corporates & markets the blueprint of modern investment ... · commodities (emc) corporate...

Michael Reuther | Member of the Board of Managing Directors | Frankfurt/Main | 8 November 2012

Corporates & MarketsThe blueprint of modern Investment BankingInvestors’ Day 2012

1Michael Reuther | Member of the Board of Managing Directors | Frankfurt/Main | 8 November 2012

Corporates & Markets’ major milestones since merger and outlook

Synergies of the integration lifted(Full synergy potential of >€800m reached ahead of target in 2011 in less than 18 months)

Strategy – continue to focus on core strengths(Reprioritization of businesses ongoing, front-to-back cost savings of €150m p.a., freeing-up investment potential)

Top risk and RWA reduction achieved(RWA reduction by 56%, Credit VaR 33%, Loss Days by 56% despite adverse environment)

bild

Unique IB franchise established and modern investment banking implemented(“Reliable, transparent, prudent” culture – client centricity and sustainable compensation)

Outlook – providing upside potential and revenue diversification (Conservative risk approach limiting downside potential and providing attractive risk/return profile: revenue growth 4% p.a., CIR <65%, pre-tax ROE >15% by 2016)

5.

3.

2.

1.

4.


› CBK’s client-focused business model applied to DKIB

› Alignment of organisational structure› RWA reduction

› Full implementation of business model

› Harmonisation of IT, risk and finance systems

› Full profitability through realisation of front and back-office synergies

› Leveraged larger client base› Focused growth in selected business

areas

2009 2010 2011 / 2012

Synergies of the integration lifted – full synergy potential of >€800m reached ahead of target in 2011 in less than 18 months

Restructuring / HR implementation

Client migration

IT and back-office integration

Geographical reallocation

Positions migration

Ope

ratin

g ex

pens

es

Fro

nt O

ffice

IB

FT

Es

€m

Syn

ergi

es

>800

Other

Personnel

2008 2012 YTD

2008 2012YTD

2012YTD

€m

Business adjustments

-1,750(-51%)

Target~1,800

<€-800m(-36%)

FTE


Top risk and RWA reduction achieved despite challenging market and regulatory environment, including implementation of Basel 2.5

12/09

51.8 10.9

4.7

-32.9(-56%)

29.935.6

09/12

30.847.7

58.6

4.3

12/11

21.4

12/10Pro forma

RWA C&M (eop)RWA C&M (eop)

€bn

Loss days C&M MarketsLoss days C&M Markets

days

12/1112/10

-62.0(-65%)

96

59

12/09

34

09/12

61

Market risk VaR in trading book 3),4)Market risk VaR in trading book 3),4)

Note: Structured Credit Legacy (SCL) / former PRU reported in C&M for the first time in 3Q 2012. 1) 99.91% confidence level, 1 year holding period. 2) Annualized.

Basel III pro forma impact

Credit VaR 1) C&MCredit VaR 1) C&M

~ 10

€m

164248

09/1212/1112/09 12/10

-27(-56%)2)

101

€bn-0.8

(-33%)

1.6

09/1212/1112/09 12/10

1.62.0

2.4

Basel III pro-forma impact

Actual, like-for-like numbers

3) 99% confidence level, 1 day holding period. 4) VaR at Commerzbank group level.

4.2

2.0

0.5

SCL impact BII.5 impact


Unique IB franchise established by optimisation of business setup and connection to the group’s client base

1) Structured Credit (most ABS), Credit Flow (most Corp. Bonds and CDS) and Exotic Credit (CDO2 / Correlation Books) assets of €58bn / >70.000 positions were ringfenced in PRU.

