2006 managing board priorities hugh scott-barrett cfo, member of the managing board ing benelux...
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2006 Managing Board PrioritiesHugh Scott-Barrett
CFO, Member of the Managing Board
ING Benelux Financials DayLondon, 28 March 2006
2
2006 Priorities
Growth
1. Drive organic growth from new Group Structure
2. Further improve the returns from our former wholesale banking activities
Costs and Capital Management
3. Realise synergies from integration of Banca Antonveneta
4. Realise cost synergies from Services and other initiatives
5. Strict capital discipline
Compliance
6. Implement best-in-class compliance standards in all the jurisdictions in which we operate
3
Group Strategy
Consumer Commercial
Mass Retail
MNCs
Mid-Market/FIs
PC /Mass Affluent
TopPrivateClients
Small Business
Product innovation
Feeder channel Provider of scale
‘SWEET SPOT’
Our Group Strategy is to drive growth in our customer ‘sweet spot’, using local client intimacy while delivering additional value by leveraging our global capabilities in products / services
1. Drive organic growth from new Group Structure
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Drive organic growth from new group structure
Our new group structure Key Elements of the Strategy
fun
ction
s
Global Markets
Europe NorthAmerica
LatinAmerica
Asia PrivateClients
GlobalClients
NL
Asset Management
Group Functions
Services
Transaction Banking
Consumer Client Segment
Commercial Client Segment
Local Products
Local Products
Local Products
Local Products
Local Products
Local Products
M&A ECM
Growth in Our Customer ‘Sweet Spot’
Where we are advantaged and profitable
– Consumer: PC/Mass Affluent Clients
– Commercial: SMEs, Mid-large corporates & FIs
through…
Client-led strategy based on Local Intimacy
Geographic distribution model
and…
Value driven through working as ‘One Bank’
World-class products
International Network capabilities
Spreading of successful formulas
High quality and more efficient Services
Advantaged model:
Using local client intimacy while delivering additional value by leveraging our global capabilities in products / services
6
BU NL structure changes in line with newly implemented group structure
The new BU Region NL consists of the ‘old’ BU NL plus Bouwfonds Mortgages and the incoming parts as a result of the new Group structure (primarily Ex-WCS)
The Ex-WCS clients in the Netherlands will be serviced in the Value Center Commercial
Commercial clients from the BU NL will benefit from better access to products from Global Markets
These changes will ensure that we consistently strengthen our competitive advantage with our mid-market clients in the Netherlands. The new structure will enable us to further integrate and improve the services that we offer our mid-market clients
7
BU NL benefits from strategic focus on the mid-market and strong cost control
Efficiency ratio (%)* Operating result (EUR mln)**
* Q2 05 adjusted for incidental interest income (interest income from previous years, EUR 45 mln)
** Q2 05 adjusted for incidental interest income (interest income from previous years, EUR 45 mln)
78%
77%
75% 75%
76%
74%
73%
70%
66%
68%
70%
72%
74%
76%
78%
80%
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05
176187
207216 217
228
243
276
100
130
160
190
220
250
280
Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05
CAGR:+6% per quarter
8
Growth opportunity example for the Commercial Client Segment: Regional Treasury Desk (RTD) (1)
The bedrock of this RTD in the Netherlands is a single distribution model which incorporates two components; a Local Multi-Product Sales force in each region and a Hubbed Product Marketing and Development team, both of which report into the same functional Global Markets sales head. This promotes:
Shared Ambition – Common goals /shared P&L (Client and Product BU)
Trust and Teamwork – Integrated Sales and Product Marketing/Development team
Link with Relationship Banking – Product MBOs given to Bankers and a reporting link from the Product Sales to the Client BU (secondary)
Product Development for Smaller Clients – Focus on standardized products for a smaller client segment
Greater Efficiency – Greater use of electronic product delivery
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Growth opportunity example for the Commercial Client Segment: Regional Treasury Desk (2)
Since inception in 2002 the RTD’s have more than doubled the Treasury revenue from Commercial Clients with a step change in 2005.
