2017 ANNUAL REPORT CONTENTS CONTENTS 00 02 Chairman’s statement 7 MAIN BUSINESS Board of Directors 11 LINES Basque Country Advisory Board 11 Wealth Management 46 Nomination Co-investment activity 48 and Corporate Governance Committee 12 Retail and Private banking 50 Remuneration Committee 12 Corporate Banking and Markets 62 Audit Committee 13 Subsidiaries 70 Global Risk and Technology Change Committee 13 March A.M. 70 Credit Risk Committee 13 March JLT 73 The economy in 2017 14 March Vida 74 The outlook for 2018 20 Banco Inversis 75 01 03 FINANCIAL RESULTS HOLDINGS OF CORPORACIÓN Key figures 24 FINANCIERA ALBA Banca March Group 26 Investment portfolio 78 Consolidated balance sheet 31 Affiliated companies 79 Customer funds 34 LISTED COMPANIES 79 Customer loans 36 Acerinox 79 Ebro Foods 80 Capital markets 38 CIE Automotive 81 Capital instruments 39 Viscofan 82 Bolsas y Mercados Españoles 83 Consolidated income statement 40 Parques Reunidos 84 Indra 85 Euskaltel 86 NON-LISTED COMPANIES 87 Mecalux 87 Panasa 88 In-Store Media 88 Terberg Ros Roca 89 Gascan 89 Alvinesa 90 SatLink 90 Real estate activity 91 2 3 PRINCIPALES ÁREAS DE NEGOCIO GESTIÓN DEL RIESGO DE CRÉDITO Chairman’s statement 7 INTRODUCTION Board of Directors 11 00 Basque Country Advisory Board 11 Nomination and Corporate Governance Committee 12 Remuneration Committee 12 Audit Committee 13 Global Risk and Technology Change Committee 13 Credit Risk Committee 13 The economy in 2017 14 The outlook for 2018 20 4 5 CHAIRMAN’S STATEMENT CHAIRMAN’S In the first year of our 2017-2019 Strategic Plan, Banca March reported a record year thanks to the robust, fast-paced growth of our specialist businesses. Ten years ago, STATEMENT Banca March adopted a business model with a clear specialisation in private banking and corporate advisory to allow us to focus on what we do best, setting ourselves apart from the rest of the sector. Since then, we have channelled all our efforts into achieving that; our overarching goal is to position ourselves as the leading bank for our customers in private banking and advisory services for companies, family businesses and enterprising families. Our status as Spain’s only 100% family-owned bank puts us in the perfect position to understand and respond to the specific needs of our customers. Thanks to the hard work of the entire Banca March team, 2017 was a year of great progress, with a qualitative increase in specialisation and a quantitative jump in profitability. All business margins chalked up impressive growth. Income generated through services provided enjoyed exceptional growth, which is a clear indicator of the effectiveness of the bank’s commitment to specialisation. It is important to emphasise that the weighting of this income stream within the ordinary margin from banking activity has increased year after year to stand at 70.4% in December 2017. The results obtained in the Financial Sector Customer Satisfaction Benchmarking, published by independent firm STIGA, are a clear reflection of the outstanding confidence levels among our customers and the excellent positioning our brand enjoys in society as a whole. In 2017, Banca March got the best ratings in the entire Spanish financial sector for transparency, confidence and satisfaction with managers, and perceptions of the bank reached outstanding levels. However, these excellent results have not made us complacent. On the contrary, they motivate and encourage us to do even better. At Banca March, we want to be known for offering our customers the best services, and that means committing to continuous improvement whilst remaining true to the core values that underpin our business model: commitment, ambition, effort, exacting standards and integrity. Shared growth with our customers is the very cornerstone of our philosophy. That means engaging with and listening to our customers and working closely with them to afford us a true understanding of their needs and allow us to provide them excellent advice. Achieving and delivering excellence is an obsession for us. That’s why all Banca March professionals are undergoing a training programme on financial advice and reporting, allowing us to comfortably fulfil the requirements imposed by MiFID II. This initiative is intended to ensure that our professionals have the utmost levels of qualification. However, our commitment to providing our customers with the best possible service does not end there. Banca March is utterly committed to positioning itself as a pioneer in the field of banking sector technology. We have stepped up our investment in technology, but we never lose sight of the fact that technology itself is not the goal; it is a tool to allow us to offer our customers an exceptional experience, every step of the way. 6 7 CHAIRMAN’S