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RETAIL DIVISION
Roberto Nicastro
2
AGENDA
Retail Division overview
Country-specific plans
Austria
Germany
Italy
Conclusions
3(1) New perimeter: households with financial assets up to 1 million Euro and enterprises with yearly turnover up to 3 million(2) Direct deposits, indirect deposits and total loans as of December 2005(3) Not including Austrian small business segment
RETAIL DIVISION ID CARD
Total volumes(2) bn
111 57(3) 16199
TOTAL
383
UniCredit R etail D ivision (1)
RetailItaly
RetailAustria
Specialized platforms
RetailGermany
Households: with less than 1 mln assets
Small Businesses: with less than 3 mln turnover
4
THE STARTING POINT
Revenues Costs Net profit
4,397(61%)
2,756(52%)
609
1,753(24%)
1,638(31%)
1,059(15%)
911(17%)
-264
-68
RETAIL DIVISION PRO-FORMA ECONOMICS(1), 2005million, percent
Italy
Germany
Austria(1)
7,209 5,305 277Total
AustriaGermany
Italy
(1) After divisionalization in Germany and Austria, but not yet including Austrian small business segment
As resulted from transferring high net-worth individuals and small business
5
A 1 BN ANNUAL EVA IMPROVEMENT ACHIEVED WITH DIFFERENT FOCUS SOUTH AND NORTH OF THE ALPS
TURNAROUND AT DIFFERENT STAGES
Radical improvement, building on a very encouraging 2006 start:
Revenues and cross-selling growth with focus on highly attractive Affluent segment
Turnaround of unprofitable Mass Market (especially Germany) and Small Business (especially Austria) segments
Cost efficiency addressing high direct and indirect costs
Consolidating the current successful growth:
Customer base enlargement, focus on attractive segments
Further wide cross-selling opportunities
More cost efficiency
6
AGENDA
Retail Division overview
Country-specific plans
Austria
Germany
Italy
Conclusions
7
Specialized platforms (Clarima and Banca per la Casa)
■ Partners contribution (e.g., real estate franchisers and federations)
■ 830-strong hunters’ network in UCB
■ Innovative acquisition products (e.g., Genius One and Start-Up)
■ Customer satisfaction improvementTRI*M index
CUSTOMER GROWTH: ESTABLISHED TRACK RECORD THANKS TO IMPROVED CUSTOMER SATISFACTION
(1) Small Business and Affluent
ATTRACTIVE CUSTOMER GROWTH
130
39
UCB
CLARIMA NON-CAPTIVE
BANCA PER LA CASA NON-CAPTIVE
GROSS CUSTOMER INFLOWS, 2005Thousand
1Q20062004 Top 4 peers 2005
49 5543
51 313 364
Golden(1)
Total net new customers in 2005: 160,000
Customer growth1
Other
8
BUT STILL HIGH GROWTH POTENTIAL EXISTS
CLEAR OPPORTUNITIES … … SPECIFICALLY ADDRESSED
Customer growth1
■ Autumn 2006: launch of new specialized service line focused on immigrants and near-prime market (Linea Tu)
■ Demographic trends: e.g. fast growing immigrant (~10% of mortgages requests expected in 2008) and temporary workers segments
■ Increased focus of Clarima and Banca per la Casa on non-captive channel development
■ Consumer and mortgage loans markets still very buoyant
■ Lombardia and Center-South still under-penetrated
■ Around 170 golden branch openings in 2006 and 2007
■ Hunters network model refinement and consolidation
■ About 20% of hunters still underperforming
9
MARCH 2006
JUNE2004(1)
CURRENT ACCOUNT PACKAGES 57% 56%47% 46%
ASSETS UNDER MANAGEMENT(2) 64% 16%55% 13%
PERSONAL BANKING
MARCH 2006
JUNE2004(1)
MASS MARKET
(1) Presented at the 4th Investor Day on October 27, 2004(2) Bank-assurance not included
PRODUCT PENETRATION
CROSS-SELLING: GOOD RESULTS, WITH LARGE FURTHER OPPORTUNITIES ALSO ON THE RECENTLY ACQUIRED CUSTOMERS
High sales orientation Well-tested rewarding system (monetary and non-monetary incentives, contests, etc.) Effective campaign management system
