2015 annual report haitong | brazil€¦ · banco bradesco s.a. haitong securities do brasil ccvm...
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A NEW LANGUAGE IN THE FINANCIAL WORLD
2015 ANNUAL REPORTHAITONG | BRAZIL
haitongib.com.br
Table of Contents
Message from the Chief Executive Officer
1 - Corporate Profile Haitong Banco de Investimento do Brasil S.A.Ownership StructureOur MissionPrinciples and Values2015 Main Indicators
2 - Our BusinessEconomic EnvironmentClient ManagementCapital MarketTreasuryCorporate FinanceBrokerage - Haitong Securities do Brasil
3 - Corporate Governance Management ModelIntegrated Risk ManagementBoard of Directors and Executive Committee
4 - Intangible Assets Management of IntangiblesHuman Resources
5 - Social and Environmental Responsibility Sustainability and ManagementPrograms
6 - Communications and Relationship ManagementCommunications, Media and Events
7 - 2015 Earnings Results Outlook
8 - Financial Statements
Message from
the CEO The year of 2015 began with the challenge of supporting Haitong Banco de Investimento do Brasil in safely facing an unstable political and economic scenario and the signs of a prolonged recession. The Bank also had to deal with the approval by the regulatory authorities of its change of control in Brazil, a process completed in September 2015, when we adopted the brand and communication identity of our controlling shareholder, Haitong Securities CO., one of China’s largest financial intermediation entities and investment banks.
Nevertheless, all the challenges were overcome and strengthened the characteristics that have marked Haitong’s operation in Brazil in the 16 years it has been present the country’s market as an investment bank with a deep knowledge of the Brazilian market and comprehensive operations in the M&A, Project Finance, Capital Markets, Treasury and Brokerage areas.
The Brazilian market’s welcoming of the new brand brings us great joy, as it underlines the recognition of our efforts to always focus on customers; our the resilience in creating shareholder value, with positive results, despite the previously mentioned challenges; and the renewal of our commitment to be a global partner, now adding Asia, and particularly China, to our area of coverage, which includes the Iberian Peninsula, India and Latin America, maintaining, however, our knowledge of and relationship with the Brazilian market.
The challenges were overcome gradually: (i) in March 2015 we settled a debt issue made in the international market in 2010, totaling US$500 million; (ii) in August 2015, the Central Bank of Brazil approved the company’s change of control, a process ended on September 7; (iii) change of brand and market communication positioning with the adoption of the brand concept and global visual identity of our final shareholder; (iv) assignment and disclosure, by Standard & Poor’s, of the Bank’s rating in Brazil, of brA + (national scale) and BB- (global scale) with a positive outlook, after a period when the Bank’s risk perception in the country had been on hold. It is worth mentioning that Haitong do Brasil is the only financial institution in the country which has maintained its
Haitong | 2015 Annual Report 3
positive outlook; (v) and, in December, the Bank recorded liquidity of R$731 million; Basel index of 17.8%; and net income of R$10 million.
All the indicators above reflect the commitment and alignment of the objectives of the Board members, executive officers and all employees and a confirmation of their trust in the future, without failing to learn with the difficulties of the past.
New challenges arise year after year, however, our ability to face and overcome them is being maximized, now strengthened by the soundness of Haitong Securities as a shareholder.
There is a lot of work to be done to increase operational efficiency, always focusing on complying with the best control practices defined by local authorities, pursuing efficient capital management and the consequent creation of shareholder value.
Confidence that we will be successful once again is growing, maintaining the pillars of our work, our deep knowledge of the Brazilian market, the technical capacity of our employees, Haitong’s well-defined strategic positioning, and finally, the certainty that Brazil continues to be of crucial importance for Haitong’s consolidation in the international scenario.
We thank our employees, who remained faithful to us in our worst periods, our customers, for their trust in what we did throughout the year, and our shareholders, for their valuable support in determining our future path.
Rafael Valverde
Member of the Executive Commission of Haitong Bank S.A. and CEO of Haitong Banco de Investimento do Brasil S.A.
Haitong do Brasil is the only financial institution in the country which has maintained its positive outlook
CORPORATE PROFILE
Haitong Banco de Investimento do Brasil S.A.
Haitong Securities Co., the second largest investment bank in China, completed the acquisition of Banco Espírito Santo de Investimento S.A. (BESI) on September 7, 2015. The goals of both corporations were combined into one: To become one of the world’s leading investment banks within the coming decade.
With the acquisition, the Bank changed its name to Haitong Bank S.A. and incorporated the Haitong brand.
Now called Haitong Banco de Investimento do Brasil S.A. in Brazil, it is controlled by the Haitong Bank (80%), headquartered in Portugal, and indirectly by Haitong Securities in Shanghai. Banco Bradesco owns a 20% interest in the Brazilian bank.
The Bank has operated in Brazil since 2000. It provides financial advisory services in the fields of capital markets, mergers & acquisitions, project finance, structured transactions, Treasury and risk management. It is also very active in credit extension for investment banking transactions, as well as securities brokerage through its wholly owned subsidiary Haitong Securities do Brasil CCVM S.A.
Our Businesses
Investment BankingOrigination and Client
M&ACapital Market
Structured Operations
Project Finance, Acquisition & Trade Finance and Trustee
Fixed Income (Sales & Trading) & Global
MarketsSales & Distribution Brokerage
2005/2006Acquisition of Shanghai Huanghai
from Gansu Securities and Xingan Securities
2009Acquisition of Taifook Securities, currently HT International (HK)
2014Acquisition of the Unitrust Capital
Group, the third largest foreign financial leasing company in China Acquisition of BESI
2007IPO on the Shanghai
Stock Exchange (SH 600837)
2012IPO on the Hong Kong
Stock Exchange (HK 6837)
2014Acquisition of Japaninvest,
one of Asia’s top independent brokerage houses
20151988
Organization of Haitong Securities
01
Overview of Haitong Securities
Haitong | 2015 Annual Report 5
HAITONG SECURITIESCO., LTD.
HAITONGINTERNATIONAL
HOLDING
HAITONG BANK, S.A.
HAITONGBanco de Investimento
do Brasil S.A.Banco Bradesco S.A.
HAITONG Securitiesdo Brasil CCVM S.A.
HAITONG do Brasil DTVM S.A.
EBP - Estruturadora
Brasileira de Projetos S.A.
100%
100%
80%
20%
100% 100% 11.11%
Ownership Structure
Our Mission
Acting responsibly while seeking to create value for clients, employees, shareholders and society.
Adopting a sustainable strategy, in line with its competitive market positioning, and respecting clients and employees at all times.
Contributing actively to the economic, social, cultural and environmental development of the communities it interacts with.
Principles and Values
Haitong’s activities are governed by the following principles and values:
OwnershipA strong identification with the Bank’s mission and corporate values, and a sense of belonging to the Group, thus showing a strong overt desire to become and continue to be an active, integral member of the Bank. Participating intensely in the Bank’s dynamics, successes and challenges as they were one’s own. Showing a strong sense of responsibility through one’s behaviors and attitudes, and concern for the Bank’s and its clients’ performance and risks.
Client FocusGaining, maintaining and developing Clients’ trust through our professional attitude and dedication, by focusing on their needs and seeking to exceed their expectations, with the sole purpose of maximizing our contribution to value creation and establishing true partnerships.
ExcellenceShowing our quality and potential by providing innovative, creative solutions. Seeking perfection constantly by focusing closely on detail and achieving above-expectation results.
People OrientationValuing all employees’ dignity by providing them with opportunities for personal and professional fulfillment and growth while respecting each one’s knowledge, skills and uniqueness.
Learning OrganizationAn attitude of continuous learning and innovation that promotes the diversity of ideas and the sharing of information. An ongoing search for knowledge to make the Bank a source of distinctive know-how in the market..
Passion to WinShowing a strong engagement, as well as a lot of energy and motivation that encourage us to do more and better.
CommunicationShowing our ability to express opinions and points of view objectively and clearly while allowing others to assert and express themselves. Enhancing the value of information through assertiveness and active listening. Valuing a consistent open-door policy and non-hierarchical communication with people from all company levels by promoting transparency appropriately.
Haitong | 2015 Annual Report 7
Thinking and Acting InternationallyBeing aware of the global trends that affect our business and keeping up with major developments in the international arena. Being able to assess and anticipate how world events can impact local business and vice versa and performing tasks in a global context. Respecting the differences between the different geographic regions in which the Bank is present while protecting business integrity.
Ethics and TransparencyAdapting our corporate thought and behavior appropriately to the need for solidarity and respect for human dignity. Complying with prevailing regulations and adopting corporate rules when conducting business and behaving in accordance with the Bank’s best interests. Maintaining a high level of transparency in annual reports, accounts and other corporate documents, thus providing employees, shareholders, regulators, clients and the market in general with adequate information so they can understand the Bank’s activities and results.
w 2011 2012 2013 2014 2015
Accounting Info and
Efficiency
Total Assets BRL MM 6,631.5 6,673.4 8,096.4 6,149.7 8,032.2
Domestic Funding BRL MM 1,856.1 2,407.5 2,971.8 2,108.3 1,880.1
Shareholders’ Equity BRL MM 522.2 640.8 665.7 660.8 651.2
Net Income BRL MM 70.8 31.1 41.0 14.5 10.1
Return on Average Equity (ROAE) BRL MM 14.2% 5.3% 6.3% 2.2% 1.5%
Capital Management
Core Capital % 14.4% 15.5% 14.0% 15.7% 17.8%
Additional Tier 1 Capital % 15.6% 15.5% 14.0% 15.7% 17.8%
Reference Equity % 15.6% 16.1% 14.2% 15.7% 17.8%
Additional Information
# of Employees 190 212 193 164 160
# of Independent Contractors 21 21 26 15 7
Total 211 233 219 179 167
2015 Main Indicators
Overall funding totaling around R$7
billion
160 workforce members 17.8% Basel Index
R$10 million Net Income
Loan portfolio with 77 clients
R$8 billion in assets R$651 million in Shareholders’ Equity
Standard&Poor’s Rating: BrA+ (Brazil national scale)
and BB- (global scale)
Global ScaleRating: BB-
Positive outlook 09.24.2015
Brazil National ScaleRating: br.A+
Positive outlook 09.24.2015
Haitong | 2015 Annual Report 9
Economic developments in 2015 were more favorable to the
advanced nations than to the emerging markets
OUR BUSINESS
Economic Environment
InternacionalGlobal growth remained relatively stable in relation to previous years; however, the International Monetary Fund (IMF) estimates the world’s growth rate rose by 3.1% in 2015, vs. 3.4% in 2014, with emerging markets and advanced economies behaving differently. The downward trend persisted in emerging markets, led by China’s gradual slowdown over the last few years. In turn, growth picked up slightly in advanced economies, probably due to the extremely favorable monetary policies in those countries, mainly in the U.S.
Real GDP Growth – annual % change
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0 8,0
6,0
4,0
2,0
0,0
-2,0
-4,0 2009 2010 2011 2012 2013 2014 2015
4.0
3.1
2.0
Advanced Economies
World
Emerging Markets
Source: International Monetary Fund and Haitong
02
This gap had a major impact on economic agents’ perception of each group of countries. Consumer confidence in advanced economies rebounded when compared with the average levels recorded in recent years, mainly−once again−in the U.S., where it hit a high near the most recent peaks.
In turn, the slowdown seems to have made consumers in emerging countries more skeptical about the economic outlook, so confidence fell somewhat to the average levels recorded in recent years. In other words, economic agents did not seem to be too willing to take great risks in 2015, which may have helped slow down the economy even further.
This gap between economic agents’ perceptions, in addition to impacting economic activity, also affected the prices of financial asset in general, mainly in stocks. Stock prices continued on an upward trend, which started in 2013, in advanced economies because liquidity levels remain high, driven by monetary stimuli, which were maintained and even intensified in some cases, coupled with economic indicators signaling the economic recovery will persist in those countries. In turn, stock market volatility was extremely high emerging countries, but the final result was disappointing in relation to the peaks recorded.
Consumer Confidence (2009-15 = 100)Regardless of those opposing trends, it is worth noting inflation behaved much in the same way
30,0
50,0
70,0
90,0
110,0
130,0
150,0
170,0 170,0
150,0
130,0
110,0
90,0
70,0
50,0
30,0
2009 2010 2011 2012 2013 2014 2015
EUAChina
Source: Bloomberg, Haitong.
Economic agents in the emerging countries
were unwilling to take great risks
2.31
1.0
Haitong | 2015 Annual Report 11
both in the world’s major economies and in China. In other words, inflation dropped, but there still seems to be a high level of idleness in advanced countries, so the economic upturn did not put too much pressure on costs.
In addition, the slowdown in China, which seems to be the main cause of low inflation in that country, pushed down the prices of important commodities eventually; as a result, a deflationary pressure was felt worldwide, another reason why advanced economies had no problems
Stock Indices (2009-15 = 100)As a result, the advanced economies’ central banks had no reason to change the extremely
40,0
60,0
80,0
100,0
120,0
140,0
160,0
180,0
200,0
220,0 220,0
200,0
180,0
140,0
120,0
80,0
60,0
40,0
2009 2010 2011 2012 2013 2014 2015
Shanghai Comp.S&P500
Source: Bloomberg, Haitong.
accommodative monetary policy adopted in recent years. In fact, some of them, such as Japan’s and the Euro Zone’s, even intensified their quantitative easing programs in an attempt to consolidate the economic upturn, as we have reported previously.
Even in U.S., the Fed raised the benchmark interest rate for the first time in seven years only to signal the monetary policy will be changed very gradually, so much so that U.S. Government Bond rates remained practically unchanged.
Consumer Price Indices (YoY %)
-3,0
-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
In short, 2015 was not a spectacular year; however, the economic developments during the period were apparently better for advanced economies than for emerging markets.
Yr U.S. T-Bond Interest Rates (% p.a.)
Brazil
2009 2010 2011 2012 2013 2014 2015
USA
Zona Euro
Source: Bloomberg, Haitong.
1,00
1,50
2,00
2,50
3,00
3,50
4,00
4,50
2009 2010 2011 2012 2013 2014 2015
Fonte: Bloomberg, Haitong
Japan
China
0.31.6
0.20.2
7,0
6,0
5,0
4,0
3,0
2,0
0,0
-1,0
-2,0
-3,0
4,50
4,00
3,50
2,50
2,00
1,50
1,0
2, 31
Haitong | 2015 Annual Report 13
In contrast to the world economy, which grew despite the opposing trends in advanced economies and emerging markets, the Brazilian economy suffered a severe downturn in 2015, with a real GDP fall of 4% against 2014. Political uncertainty arising from inquiries into possible corruption schemes, adjustments in government-controlled prices and the government’s limited ability to control rising spending eventually undermined consumer and business confidence. Therefore, both household and corporate spending dropped, thus intensifying the slowdown even further. As a result, domestic absorption, the sum of private spending, government spending and gross capital formation, slumped over the past year.
Real GDP Growth (YoY in Q4)
2015 (e) -8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0
10,0
2002 2004 2006 2009 2012 2015
Domestic AbsorptionNet Exposures
Source: IBGE (Instituto Brasileiro de Geografia e Estatística), Haitong.
Not surprisingly, the downturn had a negative impact on Brazil’s appetite for imports, which decreased sharply last year, thus generating a surplus to be exported. This combination of factors alone would be theoretically enough to boost the share of net exports in GDP (Gross Domestic Product). However, net exports were also driven by the significant depreciation of the Brazilian Real in relation to other currencies. Indeed, the average U.S. dollar rate in 2015 was around 50% higher than in 2014.
Despite its positive impact on net exports, the sharp depreciation of the real further fueled inflation, which was already rising. The inflation rate through the 12 months ended December 2015 as measured
10,00
8,0
4,0
2,0
0,0
-2,0
-4,0
-2.5
0.5
-3.3
GDP
The political and economic uncertainties undermined confidence in the country, accentuating the slowdown in Brazil’s growth
To make matters worse, the upward trend of core inflation measures reinforced the overall perception that rising prices were not limited to a few items, but were rather a widespread phenomenon. This situation led the Central Bank of Brazil to continue raising the benchmark interest rate, which went from 11.75% p.a. at the close of 2014 to 14.50% p.a. in 2015–the highest since mid-2006.
0,0
2,0
4,0
6,0
8,0
10,0
12,0
IPCA (% Chg. YoY)
Growth of SELIC rate
IPCACore Averages
Source: IBGE [Instituto Brasileiro de Geografia e Estatística, or Brazilian Institute of Geography and Statistics] , Haitong.
-2,00
0,00
2,00
4,00
6,00
8,00
10,00
2002
GAP
Selic
10,5
9,5
8,5
7,5
6,5
4,5
3,5
2,5
10,0
8,0
6,0
4,0
20
0,0
-2,0
32,0
27,0
22,0
17,0
12,0
12,0
7,0
2005 2007 2009 2011 2013 2015
10.8
9.1
IPCA2002
IPCA2005
IPCA2007
IPCA2009
IPCA2011
IPCA2013
IPCA2015
by IPCA (Índice de Preços ao Consumidor Amplo, or Broad Consumer Price Index) greatly exceeded the target ceiling established for the year (6.5%) due to the combination of currency depreciation, adjustments in government-controlled prices, elimination of tax incentives and inflation projections revised upwards. In fact, it hit 10.7% in 2015−far above the target ceiling of 6.5%.
Haitong | 2015 Annual Report 15
Consequently, 2015 seems to have been a bad year in every way, as shown both by Brazil’s macroeconomic indicators and by the prices of financial assets. On top of everything else, the political situation caused great trepidation among economic agents and affected their confidence in the outlook for the next few years. This is definitely a year everyone wants to leave behind as quickly as possible.
35.000
40.000
45.000
50.000
55.000
60.000
30-D
ez-1
4 13
-Jan
-15
27-J
an-1
5 10
-Fev
-15
24-F
ev-1
5 10
-Mar
-15
24-M
ar-1
5 07
-Abr
-15
21-A
br-1
5 05
-Mai
-15
19-M
ai -1
5 02
-Jun
-15
16-J
un-1
5 30
-Jun
-15
14-J
ul-1
5 28
-Jul
-15
11-A
go-1
5 25
-Ago
-15
08-S
et-1
5 22
-Set
-15
06-O
ut-1
5 20
-Out
-15
03-N
ov-1
5 17
-Nov
-15
01-D
ez-1
5 15
-Dez
-15
29-D
ez-1
5
Source: IBGE [Instituto Brasileiro de Geografia e Estatística, or Brazilian Institute of Geography and Statistics] , Haitong.
60.000
55.000
50.000
45.000
40.000
35.000
Owing to this combination of a recession, high inflation, high interest rates and political uncertainty, companies should not expect good returns; therefore, it should come as no surprise that the stock market performed poorly. That is exactly what the Bovespa Index showed throughout the year. At the close of 2015, Ibovespa had fallen by 13.3% year-over-year−despite a few peaks in response to the possible adoption of measures to tackle structural problems affecting Brazil’s government budget−due to the frustration resulting from the government’s failure to implement consistent economic guidelines, as well as changes in its economic team.
Ibovespa (pts)
Client Management
Our Client Relationship team had quite a challenging year in 2015 due to the unfavorable political and economic environments, and the completion of the sale of Banco Espírito Santo to Haitong. To overcome those challenges, it focused on the corporate segment and tapped into its expertise in the industry to strengthen the Bank’s relationship with its clients. By offering a wide range of financial products and services, the Bank was able to stand out from competition and continue consolidating its image among clients.
Our team of senior executives decided to focus on opportunities and managed to conduct several high-profile transactions in the capital market, especially in 2H15, by using their in-depth knowledge of the industry sectors to achieve major advances in 2015. The team continues supporting foreign companies in expanding their business in Brazil, based on the Group’s international presence.
Haitong’s investment banking activities in Brazil were very successful throughout the year despite the wave of pessimism in the local financial markets. As a result, the Client Relationship team achieved the targets set early in the year and all the investment bank’s business segments, mainly Project Finance, Capital Markets, M&A and Treasury, recorded positive earnings results.
Haitong’s entry as new shareholder encouraged the team to increase the Bank’s business targets for 2016, owing not only to the larger number of international opportunities, but also to its new role as the first Chinese investment bank in Brazil.
