Download - UniCredito Italiano Group
UniCredito Italiano Group
London - October, 8th 2002
Alessandro Profumo - CEO
Merrill Lynch European Banking & Insurance Conference
“HIGHER RISK VS. LOWER GROWTH - THE CHALLENGE AHEAD”
2
Agenda
Creating value in a volatile world
Portfolio strategy for future growth
3
IN THE LAST FOUR YEARS UCI SHOWED EXCELLENT GROWTH DESPITE MACROECONOMIC AND FINANCIAL MARKETS DISCONTINUITIES ...
(2) Annualised data
UCI EPS evolution
1998 1997
0.09
0.19
1999
0.26
2000 2001 1H02(2)
0.28 0.28
0.33
1997/1H02(2) EPS CAGR: +29.7%
0
50
100
150
200
250
IVQ'9
7
IIQ'9
8
IVQ'9
8
IIQ'9
9
IVQ'9
9
IIQ'0
0
IVQ'0
0
IIQ'0
1
IVQ'0
1
IIQ'0
2
Italian GDP growthMSCI WORLD Euribor 1M
Market indexes and macroeconomic indicators(1) (BASE: IVQ’97=100)
1st Discontinuity: IIQ’00 - Macroeconomic
growth slowdown
2nd Discontinuity: 11th September 2001
(1) Source: Datastream for MSCI World Index; ISTAT for Italian GDP growth; BCE for EURIBOR 1M
4
… WHICH IMPACTED OUR COST OF CAPITAL ...
(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 on 5 year Euro IRS
UCI CoE
2002 2001
Term Debt
Risk Premium (1)
4.48%
4.30%
8.95%
5.10%
3.51%
8.79%
-62 bp
+16 bp
+79 bp
0.18%0.17%
Risk-free Rate(3)
UCI Credit Spread(2) -1 bp
UCI increased its Risk Premium to reflect the higher uncertainty and volatility of equity markets
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
TIER I Target
7.5%
5
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)
... BUT DID NOT AFFECT OUR CAPABILITY TO CREATE VALUE EVEN AFTER A SIGNIFICANT STRENGTHENING OF OUR CAPITAL BASE
CAPITAL ABSORPTION
VALUE CREATION
7,489Group total (at 06/02) 418
Adj NET INCOME
770
RARORAC
%
11.2
(5) BIS standard
MARGINAL RARORAC
%
14.2
(Euro mln)
NOPAT(1)
(a)Risk taken(2)
(b)
Shareholder’s value added
(c) =(a)-COE(3)
Value added per unit of risk taken
(c)/(b)
(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
2001 2000
8.57%
TIER I Ratio (5)
Total Capital Ratio (4)
6.25% 6.79%
10.96%
1H02
11.69%
7.55%
+54 bp+76 bp
+239 bp
+73 bp
UCI Solvency Ratios UCI Credit Spread (6)
40
50
60
70
80
90
mar-01
may-01
jul-01
sep-01
nov-01
jan-02
mar-02
may-02
jul-02
sep-02
Bp
SPREAD vs SWAPISSUE SPREAD
(6) Spread vs Swap on UCI Lower TIER II 16.3.2001/2011, 6% Fixed Rate, Bullet (taken as an example)
(1) Consolidated Net Income (Euro 849 mln) - Net Extraordinary Income after tax (Euro 79 mln)
6
1H02/Avg ‘00
Growth:
+14.6%
72.7%
4.0%
5.5%
17.4%
71.6%
4.7%
9.0%
14.5%
REVENUE COMPOSITION BY BUSINESS AREA (Net of infra-Group dividends and of Corporate Centre & Elisions negative contribution)
DIVERSIFICATION OF REVENUES BY BUSINESS AND BY GEOGRAPHY IS A KEY SUCCESS FACTOR TO ENSURE GROWTH AND MANAGE THE RISK PROFILE
1H01 2000 Avg
4,658
Italian Banking
Investment Banking
Asset Management
New Europe Banking
New Initiatives
78.8%
2.7%
4.8%
13.7%
73.7%
5.3%
6.0%
15.0%
2H01 1H02
0.4% 0.2%
Euro mln5,272 5,361 5,341
7
Agenda
Creating value in a volatile world
Portfolio strategy for future growth
8
VALUE CREATION
POTENTIAL
Natural owner
- +RELATIVE CAPACITY TO EXTRACT VALUE
Cannot add value
-
+
Can add value
Non natural owner
Relative/absolute market share Historical track record of returns Synergies among businesses
IDENTIFY DEGREE OF NATURAL OWNERSHIP OF EACH BU IN ITS RELEVANT MARKET
UNDERSTAND CURRENT AND
POTENTIAL VALUE CREATION FROM
EACH BU
Value creation of current operations
Value creation of new investments/options
COMPARISON CRITERIA
COMPARISON CRITERIA
UCI DIVERSIFIED IN THE RIGHT BUSINESSES AND GEOGRAPHIES, BUT THERE IS STILL A SIGNIFICANT POTENTIAL TO BE EXPLOITED
Corporate
Retail
New Europe
Asset GatheringAsset Management
Private Banking
Consumer Finance
UBM
Push growth limits/allocate additional resources
Do not invest further and/or free up capital allocated
Leverage on synergies and or acquire capabilities of best owner
Divest and/or use assets in M&A
Aggressive and proactive divestiture
Capture value and divest
= Euro 250 mln revenues
9
S3 IS OUR ANSWER TO THE DOMESTIC COMPETITIVE ARENA AND WILL EXPLOIT ALL THE POTENTIAL IN EACH MARKET SEGMENT
PRIVATE BANK
RETAIL BANK
CORPORATE BANK
FROM 7 BANKS... ... TO THE 3 NEW SEGMENT BANKS
10
Retail
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
BEST OWNERSHIP/SYNERGIES
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 to develop specialized businesses with higher multiple (Consumer Finance and Asset Management)
Potential for cross border synergies in product factories and cross fertilization of products/business models
ITALIAN INDUSTRY:2001 RARORAC: 14%01-05 REVENUE GROWTH: 6.7%
High potential
Low potential
Valu
e c
reati
on
p
ote
nti
al
Non-natural owner
Can add value
Cannot add value
Natural owner
RETAIL IS ONE OF THE MOST ATTRACTIVE BUSINESSES IN ITALY...