Following initial investigation we will commence RTD initiatives outside of The Netherlands
Early 2006: India, Brazil
Later in the year: France
Once the Banca Antonveneta acquisition process is finalised, we plan to make this service available to our Italian clients
The revenue delta from this simple structure replication could be in excess of EUR 50 mln
10
Growth opportunity example for the Consumer Client Segment: Preferred Banking
Preferred Banking was first invented and rolled out in India. Later it was introduced in Greater China, Southeast Asia, Latin America, the Netherlands and currently in North America
The Preferred Banking offer to Mass Affluent clients leverages the bank’s global strengths and local client intimacy
Mass Affluent clients have attractive demographics in all markets
Sophisticated global products have market appeal
Based on personalised service and distinctive branding
Shared best practices for relationship management
Common standards and practices for roll-out
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Consumer Client Segment: strong Preferred Banking growth in Brazil
58,000 new Mass Affluent clients in
2005
73 branches with Van Gogh lounges
Mass Affluent clients (or Van Gogh
clients) bring in higher balances (both
investments and lending) than other
Mass Retail
No. of Mass Affluent Clients (000)692
435373
316
0
200
400
600
800
2002 2003 2004 2005*
Mass Affluent AuA (BRL bln)8.37.6
5.6
3.6
0
2
4
6
8
10
2002 2003 2004 2005
2. Further improve the returns from our former wholesale banking activities
13
Unbundling will deliver continued performance improvement
Opening up WCS to the Group will
result in greater leverage of wholesale
banking products across a wider set of
clients
The unbundling will contribute to a
continued improvement in the efficiency
ratio
Arm’s length interaction between Global
Markets and the Client Units will
increase the transparency of each
product’s economics
fun
ction
s
Global Markets
Europe NorthAmerica
LatinAmerica
Asia PrivateClients
GlobalClients
NL
Asset Management
Group Functions
Services
Transaction Banking
Consumer Client Segment
Commercial Client Segment
Local Products
Local Products
Local Products
Local Products
Local Products
Local Products
M&A ECM
14
Performance commitments for Global Clients, Global Markets and Commercial Clients
Capital constraint and minimum returns for Global Clients
– RWAs on average less than 10% of Group total by end 2006 and beyond, with a
return above our 10.5% assumed cost of equity
Improved efficiency ratio for Global Markets
– improving by at least 5 percentage points in 2006, and below 80% by end 2008
Improved efficiency ratio for commercial clients in 2006
– to be achieved through revenue uplift and tight cost control in the Regional Client
Units
15
What are we doing in 2006 to improve former WCS results?
Following through on our revenue growth initiatives facilitated by the new organisation, in
particular Derivatives, Equities and Fixed Income
– the products of Global Markets are now driven and distributed by the Regional Client Units
– continue the improvements we have made with Global Clients through more focused
coverage
– bring capital markets solutions to a broader range of clients and increase our capital velocity
Following through on cost reduction initiatives in the new Services organisation
– deliver further savings through continued outsourcing, procurement and real estate
programmes
– fund investment in growth initiatives, IT infrastructure, and compliance
Arm’s length interaction between Global Markets and the Client Units will increase the
transparency of each product’s economics
– clarity on which products we can consistently deliver at the right price and the right quality to
our sweet spot clients
– for products that do not meet this standard, we will pursue alternative solutions, potentially
including exit, downsizing, joint ventures, in-sourcing
16
Case Study: Derivatives Step Change
We have invested in derivatives product
development, sales, marketing and
coverage:
– New hires and re-aligning skills for our
current staff
– Spreading derivatives literacy across
WCS and related support functions
Formed Derivatives Sales & Solutions
Group to drive sales capability
Upgraded risk processes and improved
IT infrastructure
Co-located corporate derivatives in
Equity Capital Markets
Structured Derivatives development
(EUR mln)
Awarded 2005 “House of the Year” for
credit derivatives by Structured
Products
Awarded 2005 “Best Bank” for
Structured FX products by FX Week
0100200300400500600
2004 2005
Revenues IFRS reserves
17
Case study:Restricting business-as-usual costs
Since 2001, we have reduced our
business-as-usual services and other
support costs to free up investment in
front office staff and services investment
We announced a restructuring in
December 2004 aimed at exiting 1,100
FTEs, which will be completed in Q1
2006
This has freed up resources for
investment in Derivatives, in IT to
upgrade trading infrastructure (EUR 95
mln), and in mandatory compliance
activities (Basel II, Sarbanes Oxley, etc.,
EUR 75 mln)