Client Relations and Origination
Industry Specialization
Operation Origination
Infrastructure
Agribusiness | Food & Beverages
Consumption
Financial Sector
Industrial Sector
Haitong | 2015 Annual Report 17
Capital Market
The deepening political crisis, the developments of the Lava Jato operation, the recession and the loss of Brazil’s investment grade led to a year-over-year drop of 33% in primary issuances in 2015. The Bovespa Index fell for the third consecutive year, by 13.3% in 2015 and by 29% between 2012 and 2015.
Concerning the Brazilian fixed income market, the economic slowdown, coupled with higher interest rates, led to a 38% fall in primary issuances in the capital market against 2014.
Therefore, Haitong’s Capital Market segment’s business was heavily affected by the slowdown and the low number of public offerings in 2015. In addition, the Bank’s change of control also affected its capital market activities.
Variable Income
The volume of issuances on BM&FBovespa increased slightly in 2015. Companies and shareholders raised R$18.3 billion, vs. R$15.4 billion in 2014. Telefônica’s share issuance (R$16 billion) accounted for most of the offerings. The proceeds were used to acquire GVT. Ibovespa, the main index of the Brazilian stock market, fell by 13.31% to 43,349 points, among the worst performances worldwide. Ibovespa reflected the poor performance of the two main companies comprising the index, Petrobras and Vale, both heavily affected by the Lava Jato operation and the drop in global commodity prices.
Regarding stock offerings in 2015, Haitong was the Lead Manager of BHG’s block trade transaction, which totaled R$ 43 million.
Fixed Income
Domestic SegmentIssuances of fixed income securities totaled R$92.8 billion in Brazil in 2015, down 38% from R$150.4 billion in 2014. Most of the securities issued (82%) were placed under limited efforts (CVM Instruction 476), which shows issuers’ and financial institutions’ strong appetite for this type of transactions and low dispersion of securities among institutional investors.
Debentures, the most issued type of instrument in 2015, accounted for 73% of total issuances, followed by the promissory notes at 13%, CRIs [Certificado de Recebível Imobiliário, or Mort-gage-Backed Securities] at 9% and FIDCs [Fundo de Investimento em Direitos Creditórios, or Receivables Investment Fund] at 5%.
During 2015, Haitong was involved in two offerings of fixed income securities in Brazil. It was the Lead Manager in Unidas’ issuance of promissory notes, totaling R$30 million, and a Coordinator in Ouro Verde’s issuance of debentures, totaling R$200 million.
International SegmentIssuances in the International Fixed Income segment totaled R$8 billion in 2015, down 82% from US$45.5 billion in 2014. Investment Grade issuers accounted for 78% of new issuances in 2015.
On the other hand, the drop in the prices of Brazilian corporate bonds encouraged companies to have tender offers.
Regarding international tender offers in 2015, Haitong was the Lead Manager of the consent solicitation for PT Telecom’s bonds outstanding, totaling €400 million.
Haitong | 2015 Annual Report 1919
Treasury
Global MarketsDespite great market turbulence in 2015, our Global Markets team was able to adapt to the adverse environment and achieved good results in the year. However, Brazilian markets performed poorly due to serious fiscal troubles, the political crisis and corruption scandals.
GDP shrank by 3.8% whereas the primary deficit came to 1.6% and inflation to 10.67% in Brazil in 2015. The Brazil lost S&P’s and Fitch’s investment grade ratings and will probably lose Moodys’ as well. The fiscal adjustment is needed, but the political situation and the pressure against President Dilma Rousseff hindered any progress.
All of those developments impacted Brazilian assets, and the real performed below expectations. Foreign markets were attracted by the rebound of the U.S. economy so that the dollar was the best performing asset.
The slowdown in China impacted emerging markets and commodity prices, and had an indirect impact on inflation, which remained low. In the trading department, the Income Statement shows ups and downs month by month, driven by a highly volatile market.
However, performance improved between March and December, mainly in connection with interest rates in local currencies, so that income amounted to around R$33 million in the year. The Structured Trading team also contributed a lot to this result.
Despite the economic slowdown, the Capital Market area recorded an improved performance
Risk Management (Fixed Income – Derivatives)In 2015, the Risk Management department faced great challenges−connected with business and transaction flows, as well as limited access to counterparties and clients. To achieve its goals, it adopted the strategy of maintaining contact with clients regularly, being closer to them and keeping them well informed about the transition taking place at the Bank due to the change of control. The completion of BESI’s acquisition by Haitong was the most important fact for all clients.
Regarding Brazil, the deteriorating economic and political situation affected the real and fueled the demand for hedging operations, mainly between the second and third quarters. However, the department was unable to seize that business opportunity due to restrictions imposed on the Bank. The team adopted a proactive approach despite those restrictions. This allowed it to conduct a series of transactions (NDFs, FX and derivatives) and produce R$13.5 million in income, thus exceeding the projections for the year. Spread levels improved as well.
Funding & ALM (Treasury)The Treasury team in Brazil continued focusing on liquidity management in a very conservative manner throughout 2015, as it started doing in 2014. This is an important move for a successful transition, mainly after the events that affected the Bank’s previous shareholders and due to the uncertain future.
We took several measures to maintain an appropriate liquidity level after the R$500 million debt, issued in March 2010, fell due. The Bank sought alternative sources of credit−including access to open platforms (such as a retail channel), through which it raised a considerable amount−after losing access to institutional investors due to the suspension of its rating. Now that the acquisition by Haitong Securities has been completed, the Bank is able to regain access to more competitive and diverse credit sources gradually, thus improving its net interest margins and boosting its profitability. Although a very gradual process, it will be a milestone for the Bank.
The Risk Management area also recorded progress, despite the adverse scenario, exceeding annual revenue projections
Haitong | 2015 Annual Report 21
Corporate Finance
The Corporate Finance department is in charge of Haitong’s M&A activities in Brazil. Its dedicated team has multi-industry expertise and accounted for 7.6% of the Bank’s overall income in 2015.
Affected by the macroeconomic and political crisis, M&A activity fell by 5.5% in Brazil in 2015 according to KPMG data. The problems faced by the former owner of the Bank also had a negative impact on this activity, thus reducing the number of transactions in relation to recent years.
Some of the Bank’s main projects in 2015 were: financial advisory services, jointly with the Portugal team, for PT Portugal SGPS S.A., owned by Brazilian Oi S.A. (Oi), in selling the whole of its capital to French telecommunications group Altice (transaction completed in June 2015); and preparation of the valuation report of Brado Logística.
The Corporate Finance area generated 7.6% of the Bank’s total revenue in 2015
Structured Operations
Project FinanceThe Project Finance department achieved good results in Brazil despite the economic downturn. In fact, it closed eight deals in 2015. As part of our strategy for the local market, Project Finance focused on supporting local and international clients in Public Private Partnerships (PPP) developed by Brazilian States, such as Bahia, Minas Gerais and São Paulo.
Project Finance closed eight transactions in 2015, despite the year’s enormous challenges
Acquisition Finance e Outros FinanciamentosIn Brazil, the Other Loans department was involved in some refinancing operations and new business deals. In addition, the department served once again as a cross-selling originator for the Fixed Income Capital Market and Mergers & Acquisitions (M&A) units. Three Trade Finance deals were closed during the period.
Our Project Finance team was chosen to structure long-term financing loans for two new projects in the fields of power transmission and wind power generation in spite of the credit and liquidity crunches. In fact, our Project Finance team in Brazil has mandates for four business deals in different industries–health diagnostic systems, in Bahia; wind power generation and sanitation–and another 25 projects in the pipeline.
Haitong | 2015 Annual Report 23
Brokerage - Haitong Securities do Brasil
The Haitong brokerage house is intended to generate business and operations in the Spot Market for Stocks, Futures & Derivatives, as well as in the Agribusiness Market. It focuses on domestic and international institutional investors although it has some qualified individual investors, mainly from agribusiness.
Brazil’s debt was downgraded by rating agencies to junk grade due to bad macroeconomic data and political turmoil never seen in the country’s recent history. As usual, financial markets anticipated this change and recorded a 13% loss in local currency (over 42% in U.S. dollars owing to the 50% depreciation of the local currency). The political crisis led to unprecedented instability in Brazil, so 2015 was marked by increased pessimism among investors. Risk aversion was further intensified by higher interest rates in the U.S., the slowdown in China and the sudden drop in commodity prices. In the Brazilian market, volatility will continue to drive away the long-term investor. However, prospects can change quickly if the inquiries under way bring a favorable political result and clear the way for the implementation of the macroeconomic agenda, mainly regarding the urgently needed fiscal adjustment.
As a result of the adverse economic and political situations, 2015 was marked by the low number of operations in the equity segment - only six in all, with a high concentration of volumes. Haitong participated actively in the voluntary delisting of Souza Cruz, a tobacco company belonging to British BAT, and BicBanco, acquired by Chinese CCB (China Construction Bank).
There were few Brokerage operations in 2015. However, the area did play an active role in two important delistings – those of Souza Cruz and BicBanco
CORPORATE GOVERNANCE
Management ModelHaitong believes transparency, financial discipline, risk control, fairness, social responsibility and alignment of interests between shareholders and executives are all integral parts of the Bank’s activities. Haitong’s Committee-based management model is based on the experience the Bank has acquired in global markets and is in line with the best market practices.
The organization takes the concerns of its different stakeholders into account day by day. In addition, it seeks to build long-term partnership with clients by offering quality products and services tailored to each one’s specific needs. Its goal is to create value for shareholders, based on sustainable organic growth, by making ethics the foundation of the business as a whole.
Under the guidance and supervision of the Board of Directors, responsible for setting and monitoring the Bank’s strategies, Haitong’s teams continuously improve the Bank’s governance practices, as well as its internal control and risk management systems, tools of utmost importance
for any financial institution.
To become increasingly transparent toward the market, the Bank has a set of management tools designed to build an image of soundness and reliability, among other purposes. It also has separate Committees in charge of corporate governance in a professional and safe manner.
This firm stance on managing risks, creating business opportunities and confirming the Bank’s tradition of soundness has been making the company an increasingly sustainable business.
Committed to improving its internal controls, the Bank constantly invests heavily in upgrading its technological
resources and training employees. The recognition the Bank receives from clients and other stakeholders shows the success of its work, based on the best practices and international standards. By following those guidelines, Haitong will continue seeking to ensure the longevity of its business and achieve an increasingly relevant position in Brazil’s banking industry.
03
The firm approach to risk management and the opening of new business opportunities, as well as its constant concern with underlining the Bank’s tradition of solidity, have been transforming the company into an increasingly sustainable business
Haitong | 2015 Annual Report 25
Integrated Risk Management
Haitong’s risk management is intended to identify, assess, monitor and control all the Bank’s risks. Risk management, under the responsibility of the Compliance department, is governed by an integrated set of controls and processes, including credit, market, liquidity and capital risks. The Bank constantly maps potential risks and adopts long-term measures to mitigate all the risks inherent in the Bank’s business.
The Bank’s Credit and Risk Committee (CRC), always in agreement with Haitong Portugal, sets the level of risk appropriate for the Bank in Brazil. It uses daily reports to monitor and control the Bank’s solvency, liquidity and provisioning to ensure they remain within appropriate levels.
For the sake of fairness, the Risk Control team works independently from the Bank’s different business areas and is free to assess, rate, control and monitor the risks of the Bank as a whole and of each Business Unit as it sees fit.
All the Group’s Units, including that in Brazil, follow the same methodology. They rate internally the risks of companies, clients and transactions they are considering; in addition, they take into account performance indicators, as well as other important aspects, such as size, field of business and operation structure.
Basel III
The Basel III Rules are designed to improve banks’ ability to withstand shocks and grow in a sustained manner. Haitong is comfortable with its current capital allocation level.
The Bank follows the simplified standardized approach to mitigate credit risk, which allows it to adapt the capital requirements to the characteristics of its exposures, in addition to expanding the character of those exposures by including off-balance accounts.
The Bank rates client companies internally by using the IRB Foundation’s method (Internal Rating Based Approach), based on default probability parameters to allocate minimum capital requirements.
For operational risks, the Bank uses the Basic Indicator (BIA), a method that calculates the minimum capital requirement by considering the average income earned by all lines of business over three years, with 15% Beta factor. The Bank expanded its guidelines and included exposures not yet covered to monitor and control market risks.
Haitong Brasil closed FY 2015 with a Basel Ratio of 17.8%, in both Tier I and Tier II, reflecting the comfortable situation mentioned above, above the Central Bank’s limit of 11%.
The Integrated Risk Management area is responsible for identifying, assessing, monitoring and controlling all the Bank’s risks
Basileia Grafic
2012 2013 2014 2015
15.5%14.0%
15.6%
17.8%
TIER
TIER II
Central Bank limit
Credit Risk
Credit risk may lead to losses if the terms of financial obligations are not complied with, directly or indirectly, by either a borrower or a counterparty. In addition to financial assets, exposures in derivatives, guarantees, sureties, co-obligations and the like are also taken into account. The default risk connected with the country risk is also considered when the borrower is based abroad.
Haitong Brasil, as well as the other Group units, rate clients’ risks internally by using a methodology developed by Risk Solution (Standard & Poor’s). The procedure considers each client’s individual features (sector and activity), taken to their maximum level of consolidation within a given group, as well as the financial operation to be conducted. All ratings assigned by the Credit department’s local team are ratified by a joint Committee including Haitong Portugal’s Board of Credit.
A specific team based in Lisbon is in charge of internal ratings in the case of some structured transactions, such as Project Finance, Acquisition Finance and Other Credits transactions, as well as those following specific patterns, given the particular features of each product.
The Credit Risk Committee (CRC), jointly with the Executive Committee and the Credit Department, analyzes, approves, requests and establishes the limits of all transactions involving credit risks and counterparties.
In turn, the Risk Control team is responsible for assessing, monitoring and controlling, in a continuous and integrated manner, positions and exposures in relation to pre-approved limits. The process involves all transactions and risk factors in Haitong is exposed to. All transactions are analyzed, whether or not they are classified in the trading book. Those risk exposures and
Haitong | 2015 Annual Report 27
proprietary positions, which serve as a basis for tolerance limits, are formally determined by specific Committees. The Bank monitors its credit risk profile regularly, with a focus on credit exposures and any related losses, as well as renegotiations of those transactions. Compliance with the approved credit limits and the adequacy of the mechanisms related to approvals of credit lines are also monitored on a daily basis. In addition, the Bank monitors its loan portfolio profile by using different assessment instruments and examining exposure per client/corporate group, product, rating, industry, maturity and guarantees.
Market Risk
Losses arising from fluctuating rates, as well as mismatches of maturities, currencies and adjustment indices of the active and passive portfolios, increase the Bank’s market risk. Haitong identifies, assesses, monitors and controls its market risk continuously. Reports are examined by the Bank’s Board of Directors in Brazil and the Risk Control department, in Lisbon.
All proposals related to risk limits are based on an analysis of relevant risk factors, market volatility, growth projections and risk/return ratio assumptions considered appropriate according to the Bank’s standards. Normal and adverse market situations are simulated, and limits for specific risk factors, stop losses and concentration are set. The purpose is to develop a comprehensive scenario and provide senior management with enough information to set limits in line with the Bank’s current situation, policy and strategy.
Drafted at least once a year, those proposals are discussed with the Risk Control department, in Lisbon, and submitted to the local Credit and Risk Committee for consideration and later to the Global Credit and Risk Management Committee, in Lisbon.
Monitoring exposure levels in relation to limits on a daily basis allows the Bank to manage its market risk−both in Haitong’s local portfolio and in its Cayman branch’s portfolio−properly.
Considering the changes in the Bank’s portfolio (P&L: Profit and Loss) between January and December 2015, validations confirmed that the limits in place cover both the VaR and the actual earnings results very comfortably. This shows the Bank stuck to the model, with some rises, within the established limit.
Parametric VaRBRL 000
V01 ExposureBRL 000
dez/
13
jan/
14
fev/
14
mar
/14
abr/1
4
mai
/14
jun/
14
jul/1
4
ago/
14
set/1
4
out/1
4
nov/
14
dez/
14
jan/
15
fev/
15
mar
/15
abr/1
5
mai
/15
jun/
15
jul/1
5
ago/
15
set/1
5
out/1
5
nov/
15
dez/
15
280200160120
8040
0(40)(80)
(120)(160)(200)(240)(280)
dez/
13
jan/
14
fev/
14
mar
/14
abr/1
4
mai
/14
jun/
14
jul/1
4
ago/
14
set/1
4
out/1
4
nov/
14
dez/
14
jan/
15
fev/
15
mar
/15
abr/1
5
mai
/15
jun/
15
jul/1
5
ago/
15
set/1
5
out/1
5
nov/
15
dez/
15
16.00014.00012.00010.0008.0006.0004.0002.000
0
16.000
14.000
12.000
10.000
8.000
6.000
4.000
2.000
0
Limit
Limit
Parametric
Parametric
Different reports are prepared for legal purposes, such as:
• DDR [Demonstrativo Diário de Risco, or Daily Risk Statement], intended to present to the regulatory body information about market risks per RWA (Risk Weighted Asset) portion succinctly on a daily basis.
• DRM [Demonstrativo de Risco de Mercado, or Market Risk Statement], which presents information about exposures to market risk factors mapped as determined by the Regulatory Body.
• DLO [Demonstrativo de Limites Operacionais, or Statement of Operational Limits], intended to report on the capital requirement portions.
Haitong | 2015 Annual Report 29
Liquidity Risk
It is crucial for a financial institution to manage liquidity to control fluctuations in assets and liabilities, as well as fulfill its daily obligations. Liquidity risk is related to an inability to have enough funds to settle obligations or even seize significant business opportunities.
Managing liquidity adequately allows the Bank to assess its liquidity risk and determine the appropriate level of tolerance, thus eliminating it naturally.
Funding liquidity risk comprises:
• Business risks - arising from everyday funding and trading activities in normal market situations. They arise from gaps, funding concentration and flows of off-balance items.
• Contingent risks - arising from external factors over which the Bank has no control, such as market volatility, political events and other market-specific aspects
Haitong manages and assesses exposure to liquidity risk by using reports about liquidity gaps, considering and examining the detailed position of assets and liabilities of the entire funding portfolio, and the use of funds by currency, maturity date and rate of return/cost.
Cash flow reports covering the maturity flow of financial transactions, expenditures, default rates in different portfolios and liabilities maturing in least 90 consecutive days are prepared every day.Haitong Brasil’s and Haitong Portugal’s Executive Committees meet regularly to discuss the assessments of local liquidity risk. Asset allocation strategies are outlined based on short-, medium- and long-term sources of funding and on the interest rate risk intrinsic in transactions. Liquidity management and minimum cash limits, control parameters for the composition of the funding portfolio and measures to be taken regarding the liquidity contingency plan are also established.
dec/
15
jan/
16
feb/
16
mar
/16
apr/1
6
may
/16
jun/
16
jul/1
6
agu/
16
sep/
16
oct/1
6
nov/
16
dec/
16
December 2015 Free Cash: BRL 731 Million December 2014 Free Cash: BRL 937 Million
Liquidity Control Res. 4090: Standard ScenarioBRL Million
Minimum cash
Liquidity cash
dec/
15
jan/
16
feb/
16
mar
/16
apr/1
6
may
/16
jun/
16
jul/1
6
agu/
16
sep/
16
oct/1
6
nov/
16
dec/
16
Funding Breakdown in December 2015
REPOs
DEPOSITS
69%(30.8%)
( )
3.9%(6.4%)5.0%
(8.5%)
3,9%(6.4%)
LCA + LCI + LF
BNDES ONLENDING
DEC 2014
Minimum cash
70% Non-renewal CDB/CDI50% Default - TVM / Credit30% late payment - TVM / Credit
Liquidity cash
1.000
900
800
700
600
500
400
300
200
Liquidity Control Res. 4090: Stress ScenarioBRL Million
Haitong | 2015 Annual Report 31
Capital Risk
Capital management is an ongoing process at Haitong. It involves monitoring and controlling the Bank’s capital, assessing its capital needs to cope with the risks to which it is subject and planning targets and capital needs considering its strategic goals. The Bank adopts a forward-looking stance and always focuses on anticipating any possible changes in market conditions.
To monitor capital risks properly and provide support for senior management’s decisions, the risk management department:
• Identifies and assesses the relevant risks incurred by Haitong Brasil
• Develops capital management policies and strategies, duly documented, to establish mechanisms and procedures
• Develops the Bank’s Capital Plan at least three years in advance, based on simulations of severe events in extreme market conditions (stress tests), and
• Prepares weekly management reports about the Bank’s capital adequacy ratio.
