Annual Report 2010

Annual Report 2010
Table of Contents
2
0. Key figures
1. Letters from the President and the CEO
2. World Economic Review 2010
3. World Economic Outlook 2011
4. Auditor’s Report & Financial Statements Group Andbanc
5. Risk Management
6. Social Indicators
7. Governance Structure
8. Locations and Addresses
3
0. Andbanc Group
Key figures 2010
4
(in thousands of euros)
VOLUME
2010
2009
Total Assets
3.205.064
2.948.787
Lending
1.637.528
1.623.189
AuMs
7.694.488
7.171.255
Total Income
9.332.016
8.794.444
Core Capital
415.490
340.741
Net income
2010
2009
Net Profit
40.778
44.357
Net Profit before Indirect Tax
53.530
56.065
Net Operating Income
45.104
43.352
Operating Income
131.779
107.754
Net Income
141.684
136.437
58.460
57.890
Net Interest Income
RATES
2010
2009
ROE
10,60%
14,41%
ROA
1,35%
1,30%
51,38%
50,71%
3,83%
4,60%
22,29%
20,21%
Efficiency
Non Performance Loans
Solvency
RATING (Fitch Ratings)
2010
Long Term IDR
Individual
Short Term IDR
5
2009
A-
A-
B/C
B/C
F2
F2
1. Letter from the Chairman
6
Letter from the Chairman
Although 2010 saw an increase in growth of 3.8% worldwide, the dynamic of economic policies has been very different in each
area. Although the timid global recovery has been one of the obvious factors in 2010, the perception of recovery has not been
uniform in all the areas. While the Euro Zone grew by 1.7%, emerging Asian countries did so at a rate of 8.9%.
This asymmetric growth was also evident in developing countries. The Euro Zone began the first half of the year with a strong
rate of growth, while the USA decelerated its economic activity. Even so, in the second half the Euro Zone reduced this rate and
moderated its activity. To the contrary, the USA experienced a good second semester, in which the economy grew.
It was not the same for the emerging economies, which achieved a greater rate of growth. The growth of emerging countries
occurred was due to two reasons: in the foreign sector, because of the recovery of consumption in the Western countries which
began by the export sector and due to the internal demand with a large expansion of credit.
The most outstanding fact we can mention this year is that the rate of growth slowed down overall during the second half of the
year, but with a consolidation of the worldwide economic growth.
Similarly, at the beginning of 2010 there was a new episode of international financial crisis, with the problem focused on Greece.
After the drop in its rating at the end of 2009, the real figures for its deficit and debt were known. From that moment, the cost
of issuing Greek debt increased until it reached an unsustainable level and Greece had to receive funds from the IMF and the
European Union to reduce the level of debt, applying severe austerity measures.
The crisis in that country affected other European economies, which saw their rating and ability to deal with acquired debt in
danger, mainly Ireland, Italy, Portugal and Spain. The first, as a result of the high cost of rescuing the banking sector, was quickly
under pressure to accept help from the IMF and EU funds. The other economies saw how their ratings were lowered, higher
credit differentials were requested in order to issue debt, and they were forced to apply austerity measures and to make their
economies more flexible.
With regard to emerging countries, 2010 has seen an economic expansion of almost 9%. The rate of growth of the main economy
in this area, China, reached an interannual rate of 12% at the beginning of the year. From that time, this rate gradually slowed
down until it reached a rate levels beyond 10%. One of the factors explaining this acceleration is the dynamic of consumption in
the USA, which has influenced the positive rate of Asian exports to the country. Similarly, the evolution of internal credit has also
played a strong role evidenced by the fact that the volume of new credits has not dropped from the 500,000 million yuan monthly
(52,890 million euros). Regarding inflation, this increased up to 6.2% with a clear upwards trend, suffering, above all, tensions in
the prices of raw materials and food, which affect the majority of countries of the region.
Regarding South America, the different countries in the area benefited from various factors. The majority have been favoured by
the strong recovery of raw materials as many of these countries have a strong foreign portfolio, particularly in farming products
and minerals. Others have experienced growth in the investment in fixed capital or a great internal demand that have helped
them maintain the high rate of industrial activity. But we will have to see how the price increases and the inflation rate in this
area evolve.
Nationally, Andorra has seen how, for the first time in the history of the country, the Government has issued Treasury notes to
provide a solution to public financing. This channel, common in the majority of countries for financing public debt with investors’
7
money, has been a complete success. In this context, the banking institutions of the countries have also played an important role,
ensuring all the sales of the notes.
The country has already achieved the challenge of entering the OECD’s white list. Despite this positive news for Andorra, the
most complicated situation for the financial institutions was to reduce clients’ distrust and doubts about consultations regarding
professional confidentiality and the specific features of the signed agreements. The endorsed agreements guarantee the successful operation of the sector and reinforce the sustainment of confidentiality. In addition, clients’ concerns have waned due to
transparency and customer relations improvement orders that Andbanc has been carrying out all year to respond to the new
needs and requirements of an increasingly demanding environment.
In 2010 our Group celebrated the 80th anniversary of its foundation. We are the oldest bank in the country, and we still make
the effort day after day to be the most innovative and competitive and to become the point of reference for private banks. This
we will achieve with acquisition and development, and a culture of precision and effort to obtain good results, exceeding the
objectives and challenges set for 2010.
We have consolidated ourselves as the second bank in the sector, and today we manage, despite the great financial crisis of the
last two years, the largest volume of client resources in the history of our bank. We have increased the managed resources in the
last two years, and this last year by more than 7%. Profits have remained around the 40 million euros mark, in a year in which
we have continued investing in our international expansion and we have maintained a high core capital ratio of 19%.
The strategy, management and risk profile of the bank maintain the recognition of the Fitch Ratings agency, which qualifies us
with a long-term rating of A- and an individual rating of B/C. This qualification is a reflection of a consolidated framework nationally, dynamic management and good solvency and liquidity, as well satisfactory levels of profit.
In 2010, the second year of the implementation of our Strategic Plan 2009-2013, our priority objective was to continue consolidating the international expansion and growth in the traditional business of the country and in private banking, identifying the
opportunities and entering those segments where we see high potential for making the business model we are carrying out more
solid.
During this year we have managed to increase the number of locations following the objectives we have set out. Thus, aside from
the banking licence in Panama we have also begun activity under the securities brokerage licence. In Luxembourg, where the
portfolio and investment funds manager already operated, we have begun operating with a banking licence and through this,
a representative office has opened in Hong Kong. The Andbanc Group is already present in three continents and, in this way,
reinforces its internationalisation process.
Our growth plan has reinforced our leadership in international expansion, and in a short period of time we have obtained two
additional banking licences as well as the control of top-level international managers such as the Mexican company Columbus de
México S.A., or the uruguayan company Quest Capital Advisers. We are also working so that very soon we also have a relevant
presence in Chile and Miami. These facts will contribute even more to positioning ourselves as a point of reference for private
banks in Latin America.
In 2011 we will continue with our growth objectives, both in the traditional business of the country and in the private banking
area as well as in the consolidation of international expansion. We will strive to preserve what we have accomplished and to
achieve the challenges we have set, to position ourselves as a point of reference for private banking.
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Once again I would like to take this opportunity to thank the excellent team of professionals for the effort they make every day
to provide our clients with the best service, our raison d’être. Year after year this effort is rewarded with the trust our clients
place in us.
The shareholders are developing a long-term project for the bank, aiming to become a global bank for private banking. The world
is global and we aspire to be a global bank.
Last year I mentioned that we still had some very complicated years ahead of us. But with the perseverance of our work, the
trust of our clients and the dedication and commitment of the entire team comprising the Andbanc Group, I am sure we will
achieve our objectives.
Manel Cerqueda Donadeu
Chairman of the Board
9
Letter from the Chief Executive Officer
10
Letter from the Chief Executive Officer
With the world economy on the path to sustainable recovery, but at very different speeds, 2010 has ended up being a year full
of movement in the markets and in our industry. Certainly, the world economy is at a crossroads where the multiple risk factors
reduce the visibility of which path to follow. Tensions in the north of Africa threaten the weak process of economic reactivation
begun in 2010. Tensions in the prices of raw materials and, above all, of food are heavy blows to the purchasing powers of families in emerging countries, reducing the participation of domestic factors in their growth and, therefore, leaving these economies
in a situation of vulnerability where they depend solely on their foreign sector. These dynamics do nothing but feed the global
imbalances that also affected the development of this financial crisis. Meanwhile, in the West, each country decides its strategy
for overcoming its dilemmas, without reaching any common agreement on how to deal with the situation. We have no doubt that
this will entail further imbalances.
The result of our reflections point to the fact that the world’s rate of expansion will slow down in 2011. If in 2010 world growth has
been approximately 3.8%, in 2011 we foresee a deceleration of the rate which could be around 3.3%. This moderation is explained
by the loss of dynamism of emerging countries that, unable to control tensions in prices, will be obliged to slow down the solid
rate of domestic growth factors. In this sense, we foresee for Asian economies a reduction in the economic rate from the 9% seen
in 2010 to 7% in 2011. The same dynamic we foresee will be repeated in the emerging countries of South America, the average
growth of which will diminish from the current 6.6% to 4.8% in 2011.
Developed economies will remain at rates of expansion similar to those on 2010, with the Euro Zone maintaining a low rate at
around 1.6%, showing the obvious efforts that, in fiscal discipline matters, many countries in the region are assuming and which
will imply a significant reduction in public spending with a substantial impact on the GDP of the area. The United States will
also maintain a rate of expansion similar to that of 2010 of approximately 3%. It must be said, in this case, that we estimate the
impact of the fiscal policies designed to stimulate the economy will be, at least, 1.4%, leaving us an underlying variation of 1.6%,
in other words, a very low rate that is incompatible with the creation of employment. Another worrying aspect of this economy
is the lack of response of wealth to the continuous programmes of monetary expansion. Despite having begun the second programme of repurchasing assets, wealth has not moved in the last five quarters. If the strategy of the United States for ending
the crisis is focused on this wealth effect, as we believe it will be, we sense that more monetary expansion programmes will be
necessary, which will entail more imbalances worldwide in terms of exchange rats the exchange front. Finally, the last of the
important developed countries, Japan, will suffer a great deceleration of its rate of growth, which will drop from 4.3% in 2010 to
1.1% in 2011. The significant growth of Japan in 2010 was due to a strong base effect (the GDP dropped 6.3% in 2009, and favoured
the recovery of activity), but this effect has already disappeared with regard to this year. Another factor that would explain the
rapid deceleration would be the end of governmental subsidies for the purchase of ecological cars and household appliances,
which caused a great recovery in the internal demand in the third quarter. We foresee that consumption will remain depressed
in 2011, due to the expected flows in capital investment and in the stagnation of the labour market. Only the foreign sector could
encourage the economic expansion of Japan (in a poor way after the tsunami in March 2011), thanks to the fiscal programmes in
the United States and the strong business integration processes.
In this environment of world growth that is clearly lower than the potential and with the polarization of dynamics regionally,
with an absolute slowdown of advanced economies and significant growth of the emerging countries (although more moderate
than in 2010), we foresee a global level of inflation of 2.5% (similar to that of 2010). It must be mentioned that the regional divergence we estimate in terms of growth also results in an important divergence regarding the evolution of prices. Although we do
11
not expect any type of tension in the underlying price indices in the West, we do foresee persistence in the recovery of prices in
emerging countries.
Thanks to our business model, and the strong financial solvency, we are in a privileged position to face, with determination,
the challenges that may arise in this uncertain global situation and at the same time capitalise the many opportunities that this
situation unveils for us. In broad terms, our group has ended 2010 with many achievements and with solid financial results.
Once again, the key to these positive results are in the dynamic and strict management and prudence of the bank. In 2010, the
second year of the implementation of our Strategic Plan 2009-2013, our priority objective was to continue consolidating the international expansion and growth in our traditional business of banking.
The regulatory and legal framework has remained demanding in Andorra, the headquarters of our parent company, as well as
in the different countries where our offices are located (Switzerland, Luxembourg, Latin America). In all of them Andbanc has
worked actively in the regularisation and rapid implementation of the highest financial standards providing stability to the sector.
In Andorra, the monetary agreement has been signed with the European Union and the conditions set out by the OECD to enter
the “white list” have been achieved, while maintaining the principles of the Andorran banking system of independence and privacy, have been achieved. Internationally, we continue with the plan for adapting to the MiFID, completing our strict processes
with these directives on financial instruments and markets.
At Andbanc we maintain the commitment to learning to move independently in a new context of uncertainty in regards with the
evolution of the markets. Investing in knowledge and analysis was, for the majority, an intangible asset that was difficult to turn
into profit. In our case, this has been the option has arisen which we have chosen. The expected outcome is currently materialising, with a clear and defined direction of our economic view of the world and the financial markets, and what is more important,
consistency in the reflections that have prevented us from walking in circles avoiding sudden changes to our recommendations.
However, in our particular view of the world we are aware of the degree of difficulty and risks inherent in the diligence of our
forecasts. Far from being an impediment, this element encourages us to insist, even more, in being precise. Our final objective is
to greatly invest in the strategic development of investors that limit the risks and ensure preservation of the capital.
The design of products and the adaptation in our management style to the requirements of a volatile and changing environment
where risk is a relevant element, has enabled us to respond to the needs raised by the client, offering a range of innovative
products of our own or of third parties.
The international expansion has played the leading role in the growth of the assets under management. Our model has enabled
us to exceed our all time highs of resources under management, consolidating us as the second bank in the country.
In terms of figures, we have been able, despite the instability, to improve our margins. In this sense, the ordinary margin has
increased by 4% and is very close to the maximum levels of 2007, something quite atypical in the private banking sector due
to great pressure on the margins caused by the economic recession and financial crisis. The growth of the ordinary margin has
been achieved by very active management of the plan and of the service commissions, which have increased by 38%. However,
the preventive provisions have meant that the net result for the shareholder has remained in line with that obtained in 2009.
The Group’s expenses have increased due to the international deployment and attraction of new executives and business managers. In Andorra, we have been able to cut costs for another year and invest in areas that enable us to be more efficient globally
in the medium-term. The decrease in general expenses in Andorra has been around 15% regarding the maximums in 2008. This
has meant that the general expenses for the Group have only increased 1% in 2010.
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For another year the bank has decided to maintain a high solvency ratio that at the end of 2010 was 22.3%, making it a best international practice. Our liquidity leaves us in a good position at a time when liquidity is a scarce resource. The rate of efficiency
is 51.4%, a very good figure in the sector, despite the large investment in international expansion.
The excellent solvency and liquidity of the Group enables us to continue investing, prudently, in sustainable and profitable
growth. Growth will be mainly organic, but we will not renounce to the incorporation of acquisitions that reinforce our model
and result in the attraction of talent.
In the last twelve months, the Andbanc Group has begun international expansion; it has increased AuMs to historic levels and
has maintained the principal management ratios, facts that have enabled us to overcome the difficulties of the environment to
place us in a privileged position within the sector industry. This success would not have been possible without the motivation,
value and effort of all the collaborators in our Group. All of them have embraced excellence as the guiding principle. I would
like to thank the loyalty of our clients, as well as the trust our shareholders have in us. I am certain that the next few years will
reinforce our positioning and enable us to continue offering, just as Andbanc has done for more than 80 years, the highest level
of services and quality in private banking.
Jordi Comas Planas
Director and CEO
13
2. World Economic
Review 2010
Introduction
2010 experienced a global growth of 3.8%. However, this figure
conceals very different dynamics for each region, providing
evidence for the hypothesis of economic decoupling and the
exchange of roles between countries. In short, it clearly reveals that the new global economic order has become established and has come into full effect.
The emerging Asian economies have grown at an average rate
of 8.9%, whereas the emerging countries of South America
have done so at a rate of approximately 6.6%. In contrast, the
developed countries have maintained rates of expansion that
are clearly beneath their potential. The USA has grown at a
rate of 2.9%, whereas the Euro zone, burdened by the imperative of fiscal discipline, has expanded at a much more modest
rate of 1.7%.
In terms of temporary dynamics, it is worth mentioning that
there has been no synchronisation in the quarterly expansion
rates. Moreover, zones like Europe and the USA have pursued
opposing strategies. Despite this, we have a clear idea of the
way the global economy progressed during 2010. Perhaps what
stands out the most is that during the second half of the year
the rate of worldwide growth slowed down compared to the
dynamism seen in the first six months. Nonetheless, the data
suggest that by the end of the year (December) growth had
been consolidated.
In the developed economies, the driving factor was the rise in
private consumption, especially in the USA, although the ave-
14
rage rate for the year was still less than that observed in other
phases of recovery. The origin of this slowdown can be found
in certain restrictive conditions in credit grants to companies
and families, but also in the persistent weakness of the labour
market. Despite this, the last quarter offered us a glimpse of
an acceleration of consumption that would have an “inertia”
effect in the first stages of 2011 in the USA.
Specifically, the Euro zone saw its maximum activity in the
second quarter of 2010, with a rate of annual growth of 4%
compared with the first quarter. From then on the third quarter
saw a marked slowdown of this rhythm, dropping to 1.38%.
Despite this low rhythm, the factors that contributed to this
growth were the net external demand, the lukewarm recovery
in internal demand and inventory rebuilding. The question
was to observe whether the rate of activity would be maintained for the fourth quarter or whether the slowdown process
would continue.
In the case of emerging economies, the forces for growth are
both external and internal. The recovery in consumption in
the West is boosting the export sector in these economies,
although special attention should be paid to the dynamics of
internal demand, with an almost uncontrolled expansion of
credit. In short, growth has remained robust in the region.
In this sense, the most frequent data indicated that the rate of
activity would be maintained in the fourth quarter. In October
and November industrial production experienced reasonable
rates of growth compared to the previous month (+0.7% and
1.2% respectively), a fact that suggested sustained growth in
the industrial sector.
With regard to inflation, this has been contained in all the
developed economies despite the recent rise in the price of
intermediate goods in the final quarter, no doubt due to the
increase in the price of raw materials and food.
At the same time, the European Commission’s activity surveys
confirmed the hypothesis that the expansion, though moderate, would be maintained in the final quarter of the year, and
this proved to be the case. There was a 0.30% growth in the
fourth quarter compared to the previous quarter, which represents a slight fall (the previous figure was 0.34%), leaving the
growth for the year as a whole at 1.7%.
For the countries of the OECD, the year-on-year inflation rate
oscillated around the 1.8% mark in November. Leaving out
energy and food, the variation in prices was still more moderate - around 1.2% y/y, although there was a small rise from
1.1% in October.
In the emerging economies inflationist trends are more evident. To the increasing cost of raw materials the highly dynamic domestic activity must be added. These circumstances
have meant that many central banks in these economies have
instigated policies of tougher monetary conditions.
Euro Zone
The economy of the Euro zone has been experiencing a moderate degree of expansion since the middle of 2009. In contrast
to the US, the tempo in 2010 was just the opposite. Whereas
activity slowed down in the US in the first half of the year,
all together the countries in the Euro zone experienced accelerated growth. In contrast, during the second half of the year
there were signs of a slowdown in the rate of growth in the
Euro zone (whereas activity gained pace in the US).
15
From here on, and against the general opinion, the US Economy began an upswing that was to extend throughout the
second half of the year. The third quarter recovered rates of
growth of 2.6% (a variation compared to the previous quarter
in annual terms), to finish the year with a new rise in the rate
of expansion up to 3.2%. In short, a growth of 2.9% for the year
as a whole compared to 2009.
There were basically three factors influencing this growth. On
the one hand, a period of family saving was followed by a rise
in personal spending by families who finally decided to spend
some of these savings. At the point of maximum uncertainty,
Americans were saving 6.30% of their available income. At
present they are devoting 5.30% to savings.
Another factor that would explain the dynamics of growth was
the high level of state spending, since public transfers (deficit)
explained much of the consumption observed during the third
and fourth quarters. The final factor leading to US growth was
inventory rebuilding.
In terms of inflation, there was a clearer rise in the Euro zone
than in the US. The year-on-year CPI rate reached 2.21% in
December (higher than the 1.39% in the US) and the prices
without energy and food set the y/y rate at 1.13% (also above
the 0.64% in the US).
The interesting message of 2010 (in terms of prices) would appear to be that the economies that are implementing policies
of monetary expansion (consequently inflationary), are precisely the ones experiencing lower inflationary tension compared to those that are not expanding their monetary base (the
Euro zone).
The United States
2010 revealed two clearly differentiated segments in terms of
the economic activity in the US. A clear slowdown in the first
half, with a first quarter where the pace slowed down compared to the close of 2009, was followed by a worrying second
quarter, in which the rate plunged from 3.7% to 1.7%.
The alarms sounded in a situation of high unemployment, in
which the expansionary politics of the Fed were not yielding
results.
16
Emerging Economies in Asia
The region experienced an economic expansion of close to 9%
in 2010. Yet despite this figure, the dynamics seemed to slow
down as the year progressed.
China, the main economy in the region, around which the rest
of the countries in the area turn, experienced a process of
economic slowdown in 2010, although this could be considered
as a healthy outcome.
The rate of growth in the first quarter of the year reached a
year-on-year rate of close to 12%. From then on, the rate gradually slowed down, achieving its lowest level of expansion in
the third quarter. Yet, the rate was still very vigorous (9.60%
y/y). The surprise came in the fourth quarter, when everybody
expected the slowdown to continue and the rate of growth to
remain below the 9.6% of the previous quarter. There was clear
disconcertment when the Asian giant published an upswing in
activity, with a rising rate of up to 9.8% y/y.
At the most pessimistic period in 2010 (July - August), many
shared the feeling that the West could slide back into recession, yet Andbanc defended the idea that this hypothesis was
unlikely. Our arguments for rejecting the thesis of the double
recession rested precisely on some of the factors that have become key in explaining the economic upswing: the high level
of saving and a rebuilding of inventory that was far from over.
The growth in the US could have been even more intense if
some aspects had not acted as an anchor. The net external sector once more contributed negatively to the GDP, since exports
did not follow the increase in imports. Another factor worth
mentioning is the weakness in residential investment, which
worsened in 2010 with a clearly negative effect on the GDP,
and which might explain the axing of some types of public
aids to the sector.
With regard to inflation, far from representing a problem, it has
been contained throughout the year. In December, the general
price index stood at a year-on-year low of 1.39%. The picture is
clearer if the energy and food components are removed from
the overall index. This “pure” index closed 2010 with a yearon-year rate of 0.64%. Even though this level would mean a
small rise from the 0.59% seen in October, the truth is that we
are facing the lowest levels of inflation recorded (since 1957).
