Opportunities
in Italian Regional Banks
HSBC Italian Banks Conference
London - January 19th, 2006
Lino MoscatelliManaging Director
2
102
69
20
1994 1999 2004
Net income
705
317
150
265
1,250
1994 1999 2004
Shareholdings
Group
Parent Company
14.0%
9.6%
2.9%
1994 1999 2004
ROE (adj.)7.2%
2.2%
-9.5%
1994 1999 2004
EVA
Growth Over The Years
3
Italian leader in consumer credit
through FINDOMESTIC Banca
9M 2005 ROE (annualised) 13.6%
Group network 527
MAIN FIGURES
Customers 1,000,000
Market Share loans 11.0 %
funding 15.8 %
Customer loans € 12.9 bn
Total funding € 36.8 bn
Banca CR Firenze Group
The outward expansion from its traditional business territory led to the transformation into a multi-regional banking group
Investments in consumer credit increased profitability and stabilised P&L
CR MIRANDOLA
CRCIVITAVECCHIA
CR ORVIETO
CR PISTOIA
CR SPEZIA
33442
8 1
28
46
51
Financialadvisors
4
Recent Achievements
The 2000 IPO has produced an evolution process which led to
Group perimeter enlargement
Financial assets growth
Focus on consumer credit
New structure for the branches network
Profitability increase
Capital allocation optimization
Value creation
5
A Strategic Choice: Consumer Credit
22%18%28% 33% 35%
2000 2001 2002 2003 2004
A fast growing business well-blended into a pure retail group
Profitable capital allocation:
The additional 15% capital stake (from 35% to 50%) was bought in 2001 at 1.7x book value
Findomestic average ROE 20%.
Consumer credit weight*
* Consumer credit pre-tax income / Consolidated pre-tax income. Goodwill excluded
35% stake
50% stake
6
A local, retail banking group aiming to be competitive in the long term cannot solely count on the local roots advantage and on a friendly approach
Today, the group’s mission must also include:
a diversified and technically advanced market approach (through branches & remote banking) in order to offer services and competitive prices
a high level of professional competence
a range of high quality products as wide as that offered by a large domestic competitor
a customer approach that is less focused on sales results and more on clients’ expectations
The Future for Regional Banks: What Mission?
7
Three separate channels, three different networks, one sales supervision
313 retail branches focused on mass market, affluent and small business customers
A close-knit network coverage thanks to 17 Corporate Centers and 16 Private Banking Centers
Synergies between channels: Corporate/Private Bkg. and Retail/Corporate
Network figures refer solely to Group’s banks where the model has been implemented.
Clients figures refer to Parent Company
Advanced Market Approach
Head of Commercial Dept.
RETAIL BRANCHES CORPORATE CENTERS PRIVATE BKG. CENTERS
633,000clients*
11,000clients*
6,000clients*
8
Personnel & Customer Management
The rollout involved some 800 employees (1/3 of parent company network headcount)
Banking activities in branches had to evolve: multi-tasking has given way to specialized retail branches
High percentage of branch managers moved to Corporate Centers. Consequently, a great number of training courses for new managers covering the empty positions was required
High value vocational courses offered to Corporate Portfolio Managers (at Bocconi University of Milan)
Assitance to clients adapting to the new banking environment
9
Application of the advanced market approach to the entire Group network
Additional personnel shift from back-office to sales
Subsidiaries will then develop as networks only
The Network: Future Developments
NETWORK / TOTAL EMPLOYEES RatioTARGETS
84%
CR0
77%
CRM
73%
CRC
83%
CRS
76%
CRP
90% 85% 85% 85% 90%
CR Mirandola will merge in July 2006
CR Civitavecchia: target achieved
10
Individuals Segment
Generates the greatest value
Is characterized by high propensity to save but also...
