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Global Transaction Services

Global Transaction Services. Rob van Paridon, SEVP - Global Head of Global Transaction Services BU. 20 November, 2002. Overview.

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Global Transaction Services

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  1. Global Transaction Services Rob van Paridon, SEVP - Global Head of Global Transaction Services BU 20 November, 2002

  2. Overview • Our four transaction businesses (Cash and Payments, Global Trade and Advisory, Global Custody and Clearing and Execution Services) currently occupy strong market positions • Significant consolidation and improvements to our operating environment have been accomplished to date, and a lot of opportunities remain to continue improving our efficiency • We are shifting our transaction business from an operational focus to value-added working capital solutions • Our emerging working capital proposition combines our strength in transaction annuity flows with our strong foreign exchange and debt products and will allow us to leverage our client base across the bank • Our working capital business is believed to be the best platform for future competitive advantage and hence profitable growth

  3. Cash and Payments C&P provides a full range of cash management solutions for clients in 40+ countries What We Do How We Are Doing Future Direction • C&P provides a complete range of cash management solutions and services to both Corporates and FIs • Services range from execution products (payments, collections) to sophisticated international cash management solutions for multinationals • We operate in over 40+ countries, serving customers through multiple channels • Leading positions in key markets: • # 3 in Europe1 • # 5 in Asia1 • # 1 foreign bank in US and Brazil1 • Lead cash management bank to majority of our European customers (voted ‘Best at Cash Management’ - Banker, Sep 2001) • Fastest growing cash management bank in Europe and US in terms of client share of wallet • We aim to build on our strong positions in Europe, US and Asia by: • Leveraging our strong international network to capture opportunities in select growth markets • Leveraging our strong European client base • Focusing on FIs through our CLS offer • Further consolidating our back-office platforms • Making our client services a source of competitive advantage Source: 1. Greenwich

  4. Global Trade and Advisory GT&A provides integrated trade solutions for importers and exporters in 40+ countries What We Do How We Are Doing Future Direction • GT&A provides integrated trade solutions for importers and exporters by offering risk mitigation, settlement financing and information solutions across our WCS and C&CC client base • Delivered through 3 delivery channels: traditional, web enabled (MaxTrad) and web native (Alltrade) • We operate in 40+ countries serving corporate and FIs • GT&A’s global trade portal maxtrad has been awarded the 2002 euromoney internet award for best bank site for trade finance on the basis of superior efficiency, reliability, functionality and client usage • Amongst top 3 Tier 1 global banks1 • Significantly rationalised our back-office • Reduced processing sites from 117 to 14 • Launched 5 regional processing and client service centers • We aim to consolidate our leading trade bank position by: • Leveraging strong relationships with corporate clients to capture end-to-end trade flows • Becoming the bank of choice for FIs. We aim to increasingly offer insourcing and white labeling through our global partnership program • Continuing to lead the market with product innovation Source: 1. Brendon Wood International

  5. Global Custody: ABN AMRO Mellon Alliance Formed in 1998, the ABN AMRO Mellon alliance provides global custody and added value products to a diverse range of clients What We Do How We Are Doing Future Direction • Core services (securities custody, safekeeping) • Ancillary services (securities lending, foreign exchange and cash management) • Additional services (funds services, derivatives clearing) • Focus on Europe (expected to be the fastest growing market for global custody services) • Key customers are pension funds, insurance companies, investment managers, banks, MNCs, central banks and multinational FIs • EUR 250 billion in assets under custody • Over 400+ custody specialists in Europe • Recently posted the highest improvement of all global custodians (2001 Survey: R&M consultants) • # 6 global custodian1 • # 1 in NL Pensions Market2 • We aim to be the prime provider of global custody and value added services worldwide (besides NA) by: • Implementing a new legal entity in Jan ’03 (i.e. 50:50 JV, incorporated in NL, under DNB regulation) • Leveraging ABN AMRO’s worldwide distribution channels and Mellon’s sophisticated technology and asset servicing expertise Sources: 1. Mellon data - Global investor global custody survey 2002; 2. IPE Europena Pension Fund Top 1000, AAM analysis

