact of that I think is going to be a little bit more debate-- it will be less dramatic than we've seen in the run-up to previous deadlines. Companies have now had four years to prepare for it. Policymakers have promised unlimited support. There's an argument for saying businesses would finally welcome some much needed clarity. And there are some signs that trade agreements with other countries have been gaining some early momentum, although of course we do need to respect the fact that Europe is and will continue to be the U.K.'s most important trading partner.

So, finishing off my presentation this morning, let me look at the post-COVID world. Past the worst if we are at that point, and that of course is still debatable – but past the worst does not mean out of the woods nor, in our view, back to normal. COVID-19 crisis we think will have many implications for society, economy, financial markets over the long run. I think we're looking at more debt. Fiscal deficits and public debt, as we know, have been skyrocketing. More inflation.  Less globalisation. COVID-19 we think can accelerate deglobalisation, which of course started with the trade war, prompting governments to promote self-sufficiency in some strategic areas, particularly around food, healthcare, and defense.

More technology. Technology, as we've seen, has played a key role in keeping a big part of the economy afloat when most of the world went into lockdown. More working from home, as we're seeing,  more virtual meetings, less business travel. Less office space is needed. So, the crisis we think accelerates digitalization of the economy. If you talk to executives within technology companies, they say adoption rates have been increased probably by around about two years, or so, from their previous expectations.

I think more healthcare is clearly going to be on the cards, as well. The crisis reinforces a secular trend towards more healthcare spending by governments and more universal coverage. I think that's in both the developed and emerging economies. Research budgets will likely get a boost, as well as spending on infrastructure and equipment. And I think it's going to be an important thing as we go through the U.S. presidential election campaign.

And let me finish off by saying we also think there's going to be a different type of consumer out there, as well. COVID-19 crisis accelerates the shift in spending patterns and consumer behavior. Contagion fears, social distancing rules, more working from home, as we've been talking about, and digitalization will force supply adjustments to meet the new forms of consumer demand.

So, our view is that the global economy can indeed bounce back. We expect a recovery, as I said, in the second half of the year, particularly as you look out to next year. Some big structural changes have been taking place, and companies will need to continue to adapt to meet those changes.

That's probably my 15 minutes up. So, let me, on that point, hand it back to the moderator.

Simon Ollerenshaw: Super, Henk. That's great. Thank you. And I'd just like to pick out – there was a lot in the discussion there – to pick out up one point, on negative rates, because I find that's getting quite a lot of debate at the moment.

And we'll do another quick poll survey of the audience, if we could release that second question. The second question essentially says, do we expect to see negative rates in the U.K.: yes, but temporary; yes, and will become structural; or (C), no.

And while that goes out, just a reminder to people that you can also ask live questions on any topic through the box on the screen.

As we see that come in, it looks to me like we're getting quite a considerable bias towards "no," which we'll take as being a good thing. Yes, that continues.

Henk Potts: I think given the negative experience that we've been seeing from Europe and the challenges that we've seen around negative interest rates and the knock-on effects, for us it would be such a dramatic step to see that from the Bank of England or, indeed, from the Federal Reserve. If you listen to policymakers in both areas, they've somewhat moved away from it. I think the idea of suggesting it's possible is probably as beneficial as it can be, as opposed to actually going ahead and introducing it.

Simon Ollerenshaw: And it's going to end up with reasonably close, just tips in the favor of "no," but a fair proportion thinking there's a chance of a temporary move into negative rates.

So, let's move a little bit and talk around the experience of what we've been seeing from clients during the crisis period. Alisdair, if I can bring you in at this point, we've got a broad international audience on the call. Clearly, everybody's lived through their own version of the crisis. But it would be very useful to get an overview of how you think we've seen it develop in the U.K. and how that's translated into client activity.