Haitong also monitors its future capital needs in accordance with Basel III, including assumptions that require implementing the Bank’s capital contingency plan.
Operational Risks
The Brazilian Central Bank’s [Bacen] Resolution requires all financial institutions in Brazil have an operational risk management framework covering internal and external fraud; labor claims and poor workplace safety; improper practices related to clients, products and services; damage to physical assets owned or used by the institution; events that may lead to the interruption of the institution’s activities; IT system failures; failure of the institution’s activities; failure to ex-ecute, meet deadlines in and manage the institution’s activities.
Haitong’s Board of Directors is responsible for validating the Operational Risk Management Policy, which describes the internal structure, activities and methodology adopted by the respec-tive department to mitigate operational risks identified, as well as any existing flaws and correc-tive measures to be taken.
To monitor the activities, the Board of Directors receives semi-annual reports about all the fail-ures that may have occurred, as well as corrective and preventive measures taken in relation to the risks identified.
Additionally, Haitong adopts a series of processes and procedures to ensure its operational risks are managed in accordance with the institutional policy. It also has a contingency plan monitored continuously to ensure the Bank’s activities can proceed normally and limit major losses. This is how the Bank identifies, assesses, controls and mitigates its operational risks.
The department in charge prepares reports so Haitong’s Board of Directors and Executive Com-mittee can monitor the Bank’s operational risk management activities designed to identify and correct flaws in a timely manner. It also publicizes the Bank’s Operational Risk Management Policy internally and raises all employees’ awareness of the importance of their individual roles in identifying and mitigating risks.
In addition to specific reports, Haitong has a system containing the description of all internal activi-ties performed by its employees, by function and position. This helps the Bank monitor internal controls. The system automatically sends a notification to the respective employee, as well as the Compliance and Operational Risk Management Departments, on the date for which a given activ-ity is scheduled and records whether or not it was performed. The employee’s immediate superior and the officer responsible for the respective department are notified immediately if the activity is not performed. Taking into account the justification provided, the Compliance Department assess-es the situation and adopts the appropriate administrative and/or corrective measures.
Specific reports about different events, classified as medium or high risk, are submitted to the Officer in charge, with copies to the entire Executive Committee.
Haitong routinely promotes among all employees the culture of maintaining strict internal controls as part of their activities. Everyone is aware of his or her role in monitoring the Group’s operational risk and is encouraged to report any suspicions or risks, and submit any suggestions for improvement to the peo-ple in charge, thus contributing to the efficiency of the model the Bank adopts to identify, monitor and mitigate operational risks.
Haitong routinely promotes among all employees a culture of maintaining strict internal controls as part of their daily activities
Haitong | 2015 Annual Report 33
Pedro FonsecaMiguel Guiomar Roberto Simões Miguel Lins Paulo Werneck Daniela Pineli
Fixed Income, Global Markets
& Treasury
Client Origination,
Communications & Image
M&A Broker BrokerSales &Distribution
Capital Market
Alan Fernandes Frederico Alegria
Executive VP & Global Markets
Letusa Marangom
Human Resources
Andrea Chen
Internal Audit
Silvana Horácio
Secretary
Rafael Valverde
CEO
Executive VP, Project Finance,
Securitization & IT
Carlos Guzzo Mércia Bruno
Planning, Control &
Risk Management, and Accounting
Administration, Back Office,
Legal, Registry & Compliance
Álvaro Maia
Conselho de Administração e Diretoria Executiva
INTANGIBLE ASSETSManagement of Intangibles The international recognition of the Haitong Group as a serious, sound and ethical intuition adds a considerable value to the organization’s operations in Brazil. Coupled with the Bank’s unique management model in Brazil, based not only on the sale of financial products, but also on knowledge and consulting expertise, its long-term trust relationship with all stakeholders is further strengthened.
At Haitong, the contribution of ethics, transparency and a positive work environment, in which employees’ commitment and dedication are recognized, is essential for sound business growth. It promotes employee and client satisfaction and creates value for the Bank, thus bringing good results for its shareholders. In addition, it is a source of pride for Management, which works continuously to maintain and disseminate this culture.
All this translates into intangible assets that go beyond financial benefits and bring strength and credibility to the Haitong Group in the world’s and Brazil’s banking markets.
The main intangible values comprising the Bank’s management model are:
• Ethics
• Valuing human capital
• Partnership with and commitment to customers
• Professionalism, expertise and experience
• Transparency in all its relationships
• Commitment to risk management and
• Social and environmental responsibility
04
Haitong | 2015 Annual Report 35
Total Staff
Age Group
124
1
35
HAITONG Bank HAITONG DTVM HAITONG Corretora
31 - 40
41 - 5038%
28%
18%
16%
1%
Over 50
21 - 30
20 and under
Human Resources
2015 was a year of change. With Haitong’s entry as new shareholder, all employees were incorporated into a new culture and perspective. The Bank’s strategy and values were reviewed and served as a basis for HR initiatives focused on introducing a new culture and valuing human capital at first.
Main Indicators
The HR Department monitors HR management indicators month by month to have a proactive transparent approach toward employees and their needs, in line with Haitong’s goals in Brazil.
At the close of 2015, the Bank had 160 employees, including the investment bank and subsidiaries, broken down as follows:
Educational Background
24%
10%
58%
Graduate degree
EHigh school certificate
Some college
Master’s degree
College degree
5%
3%
Gender
Male
73%
28%
Female
Function
58%
43%
Back Office
Front Office
Haitong | 2015 Annual Report 37
Training
Haitong Brasil’s employees from all categories attended training programs in 2015. The Bank offered 20 courses/training sessions attended by 541 employees.
Courses/Training Programs Attendees
Lecture on the Chinese Culture 160
Information Security (online) 160
Money Laundering Prevention 160
CPA 20 Certifications 15
Agile Scrum Clarify Project Management 14
Leadership Workshop 8
Excel 3
Presentation Skils 3
BM&FBovespa Trading Screen 3
2nd COE (Challenges and New Business) Seminar 2
High Communication Performance 2
Exchange (Marcus Evans) 2
CEO Panel 2
CFA Prep 1CNPI [Certificado Nacional do Profissional de Investimento, or Brazilian National Certificate of Professional Investment]
1
BR Pension Fund Conference 1
Offshore Derivatives Course 1Information Security Course − ABTN [Associação Brasileira de Normas Técncas, or Brazilian National Standards Organization] 1
Fixed income-ANBIMA (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais, or the Brazilian Association of Financial and Capital Markets Entities) (online)
1
CFP renewal 1
Support and Incentives
In addition to position/function-specific courses and training programs, Haitong also supports employees in their graduate and language studies.
In 2015, the Bank’s tuition reimbursement program benefited three employees in graduate programs and ten in language courses, broken down as follows by department/function:
Department Employees benefited
Client Coverage 1
Treasury 2
3
Department Employees benefited
Brokerage firm 1
Legal 1
Operational 3
Chief Officers 2
Treasury 3
10
Graduate Programs Languages
SOCIAL AND ENVIRONMENTAL RESPONSIBILITY
Sustainability and ManagementThe Bank’s goal is to grow in a responsible and conscientious manner. Therefore, it always assesses risks and seeks solutions that can be replicated to ensure the longevity of the Bank’s and its clients’ business, as well as develops its human capital and takes care of the communities in which it is present. This is how Haitong works−by focusing on social and environmental responsibility in its operations.
PROGRAMS
Social
Hospital de Câncer de Barretos [Barretos Cancer Hospital]
Since 1960, the Barretos Cancer Hospital has been providing specialized humanitarian hospital and medical care in the field of Oncology for SUS [Sistema Único de Saúde, or Unified Health System] patients from the whole of Brazil, supported by prevention, education and research programs. It is an international reference center for cancer treatment technology and provides care free of charge for over 130 thousand patients per year. Haitong supports Programa Amparo ao Idoso [Support for the Elderly Program], which focuses on helping maintain, upgrade and expand the services for senior citizens provided by the Hospital−managed by Fundação Pio XII [Pius XII Foundation]−, which meets the increasing demand for its services. In addition, the Bank supplies the hospital with cancer medicines for the elderly only to improve their quality of life and facilitate healing.
05
Liga Solidária [Solidarity League]
A not-for-profit social organization founded in 1923, Liga Solidária develops social, educational and active citizenship programs for over 10 thousand children, youth and adults. The organization’s work is based on the belief that education is the foremost tool to build and express actual citizenship.
Sports Workshop Project
FUMCAD [Fundo Municipal dos Direitos da Criança e do Adolescente, or Municipal Fund for Children’s and Adolescents’ Rights] maintains the Oficina de Esportes project, which benefits 200 children and teenagers aged 6 to 14 from the Raposo Tavares district, in São Paulo City. The project is intended to help them do sports continuously, and develop physically, emotionally, socially and culturally, in addition to offering activities that foster socialization and solidarity.
Haitong | 2015 Annual Report 39
Lar da Provedoria [Ombudsman’s Office’s Home]
The Ombudsman’s Office of the Portuguese Community in São Paulo was founded in 1968 by a group of Portuguese citizens by initiative of the Consulate of Portugal in São Paulo. It is an institution of Municipal, State and Federal Public Interest that provides assistance for underprivileged elderly people. Lar da Provedoria housed 43−27 Portuguese and 16 Brazilian−elderly people at the close of 2015.
Vida Jovem [Young Life]
Founded in 1987, Associação Vida Jovem [Young Life Association] is a not-for-profit charity that helps change the lives of hundreds of young people by investing in education. Its main goal is to provide all-round education for children and adolescents by offering professional development courses and psychosocial care to adolescents, their families and communities.
Projeto Matemática Aplicada [Applied Math Project]
The Matemática Aplicada project is designed to enable at-risk young people aged 14 to 17 in Heliopolis, in São Paulo City, to develop their applied mathematical thinking, thus allowing them to join the labor market in strategic fields and improve their earnings potential.
Obra do Berço [Cradle Work]
This not-for-profit organization, founded in 1938, attends to around 5 thousand children, adolescents, young people and families at social risk in 3 units in the southern part of São Paulo City. A group of volunteers holds fund-raising bingos to help the organization. In 2015, the event brought together some 730 participants and 200 sponsors, supporters and prize donors, and around R$690 thousand was raised.
Participe & Recicle [Join & Recycle]
Haitong selected Participe e Recicle as an environmental responsibility project for its business. The project involves implementing solutions for collecting, transporting, reprocessing and recycling waste. Each type of material is sent to a reprocessing unit, depending on the type and composition, and subsequently to a certified disposal site. As a member of the project, Haitong received recycling bins and joined a logistics scheme whereby waste is removed and goes to the proper recycling process. Haitong has collected an average of 100 kg of waste per year since joining the project in 2010.
Esporte Clube Pinheiros [Pinheiros Sports Club]
Esporte Clube Pinheiros has had a connection with the Sport Incentive Law since it went into force. The Federal law was enacted in December 2007, and Clube Pinheiros was the first club with a project approved by the Ministry. This shows its pioneering spirit and professionalism regarding sports. Among the sports offered by the Club, Haitong supports fencing. The Club’s fencing team had a milestone year in 2015. They won many team and individual competitions, among which it is worth noting the Toronto Pan American Games. In addition, three Pinheiros fencers will be in the Brazilian team competing in the 2016 Rio Summer Olympics.
Environmental
Sports
Haitong | 2015 Annual Report 41
Cultural
Sociedade Beneficente Israelita Brasileira Albert Einstein [Albert Einstein Israeli Brazilian Benefit Society]
The Society was founded in the 1950’s and follows the Jewish values Refua, Tzedakah, Mitzvah and Chinuch. It worked for years to maintain itself as a healthcare organization strongly tied to the Jewish tradition, on a relentless pursuit for excellence, with respect to merit, and designed to follow in discourse and practice ethical values focused on patients’ needs. One of the projects maintained by the institution is Hospital Israelita Albert Einstein’s Doctors’ Philharmonic Orchestra, which was created after musical performances by doctors at the hospital. The first rehearsal took place on August 2, 1989, so the orchestra has been performing at cultural and philanthropic activities for 26 straight years.
Fundação Theatro Municipal de São Paulo [São Paulo Municipal Theater Foundation]
The São Paulo Municipal Theatre opened to a crowd of 20 thousand people on September 12, 1911. The Theater embodied the city’s dream of becoming a metropolis in the early 20th century. The luxurious building, heavily influenced by the Paris Opera House, was a bold construction for its time, with Renaissance and Baroque features on the façade, as well as many decorations and works of art on the inside.
Projeto Municipal de Jeans e Camiseta [Municipal Jeans and T-Shirt Project]
The Bank sponsors the Experimental Repertoire Orchestra, an educational orchestra that performs in the concerts of Projeto Municipal de Jeans e Camiseta−laid-back free admission events designed to make both musicians and the audience feel at ease and show classical music does not have to be stuffy. This initiative is intended to attract new audiences and bridge the gap between people and classical music, thus demystifying not only this type of music, but also the imposing theater building.
COMMUNICATIONS AND RELATIONSHIP MANAGEMENT
Communications, Media and Events Banco Haitong’s Communications Department had two important projects in 2015. It was largely reactive in 1H15 since it had to wait for the brand to change, which was expected to occur in the second half of the year. However, press-related activities, such as interviews and meetings with key journalists for the institution, continued normally in 1H15.
In turn, Haitong’s Communications Department was more proactive in the second half of the year. With the help of MSLGROUP Andreoli, it introduce the new brand and showed the market the Bank is an important market player. To that end, it worked hard to prepare spokespeople and produce new consistent messages. MSLGROUP Andreoli trained around 20 executives at 3 workshops: Media Reputation, given by MSLGROUP Andreoli’s Officer Ricardo Bonatelli; Social Media, given by consultant Ricardo Kauffman; and Body and Voice, given by speech therapist Claudia Cotes. There were also practical simulations of interviews with TV and print media outlets.
MSLGROUP Andreoli also invited media professionals to the Bank’s main events:
• 3rd Agribusiness Conference
• Presentation about the Macroeconomic Outlook, given by the Bank’s Chief Economist in major Brazilian cities for five years
• Presentation about the Prospects for Brazil, based on the country’s sovereign rating, given by the Managing Director and Regional Manager, Southern Latin America, Standard & Poor’s Ratings Services
All those events had extensive media coverage−with over 50 published pieces−since the main media outlets attended them. The Bank was also visited by an executive from abroad for the first time. British analyst Miranda Carr, who specializes in China, gave a presentation and visited Haitong’s main clients in Brazil.
As a result of all this work, Haitong was mentioned in Brazil’s main media outlets, such as the Valor Econômico, O Estado de S. Paulo and Folha de S. Paulo newspapers; IstoÉ Dinheiro and InfoMoney magazines; Globo TV; and Jovem Pan radio station among others.
The Communications Department should remain very active in 2016, suggesting issues of interest, fulfilling requests from media, organizing events and reaffirming its importance to the market.
06
Haitong | 2015 Annual Report 43
Total Assets (BRL MM)
HIGHLIGHTS 2015
For the period ended in December 31st, 2015, Haitong posted a net income of BRL 10,124. Total assets reached BRL 8,032,186 at the end of the period, keeping the Bank among the 50 largest institutions of the Brazilian Financial System. Regarding total assets, the interbank funds, securities and derivatives portfolio reached BRL 6,681,112 and corresponds to 83.2 % of total assets. The loan portfolio reached the balance of BRL 796,957.
The global funding totaled BRL 6,919,705 at the end of the period, with 100% of these resources raised in the local market. Funding sources are composed mainly by money markets repo commitments (68.9%), interbank and time deposits (22.1%), repass from public sectors (3.9%), financial letters - LF (3.2%) and other funding sources (1.9%).
Shareholders’ equity reached BRL 651,241 in December 2015 which is an adequate amount to cover the activities and operations of the Bank. The variation of the shareholders equity in 2015 is due to the retained earnings, deducted from dividends paid in 2015.
Assets
1. Total Assets
Total Assets totaled BRL 8,032,186 IN December 2015 and is composed mainly by government bonds (59.0%), loan portfolio (9.9%), private securities (8.7%), other assets1 (20.2%) and fixed assets (2.2%). The assets distribution with the profile mentioned above reinforces the characteristic of its high level of liquidity.
07 (Amounts in thousands of Reais)
1,363
1,006
2,130
3,364 2,8854,739
1,479
797
177
184
847
763
698
1,550
Others
Private Securities
Fixed Assets
Loans
Public Securities
234
8,096
6,150
8,032
2013 2014 2015 1 Other Assets: derivatives financial instruments and interbank deposits.
Table 1: Securities 1: portfolio breakdown
BRL 000
Securities Unpledged Pledged Total
Public securities - L.F.T. 16,315 523,323 539,638
Public securities - L.T.N. 582,749 3,424,168 4,006,917
Public securities - N.T.N.B. 3 192,751 192,754
Private Securities 243,844 70,028 313,872
Investment funds quotas 47,684 - 47,684
Quotas of Credit Assignment Investment Funds (F.D.I.C.s) 98 - 98
External Securities 24,495 285,100 309,595
Other Securities - CRI/CRA 26,366 - 26,366
Total 941,554 4,495,370 5,436,924
2013 2014 2015
Public Securities
Private Securities
Securities Portfolio (BRL MM)
3,364
4,3703,648
5,437
1,006
2,885
7634,739
698
2. Securities Portfolio
The securities portfolio reached BRL 5,436,924 in December 2015, higher than the amount of BRL 3,647,632 recorded in December 2014. This portfolio corresponds to 67.7% of total assets. The public securities represent 59.0% of the total portfolio and the private securities are 8.7%.
The Bank kept its liquidity position, ending the period with a balance of unpledged securities of BRL 941,554.
The securities on the held to maturity portfolio represent 21.7% of the total securities, totaling BRL 1,176,376. For accounting purposes, these securities are booked at their cost of acquisition. The market value of these securities corresponded to BRL 1,094,404 in December 2015.
Haitong | 2015 Annual Report 45
74.6%
21.6%
3.7%
2015
Trading Securities
Held to Maturity
Available for Sale
63.1%
28.7%
8.2%
2014
Trading Securities
Held to Maturity
Available for Sale
Table 2: Securities 2: breakdown by term
BRL 000
Securities/Category 1 day Up to 3 months
from 3 to 12 months
from 1 to 3 years
from 3 to 5 years
Over 5 years
Book Value Cost Price
LFT - - - - 14,812 524,826 539,638 539,641
LTN - 3,256 3,252,712 10,311 - - 3,266,279 3,267,554
NTN-B - - 1,895 138,993 20,502 31,364 192,754 192,463
Investment fund quotas 45,254 - - - - - 45,254 45,254
Others securities - - - - - 13,572 13,572 13,051
Total - Trading Securities (a) 45,254 3,256 3,254,607 149,304 35,314 569,762 4,057,497 4,057,963
Debentures - 1,470 - 107,743 31,745 28,299 169,257 173,284
Financial Letters - - - 18,472 - - 18,472 18,626
Investment fund quotas 2,430 - - - - - 2,430 2,430
Quotas of credit assignment Investment Funds
- - - 98 - - 98 98
Others securities - - - 12,794 - - 12,794 12,948
Total - Available for sale (a) 2,430 1,470 - 139,107 31,745 28,299 203,051 207,386
Public Securities - LTN - 199,930 - 540,708 - - 740,638 740,638
Debentures - - 68,259 - 30,151 27,733 126,143 126,143
External securities investment - 26,116 22,976 217,125 24,946 18,432 309,595 309,595
Total - Held to maturity - 226,046 91,235 757,833 55,097 46,165 1,176,376 1,176,376
TOTAL 47,684 230,772 3,345,842 1,046,244 122,156 644,226 5,436,924 5,441,725
% 0,9% 4,2% 61,5% 19,2% 2,2% 11,8% 100,0% -
(a) Trading and available for sale securities - The book value corresponds to the market value of these securities at the balance sheet date. The market value is obtained through the collection of prices and interest rates on the market at the balance sheet date. In case there is no liquidity or price quotation to calculate the market value of a certain security, the values are estimated based on dealer quotations, pricing models or price quotations for securities that present similar features. The negative adjustment for the trading securities of BRL 466 (2014: negative adjustment of BRL 5,442), obtained by the difference of the cost amount of BRL 4,057,963 (2014: BRL 2,306,248) and the market value of BRL 4,057,497 (2014: BRL 2,300,806), was recorded in a specific account in the statement of income. The cost value and the market value of the securities available for sale totaled BRL 203,051 (2014: BRL 298,324).
