FX Volatility Bears Down Corporate Bottom Lines

Cross Border Payments

Geopolitical volatility has analysts urging businesses to hedge against foreign exchange risks as trade tensions rise in Asia and the U.S., and as Brexit continues to loom. Unfortunately, the latest analysis of corporate earnings suggests bottom lines are taking a significant hit as a result of FX risk exposures.

In a new report from corporate treasury technology company Kyriba, analysts discovered that North American corporates lost billions of dollars in the first quarter of 2019 as a result of foreign exchange volatility. The firm’s latest Kyriba Currency Impact Report, which analyzed FX exposures among 1,200 organizations, concluded that negative FX impacts are on the rise for businesses — and called upon chief financial officers to act.

“With today’s tools and technology, CFOs no longer need to accept these FX losses as a ‘cost of doing business,’” The firm’s Chief Evangelist Wolfgang Koester said in a statement earlier this month. “Given today’s market conditions, currency volatility will only continue. CFOs and CEOs need to be proactively empowering their teams to monitor and manage their currency exposures accurately and in real-time to adjust as necessary, consequently avoiding further negative impacts on financial performance.”

While FX management solution providers may argue that technology available today means there’s no excuse for corporates to fail to mitigate their FX risk exposure, Kyriba’s latest report is only the latest in a string of warnings to corporate CFOs and treasurers with the same message.

Kyriba issued a similar warning in May about businesses’ fourth quarter 2018 losses related to FX.

And earlier this year, separate analysis from FiREapps Inc. — a company acquired by Kyriba in January — discovered multibillion dollar losses also connected to FX volatility in 2018. At the time, reports in The Wall Street Journal spoke to Koester, who warned that “we’ve never had as many CEOs and CFOs talk about currency” than when these executives discussed FX risks in the context of political uncertainty related to trade disputes, Brexit and more.

Below, PYMNTS looks at the numbers behind the latest analysis on corporates’ FX risks and related losses.

$23.39 billion in FX losses hit North American corporates in the first quarter of 2019, recent Kyriba data reveal. Further, the average negative currency impact per company increased by 12 percent — on average, businesses lost $88 million to FX volatility in the year’s first quarter, a figure that Kyriba expressed as “equal to nearly $1 million per day.” For the companies analyzed, at least 15 percent of revenues stemmed from overseas operations.

77 percent more losses hit North American firms in Q4 2018 than in Q3 2018, a significant jump from $11.81 billion in FX losses to $20.84 billion in losses quarter-to-quarter, Kyriba found.

$3.31 billion in FX losses hit European corporates during Q1 — and while that figure is significantly lower than losses for North American firms, Kyriba noted that it’s an increase from fourth quarter 2018, when European businesses were hit with $3.08 billion in losses.

3.7 percent: the U.S. dollar’s gain against the British pound through the first nine months of 2018, according to the Wall Street Journal Dollar Index. The publication noted the ups and downs of the U.S. dollar’s performance in recent months, pointing to a five year growth rate against other currencies until 2017, when the index hit a significant decline. And while it regained strength last year, The Wall Street Journal said the third quarter of 2018 saw just a 1.9 percent increase in the dollar against 16 other currencies.