Group 2005-2008 Plan
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Group 2005-2008 Plan. Merrill Lynch Banking & Insurance Conference 2006 London, 4-5 October 2006. AGENDA. The first truly European bank. Group 2005-2008 plan. Overview of 1H06 results. Conclusions. A STRONG PRESENCE IN EUROPEAN BANKING. UNIQUELY, RESOLUTELY EUROPEAN

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Group 2005 2008 plan

Group 2005-2008 Plan

  • Merrill Lynch Banking & Insurance Conference 2006

  • London, 4-5 October 2006


Agenda

AGENDA

The first truly European bank

Group 2005-2008 plan

Overview of 1H06 results

Conclusions


A strong presence in european banking

A STRONG PRESENCE IN EUROPEAN BANKING

UNIQUELY, RESOLUTELY EUROPEAN

  • Banking operations in 20 countries

  • More than 28 million customers

  • Over 7,000 branches

STRONG MARKET POSITIONING

  • #2 in Italy with 10% market share(1)

  • #2 in Germany with 5% market share(1)

  • #1 in Austria with 18% market share(1)

  • Leader in fast growing CEE markets much larger than closest competitor

  • HIGH GROWTH POTENTIAL

  • Significant opportunities in the local networks as well as in the global businesses

Source: UniCredit, 2005 data, pro-forma excl- Splitska, Uniriscossioni

(1) Ranking measured in terms of total assets. For market share calculations UniCredit and HVB may apply different definitions as far as the underlying data is concerned. Market share and ranking in Italy refer to customer loans.


A diversified business portfolio across different geographies

A DIVERSIFIED BUSINESS PORTFOLIO ACROSS DIFFERENT GEOGRAPHIES…

2005 Consolidated Total Revenues: 21,140(1)(2) mln

Private & AM

CEE & Poland Markets

10%

Corporate

20%

Italy

Markets and Investment

Banking

23%

42%

13%

Austria

13%

CEE & Poland Markets

Retail

20%

34%

Germany

25%

COMMERCIAL BANKING STILL THE BULK OF OUR BUSINESS

MORE THAN 50% OUTSIDE ITALY

(1)Figures restated, to sterilize perimeter changes

(2) The pie charts are on revenues ex GBS, Holding, corporate centre and elisions


With a powerful combination of production and distribution capabilities

…WITH A POWERFUL COMBINATION OF PRODUCTION AND DISTRIBUTION CAPABILITIES

A MASSIVE DISTRIBUTION NETWORK WITH UNMATCHED POTENTIAL TO GROW FURTHER

STRONG COMPETENCES IN GLOBAL PRODUCTS/SERVICES

  • Specialized service models to serve different customer segments

  • Pioneer, our global asset manager, with 280 bn AUM(1)

  • Significant opportunity to exchange best practices among countries

  • Markets and Investment Banking: a European regional specialist focusing on selective product segments

  • Over 3,600 retail branches across Italy, Germany and Austria

  • 3rd European player for # of plastic cards, with a strong competence center in Turkey

  • ~ 350,000 Corporate customers served in Italy, Germany, Austria and over 100,000 Cross Border Client Groups

  • Leasing, 2nd European player(2), with ~170 bn loans and ~530 mln revenues

  • European leader in on-shore Private Banking with top 3 position in Germany, Italy and Austria

  • CEE: ~3,000 branch network across 17 countries, about2X next competitor

  • Global Financial Services: a new global factory with ~900 mln revenues

UNIQUE OPPORTUNITY TO LEVERAGE ON A EUROPEAN SCALE THE STRENGTH OF OUR PRODUCT FACTORIES

(1) Data as at 31.08.06, including assets under administration

(2) As for 2005 new business


Full and effective divisionalization sets us apart and drives the integration process

§

CFO

§

Legal dept.