3. Loans
The loan portfolio reached the balance of BRL 796,957 in December 2015, a decrease of 46.1% compared to BRL 1,478,803 in December 2014. From this amount, we highlight the credit operations related to the BNDES system, which totaled BRL 278,675 and correspond to 35.0% of the total loan portfolio. Including the guarantees granted (off balance), of BRL 432,513, the credit portfolio reached BRL 1,229,470 at the end of the period, representing a decrease of 39.8% over December 2014.
Haitong | 2015 Annual Report 47
2013 2014 2015
Loans
Guarantees
Other Receivable(2)
1,924
1,309 797
144563433
169
546
205
2,676
2,042
1,373
Loan Portfolio and Guarantees (BRL MM)
The bank engages in lending, primarily to enhance its investment banking business. The main highlight is the Project Finance activity which holds approximately 65.4% of the loan portfolio and guarantees.
Table 3 - Credit Portfolio: composition of the loan and guarantees per activity, sector and per maturity:
BRL 000
Loan PortfolioOverdue - Up to 210
days
Up to 3 months
from 3 to 12
months
from 1 to 3 years
from 3 to 5 years
Over 5 years Total
Loans - Industry - 4,168 31,815 57,542 1,676 2,579 97,780
Loans - Commerce - 16,287 35,684 20,281 - - 72,252
Loans - Other Services 25,693 63,908 29,279 37,478 2,833 - 159,191
Financing - Industry - 9,773 5,481 17,851 20,043 107,802 160,950
Financing - Other Services - 4,178 11,757 29,982 18,421 53,387 117,725
Export Financing - Industry 859 12,195 3,552 4,598 10,994 - 32,198
Export Financing - Commerce - 210 12,953 - - - 13,163
Total - Loans 26,552 110,719 130,521 167,732 53,967 163,768 653,259
Receivables arising from export contract - Industry - 20,103 99,694 - - 23,901 143,698
Total Other Credits - 20,103 99,694 - - 23,901 143,698
Total Loan Portfolio 26,552 130,822 230,215 167,732 53,967 187,669 796,957
Guarantees 142,347 201,859 88,307 - - 432,513
Total Credit Portfolio 26,552 273,169 432,074 256,039 53,967 187,669 1,229,470
% 2.2% 22.2% 35.1% 20.8% 4.4% 15.3% 100%
2Other receivables refer to NCE transactions.
BRL 000
# Operations Volume % Average Ticket
Average Maturity (years)
Average Maturity (years) Excluding BNDES Repass
Top 10 80 743,635 60.5% 9,295 5.1 2.1
Top 15 88 880,641 71.6% 10,007 4.8 2.0
Top 20 104 977,353 79.5% 9,398 4.5 1.9
Top 25 117 1,041,389 84.7% 8,901 4.3 1.8
Total - 77 Clients 205 1,229,470 100.0% 5,997 3.9 1.8
Table 4 - Credit Risk: Loans and Guarantees Concentration:
Haitong’s credit risk and guarantees portfolio is composed by 77 clients/economic groups, with 205 credit operations with an average amount of BRL 5,997 and an average maturity of 3.9 years. Excluding from the credit risk portfolio and guarantees the BNDES repass transactions (average maturity 13.3 years), which have matched funding from BNDES, the average maturity of the portfolio is only 1.8 year.
The credit and guarantees portfolio is spread among 24 different sectors. The main is infrastructure which represents 49.4% of the total, in particular, electricity (generation and transmission) (26.8%), sanitation (8.1%), telecommunication (8.4%), infrastructure of transportation (5.3%), oil and derived (0.8%), and which are mainly related to the Project Finance activity.
Infrastructure
Soft Commodities(3)
Harbour & Airports
Services
Others
16.0%
49.4%
25.4%
4.9%
4.2%
Loan Portfolio by Sectors (%)
3Includes agricultural commodities (corn and soybean).
Haitong | 2015 Annual Report 49
Table 5 - Credit Risk: provision
BRL 000
Risk LevelLoan Portfolio Provision - Resolution 2682
Current Past Due Total % Minimum Accounting
AA 611,342 - 611,342 76.7% - -
A 94,402 - 94,402 11.8% 472 472
B 43,470 21,062 64,532 8.1% 646 795
C 416 4,631 5,047 0.6% 151 160
H 20,775 859 21,634 2.7% 21,634 21,634
Total 770,405 26,552 796,957 100.0% 22,903 23,061
Total credit provisions reached BRL 23,061 at the end of the period, amount above the minimum amount required by the Resolution 2682 of the Brazilian Central Bank. This provision is adequate and covers specific and global risks, and was calculated according to the risk levels and minimum percentages established by the Brazilian Central Bank rules.
Worth noting the good quality of the loan portfolio, shown by the concentration of loans classified in the risk levels ranged between “AA” and “B” (96.6%) in accordance with the regulations in force of the Central Bank of Brazil.
4. Permanent Assets and Investments
The Permanent Assets of Haitong reached BRL 183,584 in December 2015 and include investments in subsidiaries and shares of non-listed companies amounting to BRL 163,197.
Table 6 - Funding: Local Market and International Market
BRL 000
Total Funding 1H13 2H13 1H14 2H14 1H15 2H15
Interbank Deposits 275,310 353,378 283,222 520,298 55,294 69,774
Time Deposits - CDB 1,425,039 1,414,554 874,156 194,580 338,933 679,665
Time Deposits - DPGE 636,027 869,642 925,512 987,519 971,415 783,438
Repass Borrowings from BNDES 174,127 274,597 302,823 305,754 269,945 266,768
Subordinated Debts 86,456 86,813 31,877 32,137 - -
Letters of Credit for Agribusiness (LCA) 191,159 216,157 240,973 158,647 133,196 122,091
Financial Letters (FL) 146,856 112,463 247,192 247,283 226,284 225,093
Real Estate Credit Notes (LCI) 10,516 5,625 6,937 - - -
Repos 2,399,758 1,864,087 1,979,119 1,480,189 2,051,213 4,772,876
Total - Local Market 5,345,248 5,197,316 4,891,811 3,926,407 4,046,280 6,919,705
% of total 78.6% 79.3% 80.2% 81.8% 100.0% 100.0%
Time Deposits - International Market 380,235 256,943 251,958 59,694 - -
Securities Issued abroad 911,795 919,666 786,357 813,061 - -
Offshore loan 167,458 177,021 166,402 - - -
Total - International Market 1,459,488 1,353,630 1,204,717 872,754 - -
% of total 21.4% 20.7% 19.8% 18.2% 0.0% 0.0%
Total 6,804,736 6,550,946 6,096,528 4,799,161 4,046,280 6,919,705
Liabilities
1. Funding
In December 31st, 2015 the balance of funds raised reached BRL 6,919,705. The global funding, excluding repurchase agreement transactions, totaled BRL 2,146,829 in December 2015, lower than the amount of BRL 3,318,972 recorded in December 2014. The following table highlights the breakdown of the funds raised in local and international markets:
Haitong | 2015 Annual Report 51
In the local market, the funding sources were focused on deposits, BNDES/FINAME repass, financial letters (LF) and agribusiness credit notes (LCA). Meanwhile, there were no funding sources raised in the international markets in December 2015 mainly due to the maturity of the MTN 2015 in March 2015.
1.1 Local Funding
The funds raised in domestic markets totaled BRL 6,919,705 in December 2015, versus BRL 3,926,407 in December 2014. The share of these funds in the domestic markets represented 100.0% of the total funding in December 2015, compared to 81.8% in December 2014. Over the last years, the bank has been diversifying the local funding sources with Financial Letters (LFs) and Agribusiness Credit Notes (LCAs) and through DPGE deposits. The highlight is the time deposits (ex-DPGE) growth of 249.3% compared to 2014, reaching BRL 679,665 in 2015. This funding source has as main characteristics, the extended term (over 1 year) and the diversification of the counterparties.
1.2 International Funding
In December 2015 there was no external funding position due to the payment of the MTN 2015 program occurred in March 2015 and due to the maturity of the long term deposits occurred in the 1H 2015. In December 2014, the international funding was BRL 872,754 (18.2% of the total funding), and was represented by the external bonds – MTN 2015 Program - (93.2%) and time deposits international markets (6.8%).
Table 7 - Financial Operating Income, Services Fees and Net Income
(*) Proforma 2015: Result of the activity excluding the hedge and overhedge used to cover the currency risk of Cayman branch.
BRL 000
Result of Haitong Activity 1H13 2H13 1H14 2H14 1H15 2H15Full Year Proforma
(*)
2014 2015 2015
Financial Operating Income 324,873 395,416 303,166 384,452 403,448 231,376 687,618 634,824 833,758
Financial Operating Expenses (270,809) (334,130) (232,410) (398,692) (441,726) (339,367) (631,102) (781,093) (781,093)
Service Fee Income 25,331 19,386 34,271 9,974 17,826 7,251 44,245 25,077 25,077
Gross Income 79,395 80,672 105,027 (4,266) (20,452) (100,740) 100,761 (121,192) 77,742
Taxes and Contributions (8,405) (2,901) (7,417) (6,763) (6,563) (2,697) (14,180) (9,260) (9,260)
Net Income 70,990 77,771 97,610 (11,029) (27,015) (103,437) 86,581 (130,452) 68,482
Profitability
1. Net Income
The net income in 2015 was BRL 10,124, compared to the net income of BRL 14,499 reported in 2014.
2. Net Income on Financial Operations and Services Income
The “Gross Income” (net result of “Financial Operating Income and Expenses” and “Service Fee Income”), as shown in details in the following tables I and II, reflects the combined performance of the core activities of Haitong and totalled BRL (121,192) in 2015 versus BRL 100,761 in 2014.
This result is impacted by the effect of the hedge and over hedge used to cover the currency risk of the Cayman branch. If this result is taken into account, the Financial Operational Result raises to BRL 77,742, as shown on the proforma column of the tables below.
Haitong | 2015 Annual Report 53
(*) Proforma 2015: Result of the activity, excluding the hedge and overhedge used to cover the currency risk of Cayman branch.
Table 8 - Financial Operating Income
Table I BRL 000
1H13 2H13 1H14 2H14 1H15 2H15Full Year Proforma
(*)
2014 2015 2015
Financial OperatingIncome (1) 324,873 395,416 303,166 384,452 403,448 231,376 687,618 634,824 833,758
Loans 85,483 106,637 98,979 103,682 80,973 66,010 202,661 146,983 146,983
Securities income 45,636 207,950 326,429 157,142 181,182 85,895 483,571 267,077 267,077
Net income from derivatives financial instruments 190,107 75,265 (122,242) 118,463 115,151 69,147 (3,779) 184,298 383,232
Foreign exchange income 3,647 5,565 - 5,165 26,142 10,324 5,165 36,466 36,466
Financial Operating Expenses (2) (270,809) (334,130) (232,410) (398,692) (441,726) (339,367) (631,102) (781,093) (781,093)
Deposits, money markets and interbank funds (264,359) (325,934) (215,614) (381,589) (412,331) (318,378) (597,203) (730,709) (730,709)
Loan operations, assignments and onlendings (6,101) (9,025) (17,611) (8,705) (16,166) (10,144) (26,316) (26,310) (26,310)
Allowance for losses and doubful receivables (349) 829 815 (8,398) (13,229) (10,845) (7,583) (24,074) (24,074)
Financial Operating Result (1) + (2) 54,064 61,286 70,756 (14,240) (38,278) (107,991) 56,516 (146,269) 52,665
2.1 Financial Operating Income
The result of the financial operating income of December 2015 YTD reached BRL (146,269), as detailed on the Table I below, or BRL 52,665, excluding the effect of the hedge and over hedge mentioned above. This result has been impacted since the 2H 2014 and is due to the slowdown of the Brazilian economy.
The financial operating income includes the result of securities and derivative financial instruments (swaps, futures, term and options transactions), interest on loans and foreign exchange income and totalled BRL 634,824 in 2015. Excluding the result of the ‘hedge’ and ‘over hedge’, as mentioned previously on item 2, the “Financial Operating Income” on this context, totalled BRL 833,758 in 2015.
The main positive contribution to the financial operating income arises from the securities results of BRL 267,077, derivatives income of BRL 184,298 and loans results of BRL 146,983. The securities and the derivatives results, which represent the result of the hedge instruments of the securities portfolio, reached the amount of BRL 451,375 in 2015.
Table II BRL 000
Service Fee Income 1H13 2H13 1H14 2H14 1H15 2H15Full Year
2014 2015
Specialized Technical Advisory Services 20,972 14,405 28,591 3,990 12,778 2,402 32,581 15,180
Commission for intermediation of securities, guarantees granted and services received abroad
4,329 4,968 5,501 5,984 4,977 4,823 11,485 9,800
Other 30 13 179 - 71 26 179 97
Total 25,331 19,386 34,271 9,974 17,826 7,251 44,245 25,077
Table 9 - Service Fee Income
2.2 Financial Operating Expenses
The expenses on financial operations incurred by the Bank represent the charges incurred in funding raised through deposits, repos, local and offshore securities, as well as adjustments on provisions for loan losses. The financial operation expenses reached BRL 781,093 in 2015, higher than the amount of BRL 631,102 recorded in 2014. The increase of the Financial Operating Expenses, when compared to the 2014 is mainly due to increase of the interest rate (SELIC), and to the exchange rate variance over the MTN 2015 bond, which matured in March 2015, lowering the funding expenses in the following quarters.
2.3 Service Fee Income
The service fee income totaled BRL 25,077 in 2015 YTD, lower than the amount of BRL 44,245 recorded in 2014. The revenue on technical advisory services was BRL 15,180, while the commission related to guarantees granted accounted for BRL 9,800 in 2015. On the similar period of 2014, the amount recorded was BRL 32,581 and BRL 11,485 respectively.
3. Administrative, Personnel Expenses and Others.
The administrative expenses are composed mainly by premises rental, technical services, IT and the costs of the financial system. The personnel expenses are composed mainly by salaries and social security expenses.
Haitong | 2015 Annual Report 55
Table 11 - Other Operating Income and Expenses
BRL 000
Other Operating Income (Expenses) 1H13 2H13 1H14 2H14 1H15 2H15
Full Year
2014 2015
Taxes and Contributions (8,405) (2,901) (7,417) (6,763) (6,563) (2,697) (14,180) (9,260)
Other 1,907 (276) (9,111) 15,546 43,016 94,458 6,435 137,474
Total (6,498) (3,177) (16,528) 8,783 36,453 91,761 (7,745) 128,214
Table 10 - Administrative, Personnel and Other Expenses
BRL 000
Administrative and Personnel Expenses 1H13 2H13 1H14 2H14 1H15 2H15
Full Year
2014 2015
Administrative Expenses (14,900) (19,513) (17,553) (17,507) (14,691) (16,952) (35,060) (31,643)
Personnel Expenses (21,065) (21,972) (21,559) (23,196) (22,156) (22,951) (44,755) (45,107)
Other Expenses (4,405) - (6,918) (547) (2,799) (4,549) (7,465) (7,348)
Total (40,370) (41,485) (46,030) (41,250) (39,646) (44,452) (87,280) (84,098)
Taxes and contributions expenses are composed mainly by PIS, COFINS and ISS. The “Other” account result of BRL 137,474 in 2015 compared to BRL 6,435 recorded in 2014 is mainly due to the foreign exchange rate variance over the investment in Cayman’s branch.
4. Equity in earnings of subsidiaries
The income statement account - “Equity in earnings of subsidiaries” - includes the results of our subsidiaries. The result in 2015 was BRL (2,755) versus BRL (5,661) recorded in 2014 and consolidates the result of Haitong Securities (brokerage activity) and Haitong DTVM (wealth and asset management activities, suspended since 2015 and for the time being).
5. Result of Operating Income by Business area
The following table sets forth the percentage contribution of the main business areas to our core revenue for the following periods.
Haitong Brasil Group: Business Contribution (%)
24.7%
34.0%
29.7%
29.3%
37.2%
24.0%
14.8%
18.6%
18.0%
22.2%23.5%
Treasury (Global Markets + Clients Flow)Loans
Subsidiárias
Fees
2013 2014 2015
Banking Income 2013 2014 2015
Capital Markets 3.7% 7.8% 1.0%
Global Markets 16.8% 21.3% 26.8%
Clients Flow 12.9% 8.0% 10.4%
Corporate Finance 9.7% 4.2% 9.3%
Structured Finance (4) 33.5% 40.0% 37.7%
Brokerage (*) 15.3% 14.8% 14.5%
Asset Management (*) 2.6% 1.3% 0.2%
Wealth Management (*) 5.6% 2.6% 0.1%
TOTAL 100.0% 100.0% 100.0%
Table 12 - Banking Income by Business Area.
The Haitong Group in Brazil has pursued a better balance in the sources of revenue among the various areas of investment bank activities and its subsidiaries during the financial year. The Corporate Finance, Structured Finance and Capital Markets fees and other transactions with customers have had a significant share in the Group’s operating income over time. Another view in order to analyze the total income is through the main businesses lines of the Group, as shown on the chart below:
(4) Structured Finance includes Project Finance, Acquisition Finance and Other Credits activities.
* Subsidiaries
Haitong | 2015 Annual Report 57
ROA ROE Cost/Income
2015 0.14% 1.54% 82.40%
2014 0.20% 2.19% 71.39%
2013 2014 2015
Shareholders Equity (BRL MM)
665.7 660.8 651.2
6. Efficiency Indicators: ROA, ROE and cost/income.
The table below shows the main indicators of Haitong in 2015 compared to 2014:
Shareholder’s Equity
Shareholders’ equity balance was BRL 651,214 in 2015, compared to BRL 660,801 in 2014.
Table 13 - Basileia
BRL 00BRL 000
RISK PORTIONS
Credit Risk 235,880
Market Risk 135,543
Operational Risk 17,057
Reference Equity Required for WRA 388,480
PBan - Banking related portion 1,398
Capital Level I 630,466
Capital Surplus 240,588
Basel Ration Expanded (including RBAN) 17.8%
Leverage Ratio 6.8%
2013 2014 2015Tier I
Basel Index (%)
14.0% 15.7% 17.8%
Ratings
Standard & Poor’s has been rating Haitong since September 2015, assigning the ratings in br.A+ (national scale) and BB- (global scale), with a positive outlook.
According to Standard & Poor’s evaluation, Haitong in Brazil is considered a core entity to the Haitong Bank S.A., due to its major contribution to the income of the group, besides the long term commitment of support by its shareholder and due to the fact that Brazil is considered by the group, the center of Latin America operations.
Capital Requirements
Brazilian financial institutions, including Haitong, are required to maintain a regulatory capital equal to at least 11% of total risk-weighted assets, calculated according to specific criteria set forth by the Central Bank of Brazil.
In December 31st, 2015, the Expanded Basel Index (including RBan portion) was 17.8% of total risk weighted assets, above the 11.0% level required by the Central Bank. The indicator quality is a highlight, as it consists only by the capital of the Bank, without increases arising from hybrid equity instruments.
The table below shows the calculation for the Bank’s reference equity related to the Prudential Conglomerate required as per December 31st, 2015.
Haitong | 2015 Annual Report 59
The positive outlook of the ratings of Haitong in Brazil is a consequence of the same outlook given to Haitong Bank. Standard & Poor’s suggests that the ratings of the bank will follow its shareholders, due to the relevance of the Brazilian subsidiary to the group.
The major strength points taken into account on the assessment by the rating agency Standard & Poor’s are:
I. Adequate liquidity;II. Available capital in order to support the Bank’s growth and adequate results;III. Strong contribution to the Head office results;IV. Support and commitment of the Head office in the long term;V. Possibility of growth of the clients’ basis as a result of the wide client basis of the Haitong Group.
Subsequent Event
On February 17, 2016, date of the last revision of the sovereign rating of the Federative Republic of Brazil, the rating agency Standard & Poor’s has reviewed several ratings of financial institutions.
At this moment, we highlight the fact that Standard & Poor’s has reaffirmed the ratings assigned to Haitong as well as its positive perspective.
In this context, only two financial institutions, among the banks evaluated by Standard & Poor’s, have had their ratings reaffirmed and between them, Haitong Banco de Investimento do Brasil was included. Besides, Haitong Banco de Investimento do Brasil was the only bank that kept the positive outlook assigned by Standard & Poor’s.