  6. Clearing and Execution Services (AACES) AACES is a leading player in providing clearing, execution and financing products to professional traders, institutional, hedge funds and corporate markets What We Do How We Are Doing Future Direction • Full range of clearing , financing and execution products • Three lines of business: professional brokerage (AASage), futures and prime brokerage • Key customers are professional traders, institutional, hedge funds and corporate markets • Largely US focused • Superior product and service and operations expertise allowed us to reach leading US market positions • Futures is # 1 of executed and cleared volume on CME, CBOT and NYMEX1 • Professional brokerage is # 1 in listed equities, index, and currency options with 11.5% market share2 • Prime and professional brokerage have Top 5 positions in their markets3 • AASage executes and clears 15% of all option market maker business2 • We aim to enhance AACES leading player status and expand its base business into Europevia organic growth • Develop 3rd party clearing products in Europe in order to leverage further consolidation of exchanges Sources: 1. CME, CBOT, NYMEX; 2. Options Clearing Corp; 3. Options Clearing Corp and Global custodian survey 2002

  7. Reduced processing sites from 117 to 14 Launched 5 regional processing and client service centers Launched global operations support center in low cost environment (Chennai/India) Reduced service hubs from 110 to 53 Developed different level of client service/interaction in different branches Consolidation to a single, globally integrated back-office infrastructure leveraging use of image/workflow technology solutions (Banktrade) supporting both C&CC and WCS client base Operations Improvements Significant consolidation to our operating environment have been accomplished, and a lot of opportunities remain to continue improving our efficiency Global Trade and Advisory Cash and Payments • Established a global support centre in Chennai for C&P and Custody operations • Initiated consolidation of C&P operations to Chennai and regional centres of expertise • Established a CLS global support centre providing 24/6 support for global clients • Transferred £ and Euro processing from London, and International Lockbox processing out of Europe to Chennai • Using call centre and web technology for new client service model for WCS and C&CC • Going forward, further consolidate operations across WCS and C&CC

  8. Operational focus where the game is primarily about reducing unit cost (through building scale and consolidating) ahead of market driven price reductions Not ultimately value maximising for AA New Working Capital Strategy We decided to shift our transaction business from an operational focus to value-added working capital solutions From… …To • Focusing on ‘value-added’ working capital solutions as it is more valuable to clients and more profitable for AA • Increasing demand from clients to unlock cash to fund capital expenditure and reduce borrowing costs • European clients’ needs are underserved as there is currently no home-grown European working capital offer • The working capital proposition combines our strength in transaction annuity flows with our strong FX and debt products and will allow us to leverage our client base across SBUs • Platform for future competitive advantage and hence profitable growth

  9. The New Working Capital Offer Working Capital Landscape Actions Underway • Building customer offer that integrates Cash & Payments, short term lending, Trade, Foreign Exchange • and Liquidity Management • Developing 2 distinct propositions: • Corporate proposition • FI insourcing proposition • Setting up a collaborative architecture to provide a single access point and consistent ‘real-time’ information • Moving back-office operations into low cost, high quality centres of excellence Money Markets and Foreign Exchange Cash Balance Management Cash Balance Cash Flow Forecasting Purchase-to-Pay Cycle Order-to-Cash Cycle Clients Suppliers Production Payroll Employees

  10. Corporate Finance Nigel Turner, SEVP - Global Head of Corporate Finance 20 November, 2002

  11. Restructuring Update • YTD September revenues of €246 million in 2002, only 6% lower than 2001 YTD September actuals • Direct operating costs have been reduced by 23% (year 2001 compared to forecast year 2002) • Headcount within Corporate Finance Business Unit (CF) has been reduced from its peak in October 2001 by over 35% to 695 (professionals and support) • New York office closed; principal concentration of resources in Europe (> 70%) with majority located in Amsterdam (approx. 100 professionals), with approx. 80 professionals located in London • On track to deliver positive net results in year 2003

  12. Corporate Finance Overview • CF consists of three main product areas with a global headcount of 550 professionals • CF offers an integrated product range to targeted key Wholesale Clients (“WCS”) and sectors with a European focus and a cross-border capability in Latam and Asia-Pacific

  13. Corporate Finance Overview • Operating strategy includes improved productivity through higher leveraged revenues & tight cost control. Headcount based around regional hubs principally in Amsterdam, London & Stockholm but also Hong Kong, Sydney & Brazil • Marketing differentiated product with strong execution capability. Recognised leading brands in Netherlands, Nordic (Alfred Berg), UK (Hoare Govett), European Emerging markets & Asia-Pacific • Strong CF capability links with strengths in other AA SBU’s - e.g. private clients in France & BAPV in Italy • AA Rothschild (“AAR”), our Equity Capital Markets (“ECM”) joint venture, is a recognised leading brand in the market place