WCS costs (EUR mln)
0
1,000
2,000
3,000
4,000
5,000
2001 2002 2003 2004 2005
Services BAU Other support
Services investment Front office
3. Realise synergies from integration of Banca Antonveneta
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Antonveneta: unique opportunity to grow profitably ABN AMRO’s mid-market footprint
Acquisition has strong growth potential
– Northern Italy: one of the wealthiest areas in Europe with low penetration rate for banking products
– Antonveneta is a profitable franchise with untapped growth potential
– Increase ABN AMRO’s European mid-market footprint
ABN AMRO brings extensive skills to Banca Antonveneta
– superior credit skills
– cost management and efficiency platform
– extensive product suite
Cost synergies program of EUR 160 mln by 2007 on track
– 50% of cost synergies will be realised in 2006
– ABN AMRO expects to use less than the previously indicated EUR 200 mln restructuring costs
BAPV will release its 2005 numbers later today
20
Where do we currently stand in the offer process for BAPV
ABN AMRO started the mandatory offer for all Banca Antonveneta shares on 27
February 2006, the offer period ends on 31 March 2006. ABN AMRO will pay
EUR 26.50 per share for each Banca Antonveneta ordinary share to be
purchased through the offer
ABN AMRO currently owns 78.1% of shares in Banca Antonveneta and 6.6%
has been tendered into the offer to date
If ABN AMRO owns more than 91% but not more than 98% of Banca
Antonveneta’s share capital after the offering period, ABN AMRO must launch a
residual offer. Completion of the residual offer will lead to a de-listing of the
Banca Antonveneta shares
If ABN AMRO owns more than 98% of Banca Antonveneta’s share capital after
a tender/mandatory offer, ABN AMRO can exercise the Squeeze-out Right
ABN AMRO will provide an update on the integration of Banca Antonveneta later
this year when the transaction is completed and the integration is underway
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2005 results Banca Antonveneta impacted by one-off items The uncertainty surrounding the ownership of the bank has made 2005 a challenging
year for Banca Antonveneta. Results were impacted by one-off items. Positive
underlying results: adjusted profit before tax increased more than 8% BAPV was able to protect its customer base, which reflects:
– Its strong client relationships in Northern Italy
– Its highly motivated staff to service clients in difficult times
– Management actions taken to prevent customers from leaving the bank Interest spreads down to industry average due to:
– Promotional offerings – Shift in business mix towards lower risk products,
Business volumes show healthy signs of growth
– Loans to customers were up 1.3% (mortgages up 30%)
– Total customer funding went up 3.2% Provisioning went down due to improved quality of the loan portfolio
Banca Antonveneta expressed optimism about the forthcoming years and its confidence in the integration process, which will provide Banca Antonveneta with the right platform for further growth
4. Realise cost synergies from Services and other initiatives
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Ensure efficient delivery of services
GSS Savings (EUR mln) Comments
Realisation of Services cost synergies
in line with the announced programme
Continue to assess the potential for
further costs savings in the operational
costs base
Results of assessment of additional
savings from remaining EUR 1.7 bln
services costs base will be announced
with Q1 2006 results
Success of programme to be judged by
significant improvement in efficiency
ratioNote 1: Excludes annualised savings relating to the EDS outsourcing deal (previously announced)Note 2: Savings net of investments and before tax deductions
115
300
600
750
0
100
200
300
400
500
600
700
800
2005 2006E 2007E 2008E
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Examples of progress of GSS initiatives
Outsourcing:
At the end of last year we announced that contracts with a total value of EUR 1.8 bln have been signed with selected vendors:
– IBM for IT Infrastructure
– Infosys and Tata Consultancy Services (TCS) for Application Support and
Enhancements
– five preferred vendors have been chosen for Application Development:
Accenture, IBM, Infosys, Patni and TCS
Real Estate Track:
In the first quarter of 2006 the consolidation of the office accommodation in Sao Paulo was completed. The Sao Paulo City plan involved the relocation of 10,000 people and consolidation of 7 buildings down to 2
25
Costs savings have already resulted in improving efficiency ratios in most BUs
Efficiency ratio 2005 and 2004 (%)*
*Adjusted for disclosed significant one-off items used for normalisation as specified in press release on page 4 (see also appendix presentation); In addition, BU NL, BU NA and BU Brazil are adjusted for other incidental items and BU NL and BU NGM are adjusted for transfer of Stater from BU NGM to BU NL
56.1
93.6
74.4
28.9
65.3
18.7
71.773.0
43.2
63.8
76.6
61.6
69.870.471.3
88.7
52.2
43.7
62.3
73.5
0
20
40
60
80
100
NL NA BR NGM BF WCS PE PC AM AA
2004 2005
