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Global Transaction Services
Rob van Paridon, SEVP - Global Head of Global Transaction Services BU
20 November, 2002
0 2
Overview Our four transaction businesses (Cash and Payments, Global Trade and
Advisory, Global Custody and Clearing and Execution Services) currently
occupy strong market positions
Significant consolidation and improvements to our operating environment
have been accomplished to date, and a lot of opportunities remain to
continue improving our efficiency
We are shifting our transaction business from an operational focus to value-
added working capital solutions
Our emerging working capital proposition combines our strength in
transaction annuity flows with our strong foreign exchange and debt
products and will allow us to leverage our client base across the bank
Our working capital business is believed to be the best platform for future
competitive advantage and hence profitable growth
0 3
Cash and Payments
C&P provides a full range of cash management solutions for clients in 40+ countries
C&P provides a complete range of cash management solutions and services to both Corporates and FIs
Services range from execution products (payments, collections) to sophisticated international cash management solutions for multinationals
We operate in over 40+ countries, serving customers through multiple channels
We aim to build on our strong positions in Europe, US and Asia by:
– Leveraging our strong international network to capture opportunities in select growth markets
– Leveraging our strong European client base
– Focusing on FIs through our CLS offer
– Further consolidating our back-office platforms
– Making our client services a source of competitive advantage
Leading positions in key markets:
- # 3 in Europe1
- # 5 in Asia1
- # 1 foreign bank in US and Brazil1
Lead cash management bank to majority of our European customers (voted ‘Best at Cash Management’ - Banker, Sep 2001)
Fastest growing cash management bank in Europe and US in terms of client share of wallet
Source: 1. Greenwich
Future DirectionHow We Are DoingWhat We Do
0 4
Global Trade and Advisory
We aim to consolidate our leading trade bank position by:
– Leveraging strong relationships with corporate clients to capture end-to-end trade flows
– Becoming the bank of choice for FIs. We aim to increasingly offer insourcing and white labeling through our global partnership program
– Continuing to lead the market with product innovation
GT&A’s global trade portal maxtrad has been awarded the 2002 euromoney internet award for best bank site for trade finance on the basis of superior efficiency, reliability, functionality and client usage
Amongst top 3 Tier 1 global banks1
Significantly rationalised our back-office
– Reduced processing sites from 117 to 14
– Launched 5 regional processing and client service centers
GT&A provides integrated trade solutions for importers and exporters by offering risk mitigation, settlement financing and information solutions across our WCS and C&CC client base
Delivered through 3 delivery channels: traditional, web enabled (MaxTrad) and web native (Alltrade)
We operate in 40+ countries serving corporate and FIs
GT&A provides integrated trade solutions for importers and exporters in 40+ countries
Source: 1. Brendon Wood International
Future DirectionHow We Are DoingWhat We Do
0 5
Global Custody: ABN AMRO Mellon Alliance
We aim to be the prime provider of global custody and value added services worldwide (besides NA) by:
– Implementing a new legal entity in Jan ’03 (i.e. 50:50 JV, incorporated in NL, under DNB regulation)
– Leveraging ABN AMRO’s worldwide distribution channels and Mellon’s sophisticated technology and asset servicing expertise
EUR 250 billion in assets under custody
Over 400+ custody specialists in Europe
Recently posted the highest improvement of all global custodians (2001 Survey: R&M consultants)
# 6 global custodian1
# 1 in NL Pensions Market2
Core services (securities custody, safekeeping)
Ancillary services (securities lending, foreign exchange and cash management)
Additional services (funds services, derivatives clearing)
Focus on Europe (expected to be the fastest growing market for global custody services)
Key customers are pension funds, insurance companies, investment managers, banks, MNCs, central banks and multinational FIs
Formed in 1998, the ABN AMRO Mellon alliance provides global custody and added value products to a diverse range of clients
Sources: 1. Mellon data - Global investor global custody survey 2002; 2. IPE Europena Pension Fund Top 1000, AAM analysis
Future DirectionHow We Are DoingWhat We Do
0 6
Clearing and Execution Services (AACES)
We aim to enhance AACES leading player status and expand its base business into Europe via organic growth
Develop 3rd party clearing products in Europe in order to leverage further consolidation of exchanges
Superior product and service and operations expertise allowed us to reach leading US market positions
