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UNICREDITO ITALIANO: CREATING VALUE THROUGH LONG TERM RETIREMENT SERVICES. Gianluca Benatti Head of Retail Investment Services. Fortis Bank Financial Symposium. Amsterdam, March 21 st 2002. AGENDA. Group highlights Life/pension is the key asset-gathering market in the next five years

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Fortis Bank Financial Symposium

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Fortis bank financial symposium

UNICREDITO ITALIANO:

CREATING VALUE THROUGH LONG TERM RETIREMENT SERVICES

Gianluca Benatti

Head of Retail Investment Services

Fortis Bank Financial Symposium

Amsterdam, March 21st 2002


Fortis bank financial symposium

AGENDA

  • Group highlights

  • Life/pension is the key asset-gathering market in the next five years

  • Key success factors for a bank in this business

  • Why Unicredito Italiano is bound to be among the leaders of the pack


Fortis bank financial symposium

UCI: A EUROPEAN LEADER IN DISTRIBUTION, A GLOBAL PLAYER IN ASSET MANAGEMENT WITH OUTSTANDING PROFITABILITY AND EFFICIENCY

2001 KEY FIGURES

MKT CAP.

Euro 23.5 bn (1)

NET INCOME

Euro 1,454 mln

C/I RATIO

52.7%

PRE-TAX ROE

32.9%

ROE

18.0%

BRANCH NETWORK

3,998

(1)As of 12.3.2002


Fortis bank financial symposium

Italian Banks

Foreign Banks

Italian Banking

Wholesale Banking

New Initiatives

New Europe Banking

THE DIVISIONAL STRUCTURE SUPPORTS OUR GROUP STRATEGY FOCUSED ON SPECIALISATION OF PRODUCTION AND DISTRIBUTION

  • Diversified investments and structure to exploit different options for growth and to diversify business portfolio

  • Italian Banking still core business, but other divisions’ importance growing at a fast pace

  • Brilliant results from recent investments, reinforcing confidence on the quality of the strategy

  • Different business models for production and distribution


Fortis bank financial symposium

DESPITE A DETERIORATED MARKET ENVIRONMENT UCI SHOWS GOOD REVENUE AND INCOME GROWTH

TOTAL REVENUES

OPERATING INCOME

NET INCOME

+5.3%

(Euro mln)

(Euro mln)

(Euro mln)

1,695(3)

+7.2%

1,611(2)

9,989

+4.2%

9,318

1,454

+3.5%

1,395

4,726

4,566

2001

2000

2001

2001

2000

2000

COST/INCOME RATIO

ROE(1)

52.7%

22.2%(2)

51.0%

21.0%(3)

20.8%(4)

18.0%

Structural Cost/Income

47.8%

19.2%(5)

47.7%

2001

2000

2001

2000

(1) Calculated on end of period net equity

(2) Adding back goodwill amortisation related to the Group and 98-’99 provisions related to Ciampi Law

(3) Adding back goodwill amortisation related to the Group

(4) Adding back ’98-’99 provisions related to Ciampi Law

(5) Calculated on Group net income of Euro 1395 mln


Fortis bank financial symposium

WE WERE ABLE TO MAINTAIN A SIGNIFICANT CONTRIBUTION FROM THE WEALTH MANAGEMENT AND ASSET MANAGEMENT BUSINESS ...

REVENUE COMPOSITION BY BUSINESS AREA (Net of Corporate Centre negative contribution)

2000

2001

13.7%

14.6%

2.7%

4.7%

4.8%

5.8%

60.2%

78.8%

59.8%

74.8%

19.0%

14.6%

UBM + TL

Pioneer

New Europe

Italian Banking-

Wealth Management

Italian Banking- Other


Fortis bank financial symposium

... THANKS TO OUR ABILITY TO PARTIALLY COUNTERBALANCE THE NEGATIVE IMPACT OF FINANCIAL MARKETS ON COMMISSIONS WITH THE DISTRIBUTION OF VALUE ADDED PRODUCTS

(Euro mln)

  • Asset management commissions stable despite negative market environment

NET COMMISSIONS

2000*

% ch.

2001

Asset management

1,789

1,803

+0.8

  • Excellent impact of capital guaranteed products on commissions from segregated accounts and insurance products

Mutual funds

1,447

1,324

-8.5

Segregated accounts

186

253

+36.0

Insurance products

156

226

+44.9

  • Commissions from securities in custody suffered the lower turnover of customers’ portfolios

Securities in custody

422

334

-20.8

Other services, of which:

1,128

1.154

+2.3

Loans granted & received

456

497

+9.0

  • Positive contribution from other services (mainly commissions from loans granted and from payment services)

Cash management services

250

263

+5.2

Total

3,339

3,291

-1.4

* consistent with new Bank of Italy criteria for breakdown of commissions


Fortis bank financial symposium

OUR EXCELLENT COMMERCIAL RESULTS ALLOWED UCI GROUP TO RANK FIRST IN THE SALES OF ALL HIGH VALUE-ADDED PRODUCTS IN ITALY

MUTUAL FUNDS

CAPITAL GUARANTEED PRODUCTS: EURO 7.46 Bn NET INFLOWS IN 2001*, MORE THAN EURO 8.7 Bn FROM LAUNCH TO FEB. ‘02

(Euro mln)

Ch. on 2000

2001 sales

Dec 01 mkt sh.

