Investors` Day Development of Retail Banking

Investors’ Day
Development of Retail Banking
Martin Blessing
Member of the Board of Managing Directors
Frankfurt, September 4, 2002
Investors’ Day September 4, 2002
Agenda
Starting point – the market
Starting point – results
Measures adopted so far
Future measures
1
Investors’ Day September 4, 2002
Retail business is an important component of
Commerzbank Group
3,681,000
in % (per 12/2001)
Corporate/
other
38,355
€6,180m
€4,277m
€1,575m
3%
69.6%
63.2%
69,6%
67.6%
56,8%
56.8%
97%
43.2%
36.8%
Retail
Banking*
32.4%
32,4%
30.4%
Customers
Employees
Income
Direct
costs of
business lines
Allocated and
indirect costs
2
Investors’ Day September 4, 2002
3
Commerzbank has above-average position
in interesting market segments
2001
Segment
spread
€ in PFA
Per customer
CusAssets
tomers
in millions in €1,000
Income
in €
Profit
in €
CIR
in %
Total profitpool
Pre-tax./COC)
in € bn
Commerzbank
market
share
in %
Mass
retail
< 50,000
68.6
19
368
3
99
0.3
3
Lower
affluent
50,000
-100,000
3.6
64
821
251
69
1.2
6
Affluent
0.1m0.5m
9.4
120
1,149
498
57
6.5
6
Upper
affluent
0.5m 1.25m
0.4
684
4,897
2,426
50
1.2
4
>1.25m
0.1
2,079
11,596
6,081
48
1.4
3
82.1
38.2
481
90
81
10.6
HNWI
Total/
average
Source: McKinsey EFIC Research
Investors’ Day September 4, 2002
Agenda
Starting point – the market
Starting point – results
Measures adopted so far
Future measures
4
Investors’ Day September 4, 2002
5
Positive profit contribution III from Retail Banking
in 1st half 2002
Earnings
Costs
in € million
Profit contribution
(PC)
-86
576
1,064
109
402
293
254
39
Earnings
1st half 2001
Change
1.043
+ 2%
Direct
Risk
provisioning costs
- 62
+ 39%
680
- 15%
Result Charges for
(PC I)
services
Result
(PC II)
Full costs
Result
(PC III)
301
+ 34%
188
+ 56%
238
+ 7%
- 50
-
113
- 3%
Investors’ Day September 4, 2002
6
Personnel expenses below budget, lower-than-budgeted
other operating expenses cannot be projected into future
in € million
end-June 2002
Actual 2002
375
- 2.4%
Personnel
expenses
Budgeted 2002
384
- 12.0%
Actual 2001*
Actual 2002
426
146
-12.6%
Other operating
expenses
Budgeted 2002
167
- 30.5%
Actual 2001*
210
Investors’ Day September 4, 2002
7
Direct administrative expenses 6% below budget; lowerthan-budgeted depreciation cannot be projected into future
in € million
end-June 2002
Actual 2002
55
-10.8%
Wear and tear
depreciation
61
Budgeted 2002
+25.0%
Actual 2001*
Actual 2002
Total (Direct
administrative
expenses)
44
576
-6.0%
Budgeted 2002
613
-15.3%
Actual 2001*
680
Investors’ Day September 4, 2002
8
A positive result is emerging for 2002 in Retail Banking
2001
in € million
2002
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Earnings before
provisioning
527
516
513
468
535
529
-
-
Risk provisioning
-31
-31
-11
-72
-33
-53
-
-
Administrative
expenses
507
524
514
519
485
454
-
-
Pre-tax profit
-11
-39
-12
-123
17
22
-
-
Quarterly results improved in a year-on-year comparison
Investors’ Day September 4, 2002
9
CB 21 and cost-cutting offensive (CO) are having an impact, but are not
enough to reach target of 10.3% for RoE in Retail Banking
1 Planning with Play-to-Win, CB 21
and CO
% RoE (after-tax)*
Commerzbank
2 Planning with CB 21 and CO
Retail Banking
1
10.3
2
3 Planning without CB 21, CO
and Play-to-Win programme
J Loss in 2001 of €80m
Gap:
€300m
2.6
3
J After-tax RoE target of 10.3% missed
by €300m in 2002
J Despite CB21 and cost-cutting
offensive probably no black figures in
2002 and RoE target not achieved in
2004
-4.8
J Play-to-Win target of €280m (after-tax
2001
*without comdirect
2002
2003
2004
RoE of 10.3%) achievable in 2004
Investors’ Day September 4, 2002
Agenda
Starting point – the market
Starting point – results
Measures adopted so far
Future measures
10
Investors’ Day September 4, 2002
11
67% of planned staff reductions under cost-cutting
offensive realized, fully in line with plan
Staff reductions at branches
Transfer of personnel
Reduction of staff
2.297
1,308
K Transfer
of 1,308
employees to a
separate department,
Credit Operations
Private Customers, in
order to farm out credit
processing
1.308 *
269
989
67%
(realized)
390
197
Overall
reduction
Transfer to
ZCP
*Transfer to ZCP
2001
2002
2002
(realized) (still to come)
133
2003
33% (still
to come)
K Shedding
of another
900 staff as part of the
Play-to-Win programme
Investors’ Day September 4, 2002
12
87% of planned branch closures already realized
Branch closures
5
126
87%
(realized)
202
45
26
Planned
closures
2000
2001
2002
realized
2002
still to
come
13%
(still to
come)
CB21 and cost-cutting
offensive will leave
Commerzbank with 727
domestic branches
Investors’ Day September 4, 2002
13
Adopted restructuring measures are having an impact
and are securing comdirect’s future
Key figures
Number of
customers
No. of orders
in 1,000
Q 4 2001
Q 1 2002
Q 2 2002
649,000
647,000
630,000
1,700
1,400
K
Analysis of potential synergies
within Commerzbank Group
K
Further head-count reduction of
300 (-32%) by 2004
K
Reduction of operating expenses
and depreciation of 21% and 38%
respectively by 2004
K
Price increases and other revenue
measures to raise top line by €20m
in 2004
K
Overall plan to achieve profit
target of €50m by 2004
1,200
Total assets
under custody
in € million
9,000
9,300
7,800
Profit/loss
for the period
in € million
-114*
-2
2
