evaluating bank relationships 27,191 sales & trading – direct model • approximately $100b of...

Evaluating Bank Relationships Ted Zarrabi

Director – Balance Sheet Strategy

Toyota Financial Services

Agenda

I. Toyota Financial Services Overview

II. Bank Relationships i. Scope

ii. Changing Landscape

III. Evaluating Bank Relationships i. Qualitative Factors

ii. Quantitative Factors

IV. Evaluating Toyota’s Bank Relationships

Toyota’s Global Businesses

TFS Business Lines

Consumer Finance

•Loans

•Leases

Dealer Finance

•Wholesale

•Real Estate

•Working Capital

•Revolving Credit Lines

Commercial Finance

•Forklift

•Hino Trucks

•Loans

•Lease

Insurance

•Service Agreements

•Prepaid Maintenance

•Guaranteed Auto Protection

•Excess Wear & Use

•Tire & Wheel

Toyota Financial Services (TFS) offers competitive lending to both

consumers and dealers as well as a wide away of insurance and

warranty products.

TFS Group Global Presence

TFS Global Funding and Liquidity

As of September 30, 2014

Source: Company Reports

By Deal Type

TMCC Debt Outstanding (USD millions)

Secured

8,237

Unsecured

51,834

Commercial

Paper

27,191

Sales & Trading – Direct model

• Approximately $100B of commercial paper

issued annually

• $4 –10B rolling investment portfolio

Capital Markets & Derivatives – Indirect model

• Secured borrowing programs

• Unsecured long-term funding programs

• Approximately $20B of secured and

unsecured issued annually

• Approximately $2B of derivative trades per

month

~$87B of Debt Outstanding

Agenda







Scope of Bank Relationships

Advisory

Custody

Cash

Management

Services Capital Markets

Underwriting

Broker/Dealer

Asset

Management

Data &

Technology

Data Warehousing

Valuation&

Risk Systems

Hedging

Investments

Credit &

Lending

Financial

Evaluation generally more qualitative

Boxes in blue are also very quantitative

Evaluation

generally more

quantitative

Changing Landscape – Basel III

Banks’ return on equity

Banks absorb increase in costs

Banks pass on costs to borrowers

Revolver Pricing

Banks able to fully absorb increased

costs

Increased pricing,

Decreased supply

Banking landscape

Banks become more utility-like

No impact on bank behavior

Banks’ cost of equity

Banks perceived to be safer

Bank safety not perceived to change

Lending tilts toward lower-rated firms

Shorter term Longer term

Shift Away from Non-core and Low Profit

“…[Banks] are forced to focus

on business optimization and to make much sharper

resource allocation

decisions.”

Mis-allocated Resources: Why Banks Need to Optimize

Now”; Olyver Wyman, March 2014

Agenda







Evaluating the Bank Relationship

Service Quality

Underwriting Asset

Management

Investments

Evaluation of the relationship involves both qualitative and quantitative components.

Capability

Qualitative Evaluation

Qualitative evaluation of the bank relationship requires several key

considerations:

Capability in the service provided

Industry leader

Innovator

Cost/Value of the service provided

Discounted cost relative to competitors

Outsized return on investment

Consistency and reliability of service

Available under all market conditions

Stable team and management structure

Unique or niche service

Only provider of particular service

Provides service beyond bounds of competitors

Reputation and brand

Partnership/investment reflects positively on the institution

Quantitative Evaluation

Quantifying the value of a bank relationship generally starts with capturing the

relevant data – questions to ask: How are banks compensated?

Is this data readily available in a treasury or finance system?

Has a central repository been established to house all of this information?

Scope of quantitative factors – generally there are two different ways banks are

compensated Explicit Fee

• Fee that has been paid directly to the bank counterparty – can be observed in

Treasury management system. Underwriting Fees

Credit Facility Fees

Advisory/Consulting Fees

Implicit Fee

• Fee earned but not paid directly to the bank counterparty – cannot be observed

in Treasury management system. Asset Management Fees (generally netted out of returns)

Broker/Dealer Fees

Bill & Deliver

Earnings credits

Determine key metrics and reports Metrics need to be comparable (should incorporate both sides of the relationship)

Complexities and Considerations

Not every dollar is equal Fees earned underwriting a bond or through cash management are often more

desirable than advisory fees

Relative value of the fee to the bank can sometimes be difficult to ascertain

Fee may be related to a balance sheet intensive product and thus require

significant capital

Fee earned may require sizeable expense and thus provide minimal benefit to the

bank counterparty

Determining implicit fees can be rather difficult The value of bill and deliver or mark to market benefits of swap business is non-trivial

Fees may need to be adjusted against the value provided Investments returns vs. asset management fees

Everything doesn’t generate a clear value (implicit or explicit) What is the value of funds deposited at a bank?

What is the relationship value of brand, industry position or name marquee?

Agenda







TFS Bank Relationships

Advisory

Custody

Asset Management

Cash Management

Underwriting

Credit and Lending

Fee potential,

relationship opportunities

for banking partners,

and overall TFS needs.

Least

Most

TFS Bank Scorecard – Data Collection

Valuation

Treasury

Management

System

Cash

Management

Systems

Collateral

Exchange

Bloomberg CP System

Treasury Datamart

Automated “Real Time”

data collection via SQL

Server Integration Services

Oracle, Sybase and SQL

Server Databases

Australia

Europe &

Africa

South

America

Canada

Other

Flat Files from Affiliates

Automated (batched)

daily data load

Mobile Reporting (Roambi)

Custom Excel Reports

Analytical Dashboards

(Tableau)

TFS has a very active set of

bank relationships and thus

requires “real time” analytics

and reporting

TFS Bank Scorecard – Data Collection

Example – Hypothetical Data

Rank Counterparty Total FeesForecasted

Fees Fees Paid

Underwriting

Fees

Cash

Management

Fees

Credit Facility

FeesMMF Fees Broker Fees

Asset

Management

Fees

Other FeesTotal Facilities

Outstanding

Avg Facilities

Outstanding

1 Bank 1 $xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx $xxxx $xxxx



































FY15 (as of 09/02/14) FY15 (as of 09/02/14) Facilities

Lessons Learned

Transparency and coordination In a global (or very large) organization transparency between affiliates is essential

Global affiliates or business units should coordinate their efforts regarding bank

relationships

Accountability on both sides of the relationship Do not allocate business when the needs of the organization (either through service or

credit and lending) are not met

Do not develop bank relationships where there are no reasonable business

opportunities to allocate to the partner

Minimize treasury/corporate spend that is not allocated to bank partners

Analyzing and regularly “right sizing” bank relationships generally benefits both

sides

Questions?

evaluating bank relationships 27,191 sales & trading – direct model • approximately $100b of...

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