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BanCrecer Acquisition: Challenges and Benefits

Detailed insights on BanCrecer's acquisition by Banorte, including challenges, synergies, market integration, and benefits with financial data analysis from JP Morgan Latin America Equity Conference 2001.

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BanCrecer Acquisition: Challenges and Benefits

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  1. JPMorgan Latin America Equity Conference November 5 and 6, 2001 New York, NY

  2. Contents I. BANCRECER’S ACQUISITION II. 3Q01 GFNORTE RESULTS III. OUTLOOK

  3. I. BANCRECER’S ACQUISITION

  4. Challenges Synergies Market Integration Acquisition Benefits Acquisition Banorte acquired “the good bank” out of BanCrecer NEW VEHICLE • Past Due Loans • Repossessed Assets • Other Risky Assets ORIGINAL BANCRECER CLEAN BANCRECER ACQUIRED • Performing Assets • 6,600 Employees • Real State • 754 Branches • 967 ATM’s • Stockholder’s Equity for Ps 2.5 billion

  5. Terms of the acquisition and sources of funding Challenges Synergies Market Integration Acquisition Benefits Terms of the acquisition Sources of Funding PRICE GFNorte’s cash position 300 $ 1,650 millions (USD 174 millions) Dividends obtained from GFNorte’s subsidiaries 300 P/BV Outstanding non convertible sub. debt 0.66 x 500 PAYMENTS Additional Debt 550 Oct 5, 2001 25% Payment from Generali for the use of the BanCrecer’s network Dec 5, 2001 75% Pending $ 1,650 MILLIONS OF PESOS

  6. Challenges Synergies Market Integration Acquisition Benefits Proforma Balance Sheet for BanCrecer ASSETS LIABILITIES Cash and due from Banks 7,890 Financial Instruments 2,123 Repos & Derivatives 4 IPAB Loans46,375 Performing Loans 9,741 Past Due Loans 0 Preventive loan loss reseves (592) Net Loan Portfolio 9,149 Total Loans (Net) 55,524 Sundry debtors (Net) 337 Foreclosed Assets 0 Real Estate, Furniture & Eq, (net) 1,092 Investments in subsidiaries 1,158 Other Assets 2 Deposits 56,096 Due to banks and correspondents7,958 Repos & Derivatives 0 Other payable accounts 1,493 Deferred Taxes 52 Deferred Credits 31 TOTAL LIABILITIES 65,630 STOCKHOLDERS EQUITY 2,500 TOTAL ASSETS $68,130 LIABILITIES & STOCKHOLDERS $68,130 MILLIONS OF PESOS AS OF SEPTEMBER 30, 2001

  7. IPAB NOTE Amount $46,375 Maturity Año 2009 Annual yield TIIE + 0.40 Interest payments Monthly Capital payments At maturity Loss Sharing No Probability of prepayment Very low PERFORMING LOANS Mortgages $ 5,703 Commercial $ 2,674 Government Entities $ 1,164 Consumer $ 200 TOTAL $ 9,741 IPAB and performing loans Challenges Synergies Market Integration Acquisition Benefits MILLIONS OF PESOS

  8. Challenges Synergies Market Integration Benefits Synergies Taking advantage of current Banorte’s Corporate Structure Acquisition BANORTE’S CORPORATIVE STRUCTURE BANCRECER’S NETWORK BANORTE’S NETWORK

  9. Challenges Market Integration Acquisition Benefits Expected positive contribution to earnings for BanCrecer since the first year Synergies Earnings generation will come mainly from: Cost savings in corporate expenses using current Banorte’s organization & infrastructure Defining the optimal distribution network for Banorte and Bancrecer Increase client base & cross selling through Banorte’s brand name.

  10. Challenges Market Integration Acquisition Benefits Synergies Market Total Deposits Total Loans Assets Branches BANK 2,159 BBVA-BANCOMER 386,549 337,954 252,956 1,559 BANAMEX-CITIBANK 380,425 307,027 227,794 924 SANTANDER-SERFIN 217,554 190,621 127,276 4° 4° BANORTE + BANCRECER 169,338 154,038 132,584 1,207 1,389 BITAL 113,663 103,452 60,341 5° 5° 453 BANORTE 98,931 89,152 77,771 754 BANCRECER 70,407 64,887 54,813 361 SCOTIABANK 63,131 54,287 40,352 5 INBURSA 45,469 20,938 27,987 121 NEW BANKS 39,949 31,353 24,524 17 REP. OFFICES 84,443 33,489 12,961 TOTAL INDUSTRY 1,560,726 1,295,251 962,392 7,742 With BanCrecer’s acquisition, Banorte will improve its market share • BanCrecer’s acquisition reinforces and/or complements in a significant manner current Banorte’s national presence. 3° 4° 4° 6° SOURCE: CNBV AS OF JUNE, 2001. NOTE: BANCO DEL ATLÁNTICO IS INCLUDED IN THE TOTAL.