PC

30%

14%2

6%

21%

MSBInternational

C&

M’s

reve

nues

with

clie

nts

of g

roup

seg

men

ts in

%

28%

C&M MSBGermany

MSBFI

57%/ 59%

29%

12%(1)

8%

22%

29%

2011

9M 2012

… have led to an optimised use ofown distribution channels

Changes to business setup during DKIB integration in 2009 …

EM

CF

IC

› Exiting non-strategic international locations and businesses

› Closing of Japan / broker dealer

› Sale of Brazilian presence Banco Multiplo

› Re-focusing European cash equity business

Successful implementation of client-centric businessmodel – interconnectivity with Mittelstandsbank

Exit of risk driven business

Reduction of complexity and streamlining of footprint

› Investment groups

› Systematic trading

› Arbitrage trading

› Proprietary market risk taking / correlation trading

› Agency lending

› Asset finance and structured credit

› Creation of internal bad bank PRU for run-down portfolio1)

2) Contains revenues with brokers and other intermediaries, where the end customer is a private client.


Strategy: C&M’s value-add is highly regarded and recognised by its clients

Example of serving a MSB client – NORMA

Dr. Othmar BelkerCFO of Norma Group

From LBO to IPO: NORMA appreciates Commerzbank's support since its LBO in

2006

In short: a perfect combination of relationship banking and specific

expertise in C&M

On NORMA's way from a family owned

German Mittelstands-business acquired by

3i and funds in 2006 to a world market leader

for connecting solutions

› Commerzbank acted as Sole Mandated Lead Arranger, Bookrunner as well as Agent Bank in the original syndicate financing of the initial NORMA LBO in 2006

› Commerzbank actively covering NORMA from an equity research perspective

› Commerzbank supported the debt financing of the merger with the Swedish ABA group in 2006 and the acquisition of the US-American BREEZE-Torca in 2007

› In 2011, Commerzbank was Joint Bookrunner during the IPO process of NORMA Group AG and Mandated Lead arranger and security agent during the post-IPO financing of NORMA Group

› For NORMA’s German branch, Commerzbank Hanau has kept a close and trustful client relationship supporting all the daily needed banking products and processes in both family-owned and stock-listed environments


Modern investment banking implemented by realigning of culture and compensation policy

Focus on continuing to be a reliable, transparent and prudent investment bank

Cultural change already achieved: risk awareness, client focus and team approach

Right corporate culture implemented

Compensation model adjusted ahead of competition

Deferred payments through introduction of Bonus Bank in 2009

Risk taker model introduced in 2011 (longer deferral periods / claw-backs for risk takers and senior executives) according to InstitutsVergV

Compensation model adjusted

Almost 90% of C&M revenues stemming from direct client business

Franchise setup centred around clients’ needs

Onion principle approach

Client centricity established

Transformation to risk-aware culture achieved

Q1 ‘12Q2 ‘12

Benchmark based on Commerzbank

Better ratio than Commerzbank’s, indicating a lower multiple

Worse ratio than Commerzbank’s, indicating a higher multiple

Global 4

Regional 2

Global 1

Global 3

Regional 1

Regional 4

Global 2

C B KRegional 3

Global 1

Global 2

Global 3C B K

Global 4

Regional 4Regional 1

0

2,000

4,000

6,000

8,000

0 50 100 150

Trading Book VaR (99/1)

Reg

. Cap

. For

Mar

ket R

isk

(m)


Limited need for interest rate hedging productsFaster provision of simple solutions

Risk management tools

Advice

Financing / committing capital

Strategy: C&M is rapidly responding to regulatory challenges and is prepared for the changing environment

Reg

ulat

ory

envi

ronm

ent

Com

petit

ion

and

cust

omer

sM

acro

en

viro

nmen

t

Basel III

Dodd-Frank/EMIR regulation

FATCA regulation

Segregation of Corporate from Investment Banking (Liikanen report)

Financial transaction tax in Europe

Further deleveraging across banking industry and households ongoing

Consolidation trend and separation between “scale winners” and ‘focused winners”

Investor risk aversion - trend towards less complex flow products

Lower volumes in primary and secondary markets

Accelerated product commoditisation

Increased economic uncertainty / market volatility

Continuing low interest rate environment

Lower global growth OTC clearing for clients

Collateral transformation

Commerzbank’soffering

Further diversification of current offering into Asset Management products

Know-how transfer –providing regulatory adviceFinancial Institutions Advisory teamInternational conferences

Full spectrum of financing solutions, from loans to complex instrumentsCooperation with MSBAdapted Structured Capital Markets offering

Change in customer needs

Less risk appetite, equity markets suffering under uncertainty

Impact of regulatory changes, esp. for FIsOngoing internatio-nalisation and globalisation

Changing financing demandsIncreasing demand for sophisticated solutions

Investment products

3.

