W02/0254

CONFIDENTIAL

J.P. Morgan Securities Pte Ltd

Bank of Thailand

Forces of Change – The Future of Financial Services

January 23, 2002

W02/0254

2

Agenda

Introduction

Two relevant precedents: Sweden and the U.S.

Implications for emerging Asia

W02/0254

3

Consolidation

Globalization

Convergence

The strategic environment for financial institutions around the world is changing rapidly …

W02/0254

4

… and these forces continue to be prevalent in Asia

Top Ten Emerging Asia Bank M&A transactions by deal value since 1999

Date Annc'd Target Name Country Acquiror NameDeal Value

(US$mm)JPMorgan

Role

04/11/2001 Dao Heng Bank Group(Guoco) DBS Group Holdings Ltd 5,680.0

06/29/2001 Overseas Union Bank Ltd United Overseas Bank Ltd 5,464.0

06/12/2001 Keppel Capital Holdings Ltd Oversea-Chinese Banking Corp 3,754.0

12/11/2000 H&CB Kookmin Bank 2,784.7

05/01/2001 Grindlays Standard Chartered PLC 1,340.0

09/01/2000 Chase Manhattan-HK Banking Standard Chartered PLC 1,319.9

11/09/1999 Far East Bank Bank of Philippine Islands 1,216.0

09/12/2001 Fubon Securities Co Ltd Fubon Insurance Co Ltd 1,022.0

06/03/1999 Keppel TatLee Bank Ltd Allied Irish Banks PLC 847.1

05/01/1999 PCI Bank Equitable Bank 827.2

Globalization

Consolidation

Consolidation

Consolidation

GlobalizationConsolidation

Convergence

Consolidation

Convergence

Globalization

Consolidation

Consolidation

Globalization

W02/0254

5

However, strategic considerations present only one angle of the future landscape

Financial Operational

Strategic

W02/0254

6

Agenda

Introduction

Two relevant precedents: Sweden & the U.S.

Implications for Emerging Asia

W02/0254

7

The factors underlying the Swedish banking sector crisis of the early 1990s are similar to much of Asian experience

Excesses of the 1980s

Currency weakness

Deregulation of financial industry

Bank exposure to property management & construction sectors

Narrow focus of banks– Domestic asset base

Key highlights

0%

2%

4%

6%

8%

10%

12%

14%

1990 1995 2000

Handelsbanken

SEB

Swedbank

NPLs in the Swedish Banking Sector%

Source: Company data

W02/0254

8

The Swedish Government responded aggressively to address the crisis

Key developmentsKey developments

Government agreed to guarantee commitments of Swedish banks with depositors and creditors

Establishment of systematic support for banks

RegulatoryRegulatory

Floating of the Swedish Krona on November 1992

Redesign of monetary policy (through inflation targeting)

Fiscal stimulus

EconomicEconomic

Introduction of repo rate to manage payment systems in May 1994

Tighter supervision over banksSupervisorySupervisory

W02/0254

9

The evolution of ForeningsSparbanken (“Swedbank”)

1990 1995 2000 2002

Internet banking service launched

Listing of Sparbanken Sverige in June 1995

Restructuring of distribution channel

Sales channels restructured into new retail operations

WAP banking launchedDigital TV banking services

launched

Swedish Financial Crisis– Floating of

the Krona

Eleven regional savings banks merge with Sparbankernas Bank to form Sparbanken Sverige

12 regional cooperative banks merge to form Sveriges Foreningsbank

Listing of Foreningsbanken AB in Jan 1994

Merger of Foreningsbanken and Sparbanken

Followed by internal restructuring and cost-cutting measures

Subsequent merger of Sveriges Foreningsbank with local cooperative banks to form Foreningsbanken AB

Swedbank initiates alliances with regional banks

W02/0254

10

SwedBank maintains an extensive distribution network and has focused on cross-selling opportunities

889

459

207272

1,113

373 385

630

SwedBank SHB SEB Nordea

Branches ATMs

890 branches across the country

274 in-store banks

1,109 ATM’s

Bank by Telephone and Internet– 2.0 million customers are connected by telephone– 965,000 customers are connected by internet

Alliances have increased reach– Retail customers increased from 5.2mm to 11.2mm

Distribution channelKey highlights

4.30

4.794.96

5.05

Sep-98 Sep-99 Sep-00 Sep-01

Cross-selling Avg. no. of products sold to each corporate customer

+17.4%

Source: SwedBank; presentation to analysts, Nov 2001

W02/0254

11

In the U.S., the industry has been shaped by the changing regulatory and technology environment …

Deregulation– Interstate Banking and

Branch Act– Gramm-Leach-Bliley Act

Increasing competition– Cross-border deals

Disintermediation

Technological innovation– Development of sophisticated

capital markets

Emergence of super-regional banks

Move towards convergence transactions

Explosion of credit– Category killers

Focus on capital management– Leveraging of balance sheet to

optimize capital mix– Reassesment of risk

management processes

Impact on banking industryKey drivers of change

W02/0254

87 97

161

354

250

467

312

565

474

675

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

… and substantial consolidation in the late 1990s has led to the emergence of dominant super-regional players

All banks in 1994 Top five banks

289.0

542.71994 vs January 2002

$ billions

Wells Fargo76.9

JPM/Chase70.9

Bank of America95.7

Citigroup257.0

Note: Data as of January 18, 2002Source: Datastream, Bloomberg, SDC

Total volume for announced U.S. financial services sector transactions

Comparative market capitalisation

Wachovia42.2

(2,280) (2,538)

(3,024)

(3,756)

(4,073)

(3,679)

(4,194)

(3,454)

(3,070)

(2,368)

US$bn (number of deals in brackets)

In the past 10 years, the number of banks operating in the United States has decreased by over 30%

W02/0254

13

Banks in the U.S. have countered disintermediation by taking advantage of a more permissive regulatory environment ...

