- Strategic plan: "The goal is to achieve a ROTE of between 9% and 11%, with a gross profit of 100 million"
- Securities Services: "There are opportunities to grow with more services to customers and banks that bring their custodian business to us"
- Payment methods: "Thanks to the alliance with Visa, we are attracting many neobanks and service providers"
In 2012, in the midst of the financial crisis, the former savings banks founded Cecabank, a bank specialised in offering Securities Services, technology and payment services to any market operator. Today it is the leading depositary services provider, holding €213,664 million in deposits from more than 40 fund managers, with more than €297,000 million in securities under custody and a solvency ratio of 30.1%, more than double that of a conventional bank. "We assist our customers who want to outsource activities that are not core to them, and we do it from a bank, with a white label model. This is important because foreign retail banking has not succeeded in Spain because we are very good in this field, but there are not too many Spanish banks involved in back office activities in wholesale banking, and we have managed to be the leader in depositary services in the Iberian market," claims its CEO, José María Méndez, looking back on the first decade of the bank's existence.
You commence a new phase with a new strategic plan at Cecabank; where have the goals been set?
The previous strategic plans sought to consolidate the business model, which is based on three core business lines: Securities Services (execution of equity and fixed-income transactions, depositary, securities custody, etc.), treasury and global markets, where we are creators of the Spanish public debt market, and we have also become the seed of what could be the European Treasury & Global Markets (Next Generation EU); and processing of payments. The current plan is more transformational, it includes major investments, especially in technology to consolidate growth, and we have also set ourselves non-financial targets. This is the first time that our sustainability plan runs parallel to the strategic plan, with specific environmental, governance and social KPIs.
Last year the assets under custody increased by more than 50% and you added six fund managers as new customers. What are the expectations for this year and what financial targets have been set in the strategic plan?
We have expanded our customer base and our projection for the year-end is to match the results of the previous year. With the strategic plan, the target is to position ourselves with a CET1 ratio between 20% and 25% by the end of 2024, to achieve a ROTE between 9% and 11%, and a pre-tax profit, a gross margin, above 100 million.
Do you plan to expand your presence in other countries after becoming the leading Iberian depositary?
It is complicated. This is where we are heading, in particular, by accompanying the customer. We entered Portugal hand in hand with one customer, and we are looking for others. European legislation does not allow for a cross-border depositary. In order to be able to operate, you have to reside within the same jurisdiction as the fund manager for which you are acting as a supervisor.
You have a branch in Lisbon and representative offices in Frankfurt and London, will you open more?
Initially, no. The vocation of a custodian and depositary bank is to become a hub for our customers from here to all markets. We are present in 70 markets all over the world and there we represent them in the clearing houses, we process their transactions, etc. We need to reach everyone, but this does not necessarily mean having a physical presence. We will operate in other countries, but by accompanying the customer because our model is based on the idea of being an Iberian hub to the world.
And is there room for further growth in Spain with acquisitions, as in the past, or does the high market share create competition problems? A few months ago, BBVA sold its depositary, for example. Did you analyse its acquisition?
We did analyse it, but that process was stopped by BBVA itself. There are two avenues for growth: one, extending the entire value chain with respect to existing customers. We have a very modular approach and do what the customer wants. If the customer only wants to execute equity transactions, we only execute equity transactions. If they also want a global securities solution, we provide everything: we even provide the front end for our customers, white label of course. In other words, there is a lot of room for growth in the various links of the Securities Services value chain.
On the other hand, the professionalisation of this service and the ever-increasing regulatory requirements in the field of custodian services require greater investments and force more and more institutions to consider outsourcing their custodianship. This means that it would no longer only be a question of the custody of securities held by a bank for third parties, for its customers, but of the bank's own portfolio. In other northern European countries this practice is more widespread, with banks and insurance companies outsourcing the custody of their own assets. Here too there is an avenue for growth.
What business opportunities emerge as a result of Cecabank's commitment to sustainability?
