BANKING
Million of euros, except percentages
2007 2006 Change 07/06 Profit and loss account
Net interest income 160.6 113.3 41.7%
Other net income 183.5 222.4 -17.5%
344.1 335.7 2.5%
Operating costs 90.7 80.6 12.6%
Impairment and provisions 2.6 -2.7 --
Contribution before income taxes 250.7 257.9 -2.8%
Income taxes 59.5 72.4 -17.8%
Net contribution 191.2 185.5 3.1%
Summary of indicators
Allocated capital 812 750 8.3%
Return on allocated capital 23.5% 24.7% -
Risk weighted assets 16,774 14,946 12.2%
Cost to income ratio 26.4% 24.0% -
Loans to customers (1) 11,700 9,938 17.7%
Total customers’ funds 3,432 3,547 -3.2%
Employees (number) 300 292
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Net contribution of the Corporate and Investment Banking segment increased by 3.1%, amounting to 191.2 million euros in 2007, compared to 185.5 million euros in 2006. This growth was determined by the favourable evolution of total income and by the reduced tax charge, relating to Millennium investment banking’s higher capability to use tax losses carried forward in 2007, which more than offset the rise in operating costs and the higher impairment and provision charges. The return on allocated capital stood at 23.5% in 31 December 2007 (24.7% as at 31 December 2006).
In 2007, the interest and premiums and discounts of the trading portfolio, which were previously booked in net trading income, are booked in net interest income. This change had an adverse impact on other net income, which was partially offset by the significant rise in net commissions from Investment Banking activity. It is worth noting that Millennium investment banking led the Portuguese primary bond market in 2007 in two areas - as an issuer on the Portuguese primary market and in the primary domestic bond market. These distinctions were achieved during a difficult year for the bond market and in a very competitive segment, with a large number of players, including the main international banks.
Total customer’ funds totalled 3,432 million euros at 31 December 2007, restricted, on one hand, by the volatility of large companies’ and institutional customer deposits and, on the other hand, by the withdrawal of funds by price-sensitive institutional Customers with significant financial portfolios.
Loans to customers totalled 11,700 million euros as at 31 December 2007, showing a growth of 17.7%, from 9,938 million euros as at 31 December 2006, boosted by the re- launch of investment projects following the encouraging signs of economic recovery in some sectors of activities in Portugal.
Corporate Network
The activity of the Corporate Network in 2007 was based on two main vectors: improvement of the knowledge and effectiveness of the commercial area as a result of training courses and implementation of sales support mechanisms, bringing about better commercial planning, identification of business opportunities and establishment of priorities for contacts with Customers; and the focus of commercial action on attracting stable funds and on the improvement of loan quality, seeking to suit the pricing of loan transactions to the associated risk and to the potential value created, within the scope of the new concepts introduced by Basel II.
With a view to increasing the effectiveness of the Corporate Network’s commercial area and to attracting the existing potential, the Corporate GTI Programme was implemented during 2007. It consists of a process of re-engineering administrative tasks and is based on three pillars:
1. Gaining Time: increasing the commercial time available to the Relationship Manager through a reduction of the administrative load, transferred to the assistant and to the Middle Office;
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2. Having a Plan: definition of a commercial approach plan for each Customer, involving establishment of individual goals, segmenting the portfolio in accordance with the priority given to each Customer;
3. Customer meetings: ensuring a minimum number of visits to Customers, with clear identification of the key contacts at each company.
Application of this programme is substantially based on the functions provided at the Commercial Toolkit level (business support application designed to increase the efficiency of commercial action), providing an integrated overview of the Customer, generation and processing of business opportunities, prioritisation and programming of commercial activity through the establishment of an annual plan of contacts with Customers, definition of the objectives of the contacts and the business potential generated. Supplementing this, a Value-Created Simulator has also been further developed, allowing the pricing of the transactions to be aligned with the inherent risk, according to the new concepts stemming from the Basel II Accord, so as to maximise Value Created. Internally, the commercial area was also provided with a new management information application (EIS - Executive Information System).
