Playing to our strengths to deliver sustainable disciplined growth

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Playing to our strengths to deliver sustainable disciplined growth Rijkman Groenink Chairman of the Managing Board Merrill Lynch Banking & Insurance CEO Conference London, 6 October 2005 Advancing our mid-market strategy

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Playing to our strengths to deliver sustainable disciplined growth. Advancing our mid-market strategy. Rijkman Groenink Chairman of the Managing Board Merrill Lynch Banking & Insurance CEO Conference London, 6 October 2005. Agenda. Strategic focus on mid-market segments - PowerPoint PPT Presentation

Transcript of Playing to our strengths to deliver sustainable disciplined growth

Page 1: Playing to our strengths to deliver sustainable disciplined growth

Playing to our strengths to deliver sustainable disciplined growth

Rijkman GroeninkChairman of the Managing Board

Merrill Lynch Banking & Insurance CEO ConferenceLondon, 6 October 2005

Advancing our mid-market strategy

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Agenda

Strategic focus on mid-market segments

Ability to deliver organic growth from our positions of market leadership

Acquisition of Banca Antonveneta is fully in line with mid-market strategy

Disciplined approach to capital allocation, costs and funding growth

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Strategic focus on mid-market segments

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Our five-point Group strategy

1. Creating value for our clients by offering high-quality financial solutions which best meet their current needs and long-term goals

2. Focusing on:

– consumer and commercial clients in our mid-market franchises (NL, US Midwest,

Brazil) and selected growth markets around the world

– selected wholesale clients with an emphasis on Europe, and financial institutions

– private clients

3. Leveraging our advantages in products and people to benefit all our clients

4. Sharing expertise and operational excellence across the Group

5. Creating ‘fuel for growth’ by allocating capital and talent according to the principles of Managing for Value, our value-based management model

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In February, we announced an increased focus, along with new financial targets

Tightening our strategic focus, by...

– focusing on mid-market segments

– the sale of non-core assets

Driving Group advantages through...

– segment focus

– creation of Transaction Banking Group

– Group Shared Services

Setting new goals...

– average RoE of 20%

– top 5 Total Return to Shareholders

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Strategic focus tightened on mid-market segments

Consumer Commercial

Mass Retail

MNCs

TopPrivateClients

Small Business

Product innovation

Feeder channel Provider of scale

‘SWEET SPOT’

Mid-Market/FIs

PC /Mass Affluent

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Mid-market segments represent ABN AMRO’s competitive advantage

The mid-market segments require a combination of local and international capabilities

– local relationships

– competitive anchor products suite

– efficient delivery

– sector knowledge (in the case of corporates)

– international network

ABN AMRO is one of the few banks in the world that can deliver on all of these, in many cases uniquely so

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Driving Group advantage through customer segment focus, Transaction Banking and GSS

Aligning customers and products in mid-market segments

Creating internal and external scale for efficient delivery of trade and payment services

Optimising the delivery of internal support services across the SBUs within ABN AMRO worldwide

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ABN AMRO’s new goals are a ROE of 20% and top 5 TRS for 2005-2008

On 30 March 2005, ABN AMRO announced a new financial target for the 2005-2008 period: average return on equity (ROE) of 20% over the four-year TRS cycle

The ROE does not replace our top quartile TRS ambition. The new financial target further underpins our commitment to creating shareholder value

The ROE target and the top quartile TRS ambition are linked through growth, and via the allocation of resources to those areas with the highest incremental ROE

Linking management remuneration to growth and capital

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Ability to deliver organic growth from our positions of market leadership

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Strong organic growth driven by mid-market franchises

Operating result (EUR mln)*

* All figures are excl. consolidation effects of Private Equity holdings

2000

2100

2200

2300

2400

2500

2600

2700

2800

H1 04 H1 05

Operating result

+10.5%

Operating result per (S)BU (H1 2005,

EUR mln, year-on-year change)*

-200

-150

-100

-50

0

50

100

150

NL NA BR NGM BF WCS PE PC AM GF

C&CC: +27.3%

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Network of leading market positions is well positioned for further organic growth

Adding new clients to our mid-market segments in existing markets

Enlarge share of wallet of our existing clients in the mid-market segments

The US Midwest

The Netherlands

Asia

Top ranking US regional franchise

Brazil

Top commercial bank for large SME and affluent clients

Top 3 privately owned bank New Growth Markets

European Private Banking:

# 1 Netherlands# 3 France and Germany

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Acquisition of Banca Antonveneta fully in line with mid-market strategy

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ABN AMRO to acquire controlling stake in Banca Antonveneta

ABN AMRO announced on 26 September that it has signed an agreement with Banca Populare Italiana (BPI) and a number of other shareholders regarding the purchase of 39.37% in Banca Antonveneta. ABN AMRO will pay EUR 26.50 per share, equal to a total cash consideration of EUR 3.2 bln