BRL 000
Balance Sheet 1H13 2H13 1H14 2H14 1H15 2H15
Assets
Current and Long-term Assets 7,972,479 7,862,906 7,231,574 5,973,010 5,230,306 7,848,602
Cash and cash equivalents 17,471 71,047 83,206 41,043 30,427 8,225
Interbank funds applied 739,601 197,374 436,911 182,072 175,542 1,045,665
Securities and derivativefinancial instruments 5,335,612 5,287,784 4,623,243 4,064,759 3,682,861 5,635,447
Loans 1,756,044 2,129,789 1,710,763 1,478,803 1,070,476 796,957
Provision for doubtful receivables (5,949) (5,120) (4,305) (12,702) (25,977) (23,061)
Other receivables 125,243 178,146 372,481 215,518 292,842 376,055
Other assets 4,457 3,886 9,275 3,517 4,135 9,314
Balance Sheet
BRL 000
Full Year
Income Statement 1H13 2H13 1H14 2H14 1H15 2H15 2014 2015
Financial operations income 324,873 395,416 297,737 389,881 403,448 231,376 687,618 634,824
Financial operations expenses (270,809) (334,130) (226,981) (404,121) (441,726) (339,367) (631,102) (781,093)
Net income on financial operations 54,064 61,286 70,756 (14,240) (38,278) (107,991) 56,516 (146,269)
Other operating income (expenses) (23,762) (24,424) (27,492) (29,018) 12,376 54,016 (56,510) 66,392
Service fee income 25,331 19,386 34,271 9,974 17,826 7,251 44,245 25,077
Personnel expenses and administrative expenses (40,370) (41,485) (46,029) (41,250) (39,646) (44,452) (87,279) (84,098)
Income Statement
BRL 000
Balance Sheet 1H13 2H13 1H14 2H14 1H15 2H15
Permanent assets 232,065 233,513 155,321 176,684 176,653 183,584
Investments 214,684 215,697 137,293 158,878 156,667 163,197
Premises and equipment 16,826 17,149 17,457 17,329 19,635 20,111
Intangible assets and Deferred charges 555 667 571 477 351 276
Total 8,204,544 8,096,419 7,386,895 6,149,694 5,406,959 8,032,186
Liabilities
Current and Long-term Liabilities 7,554,743 7,429,993 6,706,810 5,487,936 4,751,049 7,379,802
Deposits 2,716,611 2,894,517 2,334,848 1,762,090 1,365,642 1,532,877
Money market repurchase commitments 2,399,758 1,864,087 1,979,119 1,480,189 2,051,213 4,772,876
Securities issued abroad 911,795 919,666 786,357 813,061 - -
Letter of Credit for Agrobusiness & Financial Letter 348,531 334,245 495,102 405,930 359,480 347,184
Interdepartmental accounts 109 32,777 4,723 32 - -
Repass borrowings from public sector (BNDES) 174,127 274,597 302,823 305,754 269,946 266,768
Derivative financial instruments 576,876 597,158 135,283 247,148 436,749 240,594
Loans Obligations 167,458 177,021 166,402 - - -
Other liabilities 259,478 335,925 502,153 473,732 268,020 219,503
Deferred income 513 727 785 957 848 1,143
Shareholders' equity 649,288 665,699 679,300 660,801 655,062 651,241
Total 8,204,544 8,096,419 7,386,895 6,149,694 5,406,959 8,032,186
Haitong | 2015 Annual Report 61
Income Statement BRL 000
Full Year Proforma (*)
Income Statement (*) Proforma 1H13 2H13 1H14 2H14 1H15 2H15 2014 2015
Financial operations income 324,873 395,416 295,460 451,266 471,859 361,900 746,726 833,758
Financial operations expenses (270,809) (334,130) (226,981) (404,121) (441,726) (339,367) (631,102) (781,093)
Net income on financial operations 54,064 61,286 68,479 47,145 30,133 22,533 115,624 52,665
Other operating income (expenses) (23,762) (24,424) (25,215) (67,594) (28,671) (19,746) (92,809) (48,417)
Service fee income 25,331 19,386 34,271 9,974 17,826 7,251 44,245 25,077
Personnel expenses and administrative expenses (40,370) (41,485) (46,029) (41,250) (39,646) (44,452) (87,279) (84,098)
Equity in earnings of subsidiaries (2,225) 852 864 (6,525) (2,211) (544) (5,661) (2,755)
Other operating income (expenses) (6,498) (3,177) (14,321) (29,793) (4,639) 17,999 (44,114) 13,359
Operating result 30,303 36,862 43,264 (20,449) 1,462 2,786 22,815 4,248
Non-operating result - - 106 254 (8) - 360 (8)
Net income before income taxes and profit sharing 30,303 36,862 43,371 (20,195) 1,454 2,786 23,176 4,241
Income tax (5,631) (4,409) (6,337) 6,257 1,640 2,201 (80) 3,841
Social contribution (3,520) (4,084) (4,507) 4,597 601 3,225 90 3,825
Employees' profit sharing (6,979) (1,554) (7,424) (1,263) (1,474) (309) (8,687) (1,783)
Net income 14,173 26,815 25,103 (10,604) 2,221 7,903 14,499 10,124
Equity in earnings of subsidiaries (2,225) 852 864 (6,525) (2,211) (544) (5,661) (2,755)
Other operating income (expenses) (6,498) (3,177) (16,598) 8,783 36,407 91,761 (7,815) 128,168
Operating result 30,303 36,862 43,264 (43,258) (25,902) (53,975) 6 (79,877)
Non-operating result - - 106 254 (8) - 360 (8)
Net income before income taxes and profit sharing 30,303 36,862 43,371 (43,004) (25,910) (53,975) 367 (79,885)
Income tax (5,631) (4,409) (6,337) 21,603 18,743 34,832 15,266 53,575
Social contribution (3,520) (4,084) (4,507) 12,060 10,862 27,355 7,553 38,217
Employees' profit sharing (6,979) (1,554) (7,424) (1,263) (1,474) (309) (8,687) (1,783)
Net income 14,173 26,815 25,103 (10,604) 2,221 7,903 14,499 10,124
Income Statement
(`) Proforma: Result of the activity, excluding the hedge and overhedge used to cover the currency risk of Cayman branch in 2014 and 2015.
Income Statement Proforma (*)
Outlook The Brazilian market offers new business opportunities to the Haitong Bank, the only bank that maintained its positive ratings and one of the institutions that was not downgraded in Brazil. The first Chinese investment bank with a consolidated presence outside China, Haitong is planning to extend its expertise in distribution, client services and intermediation in Brazil, to Chinese and Latin American companies as well, as outlined in its Strategic Plan for the year. The Bank also wants to expand its client base and business pipeline, and be the leader in intermediation of local M&As involving companies from Peru, Chile, Mexico and other regions of Latin America and Asia, especially China.
With the Chinese government’s international expansion plan, many Chinese companies are seeking acquisitions and investments outside China. This creates a number of business opportunities with Chinese companies−especially from the renewable energy and infrastructure industries−planning to come to Brazil. The Brazilian government’s economic recovery plan involves, among other measures, holding infrastructure auctions (roads, railroads and airports) and conducting new Public-Private Partnerships (PPP) projects−such as public lighting in São Paulo, São Paulo State, and Belo Horizonte, Minas Gerais State−that can generate good results for the Bank.
Haitong is well prepared to advise and provide quality services for both foreign and Brazilian companies, but is going to invest even more in its structure in 2016. The Bank focuses on Structured Transactions, Capital Market, M&As (Mergers and Acquisitions) and Corporate Finance, but believes it is essential for the business to have strong Origination and Operations departments as well. Accordingly, it is going to strengthen the Commercial team with local representatives in the North, Northeast, South and Central-West Regions, and Minas Gerais State. The goal is to serve companies outside the Rio-São Paulo area locally, in more customized manner.
The Bank will be expanding the Treasury department as well in 2016. Brazil has attractive interest rates, which always makes it possible to achieve gains from spread in government bonds and foreign exchange operations. Haitong has a very active proprietary trading desk, with good limits for this activity. Therefore, the Bank is also betting on it in 2016.
The same goes for the Capital Market Department. The credit crunch and decreased competition among Brazilian banks has led equity and fixed income investors to seek banks with good reputations and higher returns for their short-term investments. In addition, the inflow of foreign capital for portfolio investments, in particular from traditional sources (United States and Europe) is expected to fall next year due to some factors, such as rising U.S. interest rates, the slowdown in Brazil, low commodity prices and corruption scandals.
The Risk Management department also foresees opportunities in 2016. The entry of the new shareholder will allow the Bank to strengthen the ties with its current clients gradually and attract new ones. The Risk Management department will be focusing on new products for both the domestic and the international market (mainly derivative and structured notes) in 2016. It also expects the flow of some product lines, such as FX options, to pick up.
Haitong plans to extend its expertise in Brazilian operations to Chinese and other Latin American companies in order to expand its client base and business pipeline, especially in the M&A segment
Haitong | 2015 Annual Report 63
For the Brokerage House, 2016 will probably be a continuation of 2015, that is, a year with a bearish stock market, but very interesting opportunities for hedging operations and in the futures and fixed income markets. Owing to Brazil’s a double-digit benchmark interest rate, money is definitely going to fixed income funds, as well as public and private bonds. Equities will continue taking a backseat, with some short-term rallies.
In short, Haitong is well prepared to make further progress in 2016. It has a strong balance sheet with good liquidity (over 50% in Federal government securities), so it does not depend on credit. Moreover, it has a strong shareholder and a more solid structure. The Brazilian economy does pose a challenge, but an investment bank that already has agility in its DNA will have less trouble withstanding volatility and know on what to bet to generate new business for clients.
Haitong is well prepared to make even further progress in 2016. The challenges are clear, but an investment bank with agility as part of its DNA will be better equipped to adapt to the prevailing volatility and make the best possible choices
FINANCIAL STATEMENTS MANAGEMENT REPORT
To our Stockholders,
We hereby submit for your appreciation the financial statements of Haitong Banco de Investimento do Brasil S.A. for the year ended December 31, 2015, including the notes to the financial statements and the Independent auditors’ review report, prepared in accordance with the Corporate Law and the regulatory rules of the Central Bank of Brazil.
Control Change
Haitong Banco de Investimento do Brasil S.A. (Bank) became a direct subsidiary of Haitong Bank S.A. (new name of Banco Espírito Santo de Investimento S.A.), with head office in Lisbon (Portugal).
On August 12, 2015, the Central Bank of Brazil approved the transfer of the shareholding indirect control of Haitong Banco de Investimento do Brasil S.A. e de suas subsidiárias Haitong Securities do Brasil S.A. – CCVM e Haitong DTVM S.A. to Haitong International Holdings Limited with head office in Hong Kong, a wholly owned subsidiary of Haitong Securities Co. Ltd, with head office in Shanghai, China, under the terms of the purchase and sale agreement signed with the old controller “Novo Banco” in December 2014.
The corporate structure of the Bank and its subsidiaries did not change in Brazil, remaining under the direct control of Haitong Bank S.A.. Finally, the Central Bank of Brazil approved changing the company names of the Bank and its subsidiaries on October 08, 2015.
Performance
For the year ended December 31, 2015, Haitong Banco de Investimento do Brasil S.A. recorded a net income of R$ 10,124.
Shareholders’ equity totaled R$ 651,241 at the end of the period, after considering the net income and deduction of interest on own capital in the total of R$ 18,850. The capital adequacy ratio as set forth by the Basel Committee and regulated by the Central Bank of Brazil reached 17.8% at the end of the year in the consolidated prudential, higher than the minimum of 11% required by the Central Bank of Brazil.
Total assets amounted to R$ 8,032,186 at the end of the period. Interbank funds applied and the securities and derivatives portfolio reached R$ 6,681,112 accounting for 83.2% of the total assets.
The securities portfolio reached R$ 5,436,924 accounting for 67.7% of the total assets. Represented by 87.2% of government bonds and 12.8% by private securities. From this portfolio, the Bank classified 74.6% of the securities of this portfolio as “trading securities”, 3.7% as
08
Haitong | 2015 Annual Report 65
“securities available for sale” and 21.7% as “securities held to maturity”, due to the Management’s intention and to the financial capacity of the Bank holding them until maturity. The liquidity position of the Bank, represented by the portfolio of free securities, reached of R$ 941,554 corresponding to 1.45 times the final shareholders’ equity.
The loan portfolio reached R$ 796,957 at the end of the period. This portfolio, including guarantees granted in the amount of R$ 432,513, reached the balance of R$ 1,229,470 at the end of the period. This loan portfolio, 97.3% of operations were classified between the risk levels “AA” and “C” in accordance with the regulations of the Central Bank of Brazil. The overdue totaled R$ 26,552 corresponding to 3.3% of the portfolio. The allowance for possible loan losses totaled R$ 23,061 at the end of the period,corresponding to 2.9% of the total loan portfolio, which is above the minimum required by Resolution 2682 of the Central Bank of Brazil. In addition, provision was made to cover other credit risk and counterparty in the amount of R$ 23,479, which added to the allowance for credit losses totaled R$ 46,540 at the balance sheet date.
The amount of funds raised totaled R$ 6,919,705 at the end of the period. These funds raised are represented by R$ 69,774 in interbank deposits, R$ 1,463,103 in time deposits, R$ 4,772,876 money repurchase commitments, R$ 266,768 in repass borrowings from BNDES and R$ 347,184 in financial letters and letters of credit for agribusiness. Was highlighted during the first semester, the liquidation of fund raising by issuing bonds held abroad totaling close to U$ 300 million.
Acknowledgements
We wish to thank our clients, employees and shareholders for their collaboration, which has enabled us to achieve the results recorded in the period and the constant improvement in our products and services.
São Paulo, February 29, 2016
Board of Directors
INDEPENDENT AUDITORS’ REVIEW REPORT
To The Board of Directors and Shareholders Haitong Banco de Investimento do Brasil S.A.São Paulo - SP
We have audited the accompanying financial statements of Haitong Banco de Investimento do Brasil S.A. (“the Bank”), which comprise the balance sheet as of December 31, 2015 and the statements of income, changes in shareholders’ equity and cash flows for the year and semester then ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting practices adopted in Brazil applicable to the institutions authorized to operate by the Central Bank of Brazil and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted this audit in accordance with Brazilian and international standards on auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether these financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Bank’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
Haitong | 2015 Annual Report 67
In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Haitong Banco de Investimento do Brasil S.A. as of December 31, 2015, and its financial performance and cash flows for the year and semester then ended, in accordance with the accounting practices adopted in Brazil, applicable to the institutions authorized to operate by the Central Bank of Brazil.
Emphasis of a matter – Operations and Corporate reorganization
Without modifying our opinion, we draw attention to Note 1 -Operations, which describes matters related to change in the indirect share control of Haitong Banco de Investimento do Brasil S.A. (“Bank”). On August 12, 2015, the Central Bank of Brazil approved the transfer of the indirect share control of the Bank and its subsidiaries. to Haitong International Holdings Limited with head office in Hong Kong, a wholly owned subsidiary of Haitong Securities Co. Ltd., with head office in Shangai, China, in accordance with the terms and conditions of the purchase and sale agreement entered into with the former parent company “Novo Banco” in December 2014, without changing the Group’s organizational structure in Brazil and remaining with its operations being carried out as described in the note Operations.
São Paulo, March 18, 2016
KPMG Auditores IndependentesCRC 2SP014428/O-6
Original report in Portuguese signed byZenko NakassatoAccountant CRC 1SP160769/O-0
Haitong Banco de Investimento do Brasil S.A.December 31, 2015 and 2014(In thousands of Reais)
Assets 2015 2014
Current assets 6,038,956 3,868,733
Cash and cash equivalents 8,225 41,043
Interbank funds applied 963,168 21,807
Money market 818,530 2,001
Interbank deposits 144,638 19,806
Securities and derivative financial instruments 4,475,623 2,868,586
Own portfolio 723,649 523,361
Subject to repurchase commitments 3,334,472 1,348,882
Subject to guarantees 320,558 599,646
Derivative financial instruments 96,944 396,697
Loans 261,056 726,342
Loans - Private sector 267,792 586,511
Loans linked to assignments - 144,538
(Allowance for loan losses) (6,736) (4,707)
Other receivable 323,042 209,295
Foreign exchange portfolio 64,710 39,422
Income receivable 1,753 1,424
Securities trading 115,350 45,766
Other 141,261 122,684
(Allowance for loan losses) (32) (1)
Other assets 7,842 1,660
Prepaid expenses 7,842 1,660
Long- term assets 1,809,646 2,104,277
Interbank funds applied 82,497 160,265
Interbank deposits 82,497 160,265
Securities and derivative financial instruments 1,159,824 1,196,173
Own portfolio 217,905 979,781
Subject to repurchase commitments 718,821 195,962
Subject to guarantees 121,519 -
Derivative financial instruments 101,579 20,430
Loans 369,413 570,827
Loans - Private sector 385,467 578,334
(Allowance for loan losses) (16,054) (7,507)
Liabilities 2015 2014
Current liabilities 6,064,837 4,110,222
Deposits 997,662 1,161,914
Interbank deposits 10,046 492,051
Time deposits 987,616 669,863
Money market repurchase commitment 4,574,748 1,480,189
Own portfolio 3,782,301 1,480,189
Third-party portfolio 792,447 -
Resources from securities issuance 321,376 1,004,753
Resources from securities issuance 321,376 191,692
Securities issued abroad - 813,061
Interbranch accounts - 32
Thrird party resources in transit - 32
Repass borrowings from public sector 7,512 68,651
BNDES 7,512 59,583
FINAME - 9,068
Derivative financial instruments 54,047 74,466
Derivative financial instruments 54,047 74,466
Other liabilities 109,492 320,217
Collection of taxes 70 120
Foreign exchange portfolio 64,625 39,385
Social and statutory 13,260 6,290
Taxes payable 4,872 20,986
Securities trading - 66,651
Subordinated debt - 32,137
Other 26,665 154,648
Long-term liabilities 1,314,965 1,377,714
Deposits 535,215 600,176
Interbank deposits 59,728 28,247
Time deposits 475,487 571,929
Money market repurchase commitment 198,128 -
Own portfolio 198,128 -
Resources from securities issuance 25,808 214,238
Resources from securities issuance 25,808 214,238
Haitong | 2015 Annual Report 69
See the accompanying notes to the financial statements.
Assets 2015 2014
Other receivable 196,440 175,155
Income receivable 4,530 -
Other 192,149 175,642
(Allowance for loan losses) (239) (487)
Other assets 1,472 1,857
Prepaid expenses 1,472 1,857
Permanent assets 183,584 176,684
Investments 163,197 158,878
Subsidiaries and affiliates - Domestic 153,218 148,899
Other investments 9,979 9,979
Premises and equipment 20,111 17,329
Other fixed assets for own use 26,306 23,807
(Accumulated depreciation) (6,195) (6,478)
Intangible assets 276 477
Intangible assets 754 939
(Accumulated amortization) (478) (462)
Total assets 8,032,186 6,149,694
Liabilities 2015 2014Repass borrowings frompublic sector 259,256 237,103
BNDES 234,449 212,302
FINAME 24,807 24,801
Derivative financial instruments 186,547 172,682
Derivative financial instruments 186,547 172,682
Other liabilities 110,011 153,515
Taxes payable 94,791 124,212
Other 15,220 29,303
Deferred income 1,143 957
Deferred income 1,143 957
Shareholders' equity 651,241 660,801
Capital - Domestic 420,000 420,000
Revenue reserve 233,625 242,351
Asset valuation adjustments (2,384) (1,550)
Total liabilities 8,032,186 6,149,694
Haitong Banco de Investimento do Brasil S.A.Statements of incomeYears ended December 31, 2015 and 2014 and semester ended December 31, 2015 (In thousands of Reais, except for the net income period/year per share)
2nd Semester Years ended December 31,
2015 2015 2014Financial operations income 231,376 634,824 687,618
Loans 66,010 146,983 202,661
Securities income 85,895 267,077 483,571
Net income from derivatives financial instruments 69,147 184,298 (3,779)
Trade finance and foreign exchange income 10,324 36,466 3,969
Financial Assets Assignment - - 1,196
Financial operations expenses (339,367) (781,093) (631,102)
Deposits, money market and interbank funds (318,378) (730,709) (597,203)
Loans operations, Assignment and Repass (9,741) (21,703) (25,373)
Financial Assets Assignment (403) (4,607) (944)
Allowance for losses on doubtful receivables (10,845) (24,074) (7,582)
Net income on financial operations (107,991) (146,269) 56,516
Other operating income (expenses) 54,016 66,392 (56,510)
Service fee income 7,251 25,077 44,245
Personnel expenses (27,500) (52,455) (52,220)
Other administrative expenses (16,952) (31,643) (35,060)
Tax expenses (2,697) (9,260) (14,180)
Equity in earnings of subsidiaries (544) (2,755) (5,661)
Other operating income 94,699 138,004 41,698
Other operating expenses (241) (576) (35,332)
Operating result (53,975) (79,877) 6
Non-operating result - (8) 360
Net income before income taxes and profit sharing (53,975) (79,885) 366
Income tax and social contribution 62,187 91,792 22,819
Income tax 17,053 30,948 5,942
Social contribution 9,786 17,739 1,957
Deferred tax assets 35,348 43,105 14,920
Profit sharing (309) (1,783) (8,687)
Net income 7,903 10,124 14,498
Number of shares 127,338,665 127,338,665 127,338,665
Net income for the period per shares in R$ 0.06 0.08 0.11
See the accompanying notes to the financial statements.
