UniCredit Group
Delivering growth in a riskier world
Merrill Lynch Banking and Insurance CEO ConferenceLondon, 3rd October 2007
Alessandro ProfumoChief Executive Officer
2
"IN THE SPOT" TODAY
UNICREDIT POSITIONING AND STRATEGY SUPPORT VALUE CREATION ALSO IN THE CHANGED MARKET SCENARIO
UNICREDIT OPPORTUNITIES
DIVERSIFICATION BY BUSINESS AND GEOGRAPHY All Divisions below 1/3 contribution to operating profit
Italy 47% of consolidated revenues, Germany & Austria 27%, CEE 18%, other regions 8%
WIDE EUROPEAN FRANCHISE Banking operations in 23 countries(1) in four core markets
More than ~40 million customers, ~9,500 branches
GROWTH & RESTRUCTURING Clear growth pattern in CEE Region
Solid revenue base in Italy, with significant potential from Capitalia integration
Germany and Austria with further restructuring potential
LIQUIDITY Well balanced asset & liability structure
Sound liquidity position thanks to active management
CREDIT MARKETS
Negligible Exposure To Us Sub-Prime & Conduits
High quality LBO portfolios, with no material credit defaults or loan losses
Diversified UCI MIB revenue sources, mitigating financial turmoil impacts
(1) Including ATF
4
WELL BALANCED CONSOLIDATED ASSET & LIABILITY STRUCTURE
(1) Medium-long term funding, 139 mln (above 1 year - capital instruments and funds not included) / Medium to long term commercial Banking book assets (254 mln)
(2) Ex Bank of Italy structural liquidity Rule 2 aimed to ensure a structural equilibrium between assets and liabilities by a specific weighting system
30 June 2007
BANKING BOOK
303
218
708 bn
254
339
25139
48618 bn
32
130
26224
Total Liabilities 869 bn
Total Assets 869 bn
OtherOther
Trading assets
Fixed assets
M/L term assets
S/T assets
Trading liabilities
M/L term liabilities
Due to customers
S/T liabilities
Regulatory Capital
Customer Loans (454 bn)
Customer Deposits (303 bn) = 150%
Financial Equilibrium ratio(1): from 15.3% in 2003 to 56.4% as of June 07
Former Bank of Italy Rule 2(2) +31.9 bn
Strong discipline provided by internal rule:
Liquidity ratio limit above 0.90
5
CLEAR FUNDING AND LIQUIDITY MANAGEMENT BASED ON THREE SOLID PILLARS
Maintaining eligible and marketable collateral
>56 bn of collateral available within 1 month
Increasing access to secured funding with new asset classes
200 mln of new collateral through the Italian “ABACO” initiative, rising to 2.2 bn by YE
Projects in place to monetise existing assets through ECB and other Central Bank facilities
Diversification of geography and instruments for both S/T and M/L termDepos, CD’s, CP, Private Placements, Pfandbriefe, Retail
Leveraging on the historical funding reach of HVB & BA-CA
Centralised co-ordination of pricingMinimise cost of funds
Avoid internal competition
Extensive sharing of liquidity between all regional liquidity centres … cash pooling
Trading with Market Place, UCI’s digitalized trading and accounting platform
Active since March 07, live in all Italian entities, HVB, BA-CA, Pekao, Capitalia
Third party funding needs reduced by a further 3.2 bn in 2007
CASH POOLING
FUNDING DIVERSIFICATION
COLLATERALISATION
6
UNICREDIT STRONG LIQUIDITY POSITION NOT AFFECTED BY AUGUST AND SEPTEMBER MARKET CRISIS
UniCredit Group 1 month available liquidity(1)
(1) Calculated as: (sum of net liquidity inflows in the timeframe) + (securities eligible for discount to the ECB, marketable repoable securities)
2 Apr 16 Apr 30 Apr 14 May 28 May 11 Jun 25 Jun 9 Jul 23 Jul 6 Aug 20 Aug 3 Sep 24 Sep
Strong increase of intra-group liquidity flows in August (+61.2% m/m), reducing need to access the market
Money Market prices in the Internal liquidity market always below Euribor
60
100
140
Indexfigure
Sound and comfortable positive liquidity gap, even after August 07 crisis
8
Euro mlnTotal
Unicredit Group
On balance
US sub-prime RMBS 127
CDO with partial sub-prime 139
of which equity tranches/income notes 11
Retained interest 11
Total on balance 277
Off balance 77
Total 354
Exposure to US sub-primes:
RMBS collateralized by US sub-prime mortgages (mainly vintage, 2002-2003), still AAA rated
CDO with sub-prime collateral: 90% still investment grade, 70% AA or better at the end of August
Retained interest held by Pioneer
NEGLIGIBLE EXPOSURE TO US SUB-PRIME…
