 Treasury Hot Topics Seminar The traditional corporate bank relationship model is dead. What does this mean for the corporate treasurers? 19 February 2009

Agenda Audience perspective Main reason for traditional model decline Valuable bank relationship model Conclusion Q&A

Agenda Audience perspective Main reason for traditional model decline Valuable bank relationship model Conclusion Q&A

PricewaterhouseCoopersSlide 4 Audience perspective Share your point of view Question n°1 How many main bank relationships do you maintain for cash management activities across the group? to to to 20 5.More than 20 0% 52% 26% 13% 9%

PricewaterhouseCoopersSlide 5 Audience perspective Share your point of view Question n°2 Do you have a formal policy for cash and bank management? 1.Yes 2.No 86% 14%

PricewaterhouseCoopersSlide 6 Audience perspective Share your point of view Question n°3 Does it exist in your company a proper counterparty risk management? 1.Yes 2.No 60% 40%

PricewaterhouseCoopersSlide 7 Audience perspective Share your point of view Question n°4a Do you categorize your bank relationships? 1.Yes 2.No 95% 5%

PricewaterhouseCoopersSlide 8 Audience perspective Share your point of view Question n°4b If yes, do you categorize them by the following criteria? (1:Yes – 2:No) 1.Importance / tiers (core, niche, etc.) 2.Sex appeal of my bank relationship manager 3.Bank activities (funding, cash management, dealing,…) 4.Region 5. Exposure 6.Funding support 43% 9% 78% 43% 13% 65%

PricewaterhouseCoopersSlide 9 Audience perspective Share your point of view Question n°5 By which frequency do you evaluate your corporate bank relationship(s) and measure bank(s) performance? 1.More than once a year 2.Yearly 3.Less than once a year 4. I don’t assess my bank relationship(s) 15% 65% 10%

PricewaterhouseCoopersSlide 10 Audience perspective Share your point of view Question n°6 Would you say that you’re evaluating your corporate bank relationship(s) via qualitative or quantitative criteria? 1.Mainly qualitative 2.Mainly quantitative 3.Both qualitative and quantitative 4. I don’t assess my bank relationship(s) 5% 14% 77% 5%

PricewaterhouseCoopersSlide 11 Audience perspective Share your point of view Question n°7 Which of the following elements do you formally take into account to measure your bank relationships (1:Yes – 2:No) : 1. Head office banking fees 2. Business units banking fees 3. Quality of service received 4. Coverage of service received 5. Flexibility 6. Participation in the core financing 7. EBS coverage and support 8. Customer service support 9. Geographical coverage 59% 18% 77% 36% 45% 77% 23% 18% 64%

PricewaterhouseCoopersSlide 12 Audience perspective Share your point of view Question n°8 Have you already calculated an estimate of how much your banks gain from your relationship? Do you have an open discussion with them on that aspect? 1.Calculated and discussed with bank 2. Calculated but not discussed 3. Not calculated 19% 38% 43%

PricewaterhouseCoopersSlide 13 Audience perspective Share your point of view Thank you for your participation. Let’s analyse your responses!

Agenda Audience perspective Main reason for traditional model decline Valuable bank relationship model Conclusion Q&A

PricewaterhouseCoopersSlide 15 Main reason for traditional model decline Principal relationship aspect scrutinized How Corporates used to manage their relationship CorporateBank 1. Provide with funding 2. Offer in/out flows

PricewaterhouseCoopersSlide 16 Main reason for traditional model decline The qualitative relationship How Corporates used to evaluate their bank relationship Does the bank support my Company in the LT funding? Does the bank provide my Company with priority status within its organisation? Do I have good and frequent contacts with the bank relationship manager? Does the bank respond quickly in case of questions raised? Does the bank have a good customer service? Is the bank able to support my cash management structure? Is the electronic banking system reliable and user-friendly? Etc.

PricewaterhouseCoopersSlide 17 Bank activities Main reason for traditional model decline The importance of the global vision of bank activities Corporate Bank Only banks were able to evaluate the relationship in terms of returns and costs FX transactions IR transactions LT funding ST funding Insurance Credit Card Structure In flows M&A services Out flows Capital market Factoring

PricewaterhouseCoopersSlide 18 Main reason for traditional model decline Reciprocity is now the key

Agenda Audience perspective Main reason for traditional model decline Valuable bank relationship model Conclusion Q&A

PricewaterhouseCoopersSlide 20 Valuable bank relationship model Importance of good bank relationship management Dear banks, Do you cut back lending to all firms proportionately or do you maintain finance to firms with whom you have exclusive or long-standing relationships? In deteriorating credit conditions Valuable Bank Relationship Less likely denied credit by banks More likely to receive/renew banking facilities

PricewaterhouseCoopersSlide 21 Valuable bank relationship model Win-Win Model Transparency & Communication Quantitative & Qualitative Assessment Win – Win Strategic Model in Bank Relationship Monitoring of counterparty risk Re-Negotiation with banking partners

PricewaterhouseCoopersSlide 22 Valuable bank relationship model Win-Win Model – 1. Transparency & Communication (1/2) Communication is key with your banking partners Longevity Frequency of contacts CommitmentDedication Personal human factors Transparency Be Transparent on your business situation But also on Your expectations Bank’s strengths and weaknesses Bank’s performance How much you give from your business to the bank