17
What are the factors that explain this growth? Without doubt,
the dynamics of consumption in the US, which were also reflected in its strong level of imports (i.e. Asian exports), contributed decisively to the dynamics of the region. Aside from the
external sector, the progress of credit in the countries in the
region has also played a decisive role in the development of
domestic demand, and therefore, in the expansion of activity.
Specifically, China has seen a permanent rise in credit rates up
to the current rate of 19.8% y/y, just when everything seemed
to be indicating that credit was beginning to relax after the
control measures imposed by the authorities.
Despite the efforts of the authorities, prices are continuing
to rise in the region, suggesting two things: Either that the
governments are a step behind of what the circumstances require, or that the authorities are aware that the rise in prices is
due to supply factors that will improve, which would point to a
fall in the cost of raw materials and to a reduction in inflation.
South America
It was predicted that the region would finish 2010 with an
economic growth of 6.6%, driven by Brazil and Argentina, with
annual expansion rates of approximately 7.8% and 9%.
The volume of new credits has not fallen from the 500,000
million Yuans monthly, a fact that places the active balance of
the total credits granted at 47 trillion Yuans, i.e. roughly 127%
of the country’s GDP.
The remaining major economies in the region also enjoyed a
remarkable economic expansion over the year. Mexico indicated an approximate expansion of 5.1%, backed by the strong
demand from the US, whereas Chile grew by a more than
reasonable 5.3%.
In terms of inflation, this region (together with South America)
is experiencing a greater inflexibility in prices, with a clear
upward spiral that threatens to get out of control. In 2010
inflation in Asia rose to 6.2% on average. The price trend in
the two Asian giants is especially worrisome, particularly in
India, where prices rose to a dangerous 8%. In China inflation
stood at around 5% in y/y terms for much of the year. Other
countries, such as Indonesia, also experienced tensions in their prices, with rises of 7%.
The whole region has benefited from the strong rise in the
price of raw materials, especially agricultural and mineral products, since many of these countries have an intensive external portfolio in these elements.
Nonetheless, and contrary to what might be thought, in countries like Brazil the net external sector no longer contributes
positively to the GDP, given that the strong development of
the domestic demand has caused the rate of growth in imports
to be substantially above the rate of exports (45% versus 31%).
Clearly, the remarkable volumes transacted in these countries’
external trade help to keep a high rate of industrial activity,
thereby contributing indirectly to growth.
It is true that the rise in the cost of raw materials and of food
affects these economies especially. Nonetheless, on removing
these external components from the general index, the prices
still indicate a worrying trend. Taking away the most volatile factors the rate stands at around 4% for the region. This
clearly shows that the pressure on prices in the region is not
only a response to the external “shock” due to the rise in the
cost of energy and food, but is also due to the robust internal
dynamics observed in these countries, which contribute to an
accelerated rise in prices. The authorities responded in a variety of ways: By increasing the official exchange rates, raising
the required reserves, currency appreciation, controlling the
entry of external capital, etc.
What has really driven the dynamics of GDP in Brazil up to the
estimated 7.8% has been the strong development of investment
in fixed capital, which has expanded to over 22%, helped by
the significant entry of foreign capital. Internal demand would
be the other factor to consider, with a 6.9% y/y variation.
18
In the case of the (swap) rate in euros, the first act showed
us the kind face of fixed income investments, with a 10 year
swap that “plunged” from 3.59% at the start of the year to
2.32% in August, meaning that a long-lasting strategy would
have had a positive performance of approximately 8.9%. The
weak expectations regarding the sustainability of the recovery,
the hypothesis of a double recession and deflationist tensions
were behind this first movement of the rates.
It was then time to lower the curtain and await the beginning
of the second act. This act, as suggested in the introduction
to this section, deals with the opposite scenario, i.e. an abrupt
rise in interest rates that went from the aforementioned 2.32%
in August to 3.32% by the close of the year; a clearly tragic
course for those backing the lasting strategy at the worst possible moment (August), since they would have lost approximately 7%. What led to this movement? The rise in the rate of
consumption in the USA, the increase in the price of raw materials and energy, which at same time pushed up the CPI rates,
and the resulting fear that this movement would continue.
Inflation is a factor that should be borne in mind in terms of
the future. As we have noted, the strong internal consumption
could apply even more pressure on prices. The trends in wages in countries like Brazil, with year-on-year growth above
10% and an unemployment rate that continues to fall (now
close to 6%), suggest that Brazil’s central bank will need to
take more measures; by January 2011 it had raised the interest
rates by 50 bps placing them at 11.25%.
For Andbanc, once again, the key to the enigma is to discover
when the market got it wrong. In August, with 10 year swap
rates at 2.32%, or at the end of the year, at 3.32%. This is a 10
year investment (therefore the level set by the rates reflects
the prospect of cycle and inflation forecast over 10 years), at
the very least, between the two aforementioned levels there is
a difference of 43% for the short 4 month lapse between one
and the other. Can the world change so much in four months?
Obviously not. In the section entitled “Prospects for 2011” we
will attempt to answer this question, and to see what a reasonable rate level would be, according to our central scenario.
For 2010 therefore, a significant rise in inflation was expected
in the region, forecast at around 7.2%, clearly above the 6.3%
for 2009. Argentina would be the country with the greatest
increase in prices, with a y/y rate of 11% in December. Brazil
saw its price index rise, above all in the final quarter of the
year, going from 4.4% in August to finish at 5.91% in December.
At the end of the year, the rate in Mexico stood at 4.4% and the
most moderate country in terms of evolving prices was Chile.
Also worth noting is the change undergone in the 2-10 year
gradient of the interest rate structure in euros. This evolved in
a similar fashion, with two clearly different phases. A starting
point in which the gradient was structurally high, reaching a
maximum of 194 bps in May, from then on the curve began to
flatten reaching a minimum gradient of 107 bps in August. In
the final quarter, the rise in the 10 year swap rate exceeded
the rise in the 2 year period, which led to a new rise in the
gradient, closing the year at a level of 176 bps.
Performance of the financial markets
Fixed Income and Interest Rates: In strictly scenic terms, 2010
was a play with two contrasting acts, as far as interest rates
were concerned. Contrasting because two intense but opposing phases were observed, raising the following question:
When did the market get it wrong, in the first or in the second
part?
19
In regards with the rates in dollars, the script is practically
identical. In the first part of the fear (from January to August),
the 10 year dollar swap rate fell from 4% to 2.48%. This movement meant a positive return of 10.6% for long term strategies.
From that moment on, the movement began its retreat. The
rates closed the year at 3.37%, with a negative performance of
-6.62% for those who decided to invest in duration.
episodes of tension that would definitely affect the rest of the
assets.
Once the year closed, and looking back, we might conclude
that this is what happened, with a minimum of five episodes of
stress registered on the sovereign front. In spite of this initial
estimate of convulsions for 2010, which ended up revealing
themselves clearly, our recommendations suggested the suitability of increasing the exposure to sovereign risk in each
episode of stress. This recommendation was spread throughout
the year, which points to a certain consistency in our arguments. It should be said that our proposition benefited from a
market reaction in line with what had been predicted, since
each episode of stress followed a strong process of normalisation.
With regard to the gradient for the rate structure in dollars,
measured by the difference between the 10 year and the 2 year
swap, they began the year with a high level of 272 bps (well
above the gradient in the euro curve, which was 194 bps). This
fell and registered a minimum of 180 bps in August, and from
this moment on it began an upswing to finish the year at 257
bps.
In terms of the performances of the main indexes of (nonperipheral) fixed government income for 2010 as a whole, the
rise and fall trend described previously suggests that by price
we would have had a slightly positive performance (the TIR
levels at the close of the year were lower than those at the
beginning of the year) and therefore the greater part of the
performance would have come from the coupon or carry trade.
In the case of the debt in euros, a representative index of AAA
government bonds with a 3-5 duration returned 4.13% in 2010.
In the case of dollar bonds, the 3-5 year Treasuries Index performed at 5.69% in 2010.
To sum up, the European debt crisis as lived in 2010 caused
a structural and widespread rise in the level of premiums (in
cash and synthetic) in all the governments of Europe, with the
exception of the Nordic countries. In this way, Greece’s premium (a country that, together with Ireland and Portugal, were
in the first level of risk) in 5 year CDS was kept within a wide
range of between 1000 and 700 bps on swap. Ireland finished
the year around the 600 bps mark, whereas Portugal ended up
close to 500 bps of premium in CDS.
Spain closed the financial year close to the 350 bps of premium
demanded for protection, and would remain in a second risk
level, struggling not to fall into the highest level and attempting to reach the group of sovereign issuers that made up the
third category. These were Italy and Belgium, both with a
demanded premium some 120 points lower than Spain. Next
was a fourth level which included France and Austria, with
premiums for protection that reached 100 bps. Germany would
represent a step further in terms of security, ending up within
the lowest risk category made up of the Nordic countries.
Sovereign Credit
It should be noted that investors have had to learn to separate
their perception of risk, precisely because they have separated
the credit market itself into three watertight categories. Sovereign risk, financial risk and corporate risk.
This separation has revealed itself in a clear re-pricing of the
quoted rates for each category. The separation has been less
in terms of the correlation and the superimposing of the variations over time, but rather in a readjustment of the premiums
in each category.
Corporate Credit
The credit spreads (represented by the Itraxx Index) began
the year around 65-70 bps on swap. At that moment we came
to the conclusion that, at those levels, the credit was “Expensive”, and therefore we did not recommend the purchase.
Over the year we issued various warnings that the peripherals
crisis was far from over. Our estimates pointed to a series of
20
We established a fair value for the credit at 100 bps, a level
at which we would indeed recommend going in. Nonetheless,
after a good start, the credit differentials began to rise at a
rate marked by the other protagonist of the year, the sovereign
risk. In April the differentials for corporate bonds were already
above 100, going on to reach a maximum of 140 bps in May.
as sovereign risk, was duly noticed. On a national level the
disparity in performances is clear, a fact that reveals the existence of these divisions or categories of risk aforementioned.
Only the German DAX experienced significant gains over the
year (+16%). In France, the CAC-40 ended up half way between
Germany and the big losers of the periphery and finished the
year with a zero growth of 0.46%. The rest of the important
markets have remained in the red, especially Spain (-12,95%)
and Italy (-9.77%).
In Andbanc we maintained a maxim throughout 2010: “Above
100 bps in the Itraxx, buy. Take advantage of the stress peaks
to increase exposure”.
In the US, we can speak of a clearly upward movement for the
year, according to the level registered on December 31 in the
main indexes: +15% for the S&P, +14% for the Dow Jones and
+18.16% for the technological Nasdaq.
The second half of the year was a constant for credit, which
moved within a well defined range of 100-120 bps on swap. In
this sense, our recommendations would have had a favourable
effect, since the successive episodes of stress, in which the
differentials were stretched to 120 bps, were followed by a
shrinkage back to the 100 bps mark.
Nonetheless, these figures may be misleading and give the impression that it was a placid year as far as the stock exchanges
were concerned. Yet nothing could be further from the truth.
By the close of August, all these indexes had accumulated
losses during the year with a second quarter that could easily
be considered dramatic, with a partial performance of -12% for
the S&P.
It should be noted that this year the market placed a differentiating mark between financial and non-financial risk. This aspect is a key to understanding the behaviour of the corporate
obligations. Investors have come to associate country risk with
financial risk (or the opposite), leaving non-financial corporate
risk isolated with a much more independent behaviour. This
would explain why many private companies have ended up
paying less than the state obligations.
In the end, the final quarter managed to save the chattels of
the stock exchange investors, with a rise of 20% on average
between August and December.
Behind this movement we find some aspects that are hopeful
and others that are less so. The second programme of monetary expansion announced by the Fed was a point of inflection,
since it provided an impulse for the markets. The evidence
that we were moving away from the feared threat of a double
recession, together with the increasing belief that the recovery
was well on the way, also helped.
Stock markets
The world’s stock markets had a common denominator in 2010.
The rhythm. All of them exhibited the same symptoms, which
could be summed up as erratic and directionless until August,
followed by an upward trend from then on that would extend
until the end of the year.
In short, the positive behaviour that the stock markets demonstrated in 2010 was concentrated in the last quarter of the
year.
The Asian markets took a similar path regarding the time
pattern, but a different one in terms of the rate, where they
displayed greater enthusiasm. The overall index for the region
(MS Emerging Asia in local) registered a gain of 12.26% at the
close of the year. Nonetheless, if we take some of the most significant markets, the feeling is still more positive. Beginning
with the best performing markets, we should highlight Thailand (+36.3%), Indonesia (+29%), Philippines (+23.5%), Korea
In Europe, the negative behaviour of the Eurostoxx 50 Index
(-1.83%), or the Eurostoxx (-0.10%), are an indication of the effect
that the European debt crisis has had on the stock markets.
The negative behaviour of key sectors such as electricity, telecommunications or banking, which the market has labelled
21
(+22.1%), Malaysia (+19.3%) and India (+16.2%). China revealed
the disparity between its internal and external market. The
Shanghai A Index (which quotes the shares that can only be
bought by Chinese nationals) experienced an important slump
of -13%, whereas the Shanghai B Index (which lists the shares
of companies in which foreigners can indeed invest), showed a
clearly positive performance of 22%.
still important gains were registered for beef (+22%) and fruit
juices.
Industrial products also increased their prices substantially
over this year, with the beginning of the economic consolidation in the West and the influence of portfolio movements.
This was particularly the case for nickel (+32.4%) and copper
(31%). Aluminium registered more moderate revaluations this
year (+5.85%).
In South America the performance of the stock markets was
also positive, but with a clearly lower intensity than that observed in the emerging Asian countries. The MSCI Latam Index
registered a gain of +6.55% in 2010. By country, Argentina was
the clear winner, with a striking revaluation of 54.3%, followed
by Chile (37.6%), Colombia (+35.4%) and Venezuela (32.7%). In
another group, and with more moderate gains, stands Mexico,
which finished the year with a gain of 21.6%. Brazil’s market
slowed down the most in 2010, with a very minor revaluation
of 1%.
Energy remained clearly beneath other raw materials, although oil rose by 8.92%. However, gas maintained the
downward trend as a consequence of the struggle being faced
in implementing the new extraction mechanisms (horizontal
perforation), which would seem to be able to increase the existing reserves of this material considerably.
Foreign exchange markets
In terms of the foreign exchange markets, 2010 could be summed up in a single phrase: “All the emerging nations gained,
while the West lost”. In essence, both the two main currencies, the euro and the dollar, have lost value against the other
currencies, especially against those of the emerging countries.
Raw Materials
We have been warning for some time about the important
influence and the participation of portfolio flows on the final
price of raw materials. Although on a global level, during 2010
direct foreign investment displaced financial investment, this
did not mean that the total volume in investments of a speculative nature fell. More specifically, we have reasons to believe
that in the case of raw materials, the participation of the ETFs
and other financial instruments used to obtain exposure to
these assets has increased noticeably.
Beginning with the euro, it decreased in value against the
currencies of South America. Specifically, it fell 11% against
the Brazilian Real and 12% against the Mexican Peso. A similar trend was seen in relation to the currencies of the Asian
countries: -10% against the yuan, -9.4% against the Korean won
and -6.5% against the HK dollar. The weakness of the single
currency in 2010 was not only seen against the currencies of
the emerging countries; the euro also depreciated against the
currencies of developed countries (although here the base or
closing effect of 2009 played an important part). Thus, the euro
fell by 6.7% against the US dollar and by a significant 18.7%
against the Japanese Yen.
The result a distortion of prices; or at least a disconnection
between the real end demand (created by the agents that
make up the commercial circuit) and the price of the asset. In
short, we have witnessed a strong rise in the price of all raw
materials, yet which has not been associated with an increase
in the real demand.
The US dollar followed a similar trend to that of the euro in relation to the Asian currencies and those of the southern cone,
although obviously with lesser intensity. In the case of the
South American currencies, the US dollar fell in value by 4.7%
against the Brazilian real and by 4% against the Mexican peso.
Agricultural products proved to be the real protagonists of
2010, with revaluations averaging 43%. From greater to lesser price increase, there was cotton (+76%), followed by coffee
(+66%), sugar (51%), wheat (+39%) and soy (37.6%). Lesser but
22
The depreciation against the Asian currencies was less, since
these are more closely tied to the yuan and therefore to the
peg that the latter maintains with the US dollar. The Chinese
authorities have opted for a policy of slow appreciation of the
yuan. This can be clearly seen in the growth of this currency
against the dollar in 2010, where the American currency only
fell by 3.48% against the yuan. In the case of the Korean won,
the depreciation of the dollar has been similar (-2.18%)
23
3. World Economic Outlook 2011
Introduction
dynamics of expansion of the emerging countries was the appearance of tensions in the prices, and this is precisely what is
happening, a fact that suggests that the progress experienced
in recent years was simply imbalanced.
On a worldwide level, real private investment has recovered
this past year, displacing portfolio investments, an indicator that is without doubt optimistic in terms of future global growth. The participation of the emerging economies in
the perception of the real global investment has grown from
10% to 40% in only ten years. This would largely explain the
growth of these countries, the aggregate GDP of which now
represents 50% of the world’s GDP. Even more importantly, the
contribution of the emerging nations to the dynamics of the
annual GDP is 73%, which to put it bluntly means that if these
economies halt, the world comes to a halt.
In the struggle to control these imbalances, the emerging countries, both in Asia and South America, have begun to implement austerity policies that we expect will end up having
a moderating effect on overall growth. Specifically, for Asia a
growth of approximately 7.5% is forecast for 2011, quite below
the 9% registered in 2010, and for South America an expansion
of roughly 5% is forecast, also lower than the 6.6% in 2010.
In the case of the developed economies, these will grow at
a rate below their potential, therefore incompatible with the
creation of employment, which means that we cannot expect
improvements in the labour market in these economies. Here
it is important to mention the existing disparity between the
different countries regarding the policies employed. While the
English-speaking economies (and Japan) have opted to try to
avoid the crisis by means of reactivation programmes, budgetary deficits and monetary expansion to generate inflation (of
assets and of prices), the Euro zone has opted for fiscal discipline, i.e. assuming the crisis and adjusting the imbalances,
a fact that will doubtlessly mean a disconnection of cycle in
relation to the former economies.
Nonetheless, this polarised world situation involves evident
risks that make us extremely wary with regard to the coming
years. In the first place, it perpetuates the global imbalances (chronic commercial deficits) that were one of the reasons
that brought about the current crisis. In the second place, the
strong development rate of these economies, very intense in
the consumption of raw materials and in many cases inefficient from the point of view of per capita energy consumption,
exerts a strong pressure on the prices of “commodities” that at
the same time hinders their own growth; an aspect to consider
if we take into account the participation of these economies in
global growth.
The result of all this will be a Euro zone that will grow at a
rate close to 1.6% whereas the US will grow at a rate of 3%,
50% of which will be due to public spending.
These risks are already becoming evident in many parts of the
world. The only aspect that could have endangered the strong
24
The big global risk today is uncontrolled prices. This is less
the case in developed economies, in which we do not see risks;
in the emerging economies however, the levels of inflation will
continue to increase in 2011 due to the confluence of several
factors. For these countries it is not only a case of an external
supply shock, but also the fact that internal dynamics contribute to speeding up the rise in prices. Secondly, the massive
entry of investment flow into these economies will continue
to feed the uncontrolled loans to consumption, which will fuel
inflation. And finally, although the authorities have begun to
take measures, the perception is that they are being timid,
moving at a slower pace than what the circumstances require.
and in our opinion this will be a factor that will dampen economic expansion, counterbalancing the positive effects of the
relaxed monetary policy.
The necessary adjustment in the consolidated balance of European banks will be slow and will involve a certain degree
of hostility by the financial bodies towards the real private
economy. All in all, this will result in a moderating effect on
the rate of growth, which will lead to an economic expansion
that is unusually slow.
Behind this more moderate cycle positioning lies the continuous monitoring of the dynamics in the banks’ credit activity,
which in 2010 revealed a less than hopeful trend that we believe may continue in 2011.
This will therefore be a risk to follow very closely throughout
2011, since in our opinion uncontrolled prices would severely
harm the capacity for private purchasing in the emerging economies, preventing the desirable transition of these countries
from an exporting growth model to a model based on domestic
demand.
At the beginning of 2010, the active balance of banking loans
to the private sector in the Euro zone was 15.5 trillion euros.
At close of year, the balance was 15.3 trillion, which means
that not only have credits not been given, but they have been
reduced. If we break down this figure, we will gain a better understanding of what this trend conceals. Loans to companies
were reduced by 0.40% in 2010, and loans to other financial bodies were cut back even more intensely, by 7%. On the positive
side, the only item of credit activity that has grown has been
the loans to families, although the increase during the year
was only 3%. This growth in family credit was concentrated in
the third quarter, and was the result of the rise in consumer
credit. At that moment, all our interest focused on the future
evolution of this aggregate, since if the rise were to continue
into the fourth quarter, we could establish that the banks’
confidence in the private economy had been re-established. It
was not to be. The final data, referring to the fourth quarter,
indicated that the credit activity slowed down significantly in
the final phase of the year, with consumer credit registering a
fall compared to the previous quarter.
The Euro zone
In a situation of normality, and taking into account the current
level of many macro indicators and monetary policy indicators, one could easily come to think that economic recovery
is merely a question of time. For example, the European Commission’s surveys on business confidence suggest that it is at
a relatively high level in the case of services, industry and
consumption. This fact, backed by an accommodating orientation of the monetary policy and the measures implemented
to re-establish the operation of the financial system, would
have been enough in the past to provide support for business
activity, for the labour market, and lastly, for internal demand.
The problem with this is that the situation is not a normal
one, nor is the crisis a common one, and thus neither will the
recovery be so. The banks’ leading role in previous cycles has
made them responsible for their own misfortunes, and in the
process, into the origin of the difficulties being suffered by the
developed economies. The dynamics of its balances therefore
explain to a great extent the economic outcome in the future,
25
go a substantial decline in a year or two. The appearance of
strong inflationary tensions in all the emerging economies and
the hardening of the monetary conditions in these countries
will almost certainly end up slowing down the rates of activity
in these economies - a fact that will affect the external sector
of the Euro zone.
Another aspect to consider is the high price of raw materials
and the cost of energy, clearly influenced by global portfolio
movements. This circumstance will also have a delaying effect
on the recovery. According to sources consulted, it has been
calculated that a 10% increase in the price of oil would reduce
growth by 0.25% quarterly (1% annually).
We also cannot ignore the tensions persisting in some segments of the market such as the sovereign front. The high
premiums that the economies of the European periphery have
to pay for placing their debt push up the financial cost, which
hampers the already precarious situation even more. A possible intensifying of these tensions could end up infecting the
real economy.
