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OPERATIONS IN FINANCIAL INSTITUTIONS - WHY IT’S MORE THAN JUST PROCESSES

OPERATIONS IN FINANCIAL INSTITUTIONS - WHY IT’S MORE THAN JUST PROCESSES. B60.2315.20 OPERATIONS IN FINANCIAL SERVICES. Spring 2002.

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OPERATIONS IN FINANCIAL INSTITUTIONS - WHY IT’S MORE THAN JUST PROCESSES

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  1. OPERATIONS IN FINANCIAL INSTITUTIONS - WHY IT’S MORE THAN JUST PROCESSES B60.2315.20 OPERATIONS IN FINANCIAL SERVICES Spring 2002 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

  2. Retail banks • Investment banks • Asset managers • Insurance companies • Check processing • Branch network • Credit servicing and processing • Printing and statementing • Operations is a integral function for financial institutions • Customer quality and satisfaction • Economies • Technology dependent • Trade processing • Report production • Corporate action processing • Trading P&L generation • Client servicing • Position and order management • Trade processing • Custodian interactions • Underwriting • Claims processing • Field and client servicing NY-101613.103/020417YlpolSL1 OPERATIONS – THE HEART OF FINANCIAL INSTITUTIONS • Example elements of “operations”

  3. NY-101613.103/020417YlpolSL1 SIGNIFICANT COMPONENT OF COST BASE - RETAIL BANK EXAMPLE Percent of revenues • Operational environment • Examples 55-60 • Judgment-intensive processing • Factory-like processing • Contact centers • Credit underwriting • Collections • Investment management • Item processing • Account maintenance • Transaction processing • Call centers • Web sites Corporate center 6-9 Judgment-intensive processing 3-6 Factory-like processing 6-8 Contact centers 4-6 6-9 IT 11-14 Branch/physical network Purchased costs (non-IT) 14-21 Retail bank efficiency ratio • Typical cost savings is 15-20% or 2-4 points of efficiency ratio impact

  4. NY-101613.103/020417YlpolSL1 SIGNIFICANT COMPONENT OF COST BASE - INVESTMENT BANK EXAMPLE Percent of personnel costs • Admin • Accounting/risk • Back office 70% 30% • IT • Ops/mid office • Front office • Note: Headcount distribution is more skewed to back office due to lower cost per person

  5. . . . with the penalty for missing expectations severe • First Union – 1Q • MSDW – 3Q • Amex – 4Q • Bank One – 3Q • Charles Schwab – 3Q • Decline in stock price***Percent • National City – 3Q • Bank America – 3Q • First National – 4Q • Citigroup – 4Q • Wachovia – 4Q • Negative EPS surprisePercent NY-101613.103/020417YlpolSL1 MARKET PRESSURE TO MAINTAIN HIGH GROWTH RATES Market expectations for growth remain high . . . • EPS growth last 5 years • Percent • Expected EPS growth for 2001 • Percent • Brokerages/ investment banks 20% 16% • Banks – money center • Regional banks • Consolidated loan companies* • Miscellaneous financial services** * For example, credit card companies ** For example, Citigroup *** Same or next day decline (depending on timing of earning announcement) during 2000 Source: Zacks Consensus Research as of 2/3/01

  6. NY-101613.103/020417YlpolSL1 ADDITIONAL PRESSURE ON OPERATIONS – INVESTMENT BANKING EXAMPLE

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