  11. Challenges Market Integration Acquisition Benefits Synergies 172 new locations 7o 4o Reinforces Banorte’s geography as a national bank MONTERREY Branches % Deposits % Banorte 118 13.5 41,816 29.6 Bte+Bcer 204 23.4 47,935 34.0 4o 1o 1o 1o NORTHEAST Branches % Deposits % Banorte 68 12.3 15,324 22.3 Bte+Bcer 113 20.5 19,017 27.7 3o 4o NORTHWEST Branches % Deposits % Banorte 33 3.0 4,572 3.9 Bte+Bcer 173 15.9 14,909 12.9 1o 2o 7o 7o MEXICO Branches % Deposits % Banorte 100 4.9 25,381 3.8 Bte+Bcer 274 13.3 49,819 7.5 4o 4o 6o 6o 6o 5o WEST Branches % Deposits % Banorte 105 6.7 20,003 9.9 Bte+Bcer 250 15.8 31,135 15.4 4o 6o 3o 3o TOTAL Branches % Deposits % Banorte 453 6.0 111,939 8.2 Bte+Bcer 1,207 15.9 179,542 13.1 SOUTHEAST Branches % Deposits % Banorte 29 2.0 4,486 2.6 Bte+Bcer 193 13.2 16,370 9.5 6o 5o 4o 4o 7o 7o 5o 5o SOURCE: ABM. JUNE 2001. BANORTE INCLUDES MODULES. FIGURES IN MILLION PESOS.

  12. Challenges Integration Acquisition Benefits Synergies NUMBER OF CLIENTS TOTAL BANORTE BANCRECER Debit Card 591,842 1,092,110 1,683,952 Term Deposits 371,255 165,522 536,777 Demand Deposits 1,439,621 420,898 1,860,519 TOTAL DEPOSITS 2,402,718 1,678,530 4,081,248 Commercial 45,008 580 45,588 Mortgages 76,836 44,866 121,702 Credit Card 45,397 26,800 72,197 TOTAL LOAN PORTFOLIO 167,241 72,246 239,487 Now Banorte stands in a better position to compete Market • As a result of the consolidation process in the Mexican Banking System large financial groups have arisen, which can benefit from economies of scale and other advantages over their competitors. • With BanCrecer’s acquisition, Banorte becomes now a stronger participant, better equiped to compete with large financial groups.

  13. Estimated 2-year integration cost of Ps 1,076 M and a recurring Ps 807 M savings starting 2003 Challenges Market Integration Acquisition Benefits Synergies Benefits 2002 2003 INTEGRATION COSTS Laying off costs 206 107 Systems 158 208 Corporate Image Changes 80 Operative Integration 67 Instalation of the Integral System of Merchandising 40 Cost of Merge 60 150 Basic equipment 611 465 TOTAL SAVINGS Personnel Expense 270 475 Operation & Adminis. Expense 87 153 Tecnologic Expense 49 179 807 406 MILLIONS OF PESOS

  14. Challenges Market Integration Acquisition Benefits Integration Synergies BANCRECER’S ACQUISITION ORGANIC GROWTH Number of Branches 754 Price $ 1,650 Initial Investment $ 3 Banorte saved Ps 1,858 M with this acquisition when compared to an estimated organic growth $ 1,076 Integration Costs Expenses to Break Even $ 3 Investment per Branch $ 6 $ 4,524 $ 2,726 TOTAL INVESTMENT TOTAL $1,858 MILLIONS OF PESOS

  15. Phases of Integration Challenges Market Acquisition Benefits Integration Synergies STAGE III (24 months) STAGE I (4-6 months) STAGE II (12 months) • Conversion to those products of Banorte. • Physical and technical integration. • Multichannel technical architecture. • Flexibility to adapt to changes. • Integration of 10 most frequent transactions (83.5%). • Transactions in both banks.

