Performance of european banks

120130716_Performance of European banks.pptx

Press conference – Paris, July 16th

The State of the European Banking Industry


Speakers

FABRICE ASVAZADOURIAN

GLOBAL CO-HEAD OF THE FINANCIAL

SERVICES PRACTICE

PIERRE REBOUL

SENIOR PARTNER

GLOBAL CIB LEADER

320130716_Performance of European banks.pptx© Roland Berger Strategy Consultants

Agenda Page

2. The 2012 performance of European banks 4

3. Moving forward 28

1. Appendix - Update on Roland Berger Strategy Consultants 33

1

2

3


1. The 2012 performance of European banks


2012: a turbulent but positive year thanks to ECB/EU interventions and disciplined roll-out of adaption plans by European banks

Source: Bloomberg, press, Roland Berger analysis

75

80

85

90

95

100

105

110

115

120

125

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

27/1 3/2

24/2 9/3

2/3

16/3

17/2

10/26/1

13/1

28/1

2

21/1

214

/12

7/12

30/1

1

23/1

116

/11

9/11

2/11

26/1

019

/10

12/1

0

5/10

28/9

21/9

14/97/9

31/8

24/8

17/8

10/83/8

27/7

20/7

13/76/7

20/1

22/6

15/68/6

1/6

25/5

18/5

11/5

29/6

27/4

20/4

13/46/4

30/3

23/3 4/5

Euro Stoxx Banks

5-year average CDS - Southern European banks2)

5-year average CDS - Northern European banks1)

Euro Stoxx Banks

Index

5-year average

CDS (bps)

1) Based on BNPP, Société Générale, Deutsche Bank ,Commerzbank, UBS, KBC, Lloyds, HSBC, RBS2) Based on Santander, BBVA, Caixa, Banco Espiritu Santo, Monte Paschi, Unicredit, Intesa

Oct. 2nd: Liikanen report publication

(Report of the European Commission’s

High-level Expert Group on Bank

Structural Reform)

Sept. 6th: Outright monetary

transactions program

launched by the ECB

Dec. 13th: Banking

Union agreement

July 20th: Eurogroup grants financial

support to Spanish banking industry

June 29th: Banking

Union project

announcement

May 21st: 2 consultancy firms, of which

Roland Berger, are appointed by the Spanish

government on the banking sector stress-test

March 1st: ECB injects

EUR 530bn of liquidity

+10%

-46%

-56%

2011-2012

evolution

June 27th: Libor

scandal


Interbank distrust skyrocketed from July 2011 to August 2012 but banks are regaining confidence thanks to ECB initiatives

3,500

3,000

2,500

2,000

1,500

1,000

500

0

-33%x 5

Apr

13

Jan

13

Oct

12

July

12

Apr

12

Jan

12

Oct

11

July

11

Apr

11

Jan

11

Oct

10

July

10

Apr

10

Jan

10

Oct

09

July

09

Apr

09

Jan

09

Oct

08

July

08

Apr

08

Jan

08

Deposit liabilities of the European Central Bank [EUR Bn; since 2008]1)

Source: ECB, Roland Berger analysis

Sept. 15th, 2008:

Lehman Brothers

collapse

Dec. 21st 2011:

ECB LTRO 1 – EUR 490 Bn

Feb. 29th 2012:

ECB LTRO 2 – EUR 530 Bn

July 2011: Increasing tension

on Italian sovereign debt

1) Outstanding amounts at the end of the period, total maturity, Euro area counterpart

Sept. 2012: Outright

monetary transaction

Program


Financial institutions & governments become more and more intertwined: the invisible nationalization?

Source: Bank of International Settlements, Ernst & Young, ECB, Roland Berger analysis

60

70

80

90

100

110

120

130

140

150Portugal

Spain

Italy

Germany

France

Belgium

Euro area

Apr

2013

Jan

2013

Oct

2012

July

2012

Apr

2012

Jan

2012

Between 0% and -5%

Between -10% and -20%

< - 20%

Base=100 in January 2012

EVOLUTION OF BANK SOVEREIGN DEBT DETENTIONCROSS-BORDER INTERBANK LENDING EVOLUTION [% change 2011/2012]

+47%

+44%

+28%

+23%

+19%

+12%

-12%


We have screened the performance of 100 key European banks representing more than 90% of the EU 27 banking industry

