BNP Paribas Investor Dat-May 2000-AssetLiability Management by ssy92676

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									                     An example of complex
                merger implemented quickly :
                 Asset/Liability Management

Michel Eydoux                          25 May 2000
                                                     1
                       Asset Liability Management



 A merger to be implemented quickly with three
 priorities:

n managing flows of funds and cash positions
n optimising funding costs
n managing global balance sheet risks



                                                    2
                                ALM - The pre-merger situation


n Shared objectives…
  l   financing the Group
  l   managing the major financial risks on the balance sheet
      (e.g., interest rates, liquidity)
n … but different situations…
  l   amounts of commercial resources
  l   types of assets (gapping positions)
  l   and types of interest-rate risks affecting the balance
      sheet (optional risks)

       è led   to different organizations

                                                                 3
                  ALM - Starting from different organizations



                 BNP                                     PARIBAS


         ALM                 Fixed Income                   ALM




   B/S       Euro Treasury     Treasury        B/S         Treasury    Local cap.
                                                                         market
management   managemùent      management    management    management    business




                                                                                    4
                                       ALM - Different responsibilities
                                        and management procedures


                  BNP                                      PARIBAS
n Financing the group over one year (all     n Financing the Group
  maturities for the Euro in France)           (all maturities and all countries)
                                             n Management of optional risks delegated
n Direct management of major optional          to Specialized Financial Service core
  risks for the banking businnes in France     business
  l   early repayments of fixed rate         n Management of short-term gapping (all
      loans                                    currencies)
  l   implicit options on resources          n Trend management of structural interest-
      (mortgage linked savings product, …)     rate positions related to the balance
                                               sheet

n Management of interest rate positions
  related to shareholders equity

n Securitization                             n Securitization
  (direct structuring)                         (structuring subcontracted to SFS)

                                                                                          5
                                ALM - An organization for
                     BNP Paribas based on clear principles


1. The choice of best practices
   l   BNP:     management of the major balance sheet rate
                risks
   l   PARIBAS: global management of Treasury
2. Taking advantage of complementarities in the
   funding organisation of the groups :
   l   BNP:     very broad customer base
   l   PARIBAS: strong distribution force towards institutional
                investors


                                                                  6
                                   ALM - A simplified organization

     ALM
l   Asset Liability Management
l   Euro Treasury management
                                  BNP                   BNP PARIBAS
FIXED INCOME
l Foreign currency treasury
  management
                                             Balance
                                                           Treasury      Central
                                              Sheet
                                                          management    positions
                                           management
     ALM

l   Asset Liability Management

l   Treasury management
                                 PARIBAS

l   Local cap. market business


                                                         Fixed Income

                                                                                    7
                        ALM - Interest-rate risk perimeters
                                       clearly identified (1)

n Asset/Liability Management
  l   covers all gapping positions of the core businesses
      over two years, related to their balance sheet
  l   and manages, on a consolidated basis,
       è optional risks stemming from customer behaviour
       è traditional gapping risks

n Treasury Management (Corp. & Inv.
  Banking)
  l   covers all gapping positions less than two years for all
      branches and subsidiaries
  l   and handles short-term management of all the foreign
      currencies dealt by the Group
                                                                 8
                  ALM - Interest-rate risk perimeters
                                 clearly identified (2)

n Central Positions (Corp. & Inv. Banking)
  comprise all long- and medium-term gapping
  positions that are not directly related to the
  balance sheet. These positions are taken with a
  view on market trends, to create positive carry.
  They are dissociated from the balance sheet
  gapping book




                                                          9
            ALM - Asset & Liability Management based
                                     on the BNP model

n ALM manages:

  l   the banking book that results from the repurchase of
      interest-rate positions over two years from the various
      core businesses
  l   the interest-rate risk related to the placement of
      shareholders' equity and to the funding of the Group's
      investments
  l   foreign-exchange positions on earnings and
      investments
  l   all aspects of BNP PARIBAS's liquidity
  l   statistical securitization operations
                                                                10
                               ALM - Treasury organisation
                              based on the PARIBAS model

n Treasury, present in 30 locations, covers:

  l   short-term financing, which it handles:
       è ateach entity for local currencies
       è globally for the euro, the US dollar, and sterling

  l   gapping under two years:
       è managed   locally
       è controlled on a global consolidated basis

  l   compliance with specific regulations imposed by the
      local Monetary Authorities
  l   the Group's daily position in local clearing systems

