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Investment Banking Overview: CLS Settlements


									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

   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

A significantly improved
performance in 2005
We have delivered an uplift over 2004
                                                                                                        2004             2005                  ∆
     In 2005 WCS delivered a                          Commercial Banking                              1,833            1,976            7.8%
      material improvement in
                                                       Fixed Income, Futures, FX                       1,351            1,822          34.9%
      revenue, operating result
      and consequently Efficiency                      Equities and Inv. Banking                       1,382            1,456            5.4%
      Ratio vs 2004                                    Other                                              136                87       -36.0%
                                                       Total operating income                          4,702            5,341           13.6%
     However, an Efficiency                           Operating costs                                 4,402            4,699             6.7%
      Ratio of 88% still leaves the                    Operating result                                   300              642        114.0%
      wholesale franchise
                                                       Net operating profit                               270              705        161.1%
      vulnerable to cyclical
      movements                                        RWAs (EUR bln)                                    72.9             77.0            5.6%
                                                       Efficiency ratio                               93.6%            88.0%

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

Improvements in 2004 loss-making
product areas
2005 delivered an operating                  Efficiency Ratio 2004 and 2005 (%)
result uplift and an efficiency                                               2004
ratio improvement in loss-                                                    2005

making product areas
   Reduced dependency on
    Treasury and Lending -
    revenue shift towards Fixed         50

    Income & Treasury and
    Equities & Equity-related            0

   In the first year of Transaction
    Banking as a cross-SBU
    product group we succeeded
    in moving that product area
    close to profitability

Drivers of performance uplift
Delivering the wholesale agenda
                            Rationalisation of
Growth initiatives                               Group synergies

 Derivatives Step Change    Capital             Transaction Banking
  programme                  Services            Consumer & Commercial
 Network Leverage           Front Office          Client segments

 Investment Banking                                - Empresas
  Agenda                                            - LaSalle
 Asia Strategy                                     - BU Netherlands
 Trading                                         Private Investor Product

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
    –   Spreading derivatives literacy         100

        across WCS and related support             0
                                                              2004                 2005
                                                            Revenues   IFRS reserves
   Formed Derivatives Sales & Solutions
                                                      Awarded 2005 “House of the Year” for
    Group to drive sales capability
                                                       credit derivatives by Structured
   Upgraded risk processes and improved               Products
    IT infrastructure
                                                      Awarded 2005 “Best Bank” for
   Co-located corporate derivatives in                Structured FX products by FX Week
    Equity Capital Markets

Case study:
Restricting business-as-usual costs
   Since 2001, we have reduced our          WCS cost development (EUR mln)
    business-as-usual services and other     5,000
    support costs to free up investment in   4,000

    front office staff and services          3,000
   We announced a restructuring in             0
                                                     2001     2002    2003     2004         2005
    December 2004 aimed at exiting 1,100
    FTEs, which will be completed in Q1              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)

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)
    –   Merged coverage of WCS and BU                 100

        Netherlands commercial clients                 75
    –   Integrated WCS and LaSalle corporate           50
        distribution and enhanced the LaSalle sales    25
        force with derivatives hires and training       0
    –   Driven up derivatives revenues from BU                    2004               2005E

        Brazil clients by over 50%                    Sales of WCS Private Investor products to
                                                      C&CC clients 2004-5 (EUR mln)
   Our Private Investor Product group has also       40
    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       0
    innovation from Global Clients to our chosen                BU         Private    New Growth
                                                            Netherlands    Clients      Markets
    sweet spot clients

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

 We have unbundled WCS to deliver on
 the Group’s sweet spot strategy
                                                     Global Clients

                                                            550 former WCS clients with
                                                             most demanding needs,
                                                             inspiring product innovation

      Product Innovation       Top      Product Innovation
                                                                Regional Client Units
                           Private MNCs
                           Clients                                 Serving the former WCS‟
                                                                    commercial clients better and
         Sweet     Private Client Mid-Market /                      more efficiently
          Spot     Mass Affluent      FIs

                                                                       Global Markets
Scale/Feeder                                        Scale/Feeder
                 Mass Retail       Small Business
                                                                          Product platform,
                Consumer              Commercial
                                                                           developing and delivering
                                                                           products for all the Group‟s

 New organisation: playing systematically
 to our strengths
  NL        Europe     North        Latin         Asia       Private   Global       Global Markets
                      America      America                   Clients   Clients       includes fixed
                                                                                     income (trading and
                         Consumer Client Segment                                     capital markets), FX,
                                                                                     treasury, equity,
                        Commercial Client Segment
                                                                                     structured lending
 Local      Local      Local       Local          Local      Local      M&A          and derivatives
Products   Products   Products    Products       Products   Products    ECM
                                                                                    In line with our client-
                                Global Markets                                       led strategy, Global
                                                                                     Markets‟ activities
                           Transaction Banking
                                                                                     will be reported
                            Asset Management                                         under Client Units
                                                                                     and Group Functions