§

CRO

§

Corporate Identity

§

Strategic HR

Private

Global Banking

Markets &

CEE/

Banking &

Retail

Investment

Corporate

Services

Poland Markets

AM

Banking

FULL AND EFFECTIVE DIVISIONALIZATION SETS US APART AND DRIVES THE INTEGRATION PROCESS

DIVISIONALIZATION DONE IN GERMANY AND MOSTLY DONE IN AUSTRIA

  • Retail & Corporate: Small Business served in Retail Division; launch of Clarima business in Germany; global leasing operations established

  • Reorganisation of Asset Management on a single platform under Pioneer; creation of a Private Banking division in HVB

  • Global structure in place in Markets and Investment Banking

  • CEE & Poland Markets: ongoing in-country mergers mostly completed by 2007

  • Concentration of IT, Procurement, B/O and Real Estate functions in new GBS divisions in HVB and BA-CA; centralized procurement process in place for Italy, Germany and Austria


Ongoing reorganisation of group legal entities key steps already taken towards the target structure

UCI Italian Banks

HVB

BA-CA

Pekao

Asset Mgmt.

(PGAM)

Investment Bank(1)

BA Bank(2)

UCI IB (UBM)

UCI CEE

HVB AM

HVB IB

BA-CA CEE

BA-CA AM

BA-CA IB

HVB CEE

ONGOING REORGANISATION OF GROUP LEGAL ENTITIES: KEY STEPS ALREADY TAKEN TOWARDS THE TARGET STRUCTURE

Current Group Structure

Target Structure

UCI Italian Banks

HVB

UCI CEE(incl. Pekao)

UCI IB (UBM)

UCI AM

(PGAM)

BA-CA

HVB CEE

BA-CA CEE (Incl. BPH)

HVB IB

BA-CA IB

HVB AM

BA-CA AM

  • Transfer of BPH to UniCredit

  • Contribution in kind of UniCredit holdings in CEE banks (excl. Poland) to BA-CA

  • Transfer of BA-CA under UniCredit

  • Rationalisation of HVB holdings in CEE banks

  • Integration of Asset Management into Pioneer: sale of Activest to Pioneer

(1) In the long term UniCredit will gain full ownership

(2) Newco including all the commercial banking activities in Austria; in accordance with ReBoRA signed last March, to be realised not before March 2011


Agenda1

AGENDA

The first truly European bank

Group 2005-2008 plan

Overview of 1H06 results

Conclusions


Group strategic priorities

  • Increase RWA profitability and optimize capital allocation

  • Leverage Global product lines and services

  • Finalize corporate structure

GROUP STRATEGIC PRIORITIES

  • Restore profitability in Germany (ROE(1) to ~17% in 2008), ready for growth options

  • Maintain positive momentum in Italy

  • Complete restructuring and continue investing in CEE

STRONG EVA CREATION

>3x in 2005-2008

(1) Calculated on allocated capital ex goodwill


Solid profitability outlook for unicredit thanks to cyclical and structural factors

SOLID PROFITABILITY OUTLOOK FOR UNICREDIT THANKS TO CYCLICAL AND STRUCTURAL FACTORS

GER

IT

AT

EU

CEE(1)

GDP avg. annual % growth

0.8

0.4

1.9

1.4

6.1

2003-2005

2006-2008

1.7

1.4

2.4

1.9

5.6

  • EUROZONE MACROECONOMIC CYCLE driven by UniCredit countries of presence with Germany in particular contributing strongly to the 06-08 regional GDP growth

  • CEEGDP GROWTH well above 5% 06-08 CAGR, 3x faster than Eurozone

  • HOUSEHOLDS SEGMENT:

    • significant lending volume growth, especially in Italy and CEE where mortgages and consumer credit remain the main growth drivers

    • interest spread to benefit from a restrictive monetary stance

    • benign development of household financial assets also thanks to a moderately positive market effect

  • CORPORATE SEGMENT: sound growth environment across all regions thanks to cyclical recovery; Germany and Italy seen accelerating in 1H06