RMBS: Residential Mortgage Backed SecuritiesCDO: Collateralized Debt Obligations(1) Off balance items include conduits with sub-prime exposure and investments in SIVs(2) On Unicredit reported total regulatory capital as of June 07
(1)
Exposure equivalent to 0.8% total regulatory capital(2)
9
8.5
6.2 5.8
14.3
July 07 Aug 07 5 Sep 07 26 Sep 07 Feb 08E
… AND TO CONDUIT BUSINESS
Euro bn
HVB sponsored conduits
Size as of 26 Sep-07
Type of Conduit
Liquidity line
HVB Liquidity line
Letter of Credit
Arabella 1.8 Customer Yes 1.77 0.18
Salome 1.3 Customer Yes 1.31 0.69
Black Forest* 0.7 Customer Yes 0.63 0.30
Maximillian* 0.3 Arbitrage Yes 0.30 0.01
BUFCO* 1.1 Arbitrage Yes 1.08 0.12
Subtotal 5.2 5.09 1.30
Bavarian TRR* 5.8 TRR No - -
Total 11.0 5.09 1.30
* US $ denominated; €/$: 1.4124
Very quick response to market turmoil by reducing Bavaria TRR assets from 14 to 5.8 Euro bn
Bavaria TRR exposure, Euro bn
Extremely low exposure to 3rd parties conduits: total liquidity lines provided by HVB/BA-CA ~0.55 bn
0(1)
(1) Total Rate of Return Conduit
10
HIGH QUALITY LEVERAGE BUY-OUT BUSINESS
Europe
95%
Europe
95%
UNDERWRITING PORTFOLIO
HOLD PORTFOLIO
Europe
83%
Europe
83%
USA: 5%
USA: 12%
Asia: 5%
~5.0 eur bn, 12 deals
all strong credit stories
1 jumbo LBO (Alliance Boots, 2 eur bn exposure), high quality credit story performing very well
~5.5 eur bn, 160 deals
95% senior
Well performing, highly diversified
Two high quality LBO portfolios, mainly European deals; no credit concerns
11
MARKETS AND INVESTMENT BANKING DIVISION: A WELL BALANCED BUSINESS PORTFOLIO
BREAKDOWN OF 2006 OPERATING REVENUES
REVENUES BY BUSINESS LINES 2006(total return view)
Equities 20%
FICC(1) 30%
Origination & Advisory 39%
Structured Credit 12%
Financing 61%
Structured Derivatives 38%
InvestmentBanking
32%
Markets68%
(1) Fixed Income, Currencies, Commodities
Strong diversification of revenue sources mitigating the impact of the credit market turmoil
13
RETAIL: a successful service model and a well-rooted presence in the core countries
NOTE: Year-end 2006 data, referred to UniCredit + Capitalia + ATF +USB Groups (combined pro-forma, before Corporate Center and elisions) Source: UniCredit, Capitalia, ATF, USB 2006 data
OPERATING PROFIT BREAKDOWN
CORPORATE: a network leveraging on group wide product factories
BY DIVISION
CAPITALIA: additional opportunities from integration
MIB: a strong regional player with significant diversification
CEE: the leading franchise in a high-growth area
UNICREDIT BUSINESS PORTFOLIO: DIVERSIFICATION, GROWTH AND RESTRUCTURING OPPORTUNITIES
PB&AM 12%
CEE 20%
Retail 24%
MIB 17%
Corporate 27%
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CEE: UNIQUE COMBINATION OF STRONG GROWTH POTENTIAL AND IMPROVING RISK PROFILE
Real GDP Growth (%)1
CEE-16 EU-12 ASIA LATAM
Avg. 07-09e
7.4
4.0
6.0
2.1
(2) Total loans/deposits include general gov.t, non-financial corporations, households and when available non-profit institutions serving households (NPISHs) and non-monetary financial institutions (Non-MFIs); CEE: new EU members, Croatia, Turkey, Bosnia, Serbia, Russia and Ukraine
(1) CEE-16: BiH, BG, HR, CZ, HU, EE, LV, LT, PL, RO, RU, SK, SI, SRB, TK, UA; Source EIU (economist intelligence unit) for Asia and Latam
(4) Calculated for CEE 10, including Poland, Czech Rep., Hungary, Slovakia, Slovenia, Croatia, Bulgaria, Romania, Turkey and Russia
Banking penetrations
(Loans+Deposits)/ GDP in 2006
EMU3
214%
CEE
77%2
Euro bnCagr
06-09
Loans 30%
Deposits 23%
AuM4 28%
Net Profits5 19%
(3) European Monetary Union
(5) Net Profits (Before Tax & Extr. Items) are calculated for CEE 16
Sources: Central Banks and UniCredit Group New Europe Research Network
(6) For May 2007 S&P rates - GDP as year end ‘06; For May 2004 S&P rates - GDP as year end ‘03
Stronger economic growth in CEE vs EU …
∆ avg. real GDP growth 07-09e ~4 pp vs. EU
… with improved risk profile country rating (weighted for
GDP6) > BBB- ~78% in May 2007(~+40 pp in the last 3 years)
Under penetrated banking sector
CEE 20%
High volume growth rates expected
15
UNICREDIT’S EXTENSIVE NETWORK DELIVERED EXCELLENT PERFORMANCE…
1H 071H 06
1,1431,424
+24.1%
UCI’s Operating profit in CEE Region, mln
44.7
13.5
10.0
8.5
5.9
5.5
4.9
4.4
2.5
UCI’s Operating profit, breakdown by country* (1H07)
63
70
78
84
121
142
192
637
35Slovakia
Hungary
Romania
Bulgaria
Czech R.
