THE BCPATLÂNTICO GROUP ON THE CAPITAL MARKET

Transcription

1 THE BCPATLÂNTICO GROUP ON THE CAPITAL MARKET During 1999 the capital market was greatly influenced by Portugal s joining the founder countries of the single European currency, by the start to trading in euros on the financial markets of the Euro zone and by the listing of prices and turnover in euros by the various bourses. Swift dissemination of information allowed by technological development, harmonisation of securities trading, settlement and management procedures, and globalisation of the activity of institutional investors are all part of a process of rapid convergence of the markets. This is reflected in the action of the listed companies, and also in their shareholder bases and in their potential investors. In this latter regard, attention is drawn to the reallocation of portfolios carried out by domestic institutional investors which began to direct to markets abroad particularly in the Euro zone a significant part of the investment previously allocated to the Portuguese equity market. During the first week of 1999 the Portuguese market was euphoric, a feeling shared with the other bourses of the Euro zone. The denomination of securities in euros and the heavy demand for assets of greater risk during the earlier days of the year made a decisive contribution to the rise of share prices, supported also by the increase of liquidity characteristic of this time of year linked to the applications of investment funds and other financial products providing tax benefits. Following this phase, the Portuguese equity market showed a downward trend, returning a performance clearly worse than the other European markets. This stage lasted until the summer. Several factors contributed to this, particularly: portfolio diversification by institutional investors who started to focus on investment by sectors rather than by markets as before; divestment by foreign funds that moved to emerging markets; the negative impact of prices administratively fixed by the regulators; the effects of the Brazilian crisis on listed companies exposed to that market; the postponement of concentration expectations, especially in the financial sector; and the retraction of small investors, notwithstanding the continuation of very low interest rates on bank deposits. The reversal of the trend of falling prices and reduced liquidity took place in September. It was caused by factors such as: the launch of various take-over bids concentrated on the small caps; the good growth prospects for Portugal and the other Euro zone countries; anticipation of good corporate results; the arrival of the first Internet stocks on the Portuguese market; the success of the privatisations; and the increased liquidity brought about by the stock-splits that took place during the last quarter of During December the increased turnover and the rise of the PSI-20 (up 26.2% between the trough and the year end) was chiefly the result of the optimism about the prospects for the telecomm businesses, of the prospects of concentration in the distribution sector and of the good performance of the major international financial markets, benefiting from the good economic figures published in the USA and Germany. BCP SHARES ON THE STOCK EXCHANGE Notwithstanding the framework that was not too propitious at the start of the year, the welcome give to the profit announcement made by the institution was to underpin the 10.5% increase of BCP share prices over the first three months of From then on the performance was more irregular until the summer, with a low for the year of EUR (4.69 corrected for the stock-split) on September 14. Up to the end of the year, BCP shares then saw a sustained increase. The sequence of quarterly profits announced allied to the Group s initiatives directed at consolidating its leadership of the sector led to a sustained increase of turnover and prices, further helped by the effect of the stock-split as from November 15. The year s peak was achieved on November 22 with a price of EUR The shares closed the year at a price of EUR 5.51, an increase of 5.2% compared to December 31 last year. The Banco Comercial Português (BCP) share capital was increased from PTE billion to PTE 200 billion on February 17, as a result of the exercise of rights linked to the convertible preference shares issued by BCP International Bank Limited in At the BCP Annual General Meeting held on March 26 approval was given to the proposal for the appropriation of the 1998 profits, calling for the payment of a dividend per share in the sum of EUR 0.58 (PTE ), an increase of 22.4% over the PTE dividend for The 1999 dividend payout of 42.9% provided a dividend yield of 2.2%. The AGM also approved several other proposals: the constitution of a stock option programme for the Group s staff, with its inherent increase of share capital; conversion of the share capital into euros and a share capital increase through incorporation of reserves to cover the alteration of the par value of each share to EUR 5; and the subsequent reduction of the par value to EUR 1. These measures clearly reflect the commitment of the Institution, unquestionably supported by its shareholders, to a proactive stance towards the evolution of the capital market and to ensuring employee awareness by linking salary performance to the performance of