Banking revenues from core activities [2012; EUR Bn]

PERIMETER1)

ROW

6125

CEE

27

Italy

39

Iberia

43

UK,

Ireland 2)

45

France

63

Germany

76

Switzerland,

Austria

14

Nordics

21

BeNeLux

Source: Annual reports, Bankscope, Financial presentations, Roland Berger analysis

23%

13%

5%

Total

705

59%

Regions

of activity

1) Banks from Greece and Cyprus have not been included in the presented study 2) excluding SME banking, integrated within CIB

METHODOLOGY

> 100 European banks covering ~90% of the EU 27 banking industry in 20121)

> 2 levels of analysis:

– Economic performance (revenue, profit)

– Financial sustainability (balance sheet structure)

> Aggregated data at global level and then zooming in by business line with a comparable perimeter– Group– CIB: Corporate and Investment Bank – RBB: Retail and Business Bank (from

individuals to SMEs)– SFS: Specialized Financial Services– IIS: Insurance and Investor Services

> As well as comparison between nine regions

Insurance and Investor Services : 89

Corporate and Investment Banking 162

Specialized Financial Services : 38

Retail & business banking

Corporate and Investment Banking (CIB)

Insurance and investor services (IIS)

Specialized Financial Services (SFS)

Retail & Business Banking : 415


Agenda

2.a Group-level performance analysis

2.b Performance analysis per Business Division


-0.03

-0.06

-0.05

-0.02

-0.01

-0.02

/

-0.03

-0.10

European banks are implementing their balance sheet consolidation strategy: fewer loans and more deposit

LOANS[2011/2012 % change]

DEPOSITS[2011/2012 % change]

LOAN TO DEPOSIT RATIO [2012]

-2%

3%

2%

-1%

-2%

-2%

-3%

-4%

-4%

-7%CEE

France

Iberia

UK, Ireland

Nordics

Switzerland, Austria

Average

Italy

Germany

BeNeLux

Key group balance sheet indicators per country of origin

GROUP

COUNTRY OF ORIGIN

Delta pts 11/12

1%

5%

2%

1%

-1%

0%

1%

2%

-2%

3%

1.1

1.2

1.1

1.0

1.0

1.6

0.8

1.2

1.2

1.0

-0.03



European banks have actively consolidated in 2012 their Core Equity base in order to comply with Basel 3 by end of 2013 the lattest

Core Equity consolidation

~EUR 250 Bn

+ 1.5 % CET1

Capital measures

70%

RWAmeasures

30%

Capital increase (injection of public capital, new private equity, capital increase through SLEs)

Reserves growth

Other measures (CoCo's, disposal of goodwill, depreciation of intangible assets,…

Asset disposal / deleveraging

Technical adjustments

(new model, collateral management)

~90

~30

~50

~30

~50

Core equity consolidation

End 2013

fully loaded

Basel 3 CET 1

>9%

Source: Annual reports, Bankscope, Financial presentations, EBA, Desk research, Roland Berger analysis

GROUP


Core activities proved resilient in 2012 while balance sheet cleaning continues to weigh dramatically on overall profitability

Evolution of Profit Before Tax, 2012 [EUR Bn]

4

Non core

activities3)

and

exceptional

items

Profit

before

tax 2012

54

(38%)

137

Total

Core

businesses

141

CIB

34

(24%)

IIS

20

(14%)

SFS

9

(7%)

IRB2)

24

(17%)

DRB1)

GROUP

Operating profit before tax> 1/3 of European top

banks experienced

an increase in Core

activities profitability

> Iberian banks were

strongly impacted by

exceptional items,

with EUR 59 Bn vs.

EUR 19 Bn for UK /

Ireland

– Spanish real

estate write-off

(royal decrees)

– Goodwill write-

off/net loss on

asset sales : entity

or portfolio

– Marked-to-market

impact on own

debt

-21% -3% -9% 46% 5% -6% +38%

1) Domestic Retail & Business Banking 2) International Retail & Business Banking 3) Including some corporate center and Group items

%

change

[11-12]

Profit

before

tax 2010

128

Profit

before

tax 2011

53

-91%



Only half of our banks in terms of revenue was able to display a "positive operating jaw" in 2012 – Cost programs still need to fully materialize in P&L

