Title: Delivering growth and value
1Delivering growth and value
- Business Unit Brazil of CCC
Fabio Barbosa SEVP - CEO of BU Brazil
June 14, 2004
2Table of Contents
- Current Brazilian Business Environment
- Overview of ABN AMRO Brazil
- Overview CCC Brazil
- Financial Performance
- Sustainability
- Outlook 2004 / 2005
- Appendices
3Commitment to orthodox monetary policy has
enabled stability to return
The inflationary pressures due to the exchange
rate overshooting receded significantly and are
expected to stabilize along 2004
forecast
- Dec 04 forecast
- BRL/USD (eop) 3.05 (maintained)
- IPCA 12M
- 6.8 (revised from 6.0)
BRL / USD
IPCA
- Dec 05 forecast
- BRL/USD (eop) 3.25 (maintained)
- IPCA 12M
- 4.5 (revised from 5.1)
Sources Brazilian Central Bank, IBGE, ABN AMRO
4The current account is now well under control
The current account accumulated a USD5.8 billion
surplus in 12 months ended in April (1.1 GDP).
From 1999 to April 2004, the current account
adjustment was equivalent to USD31.1 billion
(5.8 GDP) driven mainly by exports.
USD billion
Sources Brazilian Central Bank
5The surplus of the current account allows to
repay the IMF debt
In USD billion
Sources Brazilian Central Bank, ABN AMRO
6Market volatility does not reflect Brazils
ability to withstand shocks
Brazil is in much better shape to deal with
adverse external factors, compared to mid-90s and
early 00s
- Fiscal Responsibility Law
and currently..
FX Denominated Debt / Total Debt
Source Brazilian Central Bank
7The government controls a comfortable majority in
Parliament
Source Santa Fé, ABN AMRO
8Public support for the government remains high
Approval ratings have fallen, but are still at
respectable levels
Governments Approval Rating ()
Still high approval rating
Source CNT / Sensus, ABN AMRO
President Lulas Approval Rating ()
Source CNT / Sensus, ABN AMRO
9Restored finance and strong government will
facilitate reforms
- Continuous effort to complete reforms
- Revision of mortgage legal framework
- New regulation to reduce number of court actions
against the financial system regarding principal
and interest - New Bankruptcy Law
- Judiciary reform
- Public and Private Partnership regulation
- Power sector framework
10As a result, steady GDP growth seems to be
finally achievable
GDP started to recover in Q303 albeit at a slower
pace than expected. Recovery has been led by the
manufacturing sector, responding to lower
interest rates and robust external demand
Sources IBGE
11Expected decline in inflation will allow further
interest rate cuts
Central Bank will likely continue to gradually
ease monetary policy in 2004, reducing interest
rates with caution and assessing recovery of
economic activity
forecast
- Dec 04 forecast
- Selic (eop) 14.5 pa (revised from
13.5) - IPCA 12M
- 6.8 (revised from 6.0)
IPCA
Selic
- Dec 05 forecast
- Selic (eop) 12 pa (maintained)
- IPCA 12M
- 4.5 (revised from 5.1)
Source Brazilian Central Bank, IBGE, ABN AMRO
12Economic stability and low interest rates will
unleash the growth potential
Total Credit to Private Sector / GDP1
Declining interest rates will enable significant
volume growth in the still underdeveloped
Brazilian banking market The penetration of
total credit shows a large long term growth
potential
Sources World Bank, European Union Web site,
IBGE
Credit to the Private Sector
Period
EOP Balance in BRL billion
Growth nominal
2002
365
13
2003
395
8
1Q04
408
1.5
does not include external financing to the
private sector
Source Brazilian Central Bank, ABN AMRO
13Table of Contents
- Current Brazilian Business Environment
- Overview of ABN AMRO Brazil
- Overview CCC Brazil
- Financial Performance
- Sustainability
- Outlook 2004 / 2005
- Appendices
14ABN AMRO Brazil is a client led institution
- Training
- Competitive market conditions
- Engagement in decision-making process
Since the acquisition of Banco Real we have
updated our IT infrastructure to competitive
standards
- Client knowledge
- Segmentation
Spreading ABN AMRO Corporate Values
- Respect
- Professionalism
- Integrity
- Teamwork
Sustainability Model
15Leveraging the local, regional and international
presence to serve clients