  14. M&A - Progress to date • Performance improvements YTD October 2002 include: • Corporate Finance announced a total of 91 deals with aggregate deal value of €25.8 billion (compares to 118 deals with a deal value of €20.0 billion - YTD October 2001) • Corporate Finance worldwide ranking has improved from 25 (YTD October 2001) to 16 (YTD October 2002); market share has doubled 1.2% to 2.4% • Average deal size has improved to €284 million from €189 million year-on-year October Source: Thomson Financial

  15. M&A - Progress to date • Significant improvement in quality of transactions and clients • Global M&A deal values have decreased 32% (year-on-year October - Thomson Financial) • Exit of non-aligned Corporate Finance M&A franchise in North America has been completed • Staff headcount has reduced by over 395 people (net reductions) over the last year • Excellence in execution is an imperative

  16. ECM - Progress to date • AAR participated in 68 international equity offerings, including largest equity offering in Europe and second largest equity offering globally - YTD October 2002 • AAR improves league table position to 8th from 12th (top global coordinator or bookrunner) - YTD October 2002 EquityWare • Global Equity Capital Markets offerings have decreased 13% (year-on-year October - EquityWare) • Resources now concentrated in four hubs - London, Amsterdam, Hong Kong and Sydney • Exit of domestic ECM capability in North America completed

  17. Improved Alignment • For year 2002 - 75% of revenues delivered from Priority and Key WCS clients (2001: 35% of revenues) • Successfully established a Corporate Finance M&A advisory joint venture with C&CC in Brazil which will be the hub for our Latam activities and also provide access to a large client base within Banco Real • Interactive, intranet based global work-in-progress (launched November 2001) used to measure director performance against stated “Target Client Action Plans” (TCAP’s) targets

  18. Critical Factors for Success • Greater front-end delivery and client penetration required by client coverage and corporate finance through continuous upgrade of staff (“self funded”) • Greater concentration on improving Primary revenues from existing client base • Continue to leverage our competitive advantages including: • European strength and geographic footprint • sector expertise • large client base • strategic use of balance sheet • professional team work and integrity • Maintain tight control of costs as we drive for bigger ticket revenues • Believe in ourselves and the benefits of AA’s partnership culture

  19. Equities Nigel Turner, SEVP - Global Head of Equities BU 20 November, 2002

  20. Restructuring Update • Restructuring within Equities is now substantially complete with front office restructuring costs already included within tight 2002 cost targets • European research and trading to be focused into three hubs by year end - Amsterdam, London and Stockholm • Research to be targeted and aligned to critical sectors and clients by year end • Operating costs have been reduced by 32% (year 2001 compared to forecast year 2002)

  21. Restructuring Update • Headcount has been reduced by approximately 35% during the year (approximately 50% over the two year period - 2001/2002) to 1350 at year end • TOPS has delivered a “step change” in operating costs charged to Equities • European market share is being maintained or increasing with peer group suffering from larger percentage falls in revenue

  22. Equities Overview • Overall Equities goal of a top 5 to 7 position in both Pan-European Secondary Equities - Research, Sales and Execution and Pan Asian Equities • Global distribution reach and capability with offices throughout Asia and in the US • A comprehensive Pan-Asia/Australian product with sector and country based coverage providing full Research, Execution and Trading capabilities • Equity Derivatives - A core component of our Wholesale Clients strategy and skill base which is actively marketed to the full range of WCS client sectors. Distribution through C&CC retail network is of increasing significance

  23. Research • Research is an integral part of our Equity offering • We are building a Pan-European research franchise in core secondary market sectors • Our research franchise is closely aligned with the competitive advantages of AA • Maintaining our existing competitive geographic advantages (UK, Netherlands, Nordic, Pan-European, Mid/Small Cap) • Focusing on other sectors where we have, within AA, existing or potential competitive advantage - Financial Institutions, Technology, Media, Telecommunications, Healthcare, Integrated Energy, Consumer