HR & BiH
Russia
Turkey
Poland's Markets
P&L figures at current FX, % change at constant FX Weight in % on total(*) Balance due to Serbia, Slovenia, Baltic Countries & Profit Center Vienna
+21.6
y/y % ch.
+27.2
+17.5
+52.3
+2.6
+29.4
+25.0
+12.6
+64.7
CEE 20%
Strong top line growth delivered across all countries, driven by volume expansion, careful pricing and high standard services to customers
Improved efficiency (C/I ratio to 48.2% -3.7 pp y/y) while delivering organic growth
16
In other countries of presence…
…selective organic growth
In high-growth markets with solid presence…
…aggressive organic growth
… WITH FURTHER OPPORTUNITIES LEVERAGING ON GROUP POSITIONING AND MARKET GROWTH POTENTIAL
CEE 20%
KEY ACTIONS
Increase product penetration leveraging on Group’s product factories
Optimize branch network after merger and integration activities
TURKEY
RUSSIA
ROMANIA
UKRAINE
KAZAKH.
Significant branch opening plan: ~900 new branches in 3 years
Increase Retail customer reach
HUNGARY
CZECH R.
SLOVAKIA SLOVENIA
SERBIA
BALTICS
Selective branch opening
Strengthen retail positioning
UNICREDIT STRATEGY
Where n°1…
…ride the market growth consolidating market shares
(1) Revenues CAGR 2006-2009 (local currency) weighted for UniCredit revenues in the considered countries in 1H07 – Kazakhstan not included
+11.4%
+20.9%
+11.3%
MARKET POTENTIAL1
CROATIA
BULGARIAPOLAND
BOSNIA H.
17
MIB: A LEADING REGIONAL PLAYER WITH A CLEAR DIVISIONAL MODEL OFFERING SIGNIFICANT GROWTH OPPORTUNITIES
MIB17%
Enhancing coverage, origination and advisory capabilitiesCOVERAGE
ORIGINATION & ADVISORY
Significant cross selling opportunities on the Group’s international platform
CROSS SELLING
Strong CEE network with optimal positioning in the most attractive markets
CEE POSITIONING
Key growth drivers:
Leverage on the ability to provide Group’s products to an enlarged client base in Austria/Germany, Italy and CEE
Group’s large lender position and strong CEE M&A advisory as a door-opener to clients in the core markets
Cross selling potential of the global platform: FX, structured derivatives, structured and project finance
Double digit growth rates in CEE with
Poland: +10% CAGR 2006-2011(1)
Russia: +15% CAGR 2006-2011(2)
(1) As for System’s Wholesale Banking revenues(2) As for System’s Investment Banking revenues
50% of CEE revenue pool
Divisionalisation in CEE allows to roll out the international product platform via the local network
Increase share of wallet of existing clients in Austria, Germany and Italy
18
RETAIL ITALY: FULLY IMPLEMENTED DIVISIONAL SERVICE MODEL SUPPORTING GROWTH
Accelerating the current successful growth
Cost/income target achieved one year ahead of plan
1H 07FY 06
6055
C/I, %
-5 p.p.
