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Opportunities in Italian Regional Banks

Opportunities in Italian Regional Banks. Lino Moscatelli Managing Director. HSBC Italian Banks Conference London - January 19 th , 2006. Net income. 1,250. Parent Company. Shareholdings. ROE (adj.). EVA. Group. 265. 1994. 1999. 2004. Growth Over The Years. CR MIRANDOLA.

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Opportunities in Italian Regional Banks

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  1. Opportunitiesin Italian Regional Banks Lino MoscatelliManaging Director HSBC Italian Banks Conference London - January 19th, 2006

  2. Net income 1,250 Parent Company Shareholdings ROE (adj.) EVA Group 265 1994 1999 2004 Growth Over The Years

  3. CR MIRANDOLA MAIN FIGURES CR SPEZIA Group network 527 Market Share loans 11.0 % funding 15.8 % 8 1 CR ORVIETO CR PISTOIA 28 Customers 1,000,000 51 334 Total funding € 36.8 bn Financial advisors 42 Customer loans € 12.9 bn 46 9M 2005 ROE (annualised)13.6% CR CIVITAVECCHIA Banca CR Firenze Group • The outward expansion from its traditional business territory led to the transformation into a multi-regional banking group • Investments in consumer credit increased profitability and stabilised P&L Italian leader in consumer credit through FINDOMESTIC Banca

  4. Recent Achievements • The 2000 IPO has produced an evolution process which led to • Group perimeter enlargement • Financial assets growth • Focus on consumer credit • New structure for the branches network • Profitability increase • Capital allocation optimization • Value creation

  5. 35% stake 50% stake A Strategic Choice: Consumer Credit • A fast growing business well-blended into a pure retail group • Profitable capital allocation: • The additional 15% capital stake (from 35% to 50%) was bought in 2001 at 1.7x book value • Findomestic average ROE 20%. Consumer credit weight* * Consumer credit pre-tax income / Consolidated pre-tax income. Goodwill excluded

  6. The Future for Regional Banks: What Mission? • A local, retail banking group aiming to be competitive in the long term cannot solely count on the local roots advantage and on a friendly approach • Today, the group’s mission must also include: • a diversifiedandtechnically advanced market approach (through branches & remote banking) in order to offer services and competitive prices • a high level of professional competence • a range of high quality products as wide as that offered by a large domestic competitor • a customer approach that is less focused on sales results and more on clients’ expectations

  7. Head of Commercial Dept. PRIVATE BKG. CENTERS CORPORATE CENTERS RETAIL BRANCHES 6,000 clients* 11,000 clients* 633,000 clients* Advanced Market Approach • Three separate channels, three different networks, one sales supervision • 313 retail branches focused on mass market, affluent and small business customers • A close-knit network coverage thanks to 17Corporate Centers and 16 Private Banking Centers • Synergies between channels: Corporate/Private Bkg. and Retail/Corporate Network figures refer solely to Group’s banks where the model has been implemented. Clients figures refer to Parent Company

  8. Personnel & Customer Management • The rollout involved some 800 employees(1/3 of parent company network headcount) • Banking activities in branches had to evolve: multi-tasking has given way to specialized retail branches • High percentage of branch managers moved to Corporate Centers. Consequently, a great number of training courses for new managers covering the empty positions was required • High value vocational courses offered to Corporate Portfolio Managers (at Bocconi University of Milan) • Assitance to clients adapting to the new banking environment

  9. The Network: Future Developments • Application of the advanced market approach to the entire Group network • Additional personnel shift from back-office to sales • Subsidiaries will then develop asnetworks only NETWORK / TOTAL EMPLOYEES Ratio TARGETS 84% 73% 77% 83% 76% • CR Mirandola will merge in July 2006 • CR Civitavecchia: target achieved CRP CRM CR0 CRC CRS 85% 85% 90% 90% 85%