Combined with our current shareholding in Banca Antonveneta, ABN AMRO will own a total of nearly 70% after the completion of this transaction

ABN AMRO will launch a mandatory cash offer of EUR 26.50 per share for the remaining outstanding share capital of Banca Antonveneta

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Acquisitions require strict criteria

Acquisitions have to fit with ABN AMRO’s mid-market strategy

Market has to be sizeable

Sustainable market position

Acquisition has to create value

– EPS accretive within 2 years of ownership

– EP positive within 3 years of ownership

– conservative estimates, using cost synergies only

– efficient and effective integration

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Banca Antonveneta: strong fit with ABN AMRO’s mid-market strategy

Commercial: 0.18mn clients

Over 1.5 mln clients at year-end 2004; strong proportion of Affluent and Mid-Corporate customers

Consumer: 1.33mn clients

Legend: Private Banking (net worth > EUR 2.5 mln), Affluent (net worth within EUR 0.1-2.5 mln), Mass (net worth < EUR 0.1 mln), Corporate (revenues > EUR 75 mln), Mid-corporate (revenues of EUR 2.5-75 mln), Small Business (small business with revenues < EUR 2.5 mln). (1) Comprising 3,000 Interbanca (Antonveneta’s Investment Banking arm) accounts

Source: Company data

Breakdown by deposit and loan volume: Breakdown by deposit and loan volume:

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CONSUMER LOANS MORTGAGES

Size(1) (EUR bn) 55 56 246 128 119 20 140 263 1,032 296 1,069 389

Penetration (per capita) (EUR) 947 1,390 4,082 2,118 1,444 1,253 2,415 6,524 17,128 4,892 12,966 23,838

Percentage of GDP 4.2% 7.5% 15.5% 8.2% 5.6% 4.5% 11.1% 37.6% 65.2% 19.3% 50.7% 87.2%

Italian mid-market has significant untapped potential

High savings rate

Pension reform

Increased penetration rate in retail segment

Increased demand for more sophisticated products and longer debt maturities in SME segment

Source: Countries Central Banks, brokers research report, and Datamonitor report1. Size of the consumer loans market in 2003 and mortgage market in 2002 respectively

6%5%

4%3%

2%

13%

10%

8%7%

2%

Italy Spain UK France Germany

Consumer Loans CAGR 04 - 07 Mortgages CAGR 04 - 07

CAGR of Consumer loans and mortgages

Consumer loans Mortgages

Key growth drivers

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0

1,500

3,000

4,500

6,000

Banca Intesa Unicredito BPVN San Paolo IMI BMPS BNL Capitalia Average BancaAntonveneta

0

5,000

10,000

15,000

20,000

25,000

San Paolo IMI Banca Intesa Unicredito BPVN BNL Capitalia BMPS Average BancaAntonveneta

Banca Antonveneta: greater cross selling provides scope for revenue growth

Peer comparison: AuM(1) per client (EUR)

Peer comparison: average mortgage balance(2) per client (EUR) (7)

Source: company data and analyst research

1. As of June 2004

2. As of December 2004; residential mortgages only

3. Based on peers shown in the graph

4. Based on breakdown per sector of domestic loan portfolio as of June 2003

5. Excludes New Europe

6. ABN AMRO estimate based on risk-weighted assets for residential mortgages as of June 2003

(3)

(3)

(4) (5) (6)

+ 83%

+ 28%

7. Total mortgage outstandings / total number of bank clients

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Value creation supported by estimated cost synergies of EUR 160 mln by 2007

Estimated annual gross cost synergies: EUR 160 mln

Efficiency benefits from leveraging economies of scale (incl. general admin.), GSS (incl. procurement) and IT related costs

Wholesale product suite, risk and credit portfolio management

Transaction Banking Implementation of new servicing model

enhancement of the multi-channel approach

Funding synergies from ABN AMRO’ s superior credit rating

Total estimated restructuring charge: EUR 200 mln

Cost Synergies

Restructuring Charges

Source: ABN AMRO estimate

IT related costs30%

Procurement20%

General administrative

5%

New servicing model10%

Funding5%

Transaction banking

10%

Wholesale20%

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Conservative estimates: revenue upside not included in EPS calculations

Preliminary estimate of EUR 100 mln (4.5% of target revenues)

Leverage ABN AMRO’s:– servicing model from affluent / private

banking clients

– wholesale product capabilities

– international presence

– expertise in asset management and

derivatives

– global consumer finance capabilities Offer of standard banking services in

Italy to ABN AMRO’s international clients through Antonveneta network

>10% upside of Banca Antonveneta’s Business Plan vs. IBES net profit consensus (EUR 600 mln vs. EUR 510 mln*)

Revenues Synergies

(1) Revenue synergies of 6.4% of target revenues announced in Santander / Abbey takeover; average of 5% of sample of selected European cross-border transactions since 2000

