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UniCredito Italiano Group

UniCredito Italiano Group. Alessandro Profumo - CEO. “HIGHER RISK VS. LOWER GROWTH - THE CHALLENGE AHEAD”. Merrill Lynch European Banking & Insurance Conference. London - October, 8 th 2002. Agenda. Creating value in a volatile world. Portfolio strategy for future growth. 0.33. 0.28.

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UniCredito Italiano Group

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  1. UniCredito Italiano Group Alessandro Profumo - CEO “HIGHER RISK VS. LOWER GROWTH - THE CHALLENGE AHEAD” Merrill Lynch European Banking & Insurance Conference London - October, 8th 2002

  2. Agenda Creating value in a volatile world Portfolio strategy for future growth

  3. 0.33 0.28 0.28 0.26 0.19 0.09 1997 1998 1999 2000 2001 1H02(2) IN THE LAST FOUR YEARS UCI SHOWED EXCELLENT GROWTH DESPITE MACROECONOMIC AND FINANCIAL MARKETS DISCONTINUITIES ... Market indexes and macroeconomic indicators(1) (BASE: IVQ’97=100) UCI EPS evolution 2nd Discontinuity: 11th September 2001 250 1st Discontinuity: IIQ’00 - Macroeconomic growth slowdown 1997/1H02(2) EPS CAGR: +29.7% 200 150 100 50 0 IIQ'98 IIQ'99 IIQ'00 IIQ'01 IIQ'02 IVQ'97 IVQ'98 IVQ'99 IVQ'00 IVQ'01 Italian GDP growth Euribor 1M MSCI WORLD (1) Source: Datastream for MSCI World Index; ISTAT for Italian GDP growth; BCE for EURIBOR 1M (2) Annualised data

  4. … WHICH IMPACTED OUR COST OF CAPITAL ... TIER I Target UCI CoE 7.5% 8.95% 8.79% +16 bp • UCI increased its Risk Premium to reflect the higher uncertainty and volatility of equity markets +79 bp 4.30% Risk Premium (1) 3.51% UCI Credit Spread(2) 0.18% -1 bp 0.17% • On the other side, UCI benefited from the decrease of risk-free rates and from its increased capital ratios, resulting in a reduction of the credit spread -62 bp Term Debt 5.10% Risk-free Rate(3) 4.48% 2001 2002 (1) Calculated as the annualised cost of a 5 year Call Option on UCI, with strike-price in line with the 5 year forward-price of UCI (2) Credit spread paid by UCI on a 5 year senior debt (3) Fixed Rate on5 year Euro IRS

  5. UCI Credit Spread (6) Bp 90 80 70 60 50 40 mar- may- jul- sep- nov- jan- mar- may- jul- sep- 01 01 01 01 01 02 02 02 02 02 ISSUE SPREAD SPREAD vs SWAP ... BUT DID NOT AFFECT OUR CAPABILITY TO CREATE VALUE EVEN AFTER A SIGNIFICANT STRENGTHENING OF OUR CAPITAL BASE NOPAT(1) (a) Risk taken(2) (b) Shareholder’s value added (c) =(a)-COE(3) Value added per unit of risk taken (c)/(b) MARGINAL RARORAC% RARORAC % Adj NET INCOME VALUE CREATION CAPITAL ABSORPTION (Euro mln) Group total (at 06/02) 770 7,489 418 11.2 14.2 UCI Solvency Ratios 11.69% 10.96% Total Capital Ratio (4) 8.57% +73 bp +239 bp +76 bp +54 bp 7.55% 6.79% TIER I Ratio (5) 6.25% 2000 2001 1H02 AS A RESULT, IN 2002 S&P RAISED OUR LONG TERM RATING TO AA- (FROM A+) ON JULY 3RD AND MOODY’S PUT UCI UNDER OBSERVATION FOR A POSSIBLE UPGRADE (PRESENT RATING Aa3) (1) Consolidated Net Income (Euro 849 mln) - Net Extraordinary Income after tax (Euro 79 mln) (2) Minimum regulatory capital, market risks, credit risks and operational risks (3) The Cost of Equity is related to the capital employed (4) FED standard (5) BIS standard (6) Spread vs Swap on UCI Lower TIER II 16.3.2001/2011, 6% Fixed Rate, Bullet (taken as an example)

  6. DIVERSIFICATION OF REVENUES BY BUSINESS AND BY GEOGRAPHY IS A KEY SUCCESS FACTOR TO ENSURE GROWTH AND MANAGE THE RISK PROFILE REVENUE COMPOSITION BY BUSINESS AREA (Net of infra-Group dividends and of Corporate Centre & Elisions negative contribution) 1H02/Avg ‘00 Growth: +14.6% Euro mln 5,341 5,361 5,272 4,658 New Initiatives 0.4% 0.2% New Europe Banking 14.5% 15.0% 13.7% 17.4% Asset Management 2.7% 5.3% 4.7% Investment Banking 4.0% 4.8% 6.0% 5.5% 9.0% 78.8% Italian Banking 73.7% 72.7% 71.6% 2000 Avg 1H01 2H01 1H02

