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Fortis Bank Financial SymposiumAmsterdam, March 21st 2002
UNICREDITO ITALIANO: CREATING VALUE THROUGH LONG TERM RETIREMENT SERVICES
Gianluca BenattiHead of Retail Investment Services
2
Group highlights
Life/pension is the key asset-gathering market in the next five years
Key success factors for a bank in this business
Why Unicredito Italiano is bound to be among the leaders of the pack
AGENDA
3
UCI: A EUROPEAN LEADER IN DISTRIBUTION, A GLOBAL PLAYER IN ASSET MANAGEMENT WITH OUTSTANDING PROFITABILITY AND EFFICIENCY
MKT CAP.Euro 23.5 bn (1)
(1) As of 12.3.2002
NET INCOMEEuro 1,454 mln
C/I RATIO52.7%
PRE-TAX ROE32.9%
ROE18.0%
BRANCH NETWORK3,998
2001 KEY FIGURES
4
THE DIVISIONAL STRUCTURE SUPPORTS OUR GROUP STRATEGY FOCUSED ON SPECIALISATION OF PRODUCTION AND DISTRIBUTION
Diversified investments and structure to exploit different options for growth and to diversify business portfolio
Brilliant results from recent investments, reinforcing confidence on the quality of the strategy
Italian Banking still core business, but other divisions’ importance growing at a fast pace
Different business models for production and distribution
Foreign Banks
Italian Banking
Wholesale Banking
New Initiatives
New Europe Banking
Italian Banks
5
2000 2001
ROE(1)
20.8%(4)
COST/INCOME RATIO52.7%
51.0%
2000 2001
47.8%47.7%Structural Cost/Income
18.0%
+3.5%
2000 2001
9,318
NET INCOME
4,726
9,989
4,566
+7.2%
20002001
1,3951,454
2000 2001
(Euro mln)
+4.2%1,611(2)
1,695(3)
+5.3%
22.2%(2)
21.0%(3)
(Euro mln)
19.2%(5)
DESPITE A DETERIORATED MARKET ENVIRONMENT UCI SHOWS GOOD REVENUE AND INCOME GROWTH
TOTAL REVENUES
OPERATING INCOME
(1) Calculated on end of period net equity(2) Adding back goodwill amortisation related to the Group and 98-’99 provisions related to Ciampi Law(3) Adding back goodwill amortisation related to the Group(4) Adding back ’98-’99 provisions related to Ciampi Law(5) Calculated on Group net income of Euro 1395 mln
(Euro mln)
6
Italian Banking- OtherItalian Banking-
Wealth ManagementNew Europe
UBM + TL Pioneer
REVENUE COMPOSITION BY BUSINESS AREA (Net of Corporate Centre negative contribution)
WE WERE ABLE TO MAINTAIN A SIGNIFICANT CONTRIBUTION FROM THE WEALTH MANAGEMENT AND ASSET MANAGEMENT BUSINESS ...
59.8%
13.7%
2.7%4.8%
19.0%
60.2%
14.6%
4.7%
5.8%
14.6%
78.8% 74.8%
2000 2001
7
... THANKS TO OUR ABILITY TO PARTIALLY COUNTERBALANCE THE NEGATIVE IMPACT OF FINANCIAL MARKETS ON COMMISSIONS WITH THE DISTRIBUTION OF VALUE ADDED PRODUCTS
NET COMMISSIONS2000* 2001 % ch.
(Euro mln)
Excellent impact of capital guaranteed products on commissions from segregated accounts and insurance products
* consistent with new Bank of Italy criteria for breakdown of commissions
Commissions from securities in custody suffered the lower turnover of customers’ portfolios
Positive contribution from other services (mainly commissions from loans granted and from payment services)
Asset management commissions stable despite negative market environmentAsset management 1,8031,789 +0.8
Mutual funds 1,3241,447 -8.5
Securities in custody 334422 -20.8
Other services, of which: 1.1541,128 +2.3
Insurance products 226156 +44.9
Total 3,2913,339 -1.4
Loans granted & received 456 497 +9.0
Cash management services 250 263 +5.2
Segregated accounts 253186 +36.0
8
CAPITAL GUARANTEED PRODUCTS: EURO 7.46 Bn NET INFLOWS IN 2001*, MORE THAN EURO 8.7 Bn FROM LAUNCH TO
FEB. ‘02
* Net of Euro 91 mln. inflow from a joint BANK PEKAO / TRADINGLAB Capital Protected Note issued in October
1,242
731
16
2,734
868
386
1
2
(Euro bn)
02Q’01 3Q’01 4Q’01 Jan-Feb.
