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120130716_Performance of European banks.pptx
Press conference – Paris, July 16th
The State of the European Banking Industry
220130716_Performance of European banks.pptx
Speakers
FABRICE ASVAZADOURIAN
GLOBAL CO-HEAD OF THE FINANCIAL
SERVICES PRACTICE
PIERRE REBOUL
SENIOR PARTNER
GLOBAL CIB LEADER
320130716_Performance of European banks.pptx© Roland Berger Strategy Consultants
Agenda Page
2. The 2012 performance of European banks 4
3. Moving forward 28
1. Appendix - Update on Roland Berger Strategy Consultants 33
1
2
3
420130716_Performance of European banks.pptx
1. The 2012 performance of European banks
520130716_Performance of European banks.pptx
2012: a turbulent but positive year thanks to ECB/EU interventions and disciplined roll-out of adaption plans by European banks
Source: Bloomberg, press, Roland Berger analysis
75
80
85
90
95
100
105
110
115
120
125
0
50
100
150
200
250
300
350
400
450
500
550
600
650
700
27/1 3/2
24/2 9/3
2/3
16/3
17/2
10/26/1
13/1
28/1
2
21/1
214
/12
7/12
30/1
1
23/1
116
/11
9/11
2/11
26/1
019
/10
12/1
0
5/10
28/9
21/9
14/97/9
31/8
24/8
17/8
10/83/8
27/7
20/7
13/76/7
20/1
22/6
15/68/6
1/6
25/5
18/5
11/5
29/6
27/4
20/4
13/46/4
30/3
23/3 4/5
Euro Stoxx Banks
5-year average CDS - Southern European banks2)
5-year average CDS - Northern European banks1)
Euro Stoxx Banks
Index
5-year average
CDS (bps)
1) Based on BNPP, Société Générale, Deutsche Bank ,Commerzbank, UBS, KBC, Lloyds, HSBC, RBS2) Based on Santander, BBVA, Caixa, Banco Espiritu Santo, Monte Paschi, Unicredit, Intesa
Oct. 2nd: Liikanen report publication
(Report of the European Commission’s
High-level Expert Group on Bank
Structural Reform)
Sept. 6th: Outright monetary
transactions program
launched by the ECB
Dec. 13th: Banking
Union agreement
July 20th: Eurogroup grants financial
support to Spanish banking industry
June 29th: Banking
Union project
announcement
May 21st: 2 consultancy firms, of which
Roland Berger, are appointed by the Spanish
government on the banking sector stress-test
March 1st: ECB injects
EUR 530bn of liquidity
+10%
-46%
-56%
2011-2012
evolution
June 27th: Libor
scandal
620130716_Performance of European banks.pptx
Interbank distrust skyrocketed from July 2011 to August 2012 but banks are regaining confidence thanks to ECB initiatives
3,500
3,000
2,500
2,000
1,500
1,000
500
0
-33%x 5
Apr
13
Jan
13
Oct
12
July
12
Apr
12
Jan
12
Oct
11
July
11
Apr
11
Jan
11
Oct
10
July
10
Apr
10
Jan
10
Oct
09
July
09
Apr
09
Jan
09
Oct
08
July
08
Apr
08
Jan
08
Deposit liabilities of the European Central Bank [EUR Bn; since 2008]1)
Source: ECB, Roland Berger analysis
Sept. 15th, 2008:
Lehman Brothers
collapse
Dec. 21st 2011:
ECB LTRO 1 – EUR 490 Bn
Feb. 29th 2012:
ECB LTRO 2 – EUR 530 Bn
July 2011: Increasing tension
on Italian sovereign debt
1) Outstanding amounts at the end of the period, total maturity, Euro area counterpart
Sept. 2012: Outright
monetary transaction
Program
720130716_Performance of European banks.pptx
Financial institutions & governments become more and more intertwined: the invisible nationalization?
