Performance of european banks

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  • 1. 120130716_Performance of European banks.pptx Press conference – Paris, July 16th The State of the European Banking Industry
  • 2. 220130716_Performance of European banks.pptx Speakers FABRICE ASVAZADOURIAN GLOBAL CO-HEAD OF THE FINANCIAL SERVICES PRACTICE PIERRE REBOUL SENIOR PARTNER GLOBAL CIB LEADER
  • 3. 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
  • 4. 420130716_Performance of European banks.pptx 1. The 2012 performance of European banks
  • 5. 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 10/2 6/1 13/1 28/12 21/12 14/12 7/12 30/11 23/11 16/11 9/11 2/11 26/10 19/10 12/10 5/10 28/9 21/9 14/9 7/9 31/8 24/8 17/8 10/8 3/8 27/7 20/7 13/7 6/7 20/1 22/6 15/6 8/6 1/6 25/5 18/5 11/5 29/6 27/4 20/4 13/4 6/4 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, RBS 2) 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
  • 6. 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
  • 7. 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 90 100 110 120 130 140 150 Portugal 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 DETENTION CROSS-BORDER INTERBANK LENDING EVOLUTION [% change 2011/2012] +47% +44% +28% +23% +19% +12% -12%
  • 8. 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
  • 9. 920130716_Performance of European banks.pptx Agenda 2.a Group-level performance analysis 2.b Performance analysis per Business Division
  • 10. 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
  • 11. 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% RWA measures 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
  • 12. 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
  • 13. 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 jaws 55% of sample revenue Negative operating jaws while shrinking revenue 21% of sample revenue Revenue growth 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 Detailed analysis 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 lack of cost control 12% of sample revenue
  • 14. 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 SCOPE INCOME 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
  • 15. 1520130716_Performance of European banks.pptx Agenda 2.b Performance analysis per activity 2.a Group performance analysis
  • 16. 1620130716_Performance of European banks.pptx The volatility and uncertainty of the current CIB environment call for 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
  • 17. 1720130716_Performance of European banks.pptx After a tough 2011, European CIBs are slowly recovering CIB Divisions of European banking groups 2010 - 2012 [EUR, Bn] CORPORATE AND INVESTMENT BANKING -19% +6% 162152 188 +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
  • 18. 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 1.9 0.0 3.2 0.5 2.9 -0.2 4.0 0.6 2.4 1.0 4.2 1.2 1.0 2.1 4.8 1.5 2.6 -0.2 3.1 0.3 5.0 1.1 2.3 1.6 5.2 0.4 1.8 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
  • 19. 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 BelowEUR5bn 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 AboveEUR5bn Small banks mainly hold financing products in their portfolio, which may explain why they have been less impacted than large CIBs over the period
  • 20. 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
  • 21. 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
  • 22. 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
  • 23. 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
  • 24. 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
  • 25. 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 TASKS TO 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
  • 26. 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) Evolutionofthenumberofbranches between2006and2011 Spain Germany Denmark Belgium Average United Kingdom Sweden Finland Netherlands Italy France DYNAMICS OF NETWORK EVOLUTION VS. SPREAD OF INTERNET BANKING [2006-2011, selection of European countries] RETAIL & BUSINESS BANKING
  • 27. 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
  • 28. 2820130716_Performance of European banks.pptx 3. Moving forward
  • 29. 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
  • 30. 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
  • 31. 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 & IRELAND Continue 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 IBERIA Continue with the consolidation and cleaning up of the banking industry and identify new sources of profit to replace the mortgage market GERMANY Face 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) CEE Balance 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 ITALY Prevent 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
  • 32. 3220130716_Performance of European banks.pptx The prize at stake : a 30%+ market valuation THE NEW NORMAL – P/B : 1,3 Banks 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 : 0,8 Largest 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 RESTRUCTURING Banks 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 : 0,5 The 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)
  • 33. 3320130716_Performance of European banks.pptx 3. Appendix - Update on Roland Berger Strategy Consultants
  • 34. 3420130716_Performance of European banks.pptx Roland Berger Strategy Consultants: Overview of 2012 • Contribution to G20 summit Report 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 LEADERSHIP SUSTAINABLE GROWTH WITHIN A DIFFICULT CONTEXT • 10% revenues growth 2 700 employees, 51 offices in 36 countries • 600 consultants in Asia 11 offices in Asia (continental China, South-East Asia, Japan…) 32% growth since 2010 • 5 new offices opened in Asia and North America Seoul, Mumbai, Guangzhou, Montréal, Boston • Project 2012 – Our reflection on executive agenda Examples of topics: the financial crisis and public debt, energy policies, the social protection system, population growth • 50th anniversary of the Elysee Treaty Series 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
  • 35. 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)
  • 36. 3620130716_Performance of European banks.pptx Strategies that work!