2.

1.


Strategy: positioning as large international niche player rather than small global player – enhancement of offering ongoing

Fixed Income & Currencies (FIC)

Equity Markets &Commodities (EMC)

Corporate Finance (CF)

Credit Portfolio Management (CPM) 1)

Germany

Europe ex. Germany

AmericasAsia

Other

Germany

Europe ex. Germany

AmericasAsia

Other

Germany

Europe ex. Germany

AmericasAsia

OtherAmericas

Asia€475m€469m €353m €212m

Ope

ratin

g re

venu

es

ex L

LP, e

x O

CS

9M

‘12

1) Structured Credit Legacy (SCL) / former PRU reported for the first time in 3Q 2012. 2) YoY market share change 2010-2011; EMC excluding one-offs. Source: Oliver Wyman.

Strategic realignment of internal resources in light of regulatory and market changes for the benefit of the debt and institutional client businesses

Resource reallocation from exotics products to Asset Management products

Focus on market making of linear products

Lowering operating costs

Further increase of capital efficiency of CPM

Focus on integrating Counterparty Risk Mgmt

Continued reduction of SCL portfolio

Expansion of Structured Capital Markets offering to provide alternative funding (e.g. ABS)

Market share development2010-20112)

Financial Institutions

Credit Products & Sales

Asset Mgmt products

Exotic products

Str

ateg

yR

esou

rce

real

loca

tions

Fostering business with (non-bank) financial institutions

Interest Rates / Structured

Linear products

Struct. Cap. Markets

M&A / ECMStruct. Credit Legacy

CPty Management

Core loan products

Germany

Europe ex. Germany


Core principles for a profitable nicheCommerzbank’s corporate equity model

Strategy: creating a focused, client-centric niche business –example of equity brokerage

Integrated IB approach across all elements of the value chain

Cross introduction of CEOs / CFOs to other IB products

Leveraging research and industry know-how into C&M and MSB

Integrated

Minimising platform / infrastructure fix costs via internal shared systems approach and external strategic alliances with leading industry partnersHub / satellite approach with FFM as hub - LON / NY as satellites

Lean

German specialist, perfect fit to the strength and strategy of CBKFocus on UK, US, D only - 80% of German equity holdingsBest in class broker for German corporates selling Germany to the World

Focused &

Best in class

Profitable, Non-profitable, Neutral, Refers to exit of Equity Brokerage, ECM, or Research.

Strong relationships

with corporateGermany

Leading in German ECM transactions

The #1 ranked house forGermany

The leadingGerman brokerage

business

ResearchCRM, MSB

ECMSales

Trading,Corporate

Access

Corporateequity

concept

Non

-inte

grat

edIn

tegr

ated

Global Local

Major awards testify successful customer-centric positioning Global or niche: no room for ‘stuck-in-the-middle’ concepts

CBK

Local

Global

Global

Local

Local

X XX

XX

Global

Global

Local

Local

XGlobalLocal

Local

Local

European

X


Strategy: increasing front-to-back efficiency with €150m additional savings p.a. by 2016

Key optimisation measures ...