DISTINCTIVE FACTORS
Main achievementGrowth opportunity
PERSONAL LOANS 2% 9%2% 7%
CLARIMA CARDS - REVOLVING 12% 12%3% 4%
HOUSING FINANCING 4% 13%4% 12%
Cross selling2
10
COST REDUCTIONS AHEAD OF PLAN: 60% 2007 C/I TARGET ALMOST DELIVERED NOW
Branch closures faster than planned with higher retention rate (95% vs. 90% planned)
2004 1Q06
Incorporation of Banca dell’Umbria and CRCarpi
Merger of retail businesses of the two Banks generated ~20% synergies of initial cost base in 6 months
First results of migration to low cost channels
56% wire-transfers and 21% tax payments moved out of the branches
335 deposit-ATM installed: 27% of cash deposits migrated
1.1 mln online banking customers (+43% 1Q06 vs. 1Q05)
VERY GOOD ACHIEVEMENTS
(1) Pro-forma including Banca dell’Umbria and CRCarpi, incorporated on July 1, 2005
2005 Total
26224129
109
2004 1Q06
24,280(1)
23,330
-950
FTE reduction: at mid-plan already 60% of 2007 target
Cost efficiency3
11
RESULTS WILL BE ACHIEVED THROUGH FURTHER TRANSFORMATION OF SERVICE MODELS
■ Continue migration to automated channels : ~2,000 additional deposit-ATM planned
■ Structural branch costs reduction:■ Activity centralization■ Process simplifications■ Innovative formats for 500
small branches (<4 employees)■ Optimize support for other
Divisions
■ Continue FTE reduction with sustained rate also in 2008
MAIN INITIATIVES
2008
CAGR2005-2008
Infragroup costs
~2.8%
2,756
38
2,990
2005
~1.7%
OPERATING EXPENSESmillion
~3.1%Direct costs
196
Cost efficiency3
12
DELIVERING IMPRESSIVE EVA CREATION IN THE NEXT 3-YEARS
2005 CAGR 05-08(1)
4,397 ~7%Total revenues, mln Revenues/RWA 10% ~10%
Cost/Income 63% ~56%
2005
FTE, # ~23,560 ~22,640
2008(1)
EVA, bn 0.4 ~0.7
Operating costs, mln 2,756 ~3% Revenues/FTE, mln 0.19 ~0.24
Avg. RWA, bn 42.8 ~9% Up-front fees/Revenues 14% ~13%
Cost of risk(2) 65 bp ~56 bp
(1) Under Basel I regulations and not including Clarima Deutschland start-up(2) Loan loss provisions over end-of-period total loans
13
AGENDA
Retail Division overview
Country-specific plans
Austria
Germany
Italy
Conclusions
14
~8%
~3%~9%
~23%
~14%
~8%
OUTSTANDING INCREASE OF ASSET GATHERING, MAINLY DUE TO AFFLUENT SEGMENT
1216
10
15
12 12
34
2005
43
2008
AuM
AuC
Other deposits Other
Recurring fees
Up-front fees
Interest margin
ASSET GATHERING VOLUMES IN AFFLUENT SEGMENTbillion
REVENUES MIX IN AFFLUENT SEGMENTmillion, percentCAGR
2005-2008
~2%
CAGR2005-2008
~6%
100% =
~10%
Revenue growth1
2005 2008
657 829
15% 16%
46%
14% 20%
25% 24%
40%
15
STRONG GROWTH AND LEADERSHIP IN AFFLUENT SEGMENT
■ Foster systematic customer contacts
■ Refine need-based approach and reallocate customer assets between financial needs
■ Optimize asset allocation with more efficient products
■ HVB upmarket customer base in the biggest European affluent assets’ market (37% of customers with over 3,000 Euro monthly income)
■ HVB network perceived as highly competent vs. competitors
■ Good products-shelf with need-oriented sales approach already present
WHAT WE DO WHY IT IS ACHIEVABLE
Revenue growth1
16
VERY CLEAR POTENTIAL TO INCREASE SALES PRODUCTIVITY
Revenue growth1
Meetings per Relationship Manager can be improved by 40-45% through:■ Introduction of a deterministic rewarding system as of July 1, 2006■ Clear targets and advanced sales measurement system■ Branch traffic generation activities
Number of meetings per advisor per week(1)
0
2
4
6
8
10
12
14
16
18
0 5 10 15 20 25 30 35
Productivity leaders
Average performers
Low performers
Product sales per
advisor per week(1)
Lower quartile = 6.2
Upper quartile = 10.7