Alisdair Gayne: Sure. Thanks, Simon. I think a lot of people immediately tried to draw the analogy to the '08-'09 financial crisis as we entered COVID, and I think the reality dawned very quickly that this was a very, very different crisis that we were dealing with. COVID had obviously a much more rapid and much more severe impact on the corporate sector straight off. Obviously, in '08-'09 it was a financial crisis that then leached itself into the corporate sector.

So, a number of companies saw revenues plummet as economic activity reduced dramatically. For some companies, revenue went to basically zero in a relatively short space of time. And obviously, few companies have designed a capital structure or liquidity buffers to survive a sustained period like that.

So, the reaction that we saw at the get-go in sort of mid-March was, unsurprisingly – I think it could be characterized as – a dash for cash. As I put it, consumers were busy stockpiling toilet rolls, and a lot of corporates were busy trying to stockpile cash at that point.

It started off manifesting itself in the form of RCF drawdowns. I think, (a), that reflected just the need to get cash in the door; (b), I think it also reflected the fact there's a degree of scar tissue out there after the financial crisis. I think there was a concern right at the outset of COVID that this could quickly become a banking crisis. That was not the case and has proven not to be the case. But I think that fed appetite just to get cash wherever they could.

To give you a random sample of the severity of that, if you look at the last couple of weeks in March we saw RCF drawdowns from our clients go up by about 50% in the space of that couple of weeks. So, a fairly substantial move in a very, very short space of time.

I think, though, very quickly it became obvious to everybody that existing RCFs were not going to be enough. This wasn't going to be a one-week event. Companies needed to build up buffers that were going to last them for weeks and months. So, the focus shifted very, very quickly to "where can we find alternative sources of capital." And again, that next stage, it was very debt focused, and that was a focus, one, in terms of securing bilateral debt from banks and, two, particularly in the U.K. and I'm sure elsewhere around the world, how to access the various sort of government schemes in place.

I think in the U.K. there was a lot of hope that the fairly hastily put together, but reasonably successful, CCFF scheme by the Bank of England would provide a lot of liquidity and potentially take pressure off bank balance sheets. If you look at it over the period – the last data I saw – I think about £19 billion to £20 billion of liquidity have been delivered through that scheme. We acted on about half of it for our clients in getting them access to it.

 But the problem we had with that scheme was, one, it was purely accessible by investment grade companies and a lot of the companies that found themselves in the eye of the storm – retailers, travel-related companies – weren't investment grade. And two, even if you were investment grade, they put caps on how much you could access it by. So, for a lot of companies they were capped out at a £300 million limit, which just was not going to be enough.

The government clearly tried to help that. They put in the CBILS schemes, etc. But what it meant was the pressure on banks to deliver more balance sheet continued into sort of April and May of this year.

And obviously, as RCFs are drawn down, credit deteriorates, and bilateral loans go in place, you start to see as I would describe it, enhanced levels of discipline by the banking sector. And I think it became clear that banks' balance sheets alone were not going to be sufficient.

And so, we relatively quickly started to see companies turn to the equity markets. And definitely you've seen the first few equity issuances in the U.K. were very much sort of packages put in place with a debt and an equity component, with banks saying, "We can provide some balance sheet but you've got to get some more equity capital in your capital structure to make that work." So, we've seen a fairly serious step-up in in equity issuance. Those early raises tended to be companies that were very much in the eye of the storm and needed to raise capital quite quickly. I think, and we can talk about this later – we've now started over the last month, or so, seeing companies accessing the equity market to fix long-term leverage, rather than worrying about sort of short-term survival needs, and indeed some companies raising equity to try and strategically position themselves for growth, post COVID.

So, we've definitely gone through the whole phase in what I would say is an incredibly compressed timescale. Things moved remarkably rapidly from the, effectively, panic to draw down RCFs, to try and secure bilaterals, to desperately working out how to access government money, through to the realization that debt alone wasn't going to be the solution to this, and into equity. And I think we should come on later, Simon, and talk about how that equity dynamic worked. But it's been a roller coaster ride I think for many corporates to get to where they are today.