GROUP

Positive operating jaws55% of sample revenue

Negative operating jaws while shrinking revenue21% of sample revenue

Revenuegrowth

Operating expense growth

Outliers* : 12% of sample revenue

*Banks having recently faced / currently facing restructuring issues


Detailedanalysis

Evolution of core revenues and operating expenses by bank [2011-2012;%]

-15%

-10%

-5%

0%

5%

10%

15%

-15% -10% -5% 0% 5% 10% 15%

Operating

expense

growth

Revenue growth

Growth with lackof cost control12% of sample revenue


International retail banks and SFS specialists display the most profitable banking model

GROUP

1.9%

2.4%

2.5%

2.3%

73%

61%

52%

65%

14%

14%

25%

22%

Key performance indicators per bank model [2012]

14%

25%

23%

13%

Domestic retail banks –excluding Iberian banks

International retail banks

SFS specialists

Universal banks

13% sample revenues

21% sample revenues

2% sample revenues

60% sample revenues

SCOPEINCOME TO ASSETS

COST-INCOME RATIO

COST OF RISK TO INCOME

CORE PROFIT1)

BEFORE TAX TO INCOME


1) Excluding impact from exceptional items and non core activities


Agenda

2.b Performance analysis per activity

2.a Group performance analysis


The volatility and uncertainty of the current CIB environment callfor a review of business models

KEY GLOBAL TRENDS [non exhaustive]

Offering & Players

> New overcapacity and redistribution of market shares driven by

repositioning on some CIB businesses (e.g. OTD SF model)

> New competition emerging from diversification of some specialized

players (e.g. PE entering pure financing landscape, Hedge Funds

developing origination capabilities model in the US)

Regulation

> Increased capital and liquidity constraints (Basel 2/3)

> Vickers / Liikanen regulation impacts still to be precised

> Tobin's tax (TTF) on Equity and FI transactions (perimeter still tbc)

> EMIR and OTC clearing additional costs (e.g. structure,

compliance)

> Other IFRS impacts (DVA / CVA)

Markets & Demand

> Still above normal volatile markets in Equities and Fixed

Income with investment uncertainty (e.g. sovereigns)

> Solvency II impacts on appetite for equity from insurers

> Development of e-markets and parallel need for

standardization

> Differentiated trends by region implying strategic complexity

ROLAND BERGER CONVICTIONS

> Regulation is becoming one of the most important

inputs for many strategic decisions, e.g.:

– Which geographies?

- differentiated regulations lead to a

"deglobalisation" of operating models: local,

multilocal or regional, and to the need of

rethinking legal entity links

- some countries more attractive than others

– Which products?

- tighter regulations on capital have led CIBs to

create overcapacity advisory businesses

- impacts of new regulations (clearing, transaction

tax) per product type: dust has not settled yet

> In such a context, flexibility is key, to be able to

adapt to any unforeseen changes: "light footprint"

strategies are becoming a must

> CIBs need to clarify their positioning towards clients,

with a clear value proposition, and adapt their

operating model to that claim


CORPORATE AND INVESTMENT BANKING


After a tough 2011, European CIBs are slowly recovering

CIB Divisions of European banking groups2010 - 2012 [EUR, Bn]


-19% +6%

162152188

+5%

10398104

+15%

2012

26

2011

22

2010

24

Revenues (R)

Expenses

Risks

-46%

+5%

2012

34

2011

32

2010

60

Operating profit before tax (P)

21% 21%32%

COMMENTS

> CIB growth around the world is again driven

by the financing demand from Corporates

(structured finance +9%, DCM +4%)

> In Europe, revenues have grown by 5%,

with different local dynamics: for instance, in

France where SF had traditionally been

strong (and deleveraging was severe), FICC

was the key driver of growth

> Many CIBs have launched cost reduction

plans, which full effects will be felt from

2014, while the related restructuring costs

are already in the P&Ls

> In spite of sanity measures taken to monitor

and take risk, cost of risk increased in 2012

> Cost / Income ratio slightly improved in

2012 (63%), but remains still away from its

2010 level (55%)P / R



8.0

5.3

2.6

9.2

10.4

-1.3

9.7

0.5

6.3

3.0

10.4

0.0

8.7

1.7

17.8

1.6

11.7

4.5

19.7

0.3

15.7

3.6

3.0

1.1

1.90.0

3.2

0.5

2.9

-0.2

4.0

0.6

2.4

1.0

4.2

1.21.0

2.1

4.8

1.5

2.6

-0.2

3.1

0.3

5.0

1.1

2.3

1.6

5.2

0.41.8

3.0

6.2

0.6

4.2

1.4

6.3

3.6

3.1

-0.4

7.1

4.6

Large European CIBs are applying three strategies depending on scarce resource allocation constraints defined by their Group