1H 071H 06
2,3632,542
+7.5%
Revenues, mln Customer base enlargement:
100,000 new customers in Jan-Sept 07
131,000 net flow of new C/A in Jan-Sept 07
Customer satisfaction: continuous improvement TRIM Index: UniCredit Banca 61 vs 51 of top 5 peers
Market share rising in key products/ segments:
Household mortgages (new production)
Consumer Financing (new production)
Small business short term loans
Strong productivity increases thanks to higher automation/online migration
Branch transactions -10% in 2006, but total bank transactions increased by 12%
1,600 deposit-ATM installed by July 07: 38% of cash deposits migrated
1.6 mln active online customers at June07 (+33% y/y)
FTE rightsizing
-369 FTE since Dec05 (to 22,796 in 1H07)(1)
(1) Excluding seasonal workers
RETAIL24%
19
Preliminary benchmarking fully supports announced cost and revenue synergies
CAPITALIA: STRONG OPPORTUNITIES IN BOTH REVENUES AND COSTS
Integration started at full speed:
(1) Referred to Personal Banking
(2) Index figures, UniCredit Banca=100. For Capitalia, Min and Max between Banca di Roma, Banco di Sicilia and BIPOP
PRODUCT PENETRATION
BRANCH SERVICE MODEL(2)
Alignment to UniCredit’s best practice
Increase productivity:
Externalization of back office
Wider utilization of direct channels
INTEGRATION
Agreement with Unions on rightsizing signed
New branches plan
First Retail joint initiatives (e.g. ATMs sharing) and product development
Common brand strategy defined and announced
UniCredit Banca
Capitalia
Current Accounts 89% 74%
Revolving Cards 11% 5%
Segregated Accounts 29% 13%
Daily transactions per FTE 100 49-71
Current accounts/Deposits per FTE 100 52-73
Direct channels transactions 100 61-77
(1)
(2)
(2)
RETAIL24%
(2)
20
Improvement of cross selling (i.e. 131,000 new “Willkommenskonto” in Germany from Jul-06 launch)
Focus on Affluent customers long term investments and Small Business entrepreneurs assets
Set up of UniCredit Consumer Financing Deutschland
Growth in Mortgage penetration in line with branch share in Austria
GERMANY AND AUSTRIA: PAVING THE WAY FOR FUTURE GROWTH RETAIL
24%
OPPORTUNITIES TO BOOST REVENUES
COST MANAGEMENT ACTIONS
FTE rightsizing
Network restructuring, through
business model revision and tight
direct costs management
Strong control on both direct and
indirect costs
1H 071H 06
711701
Operating expenses
-1.3%
1H 071H 06
538
470
-12.6%
Operating expenses
1H 07FY 05
91.976.9%
C/I, %-15 p.p.
1H 07FY 05
91.5%
73.6%
-17.9 p.p.
C/I, %
FY 06FY 05
1,5581,422
-8.7%
FY 06FY 05
1,147
978
-14.7%
21
Revenues, mln
CORPORATE27%
1H 071H 06
2,385
2,530+6.1%
C/I Ratio, %
1H 071H 06
33.3%31.5%
-175bp
Cost of risk, bp
1H 07FY 06
5348
-5 bp
CORPORATE: BUSINESS EXPANSION IN A SOUND ENVIROMENT
Improved quality of the loan portfolio
Strict cost control
Growth of corporate loans (+10.2% 1H07/1H06) and strong development of leasing (revenues at ~169 mln, +15% 1H07/1H06)
Increased cross selling of fee based products (derivatives, securities services) as main growth drivers (net fees at 409 mln, +15%)
Good increase of deposits (+9.8% 1H07/1H06)
22
OPPORTUNITIES ARISING FROM NETWORK STRENGTHENING AND LEVERAGE ON PRODUCT FACTORIES
LEASING:
N. 1 European Leasing Group(2) after integration with Capitalia Strong business momentum
GLOBAL FINANCIAL SERVICES: focus on cash management, trade finance and international payments, exploiting the wide Pan-European network
Aggressive expansion plan in selected regions: 5 new locations already opened
Stronger positioning (~14% mkt. share(1)) after merger with Capitalia in a market with an attractive outlook …
(1) As for total corporate customer loans
… particularly in very interesting target regions (Lombardy, Tuscany and Lazio)
PRODUCT FACTORIES
COMMERCIAL NETWORKS
(2) As for total new business, ~12 bn(3) As for outstanding loans
CORPORATE27%
Jan-Aug06
5.67.4+33.4%
Leasing – New Business, bn
Jan-Aug07
23
CAPITALIA: FURTHER RELEVANT RESTRUCTURING OPPORTUNITIES
Capitalia migration by end of 2008 to UniCredit’s EUROSIG(1)
Consolidation of Capitalia IT functions into UGIS(2)
Integration of back office functions, also leveraging on “near-shoring” in Romania
Consolidation of procurement activities, extensive use of e-auctions
Adoption of UniCredit divisional model with light regional HQs
Branch network rationalization in Italy and foreign countries
Creation of single product factories and alignment to best performers
Union agreement signed well ahead of plan
Estimated staff rightsizing: 5,000 people
STAFF COSTS
ITBACK OFFICECENTRAL FUNCTIONS
Clear cost synergies from rationalization and alignment to best practices
(1) The single IT platform for Commercial Banking
(2) UniCredit Group Information System