Transcript Document 7341249

Positioning the ABN AMRO
wholesale banking franchise
Piero Overmars
Member of the Managing Board
Head of Global Markets
Credit Suisse Investment Banking and Diversified Financials Conference 2006
London, 1 March 2006
Overview

Significantly improved performance by wholesale in 2005

Drivers of the performance uplift in 2005

Opening up wholesale will continue the positive momentum

Further improvement – our commitments

Future drivers of growth
2
A significantly improved
performance in 2005
We have delivered an uplift over 2004


In 2005 WCS delivered a
material improvement in
revenue, operating result
and consequently Efficiency
Ratio vs 2004
However, an Efficiency
Ratio of 88% still leaves the
wholesale franchise
vulnerable to cyclical
movements
∆
2004
2005
Commercial Banking
1,833
1,976
7.8%
Fixed Income, Futures, FX
1,351
1,822
34.9%
Equities and Inv. Banking
1,382
1,456
5.4%
136
87
-36.0%
Total operating income
4,702
5,341
13.6%
Operating costs
4,402
4,699
6.7%
Operating result
300
642
114.0%
Net operating profit
270
705
161.1%
RWAs (EUR bln)
72.9
77.0
5.6%
93.6%
88.0%
Other
Efficiency ratio
Note: IFRS basis. Excludes Private Equity. All 2004 figures are as per relevant press releases, excluding the 2004 restructuring charge. Not
corrected for disposals and exceptionals. See Appendix for detailed breakdown of product categories
4
Improvements in 2004 loss-making
product areas
2005 delivered an operating
result uplift and an efficiency
ratio improvement in lossmaking product areas


Reduced dependency on
Treasury and Lending revenue shift towards Fixed
Income & Treasury and
Equities & Equity-related
Efficiency Ratio 2004 and 2005 (%)
150
2004
2005
100
50
0
In the first year of Transaction
Banking as a cross-SBU
product group we succeeded
in moving that product area
close to profitability
5
Drivers of performance uplift
Delivering the wholesale agenda
Growth initiatives
 Derivatives Step Change
programme
 Network Leverage
 Investment Banking
Agenda
 Asia Strategy
 Trading
Rationalisation of
resources
Group synergies
 Capital
 Transaction Banking
 Services
 Consumer & Commercial
 Front Office
Client segments
- Empresas
- LaSalle
- BU Netherlands
 Private Investor Product
(PIP)
7
Case Study:
Derivatives Step Change

We have invested in derivatives product Structured Derivatives development (EUR mln)
development, sales, marketing and
600
coverage:
500
–
–
New hires and upskilling our current
staff
Spreading derivatives literacy
across WCS and related support
functions
400
300
200
100
0
2004
Revenues

Formed Derivatives Sales & Solutions
Group to drive sales capability

Upgraded risk processes and improved
IT infrastructure

Co-located corporate derivatives in
Equity Capital Markets
2005
IFRS reserves

Awarded 2005 “House of the Year” for
credit derivatives by Structured
Products

Awarded 2005 “Best Bank” for
Structured FX products by FX Week
8
Case study:
Restricting business-as-usual costs



Since 2001, we have reduced our
business-as-usual services and other
support costs to free up investment in
front office staff and services
investment
We announced a restructuring in
December 2004 aimed at exiting 1,100
FTEs, which will be completed in Q1
2006
WCS cost development (EUR mln)
5,000
4,000
3,000
2,000
1,000
0
2001
2002
2003
2004
2005
Services BAU
Other support
Services investment
Front office
This has freed up resources for
investment in Derivatives, in IT to
upgrade trading infrastructure (EUR 95
mln), and in mandatory compliance
activities (Basel II, Sarbanes Oxley,
etc., EUR 75 mln)
9
Case Study:
Driving Group synergies

During 2005 in the home markets, we have:
Sales of WCS FI and FX derivatives products
to non-WCS clients 2004-5% (EUR mln)
–
100
–
–


Merged coverage of WCS and BU
Netherlands commercial clients
Integrated WCS and LaSalle corporate
distribution and enhanced the LaSalle sales
force with derivatives hires and training
Driven up derivatives revenues from BU
Brazil clients by over 50%
Our Private Investor Product group has also
worked closely with the other Group SBUs to
deliver a strong year on year improvement
Although from a low base, 2005 demonstrated
the potential of our strategy to cascade the
innovation from Global Clients to our chosen
sweet spot clients
75
+23%
50
25
0
2004
2005E
Sales of WCS Private Investor products to
C&CC clients 2004-5 (EUR mln)
40
20
0
BU
Netherlands
Private
Clients
New Growth
Markets
10
Opening up wholesale will
continue the positive momentum
Unbundling will deliver continued
performance improvement

