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Financial Markets

Financial Markets. Piero Overmars, SEVP Global Head of Financial Markets BU. 11 December, 2003. Agenda for today. Financial Markets (Piero Overmars) Credit Markets (Niall Cameron) Rates Markets (Graham Bird). When we formed Financial Markets in ‘02 we aimed to achieve four goals:.

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Financial Markets

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  1. Financial Markets Piero Overmars, SEVPGlobal Head of Financial Markets BU 11 December, 2003

  2. Agenda for today Financial Markets (Piero Overmars) • Credit Markets • (Niall Cameron) • Rates Markets • (Graham Bird)

  3. When we formed Financial Markets in ‘02 we aimed to achieve four goals: • Provide better integrated capital raising, capital management and risk advisory service to our clients • Enhance our offer • More selectively deploy capital to profitable Priority and Key clients • Optimise portfolio through capital market instruments • Change origination behaviour • Build on our penetration in Europe and Asia • Narrow our focus on top 250 investors • Leverage our distribution capabilities • Centralise infrastructure to benefit from economies of scale • Hub & spoke front office model • Improve our efficiency

  4. We are differentiating our offer and using our capital more effectively . . . Change origination behaviour Enhance our offer Provide better integrated capital raising, capital management and risk advisory service to our clients More selectively deploy capital to Priority and Key clients, and optimise portfolio through the cycle Newly originated transactions: credit RAROC • Financial Markets Advisory (FMA) • Whole business securitisation • US Asset securitisation and CMBS • European CMBS • US Domestic and Sterling DCM • New, improved, client-facing FX platform • Commodity and Hybrid Derivatives • Portfolio approach to manage credit risk through the cycle • Rigorous implementation of hurdle rate for accepting loans into the portfolio

  5. We are more important to our best clients and have a leaner operation Leverage our distribution Improve our efficiency Build on our penetration in Europe and Asia and narrow our focus on top 250 investors Centralise infrastructure to benefit from economies of scale and ‘Hub & spoke’ front office model • Centralised Back Offices for • Interest Rate and FX Derivatives • Money Markets • Improved front office operating model: • Asset Securitisation • Structured Trade Finance • Credit Portfolio Management • Funding and Liquidity Management • Rates market making Compared to YTD ‘02 client revenues from: • Europe and Asia increased 19% and 21% respectively • Interest and FX derivatives up 16% and 85% respectively • e-clients up 53%, e-transactions up 80%; now 15% of total transactions are e- trades, up 40%

  6. Financial Market clients are serviced by four production channels . . . Financial Markets Portfolio Management Credit Markets Rates Markets Foreign Exchange Group (PMG) Credit Portolio Primary Markets Market Making Spot FX Management Portolio Strategy Secondary Markets FX Options Structured Products Portfolio Execution Securitisation Banking Books Project Finance Loan Markets Structured Capital PLEASE DO NOT DELETE Focus of discussion today Financial Markets Advisory (FMA) Research Distribution

  7. YTD September 2003% Revenue composition . . . resulting in a diversified and client-driven earnings base for FM Australia 4% USA 16% LatAm 6% Western Europe 56% Asia 12% CEMA 6% YTD September 2003% Revenue breakdown by region As at end September 2003

  8. FM’s core business has annual revenues of over EUR 2.8 bn (flat year-on-year) Net Profit has increased in ‘03 due to lower costs and provisions Revenues per unit of RWA increased by > 30% since ‘02 Slight reduction in headcount masks a large upgrading exercise and also resourcing for new initiatives Financial Markets (FM) 2003 has seen improved net profit contribution with stable revenues Nine Months YTD 2003 2002 % change Revs (EURm) Prov (EURm) • RWAs (EURb) • Staff 2,087 253 50 3,123 2,207 575 69 3,142 (5) (56) (28) (1)

  9. Financial Markets2003 quarterly revenues 2003 results show q-o-q increase in earnings • Geopolitical events and SARS affected client flows in Q1 and trading results were disappointing • Client revenues recovered but MM/Repo results slowed down in H1 • Large ticket client deals and good trading sheltered Q3 revenues from seasonal effects and the full-extent of US Treasury and MBS market turmoil • Positive trends of YTD 03 expected to continue in Q4 Revenues (EUR mln) 800 750 724 709 700 653 650 600 Q1 Q2 Q3 2003

