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Investor Day – Bologna, 13 th June 2003

CORPORATE DIVISION 2003-2006 STRATEGIC PLAN Pietro Modiano Head of Corporate Division. Investor Day – Bologna, 13 th June 2003. AGENDA. Executive summary The Corporate Division UniCredit Banca d’Impresa (UBI) UniCredit Banca Mobiliare (UBM) Conclusions. EXECUTIVE SUMMARY.

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Investor Day – Bologna, 13 th June 2003

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  1. CORPORATE DIVISION2003-2006 STRATEGIC PLANPietro ModianoHead of Corporate Division Investor Day – Bologna, 13th June 2003

  2. AGENDA • Executive summary • The Corporate Division • UniCredit Banca d’Impresa (UBI) • UniCredit Banca Mobiliare (UBM) • Conclusions

  3. EXECUTIVE SUMMARY • The Corporate Division: a network of specialised banks • UniCredit Banca d’Impresa (UBI): fully dedicated to Corporates, • Small and Medium Enterprises • UBI: high potential for low cost and low risk growth thanks to • large client coverage, but low share of wallet • A new organisational structure to take advantage of the • interaction between lending and commission revenues • Risk control systems based on the full implementation of the • Basel II guidelines • UBM’s new challenge: to extend Corporate Finance value added • products and services to Small and Medium Enterprises Considerable growth potential for the Corporate Division

  4. AGENDA • Executive Summary • The Corporate Division • UniCredit Banca d’Impresa (UBI) • UniCredit Banca Mobiliare (UBM) • Conclusions

  5. THE CORPORATE DIVISION’S IDENTITY CARD: KEY PLAYERS… Corporate Division The Corporate Bank: the focal point of the system The Investment Bank: derivatives, investment banking, relationship with largegroups The leader in the leasing market in Italy Project financing and acquisition finance expertise. Specialised in mid-term lending

  6. 1,723 585 40,954 29.1% 586 239 - 28.1% 175 41 8,576 30.4% 88 15 5,322 50.6% 162 7 1,995 - 2,734 887 56,846 32.6% …AND KEY FIGURES 2002 data Net Income Loans Revenues C/I (Euro mln) Other companies TOTAL 4,081 Divisional ROE 19.4% Foreign Branches’ loans (Euro mln) Divisional RARORAC 11.1% 5,866 Number of employees

  7. AGENDA • Executive Summary • The Corporate Division • UniCredit Banca d’Impresa (UBI) • UniCredit Banca Mobiliare (UBM) • Conclusions

  8. UBI: THE FOCAL POINT OF THE CORPORATE DIVISION 2002 data Loans Revenues (Euro mln) 92 Largest 42 groups 4,990 7,450 210 Other Corporates: turnover > 50 mln Euro 21,489 1,119 SMEs 168 5,174 Public sector and others 1,589(**) Total 39,103 (*) • UBI is the bank dedicated to Corporates, Small and Medium Enterprises • UBI has relationships with all the Division’s customers • 72% of the Corporate Division lending is concentrated in UBI. Of this, 55% goes to SMEs Source: UBI calculations on internal data, using Italian Credit Bureau definitions (*) To ensure comparability with the banking system data, the data reported are from the Credit Bureau (**) Excluding free capital and other income

  9. A SIGNIFICANT POTENTIAL FOR GROWTH • Room for rationalisation of the client base: large number of clients, with unexploited potential, high concentration of revenues, low risk profile • High degree of client coverage(*): almost full client coverage in historical areas. Room for the acquisition of new clients in selected, rich, areas • Low share of wallet(*): the high degree of client coverage is counterbalanced by a limited share of wallet (*) Client coverage refers to the number of UBI clients with outstanding loans, according to Italian Credit Bureau, relative to an estimate of the total number of corporate enterprises. Share of wallet refers to the ratio between the amount of UBI outstanding loans and the banking system outstanding loans on the same customers.

  10. UBI total client base: 54.657 (75,6% of system total loans) UBI active clients (*): 45.433 (83,1% UBI total client base) UBI clients with outstanding loans: 40.095 (88,3% UBI active clients) A BANK WITH A VERY LARGE NUMBER OF CLIENTS (COVERING ALMOST 50% OF THE TOTAL NON-FINANCIAL ENTERPRISE SECTOR )… Room for rationalisation: a) client base • UBI core customers (non financial enterprises with a turnover of at least 1.5 mln Euro) are around 55,000 and represent 46,6% of the total corporate market • Out of these: around 40,000 have outstanding loans As regards non financial enterprises: • Good customer mix: the bank’s clients have larger loan exposure than the system’s average Source: UBI calculations on internal data (*) UBI active clients are those who have generated, as of December 2002, total revenues of at least 500 Euro.