In the end, the big question for us is whether these fragile
credit dynamics will be extended during 2011. We are inclined
to believe that this will be the case, which means that this
economic recovery will not be able to count on the traditional
support of credit, or at least, not with the intensity of other
occasions. The reasons? The major exposure of the banks to
the private sector and the high risk that this involves with maximum rates of outstanding debt. Another aspect that sustains
this hypothesis is the need to adapt the banks’ balances to
the new regulatory framework imposed by Basle III. The new
solvency requirements make it necessary for them to increase
their own capital in relation to the assets adjusted according
to risk. This is precisely what the banks are doing; adjusting
the risk to their assets by reducing the exposure to private lines (risk) and increasing the importance of government assets.
Without forgetting their obligations in the area of liquidity.
According to our calculations, there is a long way to go before
the banks comply with the levels of liquidity established in
the new framework. This means they still have to transform
balance in order to increase the weight of the easily liquidable
assets. How? By reducing the weight of the assets with very
little liquidity, i.e. loans to the private sector.
In short, for 2011 we foresee a growth in the Euro zone of close to 1.6%; slightly lower than the growth registered in 2010,
which was approximately 1.7%.
With regard to inflation in the Euro Zone, the rise observed
during 2010 only manifested itself in the general price index,
which rose from 1% y/y in January to 2.2% in December. Nonetheless, the underlying y/y rate (without energy and food)
remained stable at 1% throughout the year, which confirms our
suspicions that the tensions in prices are not due to factors of
demand, but to external shocks, and therefore may be temporary in nature. In addition, we are detecting private spending
dynamics in the Euro zone that suggest a clear moderation in
their evolution. This fact would also point to a relaxation of
prices for the second and third quarter of 2011. Regarding the
year as a whole, we do not foresee price rising above 1.8%.
In short, we foresee that the banks will not support economic
expansion to the same extent that they did in previous years.
Yet this is not the only element making up our weak recovery
thesis. We believe there is a risk that world trade will under-
26
What is our long-term forecast for the US economy? The answer has a lot to do with our opinion regarding the success
of these policies. And our position in this respect is clear.
We do not believe that they will have the desired effects. We
appreciate that anyone might be confused by this affirmation;
ultimately we have to recognise that the figures are what they
are, and they improved notably in the second half of the year.
Nonetheless, a meticulous reading and objective reflection provide us with enough evidence to make us feel confident in our
affirmations.
Firstly, although the financial wealth of the US has recovered
considerably since its minimums, it is still a long way from
the levels attained before the crisis, and what is worse, three
quarters have gone by without it responding to the Fed’s stimuli. According to our calculations, to recover the level of
wealth that the Americans had before the crisis (65.6 trillion
dollars), would require a minimum of two and half years of
markets like that of 2009, with the stock market going up by
60% between the first quarter and the last (which is when
the wealth recovered by 4.9 trillion dollars). In short, the Fed
would need to cause an increase of 150% in the markets. Something we see as being unlikely at present.
The United States
Strictly speaking, the US economy experienced an acceleration in the rate of economic expansion in the last part of the
year. These dynamics can be clearly seen in the jump that the
GDP experienced in the final quarter, rising from 2.56% to 3.2%
of the annual rate.
Worth highlighting is the fact that at the middle of the year it
seemed that the US economy was more likely to go back into
recession than the opposite. At the time everything indicated
that, at best, the USA would finish 2010 with an unusually
weak economic growth. From that moment, both the Federal
Reserve and the government embarked on a frantic spiral of
stimulation policies. This effort caused a substantial change in
the level of the main economic indicators, including the GDP.
It goes without saying that basing the economic cycle on an
artificial increase of wealth is, at the very least, dangerous.
So that we all understand what we are talking about, the Fed’s
last asset purchasing programme, for an amount of 600 billion
dollars, represents 7% of the current monetary mass (M2). With
these resources the Fed aims to increase the market value of
the financial assets and therefore the wealth of Americans. In
parallel, it keeps the interest rates at a level that in any other
circumstance would be, to be more exact, at 0%.
The final aim pursued by the central bank is to stimulate
aggregate demand via the wealth effect, and thereby stimulate
the expansion.
27
Secondly, the rise in GDP is due to a great extent to the rise
in consumption. Yet this, far from increasing in a spontaneous
and natural way, has been caused by a substantial flow of
public transfers. The underlying private consumption remains
depressed, demonstrated by the fact that American consumers
are devoting a high percentage of their available income to
savings. While it is true that this saving has slowed down,
falling from 6.3% of income in June to the current level of 5.3%,
it is also true that even today it is much higher than the 1.30%
being saved in 2007, which hints at the lack of enthusiasm
among private consumers.
cannot, in any instance, act as a substitute for the strength of
the private sector. This is why we foresee that this observed
rise will be temporary in nature, unless of course the private
sector responds to the stimuli provided by the authorities and
treats the aid as an economic impulse. Something which is
unlikely as things stand.
In short, it is possible that during 2011 the US economy may
still benefit from the inertia effect of the rise seen at the end of
2010. In addition, it is necessary to consider the government’s
new attempt to stimulate the economy with the recent commitment to reducing taxes, extending unemployment subsidies
and finally going back to increasing public spending by 200
billion dollars. In the end, having made the calculations, we
can easily determine that this figure injected into the economy
represents approximately 1.5% of GDP. I.e. the economic expansion will have this extra amount.
Thirdly, we are sceptical about the functioning of the Fed’s
unorthodox measures, because they are simply not having any
impact on what really matters - the labour market. In this
regard, the Fed has itself declared that they may need three
to four years before starting to see a clear improvement in
employment. Until this happens, consumption, and therefore
the economy, will need the artificial impulse of expansionary
policies; a dangerous circumstance given the maximum threshold of debt issuing allowed by the US congress has already
been exceeded.
Our estimates situate the GDP for the US in 2011 at approximately +3%. Which means that, knowing what we have already
mentioned, half of the growth will come from the government’s
public transfers, leaving us with a “real” underlying growth similar to that of Europe, of approximately 1.5%.
Fourthly, the role of the banks has not been, and will not be,
pro-cyclic; in the same way as the dynamics in the aggregate
balance of the banks in the Euro Zone suggest a clear disaffection of the financial system towards the real private economy.
We have calculated an important effect of an exodus of resources by the banks from the private sector to the public sector
and to the activity of trading. These dynamics will continue
in 2011 for the same reasons as those described in the section
referring to the Euro Zone, and obviously this does not favour
economic expansion.
With regard to the risk of inflation, both the general price
index and the underlying rate maintained a downward trend
throughout 2010, and in the second case, we are at the lowest
level since records began. In terms of 2011, and despite the
fact that many are warning of possible tensions in the prices, we maintain the thesis that these will be well-contained
throughout the year, and therefore do not foresee price rising
higher than 1.5%.
Lastly, and finally, this imponderable phenomenon called the
economy has shown us once again that it rarely allows itself
to be influenced by the interference of government actions.
The economy answers only to the coordinated action of the
individuals and economic agents taking part in the real transactions.
It is our duty to warn that this revival in some indicators has a
lot to do with public injections, and that the state intervention
28
effect on the rate of expansion. In contrast, the persistence in
the flow of direct foreign investment to Asia, in response to the
policy of monetary expansion in the US, will help to ensure
that this slowdown in rate is not abrupt.
The stage for the controversy is set. These countries accuse
the US of causing the rise in the price of raw materials with
the Fed’s asset repurchasing programmes, and the US responds that the former are themselves responsible for inflation
in the region by “fixing” the price of their currencies artificially
at unreasonable levels, providing them with significantly increased competitiveness while keeping the internal dynamics at a
dangerously high rate.
As usual, the reality is more complex. Nonetheless, this reveals
that the emerging economies today possess all the elements
needed to lose control of inflation and, therefore, endanger their growth. On the one hand, they are suffering from the effects
of the rise in the price of raw materials and food, and on the
other are not able to limit the growth in loans, that are once
again rising to rates of 20% in the case of China. In addition,
they have already announced that they will not use the currency to combat inflation. That is to say, they will not revalue
the currency to slow down growth and reduce inflation, which
leaves us in a situation where the external sector of these
economies will once again be running at full steam. Certainly,
a worrisome panorama for the long term since it perpetuates
global imbalances.
Emerging Economies in Asia
The expectations of growth for the region fall for 2011, to stand
at approximately 7.5%. Despite maintaining a more than acceptable level, this rate is considerably less than that seen in
2010, which was +9%.
The problems are beginning to be clearly seen in these economies, particularly in the most vigorous ones, since they are
experiencing strong tensions in prices that endanger the dynamics of growth. We could say that this problem poses a dilemma for the authorities in these countries, since they have to
choose between accepting the risks of uncontrolled prices or
conversely sacrificing growth.
It is clear that there could be a reason why the authorities are
not so convinced of the need to toughen up monetary conditions. This would be related to the possibility of them foreseeing an imminent fall in the price of raw materials, something
which would relax the external factors that led to the increase
in domestic prices. It should be said that we at Andbanc also
believe that the price of raw materials is highly inflated, and
should therefore fall.
Until now, all the measures taken by the central banks have
been less intense than what the circumstances require. The
proof of this is that they are not succeeding in relaxing prices.
In countries like China, the general price index has attained
maximum levels in 28 months, while the industrial prices reveal a similar trend. In India, the general price index has risen
sharply to 11.8%, and will not fall beneath 7% in 2011.
We are aware that the important flows in global portfolio movements (speculative investment) have pushed the price of
raw materials up to a maximum, and that this fact has little to
do with a rise in the real demand; a dangerous situation that
makes us very wary about these types of assets. In spite of
Nonetheless, and despite the timidity of the authorities in their
actions to control inflation, the toughening of the monetary
conditions, with increases in interest rates and in the reserves
required for the banks, will end up having a slowing down
29
this, no one can say yet how flexible the ambition of investment capital may be, and therefore we cannot anticipate when
the price of raw materials may begin to settle down.
has also been affected by a significant rise in inflation, headed
by Argentina with y/y price rates of 11% in December 2010. In
2011 inflation will continue to rise in the region and will increase in all the countries without exception. Despite this, leaving
out Argentina, inflation in the region will not exceed 4%, which
represents a more moderate level than that observed in the
emerging Asian economies with price rises of approximately
5.4% in 2011.
In short, everything points to an even bigger rise in prices
in the Asian economies for 2011, with inflation standing at
approximately 5.5%, and this has serious implications for the
future growth of the region. Why? For the average family in
a developed Western economy, spending on food accounts for
approximately 18.4% of their income, and therefore a rise in
the price of food is of relative importance. In contrast, for a
typical family in countries like India or China, spending on
food represents 40% of their income, and so a rise in prices
represents a strong blow to their remaining capacity for consumption and therefore for growth.
By country, perhaps the most notable would be the internal
dynamics observed in Brazil. The growth of 7.8% in this economy in 2010 was driven by the strong (foreign) investment
and a healthy trend in domestic consumption. All together it
has produced growth that could hardly be considered sustainable given the strong rise in the current account deficit and
in inflation. Nonetheless, these dynamics will continue in 2011,
since real wages continue to rise at a rate of 6.6%, far above
the gains in competitiveness, which will have an inertia effect
and will help to maintain expansion in 2011. As a counterpoint,
inflation problems have caused the adoption of a tougher monetary policy by the Central Bank of Brazil, which is expected
to continue raising interest rates in 2011; they have also given
rise to public spending containment programmes with the aim
of containing prices. All together, the effect would be to slow
down growth, which is why the forecasts point to a growth of
5.1% in 2011, lower than in 2010 (7.8%).
Emerging economies in South America
The expectations of growth in the region will also be reduced
in 2011. The rate of expansion is forecast to be approximately
5%, lower than the 6.6% registered in 2010. However, this reduction will not affect all the countries to the same extent; Brazil and Argentina will see a greater fall in their rates, partly
due to the strong growth observed in 2010 that saw them expanding by 8% and 9% respectively, a fact that will ensure an
important base effect. Mexico should also experience a certain
degree of slowdown, although less intensely so. Among the
major economies in the region, Mexico will grow at a lesser
rate, nevertheless this will remain above 4%, backed by the forecast 3% growth in the US and the close relationship between
the GDPs of these two countries.
In Mexico the rate of expansion will also slow, but in a more limited way. The forecast growth for this country in 2011 is 4.1%,
which means reducing the current rate of 5.1%. The dynamics
of growth this year will be backed up by the 3% expansion
forecast in the US. Drilling down to which sector will contribute more to the growth, it is clear that the external sector will
play the dominant role, driven by a high and stable oil price,
as well as an advantageous situation in terms of labour costs
due to the relative weakness of the currency against the dollar.
Lastly, Chile should be one of the few countries, if not the only
one, that will see an increase in the rate of expansion in 2011,
rising from 5.3% in 2010 to the 6% forecast. In spite of being
uncertain for many countries, the global situation is certainly
constructive for Chile, since it will benefit from the extremely
high price of copper. The high level of the business confidence and consumer indexes, as well as the strong rise in work
incomes, will also contribute to the expansion in this country.
In the case of prices, it should be mentioned that the region
30
Forecast for the financial markets in 2011
once again. Inflationary arguments, which have increased the
expectations of the ECB increasing the rates and have therefore pushed up the TIRs, are not compatible with our central
scenario. We do not foresee important inflationary tensions,
and if the general price indexes do increase, it will have been
because of the offer shocks and not due to a solid evolution of
the internal dynamics. In this environment, a toughening up
of the monetary conditions by the ECB would make no sense.
Fixed Income and Interest Rates
In October of 2010 we warned of the massive purchase of government debt by the banks in Europe and in the US. The
frantic activity of the banks to accumulate debt responded
to a carry trade strategy, i.e. taking advantage of the strong
gradient in the curve, but also to the fact that the traditional
activity of the banks was not providing positive results. This
strategy brought the level of returns to a historical minimum
of 2.12% in the 10 year Bund and of 2.40% in the 10 year Treasury. At this time we detected that the banks had purchased
470 billion Euros in the last two years, a sum equivalent to the
purchases carried out in the whole of the 2000 – 2005 period.
This fact made us extremely wary about this type of asset,
given the possibility that the banks would begin to sell paper.
This turned out to be the case. In the last two months of the
year the sales of bonds by the banks were higher than any
other that we have records of.
To sum up, based on the levels mentioned in the TIRs, even at
the current levels, we consider the entry into duration strategies as a good opportunity, since our economic vision is compatible with 10 year rate levels that are much lower than the
current ones. In this sense, any rise in the performance of the
long tranches will represent an opportunity to buy duration in
a strategy for maintaining assets.
Sovereign Credit
Throughout 2010 we warned that the episodes of stress on the
sovereign front could be repeated, and that each one of these
episodes would represent a buying opportunity. Sure enough,
we have counted at least 5 episodes of crisis and each episode
has been followed by a relaxation in the premiums.
This has explained to a great extent the upward movement in
the TIRs of the Bund and the Treasury, up to the current levels
of 3.25% and 3.50% respectively.
For 2011, our forecast is that these extensions in the performance of the bonds will not go far beyond the levels seen
at the beginning of the year. We have set the average levels
(maximum) to which the TIRs could reach at 3.5% for the Bund
and 3.75% for the Treasury. Once these levels are reached, we
consider that it would be a good opportunity to buy in the long
segments of the curve.
The discourse changes slightly for 2011. Although we are sure
that we will still see more tensions in this segment of the
market, we believe that we are close to that final solution posed at the beginning of 2010. Those peripheral countries that
may really represent a problem for the euro, such as Spain,
have implemented tough measures of fiscal discipline that are
already having results in terms of a reduction of the deficit.
The restructuring of their financial system should be able to
clear doubts about the possibility that the banks can carry the
country forward (as in the case of Ireland). In addition, the
activity dynamics, in spite of being poor in this country for
2011, are a long way from suggesting a new economic slump.
The arguments on which we base our recommendations, in
the first place, the obligation of the banks to continue buying
government bonds en masse in order to adapt their balances
to Basle III. The TIR levels have increased due to the banks’
own action in their carry trade strategy. Massive purchases
have provided extraordinary results in the maturity portfolios
and this was the time for profit taking (sale). With the gradient again showing maximums, and with the ECB’s extraordinary lines of funding yet to be used, it makes a lot of sense
to re-initiate this strategy, which could push the TIRs down
All in all, our message for 2011 is that we will once again see
new episodes of stress, but these will be less numerous, and
thus there will be fewer opportunities for entry.
31
At present, despite the normalisation in these issuers’ premiums, it is still a good moment for entering risks such as Spain
or Portugal.
throughout the year. It is a subordinate instrument, and as
such, in the event of nationalisation or public rescue, it has
a good possibility of suffering reductions in the principal. In
spite of this, there are names that are worthwhile. In addition,
under Basle III it is an instrument that does not have capacity, and so the institutions have an incentive to repurchase
in tandem.
Financial Corporate Credit
The doubts about the pending losses in the financial system
(above all in Spain) have originated tensions in the sovereign
front, and by extension, throughout the European financial
sector at the beginning of the year. We have adopted a position contrary to the market, assuming for the Spanish banks a
potential public injection far lower than the consensus which
situated them between 80 and 100 billion euros. The potential
losses we estimate in mortgage loans would add 49.9 billion
(assuming 15% of arrears and 50% of loss in housing value). We
estimate the potential losses deriving from housing development loans at 79.8 billion and in awarded property we forecast
a potential loss of 30.5 billion. Altogether, the losses could
total 160 billion, a figure higher than the system’s reserves and
endowment which total some 100 billion. In short, a capital
deficit of the system of some 60 billion in a tension scenario. A
manageable amount for the state.
Non-financial Corporate Credit
We closed 2010 at levels of 100 bps in the differential offered
by European corporate credit. In general the recommendation
during 2010 to purchase above 100 has been beneficial given
that each expansion towards the 120 bps mark was followed
by a contraction to the 100 bps mark.
For 2011 we again have to make a very precise use of the
semantics, given that at the current levels we cannot say that
credit is cheap, yet neither is it expensive. For those looking
for a significant contracting (15-20 bps) of credit in the short
term, we believe that there will be better opportunities for
entry, and would therefore recommend waiting. In contrast, for
those aspiring to an attractive (risk adjusted) 2-3 year differential, now is a good moment for entering.
In addition, the talk of an increase in the volume of the EFSF
and an extension of its field of activity, distance the financial credit from the hypothesis of being seen immersed in a
process of quittance. Nonetheless, the political discrepancies
within the rescued countries encourage the possibility that the
bondholders of these banks might be forced to “share” the bill
for the rescue, and therefore increase the spectre of a quittance process in the senior financial debt.
In short, we adhere to what we recommended throughout 2010:
“Enter in credit above 100 bps”.
Stock markets
We have suggested on numerous occasions that we see the
stock exchanges as “artificially supported” markets (due to
the Fed’s asset repurchasing programmes) and “Limited from
above” by an economic growth lower than the potential and
which will not allow the levels of employment, consumption,
and therefore sales, to recover. The growth in profits is seen to
be limited in the long term.
It should be remembered that the sector is immersed in a regulatory change (Basle III) that will exert a positive influence in
the long term, since it aims to improve risk ratios.
We recommend senior financial debt as a first level of subordination below government debt. Until 2013 it would be guaranteed “de facto”. Nonetheless, we would avoid Greek or Irish
banks. We like the Portuguese banks in the short term, and we
particularly see value in the major Spanish banks.
All in all, regarding 2011, we could still see an acceptable rate
in company returns, which could stimulate revaluations of the
markets. This premise is based on four points: The labour
costs projected with a high and permanent rate of unemployment will remain below what has been initially forecast, a
As for the subordinate debt, we believe that it will suffer
32
fact that will continue to support the expansion of profits; the
strong gradient of the curve will allow the financial system to
implement strategies of duration with an interesting financial
margin; the improvement in credit differentials (and especially
High Yield ones) suggest that the financial conditions of the
companies have improved substantially, which will favour the
margins.
This is why we believe that investors will make a positive
reading of the growth in business profits, which we situate at
approximately 11% in Europe and in the US.
To sum up, with this profit rate forecast, with a discount rate
(represented by the TIR) at levels of 3% - 3.25%, and an average volatility of 22%-24%, we estimate a potential revaluation
for the western stock exchanges of approximately 9% in the
case of the Eurostoxx, and around 11% for the S&P.
these assets (non-liquid materials) for 2011.
It must be emphasised that we are in no way forecasting a linear performance of the exchanges, so that these revaluations
will not be attained gradually. On the contrary, there are factors, such as a hitherto unseen volume in the banks’ business
portfolios, which make us think that the markets may perform
in an unusually erratic way. This assertion suggests carrying
out a strategy of asset management, selling when the indexes
near the levels of revaluation set for the year as a whole, and
buying at the low end of the range.
Raw materials may continue their upward trend in 2011, however we consider the current levels to be irrational. It is difficult, not to say impossible, to know when prices will begin to
ease off. At the moment, nobody can estimate how flexible are
the ambition, appetite or capacity to assume the risks of the
global portfolio flows (speculative capital). Aspects such as the
structural weakness forecast for the dollar may continue to
support these assets, but in general, we see their progress as
a movement, in principle, already exhausted.
Raw Materials
Foreign exchange markets
If we observe the development of the “Baltic Dry Index” as a
thermometer of the global economic evolution, this points to
a clear deceleration, which would agree with our basic scenario of a weak global cycle. The prices of raw materials have
always reflected the global dynamics of maritime transport
(real demand). However, this relationship has ended abruptly.
While the transport of commodities in bulk fell considerably
during the second half of 2010, the price of non-liquid raw materials went up by an average of 25%. The strong distancing
between the cash prices and futures contracts point to the
major influence of the portfolio movements in the evolution of
prices. For this reason, we are extremely wary in the case of
We consider that the appropriate valuation level for the euro
dollar would be approximately 1.40, and we therefore forecast
that the exchange rate should aim for this area. The continuous episodes of sovereign risk in Europe have damaged the
euro, bringing the exchange rate down from the 1.43 in November to 1.29 in January 2011. Once the situation is normalised
in this segment of the market (country risk), it will return to
the 1.40 mark. The Fed’s monetary expansion, the containment
of deficits in Europe and the increasing interest of the Asian
economies to purchase debt in euros, would also point in this
direction.
33
4. Auditor’s Report & Financial
Statements Andbanc Group
34
35
Financial Statements Andbanc Group
Andorra Banc Agrícol Reig, S.A. and subsidiary companies
Translation of financial statements originally issued in Catalan and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 23).
In the event of a discrepancy, the Catalan-language version prevails.