the shares. In the wake of the decisions taken, the Banco Comercial Português share capital was increased on June 23 through incorporation of reserves in the sum of PTE 482 billion, and at the same time the denomination of the shares was changed to euros. Following this operation BCP s share capital increased PTE 200 million to PTE billion (EUR 1,000 million). Then, on November 15, there was a five-for-one stock-split, increasing the number of shares to one thousand million. In accumulated terms, 672,787,646 shares (the figure prior to November 15 adjusted for the stock-split) were traded on the Lisbon Stock Exchange during 1999, for a total of EUR 3,561 million. Market capitalisation rose 6.8%, up from EUR 5,157 million to EUR 5,510 million between the end of 1998 and of 1999, reflecting both the appreciation of the shares (5.2%) and, to a lesser extent, the impact of the share capital increases. As a corollary of this performance, BCP ranked second in 1999 in terms of the market capitalisation of the companies listed on the Portuguese market, confirming its clear leadership of the financial institutions listed. 12

2 Reflecting the interest in BCP s shares, a total of 173,002 BCP Futures contracts were negotiated on the Oporto Derivatives Exchange, an increase of 81% over 1998 (95,666 contracts). On the New York Stock Exchange the turnover of the American Depositary Receipts (ADRs) representing the share capital was about US$ 39 million, corresponding to 1,392,300 ADRs. This was less than in the previous year but it reflects the fact that, despite the importance to North American investors of admission to listing on the New York Stock Exchange, there is a growing acceptance of the European bourses as a place to trade and also the lowering of the barriers to direct institutional investment in foreign securities. Each ADR now represents 5 shares of a nominal value of EUR 1 following the stock-split. BANCO PORTUGUÊS DO ATLÂNTICO SHARES ON THE STOCK EXCHANGE Banco Português do Atlântico share prices moved in line with the three phases that marked to Portuguese equity market throughout 1999, though they rose clearly more than the market average and than the financials. During the opening days of the year Atlântico increased 6.9% over the 1998 close, trading at EUR 3.73 (corrected for the stock-split) on January 8. Following this period, BPA share prices saw a gradual fall in step with a rather illiquid market, to stabilise above EUR The fact that Banco Português do Atlântico was not considered to be the target of a take-over bid within the scope of a possible concentration of the Portuguese financial system as a result of the controlling stake held by Banco Comercial Português led to some selling by several domestic and foreign institutions. During the summer there was hardly any volatility of Atlântico share prices, turnover was low and technical support was confirmed at EUR 2.80 the figure seen in October 1998 at the time of the share capital increase reserved to shareholders and in March 1995 at the time of the take-over bid by BCP. Admission to listing on September 22 of the shares resulting from the stock-split provided the shares with greater visibility, not only because the Bank pioneered this move but also on account of the profits returned. Banco Português do Atlântico shares closed the year at EUR 4.07, an increase of 44.3% between September 21 and December 31 (during the period the PSI-20 rose 22.3%), with a daily trading volume of 1.5 million shares, compared to the figure of 111,000 before the stock-split. A total of million Banco Português do Atlântico shares were traded during 1999 (considering the par value of EUR 1) on the official market of the Lisbon Stock Exchange, providing a turnover of EUR million. Banco Português do Atlântico ranked ninth on the Portuguese equity market in terms of market capitalisation, standing at EUR 2,566 million as at December 31. SHAREHOLDER BASE During 1999, the performance of the Portuguese capital market was irregular, except for the last quarter when there were clear signs of a recovery. Allied to its upgrading from emerging market to a developed European market, this led several private and institutional investors to move on to new emerging markets such as Greece or Poland, on the one hand, and to a demand for securities of institutions in similar sectors of European scale in other markets expected to outperform the Portuguese one. Notwithstanding the existence of adverse external factors, the credibility and attractiveness of BCP s shares led new institutional investors to come in from various areas, enlarging the geographic base, with a focus on European investors. The Bank continued to be subject to analysis and investment recommendation by the various specialists of domestic and foreign institutions that regularly analyse the Group s performance, actively promoting the inclusion of BCP shares in the portfolios of private and institutional investors. In this field, there has a clear increase on institutions carrying out this monitoring, both in quantity and in quality, in response to investor demand and to the interest in BCP shares given their position in the European financial sector. There was a slight reduction in the number of BCP shareholders between the end of 1998 and of 1999, and the number of shareholders with more than 5,000,000 shares