(1) All advisor data is a weighted average for affluent and mass market advisors; small business advisors not included in analysis
Source: FINALTA
UCB best practice
17
STRONG TURNAROUND OF UNPROFITABLE MASS MARKET AND SMALL BUSINESS SEGMENTS
■ Focus on attractive sub-segments/selected industries
■ Attack largely under-penetrated areas:
■Mortgages and savings soloists■Customers without a current
account■Asset gathering from small
business relationship
■ Be “retail”:■Simplify and standardize
product offering■Standardize and automate credit
processes
■ Historical over-reliance on mortgages
■ Currently, 40% of mass market customers are soloists and 50% hold a current account with HVB
■ Small business segment profitable at market level (8-12% ROE) and some major German banks successfully over-perform the market
■ Current customer acquisition rate below peers
■ Spin-off of non-strategic assets held by mortgage soloists with limited cross-selling potential
WHAT WE DO WHY IT IS ACHIEVABLE
MM/SB turnaround2
18
CLEAR POTENTIAL IN MASS MARKET FOR CROSS SELLING IN ALL PRODUCT AREAS
HVB 2.4 mln clientsUCB 4.1 mln clients
Mortgages
Creditcards
Revolvingcards
Personalloans
Currentaccount
Bancass.Recurring premium
Bancass.Single premium
Securities
Assetmgmt
COMPARISON OF PRODUCT PENETRATIONS FOR MASS MARKET SEGMENT, HVB AND UCB
MM/SB turnaround2
11.9%
21.3%
7.7%
7.6%
75.1%
11.6%5.2%
5.6%
17.1%
16.0%
0.2%
21.5%
42.9%
4.4%
1.0%
7.5%
14.5%
2.9%
Increase customer loyalty/deposits thru X-selling of C/A and credit cards
Increase market share in hi-margins personal loans and revolving cards
Clarima Deutschland start-up (2H 2006)
Data as of June 2005
19
COST REDUCTION WILL BE ACHIEVED BY MORE THAN OFFSETTING INERTIAL GROWTH, MAINLY ON INDIRECT COSTS
2008
CAGR2005-2008
Indirect costs
Overhead costs
~-0.7%
2005
~-5.6%
~-3.7%
OPERATING EXPENSES(1)
million
Main initiatives:
■ Improvement of network delivery models
■ Facilities and real estate efficient management
■ GBS projects
■ Realignment of indirect and overhead costs to European standards
■ Streamline credit processes and service models
HVB SALES-RELATED AND OVERHEADCOSTS HIGHER THAN GERMAN BENCHMARKS
~0.7%Direct costs
Cost efficiency3
(1) Clarima Deutschland start-up included
Clarima Deutschland
n.m.
1,638
-80
1,602
-20
17
47
20
COST REDUCTION AS THE BASIS FOR BUILDING SUSTAINABLE GROWTH AND TURNAROUND AFTER PLAN HORIZON
2005 CAGR 05-08(1)
1,753 ~7%Total revenues, mln Revenues/RWA 5.6% ~7.2%
Cost/Income 93% ~75%
2005
EVA, bn -0.4 ~0
2008(1)
FTE ~8,630 ~8,180
Operating costs, mln 1,638 ~-1% Revenues/FTE, mln 0.20 ~0.26
(1) Under Basel I regulations and including Clarima Deutschland start-up(2) Ambitious growth target of new loans production (14% CAGR 2005-2008) does not compensate expiring mortgages(3) Loan loss provisions over end-of-period total loans
We plan to achieve this ambitious results, also by increasing and consolidating customer satisfaction through the introduction of frequent measurements and introduction in the reward system
Avg. RWA, bn 31.1 Up-front fees/Revenues 14% ~14%~-2%(2)
Cost of risk(3) 78 bp ~80 bp
21
2006: A VERY ENCOURAGING START
■ The network is reacting very positively, as shown by 1Q 2006 results:
➼ Growth of gross sales and positive net sales of AuM
➼ Growth of consumer loans volumes
➼ Containment of costs
■ Improving customer satisfaction and decreasing drop rate
22
AGENDA
Retail Division overview
Country-specific plans
Austria
Germany
Italy
Conclusions
23
OUTSTANDING INCREASE OF ASSET GATHERING MAINLY DUE TO AFFLUENT SEGMENT
4 4
610
14 15
24
2005
29
2008
AuM
AuC
Other deposits
2005 2008
Other
Recurring fees
Up-front fees
Interest margin