Haitong | 2015 Annual Report 71
Haitong Banco de Investimento do Brasil S.A.Statements of changes in shareholders’ equityYears ended December 31, 2015 and 2014 and semester ended December 31, 2015(In thousands of Reais)
CapitalRevenue reserves Asset
valuation Adjustments
Retainedearnings TotalLegal
reserveReserves for
expasion
Balances at January 01, 2014 420,000 30,106 215,247 346 - 665,699 Other Events:
Realization of reserves - - (3,002) - 3,002 -
Interest on own capital - - - - (3,002) (3,002)
Asset valuation adjustments - - - (1,896) - (1,896)
Net income for the year - - - - 14,498 14,498
Allocations:
Interest on own capital - - - - (14,498) (14,498)
Balances at December 31, 2014 420,000 30,106 212,245 (1,550) - 660,801 Other Events:
Realization of reserves - - (9,232) - 9,232 -
Interest on own capital - - - - (9,232) (9,232)
Asset valuation adjustments - - - (834) - (834)
Net income for the year - - - - 10,124 10,124
Allocations:
Legal reserve - 506 - - (506) -
Interest on own capital - - - - (9,618) (9,618)
Balances at December 31, 2015 420,000 30,612 203,013 (2,384) - 651,241 Balances at July 01, 2015 420,000 30,106 212,245 (1,710) (5,579) 655,062 Other Events:
Realization of reserves - - (9,232) - 9,232 -
Interest on own capital - - - - (3,653) (3,653)
Asset valuation adjustments - - - (674) - (674)
Net income for the semester - - - - 7,903 7,903
Allocations:
Legal reserve - 506 - - (506) -
Interest on own capital - - - - (7,397) (7,397)
Balances at December 31, 2015 420,000 30,612 203,013 (2,384) - 651,241
See the accompanying notes to the financial statements.
Haitong Banco de Investimento do Brasil S.A.Statements of Cash FlowsYears ended December 31, 2015 and 2014 and semester ended December 31, 2015 (In thousands of Reais)
2nd Semester Years ended December 31,
2015 2015 2014OPERATIONS ACTIVITIESNet income 7,903 10,124 14,498 Adjusted net income 4,242 23,611 41,351 Allowance for losses on doubtful receivables 10,845 24,074 7,582
Depreciations and amortizations 1,159 553 3,610
Equity in earnings of subsidiaries 544 2,755 5,661
Other provision (8,306) (3,771) 24,498
(Increase) decrease in operations assets (1,987,649) (1,348,175) 1,623,673 Interbank funds applied (323,636) (311,884) (106,075)
Securities and Derivative Financial Instruments (1,835,378) (1,538,088) 1,115,765
Loans operations 224,034 642,408 614,959
Other receivable (47,490) (134,814) (1,345)
Other assets (5,179) (5,797) 369
Increase (decrease) in operations liabilities 2,626,304 1,916,510 (1,908,431)Deposits 167,235 (229,213) (1,132,427)
Money market and interbank funds 2,721,663 3,292,687 (383,898)
Resources from securities issuance (12,295) (871,807) (34,920)
Interbranch accounts - (32) (32,745)
Borrowings and repasses (3,177) (38,986) (145,864)
Derivative financial instruments (196,155) (6,554) (350,010)
Other liabilities (51,262) (229,771) 171,203
Deferred income 295 186 230
Net cash provided by/used in operating activities 650,800 602,070 (228,909)INVESTING ACTIVITIESIncrease of securities available for sale (75,981) (90,521) (336,756)
Decrease of securities available for sale 68,084 184,960 693,043
Increase of securities held to maturity (111,314) (208,682) (346,987)
Decrease of securities held to maturity 1,330 80,809 96,064
Acquisition of equity holding (7,075) (7,075) -
Acquisition of assets and investments - - (30,964)
Acquisition of premises and equipment (1,559) (3,426) (4,170)
Dividends and Interest on own capital received - - 82,234
Sale of assets and investments - - 20
Sale of premises and equipment - 293 570
Net cash provided by/used in investing activities (126,515) (43,642) 153,054 FINANCING ACTIVITIESIncrease (decrease) in subordinated debts - (32,137) (54,676)
Interest on own capital paid - (7,400) (20,850)
Net cash provided by/used in financing activities - (39,537) (75,526)Increase (decrease) in cash and cash equivalents 524,285 518,891 (151,381)Beginning of period 57,456 62,850 214,231
End of períod 581,741 581,741 62,850
Increase (decrease) in cash and cash equivalents 524,285 518,891 (151,381)
See the accompanying notes to the financial statements.
Haitong | 2015 Annual Report 73
1) Operating context
Haitong Banco de Investimento do Brasil S.A. (Bank) became a direct subsidiary of Haitong Bank S.A. (new name of Banco Espírito Santo de Investimento S.A.), with head office in Lisbon (Portugal), whose operations are conducted in the context of a group of companies that operate in an integrated manner in the financial market, and certain operations of the former have the involvement or intermediation of related institutions, comprising the financial market, whose activities include distribution of securities and foreign exchange and securities brokerage.
On August 12, 2015, the Central Bank of Brazil approved the transfer of the shareholding control of Haitong Banco de Investimento do Brasil S.A. and its subsidiaries Haitong Securities do Brasil S.A. - CCVM and Haitong DTVM S.A. to Haitong International Holdings Limited with head office in Hong Kong, a wholly owned subsidiary of Haitong Securities Co. Ltd, with head office in Shanghai, China, under the terms of the purchase and sale agreement signed with old controller “Novo Banco” in December 2014. The corporate structure of the Bank and its subsidiaries did not change in Brazil, remaining under the direct control of Haitong Bank S.A.. Finally, the Central Bank of Brazil approved changing the company names of the Bank and its subsidiaries on October 08, 2015.
As part of its business strategy, we maintained order to expand activities in Haitong Banco de Investimento do Brasil SA - Cayman Branch, whose total assets and shareholders’equity totaled US$ 163,801,000 (2014 US$ 226,127,000) and US$ 97,410,000 (2014 US$ 95,475,000), respectively. The book balances of foreign branches are included in financial statements of Haitong Banco de Investimento do Brasil S.A..
2) Presentation of the financial statements
The financial statements have been prepared in accordance with accounting guidelines issued by Law 6404/76 and amendments introduced by Law 11638/07 and by Provisional Measure 449/08 (transformed into Law 11941/09), for the accounting of operations, in connection with the rules and instructions of the National Monetary Council (CMN) and the Central Bank of Brazil (BACEN). The financial statements were approved by Management on February 29, 2016.
As part of the process of convergence with international accounting standards, certain accounting pronouncements and their interpretations were issued by the Brazilian Committee for Accounting Pronouncements (CPC), which are applicable to financial institutions only after approved by CMN. The accounting pronouncements which have already been approved by CMN include the following: a) Resolution 3566/08 – Impairment of Assets (CPC 01), b) Resolution 3604/08 – Statement of Cash Flows (CPC 03), c) Resolution 3750/09 – Related Party Disclosures (CPC 05), d) Resolution
Haitong Banco de Investimento do Brasil S.A.Notes to the financial statementsYears ended December 31, 2015 and 2014 (In thousands of Reais)
3823/09 – Provisions, Contingent Liabilities and Contingent Assets (CPC 25), e) Resolution 3973/11 – Subsequent Events (CPC 24), f) Resolution 3989/11 – Share-Based Payment (CPC 10), g) Resolution 4007/11 – Accounting Policies, Changes in Accounting Estimates and Errors (CPC 23), h) Resolution 4144/12 - Framework (R1) and i) Resolution 4424/15 – Employee benefits (CPC 33).
Presently, it is not practicable to estimate when CMN will approve the other CPC accounting pronouncements or whether their adoption, subsequent to approval, will be effective for future periods or applicable retroactively. As a result, it is not yet possible to estimate the accounting effects arising from the use of these pronouncements on the Bank’s financial statements.
3) Significant accounting practices
a. Income and expenses are recognized on the accrual basis.
b.The securities purchased for the Bank’s portfolio are recorded at the amount paid, including brokerage and fees, and are classified according to the intention of the Directors of the Bank into three distinct categories according to BACEN Circular 3068 (see Note 6): a) Trading securities - securities acquired for the purpose of being actively and frequently traded. They are recorded at cost, plus income earned and adjusted to market value recognized in profit or loss account in the statements of income; b) Available-for-sale securities - securities that are not specifically intended for trading purposes or to be held to maturity. They are recorded at cost, plus income earned, which is recorded in profit or loss account in the statements of income and adjusted to market value within shareholders’ equity, net of tax, which will be recognized in profit or loss only when effectively disposed; and c) Held-to-maturity securities - securities intended and for the financial capacity to be held in the portfolio up to maturity. They are recorded at cost, plus earnings recognized in profit or loss account in the statements of income for the period.
c.The Bank uses derivative financial instruments aiming at mitigating its exposure to market, currency and interest rate risks, using for so the instruments available on the BM&F and the over-the-counter markets. These derivative financial instruments are valued at market value and the positive and negative adjustments are accounted for as income or expenses in the income, in accordance with the BACEN Circular 3082 (see Note 7). The derivative financial instruments (items subject to hedge) are considered as hedge instruments used to mitigate risks arising from market exposure to market price valuation of financial assets and liabilities (hedge object) are considered as hedge operations (hedge operation) and, at the moment that operation is contracted, are classified as “market risk hedge”. These operations have its gains and losses, realized or not, accounted for in income or expense accounts in the income.
d. Loans are classified in accordance with the Management’s assessment at nine levels of risk, considering the analysis of clients and guarantees, past loan loss experience, as well as specific and general risks relating to operations, in compliance with the parameters established by the
Haitong | 2015 Annual Report 75
CMN Resolution 2682/99. After 60 days, the yield of loans overdue are only recognized as revenue when effectively received. H-rated (maximum risk) past-due operations remain at this level for six months, period after which they are reversed against the existing allowance and controlled in memorandum accounts for at least five years, no longer being recognized in the balance sheets. Renegotiated operations are maintained, at least, at the same classification level as their prior rating. The allowance for doubtful loans was recorded taking into account the current economic scenario and expectations regarding the realization value of the portfolio, so that an adequate provision in an amount sufficient to cover specific and overall risks is recorded, together with the allowance calculated in accordance with the risk levels and the respective minimum percentages established by the BACEN Resolutions 2682 and 2697 (see Note 8 “b”).
e. The sale operations or transfer of a financial asset are classified into three categories, as determined by the BACEN Resolution 3533: a) Operations in which the seller substantially transfers all the risks and rewards of the financial asset; b) Operations with substantial retention of risks and rewards of the financial asset; and c) Operations in which the seller does not substantially retain or transfers all the risks and rewards of the financial asset.
The tranfer or retaining of risks and rewards of the financial assets is assessed by consistent and verifiable criteria, using as methodology the comparison of the exposure before and after the sale or transfer, with regard to the variance in the present value of expected cash flows associated with the financial asset discounted by the appropriate market interest rate (Note 8 “e”).
f. Impairment of assets: An impairment loss is recognized if the book value of an asset or of a cash-generating unit exceeds its recoverable value. Impairment losses are recognized in the income for the period. The carrying value of non-financial assets, except other assets and tax credits, are reviewed once a year, at least, and when there is any sign of loss due to impairment.
g. Permanent assets are stated at cost, taking the following aspects into consideration:
• Interests in subsidiaries are valued in accordance with the equity method of accounting (see Note 11). • Depreciation of premises and equipment is calculated using the straight-line method at the following annual rates: 20% for data processing systems and vehicles and 10% for furniture and equipment.• Intangible assets are basically represented by software licenses. Their amortization is calculated using the straight line method over the term of their contracts.
h. Current and noncurrent liabilities are measured at their known or estimated values, plus, when applicable, the charges and monetary variations (on a pro rata diem basis) and foreign exchange variations incurred.
i. Provisions, contingent liabilities and legal liabilities are recognized, measured and disclosed in accordance with the criteria defined by CPC 25 (see Note 15), approved by the CMN Resolution 3823:
• Provisions: recognized taking into consideration the opinion of legal advisors, the nature of the lawsuits, similarity with previous cases, complexity and positioning of the courts, whenever the loss is evaluated as probable, which would cause a probable outflow of funds for the settlement of liabilities and when the amounts involved are measurable with sufficient reliability;• Contingent liabilities: according to CPC 25, “contingent” refers to liabilities whose recognition will depend on whether one or more future and uncertain events beyond the Management’s control occur or not. Contingent liabilities do not meet the recognition criteria when being classified as possible losses, and they must only be disclosed in the notes when relevant. Contingent liabilities classified as remote are not recognized nor disclosed; and• Legal liabilities: provision for tax risks: result from judicial proceedings, being contested on the grounds of legality or constitutionality, which, regardless of the assessment of the probability of success, are fully recognized in the financial statements.
j. Provisions for Income Tax (IRPJ), Social Contribution (CSLL), PIS (Social Integration Program) and COFINS (Tax for Social Security Financing) are calculated at the rate of 15% plus 10% above a certain limit, 20% (15% until August 2015), 0.65% and 4%, respectively, considering for calculation purposes of the respective bases the legislation applicable to each tax charge (see Note 14 “a” for Income Tax and Social Contribution). The Bank also complies with the accounting practice of recognizing tax credits from income and social contribution taxes calculated on tax losses and temporary differences, at the same rates in force for the recognition of provision (see Note 14 “b”).
k. The financial statements, in accordance with Brazilian accounting practices, include some accounts whose amounts are determined using estimates based on past experience, legal and business environment, chances of occurrence of events subject or not to the Management’s control etc. These estimates are reviewed at least annually, with the aim of determining amounts that more closely approximate the future settlement values of the assets or liabilities considered.
Haitong | 2015 Annual Report 77
2nd Semester Years ended December 31
2015 2015 2014 Cash and cash equivalents 30,427 41,043 71,047
Money market - Own portfolio position 21,003 2,001 96,299
Money market - Short position - - 24,161
Funds applied abroad 6,026 - 22,724
Interbank Deposits - 19,806 -
Total - Interbank funds applied 27,029 21,807 143,184
Beginning of period 57,456 62,850 214,231 Cash and cash equivalents 8,225 8,225 41,043
Money market - Own portfolio position 12,000 12,000 2,001
Money market - Short position 454,578 454,578 -
Funds applied abroad 105,158 105,158 -
Interbank deposits 1,780 1,780 19,806
Total - Interbank funds applied 573,516 573,516 21,807
End of period 581,741 581,741 62,850
Increase (Decrease) in cash and cash equivalents 524,285 518,891 (151,381)
Up to 3 months
3 months to 1 year
3 a 5 years
Over 5 years
Total 2015
Total 2014
- Public securities - N,T,N,-B 12,000 - - - 12,000 2,001
Own portfolio position 12,000 - - - 12,000 2,001
- Public securities - N,T,N,-B 142,575 40,221 - - 182,796 -
- Public securities - N,T,N,-F 312,003 311,731 - - 623,734 -
Short position 454,578 351,952 - - 806,530 -
Interbank deposits 1,780 37,700 82,497 - 121,977 180,071
Funds applied abroad 105,158 - - - 105,158 -
Total as of Dec 31,2015 - R$ 573,516 389,652 82,497 - 1,045,665 -
% 54.8% 37.3% 7.9% - 100.0% -
Total as of Dec 31,2014 - R$ 21,807 - - 160,265 - 182,072
% 12.0% - - 88.0% - 100.0%
5) Interbank funds applied
4) Cash and cash equivalents
Cash and cash equivalents, in accordance with the CMN Resolution 3604/08, include cash on hand, bank deposits, and highly liquid short-term investments with very low risk of having their values and limits changed, with maturity equal to or shorter than 90 days. The cash and cash equivalents, presented in the Statements of Cash Flows, comprise:
6) Securities and derivative financial instruments a) Composition of securities
Unpledged Pledged Total as of 12/31/2015 Unpledged Pledged Total as of
12/31/2014
Public securities - L.F.T. 16,315 523,323 539,638 2,877 - 2,877
Public securities - L.T.N. 582,749 3,424,168 4,006,917 739,099 1,348,882 2,087,981
Public securities - N.T.N.B. 3 192,751 192,754 18,801 6,327 25,128
Public securities - N.T.N.F. - - - 190,625 578,419 769,044
Debentures 225,372 70,028 295,400 334,822 - 334,822
Investment fund quotas 47,684 - 47,684 87,334 - 87,334
Quotas of Credit Assignment Investment Funds (F.D.I.C.s) 98 - 98 498 - 498
Eurobonds 24,495 285,100 309,595 60,094 195,962 256,056
Shares - - - 43,327 14,900 58,227
Promissory notes 18,472 - 18,472 - - -
Certificate of agribusiness 12,794 12,794 11,038 11,038
Certificate of real estate 13,572 - 13,572 14,627 - 14,627
TOTAL 941,554 4,495,370 5,436,924 1,503,142 2,144,490 3,647,632
December 31, 2015
December 31, 2014
Unpaid Up to 3 months
3 a 12 months
1 a 3 years
3 a 5 years
Over 5 years
Book Value Cost Value Book
Value Cost Value
Public securities - L.F.T. - - - - 14,812 524,826 539,638 539,641 2,877 2,876
Public securities - L.T.N. - 3,256 3,252,712 10,311 - - 3,266,279 3,267,554 1,367,149 1,364,231
Public securities - N.T.N.B. - - 1,895 138,993 20,502 31,364 192,754 192,463 21,989 22,254
Public securities - N.T.N.F. - - - - - - - - 769,044 776,379
Investment fund quotas 45,254 - - - - - 45,254 45,254 32,531 32,531
Eurobond - - - - - - - - 34,362 34,126
Shares - - - - - - - - 58,227 59,119
Certificate of real estate - - - - - 13,572 13,572 13,051 14,627 14,732
TOTAL Trading Securities (b.1) 45,254 3,256 3,254,607 149,304 35,314 569,762 4,057,497 4,057,963 2,300,806 2,306,248
b) Securities portfolio per category
Haitong | 2015 Annual Report 79
December 31, 2015
December 31, 2014
Unpaid Up to 3 months
3 a 12 months
1 a 3 years
3 a 5 years
Over 5 years
Book Value Cost Value Book
Value Cost Value
Debentures - 1,470 - 107,743 31,745 28,299 169,257 173,284 231,985 234,447
Investment fund quotas 2,430 - - - - - 2,430 2,430 54,803 54,803
Quotas of Credit Assignment - - - 98 - - 98 98 498 498
Certificate of agribusiness - - - 12,794 - - 12,794 12,948 11,038 11,158
Promissory notes - - - 18,472 - - 18,472 18,626 - -
TOTAL Available for Sale (b.2) 2,430 1,470 - 139,107 31,745 28,299 203,051 207,386 298,324 300,906
Public securities - L.T.N. - 199,930 - 540,708 - - 740,638 740,638 720,832 720,832
Public securities - N.T.N.B. - - - - - - - - 3,139 3,139
Debentures - - 68,259 - 30,151 27,733 126,143 126,143 102,837 102,837
Eurobond - 26,116 22,976 217,125 24,946 18,432 309,595 309,595 221,694 221,694
TOTAL Held to maturity (b.3) - 226,046 91,235 757,833 55,097 46,165 1,176,376 1,176,376 1,048,502 1,048,502
Total as of Dec 31,2015 - R$ 47,684 230,772 3,345,842 1,046,244 122,156 644,226 5,436,924 5,441,725 - -
- % 0.9% 4.3% 61.5% 19.2% 2.2% 11.9% 100.0% - - -
Total as of Dec 31,2014 - R$ 145,561 56,117 84,572 858,004 1,620,056 883,322 - - 3,647,632 3,655,656
- % 4.0% 1.6% 2.3% 23.5% 44.4% 24.2% - - 100.0% -
The market value was obtained through the collection of prices on the market as of the balance sheet date. In case there is no liquidity or price quotation to calculate the market value of a certain security, the values are estimated based on dealer quotations, pricing models or price quotations for securities that present similar features.
b.1. “Trading securities”: The negative adjustment in the amount of R$ 466 (2014 R$ 5,442 negative adjustment), obtained between the cost R$ 4,057,963 (2014 R$ 2,306,248) and market value R$ 4,057,497 (2014 R$ 2,300,806), was recorded in a specific account in the statement of income.
b.2. “Securities available for sale”: The negative adjustment in the amount of R$ 4,335 (2014 - R$ 2,582 negative adjustment), obtained between the cost R$ 207,386 (2014 R$ 300,906) and market value R$ 203,051 (2014 R$ 298,324), was recorded in a specific account in the shareholders’ equity, net of tax.
b.3. “Securities held to maturity”: The market value of these securities corresponded to R$ 1,094,404 (2014 R$ 969,707), as of the balance sheet date, composed of L.T.N. R$ 717,686 (2014 R$ 698,284), N.T.N.-B R$ zero (2014 R$ 3,190), Debentures R$ 125,200 (2014 R$ 85,774) and Eurobonds R$ 251,519 (2014 R$ 200,538).