  7. Agenda Creating value in a volatile world Portfolio strategy for future growth

  8. UCI DIVERSIFIED IN THE RIGHT BUSINESSES AND GEOGRAPHIES, BUT THERE IS STILL A SIGNIFICANT POTENTIAL TO BE EXPLOITED Divest and/or use assets in M&A Leverage on synergies and or acquire capabilities of best owner = Euro 250 mln revenues COMPARISON CRITERIA Push growth limits/ allocate additional resources • Value creation of current operations • Value creation of new investments/options + Consumer Finance Retail UBM Private Banking New Europe Asset Management VALUE CREATION POTENTIAL Asset Gathering Do not invest further and/or free up capital allocated Aggressive and proactive divestiture Corporate UNDERSTAND CURRENT AND POTENTIAL VALUE CREATION FROM EACH BU Capture value and divest Cannot add value Can add value - Non natural owner Natural owner + - RELATIVE CAPACITY TO EXTRACT VALUE • Relative/absolute market share • Historical track record of returns • Synergies among businesses IDENTIFY DEGREE OF NATURAL OWNERSHIP OF EACH BU IN ITS RELEVANT MARKET COMPARISON CRITERIA

  9. S3 IS OUR ANSWER TO THE DOMESTIC COMPETITIVE ARENA AND WILL EXPLOIT ALL THE POTENTIAL IN EACH MARKET SEGMENT ... TO THE 3 NEW SEGMENT BANKS FROM 7 BANKS... RETAIL BANK CORPORATE BANK PRIVATE BANK

  10. RETAIL IS ONE OF THE MOST ATTRACTIVE BUSINESSES IN ITALY... ITALIAN INDUSTRY: 2001 RARORAC: 14% 01-05 REVENUE GROWTH: 6.7% VALUE CREATION OPPORTUNITY • Italy is one of the most attractive markets in Europe thanks to product-mix and expected volume growth • The pension system reform is a discontinuity which could have a significant impact on profitability and volume growth Retail High potential BEST OWNERSHIP/SYNERGIES Value creation potential • UCI has a performance leadership as for efficiency and profitability and a superior track-record over the last 5 years • UCI results have been achieved on the existing customer base, while customer acquisition has not been pushed • Retail Banking is a strong platform todevelop specialized businesses with higher multiple (Consumer Finance and Asset Management) • Potential for cross bordersynergies in product factories and cross fertilization of products/businessmodels Low potential Cannot add value Can add value Non-natural owner Natural owner

  11. ... AND OUR NEW RETAIL BANK IS READY TO EXPLOIT ALL THE VALUE CREATION POTENTIAL THROUGH SCALE AND SPECIALISED SERVICE MODELS ... UCI RETAIL BANK KEY SUCCESS FACTORS • Quick and efficient distribution of innovative products /services specialised by segment: • Based in Bologna • MASS MARKET: multi-channel offer of standardised products, improved customer mix, better cross-selling and up-selling • AFFLUENT: increased share of wallet, improved customer mix, attraction of new customers, increased profitability through better asset mix • SMALL BUSINESS: improved customer mix, lower churn rate, increased share of wallet also thanks to dedicated consultancy for family’s savings • DISTRIBUTION CHANNEL: • ~2,800 branches • direct channels (self service, telephone & home banking) • 23,000 employees • 2,000-2,300 relationship managers • 16,500 commercial operators • Single “umbrella” brand + regional brands for distribution

  12. Focus on medium/long term loans • Further penetration of package accounts in mass market and small business segments • Excellent contribution of Capital Guaranteed products, pushing net sales of Life Insurance products and Segregated Accounts • Commissions/total revenues: 46.8% ... AS THE GOOD RESULTS OBTAINED IN 1H02 CLEARLY SHOW UNICREDIT BANCA* RETAIL (Mass market + Affluent + Small Business) Interest Income +0.5% (Euro mln) 1,028 1,023 1H01 1H02 Total Revenues +2.9% 2,015 1,959 Non interest income +5.4% 987 1H01 1H02 936 1H01 1H02 * former 7 banks

  13. CORPORATE BANKING IS A FAST GROWING BUT LOW VALUE-ADDED BUSINESS ALL ACROSS EUROPE ... ITALIAN INDUSTRY: 2001 RARORAC: -7% 01-05 REVENUE GROWTH: 6.9% VALUE CREATION OPPORTUNITY • Corporate Banking is a growing business in Italy as well as in the other European countries ... • ... but it is a low value-added industry, with profitability lower than cost of capital • Basle II is an important discontinuity which could significantly reshape the industry and improve its profitability High potential Value creation potential BEST OWNERSHIP/SYNERGIES Corporate Low potential • UCI has a clear leadership position and managed to create value in a value destroying industry also thanks to the skills developed in corporate derivatives and other high value products • Corporate banking is a powerful platform to generate synergies with Private Banking and Investment Banking • Potential for cross border synergies in core Europe for service model and product offering Cannot add value Can add value Non-natural owner Natural owner