  16. Banorte’s deposit base grows 76% with the acquisition of BanCrecer Challenges Market Acquisition Benefits Integration Synergies GFNorte (Banking Sector) 1) BanCrecer2) Total TOTAL ASSETS 97,618 68,130 $ 165,748 Performing Loans 73,465 56,116 129,581 Past Due Loans 4,185 0 4,185 TOTAL LOANS 77,650 56,116 $ 133,766 76% Demand Deposits 25,156 17,907 43,063 Term Deposits 17,922 11,182 29,104 Money Market Deposits 31,013 27,007 58,020 74,091 $ 130,187 56,096 TOTAL DEPOSITS 7,735 $ 8,335 2,500 STOCKHOLDER’S EQUITY MILLIONS OF PESOS 1) DATA AS OF JUNE, 2001 2) DATA AS OF JULY, 2001.

  17. Banorte’s capitalization ratio with BanCrecer maintains a healthy level Challenges Market Acquisition Benefits Integration Synergies BANORTE INCREASE DUE TO BANCRECER TOTAL Net Capital 6,434 600 7,034 Risk Assets 41,165 10,051 51,216 Capitalization Ratio 15.6% N.A. 13.7% N.A..- NOT APPLICABLE. CAPITAL INCREASE EXPECTED FOR BANORTE MILLIONS OF PESOS

  18. Challenges Market Integration Acquisition Benefits Commercial Synergies Challenges Expenses Technology and Operations Human Resources Physical Resources Management’s main challenges Retain BanCrecer’s customer base, integrate Banorte’s products and services, and grow the loan portfolio. Avoid central and corporate expenses, identify redundancies and improve operating efficiency. Integrate both banks in a single technological platform. Select the best people from both institutions. Optimize physical resources and take advantage of economies of scale. Communications Asure an effective communication to employees, clients and the financial community.

  19. II. 3Q01 GFNORTE RESULTS

  20. Highlights • GFNorte’s Accum. Net Income as of 3Q01 Ps 1,239.6 million • GFNorte’s Net Income for 3Q01 Ps 357.6 million • GFNorte’s ROE 19.5% • Banking Sector’s ROE 20.1% • Banking Sector’s Capitalization Ratio 15.4% • Commercial loans growth (3Q01 vs 3Q00) 1) 18.3% • Automobile loans growth (3Q01 vs 3Q00) 166% • New credit card fixed interest rate 25% 1)Excluding Corporate loans

  21. GFNorte’s Accumulated Net Income SEPTEMBER 2001 (Millions of Pesos) GFNorte Net Income $1,239.6 1,065.8 $78.3 $54.3 $27.2 $14.1 Banking Sector Long Term Savings Auxiliary Organizatiom Holding Brokerage House DIVISION 3Q‘00 3Q ‘01 % 1,076.6 Banking 1,065.8 (1.0) 42.8 78.3 Long Term Savings 82.9 56.3 54.3 Auxiliary Organizations (3.6) 25.3 27.2 Holding 7.5 60.3 14.1 (76.6) Brokerage House $1,261.2 $1,239.6 TOTAL (1.7)% Figures as of September 2001

  22. GFNorte has maintained a constant earnings growth ACCUMULATED NET INCOME (Millions of Pesos) 1,736.9 1,607.0 1,570.8 1,172.0 1,277.8 855.4 1,239.6 3Q’00 1,261.2 727.8 707.6 '95 '96 '97 '98 '99 ‘00 3Q’01 Book Value 10.6 9.1 12.8 14.9 16.4 15.6 17.8 Per Share (*) Extraordinary Income EXTRAORDINARY INCOME: 1997: PS715.4 AND 1998: PS435.0. MILLIONS AS OF SEPTEMBER 2001. (*) BASED ON 497.1 MILLIONS OF SHARES.

  23. GFNorte´s ROE has been among the highest in the mexican banking industry ROE 20.7% 19.5% 15.1% 1999 2000 3T01

  24. Banking Sector

  25. Net Interest Margin has been able to maintain its level despite market interest rate reduction

  26. Commercial and automobile loans show an increase of 18% and 166% respectively from 3Q00 to 3Q01 166% Automobile 40% Commercial 20% 0% Mortgage Corporate -20% Credit Card -40% 3Q00 4Q00 1Q01 2Q01 3Q01 DATA AS OF SEPTEMBER ‘01.