7) Derivative financial instruments
The Bank uses derivative financial instruments aiming at meeting its needs and the needs of its clients, and to reduce its exposure to market, currency and interest rate risks, using for so the instruments available on the BM&F Bovespa S.A. and the over-the-counter markets. The management and monitoring of the risks involved are performed by an independent area by means of control policies, establishment of operation strategies, determination of limits and constant monitoring of the portfolios contracted using specific techniques, which are consistent with the guidelines established by the Management.
a. Risk management
The Directorate of Planning, Control, and Risk Management (DPCGR), through the area of Risk Control, is responsible for the management and monitoring of market, liquidity and credit risks, and maintains an integrated and independent structure, in such a manner to meet the guidelines established by the Management. The Bank adopts as principle strategies that aim at mitigating the risks involved in its operations and for the latter to be adherent to its risk management policy and to the goals proposed.
• Market risk - It refers to the chances of a portfolio to incur in loss due to fluctuation in the rates, mismatches in the terms, currencies and indices of the asset and liability portfolios held by the companies. In the meantime the risk management is carried out by means of daily monitoring of the exposure levels in comparison with the limits established, using instruments such as VaR (Value at Risk), sensitivity analysis (V01) and stress testing. The methodology for the determination of VaR is based on the parametric model, with a 98% confidence interval for the time range of five days and volatility calculated through the EWMA methodology using a 0.94 lambda. The capital requirement for the coverage of risks - supplementing the monitoring, control and market risk management structure - is calculated daily in compliance with the regulations of the Central Bank of Brazil.
• Liquidity risk - The control of liquidity is done by the Risk Control area while liquidity strategy is defined by the Treasury department, which meets daily before the beginning of the activities of the Bank, aiming to evaluate the various interest, dollar and stock exchange, domestic and overseas market behaviors. The Bank manages the liquidity risk by concentrating its portfolio in high quality and liquidity assets, whose positions are monitored carefully in order to reach a balanced management with respect to the exposure to currency and terms. Additionally, the Bank uses the projected cash flow for liquidity risk control in compliance with the BACEN Resolution 4090, adopting assumptions of maturity cash flow of financial operations, payment flow of expenses, the level of late payment in the portfolios, if any, and the anticipated settlement of liabilities for a minimum period of 365 days.• Credit risk - Refers to the risk related to a potential loss for the non fulfillment of
Haitong | 2015 Annual Report 81
future obligations (principal and charges) by a customer with whom a direct or indirect financial relationship is maintained. The credit risk management is carried out through the monitoring of the quality of the credit risks in our portfolio, which involves a high level of discipline and control in the analyses and operations performed, preserving the integrity and independence of the processes.
The Bank has a credit policy approved by Management that aim the security, quality and liquidity in the application of funds, agility and profitability of the business, established in order to mitigate the risks inherent to any loan, as well as to establish the operating and/or loan granting limits. The DPCGR and the Credit and Risk Committee (CCR) assume, for the execution of the credit policy, a very important role, which consists of deciding on business proposals and analyses performed by the credit analysts. The Bank’s methodology includes a process that attributes ratings to customers for different risk segments. This risk classification is based on the intrinsic profile of each client and has a direct correlation with the chances of default regarding his/her obligations with the Bank.
The Bank has Credit Risk Management Policy according to the existing resolutions of the Central Bank of Brazil and the area of Credit Risk Management aims at measuring, monitoring and continuous control and integrated positions and risk exposures vis a vis the pre limits approved for all operations carried out by the Group and the risk factors that the Group incurs, whose processes are formalized through periodic reports. The scope of analysis include all operations, regardless of whether classified or not in the trading portfolio. Such risk exposures and positions in own portfolio that guide risk tolerance limits are defined and formalized in specific committees.
The loan portfolio and guarantees granted totaled R$ 1,229,470, distributed among the following main sectors: 26.4% electric power, 25.8% food agro, 8.3% telecommunications, 8.0% water and sanitation and 5.2% infrasctructure and transportation. Of this portfolio, 59.4% of operations are covered by guarantees granted by the customers, which are mainly represented by: 27.6% pledge, 10.3% chattel mortgage, 10.2% receivables, 47.0% surety and guarantees from individuals and companies and 10.8% stand by letter of credit (responsibility transferred to the “New Bank”).
• Operating risk - The Compliance area is responsible for the management of the operating risk of the Bank. It maintains an independent structure which is able to identify, evaluate and monitor the risks defined in the BACEN Resolution 3380. As this area is considered an essential activity for the generation of added value, actions were developed aiming the implementation of an operating risk management structure that include the management model, the operating risk categories and policy, the documentation and storage procedures, the operating risk management reports and the disclosure process to comply with the aforementioned Resolution.
b. Capital Management
The capital management is defined as the continuous process of monitoring and control of capital maintained by the institution, assessing the need for capital to cover the risks to which the institution is subject and goal planning and capital needs, considering the strategic objectives the institution, always adopting a posture prospective and anticipating capital needs arising from potential changes in market conditions.
According to current legislation, prepared in BACEN Resolution 3988, the Bank has a capital management framework compatible with the nature of its operations, the complexity of products and services offered and the extent of your exposure to risk. As responsible for the management of capital with the Central Bank of Brazil was appointed the Director of Planning, Control and Risk Management - DPCGR currently subordinated to the President of the Group in Brazil. Teams Risk Control and Management Control, both inserted in this Board, comprise the technical and operational framework for the capital management of the Group BESI Brasil.
The capital management process is aligned with the best market practices and covers all areas concerned with the identification and evaluation of significant risks incurred by the institution. The Plan of the Capital of the Group BESI Brasil is prepared consistently with the strategic planning and is prepared concurrently with the annual review of the Business Plan (minimum three years) and annual budget. The responsibilities and the organizational structure of capital management involves the Board, the Board of Directors, the areas of Risk Control and Management Control. The capital management policy is reviewed at least annually or whenever circumstances suffer specific regulatory changes.
c. Derivatives
The derivative financial instruments are represented by futures, forward, options and swap contract operations, registered at the Futures and Commodities Exchange (BM&F Bovespa S.A.) or at the Clearing House for the Custody and Financial Settlement of Securities (CETIP) or at the Brazilian Company for Custody and Settlement (CBLC), involving prefixed rates, interbank market (DI), exchange variation or price indices. These derivative financial instruments had their amounts recorded in memorandum accounts and the adjustments/difference, in equity accounts, as shown below:
Haitong | 2015 Annual Report 83
Dec 31, 2015 Dec 31,2014
Market Value Cost Value Market Value Cost Value
Reference Value
Net Exposure Asset
(Liability)
Net Exposure Asset
(Liability)
Reference Value
Net Exposure Asset
(Liability)
Net Exposure Asset
(Liability)
DI 2,998,929 (4,755) (4,755) 5,286,538 8,048 8,048
DDI 3,054,096 58,973 58,973 3,840,099 (37,598) (37,598)DOLLAR 1,092 21 21 8,934 (79) (79)
OC 1,379,476 (133) (133) - - -
Future - Purchase commitments 7,433,593 54,106 54,106 9,135,571 (29,629) (29,629)
DI (10,611,197) 1,312 1,312 (3,074,761) (11,507) (11,507)
DDI (1,878,092) (35,290) (35,290) (460,900) 15,725 15,725 DOLLAR (1,415,291) (174) (174) (338,714) 10,067 10,067
IND - - - (69,734) 75 75
Future - Sale commitments (13,904,580) (34,152) (34,152) (3,944,109) 14,360 14,360
PRE 50,016 (2,446) 2,176 109,904 3,643 7,177
CDI 1,344,670 (118,987) (137,819) - - - DOLLAR - - - (1,835,856) 129,476 128,857
DOLLAR - HEDGE - - - 783,227 254,810 252,641
Swaps – Asset position 1,394,686 (121,433) (135,643) (942,725) 387,929 388,675
CDI - - - 1,129,887 (223,242) (222,835)
DOLLAR (1,428,285) 11,612 (34,313) - - - LIBOR (79,778) (3,556) (280) (26,721) (4,246) (226)
Swaps – Liability position (1,508,063) 8,056 (34,593) 1,103,163 (227,488) (223,061)
EURO - 12,701 12,799 - - - Foreign Exchange - Asset position - 12,701 12,799 - - -
DOLLAR - (12,799) (12,799) - - - Foreign Exchange - Liability position - (12,799) (12,799) - - -
PRE 910,945 - - 926,971 - -
Forward – Asset position 910,945 - - 926,971 - -
DOLLAR (840,246) 70,699 63,547 (917,823) 9,148 10,601
Forward – Liability position (840,246) 70,699 63,547 (917,823) 9,148 10,601
DOLLAR - 988 954 - - -
Purchase with call option - 988 954 - - -
DOLLAR - (489) (431) - - -
Sales with call option - (489) (431) - - -
DOLLAR - 95 435 - 559 740
EURO - 257 1,347 - - -
Purchase with put option - 352 1,782 - 559 740
DOLLAR - (76) (411) - (169) (221)
EURO - (70) (634) - - -
Sales with put option - (146) (1,045) - (169) (221)
Up to 30 days
from 31 a 90 days
from 91 a 180 days
from 181 a 360 days
Over 360 days Total 2015 Total 2014
Future - Purchase commitments (b) 191,125 266,839 115,558 1,405,928 5,454,143 7,433,593 9,135,571
Future - Sale commitments (b) (5,375,064) (1,985,745) (3,873,344) (1,533,704) (1,136,723) (13,904,580) (3,944,109)
Swaps (a) 5,300 (30,129) 1,096 6,898 (96,542) (113,377) 160,441
Foreign Exchange (a) (98) - - - - (98) -
Forward (a) 526 9,172 43,803 5,624 11,574 70,699 9,148
Options (a) 122 (489) 1,072 - - 705 390
TOTAL as of Dec 31, 2015 (5,178,089) (1,740,352) (3,711,815) (115,254) 4,232,452 (6,513,058) -
TOTAL as of Dec 31, 2014 (164,476) 391,840 137,962 844,860 4,151,255 - 5,361,441
d. Maturity dates of the derivative financial instruments
2014
Hedge object Risk Hedge Derivative financial instruments
Total Portfolio Hedged
Securities Issued Abroad Exchange Swaps 783,227 784,731
Total 783,227 784,731
The exposure to credit risk in the futures contracts is mitigated due to the daily financial settlement in cash. The swap contracts have a credit risk in case the adverse party does not have the capacity or willingness to meet their contractual obligations.
As of December 31, 2015 the total exposure of credit risk in swaps which is referred to in Art. 1 Item III of the BACEN Circular 2770, totaled R$ 779,309 (2014 R$ 953,515). For the measurement of market values the Bank adopted the following criteria: for the Futures operations it uses the stock exchange quotations, for the Options operations it uses own pricing models based on parameters from stock exchange prices and quotations and for the Swap and Forward operations it estimates the cash flows of each of its legs discounted at present value, in accordance with the respective interest curves, which were obtained based on the BM&F Bovespa and/or CETIP prices.
(a) Net exposure asset and liabilities value and (b) reference value
e. Derivatives designed as hedge instruments
On December 31, 2015, the Bank had no hedge operations open. In 2014, the derivative financial instruments and respective amounts of portfolios hedged by these instruments are as follows:
Marked to market negative adjustments of securities issued abroad object of hedge amounts to R$ 3,786 and have been recorded in the account “Resources from securities issuance”.
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a. Composition of the loan portfolio per economic activity and per maturity
Overdue To MatureUp to
3 months
3 a 12 months
Up to 3
months
3 a 12 months
1 a 3 years
3 a 5 years
Over 5 years
Total Dec 31,
2015
Total Dec 31, 2014
Loans - Industry - - 4,168 31,815 57,542 1,676 2,579 97,780 234,914
Loans - Commerce - - 16,287 35,684 20,281 - - 72,252 102,280
Loans - Other services 25,693 - 63,908 29,279 37,478 2,833 - 159,191 433,685
Loans - Individuals - - - - - - - - 5,869
Financing - Industry - - 9,773 5,481 17,851 20,043 107,802 160,950 146,070
Financing - Other services - - 4,178 11,757 29,982 18,421 53,387 117,725 170,570
Financing (export) - Industry - 859 12,195 3,552 4,598 10,994 - 32,198 41,353
Financing (export) - Commerce - - 210 12,953 - - - 13,163 17,866
Financing (export) - Other services - - - - - - - - 12,238
Loans assignment - Industry - - - - - - - - 18,534
Loans assignment - Commerce - - - - - - - - 24,555
Loans assignment - Other services - - - - - - - - 101,449
Loans 25,693 859 110,719 130,521 167,732 53,967 163,768 653,259 1,309,383
Receivables arising from export contracts:
- Industry - - 20,103 99,694 - - 23,901 143,698 154,213
- Commerce - - - - - - - - 15,207
Other receivable - Other (note 10 "a") - - 20,103 99,694 - - 23,901 143,698 169,420
Total as of Dec 31,2015 - R$ 25,693 859 130,822 230,215 167,732 53,967 187,669 796,957 -
- % 3.2% 0.1% 16.4% 28.9% 21.0% 6.8% 23.6% 100.0% -
Total as of Dec 31,2014 - R$ 906 - 294,547 545,424 354,978 109,505 173,443 - 1,478,803
- % 0.1% - 19.9% 36.9% 24.0% 7.4% 11.7% - 100.0%
8. Loans
The loan portfolio totaled R$ 796,957 (2014 R$ 1,478,803) as of the balance sheet date. If the balance of R$ 432,513 (2014 R$ 563,394) of the sureties and guarantees granted recorded in memorandum accounts was included, the portfolio would total R$ 1,229,470 (2014 R$ 2,042,197).
2015 2014
Amount % Amount %
Main debtor 143,505 11.7% 126,315 6.2%
10 main debtors 743,630 60.5% 843,724 41.3%
20 main debtors 977,353 79.5% 1,261,895 61.8%
50 main debtors 1,206,855 98.2% 1,820,995 89.2%
Total - Portfolio 1,229,470 100.0% 2,042,197 100.0%
d. Concentration of Loan portfolio (includes guarantees provided)
b. Classification of the loan portfolio by risk level
The Central Bank Resolution 2682 introduced the criteria for the classification of loans and for the recording of allowance for doubtful loans. These allowances are based on risk assessment systems of clients and operations. We show as follows the composition of the loan portfolio and of the minimum allowance for doubtful loans required at their corresponding risk levels as established in the aforementioned Resolution.
c. Allowance for doubtful loans
As of December 31, 2014 to the allowance for loan losses totaled R$ 12,702, being busy during the year by: a) additional provision R$ 26,130, b) operations derecognized to loss R$ 13,760, c) reversal of provision R$ 2,056 and d) exchange variation R$ 45, reaching the final balance of R$ 23,061, corresponding to 2.89% (2014 0.86%) of the loan portfolio, and amount higher than the minimum required by the BACEN Resolution 2682. During the year 2015 the operations derecognized to loss totaled R$ 13.760 (2014 R$ zero), the recovery of credits R$ 1,412 (2014 R$ zero) and there is non renegotiated of operations in 2015 and 2014.
December 31, 2015 December 31,2014
Loan portfolio Provision Loan portfolio ProvisionRisk Level % To
Mature Overdue Total Minimum Accounting To Mature Overdue Total Minimum Accounting
AA - 611,342 - 611,342 - - 1,168,471 - 1,168,471 - -
A 0.5 94,402 - 94,402 472 472 221,555 - 221,555 1,108 1,108
B 1.0 43,470 21,062 64,532 646 795 15,517 - 15,517 155 306
C 3.0 416 4,631 5,047 151 160 51,742 - 51,742 1,552 5,014
D 10.0 - - - - - - 906 906 90 90
E 30.0 - - - - - 20,612 - 20,612 6,184 6,184
H 100.0 20,775 859 21,634 21,634 21,634 - - - - -
TOTAL 770,405 26,552 796,957 22,903 23,061 1,477,897 906 1,478,803 9,089 12,702
Haitong | 2015 Annual Report 87
Other receivables Other liabilities
2015 2014 2015 2014
Exchange purchases pending settlement 36,353 13,315 - -
Exchange sales pending settlement - - 31,839 26,027
Exchange sale receivables 28,357 26,107 - -
Exchange purchase payables - - 32,786 13,358
TOTAL 64,710 39,422 64,625 39,385
9. Foreign exchange portfolio
e. Loans assignment
In 2015 were not carried out loans assignment operations. As of December 31, 2014, the loans assignment operation carried out with financial market institution reached the balances payable of R$ 148,841 (see note 10 “e”) and receivable of R$ 145,844 (see note 8 “a”) . That assignment was classified in the category “Operation with substantial retention of risks and rewards” and the result of R$ 2,997 will be recognized by the criterion “pro rata temporis methodology” for the term of each contract assigned, as the e BACEN Resolution 3533. The assignments are subject to the application of the BACEN Resolution 2682, for the purpose of classification credit risk and constituting the allowance for loan losses.
10. Other receivable and other liabilities
a. Other receivables – Other:
Composed of receivable arising from export contracts (see Note 8“a”) R$ 143,698 (2014 R$ 169,420), tax credits (see Note 14“b”) R$ 88,156 (2014 R$ 43,100), Judicial deposits (see Note 15) R$ 94,960 (2014 R$ 73,407), taxes to offset R$ 4,172 (2014 R$ 4,525) and advances, payments to be reimbursed and sundry debtors R$ 2,420 (2014 R$ 7,874).
b. Other receivables - due in connection with securities dealing (Asset):
The balance of R$ 115,350 (2014 R$ 45,766) is represented by guarantee deposits held in banks abroad R$ 106,100 (2014 R$ 45,164) and the operations with financial assets performed on BM&F Bovespa S.A. R$ 9,250 (2014 R$ 602) whose financial settlements occur until the third business day following the date of the balance.
c. Other liabilities - Tax and Social Security:
Composed of provision for deferred income tax see (Note 14 “b”) calculated on the positive adjustment to market value of the securities and derivative financial instruments R$ zero (2014 R$ 54,022), provision for tax contingencies (see Note 15) R$ 94,791 (2014 R$ 74,015), provision for taxes on income R$ 1,104 (2014 R$ 14,103) and taxes and contributions payable - R$ 3,768 (2014 R$ 3,058).
Haitong Securities do Brasil CCVM S.A.