increased their relative weight, in aggregate terms, by 2.3 percentage points (holding 64.0% of the share capital as at December 31, 1999, compared to 61.7% a year earlier). TREASURY STOCK In accordance with Decree-Law 318/89, of September 23, which applies to lending institutions the general company regime regarding the acquisition and sale of treasury stock, the General Meetings of Shareholders have, in successive years, adopted resolutions allowing the Bank to buy back own shares up to a maximum of 10% of its share capital. As at December 31, 1998, Banco Comercial Português held 900,000 BCP shares (or 4,500,000 following the stock-split). During 1999 the Bank acquired 95,600,010 shares at an average price of EUR 5.32 for a total consideration of EUR million. During this period the Bank sold 54,850,010 shares at an average price of EUR 5.42 for a total consideration of EUR million. The total of the acquisitions reflects the purchase of a block of 19 million shares (95 million following the stock-split) in the wake of the termination of the strategic alliance with Banco Central Hispanoamericano. The aim of the episodic acquisition and disposal of treasury stock was to contribute to the increased liquidity of the shares. As at December 31, 1999, Banco Comercial Português held 45,250,000 own shares. These were sold during January 2000 and were placed with Portuguese institutional investors within the framework of the strategic partnerships and industry consolidation measures involving the acquisition of 50% of the share capital of Interbanco and the integration of the financial area of the José de Mello Group, thus increasing the Portuguese component of the BCP shareholder base. 13

3 The Banco Comercial Português Shareholder Base as at December 31, 1999 Type of Number of Percentage of Shareholders Shareholders Capital Employees 8, % Individuals 39, % Companies 1, % Institutional % Total 48, % Number of Shares Number of Percentage of per Shareholder Shareholders Capital > 5,000, % 500,000 up to 5,000, % 50,000 up to 499, % 5,000 up to 49,999 5, % < 5,000 42, % Total 48, % THE YEAR 2000 PROBLEM The importance given to the diversity and complexity of the questions raised by the change of the millennium and the significance and impact of a less well prepared transition caused the BCPAtlântico Group to view the Year 2000 Project as a major project across the entire Group. Rigorous programming and execution were implemented since it was a complex technical process requiring the discontinuation, replacement and correction or enlargement of systems and equipment in order to eliminate possible failures that could have an impact on the business. In keeping with its overall quality policy the BCPAtlântico Group, in a process that involved its subsidiaries and offices abroad, took the necessary measures as from 1996 to ensure that the service provided suffered no disturbance as a direct or indirect result of the handling and processing of dates later than To this end, the adaptation processes of customers, suppliers, other banks, other insurers and reinsurers were accompanied, information was provided to the market regarding the progress of the project, efforts were made to limit any kind of disturbance of a systemic nature and the necessary contingency plans were drawn up. THE YEAR 2000 PROJECT ServiBanca headed the Year 2000 Project which was given maximum priority across the entire BCPAtlântico Group. It involved all the associate and subsidiary companies abroad, as well as all the companies held by Seguros e Pensões. Its aim was to protect the interests of the Group and of its customers, and to ensure, from a technical standpoint, the continuity of operations on the changeover to The budget set aside for the Year 2000 Project totalled PTE 2,650 million, broken down as follows: 3% in 1997, 29% in 1998 and 68% in This estimate included internal and external costs, project management and consultancy, the programme s operational certification, risk-management and external aspects. Of the total, 43% (PTE 1,140 million) involved investment in equipment, replacement of applications and other fixed assets. The costs incurred within the scope of this project were recorded in accordance with the accounting standards employed by the Group companies. Two structures were set up to monitor the project, the Technical Steering Committee and the Business Steering Committee. Those involved and represented, in addition to the Board of Directors of ServiBanca, included the Boards of BCP, Atlântico, the Seguros e Pensões companies and the other associate companies. Three organic units headed the project: the Year 2000 Office, the Year 2000 Technical Team and the Year 2000 Task Force. The main duties of Year 2000 office, created in December 1998, included setting up and controlling the overall plan and budget, internal and external communication, risk management and the creation of contingency plans. The other two bodies dealt with the entire technical aspect of the process. In addition to the executive bodies, over two thousand Group employees were involved. During February 1999 the BCPAtlântico Group joined the Global 2000 Co-ordination Group an informal international group of banks, stock exchanges and insurance companies whose aim was to identify critical areas in which joint initiatives and a total co-ordination of