2012 retail banking radar presentation (2)

M Johannsen, C Merx, A Pratz, O Wittig

3 July 2012Presentation of Results

Retail Banking Radar 2012

Striving Back to Normal?

A.T. Kearney xx/mm.yyyy/00000 2

European Retail Banks: Change Looms in Europe

■ Continued recovery since the 2009 low: Income almost back at pre-crisis levels (2007),profits still 15 percent below 2007

■ Three markets not in line with this trend: Spain, Portugal, Italy face loss of income andincreasing risk provisions

■ Costs contained, banks shy to make step change in cost base (seen in stable CIR)

■ Nordic banks an exception: focus on digital transformation and on cost management –visible in better numbers

■ Building resilient models: In light of higher risk levels, capital requirements, client reticence,more efforts to overhaul delivery and service models expected:

Operational excellence, Complexity management, Pricing realization,Service innovation, Service excellence, Multi-channel-centric banking


Income still below / almost back at 2007 level

60

9

24

13

59

13

2

Risk Provisions

Operating Expenses

2010

98

Non-operating Result (1)

23

2011

98

60

3

Profit before Tax

2009

96

21

-1

17

59

2008

98

22

3

12

61

2007

3

100

28

Total Income

:Note: (1) Shown as deducted from Total Income, i.e. negative numbers are actually a positive non-operating result and vice versaSource: A.T. Kearney Retail Banking Radar

@2011=100

100

60

13

2

25

2007=100

European retail banking P&L development


General top-line environment continues to be challenging

%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

0.0

Western Europe

0.5

1.0

1.5

2.0

2.5

3.0

4.0

Eastern Europe

4.5

3.5

Source: Economist Intelligence Unit (EIU) 2012, partly using OECD Bank Profitability Report

2011

EIU Forecast(last update 25 May 2012)

Net interest margin European banks


2008

2009

2010

2007

2011

Source: A.T. Kearney

Recovery since 2009 – still a way to pre-crisis levels

Retail Banking Radar

Profit percustomer

(€, before tax)

Cost-to-Incomeratio

Income per employee(€, thousand)

Income percustomer (€)

Risk provisionrelative to totalincome

Interest incomerelative to totalincome

8%

215

60%

59%

66%

680

670

12%

10%

64%

62%

650

200

190

18%

70%68%

14%

180

210

165

195

61%

63%

150

16%


Wide spread between country markets in all dimensions

Profit/CustomerIncome/

CustomerIncome/

EmployeeCIR

Risk Provision/ TotalIncome

Interest Income/Total income

€€ Ths. € % % %

Median

Min

1188(CH)

604

369(SCAN)

201

52(UK)

62

385(CH)

106

7(DE)

11

47(PT)

69

325(PT)

147(PT)

76(AT)

-7(PT)

32(ES)

77(UK)

Max


Country view 2011


Income per customer (€, 2011)


1.188 CH

948 IT

725 BNL

681 FR

621 SCAN

420 DE

359 UK

325 PT

588 AT

Hugely different income realization from customers acrossEurope

■ Swiss, but also Italian banks fare high in realizingincome per customer, driven by

• Assets / wealth of customers

• Product mix

• Account pricing

• Transaction intensity

• Consumer lending

■ No correlation with

• ‘Overbanked‘ or ‚overbranched‘ symptoms(Italy, Spain, Germany would need to be low)

• Pension system situation (Germany to fare better,Switzerland/Netherlands/Austria lower)

■ Suspected room for improvement rather withinbanks business models

512 ES


Business mix: Interest Income/Total Income (%)


Interest income has gained in importance

706968

68

65

565559

39

47

52

59

6973

2007 2008 2009 2010 2011

Portugal

France

Other European Banks

63


1012

19

11

8

28

21

1614

9

2007 2008 2009 2010 2011

IT + ES + PT


Risk Provision/Total Income (%)


Two crises: Relief on the risk side across Europe – with theexception of three countries


Profit per customer (€, before tax)


183

162

147

185

221

76

205

315

424439

2007 2008 2009 2010 2011

ES + PT


Profits still notably below 2007 levels, two clusters of countries

■ Profits touched bottom in2009, 25 percent below pre-crisis levels

■ Profits still 15 percent belowpre-crisis levels, recovering

■ Spain and Portugal first morestable, now exhibitingdownward trend


Slow start into 2012 – uncertainty in Europe

■ Comparably positive drivers at work: ECB Long Term Refinancing Operations (Nov 2011,Mar 2012); stock market recovery – but still uncertainty on Euro and sovereign situation

■ Banks unable to capitalize on this:

• Investor sentiment: Commission income down as investors remain reluctant to trade

• On-balance sheet: Deposits rising as investors – and banks – move to on-balance sheetproducts and funding; compensates for margin pressure despite lower new loan production

• Risk management: Focus area, mixed picture, with some banks reducing and othersincreasing on a year-on-year basis; the overall picture is a continuation from 2011

• Cost management: Claims of ‘strict cost control’, ‘IT cost reductions’, or ‘rapid improvementof cost efficiency’ – truth is more demure: Cost just contained or even increase, leading toworsening cost-to-income ratios

■ Outlook characterized by uncertainty, recapitalization and bank restructuring

Building resilient models: In light of higher risk levels, capital requirements,client reticence, more efforts to overhaul delivery and service models expected

Source: 2012 Q1 segment reports, A.T. Kearney analyis


Outlook: Cost and service model transformation of the retailbank

■ Operational excellence: Cost-income ratio differences significant, banks to work all leversacross structure, process, IT leverage, smart sourcing and skill & capacity management

■ Complexity management: Getting rid of legacy burden from products across sales structuresto processes and IT; potential of 30-35 percent reduction of products/features, IT cost savings

■ Pricing realization: Structural and cultural change in (1) services provided free of charge, (2)free basis (current account) services, and (3) undercharging/hidden rebates/special conditions

■ Service innovation: Leverage “frequency” generated by transactions to provide paid serviceson top; leveraging large customer bases to innovate, dare to trial and error

■ Service excellence: Focus on ‘better’ rather than on new customers, driving service intensityto treasured customers in systematic way (vs. intuitive relationship manager-driven)

■ Multichannel-centric banking: New delivery models and new role for branch withinmultichannel mix, enabled by data storage, analytics, communication and device evolution

Source:, A.T. Kearney


Americas AtlantaCalgary

ChicagoDallas

DetroitHouston

Mexico CityNew York

San FranciscoSão Paulo

TorontoWashington, D.C.

Asia Pacific BangkokBeijing

Hong KongJakarta

Kuala LumpurMelbourne

MumbaiNew Delhi

SeoulShanghai

SingaporeSydney

Tokyo

Europe AmsterdamBerlinBrusselsBucharest

BudapestCopenhagenDüsseldorfFrankfurt

HelsinkiIstanbulKievLisbon

LjubljanaLondonMadridMilan

MoscowMunichOsloParis

PragueRomeStockholmStuttgart

ViennaWarsawZurich

Middle Eastand Africa

Abu DhabiDubai

JohannesburgManama

Riyadh

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Economy & Finance

2012 retail banking radar presentation (2)