ABN AMRO has leading positions and strong market
shares in the full range of financial services
Largest foreign institution by branches, loans
and deposits
Largest car financier in Brazil
Maintains relationship with 2500 companies
7th largest insurer 5th largest pension fund by
reserves
Relationship with 400 largest corporation in
Brazil
4th largest privately owned R25.1 bio in AUM
as of Mar 04
All data in the overview section are in
Brazilian GAAP, in BRL and include all businesses
of ABN AMRO Brazil - WCS and CCC
16Leveraging on business units to grow the
franchise
- As of 1Q04
- 34 of individuals current accounts were from
Payrolls - 29 of individual current accounts were from Mini
Branches
Retail
Payroll
Commercial and Wholesale
3
1
Cross-selling of financial services, loan and
investment products
Main banker
Current Accounts Acquisition - Individuals and
Suppliers (SMEs)
Higher entry barrier
Mini Branch
Mini Branch
2
3
2
1
Capturing of Value Chain opportunities through
closer client knowledge and Supplier relations
Payroll Loans
17The performance has been very good
notwithstanding economic difficulties
Total Assets
Total Loans
in BRL million
in BRL million
Annual CGR 25.6
Annual CGR 29.9
Net Income
in BRL million
336
Cayman Effect (positive)
Cayman Effect (negative)
57
Average inflation in period 8.3 pa
All data in this slide are in Brazilian GAAP, in
BRL and include all businesses of ABN AMRO Brazil
- WCS and CCC
18Results are underpinned by good efficiency ratios
On a standalone basis ABN AMRO showed a
significantly lower efficiency ratio in 2003
(55.7 w/o Sudameris), the integration of
Sudameris impacts this ratio temporarily.
Efficiency Ratio
ABNAMRO Fee Revenue/ Personnel Expenses
All figures based on Brazilian GAAP as published
by each institution
19The franchise continues to deliver high ROE
All figures based on Brazilian GAAP as published
by each institution
20Retail is a key growth engine of the franchise
ABN AMRO is stronger in the southeast, the
wealthiest and most populated region of Brazil.
Our strategy is to focus on this region and on
the major Brazilian cities.
CCC Revenue Breakdown
Ranking Dec 03
Branch Network (includes Mini Branches)
1 Bradesco
5,167
2 Itau
3,172
3 ABN AMRO
1,947
4 Santander
1,909
5 HSBC
1,516
6 Unibanco
1,279
June 2003 figures Mini Branches Branches in
company premises
21The growth of the retail loan book has been
robust and relatively cycle proof
Consolidated Credit Portfolio (per business)
BRL billion
w/ Sudameris
Growth 1Q04/1Q03
w/o Sudameris
97
Retail
31
5
Consumer Finance
Stable
61
Commercial and Wholesale
-5
All data in the overview section are in
Brazilian GAAP, in BRL and include all businesses
of ABN AMRO Brazil - WCS and CCC
22This performance is due to above average
acquisition of wealthy clients
Market Structure - Bankarized Individuals
Average Account Revenue (per segment)
ABN AMRO Individual Clients Acquisition (per
segment)
Index Average Revenue Classic Account 100
23Table of Contents
- Current Brazilian Business Environment
- Overview of ABN AMRO Brazil
- Overview CCC Brazil
- Financial Performance
- Sustainability
- Outlook 2004 / 2005
- Appendices
24Since the acquisition of Banco Real the client
base increased by nearly 50
Besides the strong organic growth, Sudameris
acquisition has accelerated the process
million clients
25The desired critical mass has been reached with
the Sudameris deal
ABN AMRO is the 4th largest privately owned
Brazilian bank by total loans and assets, and 3rd
by deposits
Top Privately Owned Banks
Figures in Brazilian GAAP
Loans in BRL billion
Assets in BRL billion
Deposits in BRL billion
Dec. 03
Dec. 033
Dec. 033
Mar 04
Mar 04
Mar 04
54.3
176.1
58.0
54.9
161.0
59.2
1 Bradesco
38.7
118.7
36.7
38.9
127.0
34.6
2 Itau
27.9
69.9
25.4
27.3
71.5
27.4
3 Unibanco
27.2
55.4
26.7
27.3
55.6
26.1
4 ABN AMRO
16.3
58.9
18.00
NA
NA
NA
5 Santander
All figures based on Brazilian GAAP as published
by each institution
26Sudameris added more scale in wealthy retail
clients and SMEs
Financial assets are concentrated in a small
percentage of the population. The wealthiest 2
hold almost half of net financial assets.