369 473
ASSET GATHERING VOLUMES IN AFFLUENT SEGMENTbillion
REVENUES MIX IN AFFLUENT SEGMENTmillion, percentCAGR
2005-2008
~3%
~1%
~15%
~6%
CAGR2005-2008
~7%
~17%
~13%
~9%100% =
~5%
Revenue growth1
17% 16%
56%
14% 17%
13% 14%
53%
24
STRONG TURNAROUND OF HIGHLY UNPROFITABLE SMALL BUSINESS AND MASS MARKET SEGMENTS
■ Attack under-penetrated customers:➼Savings soloists in mass market and
private-side of small business relationships
➼Increase x-selling on C/A transactional customers
■ Improve network sales effectiveness/success ratio:
➼Coaching programs➼Focus on few products➼More effective CRM
■ Standardize and automate small business credit processes
■ Address “over-invested” youth market segment and focus on profitable sub-segments
WHAT WE DO WHY IT IS ACHIEVABLE
MM/SB turnaround2
■ Mass market customers with overall low penetration of mutual funds and life insurance
■ ~40% of customers with one single product or just using C/As and payments
■ 80% of small business customers currently unprofitable
■ Very good central campaign generation engine, with improvable sales-funnel management
■ Sales success ratio ~20% below European peers
25
COST EFFICIENCY: SIMILAR TO SITUATION IN GERMANY
2008
CAGR2005-2008
Indirect costs
Overhead costs
~-4%
911
-55
803
2005
-33 ~-9%
~-5%
OPERATING EXPENSES(1)
million
~-2%Direct costs -20
Cost efficiency3
MAIN INITIATIVES
■ Improvement of network delivery models
■ Facilities and real estate efficient management
■ Realignment of indirect and overhead costs to European standards
■ Streamline credit processes
(1) Not including Austrian small business segment
26
2008 AUSTRIAN TARGETS SET HIGHER AMBITION LEVEL
2005(1) CAGR 05-08(1,2)
1,059 ~6%Total revenues, mln Revenues/RWA 8.5% ~8.0%
Cost/Income 86% ~63%
2005(1) 2008(1,2)
EVA, bn -0.1 ~0.2
Operating costs, mln 911 ~-4% Revenues/FTE, mln 0.27 ~0.38
Avg. RWA, bn 12.5 ~8% Up-front fees/Revenues 7% ~9%
FTE ~3,870 ~3,400
Cost of risk(3) 154 bp ~56 bp
(1) Not including Austrian small business segment(2) Under Basel I regulations(3) Loan loss provisions over end-of-period total loans
27
AGENDA
Retail Division overview
Country-specific plans
Austria
Germany
Italy
Conclusions
28
RETAIL DIVISION TARGETS: 3 YEARS OF STRONG GROWTH
2005(1) CAGR 05-08(1,2)
2005(1)
Avg. RWA, bn 86.4 ~6% FTE ~36,060 ~34,220
■ ~1 bn additional annual value creation (EVA from -0.1 to ~0.9 bn)■ Strong attention to cost efficiency■ Cost of risk stabilization, despite ~6% RWA growth
2008(1,2)
(1) Not including Austrian small business segment(2) Under Basel I regulations
Direct costs, mln 3,220 ~2% Up-front fees/Revenues 13% ~12%
7,209 ~7%Total revenues, mln Revenues/FTE, mln 0.20 ~0.26
Cost/Income 74% ~62%Indirect/Ovhd costs, mln 2,085 ~-2%
EVA, bn -0.1 ~0.9Risk provisions, mln 1,031 stable
29
IN ESSENCE …
■ ~1 bn additional annual EVA creation, based on few simple initiatives on which we have an established track-record
■ Italy: consolidating the growth path
■ Germany and Austria: “exporting” the turnaround
■ Adoption of Basel II regulations will bring additional significant further value (not included in the plan)
30
ANNEX
31
RETAIL DIVISION: 2005 P&L
Net Interest income (incl. div.)
Net non interest income
Total revenues
Operating costs (incl. depreciation)
Operating income
Net income
Net provisions
(mln)
Net income for the group
- of which: Staff costs
- of which: Other admin. expenses
- o/w: Net loan-loss provisions
Cost/income Ratio
2005
4,297
2,912
7,209
1,903
-2,975
-2,453
-5,305
277
282
74%
-1,031
-1,087
Profit/loss & net write-downs on investments +9
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