Source: Bank of International Settlements, Ernst & Young, ECB, Roland Berger analysis
60
70
80
90
100
110
120
130
140
150Portugal
Spain
Italy
Germany
France
Belgium
Euro area
Apr
2013
Jan
2013
Oct
2012
July
2012
Apr
2012
Jan
2012
Between 0% and -5%
Between -10% and -20%
< - 20%
Base=100 in January 2012
EVOLUTION OF BANK SOVEREIGN DEBT DETENTIONCROSS-BORDER INTERBANK LENDING EVOLUTION [% change 2011/2012]
+47%
+44%
+28%
+23%
+19%
+12%
-12%
820130716_Performance of European banks.pptx
We have screened the performance of 100 key European banks representing more than 90% of the EU 27 banking industry
Banking revenues from core activities [2012; EUR Bn]
PERIMETER1)
ROW
6125
CEE
27
Italy
39
Iberia
43
UK,
Ireland 2)
45
France
63
Germany
76
Switzerland,
Austria
14
Nordics
21
BeNeLux
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
23%
13%
5%
Total
705
59%
Regions
of activity
1) Banks from Greece and Cyprus have not been included in the presented study 2) excluding SME banking, integrated within CIB
METHODOLOGY
> 100 European banks covering ~90% of the EU 27 banking industry in 20121)
> 2 levels of analysis:
– Economic performance (revenue, profit)
– Financial sustainability (balance sheet structure)
> Aggregated data at global level and then zooming in by business line with a comparable perimeter– Group– CIB: Corporate and Investment Bank – RBB: Retail and Business Bank (from
individuals to SMEs)– SFS: Specialized Financial Services– IIS: Insurance and Investor Services
> As well as comparison between nine regions
Insurance and Investor Services : 89
Corporate and Investment Banking 162
Specialized Financial Services : 38
Retail & business banking
Corporate and Investment Banking (CIB)
Insurance and investor services (IIS)
Specialized Financial Services (SFS)
Retail & Business Banking : 415
920130716_Performance of European banks.pptx
Agenda
2.a Group-level performance analysis
2.b Performance analysis per Business Division
1020130716_Performance of European banks.pptx
-0.03
-0.06
-0.05
-0.02
-0.01
-0.02
/
-0.03
-0.10
European banks are implementing their balance sheet consolidation strategy: fewer loans and more deposit
LOANS[2011/2012 % change]
DEPOSITS[2011/2012 % change]
LOAN TO DEPOSIT RATIO [2012]
-2%
3%
2%
-1%
-2%
-2%
-3%
-4%
-4%
-7%CEE
France
Iberia
UK, Ireland
Nordics
Switzerland, Austria
Average
Italy
Germany
BeNeLux
Key group balance sheet indicators per country of origin
GROUP
COUNTRY OF ORIGIN
Delta pts 11/12
1%
5%
2%
1%
-1%
0%
1%
2%
-2%
3%
1.1
1.2
1.1
1.0
1.0
1.6
0.8
1.2
1.2
1.0
-0.03
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
1120130716_Performance of European banks.pptx
European banks have actively consolidated in 2012 their Core Equity base in order to comply with Basel 3 by end of 2013 the lattest
Core Equity consolidation
~EUR 250 Bn
+ 1.5 % CET1
Capital measures
70%
RWAmeasures
30%
Capital increase (injection of public capital, new private equity, capital increase through SLEs)
Reserves growth
Other measures (CoCo's, disposal of goodwill, depreciation of intangible assets,…
Asset disposal / deleveraging
Technical adjustments
(new model, collateral management)
~90
~30
~50
~30
~50
Core equity consolidation
End 2013
fully loaded
Basel 3 CET 1
>9%
Source: Annual reports, Bankscope, Financial presentations, EBA, Desk research, Roland Berger analysis
GROUP
1220130716_Performance of European banks.pptx
Core activities proved resilient in 2012 while balance sheet cleaning continues to weigh dramatically on overall profitability
Evolution of Profit Before Tax, 2012 [EUR Bn]
4
Non core
activities3)
and
exceptional
items
Profit
before
tax 2012
54
(38%)
137
Total
Core
businesses
141
CIB
34
(24%)
IIS
20
(14%)
SFS
9
(7%)
IRB2)
24
(17%)
DRB1)
GROUP
Operating profit before tax> 1/3 of European top
banks experienced
an increase in Core
activities profitability
> Iberian banks were
strongly impacted by
exceptional items,
with EUR 59 Bn vs.