11
... AND OUR NEW RETAIL BANK IS READY TO EXPLOIT ALL THE VALUE CREATION POTENTIAL THROUGH SCALE AND SPECIALISED SERVICE MODELS ...
DISTRIBUTION CHANNEL:~2,800 branchesdirect channels (self service,
telephone & home banking)23,000 employees2,000-2,300 relationship
managers16,500 commercial operators
Based in Bologna
UCI RETAIL BANK
Single “umbrella” brand + regional brands for distribution
Quick and efficient distribution of innovative products /services specialised by segment:
KEY SUCCESS FACTORS
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
12
1H01 1H02
1,9592,015
1,023 1,028
Total Revenues
Interest Income
+2.9%
936 987
Non interest income
+5.4%
(Euro mln)
1H01 1H02
1H01 1H02
UNICREDIT BANCA* RETAIL(Mass market + Affluent + Small Business)
* former 7 banks
+0.5%
... AS THE GOOD RESULTS OBTAINED IN 1H02 CLEARLY SHOW
Focus on medium/long term loans
Further penetration of package accounts in mass market and small business segments
Commissions/total revenues: 46.8%
Excellent contribution of Capital Guaranteed products, pushing net sales of Life Insurance products and Segregated Accounts
13
High potential
Low potential
Valu
e c
reati
on
p
ote
nti
al
Non-natural owner
Can add value
Cannot add value
Natural owner
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
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
Corporate
ITALIAN INDUSTRY:2001 RARORAC: -7%01-05 REVENUE GROWTH: 6.9%
VALUE CREATION OPPORTUNITY
BEST OWNERSHIP/SYNERGIES
CORPORATE BANKING IS A FAST GROWING BUT LOW VALUE-ADDED BUSINESS ALL ACROSS EUROPE ...
14
DISTRIBUTION CHANNEL:
250 branches + direct channels
4,000 employees
~1,300 relationship managers
Based in Verona
UCI CORPORATE BANK
One single national brand
Broad offer to cover the full range of customer needs (strategic developments, financial structure, operations)
High quality of credit analysis tools (customer risk measurement, risk-adjusted profitability and capital absorption)
Excellence in customers management supported by advanced IT platform and systematic monitoring of customer satisfaction
KEY SUCCESS FACTORS
2001 RARORAC: +5.6% (from 0.5% in 2000)
... WHILE UCI IS ALREADY ABLE TO CREATE VALUE AND WILL STRENGTHEN ITS COMPETITIVE ADVANTAGE THROUGH THE NEW CORPORATE BANK ...
Improve customer mix, and become the leading bank for targeted customers with specific risk/return profile
15
35.4 -1.2 +2.4 36.6
Avg. Loans 1H01
Selective reduction
Avg. Loans 1H02
New loans
(Euro bn)
802643
+24.7%
1H01 1H02
TOTAL REVENUES
UNICREDIT BANCA*
CORPORATE
* former 7 banks
... STARTING FROM THE GOOD RESULTS OF LAST YEARS, FULLY CONFIRMED IN 1H02
Commissions/total revenues: 37.7%
Focus on risk adjusted pricing policies
AVERAGE LENDING VOLUMES Good volumes growth even after a
selective reduction of less profitable assets (lower exposure to financial companies)
Excellent sales of corporate derivatives, pushing growth in commissions
16
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
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
ITALIAN INDUSTRY:2001 RARORAC: 51%01-05 REV. GROWTH: 10.4%
Private BankingHigh potential
Low potential
Valu
e c
reati
on
p
ote
nti
al
Non-natural owner
Can add value
Cannot add value
Natural owner
VALUE CREATION OPPORTUNITY
BEST OWNERSHIP/SYNERGIES
PRIVATE BANKING SHOWS THE HIGHEST RARORAC AND AN ATTRACTIVE REVENUE GROWTH DESPITE SHORT TERM DIFFICULTIES...
