2018 ANNUAL REPORT CONTENTS 00 INTRODUCTION Chairman’s statement 8 The Board of Directors 13 Basque Country Advisory Board 13 Nomination and Corporate Governance Committee 14 Remuneration Committee 14 Audit Committee 15 Global Risk and Technology Change Committee 15 Credit Risk Committee 15 The economy in 2018 17 The outlook for 2019 25 01 FINANCIAL RESULTS Key figures 30 Banca March Group 33 The consolidated balance sheet 38 Customer funds 40 Customer loans 42 Capital markets 44 Capital instruments 45 The consolidated income statement 46 02 NON-FINANCIAL STATEMENT More than 90 years of success 52 Our values 53 An unparalleled business model 55 Main non-financial risks 57 Core action policies 59 2 3 CONTENTS 03 MAIN BUSINESS LINES Wealth Management 68 Joint Investment activity 70 Retail and Private banking 73 Corporate Banking and Markets 81 Insurance Area 91 Subsidiaries: 97 - March A.M. 97 - March R.S. 100 - March Vida 101 - Banco Inversis 102 04 HOLDINGS OF CORPORACIÓN FINANCIERA ALBA Investment portfolio 107 Affiliated companies 109 LISTED COMPANIES 109 - Naturgy 109 - Acerinox 109 - Ebro Foods 110 - Cie Automotive 110 - Viscofan 111 - Bolsas y Mercados Españoles 111 - Parques Reunidos 112 - Indra 112 - Euskatel 113 NON-LISTED COMPANIEs 113 - In-Store Media 113 - Terberg Ros Roca 113 - Alvinesa 114 - Satlink 114 - Monbake 114 Real estate activity 115 4 5 00 INTRODUCTION Chairman’s statement 8 Board of Directors 13 Basque Country Advisory Board 13 Nomination and Corporate Governance Committee 14 Remuneration Committee 14 Audit Committee 15 Global Risk and Technology Change Committee 15 Credit Risk Committee 15 The economy in 2018 17 The outlook for 2019 25 6 7 Chairman’s Statement CHAIRMAN’S STATEMENT 2018 will be remembered as a complex year for the financial markets, particularly the final few months of the year. The shadow of a possible recession loomed over all market players and put asset managers in a very tight spot. Despite this difficult backdrop, at Banca March we were able to overcome many of the obstacles generated by market volatility and chalk up a new record in banking activity, which grew 9.5% versus 2017 – when we posted the best results in the bank’s history – to stand at 111.3 million euros. At the beginning of the year, Banca March was confronted with the need to take a quantitative and qualitative leap towards becoming the bank we aspire to be. A modern, agile, engaged bank which is a point of reference for its target customers: family businesses and entrepreneurial families. It was crucial, with this goal in mind, to ensure our structure was a clear reflection of the bank’s culture and strategy. In the process of cementing the structure we need to effectively deploy our strategy, we were completely determined to eliminate any components which did not prioritise shared growth for the bank, thereby avoiding conflicts of interest both with Banca March customers and with the rest of the organisation. At the same time, to reinforce our team of talented professionals, we rolled out intensive efforts to recruit profiles in our specialist areas, Wealth Management and Corporate Banking, and in the technology and digital sphere. Our business model continues to be backed by our solid assets and the lowest NPL ratio in the sector. At the end of 2018, we had more capital and stronger liquidity and solvency ratios than any other bank in the sector Juan March de la Lastra Chairman In 2018 we created and grew our Digital Transformation team, which is intended to equip the bank with the stronger capabilities to tackle this strategic transformation. To that end, we rolled out an ambitious plan featuring a total investment of 75 million euros and the incorporation of 50 professionals by the end of 2020, with a view to reinforcing the bank’s digital and technology strategy. At Banca March, we seek to identify, across all areas of the organisation, any opportunities offered by digital technologies to enhance customer experience and allow us to engage even more closely with our customers, responding ever more efficiently to their needs. Another way in which we fortified our organisation was by creating the Banca March Advisory Board in the Basque Country, which is formed of renowned professionals with strong track records and great prestige in the business, social and cultural arenas. This initiative is a reflection of the Group’s determination to continue to grow in the Basque Country, a market which is crucial to Banca March’s business model. 