case study: treasury operating model

ALMA Asset and Liquidity Management Association Limited’s, 22nd Annual Conference, 29th and 30th January 2015, Egham, Surrey

Case Study:Treasury Operating ModelFrank BockGroup TreasuryHead of Treasury Central and Eastern Europe

122nd Annual ALMA Asset and Liquidity Management Association Limited’s Conference, January 29th and 30th 2015, Egham, Surrey

Contents

Treasury Organisation (as part of Integrated Financial Resource Management)

Treasury Operating Model

Outlook


Group Management - Treasury

Local resource management

Local market access

P&L responsibility

Contact for local implementation of Group-wide standards

Management of financial resources on Group levelDevelopment of Group-wide standards and policies (“global functional lead”)

Board of Managing Directors

Group Treasury

Liquidity & Risk Management

Capital Mgmt & Funding

StrategicALM

Treasury CEE & Subsidiaries

Treasury HF & CISAL

Processes & Infrastructure

Treasury UK & Americas

Treasury AsiaHong Kong

ShanghaiTokyo

London

New York

= Head Office= Integrated= Complete group integration= Group integration via functional mgmt.

Singapore

Dublin

Prague

Budapest

MoscowKiev

WarsawHamburg

Düsseldorf

Frankfurt Luxemburg

Hong KongShanghai

Tokyo

London

New York

= Head Office= Integrated= Complete group integration= Group integration via functional mgmt.

Singapore

Dublin

Prague

Budapest

MoscowKiev

WarsawHamburg

Düsseldorf

Frankfurt Luxemburg

approx 140 Treasury staff worldwide


North America

Asia

CoBa AG

UK

ROW

CISALLuxemburg

EEPKLuxemburg

Hypothekenbank Frankfurt

Commerz Real

Deutsche Schiffsbank

CoBa EurasijaMoscow

CoBa AGPrague

CoBa Zrt Budapest

Comdirect

mBank

Setup Commerzbank Treasury (GM -T)

Liquidity & Risk Management

Capital Mgmt & Funding

StrategicALM

Treasury HF & CISAL

Treasury CEE & Subsidiaries

Operative Treasury

Processes & Infrastructure

Group Treasury

Board of Managing Directors

Operative liquidity- and IR/FX-risk managementMarket access and P&L responsibiliyLocal implementation of Group policies

Group-wide financial resource managementGlobal functional lead on methods and standards

Integrated Financial Resource Mgmt (ALCO)

Pension Funds

Liquidity Advisory

Maintenance of interest models

Implementation / maintenance of GM-T infrastructure

Design of front-to-end processes

MYP / budgeting / cost controlling,

HR issues

Project management

Execution capital market issuances (senior unsecured, secured, subord.)

Debt investor coverage

Group funding strategy / -plan

Capital cost alloc.

Regulatory capital optimization

Conceptual Treasury


Capital

Asset Liability

Management Committee

(ALCo)

__________

Group Treasury

LiquidityLiquidity Secured & Unsecured

Resource DemandAssets

Resource SupplyLiabilities

Basel III, CRDIV, EBA

Risk tolerance

Funding Plan

Book Capital

Regul. Capital

Econ. Capital

Legal entity Capital

Balance SheetLiability StructureBalance Sheet Asset Structure

Tier 1 & 2 / Hybrids

Integrated Management of Financial Resources is …


Funding Capital B/S Liquidity ALM

RM Liqui

RM IR

RM FX

Financial Resource Management

Business / Sales Steering

LCR, NSFR

FundingStructure

Leverage Ratio

Liquidity Cost

Depositinsurance

BankLevy

Capital-buffer

RWA

Ring-Fencing and

Self-Sufficiency

Tasks

Incorporate interdependent thematic issues into a comprehensive management framework

Derive consistent steering targets, respecting regulatory restrictions

Control central instrument variables directly (e.g. liquidity buffer, capital market funding, capital structure)

Control de-central instrument variables indirectly through appropriate incentives for sales / business operations (e.g. internal transfer prices)

Integrated Financial Resource Management is also…


Contents



Outlook


In order to execute the banks strategy as set out by the Board it is necessary to define a tactical bank steering process which ensures efficient and timely decision making in compliance with corporate governance rules and banking supervision.

Treasury GremiaRecommends reallocation

Treasury GremiaAnalyses/Operationalizes

ALCO MeetingQuarterly reallocation

ALCO MeetingMonthly reviews

CEO / Gesamtbanksteuerung� Define targets (e.g. VC, RoE, NIBBT, CIR) � Growth Strategy� Legal entity capitalization and capital hedging

CFO� Solvency & regulatory capital ratios (Basel III)� Implementation and monitoring IFRS39� Reconciliation of balance sheets

Business Units� Requests for capital, funding & access to B/S� Managing business VC based� Suggesting strategic initiatives

CRO� Defining risk strategies � Analysing risk versus capital (EC)� Contingency Planning and stress testing

Tactical Bank Steering Process

Tactical Financial Resource Management


Segment's Planning of New Business

Funding Planning

Internal Liquidity Price Curve

Liquidity Profile Planning & Risk Limits

Business Plan

Iterative Planning-and Forecast Process

ManagementDecision

Expectednew businessof the businesssegments

Target risk profile

(incl.limits)

Balance Sheet Structure

Liquidity Gap Analysis

Internal Liquidity Spread Curve

Impact analysis and potentially cyclical adjustment

Proposalsof possible

liquidity curves

Vol./Durat.