Revenues of top 16 CIB Divisions of European banking groups (revenues above EUR 3Bn), 2012 [EUR, Bn]

RiskCostProfit (+)

-5% -11% -11% -17%-16% -5% -11%-20% 5% 6%-20% 7%

AdaptXRetrenchmentX FocusX

2010-2012

revenues

CAGR

-25%


-4%


0% 0%

Global Universals Advanced Internationals Local Markets

75% of total European

CIB revenues

represented through this panel of 16

banks


Amongst the European CIB panel, small CIBs have shown more agility over 2010-2012 period

Mapping of European CIBs per revenue size and growth

51 banks for €162bn of revenues in 2012



11%

10 banks

11%

14 banks

Decrease > (-5%)

Slight decrease

(-5% to 0%)

Growth of revenues

(>0%)

2012 revenues

CAGR 2010-2012

Bel

ow

EU

R 5

bn

Decrease > (-5%)

Slight decrease

(-5% to 0%)

Growth of revenues

(>0%)

2012 revenues

CAGR 2010-2012

18%

17 banks

34%

7 banks 2 banks

23%

3%

1 bank

Ab

ove

EU

R 5

bn

Small banks mainly hold financing products in their portfolio, which may explain why they have been less impacted than large CIBs over the period


CIBs will have to clarify their positioning and operating model to be successful in the coming years

CATEGORY KILLER NICHE SPECIALIST

Business model

Operating model

High-volume positioning driven by flow product leadership

High-margin positioning driven by premium product leadership

Industrial model> Technological edge (e-platforms)> Economies of scale> Focus on streamlining selected

flow products

Mini factories> Reactive operations to serve

small batches> Qualified human resources,

adaptable processes & IT

Illustrations

Strengths

Weaknesses

> Creates barriers to entry> Allows to be a supplier to CIBs

(white labelling)

> Built-in competitive edge generated by creativity / R&D

> Requires large investments> Sensitive to a market downturn

> Relies on a handful of experts creating differentiating products

Client value proposition

Product excellence> Seamless execution> Competitive pricing

Cutting-edge products> Exclusive products> Innovation

SOLUTION BUILDER TRUSTED ADVISOR

High-volume positioning driven by numerous client relationships (often related to historical role in a geography/industry1))

High-margin positioning driven by premium client relationships

Aggregator model> Outsourcing of some

operations> Branding of third-party

created white-label products

Craftsmanship model> Focus on products requiring

little investment in Ops & IT> Adhoc processes to serve

customer requirements

> Allows to follow market demand evolutions

> Generates client stickiness through trust

> Relies on high quality sales teams to create differentiation

> Relies on a handful of senior bankers "owning" relationships

One-stop-shop> Attention to client needs> Flexibility

Bespoke service> Selectivity> Premium service, advisory

1) can also be driven by synergies with non-CIB divisions, e.g. Wealth Mgt

CORPORATE AND INVESTMENT BANKING : ZOOM ON INDUSTRIAL MODEL


After having digested the impact of the Greek debt restructuring, IIS businesses are strong profitability contributors for integrated banks

IIS Division within European banking groups 2010 - 2012 [EUR, Bn]

INSURANCE AND INVESTOR SERVICES

+2%

898891

0%

646567

2010

9

-46%

2012

5

2011

9

Revenues (R)

Expenses

Risks2010

14

+46%

2012

20

2011

14

Operating profit before tax (P)

16% 22%16%P / R

> Positive impact on revenue

growth of capital market evolution

despite continuous pressure on

price and low rate environment

> Strict cost management from

these producing factories within

their banking group

> Concentration of this integrated

model among Swiss banks,

French banks and German banks

> Banks in the UK and Southern

Europe are selling parts of their

IIS businesses to benefit from

scale/experience effect and free

up capital

COMMENTS



Key challenges in IIS are specific to each business

> Restore profitability of life insurance portfolio through

systematic in-force management

> Invent holistic 'grey hair' value proposition (health,

pension, protection) to cope with the challenges of an aging

population facing the withdrawal of social systems

> Push further the imperative of industrialization

in a context of sustainably low interest rates

> Adapt value propositions and operating model (CIB/SS

synergies) to leverage regulatory overhaul (OTC market

restructuring, Solvency II linked demand)

