The retail-customer business of Commerzbank AG. CHEUVREUX - German Corporate Conference Kronberg, January 20, 2003

Transcription

1 The retail-customer business of Commerzbank AG CHEUVREUX - German Corporate Conference Kronberg, January 20, 2003

2 1 Agenda The banking market in Germany Commerzbank retail customers: our vision Measures under play to win programme

3 Source: FTD, FAZ, Manager Magazin, Handelsblatt 2 The banking industry as a whole is experiencing serious difficulties the most difficult year in banking history (FTD, 10/02) The situation is serious: the financial sector is in serious difficulties (FAZ, 10/02) We have never been so concerned about the German banking scene (Manager Magazin/ Merrill Lynch, 9/02) Institutions scope is extremely limited, competition in the German banking market is very tough (HB, 12/02)

4 Source: Institut für Weltwirtschaft, September Due to extreme scenarios outside the financial industry, serious consequences cannot be ruled out Worldwide collapse of share prices Gloomier outlook for exports At most, very weak GDP growth: deflationary and inflationary scenarios Possible impact on banks and financial industry Rating downgrades Capital base threatened by slump in value of investments Depletion of insurers equity Investors confidence threatened Customers confidence threatened Next speculative bubble: hedge funds? Real estate? Tensions in Middle East High level of unemployment

5 Retail business difficult for all banks in 2001 Index, 1998=100 Costs Earnings Sparkassen-Finanzgruppe * including Bank Austria, based on segment reporting Source: Bankscope, annual reports, Bundesbank 4

6 Starting point: Commerzbank s retail business with a 185m deficit in results per business line, in million 2,000 1,879 2,064 Domestic branch bus. * comdirect Retail Bank -ing dept. 1,500 Total earnings 1, ,879 1, Total costs 1, ,064 Direct costs 1, ,384 Indirect costs Earnings Costs Result Result * incl. subsidiaries and Corporate Center Retail Banking (excl. comdirect) Source: ZPK business line figures 2001 ZPK segment reporting

7 Different positions of major banks after three quarters in 2002 Commerzbank fared well OUTSIDE-IN ANALYSIS Retail-customer business 9/2002, in million 385 Personal Banking incl. foreign subsidiaries, adjusted for insurance result from disposal of Deutscher Herold 53 Retail Banking, incl. comdirect Private Customers and Corporate Customers, incl. domestic subsidiaries (OLB, Bankhaus Reuschel, Advance Bank, Europa Bank, International Private Banking) Business line Germany (private and corporate clients), incl. domestic subsidiaries (Vereinsund Westbank, norisbank, Bankhaus Gebr. Bethmann) Source: 2002 interim reports 6

8 Commerzbank s Retail Banking: direct operating expenses cut by over 17% Direct expenses for business line in million accumulated annual figures per 9/ incl. comdirect Personnel expenses Other operating expenses 9/ % % 9/ Depreciation Total (direct operating expenses) 9/ % % 9/ ,025 Source: business line figures, 9/2002 7

9 Significant cuts in expenses were achieved by closing more than 200 branches and staff reduction of about 1,800 employees are planned Number of branches Number of branch personnel % of all branch closures realized by 9/2002 9, ~-1,800 7, more jobs than planned shed in % of staff cuts for 2002 already realized by October (incl. credit; excl. formation of credit centres: 103%) ff. June ff. Source: business line figures, 9/2002 8

10 Source: 2002 business line figures 9 First sustainable measures launched to strengthen earnings side Earnings from payment transactions (in million) Earnings from funds (in million) Earnings from savings deposits (in million) 7.8% 4% -8.9% 19.6% -4.8% 8.0% Higher charge for COPLUS account Revenues from accounts previously run free of charge Charges introduced for accounts for handling business Volume of TUI-card business raised by: Introducing new products (e.g. revolving credit) Fewer debit cards with chip Fund volumes constant as market values fell Higher earnings through targeted promotion campaigns: Open-ended property funds (Haus-Invest, +36% in 2002) Bond-based funds (e.g. Adiropa, bearer bonds) Increase of approx. 16% in savings volume in past two years Innovative products (e.g. Extra-Zins ) attract new customers (among other things, for later investment in securities)

11 * without credit balances, pensions and other assets/liabilities ** McKinsey Efic estimate Source: EFIC PFS database, estimated 10 Assets and liabilities* of German households in the past 10 years have expanded by about 6% per year further growth is expected in billion, in per cent Ø 6% growth p.a Ø 5.4% growth p.a. 3,813 4, , , Liabilities Assets Life insurances E**

12 Commerzbank disproportionately strong in core markets 2001 estimate Commerzbank segment* Segment range in No. of customers in m CIR in % Total profit pool in bn CB s market share Focus Mass retail PC < 50, % Cost management Lower affluent Affluent IC 50, , , , % Expansion/ penetration Upper affluent HNWI PB 500, m >1.25m % Growth/ innovation Total/average * PC = private customers; IC = individual customers; * PB = private banking clients Source: McKinsey 11

14 Source: Commerzbank ZPK Business Development 13 Commerzbank for private customers: our vision Commerzbank s private-customer business is the best choice for performance-oriented people who want to make successful use of their financial opportunities.