36
Consolidated balance sheets as of December 31, 2010 and 2009
(in thousands of euros)
Assets
2010
2009(*)
Casch and deposits at Central bank of the OECD
13.890
12.987
INAF (Andorran National Institute of Finances) (note 20)
18.066
18.066
423.297
423.449
(152)
328.526
328.739
(213)
1.611.225
1.512.569
110.998
13.961
(26.303)
1.594.259
1.506.114
106.574
10.501
(28.930)
948.844
864.776
(2.983)
(2.738)
3.153
(50)
4.987
952
83.791
(3.044)
801.088
790.440
(4.036)
(2.603)
3.697
(50)
4.987
44
10.966
(2.357)
14.500
17.380
(2.880)
8.533
9.604
(1.071)
Intangible assets and capitalised expenses (note 8.a)
Intangible assets and capitalised expenses
Amortization fund
12.189
38.685
(26.496)
12.444
36.384
(23.940)
Tangible fixed assets (note 8.a)
Tangible fixed assets
Depreciation
Provision for depreciation of fixed assets
116.838
182.786
(63.443)
(2.505)
114.499
173.592
(58.665)
(428)
Prepayments and accrued income
Interest accrued and not collected
Prepayments
25.584
24.039
1.545
29.585
29.308
277
Other assets
Current operations
Inventories
Acquired options
Others
20.631
381
13
4.297
15.940
28.801
3.668
12
4.976
20.145
3.205.064
2.948.788
Banks and credit institutions (notes 4 and 5)
Banks and credit institutions
Other financial intermediaries
Allowance
Credit portfolio (notes 4 and 6)
Loans and advances to customers
Customers’ overdrafts
Customers’ bills
Allowance for losses
Investment portfolio (notes 4 and 7)
Bonds and other fixed income securities
Allowance for losses
Securities fluctuation reserves
Equity investments in Group companies
Securities fluctuation reserves
Other equity investments
Shares and other titles of variable income security
Equity securities
Securities fluctuation reserves
Gains on consolidation (note 8.b)
Gains on consolidation
Amortization fund
TOTAL ASSETS
The attached notes, from 1 to 23, form an integral part of these consolidated financial statements. (*) Exclusively for comparative use.
37
(in thousands of euros)
Liabilities
2010
2009(*)
18.992
19.149
2.690.281
195.397
2.494.884
2.531.846
92.147
2.439.699
23.000
-
7.958
5.822
2.136
6.766
5.392
1.374
-
-
800
2.800
Accruals
Interest accrued not paid
Advance collections
16.940
14.032
2.908
21.552
17.500
4.052
Other liabilities
Current operations
Issued options
Suppliers and other creditors
31.603
492
1.533
29.578
25.934
945
24.989
Share capital (note 11)
Share capital
78.061
78.061
78.061
78.061
296.651
15.612
17.856
121.150
8.792
63.242
69.999
218.323
15.612
17.856
39.491
10.365
65.000
69.999
40.778
40.778
-
44.357
44.357
-
-
-
3.205.064
2.948.788
INAF (Andorran National Institute of Finances) (note 4)
Creditors (note 4)
Banks and credit institutions
Client deposits
Debts represented by securities (note 4)
Provisions for liabilities and charges (note 9)
Provisions for pensions and similar obligations
Other provisions
Subordinated liabilities
General reserve (note 11)
Reserves (note 11)
Legal reserve
Guarantee reserves
Statutory reserves
Voluntary reserves
Consolidation reserves
Revaluation reserve
Share premium
Net income (notes 10 and 11)
Profit for the fiscal year
Dividends
Minority Interests
TOTAL LIABILITIES
The attached notes, from 1 to 23, form an integral part of these consolidated financial statements.
(*) Exclusively for comparative use.
38
Consolidated memorandum of accounts as of December 31, 2010 and 2009
(in thousands of euros)
Memorandum accounts
2010
2009(*)
Contingent liabilities
Sureties and other guarantees
Documentary letters of credit issued or received and confirmed to customers
Acceptance of trade bills and similar items
107.419
105.511
173
1.735
81.376
79.645
326
1.405
Commitments and contingent risks
Commitments and operational risks
Commitments and actuarial risks
261.953
254.737
7.216
330.444
323.725
6.719
Futures operations (note 14)
Forward currency operations
Forward operations
2.357.099
1.140.140
1.216.959
2.654.302
1.894.333
759.969
Deposit of securities and other securities under custody (note 18)
Deposit of securities under custody of third-parties
Deposit of securities under own custody
6.138.398
5.203.499
934.899
5.568.058
4.651.250
916.808
Other memorandum of accounts items under administrative control
Guarantees and commitments received
Other memorandum accounts (note 19)
1.607.441
1.410.463
196.978
1.485.570
1.309.000
176.570
10.472.310
10.119.750
TOTAL MEMORANDUM OF ACCOUNTS ITEMS
The attached notes, from 1 to 23, form an integral part of these consolidated financial statements.
(*) Exclusively for comparative use.
39
Consolidated income statement as of December 31, 2010 and 2009
(in thousands of euros)
Income statements
2010
2009(*)
61.743
5.550
38.176
18.017
83.825
11.456
50.378
21.991
(16.625)
(1.418)
(14.942)
(265)
(40.482)
(2.271)
(38.095)
(116)
(14)
10
(24)
-
9
33
(24)
-
45.104
43.352
86.675
94.764
(8.089)
64.402
69.641
(5.239)
9.024
(822)
4.558
3.933
986
369
27.223
(1.759)
4.688
21.329
2.238
727
881
1.460
141.684
136.437
Personnel expenses
Personnel, Board of directors and Indemnities
Social Security
Other personnel costs
(40.078)
(33.298)
(4.095)
(2.685)
(36.771)
(30.083)
(4.224)
(2.464)
General expenses
Materials
External services
Taxes (note 20)
Other general expenses
(32.721)
(240)
(14.697)
(13.749)
(4.035)
(32.414)
(225)
(15.462)
(13.402)
(3.325)
Amortization of assets net of recoveries (note 8)
Allocation to the provision for depreciation and amortization of fixed assets
(10.097)
(10.097)
(9.035)
(9.035)
(327)
(327)
Interest and related income
INAF and other financial institutions
Loans
Bonds and other fixed income securities
Interest and related charges
INAF and financial institutions (liabilities-assets)
Customer deposits
Others
Income from equity securities
Equity investments in Group companies
Other investments
Shares and other equity investments
Net income from companies consolidated under equity method
NET INTEREST INCOME
Net commissions for services
Commissions accrued for services rendered (note 3)
Commissions accrued for services received
Results of financial operations
Net allocations of the securities fluctuation reserve (note 7)
Exchange gains
Results from securities trading (note 3)
Results of futures operations
Profit (loss) from companies consolidated under equity method
Other ordinary results
GROSS OPERATING INCOME
Provisions for decline in value of assets net of recoveries (note 8)
40
(in thousands of euros)
Income statements
2010
2009(*)
58.461
57.890
(17.882)
(19.028)
1.146
(9.992)
(11.018)
1.026
(881)
2.299
-
(2.000)
39.698
48.197
Extraordinary results (note 13)
1.080
(3.840)
Consolidated profit for the year
40.778
44.357
-
-
40.778
44.357
NET OPERATING INCOME
Allowance for loan losses net of recoveries
Allocations to allowance for loan losses and insolvencies provision reserve (notes 5, 6,and 7)
Recovery from allowance for loan losses and insolvencies provision reserve
Provisions for liabilities and charges (note 9.b)
Allocations to the general reserve
PROFIT FOR THE YEAR
Net income attributed to minority interests
Net income attributed to the Group
The attached notes, from 1 to 23, form an integral part of these consolidated financial statements.
(*) Exclusively for comparative use.
41
Consolidated statement of Sources and Application of funds for the years ended December 31,
2010 and 2009
(in thousands of euros)
SOURCE OF FUNDS
2010
2009(*)
71.338
69.945
40.778
17.882
822
11.856
-
44.357
9.992
1.760
2.796
9.035
2.005
-
21.770
670.279
8.540
13.230
234
670.045
-
Net increase in liabilities
78.185
-
Creditors: customers
Debt securities
55.185
23.000
-
Net decrease in assets
-
163.817
-
163.817
Sales of permanent investments
843
5
Sale of equity investments
Sale of fixed assets
843
5
-
35.730
23.127
35.730
23.127
207.866
927.173
From operations
Result for the fiscal year
Net allocations to allowance for loan losses and insolvencies provision
Net allocations to asset depreciation reserve
Net allocations to securities fluctuation reserve
Net allocations to other reserves (pension and other reserves)
Depreciation and amortization
Losses on sale of fixed assets
Losses on sale of own shares and equity
Profit on sale of fixed assets
Profit on sale of own shares and equity
Others
Positive change of liabilities minus assets
INAF and financial institutions (liabilities-assets)
Banks and credit institutions (liabilities-assets)
Other financial institutions (liabilities-assets)
Others (assets-liabilities)
Cash and OECD central banks
Investment portfolio minus equity investment
Sources generated from financing activities
External capital contributions
Others
TOTAL SOURCE OF FUNDS
The attached notes, from 1 to 23, form an integral part of these consolidated financial statements.
(*) Exclusively for comparative use.
42
(in thousands of euros)
APPLICATION OF FUNDS
2010
2009(*)
(1.140)
(2.643)
(1.224)
84
(959)
(1.684)
(157)
(6.073)
(157)
-
(6.073)
Net decrease in liabilities
-
(852.064)
Creditors: customers
-
(852.064)
(184.060)
(49.685)
(904)
(35.631)
(147.525)
(2.428)
(47.257)
-
(20.751)
(16.708)
(20.751)
(16.708)
(1.758)
-
(1.758)
-
-
(207.866)
(927.173)
Funds applied to operations
Application of other funds (pension fund, etc.)
Others
Positive change of assets minus liabilities
INAF (assets - liabilities)
Banks and credit institutions (liabilities - assets)
Other financial institutions (assets - liabilities)
Others (assets - liabilities)
Net increase in assets
Cash and OECD central banks
Loans : customers
Investment portfolio minus equity investment
Permanent investment purchases
Purchases of equity investments
Purchase of fixed assets
Funds applied
Dividends
Supplementary dividends from prior years
Decrease in reserves
Others
TOTAL APPLICATION OF FUNDS
The attached notes, from 1 to 23, form an integral part of these consolidated financial statements.
(*) Exclusively for comparative use.
43
Notes to the consolidated financial statements for the year ended December 31, 2010
1. Activity
de Comptabilitat), published on July 23, 2008, came into force.
However, this Chart of Accounts is not applicable to banks
and other operating entities belonging to the financial system.
Andorra Banc Agrícol Reig, S.A. is a Limited Liability Company incorporated in 1930, protected by the law of Andorra,
with registered offices in Escaldes-Engordany (Principality of
Andorra).
The consolidated financial statements are pending approval
by the General Meeting of Shareholders. Management, however, considers that they will be approved without significant
changes.
On May 10, 2002, the Extraordinary Meeting of Shareholders
adopted a resolution to change its registered name from Banc
Agrícol i Comercial d’Andorra, S.A., to Andorra Banc Agrícol
Reig, S.A. (henceforth Andbanc or the Bank), together with a
corresponding modification of article 1 of its articles of incorporation. The Bank’s corporate purpose is to carry out banking activities, as defined by the regulations of the Andorran
banking system. It can undertake any activity related to its
corporate purpose.
The figures included in the documents that make up these
consolidated financial statements are expressed in thousands
of euros.
b. Generally accepted accounting principles
The generally accepted accounting principles described in
note 3 below have been used in the preparation of these consolidated financial statements. No obligatory accounting principle having a significant effect on these consolidated financial
statements has been excluded during their preparation.
As a member of the Andorran financial system, Andbanc is
subject to the supervision of the Andorran National Institute
of Finances (hereafter “INAF” (in Catalan)), which is the Andorran financial system’s authority and which performs its
functions independently from the General Administration. The
Bank is also subject to compliance with local Andorran legislation (see note 20).
c. Basis of consolidation for the financial statements
The consolidated financial statements as at December 31, 2010
correspond to the financial statements of the Group and have
been prepared by the Bank’s Management.
2. Presentation basis and consolidation principles
The main subsidiaries of Andorra Banc Agrícol Reig, S.A. as
of December 31, 2010 and their main corporate details are the
following (in thousands of euros):
a. True and Fair View
The accompanying consolidated financial statements comply
with the format established by the decree, pursuant to the normalized Accounting Plan to be implemented by all operators
in the financial system by January 19, 2000, as published in
the Official Gazette of the Principat d’Andorra Number 5, year
12, on January 26, 2000. The consolidated financial statements
were prepared on the basis of Andorra Banc Agrícol Reig,
S.A.’s accounting records, and those of its subsidiaries (henceforth the Group) as at December 31, 2010, so that they present
a true and fair view of the Group’s wealth, financial situation,
consolidated results, and source and application of funds.
On January 1, 2009 the General Chart of Accounts (Pla General
44
(in thousands of euros)
Company
Address
Activity
Caronte 2002, S.L.U.
Andorra
Services
Clau d’Or, S.L.
Andorra
Món Immobiliari, S.L.U.
% holding
direct
% holding
indirect
Interim
dividend
Equity
Results
100%
-
-
40
-
Real estate company
10%
90%
-
30
(1)
Andorra
Real estate company
100%
-
-
27
(4)
Andorra Gestió Agrícol Reig, S.A.U.
Andorra
Investment fund
management company
100%
-
-
3.732
2.509
Andbanc Bahamas Limited
Bahames
Bank
100%
-
-
25.351
1.349
Nobilitas N.V. (*)
Dutch Antilles
Holding company (*)
100%
-
-
1.170
(2.036)
Savand, S.A.U.
Andorra
Financial services
100%
-
-
2.165
134
Andorra Assegurances Agrícol Reig,
S.A.U.
Andorra
Insurance
100%
-
-
3.045
159
AndPrivate Wealth S.A.
Switzerland
Asset management
-
100%
-
3.297
(1.636)
Columbus de México, S.A.
Mexico
Asset management
-
50%
-
662
(75)
Quest Capital Advisers, S.A.
Uruguay
Asset management
-
100%
-
1.660
1.230
Andbanc Asset Management Luxembourg
Luxembourg
Investment fund
management company
100%
-
-
1.241
(502)
Andbanc (Luxembourg) S.A.
Luxembourg
Bank
100%
-
-
9.668
(2.332)
AndPrivate Consulting, S.L.
Spain
Services
100%
-
-
(187)
(190)
Andbanc Wealth Management LLC
USA
Financial services
-
100%
-
33
(381)
APW International Advisors
British Virgin
Islands
Asset management
100%
-
-
302
180
Andbanc Representaçoes Lda
Brazil
Financial services
100%
-
-
190
(88)
AND PB Financial Services, S.A.
Uruguay
Representative office
100%
-
-
50
(88)
Andorra Capital Agrícol Reig BV
Holland
Financial services
100%
-
-
32
14
Andbanc (Panamá) S.A.
Panama
Bank
100%
-
-
2.476
(1.012)
Andbanc Luxembourg Limited Hong Kong
Luxembourg
Financial services
-
100%
-
97
-
And Private Wealth (Xile)
Chile
Financial services
-
100%
-
-
-
(*) This company owns 100% of Egregia B.V. and 99% of Zumzeiga Coöperatief. Egregia B.V. owns 100% of AndPrivate Wealth, S.A. and 50% of AndPrivate Wealth, S.A. (Xile), while Zumzeiga
Coöperatief U.A. owns 100% of Quets Financial Advisers, S.A., 100% of Andbanc Wealth Management LLC, 50% of Columbus de México and the remaining 50% of AndPrivate Wealth, S.A. (Xile). The
purchase agreements for Quest Financial Advisers, S.A. and Columbus de México, S.A. include potential deferred payments depending on the companies’ future results (see Note 8.b). The parent
company (Andorra Bank Agrícol Reig, S.A.) has loans to Zumzeiga Coöperatief U.A., through Nobilitas N.V., in the amount of 15,525 thousand US dollars, which the subsidiary has used for the
creation and acquisition of its subsidiaries.
45
Andorra Gestió Agrícol Reig, S.A.U. is an investment fund
management company, whose funds are marketed by Andorra
Bank Agrícol Reig, S.A. Both the management company and
the investment funds are subject to the supervision and control of the INAF.
Andorra Banc Agrícol Reig, S.A.
Andbanc Bahamas Limited is a bank that started operations in
2001, having obtained a banking license on July 9 of that year
under the name of Banc Agrícol (Bahamas) Limited - Banking
and Trust Licencee. It is supervised by the Bank Supervision
Department of the Central Bank of the Bahamas.
Andorra Assegurances Agrícol Reig, S.A. is the Group’s insurance company. Resident in Andorra, its principal activity is
the management of unit-linked life insurance, as well as other
types of life insurance and other lines of business.
Andbanc (Panamà), S.A. is a bank that started operations in
2009 after obtaining its international banking license from the
Superintendencia de Bancos de Panamà, by which it is supervised.
Andbanc Asset Management Luxembourg is an investment
scheme management company resident in Luxembourg. It was
founded by the Andbanc Group in 2009 in the context of the
Group’s internationalisation process.
Andbanc Luxembourg, S.A. is a bank founded in 2010 that
started operating that same year. As a bank resident in Luxemburg, it is supervised by the Commission de Surveillance
du Secteur Financier and by Banque Centrale du Luxembourg.
At the reporting date, Andbanc Luxembourg, S.A. is awaiting
final registration by the INAF. Andbanc Luxembourg Limited
Hong Kong is a company created in 2010 to provide financial
services. It is 100% owned by Andbanc Luxembourg, S.A. It is
the Group’s first company based in Asia.
AndPrivate Wealth, S.A. is a portfolio management company
headquartered in Geneva. It is the result of the merger of the
Group’s Swiss subsidiary with P&P Portfolio Planning, a company acquired in 2007.
Columbus de México, S.A. is an asset management company
that operates in the Mexican market. The Group acquired a
50% stake in 2008.
Andorra Capital Agricol Reig, BV is a company resident in the
Netherlands. Created in 2010, it issues fixed-income securities,
which are marketed by the Group.
Quest Capital Advisers, S.A. is a portfolio management company resident in Montevideo. It was acquired by the Andbanc
Group in 2009.
The asset management company AndPrivate Wealth, S.A., resident in Chile, and the company Andbanc Representaçoes Lda.,
resident in Brazil, are companies set up to provide financial
services.
Andbanc Wealth Management LLC is a financial services company resident in the United States. It was created during 2010
as a subsidiary of Zumzeiga Coöperatief.
The Group also owns 100% of various companies that provide
services distinct from those that constitute the Group’s principal activity, resident either in Andorra (Caronte 2002, S.L.U.,
Clau d’Or, S.L. and Món Immobiliari) or in Spain (AndPrivate
Consulting, S.L.).
APW International Advisors, resident in BVI, is an asset and
investment fund management company that joined the Group
in 2007 with the acquisition of the Swiss group P&P Portfolio Planning, whose parent company merged with AndPrivate
Wealth, S.A. APW International Advisors is a direct subsidiary
of Andorra Banc Agrícol Reig.
The Group companies that have been registered with the INAF
and have started their operations since December 31, 2009 are
as follows:
And PB Financial Services, S.A. is a company created for the
establishment of the Group’s representative office in Uruguay.
Savand, S.A.U. is a company that provides financial services
to private customers in Andorra. It is 100% directly owned by
46
Group companies that start operating in
2010
Date registered
with INAF
Andprivate Consulting S.L.
25/01/2011
Andprivate Wealth (Xile)
11/02/2011
Andbanc Luxembourg Limited Hong Kong
09/02/2011
Andorra Capital Agrícol Reig B.V.
14/12/2010
Andbanc Asset Management Luxembourg
30/03/2010
Andbanc Wealth Management LLC
09/02/2011
that make up the net worth of the subsidiaries, and in the
income statement all items of income and expenditures
which determine the subsidiaries’ results. All subsidiaries
in which the shareholding of the Group is greater than 50%
whose activity is not different to that of the Bank itself are
consolidated in this manner and they constitute, with the
Bank, one decision-making unit.
Under proportionate consolidation the balance sheet and
income statement of the Group include the Group’s share of
the assets and liabilities, income and expenses of the entity
to be consolidated, adjusting where necessary to maintain
consistency. In all other respects the process is similar to
that of full consolidation. Jointly controlled entities whose
activities are similar to the Group’s are consolidated by this
method.
The companies Clau d’Or, S.L., and Món Immobiliari, S.L.U.,
are not consolidated, as they are immaterial with respect to
the Group’s aggregate data.
The definition of the Group is in accordance with the decree of
January 19, 2000, issued by the Andorran Government.
The consolidation methods used are the following:
- Full consolidation of the following companies: Andorra Gestió
Agrícol Reig S.A., Andbanc Bahamas Limited, Nobilitas N.V.,
Egregia, B.V., Zumzeiga Coöperatief, AndPrivate Wealth S.A.,
APW International Advisors, Andbanc Representaçoes Lda,
AND PB Financial Services, Andbanc Wealth Management
LLC, AndPrivate Consulting, S.L., Andbanc Luxembourg
Limited Hong Kong, Savand S.A.U., Caronte 2002 S.L.U., Andorra Capital Agrícol Reig, B.V., Quest Capital Advisers
S.A., Andbanc Asset Management Luxembourg, Andbanc
(Panamá) S.A., AndPrivate Wealth S.A. (Xile), and Andbanc
(Luxembourg), S.A.
- Proportionate consolidation of Columbus de México, S.A.
Consolidation by the equity method consists of substituting
the book value by which an investment is stated in the
balance sheet with an amount relating to the corresponding
percentage held by the parent company in the equity of
the investee company. The results of the companies
consolidated by the equity method have been incorporated
into consolidated income. The subsidiaries which have been
consolidated are those where the direct and/or indirect
holdings of Andorra Banc Agrícol Reig, S.A., are equal or
greater than 20% without exceeding 50% or, if they exceed
50%, where the activity is different from that of the Bank.
All significant balances and transactions
consolidated companies have been eliminated.
between
Where necessary, adjustments are made to the individual
financial statements of subsidiaries to bring their accounting
policies in line with those used by the Group.
- Consolidation by the equity method of the following
companies: Andorra Assegurances Agrícol Reig, S.A.U. During 2010, Seguretat i Serveis, S.A. was excluded from the
scope of consolidation, following a significant decrease in
the Group’s interest in the company.
3. Comparative information, accounting principles and
valuation rules
Full consolidation consists of including in the balance sheet
of the parent company all the assets, rights and obligations
Following INAF instructions, the profit obtained from the mar-
47
Comparative information
gin charged to clients for the sale of securities is recognised
in the income statement under the heading of fees earned for
services provided. If this rule had been applied to the financial
statements for 2009, the effect would have amounted to 11,872
thousand euros.