(Euro bn)

Tot:

3,988

Net inflows

1,965

13.56

+23 bp

4

386

UNIT LINKED

868

3

Rank in Italy

Tot:

1,989

(Euro mln)

% Ch. on 00

2001 sales

Premium written

Tot:

1,273

16

3,889

+43

1st

2

Tot:

1,018

731

2,734

  • Confirmed leadership in market shares on Unit Linked (98% of the total new production of insurance premiums):

    • 34.5% (+11 pp y/y) in Bancassurance only

    • 26.7% (+ 9.7 pp y/y) on total market

146

Tot:

465

1

165

632

1,242

703

465

386

0

1Q’01

2Q’01

3Q’01

4Q’01

Jan-Feb. 2002

Fund, Equity & Index Linked Notes

SegregatedAccounts

Unit Linked (UNISTAR)

* Net of Euro 91 mln. inflow from a joint BANK PEKAO / TRADINGLAB Capital Protected Note issued in October


Fortis bank financial symposium

AGENDA

  • Group highlights

  • Life/pension is the key asset-gathering market in the next five years

  • Key success factors for a bank in this business

  • Why Unicredito Italiano is bound to be among the leaders of the pack


Fortis bank financial symposium

THE NEXT WAVE WILL BE MUCH MORE RESILIENT….

  • A shrinking “social parachute”: declining birth rate, shorter working life, longer life expectancy

  • A shrinking “private parachute”: decreasing families’ size, improved mobility and lower children-parents dependency (THE CATHOLIC FAMILY CONCEPT IS CHALLENGED)

  • A changing approach to golden age: longer, healthier, wealthier

  • THESE ARE LONG TERM TRENDS OF CHANGE, RELATIVELY INDEPENDENT OF FINANCIAL MARKET CYCLES


Fortis bank financial symposium

IN THE LAST DECADE PERSPECTIVE PENSION BURDEN ON PUBLIC FINANCES FORCED ITALY TO REDUCE HER GENEROSITY

EMPLOYEES

80

  • Current Pillar II schemes are far from succeeding in closing the gap between last pay and retirement income in the case of middle and high-income individuals

70

60

50

RETIREMENT GAP %

40

30

20

10

AGE OF RETIREMENT

0

57

58

59

60

61

62

63

64

65

AVERAGE

YEARLY INCOME

30.000 Euro

60.000 Euro

100.000 Euro

SELF-EMPLOYED WORKERS

80

70

  • Self-employed workers more penalised than employees

60

50

RETIREMENT GAP %

40

30

20

10

AGE OF RETIREMENT

0

57

58

59

60

61

65

62

63

64

Source: Pioneer Global Asset Management Research Unit


Fortis bank financial symposium

In the 50’s, households’ financial needs had already been satisfied at the age of 55, whereas today they are all unmet

Today financial assets at the threshold of the golden age have to be much higher than before and are “the scarce resource”

DEMOGRAPHIC TRENDS WILL AFFECT THE TRANSFER OF WEALTH AMONG GENERATIONS

50’S

retirement

18

22

40

53

Head of the family’s age

child starts working and becomes independent

starts working

first child

retirement

Today

Head of the family’s age

25

33

58

60

starts working

child starts working and becomes independent

first child


Fortis bank financial symposium

A LONGER LIFE DURATION BRINGS IN NEW KIND OF FEARS

“WHAT ARE THE LANDMARKS OF THE GOLDEN AGE”?

% OF RESPONDENTS; MULTIPLE ANSWERS ADMITTED


Fortis bank financial symposium

SO FAR PENSION PRODUCTS HAVE NOT FULLY BENEFITED FROM THE STRONG GROWTH OF TOTAL FINANCIAL ASSETS IN ITALY

1996 Households’ total financial assets: Euro 1,878 bn

2000 Households’ total financial assets: Euro 2,602 bn

Other: 2%

Other: 3%

Deposits: 25%

Life/Pensions: 11%

Deposits: 30%

Life/Pensions: 10%

Equities: 22%

Bonds: 30%

Mutual Funds: 5%

Equities: 25%

Bonds: 19%

Mutual Funds: 18%

CAGR

1996-2000

+8.5%

Source: Bank of Italy

  • Italian savings market witnessed an unprecedented growth in the past 4 years (CAGR 8.5%). Households progressively reduced their risk aversion, as shown by the rise of the portion of assets diverted to mutual funds and shares