  24. Research • Analysts are based in key hubs (London, Amsterdam, Stockholm, Hong Kong and Sydney) with hires already made in some targeted research areas - Media, Support Services, Banking, Real Estate • A clear determination to produce value-added research • Maintain integrity of research • Improvements to recommendations process will give greater transparency and accountability • Examples of recent successes (Pan-European Thomson Extel 2002) • 5th most improved research service; 3rd position in AQ Pan European Accuracy survey; 3 AA analysts in top 20 in Rising Star category

  25. Sales • Three European home markets (Netherlands, UK, Nordic) give unusually strong platform • Focus on clients and a flexible distribution platform to meet their needs. Linkage with other WCS products through FIPS client coverage to be improved • Global distribution network (US, Asia/Australia); European Sales Team is 150 strong and continues to be upgraded • Examples of recent successes (Pan-European Thomson Extel 2002 survey) include • 7th, Pan-European brokerage sales; 5th, market knowledge “and feel” • 4th, most improved firm for sales service; 3rd, independent ideas

  26. Sales Trading and Trading • A programme to introduce more automated order execution functionality • To capture internal liquidity to improve trading efficiency • Aim to boost the role of program trading • Aim to widen our client base by offering new, advanced execution products • Employ high calibre, motivated traders and sales traders (180 professionals in Europe) • Short term goal to be in a top 5 to 7 position in European execution, providing an effective, cost efficient service to clients

  27. Derivatives • A core component of strategy for WCS, no longer seen as just a niche product. Key product in deriving further synergies and increased linkages with C&CC and its retail distribution network • Improving our ability to cross-sell retail derivative products into key markets (e.g. Germany, Italy, the Netherlands and US) with improved linkages to C&CC retail distribution network • A greater synergy between cash and derivative groups to meet the changing needs of clients and improve our trading capabilities • Increased investment in trading systems

  28. Full range of Equity Capital Market (“ECM”) services are offered through leading recognised brand ABN AMRO Rothschild (“AAR”) AA provides full suite of investment banking products, capital strength and global distribution power while Rothschild provide additional relationships and skills in key markets AAR consistently ranked in the top 5 in Europe; also improved to 8th from 12th on a global basis (top global co-ordinator or bookrunner - YTD October 2002 EquityWare) For the market as a whole global ECM offerings have decreased 13% (year-on-year October - EquityWare) Equity Capital Markets

  29. Corporate Broking • AA’s corporate broking arm, Hoare Govett works alongside the Equities business on a fully integrated basis, providing traditional advisory and execution services in the UK market • AA Hoare Govett is consistently ranked as a top 3 corporate broker, offering independent market advice to over 100 client companies, including 25 of the FTSE 100 • 2002 deals include Imperial Tobacco rights issue, placings for Amersham and Centrica, Enterprise Oil take-over, Lattice merger with National Grid, Carlton merger with Granada (subject to completion) and CMG merger with Logica (subject to completion) • Retention of dual capacity between Hoare Govett and AA Corporate Finance

  30. Critical Factors for Success • Drivers of future revenue growth within Equities will include pension reforms particularly in continental Europe, venture capital, corporates demanding a full product range and hedge funds • Continued structured investment in key research sectors to improve rankings for our European and Asian products in order to generate increased allocation of revenue from target clients • Higher quality execution and service penetration of Priority client base at all levels • Equity markets have now fallen to a cyclical low. AA’s Equities business will be in good shape to benefit from any improvement in underlying markets

  31. Technology, Operations and Property Services (TOPS) Ron Teerlink, SEVP - Global Head of TOPS BU and WCS COO 20 November, 2002

  32. Strategic agenda Economic Value Operational risk Contribute to value creation primarily through lowering the cost of support service provision Minimise operational losses and allow WCS to maximise capital efficiency through advanced level compliance • TOPS have established a simple agenda to help focus decision making Clients’ Perception of Services Be a partner with clients, respond to feedback, be accountable and transparent Our People Lead by example, seek best people, address performance issues and foster a performance culture

  33. Target operating model Global Hub Global Functional Hub • OTC Derivatives • ET Derivatives • MIS • Operations Control • Service Management • Static Data • Strategy • Management IT Strategy, Projects & Development • In late 2000 TOPS defined a target operating model based on removing duplication and inefficiency through regionalising and globalising service provision … Europe Hub • Europe Securities • GTS Payments • FX/MM Local Ops Group Americas Hub Asia Pacific Hub • Americas Securities • GTS Payments • FX/MM • Asia Pacific Securities • GTS Payments • FX/MM IT Infrastructure Local Ops Group Local Ops Group IT Infrastructure IT Infrastructure