Forward contracts in foreign currencies are valued according
to the exchange rate on the last business day before the balance sheet date. The exchange gains and losses from forward
contracts are fully recorded in the consolidated income statement.
The other memorandum accounts in foreign currencies are
translated into euros using international market exchange
rates, according to the rate on the last business day before the
balance sheet date.
Accounting principles and valuation rules
The main accounting principles and policies applied are the
following:
Income and expenses in foreign currencies are translated into
euros at the rates prevailing on the date of the operations.
a. Accruals basis
Income and expenditure are recorded on an accruals basis, independently of the monetary or financial flow from which they
arise. All interest accrued and expenses incurred are recorded,
except for the interest on doubtful and bad debts, which are
recorded when they are collected.
d. Allowance for loan losses
The allowance for loan losses covers losses that could occur in
the recovery of any loan at risk. The allowance covers specific,
general and country risks.
b. Recording principles
The allowance for loan losses, in accordance with the Andorran financial system’s accounting plan, is calculated according
to the following criteria:
All of the Group’s rights and obligations, including those of a
contingent and future nature, are recorded when they arise,
either in the accounts or in memorandum accounts.
- The specific provision, which covers all types of assets
and memorandum accounts, is determined based on
individualized studies of the quality of the risks contracted
with the principal debtors and borrowers on the basis,
mainly, of guarantees available and the time expired since
the maturity date.
Variations or transformations of the value of previous rights
and obligations are recorded as soon as they are known.
According to standard banking practice, the transactions are
recorded on the day they occur, which can differ from the corresponding value date, which is used as the basis for interest
income and expense calculation.
- The general allowance is based on 0.5% of the net loans
and fixed income securities with banking institutions and
1% of the net loans to customers and fixed income securities,
except for the part covered by cash pledged by contract
or collateralized quoted securities within the advance
value limit of these securities, mortgage-backed loans
and loans and credits on income securities issued by the
central administrations of the OECD countries or expressly
guaranteed by these institutions.
c. Valuation of foreign currency transactions
Assets and liabilities denominated in currencies other than the
euro, and spot currency transactions for hedging, have been
translated into euros using the average international market
exchange rate prevailing on the balance sheet date.
Gains or losses from said translations and the result of operations in foreign currencies realized during the year are recorded under results of financial operations in the consolidated
income statement.
- The country risk allowance is determined by a global
analysis of the abovementioned risks with the criteria of
maximum caution to determine the necessary coverage. For
48
the global risk evaluation, the development of the payment
balances, the debt level, the charges to cover the debt,
the debt rates in secondary international markets, as well
as other indicators and circumstances in the country are
considered.
statement.
This portfolio includes the fixed-income securities and
unlisted fund acquired in 2008 from the Money Market
Funds managed by Andorra Gestió Agrícol Reig, S.A.U. In
accordance with the authorisation from the INAF dated 26
January 2009, these securities were included in the Bank’s
held-to-maturity portfolio at their market value as calculated
by an independent expert. They will continue to be carried
at this amount until maturity. Any future write-downs of
these securities would have to be recognised in income in
the year in which they occur or become known. During
2010, as a result of repurchases by the issuer and sales of
securities from this sub-portfolio at prices above the amount
at which they were initially recognised in the Bank, gains
were generated that have been taken to voluntary reserves
(see notes 7 and 11). Similarly, losses in the amount of
3,664 thousand euros have been recognised in the income
statement.
During 2010, in compliance with INAF Technical Notice 198/10,
independent experts were commissioned to review the appraisals of the mortgage collateral for the loan portfolio, and additional provisions for loan losses were recognised based on the
results of the appraisals (see Note 6).
e. Investment Portfolio
Investments are stated in accordance with the following classification:
- The trading portfolio includes the securities acquired for
short-term sale. The securities assigned to this portfolio are
stated at their market price as of year end or, if there is
none, at the price calculated by an independent expert. The
differences arising from the net valuation variations are
recorded net (excluding the accrued interest on fixed interest
securities), whether they are positive or negative, under
Results of financial operations in the consolidated income
statement.
- The permanent equity investments portfolio includes
investments in equity securities made by subsidiaries and
investee group companies consolidated by equity method, as
well as the minority interests in companies whose activity
is complementary to financial activity and which are used
to service the Bank’s activities on a permanent basis. The
latter companies are stated at their acquisition price. If this
value is lower than their book value, a provision is made
for the difference and is charged in the consolidated income
statement.
- The securities assigned to the held-to-maturity investment
portfolio, which includes the securities that the Bank has
decided to hold to maturity, are shown at their adjusted
acquisition price (the difference between the acquisition
price and the redemption value is apportioned periodically).
The differences are recorded under Interest and related
income in the consolidated income statement.
- The ordinary investment portfolio includes fixed
interest or equity securities not included in the portfolios
mentioned above. The fixed income securities are stated at
their adjusted acquisition price (the difference between the
acquisition price and the redemption value is apportioned
periodically). Potential net losses due to changes in market
price or, if no market price is available, due to changes in
the value calculated by an independent expert are provided
for in the securities fluctuation reserve (equal to the total
of the positive and negative differences, up to the negative
limit) charged to the income statement.
The results of any sales that may arise are recorded in the
consolidated income statement as an extraordinary result. In
case of gains, they are accrued on a straight-line basis over
the residual life of the security sold under the heading of
results from securities trading.
This portfolio requires no fluctuation reserve for variations
between the market value and the adjusted acquisition price.
However, irreversible losses are recorded in the income
49
The equity securities included in the ordinary investment
portfolio are stated in the consolidated balance sheet at the
lower of acquisition cost or market value. The market value
is determined according to the following criteria:
rates adequate to carry fixed assets at their residual value at
the end of their useful lives.
Amortization and depreciation rates used are:
Amortization
- Quoted securities: quote from the last trading day of the
year.
Annual Percentage
Buildings for own use
- Unquoted securities: theoretical book value of the
investment obtained from the last available balance sheet.
In order to recognize the corresponding losses, a securities
fluctuation reserve has been created which is stated as a
negative value in the assets of the consolidated balance
sheet.
Plant and machinery
10%
Office furniture and machinery
20%
Computer equipment
f. Gains on consolidation
3%
20-33%
Computer software applications
20%
Vehicles
20%
The cost of the multi owner assets classified as intangible
fixed assets is amortized on a straight-line basis over a period
equal to the residual life of the respective contract.
“Gains on consolidation” shows gains arising on the acquisition of the shares of companies consolidated using the full
consolidation method, the proportionate consolidation method,
or the equity method (see note 8.b).
In case the fixed assets, due to their use or obsolescence are
irreversibly depreciated, the loss or decrease in value of the
corresponding asset is recorded directly.
These gains are amortized on a straight-line basis over a maximum of 5 years (the period may be extended to 10 years on
submission of a reasoned request to INAF).
The depreciation of capitalised work and installations in relation to leased assets is related to their estimated useful life or
until the lease agreement terminates.
The acquisition of Columbus de México, S.A. in April 2008 and
of Quest Capital Advisers in December 2009 generated consolidation goodwill of 3,572 and 13,556 thousand euros, respectively. Pursuant to authorisations granted by INAF on September
10, 2009 and August 2, 2010, respectively, in order to improve
the correlation of income and expenses, the amortisation period of these assets was extended to 10 years, counting from
the time of acquisition.
As indicated in note 8, buildings used in operations acquired
or built prior to November 30, 2008 were revalued on that date
and a revaluation reserve was created at that time for the
difference between the estimated market value and the acquisition cost, net of accumulated depreciation (see notes 8 and
11). When an asset of this type is retired, any corresponding
amounts recognised in the revaluation reserve may be transferred directly to voluntary reserves.
Both the gains on consolidation and the goodwill generated in
the acquisition of subsidiaries are fully covered by restricted
reserves equal to the unamortised amount of said gains and
goodwill (see Note 11.b.).
h. Non-operating tangible fixed assets
Non-operating tangible fixed assets are those not directly related to banking activity and adjudicated assets.
g. Tangible and intangible fixed assets
These include land, buildings, installations and furniture;
which are recorded at the lower of their acquisition cost or
market value and depreciated over their estimated useful lives
Fixed assets are normally stated at their acquisition value, less
the accumulated straight-line amortization and depreciation at
50
using the same percentages applied to operating fixed assets.
currency exchange rates.
Adjudicated assets include land and buildings valued at the
lower of their adjudication cost or market value, after deducting provisions determined by the schedule set down by the
current regulation.
j. General reserve
The reserve covers possible risks inherent to the banking business and other contingencies.
The allocations to the reserve are reflected under the Allocations to the general reserve in the income statement and the
recoveries under Extraordinary results.
i. Futures operations
The Bank has used these instruments in a limited way, both in
hedging of its equity positions and in other operations.
k. Accrual of interest
Future contracts are included as memorandum accounts as
specified by the INAF legislation and are associated with exchange and interest rates, market or credit risk, and specifically:
The Group uses a financial method (i.e. internal rate of return
or resulting cost), to calculate the accrual of interest for both
assets and liabilities, with maturities of more than 12 months.
- Unmatured sales or purchases of currencies and swaps in
foreign currency are recorded as spot or maturity transactions
depending on whether they mature in less or more than two
business days.
For operations under 12 months, the Group can choose between this method and straight-line accruals.
- The results of trading transactions, (FRAS), interest swaps,
and other future contracts outside organized markets are
recorded at the principal amount of the operation.
The Bank has recorded different commitments in relation with
personnel: retired employees, early retirees, and an internally
defined contribution pension fund for current bank employees.
Operations to eliminate or significantly reduce interest rate,
exchange or market risks in equity positions or other operations are considered hedging operations, in which the gains or
losses generated have been stated side by side in the income
statement with the costs or yields of hedged items.
The personnel from what was previously called Banc Agrícol
i Comercial d’Andorra, S.A. , who retired before December 22,
1995 have a retirement pension plan created in 1989 with defined pensions. Employees who joined the company after May
1, 1995, except certain groups belonging to a defined contribution scheme, do not belong to the retirement pension plan.
l. Pensions and similar obligations
Non-hedging operations, also called trading transactions,
which have been undertaken in organised markets are valued
in accordance with their quotations. Gains or losses arising
from the changes in quotations are recorded in the income
statement on the basis of their daily settlement.
The Bank signed early retirement agreements with a number
of employees in prior years. Under the agreements signed by
retired personnel, the Bank has to give supplementary remuneration. At December 31, 2010, a fund in the amount of 835
thousand euros was set up for these obligations. Furthermore,
there is an internal fund of 786 thousand euros at December
31, 2010 for pre-retired personnel, which coincides with the
obligations accrued at that date.
The results of the trading transactions undertaken outside
these organised markets are not recognized in the income
statement until their actual settlement. However, the positions
are valued and provisions made against the results for potential net loss for each kind of risk that may arise from these
valuations. The type of risks considered for such purposes
include interest rates (by currency), market price (by issuer),
The actuarial variables and other hypotheses used in the valu-
51
ation on December 31, 2010 for retired and pre-retired personnel are the following:
Retirees
Survival tables
Early retirees
GRMF-95
GRMF-95
3,5%
3,5%
Nominal rate of salary growth
-
1,6%
Annual rate of pension growth
1,6%
-
-
65
Nominal actualisation rate
Retirement age
The amount of pension fund allocation provision for current
personnel in 2010 was increased by 1.6% compared to 2009,
and an interest rate of 1.5% was established for 2010 for employees belonging to the pension fund within the balance
sheet (see note 9).
Current personnel belonging to the defined contribution pension scheme can, upon request, transfer their pensions fund
to memorandum accounts in an investment fund managed by
the Bank (see note 9). As of December 31, 2010 the managed
memorandum accounts reached 1,394 thousand euros, while
the internal fund presented under Pension fund amounts to
4,201 thousand euros.
52
4. Assets and liabilities maturities
The breakdown by maturities of loans as of December 31, 2010 and 2009 is as follows:
2010
Up to 1
month
Expired
Banks and credit institutions and
other financial institutions
From 1 to
3 months
From 3
months to
1 year
From 1
year to 5
years
More than
5 years
No
maturity
Total
-
21.440
9.000
-
-
-
393.009
423.449
Loans to customers
30.321
106.232
32.052
335.105
547.855
461.004
-
1.512.569
Customer overdrafts
47.679
-
-
-
-
-
63.319
110.998
2
4.692
2.248
1.369
3.150
2.500
-
13.961
Customers’ bills
2009
Expired
Banks and credit institutions and
other financial institutions
-
Loans and advances to customers
Up to 1
month
From 1 to
3 months
From 3
months to
1 year
From 1
year to 5
years
More than
5 years
No
maturity
Total
21.616
13.198
28.000
-
-
265.925
328.739
27.774
110.629
148.714
366.446
421.896
430.655
-
1.506.114
Customer overdrafts
52.263
-
-
-
-
-
54.311
106.574
Customers’ bills
-
5.962
2.675
1.236
628
-
-
10.501
The breakdown by maturities of Bonds and other fixed interest securities as of December 31, 2010 and 2009, is as follows:
2010
Bonds and other fixed income
securities
2009
Bonds and other fixed income
securities
Expired
20.006
Expired
10.302
Up to 1
month
8.227
Up to 1
month
16.604
From 3
From 1 to
months to
3 months
1 year
53.941
42.854
From 3
From 1 to
months to
3 months
1 year
15.001
53
117.360
From 1
year to 5
years
More than
5 years
334.555
405.193
From 1
year to 5
years
More than
5 years
193.041
438.132
No
maturity
-
No
maturity
-
Total
864.776
Total
790.440
The maturities of the INAF deposits and creditors as of December 31, 2010 and 2009 are the following:
2010
Up to 1
month
Expired
From 3
From 1 to 3
From 1 year More than
months to
5 years
months
to 5 years
1 year
No
maturity
TOTAL
INAF
-
18.151
-
601
-
-
240
18.992
Banks and credit institutions
and other financial institutions
-
23.076
2.849
103
-
161.918
7.451
195.397
Customer deposits
-
236.610
284.847
446.888
270.497
1.538
1.254.504
2.494.884
Debt securities
2009
23.000
Up to 1
month
Expired
23.000
From 3
From 1 to 3
From 1 year More than
months to
months
to 5 years
5 years
1 year
No
maturity
TOTAL
INAF
-
18.159
-
601
-
-
389
19.149
Banks and credit institutions
and other financial institutions
-
44.810
2.777
22.655
596
-
21.309
92.147
Customer deposits
-
212.986
599.066
529.989
169.524
1.002
927.132
2.439.699
As of December 31, 2010 and 2009, the detail by currency of loans and investment portfolios is as follows:
2010
Euros
Banks and credit institutions and other financial institutions
Other currencies
TOTAL
196.913
226.536
423.449
1.385.345
127.224
1.512.569
Customer overdrafts
62.820
48.178
110.998
Customers’ bills
13.960
1
13.961
876.192
81.467
957.659
Loans and overdrafts
Investment portfolio
2009
EUROS
Banks and credit institutions and other financial institutions
Loans and overdrafts
Customer overdrafts
Customers’ bills
Investment portfolio
54
Other currencies
TOTAL
168.731
160.008
328.739
1.428.618
77.496
1.506.114
105.579
995
106.574
9.936
565
10.501
700.510
109.624
810.134
As of December 31, 2010 and 2009, the detail by currency of the INAF deposits and creditors is as follows:
2010
EUROS
INAF
Other currencies
TOTAL
18.992
-
18.992
171.110
24.287
195.397
Client deposits
1.973.565
521.319
2.494.884
Debt securities
23.000
-
23.000
Banks and credit institutions and other financial institutions
2009
EUROS
Other currencies
TOTAL
INAF
19.149
-
19.149
Banks and credit institutions and other financial institutions
84.748
7.399
92.147
1.934.244
505.455
2.439.699
Client deposits
“Debt securities” includes the fixed income securities issued by Andorra Capital Agrícol Reig, B.V. during 2010. There were two
issues, in September and October, in the amount of 3 million euros and 20 million euros, respectively. Both issues consist of
structured fixed income securities.
5. Banks and credit institutions
This balance as of December 31, 2010 and 2009 is broken down as follows:
2010
Current accounts
Banks and credit institutions
Other financial institutions
Time deposits
Banks and credit institutions
Other financial institutions
Less: allowance for losses
55
2009
393.009
-
265.926
-
393.009
265.926
30.440
-
62.813
-
30.440
62.813
(152)
(213)
423.297
328.526
The movement in the allowance for losses during 2010 is as follows:
Specific risks
Balance at December 31, 2009
Provisions
Uses
Recoveries
Balance as of December 31, 2010
Generic risks
TOTAL
-
213
213
-
(61)
(61)
-
152
152
As of December 31, 2010, Banks and credit institutions does not include any matured, doubtful loans.
6. Loans and receivables
The detail as of December 31, 2010 and 2009, by status of loans and guarantee type, is the following:
2010
Normal
Credit situation
Loans and advances to customers
Customer overdrafts
Customers’ bills
1.482.248
63.319
13.959
2009
Normal
Credit situation
Loans and advances to customers
Customer overdrafts
Customers’ bills
1.478.340
54.311
10.501
Expired
Doubtful
Total
14.650
708
-
15.671
46.971
2
1.512.569
110.998
13.961
Expired
Doubtful
Total
4.592
731
-
23.182
51.532
-
1.506.114
106.574
10.501
2010
Guarantee type
Loans and advances to customers
Customer overdrafts
Customers’ bills
Mortgage
Monetary
Securities
Personal-secured
and others
Total
837.605
30.408
-
26.471
-
285.386
51.481
-
363.107
29.109
13.961
1.512.569
110.998
13.961
2009
Guarantee type
Loans and advances to customers
Customer overdrafts
Customers’ bills
Mortgage
Monetary
Securities
Personal-secured
and others
Total
865.319
31.308
-
36.266
-
229.995
48.853
-
374.534
26.413
10.501
1.506.114
106.574
10.501
56
Loans and advances to customers at December 31, 2010, include loans for which legal action has been initiated, for an amount
of 46,169 thousand euros.
The movement during 2010 in the allowance for loan losses is as follows:
Specific risks
Balance as of December 31, 2009
Charge
Recoveries
Uses
Others
Balance as of December 31, 2010
Generic risks
TOTAL
24.889
4.041
28.930
19.028
(21.331)
(331)
(32)
39
19.028
(32)
(21.331)
(292)
22.255
4.048
26.303
The charge for 2010 includes the effect of the review of the mortgage guarantees mentioned in note 3.d, in the amount of 4,258
thousand euros.
The details of loans to public institutions for 2010 and 2009, which represent loans and overdrafts, are as follows:
2010
Central administrations
Local administrations
Semi-public entities
2009
51.300
41.408
2
85.253
42.357
-
92.710
127.610
7. Investment Portfolios
a. Bonds and other fixed income securities
The breakdown as of December 31, 2010 and 2009 is the following:
2010
Principality of Andorra’s public debt (see note 20)
2009
55.506
55.506
OECD countries’ public debt
352.049
181.867
Other bonds and negotiable fixed-income securities
457.221
553.067
864.776
790.440
57
At December 31, 2010, “Other bonds and fixed income securities” includes 123,621 thousand euros (417,576 thousand euros at
December 31, 2009), corresponding to the amount of the unquoted fixed income securities acquired from the money market funds
managed by the group (see note 3.e), of which 76,156 thousand euros corresponded to interest-bearing structured notes and the remainder to credit notes. This item also includes 64,792 thousand euros relating to a security transferred under a repo agreement.
b. Equity investments in Group Companies
The breakdown as of December 31, 2010 and 2009 is as follows:
2010
Address
%
Direct
holdings
Capital
Results from
the fiscal
year
Fiscal year
dividend
Total Equity
Share of net
assets
Clau d’Or, S.L. (real estate)
Andorra
10%
30
(1)
-
30
29
Mon Immobilia, S.L.U. (real estate)
Andorra
100%
30
(4)
-
27
3
Equity investments in Group companies
consolidated with the equity method
(see note 2)
-
3.045
Other equity investments
-
76
3.153
2010
Address
%
Direct
holdings
Capital
Results from
the fiscal
year
Fiscal year
dividend
Total Equity
Share of net
assets
Clau d’Or, S.A. (real estate)
Andorra
10%
30
(1)
-
32
30
Mon Immobilia, S.A. (real estate)
Andorra
100%
30
(27)
-
67
8
Equity investments in Group companies
consolidated with the equity method
(see note 2)
-
3.575
Other equity investments
-
84
3.697
The breakdown of investments in Group companies consolidated with the equity method as of December 31, 2010 is as follows:
%
direct holdings
Andorra Assegurances Agrícol
Reig, S.A. (insurer)
100%
Capital
2.404
58
Share of net assets
Total equity
Dividends in
2010
3.045
3.045
705
3.045
3.045
705
c. Other equity investments
Other equity investments include investments in other companies where the Group does not hold a majority of the shares or
have decision-making power.
These investments, as of December 31, 2010, are the following:
2010
Company name and activity
Address
Túnel d’Envalira, S.A. (infrastructures)
Semtee, S.A. (leisure and health)
Seguretat i Serveis, S.A. (security)
Andorra
Andorra
Andorra
% direct
holding
Results
Subscribed
Total Equity from fiscal
Capital
year
10%
15%
1,08%
8.400
25.242
32
17.366
38.328
767
(627)
2.169
-
Dividends
Share of net
from the
assets
fiscal year
- - -
840
3.929
218
4.987
* Data from the financial statements for 2009
2009
Company name and activity
Address
Túnel d’Envalira, S.A. (infrastructures)
Semtee, S.A. (leisure and health)
Seguretat i Serveis, S.A. (security)
Andorra
Andorra
Andorra
% direct
holding
Results
Subscribed
Total Equity from fiscal
Capital
year
10%
15%
28,6%
8.400
25.242
32
19.509
38.328
767
(1.115)
2.169
-
Dividends
Share of net
from the
assets
fiscal year
- - -
840
3.929
218
4.987
d. Shares and other equity securities
Shares and other variable income equity securities include all listed or unlisted shares and securities in the Bank’s available
for sale securities portfolio, which represents shareholdings in the capital of other companies with which there is no long-term
relationship and where the purpose of such shareholdings is not to contribute to the Bank’s activity.
e. Investment funds
The detail by management entity as of December 31, 2010 and 2009, is as follows:
2010
2009
Managed by:
Entities related to the Group
Entities not related to the Group
59
74.887
8.904
8.294
2.672
83.791
10.966
h. Allowance for losses
The following investment funds managed by the Group are
included as of December 31, 2009: Alternative Investment
Conservative, Alternative Investment Growth, Astra Andbanc
Bonds, Astra SIF Fondiposit, and Alternative Investment Private Equity.