– Futures is # 1 of executed and cleared volume on CME, CBOT and NYMEX1
– Professional brokerage is # 1 in listed equities, index, and currency options with 11.5% market share2
– Prime and professional brokerage have Top 5 positions in their markets3
– AASage executes and clears 15% of all option market maker business2
Full range of clearing , financing and execution products
Three lines of business: professional brokerage (AASage), futures and prime brokerage
Key customers are professional traders, institutional, hedge funds and corporate markets
Largely US focused
AACES is a leading player in providing clearing, execution and financing products to professional traders, institutional, hedge funds and corporate markets
Sources: 1. CME, CBOT, NYMEX; 2. Options Clearing Corp; 3. Options Clearing Corp and Global custodian survey 2002
Future DirectionHow We Are DoingWhat We Do
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Operations Improvements
Reduced processing sites from 117 to 14
Launched 5 regional processing and client service centers
Launched global operations support center in low cost environment (Chennai/India)
Reduced service hubs from 110 to 53
Developed different level of client service/interaction in different branches
Consolidation to a single, globally integrated back-office infrastructure leveraging use of image/workflow technology solutions (Banktrade) supporting both C&CC and WCS client base
Established a global support centre in Chennai for C&P and Custody operations
Initiated consolidation of C&P operations to Chennai and regional centres of expertise
Established a CLS global support centre providing 24/6 support for global clients
Transferred £ and Euro processing from London, and International Lockbox processing out of Europe to Chennai
Using call centre and web technology for new client service model for WCS and C&CC
Going forward, further consolidate operations across WCS and C&CC
Global Trade and Advisory Cash and Payments
Significant consolidation to our operating environment have been accomplished, and a lot of opportunities remain to continue improving our efficiency
0 8
New Working Capital Strategy
Operational focus where the game is primarily about reducing unit cost (through building scale and consolidating) ahead of market driven price reductions
Not ultimately value maximising for AA
Focusing on ‘value-added’ working capital solutions as it is more valuable to clients and more profitable for AA
– Increasing demand from clients to unlock cash to fund capital expenditure and reduce borrowing costs
– European clients’ needs are underserved as there is currently no home-grown European working capital offer
– The working capital proposition combines our strength in transaction annuity flows with our strong FX and debt products and will allow us to leverage our client base across SBUs
– Platform for future competitive advantage and hence profitable growth
From… …To
We decided to shift our transaction business from an operational focus to value-added working capital solutions
0 9
The New Working Capital Offer
Money Markets and Foreign Exchange
Order-to-CashCycle
Payroll
Cash Flow ForecastingCash
Balance
Employees
Clien
tsProduction
Cash Balance Management
Su
pp
liers
Purchase-to-PayCycle
Building customer offer that integrates Cash & Payments, short term lending, Trade, Foreign Exchange
– and Liquidity Management
Developing 2 distinct propositions:
– Corporate proposition
– FI insourcing proposition
Setting up a collaborative architecture to provide a single access point and consistent ‘real-time’ information
Moving back-office operations into low cost, high quality centres of excellence
Working Capital Landscape Actions Underway
0 11
Restructuring Update YTD September revenues of €246 million in 2002, only 6% lower
than 2001 YTD September actuals
Direct operating costs have been reduced by 23% (year 2001
compared to forecast year 2002)
Headcount within Corporate Finance Business Unit (CF) has been
reduced from its peak in October 2001 by over 35% to 695
(professionals and support)
New York office closed; principal concentration of resources in
Europe (> 70%) with majority located in Amsterdam (approx. 100
professionals), with approx. 80 professionals located in London
On track to deliver positive net results in year 2003
0 12
Corporate Finance Overview CF consists of three main product areas with a global headcount of
550 professionals
CF offers an integrated product range to targeted key Wholesale
Clients (“WCS”) and sectors with a European focus and a cross-
border capability in Latam and Asia-Pacific
0 13
Corporate Finance Overview Operating strategy includes improved productivity through higher
leveraged revenues & tight cost control. Headcount based around
regional hubs principally in Amsterdam, London & Stockholm but
also Hong Kong, Sydney & Brazil
Marketing differentiated product with strong execution capability.