Simon Ollerenshaw: Roller coaster seems to be a pretty decent way of describing it.

Brendan, all that Alisdair has talked about in terms of how quickly the crisis unfolded and then the various balance sheet and financing measures that companies have had to go through, it strikes me that you've lived through a lot of that. So, great to get a sense from you of how you saw the crisis period unfold and the decisions that you've had to take as a result.

Brendan Boucher: Thanks, Simon. It certainly was an intense period, and it wasn't just the end of March that was intense. I'd say it was sort of sustained pressure and series of challenges through sort of March, April, and May, culminating in our equity placing.

But just sort of thinking back to the early days of this, there was a good few days after our head office had officially closed in the U.K. when the only people in the office were the CEO, CFO, and the Treasury teams I think tells you quite a lot. Clearly, initial focus hundred percent on liquidity. Even as Alisdair said, we were one of the companies that came into this in good shape, with low levels of leverage, plenty of headroom, but it rapidly became apparent that wasn't enough.

Our initial forecast of what potentially additional liquidity we might need – and that was based off of business forecasts for the second half of our year; our year-end is September – when we were first sort of putting that together, we shared it with the CEO. He said, "Double it." And we all gulped and said, "Is that really –? Are you serious?" And we were serious. And that's where we started at the end of March.

Some specific challenges. So, we were just about to enter a close period for our Half Year end and, frankly, in those sort of middle weeks of March the debt capital markets were essentially closed in any case. We saw liquidity in the U.S. CP market, particularly for a tier two issuer like ourselves, dry up. We were a little bit slow to recognize that. We had termed some U.S. CP out, but not as much as we might have done with hindsight, of course.

And we were facing how do you forecast in this environment. Very, very difficult when you're asking businesses around 45 countries to forecast accurately when things are changing so quickly. And we were running multiple scenarios, what ifs. What if this looks like? What if Q3? What if the current level of closure? And we were facing from our business up to sort of 70% revenue closure in a rapidly short space of time. We're now at around 50%. So, just less than 50%, globally. So, there's still a big impact.

So, what did we do? I think I'll come on and talk briefly about the sort of corporate finance actions – obviously, there's a lot of other activity going on, as well, across the business – just really briefly. An immediate change I would say from a P&L-focused organization, as many are, to a cash-focused organization right across the regional teams and the in country teams. Immediate cost mitigation; so, stopping M&A, really scaling back on CapEx, suspension of dividend, etc. Guidance to the businesses around the group on good working capital practice: you know, basic collections and acceleration and escalation of any receivables. We moved staff in different countries from internal audit functions into debt collection, effectively, just to make sure there was appropriate focus on that. Evaluating furlough schemes from a cash flow impact. And obviously, tax deferrals in multiple countries and putting in place the right processes – a triage process, if you like – to sort of evaluate various government funding schemes around the place. We looked at a lot. We didn't do a lot in the end, but we certainly looked at a lot of these transactions.

In terms of communication organization, a complete sort of an immediate step-change in focus. All nonessential project work was stopped. Ironically, we were due to go live with a new treasury management system in May/June. So, we had to put the whole thing on hold, mothball it, and furlough staff that were working on it. So, it was very difficult. But a good degree of cooperation across the corporate functions, biweekly work streams across group finance, legal, Treasury, tax, and IR, in particular.

One thing to say, the external pressure switched very, very quickly from the normal P&L business-related questions regarding margin, incremental margin improvement, and growth, sector-specific, etc., to balance sheet liquidity, cash covenants. And we'd operated with a pretty prudent level of leverage in the past; so, very little external focus on liquidity and no questions historically on covenants. So, quite an education process required internally – not being disrespectful to anyone – lots of nuances in our U.S. private placements, as the only place we had financial covenants, three different series of notes outstanding, and different covenant levels and step-ups depending on M&A, etc. So, big education exercise to get everybody on the same page.