With a view to keeping in step with the needs of the Corporate Network Customers several new solutions were launched, with emphasis on:
§ Successful conclusion of the new Online Banking service for Companies, the result of a partnership entered into with a firm called Primavera BSS, providing Customers with greater integration of the banking services with their internal reality as far as their Enterprise Resource Planning (ERP) is concerned;
§ Provision of new services via the Multibanking Channel – the main form of communication of the larger companies with the Bank – particularly in respect of transfer orders for payments to foreign countries and statements of account of the companies with other credit institutions (OCIs) headquartered abroad;
§ New developments in the Commissions and Postal Aggregation Service, namely the introduction of commissions in respect of letter-cheques, cash pooling and account maintenance, implementation of the electronic bank statement and the creation of foreign-language versions (Spanish and English);
§ Creation of a credit line in the total amount of 100 million euros for support to exports and to the internationalisation of Portuguese companies;
§ A protocol entered into with Turismo de Portugal to support investment projects in the field of tourism, in the total sum of 60 million euros. This agreement involves preferential conditions for companies in terms of financing, aggregating a component of financing by Turismo de Portugal at subsidised interest rates.
Investment Banking
November 2007 saw the publication of the announcement of the project involving the merger by incorporation of BCP Participações Financeiras, SGPS, Sociedade Unipessoal, Lda, and Banco Millennium bcp Investimento, SA, into Banco Comercial Português, SA. This project may be carried out in 2008, along with other initiatives to improve operating efficiency and to allow better conditions for the development of the different business areas.
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In Investment Banking, which operates under the Millennium investment banking brand, several opportunities have developed based on the ability to structure and execute operations that are both more complex and of greater value, further reinforced by an organisational structure implemented during the last quarter of 2006 and on the relationship with Group Customers in Portugal and in operations abroad.
Millennium investment banking was the market leader in equity brokerage through Euronext Lisbon in 2007, with a market share of 11.6%, notwithstanding the growing fragmentation and competitiveness of the market following the entry of new operators, among which some of the largest international banks. In trading products, it continued to play an outstanding role in the introduction of innovative products to the Portuguese market. The first thematic certificates associated with sectors of activity were launched – the Dow Jones Banking and the Dow Jones Telecommunications.
In the fixed-income capital market area, Millennium investment banking played an active part in the organisation and setting up of bond loans, the clear leader in terms of national debt issues, with a share of 23.1% according to the League Table published by Bloomberg. Emphasis is given to the leadership of bond loans for Celbi (300 million euros), Sonae Distribuição (200 million euros), José de Mello, SGPS (150 million euros) and Soares da Costa (100 million euros). The Bank continued to play an outstanding role in organising and setting up commercial paper programmes and also in the issue and placement of structured products.
Also underscored in 2007 are the good results achieved with the sale of cash products (spot and forward currency operations and short-term placements and financing) and, particularly, in the field of derivative products designed to hedge interest rate, exchange rate and commodities risks.
In the corporate finance area, Millennium investment banking took part in several major deals during 2007. It provided financial advisory services to EDP – Energias de Portugal, SA, in the acquisition of “Relax Wind Parks”, a number of projects involving the development of wind farms in Poland; to Monte SGPS in the acquisition of 50% of Monte Adriano SGPS; to Soares da Costa in the acquisition of holdings in Scutvias and in CPE; and to Parkalgar in the definition of the financial strategy associated with the “Algarve International Autodrome” project.
Millennium investment banking also played a preponderant part in the more relevant public share offerings undertaken during the year: it was Joint Global Co-ordinator and Bookrunner for the REN privatisation and IPO; it organised the Inapa share capital increase and the take-over bid by Investifino – Investimentos e Participações over Soares da Costa; and it was Joint Bookrunner of the accelerated bookbuilding for shares in Teixeira Duarte under a mandate granted by Metalgest.
During 2007, the structured finance area saw significant growth and Millennium investment banking ranked first of the Portuguese banks in this business segment, according to Bloomberg data. In financing start-ups, the highlight is on the mandates obtained from the Carlos Saraiva Group to finance the acquisition and development of the Morgado do Reguengo tourism project in the Algarve and from the Deutsche Bank
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Real Estate and Jacinto Mira Groups to finance the acquisition and development of the Alfamar project, an hotel complex at Praia da Falésia, also in the Algarve. In acquisition finance operations, the focus is on the mandates obtained from TAP Portugal for the acquisition of Portugália and from Acciona in the acquisition of 20% of Endesa. Of the debt restructuring operations, emphasis is given to the mandates obtained from La Seda de Barcelona and from Espírito Santo Saúde.