INVESTOR SERVICES

IIS

INSURANCE

PRIVATE BANKINGASSET MANAGEMENT

> Amplify cost efforts on "low alpha" activities and improve

sales force effectiveness toward institutional clientele

> Act as a consolidator by screening non-organic

development opportunities to develop existing footprint

(acquisitions, JVs, …)

> Continue to invest in compliance and in structuring the

global business line to comply with new environment

> Regain client trust and reinforce differentiation and brand

recognition through leveraging digital opportunities

INSURANCE AND INVESTOR SERVICES

Source: Roland Berger analysis


Nordic countries are heading toward the new model of retail banking while Italy and Iberia are in the middle of their restructuring effort

INCOME[2011-12 growth]

EXPENSES [2011-12 growth]

OPERATING PROFIT TO INCOME [2012 - 2011-12 growth]

COST TO INCOME [2012]

RETAIL & BUSINESS BANKING

> Positive volume/margin evolution combined with cost discipline and digitalization

BeNeLux

Iberia 7.6%

Italy 2.5%

1.7%

France -0.8%

Germany -1.7%

UK, Ireland -7.0%

CEE -2.5%

Switzerland,

Austria-1.7%

Nordics 7.1%

Average -0.1%

+12%

> Negative operating jaws due to derisking strategy compensated by sharp reduction in cost of risk

> Negative operating jaws due to a combination of sluggish revenue, salary inflation, new taxes and slight risk cost increase

> Restructuring phase with interest margin increase and banking consolidation ……offset by cost of risk surge

1.0%

0.4%

3.5%

-2.4%

2.0%

0.2%

3.7%

-0.4%

-7.8%

-0.4%

65.5%

61.7%

64.6%

61.4%

55.0%

67.7%

58.9%

52.2%

61.1%

51.4% 40.3%

-14.4%

17.5%

25.9%

5.8%

26.5%

22.4%

15.6%

21.7%

29.9%

+3%

-6%

-6%

-10%

+8%

-10%

-49%

-282%

-19%


Note : profit before tax

Key performance indicators in retail & business banking, by area of operation


The level of cost of risk is a clear divider across European retail banking markets. However lower risk markets shows worrying early signals

59%

30%26%25%

12%10%9%8%8%

IberiaItalyCEEUK,

Ireland

BeNe-

Lux

GermanySwitz.,

Austria

NordicsFrance


COST OF RISK AS A % OF REVENUES PER GEOGRAPHICAL MARKET [2012]COST OF RISK BREAKDOWN PER COUNTRY [2012; EUR Bn]

Iberia

Italy

UK+Ireland

Germany

CEE

France

Others

76

26

12

11

8

7

5

7

Cost of risk growth[2011-2012]

Share of 2011-12 growth

85%

Average: 21%

> -10%

Between-10% and 0%

Between 0% and +15%

Between +15% and +50%

> +80%27%

-24%

5%

-5%

2%

10%



Retail bank CEOs have to manage two time horizons to navigate towards the New Retail banking model

Revenue enhancement

Cost reduction

CHALLENGE EXTERNAL EXPENSES

(IT, real estate, S&G)

STREAMLINE CORPORATE PROCESSES(Audit, compliance, controlling)

OUTSOURCE TASKSTO CLIENTS

(process digitalization)

OPTIMIZE OUT-OF-BRANCH SUPPORT(delayering, span of control)


IMPROVE PRICING

REALIZATION

(discount, leakage)

PUSH HIGH VALUE

PRODUCTS

(consumer credit, P&C insurance)

BOOST MULTI-

CHANNEL SALES

(fast CRM, data

monetization)

RETAIN CLIENTS AND ASSETS

(inheritance, anti-attrition)


SHORT TERM Restore profitability and confidence

LONG TERM Re-invent the business model


Reinventing the role of branches: from proximity to accessibility

EVOLUTION OF DENSITY OF BRANCH NETWORK(2006-2011, Number of branches per million inhabitants)