Proactively last year, we eliminated financial covenants from our main RCF facility. Good foresight or good planning – luck, whatever you call it – but obviously it was a good thing to do. We didn't see the need to fully draw our RCF. There was external pressure and a lot of incoming questions as to, well, other people are doing it, why aren't we doing it? We didn’t see it the same as a run on the banks. I felt comfortable relying on our committed facility, that it would be there for us.

We rapidly put in place a new RCF with a subset of relationship banks. A few challenges. This was at the end of March. Coming into the quarter-end, it was difficult. Not all banks responded the same. Some found an 18-month duration very difficult. Some found the price difficult, even though we weren't particularly aggressive on price. So, incremental RCFs in place within about two and a half weeks.

The first –the real government support, as already mentioned, the CCFF, fortunately, when we put in place our CP program, first CP program, for the group last year we set it up – and a slight anecdote here – with Barclays as a global program on the basis that setting up a global program wouldn't be much incremental work than setting up a U.S. CP program. It was an awful lot additional work, and we were probably sort of cursing that a little bit after the event, particularly since we hadn't issued ECP off our global program. Obviously, with hindsight again that proved very helpful. Having the ECP program in place enabled us to move quickly on the CCFF, and I think we submitted our order at one minute past 10 on the first day of trading, when the window opened at 10 o'clock.

Clearly, at the time we did that we did not know. They hadn't said what limits were in place. We put in a substantial order. Our order got sort of capped at, in our case, £600 million. Clearly, a big number, but not what we'd asked for. We didn't have much visibility on.  we didn't know that was a limit at that point in time. So, we tried again the following day and received nothing. So, obviously, by deduction, we said, well, that's probably what the limit is for us for now. A rigid NDA from the Bank of England didn't help at the time when we were under pressure to announce CCFF as a sort of sensible and helpful source of liquidity.

So, I think if you put the RCF and CCFF together, for us it was about £1.4 billion of additional liquidity in three weeks – so, certainly an intense start to the lockdown – rapidly followed by seeking covenant waiver on our U.S. private placements, and we got about $1.6 billion outstanding. A difficult process, I would say. We had to move quickly. This became a discussion topic in the analysis as going concern. It coincided with our interim at the end of March, and I suspect that a number of other corporates have been through a similar challenge.

From my perspective, absolutely no, the presence of these covenants, absolutely no question into the going concern capabilities of the Compass Group. But clearly, it's the starting point for the auditor was, "Well, you've got a financial covenant in place. Therefore, there's a risk of not meeting it. Therefore, it's a potential material uncertainty." So, that really caused us to accelerate the process, the next test date, up until September of this year. So, we had to go early with it, which in itself maybe raises more questions than answers.

Specific challenges. Clearly, it's hard to be precise on forecasting. And when you've got the investor group saying, "Well, what's the covenant going to look like in six months, in a year?", and all you can do is present a range of heavily caveated scenarios, that makes for a very difficult discussion.

We needed multi-period waivers, six, a second half of 2020 to September 2020 covenant test, and we were looking at a very tough second half of this year equates to a tough first half of next year. So, we're looking at covenant waivers for the next two test dates.

And clearly, it's easier for PP holders to agree to amendments to levels, rather than complete waivers. We had to fight very hard for that, on the basis that, "Look, we have some forecasts. These are scenarios. They're not business forecasts. It's very difficult for us to predict. Therefore, to give any certainty we need a complete waiver, rather than an amendment to the level, whatever that level goes to."

Ultimately, any observation for this? Well, supportive in the end. I think going into it with low leverage, a well-run business doing well, and the issue being purely COVID related clearly helped. Concessions other than the existing financial covenants that were waived were clearly asked for and all things we were comfortable to concede. It wasn't about economics. You can't solve that covenant waiver with throwing money at it. It is about the sort of credit analysis. And clearly, it took a bit longer to get these things through than we might have anticipated.

