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Capital Allocation & Strategic Opportunities
for Banca CR Firenze Group
UBS Italian Financial Services Conference
Milan - February 2 and 3, 2006
Lino MoscatelliManaging Director
2
Recent Achievements
The 2000 IPO has produced an evolution process which led to
Group perimeter enlargement
Financial assets growth
Focus on consumer credit
New structure for the branches network
Profitability increase
Capital allocation optimization
Value creation
3
102
69
20
1994 1999 2004
Net income
705
317
150
265
1,250
1994 1999 2004
Shareholdings
Group
Parent Company
14.0%
9.6%
2.9%
1994 1999 2004
ROE (adj.)7.2%
2.2%
-9.5%
1994 1999 2004
EVA
Growth Over The Years
4
Italian leader in consumer credit
through FINDOMESTIC Banca
9M 2005 ROE (annualised) 13.6%
Group network 527
MAIN FIGURES
Customers 1,000,000
Market Share loans 11.0 %
funding 15.8 %
Customer loans € 12.9 bn
Total funding € 36.8 bn
Banca CR Firenze Group
The outward expansion from its traditional business territory led to the transformation into a multi-regional banking group
Investments in consumer credit increased profitability and stabilised P&L
CR MIRANDOLA
CRCIVITAVECCHIA
CR ORVIETO
CR PISTOIA
CR SPEZIA
33442
8 1
28
46
51
Financialadvisors
5
Tuscany65%
Emilia R.6%
Latium10%
Liguria10%
Umbria8%
Lombardy1%
Growth provided business diversification
The Group is present in 6 central Italian regions (3 in 2000)
Tuscany continues to lose ground: it represents 65% of the branches and 67% of the loan book
2000-2005 Perimeter Enlargement
Other3%
Tuscany67%
Emilia R.7%
Latium9%
Liguria6%
Umbria5%
Lombardy3%
Latium9%
Umbria9%
Tuscany82%
2005 branches 2005 loans
6
Three separate channels, three different networks, one sales supervision
313 retail branches focused on mass market, affluent and small business customers
A close-knit network coverage thanks to 17 Corporate Centers and 16 Private Banking Centers
Synergies between channels: Corporate/Private Bkg. and Retail/Corporate
Network figures refer solely to Group’s banks where the model has been implemented.Clients shown in figures refer to the Parent Company
Advanced Market Approach
Head of Commercial Dept.
RETAIL BRANCHES CORPORATE CENTERS PRIVATE BKG. CENTERS
633,000clients*
11,000clients*
6,000clients*
7
Capital Allocation
With the introduction of the IAS Segment Report and following the implementation of the Basel II methods, a business unit capital allocation model has been perfected*.
Shareholders’ equity (capital, reserves, minority interests and net income) is allocated depending on:
credit risks - Advanced Basel II or Bank of Italy
method
market risks - Bank of Italy method
transformation risks - Basel II (Pillar II)
operative risks - Standardized Basel II approach
business risks - equal to the value of the single-product companies
* Only indicative figures are reported on the following slides. The definite figures will be published in the first Segment Report which is scheduled to be released on occasion of the 2005 Annual Report
8
Capital Allocation - Business Units
Retail - Parent company branches, Financial advisors network
Corporates - Corporate centers, relations with government services, tax collection
Private Banking - Private banking centers
Other Group banks - branches of CRP, CRS, CRO, CRC, CRM
Wealth Mgmt. - Centrovita (bancassurance), BCRF Gestion Internationale (mutual fund co.)
Corporate Center - Finance, Consumer credit, Banking related companies (leasing, factoring…), Group Management and Coordination, Instrumental companies
9
Business Units - First Findings
Equity
Nopat Rorac C/I
12% 29% 30% 74%
RETAIL OTHER GROUP BANKSEquit
yNopat Rorac C/I
20% 20% 12% 71%
*Source: companies’ reports
Good income performance
Cost/income in line with that of other bank’s comparable retail units
The new market approach has not been applied yet
Room for a commercial efficiency improvement
Aggregate figuresEquit
yNopat Rorac C/I
32% 49% 19% 73%
Retail Units - Cost / Income*
Bank A 71% Bank D 62%Bank B 75% Bank E 89%Bank C 69%
Average 74%Bank F 82%
10
Business Units - First Findings (2)
Equity
Nopat Rorac C/I
1% 4% 90% 52%
PRIVATE BANKING WEALTH MANAGEMENTEquit
yNopat Rorac C/I
5% 14% 21% 37%
Good capital returns and good cost/income ratios
The Private Banking segment needs to have its brand name acknowledged by a wider public in order to increase its market share
Wealth management companies performance (bancassurance & mutual funds) is tied to the retail unit’s growth
11
Individuals Segment
Generates the greatest value
Is characterized by high propensity to save but also...