  • Pension funds could scarcely benefit from this growth, mainly due to legal uncertainties and lack of products


Fortis bank financial symposium

MUTUAL FUNDS INSTEAD OF PENSION FUNDS: ITALY VERSUS THE NETHERLANDS

Source: Pioneer Global Asset Management Research Unit


Fortis bank financial symposium

BUT PENSIONS WILL BECOME ONE OF THE FASTEST GROWING INDUSTRIES IN ITALY IN THE NEXT DECADES

Pension fund industry set to grow strongly in the next 20 years

Euro bn

2,500

CAGR

2001-2020

2,000

+23.5%

1,500

1,000

500

0

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

  • We estimate that the Italian pension fund market will total Euro 2,000 bns in 2020. This would imply a 2001-2020 CAGR of 23.5% for the pension fund industry

  • This will be due to the diversion of a larger portion of savings to pension funds and life insurance products and to a partial switch of assets from other investment categories

Source: Pioneer Global Asset Management Research Unit


Fortis bank financial symposium

AGENDA

  • Group highlights

  • Life/pension is the key asset-gathering market in the next five years

  • Key success factors for a bank in this business

  • Why Unicredito Italiano is bound to be among the leaders of the pack


Fortis bank financial symposium

THE URGE FOR A PENSION NEED HAS ALREADY BEEN CREATED, BUT HARDLY IT WILL BE TRANSFORMED INTO SHAREHOLDERS’ VALUE

  • Trust: why should banks’ salespeople be suddenly trusted an insurance-related culture?

  • Culture: why should Italian customers suddenly “invest long term” and not invest to get short term gains?

  • Matching: will longer term products produce the same revenues as current shorter term portfolios?

  • PAYG scheme simulations widely available on and off-line, through banks, financial consultants, agents

  • Press campaigns always on

  • TAKE OFF INDEPENDENT OF FURTHER REFORMS

ISSUES

FOR BANKS


Fortis bank financial symposium

IT REQUIRES ENHANCED SALE SKILLS: “RETIREMENT” MEANS “PROTECTION” AND IMPLIES MANY TECHNICAL SOLUTIONS

December 2000 DOXA survey on retirement;

% of interviewees declaring interest in the item

Saving for retirement means

Retirement Services

buy a house

integrate social security benefits

get medical assistance

inheritance to children

children’s education

unforeseen

84%

  • They go well beyond selling single premium financial Unit Linked

  • It means offering a complex advice which is not normally recognised to banks’ salesforce

87%

78%

69%

83%

93%

0%

20%

40%

60%

80%

100%


Fortis bank financial symposium

IT REQUIRES EVEN MORE TRUST FROM THE CLIENT: TO GET THE SOFT AND DELICATE INFO NECESSARY TO IDENTIFY THE NEED

Sales Reps will have to test and quantify the most common constraint to the take off of private pensions:

the intra-generation wealth transfer

Client Status

Reasons NOT to be investing for one’s own retirement

Expected inheritance weakens the perception of Social Security gap

Child

Expected support from children (in return for inheritance) weakens the perception of Social Security and Assistance gap

Parent

  • Some events in life are bound to break this virtuous cycle:

    • mobility due to education

    • mobility due to job search

    • consumption (non durable) in the old age

    • etc


Fortis bank financial symposium

AGENDA

  • Group highlights

  • Life/pension is the key asset-gathering market in the next five years

  • Key success factors for a bank in this business

  • Why Unicredito Italiano is bound to be among the leaders of the pack


Fortis bank financial symposium

THIS IS A BUSINESS OF MANAGING RISKS AFFECTING HOUSEHOLDS’ BALANCE SHEET AND INCOME STATEMENT

Longevity risk

  • Coping with the unavoidable heavy Health care ticket of the old age w/o eating into the living standard (=the pension revenues)

  • Preserving stocks FOR heirs and protecting them FROM conversion into a supplementary annuity

  • Coping with the unforeseen w/o eating into the household’s assets and revenues

  • Coping with the odd of NOT achieving a consumption/accumulation target, due to market vagaries

Catastrophic

risk

Financial

risk


Fortis bank financial symposium

LEVERAGING OUR EXCELLENT GROUP MANUFACTURERS WE ARE OVERHAULING THE WHOLE PROCESS TO GAIN TRUST FROM CLIENTS IN THE OTHER TWO AREAS OF HOUSEHOLDS’ RISK MANAGEMENT

SELLING PROCESS REDESIGN

BRAND NEW PFP SOFTWARE

DEDICATED COMMUNICATION

NEW PENSION PRODUCTS DISTRIBUTION MODEL

BRAND NEW TRAINING TOOLS

BRAND NEW PRODUCTS


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