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UniCredito Italiano Group
Alessandro Profumo - CEO
“HIGHER RISK VS. LOWER GROWTH THE CHALLENGE AHEAD”
Merrill Lynch European Banking &
Insurance Conference
London - October, 8th 2002
Agenda
Creating value in a volatile world
Portfolio strategy for future growth
2
IN THE LAST FOUR YEARS UCI SHOWED
EXCELLENT GROWTH DESPITE MACROECONOMIC
AND FINANCIAL MARKETS DISCONTINUITIES ...
Market indexes and macroeconomic
indicators(1)
(BASE: IVQ’97=100)
250
1st Discontinuity:
IIQ’00 - Macroeconomic
growth slowdown
UCI EPS evolution
2nd Discontinuity:
11th September 2001
0.33
200
0.26
150
0.28
0.28
0.19
100
50
0.09
0
1997 1998 1999 2000 2001 1H02(2)
MSCI WORLD
(1)
(2)
Italian GDP growth
Euribor 1M
Source: Datastream for MSCI World Index; ISTAT for Italian GDP growth; BCE for EURIBOR 1M
Annualised data
3
… WHICH IMPACTED OUR COST OF CAPITAL ...
TIER I Target
UCI CoE
8.79%
8.95%
+16 bp
+79 bp
Risk Premium
(1)
UCI Credit
Spread(2)
4.30%
3.51%
0.18%
-1 bp
0.17%
-62 bp
Term Debt
5.10%
4.48%
Risk-free
Rate(3)
2001
2002
7.5%
 UCI increased its
Risk Premium to
reflect the higher
uncertainty and
volatility of equity
markets
 On the other side, UCI
benefited from the
decrease of risk-free
rates and from its
increased capital
ratios, resulting in a
reduction of the
credit spread
Calculated as the annualised cost of a 5 year Call Option on UCI, with strike-price in line with the 5 year forward-price of UCI
Credit spread paid by UCI on a 5 year senior debt
(3) Fixed Rate on 5 year Euro IRS
(1)
(2)
4
... BUT DID NOT AFFECT OUR CAPABILITY TO
CREATE VALUE EVEN AFTER A SIGNIFICANT
STRENGTHENING OF OUR CAPITAL BASE
NOPAT(1)
Risk taken(2)
Shareholder’s
value added
Adj NET
INCOME
CAPITAL
ABSORPTION
VALUE
CREATION
(a)
(Euro mln)
Group total (at 06/02)
770
(b)
7,489
UCI Solvency Ratios
8.57%
11.69%
6.25%
%
418
MARGINAL
RARORAC
%
11.2
14.2
(6)
Bp
80
70
+76 bp
+54 bp
(5)
RARORAC
90
+73 bp
+239 bp
TIER I Ratio
(c)/(b)
UCI Credit Spread
10.96%
Total Capital
Ratio (4)
(c) =(a)-COE(3)
Value added
per unit of
risk taken
6.79%
60
7.55%
50
40
2000
2001
1H02
mar01
may01
jul01
sep01
nov01
ISSUE SPREAD
jan02
mar02
may02
jul02
sep02
SPREAD vs SWAP
AS A RESULT, IN 2002 S&P RAISED OUR LONG TERM RATING TO AA- (FROM A+) ON
JULY 3RD AND MOODY’S PUT UCI UNDER OBSERVATION FOR A POSSIBLE UPGRADE
(PRESENT RATING Aa3)
Consolidated Net Income (Euro 849 mln) - Net Extraordinary Income after tax (Euro 79 mln)
Minimum regulatory capital, market risks, credit risks and operational risks (3) The Cost of Equity is related to the capital employed
(4) FED standard
(5) BIS standard
(6) Spread vs Swap on UCI Lower TIER II 16.3.2001/2011, 6% Fixed Rate, Bullet (taken as an example)
5
(1)
(2)
DIVERSIFICATION OF REVENUES BY BUSINESS
AND BY GEOGRAPHY IS A KEY SUCCESS FACTOR