In project finance activity on the domestic market, the focus is on the mandates received from Auto-Estradas Douro as Financial Advisor and Mandated Lead Arranger in the Douro Litoral Highway Concession project (129 km and 1.2 billion euros) and from VentoMinho – Energias Renováveis, as Mandated Lead Arranger in the Alto Minho I Wind Farm project (325 million euros). However, the Portuguese market continued to underperform expectations and therefore the growth of the business was largely the result of involvement in projects outside Portugal, materialising the strategy of internationalisation begun in 2006. In this connection, emphasis is given to the following operations: Mandated Lead Arranger and Joint Bookrunner in the refinancing of a portfolio of Wind Farms in Germany, Australia, Spain, the USA and France owned by Babcock & Brown Wind Partners (1.03 billion euros); Mandated Lead Arranger for the Elefsina-Patra-Corinth highway project to be built in south-western Greece (1.69 billion euros); and Mandated Lead Arranger for the Fruges II project in France, involving the financing of a number of wind farms owned by the Pluripower and RPI groups (60 million euros).
Millennium bcp was elected "World’s Best Investment Bank" in Portugal by Global
Finance magazine. This prize demonstrates therecognition by one of the world’s most
renowned financial magazines of the execution capacity and quality of the Millennium investment banking teams – the Group unit specialised in investment banking.
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The Companies segment comprises the Companies network in Portugal, which covers the financial needs of companies with an annual turnover between 7.5 million euros and 100 million euros, focused on innovation and on an overall offer of traditional banking products complemented by specialised financing, and also the International Division.
Net contribution of the Companies segment rose 7.9%, reaching to 144.2 million euros in 2007 (133.6 million euros in 2006). This performance was boosted by increases in net interest income and other net income, which more than offset the growth in operating costs and, to a lesser extent, in impairment and provisions charges. The return on allocated capital stood at 23.9% at 31 December 2007.
Total customers’ funds showed an increase of 37.4%, in spite of the strong competitiveness in this segment, and reached 6,417 million euros at 31 December 2007 (4,669 million euros as at 31 December 2006). Performance here benefited from the growth in institutional customers’ funds from the International Division, in particular during the third quarter of 2007.
COMPANIES
Million of euros, except percentages
2007 2006 Change 07/06 Profit and loss account
Net interest income 214.4 205.9 4.1%
Other net income 84.8 76.8 10.4%
299.1 282.7 5.8%
Operating costs 75.3 71.5 5.3%
Impairment and provisions 27.7 27.0 2.9%
Contribution before income taxes 196.2 184.2 6.5%
Income taxes 52.0 50.7 2.6%
Net contribution 144.2 133.6 7.9%
Summary of indicators
Allocated capital 604 547 10.4%
Return on allocated capital 23.9% 24.4% -
Risk weighted assets 12,480 11,399 9.5%
Cost to income ratio 25.2% 25.3% -
Loans to customers (1) 10,680 9,713 10.0%
Total customers’ funds 6,417 4,669 37.4%
Employees (number) 811 841
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Loans to customers were up by 10.0%, from 9,713 million euros at 31 December 2006 to 10,680 million euros at 31 December 2007, as a result of a drive to increase loans granted to Customers with a good risk profile, allowing impairment charges to show a slower rate of increase than the loan portfolio.
Companies Network
During 2007, the Companies Network kept its focus on increasing the dynamism of its commercial activity through a proactive approach, directed at early identification of business opportunities and at presentation of adequate solutions, at maximisation of the value created for the Bank and at Customer satisfaction. The main guidelines for commercial activity included attracting funds and improvement of the loan quality, seeking to suit the pricing of loan transactions to the associated risk and to the potential value created, within the scope of the new concepts stemming from Basel II. Articulation with Investment Banking was strengthened in an endeavour to take advantage of synergies, while a policy of growing interconnection was pursued with the Leasing, Factoring and International Division areas so as to encourage cross-selling. At the same time, articulation continued with the Loan Recovery Department in the prevention and recovery of loan-loss provisions.