  34. Sourcing structure High Keep and re-engineer or partner with outsourcer Keep Outsource to high competence provider Outsource to high value provider Low Low High Current Capability Level - Potential Sourcing Model - • . . and adopting a sourcing strategy that allows us to move to a variable cost structure while retaining ownership of those core skills and services that we do best Competitive Advantage Competency Efficiency

  35. High profile programmes We have successfully implemented a number of high profile programmes over the past 24 months which have enabled us to dramatically lower our cost base and headcount • Hubbing of European Capital Markets Operations in London and closure of units in Amsterdam, Paris, Frankfurt, Zurich, Milan • Hubbing of Derivatives Operations in London • Hubbing of European Treasury Operations in Amsterdam and closure of units in Stockholm, London, Paris and Frankfurt • Hubbing of AsiaPac & EMEA Nostro Reconciliations in London • Hubbing in US and Asia

  36. High profile programmes (cont’d) • Consolidation of European Technology Infrastructure in Amsterdam and London and reduction of application duplication • More efficient use of office space, improved transparency of occupancy across all major locations, moves to lower cost locations in major financial centres including New York, Frankfurt & Singapore • Renegotiated contract pricing and other procurement initiatives • We will leverage these experiences for the group by consolidating Procurement, Real Estate Portfolio Management and Sourcing Strategy in Corporate Centre

  37. Operations footprint before transition Amsterdam London Zurich Paris Tsy ETD EQ FI EQ FI EQ FI EQ FI Tsy OTC ETD OTC ETD Tokyo OTC Tsy Tsy EQ FI Tsy Hong Kong New York EQ FI EQ FI Tsy Chicago Singapore FI EQ FI Tsy OTC Tsy OTC EQ Frankfurt Milan ETD FI Tsy EQ OTC Sydney OTC EQ FI Tsy FI EQ Tsy OTC • The effect of these programmes can clearly be seen if we consider global Operations footprint before Transition

  38. Operations footprint before transition ….. and today • The effect of these programmes can clearly be seen if we consider global Operations footprint before Transition . . . and today Amsterdam London Paris Tsy ETD EQ FI EQ FI OTC ETD OTC ETD Tokyo EQ Hong Kong New York EQ EQ FI Chicago Singapore EQ FI Tsy Tsy Milan EQ Sydney FI FI

  39. TOPS cost base €410m • Over the course of the last two years we have lowered the total TOPS cost base through both the transition programme and other initiatives

  40. Headcount • During 2002 we have reduced our headcount by over 700, taking total staff reductions to over 1500. Further headcount reductions of approximately 200 are anticipated in Q4

  41. Outsourcing to EDS • Through outsourcing large components of technology to EDS we plan to make a step change in the cost and quality of service provision 5 Key objectives • Cost Cost reduction • Flexibility Flexible cost base • Control Strong governance and greater transparency • Productivity Continuous improvement of productivity • Quality Deliver industry best practice processes • Closing with EDS expected before the end of 2002 • Transfer of 1000+ staff in NL, UK, US, Germany, Singapore, Hong Kong • Savings to materialise starting 2004 (0 impact in 2003)

  42. Summary • TOPS has established a simple strategic agenda to help focus decision making; Clients, Value, People, Risk • In late 2000 TOPS defined a target operating model based on removing duplication and inefficiency through regionalising and globalising service provision • . . and adopting a sourcing strategy that allows us to move to a variable cost structure while retaining ownership of those core skills and services that we do best • We have successfully implemented a number of high profile programmes over the past 24 months which have enabled us to dramatically lower our cost base and headcount

  43. Summary (cont’d) • When taken together the ‘total pot’ of transition savings delivered by TOPS this year is in excess of €460m • This compares favourably with our commitments at the start of the Programme to deliver €408m of savings to the P&L by the end of 2002 • During 2002 we have reduced our headcount by over 700, taking total staff reductions to over 1500. Further headcount reductions of approximately 200 are anticipated in Q4 • We will continue to focus on managing down our costs and headcount in Q4 and into 2003

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