global banking services division - cee - unicredit€¦ · 9strengthening of ba-ca’s czech...

P. Fiorentino

Head of GBS Division

GLOBAL BANKING SERVICES DIVISION - CEE

2

AGENDA

GBS Division: results so far

Focus on CEE: value from in-country mergers

The new challenge: Capitalia merger

Next 2 years challenges

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GBS MISSION AND RESULTS

Responsible for Group Cost Management across all business and geographical areas

Centralization of services in Group Global Service Factories to leverage economies of scale and specialized skills

STRATEGY AND RESULTS SO FAR

MISSION

Operational excellence:Promotion of a cost management and processes redesign culture and continuous search of best practice and operational risk control

Strong FTEs rationalization through Efficiency, Outsourcing & Disposals (~2,600 FTEs or -18%)(1):

Outsourcing of:•German payment services (PAS) to Postbank, selected software development

activities from HVB IS to IBM and Italian Securities Services (2S Banca) to Societè Generale

Disposal of Tax collection activities in Italy (Uniriscossioni) to the StateConsolidation and rationalization of BO and IT structures/processes in Germany and Austria

Centralization & Near-shoring:UPA Romania branch workforce almost doubled in one year timeframe also thanks to in-sourcing of activities (equivalent to ~280 FTEs) from Commercial BanksStrengthening of BA-CA’s Czech Republic back office dedicated Company(BTS) with ~220 FTE transferred from Czech Republic BanksSet up of IT Competence Centers in Poland, Czech Republic and Hungary

(1) Not included 2S Project in Germany (disposal of HVB Clearing & Custody Business currently executed by ~460 employees) to be finalized by the end of 2007

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- 6.3 %

IN VERY SHORT TIME GBS HAS ACHIEVED RELEVANT RESULTS IN TERMS OF EFFICIENCY…

(1) Perimeter changes (on Back Office side) and one-off effects (on Real Estate side due to extraordinary depreciations posted in 2005)(2) Net of extraordinary depreciations effect overall decrease would be ~70 mln (-2.4%) with non HR costs going down by 80 mln (-4.1%)

DIRECT COSTS (MLN)

2005 2006Inflation and other effects (1)

Efficiency gain

HR

NHR

30 -1802,880

920

1,960

930

1,800

2,730

- 150 mln

Significant efficiency gain achieved during 2006 (-6.3% on 2005 cost base) more than off-setting increase due to inflation

Overall reduction of 150 mln (-5.2%) vs previous year mainly concentrated in non-HR costs (-160 mln or 8.2%) (2)

21% of the total

Group costs

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- 51 mln

- 15 mln- 3.9 %

- 2.7 % - 9.9 %

Strong efficiency initiatives(e.g. Local IT Optimization, CEE IT mergers) while supporting Divisional & Group wide project (e.g. Basel II)Good positioning vs. external benchmark(1) especially in Italy (IT spend / revenues =7,2% vs. Panel Average = 11,6%)

Finalization of outsourcing deals(Payments in Germany, Security Services in Italy, ~800 FTEs)Boosting of near-shoring process with 440 FTEs in UPA Romania branch by end 2006

Rationalization of German assets with the sale of 86 non- strategic buildings (2)

Space planning initiative in Italy (32 sqm / employee(3) by the end 2006 close to the target of 30 sqm/employee) currently being extended in Germany

(1) Source: McKinsey 2006 European Banking IT Cost Benchmark Survey on 2005 data. Cash out logic related to whole IT spending(inside and outside GBS Division)

(2) In preparation another sale of non-strategic RE portfolio (15 buildings)(3) Office spaces only (branches excluded)

ICT: direct costs (mln) BACK OFFICE: direct costs (mln) REAL ESTATE: direct costs (mln)

2005 2006

1,3221,271

2005 2006

553538

2005 2006

864

... THANKS TO GREAT PERFORMANCE OF EACH SERVICE LINE...