So, before we even got to equity there was a lot on our plate. Obviously, now we're all familiar with working from home, but most of that was done in the initial early weeks when it was new for us. So, clearly a challenging time.

Simon Ollerenshaw: There's a lot in there which I think will resonate with many people on the call, particularly how quickly the pressure shifted to – external pressure shifted to balance sheet analysis to liquidity to covenants. And as you say, a number of people have found that what was previously quite a comfortable level of leverage suddenly was in the headlights. And other constituencies in that, too: the rating agencies.

So, Ray, if I can bring you in at this point, I think if you generalized life since the '08-'09 crisis, market liquidity has meant that lending conditions generally have relaxed increasingly as the world moved towards BBB. Now, that might be an interesting place to be, depending on how the process unfolds. How are the rating agencies responding to this? It seemed to me it was a fairly cautious response at the start. We're now starting to see some downgrades coming through. Moody's has warned about economic growth. Are we going to see a fundamental change in methodology? Or from a rating agency perspective is this a one-off shock?

Ray Travis: Thanks, Simon. I would characterize it as a measured response from the agencies. To give you some context, by the end of June S&P in Europe had taken over 500 rating actions, which was getting on for 40% of their entire rated portfolio. And while half of those were just outlook changes, the other half were actual downgrades. So, there has been a pretty severe impact already in ratings of COVID-19 and of course the oil price crisis. Of those rating actions, speculative grade – so, non investment grade – did outnumber investment grade actions two to one, but still clearly a lot of investment grade companies have been hit. Obviously, we've mentioned retail, transportation, business services, and so on.

As another, I guess, shout-out to the agencies, they did play a useful part in the CCFF. They fast tracked a lot of companies through the process to obtain those investment grade ratings and access the facility, although in practice, the amount outstanding of about £20 billion is I think a lot lower than people would have expected.

So, as you've heard throughout today's discussions, the agencies' initial focus was very much on liquidity. "Have you got enough cash for at least the next 12 months?" Although of course rating agency calculations assume you are still operating and generating cash. So, that clearly is something that came from somewhat left field.

And once you've sorted out that liquidity through emergency funding, covenant waivers, etc., their attention has certainly turned to capital structure, more broadly. And indeed – and to echo Alisdair's comments – we do see in our ratings team a lot of requests coming in now from companies asking to think through the capital structure with them. So, is it appropriate for the risks in the business, going forward? Indeed, have those risks gone up? Or is it a perception that the risks have gone up because of what we're currently going through? Will the rating agencies be a bit more demanding? What are our peers doing? And indeed, do I want to create some more financial flexibility if there are some interesting M&A opportunities out there?

So, a typical scenario has been a business that's been badly affected by the crisis and it's now making forecasts and assumptions for the shape of its recovery and where it will be, say, at the end of 2021, which is the typical time horizon of a rating outlook. And of course because it's been so volatile, then even a small deviation in those growth assumptions will mean the difference between hitting or missing financial targets or even covenants at the end of 2021.

So, the question then is, do you take some credit strengthening measures now, like setting a disposal underway, issuing hybrids or equity? Or do you wait and see? And of course if you're too cautious now, you might be accused of having an inefficient balance sheet down the road. Or if you wait, you might find yourself scrambling around to restore the balance sheet in very adverse conditions. So, quite a tricky balancing decision for a company, and we're obviously very keen to help making those informed decisions. But our discussions do suggest that more and more companies are more willing to consider doing something like an equity raise when the market is there and others are doing likewise.

If we look at the last financial crisis, which of course hit the bank sector very hard, banks are now typically three to four times better capitalized than they were then. I'm obviously not suggesting or expecting anything like that on the corporate space, but I do expect a perceptible move in that direction.

