Investors Day Mittelstand Bank: An increasing source of profit Frankfurt, 14.09.2005 Martin Blessing
Good start H1 2005 results 1. 2. 3. 4. Agenda 1. 2. 3. 4. Good start for the new Mittelstand Bank segment H1 2005 results Mittelstand Bank in Germany newly established Preparing to become The best nationwide Bank for corporate customers BRE and Eastern Europe Enhancing profitability and market penetration Outlook On the way to a core profit contributor 2/27
Good start H1 2005 results 1. 2. 3. 4. Mittelstand Bank segment consists of German corporate business and activities in Eastern Europe M I T T E L S T A N D B A N K S E G M E N T Germany Mittelstand Bank Germany Small / Medium Enterprises Large Corporates Specialised Business* BRE Bank Poland Eastern Europe Others, e.g.: Commerz Leasing und Immobilien AG Participations (e.g. Schiffsbank) CB branches/subsidiaries Czech Republic Hungary Russia * Center of Competences for: Global Shipping, Renewable Energies, Real Estate Financing 3/27
Good start H1 2005 results 1. 2. 3. 4. Encouraging performance trend in Mittelstand Bank segment Operating profit in m Loan-loss provisions in m 618 555 131 171 233-11 2003 2004 H1 `05 2003 2004 H1 `05 Cost-income Ratio / Return on Equity in % CIR Pre-tax RoE 58.1 59.2 54.4 Equity in m 2,464 2,663 2,959 11.6* -0.5 4.9 2003 2004 H1 `05 *annualized 2003 figures restatement estimated - 2004 figures restated 2003 2004 H1 `05 4/27
Good start H1 2005 results 1. 2. 3. 4. Segment already outperformed FY 2004 result after H1 2005 Operating profit in m 103 68 40 50 18 23* Σ 131 Σ 171** Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 * Special factors operative at BRE Bank ** including 18m income from Deutsche Schiffsbank AG 5/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Agenda 1. 2. 3. 4. Good take off for the new Mittelstand Bank segment H1 2005 results Mittelstand Bank in Germany newly established Preparing to become The best nationwide Bank for corporate customers BRE and Eastern Europe Enhancing profitability and market penetration Outlook On the way to a core profit contributor 6/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Mittelstand Bank Germany basis for growth and profitability Commerzbank: The best Mittelstand Bank in Germany Small / Medium Enterprises Large Corporates Specialised Business* Expand current market share and increase profit Grow existing business with value added products Manage portfolio actively and improve profitability Financial goal: Pre-tax RoE target 16% in 2007 Positioning: 1. Be a long-term solid business partner 2. Understand customers behaviour and needs 3. Deliver industry and market know-how in Germany and abroad 4. Take responsibility for competent customer services and advisory * Center of Competences for: Global Shipping, Renewable Energies, Real Estate Financing 7/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Mittelstand Bank Germany outperformed FY `04 result after H1 `05 Operating profit in m 48 17 23 25 29 Q1 Q2 Q3 Q4 Q1 Q2 2004 2005-19 Σ 47 Σ 77 8/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Successful short-term Action Plan with capital reduction in high-risk exposures leads to implementation of regular risk monitoring Turnaround of 200 non-value creating accounts since 2004 in m 165 167 Economic capital Gross income 151 Action Plan 2004 Reduction of committed capital with high risk exposure Sustainable enhancement in the profitability of 200 accounts (RoRaC <6%, significant exposures) 600 449 390 Results Economic profit increased by + 43m Economic capital reduced by - 215m Improvement of RoRaC from -5% to +5% 150 customers successfully re-positioned by end of July 2005 234 2003 07/04 2004 targeted 07/05 Action Plan 2005 Programme refreshed on a revolving basis Systematic approach for high and low value clients, 40 low-value accounts on special focus High potential accounts for core products addressed with management support 9/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Domestic Corporate Banking: Risk-adjusted pricing yields higher loan margins Short-term lending to corporate customers (all customer groups) Volume in bn 12 10 8 2.12 1.39 1.82 Average margin in % 2.76 2.46 Volume Total volume stable at approx. 22bn Volume reduction in lower rating classes Increased business with less margin-sensitive clients 6 1.30 4 2 0 0.83 0.68 < 2.0 2.0-3.1 3.2-3.9 > 4.0 Rating Margin Margins stable despite difficult market environment Enhanced portfolio quality and reduced loan loss provisions 12/03 12/04 06/05 10/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Significant improvement in derivative business Derivatives (revenues) in m 33 40 26 as of H1 `05 Main success drivers Intensified sales activity by relationship managers in addition to product specialists Increased client attention on interest rate derivatives Enhanced co-operation between corporate and investment banking shows results 2003 2004 2005e 11/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Strong improvement in Trade Finance & Transaction Services Division despite lower market prices Transaction Banking (domestic) Revenues in m 152 160 83 as of H1 `05 Targets Further increase in revenues Single portal access to products and services Enhanced cross-selling 2003 2004 2005e Transaction Banking (international) Revenues in m 224 Customer oriented pricing and 210 product bundling 12/27 113 2003 2004 2005e as of H1 `05 Measures Internet offer companyworld internationalized Optimizing cross-border systems and processes