Source: David Polk & Wardwell; JPMogan

0%

25%

50%

75%

100%

1995 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997

Bankin

g Hld

gs C

o Act

ena

cted

1956 1970 1978 1982 1987 1989 1991 1995 1996 1997 1998

Non-b

ankin

g lim

itatio

ns e

xten

ded

to o

ne-b

ank

hldg

cos

Non-b

ankin

g lim

itatio

ns e

xten

ded

to fo

reign

bank

s

Explic

it pr

ohib

ition

from

insu

ranc

e ag

ency

and

unde

rwrit

ing

(Gam

-St.

Germ

ain)

“Non

-ban

k ba

nks”

cur

taile

d (C

EBA)

Debt u

nder

writing

pow

ers

Equity

und

erwrit

ing

power

s

The V

ALIC c

ase

dete

rmine

d th

at a

nnui

ties

were

not

insur

ance

but

fina

cial p

rodu

cts

Barne

tt Sup

rem

e Cou

rt de

cision

ratif

ies

“Tow

n of

5,00

0” ru

le

Ineli

gible

reve

nue

thre

shold

raise

d to

25%

House

Res

olutio

n 10

und

er c

onsid

erat

ion

JPMorgan net interest income to total revenuesLimiations

Extensions

W02/0254

14

… and by moving towards a new “risk underwriting and distribution” model

LoansCommitments

Bonds

Credit derivativesBISTRO etc.

Underwrite risk

Disaggregation of riskDefault probability

Recovery ratesCorrelation

New channel

Bundled riskSingle borrower

Traditional channel

Broad base of capital &insurance markets investors

Narrow base of loan/bond investors

W02/0254

15

Recap: Key lessons from the Swedish and U.S. experience

Key Lessons

Distribution

Risk management

Scale

Alliances

Cross-selling

Disintermediation

W02/0254

16

Agenda

Introduction

Two relevant precedents: Sweden & the U.S.

Implications for Emerging Asia

W02/0254

17

Disintermediation: Banks will no longer be the primary source of keeping money

Banking sector assets currently constitute a large part of financial sector assets in Asia

Korea an anomaly due to developed insurance and credit card sectors

Various likely sources of disintermediation:– Maturity of capital markets– Rise in private banking and

asset management– Increase in insurance

penetration

Key highlights

85% 85%80%

75% 75% 75%70%

45%

Ho

ng

Ko

ng

Ta

iwa

n

Ind

on

esi

a

Ph

ilip

pin

es

Ma

lays

ia

Th

aila

nd

Sin

ga

po

re

Ko

rea

Breakdown of financial sector assetsBanking assets as a % of total financial sector assets

Source: JPMorgan estimates

W02/0254

18

Risk management: Banks will focus increasingly on risk management as a key part of their strategy

Developing portfolio level risk assessment tools

Shifting the institutional mentality

Engaging the rating agencies in a dialogue on risk reduction and economic capital

Actively distributing credit risk

In the late 1990s, JPMorgan set out an aggressive plan to reduce credit risk and economic capital requirements

W02/0254

19

Distribution: Bank branches will continue to remain the key distribution channel

Face-to-face43%

Telephone36%

Internet21%

Consumer preferences for bank distribution%

0%

10%

20%

30%

40%

50%

0 5,000 10,000 15,000 20,000 25,000 30,000

Potential for internet distribution

Inte

rnet

pen

etra

tio

n (

%)

2000 GDP per capita (US$’000)

Australia

Singapore

China

Hong Kong

South Korea

Taiwan

Philippines

Indonesia

Malaysia

Thailand

India

Source: Mastercard survey of banking customers in Singapore; JPMorgan research; IDC

W02/0254

20

Competing with scale

Scale: Big does not necessarily equate to beautiful

76%

23%

12%

% of customers who agree:

Large financial services firms offer

more services

Provide better services

Are more personal

Consumer perception of large banks

Product development Hire talent

Transactionprocessing

Outsourcing

Softwaredevelopment

Consultants

Cost synergies Increase focus onselected businesses

Revenue synergies Increase cross-selling

Source: U.S. Gallop poll

W02/0254

21

Alliances/Cross-selling: Partnerships are clearly one of the key themes of recent strategic initiatives in the region

Selected banking partnerships in Emerging Asia since Jan 2001

Source: Industry data; company press releases

Hua An

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2001

Tai Ping

W02/0254

22

Conclusions

Banks are providers of wholesale and retail services– Increasingly less capital intensive

Risk management and trading portfolios to become increasingly important for both balance sheet management and profit generation

Differentiation will be based on service & quality not scale

Role of information and capital provider will continue but in different forms