  10. High growth potential Potential for further investments to exploit good growth ratios Pension schemes Consumer credit Mortgages Investments Expected business growth Personal insurance Only potential for selective investments to improve service quality and maintain market shares Cash - Payments Bank’s positioning Individuals Segment • Generates the greatest value • Is characterized by high propensity to save but also... • ...by a sentiment of mistrust in the banking system The dimension of the bubbles shows the current importance of the Business Area in terms of margin

  11. Individuals: A Structured Approach • An approach more focused on client’s expectations means • Less but more personalised commercial proposals • Greater effectiveness - Reinstating a trust relationship • CRM techniques are the most important tool to achieve the combination of the above aspects • The underlying Data Mining Platform furnishes a deeper knowledge of the client clusters and therefore facilitates the construction of a keener relationship • Furthermore, the branch managers’ improved professionalism, a customer satisfaction analysis and communication strategies that will be differentiated according to client segment will generate greater worth from the relationship

  12. Individuals: What Next ? • Full use of the CRM instrument • Exploiting the generation turnover to facilitate the process In 2005 • 64 campaigns launched and 92 events managed • 450,000 commercial talks • 456,000 customers with a next product assigned • only 50% of the portfolio managers regularly used the tool • A propensity score for all the product range • The introduction of the customer satisfaction indices in the MBO Plans

  13. Selective investments to follow market opportunities Investments to exploit the expected growth of high margin products Intl. services Structured finance Ind. & Spec. credit Bank guarantees Financial risk coverage Foreign payables/ receivables Maintain market shares Factoring Expected business growth Agriculture financing Domestic payables/ receivables Leasing Currencies Bank’s positioning SMEs & Corporates Segment • SMEs are now experiencing a dimensional growth and international expansion • Banks’ capacity to exploit Basel II will make certain banks more competitive The dimension of the bubbles shows the current importance of the Business Area in terms of margin

  14. from 75 125 250 500 1,000 2,500 5,000 25,000 AVG. Granted loans (total*) to 125 250 500 1,000 2,500 5,000 25,000 2.1 1.0 1.2 1.7 2.4 3.2 4.4 6.3 10.3 Banks per client (Italy, avg.) Credit needs covered by 49% 99% 89% 76% 68% 61% 55% 46% 36% clients’ 1st choice bank(Italy) BCRF clients who recognized 8% 46% 43% 18% 8% 4% 4% 2% 2% the bankas a 1st choice bank Core clients SMEs & Corporates Segment • The figures below reflect the bank’s low capacity of attracting key clients • BCRF is a first choice bank for a small number of its clients (8%) • In the core clients group, BCRF obtains even lower percentages • The aim is to grow as the first choice bank for the core clients * Sum of all credit lines granted by the Italian banking system or by BCRF expressed in EUR thousand (source: Bank of Italy and BCRF)

  15. Loans by rating* Amounts granted Amounts utilized SMEs & Corporates: How To Compete • BCRF has been among the first mid-sized groups to launch the IRB Advanced (Basel II) procedure • The capacity to correctly assess client risks will enable to: • Recuperate market share in the top-client segment • Obtain a correct profit from risks related to the worst clients * Loans by rating refers to the Parent Company’s 65% corporate segment customer base. November 2005

  16. Remote Banking: Powering Up & Growing • A multi-channel approach is required today by both corporate and individual segments • The number of users is growing steadily and transactions are rising even faster • This approach is essential to acquire new, young clients in the 30-40 age group • Over-investments proved to be non-profitable but innovation must remain steadfast: • BCRFhas been the first Italian bank to offer a DIGITAL TERRESTRIAL TV (DTT) remote banking service

  17. Replacements ~ 450 expected retirements Technology Headcount reduction Organisation The Generation Chance • Between 2006 and 2008 a large number of employees will reach the minimal age for retirement (about 450) • A great opportunity is at hand for organizational and commercial re-engineering which could allow a remarkable reduction of costs Group’s figures (estimates)

  18. Opportunitiesin Italian Regional Banks Lino MoscatelliManaging Director HSBC Italian Banks Conference London - January 19th, 2006

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