778

- 86 mln

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… LEVERAGING ALSO ON STAFF RATIONALIZATION AND OPTIMIZATION

On going reduction of domestic FTE with simultaneous leverage on near-shoring ccapabilities in low cost countries (e.g. average domestic Back-Office(5) employee cost

of ~64ths Eur vs. 13ths Eur in near-shoring locations)

FTEs (1)

2005 2006ex near-shoring

Back Office

Other(3)

-431

2006(4)ICT

-2,142 -2,009(-14%)

Near-shoring

566

ITA

GER

AUT

CEE(2)

-2

2,575(-18%)

11,515

12,081

3,865

2,744881

4,591

14,090

5,070

5,872

2,833

315

(1) Figures do not include Holding slice of GBS Division ( ~ 370 FTEs in 2006)(2) Only legal entities, branches and departments under hierarchical responsibility of GBS(3) Mainly Real Estate, Procurement, Organization, Credit collection(4) Including effects of outsourcing deals on PAS and HVB IS although fully effective as of 1/1/2007(5) Data 2006

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Back Office

Work-out

Competence Center and near-shoring

LOOKING AHEAD: MAIN AREAS TO FOCUS ON IN THE NEXT MONTHS

Extension of “best practice” work-out Group model (UGC) in Germany

New integrated governance and management systems for all Group BO Operations Creation of cross-country factories and increasing focus on near-shoring Push on process reengineering through new technologies (intelligent scanning and workflow)Redeployment aimed at optimization of Group resources (“Lifelong Learning Center”)

Economies of scale thanks to near-shoring and creation of Competence CenterNew Group’s Cards Factory

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Deployment of Pan-European IT application platform (“EUROSIG”) for Commercial Banking in CAPITALIA, HVB and BA-CA along with Groupwide Data Center consolidationImplementation of specialized IT platforms to support MIB and AM Global BusinessesGroupwide solution for Basel IIGroupwide solution for Cards, Leasing and Consumer CreditCompletion of Mergers in CEE countriesCreation of IT Infrastructure Competence Centers in Western Europe (I, G, A), and Application Management competence centers in CEE

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2

3

IT

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Finalization of EUROSIG in Czech Republic to support the merger of HVB Bank and Zivnostenska Banka (November 07)

HVB Data Centers (IT infrastructure) consolidation anticipated by ~6 months (1H08)

Activation of EUROSIG in HVB re-planned to 3Q09, taking into consideration 2008 Capitalia Integration. No delay of the planned synergiesAnticipated startup of IT Integration Program in Austria

Project objective:Implementation of Common Pan-European IT platform for Commercial Banking(EUROSIG) enables full divisionalizedbusiness model

2008 20092006 2007

EUROSIG in Zivnostenska Banka

EUROSIG in HVB CZ

3YP initiatives

New initiatives

Effects of new initiatives

HVB data centers

consolidation

EUROSIG in HVB

HVB / BA-CA local efficiencies

early wins

Completion of HVB / BA-CA

local efficiencies BA-CA

Integration Program start up

ICT STRATEGY EXECUTION FOR COMMERCIAL BANKING IS PROCEEDING AT SPEED, WITH A SLIGHTLY ADJUSTED PLAN DUE TO CAPITALIA MERGER

Completion of CAPITALIA integration

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Project objective:Creation of specialized cross-country Operational lines (e.g. Mortgages, Payments) in order to support commercial business growth & reorganization

BACK OFFICE IS DEVELOPING A NEW STRATEGY, THROUGH CREATION OF SPECIALIZED CROSS-COUNTRY OPERATIONAL LINES…

From current inhomogeneous scenario per Country… …to cross Country Competence Centers

Current perimeter involves more than 5,800 FTEs, equivalent to over 6,000 People

LIFELONG LEARNING CENTER (Massive

Redeployment)

CZECH REP.AUSTRIA ITALY ROMANIAGERMANY

Back Office Companies

Specialized Back Office Companies (securities)

Specialized Back Office Departments inside Banks

Many Back Office activities still processed directly inside Banks/Branches

PAYMENTS

TRADEFINANCE

MORTGAGES

LOANS

CARDS

COREBANKING

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10

Specialization, re-engineering and products scope alignment to support Business Divisions’International Growth Plans

Performance / Customer satisfaction

Setting up world-class solutions (implementation of best practices, process cross border re-organization)to exploit economies of scale

Back Office strongly linked with Business Divisions

… TO BETTER SUPPORT BUSINESS DIVISIONS’ INTERNATIONAL GROWTH PLANS

TO ENHANCE

PAYMENTS

TRADEFINANCE MORTGAGES

LOANS

CARDSCORE

BANKING

GLOBAL FINANCIAL SERVICES

ALL BUSINESS DIVISIONS

ALL BUSINESS DIVISIONS

MAINLY RETAIL

DIVISIONS

2

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~-9 %

~-35 %

-10 %

-10 %

~+14 % +7% vs 1Q06

UGC (Italy): work out dedicated company, awarded with a“Strong” rating from Standard & Poor’s and “C/RSS2+” fromFitch Ratings