Further steps to align business portfolio towards new market environment for focused growth

Operating model simplification and further locationalconsolidation offsetting regulatory challenges

Complexity reduction in data landscape, IT applications and platforms

Reduction of direct operating expenses and focus on further improvement of end-to-end efficiency

Up to €150m p.a. / >10% savings based on current C&M total costs front-to-back annually (cost savings shown net of cost-to-achieve)1)

Full cost effect will be reached by 2016 with €125m already kicking-in by 2015

Cumulated cost savings of €400m until 2016, freeing-up investment potential for focused growth

... will lead to quick and sustainable results

Optimisation through systematic, concerted front-to-back cost initiative, freeing-up means for investments

2012FC 2013e 2014e 2015e 2016e

€m

1535

75

125

Savings of €15m for FY2012 expected since project start in April 2012

150

1) The cost run-rate might be higher due to growth, regulatory investments etc.


Outlook: C&M providing significant upside for the Group during improved market conditions while limiting downside potential

› C&M crucial element in Commerzbank’s balanced business portfolio as an integrated universal bank

› Ongoing further optimisation of business model and organisational setup

› C&M’s business model driven by client activity (absence of proprietary trading)

› Limited downside due to low risk, client-centric business model with significant upside potential

› C&M demonstrated that it can earn its cost of capital throughout the cycle also in adverse markets

› Increasing interconnection with other group segments for improved product delivery to clients


Corporates & Markets: ambition level for 2016

Maintaining current level of capital efficiency despite introduction of Basel III

Further improve cross-selling, increasing product delivery to clients

RWAs of under €45bn 1)

Pre-tax ROE of over 15% 1)

Increase cost efficiency, freeing-up €150m p.a. for focused growth

C&M represents the modern investment bank

› C&M transformed the IB business model in 2004 and during the merger with Dresdner Bank, adjusting businesses, risk approach, culture and compensation

› C&M provides Commerzbank with future growth opportunities , while limiting its downside potential due to its unique risk/return profile

Growth initiatives: 4% revenue growth p.a.

Target cost/income ratio of under 65%

Note: All KPIs before own credit spread (OCS). 1) Including full Basel III effect.


For more information, please contact Commerzbank ´́́́s IR team:

[email protected]

Michael H. Klein (UK / Non-Euro Europe / Asia / Fixed Income)P: +49 69 136 24522M: [email protected]

Dirk Bartsch (Strategic IR)P: +49 69 136 22799 M: [email protected]

Jürgen Ackermann (Europe / US)P: +49 69 136 22338M: [email protected]

Tanja Birkholz (Head of Investor Relations / Executive Management Board Member)P: +49 69 136 23854M: [email protected]

Ute Heiserer-Jäckel (Retail Investors)P: +49 69 136 41874M: [email protected]

Simone Nuxoll (Retail Investors)P: +49 69 136 45660M: [email protected]


Disclaimer

Investor Relations

This presentation contains forward-looking statements. Forward-looking statements are statements that are not historical facts; they include statements about Commerzbank’s beliefs and expectations and the assumptions underlying them. These statements are based on plans, estimates, projections and targets as they are currently available to the management of Commerzbank. Forward-looking statements therefore speak only as of the date they are made, and Commerzbank undertakes no obligation to update publicly any of them in light of new information or future events. By their very nature, forward-looking statements involve risks and uncertainties. A number of important factors could therefore cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, among others, the conditions in the financial markets in Germany, in Europe, in the United States and elsewhere from which Commerzbank derives a substantial portion of its revenues and in which it hold a substantial portion of its assets, the development of assetprices and market volatility, potential defaults of borrowers or trading counterparties, the implementation of its strategic initiatives and the reliability of its risk management policies.

In addition, this presentation contains financial and other information which has been derived from publicly available information disclosed by persons other than Commerzbank (“external data”). In particular, external data has been derived from industry and customer-related data and other calculations taken or derived from industry reports published by third parties, market research reports and commercial publications. Commercial publications generally state that the information they contain has originated from sources assumed to be reliable, but that the accuracy and completeness of such information is not guaranteed and that the calculations contained therein are based on a series of assumptions. The external data has not been independently verified by Commerzbank. Therefore, Commerzbank cannot assume any responsibility for the accuracy of the external data taken or derived from public sources.

Copies of this document are available upon request or can be downloaded from www.commerzbank.com

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