clear skies for wealth management etienne verwilghen managing director ceo of kbl epb foto gebouw
TRANSCRIPT
Clear skies for wealth management
Etienne VerwilghenManaging Director
CEO of KBL epb
Foto gebouw
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Our private banking businesses today (AUA: € 63 bn)
KBL European Private Banking AUA bn
United KingdomBrown Shipley 3.1
HollandTheodoor Gillissen 6.3
GermanyMerck Finck 5.0
SpainBanco Urquijo 10.5*
BelgiumPuillaetco Private Bankers 2.8
FranceKBL France 1.3
ItalyKBL Fumagalli Soldan 0.4
LuxembourgKredietbank LuxembourgSwitzerlandKredietbank (Suisse) 17.9
MonacoKB LuxembourgTotal 47.3
KBC Private Banking AUA bnBelgiumKBC PB 14.4
PolandKredyt Bank 0.7
Czech Rep.CSOB 0.8
HungaryK&H 0.1
Total 16.0
* Of which 5.5 low yielding assets
KBC Group has private banking operations in 16 countries, with >€5bn in Belgium, Luxembourg, Germany, Spain and the Netherlands
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Our core competencies & strategic assets
Processes, systems and culture to drive retail trade-up within KBC PB
In KBL EPB local private banking brands with status/heritage in Germany, Spain, Netherlands, UK, Belgium
Unique model of KBL EPB: attracts experienced Private Bankers from big banks
A strong Asset Management brand and range of structured products in KBC
Open architecture in KBL EPB
Estate planning in KBL EPB
Integrated business and personal banking offer to entrepreneurs in KBL EPB Spain (Banco Urquijo)
Low cost Private Banking hub for back office and IT in KBL EPB
Differentiated product and service offering in KBC PB, including greater use of open architecture including
Improvement of customer recruitment skills in KBC PB
Current core competencies & strategic assets Critical competencies we need to develop
The strategy leverages current strengths, but also depends on building new capabilities in key areas
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The competitive landscape – 4 different models
Type 1: Networked Retail/Universal Banks e.g., Royal Bank Scotland, Société Générale, ABN Amro
Type 2: Global Non-Networked Banks e.g., UBS, Credit Suisse, JP Morgan, Goldman Sachs
Type 3: Local Pure Play Private Banks e.g., Coutts, J. Baer, Degroof
Type 4: Other advisors Investment specialists: IFAs, asset managers, stockbrokers, pension
trustees, etc. Other personal advisors: solicitors, accountants, tax advisors, etc.
There are broadly four competitive models, which will all continueto exist with no one clear winning model overall
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Key market trends
Players will continue to innovate to in response to growing customer sophistication: More sophisticated investment products Enlarged scope of wealth management services Increasingly segmented offer Accessibility and internet delivery
However, the core client needs will remain the same Trusted personal relationships Status/exclusivity Investment performance
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Our strategic direction: 4 building blocks
Dual brand strategy for KBC PB and KBL EPB
KBC PB will remain a network-led model (retail trade up)
KBL EPB (Puilaetco) will be positioned as an ‘independent, boutique private bank’
Build an integrated, sustainably advantaged private banking business in selected European markets through two different but complementary models (network led and local pure-play private banks), focusing on private banking clients with >€1m of investable assets
We are building an integrated network of local pure play private banking brands (boutique style)
Near-term priority is to to reduce costs and improve profitability through creating synergies in a private banking hub and by attacking local HQ and overhead costs
Offshore will continue to be a low growth market
Focus on maintaining profitability (leveraging the hub)
The relative weight of this block will nevertheless continue to decrease in our global Private Banking business
We will build out a network-led model, leveraging KBC PB experience in Belgium
Belgium W. Europe onshore Offshore CEE
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Our strategic direction: Belgium Making the best of the KBC and KBL EPB ('Puilaetco') brands together:
Dual-brand offer in Belgium We will not seek to systematically drive wealthier customers to KBL EPB
('Puilaetco') rather than KBC PB (or vice versa), since customer preferences for the two private banking models do not neatly align with wealth bands
Clear rules of engagement between KBC PB and KBL EPB ('Puilaetco') to minimise direct competition and to capture referral potential (primarily from KBC SME/corporate)
Sources of profitable organic growth in KBC PB and KBL EPB ('Puilaetco'): Within KBC, retail trade-up will continue to be the major source of customers; the
corporate/SME referrals will be accelerated and over time we will shift towards increased ‘new to bank’ recruitment
KBC strength in in-house investment products and innovative solutions is a source of competitive advantage
However, we will increase open architecture in KBC PB as part of an overall positioning around excellence in portfolio structuring
Because KBL EPB ('Puilaetco') is a local pure-play private banker (boutique style), KBL EPB’s primary source of growth will be through Attracting new customers who prefer the boutique style Hiring Private Bankers who do not want to work in big groups
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Our strategic direction: why dual brand in Belgium?