15 Source: Commerzbank ZPK Business Development 14 Elements of our positioning Close contact with customers Commerzbank sees customers in their personal situation and collects information in line with their needs With its high-quality advisory services, Commerzbank supports the independent choice made by its private customers, handling transactions smoothly and reliably Understanding Navigated choice Successfully seizing opportunities together Creative solutions Efficiency and security of a major bank Commerzbank develops creative solutions (products, services), which customers feel to be specially tailored to their needs Commerzbank guarantees efficient and safe performance of its service and as a group Efficiency

17 Source: Commerzbank ZPK Business Development 16 Our package of measures Strategic measures Short-term measures Already being implemented Quick Wins pricing Quick Wins processes Cost management Mortgage lending Innovative product portfolio Customer management Improved consulting procedures Qualification campaign Capacity adjustment in distribution Pricing strategy Bankagencies Distribution management Business-customer strategy

18 Source: Commerzbank ZPK Business Development 17 Competitive and market-oriented distribution Existing organization improved as part of geographical structural reform and adjusted to market conditions through Private Banking Creation of bankagencies to boost distribution New strategy developed for business customers Efficient cost management Further capacity adjustment in the case of sales personnel to achieve customer/counsellor ratio reflecting market conditions

19 Source: Commerzbank ZPK Business Development 18 Comprehensive and high-quality range of products/services Development of new and innovative products, e.g.: Best-Start certificate, Europa Zins Plus, "TUI revolving credit" (...) Development of innovative pricing strategy and also implementation of Quick Wins pricing Open product platform/open finance: broad range of qualitymanaged funds, including non-group products Efficient product-development process with active involvement of sales personnel Innovative access channels offered, e.g. new internet branch Ensuring even higher profitability in new home loan business (incl. third-party products) and development of rating-based pricing

20 Source: Commerzbank ZPK Business Development 19 Improvement of consulting procedures Further refinement of Commerzbank s generally acknowledged superior data-based marketing platform Simplification and improved performance through introduction of more efficient consulting procedures Burden on distribution eased by Quick Wins processes (abolition of 5 processes per month) Development of a sales management to boost quality and sales Development of active customer management (to acquire, retain and activate customers) as part of an interactive CRM

21 Source: Commerzbank ZPK Business Development 20 Qualification campaign Competition with more than 20 coaching agencies in two phases Since November 2002, pilot phase for three schemes In 2003, nationwide coaching for all sales staff

22 Source: Commerzbank ZPK Business Development 21 Our approach: success through a broad range of measures Savings/earnings effects, in million Total Sales offensive: qualification, improved procedures, sales management and pricing strategy > 70 Customer focus through business-customer strategy and customer management > 10 ~ 200 Management of direct and indirect costs > 60 Market orientation in distribution through competitive customer/adviser ratios and bankagencies > 55

23 Source: Commerzbank ZPK Business Development 22 Earnings gap will mainly be closed by higher earnings and savings on non-personnel expenses in per cent Earnings 100 Costs 28 Savings on non-personnel expenses Additional earnings Savings on personnel costs

24 * Greater need for equity at operative units in order to support head-office staff and service departments, with differentiation by risk ** With beta factor of 0.95, weighted risk premium of 5.0% Source: Commerzbank ZKE 23 Retail Banking has to achieve an (after-tax) return on equity of 10.3% Calculation of cost of equity in per cent Return on equity of 10.3% (after-tax) for retail-customer business reflects the Bank s overall intention to cover cost of equity of 10.25%* 5.50 Risk-free interest rate Risk premium** Total

25 Source: Commerzbank ZPK million earnings gap to be closed by 2004 in per cent ILLUSTRATIVE RoE (after-tax) 10.3% Additionally planned measures (target) 5% 300 million Approx. 200m from play to win programme Planning level %

26 Comparison with best-practice models shows Commerzbank s increasing competitiveness despite continuing need for action Critical success factors Transparency of results produced by employees Standardization of product-creation procedures MLP Citibank Optimization of distribution procedures Performance-oriented compensation open Incentive-driven business management open Source: Commerzbank ZPK Business Development 25

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