2000 2002 2004 2006 2008 2010 2012

1,200

1,000

800

600

400

200

0

Germany

Netherlands

France

Sweden

Spain

Belgium

Source: ECB, EBA, Eurostat, EFMA, analyses Roland Berger

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

35302515 80757065605550454020

% of adults using internet banking over the last 3 months1)

Evo

lutio

n of

the

num

ber

of b

ranc

hes

betw

een

2006

and

201

1

SpainGermany

Denmark

Belgium

AverageUnited Kingdom

Sweden

Finland

Netherlands

ItalyFrance

DYNAMICS OF NETWORK EVOLUTION VS. SPREAD OF INTERNET BANKING[2006-2011, selection of European countries]



SFS businesses were quite resilient in a difficult context, however specialist and bank-embedded players display different strategies

SFS financial performance overview [2010-2012; EUR Bn]

SPECIALIZED FINANCIAL SERVICES

+3%

10.310.0

+7%

6.05.6

+59%

2012

1.7

2011

1.1

Revenues (R)

Expenses

Risks

-9%

2012

9.4

6.8

2.6

2011

10.4

7.0

3.3

2010

7.1

4.6

2.5

Op. profit before tax (P)

P / R

BanksSFS

-4%

27.928.9

-6%

14.115.0

+1%

2012

7.0

2011

6.9

SFS specialists Banks > Consumer (B2C) lending :

– Continue to drive cost/efficiency

initiatives in a context on stronger

regulatory constraints

– Redeploy resources by channel/

country based on new profit

patterns

> Asset-based (B2B) lending

– Increase focus on SMEs to

rebuild margins

– Propose alternatives to traditional

offering in in a context of cost of

risk increase

> Transversal

– Expand/develop access to

liquidity

– Push new retail banking/SFS

enhanced cooperation model

KEY CHALLENGES

25%33%26%

24%24%14%



3. Moving forward


Still a lot to do for European banks' executives to rebuild structural profitability of their respective institution

Level of realization

3%

2010

9%

2007

17%

2015

8-11%

Management

actions

+5-7%

Remaining

impact of

regulatory

changes

-2-3%

Neutralisation

of except.

items and

non core

activities

6%

2012

0%

2011

1) ROE calculated based on Profit before Taxes


Evolution of ROE1) of European banks

Top executives of European banks are

activating 4 types of levers to rebuild

profitability:

> Adapt to higher capital requirements rules in

Basel III perspective

> Diversify sources of funding and adjust

business portfolio according on their self-

fundability

> Redefine business lines' profit models in a

context of resource (capital, liquidity) scarcity

and low growth environment

> Deliver operational efficiency improvements to

cope with higher capital/liquidity cost

2

3

4

1


The agenda of European banks' CEO

> After implementing urgent adaptation measures in order to fulfill regulatory requirements and adjust to the new environment of scare resources, European banking CEOs can not rest. on their laurels. They need to address 6 challenges on their agenda to rebuild the profitability of their institution.

> At Group level :

– Cost: Define structural cost reduction beyond adaptation plans & budget cuts by deploying methods from more frugal industries

– Capital Management: Enforce further discipline/sophistication on value creation measurement and scarce resource allocation

– Inorganic growth: Get prepared for the end of the Ice Age to seize external opportunities (both ways)

> At Division level :

– Corporate and Investment Banking: Deliver the expected benefits of the more client-driven/more industrialized model

– Retail & Business Banking: Embark on the transformation journey to the New European Retail Banking model

– IIS and SFS: Innovate (value proposition & operating model) to adapt to an enduring low interest rates/low growth environment


Top challenges per country

NORDICS Manage to enforce repricing as a potential for capital

repatriation to face new capital requirement imposed

by regulators on top of Basel 3

UK & IRELANDContinue to plug 'organically' the new capital

deficit following PRA statement and get

prepared for a lot of mortgage-related action

BENELUX Structurally reduce costs to absorb new regulation as

well as to integrate clients' digital behaviors in order to

safeguard future financial performance

FRANCE Materialize cost saving program in the P&L

and initiate the transformation of the retail

banking model

IBERIAContinue with the consolidation and

cleaning up of the banking industry and

identify new sources of profit to replace

the mortgage market

GERMANYFace currently declining revenues

combined with fierce competition (e.g.