Balance as of December 31, 2009
Net allocations to the reserve
Balance as of December 31, 2010
f. Portfolio valuation
Fixed Income
Equity securities
2009
8. Fixed assets
51.080
692.005
8.140
46.664
627.128
8.684
a. Intangible assets, capitalized expenses and tangible
fixed assets
135.040
71.394
123.358
4.300
957.659
810.134
The movement in intangible assets and capitalized expenses
during 2010 and their amortization is as follows:
g. Securities fluctuation reserves
The movement of the securities fluctuation reserve for 2010 is
as follows:
Provisions
Recoveries Others
Balance as of December 31, 2010
2.983
2010
The acquisition cost of the securities in the trading portfolio as of December 31, 2010 is 56,733 thousand euros (51,182
thousand euros at December 31, 2009). The market valuations
of the securities in the ordinary investment portfolio and the
investment portfolio are 200,745 thousand euros and 654,901
thousand euros, respectively, as of December 31, 2010 (122,878
thousand euros and 622,279 thousand euros, respectively, as
of December 31, 2009). The unrecorded gain for all categories
is 1,580 thousand euros as of December 31, 2010 (234 thousand
euros as of December 31, 2009).
Balance as of December 31, 2009
(1.053)
As of December 31, 2010 the Allowance for losses relates exclusively to the general provision on the investment portfolio.
The securities as of December 31, 2010 and 2009 classified by
valuation categories described in note 3(e) are listed below:
Trading portfolio
Fixed term investment portfolio
Permanent equity investments portfolio
Ordinary investment portfolio:
4.036
5.010
1.330
(508)
5.832
60
31/12/2009
Additions
Disposals
Transfers
31/12/2010
Cost
Multi owner assets
Software applications
Others
538
27.337
8.509
479
2.823
(274)
(727)
712
(712)
538
28.254
9.893
Total
36.384
3.302
(1.001)
-
38.685
(98)
(20.843)
(2.999)
(10)
(2.175)
(584)
208
5
-
(108)
(22.810)
(3.577)
(23.940)
(2.769)
213
-
(26.496)
12.444
533
(788)
-
12.189
Amortization:
Multi owner assets
Software applications
Others
Total Accumulated Amortization
Total NET
The Bank reached an agreement with Pyrénées, S.A., effective
as from January 1, 2003, where both parties contribute certain
financial operations and financial services arising from their
activity to a joint account, the results of which are equal. On
the basis of the valuation price of the contributions there was
a difference of 3,063 thousand euros, which the Bank has paid
and recorded under “Others” as capitalised expenses.
During the first half of 2007, AndPrivate Wealth, S.A. acquired
the management company P&P Portfolio Planning, resident
in Geneva, Switzerland, generating a gain on consolidation.
When the two companies merged in 2008, this gain gave rise
to goodwill in the Group’s balance sheet. The amount of this
goodwill, totalling 962 thousand euros at December 31, 2010
(1,192 thousand euros at December 31, 2009), is recognised in
intangible assets under the heading “Other”.
The period of amortization for the capitalised expenses, according to the financial system accounting plan, is five years.
Given that the agreement was indefinite, and to align the projected generation of income with the depreciation, the Bank
requested the authorization of the INAF, which was granted on
January 19, 2004, to allocate the difference mentioned above to
the income statement over a 10 year period.
The movement in tangible assets during 2010 and their depreciation is the following:
61
Cost
OPERATING:
Land
Buildings
Furniture
Works of art
Installations
Data processing equipment
Vehicles
Fixed assets in progress
31/12/2009
Additions
Disposals
Transfers
Revaluations
31/12/2010
46.632
46.620
4.997
27.339
20.801
1.440
759
262
(50)
(1.005)
83
-
46.632
45.615
5.292
637
467
56
1.083
(105)
(172)
(167)
-
427
50
(599)
-
28.298
21.146
1.329
1.243
Sub total
148.588
2.505
(494)
(1.044)
-
149.555
NON-OPERATING:
Buildings
Land
Installations
Data processing equipment
Furniture
Vehicles
9.999
10.641
4.223
92
33
16
7.468
42
-
(317)
(10)
1.005
39
0
-
18.155
10.641
4.304
92
33
6
25.004
7.510
(327)
1.044
-
33.231
173.592
10.015
(821)
0
-
182.786
(9.079)
(4.634)
(18.920)
(17.785)
(275)
(1.912)
(138)
(1.272)
(1.249)
(69)
0
31
9
41
51
59
0
4
0
0
-
(10.932)
(4.741)
(20.179)
(18.993)
(293)
(50.693)
(4.640)
132
63
-
(55.138)
(3.689)
(4.160)
(92)
(31)
(241)
(29)
-
-
(59)
(4)
-
-
(3.989)
(4.193)
(92)
(31)
(7.972)
(270)
-
(63)
-
(8.305)
(58.665)
(4.910)
132
0
-
(63.443)
(428)
(2.085)
8
-
-
(2.505)
114.499
3.020
(681)
-
-
116.838
Sub total
Total TANGIBLE FIXED ASSETS
Depreciation:
OPERATING:
Buildings
Furniture
Installations
Data processing equipment
Vehicles
Sub total
Depreciation:
NON-OPERATING:
Buildings
Installations
Data processing equipment
Furniture
Sub total
Total DEPRECIATION:
Provision depreciation of fixed assets:
Total NET TANGIBLE ASSETS
62
In 2010 no interest or exchange differences relating to fixed assets have been capitalised.
With express authorization granted by INAF on December 9, 2008, the Bank updated the book value of the buildings housing
its Headquarters and branches with effective date November 30, 2008 (see notes 3g and 11). During 2010, through an appraisal
conducted by an independent expert, it was found that the market value of the abovementioned assets was greater than their
carrying amount, the appropriate allownaces being recorded where this was not the case. These allowances were deducted from
revaluation reserves in accordance with the authorisation granted by INAF on March 2, 2011.
b. Consolidation gains
Balance at December 31, 2009
8.533
Regularizations
Written off
Exchange gains/(losses)
7.482
(1.751)
236
Balance at December 31, 2010
14.500
The acquisition of Quest Capital Advisers, S.A. on December 17, 2009 produced goodwill of 13,556 thousand euros, of which
7,482 thousand euros, recorded under “Regularizations”, was recognised during 2010 to reflect deferred payments relating to the
acquisition, said deferred payments being recognised under “Other liabilities” in the balance sheet at December 31, 2010. The
acquisition of Columbus de México, S.A. on April 11, 2008 produced goodwill of 3,572 thousand euros (see note 2). Both purchase
agreements include potential deferred payments based on the companies’ future results.
9. Provisions for liabilities and charges
a. Pensions and similar obligations
Details of movements in the fund for pensions and similar obligations for 2010 is as follows:
Retirements
Balance as of December 31, 2009
Allocation for the year charged against the income statement
Payments made to pensioners and repurchases for the year
Other movements
Balance as of December 31, 2010
Early retirements
Pension funds
757
489
4.146
5.392
40
(73)
111
283
(306)
320
559
(514)
10
882
(893)
441
835
786
4.201
5.822
Total
The allocation to the pension fund is recorded in Other expenditures in the income statement. This allocation includes, in 2010,
103 thousand euros (114 thousand euros in 2009) as financial charges.
The payments made to pensioners and early retirees during 2010 are recorded against the pensions.
63
The investment portfolio assigned to the retirement and early retirement fund as of December 31, 2010 corresponds to part of the
fixed income securities maturing on July 15, 2019 that forms part of the investment portfolio held to maturity.
The balance of the fund assigned to pensions for current personnel, is covered by deposits with banks and credit institutions.
b. Other Provisions
Other provisions basically includes, as of December 31, 2010, a provision of 2,136 thousand euros for the potential loss on trading
portfolio operations contracted by the Bank.
The movement in other provisions during 2010 was as follows:
31/12/09
Other provisions
Totals
Allocations
Uses
31/12/10
1.374
1.214
(452)
2.136
1.374
1.214
(452)
2.136
10. Allocation of net income
The proposed allocation by the Board of directors of the 2010 net income of the Bank to be presented for approval by the General
Meeting is the following:
Legal reserve
Voluntary reserve
Dividends
14.570
27.031
Balance as of December 31, 2010
41.601
11. Movement in shareholders’ equity and general reserve
The movement in reserves during 2010 is as follows:
Balance as of December 31, 2009
Distribution of result for 2009
Consolidation adjustments
Sale of unquoted fixed income securities
(Note 3e)
Adjustment for real estate valuation
Result for 2010
Balance as of December 31, 2010
Share
capital
Legal
reserve
Guarantee
reserve
Share
premium
Revaluation
reserve
78.061
15.612
17.856
69.999
65.000
39.491
-
-
-
-
-
-
-
-
-
-
-
-
78.061
15.612
17.856
64
Volun- Consolitary
dation
Reserves reserves
Dividends
Results
10.365
-
44.357
45.751
-
(1.573)
-
(45.751)
1.573
-
35.908
-
-
-
-
(1.758)
-
-
-
-
40.778
69.999
63.242
121.150
8.792
-
40.778
a. Share capital
Andorra Banc Agrícol Reig, S.A
Andorra Gestió Agrícol Reig, S.A.U.
Andorra Assegurances Agrícol Reig, S.A.
Grup Nobilitas N.V.
Andbanc Bahamas Ltd
Savand, S.A.U.
Andbanc Asset Management Luxembourg
Andbanc (Panamá) S.A.
Others
As of December 31, 2010 the Bank’s share capital is made up
of 1,751,825 shares with a nominal value of EUR 44.56. At this
date, there are no shares with specific characteristics or transmission restrictions.
b. Legal and voluntary reserves
In accordance with Andorran commercial law, banks must allocate 10% of the year’s profit to the legal reserve until it
reaches 20% of the share capital.
Total
78% of the Bank’s Voluntary Reserves and the Share Premium
are available for distribution at December 31, 2010.
2010
2009
3.299
8.471
3.794
(6.556)
2.583
(2.077)
(258)
(260)
(204)
6.834
4.606
3.092
(5.112)
1.977
(948)
(84)
8.792
10.365
The movement in the consolidation reserves during 2010 is as
follows:
Consolidated
reserves
c. Guarantee reserves
This section includes the guarantee reserves in deposits and
other operating obligations which have to be deposited with
the INAF.
d. Revaluation reserve
The balance on the “Revaluation Reserve” account corresponds to the updating of the book value of certain buildings
to reflect their market value (see notes 3f and 8).
Balance as of December 31, 2009
10.365
Allocation of 2009 results to reserves
Supplementary dividend 2008
Other consolidation adjustments
1.963
(6.950)
3.414
Balance as of December 31, 2010
The Revaluation Reserves are not available for distribution
unless the assets are disposed of and/or the INAF authorizes
their distribution.
e. Consolidation reserves
The consolidation reserves correspond to the following companies:
65
8.792
f. Results attributed to the Group
The detail of results attributed to the Group as of December 31, 2010 is the following:
2010
2009
Andorra Banc Agrícol Reig, S.A.
42.915
45.751
Fully consolidated companies:
(2.062)
1.261
2.509
1.349
(2.036)
(75)
(1.636)
1.230
(381)
(1.174)
134
(502)
(1.012)
(2.332)
(172)
3.865
606
(1.443)
189
(1.122)
159
159
1.081
702
702
(3.357)
42.093
44.357
Andorra Gestió Agrícol Reig, S.A.
Andbanc Bahamas Limited
Grup Nobilitas N.V.
Columbus de México, S.A.
And Private Wealth, S.A.
Quest Capital Advisers
Andbanc Wealth Management LLC
Consolidation adjustments Grup Nobilitas
Savand, S.A.U.
Andbanc Asset Management Luxembourg, S.A.
Andbanc (Panamá), S.A.
Andbanc (Luxemburg) S.A.
Others
Companies consolidated with the equity method
Andorra Assegurances Agrícol Reig, S.A.
Consolidation adjustments
(510)
(1.129)
(258)
(260)
(120)
g. Interim dividend
No interim dividend was paid out of profits for 2010.
h. General reserve
The movement in the general reserve during 2010 was as follows:
Balance at December 31, 2009
2.800
Net recoveries from the reserve (note 13)
(2.000)
Balance at December 31, 2010
800
66
12. Assets and liabilities in euros and other currencies
The breakdown of the assets and liabilities in the balance sheets between euros and other currencies is as follows:
2010
2009
Assets
Euros
Other currencies
Liabilities
Assets
Liabilities
2.683.958
521.106
2.663.446
541.618
2.763.036
185.752
2.432.232
516.556
3.205.064
3.205.064
2.948.788
2.948.788
13. Other balance sheet and income statement headings
In addition, at December 31, 2010 the movements on the following income statement headings were considered significant:
a. Extraordinary results
In addition to the recovery from the general reserve mentioned in Note 11.e, this heading in the income statement for 2010 also
includes losses on disposal of fixed assets in the amount of 588 thousand euros, returns of interest paid and fees accrued in 2009
in the amount of 990 thousand euros, prior year expenses in the amount of 1,890 thousand euros, expenses for corporate transactions carried out in 2009 in the amount of 740 thousand euros, recoveries of very doubtful assets in the amount of 780 thousand
euros and prior year income in the amount of 2,890 thousand euros. From the Subsidiary undertakings there is a contribution of
extraordinary income in the amount of 159 thousand euros from sales of fixed assets and recoveries of very doubtful assets from
Savand, S.A., and prior year expenses from Andbanc Asset Management, S.A. and Savand S.A. in the amount of 537 thousand
euros and 123 thousand euros, respectively.
14. Financial derivatives
Transactions in futures and financial derivatives are detailed below at their notional value by type of product as of December 31,
2010. A distinction is made between trading and hedging operations by market:
2010
Forward currency purchases
Options
Swaps
Other agreements
2009
Forward currency purchases
Options
Swaps
Other agreements
Market
Not
Not
Not
Not
Hedge
regulated
regulated
regulated
regulated
Market
Not
Not
Not
Not
67
Total
1.140.140
176.126
717.961
161.323
25.388
13.408
122.753
1.140.140
201.514
731.369
284.076
2.195.550
161.549
2.357.099
Hedge
regulated
regulated
regulated
regulated
Trading
Trading
Total
1.894.333
118.384
373.747
120.434
97.246
29.787
20.371
1.894.333
215.630
403.534
140.805
2.506.898
147.404
2.654.302
The forward currency operations are considered as hedges; in view of the fact that the overall position in terms of currency and
maturities is practically closed. There are certain operations involving insignificant amounts that hedge to maturity the risks
recorded on the balance sheet. The overall net spot position and net forward position in currency operations is monitored on a
daily basis.
The swaps and options are contracted in order to cover the interest rate risk of operations with customers. The bank regularly
monitors the difference between the nominal amount contracted and the amount of the deposits to be hedged.
The other agreements correspond to hedge operations executed with customers and other trading operations on securities positions.
The maturities of futures operations and financial derivatives as of December 31, 2010 are as follows:
Up to 1 year
Forward currency purchases
Options
Swaps
Other agreements
From 1 year to 5 years
More than 5 years
Total
1.140.140
7.542
270.574
228.466
16.826
386.944
48.610
177.146
73.851
7.000
1.140.140
201.514
731.369
284.076
1.646.722
452.380
257.997
2.357.099
15. Guarantees
As of December 31, 2010, the Bank has not given any guarantees on its commitments or third-party commitments.
16. Operations with associated entities and persons
The details of balances with associated entities and persons exceeding 10% of the equity as of December 31, 2010 are the following:
Companies with
participating
interest
Shareholders
Banks and credit institutions
Assets
Liabilities
Loans and receivables
Memorandum accounts
Client deposits
Board members
(not shareholders)
Members of the Senior Management
(not shareholders)
Other related
parties
-
-
-
-
-
47.794
98.763
503
-
-
-
135.396
21.717
3.251
68
The Bank’s balances maintained with shareholders correspond
to two individuals and two corporations. Neither of the individuals is a member of the Board of Directors or Senior Management. Both the corporations are members of the Board of
Directors.
from the Board of Directors. The general policies and specific
limits defined by the ALRCO are therefore submitted to the
Board of Directors for analysis and approval. The risk limits
are reviewed at regular intervals in order to adapt them to the
economic and market situation and are submitted annually to
the Board of Directors.
“Other related parties” includes the balances maintained by
the Bank with 30 companies in which related parties exercise
significant influence. Said companies do not have the purpose
of serving the customers of the Bank.
To determine the risk limits granted to countries or financial
institutions, the Group uses relatively stable variables such as
credit ratings or Tier I capital, and market variables such as
the price at which the Credit Default Swap is traded or the
behaviour of the entity’s share relative to the stock market in
general. During 2010 these limits were reviewed frequently on
account of the instability caused by the sovereign debt crisis.
No company with participating interest, no member of the
Board of directors or of the Senior Management who are not
shareholders, holds positions representing more than 10% of
equity as of December 31, 2010.
As the body responsible for the management of interest rate
risk, exchange rate risk, country risk, counterparty risk, liquidity risk and market risk, the ALRCO meets at least monthly.
The ALRCO has delegated the task of supervising these risks
to the Middle Office department, which reports to the ALRCO
daily and weekly, as applicable, with information on the risks
managed. The ALRCO is also responsible for balance sheet
management and capital management, with the aim of maintaining a high level of capital strength.
As regards shareholders, members of the Board of directors
who are not shareholders, investee companies, and members
of Senior Management who are not shareholders, during 2010
there were no transactions representing more than 5% of the
2010 result.
All operations with associated entities and persons were carried out at market prices.
17. Market risks
Responsibility for guaranteeing the asset management business is exercised in accordance with the established legal and
regulatory framework and the task of assessing the results
is assigned to the Asset Management ALRCO, which meets
monthly. The committee delegates the monitoring of asset
management activity to the Middle Office. Besides monitoring
compliance with the regulatory framework, the Middle Office
assesses compliance with the investment policy of the funds
and portfolios and regularly monitors the measures of return
and risk, both ex-ante and ex-post.
Risk management
The identification, measurement, management and control
of risk is a key element in the management of the Andbanc
Group. The risk control framework includes a qualitative component, concerning the definition of politicies and responsibilities, and a quantiative component, associated with the setting
of limits.
The positioning of the Group in terms of risk management is
based on maintaining a prudent policy, where risk assumption
is tightly linked to the exercise of business activities in commercial banking, private banking and asset management.
Interest rate risk
Interest rate risk is defined as the impact on the market value
of the Group’s assets and liabilities resulting from movements
in interest rates. The measures the Group uses to assess this
impact are the sensitivity of net interest income over a oneyear period to 100 basis point parallel shifts in the yield curve
The establishment of policies, the setting of limits and the
overall supervision of risks is the responsibility of the Assets,
Liabilities and Risks Committee (ALRCO), under delegation
69
for the main balance sheet currencies and the sensitivity of the
market value of own funds to 100 basis point parallel shifts in
the yield curve.
curities portfolio (which includes EUR 155 million in hedging
derivatives) was EUR 868 million, the average VaR having
been 0.38% of the average invested position.
In the low interest rate environment that has prevailed in the
last two years, the Group has maintained a positive exposure
to movements in the yield curve; that is to say, the Group’s net
interest income would increase if the interest rate were to rise
and decrease if the interest rate were to fall. This has translated into a positive repricing gap of the Group’s interest-ratesensitive balance sheet assets and liabilities, i.e., overall, the
repricing of assets precedes in time the repricing of liabilities.
This positioning has been supported by very short-term interbank lending and investments in bonds with a return linked to
the 3/6-month Euribor, although longer-term fixed-rate bonds
have also been purchased without hedging to increase the
duration.
To more effectively monitor the risks of its own portfolio, in
early 2010 Andbanc started a project to implement a front and
back-office tool for handling a wide range of financial assets
and managing the associated risks, which will significantly
reduce the operational risk associated with the management
of the investment portfolio.
Credit risk
Credit risk is the potential loss that would arise should a counterparty fail to meet its obligations to the Group.
The Group follows a prudent policy in assigning credit limits,
authorising exposure only to countries with high credit ratings and in these countries only to the most solvent financial
institutions. Credit limits are approved annually by the Board
of Directors, although as the sovereign debt crisis has developed, credit lines have been reviewed to reduce exposure to
the countries affected, maintaining a low level of risk.
The limit established as the maximum loss resulting from a
100 basis point parallel shift in the yield curve is 5% of own
funds. During 2010 this limit was not exceeded.
Market risk
Strict rules are applied for granting limits to counterparties
that have not posted collateral. In such cases, the counterparty
is required to have high credit quality, based on the ratings
assigned by the main agencies (Moody’s, Fitch and S&P), and
must have been assigned a relatively moderate credit risk by
the market, as reflected in the price at which the 5-year CDS is
traded. Observation of the market variable allows any change
in the counterparty’s credit quality to be swiftly included in
the model.
Market risk is understood as the potential loss to which the
securities portfolio is exposed due to changes in market conditions, such as asset prices, interest rates, market volatility and
market liquidity. The measures the Group uses to manage the
market risk of its own portfolio are value at risk (VaR) and
stress testing, in line with general market standards.
VaR is measured using the parametric method. The calculation obtained corresponds to the maximum expected loss over
a given time horizon and with a given confidence level. The
Group calculates VaR for a time horizon of one week and
with a confidence level of 99%, and the historical period used
for calculating the correlation matrix and volatilities is three
years. During 2010 the average VaR calculated for the ordinary investment portfolio and for the trading portfolio was
EUR 0.83 million, with a maximum of EUR 1.81 million and
a minimum of EUR 0.62 million. The average position of the
ordinary investment portfolio and the trading portfolio was
EUR 167 million. The average net position of the Group’s se-
Liquidity risk
Liquidity risk is defined as the risk that an entity will be unable to meet its payment obligations at a given time, whether
arising from, among others, the maturity of deposits, the drawdown of credit lines granted, or guarantee requirements in
transactions with collateral.
The Middle Office department monitors the liquidity position
daily to ensure that it remains above the minimum liquidity
70
level established by the ALRCO. The Group has set a minimum
amount of overnight cash and an additional minimum amount
of cash and highly liquid positions with one-week liquidity.
Repo-financed positions and compliance with the liquidity ratio established by the INAF, which supervises the Andorran
financial system, are monitored daily. This ratio compares liquid and relatively liquid assets with liabilities becoming due
and payable and is set at a minimum of 40%. During 2010 the
Group maintained an average liquidity ratio of 59.73% and at
year-end the ratio was 78.04%.