  27. Fees on services and trading have increased their contribution to Non Interest Income 1,257 1,207 SERVICES 25% 52% TRADING FIDUCIARY 75% 48% FOBAPROA NOTE: 3Q01 FIDUCIARY INCOME IS INCLUDED AS A NET AMOUNT FOR COMPARISON PURPOSES. IT WAS CALCULATED AS FOLLOWS: FIDUCIARY INCOME PS 402 MILLION - OTHER FEES PS 234 MILLION - TRUST PAID INTEREST PS 70 MILLION - OPERATION & ADMINISTRATION EXPENSES PS 6 MILLION= NET EARNING OF PS 92 MILLION. DATA AS OF SEPTEMBER ‘01.

  28. Past due loans are totally provisioned 105.6% 4,700 4,500 102.9% 103.0% 102.3% 101.1% 100.4% 4,300 101.0% 100.0% 100.0% 4,100 99.0% 3,900 97.0% 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 PAST DUE LOANS LOAN LOSS RESERVES MILLIONS OF PESOS DATA AS OF SEPTEMBER ‘01.

  29. Total Deposits show a slight increase in a contracted market 120,015 119,748 117,808 114,214 113,389 109,589 107,495 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 MILLIONS OF PESOS DATA AS OF SEPTEMBER ‘01.

  30. Capitalization ratio has remained at a healthy levels 2003 Rules 15.6% 15.4% 14.7% 14.1% 12.0% 11.4% 10.7% 1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 IN 2Q01 THE CAPITALIZATION RATIO WAS STRENGTHENED A 2.5% WITH THE ISSUE OF THE NON CONVERTIBLE SUBORDINATE-BONDS *: SINCE 3Q00 WE USE 2003 RULES.

  31. Other Divisions

  32. Other divisions are profitable and have gained market share 3Q00 3Q01 Net Income Market Share Net Income Market Share Long Term Savings: Afore 9.0% 65.7 8.9% 72.0 Bancassurance 1.3% 1) (3.0) 1.0% 7.6 Annuities 9.5% (19.8) 9.7% (1.4) Brokerage: Brokerage House 9.9% 60.3 5.6% 14.1 Auxiliary Organizations: Factoring 32.4% 1) 30.3 31.1% 23.1 Leasing 5.3% 1) 16.7 4.7% 19.5 Warehousing 2.2% 2) 2.1% 3.6 6.4 Bonding N.A. 2.2% 2) 5.7 5.3 MILLIONS AS OF SEPTEMBER 2001. WHOLESALE PARTICIPATION 1) JUN ‘01 2) DEC ‘00. MARKET SHARE: AFORE & ANNUITIES: NUMBER OF AFFILIATED; BANCASSURANCE: PREMIUMS; BROKERAGE HOUSE: VARIABLE EQUITY; FACTORING & LEASING: TOTAL LOANS, BONDING: SURETIES SOLD.

  33. III. OUTLOOK

  34. The deceleration of the economic activity in the United States has affected the expected GDP growth in Mexico 2002 2000 2001 GDP 2.8% * 6.90% 0.0% INFLATION 4.70% 8.96% 5.50% CETES 28 DAYS End of the year 8.30% 17.59% 9.65% Average 8.90% 15.30% 11.95% EXCHANGE RATE 9.60 9.60 9.50 ESTIMATED FIGURES REVISED OCTOBER 24, 2001 * INCLUDES THE NEW FISCAL REFORM

  35. GFNorte has followed a clear and successful strategy for increasing its profitability PROFITABILITY External Factors Strategy Deposit Volume and Mix New Loans Interest Rate Non Interest Income Non Interest Expense Recovery

  36. General Strategy • Management assessed different alternatives to strengthen and consolidate it’s national presence in Mexico’s rapidly consolidating banking sector. • Acquisition of BanCrecer • Buying other banks’ branches. • Management priority is and will be to increase shareholders value and will examine different alternatives from this perspective. • Management is fully committed to maintaining and enhancing Bank’s performance and returns. Strategic Alliances • Sell of the controlling interest is not contemplated in the short term, however the sale of a minority position could be possible if the proposed partner adds value to the Group.

  37. Management • Since 1996, Othón Ruiz Montemayor was appointed CEO of the Group and has been fully committed to improving GFNorte’s returns. • One of CEO’s top priorities is to have a strong and fluid comunication with the financial community and a proactive program to fully convey GFNorte’s fundamentals and strategy. Corporate Governance • GFNorte is concerned about minority shareholders given the consolidation trend in the banking system. • Our Board of Directors is integrated 40% with independent members, well beyond the 25% established as a minimum in the recent financial reform. Valuation • Good returns and results of GFNorte are not reflected in its share price. We are certain that through a clear understanding of GFNorte’s strategy and fortress, stock valuation will improve.

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