EUR 19 Bn for UK /
Ireland
– Spanish real
estate write-off
(royal decrees)
– Goodwill write-
off/net loss on
asset sales : entity
or portfolio
– Marked-to-market
impact on own
debt
-21% -3% -9% 46% 5% -6% +38%
1) Domestic Retail & Business Banking 2) International Retail & Business Banking 3) Including some corporate center and Group items
%
change
[11-12]
Profit
before
tax 2010
128
Profit
before
tax 2011
53
-91%
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
1320130716_Performance of European banks.pptx
Only half of our banks in terms of revenue was able to display a "positive operating jaw" in 2012 – Cost programs still need to fully materialize in P&L
GROUP
Positive operating jaws55% of sample revenue
Negative operating jaws while shrinking revenue21% of sample revenue
Revenuegrowth
Operating expense growth
Outliers* : 12% of sample revenue
*Banks having recently faced / currently facing restructuring issues
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
Detailedanalysis
Evolution of core revenues and operating expenses by bank [2011-2012;%]
-15%
-10%
-5%
0%
5%
10%
15%
-15% -10% -5% 0% 5% 10% 15%
Operating
expense
growth
Revenue growth
Growth with lackof cost control12% of sample revenue
1420130716_Performance of European banks.pptx
International retail banks and SFS specialists display the most profitable banking model
GROUP
1.9%
2.4%
2.5%
2.3%
73%
61%
52%
65%
14%
14%
25%
22%
Key performance indicators per bank model [2012]
14%
25%
23%
13%
Domestic retail banks –excluding Iberian banks
International retail banks
SFS specialists
Universal banks
13% sample revenues
21% sample revenues
2% sample revenues
60% sample revenues
SCOPEINCOME TO ASSETS
COST-INCOME RATIO
COST OF RISK TO INCOME
CORE PROFIT1)
BEFORE TAX TO INCOME
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
1) Excluding impact from exceptional items and non core activities
1520130716_Performance of European banks.pptx
Agenda
2.b Performance analysis per activity
2.a Group performance analysis
1620130716_Performance of European banks.pptx
The volatility and uncertainty of the current CIB environment callfor a review of business models
KEY GLOBAL TRENDS [non exhaustive]
Offering & Players
> New overcapacity and redistribution of market shares driven by
repositioning on some CIB businesses (e.g. OTD SF model)
> New competition emerging from diversification of some specialized
players (e.g. PE entering pure financing landscape, Hedge Funds
developing origination capabilities model in the US)
Regulation
> Increased capital and liquidity constraints (Basel 2/3)
> Vickers / Liikanen regulation impacts still to be precised
> Tobin's tax (TTF) on Equity and FI transactions (perimeter still tbc)
> EMIR and OTC clearing additional costs (e.g. structure,
compliance)
> Other IFRS impacts (DVA / CVA)
Markets & Demand
> Still above normal volatile markets in Equities and Fixed
Income with investment uncertainty (e.g. sovereigns)
> Solvency II impacts on appetite for equity from insurers
> Development of e-markets and parallel need for
standardization
> Differentiated trends by region implying strategic complexity
ROLAND BERGER CONVICTIONS
> Regulation is becoming one of the most important
inputs for many strategic decisions, e.g.:
– Which geographies?
- differentiated regulations lead to a
"deglobalisation" of operating models: local,
multilocal or regional, and to the need of
rethinking legal entity links
- some countries more attractive than others
– Which products?