TO ENSURE GROWTH AND MANAGE THE RISK
PROFILE
REVENUE COMPOSITION BY BUSINESS AREA
(Net of infra-Group dividends and of Corporate Centre & Elisions negative contribution)
Euro mln
4,658
5,272
New Initiatives
New Europe Banking
13.7%
15.0%
Asset Management
2.7%
Investment Banking
5.3%
4.8%
78.8%
Italian Banking
2000 Avg
6.0%
73.7%
1H01
5,361
5,341
0.4%
0.2%
17.4%
4.7%
5.5%
9.0%
2H01
Growth:
+14.6%
14.5%
4.0%
72.7%
1H02/Avg ‘00
71.6%
1H02
6
Agenda
Creating value in a volatile world
Portfolio strategy for future growth
7
UCI DIVERSIFIED IN THE RIGHT BUSINESSES AND
GEOGRAPHIES, BUT THERE IS STILL A
SIGNIFICANT POTENTIAL TO BE EXPLOITED
= Euro 250 mln revenues
COMPARISON
CRITERIA
 Value creation of
current operations
+
VALUE
CREATION
POTENTIAL
Private Banking
Asset Management
Asset Gathering
Aggressive
and
proactive
divestiture
Capture
value and
divest
Retail
New Europe
Do not
invest
further
and/or
free up
capital
allocate
d
Corporate
-
Cannot
Can add
add value
value
Non natural owner
-
COMPARISON
CRITERIA
Push
growth
limits/
allocate
additiona
l
resources
Consumer Finance
UBM
 Value creation of new
investments/options
UNDERSTAND
CURRENT AND
POTENTIAL VALUE
CREATION FROM
EACH BU
Leverage on synergies and or
acquire capabilities of best owner
Divest and/or use
assets in M&A
Natural owner
RELATIVE CAPACITY TO EXTRACT VALUE
 Relative/absolute market share
 Historical track record of returns
 Synergies among businesses
+
IDENTIFY DEGREE OF NATURAL
OWNERSHIP OF EACH BU IN
ITS RELEVANT MARKET
8
S3 IS OUR ANSWER TO THE DOMESTIC
COMPETITIVE ARENA AND WILL EXPLOIT ALL THE
POTENTIAL IN EACH MARKET SEGMENT
FROM 7 BANKS...
... TO THE 3 NEW
SEGMENT BANKS
RETAIL
BANK
CORPORATE
BANK
PRIVATE
BANK
9
RETAIL IS ONE OF THE MOST ATTRACTIVE
BUSINESSES IN ITALY...
Value creation
potential
ITALIAN INDUSTRY:
2001 RARORAC: 14%
01-05 REVENUE GROWTH: 6.7%
VALUE CREATION OPPORTUNITY
 Italy is one of the most attractive markets in
Europe thanks to product-mix and expected
volume growth
 The pension system reform is a discontinuity
which could have a significant impact on
profitability and volume growth
Retail
High
potential
BEST OWNERSHIP/SYNERGIES
UCI has a performance leadership as for
efficiency and profitability and a superior
track-record over the last 5 years
 UCI results have been achieved on the existing
customer base, while customer acquisition has
not been pushed
 Retail Banking is a strong platform to develop
specialized businesses with higher multiple
(Consumer Finance and Asset Management)
 Potential for cross border synergies in
product factories and cross fertilization of
products/business models

Low
potential
Cannot
add value
Can
add value
Non-natural
owner
Natural
owner
10
... AND OUR NEW RETAIL BANK IS READY TO
EXPLOIT ALL THE VALUE CREATION POTENTIAL
THROUGH SCALE AND SPECIALISED SERVICE
MODELS ...