Recognised leading brands in Netherlands, Nordic (Alfred Berg), UK
(Hoare Govett), European Emerging markets & Asia-Pacific
Strong CF capability links with strengths in other AA SBU’s - e.g.
private clients in France & BAPV in Italy
AA Rothschild (“AAR”), our Equity Capital Markets (“ECM”) joint
venture, is a recognised leading brand in the market place
0 14
M&A - Progress to date
Performance improvements YTD October 2002 include:
– Corporate Finance announced a total of 91 deals with aggregate deal value of €25.8 billion (compares to 118 deals with a deal value of €20.0 billion - YTD October 2001)
– Corporate Finance worldwide ranking has improved from 25 (YTD October 2001) to 16 (YTD October 2002); market share has doubled 1.2% to 2.4%
– Average deal size has improved to €284 million from €189 million year-on-year October
Source: Thomson Financial
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M&A - Progress to date
Significant improvement in quality of transactions and clients
Global M&A deal values have decreased 32% (year-on-year October - Thomson Financial)
Exit of non-aligned Corporate Finance M&A franchise in North America has been completed
Staff headcount has reduced by over 395 people (net reductions) over the last year
Excellence in execution is an imperative
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ECM - Progress to date
AAR participated in 68 international equity offerings, including largest equity offering in Europe and second largest equity offering globally - YTD October 2002
AAR improves league table position to 8th from 12th (top global coordinator or bookrunner) - YTD October 2002 EquityWare
Global Equity Capital Markets offerings have decreased 13% (year-on-year October - EquityWare)
Resources now concentrated in four hubs - London, Amsterdam, Hong Kong and Sydney
Exit of domestic ECM capability in North America completed
0 17
Improved Alignment For year 2002 - 75% of revenues delivered from Priority and Key
WCS clients (2001: 35% of revenues)
Successfully established a Corporate Finance M&A advisory joint
venture with C&CC in Brazil which will be the hub for our Latam
activities and also provide access to a large client base within Banco
Real
Interactive, intranet based global work-in-progress (launched
November 2001) used to measure director performance against
stated “Target Client Action Plans” (TCAP’s) targets
0 18
Critical Factors for Success Greater front-end delivery and client penetration required by client
coverage and corporate finance through continuous upgrade of staff (“self funded”)
Greater concentration on improving Primary revenues from existing client base
Continue to leverage our competitive advantages including:– European strength and geographic footprint– sector expertise– large client base– strategic use of balance sheet– professional team work and integrity
Maintain tight control of costs as we drive for bigger ticket revenues
Believe in ourselves and the benefits of AA’s partnership culture
0 20
Restructuring Update Restructuring within Equities is now substantially complete with front
office restructuring costs already included within tight 2002 cost
targets
European research and trading to be focused into three hubs by
year end - Amsterdam, London and Stockholm
Research to be targeted and aligned to critical sectors and clients by
year end
Operating costs have been reduced by 32% (year 2001 compared
to forecast year 2002)
0 21
Restructuring Update Headcount has been reduced by approximately 35% during the year
(approximately 50% over the two year period - 2001/2002) to 1350
at year end
TOPS has delivered a “step change” in operating costs charged to
Equities
European market share is being maintained or increasing with peer
group suffering from larger percentage falls in revenue
0 22
Equities Overview Overall Equities goal of a top 5 to 7 position in both Pan-European
Secondary Equities - Research, Sales and Execution and Pan Asian Equities
Global distribution reach and capability with offices throughout Asia and in the US
– A comprehensive Pan-Asia/Australian product with sector and country based coverage providing full Research, Execution and Trading capabilities
Equity Derivatives - A core component of our Wholesale Clients strategy and skill base which is actively marketed to the full range of WCS client sectors. Distribution through C&CC retail network is of increasing significance
0 23
Research Research is an integral part of our Equity offering
We are building a Pan-European research franchise in core secondary market sectors
Our research franchise is closely aligned with the competitive advantages of AA
– Maintaining our existing competitive geographic advantages (UK, Netherlands, Nordic, Pan-European, Mid/Small Cap)
– Focusing on other sectors where we have, within AA, existing or potential competitive advantage - Financial Institutions, Technology, Media, Telecommunications, Healthcare, Integrated Energy, Consumer