These deposits of securities include, as of December 31, 2010,
339,985 thousand euros as guarantee for various assets and
risks of non-payment operations.
As of December 31, 2010, the wealth of individual customers
managed is classified under deposit of securities under custody of third parties in the memorandum accounts and under
liabilities in the attached consolidated balance sheet. The income recorded for management commissions is recorded under
Commissions for services in the attached consolidated income
statement.
Since the start of 2010, a liquidity contingency plan for the
Group has been drawn up at monthly intervals, assessing contingent liquidity based on different levels of mobilization of
liquid assets and considering the cost at which this liquidity
would be obtained. Another short and medium-term liquidity
management measure used by the Group is the residual maturity of the Group’s balance sheet assets and liabilities.
19. Other memorandum account
The breakdown of this account as of December 31, 2010 and
2009 is the following:
Very doubtful debts
Others
Fiduciaries
Other
Public debt issued by the
Andorran government
Unlisted own securities
Other
The maximum exposure limits during 2010 under different
measures, based on the risk-generating factor, were as follows
(in thousands of euros):
Limits
FIXED INCOME – Position for trading
CHANGES – Overall Forward/Cash Position
INTEREST- Balance sheet loss resulting from a 1%
rised’un 1% en la corba de tipus d’interès (*)
EQUITY- Position for trading
15.000
6.000
5%
6.000
18. Deposits of securities and other securities under
custody
Shares and other equity securities
Bonds and other fixed income securities
Holdings in investment institutions not
managed by the Group
Others
1.118.078
3.985.965
859.455
3.812.341
1.028.096
6.259
814.264
81.998
6.138.398
5.568.058
42.469
154.509
84.023
70.486
21.282
155.288
85.760
69.528
55.506
8.140
6.840
55.506
8.684
5.338
196.978
176.570
20. Compliance with local regulations
As of December 31, 2010, the details of the consolidated memorandum accounts are as follows (by security type):
2009
2009
“Fiduciaries” includes unlisted fixed-income securities that the
Bank holds for third parties. These securities are shown at
the most accurate market value available and, failing that, at
their face value.
(*) Limits on own funds
2010
2010
Regulatory legislation on obligatory investment ratios
The Principality of Andorra´s Council General, in a session
held on June 30, 1994, passed a Law regulating the obligatory investment fund ratios. The Regulations pursuant to this
law exclusively concern banking institutions and oblige them
to maintain a certain investment ratio of assets in Andorran
public funds.
71
On December 31, 2005, the Government decreed a public debt
issue to which the Bank subscribed in an amount of 55,766
thousand euros (see note 7), with maturity on December 31,
2009 and remunerated by the official one-year interest rate of
the European Central Bank. At December 31, 2009 this public
debt was renewed in the amount of 55,506 thousand euros,
maturing on December 31, 2013.
economic development. This is to be done by granting loans,
subject to a prior assessment and overall approval of proposals by a joint committee made up of representatives of the
Chamber of Commerce, Industry and Services of Andorra, the
development company Andorra Desenvolupament i Inversió,
SAU, the Andorran banking association Associació de Bancs
d’Andorra (ABA) and the Government of Andorra. The amount
outstanding at 31 December is 304 thousand euros, recorded
under loans and advances to customers in the balance sheet.
Loans granted by the banks within a program classified as being of national and social interest, which is aimed specifically
at financing of housing, are now also considered to be public
funds, as per the decision of the Council General of the Andorran Government of April 26, 1995. As of December 31, 2010, the
loans granted by the Bank in this respect amounted to 365
thousand euros (440 thousand euros on December 31, 2009).
They are recorded under the Loans / Loans and advances to
customers in the attached consolidated balance sheet. These
loans accrued an annual fixed interest rate of 6%.
Legal solvency and liquidity regulations of financial
institutions.
The Principality of Andorra´s Council General, in a session
held on February 29, 1996, passed the Law regulating the solvency and liquidity criteria for financial institutions.
This law obliges banks to maintain a minimum capital ratio
of 10%, based on the recommendation of the Basel Committee
on Banking Regulations and Supervisory Practices, calculated
on the basis of a ratio that relates the qualifying equity to the
weighted risk assets as per the degree of risk of such assets.
Thus, banks are also obliged to maintain a liquidity ratio of a
least 40%.
The Principality of Andorra’s Council General, in a session
held on May 11, 1995, passed a Law Regulating Deposit Guarantee Reserves and Other Operational Obligations, which are
to be maintained and deposited by entities operating in the
financial system. This law obliges the banks forming part of
the Andorran financial system to maintain in their shareholders’ equity various minimum reserves of shareholders’ equity
as a guarantee of their operational obligations up to a limit of
4%, which for 2010 amounts to 1.25% of the Bank’s total investments, after deducting investments made using shareholders’
equity and funds of financial institutions. As of December 31,
2009 and 2010, the deposit made by the Bank and its subsidiaries in this respect was 18,066 thousand euros and 18,066
thousand euros, respectively. This amount is recorded under
INAF in the assets of the attached consolidated balance sheet.
The capital and liquidity ratios of the consolidated financial
statements, determined in accordance with this law, were
22.29% and 78.04%, respectively, as of December 31, 2010
(20.21% and 50.71% as of December 31, 2009).
The law regulating the solvency and liquidity criteria of financial institutions also restricts the concentration of risks in
a single beneficiary up to a maximum of 20% of the shareholders’ equity of the bank. The law also stipulates that the
accumulation of risks that by themselves exceed 5% of the
equity cannot exceed the limit of 400% of the abovementioned
equity. The risk maintained with the members of the Board of
directors cannot exceed 15% of the equity. The abovementioned
risks are considered according to the said law.
On 3 March 2010 the Government issued a decree classified as
of national and social interest under the program to provide
privileged financing for start-up companies and businesses,
innovation, conversion and entrepreneurial ventures. Basically, the decree is aimed at promoting and supporting the
new ideas of those who, in difficult times and changing environments, see opportunities and challenges which, though
not without risk, have the potential to assist the country’s
During the year the Group has complied with the requirements of this law. The maximum risk concentration of risk in
favour of a single beneficiary was 15.20% of shareholders’ eq-
72
of measures equivalent to those provided in Council
Directive 2003/48/EC on taxation of savings income in
the form of interest payments.
uity (18.45% in 2009). Loans or other operations involving risk
in a single beneficiary that exceed 5% of shareholders’ equity
have not exceeded an accumulation of risks of 108.66% in the
aggregate (137.53% in 2009).
On February 21, 2005 the Andorran government ratified the
agreement between the Principality of Andorra and the European Community in relation to the establishment of measures
equivalent to those provided in Council Directive 2003/48/EC
on taxation of savings income in the form of interest payments.
Subsequently, on June 13, 2005, the government passed a law
implementing the above agreement.
International Anti-Criminal Cooperation and Fight
against Money or Securities Laundering by International Criminals Act.
In the session held on December 29, 2000, the Council General
of the Principality of Andorra adopted a law on international
anti-criminal cooperation and the fight against money or securities laundering by international criminals.
In 2007, the Group, acting in its capacity as a payment agent,
complied with the obligations contained in the agreement and
its implementing law and settled the amount of the withholding.
In accordance with this law, the Bank has set up proper and
sufficient control and internal communications procedures to
protect banking secrecy and prevent and impede operations
related to money laundering and securities generated by criminal activities. Specific personnel training programs have been
carried out to this effect.
21. Corporate citizenship, or similar activities,
interventions
The Group does not have any legal or statutory obligations
relating to corporate citizenship. The Group, however, has always been characterized by a strong social commitment and a
strong desire to work towards the general interest to improve
the country’s economic and social progress.
Indirect tax law on the Banking and Financial Services
Act
The Principality of Andorra´s Council General, in a meeting
held on May 14, 2002, adopted the Indirect Tax Law on Banking and Financial Services Act. The purpose of this act is to
tax the services provided by financial entities to their customers.
22. Subsequent events
No significant post-balance sheet events have occurred which
could have an impact on the 2010 annual accounts.
The calculation of the tax payable is made objectively, in accordance with the provisions of the Indirect Tax on Banking
and Financial Services Act and on the basis of the returns filed
in respect of such taxes.
23. Explanation added for translation to English
These financial statements are presented on the basis of the
regulatory financial reporting framework applicable to the
Company (see Note 2-a). Certain accounting practices applied
by the Company that conform with that regulatory framework
may not conform with other generally accepted accounting
principles and rules.
The amount recorded as of December 31, 2010 for the indirect
tax on Banking and Financial Services Act is 12,752 thousand
euros (11,708 thousand euros in 2009). This is recorded in the
tax account under General expenses in the consolidated income statement.
Agreement between the Principality of Andorra and the
European Community in relation to the establishment
73
5. Risk Management
The identification, measurement, management and control of
risk are a key element in the management of the Andbanc
Group. The main risks that the Group is exposed to in carrying
out its activity are:
directors for ratification. On the other hand, the risk limits are
reviewed periodically in order to adapt them to the economic
situation and that of the markets, and are in any case presented to the Board of Directors annually for approval.
- Interest rate risk
At Group level, to determine the risk limits awarded to countries, relatively stable factors are applied, such as membership
of international organisms (EU, OECD) or market ratings and
variables, such as the level that the country’s Credit Default
Swap is quoted at. These limits have been reviewed on several occasions throughout 2010, especially as a result of the
instability caused by the crisis of the Irish and Greek debt, in
an environment of a rising risk premium for the countries of
Southern Europe, specifically Portugal, Spain and Italy.
- Exchange rate risk
- Market risk
- Credit risk
- Liquidity risk
- Operational risk
- Reputational risk
With regard to the risk limits assigned to financial institutions,
the factors considered include the rating and the Tier 1 capital,
together with market indicators, specifically the level at which
the Credit Default Swap is quoted or the relative behaviour
that the shareholding has had in the stock market. During
2010, an analysis of the results of the stress tests carried out
by the CEBS on the European financial entities has been incorporated.
The risk control framework has a qualitative component, in
terms of defining policies and responsibilities, as well as a
quantitative component based on the establishment of limits.
The Group’s positioning in terms of risk management is based
on maintaining a cautious policy, where the assumption of
risks is tightly bound in with the exercising of business activities in commercial banking, private banking and asset management. The principles on which the management and control
of the Group’s risks are based are the following:
As a body responsible for the management of interest rate
risks, exchange rate risks, country and counterparty risks, liquidity risks and market risks, the ALRC meets at least once
a month, although as a result of the debt crisis experienced in
2010, decisions have been made based on a number of unscheduled meetings. In addition, the Committee is responsible for
balance management and capital management, with the aim
of maintaining a high level of solvency. The ALRC delegates
the supervision of these risks to the Middle Office department.
- A clear definition of the responsibilities of the units involved
in risk control,
- Providing the appropriate human and technical resources
to be able to carry out the functions effectively,
- Suitable internal control systems,
- Transparency of information about the risks assumed
It is responsible for guaranteeing that the activity of asset
management is carried out in line with the established legal
and statutory framework. Evaluating the results is the responsibility of the Management Monitoring Committee, meeting on
a monthly basis. The committee delegates asset management
The definition of policies, the determining of limits and the
supervision of risks is the responsibility of the Assets, Liabilities and Risks Committee (ALRC), having had this function
delegated to it by the Board of Directors. Therefore the policies
and limits defined by the ALRC are presented to the Board of
74
monitoring to the Middle Office department. In addition to
checking that the investment bodies and models comply with
the regulatory framework, the Middle Office evaluates the
degree of compliance with the established investment policy
and performs periodic monitoring of the performance measurements and risk measurements, both ex-ante and ex-post.
With regard to counterparty risks, the publication in July of
the results of the stress test of the main European banks,
though not an exhaustive analysis, allowed these institutions
to catalogue and identify those that presented the weakest
levels of solvency. The Group incorporated these results into
the limit allocation model, conceding limits to the more solvent counterparties and freezing those of entities with lower
levels. This dynamic management of counterparty risk, a conservative approach and constant supervision have allowed the
Group to maintain a limited level of risk in accordance with
the Group’s risk policy.
Challenges for 2010
From the beginning of 2010 we experienced a new episode of
international financial crisis, this time focusing on sovereign
debt. Initially the focus of attention was on Greece, which in
December 2009 suffered a reduction of its rating, and which at
the beginning of January announced that over recent years it
had been publishing certain figures regarding deficit and debt
that were lower than the real figures. As a result of this, the
cost to the capital markets for issuing Greek debt continued
to rise until it reached unsustainable levels and Greece had to
receive funds from the European Union (EU) and the International Monetary Fund (FMI), in exchange for applying severe
austerity measures aimed at reducing the level of debt.
For 2011 the aim of the Group in terms of risk management is
to follow closely the progress of the European sovereign debt
crisis and maintain flexibility in order to confront new developments that may arise in the markets; a flexibility that should
allow us to implement the appropriate measures for limiting
the risks that may arise.
Interest rate risk
Interest rate risk is defined as the impact on the market value of the Group’s assets and liabilities as a consequence of
interest rate movements. The measurements that the Group
uses to evaluate this impact are the sensitivity of the financial
margin for a period of one year to parallel movements of the
interest rate curve of 100 base points for the main currencies
of the balance, and the sensitivity of the market value of its
own resources to parallel movements of the interest rate curve
of 100 base points.
The Greek crisis infected other European economies, mainly
Ireland, Portugal, Spain and Italy. In the case of Ireland, in
September it was announced that restoring the balance of the
Irish banks could involve a cost equivalent to 30% of the GDP,
a fact that increased the pressures for Ireland to enter into
negotiations with the EU and the IMF to agree to receive
funds. The other economies of Southern Europe saw how their
own ratings were being revised downward and the financial
markets demanded higher credit differentials from them to issue debt, since their level of debt had increased substantially
in recent years, thus forcing them also to apply austerity measures and to make their economies more flexible.
Given the situation of historically low interest rates that has
existed for the last two years, the Group has decided to maintain a positive exposure to movements of the interest rate
curve, in other words, the financial margin of the Group would
increase when faced with a rally of the interest rates, counter
wise it would be reduced if these fell. This management has
resulted in a revaluation gap of the assets and liabilities sensitive to positive balance interest rates, i.e. on an overall level,
the revaluation of the assets is previous in time to that of the
liabilities. Factors which contribute to this positioning include
In this situation of a widespread broadening of the credit differentials of European countries, and especially the ‘PIGS’, the
Group applied a policy of caution with regard to risks, containing and reducing the direct exposure to the debt of the countries that displayed the greatest instabilities and monitoring
these displays closely.
75
Exchange rate risk
the cession of very short term deposits to the Interbank and
investment in bonds with performance tied to the Euribor at
3/6 months, although fixed rate long term bonds have also
been purchased without hedging to increase the duration. Unlike the previous year, during 2010 no short term interest rate
swaps have been contracted, given the perspective of a possible rallying of the rates in the short section of the curve.
The group understands exchange rate risks as the impact on
the market value of the Group’s assets and liabilities designated in currencies other than the euro as a consequence of movements in the exchange rates. Daily monitoring of spot and
forward exchange operations in order to ensure that the open
currency position remains at a minimum. At the end of the
year, the overall open position was 1.38 million Euros, when
the overall open position limit in the foreign exchange market
is 6 million Euros. Throughout 2010, the maximum short net
position was -0.08 million Euros and the maximum long net
position was 1.38 million Euros.
Market risk
Market risk is understood as meaning the potential loss to
which the securities portfolio is exposed as a consequence of
changes in market conditions, such as asset prices, the interest
rate, and the volatility and liquidity of the market. The measure that the Group uses to manage the market risk of its own
portfolio is the value at risk methodology (VaR) as a general
market standard.
To support the interest rate strategy approved for the Group,
in 2010 the Board of Directors decided to increase the sensitivity limit established for its own resources as a consequence
of a parallel movement of the interest rate curve of 100 base
points from the 4% in force until that moment to the current
5%. Despite remaining at levels close to the limit, over the year
this has not been exceeded at any time.
The VaR method used is the parametric. The calculation obtained corresponds to the maximum loss expected at a determined time horizon and with a defined level of confidence. The
Group calculates the VaR for a time horizon of one week and
with a level of confidence of 99%, and the historical period
considered for calculating the matrix of correlations and volatilities is three years. In February of last year the Board of Directors approved the modification of the VaR limit, going from
an annual VaR of 20 million Euros for the whole investment
portfolio, to an annual VaR of 10 million Euros for the ordinary
and negotiated investment portfolio, equivalent to a weekly
VaR limit of 1.4 million Euros. During 2010, the average VaR
calculated for the ordinary investment portfolio and the negotiated portfolio was 0.83 million Euros, with a maximum of 1.81
million Euros and a minimum of 0.62 million Euros. The average position of the ordinary investment and negotiated portfolio
was 167 million Euros. In March the VaR limit was exceeded
76
due to an investment of 40 million Euros in the German public
ten years debt in the ordinary portfolio, an operation included
in the line of long-term investment to maturity in public debt,
which was aimed at extending the duration of the asset. These
positions did not end up being added to the investment to
maturity portfolio, but were rather sold to market for capital
gain. The average net position of the Group’s securities portfolio (which includes 155 million Euros in hedging derivatives)
was 868 million Euros, with the average VaR of 0.38% being
the average position invested.
operations, which basically include loans to the interbank
market, loans and debts with securities, repo operations and
transactions with OTC derivatives,
- The risk of non-fulfilment of the issuers of bonds in own
portfolio.
The Group applies a careful policy in the allocation of limits,
authorising exposure only to countries with a high credit rating, and within these, with the most solvent financial bodies.
The Board of Directors approves risk limits on an annual basis,
although as events have emerged in the sovereign debt crisis,
the measures for reducing the exposure to the countries affected have been revised, thus maintaining a low level of risk.
The conceding of limits is more strict for those positions with
counterparties where there is no collateral as a guarantee. In
this event, the counterparty is required to have a high quality
credit rating based on the assessment of the main agencies
(Moody’s, Fitch and S&P), and that the market deems it a relatively moderate credit risk, reflected in the level at which the 5
year CDS quotes it. Observing the market variable allows any
change in the counterparty’s credit quality to be incorporated
more promptly into the model.
With the aim of reducing the exposure to risk, the Group uses
values as collateral in several operations, basically transactions with OTC derivatives, repo and loan operations and debt
securities. For those counterparties with whom a master ISDA
contract with acceptance of netting has been signed , a compensation of the exposure in derivatives is carried out between
the two counterparties. During 2010, ISDA, CSA and GMRA
contracts were signed with several counterparties, thereby
providing a greater number of counterparties with which to
operate with derivatives, while at the same time limiting substantially the exposure to counterparty risk.
With the aim of improving the monitoring of the risks to its
own portfolio, at the beginning of 2010 Andbanc initiated a
project aimed at implementing a tool with a front to back
scope that enables the bank to handle a wide range of financial assets and manage the risks, and this should significantly
reduce the operational risk associated with the management
of the investment portfolio.
Credit risk
The group’s fixe income portfolios is compound by debt issues from which the group has a direct exposure to the risk of
non-fulfilment of the issuers, as well as coverage bonds from
client’s structured products, the group includes as a part of balance nevertheless the risk from those products is assumed
by the clients. The rating of the fixed income portfolio ( in
thousand of Euros):
Credit risk refers to the potential loss deriving in the event
of a counterparty failing to comply with the obligations it is
committed to with the Group. The Group’s exposure to credit
risk includes:
- The risk of non-fulfilment deriving from the usual treasury
77
Rating
AAA
AA+ to AAA+ to ABBB+ to BBBInvestment
grade
B+
Speculative
grade
Total
Fixed Income PORTFOLIO
risk exposure
transfer of
to Issuer or
the risk to
guarantor
customers
164.305
45.474
350.278
54.112
142.028
39.392
66.295
0
722.905
138.978
Liquidity risk
Total
A liquidity risk is the risk that the Group may not be able to
meet its payment commitments at a given moment, including
those caused by the maturing of deposits, the disposal of credit
lines conceded or the requirements of guarantees in operations with collateral, among others. A major part of the funding
comes from client deposits, with the Interbank market being
an additional source of funding, either via deposits or repo
funding. Over recent years, the increase in its own resources,
as a result of growth in capital and profit taking, has also been
a significant source of funds.
209.779
404.390
181.419
66.295
861.883
0
0
2.893
2.893
2.893
2.893
722.905
141.871
864.776
One of the short and medium-term liquidity management measures is the residual maturity of the assets and liabilities of
the Group’s balance. The Middle Office monitors liquidity on
a daily basis, checking that it remains above the minimum
liquidity established by the ALRC. This minimum stands at
100 million Euros cash per day and an additional 100 million
Euros between cash and positions that are highly liquid at one
week. This control includes a daily monitoring of the positions
capable of being financed with repo.
With regard to the exposure to credit risk for operations with
clients, the Group’s credit investment stands at 1,637 million
Euros, mainly in credit and loan policies, especially mortgage
guarantee operations (868 million Euros) and pledge guarantees (336 million Euros).
The main elements in the management of credit risk are the
policies for conceding and empowering, monitoring the progress of the exposure and the establishment of periodic committees (Abnormal Risk and Delegated Commission). Credit
risk concentrations are reviewed on a weekly basis, monitored
to ensure they fall within the parameters marked out by the
supervisor, and with the establishing of maximum debt levels
in certain groups. The Credit Risk Department is responsible
for credit risk monitoring and management with clients.
Compliance with the liquidity rating established by the INAF,
the supervisory body for the Andorran financial system, is
also checked on a daily basis. This rating compares the liquid
and easily mobilisable assets and the eligible liabilities, and is
set at a minimum of 40%. The Group’s average liquidity rating
during 2010 was 59.73%, and stood at 78.04% at the end of the
year.
In parallel, arrears levels are monitored by product in order to
adjust the concession and empowerment policies. Concession
decisions are made at an operational level. The progress of the
risk is monitored by analysing the qualitative and quantitative
variables, adapted to the requirements of the supervisor.
The Group’s arrears rating is 3.83%, which is below the average for financial bodies in neighbouring countries. In 2010 the
Group maintained a policy of conservative lending, and increased funds available for insolvencies by 19 million Euros. In
addition, over the year a number of fully provided old balances
were regularised by an amount of 21 million Euros.