efforts by the global financial community would ensure minimisation of the potential risks arising from the change of the date on transition to In this field, the contribution of the BCPAtlântico Group was the quarterly publication of an assessment of the progress made by the Year 2000 Project, using a special methodology, and of periodic disclosure of the state of preparation of those sectors vital to the country. Notwithstanding the constant monitoring of the project by the internal auditors, the external auditors performed an audit of the Year 2000 Project in April and September 1999, in order to monitor the effectiveness of the adaptation process and to issue a reliable, independent opinion as to the measures adopted by the BCPAtlântico Group, thus reassuring those with whom the Group interacts shareholders, customers and other market agents. The conclusions confirmed that the Group interpreted and followed the best international practice. The industries supervisory and regulatory bodies Bank of Portugal, Insurance Institute of Portugal and the CMVM (Securities and Market Commission) regularly and assiduously accompanied the progress of the project through periodic reports, especially during the final quarter of the year and with particular intensity during the transition period. 14

4 TECHNICAL APPROACH In the first stage, starting towards the end of 1996 and lasting throughout 1997, the Year 2000 Problem was defined and the required support was secured concerning the provision of the resources needed by the project. The methodology to be employed was drawn up including top-level phasing, the inventory scheme, the operational certification programme requirements, etc. with the help of external consultants. The inventory of all the equipment, systems and applications to be covered by the project and falling within the scope of the operational certification programme was prepared and entered into a database. The Operational Certification Programme the measures implemented to ensure the conformity of the items inventoried in accordance with the methodology established for each component was headed, fostered and controlled by the Year 2000 Technical Team, and involved central and local IT applications, basic software and hardware, equipment other than IT equipment and the communications systems. For each of the more than eighty thousand items identified equipment, systems or applications as falling within the Operational Certification Programme, several measures were adopted: i) assessment and planning, including year 2000 compliance appraisal, definition of corrective measures, identification of the resources needed, assessment of costs and planning; ii) renovation, validation and implementation, with a view to the execution of the procedures needed to correct existing problems, to carry out the necessary tests to confirm compliance and to put into operation compatible systems following their acceptance by the users; and iii) monitoring the life cycle to ensure that no incompatibilities were reintroduced or that no problems reappeared. Certification of the central IT applications and of the local applications considered critical was undertaken by the Task Force throughout 1999 to ensure compliance of all the applications and interfaces. In additional to a basic technical team, the Task Force fell back on development specialists and very experienced users fully familiar with the normal working of the applications. This involved a total of 176 employees. Throughout six cycles over a period of nine months 153 applications were certified under an autonomous environment created specifically for the purpose, in which it was possible to recreate a production environment and to see how these applications would perform on sixteen critical dates. During this, seventy-three errors were detected and promptly corrected. Additionally, the Task Force undertook complementary certification in a quality control environment, continually moving through the various dates between the end of 1999 and the first quarter of 2000, testing data ageing. The certification process was completed under a disaster recovery environment, making use of production data so as to simulate the transition from December 31, 1999, to January 1, 2000, in real time. As from the first quarter of 1999 tests were carried out with external entities at the Group s initiative, with particular emphasis on the institutional tests undertaken with several entities. These included Deutsche Bank, a member of Custody 2000 (international custody tests), SWIFT, Bank of Portugal, SPGT Payment Subsystems: TEIS (tele-clearance and bills), SIBS (Multibanco), VISA, EBA (European Bank Association), BVL (Lisbon Stock Exchange), BDP (Oporto Derivatives Exchange) and Interbolsa (dealing and settlement). RISK MANAGEMENT AND EXTERNAL ASPECTS The management of potential risks linked to the Year 2000 problem and to internal and external communications was fostered, conducted and controlled by the Year 2000 Office. The Communication Plan consisted of a set of measures suited to each target customers, shareholders, staff, official entities, business partners, suppliers and the market in general. They were conducted in a coherent, standardised and timely manner, with a view to providing information, creating awareness, motivating and reassuring those involved in the