- tighter regulations on capital have led CIBs to
create overcapacity advisory businesses
- impacts of new regulations (clearing, transaction
tax) per product type: dust has not settled yet
> In such a context, flexibility is key, to be able to
adapt to any unforeseen changes: "light footprint"
strategies are becoming a must
> CIBs need to clarify their positioning towards clients,
with a clear value proposition, and adapt their
operating model to that claim
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
CORPORATE AND INVESTMENT BANKING
1720130716_Performance of European banks.pptx
After a tough 2011, European CIBs are slowly recovering
CIB Divisions of European banking groups2010 - 2012 [EUR, Bn]
CORPORATE AND INVESTMENT BANKING
-19% +6%
162152188
+5%
10398104
+15%
2012
26
2011
22
2010
24
Revenues (R)
Expenses
Risks
-46%
+5%
2012
34
2011
32
2010
60
Operating profit before tax (P)
21% 21%32%
COMMENTS
> CIB growth around the world is again driven
by the financing demand from Corporates
(structured finance +9%, DCM +4%)
> In Europe, revenues have grown by 5%,
with different local dynamics: for instance, in
France where SF had traditionally been
strong (and deleveraging was severe), FICC
was the key driver of growth
> Many CIBs have launched cost reduction
plans, which full effects will be felt from
2014, while the related restructuring costs
are already in the P&Ls
> In spite of sanity measures taken to monitor
and take risk, cost of risk increased in 2012
> Cost / Income ratio slightly improved in
2012 (63%), but remains still away from its
2010 level (55%)P / R
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
1820130716_Performance of European banks.pptx
8.0
5.3
2.6
9.2
10.4
-1.3
9.7
0.5
6.3
3.0
10.4
0.0
8.7
1.7
17.8
1.6
11.7
4.5
19.7
0.3
15.7
3.6
3.0
1.1
1.90.0
3.2
0.5
2.9
-0.2
4.0
0.6
2.4
1.0
4.2
1.21.0
2.1
4.8
1.5
2.6
-0.2
3.1
0.3
5.0
1.1
2.3
1.6
5.2
0.41.8
3.0
6.2
0.6
4.2
1.4
6.3
3.6
3.1
-0.4
7.1
4.6
Large European CIBs are applying three strategies depending on scarce resource allocation constraints defined by their Group
Revenues of top 16 CIB Divisions of European banking groups (revenues above EUR 3Bn), 2012 [EUR, Bn]
RiskCostProfit (+)
-5% -11% -11% -17%-16% -5% -11%-20% 5% 6%-20% 7%
AdaptXRetrenchmentX FocusX
2010-2012
revenues
CAGR
-25%
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
-4%
CORPORATE AND INVESTMENT BANKING
0% 0%
Global Universals Advanced Internationals Local Markets
75% of total European
CIB revenues
represented through this panel of 16
banks
1920130716_Performance of European banks.pptx
Amongst the European CIB panel, small CIBs have shown more agility over 2010-2012 period
Mapping of European CIBs per revenue size and growth
51 banks for €162bn of revenues in 2012
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
CORPORATE AND INVESTMENT BANKING
11%
10 banks
11%
14 banks
Decrease > (-5%)
Slight decrease
(-5% to 0%)
Growth of revenues
(>0%)
2012 revenues
CAGR 2010-2012
Bel
ow
EU
R 5
bn
Decrease > (-5%)
Slight decrease
(-5% to 0%)
Growth of revenues
(>0%)
2012 revenues
CAGR 2010-2012
18%
17 banks
34%
7 banks 2 banks
23%
3%
1 bank
Ab
ove
EU
R 5
bn
Small banks mainly hold financing products in their portfolio, which may explain why they have been less impacted than large CIBs over the period
2020130716_Performance of European banks.pptx
CIBs will have to clarify their positioning and operating model to be successful in the coming years
CATEGORY KILLER NICHE SPECIALIST
Business model
Operating model
High-volume positioning driven by flow product leadership
High-margin positioning driven by premium product leadership
Industrial model> Technological edge (e-platforms)> Economies of scale> Focus on streamlining selected
flow products