Funding

Planning

resu

lt

Liquidity Prices

Planning- and Forecasts

Status Quo Analysis

Market Prices for Liquidity

0

20

40

60

80

100

120

3M 6M 1Y 2Y 3y 4Y 5Y 6Y 7Y 8Y 9Y 10Y

Benchmark (Bonds) Retailkurve Fundingkurve

Existing business

Planned new business in assets incl. refinancing trades

€

Duration

€

Duration

Assets Liabilities

cash reserve 8 liabilities to KI 137receivables from KI 110 Liabilities to KU 262receivables from KU 327 secured debts 131

trading assets 167 trading liab. 152

financial assets 115 equity 28… ... … …

754 754

Duration Fundingsource Vol SpreadON Capital market funding 30 2

Deposits 10 11Y … … …

5Y Capital market funding 5 114

Deposits 75 4610Y Capital market funding 30 143

Deposits 5 57

Example: Deriving the Internal Liquidity Spread Cur ve

Finance Risk

Treasury

BusinessSegments

BusinessSegments


• Quotation of internal transfer prices for take-over of IR- and FX-risks

• Central management of the bank‘s cash position(“cash pool”)

• Compliance with short-term liquidity limits (internal Limits, fractional reserve, survival period, LiqV, LCR, etc.)

Liquidity Management

IR-Risk Management

ALM Capital & Funding

Default Risk Management

Collateral Management

• Central management of the bank‘s IR- and FX-position (often banking book only)

• Compliance with internal and external market risk limits (VaR, sensitivities, Basel-IR-shock, etc)

• Central management of the bank‘s liqui-spread and structural liquidity position (“liqui account”)

• Compliance with long-term liquidity limits and structural goals (internal Limits, NSFR, L/D-ratio…)

• Central management of default risk from loan-book (Credit Treasury) and derivatives-book (CVA-desk)

• Collateral asset management

Man

aged

P

ositi

on

• Quotation of internal transfer prices for take-over of liquispread-risks

• Quotation of internal transfer prices for take-over of default-risks (CDS, CVA-charge)

• FVA-charge

Tran

sfer

P

ricin

g

• Attribution of benefit from equity investm. less cost from subordinated / hybrid funding (“capital benefit”)

• Disposition of nostro- and central-bank accounts

• Execution of unsecured / secured money market trades, both inter-bank and with central banks

• Execution of IR- and FX- derivatives

• Management of liquidity reserve portfolio

• Issuance of secured and senior unsecured funding

• Execution of credit derivatives (CDS etc)

• Execution of securitizations

• Margin management incl. collateral optimization over various collateral agreements (back-office)

• Acquisition of collateral, e.g. via repos (FO)

Mar

ket

Act

ivity

• Issuance, administration, buy-back of subordinated and hybrid funding

Con

cept

ual

Act

ivity • Cashflow Modeling

• FTP Methodology• Hedge Accounting

• ALCO Secretary• Balance sheet

analysis

• Liquidity Analytics (contingency plan, liquidity reserve, etc)

• Management of longer-term investment portfolio (strategic hedging)

• Optimization of liability structure incl. yearly funding plan

Treasury Responsibilities span classic Treasury fun ctions

• Attribution of net cost for holding liquidity reserve

Treasury

Credit Portfolio Management

Finance & Risk Not central


Contents



Outlook


Banks will have to transform the structure of their balance sheets…

Assets Liabilities

Repo /Equity Lending

Money Market

CustomerDeposits

Equity

CapitalMarket

Revers Repo Equity Borrow

Equity, Fin‘sCorp. Bonds

Short term loans

Long term loans

Liquid Assets

Derivativesreceivables

Derivativespayables

Assets Liabilities

RepoMoney Market

CustomerDeposits

Equity

CapitalMarket

Revers Repo

Equity, Fin‘sCorp. Bonds

Short term loans

Long term loans

Liquid Assets

Derivatives Derivatives

• b/s will shrink due to reduced lending capacity(capital, leverage, liquidity)

• Liquid assets increase (liquidity buffer)

• Matched books reduced (leverage)

• Equity, Corp Bonds down (LCR)

• Duration of loan books decrease (NSFR)

• Derivatives reduced or traded via CCP (capital, leverage)

• Capital increases (capital, leverage)

• Money Market reduced (LCR)

• (Stable) Deposits increase (LCR, NSFR)

• Relative share of capital markets funding increases (NSFR)

…with target function to optimize (all) regulatory r atiosunder the boundary condition to remain profitable

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Thank you for your attention!


Disclaimer

This presentation has been prepared in affinity to Commerzbank. Nevertheless, the methods, concepts and practices described in this presentation are personal views of its author and not necessarily those of Commerzbank. Any information in this presentation is based on sources considered to be reliable, but no representations or guarantees are made by the author or Commerzbank with regard to the accuracy of the information. The opinions and estimates contained herein constitute the author’s personal judgement at this date and time, and are subject to change without notice. This presentation is for information purposes only. It is not intended to be and should not be construed as an offer or solicitation to acquire, or dispose of any of the securities or issues possibly mentioned in this presentation. Rather, the presentation is intended for usage at professional conferences to stimulate discussion and contribute to developing better practice in the banking community.Commerzbank Group may use the information in this presentation prior to its publication to customers or general public. Commerzbank Group or its employees may also own or build positions or trade in any securities, issues, and derivatives possibly mentioned herein and may also sell them whenever considered appropriate. Commerzbank Group may also provide banking or other advisory services to interested parties.Commerzbank Group accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this presentation.

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ALMA Asset and Liquidity Management Association Limited’s, 22nd Annual Conference, 29th and 30th January 2015, Egham, Surrey

Frank BockGroup Treasury - Head of Treasury Central and Easter n Europe

Phone: +49 (0)69 136 46390E-mail: [email protected]

Visitors’ address:Mainzer Landstrasse 15360327 Frankfurt/MainGermanywww.commerzbank.com

Postal address:60261 Frankfurt/MainGermanyPhone: +49 69 136-20E-mail: [email protected]

case study: treasury operating model

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