  10. Loan portfolio RWA trend Our loan portfolio has been shrunk and improved in credit quality 100% 18.7% 20.1% 20.3% 80% 60% 80% 80% 81% 40% 20% 0% Sep. 02 Dec. 02 Sep. 03 UCR 1, 2, 3 UCR >=4 • Loan portfolio remains strongly Investment Grade • Annualised provisioning as % of WCS RWAs declined from 87 bps in 2002 to 57 bps in September 2003 YTD • Portfolio size Loan Book (RWA) reduced by 47% in 2 years and made efficient Loan portfolio asset quality

  11. Overall league tables Competitively, we have bolstered our position in our chosen markets in ‘03 Selected positions 2003 Nov. 2002 full year Material increase in Top 5 rankings since FM was created League Table sample size: 105 (3Q 2002) 101 (3Q 2003) • All International Bonds 11 11 • All Euro-denominated bonds 4 6 • All Euro-denominated ABS/MBS 1 1 • Global Syndicated Loans: MLA 7 8 • Western Europe LBOMandated Arranger 6 17 • All Euro Government Bonds 5 6 • Emerging Markets SyndicatedLoans 6 7 • FX 6 9 1. Based on discussions with MOW. Sources: Greenwich, IFR, Euromoney, Project Finance Magazine, Risk Magazine, Dealogic - Loanware, Marakon analysis

  12. Our clients and peers have recognised our gains - 2003 Awards “Our annual survey is based on the opinions of the world’s top 4,000 multinational corporations and is supported by 24 national treasury associations. In a highly competitive market, this new award shows that ABN AMRO is getting things right.” • Most Improved Debt House • Euromoney, Awards for Excellence, July 2003 • Best Bank - Fixed Income • Treasury Management International Award 2003, November 2003 • Project Finance Restructuring Deal of the Year • For PT Paiton Energy - Project Finance magazine, September 2003 • Most Improved Bank at Overall Debt Capital Raising in Asia • Euroweek, Asian Capital Markets Poll, February 2003 • Currency Derivatives House of the Year Award • Risk Magazine, January 2003 • Voted #1 for FX by corporates • Voted #3 by institutions • FX Week, End-user surveys, November 2003 • # 1 in Euro interest swaps with Corporates • # 2 in Euro interest swaps with Financial Institutions • Risk Magazine, End-user surveys, June 2003

  13. Industry outlook Market share consolidation across many product areas to Top 5, possibly Top 10, players We expect main areas of growth will continue to be in the structured finance domain Depth and number of top tier client relationship crucial to success Business outlook We are optimistic about the business growth in the medium term: US GDP growth will continue, but at a reduced rate from Q3; European markets slowly growing and increasing trade Interest rates to rise in US and UK but remain stable in Eurozone in 2004 Private financing increasingly replacing Governmental expenditure Corporate bond issuance expected to shrink by 25-30% Outlook for 2004

  14. Financial Market Plans for 2004 1) Enhancing our mature, volume-driven businesses: • Protect Profitable Platforms • - Foreign Exchange • - Money Markets/Repos • - Vanilla Interest Rate Derivatives • - Asset Securitisation • Selectively upgrade strategic relationship products • - Fixed Income (Primary & Secondary) • - Government Bond Trading

  15. Enhancing our mature businesses 2) Building out material new growth ‘spikes’: Expand into high growth product categories and/or high potential client segments/geographies, through selective investments • Opportunities in Derivatives • high value-added, tailored products • distribute to our numerous and deep relationships • Structured Credit businesses • European Infrastructure Capital • European High Yield • Expand Participation in Retail Segment • service ABN AMRO’s extensive middle-market financial institutions and private client customer base • differentiated product offering

  16. Summary • Aims set out for 2003 have been achieved • Improved the economics of the business • Improved and improving competitive position • Optimistic outlook for business and industry in 2004 • Will be investing to grow current profitable positions and to create future franchises

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