We have tried, and are succeeding, in accompanying our customers in relation to the directive on shareholder activism. Imagine, we have 300 customers: fund managers, collective investment institutions, pension funds...; and we are trying to facilitate voting wherever they are and to ensure the traceability of the vote because their stakeholders are increasingly demanding this.
Do you operate as 'proxies' and make recommendations?
We do not provide recommendations or consultancy, they are responsible for that. We provide the "small tube", let's say, electronically, to facilitate this social activism, which is something imposed by the SRD II directive. When a fund manager or a fund needs us to facilitate their voting rights, to notify them of the event or the shareholders' meeting, when it is, how to exercise the vote, etc., we provide this service to them so that they can say: we have voted at every Meeting and that is where we exercise our policy, which will be either more environmental or more social. It is groundbreaking in Spain because nobody else is doing it, but it provides traceability and proof of the vote.
We are seeing a near explosion of venture capital funds in Spain and many funds raising capital, even small funds, in 'startups' or 'venture capital'. Does this benefit the bank in any way?
Yes, we are also entering this venture capital depositary market. Although legislation only imposes a legal obligation above certain volume thresholds or when these venture capital fund investments are marketed in the retail sector, we can say that yes, we have grown enormously in venture capital, and that is a good thing. We have also grown in voluntary contribution pension schemes, in the pension funds of the Basque Country, where we are also the leading depositary in Spain. The work of the custodian and depositary is very professional, requires a high level of awareness of all regulatory aspects, and a high level of technological knowledge in order to avoid operational risks. In fact, we are a very relevant infrastructure for this country. This can only be achieved with a workforce that is growing professionally, in which we invest in training, which is highly specialised. And that is the significant added value and strength of Cecabank: that it has highly specialised professionals. Success is thanks to the effort and commitment of the existing talent.
And with regard to 'fintech' and 'regtech'?
We have many customers from this sector. New market entrants are looking for leaner structures and have a greater tendency to outsource.
How might the implementation of the digital euro have an impact?
Well, we are monitoring the digital euro very closely. It is a very challenging project, although there are still many uncertainties that need to be addressed. It will impact us, of course, but we will adapt. We are subject to regulatory impacts from time to time and this forces us to be a bank with a great deal of flexibility and adaptability. This is precisely part of our success. Retail banks understand that this is not a core part of their business and that it requires investment and are therefore very interested in outsourcing it.
The alliance with Visa opened up the spectrum for Cecabank by allowing it to operate with banks in other countries. How is the agreement progressing and in which countries do you operate?
We are very happy. The idea is to be Visa's processor in the agreements it enters into and, effectively, this opens up the market significantly because it gives us more opportunities beyond the processing of Euro6000 cards, which was the traditional focus. Many neobanks, fintech, service providers, petrol station networks are converging there... Portuguese banks have also entered the market.
And the agreement with Diebold-Nixdorf and other ATM alliances such as Cardtronics? Do you already have customers?
We believe that the ATM is still an important part of the payment system that provides citizens with cash. In that vein, we have different partnerships with different leading stakeholders. In the case of Cardtronics, we already provide services to them, both in Spain and Portugal, while in the case of Diebold, we have not yet consolidated any project. It is a project involving synergies because we have a technological layer to provide software to the ATM, as well as the banknote service that allows us to refill the ATM, and that they process with us.
In view of the current context, with rising interest rates and inflation and the economic slowdown, will one business division be promoted more than another?
The challenge we now face is that if rates rise sharply and they start to remunerate deposits, perhaps some customers will no longer be so interested in having off-balance sheet funds, but I trust that fund managers will also be able to find higher returns for them than those that would be derived from simply remunerating deposits. We are also very optimistic about payments. The outlook is for electronic and digital payments to continue to grow.
Has the conversion and liquidation of the SICAVs been detrimental?
This is not affecting us because the SICAVs that are being destroyed are generally transformed into investment funds. Moreover, the bulk of collective investment in Spain is concentrated in investment funds, not in SICAVs.