UGC’s managed portfolio is ~8.8 bn, number of tickets of ~210.000 (average amount ~42.000 €), managed by ~250 FTEs(~840 tickets per manager); non-captive business on total portfolio rose significantly from 15% in 2005 to 24% in 2006 (2)

The portfolio managed by the Unit of HVB is currently ~30 bn(including workout, restructuring and Special Credit Portfolio), with ~1,000 FTEs

At the moment, the HVB workout portfolio comparable with UGC portfolio is ~1 bn €, roughly 10.000 tickets, and 120 FTEs. The average amount is ~100.000€ with ~ 80 tickets per manager

EXPORT OF “BEST PRACTICE” WORK OUT MODEL IN GERMANY TO FURTHER ENHANCE RECOVERY CAPABILITIES AND EFFICIENCY

~787

2005 2006

~900

In order to maximize costs transparency and flexibility, the “best practice” Work out Group Model (UGC) is currently being extended in Germany

2005 2006

UGC: CREDITS RECOVERED (mln)

HVB: SPECIAL CREDIT PORTFOLIO (bn)

March ‘07

~11(1)

2005 2006

RER PORTFOLIO (bn)

3.6

March ‘07

(1) Including Herakles and Aphrodite; net after transactions 7,5 bn(2) Figures as of 31/12/06

~4

~225

1Q07

~22 ~20 ~18

3

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~13 mln cost synergies through near-shoring already booked in 2006

CREATION OF NEAR-SHORING CORPORATE CENTERS IN CEE COUNTRIES PROCEEDING AT FULL SPEED

Turkey

Italy

Romania

PolandGermany

Czech

Aut Hungary

Ireland

BO Near-shoring site

IT historic site

BO historic site

IT Near-shoring site (1)

Slovakia

(1) Main focus on application development(2) ICT FTEs in CEE Countries are about 2.500 (35% of overall ICT FTEs)(3) Not considering Turkey and additional ~30 FTEs in Slovakia as of April 2007(4) Set-up ongoing

CardsTurkey (4)

Near-shoring strategic site (mainly) for all Operational Lines

Romania

Core BankingItaly

Loans & MortgagesAustria

Finance & TreasuryGermany

PaymentsCzech Rep.

Location Main activitiesBO COMPETENCE CENTERS

Location Main activities

ICT COMPETENCE CENTERS

Asset ManagementIreland

Investment Banking, Basel II, Open systemsGermany

CEE Core BankingHungary

EUROSIG supportCzech Rep.

B2E, TreasuryPoland

EUROSIG, MainframeItaly

iSeries, International NetworkAustria

CardsTurkey (4)

CEE Core Banking supportSlovakia

Total Near-Shoring(2): ~ 160(3)FTEs as of Dec ‘06 vs 320 planned by ‘08

Total Near-Shoring: ~720 FTEs as of Dec ‘06 vs 1,000 planned by ‘08

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PROJECT OBJECTIVE

Reduction of staff by approximately 70-90 FTE (~7-9 mln in the steady state)(1) thanks to elimination of duplicated functions and labor cost arbitrageRealization of process and governance related improvements:

Increase of quality due to higher degree of automationIncrease of flexibility due to possibility to shift volumes between hubsIncreased efficiency of governance due to smaller number of processing locations

Reduction of risk since hubs serve as mutual contingency locations and therefore are able to cope with deficiency of staff

Initiation of the process to derive the following Target Operating Model for treasury products and Structured Loans within UCI Group independent of origin (MIB and non-MIB initiated):

Processing of treasury products in two hubs: Munich and SingaporeProcessing of Structured Loans in two hubs: London and New York

…TOFROM… NET ∆PRODUCT

Treasury Products

Structured Loans

Athens, Hong Kong, London, Luxembourg, Milan, Munich, New York, Paris, Singapore, Tokyo, Vienna (295 FTEs)

Athens, Hong Kong, London, Luxembourg, Milan, Munich, New York, Paris, Singapore, Tokyo, Vienna (71 FTEs)

Munich, Singapore (2)

(220-235 FTEs)

London, New York (3)

(56-61 FTEs)

LOCATIONS / FTES FTES

- 70 / - 90

TOM PROJECT: ANOTHER EXAMPLE OF UNICREDIT ABILITY TO CREATE EFFICIENCY

KEY DRIVERS

(1) Excluding IT system related synergies as well as cost reduction for redundancy of regional contingency locations(2) Average Finance & Treasury employee cost (Base Salary): Singapore 36ths Eur, Munich 55ths Eur(3) Average Structured Loans employee cost (Base Salary): London 68ths Eur, New York 100ths Eur

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14

AGENDA





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WHY?

