1.2.1. Treasury Strategy And Operations
The year was marked by the continuing aftershocks from the financial crisis which reached a climax towards the end of 2008 in the aftermath of the bankruptcy of Lehman Brothers. Since then central banks above all have fired off a real battery of anti-crisis measures. Among these are the brutal cuts in official interest rates, leading them purely and simply to land at values near 0%. In the euro area, the European Central Bank base rate (which was rising in July 2008, when it reached 4.5%), fell steeply after the ECB meeting on 8 October 2008, to reach 1% in May of the following year. Euribor rates also hit historic lows, falling to 0.700% and 0.987% for three and six months respectively.
In this context, treasury investment was guided by the following points of reference:
To minimize the impact of the steep fall in interest rates on returns;
To manage from a change in the mix, taking advantage of the big spread in the market, with an additional margin to transfer to associated Caixas – specifically through the special deposit vehicle (Depósito a Prazo Especial de Cobertura - DPEC) – to shore up the deposit base in circumstances where the adjustment of interest rates on commercial funds was reaching a natural limit as reference rates dived towards zero and as cut-throat competition reared its head again;
Ensure that this was done without damaging liquidity, in line with loan criteria tightly hedged about in the crisis atmosphere, maintaining all the while the duration of Caixa placements at the Caixa Central, this being an appropriate alignment in the circumstances.
This approach led to a series of initiatives consistently followed through during 2009. Salient among these were:
Increasing the duration of placements in the interbank money market, with the set up of a portfolio of bonds at fixed rate on credit institutions (the nominal value of which stood at 211 million euros at year end 2009), including those with state guarantee, the return anchored in a context of falling base rates in the market;
The use of securities portfolios with spot liquidity, to carry out repo operations at the European Central Bank or in the market (the average volume through the year coming in at 512 million euros), reaching margins that were exceptionally high in the circumstances between placements on the interbank money markets and those realized through the guarantee on the securities;
The acquisition of bonds at floating rate, medium-term, high spread although falling apace during the year (with 311 million euros nominal value at year-end);
The acquisition of portfolios for liquidity cover, launched during the year, these being the guaranteed income deposit (Depósito Rendimento Seguro) and the growth in savings product (CA Aforro Crescente), reaching 141 million euros nominal value at year-end.
These initiatives, even in a context of steep falls in interest rates, made it possible to:
Hold firm the rate of return on excess liquidity placed by the associated Caixas at the Caixa Central;
Put one-off measures for the Caixas into place, the special term deposit (Depósito a Prazo Especial) being the most typical to provide support for the financial efforts they were making to bolster their fund base;
Safeguard the Caixa Central’s financial margin.
Assets under management at the financial department Figures in thousands of euros
Amount Variation % of the total
31.12.08 31.12.09 Absolute Relative 2008 2009 Money market, commercial paper
and deposits at Banco de Portugal 2,125,435 1,50,088 -616,347 -29.0% 76.5% 54.8%
Securities 653,913 1,246,895 592,982 90.7% 23.5% 45.2%
Total 2,779,348 2,755,983 -23,365 -0.8% 100.0% 100.0%
1.2.2. Associated Caixas and the Corporate Desk
Throughout the year, the CEACD continued to develop the project which targeted cooperation between the associated Caixas Associadas and the commercial areas of the Caixa Central.
The focus was on promotion, sale and distribution of treasury products and financial markets.
This concluded the round of visits to the Caixas, carried out with a view to presentation of the service known as associated Caixas and the corporate desk, providing a list of opportunities for developing cooperation in this sphere.
The Caixas, working with the human resources department, set up more visits to the markets room. The training department has now welcomed representatives from around 40% of the associated Caixas since the start of this programme. During the visit, there is a chance to get to know how the financial department works and how it is organized along with a look at the operations carried out there. The purpose behind this is to give representatives from the Caixas a chance to find out more about technical features and the way products can be handled commercially, as well as the operational and financial risks to be borne in mind during negotiations and processing. The aim is also to develop mutual understanding and make it possible to reach a more informal contact needed for promotion and development of commercial operations on a day-to-day basis.