Individual Clients - Mix Jan 2004
Client Base Jan 2004
22
26
51
27Our retail growth strategy consists in providing
differentiated services
28Our retail model is relationship driven
Sole Proprietors
PJ (up to R20m)
PJ (up to R100k)
- Focus
- Tailoring offers to needs and potential of all
segments - Strengthening customer relationships
- 3. Managing migration from segment to segment
over clients lifetime - 4. Growth in Especial and PJ
- 5. Efficiency in Classico
- 6. Aspiration in Premium
Selected Payroll to all Segments
Premium
Premium R40018000
Van Gogh R8001
Especial
University Students
Upper R2001-4000
Lower R12012000
Clássico
Near-term growth potential
Lower R0700
Upper R701-1200
29Relationships costs and revenues have to be
calibrated
1. Deposits Investments - Credit Outstanding
Net Financial Assets 2. Booz Allen Hamilton
Estimates. MfV Analysis 3. Banco Real Segments -
market segment definitions differ slightly
30Our service offer calibrated to our clients needs
To
From
In-line with market product and service offer
n
n
Better than market product and service offer
Classico
Limited product range debit card, instalment
credit, and
Broad range of products including
n
n
(Low Income)
savings account (w/ limited additions for Upper/
University)
multifunction cards, check books, etc.
Direct channels with Greeters access to staffed
Call
Full branch and channel access served by
n
n
Center for questions and informative
communication
assistants and managers
Proactive relationship managers with a higher
manager to
Core product vehicles include Realmaster,
Especial
n
n
client ratio and trained managers, assistants and
greeters
RealParcelado, and credit cards
(Mass Affluent)
Proactive and frequent offer in every direct
channel,
Full branch access served by managers
n
n
branches and direct mailing
Full channel access
n
Delivery by ATMs, Call Center, Internet,
Banco24Horas,
n
checkbook and branches
Debit cards as a foundation of the offer
n
Premium/
In-line with market product and service offer
n
n
Lower than market product and service offer
Van Gogh
Training, developing and hiring managers
observing a new,
Core product vehicles include Realmaster and
n
n
(Affluent)
higher manager to clients ratio
RealParcelado
Branch rebuilding or remodelling to deliver
select number
Full branch access served by managers
n
n
of Van Gogh and Premium Branches
Full channel access
n
Specialised managers with clear responsibility and
n
accountability specialised Call Center support
PJ
Explicit segmentation and focus on high potential
clients
No explicit segmentation
n
n
(SME)
(R100k turnover)
Package discounts by investment level
n
Automated credit tools and proactive direct
channel
Exclusive area in branch served by managers
n
n
availability (lower PJ)
31Credit cards is a key product for the mass
affluent
ABN AMRO (including Sudameris) has a market share
of 6.5 of the credit card transaction volume and
4 of the cards in force, therefore has a higher
than average utilisation ratio and a solid base
for growth
of Cards
Transaction Volume
Source ABECS, Mastercard, Visa market research
32Credit cards have a significant growth potential
...and a solid base for growth
Transaction Volume
Credit Cards
BRL million
million
All data in the overview section are in
Brazilian GAAP, in BRL and include all businesses
of ABN AMRO Brazil - WCS and CCC
33Debit cards enable to generate volumes with our
retail client base
Brazil Debit cards have grown faster than other
electronic payment methods, largely due to low
income bankarization. 2003 transaction volume was
up 59 ABN AMRO Debit card business grew 63 in
2003, exceeding the debit market growth ratio,
reducing check processing costs
Debit Cards
million
Source Visane, ABN AMRO
34We have created a true multi-channel platform to
best serve our clients
- Direct Channels include call center, Internet,
ATMs - Direct Channels/ Total Transactions
- 74 in 1Q04 (up from 50 in 1998)
- Branch Transactions/ Total Transactions
- 21 in 1Q04 (down from 23 in 4Q01)
- Direct Channel Availability
- 99 in 1Q04 (up from 97 in 4Q01)
- Internet Users
- Individuals 34 in 1Q04 (up from 17 in 4Q01)
- Corporates 79in 1Q04 (up from 17 in 4Q01)
35Distribution and differentiation have become key
competitive advantages
Created in 2002 by the Financial Executives
Magazine, e-finance award is intended recognize
the most prominent financial institutions in the
implementation of infra-structure solutions, IT
and telecom applications
2003 categories Internet Banking, Business