  14. ... WHILE UCI IS ALREADY ABLE TO CREATE VALUE AND WILL STRENGTHEN ITS COMPETITIVE ADVANTAGE THROUGH THE NEW CORPORATE BANK ... KEY SUCCESS FACTORS UCI CORPORATE BANK • Improve customer mix, and become the leading bank for targeted customers with specific risk/return profile • Based in Verona • DISTRIBUTION CHANNEL: • 250 branches + direct channels • 4,000 employees • ~1,300 relationship managers • Excellence in customers management supported by advanced IT platform and systematic monitoring of customer satisfaction • High quality of credit analysis tools (customer risk measurement, risk-adjusted profitability and capital absorption) • One single national brand • Broad offer to cover the full range of customer needs (strategic developments, financial structure, operations) • 2001 RARORAC: +5.6% (from 0.5% in 2000)

  15. Excellent sales of corporate derivatives, pushing growth in commissions • Focus on risk adjusted pricing policies • Commissions/total revenues: 37.7% ... STARTING FROM THE GOOD RESULTS OF LAST YEARS, FULLY CONFIRMED IN 1H02 UNICREDIT BANCA* CORPORATE +24.7% 802 643 TOTAL REVENUES 1H01 1H02 • Good volumes growth even after a selective reduction of less profitable assets (lower exposure to financial companies) AVERAGE LENDING VOLUMES (Euro bn) 36.6 +2.4 35.4 -1.2 Avg. Loans 1H01 Avg. Loans 1H02 Selective reduction New loans * former 7 banks

  16. PRIVATE BANKING SHOWS THE HIGHEST RARORAC AND AN ATTRACTIVE REVENUE GROWTH DESPITE SHORT TERM DIFFICULTIES... ITALIAN INDUSTRY: 2001 RARORAC: 51% 01-05 REV. GROWTH: 10.4% VALUE CREATION OPPORTUNITY • The most attractive industry in Italy, with the single highest RARORAC combined with strong revenue growth • Domestic market is fragmented and underserved (mainly via undifferentiated commercial banking approach) • Low intensity of real competition by domestic and international players High potential Private Banking Value creation potential Low potential BEST OWNERSHIP/SYNERGIES Cannot add value Can add value • UCI could enjoy a significant first mover advantage and transform the dimensional leadership into strategic leadership • Strong synergies with Asset Management and Corporate Banking • Potential for cross border partnerships to exploit growth opportunities Non-natural owner Natural owner

  17. ... AND UCI PRIVATE BANK WILL BE THE BIGGEST AND BEST POSITIONED SPECIALISED PLAYER IN THE ITALIAN MARKET KEY SUCCESS FACTORS UCI PRIVATE BANK • Based in Turin • Consolidation of leadership in Italian high net worth individuals segment • DISTRIBUTION CHANNEL: • 150 branches + direct channels • 1,600 employees • 750 relationship managers • Focus on consultancy and long term customer relationship built on innovative products and efficient service • One single national brand • Ability to grow market share in high value services and “share of wallet” • International presence to take advantage of fiscal benefits for customers

  18. NEW EUROPE IS OUR SECOND HOME MARKET... VALUE CREATION OPPORTUNITY NEW EUROPE: 2001 RARORAC: 6.3% 01-05 REVENUE GROWTH: 9.4% • Attractive but volatile (especially in the short term) growth, strong increasing RARORAC • Value concentrated in few countries: Poland, Hungary, Czech, Turkey, Croatia • Second wave of consolidation likely to happen also due to marginal presence of some foreign players • EU Convergence can improve value further High potential BEST OWNERSHIP/SYNERGIES New Europe Value creation potential • UCI has the largest position in the region ... • ... and the best performance in terms of efficiency and profitability • Cross fertilization of business models and product offering already effective • New Europe platform can be leveraged for specialized businesses and product factory integration • Long term option for cross-country integration (e.g. IT/OPS) Low potential Cannot add value Can add value Non-natural owner Natural owner

