Bringing Valuations In-House: Toyota
Building a system to value internally the most complex financial transac- tions gives Toyota Financial services (TFs) a position of strength when
negotiating with its financial counterparties.
Prior to building its Valuation Center of
excellence, TFs valued simpler financial transactions internally and relied on counterparty
valuations for the more complex ones. executive management and auditors were concerned
about the company’s valuations, and reporting
them in financial statements, stunting its ability to diversify funding and hedging sources to
“Valuations are a core competency for
growth and success, and that ability helps us
maintain funding competitiveness, visibility
into financial statements and manage our
counterparty credit risk,” says Vanita Aggarwal,
director of treasury risk and analytics at TFs.
The financial crisis accelerated efforts al-
ready in motion to eliminate conflicts of interest
stemming from the use of counterparty valua-
tions and increase transparency by bringing all
valuations in-house. Aggarwal says one major
challenge was implementing the appropri-
ate technology and systems to do the internal
valuations, and another was installing the right
people in the correct organizational structure to
The wholly owned subsidiary of Toyota
motor manages $100 billion in derivatives that
it uses to hedge interest-rate and other risks.
Further increasing the need to value structured
products has been TFs’s desire to diversify its
funding options further.
To do that, TFs implemented the valuation
capabilities of Numerix and Wall street systems’
Wallstreet suite, and uses Bloomberg’s BVAl ser-
vice to validate valuations and provide full trans-
parency. TFs’s valuations team was reorganized
to support the new platform and ensure optimal
controls and governance around valuations.
Now, says Aggarwal, TFs is “100%
covered” in terms of valuing transactions in-
house or validating counterparty values with
an independent service provider. Automation
of processes has significantly reduced opera-
“It enables our funding teams to offer more
options to our investors, based on their needs,”
It enables our funding
teams to offer more
options to our investors,
based on their needs.
identify and quickly resolve issues.
TFs created cross-functional teams to
address those challenges and hired Deloitte
Consulting for an external view. Aggarwal says
it reinforced the auto finance company’s plan
and provided some implementation guidance.
When you have a holding company, it’s best to take advantage of it. omnicom Group’s more than 1,500
ad agencies worldwide were spending $147
million on equipment leases in 2001. each
lease was negotiated by a local agency with
one of more than 350 leasing companies.
No one had a comprehensive view of
equipment prices or the financing rates, and
hence their competitiveness, says eric Huttner,
assistant treasurer at $12.5 billion omnicom.
so the marketing and communications
giant implemented a global leasing system
powered by onBase software and customized by Computer sI that allows treasury to
arrange all leases and negotiate financing
rates and other terms. “All they have to do
at the agency level is sign documents that
have been pre-negotiated,” Huttner says.
That means, however, that the proper
equipment must arrive on time, or the cen-
tral treasury may face mutinies. To ensure
efficiency, omnicom dramatically reduced
the number of leasing companies it uses
to 15 globally. And it implemented an elec-
tronic system that automates proposing,
approving and processing leases, as well as
accounting and records.
leasing companies transmit data files
and documents to close out pending
leases and omnicom agencies can view
all their lease documentation, accounting
schedules, and compliance and internal
reporting data. In addition, treasury has
a dashboard that provides daily updates
on the company’s worldwide lease status.
“I get a report every day saying this is
how much money we owe for leases, their
average tenor and cost, and the average
interest rate,” Huttner says.
The workflow approval process starts
with the leasing companies entering
documentation and data, which are then approved by the local agency as a safety check
before the central office confirms the vendor
and leasing company are authorized.
“The leases flow very smoothly,” Huttner
says. “We’ve never had an agency call us and
say, ‘You didn’t approve my lease in time.’”
Implementing Centralized Leasing: Omnicom
I get a report every
day saying this is
how much money
we owe for leases,
their average tenor and
cost, and the average