UCI RETAIL BANK
 Based in Bologna
 DISTRIBUTION CHANNEL:
 ~2,800 branches
 direct channels (self service,
telephone & home banking)
 23,000 employees
 2,000-2,300 relationship
managers
 16,500 commercial operators
 Single “umbrella” brand +
regional brands for distribution
KEY SUCCESS FACTORS
 Quick and efficient distribution
of innovative products /services
specialised by segment:
 MASS MARKET: multi-channel
offer of standardised products,
improved customer mix, better
cross-selling and up-selling
 AFFLUENT: increased share of
wallet, improved customer mix,
attraction of new customers,
increased profitability through
better asset mix
 SMALL BUSINESS: improved
customer mix, lower churn
rate, increased share of wallet
also thanks to dedicated
consultancy for family’s
savings
11
... AS THE GOOD RESULTS OBTAINED IN 1H02
CLEARLY SHOW
UNICREDIT BANCA* RETAIL
(Mass market + Affluent + Small Business)
Interest Income
(Euro mln)
1,023 1,028
+0.5%
 Focus on medium/long term loans
 Further penetration of package
accounts in mass market and
small business segments
1H01 1H02
Total Revenues
+2.9%
1,959
2,015
Non interest income
+5.4%
1H01 1H02
936
 Excellent contribution of Capital
Guaranteed products, pushing net
sales of Life Insurance products
and Segregated Accounts
987
 Commissions/total revenues: 46.8%
1H01 1H02
* former 7 banks
12
CORPORATE BANKING IS A FAST GROWING BUT
LOW VALUE-ADDED BUSINESS ALL ACROSS
EUROPE ...
Value creation
potential
ITALIAN INDUSTRY:
2001 RARORAC: -7%
01-05 REVENUE GROWTH: 6.9%
High
potential
Corporate
Low
potential
Cannot
add value
Can
add value
Non-natural
owner
Natural
owner
VALUE CREATION OPPORTUNITY
 Corporate Banking is a growing business in Italy
as well as in the other European countries ...
 ... but it is a low value-added industry, with
profitability lower than cost of capital
 Basle II is an important discontinuity which
could significantly reshape the industry and
improve its profitability
BEST OWNERSHIP/SYNERGIES
 UCI has a clear leadership position and managed
to create value in a value destroying industry
also thanks to the skills developed in corporate
derivatives and other high value products
 Corporate banking is a powerful platform to
generate synergies with Private Banking and
Investment Banking
 Potential for cross border synergies in core
Europe for service model and product offering
13
... WHILE UCI IS ALREADY ABLE TO CREATE VALUE
AND WILL STRENGTHEN ITS COMPETITIVE
ADVANTAGE THROUGH THE NEW CORPORATE
BANK ...
UCI CORPORATE BANK
 Based in Verona
 DISTRIBUTION CHANNEL:
 250 branches + direct
channels
 4,000 employees
 ~1,300 relationship
managers
 One single national brand
 2001 RARORAC: +5.6% (from
0.5% in 2000)
KEY SUCCESS FACTORS
 Improve customer mix, and
become the leading bank for
targeted customers with
specific risk/return profile
 Excellence in customers
management supported by
advanced IT platform and
systematic monitoring of
customer satisfaction
 High quality of credit analysis
tools (customer risk
measurement, risk-adjusted
profitability and capital
absorption)
 Broad offer to cover the full
range of customer needs
(strategic developments,
financial structure, operations)
14
... STARTING FROM THE GOOD RESULTS OF LAST
YEARS, FULLY CONFIRMED IN 1H02
UNICREDIT BANCA*
CORPORATE
TOTAL
REVENUES
643
1H01
AVERAGE LENDING VOLUMES
(Euro bn)
35.4
-1.2
+2.4
36.6
802
+24.7%
1H02
 Good volumes growth even after a
selective reduction of less
profitable assets (lower exposure
to financial companies)
 Focus on risk adjusted pricing
policies
Avg.
Loans
1H01
Selective
reduction
New
loans
Avg.
Loans
1H02
 Excellent sales of corporate
derivatives, pushing growth in
commissions
 Commissions/total revenues: 37.7%
* former 7 banks
15
PRIVATE BANKING SHOWS THE HIGHEST
RARORAC AND AN ATTRACTIVE REVENUE
GROWTH DESPITE SHORT TERM DIFFICULTIES...