Simon Ollerenshaw: Alisdair, it strikes me that that plays back to the comments you were making earlier about starting to see a wave of equity issuance coming through, not necessarily driven by short-term necessity, but more long-term planning or to take advantage of the market environment. So, maybe you could just talk a little bit longer than that.

Alisdair Gayne: Yes, sure. Happy to. I think, as I said earlier, I think the initial equity raises were a question of survival. Increasingly, by proportion, they are more about thriving, post COVID.

I think one of the big things that enabled equity to happen was the relaxation in the preemption guidelines. Preemption is a real obstacle to companies getting out quickly and raising equity, because they're limited to raising just 10% of their issued share capital. That got relaxed due to COVID on a temporary basis through till September, to 20%. And that really opened up equity as being a more rapid solution to a liquidity issue.

So, it certainly helped those that are in the eye of the storm, and it certainly has helped companies that went in, in a good position from a balance sheet perspective, but found COVID stretching their leverage ratios, as a relatively quick means of fixing, to a certain degree, their leverage. So, as they come out of COVID, they're not going to have an equity story that is hampered by an ongoing drip, drip, drip of how long is it going to take to get the leverage back into a sort of pre-COVID zip code.

To put it in perspective, we've seen since COVID started impacting the market there's been about £15 billion worth of equity raised in the U.K. market. That's about three times the historic run rate. So, it's sort of doing its job in this crisis.

I think what it will leave corporates thinking about is, is it's not just leverage. I think it's also sources of capital. For companies that are more in the mid-cap zip code that have relied very heavily on banks, it gets very difficult to get banks to sign up for more debt in a scenario where the current bank debt is larger than the market cap of the company, for example. And so, I would hope coming out of the crisis some companies will take the opportunity to diversify their sources of capital. They need to obviously have bank debt, but capital markets debt, as well, alongside equity.

And then on the leverage points, it is interesting. It'll be interesting to see – as Ray pointed out, banks fundamentally changed their capital structure post the crisis, but they were dragged kicking and screaming by regulators to do that. I think it would be really interesting to see what the corporate memory is post the COVID crisis, because there won't be that regulatory stimulus. It's going to require corporates to act upon the experience they've had and consider how much buffer zone do they want in their capital structure in case one of these situations arises again.

One would think the direction of travel should be towards a more diversified source of funding and lower overall leverage metrics, on average, across the markets. And I would hope that people will have an increasing understanding of the value of the equity market. In the U.K., corporates are typically very, very shy on tapping the equity markets. In the U.S., it's tapped all the time. Preemption makes it a more troublesome scenario to go through in the U.K. market. But I do think institutions have delivered quite a lot of capital into the U.K. corporate space very, very quickly.

Simon Ollerenshaw: And Brendan, you're one of the leading examples of a company that's ultimately ending up raising equity from the market. Again, you weren't doing that from a position of being forced into it, as some were at the start, and it's not a decision that any company takes lightly. What were the thought processes that got you to the conclusion that equity was the right thing to do at this point?

Brendan Boucher: I think the points previously made are certainly all relevant – were all relevant in our decision making. At the end of the day, uncertainty is high. Henk mentioned before about does this take until post vaccine for the situation to materially improve. Well, in the early days I think we and others were talking about pre and post lockdown. That debate moved on to be, well, for our business where you're relying on mass sort of participation in large corporates, at restaurants and large sporting events, amongst other things, does that have to be – does that not improve really until you're pre and post vaccine? So, not pre/post lockdown anymore, but pre/post vaccine.

There's a lot of uncertainty. As I said, difficult to forecast, and we ran multiple sort of scenarios looking out at 2021 and beyond, based on how we see or how we think the business might return. Are we going to return to 100% of where we were before? Absolutely not. Is there going to be a second wave? Clearly we don't know. So, lots of uncertainties, going forward.