process. For the purpose, several methods of internal and external disclosure were implemented, including: references in the Reports and Accounts, publication of articles in the specialised press, despatch of personalised mailings, preparation, updating and distribution of the Project s official bulletin entitled The BCPAtlântico Group on the Way to the New Millennium in Portuguese and in English, sending out questionnaires and replying to enquires submitted to the Group, participation in conference calls and regular contacts with various official entities and business partners with a view to restricting the impact of the problem. The Group s sites on the Internet were also excellent means of disclosing information concerning the Group s readiness. The sites were periodically updated with data considered relevant to the progress of the Year 2000 Project, in addition to constituting an important methodological aid as far as the preparation of several customers and business partners was concerned. Through the use of appropriate control mechanisms the preparation of the Group s counterparts for the year 2000 was appraised. Should any potential problems arise appropriate measure were envisaged to deal with the matter. Regular contact was also established with the main strategic partners with a view to taking cognisance of the progress made in their own process of adaptation, to exchange experience, to harmonise concepts and to establish common objectives. The Year 2000 Office accompanied the progress of the Group suppliers adaptation projects, especially those considered more critical. Effective measures were defined and implemented in those cases considered as constituting a greater risk for the business. In parallel, several awareness campaigns were launched, directed at Group customers, 15

5 making use of various means: publication and distribution of the Practical Guide to the Year 2000 (companies), inclusion of information sheets together with statements of account (individuals), seminars and conferences, informative brochures available at the BCP Retail network and information via TV Atlântico. Complementing this, some of the BCPAtlântico Group networks provided special credit lines to finance the expense borne by customers in making their systems year 2000 compliant. In the insurance business, a special Working Group was created, transverse all the Group s insurers, which was involved in the following areas: appraisal of the positions of the insurance and reinsurance markets; inventory (branches and businesses) of the risks with greatest exposure and those potentially most serious; analysis of major risks and riskexposure; and the consequent adoption of the advisable riskunderwriting policies. Contingency Plans were drawn up to minimise risks linked to a hypothetical failure of measures involving the renovation, validation and implementation of the Operational Certification Programme concerning the year 2000 compliance of the various systems or of possible system failures on the critical dates. The Disaster Recovery Plan was revised in keeping with new aspects introduced to the year 2000 risk. Prevention, mitigation, detection and correction measures were established in every Group business area, involving hundreds of employees, particularly during the transition period, during which more people were mobilised than at any other time of the project the Zero Day Plan. MILLENNIUM TRANSITION OPERATING REGIME A command centre was set up. This had additional responsibilities and could, if necessary, invoke and put into practice the Year 2000 Contingency Plan. The command centre was provided with a communications network and other infrastructures essential to the co-ordination of the many control centres involving every one of the Group s business areas on-line while ensuring their interoperationality. It also dealt with public relations and with contracts with the press. During the transition period, additional controls were introduced to detect and prevent any transactions not year compliant or the improper working of equipment and functions, before and during the passage of the millennium and during the following days. Exceptional measures were taken with regard to cash management so that both the Group s Branches and Shops and its own ATM network were constantly able to meet customer demands, ensuring that cash was available at all times in all the ATMs for which the Group was responsible. CONCLUSION OF THE PROJECT The transition period took place as planned, all tests were successful and no contingency measure had to be implemented. All the Group s information systems and technological platforms continued to work normally, and all the events related to the Year 2000 Bug were detected during the period of the activity of the Year 2000 Task Force, and were promptly set right. The impact on customers was practically nil. The Year 2000 Project was deemed to be concluded when the transactional platform was stabilised, the equipment and software declared compliant, all the technological equipment and mainframe applications certified and the continuity plans transmitted to the business areas, associate companies, insurance companies and areas supporting commercial activity. The IT Division then took over, once more, the regular, systematic monitoring of the operational status of the systems and equipment. 16