From the November 2007 issue of Treasury & Risk magazine

Bronze AHA Award Winner in Liquidity

The acquisitions of Hibernia and North Fork banks in 2006 and 2007 catapulted McLean, Va.-based Capital One Financial Corp. from a consumer finance company with a below-investment-grade credit rating to the 11th largest bank in the U.S., with an A- credit rating and $87.7 billion of insured bank deposits, including more than $50 billion in consumer deposits.

These changes opened the door to a new era of liquidity management, which meant treasury had to replace or consolidate 12 diverse systems or platforms in less than three years. So, a new system or platform had to go live every 85 days, says Darcy Williamson, vice president of corporate treasury.

More than 150 people from treasury, IT, legal, procurement, debt capital markets, banking deposit operations and corporate communications participated. A new treasury workstation cut ongoing application management costs by 25%, Williamson says.

To improve liquidity management, systems were overhauled to give treasury's trading floor and cash operations departments improved time-to-market and analytics for fixed-income securities and debt. As a result, the portfolio grew from $9.1 billion for the pre-bank Capital One to $24.2 billion for the new bank, and incremental annual return increased more than $25 million, compared to a 2004 baseline, Williamson says. The number of securities, measured by CUSIP numbers, rose from 356 to 3,266, he notes. Productivity among trading-related personnel increased an estimated 60%.

"The portfolio went from being a pure insurance policy to being a source of incremental earnings for shareholders," Williamson notes, "as our traders invested in more structured, higher-yielding products." Low-yielding U.S. Treasuries shrunk from 18% to 1% of the portfolio and agency paper dropped from 26% to 12%, while mortgage-backed securities grew from 43% to 72%. The pursuit of higher investment yields is projected to bring in more than $6 million in gains in 2008, he adds.

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