8 9 Chairman’s Statement The robust health of our organisation and our effective strategy are clearly reflected in the results of the Financial Sector Customer Satisfaction Benchmarking undertaken by the independent firm STIGA. This report reveals that Banca March’s managers secured the strongest customer ratings out of the entire Spanish banking sector. We are deeply proud of this leadership position, which is the result of the outstanding degree of professionalism of the Banca March team and a Human Resources policy that ensures a meritocracy and prioritises the professional development of the workforce. We are the Spanish financial institution that invests the most in training per employee, which translates to exceptional customer service. Our business model continues to be backed by our solid assets and the lowest NPL ratio in the sector. Our solvency has always been, and continues to be, one of our key strengths. At the end of 2018, we had more capital and stronger liquidity and solvency ratios than any other bank in the sector. It is vital that we safeguard this advantage, which is a clear guarantee of security for our customers. The year 2019 holds no shortage of exciting challenges. The banking sector will continue to be restructured as it seeks to secure a profitability that remains elusive. At Banca March, we enjoy the advantage of having clear goals and ever more tools to implement a winning strategy. We are different; we are the only bank in the Spanish financial system which is wholly family owned, we know exactly what we want, and our goal is simply to achieve our objectives in an effective, timely manner. We keep our sights set firmly on our customers’ needs, and we work to make their lives easier, affording innovative solutions to ensure we remain their bank of choice. These outstanding results are, without doubt, thanks to the unwavering values shared by every one of us at Banca March: commitment, ambition, integrity, effort and rigour In conclusion, I would like to thank the entire team of professionals at Banca March Group for their huge dedication and engagement with the exciting project. The excellent results we have achieved are, without a doubt, thanks to the unwavering values shared by every one of us at Banca March: commitment, ambition, integrity, effort and rigour. Our clear, ambitious goals – to be Spain’s leading bank in private banking and corporate advisory –, our unique, inimitable business model – based on shareholder commitment, exclusive products, outstanding quality service, specialist advisory services and robust financial ratios–, and our excellent, motivated workforce all comprise the foundations on which to build the bank we aspire to be. Juan March de la Lastra Chairman 10 11 Structure of Boards and Committees THE BOARD OF DIRECTORS Chairman Mr. Juan March de la Lastra (executive) Executive Vice Chair Ms. Rita Rodríguez Arrojo (executive) Chief Executive Officer Mr. José Luis Acea Rodríguez (executive) Directors Mr. Juan March Delgado (non-executive) Mr. Carlos March Delgado (non-executive) Mr. Juan March Juan (non-executive) Mr. Javie Vilardell March (non-executive) Mr. Juan Carlos Villalonga March (non-executive) Ms. Agatha Echevarría Canales (independent) Mr. Albert Esteve Cruella (independent) Mr. Moisés Israel Abecasis (independent) Mr. Santos Martínez-Conde Gutiérrez-Barquín (non-executive) Mr. Vicente Moreno García-Mansilla (independent) Mr. Nicolás Villén Jiménez (independent) Company Secretary Mr. José Ignacio Benjumea Alarcón (executive) BASQUE COUNTRY ADVISORY BOARD Chairman Mr. Juan March de la Lastra Chief Executive Officer Mr. José Luis Acea Rodríguez Directors Mr. Jorge Bergareche Busquet Mr. Mariano Úcar Angulo Mr. Antonio Barandiarán Prado Mr. Álvaro Videgain Muro Mr. Miguel Zugaza Miranda Company Secretary Mr. José Ignacio Benjumea Alarcón 12 13 Structure of Boards and Committees NOMINATION AND CORPORATE AUDIT COMMITTEE GOVERNANCE COMMITTEE Chairman Mr. Nicolás Villén Jiménez (independent) Chairman Mr. Albert Esteve Cruella (independent) Members Members Ms. Agatha Echevarría Canales (independent) Mr. Moisés Israel Abecasis (independent) Mr. Albert Esteve Cruella (independent) Mr. Vicente Moreno García-Mansilla (independent) Mr. Moisés Israel Abecasis (independent) Mr. Vicente Moreno García-Mansilla (independent) Secretary Secretary Mr. José Ignacio Benjumea Alarcón (executive) Mr. José Ignacio Benjumea Alarcón (executive) REMUNERATION COMMITTEE GLOBAL RISK AND TECHNOLOGY CHANGE Chairman COMMITTEE Mr. Vicente Moreno García-Mansilla (independent) Chairman Members Mr. Moisés Israel Abecasis (independent) Mr. Albert Esteve Cruella (independent) Mr. Moisés Israel Abecasis (independent) Members Ms. Agatha Echevarría Canales (independent) Secretary Mr. Albert Esteve Cruella (independent) Mr. José Ignacio Benjumea Alarcón (executive) Mr. Nicolás Villén Jiménez (independent) Mr. Vicente Moreno García-Mansilla (independent) Secretary Mr. José Ignacio Benjumea Alarcón (executive) CREDIT RISK COMMITTEE Chairman Mr. Santos Martínez-Conde