Mini factories> Reactive operations to serve
small batches> Qualified human resources,
adaptable processes & IT
Illustrations
Strengths
Weaknesses
> Creates barriers to entry> Allows to be a supplier to CIBs
(white labelling)
> Built-in competitive edge generated by creativity / R&D
> Requires large investments> Sensitive to a market downturn
> Relies on a handful of experts creating differentiating products
Client value proposition
Product excellence> Seamless execution> Competitive pricing
Cutting-edge products> Exclusive products> Innovation
SOLUTION BUILDER TRUSTED ADVISOR
High-volume positioning driven by numerous client relationships (often related to historical role in a geography/industry1))
High-margin positioning driven by premium client relationships
Aggregator model> Outsourcing of some
operations> Branding of third-party
created white-label products
Craftsmanship model> Focus on products requiring
little investment in Ops & IT> Adhoc processes to serve
customer requirements
> Allows to follow market demand evolutions
> Generates client stickiness through trust
> Relies on high quality sales teams to create differentiation
> Relies on a handful of senior bankers "owning" relationships
One-stop-shop> Attention to client needs> Flexibility
Bespoke service> Selectivity> Premium service, advisory
1) can also be driven by synergies with non-CIB divisions, e.g. Wealth Mgt
CORPORATE AND INVESTMENT BANKING : ZOOM ON INDUSTRIAL MODEL
2120130716_Performance of European banks.pptx
After having digested the impact of the Greek debt restructuring, IIS businesses are strong profitability contributors for integrated banks
IIS Division within European banking groups 2010 - 2012 [EUR, Bn]
INSURANCE AND INVESTOR SERVICES
+2%
898891
0%
646567
2010
9
-46%
2012
5
2011
9
Revenues (R)
Expenses
Risks2010
14
+46%
2012
20
2011
14
Operating profit before tax (P)
16% 22%16%P / R
> Positive impact on revenue
growth of capital market evolution
despite continuous pressure on
price and low rate environment
> Strict cost management from
these producing factories within
their banking group
> Concentration of this integrated
model among Swiss banks,
French banks and German banks
> Banks in the UK and Southern
Europe are selling parts of their
IIS businesses to benefit from
scale/experience effect and free
up capital
COMMENTS
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
2220130716_Performance of European banks.pptx
Key challenges in IIS are specific to each business
> Restore profitability of life insurance portfolio through
systematic in-force management
> Invent holistic 'grey hair' value proposition (health,
pension, protection) to cope with the challenges of an aging
population facing the withdrawal of social systems
> Push further the imperative of industrialization
in a context of sustainably low interest rates
> Adapt value propositions and operating model (CIB/SS
synergies) to leverage regulatory overhaul (OTC market
restructuring, Solvency II linked demand)
INVESTOR SERVICES
IIS
INSURANCE
PRIVATE BANKINGASSET MANAGEMENT
> Amplify cost efforts on "low alpha" activities and improve
sales force effectiveness toward institutional clientele
> Act as a consolidator by screening non-organic
development opportunities to develop existing footprint
(acquisitions, JVs, …)
> Continue to invest in compliance and in structuring the
global business line to comply with new environment
> Regain client trust and reinforce differentiation and brand
recognition through leveraging digital opportunities
INSURANCE AND INVESTOR SERVICES
Source: Roland Berger analysis
2320130716_Performance of European banks.pptx
Nordic countries are heading toward the new model of retail banking while Italy and Iberia are in the middle of their restructuring effort