Platform, Outsourcing Strategy, Branch
BackOffice Solutions 2004 categories Retail
Internet Banking, New Call Center Technologies,
Mobile Mini Branch
- Reliability
- Transparency
- Accessability
Driver of client satisfaction for mass affluent
and client profitability for low income
36Our strategy and employees have created a
valuable brand
Ranking MOST VALUABLE BRAZILIAN
BRANDS
Source Interbrand - Dinheiro Publication
37Table of Contents
- Current Brazilian Business Environment
- Overview of ABN AMRO Brazil
- Overview CCC Brazil
- Financial Performance
- Sustainability
- Outlook 2004 / 2005
- Appendices
38The current performance is impacted by the
integration of Sudameris
Figures in Dutch GAAP
in BRL million
1Q2003
4Q2003
1Q04/ 4Q03
1Q2004
1Q04/ 1Q03
Revenues
1,284
1,562
5.9
1,654
28.8
Expenses
(814)
(1,115)
(1,129)
38.7
1.3
Operating Profit
469
447
17.5
525
11.9
Provisions
(149)
(222)
6.8
(237)
59.1
Oper. Profit before Taxes
320
225
28
288
-10
Taxes
(88)
20
(49)
Cayman Effects
57
11
(7)
Net Profit
172
204
198
15.1
Efficiency Ratio
61.7
69.5
66.7
All data in this slide are in Dutch GAAP in BRL
for CCC Brazil
39Spreads are declining but volumes are growing
Though spreads have declined, volumes have
sustained solid growth and are expected to grow
further
40The integration is going smoothly and delivers
the expected synergies
- Integration plans are being executed by 18
Integration Fronts (8 already completed) - Integration process is on track with BRL120.7 mio
synergies captured as of Mar 2003 (annualised
cost reduction) - 53of annualised cost reduction is related to
FTE reduction and the balance related to other
expenses
Total Synergies Captured BRL million
Planned
Actual
41Sudameris Acquisition Integration
- ABN AMRO acquired 94.57 of Banco Sudameris
Brasil S.A. in a R 2.2 billion transaction R
527 million cash and balance through share
exchange for ABN AMRO Real shares (11.58) - Estimated synergies R 300 mln p.a. starting in
2005 - Global integration plan designed June 2003 along
with due diligence - Creation of 18 working fronts, of which 8 have
fully executed, 6 depend on other migrations
(e.g. IT) and 4 are currently detailing
migration. - Fronts already integrated Audit, Asset
Management, Private, Compliance, Legal, Treasury,
Insurance and Consumer Finance - Implementation started as of closing in December
2003 - ABN AMRO is ahead of schedule regarding
implementation, capturing synergies both in the
scope of revenues, personnel and administrative
expenses
42Sudameris Acquisition Integration
- In October 2003 a career orientation program was
created to support personnel reallocation - A Best Practice approach is being followed,
e.g. for FX and Trade Finance Sudameris
integrated operational model will be adopted - Complementary businesses will be maintained, e.g.
Sudameris retail driven equity brokerage is
already fully operational under ABN AMRO - The two banks/operations shall be fully
integrated by year end 2004
43Client led growth will continue to produce
quality earnings
In a scenario of declining interest rates ABN
AMRO has pursued to build on its loan portfolio,
expanding client relationship and capturing
cross-selling opportunities
Loans / Total Assets Ratio
All figures based on Brazilian GAAP as published
by each institution
44Growth will be value creative as a result of
sound credit policies
The expansion of the lending business was
implemented with no prejudice to asset quality
performance of the the loan portfolio is fully
within market standards.
Non-performing Loans gt90 days
Market
ABN AMRO
Source Brazilian Central Bank
45Table of Contents
- Current Brazilian Business Environment
- Overview of ABN AMRO Brazil
- Overview CCC Brazil
- Financial Performance
- Sustainability
- Outlook 2004/ 2005
- Appendices
46The Dynamics of Sustainability
Governo
ABN AMRO has a leading role in creating and
delivering sustainable value
Government
Client
Employees
Society
ABN AMRO
Shareholders
Labor Union
Media
Community
Suppliers
Environment
47Key Initiatives for Sustainability
- Core Business Linked Initiatives
- New financing products directed to social and
environmental projects - Assessment of the social and environmental risk
of ABN AMRO clients - MicroCredit - Credit offering to population
traditionally excluded by the financial sector - Ethical Investment Fund investing in socially and
environmentally responsible enterprises - Management Initiatives
- Eco-efficiency / environmental management (e.g.