5. Strict capital discipline
27
Focus on capital discipline
We will selectively grow Risk Weighted Assets in attractive mid-market growth areas, whilst continuing to look at opportunities to securitise Risk Weighted Assets
ABN AMRO has an active approach to selling non-core assets
– sale of 40% in K&H
– intended sale of Bouwfonds
– further opportunities are being looked into
We will further improve our capital ratios
28
Strong focus on ongoing operations will create room for share buy backs in 2006
Capital ratios (end of December 2005) ABN AMRO has strong capital ratios
With 60% ownership of BAPV the Tier I ratio
would have been 8.7% and the core tier I ratio
would have been 6.8%
ABN AMRO is committed to have a core tier 1
ratio of 6% and a tier 1 ratio of 8% well before
the end of 2006
ABN AMRO will resume the neutralisation of
the stock dividend with effect from the interim
stock dividend of 2006
ABN AMRO will also buy back EUR 600 mln of
its own shares in H1 06. As per 20 March 2006,
EUR 80.3 mln had been bought back at an
average price of 24.13
A succesful execution of the 2006 priorities will
generate a capital surplus which will create
room for additional share buy backs in H2 2006
8.47%
10.62%
13.14%
0% 5% 10% 15%
Core tier 1ratio
BIS tier 1 ratio
BIS capitalratio
6. Implement best-in-class compliance standards
30
Implementing best in class standards through dedicated action tracks
Ensured compliance is managed at the top levels of the organization
– formation of the Compliance Oversight Committee (COC) in the Supervisory Board
– formation of the Compliance Policy Committee (CPC) in the Managing Board, chaired by Rijkman Groenink
Established independence of the compliance function
– the independent Group Compliance function is responsible for the strategy and implementation of ABN AMRO’s Compliance Programme
– Group Compliance will provide regular reporting to COC and Managing Board on compliance strategy, implementation and risks
Developing the compliance mindset in every employee
– development of an enterprise-wide compliance policy
– mandatory training for all staff
– Compliance objectives incorporated into performance evaluations and compensation enhancements for all staff
Long term targets
32
Group Level Targets
Average ROE of 20% for the period 2005-2008
Top five position in our self-chosen peer group for Total Return to Shareholders (TRS) for the period 2005-2008
EUR 750 mln cost savings by 2008 from our Services initiatives, which will lead to an improved efficiency ratio
Conclusion
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2006 Priorities
Growth
1. Drive organic growth from new Group Structure
2. Further improve the returns from our former wholesale banking activities
Costs and Capital Management
3. Realise synergies from integration of Banca Antonveneta
4. Realise cost synergies from Services and other initiatives
5. Strict capital discipline
Compliance
6. Implement best-in-class compliance standards in all the jurisdictions in which we operate
Unlocking the intrinsic potential of the Group
35
Cautionary Statement regarding Forward-Looking Statements This announcement contains forward-looking statements. Forward-looking statements are statements that are not historical facts, including statements about our beliefs and expectations. Any statement in this document that expresses or implies our intentions, beliefs, expectations, forecasts, estimates or predictions (and the assumptions underlying them) is a forward-looking statement. These statements are based on plans, estimates and projections, as they are currently available to the management of ABN AMRO Holding N.V.. Forward-looking statements therefore speak only as of the date they are made, and we take no obligation to update publicly any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could therefore cause actual future results to differ materially from those expressed or implied in any forward-looking statement. Such factors include, without limitation, the conditions in the financial markets in Europe, the United States, Brazil and elsewhere from which we derive a substantial portion of our trading revenues; potential defaults of borrowers or trading counterparties; the implementation of our restructuring including the envisaged reduction in headcount; the reliability of our risk management policies, procedures and methods; changes resulting from the acquisition of Banca Antonveneta, including the risks associated with its business, as well as the difficulties of integrating its systems, operations functions and cultures with ours; and other risks referenced in our filings with the U.S. Securities and Exchange Commission. For more information on these and other factors, please refer to our Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission and to any subsequent reports furnished or filed by us with the U.S. Securities and Exchange Commission. The forward-looking statements contained in this announcement are made as of the date hereof, and we assume no obligation to update any of the forward-looking statements contained in this document.