INCOME[2011-12 growth]
EXPENSES [2011-12 growth]
OPERATING PROFIT TO INCOME [2012 - 2011-12 growth]
COST TO INCOME [2012]
RETAIL & BUSINESS BANKING
> Positive volume/margin evolution combined with cost discipline and digitalization
BeNeLux
Iberia 7.6%
Italy 2.5%
1.7%
France -0.8%
Germany -1.7%
UK, Ireland -7.0%
CEE -2.5%
Switzerland,
Austria-1.7%
Nordics 7.1%
Average -0.1%
+12%
> Negative operating jaws due to derisking strategy compensated by sharp reduction in cost of risk
> Negative operating jaws due to a combination of sluggish revenue, salary inflation, new taxes and slight risk cost increase
> Restructuring phase with interest margin increase and banking consolidation ……offset by cost of risk surge
1.0%
0.4%
3.5%
-2.4%
2.0%
0.2%
3.7%
-0.4%
-7.8%
-0.4%
65.5%
61.7%
64.6%
61.4%
55.0%
67.7%
58.9%
52.2%
61.1%
51.4% 40.3%
-14.4%
17.5%
25.9%
5.8%
26.5%
22.4%
15.6%
21.7%
29.9%
+3%
-6%
-6%
-10%
+8%
-10%
-49%
-282%
-19%
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
Note : profit before tax
Key performance indicators in retail & business banking, by area of operation
2420130716_Performance of European banks.pptx
The level of cost of risk is a clear divider across European retail banking markets. However lower risk markets shows worrying early signals
59%
30%26%25%
12%10%9%8%8%
IberiaItalyCEEUK,
Ireland
BeNe-
Lux
GermanySwitz.,
Austria
NordicsFrance
RETAIL & BUSINESS BANKING
COST OF RISK AS A % OF REVENUES PER GEOGRAPHICAL MARKET [2012]COST OF RISK BREAKDOWN PER COUNTRY [2012; EUR Bn]
Iberia
Italy
UK+Ireland
Germany
CEE
France
Others
76
26
12
11
8
7
5
7
Cost of risk growth[2011-2012]
Share of 2011-12 growth
85%
Average: 21%
> -10%
Between-10% and 0%
Between 0% and +15%
Between +15% and +50%
> +80%27%
-24%
5%
-5%
2%
10%
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
2520130716_Performance of European banks.pptx
Retail bank CEOs have to manage two time horizons to navigate towards the New Retail banking model
Revenue enhancement
Cost reduction
CHALLENGE EXTERNAL EXPENSES
(IT, real estate, S&G)
STREAMLINE CORPORATE PROCESSES(Audit, compliance, controlling)
OUTSOURCE TASKSTO CLIENTS
(process digitalization)
OPTIMIZE OUT-OF-BRANCH SUPPORT(delayering, span of control)
RETAIL & BUSINESS BANKING
IMPROVE PRICING
REALIZATION
(discount, leakage)
PUSH HIGH VALUE
PRODUCTS
(consumer credit, P&C insurance)
BOOST MULTI-
CHANNEL SALES
(fast CRM, data
monetization)
RETAIN CLIENTS AND ASSETS
(inheritance, anti-attrition)
Source: Roland Berger analysis
SHORT TERM Restore profitability and confidence
LONG TERM Re-invent the business model
2620130716_Performance of European banks.pptx
Reinventing the role of branches: from proximity to accessibility
EVOLUTION OF DENSITY OF BRANCH NETWORK(2006-2011, Number of branches per million inhabitants)
2000 2002 2004 2006 2008 2010 2012
1,200
1,000
800
600
400
200
0
Germany
Netherlands
France
Sweden
Spain
Belgium
Source: ECB, EBA, Eurostat, EFMA, analyses Roland Berger
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
35302515 80757065605550454020
% of adults using internet banking over the last 3 months1)
Evo
lutio
n of
the
num
ber
of b
ranc
hes
betw
een
2006
and
201
1
SpainGermany
Denmark
Belgium
AverageUnited Kingdom
Sweden
Finland
Netherlands
ItalyFrance
DYNAMICS OF NETWORK EVOLUTION VS. SPREAD OF INTERNET BANKING[2006-2011, selection of European countries]
RETAIL & BUSINESS BANKING
2720130716_Performance of European banks.pptx
SFS businesses were quite resilient in a difficult context, however specialist and bank-embedded players display different strategies
SFS financial performance overview [2010-2012; EUR Bn]
SPECIALIZED FINANCIAL SERVICES
+3%
10.310.0
+7%
6.05.6
+59%
2012
1.7
2011
1.1
Revenues (R)
Expenses
Risks