In 2005 we have delivered a significant turnaround in WCS performance

Opening up WCS to the Group will result in greater leverage of wholesale
banking products across a wider set of clients

The unbundling will contribute to a continued improvement in the ER

Arm’s length interaction between Global Markets and the Client Units will
increase the transparency of the product economics
–
Clarity on which products we can consistently deliver at the right price and the
right quality to our sweet spot clients
–
For products that do not meet this standard, we will pursue alternative solutions,
potentially including exit, downsizing, joint ventures, in-sourcing and others as
necessary
12
We have unbundled WCS to deliver on
the Group’s sweet spot strategy
Global Clients

Product Innovation
Sweet
Spot
Top
Product Innovation
Private MNCs
Clients
550 former WCS clients with
most demanding needs,
inspiring product innovation
Regional Client Units

Private Client Mid-Market /
Mass Affluent
FIs
Serving the former WCS’
commercial clients better and
more efficiently
Global Markets
Scale/Feeder
Mass Retail
Consumer
Small Business
Commercial
Scale/Feeder

Product platform,
developing and delivering
products for all the Group’s
clients
13
New organisation: playing systematically
to our strengths
NL
Europe
North
America
Latin
America
Asia
Private
Clients
Global
Clients
Local
Products
M&A
ECM

Global Markets
includes fixed
income (trading and
capital markets), FX,
treasury, equity,
structured lending
and derivatives

In line with our clientled strategy, Global
Markets’ activities
will be reported
under Client Units
and Group Functions
Consumer Client Segment
Commercial Client Segment
Local
Products
Local
Products
Local
Products
Local
Products
Local
Products
Global Markets
Transaction Banking
Asset Management
Services
Group Functions
14
Further improvement – our
commitments
What are we doing in 2006?


Following through on our revenue growth initiatives, Derivatives, Equities
and Fixed Income, facilitated by the new organisation
–
Using the local cross-sell expertise of the Regional Client Units to drive up the
penetration of the Global Markets products to all the Group’s clients
–
Continuing the improvements we have made with Global Clients through more
focused coverage
–
Bringing capital markets solutions to our clients and increasing our capital velocity
Following through on cost reduction initiatives in the new Services
organisation
–
Delivering further run rate savings through continued outsourcing, procurement
and real estate programmes
–
To fund investment in growth initiatives, IT infrastructure, compliance and
compensation for our critical talent
16
Commitments

Capital constraint and minimum returns for Global Clients
–

Improved efficiency ratio for Global Markets
–

RWAs on average less than 10% of Group total by end 2006 and beyond, with a
return above our 10.5% assumed cost of equity
Improving by at least 5 percentage points in 2006, and below 80% by end 2008
Improved efficiency ratio for commercial clients in 2006
–
To be achieved through revenue uplift and tight cost control in the Regional Client
Units (targets to be confirmed with Q1 2006 results)
17
Future drivers of growth
Rates markets main themes
Observations
Short Term
Our response

Global liquidity conditions remain
expansive, despite central banks
pushing rates higher in 2006
 We have focused on being an
idea driven niche unit,
particularly in ALM area

Increasing risk appetite – investor
demand for new asset classes and
products within asset classes

Japan - BoJ expected to eliminate
quantitative easing and raise rates in
2006
 By putting an increasing focus
on trading, ABN AMRO has
been able to combat margin
compression

Pension fund reform/move to ALM
frameworks gathering momentum
 ABN AMRO has built new JPY
business to take advantage of
our perceived growing
importance of the Yen market
over the next years
19
Credit markets main themes
Observations




Credit fundamentals remain supportive
for the continuation of tight spreads,
but M&A activity will continue to cause
spread shocks
Demand for credit product remains
healthy albeit selective (eg structured
credit due to diversification benefits)
Yield hunting has supported demand
for HY and EM assets
Increased liquidity - a result of growing
influence of CDS indices and
electronic trading
Short Term
Our response
 Focus on leveraging electronic
platforms, freeing traders to offer
integrated credit trading products
 Expanded our innovative product
set through a newly created
Structured Finance Trading team
 Expanded our financial sponsor
coverage’s Leveraged Finance
and High Yield activity
 Expansion of Structured Capital
platforms with strong distribution
focus covering Inf. Cap. / SF and
Real Estate Finance
20
Emerging markets main themes
Observations