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Customer acquisition target for 2005 achieved in 4 months New Clients (since 2004) 4,767 415 359 395 348 326 475 346 6,000 Ongoing new customer initiative Standardised acquisition process Special incentives for employees Focused Sales-training As of July 05: 7,431 new clients Continuous broadening of new customer relationships Focus on boosting revenues 2004 Jan Feb Mar Apr May Jun Jul Target end of 2005 13/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Corporates recognise our new customer initiative Contacted in the past 12 months by an employee of a bank with which no business contacts existed at the time... No 72% Yes 25% Employee was from... Commerzbank 25% No answer 2% Savings banks/lb Dresdner Bank 21% 24% Population: units with authority to select bank partners; turnover of > 2,5 m; (n=1,559) Cooperative sector 15% Question: Source: Firmen-FMDS 2004 Have you been contacted by telephone/in person in the past 12 months by a bank with which your company does not have business contacts? If so, by which bank? HypoVereinsbank Deutsche Bank 5% 12% 14/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Temporary extension of Move to the Top supports 2005/06 goals Targets Boosting revenues Measures 1. Continued focus on our core target groups Mittelstand and larger corporates 2. Target-group/potential-oriented review of product range and services 3. Definition of career paths and qualification plans 4. Introduction and refinement of value-based sales management Cutting operating expenses Achieving optimal provisioning 5. End-to-end optimisation of core credit processes 6. Optimized sales and operations 7. Sales-support processes/management of indirect cost 8. Management of provisioning, establishment of risk-adjusted pricing 9. Dealing with special risks Managing equity 10. Value-based management of equity 15/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Enhanced customer approach main driver for revenue increase Target: Boosting revenues Sales model Mittelstand 2006 Increased sales time by more than 50% Client segmentation based on individual needs Sales allocation guided by customer potential and profitability Defined product-mix for each client segment Defined relationship management process for each client segment Standardized sales control and management Structured human resources development and coaching Standardized, systematic market approach 16/27
Mittelstand Bank in Germany newly established 1. 2. 3. 4. Better process efficiency more time for customers Target: Cutting operating expenses Project etec ( end-to-end credit ) to reach cost leadership in credit business, process optimization and gain of time Concentration of back office from 20 to 6 local credit offices Staff cuts in front office and back office by 300-600 employees Streamlining of credit decision process and split from one into four different workflow categories ( standard, light, individual, special ) depending on volume, rating and client segment Improvement of core processes to increase productivity and realize quicker credit decisions Sustainability of achieved cost savings 17/27
BRE and Eastern Europe 1. 2. 3. 4. Agenda 1. 2. 3. 4. Good take off for the new Mittelstand Bank segment H1 2005 results Mittelstand Bank in Germany newly established Preparing to become The best nationwide Bank for corporate customers BRE and Eastern Europe Enhancing profitability and market penetration Outlook On the way to a core profit contributor 18/27
BRE and Eastern Europe 1. 2. 3. 4. BRE Bank - Retail and Corporate Banking will become growth drivers BRE Bank: The best financial institution for demanding corporate customers, entrepreneurs, and retail customers in Poland Investment Banking Corporate Banking Retail Banking (+PB) Asset Management No 1 arranger of bank and corporate bond issues (maturity > 1year) DI BRE: Option Market leader, 35% market share Corporate Loans: 6,3% market share Corporate Deposits: 9,1% market share mbank: Poland`s internet banking leader Mortgage Lending: Top 5 market player Assets under Management: PLN 4,407 m (~ 1.1bn) To maintain profits and curb risks To grow and improve profits To expand and deliver profits To restructure and grow profits Expected contribution to the pre-tax profit in 2008 20% - 30% 35% - 40% 35% - 40% ~ 0% Source: BRE Bank Group Results H1 `05 19/27
BRE and Eastern Europe 1. 2. 3. 4. BRE Bank back on positive earnings trend Pre-tax profit in m 1) H1 `04 H1 `05 Corporate Banking Investment Banking Retail Banking Asset Management 28.8 19,7 20,5 14.2 2,1-2,9-3,0-4,2 Gross profit doubled due to improved net interest income and released provisions Stable results due to advantageous conditions of trading Breakthrough to black figures in 2005 Improved results from subsidiaries; loss caused by allocation of financing costs Source: BRE Bank Group Results H1 2005 1) Local currency PLN all figures converted at exchange rate /PLN 4,0805 (30-06-05) 20/27