The creation of a specific mechanism to cover term deposits made by the Caixas at the Caixa Central meant that the CEACD would be involved in monitoring the product and adapting it to specific situations outlined by the Caixas for their own needs. With this in mind, control and reporting mechanisms were developed to cover the Caixas using the product.
The IT platform developed by CA Serviços for the distribution of structured deposits was concluded in 2008, and during the year under review, work was started on upgrading the tool so as to cope with specific requirements and streamline its use even more. The upgrade involves automatic production of documentation, more flexible cover, and it includes the new contract and deposit lock-in.
1.2.3. The financial function at the Crédito Agrícola Group
During the year, the asset and liabilities management (ALM) project became fully operational, with a committee in place (ALCO) to manage operations. The focus was on developing solutions
which could ease the impact of the market environment on the financial margin of the Caixa Central and members of SICAM.
Against a backdrop of high uncertainty, the focus was also on actions that could increase available liquidity on the balance sheet.
The ALCO continues to provide a decisive contribution to the integrated and consistent management of balance sheet risks associated with each and every member of SICAM and of the Group as a whole. In this way it can assist in the joint analysis and decision-making process within the scope of this committee and look closely into the various functional aspects relevant to its operations, among them the financial, the risk-related and the commercial.
The year saw an on-going search for a solution as to how profitability of the business units could be assessed using internal transfer prices.
1.2.4. Risk Control in the Treasury Field
Treasury operations involve specific risks, among them market, credit, counterpart and operational risks, with control exercised in the first instance by the coordination units in the market room and in CEACD and on a second line by the specialist office in the financial department. This is on permanent alert regarding the risk limits set out, and produces daily reports of actions carried out.
There was a much sought-after intensification and diversification of treasury activities, covering a wide range of markets and instruments, with a dynamic approach to promoting and selling treasury and market products and services through CEACD, and this is leading to more stringent demands.
With this in mind, there was continuing work on the project to find a new support that would integrate front, back and middle office operations in the financial department. This solution will bring a revision of internal ways of working and bring management of operational, market and counterpart risks up to the highest possible level of control.
The development of this IT solution is also making additional products available and these are important for strengthening the efficiency of treasury management. A wide field of commercial applications is open for development through CEACD.
1.2.5. Intermediation in the Capital Markets
Operations here tracked up, with growth in revenue, in spite of the persistent crisis in the financial markets. The details are given below:
Figures in thousands of euros
Activity Value Gross commissions
2008 2009 2008 2009
Money market, 2,643,043 1,118,238 256 272
Custodian / Depositary operations* 1,072,370 1,141,029 770 1,385
Commercial paper * 32,750 120,041 196 442
(*) Balance at 31/12/2009
Number of contracts Gross commissions
2008 2009 2008 2009
Futures market 68,434 35,062 266 164
There was growing income from the reception and transmission of orders, even though volumes processed were down, with containment of operations involving Group companies in response to the climate in the financial markets.
This factor also weighed on customer operations in the futures markets throughout the year.
There was a considerable increase in profits in custodian and depositary operations year on year, with more portfolios under management and higher depositary commissions from investment funds.
There were 6,933 securities accounts at year-end, following definitive closure of accounts that had not migrated to CA Dealer. There were 69 accounts existing for negotiations in futures.
The year also saw a growth in the number of credit operations involving mutual guarantee enterprises (Sociedades de Garantia Mútua). These operations involved 538 securities accounts, with related deposit of shares and drawing up of pledges.
The securities department worked with the DCCC and CA Serviços on the analysis and specification of requirements to improve automatic recording of information to be reported to the DGCI.
There were ever more customers with access to the platform for dealing at the Stock Exchange as part of the Internet banking operation in the Crédito Agrícola - CA Online. The number stood at 2,301 at year-end 2008 and moved up to 3,393 a year later.