                             Group Functions

Further improvement – our
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
    –   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

   Capital constraint and minimum returns for Global Clients
    –   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

   Improved efficiency ratio for Global Markets
    –   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)

Future drivers of growth
                                                                         Short Term
Rates markets main themes
Observations                                 Our response

   Global liquidity conditions remain        We have focused on being an
    expansive, despite central banks           idea driven niche unit,
    pushing rates higher in 2006               particularly in ALM area

   Increasing risk appetite – investor       By putting an increasing focus
    demand for new asset classes and           on trading, ABN AMRO has
    products within asset classes              been able to combat margin
   Japan - BoJ expected to eliminate
    quantitative easing and raise rates in    ABN AMRO has built new JPY
    2006                                       business to take advantage of
                                               our perceived growing
   Pension fund reform/move to ALM            importance of the Yen market
    frameworks gathering momentum              over the next years

                                                                             Short Term
Credit markets main themes
Observations                                    Our response
                                                 Focus on leveraging electronic
   Credit fundamentals remain supportive
    for the continuation of tight spreads,        platforms, freeing traders to offer
    but M&A activity will continue to cause       integrated credit trading products
    spread shocks                                Expanded our innovative product
   Demand for credit product remains             set through a newly created
    healthy albeit selective (eg structured       Structured Finance Trading team
    credit due to diversification benefits)      Expanded our financial sponsor
   Yield hunting has supported demand            coverage‟s Leveraged Finance
    for HY and EM assets                          and High Yield activity

   Increased liquidity - a result of growing    Expansion of Structured Capital
    influence of CDS indices and                  platforms with strong distribution
    electronic trading                            focus covering Inf. Cap. / SF and
                                                  Real Estate Finance

                                                                             Short Term
Emerging markets main themes
Observations                                  Our response
                                             Integrated our local markets currency
   Increased corporate issuance as
                                               product sales and trading to provide
    sovereigns are running surpluses on
    budget and current accounts                a one-stop shop for clients

   Application of credit derivatives to     We are also expanding the product
    create synthetic assets                    offer (e.g. EM asset securitisation,
                                               CLO/CDO), especially focusing on
   Hedge funds to play an increased role
                                               Access products leveraging the
    in project and principal financing
                                               Bank‟s network
   Growth of asset securitisation, CDO
    and CLO in view of Basel II              As Emerging Market clients‟ needs
                                               become increasingly sophisticated,
   Growing investor acceptance and            ABN AMRO offers them tailored
    appetite for local market assets
                                               solutions across equities, fixed
                                               income and FX

Foreign exchange markets
                                                                           Short Term
main themes
Observations                                  Our response

   The slump in the ISK has rung alarm        We have automated a greater
    bells in the FX market about „carry         volume of business, focusing on
    trades‟ but there is no sign of lasting     the development of more
    knock-on effects                            sophisticated structured FX
                                                solutions eg. algorithmic
   Risks could emerge from the huge            trading, FX overlay
    volume of speculative open interest
                                               We have increased our risk
   Implied volume remains very low in          appetite through smarter
    most G10 FX , with market focusing on       proprietary trading
    other FX pairs to generate risk
                                               Hubbing our trading desks has
   Continued margin compression driving        improved efficiency whilst
    business to e-platforms                     bringing clients 24 hour trading
                                                in over 150 currencies

                                                                          Short Term
Equity markets main themes
Observations                                  Our response

   Equity Markets to remain robust (client    Seeing the benefits from our
    activity levels will continue at these      integrated equity platform,
    high levels)                                upgrading trading capabilities,
                                                increased automation and new
   Increase in market volatility and           equity derivative products
    continuation of recent high levels of
    M&A transactions                           Attracting sustainable Hedge
                                                Fund business, we benefit from
   Continued growth of hedge funds and         higher commissions of the
    the range of their activities               broader product range Hedge
   Unbundling to go from a UK regulatory       Funds demand
    requirement to a global market             We have developed and marketed
    standard                                    innovative and commercially
                                                focused research that has
                                                received many market accolades
                                                                            Short Term
Derivatives markets main themes
Observations                                  Our response
   Rise in equity markets has increased       Structured Equity is for us an
    demand for structured equity products       established strength