Clearly, part of this was offense, to prepare for the future, to increase our optionality, to continue to invest in the business, to strengthen our competitive advantages, going forward, through enhanced liquidity, ability to continue to invest in CapEx, support organic growth, the ability to continue to look at inorganic growth opportunities that might materialize with others in the sector who might be more challenged than we are, and, frankly, the capacity to right size the business to the new normal.

So, a little bit of offense in there as well as the sort of defensive side, as Ray said, to reduce leverage, but that's definitely part of what we're doing, one, to get back to the sort of leverage we typically operated at beforehand, which wasn't high – 1.5x net debt-EBITDA long-term sort of target. But now we are – so, we used the equity raise to get back to that sort of level more quickly and also to, going forward, operate at a lower level of leverage than previously was the case, just to build in slightly more prudence into a relatively prudent balance sheet in the first place.

So, we raised around £2 billion, about 10% of market cap. We used the accelerated book-to-bill cashbox placing. As you said, a very useful tool to be able to move quickly. It was still an intense period of work to get it done. Just also a call out to the retail offer. We included a retail offer, using primary bid. Whilst numerically small – it was capped out at €8 million equivalent – it did receive some positive press coverage, giving at least a short window of opportunity for retail investors to participate.

So, we're still a month on, or so, from closing the equity placing. Still a lot of uncertainty. Clearly, a decision along the way: do you fund this with debt? Could we have done so in the debt capital markets? Yes, it's clearly the case. But you're then going to put yourself in a position or potentially put ourselves in the position of having to really be allocating all free cash flow to pay down debt and not be able to invest in the business.

There was an investor survey, post equity issuance, to see what investors thought of it, and – general comment – it was nearly three times covered on the day, good support from the existing shareholders and some new investors, as well. The investor survey partly said it may have been over prudent, but over prudent in order, therefore, to be able to invest in the business going forward.

So, from my perspective we're now – obviously, we're in a good position. We're in a good position to not be fielding continual questions about balance sheet, covenant, liquidity and focus on running the business, which is obviously ultimately what was important.

Alisdair Gayne: The other thing I'd--

Simon Ollerenshaw: Go on.

Alisdair Gayne: I was just going to say, it's interesting, the "overly prudent" comment. I actually think in the equity market there is a premium valuation for prudence now, and there's definitely a premium valuation for acting quickly and decisively to get away from the issues that Brendan touched on. The ongoing drip, drip, drip of a focus on leverage and credit metrics is not a great one for an equity story. And I think as long as it's a quality business and the equity is sized to basically fix the leverage issue, it gets a lot of support, and you've seen it in the market. Typical equity market performance on companies that have raised equity during the crisis is they've seen a 10% plus bounce in their share price. So, they've landed very well.

I think one risk to be aware of is that window for raising 20% will close in a couple of months' time, which will push anyone wanting to do a large-scale raise back into rights issue territory. So, I think the predominance of raises from here will be probably a smaller number, but much larger raises, as we head into the autumn months as bigger companies fix their leverage positions. So, well done to Brendan for getting out there quickly and getting it done.

Simon Ollerenshaw: Absolutely. And that point on the market rewarding prudence was exactly what I was going to try to use to sum up, because we're about to run up against our time limit. And as we do that, I'm going to get one last question out to the audience, which is a question on, To what extent do we start to factor further pandemic risks into planning and modeling? Whether it will become a standard part of contingency planning; or (B), have the time to consider it; or (C), just too hard to model.

As we do that, because we are up against our time, I just want to thank the panel for participating today. I know it's time out of what have been very, very busy diaries.

We are getting an overwhelming so far view that it will become a standard part of contingency planning, rather as climate risks are increasingly built into everybody's models. Perhaps, further pandemic risk becomes a standard part of the way that we look at the world. A depressing note to end on. 

So, with that, I'd just like again to thank Brendan, Alisdair, Ray and Henk their contributions today. I hope that was useful to everybody. You will see on the screen that there's also what we call a post event survey. So, just a chance to reflect on how useful today has been. And I'd like to thank everybody for joining.