78
Since the beginning of 2009 a monthly contingency plan has
been drawn up for the Group’s liquidity, where the contingent
liquidity is assessed in terms of different levels of mobilisation
of liquid assets and considering the cost of obtaining this liquidity. The first level includes the volumes loaned to Interbank
and that mature within a week, financial bonds maturing in
the short term and un-deposited volumes of Interbank funding
lines. The second level includes the most liquid debt issues, i.e.
the debt issued or guaranteed by states, which can be funded
with repo, and the debt issued by financiers with collateral,
mainly mortgage bonds. The third level includes the remaining
liquid debt, including senior debt, mortgage securitisation and
non-complex structured products. The liquidity that can be generated is assessed with regard to the maximum output of
funds that the Group has in a week, applying a stress factor.
A variety of control mechanisms have been established to mitigate this risk. On the one hand, the Group has approved an
ethical code that all employees are obliged to comply with,
including procedures for the prevention of money laundering,
and it is subject to the ethical and behavioural standards established by the INAF. The Department of Regulatory Compliance is responsible for supervising internal regulations.
Operational risk
During 2010 the Group continued developing the tasks that
allow it to adapt to the EU Markets in Financial Instruments
Directive (MiFID), set forth in Law 14/2010, which has implications in the greater transparency and protection of clients
when contracting financial products and services.
In addition, in managing this inherent risk in the marketing
of products and services to the Group’s clients there is a procedure established so that before launching any product, the
departments involved in monitoring (among others, Middle
Office, Internal Audit, Legal and Regulatory Compliance) give
their opinion with regard to the suitability of the product, its
characteristic and the associated risks prior to marketing the
product.
Operational risk is understood as the risk of losses deriving
from insufficiency or errors resulting from internal processes,
individuals and external systems or events.
Capital management
The responsibility for monitoring and controlling the Group’s
operational risk falls to the Internal Audit Department, which
maintains the database of operational incidents and presents
the corrective measures to the General Management and the
Audit Commission.
In the management of capital, the aim of the Group is not only
to maintain a capital rating that is sufficient to support current
and future business activities, and to comply with the requirements of the supervisor, but also to have a level of capital
available that reflects the Group’s financial strength and high
degree of solvency.
The efficient operation of the system of internal control generates added value for the Group to the extent that it enables
management to be improved, thus guaranteeing the efficiency
of the business processes of business and aiding compliance
with the legal regulations in force in each country where the
Group has a presence.
At the end of the year the solvency rating stood at 23.96%,
more than double the minimum level of 10% demanded by the
supervisor, and well over with regard to the comparable average rating for European financial institutions. The Group’s own
adjusted resources have reached 390.58 million Euros and the
Group has a 227.54 million euro surplus of its own resources.
Reputational risk
The reputational risk is defined as the current or potential revenue and capital risk deriving from a negative perception of
the image of the Group held by the clients, the counterparties,
the shareholders or the regulatory body.
79
In September 2010 the Basel Committee on Banking Supervision approved the increase in the minimum requirements for the
capital of financial entities, so that the minimum core equity
will need to be higher than 4.5% (compared to 2% previously)
and the entities will have to keep an additional provision of
2.5% capital conservation, and depending on the circumstances, an additional anticyclical provision of up to 2.5% of the capital. In addition, the minimum Tier I rating increases to 8.5%
(compared to 6% previously) and the total minimum capital
rating to 10.5% (compared to 8% previously). In this environment, where there are international pressures for the financial
system to increase its level of capital in order to adapt to the
new solvency requirements, Andbanc finds itself in an excellent solvency position, with a core equity rating of 19,97%,
i.e. the amount of net core capital from non-material assets of
325.58 million Euros.
80
81
6. Social Indicators
2010 was a year of movements, with fluctuating financial markets, elections and political changes, climatological
and human catastrophes, sports milestones, cultural events,
technological innovations; all in all, an eventful year that left
its mark on all the participants involved. Andbanc has taken
inspiration from this involvement to continue with the commitment adopted by the organisation, which year after year has
continued its support, with participation at both a local and
global level in events that took place over this year.
young people is the annual scholarships awarded to La Gavernera Children’s Care Home. These scholarships, a result of the
agreement signed between Andbanc and the Government of
Andorra in 2001, are awarded to the children being cared for
in this centre for different reasons, and their aim is to allow
the children and young people residing in the home to pursue
higher studies and professional training or pursue activities
outside of school or activities to supplement the compulsory
classes, so that they can achieve the best possibilities and the
best results in their academic training. These scholarships are
conceded at the behest of the group of educators that monitors
each of the children and young people in the home.
For some years now, Andbanc’s commitment as an organisation has spread throughout the human team of which it
consists. As a corporate society, the Associació Solidària de
Col·laboradors d’Andbanc (ASCA), set up in 2007, supplements
Andbanc’s solidarity initiatives by coordinating the actions of
all the company’s employees and making their efforts more
efficient in terms of projecting and supporting the demands for
solidarity aid to several projects led by the employees.
Mention should be made of the collaboration each summer
with AINA and the Father Ramon of Canillo in publishing the
songbook that the children take with them to summer camp,
and the activities that the youth club organises over the year.
This aid enables them to award grants to children from disadvantaged families, helping them to enjoy a few weeks in the
countryside with their friends.
The initiatives related to children, the young or groups at risk
have been carried out in a spirit of altruism, and they have
supported several solidarity projects on both a national and
international level. Some of this year’s projects were aimed
at the youngsters of La Gavernera, a children’s care home
with which the Association has collaborated since its creation.
Other projects have included the collection of food and medicines organised by the people of Andorra for the refugee camps
in Tinduf or for a dispensary in Haiti. In addition, they have
provided economic aid for girls in Sierra Leona and Morocco, to help them receive the medical treatment they need for
the illnesses they suffer. The Association has also sponsored
an eleven year old boy from Chile, to help in his personal
and educational development. Yet it not only offers economic
support for projects. In 2010 it provided support for the campaign led by the Vicens Ferrer Foundation to present the Nobel Prize candidature for this Catalan philanthropist.
Andbanc and sport
The 2009-2010 season was once again an opportunity for the
Andbanc basketball team to shine in the national League. The
team ended the regular phase as unbeaten leader, reaching
the Final Four as a clear favourite for the title. The Andbanc
team, made up almost exclusively of bank staff, is continuing
its run of successes.
An example in the field of support and help for children and
82
Andbanc freestyle team is made up of young runners who are
obtaining excellent results in the competitions they take part
in. In spite of a year plagued with injuries, the riders have
demonstrated their competitive spirit and have participated
successfully in various events held throughout the season.
Skiing continues to be one of the sports receiving the most
support, since, in addition to the aforementioned international
competitions, there has also been collaboration with the now
traditional Manuel Cerqueda Memorial Race for Veteran Skiers, organised by the Andorra Ski Club. The competition took
place on the Vallnord slopes, in the Arinal sector, with close to
100 skiers participating in the giant slalom category.
The world of motor sport has continued to receive support from
Andbanc. The rally motorcycle rider Cyril Despres, a resident
of Andorra, won the 2010 Dakar Argentina-Chile Rally, as well
as OiLibya to Morocco and the Kenny Enduro. The Andbanc
rider had a difficult season plagued by injuries, yet this didn’t
prevent him from achieving the hoped for results. In addition,
Cyril Despres and his partner Àlex Antor organised the 2nd
Raid for promising young sportsmen and women. The aim
was to apply their experience to help youngsters practise and
learn about the sport by participating in an activity designed
to boost their personal and professional development. A score
of young hopefuls took part in this year’s event, heading off to
the mountainous area known as Ensagents (Encamp) in order
practise a range of activities and to demonstrate their ability
to work together as a team, to test their physical stamina,
their determination, their skill in the sport and the competitiveness that every sportsperson displays. They spent the whole
day sharing experiences with people related to the sport at
a high level (professional sportsmen, trainers, doctors) while
combining this with sport activities and motivational talks.
Andorra’s Olympic team
The sports section continues to be one of the most important
areas in which Andbanc collaborates, having been involved
for years in sponsoring sport through the clubs, the Andorran
federations and the Andorran Olympic Committee (AOC), in order to improve Andorran sport and reinforce the external image of Andorra. 2010 was a busy year for the AOC’s sportsmen
and women. In February they took part in the Winter Olympic
Games held in Vancouver, Canada. The results were judged to
be acceptable, above all in terms of looking to the future and
the 2014 Games in Sochi. Moreover, this year saw the presentation of the team sent to the very first Youth Olympic Games,
held in Singapore from the 14th to 28th of August. This competition was aimed at youngsters from 14 to 18 years old, and
the Principality participated with four representatives from the
Athletics, Judo, Gymnastics and Swimming federations. The
president of the Andorran Gymnastics Federation, Eva Rodríguez, was mission leader for this expedition, with Francesc
García and Miquel Ripoll providing technical support. The
flag-bearer for Andorra was Mònica Ramirez.
Basketball and football have also received special attention
under the sponsorship of Andbanc, with these sports being
promoted both with Andorran youngsters and those from
neighbouring countries. This year’s Campus Nike organised
two basketball and football events, in the Joan Alay Pavilion,
the Stadium of the MI General Council and the Andorra Vella
Communal stadium, in which boys and girls were able to learn
In terms of sporting events, a highlight this year once again
was the freestyle team. The youngest skiers have helped to
give this modality a higher profile. Freestyle is a sport that is
becoming established in the country and is winning over many
new fans attracted by its spectacular nature, and Andbanc
is committed to supporting this new trend. The Andorran
83
the techniques of each sport at the hands of their leading exponents. In this 12th edition they were accompanied by the footballers Pedro Rodríguez, Sergi Busquets and Bojan Krkic, in
addition to the young player Marc Muniesa, and from basketball Juan Carlos Navarro and Ricky Rubio from FC Barcelona
and Rudy Fernández, a player with the US league’s Portland
Trail Blazers. Those in the first session were lucky enough
to be able to play alongside and against one of the Campus’s
most veteran participants, “la Bomba” Navarro, and homage
was paid to him by all those present, in appreciation of his
participation in these 12 years of Campus Nike. As for football,
Bojan and Muniesa brought the first session to a close with
a feast of football for the participants in this eagerly-awaited
event held every summer. Those who were indeed eagerly
awaited were the footballers Pedro and Busquets, recently arrived from the World Cup and newly crowned world champions.
During the second session the basketball players also had the
privilege of training with two important players, Ricky Rubio
and Rudy Fernández, who answered also all the questions that
the young participants put to them.
playing a leading part. This event is sure to become a point of
reference for all promising basketball players, some of which
are beginning to confirm their talents at the ABC. The aim in
this Campus is to work on and improve the different technical
aspects of the game with a great team of professionals and in
conditions that are second to none; working in reduced groups
to enable individual monitoring of each participant and aided
by the latest technologies for obtaining data that can then be
analysed to check the progress of the players from several
countries taking part in this Campus. This fifth year saw the
presence of Darryl Middleton, whose long career has made
him an institution in the world of basketball, and who at 44
continues to be active. One of the organisers, Ferran Martínez,
declared in the opening press conference that the Campus has
become a training camp that is a reference model in Spain.
The majority of the participants are Spanish, although this
year saw the participation of two players from Senegal.
Golf continues to be one of Andbanc’s leading targets for
sponsorship. This year the Andbanc Golf Circuit celebrated its
tenth anniversary, returning to its usual format of five stages
plus a final one. One of the Circuit’s aims has always been to
provide access to prestigious Spanish courses. This year the
heats were disputed in the following courses: Panoràmica (Vinaròs), Torremirona (one of the Circuit’s new courses), Masia
Bach (a first time choice for the Circuit), and the classic course
for the event - Costa Daurada. The last course, and the last
heat for participating in the final, took place at the Cerdaña
Golf Club course. Those classifying in first position for the
championship had the opportunity to take part in the final,
to be held in the El Saler golf course in Valencia, and thus
enjoy a course considered to be one of the ten 10 best rounds
in Spain and in the world. Inaugurated in 1968, it is one of the
best courses in Europe, with a high technical level and great
visual beauty. Designed by Javier Arana, it is perfectly in tune
with its natural setting in the protected nature reserve of El
Saler, in the Valencia Albufera.
Bojan Krkic and Marc Muniesa at Nike Camp 2010.
Also in the field of basketball, the elite sport repeated the success of Global Tech, organised by the Esport en Joc and Global Sports Advisors, with Manel Bosch and Ferran Martínez
84
every age group, the star performer was the American pianist
Joshua Edelman, a distinguished pianist and composer born
in New York. Edelman settled in Madrid, where he has made
a name for himself in the field of jazz and teaching. During his
career he has participated in numerous international festivals
and is regularly invited to perform at the Cafè Central in Madrid - one of the Spanish capital’s jazz temples. In 2004 Edelman was awarded the prize for the best Spanish group for his
performance at the 25th Grenada international Jazz Festival.
This year, once again, saw the awarding of the Manel Cerqueda Short Novel Prize, presented during the literary gala
night organised annually by the Circle of Arts and Letters.
These prizes are awarded to the best works presented in different artistic disciplines. 2010 saw the largest number of works
presented in the history of the awards, with 16 works being
presented. The 3,500€ prize for short novel was awarded to
the work entitled “Un camí entre les vinyes”, by the author M.
Angels Bosch.
El Saler, Valencia. .Andbanc Golf Circuit 2010
Andbanc and culture
Andbanc and the business world
Andbanc is continuing with its unconditional support for culture, in recognition of its vital role as one of the mainstays of
society as a whole. The bank provides support for a variety
of cultural initiatives in order to disseminate the Principality’s
rich cultural offerings to the maximum. An example of this
would be the collaboration we enjoy with the Spanish, Portuguese and French embassies for disseminating the cultures of
these countries in Andorra.
Andbanc, together with the other financing bodies in the country, are also promoting initiatives in the business world,
particularly their collaboration in organising the Family Business Forum, an event which was a great success in terms of
participation.
This year’s 9th Family Business Forum focused on Innovation
and Growth in business. As usual, the EFA invited distinguished speakers to discuss the aforementioned conference topic.
This year the speakers were:
The collaboration with the Spanish embassy has led to a series of established cultural projects such as painting exhibitions,
this year featuring the Valencian artist Vicens Talens, and the
jazz concert, this year with the pianist Joshua Edelman. The
exhibition by the painter from Valencia, entitled “Amor loco”,
is being shown for the first time in Andorra. This is his latest
production, and includes sculptures and installations as well
as pictures. A characteristic feature of this work is the movement of sinuous shapes, the use of colour as a fundamental
element and a playful focus of the artist’s work.
Antoni Esteve, doctor in pharmaceutics, chairman of Laboratoris Esteve, a family business and international chemical and
pharmaceutical group. Esteve is also chairman of the Fundació
Príncep de Girona, a foundation committed to research projects, entrepreneurship and business excellence. In addition he
is chairman of the board of directors of the Blood and Tissue
Bank (BTB), of the Generalitat de Catalunya’s Department of
Health.
In the case of the concert performance, part of the Concerts
en família series and aimed at a broad-based audience and at
85
Carles Sumarroca is vice-chairman of the COMSA-EMTE
group. He was formerly Managing Director and CEO of the
COMSA-EMTE S.A. group. Mr Sumarroca has a higher degree
in telecommunications engineering from the Universitat Politècnica de Catalunya and a Master in Economics and Business
Management from the University of Navarre.
enabling them to obtain a digital identification of the user’s
foot with all its anatomical details: from the length, to the
measurement of the force or pressure exerted when walking.
Prof. Pankaj Ghemawat has a degree in applied mathematics
from Harvard College, a doctorate in economics from Harvard
University, and is a consultant to McKinsey & Company. He
is the youngest professor at the Harvard Business School, and
has been a member of the School for 25 years. He currently
holds the chair in global strategy at the IESE Business School.
He is a consultant for various governments and transnational
companies. He is the author of several books of major academic importance, such as “Commitment” (Free Press 1991),
“Games Businesses Play” (MIT Press 1998), “Strategy and the
Business Landscape” (Pearson Prentice Hall, 3rd edition 2009),
“Redefining Global Strategy” (Harvard Business School Press,
2007) and “Globalization SOS” (Harvard Business School Press
2010).
Julian Sanchez, CEO of Sacha London
To discuss the financial and economic subjects of the day and
the unrest in the markets, Andbanc offered its clients a talk
given by one of the leading analysts in this matter, Prof. Emilio Ontiveros. Professor at the Autonomous University of Madrid and also lecturer at the Wharton School (University of
Pennsylvania). A founding member of Analistas Financieros
Internacionales (AFI), he also works as a financial consultant
for Madrid City Council and the Spanish Government, as well
as numerous companies that require his service.
All these details are included in the person’s personal identity
document, and allow them to order their shoes made to measure. The ladies among those attending were able to enjoy
a session of extracting the ID for their feet, to be applied to
one of the models of shoes that the Sacha London team has
designed for the coming season. The shoes will be distributed
during the first quarter of the year.
One of the most successful events held in November, was the
presentation of the company Sacha London, specializing in
marketing footwear for women with more than half a century
experience. Was included in a comunication concerning the
subject of innovation management and business in the companies, which was presented by its CEO and owner Julian
Sanchez.
With the collaboration of Inescop, the technological institute
of footwear, Sacha London has created the ‘footwear ID card’,
86
can add to the collection without inconvenience.
One of the materials that Andbanc uses in large quantities and
that can prolong its useful life after its initial use is paper. During 2010 a number of initiatives were put into practice, such
as insisting on printing on both sides of the page, replacing paper copies with electronic ones wherever possible, or printing
in black and white instead of colour. In this way, a reduction
of some 32,930 Kg of paper was achieved this year compared
with the 40,110 Kg in 2010.
Andbanc also handles the recycling of the toner for printers
and faxes, and collected 260 of these altogether in 2010. With
regard to batteries, we are continuing to provide the company’s employees with bins for depositing their own batteries
and those used at work, and this year 32 kilos of batteries
were collected.
Andbanc and BES, conference about Relations between Andorra- Portugal
Within the framework of international collaboration, Andbanc
signed a commercial relationship agreement with the Portuguese bank, Banco do Espiritu Santo, BES, and therefore a
talk was held at Andbanc headquarters to present the agreement. Entitled, “Relations between Andorra and Portugal: the
management of investments from abroad”, and organised by
the managers from Andbanc and Banco Espirito Santo, the
Portuguese group were invited and the event was attended
by the chairman of Andbanc, Mr Manel Cerqueda, and the
Portuguese Ambassador to Andorra, His Excellency Mr. Mario
Damas Nunes.
These initiatives underline Andbanc’s desire to participate in
the development of the society in which we all live.
Andbanc and the environment
Once again this year the environmental targets set by the
organisation have focused on continuing to promote social
awareness (that of employees, suppliers and clients), with a
reduction in the consumption of raw materials and energy, as
well as the recycling of these elements.
We are continuing the selective collection of plastic, glass and
paper among employees at central services, siting containers
in areas that are easy for everyone to access, so that everybody
87
7. Governance Structure
88
Presidency
Organizational Structure
Óscar Ribas Reig
Honorary Chairman
Jordi Comas Planas
Chief Executive Officer
Manel Cerqueda Donadeu
Chairman
Ricard Tubau Roca
Deputy Chief Executive Officer Business
Oriol Ribas Duró
Vice Chairman
José Luis Muñoz Lasuén
Deputy Chief Executive Officer Corporate Services
Board of Directors
Carles Aso Miranda
Deputy General Manager
Markqueting anb Business Support
Enric Palmitjavila Ribó
Director
Josep M. Cabanes Dalmau
Deputy General Manager
Business Andorra
Manel Ros Gener
Director
Josep Casanovas Arasa
Deputy General Manager
Risk Control and Finance
Xavier Santamaría Mas
Director
IGESA
Director (represented by Josep Vicens Torradas)
Jordi Checa Gutés
Deputy General Manager
Human Resources
CEDO, SA.
Director (represented by Pere Grau Hoyos)
José Ignacio García Fernández
Deputy General Manager
International Private Banking
Reig Finances, SA.
Director (represented by Germán Castejón Fernández)
Jordi Comas Planas
Director
Josep García Nebot
Deputy General Manager
Compliance and Operational Support
Josep Sansa Torres
Secretary (not director)
Angel Martínez Belmonte
Deputy General Manager
Organization and Systems
Santiago Mora Torres
Deputy General Manager Investment
89
8. Locations and Addresses
Head Office
C/Manuel Cerqueda i Escaler, 6 AD700 Escaldes-Engordany, Andorra
Tel. +376 873 333 –Fax +376 873 353
Codi Swift BACA AD AD
[email protected]
Internacional Private Banking
C/Manuel Cerqueda i Escaler, 6 AD700 Escaldes-Engordany, Andorra
Tel. +376 873 345
Private Banking
C/Manuel Cerqueda i Escaler, 6 AD700 Escaldes-Engordany, Andorra
Tel. +376 873 387
Retail Banking
C/Manuel Cerqueda i Escaler, 6 AD700 Escaldes-Engordany, Andorra
Tel. +376 873 305
Andbanc (Bahamas) Limited
British Colonial Centre of Commerce
1 Bay Street 3rd floor, Suit 304
Nassau, Bahamas
Tel. + 1 242 3224081
[email protected]
90
Andprivatewealth Chile
Avda. Kennedy 5454 oficina 902
Vitacura. Santiago de Chile. Chile
Tel. + 569 954 954 04
[email protected]
Andbanc (Panamá) S.A.
Torre Generali (floor 26)
Samuel Lewis Avenue, Street 54 East
Obarrio Area. Panamá
Tel. + 507 263 66 96 [email protected]
Andbanc Luxemburg SA
7A Rue Robert Stümper
L-2557 Luxemburg
Tel. + 352 27 49 76 50
[email protected]
AndPrivate Wealth
Rue du Commerce 9
5496 1211 Gèneve 11, Switzerland
Tel. + 41 228 183 940 [email protected]
Andbanc Asset Management Luxembourg SA
7A Rue Robert Stümper
L-2557 Luxemburg
Tel. + 352 26 19 39- 1
[email protected]
Representation office in Uruguay
Av. Luis A. de Herrera 1248 Oficina 414, Torre B
World Trade Center
11300 Montevideo. Uruguay
Tel. + 598 2628 6885 [email protected]
Andbanc Luxembourg Limited
Hong Kong
Two exchange Square
8 Connaught Place, Central
Hong Kong. China
Tel. + 852 229 724 15
[email protected]
Quest Capital Advisers S.A.
Edificio @1, piso 3, Of 303
Zonamérica Ruta 8Km 17500
91600 Montevideo. Uruguay
Tel. + 598 2518 2222
[email protected]
Columbus de México
Blvd. Adolfo Lopez Mateos
2370 – 1 Piso
01060 Mexico. D.F.
Tel. + 52 55 53 772 810
[email protected]
AndPrivate Wealth Management Miami
1221 Brickell Avenue
Suite 1550
Miami. Florida 33131
Tel. + 1 305 702 0600
[email protected]
91