-9%
2012
9.4
6.8
2.6
2011
10.4
7.0
3.3
2010
7.1
4.6
2.5
Op. profit before tax (P)
P / R
BanksSFS
-4%
27.928.9
-6%
14.115.0
+1%
2012
7.0
2011
6.9
SFS specialists Banks > Consumer (B2C) lending :
– Continue to drive cost/efficiency
initiatives in a context on stronger
regulatory constraints
– Redeploy resources by channel/
country based on new profit
patterns
> Asset-based (B2B) lending
– Increase focus on SMEs to
rebuild margins
– Propose alternatives to traditional
offering in in a context of cost of
risk increase
> Transversal
– Expand/develop access to
liquidity
– Push new retail banking/SFS
enhanced cooperation model
KEY CHALLENGES
25%33%26%
24%24%14%
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
2820130716_Performance of European banks.pptx
3. Moving forward
2920130716_Performance of European banks.pptx
Still a lot to do for European banks' executives to rebuild structural profitability of their respective institution
Level of realization
3%
2010
9%
2007
17%
2015
8-11%
Management
actions
+5-7%
Remaining
impact of
regulatory
changes
-2-3%
Neutralisation
of except.
items and
non core
activities
6%
2012
0%
2011
1) ROE calculated based on Profit before Taxes
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
Evolution of ROE1) of European banks
Top executives of European banks are
activating 4 types of levers to rebuild
profitability:
> Adapt to higher capital requirements rules in
Basel III perspective
> Diversify sources of funding and adjust
business portfolio according on their self-
fundability
> Redefine business lines' profit models in a
context of resource (capital, liquidity) scarcity
and low growth environment
> Deliver operational efficiency improvements to
cope with higher capital/liquidity cost
2
3
4
1
3020130716_Performance of European banks.pptx
The agenda of European banks' CEO
> After implementing urgent adaptation measures in order to fulfill regulatory requirements and adjust to the new environment of scare resources, European banking CEOs can not rest. on their laurels. They need to address 6 challenges on their agenda to rebuild the profitability of their institution.
> At Group level :
– Cost: Define structural cost reduction beyond adaptation plans & budget cuts by deploying methods from more frugal industries
– Capital Management: Enforce further discipline/sophistication on value creation measurement and scarce resource allocation
– Inorganic growth: Get prepared for the end of the Ice Age to seize external opportunities (both ways)
> At Division level :
– Corporate and Investment Banking: Deliver the expected benefits of the more client-driven/more industrialized model
– Retail & Business Banking: Embark on the transformation journey to the New European Retail Banking model
– IIS and SFS: Innovate (value proposition & operating model) to adapt to an enduring low interest rates/low growth environment
3120130716_Performance of European banks.pptx
Top challenges per country
NORDICS Manage to enforce repricing as a potential for capital
repatriation to face new capital requirement imposed
by regulators on top of Basel 3
UK & IRELANDContinue to plug 'organically' the new capital
deficit following PRA statement and get
prepared for a lot of mortgage-related action
BENELUX Structurally reduce costs to absorb new regulation as
well as to integrate clients' digital behaviors in order to
safeguard future financial performance
FRANCE Materialize cost saving program in the P&L
and initiate the transformation of the retail
banking model
IBERIAContinue with the consolidation and
cleaning up of the banking industry and
identify new sources of profit to replace
the mortgage market
GERMANYFace currently declining revenues
combined with fierce competition (e.g.