Business Plan Antonveneta

* Dated 21 September 2005Source: Banca Antonveneta analyst presentation,12 September 2003

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Disciplined approach to capital allocation, costs and funding growth

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Disciplined capital management Managing for Value (MfV) strongly embedded in the organisation

– Resource allocation linked to MfV

– Reward structure in place to change and influence behaviour

Capital structure

– Tier 1 ratio target of 8.5% and core tier 1 ratio target of 6.5%

– Selective growth/reduction in RWA

Disciplined approach to funding Antonveneta

– Funding will be such that capital ratio’s after the proposed acquisition will be in line with current credit rating

– ABN AMRO is aiming to reach a core tier 1 ratio of 6% and a tier 1 ratio of 8%, well before the end of 2006

– Resumption of the neutralisation of the scrip dividend will start with the interim stock dividend in 2006

Stable dividend with aim to increase over time

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Disciplined approach to costs

Top quartile efficiency is key for sustainable competitive positions

– as Group efficiency is affected by business mix, top quartile efficiency is needed

at (S)BU level

– focus is on (S)BUs where we are outside the top quartile – WCS and BU NL

Increase in cost efficiencies is a central tenet of our MfV strategy

– increase in cost efficiencies drives economic profit

– increase in cost efficiencies will allow the release of funds to reinvest in growth

– efficiency ratios are part of Key Performance Contracts for each BU

Group Shared Services (GSS) is a core enabler of our disciplined growth strategy

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What is GSS committed to deliver?

GSS Savings achieved by 20072 Comments

Savings represent minimum ~ 15%

reduction across the Services cost base

(~ EUR 4 bln assessed)

Bulk of net savings delivered through

the following programmes:

– IT ~ EUR 258 mln1

– Global Real Estate ~ EUR 140 mln

– Offshoring ~ EUR 52 mln

– Other programmes ~ EUR 150 mln

We are applying a range of tools/

techniques to deliver these savingsNote 1: Excludes annualised savings relating to the EDS outsourcing deal (previously announced)Note 2: Savings net of investments and before tax deductions

600

300

100

0

100

200

300

400

500

600

700

2005 2006 2007

€ mln

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Concluding remarks

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What did we discuss last year for 2005?Challenges Opportunities

NL: revenue growth

NA: mortgage business

USD hedge for 2005 lower than for

2004

Inclusion of some incidental items in

2004 results

Disappearance of LeasePlan and Bank

of Asia contribution

NL: cost control

NA: commercial banking pick up

Brazil: well positioned post Sudameris

NGM: underlying market growth

WCS: further growth from a solid base

Disciplined capital management

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What will we face in 2006?Challenges Opportunities

Expected challenging interest rate

environment

Challenging revenue growth

environment

Expected increase in provisioning

levels

Increased competition in Brazil and

North America

NL – sluggish economic growth

Implement management review of WCS

Further align customers and products in

mid-market segments

Harness operational efficiencies via

Group Shared Services

Pursue potential upside in contribution

of BAPV given initial conservative

assessment

Leverage positive GDP and interest

rate outlook to further drive Brazilian

loan growth

Exploit significant growth potential in

Asia

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Summary

Strategic focus on mid-market segment

Ability to deliver organic growth from our positions of market leadership

Acquisition Banca Antonveneta is fully in line with mid-market strategy

Disciplined approach to capital allocation, costs and funding growth

Strategic focus and discipline delivering sustainable growth

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Cautionary Statement regarding Forward-Looking Statements This announcement contains forward-looking statements. Forward-looking statements are statements that are not historical facts, including statements about our beliefs and expectations. Any statement in this document that expresses or implies our intentions, beliefs, expectations, forecasts, estimates or predictions (and the assumptions underlying them) is a forward-looking statement. These statements are based on plans, estimates and projections, as they are currently available to the management of ABN AMRO Holding N.V.. Forward-looking statements therefore speak only as of the date they are made, and we take no obligation to update publicly any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could therefore cause actual future results to differ materially from those expressed or implied in any forward-looking statement. Such factors include, without limitation, the conditions in the financial markets in Europe, the United States, Brazil and elsewhere from which we derive a substantial portion of our trading revenues; potential defaults of borrowers or trading counterparties; the implementation of our restructuring including the envisaged reduction in headcount; the reliability of our risk management policies, procedures and methods; changes resulting from the acquisition of Banca Antonveneta, including the risks associated with its business, as well as the difficulties of integrating its systems, operations functions and cultures with ours; and other risks referenced in our filings with the U.S. Securities and Exchange Commission. For more information on these and other factors, please refer to our Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission and to any subsequent reports furnished or filed by us with the U.S. Securities and Exchange Commission. The forward-looking statements contained in this announcement are made as of the date hereof, and we assume no obligation to update any of the forward-looking statements contained in this document.