analyst & investor meeting wholesale clients sbu wilco jiskoot - member of the managing board...
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Analyst & Investor Meeting Wholesale Clients SBUWilco Jiskoot - Member of the Managing Board (Chairman of WCS)
11 December, 2003
0 2
New WCS Business model was implemented in 2001
A client-led approach and focus on profitable Financial Institutions and Large Caps
Integrated wholesale offering
Significant proportion of revenues from annuity and flow products
Efficient resource management and allocation process (capital and people)
Focus on asset quality and independent risk management
Supported by a transformation in infrastructure
0 3
Restructuring has clearly improved performance, thanks to …
Net profit WCS (EUR mln)
Q1 02 was negatively affected by restructuring costs related closure of US Equities and Corporate Finance businesses, while Q2 02 was negatively affected by high provisioning related to unexpected losses in the US.
134110
(20)
63
(44)
(125)
(188)
34
(29)
106
76
-200
-150
-100
-50
0
50
100
150
200
Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03
Net Profit Net Profit (excl. extraord results)
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… focus on selected clients
Client service is differentiating factor– client satisfaction surveys show overall service improvement with
selected clients across a number of products
– we have been able to improve our market share and rankings
Client revenues account for 83% of WCS revenues, generating relatively stable and high quality earnings
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* Loan book only (calculation based on nii run rate)
… active capital management
The constant turnover of capital made it
possible to increase revenues whilst
reducing RWA, thereby improving the
‘Annualised Net Interest Income / RWA’
over time
Credit RAROC of deals originated in
2003 has increased substantially
compared to the average RAROC of
the portfolio in 2002
Ann. NII / Av. RWA*
1.23%
1.79%
2002 YTD 2003
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and strict cost control
FTEs and operating expenses since Q1 01
22464
2335023617
2242322206
2095720556
20238
18139 18076 18077
1,301
1405
1357
12391263
1154
10811052
10311052
1095
1,000
1,100
1,200
1,300
1,400
1,500
Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03
17000
18500
20000
21500
23000
24500
FTE (r.a.) Expenses (EUR mln, l.a.)
0 7
Momentum will increase in 2004, driven by higher revenue growth
WCS revenues are expected to increase on the back of further improvements across all client and product BUs– We expect a continuing increase in market share with our P&K clients
– higher revenues from the BU FM are based on specific new initiatives in Credit, Rates and FX activities as well as continuing benefits from repricing in PMG
– higher revenues from the BU WoCa expected from enhanced offer, geographic and client focus and cost efficient delivery
– the BU Equities and BU Corporate Finance are well positioned to benefit from better market conditions. The BU Equities will also benefit from investments in derivatives
– Private Equity should benefit from increased exit opportunities
Structural approach to cost savings provides cushion to invest further in core clients and product franchises
Provisioning is expected to trend lower
0 8
Supported by growth initiatives
Financial Markets
Enhancing mature businesses
(incl. FX, MM/Repo, Vanilla
IRD)
Investing in growth spikes
(Derivatives, Retail, Structured
Credit)
Working Capital
Working Capital Offer
C&P initiatives
FI insourcing
FIPS
Hedge Funds
Investor Coverage
Financial Sponsors
Services
Offshoring
EMEA Footprint
EDS Outsourcing
European Payments
Structured Risk Interface
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And Business Portfolio Optimisation
Sale of Prime Brokerage
Exit of non core countries/business
New strategy PE
Continuing review of client portfolio
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1 These statements are based on the underlying revenue and cost base (excluding Prime Brokerage business)
We expect WCS to provide a significant delta in 2004
Net Profit in Q4 2003 is expected to be higher than in Q3 20031
We expect net profit in 2004 to be in line with the Q4 2003 run rate1
– revenues are expected to increase in 2004 compared to FY 2003 on the basis of growing market share with our clients, investments and a differentiated business model
– the cost base will be managed on a dynamic basis
– provisioning as % of RWA is expected to be below 50 basis points
Appendices
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We are delivering on our commitments
Commitments:
WCS Model:
Client focus and client-led, P&K in particular
Integrated wholesale offering
Integrating BU Loan Products and BU Global Financial Markets
Develop and grow a new working capital offer
Re-position Equities and Corporate Finance to defensible positions
Achievements:
WCS Model:
Client BU revenues account for over 80% of total WCS revenues, with P&K over 50%
Integrated delivery of corporate and investment banking products and services
Integration is implemented and new BU Financial Markets is showing positive results
Working Capital offer is implemented and will be further developed in 2004
Closure of US Equities and Corporate Finance business and focus on Europe
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We are delivering on our commitments
Commitments:
Reduction of cost base:
Closure of unprofitable businesses
Transformation in infrastructure (a.o.TOPS savings of EUR 430 mln and IT outsourcing to EDS)
Decrease in RWA:
Decrease in RWA to EUR 70 bn by 2004, from EUR 100 bn (Q2 01)
EP positive returns:
WCS should be EP positive from 03 onwards
Achievements:
Reduction of cost base:
Cost base down by 22% from EUR 4.063 mln in Sept YTD 01 to EUR 3,178 mln in Sept YTD 03. Savings from EDS will be seen from 2004 onwards
Decrease in RWA:
RWA at EUR 65.0 bn (end Q3 03)
EP positive returns:
Q3 03 was EP positive. Q4 03 and
FY 2004 are expected to be at least EP positive
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2.6
2.7
2.8
2.9
3.0
3.1
3.2
Jun. 02 Sep. 02 Dec. 02 Mar. 03 Jun. 03 Sep. 03
TMTH Int. Energy
Automotive & Industrials Consumer
WCS Portfolio
Lower provisioning on the back of improved asset quality
Provisioning Asset quality (average UCRs)
92
40
90
321
111
345.0
141.0145.0 156
8354
0.48
0.33
0.900.770.68
0.47
1.55
1.34
0.37
0.16
0
50
100
150
200
250
300
350
400
Q101
Q201
Q301
Q401
Q102
Q202
Q302
Q402
Q103
Q203
Q303
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Provisioning (EUR mln, l.a.)
Provisioning as % of RWA (r.a.)
0 15
Reduction in RWA largely due to autonomous change
Changes in RWA: Impact of FX-effect, CLO, Credit Default Swaps and Secondary
Loan Sales on reduction in RWA
-30000
-25000
-20000
-15000
-10000
-5000
0
5000
H2 01 FY 2002 Sept 03 YTD
Autonomous change CLO impact FX-effect
Credit Default Swaps Secondary Loan Sales
0 16
WCS consensus forecast
New estimates 2004
Market consensus
Market consensus Low High
(Eur m) Average Median
Total revenues 5,404 5,361 5,012 5,851 Operating expenses 4,290 4,295 4,165 4,593 Operating result 1,114 1,159 712 1,301 Provisioning 306 302 210 385 Pre-tax profit 808 798 467 1,026 Net profit 545 549 310 696