Year-on-year, administrative expenses declined
from €48m to €39m in Q1 and €33m in Q2
*of which € 98m in restructuring costs
Additional measures
Investors’ Day September 4, 2002
Agenda
Starting point – the market
Starting point – results
Measures adopted so far
Future measures
14
Investors’ Day September 4, 2002
15
Future competitiveness has to be ensured
Market
orientation
Our mission:
Future
competitiveness
in retail business
We aim to be the
best choice for
affluent customers
and high net-worth
individuals
Our goals:
Profitability
and growth
Competitiveness
Performance
orientation
Investors’ Day September 4, 2002
16
Play-to-Win programme launches measures to ensure
future competitiveness in private-customer segment
Future competitiveness
Market orientation
Customer management
Bank agency
Competitiveness
Cost management
Performance orientation
Distribution management
Quick wins processes
Business-client strategy
Pricing strategy
Baufinanzierung
Building finance
Customer support model
Investors’ Day September 4, 2002
17
Future competitiveness
The key measures of the Play-to-Win programme
Customer management
Activation of customers, attracting interested parties and ensuring
continuing loyalty of less committed customers
Bank agency
Development of a new type of branch to ensure broad national
presence over longer term and creation of growth options
Business-client strategy
Sectorally-oriented target-group strategy for optimal exploitation of
highly attractive business-customer segment
Pricing strategy
Identification and exploitation of existing pricing scope as part of
overall pricing strategy
Building finance
Overhaul and optimization of building-finance business that is
passed on
Cost management
Quick wins processes
Distribution management
Customer support model
Optimization of direct and indirect costs
Elimination of inefficient processes in distribution
Development of a comprehensive and state-of-the-art model for
managing all the units of private-customer business
Investors’ Day September 4, 2002
18
Even after cost-cutting offensive, over-capacity of
800-900 full-time personnel
Over-capacity
full-time staff
Competitive
distribution
structure
• Identification of over-capacities on
basis of internal and external
comparisons:
- Thorough study of all advisory
functions except for credit specialists
- Over-capacity mainly in large branches
660-760
• New organization of sales support
"Bank agency" as
new platform for
broad coverage
• Concept for preserving nationwide coverage;
if successful, possible expansion model
• Pilot project for branch with no cashiers,
only counselling; self-service techniques used
Rough concept
approx. 140
• To be adopted only if pilot phase proves to be
a success
Total
800-900
Investors’ Day September 4, 2002
19
Competitiveness can also be achieved by
disinvestment and lay-offs
Alternatives
Investment in
excess of
potential
growth
Disinvestment
through layoffs
Reinvestment
in sales force
Key features
•
Investment in customer and earnings growth not sensible without
training and coaching
•
Unreasonably great risk for
Commerzbank
•
Reduction of over-capacity through
lay-offs by end-2003
•
Reduction of over-capacity by
adjusting the time worked
•
Reinvestment in sales force
Market
orienta.
Competitiveness
Perform.
orienta.
-
-
0
-
+
0
Veto of staff repre+
+
+
sentatives
Investors’ Day September 4, 2002
Strategic positioning
The 10 answers at a glance
20
Customer groups
1. Customer focus?
Our “cash cow” is the affluent segment (IK)
2. Abandon “mass retail”?
No, needed to use capacity of sales network, for
economies of scale in production, and also new
generation of customers
3. Significance of
private banking
Attractive segment with good growth prospects,
but not large enough for customer focus
4. Significance of
corporate customers
Attractive segment, insofar as the need to invest
exists, straight lending/payments only for selected
segments
5. Description of
target segments
“Modern performance elite” as core target group;
alongside growth strategies for private banking
(“established” people) and direct banking
(“experimentalists”)
Investors’ Day September 4, 2002
Strategic positioning
The 10 answers at a glance
21
Regional markets
6. Nationwide coverage
To a limited extent. Locations not reaching critical size to be
abandoned or reduced to basic products, counselling on a
remote basis
7. Foreign strategy
Opportunistic in locations where we already have sufficient
potential (e.g. Luxembourg)
Range of services
8. Focus of services
Innovation/development of counselling services (especially for
investment), efficiency in distribution and handling of services
(reduction/standardization)
9. Services offered on a
target segment basis
Traditional products primarily for Mass Retail, gold and
platinum range for Affluent and HNWI
Distribution channels
10. Channel strategy
Integrated multi-channel access; centres of competence formed
within Group; comdirect used for online services; advisory
packages for comdirect customers as well at branches
Investors’ Day September 4, 2002
Summing up
Private customer business has always been
a core business of Commerzbank
Play-to-Win programme has been launched and
is starting to have impact
At the same time, a clear positioning geared
to the future is being worked out
22