deposits with foreign banks, payments
with new competitors) and exploit
opportunities in corporate business
(energy system transformation, export
financing)
CEEBalance between the "banking group"
model which optimizes intra-group
liquidity, risk and B/S management vs. the
"group of banks" model which national
regulators prefer
ITALYPrevent further deterioration of loan book despite
continuing recesssion while managing over 130Bn€
NPLs (real estate, SMEs) and accelerate transformation
of distribution model (branch closure,
reduction/redeployment of personnel)
Source: Roland Berger analysis
3220130716_Performance of European banks.pptx
The prize at stake : a 30%+ market valuation
THE NEW NORMAL – P/B : 1,3Banks having (Nordics) or having announced (Swiss banks) clear cut strategic choices to derisk their balance sheet, have large capital buffer and focus on efficiency
SEEING THE LIGHT –P/B : 0,8Largest European banking groups with strong retail footprint and midsize banks benefitting from the restructuring/consolidation in their domestic market – good ROE of core activities with higher revenue growth
IN THE MIDDLE OF RESTRUCTURINGBanks going through a deep restructuring phase – negative ROE and revenue decline
1) Panel of 40 quoted banking groups
Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis
1.5
Emerging
country
banks
1.1
US
banks
0.8
European
banks
-27%
THE JURY IS STILL OUT –P/B : 0,5The largest group of European banks going through balance-sheet cleaning and cost reduction exercises – still low ROE of core activities and weak revenue growth
AVERAGE P/B RATIO
EUROPEAN BANKS' PRICE-TO-BOOK (P/B) RATIO AND PRE-TAX ROE OF CORE ACTIVITIES
-12
1.6
1.0
0.2
1.8
1.2
8 1612
0.8
1.4
0.6
2014 18
0.4
10
0.0
2262 40-2-4-6-8-10
ROE core activities [%]
Price to book (end 2012)
3320130716_Performance of European banks.pptx
3. Appendix - Update on Roland Berger Strategy Consultants
3420130716_Performance of European banks.pptx
Roland Berger Strategy Consultants: Overview of 2012
• Contribution to G20 summitReport on infrastructure financing options in underdeveloped countries to support their advancement
• Re-industrialize France Diagnostic and recommendations on the creation of 700 000 employments within the French industry by 2020
• "For a more confident France"Contribution to the public debate
REAFFIRMED INTELLECTUAL LEADERSHIPSUSTAINABLE GROWTH WITHIN A DIFFICULT CONTEXT
• 10% revenues growth2 700 employees, 51 offices in 36 countries
• 600 consultants in Asia11 offices in Asia (continental China, South-East Asia, Japan…)
32% growth since 2010
• 5 new offices opened in Asia and North AmericaSeoul, Mumbai, Guangzhou, Montréal, Boston
• Project 2012 – Our reflection on executive agendaExamples of topics: the financial crisis and public debt, energy policies, the social protection system, population growth
• 50th anniversary of the Elysee TreatySeries of business breakfasts with the French and German executives at the German embassy in Paris- The future of Energy in Europe- Infrastructure financing in Europe
3520130716_Performance of European banks.pptx
Our Financial Services Competence Center has experienced an excellent performance in 2012
A SUSTAINABLE GROWTH OF THE FINANCIAL SERVICES COMPETENCE CENTER EXAMPLES OF PROJECTS REALIZED IN 2012
• +25% in turnover in 2012
• +20% of global turnover realized by the Financial Services
• A global network connecting more than 100 experts specialized by business line or functional subjects
38%
18%
17%
15%
12%
Cost cutting
Restructuring
Development / growth strategy
PMIs and Partnerships
Finance & Risk
• A balanced projects portfolio in 2012
CIB> Global reduction plan – Wave 2
> Coverage efficiency (France & Germany)
Retail bank> Evolution of retail banking by 2017 (France)
> Study on network optimization (Germany)
> Tactical levers to improve revenues (France)
Strategy> Global governance (Italy)
> Growth strategy (China)
Insurances> Strategic review at the group level (Italy)
> Strategic impact of the social coverage development(France)
> In-force management (Germany)
Finance &
Risk
> Stress test of Spanish banks (Spain)
> Trading incidents management program (Switzerland)
> Efficiency program for the Risks/ Finance function (France)
IT & Ops> IT frugality program (Germany)
> Study on outsourcing opportunities (Spain)
3620130716_Performance of European banks.pptx
Strategies
that work!