deposits with foreign banks, payments

with new competitors) and exploit

opportunities in corporate business

(energy system transformation, export

financing)

CEEBalance between the "banking group"

model which optimizes intra-group

liquidity, risk and B/S management vs. the

"group of banks" model which national

regulators prefer

ITALYPrevent further deterioration of loan book despite

continuing recesssion while managing over 130Bn€

NPLs (real estate, SMEs) and accelerate transformation

of distribution model (branch closure,

reduction/redeployment of personnel)



The prize at stake : a 30%+ market valuation

THE NEW NORMAL – P/B : 1,3Banks having (Nordics) or having announced (Swiss banks) clear cut strategic choices to derisk their balance sheet, have large capital buffer and focus on efficiency

SEEING THE LIGHT –P/B : 0,8Largest European banking groups with strong retail footprint and midsize banks benefitting from the restructuring/consolidation in their domestic market – good ROE of core activities with higher revenue growth

IN THE MIDDLE OF RESTRUCTURINGBanks going through a deep restructuring phase – negative ROE and revenue decline

1) Panel of 40 quoted banking groups


1.5

Emerging

country

banks

1.1

US

banks

0.8

European

banks

-27%

THE JURY IS STILL OUT –P/B : 0,5The largest group of European banks going through balance-sheet cleaning and cost reduction exercises – still low ROE of core activities and weak revenue growth

AVERAGE P/B RATIO

EUROPEAN BANKS' PRICE-TO-BOOK (P/B) RATIO AND PRE-TAX ROE OF CORE ACTIVITIES

-12

1.6

1.0

0.2

1.8

1.2

8 1612

0.8

1.4

0.6

2014 18

0.4

10

0.0

2262 40-2-4-6-8-10

ROE core activities [%]

Price to book (end 2012)


3. Appendix - Update on Roland Berger Strategy Consultants


Roland Berger Strategy Consultants: Overview of 2012

• Contribution to G20 summitReport on infrastructure financing options in underdeveloped countries to support their advancement

• Re-industrialize France Diagnostic and recommendations on the creation of 700 000 employments within the French industry by 2020

• "For a more confident France"Contribution to the public debate

REAFFIRMED INTELLECTUAL LEADERSHIPSUSTAINABLE GROWTH WITHIN A DIFFICULT CONTEXT

• 10% revenues growth2 700 employees, 51 offices in 36 countries

• 600 consultants in Asia11 offices in Asia (continental China, South-East Asia, Japan…)

32% growth since 2010

• 5 new offices opened in Asia and North AmericaSeoul, Mumbai, Guangzhou, Montréal, Boston

• Project 2012 – Our reflection on executive agendaExamples of topics: the financial crisis and public debt, energy policies, the social protection system, population growth

• 50th anniversary of the Elysee TreatySeries of business breakfasts with the French and German executives at the German embassy in Paris- The future of Energy in Europe- Infrastructure financing in Europe


Our Financial Services Competence Center has experienced an excellent performance in 2012

A SUSTAINABLE GROWTH OF THE FINANCIAL SERVICES COMPETENCE CENTER EXAMPLES OF PROJECTS REALIZED IN 2012

• +25% in turnover in 2012

• +20% of global turnover realized by the Financial Services

• A global network connecting more than 100 experts specialized by business line or functional subjects

38%

18%

17%

15%

12%

Cost cutting

Restructuring

Development / growth strategy

PMIs and Partnerships

Finance & Risk

• A balanced projects portfolio in 2012

CIB> Global reduction plan – Wave 2

> Coverage efficiency (France & Germany)

Retail bank> Evolution of retail banking by 2017 (France)

> Study on network optimization (Germany)

> Tactical levers to improve revenues (France)

Strategy> Global governance (Italy)

> Growth strategy (China)

Insurances> Strategic review at the group level (Italy)

> Strategic impact of the social coverage development(France)

> In-force management (Germany)

Finance &

Risk

> Stress test of Spanish banks (Spain)

> Trading incidents management program (Switzerland)

> Efficiency program for the Risks/ Finance function (France)

IT & Ops> IT frugality program (Germany)

> Study on outsourcing opportunities (Spain)


Strategies

that work!

Performance of european banks

Economy & Finance

Transcript of Performance of european banks