FAST MERGER OF BANKS IN CEE COUNTRIES IS STRENGHTENING THE BUSINESS POSITIONING AND FACILITATING THE ACHIEVEMENT OF COSTS SYNERGIES

Key success factor to exploit all growth opportunities, shortening the time to market

Single IT platforms in each country enable:

the convergence to a common business and operating modelthe adoption of a common governance structurethe achievement of synergies in IT costs and FTEs optimization & savings for IT, Back-office and Corporate Centersa single deep view of customer information, including credit position, global cash management, etc…, leading to enhanced commercial effectiveness and risk management

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ALL THE INTEGRATION PROJECTS ARE UP AND RUNNING AND MOST OF THEM HAVE BEEN ALREADY COMPLETED IN JUST ONE YEAR

Initiatives completed:

Turkey

Bulgaria

Slovakia

Romania

- 2005 - - 2007 -- 2006 - - 2008 -

(UCR: May 07)

HVB – CZ (Nov. 07)ZIVNOSTENSKA (May 06)

POLAND(1)

SLOVAKIA (March 07)

TURKEY (Oct. 06)

BULGARIA (Hebros Apr. 07, Biochim May 07, Bulbank Jul. 07)

ROMANIA (Tiriac Sep. 06)

CPB & UniZaba(1)BOSNIA (NBB Nov. 06)

Project objective:

Mergers in CEE countries, selecting the best existing local platforms as steps towards the target platform

Initiatives ongoing:

Czech Republic: Legal and IT Merger for the combined Bank ongoing;

completion confirmed in November ‘07

Poland: BPH spin-off preparation on-going

Bosnia: Nova Banjaluka Banka migrated on target information system in

Dec 06. CPB & UniZaba IT & legal merger by autumn ‘07

(1) Timeline to be confirmed

Initiative completed Initiative ongoingLegenda:

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EXAMPLES ON COST SYNERGIES ARISING FROM IN-COUNTRY MERGERS OF ICT SYSTEMS

Since 2006 CEE Countries are benefiting from costs synergies deriving from the merger of IT activitiesFull benefit is expected from 2008 onwards; total amount is ~20mln(1)

Main contributors: Turkey, Czech Rep and BulgariaFast mergers of IT activities are a key enabler in achieving costs and FTEs optimization & savings for the Combined Banks

(1) Excluding Poland(2) Gross synergies: 2008 expected reductions on ICT HR costs, NHR costs and depreciation due to integration projects(3) Baseline: 2008 expected ICT TCO including HR costs, NHR costs and depreciation

~ 30 %

~ 40%

~ 30%

% on the total FTEs

~ 6

~ 5

~ 6

Gross synergies (2)

(mln)

~ 18 %

~ 18%

~ 7%

% on the Baseline (3)

~ 40CZECH REP

~ 70

~ 200

# FTEs reduction

BULGARIA

TURKEY

2008 Plan

KEY DRIVERS

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AN EXAMPLE FOR ILLUSTRATIVE PURPOSES: THE ROMANIAN CASE

# FTES(AS OF 31/12/06)

…TO

985 735

1,690(1) ~1,500(2)

(1) Of which ~500 FTEs engaged in Back-office activities(2) Savings concentrated in the “pure” Back Office activities made in the branch network

Head Office

Branch Network

Savings for ~430 FTEs (16%), to be potentially re-allocated on

commercial activities in branches

FROM…

Merger synergies – concentration of activities due to banks mergerHomogenization of processes and rationalization of Head Offices

KEY DRIVERS

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AGENDA





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HIGH STRATEGICAL AND OPERATIONAL FIT WITH CAPITALIA

Synergies arising from the unification of Headquarters structures Capitalia Holding

HQ structures unification

Integration of product factoriesStrengthening of market position in various business areas (asset gathering, asset management, leasing/factoring)