...by a sentiment of mistrust in the banking system
Pensionschemes
Exp
ecte
d b
usin
ess g
row
th
Bank’s positioning
Consumer
creditMortgages
Personalinsuranc
e
Investments
Cash - Payments
High growth potential
High growth potential
Potential for further investments to exploit good growth ratios
Potential for further investments to exploit good growth ratios
Only potential for selective investments to improve service quality and maintain market shares
Only potential for selective investments to improve service quality and maintain market shares
The dimension of the bubbles shows the current importance of the Business Area in terms of margin
12
An approach more focused on client’s expectations means
Less but more personalized commercial proposals Greater effectiveness Reinstating a trust relationship
CRM techniques are the most important tool to achieve the combination of the above aspects
The introduction of the customer satisfaction indices in the MBO Plans will generate greater worth from the relationship
Individuals: A Structured Approach
13
The evolution of the Data Mining Platform will furnish a deeper knowledge of the client clusters facilitating the construction of a keener relationship
A propensity score will be assigned to all
products
A full use of the CRM instrument will be achieved also thanks to the generation turnover which will facilitate the process
64 campaigns launched and 92 events managed 450,000 commercial talks 456,000 customers with a next product assigned
only 50% of the portfolio managers regularly used the tool
In 2005
Individuals: What Next ?
14
Business Units - First Findings (3)
CORPORATESEquit
yNopat Rorac C/I
18% 9% 7% 57%
The overall result is still not satisfactory.
The unit’s result is affected by the negative contribution of tax collection
Thanks to the sale of the two tax collection companies and by focussing commercial actions on core corporate clients, the performance is expected to improve
15
SMEs & Corporates Segment
SMEs are now experiencing a dimensional growth and international expansion
Banks’ capacity to exploit Basel II will make certain banks more competitive
Exp
ecte
d
bu
sin
ess
gro
wth
Intl.services
Structured
finance
Bankguarantees
Factoring
Ind. & Spec.credit
Financial riskcoverage
Foreign payables/
receivables
Leasing
Agriculture financingDomestic payables/
receivablesCurrencies
Selective investments to follow market opportunities
Selective investments to follow market opportunities
Investments to exploit the expected growth of high margin products
Investments to exploit the expected growth of high margin products
Maintain
market shares
Maintain
market shares
Bank’s positioning
The dimension of the bubbles shows the current importance of the Business Area in terms of margin
16
SMEs & Corporates Segment
* Sum of all credit lines granted by the Italian banking system or by BCRF expressed in EUR thousand
(source: Bank of Italy and BCRF)
The figures below reflect the bank’s low capacity of attracting core clients
BCRF is a first choice bank for a small number of its clients (8%)
In the core clients group, BCRF obtains even lower percentages
The aim is to grow as the first choice bank for the core clients
from
to
BCRF clients who recognized the bank as a 1st choice bank
75 125 250 500 1,000 2,500 5,000 25,000125 250 500 1,000 2,500 5,000 25,000
Banks per client (Italy, avg.)
Credit needs covered by clients’ 1st choice bank (Italy)
1.0 1.2 1.7 2.4 3.2 4.4 6.3 10.3
99% 89% 76% 68% 61% 55% 46% 36%
46% 43% 18% 8% 4% 4% 2% 2%
AVG.
2.1
49%
8%
Granted loans (total*)
Core clients
17
SMEs & Corporates: How To Compete
BCRF has been among the first mid-sized groups to launch the IRB Advanced (Basel II) procedure
The capacity to correctly assess client risks will enable to:
Recuperate market share in the top-client segment Obtain a correct profit from risks related to the worst
clients
* Loans by rating refers to the Parent Company’s 65% corporate segment customer base (November 2005) -.-.
Loans by rating*
Amounts
granted
Amounts
utilized
A1 A2 A3 A4 B1 B2 B3 B4 B5 B6 B7 B8 C1 C2
18
Business Units - First Findings (4)
Striving to attain greater internal efficiency through the centralization of governance functions, the shifting of personnel from back-office to sales and improvement of procedures
Findomestic’s contribution to Nopat and its capital return are excellent
Equity
Nopat Rorac C/I
44% 24% 7% 73%
CORPORATE CENTER
Findomestic (consumer credit)Equit
yNopat Rorac C/I
23% 31% 17% 50%of
which
19
Conclusion
For Banca CR Firenze to consolidate its position as a regional bank, strongly oriented towards value creation, the following elements are indispensable:
the consolidation of the retail banking vocation
the improvement of the quality level of the services offered to corporates
upkeeping the leadership in consumer credit
a central control structure operating with a greater efficiency
Capital Allocation & Strategic Opportunities
for Banca CR Firenze Group
UBS Italian Financial Services Conference
Milan - February 2 and 3, 2006
Lino MoscatelliManaging Director