With a view to implementing the established strategy, the following measures were developed:
§ Growing use of the various functions provided by the Commercial Toolkit (business support software) so as to increase the effectiveness of the commercial action through identification and treatment of business opportunities and through the use of the Value-Created Simulator, allowing the pricing of the operations to be aligned with the risk incurred, in order to maximise Value Created;
§ Provision of the new management information software: EIS - Executive Information System, which provides a complete overview of the portfolio of the Network/ Department/ Manager at the level of the products marketed (Funds, Loans and Advances, Value-Added Services, Cards, etc.) as well as cross-selling, profitability and Customers’ indicators;
§ Redefinition of the price-lists of credit transactions, with a view to their adaptation to the new Basel II concepts, so as to reflect in the pricing the credit risk associated with the transaction and the means of mitigating it;
§ To allow Companies greater integration of the banking services with their internal reality at the level of their Enterprise Resource Planning (ERP), a new Online Banking service was successfully concluded, the result of a partnership with Primavera BSS, allowing Millennium bcp’s Companies Customers to carry out a varied range of additional transactions;
§ Provision of new services via the Multibanking Channel – the main form of communication of the bigger companies with the Bank – especially in issuing transfer orders for payments abroad and statements of account of the companies with other credit institutions (OCIs) headquartered abroad;
§ New developments in the Commissions and Postal Aggregation Service, with the introduction of commissions in respect of letter-check, cash pooling and account maintenance, implementation of the electronic bank statement and the creation of foreign-language versions (Spanish and English);
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§ The 2007 EIB Investment Line (150 million euros), the Internationalisation Support Line (100 million euros) and the Tourism Support Line (60 million euros) were launched;
§ The Mutual Guarantee continued to be promoted (a 50 million euro credit line) and several agreements were closed to promote specific segments: with Agrogarante for support to SMEs, entrepreneurs and young farm ers when setting up in business), IAPMEI (companies preparing to face the challenges of Basel II), governmental entities (support for incentives within the scope of the QREN - National Strategic Reference Framework) and chambers of commerce of several countries with which Portugal has the largest trading relationships (Spain, France, Germany, the UK, Italy, the Netherlands, Brazil and India);
§ Development of the partnership with Banco Sabadell through the launch of the product known as “Forfaiting with Spain” and signing of a protocol to foster loans to property development undertaken by companies in Portugal and/or Spain;
§ Organisation of events directed at specific business areas, with emphasis on the “Cash and Risk Management for Companies” and the “Brazil Trading” conferences; § Quality certification for the Real-estate Leasing and Retail Credit Recovery
processes, reflecting the constant concern as to the quality of the service provided and Customer satisfaction.
The business of the Companies Network in 2008 will be marked by implementation of the GTI Programme. This is a process of re-engineering administrative and commercial tasks that aims to improve the effectiveness of the commercial area and to make use of the existing potential. The intention of this programme is to increase the know-how and effectiveness of the commercial area through training courses and through implementation of sales support mechanisms. This should allow an improvement of commercial planning, identification of business opportunities and prioritisation of contacts with Customers in the light of the potential profitability for the Bank. In business terms, the focus will continue to be on attracting stable funds and on improvement of credit quality, seeking to suit the pricing of the loan transactions to the associated risk and to the potential value created, within the scope of the new concepts stemming from the Basel II Accord, involving greater use of the Value-Created Simulator to establish the adequate pricing for each Customer.
The focus on support for Portuguese exporter companies is set to continue in 2008 through implementation of a “Millennium Zone of Influence” covering a large number of potential Customers (banks and financial institutions) in 164 markets, through a diversified offer of Global Transaction Banking products and services aimed at increasing our market share in those markets where the Bank does business.
Continuity will be given to the effort to improve the functions available via the Companies Portal and to the focus on new products of great potential, especially in the area of Default Risk and International Factoring of Imports transactions.
International Division
During 2007, the International Division made full use of the multi-domestic Group aspect, offering, in the international market, the transaction banking and institutional custody products and services relating to those countries in which Millennium bcp does business, both through its own structures and through local partnerships. The teams were
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reorganised, with a special focus on a proactive commercial strategy, both in the Banks and Financial Institutions segment – through the activity of the Commercial Relationship Managers of the Global Transaction Banking – and also in the Corporate and Companies segm ent, with the support of the Product Specialist teams of Millennium Trade Solutions .
Emphasis is given to the 44% market share that was achieved (volume of assets under custody held in Portugal by non-resident investors) and to the 19% growth, to 79 billion euros, of total assets under custody of institutional investors. Turnover in securities was up 66% and total commercial payments, both received and sent, rose by 10%, including the SWIFT and EBA STEP 2 channels, accounting for a market share of 28% in Portugal.
A number of initiatives contributed to these results, with a focus on: rationalisation of the Correspondent Banks; centralisation of unregulated commercial payments to 164 markets on a small number of banks providing a guarantee of prices and service quality;