17
... AND UCI PRIVATE BANK WILL BE THE BIGGEST AND BEST POSITIONED SPECIALISED PLAYER IN THE ITALIAN MARKET
DISTRIBUTION CHANNEL:
150 branches + direct channels
1,600 employees
750 relationship managers
Based in Turin
One single national brand
Focus on consultancy and long term customer relationship built on innovative products and efficient service
Ability to grow market share in high value services and “share of wallet”
Consolidation of leadership in Italian high net worth individuals segment
UCI PRIVATE BANK KEY SUCCESS FACTORS
International presence to take advantage of fiscal benefits for customers
18
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
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)
NEW EUROPE:2001 RARORAC: 6.3%01-05 REVENUE GROWTH: 9.4%
New Europe
High potential
Low potentialV
alu
e c
reati
on
p
ote
nti
al
Non-natural owner
Can add value
Cannot add value
Natural owner
VALUE CREATION OPPORTUNITY
BEST OWNERSHIP/SYNERGIES
NEW EUROPE IS OUR SECOND HOME MARKET...
19
... WHERE EU CONVERGENCE WILL REDUCE RISK AND BOOST PROFITABILITY
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
ESTIMATED TIME FOR CONVERGENCE TO EU PER CAPITA GDP IN PPP
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.
12-13 Y
14-15 Y
22 Y
27-32 Y
0 10 20 30
CR,SLOVE
EST,SLOVA,
HUN
LAT
BUL,LITH,ROM
PL,
POLAND SLOVAKIACROATIA BULGARIA
Current spread vs. Euro-Bonds(1), b.p. 8231794 149
Real GDP growth forecast (01-05 % CAGR) 4.04.02.7 4.5
Inflation rate (02-05 avg.), % 5.33.03.0 5.1
(1) Spread over Eurobond is based upon SUEMI: Sole24Ore UBM Emerging Market Index, for Euro-denominated high-yield benchmark
20
11.1
33.7
20.0
26.0
9.4
13.0
Total AssetsEuro bln, 31/12/2001
Total net profitEuro mln, 31/12/2001
456
225(3)
223
117
97
69
UCI(2)
HVB
KBC
ERSTE(4)
SG
INTESABCI
26822.3
192
149
146
60
13
24.0
32.5
11.1
21.9
17.4
(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 BankaSource: Bankscope
Pro quotaControlled (1)
UCI IS ALREADY A LEADER IN THE REGION ...
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
GROUP PEKAO 66.7%
Total Division(2)
ROE, %
UniBankaGroup Pekao
Bulbank
7.516.78.8
C/I Ratio, % 68.141.347.7
C/I Ratio – p.p. Ch. on 1H01 -1.5+0.5-7.1
49.7 (3)
-5.4 (3)
Zagrebacka Group(2)
28.4
57.2 (3)
-1.9 (3)
13.4
UNIBANKA 3.0%
ZAGREBACKA 24.8%
BULBANK 5.5%
Revenues – % y/y growth(1) +10.6+6.5+7.3 +7.9 (3)+10.6 (3)
Net Operat. Inc. % y/y growth(1) +16.2+5.6+24 +20.6 (3)+15.6 (3)
(1) At Unchanged FX(2) Including extraordinary items for Pliva shares disposal and revaluation of replacement bonds (16.6 mln Euro)
Italian Accounting Standards
(3) Excluding Zaba’s dividends and Income from equity inv. valued at net equity
22
THE DIFFERENT BUSINESS OPTIONS LEAD TO FOUR KEY STRATEGIC THRUSTS AIMED AT MAXIMIZING VALUE CREATION POTENTIAL AND INTRAGROUP SYNERGIES
= Euro 250 mln revenues STRATEGIC THRUST
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
Complete restructuring processes underway and further strengthen positioning in New Europe in the second wave of the consolidation process
Combine Private Banking, Asset Gathering and Asset Management into Wealth Management in order to maximize synergies
Consolidate relationships with Italian corporates through high levels of efficiency and quality
Become the leading partner for target customers
*Including T-Lab**Including Corporate Bank, UniCredit Factoring, Banca Mediocredito and Leasing
Corporate**
New Europe
Asset Gathering
Asset Management
Private Banking
Consumer Finance
UBM
Retail*
Hig
h
pote
nti
al
Low
p
ote
nti
al
Valu
e c
reati
on
pote
nti
al
Can add value
Cannot add value
Natural owner Non-natural owner
Relative capacity to extract value
23
ACCORDINGLY, THE NEW ORGANIZATIONAL STRUCTURE HAS BEEN DESIGNED TO EXPLOIT ALL THE EXISTING BUSINESS POTENTIAL AND TO DRIVE FUTURE GROWTH
UCI
RetailBank
Clarima(1)
Adalya(2)
TradingLab
New Europe Banks
Retail division
Corporate division
Private & AM division
New Europe division
Corporate
New EuropeAsset Gathering
Asset ManagementPrivate Banking
Consumer Finance
UBM
Retail
UBM
Corporate bank
BMC(3)
Locat(4)
Privatebank
Pioneer
Xelion
(1) Consumer Finance (2) Retail mortgages (3) M/l term corporate financing (4) Leasing