Value creation
potential
ITALIAN INDUSTRY:
2001 RARORAC: 51%
01-05 REV. GROWTH: 10.4%
High
potential
Private Banking
VALUE CREATION OPPORTUNITY
 The most attractive industry in Italy, with the single
highest RARORAC combined with strong revenue
growth
 Domestic market is fragmented and
underserved (mainly via undifferentiated
commercial banking approach)
 Low intensity of real competition by domestic and
international players
Low
potential
BEST OWNERSHIP/SYNERGIES
Cannot
add value
Can
add value
Non-natural
owner
Natural
owner
 UCI could enjoy a significant first mover
advantage and transform the dimensional
leadership into strategic leadership
 Strong synergies with Asset Management and
Corporate Banking
 Potential for cross border partnerships to exploit
growth opportunities
16
... AND UCI PRIVATE BANK WILL BE THE BIGGEST
AND BEST POSITIONED SPECIALISED PLAYER IN
THE ITALIAN MARKET
UCI PRIVATE BANK
 Based in Turin
 DISTRIBUTION CHANNEL:
 150 branches + direct
channels
 1,600 employees
 750 relationship
managers
 One single national brand
 International presence to
take advantage of fiscal
benefits for customers
KEY SUCCESS FACTORS
 Consolidation of leadership
in Italian high net worth
individuals segment
 Focus on consultancy and
long term customer
relationship built on
innovative products and
efficient service
 Ability to grow market
share in high value
services and “share of
wallet”
17
NEW EUROPE IS OUR SECOND HOME MARKET...
Value creation
potential
NEW EUROPE:
2001 RARORAC: 6.3%
01-05 REVENUE GROWTH: 9.4%
High
potential
New Europe
Low
potential
Cannot
add value
Can
add value
Non-natural
owner
Natural
owner
VALUE CREATION OPPORTUNITY
 Attractive but volatile (especially in the short term)
growth, strong increasing RARORAC
 Value concentrated in few countries: Poland,
Hungary, Czech, Turkey, Croatia
 Second wave of consolidation likely to happen also
due to marginal presence of some foreign players
 EU Convergence can improve value further
BEST OWNERSHIP/SYNERGIES
 UCI has the largest position in the region ...
 ... and the best performance in terms of efficiency
and profitability
 Cross fertilization of business models and product
offering already effective
 New Europe platform can be leveraged for
specialized businesses and product factory
integration
 Long term option for cross-country integration
(e.g. IT/OPS)
18
... WHERE EU CONVERGENCE WILL REDUCE RISK
AND BOOST PROFITABILITY
ESTIMATED TIME FOR CONVERGENCE TO EU
PER CAPITA GDP IN PPP
BUL,
LITH,
ROM
27-32 Y
PL,
LAT
22 Y
EST,
SLOVA,
HUN
CR,
SLOVE
 New Europe should
approach the average of 3
least developed EU
countries (Portugal, Greece
and Spain) by 2020…
14-15 Y
 … WITH TWO DECADES
OF GROWTH RATES
2%/3% HIGHER THAN
EU LEVELS
12-13 Y
0
10
20
30
POLAND
CROATIA
BULGARIA
SLOVAKIA
Real GDP growth forecast (01-05 % CAGR)
2.7
4.0
4.5
4.0
Inflation rate (02-05 avg.), %
3.0
3.0
5.1
5.3
94
149
317
82
Current spread vs. Euro-Bonds(1), b.p.
Note: Consensus on average years to convergence forecasted by different growth models (Barro model and Levine- Renelt model in Fisher et al
(1998) and EU commission convergence model (2001). EU standards are based upon per capita GDP of the three low income EU members, Portugal,
Spain and Greece, with convergence income representing 75% of EU’s per capita GDP. Results of different models are similar, with the exception of
Slovenia, where the EU Commission forecasts 1 year to convergence.
(1) Spread over Eurobond is based upon SUEMI: Sole24Ore UBM Emerging Market Index, for Euro-denominated high-yield benchmark
19
UCI IS ALREADY A LEADER IN THE REGION ...