PricewaterhouseCoopersSlide 23 Valuable bank relationship model Win-Win Model – 1. Transparency & Communication (2/2) MONITORING SELECTION EVALUATION REQUIREMENTS PERFORMANCE REVIEWS POLICY

PricewaterhouseCoopersSlide 24 Valuable bank relationship model Win-Win Model – 2. Quantitative & Qualitative Assessment (1/3) Treasury Operations Transactional costs (in/outgoing flows) Liquidity structure cost Capital Market / M&A operations fees Float Electronic Banking System cost ST & LT financingReportingInvestment Credit CardInsurancePayroll

PricewaterhouseCoopersSlide 25 Valuable bank relationship model Win-Win Model – 2. Quantitative & Qualitative Assessment (2/3) Example of FX operations Bank Relationship opportunity with Quantitative Assessment: Show the Bank: - The number of your FX deals over the period - Percentage of transactions dealt with the Bank - Average spread versus other banks performance Assess amount of business given to the Bank Discuss potential improvement areas for negotiation purposes Current main issue is: How to obtain this information? From your Treasury Management System for Group Treasury operations Need of intra-group reporting for local operations if de-centralized FX risk management Easiest management of foreign currency flows and hedges with workflow tool software or a payment factory tool !

PricewaterhouseCoopersSlide 26 Valuable bank relationship model Win-Win Model – 2. Quantitative & Qualitative Assessment (3/3) Example of Bank Performance Evaluation Scorecard Bank nameBank A Review date 19/02/09 Last review 01/07/08Start of relationship2002 Brokerage Fees # Group Transactions Nominal Amount (€k) # Called with the bank # Dealt with the Bank All Bank Average Spread Bank average spread Difference Bank ranking Bank Remuneration (€k) FX forward USD/EUR1,23012, (56%)227 (33%)32 bps45 bps-13 bps# FX forward GBP/EUR2451, (58%)35 (24%)37 bps52 bps-15 bps# IR Derivatives234,50016 (70%)7 (44%)17 bps13 bps+4 bps# Overnight deposits Others TOTAL1,49818, (57%)269 (32%)32.6 bps45.1 bps-12.5 bps# Local TransactionsNumber Total Cost (€k) Other banking activitiesCost (€k) Collections1, Bank accounts4.56 Payments2, Cash Management Structure (ZBA, notional pooling)6.80 TOTAL4, Capital Market Operations2.45 Others (training, credit card, insurance, etc.)12.65 LT funding support€12m Credit lines Total26,46 LT funding support€150m Syndicated facility Total of financing support vs. competition 15%Total Bank Remuneration (€k)56,72 Total CM operations routed through the bank 25%

PricewaterhouseCoopersSlide 27 Valuable bank relationship model Win-Win Model – 3. Monitoring of counterparty risk (1/4)

PricewaterhouseCoopersSlide 28 Valuable bank relationship model Win-Win Model – 3. Monitoring of counterparty risk (2/4) The principle role of the treasurer is to identify and manage financial risk. RISK Today Credit crunch Sub-prime crisis Financial meltdown Operational Liquidity Funding Counterparty Foreign exchange Interest rate Commodity But as Treasurer, do you have the authority or the information to fully identify the risks the company is running?

PricewaterhouseCoopersSlide 29 Valuable bank relationship model Win-Win Model – 3. Monitoring of counterparty risk (3/4) Elements to evaluate counterparty credit risk level Ratings Calculation from financial history and current assets and liabilities Typically lender/investor probability to be able to pay back a loan Assigned by credit rating agencies (S&P, Moody's or Fitch) CDS To receive a protection if an underlying financial instrument defaults but no need to own the underlying security. The price is expressed as a percentage of the notional amount Higher CDS spread is considered more likely to default by the market CDS can be used by investors for speculation, hedging and arbitrage Internal ratios Internally develop to assess counterparty level of liquidity, debt, etc.

PricewaterhouseCoopersSlide 30 Valuable bank relationship model Win-Win Model – 3. Monitoring of counterparty risk (4/4) Investment Risk Market Replacement Risk Current Exposure Potential Future Exposure Credit Risk Settlement Risk Pre-Settlement Risk

Agenda Audience perspective Main reason for traditional model decline Valuable bank relationship model Conclusion Q&A

PricewaterhouseCoopersSlide 32 Conclusion Key action points 1.The corporate should identify a full list of banking requirements 2.Determine the approach to be adopted to relationship / transactional banking 3.Consider the criteria necessary to establish a relationship 4.Analyze the strengths and weaknesses of potential relationship banks to meet the company’s requirements 5.Hold regular discussions with bankers to assess the status of the relationship and potential developments 6.Consider the global relationship implications of any new or existing relationships 7.Limit the development of new relationships to those where there is a commercial reason for doing so 8.Provide information about the company to relationship banks on a regular basis 9.Develop a formal review procedure for all relationships

Agenda Audience perspective Main reason for traditional model decline Valuable bank relationship model Conclusion Q&A

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