0 24
Research Analysts are based in key hubs (London, Amsterdam, Stockholm,
Hong Kong and Sydney) with hires already made in some targeted research areas - Media, Support Services, Banking, Real Estate
A clear determination to produce value-added research
Maintain integrity of research
Improvements to recommendations process will give greater transparency and accountability
Examples of recent successes (Pan-European Thomson Extel 2002)
– 5th most improved research service; 3rd position in AQ Pan European Accuracy survey; 3 AA analysts in top 20 in Rising Star category
0 25
Sales Three European home markets (Netherlands, UK, Nordic) give
unusually strong platform
Focus on clients and a flexible distribution platform to meet their needs. Linkage with other WCS products through FIPS client coverage to be improved
Global distribution network (US, Asia/Australia); European Sales Team is 150 strong and continues to be upgraded
Examples of recent successes (Pan-European Thomson Extel 2002 survey) include
– 7th, Pan-European brokerage sales; 5th, market knowledge “and feel”
– 4th, most improved firm for sales service; 3rd, independent ideas
0 26
Sales Trading and Trading A programme to introduce more automated order execution
functionality
To capture internal liquidity to improve trading efficiency
Aim to boost the role of program trading
Aim to widen our client base by offering new, advanced execution
products
Employ high calibre, motivated traders and sales traders (180
professionals in Europe)
Short term goal to be in a top 5 to 7 position in European execution,
providing an effective, cost efficient service to clients
0 27
Derivatives A core component of strategy for WCS, no longer seen as just a
niche product. Key product in deriving further synergies and
increased linkages with C&CC and its retail distribution network
Improving our ability to cross-sell retail derivative products into key
markets (e.g. Germany, Italy, the Netherlands and US) with
improved linkages to C&CC retail distribution network
A greater synergy between cash and derivative groups to meet the
changing needs of clients and improve our trading capabilities
Increased investment in trading systems
0 28
Equity Capital Markets Full range of Equity Capital Market (“ECM”)
services are offered through leading recognised brand ABN AMRO Rothschild (“AAR”)
– AA provides full suite of investment banking products, capital strength and global distribution power while Rothschild provide additional relationships and skills in key markets
AAR consistently ranked in the top 5 in Europe; also improved to 8th from 12th on a global basis (top global co-ordinator or bookrunner - YTD October 2002 EquityWare)
For the market as a whole global ECM offerings have decreased 13% (year-on-year October - EquityWare)
0 29
Corporate Broking AA’s corporate broking arm, Hoare Govett works
alongside the Equities business on a fully integrated basis, providing traditional advisory and execution services in the UK market
AA Hoare Govett is consistently ranked as a top 3 corporate broker, offering independent market advice to over 100 client companies, including 25 of the FTSE 100
2002 deals include Imperial Tobacco rights issue, placings for Amersham and Centrica, Enterprise Oil take-over, Lattice merger with National Grid, Carlton merger with Granada (subject to completion) and CMG merger with Logica (subject to completion)
Retention of dual capacity between Hoare Govett and AA Corporate Finance
0 30
Critical Factors for Success Drivers of future revenue growth within Equities will include pension
reforms particularly in continental Europe, venture capital,
corporates demanding a full product range and hedge funds
Continued structured investment in key research sectors to improve
rankings for our European and Asian products in order to generate
increased allocation of revenue from target clients
Higher quality execution and service penetration of Priority client
base at all levels
Equity markets have now fallen to a cyclical low. AA’s Equities
business will be in good shape to benefit from any improvement in
underlying markets
Technology, Operations and Property Services (TOPS)
Ron Teerlink, SEVP - Global Head of TOPS BU and WCS COO
20 November, 2002
0 32
TOPS have established a simple agenda to help focus decision making
Clients’ Perception of Services
Our People
Economic Value Operational risk
Contribute to value creation primarily through lowering the cost of support service
provision
Minimise operational losses and allow WCS to maximise
capital efficiency through advanced level compliance
Lead by example, seek best people, address performance issues and foster a
performance culture
Be a partner with clients, respond to feedback, be accountable and
transparent
Strategic agenda
0 33
Target operating model In late 2000 TOPS defined a target operating model based on
removing duplication and inefficiency through regionalising and