Nuova MCCNew MCCFineco VitaFineco Vita

CapitaliaCapitalia AM

Fineco BankFineco Bank Integration of

product factories and specialized

banks

Capitalia distribution network coherent/complementary with UniCredit Segments already defined, easy integration with UniCredit divisional structureBipopBipop-Carire

BdSBdS

BdRBdR Banks’ HQ optimization &

diffusion of best practices

Service structures already split in separate legal entities (easier integration)Service structures fitting with UniCredit organization in terms of focus and perimeterCapitaliaCapitalia Service JV

Capitalia InformaticaCapitalia Informatica

Capitalia SolutionsCapitalia solutionsIntegration of IT and Operations

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INTEGRATION PROGRAM CLEARLY SHAPED ACCORDING TO UNICREDIT DIVISIONAL MODEL

Divisions directly responsible for integration management(product companies, holding, commercial...)

Strong involvement of GBS in all areas that require definition of perimeters

GBS directly in charge of Integration Office:

projects coordinationmanagement of cross-divisional issuesinternal communication

PROJECT GOVERNANCE

Strategic HR

Internal Consultancy

Unit

Divisions projects

Commu-nicationGBS PB & AM AuditCFOMIB CROCorporate

Corporate Center projects

GBS Fiorentino

/Capitalia Lamanda

Retail

KEY ASPECTS IN MANAGING INTEGRATION

CEE

Day 1 ManagementHolding Co./ Legal Entities’ organizational structures and sizingDefine application criteria of Divisional Segmentation Rules and Business Perimeters of main legal entitiesAssessment of Capitalia retail credit processes and convergenceProcurement centralizationIntegration of Capitalia IT in UGISMerger of Capitalia back office operations in UPAMerger of Capitalia RE assets and activities in UREIntegration of Capitalia NPLs management in UGC BancaCost ManagementAlignment of Security Service ModelAlignment on security procedures: physical, ICT, Data-Privacy-Fraud management, Bc&Cm, special protection programs

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WIDE ROOM TO EXTRACT COST SYNERGIES FROM IT AND BACK-OFFICE …

KEY ACTIONS AND SYNERGY DRIVERS:

IT

Back-office

~350 mln (∼45% of total

cost synergies)

Integrate UPA and Capitalia Informatica, optimizing governance structures

Achieve economies of scale from volumes / IT consolidation (marginal costs)

Leverage on competences and structures already set-up in Romania for further cost

optimization and economies of scale

Capitalia migration by end of 2008 to EUROSIG (the common IT platform for

Commercial Banking)

Data Centers consolidation into target Group configuration

Consolidation of Capitalia IT functions into UGIS

A fast, already well-defined integration process

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… AS WELL AS FROM CENTRAL FUNCTIONS RATIONALIZATION, CENTRALIZATION OF PROCUREMENT/REAL ESTATE AND ALIGNEMENT TO BEST PRACTICES FOR BRANCH NETWORKS AND PRODUCT FACTORIES

KEY ACTIONS AND SYNERGY DRIVERS:

Central Functions


cost synergies)

Procurement & Real Estate

Networks

Product Factories


cost synergies)


cost synergies)

Branch network reorganization in Italy and foreign countries

Alignment to best practice

Single competence centresand alignment to best performer in:

Asset management / gatheringConsumer credit and mortgagesInvestment bankingLeasing

Adoption of UniCredit divisional model with light regional HQs

No duplicated functions

Consolidation of procurement activities within Unicredit Global Procurement Model trough adoption of common sourcing approach leveraging on global market capability and consolidated partnership with external suppliers

Extensive use of e-auctions (i-Faber)

Office space reduction to align to best practice occupation standards

Branch network rationalisation avoiding duplication

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AGENDA





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CEE BANKS MERGERS

NEXT 2 YEARS CHALLENGES

Focus on disposal of Non-Strategic buildings and extension of Space Optimization initiatives in Germany

WORKOUT

BACK OFFICE

REAL ESTATE

IT

Achievement of consolidation on two mid-range platforms for almost all the CEE banks

By 2010, the EUROSIG core banking area will reach a full consolidation in the Western Europe banksImplementation of UniCredit IT platform in Capitalia LEs, in order to achieve further synergies

Extension of “best practice” work-out Group model (UGC) in Germany

Creation of specialized cross country business line within GBS, capturing synergies in terms of FTEs and costs reduction

global banking services division - cee - unicredit€¦ · 9strengthening of ba-ca’s czech...

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