  11. …A HIGHLY CONCENTRATED REVENUE STREAM Room for rationalisation: b) revenues concentration • The top 10% of UBI core customers generates: • over 60% of total outstanding loans • over 50% of UBI’s total revenues • over 50% of commission margins (net of derivatives) Outstanding loans (%) Total revenues (%) Number of clients 63.7% 52.4% 5,466 I Decile 75.1% 13,664 81.9% I Quartile 12.9% 17.7% II Quartile 13,664 4.3% 6.7% 13,664 III Quartile • The top 10% is fairly well distributed among large, medium and small enterprises 0.9% 0.6% 13,664 IV Quartile 100% 54,657 100% Total Source: UBI calculations on internal data

  12. UBI’S CORE CUSTOMER BASE REPRESENTS OVER 75% OF THE BANKING SYSTEM’S TOTAL OUSTANDING LOANS… High degree of client coverage • The total amount of loans of UBI customers, either with UBI or with other banks, represents 75% of total loans • In historical areas the lending coverage increases to around 90% Total market UBI Core Clients Client coverage Lending coverage (*) 54,657 117,321 46.6% 75.6% Total …except in Lombardy… 66.4% 10,020 34,688 28.9% Lombardy • Room for further growth in coverage remains in some rich areas, such as Lombardy, and in some provinces in the North East …except in the South 5,641 15,772 35.8% 57.7% Southern Italy Source: UBI calculations on internal data and Credit Bureau data (*) Lending coverage refers to the amount of total outstanding loans of UBI customers (both towards UBI and other banks) relative to the total stock of outstanding loans on the corporate market.

  13. Share of wallet 5.5% Largest 42 groups Total non-financial enterprises (without largest 42 groups) 11.2% 8.4% Other Corporates: turnover > 50 mln Euro Total non-financial enterprises (with largest 42 groups) 10.2% …WITH A 10.2% SHARE OF WALLET IN LENDING… Share of wallet • UBI’s share of wallet is 5.5% in large groups and 11.2% in Corporates and SMEs • This is a reflection of Italy’s well-known phenomenon of multiple banking counterparties, especially among large enterprises Source: UBI calculations on internal data, using Italian Credit Bureau definitions

  14. 25% Banking system (weighted average of ratings: 5.1) 20% UBI (weighted average of ratings: 4.9) 15% 10% 5% 0% 1 2 3 4 5 6 7 8 9 …AND A BETTER RISK PROFILE THAN THE SYSTEM • The weighted average of ratings (weighted by total loans), computed on Italy’s Centrale dei Bilanci rating scale, is 4.9 for UBI versus 5.1 estimated for the system • UBI appears to be under-represented in the higher-risk classes Source: UBI estimates on Centrale dei Bilanci data

  15. LOW CLIENT COVERAGE (<30%) MEDIUM CLIENT COVERAGE (30-55%) HIGH CLIENT COVERAGE (>55%) 10.2% avg. share of wallet on core non-financial customers VENETO  HIGH SHARE OF WALLET (>11%) FRIULI VG TRENTINO AA PUGLIA EMILIA R  MOLISE PIEMONTE   CALABRIA V. AOSTA MEDIUM SHARE OF WALLET (9-11%)  SICILIA  TOSCANA  SARDEGNA  CAMPANIA  ABRUZZO  LOMBARDIA LOW SHARE OF WALLET (<9%) MARCHE   LAZIO  UMBRIA  LIGURIA  BASILICATA GREAT OPPORTUNITY FOR LOW COST AND LOW RISK GROWTH • UBI has a unique opportunity to increase its market share at low costs, maintaining a low risk profile for its portfolio • This can be achieved through an increase in the share of wallet of a selection of existing customers and through a limited increase in the number of clients in selected areas Source: UBI calculations on internal data and Credit Bureau data

  16. MAIN OBJECTIVES: LENDING VOLUME EXPANSION THROUGH AN INCREASE IN THE SHARE OF WALLET IN EXISTING CUSTOMERS TO LEVERAGE THE INTERACTION BETWEEN LENDING AND COMMISSION REVENUES • A new organisational structure designed to: • provide relationship managers with standardised products for all customers • for a growing number of selected clients, develop a full range of high-value added products and services, to acquire the role of main relationship bank, so as to maximise the interaction between interest and commission revenues and maintain a premium price in loans… • … under the constraint of unchanged risk exposure. Risk control will be based on full implementation of Basel II guidelines • Significant expansion in lending to SMEs through: • increased share of wallet in existing customer base • increased client coverage in selected regions/provinces • Stability in lending to large groups, exploiting selected opportunities