...by a sentiment of mistrust in the banking system
Pensionschemes
Exp
ecte
d b
usin
ess g
row
th
Bank’s positioning
Consumer
creditMortgages
Personalinsuranc
e
Investments
Cash - Payments
High growth potential
High growth potential
Potential for further investments to exploit good growth ratios
Potential for further investments to exploit good growth ratios
Only potential for selective investments to improve service quality and maintain market shares
Only potential for selective investments to improve service quality and maintain market shares
The dimension of the bubbles shows the current importance of the Business Area in terms of margin
11
An approach more focused on client’s expectations means
Less but more personalised commercial proposals Greater effectiveness - Reinstating a trust relationship
CRM techniques are the most important tool to achieve the combination of the above aspects
The underlying Data Mining Platform furnishes a deeper knowledge of the client clusters and therefore facilitates the construction of a keener relationship
Furthermore, the branch managers’ improved professionalism, a customer satisfaction analysis and communication strategies that will be differentiated according to client segment will generate greater worth from the relationship
Individuals: A Structured Approach
12
Full use of the CRM instrument
Exploiting the generation turnover to facilitate the process
Individuals: What Next ?
64 campaigns launched and 92 events managed 450,000 commercial talks 456,000 customers with a next product assigned
only 50% of the portfolio managers regularly used the tool
In 2005
A propensity score for all the product range
The introduction of the customer satisfaction indices in the MBO Plans
13
SMEs & Corporates Segment
SMEs are now experiencing a dimensional growth and international expansion
Banks’ capacity to exploit Basel II will make certain banks more competitive
Exp
ecte
d
bu
sin
ess
gro
wth
Intl.services
Structured
finance
Bankguarantees
Factoring
Ind. & Spec.credit
Financial riskcoverage
Foreign payables/
receivables
Leasing
Agriculture financingDomestic payables/
receivablesCurrencies
Selective investments to follow market opportunities
Selective investments to follow market opportunities
Investments to exploit the expected growth of high margin products
Investments to exploit the expected growth of high margin products
Maintain
market shares
Maintain
market shares
Bank’s positioning
The dimension of the bubbles shows the current importance of the Business Area in terms of margin
14
SMEs & Corporates Segment
* Sum of all credit lines granted by the Italian banking system or by BCRF expressed in EUR thousand
(source: Bank of Italy and BCRF)
The figures below reflect the bank’s low capacity of attracting key clients
BCRF is a first choice bank for a small number of its clients (8%)
In the core clients group, BCRF obtains even lower percentages
The aim is to grow as the first choice bank for the core clients
from
to
BCRF clients who recognized the bank as a 1st choice bank
75 125 250 500 1,000 2,500 5,000 25,000125 250 500 1,000 2,500 5,000 25,000
Banks per client (Italy, avg.)
Credit needs covered by clients’ 1st choice bank (Italy)
1.0 1.2 1.7 2.4 3.2 4.4 6.3 10.3
99% 89% 76% 68% 61% 55% 46% 36%
46% 43% 18% 8% 4% 4% 2% 2%
AVG.
2.1
49%
8%
Granted loans (total*)
Core clients
15
SMEs & Corporates: How To Compete
BCRF has been among the first mid-sized groups to launch the IRB Advanced (Basel II) procedure
The capacity to correctly assess client risks will enable to:
Recuperate market share in the top-client segment Obtain a correct profit from risks related to the worst
clients
* Loans by rating refers to the Parent Company’s 65% corporate segment customer base. November 2005
Loans by rating*
Amounts
granted
Amounts
utilized
A1 A2 A3 A4 B1 B2 B3 B4 B5 B6 B7 B8 C1 C2
16
Remote Banking: Powering Up & Growing
A multi-channel approach is required today by both corporate and individual segments
The number of users is growing steadily and transactions are rising even faster
This approach is essential to acquire new, young clients in the 30-40 age group
Over-investments proved to be non-profitable but innovation must remain steadfast:
BCRF has been the first Italian bank to offer a DIGITAL TERRESTRIAL TV (DTT) remote banking service
17
The Generation Chance
Between 2006 and 2008 a large number of employees will reach the minimal age for retirement (about 450)
A great opportunity is at hand for organizational and commercial re-engineering which could allow a remarkable reduction of costs
~ 450
expected
retirements
Organisation
Technology
Replacements
Headcount
reduction
Group’s figures (estimates)
Opportunities
in Italian Regional Banks
HSBC Italian Banks Conference
London - January 19th, 2006
Lino MoscatelliManaging Director