Increased corporate issuance as
sovereigns are running surpluses on
budget and current accounts
Application of credit derivatives to
create synthetic assets
Hedge funds to play an increased role
in project and principal financing
Growth of asset securitisation, CDO
and CLO in view of Basel II
Short Term
Our response
 Integrated our local markets currency
product sales and trading to provide
a one-stop shop for clients
 We are also expanding the product
offer (e.g. EM asset securitisation,
CLO/CDO), especially focusing on
Access products leveraging the
Bank’s network
 As Emerging Market clients’ needs
become increasingly sophisticated,

Growing investor acceptance and
appetite for local market assets
ABN AMRO offers them tailored
solutions across equities, fixed
income and FX
21
Foreign exchange markets
main themes
Observations

The slump in the ISK has rung alarm
bells in the FX market about ‘carry
trades’ but there is no sign of lasting
knock-on effects

Risks could emerge from the huge
volume of speculative open interest


Implied volume remains very low in
most G10 FX , with market focusing on
other FX pairs to generate risk
Continued margin compression driving
business to e-platforms
Short Term
Our response
 We have automated a greater
volume of business, focusing on
the development of more
sophisticated structured FX
solutions eg. algorithmic
trading, FX overlay
 We have increased our risk
appetite through smarter
proprietary trading
 Hubbing our trading desks has
improved efficiency whilst
bringing clients 24 hour trading
in over 150 currencies
22
Equity markets main themes
Observations

Equity Markets to remain robust (client
activity levels will continue at these
high levels)

Increase in market volatility and
continuation of recent high levels of
M&A transactions

Continued growth of hedge funds and
the range of their activities

Unbundling to go from a UK regulatory
requirement to a global market
standard
Short Term
Our response
 Seeing the benefits from our
integrated equity platform,
upgrading trading capabilities,
increased automation and new
equity derivative products
 Attracting sustainable Hedge
Fund business, we benefit from
higher commissions of the
broader product range Hedge
Funds demand
 We have developed and marketed
innovative and commercially
focused research that has
received many market accolades
23
Derivatives markets main themes
Observations
Short Term
Our response

Rise in equity markets has increased
demand for structured equity products
 Structured Equity is for us an
established strength

High commodity prices driving demand
for commodity hedging as well as
investment products

Tighter credit spreads encouraging
investors to leverage credit exposure –
new products such as Leveraged
Super Senior and Forward CDOs
 In 2004 and 2005 we
established a commodity
derivatives capability which is
now fully functioning