  17. A STATISTICAL RELATION BETWEEN UBI SHARE OF WALLET IN LENDING AND UBI TOTAL REVENUES The share of wallet which maximises the revenues is around 14% (relative to today’s 10%) UBI Total Revenues/ System Lending Share of wallet in lending UBI customers % in each share of wallet range 47.7% 10.7% 30.0% Source: UBI calculations on internal data and Italian Credit Bureau

  18. Corporate Finance 14 Derivatives 64 Product specialists Foreign services 22 Transaction services 108 Total 208 Relationship managers 887 A NEW ORGANISATIONAL STRUCTURE: EFFECTIVE INTERACTION BETWEEN RELATIONSHIP MANAGERS AND PRODUCT SPECIALISTS… • Light, localised, specialised • The local relationship manager maintains a central role • Based on the interaction between relationship manager and product specialist • The product specialists are part of four ‘product factories’ • Client needs are analysed through a complex ‘Corporate Financial Planning’ system, highly quantitative, currently being piloted on a number of branches Source: UBI internal data

  19. Product Factories Actions Three-year plan target Derivatives • Acquisition of new customers through the development of new financial risk management solutions • Consolidation of current customer base Customers’ increase: from 13,600 to around 20,000 Foreign services • Share of wallet increase in enterprises with significant foreign business relations • Synergies with the New Europe Banks Commissions’ CAGR: 16.6% Corporate finance • Market share growth in an area where global houses are currently in a leading position • Delivery of value-added products, traditionally reserved to large corporates, to SMEs Generation of 4 bn loans Transaction services Increase in product range, customer base and transaction flows Customers: up 14% Transaction flows: up 39% …LEADING TO EXCELLENCE IN VALUE-ADDED PRODUCTS DESIGNED BY UBI ‘PRODUCT FACTORIES’…

  20. The Retail Bank The Leasing Co. of the Group Project Financing The Centre of the Division ...AND BY A NUMBER OF SPECIALISED COMPANIES, FULLY EXPLOITING THE DIVISION AND GROUP SYNERGIES Corporate Finance New Europe Banks and International Network

  21. 2.5 1,94 1,93 2.0 1,58 1,32 1.5 1.0 0.5 0.0 2002 2006 System average PD UBI average PD RISK CONTROL BASED ON FULL IMPLEMENTATION OF BASEL II GUIDELINES • UBI intends to strengthen the existing methodologies for credit risk analysis – including the introduction of the main features of the Basel II model - by the end of 2003 • The risk analysis models will become an essential evaluation system also at the commercial level in order to optimise, for each counterparty, the interaction between the amount of lending, the interest rate applied and the commission margins generated • Loan loss provisions will be computed on a forward looking basis through the analysis of each single counterparty evaluated according to the Group’s internal rating model • Calculation of loan loss provisions are based on a probability of default which, after a slight deterioration for cyclical reasons in 2003, is expected to improve to 1.32%, by the end of the period. The LGD is assumed to be around 45% Source: UBI preliminary estimations on internal data and Bank of Italy data System PD data (estimated on the basis of the decaying rates – tassi di decadimento Banca d’Italia –) are adjusted by a scale factor to ensure comparability with UBI internal data, which include all doubtful loans and not just NPLs.

  22. UBI TARGETS Cagr 02-06 (Euro mln) Longer-term targets 2002 3 yrs targets Loans 39,103(*) 9.7% From 11% to 13% 1,160 8.7% Net interest income 15% Share of wallet 562 10.7% Net non interest income From 76% to 81% ~80% Lending coverage Total revenues 1,723 9.4% From 49% to 53% Net non interest income/ net interest income ~60% Operating income 1,222 10.8% stable stable Cost Income RATIO, % Average rating (CeBi) 29.1% 25.2%(**) • In 2003 the successful interaction between relationship managers and product specialists will lead • to an increase in : • Derivatives revenues: +31% • Foreign Transactions revenues: +12% • Progress in credit risk modelling Source: UBI estimates on internal data (*) To ensure comparability with the banking system data, the data reported are from the Credit Bureau (**) End of period figure

  23. AGENDA • Executive Summary • The Corporate Division • UniCredit Banca d’Impresa (UBI) • UniCredit Banca Mobiliare (UBM) • Conclusions