Source: Bank of Italy, Bundesbank and OeNB data; UniCredit forecasts

(1) CEE includes Poland, Turkey, Croatia, Russia, Bulgaria, Czech Republic, Hungary, Romania, Slovakia, Bosnia-Herzegovina, Slovenia, Serbia-Montenegro, Ukraine, Macedonia and the Baltics


Group targets strong eps growth supported by enhanced profitability of assets and cost control

GROUP TARGETS: STRONG EPS GROWTH SUPPORTED BY ENHANCED PROFITABILITY OF ASSETS AND COST CONTROL

2008

2005(1)

CAGR 05-08

2005(1)

5.2

~5.7

Revenues/Avg. RWA, %

21.1

~8%

Revenues (bn)

60.7

~52

Cost/Income, %

-12.8

~3%

Operating Costs (bn)

61

STABLE

Cost of risk(2), bp

0.32

~27%

EPS

5.53

~6.8

Core Tier 1 ratio, %

10.2

~17(3)

1.2

~49%

ROE, %

EVA (bn)

~133,740

~126,900

FTE, #

416

~5%

RWA (bn)

- staff rightsizing

~-11,850

- growth initiatives

~+5,000

  • Plan assumes 0.56 Euro EPS for 2007…

  • … with steady growth of DPS during the plan timeframe

  • 6.8% Core TIER 1 ratio target achieved by 2008

(1) Figures restated, to sterilize perimeter changes

(2) Loan Loss Provisions/Average Credit RWA for the year

(3) Group ROE calculated on allocated capital ex. goodwill would be ~23%


Disciplined capital allocation aimed at value creation

DISCIPLINED CAPITAL ALLOCATION AIMED AT VALUE CREATION

05-08 CAGR

EVA

ALLOCATED CAPITAL(3)

Delta (mln)

3.9 bn(2)

~29.4 bn

+4.7%

~25.5 bn

5.8

+18%

~870

+390

3.5

3.8

+4%

3.3

2.0

+13%

~990

+470

1.3

1.2 bn(2)

~480

10.6

+7%

8.8

~820

+350

~520

~640

+380

4.9

5.7

+5%

~470

1.0

~870

+980

0.7

-12%

~260

2.7

0.8

~-110

-33%

~-70

+100

~-170

2005

2008

2005

2008

MIB

CEE

Private B. & AM

Corporate

Retail

Commercial RE Financing

Corporate Centre(1)

  • Turnaround of retail business in Germany drives strong EVA growth

  • Significant contribution of all other businesses

(1) Including GBS and other Group Companies not included in the different business divisions

(3) Average

(2) Difference between total and sum of the Divisions due to Corporate Centre


Significant revenue growth across divisions enhances group asset profitability

SIGNIFICANT REVENUE GROWTH ACROSS DIVISIONS ENHANCES GROUP ASSET PROFITABILITY

05(1)-08 REVENUE CAGR, %

MIB

~13

CEE & Poland Markets

~11

Private & AM

~10

Revenues/RWA from 5.2% to ~5.7% in 2008

GROUP

~8

Retail

~7

Corporate

~6

(1) 2005 figures restated, in order to sterilize perimeter changes


Group 2005 2008 plan

STRICT CONTROL OF INDIRECT COSTS LEAVES ROOMS FOR INVESTMENTS IN HIGH GROWTH AREASCOST SYNERGIES CONFIRMED

  • Contained dynamic of operating costs (05-08 CAGR ~3% at Group level) despite significant business volumes growth, thanks to:

    • Indirect costs(1)(~30% of total cost base) down from 3,830 bn in 2005 to 3,690 bn in 2008, thanks to centralization of activities and effective cost management

    • Rationalization and streamlining of the Group corporate centre

  • FTE reduction of ~6,850 units

    • ~-11,850 staff rightsizing

    • ~+5,000 new hirings in fast growing areas

  • Cost synergies confirmed(2) at 900 mln

  • Total integration costs to 1.25 bn, slightly lower than originally planned

(1) Mainly IT, Back Offices and Real Estate & Facility Management

(2) Disclosed on June 13th 2005 in UniCredit-HVB offer presentation


Rationalization of non strategic assets especially in germany to create additional value