There have been changes in the prudential rules that are applicable to financial institutions, with lifting of the solvency ratio to not less than 8% of core capital (Tier I), and a special issue of bonds was made to cover this. The securities are called Títulos Especiais de Investimento Tier 1 - “Caixa Central/ 2009”, with placement totalling 35.5 million euros. The issue is in the form of subordinated debt equivant to core funds and of unspecified duration. It was exclusive to the associated Caixas, and took place in two stages, in September and November 2009.
Another operation of interest was the commercial paper issue progamme, with limited placement, carried out in collaboration with the office handling businesses (Gabinete Comercial de Empresas). Six new programmes were put together to a total of 80.5 million euros, with 102 issues over the year.
There was work on a series of functionalities for IT applications in the Group, carried out in collaboration with CA Serviços and other areas of the Caixa Central. The work involved the analysis, structuring and specifications for requirements, development and tests. The main features of the new functionalities are as follows:
Validation through the IT systems (Aplicação Central – Profile, Solução Local, SIFOX - Central Online and Crédito Agrícola Online), of the need to classify customers who wish to deal or open investment accounts in financial instruments handled by the DMIF;
Verification through these systems of adequacy in the products that the customer wishes to deal in, with reference to the classification of the DMIF;
The central register (on the Aplicação Central) of the DMIF data for each customer (classification, results of adequacy tests and confirmation of order on the type of complex instrument) with availability for consultation;
This area of the Group also worked on organising and putting on training courses for those
working for the Crédito Agrícola on the subject of the impact of the functionalities involved in automating DMIF procedures.
1.3. BANCASSURANCE
1.3.1. Insurance – Non-life
This was the year in which CA Seguros celebrated its 15th Anniversary, a point which came just as the success of the non-life bancassurance project was assured. The project had been a root and branch concept created by the Crédito Agrícola. In the special 2009 edition of the magazine Exame on the biggest and best companies in Portugal, it was selected as the best non-life insurer, based on its highly positive operational indicators and the level of financial guarantees it provided.
During the year, the portfolio of gross policies issued by CA Seguros came in at 74.9 million euros, a rise of 2.5%, bucking the market trend, where the overall figure for non-life in Portugal was down by 4.2%. Among the salient points was the growth in specific market segments and in products, among these being personal accident, house and home, and health. This strengthened the overall balance of the portfolio, and helped to bring in higher than expected results.
During the year, around 2,300 of those working for the Caixas Agrícolas played an active part in this, helping to bring in higher levels of production and new thresholds of operations. At year-end, CA Seguros had 193 thousand clients on its books and 343 thousand renewable policies.
This of course poses new challenges and a focus on higher levels of motivation.
There are several factors that have brought a distinctive quality in the services to clients and the relationship with third parties, among them proper in-house operations, articulation between the various areas in the company, and efficient claims management, together with the improvements that are constantly being introduced.
In the first quarter of 2009, a new organisational structure was put in place. The aim was to give CA Seguros the proper conditions for growing its business more rapidly, cutting costs and steadily and substantially improving its response to the CCAM and the quality of its service.
To this end, a new procedure for client complaints was put in place, with an ombudsman and
a new policy for handling clients and adopting principles that led to good communications through advertising.
The strategy of CA Seguros continues in bancassurance operations to be exclusively through the Crédito Agrícola, and within an institutional framework geared to cooperation and profit-sharing. The aim is to provide a top-quality service and ensure high levels of protection for all non-life clients.
Bolstering this strategy involves constant emphasis on greater involvement from all those who work for the Crédito Agrícola. In fact, the number of branches and staff actively involved in non-life products has increased again and this is a sure sign of the effectiveness of the strategy. For the first time, new production in annual commercial premia rose above 17 million euros, and this helped boost the number of participants in the IV Annual Convention of CA Seguros. Among those present were the staff who reached the objectives defined for the occasion. There were other incentives for the staff of the CCAM, with the best performance in the sale of insurance. Those working in the CCAM have been unanimous in praising these initiatives and refer to them as one of the most motivating factors for them to continue improving their commercial performance.