recycling) - Staff Diversity initiatives
- Supply Chain
- Engagement and mobilization of suppliers
- Social and environmental criteria as a key
factor in the choice of supply chain partners - Bi-annual publication of Brazilian Sustainability
Report - Social Initiatives
- 70 of our financial donations are destined to
public education and the remaining 30 to
initiatives in income generation, environment and
diversity - Wherever possible, we encourage our employees to
be engaged in our social action initiatives
48Table of Contents
- Current Brazilian Business Environment
- Overview of ABN AMRO Brazil
- Overview CCC Brazil
- Financial Performance
- Sustainability
- Outlook 2004/ 2005
- Appendices
49Outlook 2004 / 2005
- Inflation under control
- (IPCA forecast 6.8 2004 4.5 2005)
- Revised from 6.0 2004 5.1 2005
- Pick-up of economic growth
- (GDP forecast 3.7 2004 3.6 2005)
- Lower foreign exchange volatility
- (BRL/USD forecast 3.05 eop 2004 3.25 eop 2005)
- maintained
- Lower interest rates
- (Selic forecast 14.5 eop 2004 12.0 eop 2005)
- Revised from 13.5 eop 2004 maintained for 2005
- Growing credit portfolio, offsetting lower
margins and maintaining standards of credit
quality - (credit portfolio growth forecast for 2004 in
the range of 20)
50Thank You
51Table of Contents
- Current Brazilian Business Environment
- Overview of ABN AMRO Brazil
- Overview CCC Brazil
- Financial Performance
- Sustainability
- Outlook 2004 / 2005
- Appendices
52Sovereign Spread Economic Environment
Low international interest rates have pushed
investors towards higher yield instruments. In
this environment Brazil sovereign spread has been
driven to historically low levels, at 500- 700
bps over Treasuries
BRL
EMBI Brazil
Sources Brazilian Central Bank, Bloomberg
53External Private Debt Rollover RateEconomic
Environment
After a sluggish performance in 2002 external
private debt rollover picked up reflecting the
renewed appetite for Brazil. The 2004 drop is a
consequence of awaiting definitions with regards
to international interest rates.
run-up to 2002 presidential elections
( ) External private debt defined Bonds, Notes,
Commercial Papers, Direct Loans and Commercial
Credit
Sources Brazilian Central Bank, ABN AMRO
54Business Environment Economic Environment
Public Debt / Exports
Exports/ GDP
Source Brazilian Central Bank, ABN AMRO
55Asset ManagementOverview
as of Mar 2004
in BRL billion
Mutual Funds AUM
Market Share
Asset Managers
ABN AMRO ranks 3rd among privately owned retail
driven asset manager
1 Banco do Brasil
111.2
20.8
2 Bradesco
75.2
14.1
3 Itaú
74.6
13.8
27.1
5.0
4 CEF
5 Citibank
26.6
4.9
6 ABN AMRO
25.1
4.7
4.6
7 HSBC
24.5
8 Santander
23.6
4.4
23.0
4.3
9 Unibanco
10 BankBoston
21.9
4.2
19.2
Other
103.0
TOTAL
535.8
100
Source ANBID
56Credit Portfolio ABN Amro and SudamerisOverview
Consolidated Credit Portfolio
BRL million
Credit to the Private Sector
ABN AMRO BRAZIL
Period
EOP Balance in BRL billion
Growth nominal
Growth
2002
365
13
15
2003
395
8
59
1Q04
408
1.5
0.2
Source Brazilian Central Bank, ABN AMRO
All data in the overview section are in
Brazilian GAAP, in BRL and include all businesses
of ABN AMRO Brazil - WCS and CCC
57Consumer FinanceOverview
ABN AMRO consumer finance division is Brazils
largest car financier through its Aymoré brand,
driven by strong customer service. Main
competitors are aggressively reducing margins in
order to obtain additional market share.
Car Financing Market Share
100
Source DETRAN
58WEB MotorsOverview
- WebMotors has 85 share of the views in the
internet auto segment - 4 of internet visits search for information on
the auto segment
Source IBOPERating
Source ABN AMRO
59MortgageOverview
Historically 75 of assets are acquired through
the branch network. Intermediaries such as
developers and real estate brokers provide a
growth platform. The Brazilian mortgage market
may benefit from the new law (currently under
approval) regarding statutory lien.
2003 Market Share
Mortgage Balance
in BRL million
1,164
1,173
Source ABECIP
All data in the overview section are in
Brazilian GAAP, in BRL and include all businesses
of ABN AMRO Brazil - WCS and CCC
60Awards
Created in 1998 by Exame magazine the guide to
identify the best companies in People Management
Awards
Ranked among 100 Best Workplaces in 2002 and
2003 Ranked among 100 Best Workplaces for Women
in 2003
61(No Transcript)