Two brands ('KBC' and 'Puilaetco') capturing different asset flows in the market
Distinct brand positioning and distinct customer proposition
Limited cross-referral (mainly focussed on corporate customers)
‘Rules of engagement’ to govern behaviour
The headroom for growth that KBC PB and KBL EPB ('Puilaetco') can access is different
Type 3a: Local Pure Plays – Puilaetco,
Degroof, Delen, Petercam
Type 1: Networked
Retail/Universal – KBC,
Dexia, Fortis, ING
Type 2: Global PBs
Type 3b: Offshore
Retail Banks
Type 4: Other
Thickness of arrow indicate volume of asset flow(note: for simplicity, not all flows included)
Flows of Private Banking Assets
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Our strategic direction: W. Europe onshore
Objectives: Create a cost advantaged network of local pure-play private banks in selected
W. European markets We will focus on customers in the €1m+ investable assets segment Our primary focus will be on building our current businesses organically,
but we will be open to selective acquisitions
Profitability improvement: Near-term priority is to reduce costs and control cost growth while growing
revenues Achieved through standardising and centralising activities in a private banking hub
and by attacking local HQ and overheads
Sources of profitable organic growth: The local pure-play private bank model (boutique style) allows:
to attract new clients who do not want to be with big banks to drive organic growth with higher average balances
(share of wallet increases and shift in client mix) where possible, to grow through hiring experienced Private Bankers
with clients and assets
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The private banking hub
Improvement of efficiency: Global Custody Services
Subsidiaries use the hub for all International and Local custody services
Transaction/ Settlement Services Subsidiaries use the hub for all International
cash payments Financial Market Intermediation Services
Subsidiaries process all International and Local transactions through the hub (for all major asset classes i.e., Money, Bonds, Equities, Funds, Structured Products)
IT Platform Full harmonisation of major IT tools
Enhancing the development through distinctive offer: Front-Office Support: product sourcing and
development capability Increased use of emerging ‘Centres of
Excellence’ for particular product and service areas e.g.: Majority of product design and 3rd party product sourcing done via the hub
Back-office: large majority of local back office costs removed
Dealing rooms: minimal local market activities will remain (troubleshooting only)
IT: only local IT support will remain
Reduction in other overheads
Organisational impactOur endgame vision of the hub
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KBL EPB franchises in Western Europe
United Kingdom Brand name: Brown Shipley AUA as at 31.12.04 : € 3.1 bn Drivers for growth :
Bigger share of wallet Conversion of “Funds under influence" of the administrated Pension
Fund into Managed Assets Selective acquisition if we are confident to recapture premium to be paid
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KBL EPB franchises in Western Europe
Holland Brand name: Theodoor Gilissen Bankiers AUA as at 31.12.04 : € 3.3 bn Drivers for growth :
Private Banking sensu stricto + External Asset managers Acquisition of Stroeve Bank in April 2005 (AUM € 3.0 bn)
Closing planned early July 2005 Integration with Theodoor Gilissen will be effective by
October 2005 Hiring of (experienced) Private Bankers
(re turmoil situation with the big banks) No other major acquisition foreseen
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KBL EPB franchises in Western Europe
Germany Brand name: Merck Finck AUA as at 31.12.04 : € 5.0 bn Drivers for growth :
Bigger share of wallet through estate planning Hiring of experienced Private Bankers : 30 Private Bankers
have been hired and will join in the next months because they are attracted by KBL EPB model
Acquisition unlikely except possibly for small IFAs Working group on possible synergies with
KBC Corporate Banking (servicing entrepreneurs)
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KBL EPB franchises in Western Europe
Spain Brand name: Banco Urquijo AUA as at 31.12.04 : € 5.0 bn
(+ € 5.5 bn low yielding assets) Drivers for growth :
Pure organic growth Specific actions on low yielding assets Working group on possible development of