Haitong do Brasil DTVM S.A. (a)
Haitong do Brasil Participações Ltda. (b) TOTAL
Capital stock 100,000 19,375 40,780
Shareholders’equity adjusted 92,205 8,785 52,228
Net income the period (3,586) (2,128) 2,959
Number of shares common 12,809,890 377,491,836 -
Number of shares preferred 12,528,520 - -
Number of quota - - 40,779,891
% Interest 100.00% 100.00% 100.00%
Equity in earnings of subsidiaries:
- for the year ended December 31, 2015 (3,586) (2,128) 2,959 (2,755)
- for the year ended December 31, 2014 (14,187) (7,331) 15,857 (5,661)
Book value of investment:
- as of Dec 31,2015 92,205 8,785 52,228 153,218
- as of Dec 31,2014 95,791 3,838 49,270 148,899
d. Other liabilities - due in connection with securities dealing (Liability):
Represented by the operations with financial assets performed on BM&F Bovespa S.A. in the amount of R$ zero (2014 R$ 14,214) whose financial settlements occur until the third business day following the date of the balance and the securities loans obligations in the amount of R$ zero (2014 R$ 52,437).
e. Other liabilities – Other:
Composed of assignment of loans with substantial retention of risk (Note 8 “e”) in the amount of R$ zero (2014 R$ 147,076), provision for payments due R$ 8,505 (2014 R$ 3,399), provision for other credit risks and counterparty R$ 23,479 (2014 R$ 29,303) and sundry creditors – domestic - R$ 9,901 (2014 R$ 4,173).
11.Investments
These are classified as permanent assets, and are composed of Interests in subsidiaries R$ 153,218 (2014 R$ 148,899) and Other investments R$ 9,979 (2014 R$ 9,979), which are represented basically by shares of privately-held companies.
(a) The Extraordinary General Meeting of December 28, 2015 approved the capital increase of the subsidiary in the
amount of R$ 7,075, and the capital stock to R$ 19,375, divided into 377,491,836 common shares without par value.
Pending the approval of the Central Bank of Brazil.
(b) At meeting of shareholders approved the change of the name of the Espírito Santo Participações Ltda. for Haitong
Brasil Participações Ltda..
Haitong | 2015 Annual Report 89
Up to 3 months
3 a 12 months 1 a 3 years 3 a 5 years Over 5
yearsDecember 31, 2015
December 31, 2014
Interbank Deposits (a) 10,046 - - 59,728 - 69,774 520,298
Time Deposits (b) 104,554 883,062 475,487 - - 1,463,103 1,241,792
Total - Deposits 114,600 883,062 475,487 59,728 - 1,532,877 1,762,090
Money Market Repo Commitments 4,192,704 382,044 186,536 2,301 9,291 4,772,876 1,480,189
Letters of credit for agribusiness (c) 52,632 69,459 - - - 122,091 158,647
Financial letters (d) 253 199,032 25,808 - - 225,093 247,283
Securities Issued Abroad - - - - - - 813,061
Repass Borrowings - BNDES (e) 7,512 - - - 234,449 241,961 271,885
Repass Borrowings - FINAME (e) - - 13,858 10,949 - 24,807 33,869
Subordinated Debts - - - - - - 32,137
Total as of December 31, 2015 4,367,701 1,533,597 701,689 72,978 243,740 6,919,705 -
% Concentration 2015 63.1% 22.2% 10.1% 1.1% 3.5% 100.0% -
Total as of December 31, 2014 2,958,008 789,636 858,993 49,130 143,394 - 4,799,161
% Concentration 2014 61.6% 16.5% 17.9% 1.0% 3.0% - 100.0%
12. Funds raised
a. Composition per economic activity
2015 2014
Amount % Amount %
Main depositor 448,839 29.3% 272,541 15.5%
10 main depositors 1,135,542 74.1% 1,249,264 70.9%
20 main depositors 1,310,442 85.5% 1,491,393 84.6%
50 main depositors 1,471,471 96.0% 1,713,337 97.2%
Total - Deposits 1,532,877 100.0% 1,762,090 100.0%
b.Concentration of Deposits (includes interbank and time deposits)
As of the balance sheet, the funds that had been raised in Brazil had the following characteristics: (a) Interbank deposits with maturities up to August 2020, indexed to the Interbank Deposit (DI) variation; (b) Time deposits with maturities up to March 2018, basically indexed to the Interbank Deposit (DI) variation and IPCA; (c) Letters of credit for agribusiness issued with maturities up to September 2016 and indexed to the Interbank Deposit (DI) variation; (d) Financial letters issued with maturities up to June 2018, basically indexed to the Interbank Deposit (DI) variation and IPCA; and (e) Repass borrowings (BNDES) with maturity up to March 2034, basically indexed to the variation of the Federal Government Long-Term Interest Rate (TJLP) plus interest rates up to 7.4% p.a..
2015 2014
a. Net income for the year 10,124 14,498
b. (–) Legal Reserve (506) -
c. Adjusted net income (a - b) 9,618 14,498
d. Interest on own capital - Gross 9,618 14,498
e. (–) Income tax - 15% (1,443) (2,175)
f. Interest on own capital - Net (d - e) 8,175 12,323
g. % of the net adjusted Income (f /c) 85.0% 85.0%
13. Shareholders’ equity
a. Capital:
Composed of 127,338,665 nominative shares, 63,669,344 of which consisting of common shares and 63,669,321 consisting of preferred shares, with no par value.
b. Dividends:
The Bank’s by-laws establishes the minimum dividend of 25% of the annual net income, adjusted as provided for in Article 202 of the Corporate Law. As for the preferred shares dividends are fixed at a value at least 10% higher than one attributed to common shares, in accordance with Paragraph I of Article 17 of Law 6404/76, with the new wording provided by Law 9457/97. Below, we show the calculation of dividends and interest on own capital for the years 2015 and 2014:
In 2015, interest on own capital totaled R$ 18,850 (2014 R$ 17,500), of which R$ 9,618 (2014 R$ 14,498) on account of income and R$ 9,232 (2014 R$ 3,002) due to previous years’ profits, corresponding to gross values of R$ 0.140981383 per common share and R$ 0.155079521 per preferred share, subject to the levy of withholding income tax at a rate of 15%, being distributed as follows:
a) Second semester totaled R$ 11,050 (2014 R$ 7,400) corresponding to gross values of R$ 0.082644259 per common share and R$ 0.090908684 per preferred share and
b) First semester totaled R$ R$ 7,800 (2014 R$ 10,100), corresponding to gross values of R$ 0.05833712402 per common share and R$ 0.06417083642 per preferred share.
Interest on own capital was calculated based on the Federal Government Long-Term Interest Rate (TJLP) applicable to the shareholders’ equity accounts in accordance with Law 9249 of December 26, 1995. The adoption of the payment of the aforementioned Interest on own capital, increased the Bank´s profit by approximately R$ 8,092 (2014 R$ 7,000) given the tax benefit obtained from it. This interest was accounted for in accordance with the BACEN Circular 2739/97 and in compliance with tax provisions.
Haitong | 2015 Annual Report 91
2015 2014
Income Tax Social Contribution Income Tax Social Contribution Income before taxation and participation (79,885) (79,885) 9,847 9,847
Additions and exclusions on the calculations of the taxes: 94,741 99,263 41,537 50,071
Non-deductible expenses 1,153 (6,837) 3,463 2,295
Non-deductible provisions 5,020 13,062 32,924 31,632
Equity in earnings of subsidiaries 2,755 2,755 5,661 5,661
Result branch abroad (114,791) (114,791) (35,528) (35,528)
Interest on own capital (15,600) (15,600) (17,500) (17,500)
Profit sharing (1,783) (1,783) (8,687) (8,687)
Adjustment to market value - securities and derivatives 222,828 222,828 72,967 72,967
Other additions and exclusions (4,841) (371) (11,763) (769)
Calculation Basis 14,856 19,378 51,384 59,918
Total charges due in the current year (3,462) (2,907) (12,300) (8,988)
Complement (Reversal) of deferred tax credits on temporary differences 22,627 20,478 9,325 5,595
(Complement) Reversal deferred tax on adjustment to market value - securities and derivatives
34,410 20,646 18,242 10,945
Income Tax and Social Contribution expenses 53,575 38,217 15,267 7,552
c. Profit Reserve :
The “Reserve for Expansion” is recorded aiming at supporting future investment plans as established in capital budget and, will be used to offset losses, if any, or increase capital. Out of the net income for the year, 5% is added in the recording of the Legal Reserve, which should not exceed 20% of capital.
14. Income and social contribution taxes
a. Statement of calculation of income (IRPJ) and social contribution (CSLL) taxes
b. Deferred income and social contribution taxes
The income and social contribution tax credits amounted to R$ 88,156 (2014 R$ 43,100), accounting for 13.5% (2014 6.5%) of the ending shareholders’ equity (Note 10 “a”). The recognition of these tax credits is based on the expectation of generation of future taxable income.
Management, after considering the provisions for deferred income and social contribution taxes estimates that the realization of these credits will occur in the following proportion: 23.2% in the first year, 24.3% in the second year, 18.4% in the third year, 6.9% in the fourth year, 25.0% in the fifth year and 2.2% from the sixth year. As of December 31, 2015 and 2014, there is no non recorded tax credits and the present value of the tax credits calculated based on the Selic rate amount to R$ 80,188 (2014 R$ 39,103).
The deferred income and social contribution taxes liabilities in the amount of R$ zero (2014 R$ 54,022) were calculated on the positive adjustments to market value of the securities and derivative financial instruments and have been recognized in the account “Other liabilities - Taxes payable” (Note 10 “c”).
15. Contingent liabilities and legal-tax obligations
The Bank and its subsidiaries, in the ordinary course of business, are is involved in contingencies related to tax and social security, labor and civil nature in the normal course of its businesses. These contingencies are recognized based on the law in force, the opinion of the legal advisors, the nature and complexity of its proceedings, the loss history, and other criteria that enable management to estimate the probable cash outflow amount with sufficient certainty.
a. Legal obligations
Legal obligations refer to amounts payable related to tax liabilities, whose legality is being challenged in judicial spheres, with emphasis:
Dec 31, 2014 Complement Realization Dec 31, 2015
Allowance for doubtful accounts 4,974 5,959 (644) 10,289
Credits amortized to loss 5,465 5,557 (5,465) 5,557
Provision for credit risks, market and liquidity 7,961 - (2,788) 5,173
Provision for tax risks 21,495 2,588 - 24,083
Adjustment to market value - 40,286 - 40,286
Other tax receivable 3,205 2,768 (3,205) 2,768
Total as of December 31, 2015 43,100 57,158 (12,102) 88,156
Total as of December 31, 2014 28,180 16,363 (1,443) 43,100
Haitong | 2015 Annual Report 93
a) the payment of PIS and COFINS contributions on revenue, not adopting the application of Article 3 of Law 9718, which established the inappropriate extension of the calculation bases of these contributions, whose provision and corresponding judicial deposit totaled R$ 93,289 (2014 R$ 72,512) and R$ 93,450 (2014 R$ 71,897), respectively. Both balances the legal obligation and the judicial deposit were updated based on the variation in the Selic rate.
In December 31, 2014, the legal obligation totaled R$ 72,512, increased during year by new obligations in R$ 6,472 (2014 R$ 9,053) and per update R$ 14,305 (2014 R$ 3,102), reaching the balance of R$ 93,289, representing the full amount being questioned.
b) collection of income tax, withholding tax and PIS, whose values were deposited in court to obtain positive certificate from the Federal Revenue and the General of the National Treasury Attorney, whose provision and corresponding judicial deposit totaled R$ 1,502 (2014 R$ 1,502).
b.Contingent liabilities
The subsidiary Haitong Securities do Brasil S.A. - C.C.V.M. had the following main tax contingencies under discussion at the administrative sphere, in the amount of R$ 48,127, were evaluated as possible loss by ours legal consultants, being unnecessary their provision:
a) the charge of income tax (IRPJ) and social contribution (CSLL) about restatement of equity securities of the Stock and CETIP in the amount R$ 18,635 and
b) the charge of PIS and COFINS of profit on the sales of shares of Stocks and CETIP in the amount R$ 29,492.
In early 2015, the Administration, together with his legal consultants, held a new evaluation of conditions and benefits to payment and installment of debts to National Treasury, relatives to income tax an social contribution from capital gain occurred until December 31, 2008 for sale of shares that had been originated of conversion of equity securities of civis association nonprofit, in accordance the article 42 of Law 13043, on November 13, 2014 and its new wording introduced for article 145 of Law 13097, on January 19, 2015. Based on this assessment, the Company gave up the processes under discussion at the administrative sphere and accepted the program in early February 2015 with cash payment of these debts amounting to R$ 15,249, which amount was fully provisionedin December 31, 2014. It is the understanding of our legal counsel that the calculations and the corresponding amount paid were approved the Federal Revenue.
In the Bank there are other contingencies that have been individually assessed by our legal advisors as “possible loss”, mainly represented by: a) social security – R$ 7,528: administrative processes for the collection of social security contributions on non-compensation amounts that the Bank does not recognize as contribution salary (periods from 2008 to 2012); b) tax – R$ 941: administrative processes for compensation of carryforwards in calculation of social contribution (CSLL) of the year 2008 and c) labor – R$ 4,058: contingencies originate from proceedings filed by ex-employees that aim to obtain supposed labor rights.
Assets/(Liabilities) Income/(Expenses)
2015 2014 2015 2014
Cash and cash equivalents - 208 - - Haitong Bank S.A. (New York) related company - 191 - -
Haitong Bank S.A. (Lisbon) direct controller - 14 - -
Haitong Bank S.A. (Spain) related company - 3 - -
Swaps (1,831) (2,885) (1,905) 6,506
Haitong Securities do Brasil C.C.V.M. S.A. controlled - - - 7,412
Haitong Investment Ireland Plc. (Ireland) related company (1,831) (2,885) (1,905) (992)
Haitong Bank S.A. (Lisbon) direct controller - - - 26
Haitong Bank S.A. (New York) related company - - - 60
Forward to be received (payed) - - - 1,410
Haitong Bank S.A. (Lisbon) direct controller - - - 1,410
Income receivable - - 3,956 -
Haitong Bank S.A. (Lisbon) direct controller - - 3,956 -
Dividends and Interest on own capital to be received/(payed) (12,818) (5,032) (15,080) (14,000)
Haitong Bank S.A. (Lisbon) direct controller (12,818) (5,032) (15,080) (14,000)
Exchange purchase payables and receivables (4,429) 555 - -
Haitong Securities do Brasil C.C.V.M. S.A. controlled (4,429) 555 - -
Interbank deposits - (58,260) (2,232) (2,931)
Haitong Securities do Brasil C.C.V.M. S.A. controlled - (58,260) (2,232) (2,929)
Haitong do Brasil D.T.V.M. S.A. controlled - - - (2)
Time deposits (14,366) (44,405) (3,790) (5,969)
Espírito Santo Investimentos S.A. controlled (8,038) (24,319) (2,309) (2,707)
Gespar Participações Ltda controlled - - - (1,998)
Haitong do Brasil Participações Ltda. controlled (6,328) (20,086) (1,481) (1,264)
Money market repurchase commitment (36,494) (1,871) (2,911) (2,591)
Haitong Securities do Brasil C.C.V.M. S.A. controlled (36,210) (1,871) (2,872) (2,282)
Haitong do Brasil D.T.V.M. S.A. controlled (284) - (39) (309)
Debtors (Creditors) 9,250 (14,214) (1,099) (1,914)
Haitong Securities do Brasil C.C.V.M. S.A. controlled 9,250 (14,214) (1,099) (1,914)
Services Provided to pay - (107) (17) (1,179)
Haitong do Brasil D.T.V.M. S.A. controlled - (107) (17) (1,179)
Debtors (Creditors) (7,050) - - -
Haitong do Brasil Participações Ltda. controlled (7,050) - - -
16. Related party transactions
a) The Bank’s transactions are conducted within the context of a group of companies that operate in an integrated manner in the financial and capital markets and are shown as follows:
Haitong | 2015 Annual Report 95
ConglomeratePrudencial
. Principal capital 630,466
Reference shareholders´equity - Total 630,466
Capital allocation - credit risk 235,880
Capital allocation - market risk 135,543
Capital allocation - operational risk 17,057
Required refrence shareholders´equity 388,480
Referential equity calculated for covering the interest rate risk of operations not classified into the trading portfolio (RBAN) 1,398
Reference shareholders´equity in excess 240,588
Ratio as of Dec 31, 2015 - Basiléia III 17.8%
Ratio as of Dec 31, 2014 - Basiléia III 15.7%
b) Compensation of key Management personnel totaled R$ 5,685 in the year of 2015 (2014 R$ 9,318). The Bank does not offer long-term benefits, benefits related to termination, or share-based compensation to its key Management personnel.
17. Other information
a) Haitong Banco de Investimento do Brasil S.A. determines its operating limits in a consolidated manner, within the parameters established in the National Monetary Council (CMN) Resolution 2099 and subsequent regulatory rules applicable thereon. On March 01, 2013, the Brazilian Central Bank issued a set of four “Resolutions” and fifty “Circulars”, know as “Basel III”, whick established new capital requirements, among them Resolution 4192, which imposed measures of impact on the calculation methodology of the Reference Net Equity, in force since October 2013. We show below the notional equity and the notional equity required:
The BACEN Circular 3748 provides for the leverage ratio calculation methodology (RA), whose index is calculated on a consolidated basis between the relationship of values Tier I of the Reference Equity (PR) and Total Exposure, as instructed of this standard. On December 31, 2015, the leverage ratio reached 6.78%, calculated on consolidated basis between the relationship of Tier I of R$ 630,466 and Exhibition total of R$ 9,293,590.
b. Service income is composed basically of specialized technical advisory in the amount of R$ 15,180 (2nd semester 2015 R$ 2,402 and 2014 R$ 32,517); income from guarantees provided R$ 9,800 (2nd semester 2015 R$ 4,823 and 2014 R$ 11,485) and other revenues of fee, financial advisory and Brokerage fee for securities placement and intermediation R$ 97 (2nd semester 2015 R$ 26 and 2014 R$ 195).
c. Other administrative expenses are composed of financial system services R$ 4,777 (2nd semester 2015 R$ 2,613 and 2014 R$ 5,952); communications R$ 4,459 (2nd semester 2015 R$ 2,520 and 2014 R$ 4,733); third-party and Specialized technical services R$ 4,032 (2nd semester 2015 R$ 2,257 and 2014 R$ 4,654); rent and building fees R$ 6,660 (2nd semester 2015 R$ 3,020 and 2014 R$ 6,680); data processing R$ 2,978 (2nd semester 2015 R$ 1,521 and 2014 R$ 2,769); travel expenses R$ 1,767 (2nd semester 2015 R$ 1,154 and 2014 R$ 1,405); depreciation e amortization R$ 2,878 (2nd semester 2015R$ 1,686 and 2014 R$ 3,542) and others R$ 4,092 (2nd semester 2015 R$ 2,181 and 2014 R$ 5,324).
d. Tax expenses are composed of federal taxes (PIS, COFINS, IOF) R$ 7,674 (2nd semester 2015 R$ 2,212 and 2014 R$ 11,683), state taxes R$ 31 (2nd semester 2015 R$ zero and 2014 R$ 33) and municipal taxes (ISS, IPTU) R$ 1,555 (2nd semester 2015 R$ 485 and 2014 R$ 2,464).
e. Other operating income are composed basically of exchange variation of investments in foreign branches R$ 117,149 (2nd semester 2015 R$ 76,109 and 2014 R$ 37,788), renegotiated amounts receivable for services rendered R$ 6,728 (2nd semester 2015 R$ 6,728 and 2014 R$ zero), reversal of provision for other credit risks R$ 10,243 (2nd semester 2015 R$ 10,365 and 2014 R$ zero), income from the devaluation of shares taken as a loan R$ zero (2nd semester 2015 R$ zero and 2014 R$ 1,630), reversal of others provisions R$ 1,791 (2nd semester 2015 R$ zero and 2014 R$ zero) and income from receipt of dividends and interest on own capital in the amount of R$ 1,302 (2nd semester 2015 R$ zero and 2014 R$ 1,604).
f. Other operating expenses are composed basically of low amounts receivable for services rendered R$ zero (2nd semester 2015 R$ zero and 2014 R$ 6,728) and provision supplement for other credit risks R$ zero (2nd semester 2015 R$ zero and 2014 R$ 24,845).
Haitong | 2015 Annual Report 97
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HAITONG BANCO DE INVESTIMENTO DO BRASIL S.A.Av. Brigadeiro Faria Lima, 3729 - 9º andar - Itaim Bibi, São Paulo - SP, Brasil, 04538-905