  19. ... WHERE EU CONVERGENCE WILL REDUCE RISK AND BOOST PROFITABILITY ESTIMATED TIME FOR CONVERGENCE TO EU PER CAPITA GDP IN PPP • New Europe should approach the average of 3 least developed EU countries (Portugal, Greece and Spain) by 2020… • … WITH TWO DECADES OF GROWTH RATES 2%/3% HIGHER THAN EU LEVELS BUL, 27-32 Y LITH, ROM PL, 22 Y LAT EST, 14-15 Y SLOVA, HUN CR, 12-13 Y SLOVE 0 10 20 30 POLAND CROATIA BULGARIA SLOVAKIA 2.7 4.0 4.5 4.0 Real GDP growth forecast (01-05 % CAGR) 3.0 3.0 5.1 5.3 Inflation rate (02-05 avg.), % 94 149 317 82 Current spread vs. Euro-Bonds(1), b.p. Note: Consensus on average years to convergence forecasted by different growth models (Barro model and Levine- Renelt model in Fisher et al (1998) and EU commission convergence model (2001). EU standards are based upon per capita GDP of the three low income EU members, Portugal, Spain and Greece, with convergence income representing 75% of EU’s per capita GDP. Results of different models are similar, with the exception of Slovenia, where the EU Commission forecasts 1 year to convergence. (1) Spread over Eurobond is based upon SUEMI: Sole24Ore UBM Emerging Market Index, for Euro-denominated high-yield benchmark

  20. UCI IS ALREADY A LEADER IN THE REGION ... Total Assets Euro bln, 31/12/2001 Total net profit Euro mln, 31/12/2001 Pro quota Controlled (1) UCI(2) 33.7 456 22.3 268 HVB 24.0 20.0 225(3) 192 KBC 32.5 223 26.0 149 INTESABCI 11.1 9.4 146 117 ERSTE(4) 21.9 13.0 97 60 SG 69 11.1 17.4 13 (1) Considering 100% of total assets / profit for controlled Companies (stake > 50%) and share owned for non controlled companies (2) Including Koç FS and Zivnostenka (3) Our preliminary estimate (4) Excluding Rijeka Banka Source: Bankscope

  21. ... AND LEVERAGES ON CROSS FERTILISATION TO IMPROVE PROFITABILITY AND ON GEOGRAPHICAL DIVERSIFICATION TO MANAGE COUNTRY RISK 1H02 NEW EUROPE BANKING TOT. ASSETS Euro 24.3 bn ZAGREBACKA 24.8% GROUP PEKAO66.7% BULBANK 5.5% UNIBANKA 3.0% Zagrebacka Group(2) Group Pekao Bulbank Total Division(2) UniBanka +10.6 (3) +7.9(3) +7.3 +6.5 +10.6 Revenues – % y/y growth(1) +15.6 (3) +20.6 (3) +24 +5.6 +16.2 Net Operat. Inc. % y/y growth(1) C/I Ratio, % 49.7 (3) 47.7 41.3 68.1 57.2 (3) -7.1 +0.5 -1.9 (3) -1.5 -5.4 (3) C/I Ratio – p.p. Ch. on 1H01 28.4 ROE, % 8.8 16.7 7.5 13.4 Italian Accounting Standards (1) At Unchanged FX (2) Including extraordinary items for Pliva shares disposal and revaluation of replacement bonds (16.6 mln Euro) (3) Excluding Zaba’s dividends and Income from equity inv. valued at net equity

  22. Consumer Finance Retail* UBM Private Banking Asset Management New Europe Asset Gathering Corporate** THE DIFFERENT BUSINESS OPTIONS LEAD TO FOUR KEY STRATEGIC THRUSTS AIMED AT MAXIMIZING VALUE CREATION POTENTIAL AND INTRAGROUP SYNERGIES STRATEGIC THRUST = Euro 250 mln revenues • Invest to strengthen the leadership in core Retail Banking • Create a long term option in Consumer Finance leveraging on captive businesses and selective M&A to gain leadership in domestic markets High potential • Complete restructuring processes underway and further strengthen positioning in New Europe in the second wave of the consolidation process Value creation potential Low potential • Consolidate relationships with Italian corporates through high levels of efficiency and quality • Become the leading partner for target customers Cannot add value Can add value • Combine Private Banking, Asset Gathering and Asset Management into Wealth Management in order to maximize synergies Non-natural owner Natural owner Relative capacity to extract value * Including T-Lab ** Including Corporate Bank, UniCredit Factoring, Banca Mediocredito and Leasing

  23. ACCORDINGLY, THE NEW ORGANIZATIONAL STRUCTURE HAS BEEN DESIGNED TO EXPLOIT ALL THE EXISTING BUSINESS POTENTIAL AND TO DRIVE FUTURE GROWTH Consumer Finance Retail UBM Private Banking Asset Management New Europe Asset Gathering Corporate UCI Corporate division Retail division Private & AM division New Europe division Retail Bank Corporate bank Private bank New Europe Banks Clarima(1) UBM Pioneer Adalya(2) BMC(3) Xelion TradingLab Locat(4) (1) Consumer Finance (2) Retail mortgages (3) M/l term corporate financing (4) Leasing

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