globalising service provision …
Americas Hub
Americas Securities GTS Payments FX/MM
Local Ops Group
IT Infrastructure
Europe Hub
Europe Securities GTS Payments FX/MM
Local Ops Group
IT Infrastructure
Asia Pacific Hub
Asia Pacific Securities GTS Payments FX/MM
Local Ops Group
IT Infrastructure
Global Hub
OTC Derivatives ET Derivatives
Global Functional Hub
MIS Operations Control Service
Management
IT Strategy, Projects & Development
Static Data Strategy Management
0 34
- Potential Sourcing Model -
Competitive Advantage
Outsource to high value provider
Keep
Outsource to high competence
provider
Keep and re-engineer or partner with outsourcer
Current Capability Level
Hig
hL
ow
Low High
Sourcing structure . . and adopting a sourcing strategy that allows us to move to a
variable cost structure while retaining ownership of those core skills and services that we do best
Efficiency
Competency
0 35
High profile programmesWe have successfully implemented a number of high profile
programmes over the past 24 months which have enabled us to
dramatically lower our cost base and headcount
Hubbing of European Capital Markets Operations in London and
closure of units in Amsterdam, Paris, Frankfurt, Zurich, Milan
Hubbing of Derivatives Operations in London
Hubbing of European Treasury Operations in Amsterdam and closure of units in Stockholm, London, Paris and Frankfurt
Hubbing of AsiaPac & EMEA Nostro Reconciliations in London
Hubbing in US and Asia
0 36
High profile programmes (cont’d) Consolidation of European Technology Infrastructure in Amsterdam
and London and reduction of application duplication
More efficient use of office space, improved transparency of occupancy across all major locations, moves to lower cost locations in major financial centres including New York, Frankfurt & Singapore
Renegotiated contract pricing and other procurement initiatives
We will leverage these experiences for the group by consolidating Procurement, Real Estate Portfolio Management and Sourcing Strategy in Corporate Centre
0 37
Operations footprint before transition The effect of these programmes can clearly be seen if we consider
global Operations footprint before Transition
Tsy
Tokyo
Hong Kong
Singapore
ParisLondon
EQ FI
OTC ETD
Tsy
EQ FI
OTC
Zurich
FI EQ
Tsy
EQ FI
Tsy
Frankfurt
FI Tsy
OTC
Sydney
EQFI
Tsy OTC
FI Tsy
OTC
Milan
EQ OTC
FI Tsy
Chicago
FI EQ
OTC Tsy
ETD
ETD
EQ
New York
EQ FI
Tsy
Amsterdam
EQ FI
OTC
ETD
EQ
Tsy
EQ
FI
0 38
Tokyo
Hong Kong
Singapore
ParisLondon
EQ FI
OTC ETD
EQ FI
OTC
EQ
FI Tsy
Sydney
FI
Milan
EQ
FI
Chicago
EQ
Tsy
ETD
New York
EQ FI
Tsy
Amsterdam
ETD
EQ
Operations footprint before transition ….. and today The effect of these programmes can clearly be seen if we consider
global Operations footprint before Transition . . . and today
0 39
TOPS cost base Over the course of the last two years we have lowered the total
TOPS cost base through both the transition programme and other initiatives
€410m
2001/2 Direct & Indirect Reductions €357m
‘Pot of transition
Savings’
of up to €460m
Project Rationalisation €40m
Reduced Clearing Costs (Contra Revenue) €13m
Procurement €50m
0 40
Headcount During 2002 we have reduced our headcount by over 700, taking
total staff reductions to over 1500. Further headcount reductions of
approximately 200 are anticipated in Q4
0 41
Cost Cost reductionFlexibility Flexible cost baseControl Strong governance and greater transparencyProductivity Continuous improvement of productivityQuality Deliver industry best practice processes
Closing with EDS expected before the end of 2002Transfer of 1000+ staff in NL, UK, US, Germany, Singapore, Hong KongSavings to materialise starting 2004 (0 impact in 2003)
5 Key objectives
Outsourcing to EDS Through outsourcing large components of technology to EDS we
plan to make a step change in the cost and quality of service
provision
0 42
Summary TOPS has established a simple strategic agenda to help focus
decision making; Clients, Value, People, Risk
In late 2000 TOPS defined a target operating model based on
removing duplication and inefficiency through regionalising and
globalising service provision
. . and adopting a sourcing strategy that allows us to move to a
variable cost structure while retaining ownership of those core skills
and services that we do best
We have successfully implemented a number of high profile
programmes over the past 24 months which have enabled us to
dramatically lower our cost base and headcount
0 43
Summary (cont’d) When taken together the ‘total pot’ of transition savings delivered by
TOPS this year is in excess of €460m
This compares favourably with our commitments at the start of the
Programme to deliver €408m of savings to the P&L by the end of
2002
During 2002 we have reduced our headcount by over 700, taking
total staff reductions to over 1500. Further headcount reductions of
approximately 200 are anticipated in Q4
We will continue to focus on managing down our costs and
headcount in Q4 and into 2003