Managing wealth for an ageing
population leads to demand for a
variety of new products with longevity
risk and inflation sensitivity
 We are at the leading edge with
structured credit derivatives
 We have developed both
inflation and insurance risk
management capability and an
initial series of transactions has
been completed
24
Continuing industry growth drivers
Description
Commoditisation
 Product lifecycles dramatically
shortened, limiting the window in
which to capture attractive
returns
Continuing
Trends
Implications
 Premium on innovation, product
pipeline and rapid
industrialisation of commoditising
business lines
Growth of
derivatives
 Proliferation of products (OTC,
 Scope and depth of product set
structured, exchange traded) and
and distribution channels
end-users (retail, institutional,
significantly increased
corporates)
New client
segments
 Investor/client groups that did not  Effective client segmentation and
exist five years ago are now the
account planning across products
‘must serve’ customer segments
and geographies
(mid-market, FI, Public Sector,
 Building capabilities to capture
EM commercial clients…)
high growth opportunities
25
Commoditisation – cash equity
example
A commoditising product - Equity
commissions, US vs Europe
Value chain unbundling - the story so far
 Regulatory concern that fund managers
provide no transparency on brokerage
services purchased with client funds
Basis Points
25
Europe
20
15
10
US
5
2006e
2005e
2004
2003
2002
2001
2000
1998
0
Year
 Cash equity commissions have declined
rapidly as cheaper execution channels
have emerged and buyer power increased
 Unbundling looks set to accelerate this
process
Source: Merrill Lynch
Continuing
Trends
 Institutional investors have offered to
separate the purchasing of execution and
content. Commission Sharing Agreements
(CSA) have emerged as the preferred
method of separation
–
Fund managers agree to focus almost all
execution with a small number of brokers
–
These brokers agree to pay a pre-agreed
percentage of that commission to other
brokers who have provided the fund
manager with non-execution services
26
Why value chain unbundling is
attractive for ABN AMRO
Implications of cash equity unbundling
 In a pre-unbundled world fund managers demanded full
‘waterfront’ research services
 This has disadvantaged mid-tier players who had to
support the same large cost base of the market leaders
with lower revenues, whilst only being rewarded for
research in sectors where they were strong
 CSAs have allowed brokers to scale the research product
to where they have a competitive advantage, without
incurring high de minimus cost of ‘waterfront’ coverage
 With CSAs, excellence in execution is critical
–
Firms on the execution lists will see growth in market share
–
Firms who are excluded will see a rapid contraction
Continuing
Trends
 ABN AMRO has been
an early adopter and
advocate of unbundling
 An unbundled business
model is attractive for
ABN AMRO
 Seeing the benefits
from our integrated
equity platform and
focus on execution
 Every major client we
have approached who
is setting up CSAs has
told us we will be on
their list
27
Derivatives – developing and
supporting client demand
Continuing
Trends
Credit Derivatives – notional outstandings, 2001 – 1H 2005, US$Trn
12.4
128% p.a.
8.4
5.4
105% p.a.
0.6
0.9
1.6
2.2
1H 01
2H 01
1H02
2H 02
2.7
1H 03
3.8
2H 03
1H 04
2H 04
1H 05
 Overall growth in derivatives revenues reflects the emergence, and rapid acceptance, of new
asset classes and continued innovation, particularly in higher margin structured products
 We are committed to further developing our derivatives offer across the client spectrum
–
Serving our Global Clients and institutional investors with the innovative derivatives solutions they
demand e.g. dedicated, cross asset class, Derivative Sales and Solution Group
–
Using our local intimacy to bring these products to sweet spot client segment – both mid-market and
FIs. Evolution and replication of in-house best practice to new clients e.g. PIP to commercial
Source: ISDA
28
Serving new client segments
Global financial sponsor-backed acquisition
volume, $bn
350
 Financial sponsors were the key client
driver behind the upturn in M&A over 2005
–
300
Continuing
Trends
250
Financial sponsor backed acquisitions,
globally, were valued at $346bn in 2005, a
200
150
40% increase on 2004
100
–
50
0
2000
2001
2002
2003
2004
important source of funding
2005
Global financial sponsor-backed loan
financing volume, $bn
250
 Global Markets is well placed to serve this
segment through the sweet spot strategy
–
200
Leveraged loans have become the most
Well placed as it fits with our longstanding
credit structuring & distribution expertise
150
100
–
50
Financial sponsor backed M&A volume
typically focused on the mid market
0
2000
2001
2002
2003
2004
2005
–
Network clear competitive advantage in
originating and financing deals
Source: ABN AMRO Equity Research, Dealogic Loanware
29
Conclusions

WCS improved significantly in 2005 on the back of growth initiatives,
resource rationalisation and Group synergies
– Efficiency ratio improved from 93.6% to 88.0%, but will improve further

Opening up WCS to the Group – WCS unbundled into three groups; Global
Markets, Global Clients and Regional Client Units
– Specific performance commitments made for each

We are well positioned to drive further growth in 2006 and beyond by
aligning ourselves with identified market trends
– In particular : emerging markets; new client segments; leveraged
finance; equity unbundling; ALM and derivative product growth
30
Appendix:
Definition product groups
Definition of the product groups

Commercial Banking : Loan products and all transaction banking services.
In the presentation, this is split between ‘Lending’ and ‘Transaction Banking’

Fixed Income, Futures and FX (FIFF) : Fixed income trading activities,
structured derivatives, futures and foreign exchange. In the presentation, all
of this except futures is included in ‘Fixed Income & Treasury’; futures is
included in ‘Other’

Equities & Investment Banking : Cash equities, equity derivatives, debt and
equity origination and corporate finance. In the presentation, all of this
except debt origination is shown as ‘Equity & Equity-related’; debt
origination is included in ‘Fixed Income & Treasury’
32
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.
33