   High commodity prices driving demand       In 2004 and 2005 we
    for commodity hedging as well as            established a commodity
    investment products                         derivatives capability which is
                                                now fully functioning
   Tighter credit spreads encouraging
    investors to leverage credit exposure –    We are at the leading edge with
    new products such as Leveraged              structured credit derivatives
    Super Senior and Forward CDOs
                                               We have developed both
   Managing wealth for an ageing               inflation and insurance risk
    population leads to demand for a            management capability and an
    variety of new products with longevity      initial series of transactions has
    risk and inflation sensitivity              been completed


Continuing industry growth drivers                                                 Trends

               Description                            Implications

                Product lifecycles dramatically      Premium on innovation, product
Commoditis-      shortened, limiting the window in     pipeline and rapid
   ation         which to capture attractive           industrialisation of commoditising
                 returns                               business lines
                Proliferation of products (OTC,    Scope and depth of product set
 Growth of
                 structured, exchange traded) and    and distribution channels
 derivatives     end-users (retail, institutional,   significantly increased

                Investor/client groups that did not  Effective client segmentation and
                 exist five years ago are now the      account planning across products
 New client      „must serve‟ customer segments        and geographies
 segments        (mid-market, FI, Public Sector,
                                                      Building capabilities to capture
                 EM commercial clients…)
                                                       high growth opportunities

  Commoditisation – cash equity                                                                                     Continuing

  example                                                                                                            Trends

   A commoditising product - Equity
                                                                            Value chain unbundling - the story so far
   commissions, US vs Europe
  Basis Points                                                               Regulatory concern that fund managers
      25                                                                      provide no transparency on brokerage
      20                                                                      services purchased with client funds
                                                                             Institutional investors have offered to
                                                                              separate the purchasing of execution and
                                                                              content. Commission Sharing Agreements
                                                                              (CSA) have emerged as the preferred







                                                                    2006e     method of separation
                                                                                –   Fund managers agree to focus almost all
 Cash equity commissions have declined
                                                                                    execution with a small number of brokers
  rapidly as cheaper execution channels
  have emerged and buyer power increased                                        –   These brokers agree to pay a pre-agreed
                                                                                    percentage of that commission to other
 Unbundling looks set to accelerate this                                           brokers who have provided the fund
  process                                                                           manager with non-execution services
                         Source: Merrill Lynch
Why value chain unbundling is                                                            Continuing

attractive for ABN AMRO                                                                   Trends

Implications of cash equity unbundling                                   ABN AMRO has been
                                                                          an early adopter and
 In a pre-unbundled world fund managers demanded full
                                                                          advocate of unbundling
  „waterfront‟ research services
                                                                         An unbundled business
 This has disadvantaged mid-tier players who had to
                                                                          model is attractive for
  support the same large cost base of the market leaders
                                                                          ABN AMRO
  with lower revenues, whilst only being rewarded for
  research in sectors where they were strong                             Seeing the benefits
                                                                          from our integrated
 CSAs have allowed brokers to scale the research product
                                                                          equity platform and
  to where they have a competitive advantage, without
                                                                          focus on execution
  incurring high de minimus cost of „waterfront‟ coverage
                                                                         Every major client we
 With CSAs, excellence in execution is critical
                                                                          have approached who
     –   Firms on the execution lists will see growth in market share     is setting up CSAs has
     –   Firms who are excluded will see a rapid contraction              told us we will be on
                                                                          their list

   Derivatives – developing and                                                                        Continuing

   supporting client demand                                                                             Trends

         Credit Derivatives – notional outstandings, 2001 – 1H 2005, US$Trn

                                                                             128% p.a.

                                            105% p.a.                      5.4
                                                 2.2    2.7
                        0.9          1.6

            1H 01     2H 01          1H02       2H 02   1H 03   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

Serving new client segments                                                                                             Trends

Global financial sponsor-backed acquisition                                 Financial sponsors were the key client
volume, $bn                                                                  driver behind the upturn in M&A over 2005
 300                                                                            –   Financial sponsor backed acquisitions,
                                                                                    globally, were valued at $346bn in 2005, a
 150                                                                                40% increase on 2004
                                                                                –   Leveraged loans have become the most
       2000   2001      2002     2003      2004     2005                            important source of funding
Global financial sponsor-backed loan                                        Global Markets is well placed to serve this
financing volume, $bn
                                                                             segment through the sweet spot strategy

                                                                                –   Well placed as it fits with our longstanding
 150                                                                                credit structuring & distribution expertise

                                                                                –   Financial sponsor backed M&A volume
  0                                                                                 typically focused on the mid market
       2000   2001     2002      2003     2004      2005
                                                                                –   Network clear competitive advantage in
                                                                                    originating and financing deals
                     Source: ABN AMRO Equity Research, Dealogic Loanware
   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


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‟

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


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