                                                              11
                ALM - An organization in line with two
                             fundamental objectives



                 n Asset Liability Management manages BNP
                   PARIBAS ’signature with respect to all paper
                   issues placed with investors
     1

   Funding       n The 30 treasury management offices report
BNP PARIBAS        to:
at the lowest
     cost           l   4 regional treasury centers (Paris,
                        New York, Hong Kong, and Singapore) for
                        G11 currencies
                    l   2 specialized treasury centers for a currency or
                        group of currencies (London, Bahrain)



                                                                           12
                      ALM - An organization in line with two
                                   fundamental objectives



                        n The Banking Book is managed on a
                          centralized basis
                          centralized
        2               n Treasury Management has a rapid decision-
                                                          decision-
                          making organization:
                                 organization
 Hedging all core
 business against          l   30 treasurers, including 4 regional treasurers
interest-rate risks
                           l   a very short reporting line
  linked to their
  balance sheet         n The I&T architecture makes it possible to
                          control risks on a consolidated basis
                                             consolidated




                                                                                13
                             ALM - Consolidated risk management (1)


                  Local accounting system                  Local Front System




 Retail
banking                   ALM data base                     Global data base
systems
(France)




                  Global management tools          Global and local management tools




                               Liquidity                      Liquidity
           Market risks                     Market Risks                        Credit risks
                               Situation                      situation


                                                                                               14
                                  ALM - Consolidated risk management
                                 managed globally in two main parts (2)
           In € bn


                                   Structural needs

l   Loans                            175    l   Commercial resources           125
l   Investments                       25    l   Long and medium term funding    50
                                            l   Shareholder’s equity            25

Total                                200    Total                              200


                                   Variable needs

l   Interbank loans                   20    l   Interbank funding               60
l   Capital markets activities        40

Total                                 60    Total                              60



                                                                                     15
                ALM - Consolidated risk management (3)

n Interest-rate risk is managed for each
  core business on a consolidated basis
  according to the following principles:
  l   Traditional gapping risk is managed by the ALM and
      Treasury Management units
  l   Optional risks linked to retail banking business are
      managed by the ALM unit
  l   The most important residual risks are:
       è the lag-time in adjusting interest rates on funding and loans
         in the event of changes in market rates (margin risk)
       è interest rate risk on call deposits and regulated savings
         deposits (eg savings accounts, home savings plans, ...)

                                                                         16
               ALM - Consolidated risk management (4)


n In so far as the system is managed efficiently, BNP
  PARIBAS is only structurally exposed on call
  deposits and regulated savings deposits
  l   = 42% of all customer deposits, and

  l   with a performance improving as interest rates rise




                                                            17
                        ALM - Benefitting from each bank's
                                       respective strengths


n The organization is ready and the teams have been grouped
  together in the 15 locations due to merger
n From the outset, three financing policy measures have been
  implemented:
   l   systematically aligning the pricing of resources to BNP's pricing
   l   as of mid-February, issuing Euro Medium-Term Notes (EMTN) under
       a single name
   l   integrating the SFS securitization team into the ALM unit, in order to
       monitor the pool of securitizable assets linked to this core business


                                                                                18
                           ALM - Benefitting from each bank's
                                          respective strengths
               The BNP PARIBAS merger allowed to :

n reduce the euro balance sheet's overall interest-rate exposure
n reduce the funding costs on all maturities
n clearly improve the liquidity situation in some Asian countries
and in the United States
n significantly broaden the Group's funding base:
   l   deposit-taking capability of the Retail Banking and Private Banking
       networks
   l   placement capability of Fixed Income
   l   cash depositors with direct access to the dealing rooms



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