2002
Segregated Accounts
Unit Linked (UNISTAR)
1Q’01
465 386
632
703
165
146
Fund, Equity & Index Linked Notes
3
4
Tot:1,018
Tot:465
Tot:1,989
Tot:3,988
Tot:1,273
2001 sales
Net inflows 1,965 13.56
Ch. on 2000
+23 bp
Dec 01 mkt sh.
MUTUAL FUNDS
2001 sales
Premium written +43
Rank in Italy
1st
UNIT LINKED
3,889
Confirmed leadership in market shares on Unit Linked (98% of the total new production of insurance premiums):
34.5% (+11 pp y/y) in Bancassurance only
26.7% (+ 9.7 pp y/y) on total market
% Ch. on 00
OUR EXCELLENT COMMERCIAL RESULTS ALLOWED UCI GROUP TO RANK FIRST IN THE SALES OF ALL HIGH VALUE-ADDED PRODUCTS IN ITALY
(Euro mln)
(Euro mln)
9
Group highlights
Life/pension is the key asset-gathering market in the next five years
Key success factors for a bank in this business
Why Unicredito Italiano is bound to be among the leaders of the pack
AGENDA
10
THE NEXT WAVE WILL BE MUCH MORE RESILIENT….
A shrinking “social parachute”: declining birth rate, shorter working life, longer life expectancy
A shrinking “private parachute”: decreasing families’ size, improved mobility and lower children-parents dependency (THE
CATHOLIC FAMILY CONCEPT IS CHALLENGED)
A changing approach to golden age: longer, healthier, wealthier
THESE ARE LONG TERM TRENDS OF CHANGE, RELATIVELY INDEPENDENT OF FINANCIAL MARKET CYCLES
11
EMPLOYEES
01020304050607080
57 58 59 60 61 62 63 64 65
30.000 Euro 60.000 Euro 100.000 Euro
01020304050607080
57 58 59 60 61 62 63 64 65
RETIR
EM
EN
T G
AP
%R
ETIR
EM
EN
T G
AP
%
AGE OF RETIREMENT
AGE OF RETIREMENT
SELF-EMPLOYED WORKERS
Current Pillar II schemes are far from succeeding in closing the gap between last pay and retirement income in the case of middle and high-income individuals
Self-employed workers more penalised than employees
AVERAGE YEARLY INCOME
IN THE LAST DECADE PERSPECTIVE PENSION BURDEN ON PUBLIC FINANCES FORCED ITALY TO REDUCE HER GENEROSITY
Source: Pioneer Global Asset Management Research Unit
12
50’S18 22 40 53
Today
25 33 58 60
retirement
retirement
starts working
starts working
first child
first childchild starts working and
becomes independent
child starts working and
becomes independent
Head of the family’s age
DEMOGRAPHIC TRENDS WILL AFFECT THE TRANSFER OF WEALTH AMONG GENERATIONS
In the 50’s, households’ financial needs had already been satisfied at the age of 55, whereas today they are all unmet
Today financial assets at the threshold of the golden age have to be much higher than before and are “the scarce resource”
Head of the family’s age
13
A LONGER LIFE DURATION BRINGS IN NEW KIND OF FEARS
Males Females Total
To lose self -sufficiency 54 69,2 62,7
Spouse's death 34,4 38,4 36,7
To retire 19,8 13,3 16,1
Death of friends/ people of the same age
15,8 8,6 11,7
To complete 70 yrs of age
8,3 13,1 11,1
To become grandparent 12,3 4,2 7,6
Source: CENSIS, February 2002
“WHAT ARE THE LANDMARKS OF THE GOLDEN AGE”?% OF RESPONDENTS; MULTIPLE ANSWERS ADMITTED
14
1996 Households’ total financial assets: Euro 1,878 bn
2000 Households’ total financial assets: Euro 2,602 bn
SO FAR PENSION PRODUCTS HAVE NOT FULLY BENEFITED FROM THE STRONG GROWTH OF TOTAL FINANCIAL ASSETS IN ITALY
Italian savings market witnessed an unprecedented growth in the past 4 years (CAGR 8.5%). Households progressively reduced their risk aversion, as shown by the rise of the portion of assets diverted to mutual funds and shares
Source: Bank of Italy
Life/Pensions: 10%Other: 3%
Deposits: 30%
Bonds: 30%Mutual Funds: 5%
Equities: 22%
Life/Pensions: 11%Other: 2%
Deposits: 25%
Bonds: 19%Mutual Funds: 18%
Equities: 25%
+8.5%CAGR
1996-2000
Pension funds could scarcely benefit from this growth, mainly due to legal uncertainties and lack of products
15
MUTUAL FUNDS INSTEAD OF PENSION FUNDS: ITALY VERSUS THE NETHERLANDS
Source: Pioneer Global Asset Management Research Unit
16