Corporate Activity with KBC Corporate Banking(servicing entrepreneur)
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KBL EPB franchises in Western Europe
France Brand name: KBL France AUA as at 31.12.04 : € 0.8 bn Drivers for growth :
Acquisition of Aurel Leven Gestion (IFA) in February 2005
(AUM € 0.5 bn) being currently integrated in KBL France Acquisition of small IFAs (more than 400 existing IFAs in
France as of today) who are currently being forced by the regulatory authority to join bigger financial institutions or to disappear
Hiring experienced Private Bankers
France needs to reach critical mass: periodic reassessment on France and global reassessment in 3 years
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KBL EPB franchises in Western Europe
Italy Brand name: Banca KBL Fumagalli Soldan AUA as at 31.12.04 : € 0.4 bn We are currently reassessing the model
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Our strategic direction : offshore
Drive hard on cost reduction (leveraging the hub) and revenue margins to maintain profitability as the offshore market declines
Where possible, steer repatriated assets to KBL EPB onshore businesses or to KBC
In the near-term, we will not aggressively pursue new sources of offshore wealth (e.g., Middle East, Asia), except where existing KBC operations provide a clear access point (e.g., CEE)
Selected small acquisitions of IFAs with short pay back period
The weight of offshore in our global private banking business will continue to decrease
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Our strategic direction : CEE
Small as of today (total AUM : € 1.6 bn) but an attractive long-term opportunity for KBC Group Expected market growth is above W.Europe markets
1st phase : Network-led model (as per KBC PB Belgium):The primary source of organic growth will be via retail trade-up
A reasonable expansion is foreseen by 2008 (yearly increase of 15%) but on the longer term, the increase could be much more significant
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KBC Group PB financial projections1KBC Group PB financial projections1
In total, KBC Group projects ~10% Net Income growth per year till 2008
KBC Group Forecast
2004 2008 Forecast
AUA (€bn) KBL EPB 44
KBC PB 14
Total 58 83
2004 2008 Forecast
Net Income (€bn)
KBL EPB 205
KBC PB 50
Total 255 380
Cost Income Ratio
67% 55%
AUA Growth
Belgium CAGR 14%
Onshore W. Europe CAGR 10%
Offshore CAGR 0%
CEE CAGR 15%
Total AUA Growth CAGR 9%
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50
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2004 2008
Net Income Growth
This assumes normal market conditions1. Excluding any future acquisitions
CAGR 10%
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KBC Group PB financial projections
These projections take into account that : The offshore private banking, which have an above average
profitability, will slowly declined and so will do its relative contribution to the net income
The development of the onshore private banking and its higher efficiency through the hub implementation will assure a global CAGR on net income of 10 %
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Summary : big choices
The choices we are making :
The Private Banking market will continue to be attractive despite increased focus from competitors
We believe in our 2 models for Private Banking : EPB model : network of local pure-play private banking brand
(boutique style) which allows : to keep the “plus” of local proximity and human size service to leverage and optimise the local brands through 'the hub'
(increase the efficiency and the development of a distinctive offer) KBC PB model in Belgium : retail trade-up in a network-driven model
We believe CEE has got an important growth potential for Private Banking in the medium and long term and that the Belgian retail trade-up model is the adequate model to catch this opportunity
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Summary : our strategic actions by priority
Opportunistic acquisitions will imply an investmentin the range of € 150-250 mln a year
Increase profitability and drive organic growth in current businesses
Selectively acquire to reinforce current positions of strength onshore (e.g. Netherlands, Germany, UK, Spain)
Build critical mass in France (and Italy? )
Acquire offshore in Switzerland and Lux to maintain scale
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