STATEMENT All Banca March managers have access to the necessary tools to respond to our As for Banca March, the results attributable to banking activity in 2017 were outstanding, customers’ needs carry out transactions wherever suits them best. We have also rolled totalling 100.9 million euros, an increase of 55.0% versus the previous year. These out plans to transform our branches into Business Hubs with a clear focus on advisory results were made possible largely by the growth enjoyed by the specialist business services, and have enhanced our range of multi-channel services. Our goal, first and areas: private banking, wealth management and corporate advisory. All business margins foremost, is to provide all of the banking activities that our customers need and want. registered impressive growth. Income from services provided was up by a particularly strong 24.9%, a reflection of our clear commitment to a highly-specialised business Another major milestone in 2017 was the full integration of Consulnor into the bank’s model. structure. This has allowed Banca March to complete its growth strategy in the regions of the Basque Country and La Rioja. We initiated this process in 2012 by buying a However, the one thing we are most deeply proud of is the faith that our customers majority stake in Consulnor, which we gradually increased to reach 100% in 2017. One place in us every day. An increasing number of savers and investors are placing their outcome of this acquisition was the creation of the Banca March Advisory Board in trust in our management. This trust is underpinned by our flawless track record, and is the Basque Country, which comprises prestigious figures from the business, social and reflected once again this year in the impressive increase in private banking and wealth cultural landscape, with a view to reinforcing Banca March’s commitment and footprint management customers; customers who know that our commitment to profitable growth in the region. – based on a robust balance sheet, excellent service and our flagship co-investment activity – makes us the optimal choice for the management of their assets. This is further Our foundations are solid. We have a track record spanning over 90 years and a deeply- evidenced by the outstanding performance of our total Assets under Management in rooted ambition to grow alongside our customers. Our management model takes a long- SICAVs by March Asset Management. At the end of 2017, the Banca March Group’s term approach and is underpinned by solid financial and capital ratios; we have the asset management boutique had 3.41 billion euros under management, positioning it as lowest NPL ratio in the Spanish financial sector and among the strongest capital equity the second-largest asset manager in the Spanish market by SICAV volumes. positions in Europe. We are currently implementing this effective business model against the backdrop of a burgeoning economic recovery. In May 2016, the Banca March Board of Directors approved a new organisational structure to provide the framework we need to effectively implement our strategy. For the third year running, the Spanish economy posted impressive year-on-year growth This transformation is targeted at specialising our Wealth Management and Corporate of over 3%. Improving unemployment rates – which have long been a stumbling block Banking areas to offer our customers the sophisticated, tailored services they require. for the Spanish economy –, a strong foreign sector – with record exports in 2017 of just Over the course of 2017, we made great headway in this restructuring process. Whilst over 277 billion euros –, and the excellent performance of the Spanish tourist sector all Banca March has one of the lowest external HR rotation rates in the sector, we have contributed to prolonging this phase of economic expansion. renewed and reinforced the professional profiles we need within each of our business In 2017, Spain welcomed over 80 million tourists, smashing the record set in 2016. The units. Thanks to the unwavering efforts of our teams, we generated the best ever results most reliable estimates place spending by these tourists at 86.82 billion euros. in the bank’s history in 2017. The robust performance of the property sector is a clear indicator of the current I am truly grateful to each and every professional in the Banca March team. Your strength of the domestic market. In 2017, residential property transactions totalled unwavering loyalty to the values that define Banca March – commitment, ambition, almost 500,000, up 14.6% year on year. The strong employment figures registered in effort, exacting standards and integrity – has made these excellent results possible, and 2017 contributed substantially to this improvement.