BRE and Eastern Europe 1. 2. 3. 4. BREactivation the major strategic project External factors Internal factors Growing competition in corporate banking, margin squeeze Increasing importance of customer relationship management Increasing importance of SMEs in the economy New market opportunities: EU funds, customers new needs, new products Lasting, significant growth in profitability of the corporate banking business Corporate banking focus to shift from support to sales Full effective use of own resources, experience and assets BREactivation Project Corporate Banking Project Operating Area Project Credit System Strategic target: Financial target: BRE Bank - The best financial institution for demanding corporate customers, entrepreneurs, and retail customers Pre-tax RoE of 20% in 2007 increasingly realistic Source: BRE Bank Group 21/27
BRE and Eastern Europe 1. 2. 3. 4. Very high growth of market share in BRE Bank`s Retail Business Retail Banking Over 1.1m retail customers Nearly 1.3m accounts with mbank and MultiBank Continued product revolution with Internet Brokerage Service emakler for mbank clients Connection of mbank`s transaction system with BRE Bank Securities (DI BRE) Private Banking Customers increasingly interested in portfolio investments due to interest rate cuts and lower yields on deposits Clients shifting to financial market products Growth in deposits, loans, checking accounts higher than the sector s average Market share BRE Bank Change 03/04 vs. 03/05 +31% 2.1% +26% +68% +29% +61% 2.2% 3.1% 4.4% 5.3% Total deposits (by value) Credit cards (by number) Total loans (by value) Checking accounts (by number) Mortgage loans (by value) Source: BRE Bank Group 22/27
BRE and Eastern Europe 1. 2. 3. 4. CEE strategy focused on selective growth Objectives Strong presence in CEE EXISTING MARKETS Selective extension of business models to strengthen profitability Focus in 2005 on topics of top priority: SME banking Private banking Local public-sector business Optimisation of product and market strategies Optimisation of front- and back-office processes Sales measures for Eastern Europe Development and Marketing of a CB Eastern Europe brand NEW TARGET MARKETS Examine interesting acquisition targets in markets with high growth potential Operating units Representative offices 23/27
BRE and Eastern Europe 1. 2. 3. 4. Positive development of corporate business in CEE (excl. BRE) Operating profit in m 30 25 Loan-loss provisions* in m 15 2003 2004 H1 `05 14 7 0.5 2003 2004 H1 `05 Cost-income Ratio / Return on Equity in % CIR Pre-tax RoE 41.9 39.3 40.7 Equity in m 125 153 34.8 87 19.7 19.4** 2003 2004 H1 `05 2003 2004 H1 `05 * primarily caused by Russian clients ** RoE annualized 24/27
BRE and Eastern Europe 1. 2. 3. 4. Example Hungary: InnoBanking An innovative business concept Business Model: SME banking has to scope three key challenges 1. Acquire new customers 2. Keep costs under control 3. Manage risks The new business model Segments Sales concept Products and services Risk management Target market: SME`s with 0,6-6 m annual turnover Focus on segments that do not require extensive branch network and prefer quality service over price Simple, inexpensive representative offices in regional hubs Industry experts as relationship managers Partnership with external organizations to acquire potential clients Main idea: Basic package offering for all and add-ons for specific segments in "LEGO" principle Cooperation with partners to offer e.g. factoring and leasing Introducing fast, simple scoring for short-term, standard loans Keeping current detailed risk assessment for larger / longer-term loans Introduction of 5 complete account packages, focusing on different target groups, for SMEs banking electronically 25/27
Outlook 1. 2. 3. 4. Agenda 1. 2. 3. 4. Good take off for the new Mittelstand Bank segment H1 2005 results Mittelstand Bank in Germany newly established Preparing to become The best nationwide Bank for corporate customers BRE and Eastern Europe Enhancing profitability and market penetration Outlook On the way to a core profit contributor 26/27
Outlook 1. 2. 3. 4. How to become a source of enhanced profit 1. All units in this segment showed positive trend in H1 `05 German Mittelstand business showing improved revenues and profit BRE Bank: good performance due to dynamic growth of core business lines Eastern European business stable 2. Strategic programme launched Measures implemented in 2004 beginning to show results Move to the Top re-launched with emphasis on all value levers 3. Selective short-term measures Clear measures defined and launched for all product lines Focused client initiative for Mittelstand and larger corporates since July 2005 27/27
For more information, please contact: Commerzbank Investor Relations Jürgen Ackermann Head of Investor Relations P: +49 69 136 22338 M: juergen.ackermann@commerzbank.com www.commerzbank.com/ir Sandra Büschken P: +49 69 136 23617 M: sandra.bueschken@commerzbank.com Ute Heiserer-Jäckel P: +49 69 136 41874 M: ute.heiserer-jaeckel@commerzbank.com Simone Nuxoll P: +49 69 136 45660 M: simone.nuxoll@commerzbank.com
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