BUT PENSIONS WILL BECOME ONE OF THE FASTEST GROWING INDUSTRIES IN ITALY IN THE NEXT DECADES
Pension fund industry set to grow strongly in the next 20 yearsEuro bn
This will be due to the diversion of a larger portion of savings to pension funds and life insurance products and to a partial switch of assets from other investment categories
We estimate that the Italian pension fund market will total Euro 2,000 bns in 2020. This would imply a 2001-2020 CAGR of 23.5% for the pension fund industry
+23.5%
CAGR2001-2020
0
500
1,000
1,500
2,000
2,500
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: Pioneer Global Asset Management Research Unit
17
Group highlights
Life/pension is the key asset-gathering market in the next five years
Key success factors for a bank in this business
Why Unicredito Italiano is bound to be among the leaders of the pack
AGENDA
18
THE URGE FOR A PENSION NEED HAS ALREADY BEEN CREATED, BUT HARDLY IT WILL BE TRANSFORMED INTO SHAREHOLDERS’ VALUE
Trust: why should banks’ salespeople be suddenly trusted an insurance-related culture?
Culture: why should Italian customers suddenly “invest long term” and not invest to get short term gains?
Matching: will longer term products produce the same revenues as current shorter term portfolios?
ISSUESFOR BANKS
PAYG scheme simulations widely available on and off-line, through banks, financial consultants, agents
Press campaigns always on
TAKE OFF INDEPENDENT OF FURTHER
REFORMS
19
93%
83%
69%
78%
87%
84%
0% 20% 40% 60% 80% 100%
buy a house
integrate social security benefits
get medical assistance
inheritance to children
children’s education
unforeseen
IT REQUIRES ENHANCED SALE SKILLS: “RETIREMENT” MEANS “PROTECTION” AND IMPLIES MANY TECHNICAL SOLUTIONS
December 2000 DOXA survey on retirement;% of interviewees declaring interest in the item
Retirement Services
They go well beyond selling single premium financial Unit Linked
It means offering a complex advice which is not normally recognised to banks’ salesforce
Saving for retirement means
20
Sales Reps will have to test and quantify the most common constraint to the take off of private pensions:
the intra-generation wealth transfer
Child
Parent
Expected inheritance weakens the perception of Social Security gap
Expected support from children (in return for inheritance) weakens the perception of Social Security and Assistance gap
Reasons NOT to be investing for one’s own retirementClient Status
Some events in life are bound to break this virtuous cycle:•mobility due to education•mobility due to job search•consumption (non durable) in the old age•etc
IT REQUIRES EVEN MORE TRUST FROM THE CLIENT: TO GET THE SOFT AND DELICATE INFO NECESSARY TO IDENTIFY THE NEED
21
Group highlights
Life/pension is the key asset-gathering market in the next five years
Key success factors for a bank in this business
Why Unicredito Italiano is bound to be among the leaders of the pack
AGENDA
22
THIS IS A BUSINESS OF MANAGING RISKS AFFECTING HOUSEHOLDS’ BALANCE SHEET AND INCOME STATEMENT
Longevity risk
Coping with the unavoidable heavy Health care ticket of the old age w/o eating into the living standard (=the pension revenues)
Preserving stocks FOR heirs and protecting them FROM conversion into a supplementary annuity
Coping with the unforeseen w/o eating into the household’s assets and revenues
Coping with the odd of NOT achieving a consumption/accumulation target, due to market vagaries
Catastrophicrisk
Financialrisk
23
LEVERAGING OUR EXCELLENT GROUP MANUFACTURERS WE ARE OVERHAULING THE WHOLE PROCESS TO GAIN TRUST FROM CLIENTS IN THE OTHER TWO AREAS OF HOUSEHOLDS’ RISK MANAGEMENT
SELLING PROCESS REDESIGN
NEW PENSION PRODUCTS
DISTRIBUTION MODEL
DEDICATED COMMUNICATION
BRAND NEW PFP SOFTWARE
BRAND NEW TRAINING TOOLS
BRAND NEW PRODUCTS
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