Total Assets
Total net profit
Euro bln, 31/12/2001
Controlled
33.7
Pro quota
UCI(2)
22.3
24.0
32.5
(1)
Euro mln, 31/12/2001
268
HVB
20.0
192
KBC
26.0
11.1
21.9
17.4
13.0
11.1
9.4
149
INTESABCI
117
ERSTE(4)
SG
60
13
456
225(3)
223
146
97
69
Considering 100% of total assets / profit for controlled Companies (stake > 50%) and share owned for non controlled companies
Including Koç FS and Zivnostenka
(3) Our preliminary estimate
(4) Excluding Rijeka Banka
20
Source: Bankscope
(1)
(2)
... AND LEVERAGES ON CROSS FERTILISATION TO
IMPROVE PROFITABILITY AND ON GEOGRAPHICAL
DIVERSIFICATION TO MANAGE COUNTRY RISK
1H02 NEW EUROPE BANKING TOT. ASSETS Euro 24.3 bn
ZAGREBACKA 24.8%
GROUP PEKAO 66.7%
BULBANK 5.5%
UNIBANKA 3.0%
Group
Pekao
Bulbank
Zagrebacka
Group(2)
UniBanka
Total
Division(2)
+7.3
+6.5
+10.6
(3)
+10.6
+7.9
(3)
Net Operat. Inc. % y/y growth(1)
+24
+5.6
+15.6
(3)
+16.2
+20.6
(3)
C/I Ratio, %
47.7
41.3
57.2
(3)
68.1
49.7
(3)
C/I Ratio – p.p. Ch. on 1H01
ROE, %
-7.1
+0.5
-1.5
-5.4
(3)
8.8
16.7
-1.9 (3)
28.4
7.5
13.4
Revenues – % y/y growth(1)
Italian Accounting Standards
(1)
At Unchanged FX
(2)
Including extraordinary items for Pliva shares disposal and revaluation of replacement bonds (16.6 mln Euro)
(3)
Excluding Zaba’s dividends and Income from equity inv. valued at net equity
21
THE DIFFERENT BUSINESS OPTIONS LEAD TO
FOUR KEY STRATEGIC THRUSTS AIMED AT
MAXIMIZING VALUE CREATION POTENTIAL AND
INTRAGROUP SYNERGIES
STRATEGIC THRUST
= Euro 250 mln revenues
High
potential
Retail*
UBM
Private Banking
Asset Management
New
Europe
Asset Gathering
Corporate**
Low
potential
Value creation potential
Consumer
Finance
Cannot
add value
 Complete restructuring processes
underway and further strengthen
positioning in New Europe in the second
wave of the consolidation process
 Consolidate relationships with Italian
corporates through high levels of
efficiency and quality
 Become the leading partner for target
customers
Can
add value
Non-natural owner
 Invest to strengthen the leadership in
core Retail Banking
 Create a long term option in Consumer
Finance leveraging on captive businesses
and selective M&A to gain leadership in
domestic markets
Natural owner
Relative capacity to extract value
* Including T-Lab
** Including Corporate Bank, UniCredit Factoring, Banca Mediocredito and Leasing
 Combine Private Banking, Asset Gathering
and Asset Management into Wealth
Management in order to maximize
synergies
22
ACCORDINGLY, THE NEW ORGANIZATIONAL
STRUCTURE HAS BEEN DESIGNED TO EXPLOIT
ALL THE EXISTING BUSINESS POTENTIAL AND TO
DRIVE FUTURE GROWTH
Consumer
Finance
Retail
UBM
Private Banking
Asset Management
Asset Gathering
New
Europe
Corporate
UCI
Corporate
division
Retail
division
Retail
Bank
Corporate
bank
Private
bank
Clarima(1)
UBM
Pioneer
Adalya(2)
TradingLab
(1)
Consumer Finance
(2)
Private &
AM division
Retail mortgages
(3)
BMC(3
New Europe
division
New Europe
Banks
Xelion
)
Locat(4)
M/l term corporate financing
(4)
Leasing
23