In terms of integrated campaigns included in the Group’ marketing plan, the aim was to capitalise on the synergies of cross-selling banking and insurance products. Worth a special mention here is the campaign coded “CM20”, where 23 thousand new policies were started in personal accidents, bringing in 15 thousand new clients to CA Seguros.
There was regular communication about insurance in the Group’s information network, including the Internet page, which continued to maintain the brand’s visibility.
The good performance in production had a positive impact on the size of the insurance portfolio. There was a 14.0% increase in the number of policies year on year, and a 13.6% rise in the number of clients, going from 170 thousand to 193 thousand.
The rate of penetration of CA Seguros among customers of the Crédito Agrícola has been positive over the last few years, and the ratio stood at 18.3% at year-end 2009, meaning there is still considerable scope for growth.
The overall claims rate was 56.6% – before imputation of costs per function – representing an increase over the previous year. This move can be explained by an increased set-aside for claims during the year to the amount of 5.9 million euros, a conservative policy on provisions which reflects the bigger number of claims than earlier years.
Operating costs rose by 7.7%, among which was a 6.7% rise in payment for insurance mediation.
Net results for the year came in at over 2,565 thousand euros, a 55% increase over the year.
For the third time in a row, the AGM approved a proposal from the Executive Council to pay dividends to shareholders, this time to the amount of 1,296 thousand euros, corresponding to around 50% of net results for the year.
The asset situation at CA Seguros has remained stable over the years, with a steady increase in own funds and a high level of cover through financial guarantees, as required by the Portuguese Insurance Institute (Instituto de Seguros de Portugal). The company ended the year with own funds totalling 26.6 million euros, up on the 2008 figure of 22.6 million euros.
On the asset side, financial investment grew by 8.8% bringing up its proportion of the total from 78.1% in 2008 to 79,8% in 2009. On the liabilities side, the company held to its cautious policy on provisioning, as in previous years. Overall, provisions for claims rose by 4.8 million euros to stand at 85.1 million euros as at 31 December 2009.
Responsibilities towards policyholders are duly covered and at year-end technical provisions and the solvency margin were well above the market average for non-life, the latter coming in at 231%. Eligible assets for technical provisions provided a degree of cover standing at 124%.
Unit: Thousands of euros
Heading 2007 2008 2009
Gross Premia Issued 68,516 73,077 74,934
Assets 130,887 139,250 148,306
Own Funds 21,532 22,618 26,575
Net Results 4,206 1,656 2,565
Staff on Tenure at Year-End 125 137 139
1.3.2. Insurance – Life
CA Vida grew both in production and in the supply of solutions, improving its net results substantially as a consequence of its strategy and in spite of the slowdown in the insurance sector and the troubles facing it in the early part of the year.
Production during the year brought the company for the first time to eighth position in the ranking of life insurance companies in Portugal. Its year-on-year growth was 61% and net results stood at 6,015 thousand euros. The improvement in financial markets played its part here, after the massive turmoil of the previous year.
The year was marked by an overhaul of the products made available to the Group, with the company continuing to bank on innovation and differentiated products with a view to improving the service for the Group and satisfying the needs of clients.
In this context, CA Vida Plena was developed. This is made up of three options for secure capital and with a simplified form of subscription. It provides another in an array of options available for the Group’s clients, with increased competitiveness an added benefit.
The success of cross-selling also involves interconnection between products. With this in mind, the company designed CA Protecção Livre, which is even more closely geared to the credit options marketed by the Group, marked out by different limits of capital secure, the form of payment and the age bands to be used in subscription.
CA Vida also put the CA PPR on the market. The aim of this was to provide a plan for additional
CA Vida also put the CA PPR on the market. The aim of this was to provide a plan for additional