Rationalisation Process key highlights

  • 20.5 bn low value generating performing portfolio with limited cross selling potential

  • Dedicated team to run the whole winding down process

  • Commercial Divisions totally focused on growing core strategic business

RATIONALIZATION OF NON-STRATEGIC ASSETS, ESPECIALLY IN GERMANY, TO CREATE ADDITIONAL VALUE

Total non-strategic assets: ~30 bn gross loans(1)

RER

9.5 bn

Performing non strategic mortgages

20.5 bn

Inertial vs “accelerated” reduction path

(loans, bn) – for illustrative purposes

~30

2005

vs 5.2% avg. for the whole UniCredit Group

Revenues/Avg. RWA, %

~1.6%

2005

2006

2007

2008

2020

(1) Data as of Dec.05


Group 2005 2008 plan

FULL TURNAROUND OF PROFITABILITY IN GERMANY OVER THE PLAN PERIOD

  • ~9% revenue CAGR 05-08 thanks to efforts to boost commercial activity and productivity:

    • enhance sales productivity in Retail

    • boost asset gathering recurring fees in the affluent segment

    • leverage on cross fertilisation potential in Investment banking

  • Strict cost control: flat operating expenses

    • Staff right-sizing

    • Containment of indirect costs (31% of total costs in 2005)

  • Asset rationalisation: ~-1% RWA 05-08 CAGR

REVENUES/RWA, %

~4.9

3.6

2005

2008

ROE(1), %

~17

~6

2005

2008

The numbers are based on the current structure of HVB Group

Data related to HVB Group ex BA-CA Group

(1) Calculated on allocated capital ex goodwill


Agenda2

AGENDA

The first truly European bank

Group 2005-2008 plan

Overview of 1H06 results

Conclusions


Group 2005 2008 plan

1H06 NET PROFIT GROWTH OF ~+1 BN Y/YSTRONG IMPROVEMENT, +32% Y/Y, NET OF THE CAPITAL GAIN FROM THE DISPOSAL OF SPLITSKA BANKA

% ch. on 1H05 at constant FX & perimeter

Ch. on FY05

% ch. on 1H05

1H06

1H06

mln

Total Revenues

Cost of Risk(1), bp

+15.7%

11,939

+11.8%

56 bp

-4 bp

Core Tier 1 ratio, %

Operating costs

5.94%

+41 bp

-6,529

+4.5%

+1.0%

Operating Income

5,410

+28.2%

+32.9%

  • COST OF RISK decreasing in both UCI and HVB sub-groups

Integration costs

-52

n.m.

n.m.

  • Core Tier 1 ratio increased by 41 bp thanks to organic capital generation (~20 bp) and sale of Splitska Banka (~21 bp); disposals of 2S Banca to be finalized by year-end 2006

Net Income(2)

3,043

+43.6%

+48.3%

C/I Ratio, %

-5.8 pp

54.7%

-5.8 pp

P&L figures in IFRS according to Bank of Italy rules

(2)Consolidated gain from Splitska Banka disposal of +367 mln; +332 mln net of minorities impact

(1) Profit (loss) and net write downs on loans / Total Period Average RWAs for Credit Risks; 1H06 figure annualized


Agenda3

AGENDA

The first truly European bank

Group 2005-2008 plan

Overview of 1H06 results

Conclusions


Unicredit in 2008

  • MORE EFFICIENT CORPORATE STRUCTURE IN PLACE (INCLUDING IN-COUNTRY MERGERS IN CEE)

  • CENTRALIZED PRODUCT FACTORIES FULLY LEVERAGED

  • GROUP RUNNING AT FULL SPEED, WITH STRONG CAPITAL AND CASH FLOW GENERATION

UNICREDIT IN 2008


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