  24. UBM: THE INVESTMENT BANK OF THE GROUP %ch. 02/01 (Euro mln) 2002 • The Role in the Division • UBM is the product factory and risk taking unit for corporate derivatives sold by UBI network • UBM brings skills and expertise in investment banking to UBI clients 586 44% Total Revenues 239 66% Net Income -600 bp 28.1% Cost / Income • The History • Conceived in 1997 • A Division of Credito Italiano Finance in 1998 • Born officially as a bank on 1 January 2000 • Appointed in 2001 to manage the relationship with large corporate customers • The Risk • Average daily VaR (99% confidence level, 1-day holding period) below €4 mln over the last two years

  25. FOCUS ON RISK CONTROL UBM Daily VAR and P&L (Jan. 2002 - Apr. 2003) • Counterparty Risk: • Exposure to large, institutional players • Daily Risk Measurement through Counterparty’s Portfolio Analysis • Measurement methods take full advantage of market risk techniques • Use of credit risk mitigation tools (netting and collateral agreements) • Market Risk: • Development of proprietary pricing models with increasing degree of complexity and sophistication • Deployment of an enterprise-wide parallel computing and skew/smile pricing • Daily back-testing, stress tests and crash tests • Daily monitoring of VaR figures at all relevant levels (single position, portfolio, desk, area, firm)

  26. ORGANIZATIONAL CHART: THE TWO MAIN LINES OF BUSINESS UBM Investment Banking Financial Products Sales and Trading Debt Orig. and Securitization Equity Capital Markets Structured Finance and Syndication Bond Trading and Sales Derivative Products Equity Brokerage FX and Treasury M&A • Successful business model: • innovative, complex and sophisticated • offer of financial products (i. e.: • derivatives) to mid-sized clients • core skills in hedging and trading • excellence in managing financial and • operational risks • industrial approach: high volumes, “slim” • structures • UBM’s direct relationship with Italy’s 42 largest industrial groups, providing advisory and services in the area of Corporate Finance • Joint activity of UBM and UBI to offer the same services to mid-sized corporate clients • Loans are always booked in UBI

  27. THE BUSINESS SYSTEM IN FINANCIAL PRODUCT SALES AND TRADING • Understand potential customer needs (market intelligence) • Transform needs and ideas into products, check compliance and systems (New Product Committee) • Implement the operational processes (software modules for pricing, hedging and risk management, accounting and regulatory reporting) • Train UBI and the Group’s sales force Design phase • Roll out of business and operational processes • Apply risk management • Refine and improve the process Deployment • Daily quality control • Systematic portfolio measurement and assessment • Pro-active management of customer portfolio liabilities After sales support

  28. UBI AND UBM WORKING TOGETHER ON CORPORATE FINANCE THE MECHANICS OF COOPERATION • UBI: • understanding of needs, day to day relationship management • source of market intelligence, scouting and prospecting on the large • scale • lending and other financing services when needed • UBM: • core skills, specialized teams, experience coming from its activity for • Large Corporate clients • structuring and executing • agent bank for the more complex structures

  29. STRATEGIC PLAN IS A MIX OF CONSOLIDATION, GROWTH AND EXPORT OF THE BUSINESS MODEL TO OTHER EUROPEAN COUNTRIES Cagr 02-06 2002 (Euro mln) Total Revenues 586 12.6% • Investment Banking • Large Corporate: • Growth based on products and services with higher added value: M&A, Structured Finance, Advisory • Slight increase of market share in debt origination, especially through securitization • Medium Corporate: • Significant increase in Corporate Finance products and services, originally tailored to large corporate clients, mainly due to UBM/UBI synergies • Build focused products: analyse customers by size, sector and location 422 12.7% Operating Income Cost / Income 28.1% 27.9%* • Financial Products Sales and Trading • Consolidation of UBM position on domestic primary and secondary markets • International growth: export UBM business model to other European countries, building JV companies with local partners • IKB-UBM already established (German market) • two more start-ups likely to come in the next three years (*) End of period figure

  30. AGENDA • Executive Summary • The Corporate Division • UniCredit Banca d’Impresa - UBI • UniCredit Banca Mobiliare - UBM • Conclusions

  31. Cagr 02-06 2002 (Euro mln) Expansion through share of wallet increase 56,846 9.0% Loans 9.9% 2,734 Total Revenues Leveraging on cross-selling opportunities and synergies within the Division 11.5% 1,842 Operating Income 28.7%(*) 32.6% Cost Income RATIO, % High returns, low costs relative to sector peers 11.1% 11.6%(*) RARORAC, % 4,567 9.0% Economic Capital THE CORPORATE DIVISION: TARGETS (*) End of period figure

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