Clear skies for wealth management

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Clear skies for wealth management
Foto gebouw

• Etienne VerwilghenManaging DirectorCEO of KBL
  epb

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Our private banking businesses today (AUA 63
bn)
KBC Group has private banking operations in 16
countries, with gt5bn in Belgium, Luxembourg,
Germany, Spain and the Netherlands
Of which 5.5 low yielding assets
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Our core competencies strategic assets
The strategy leverages current strengths, but
also depends on building new capabilities in key
areas
Current core competencies strategic assets
Critical competencies we need to develop

• 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

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The competitive landscape 4 different models
There are broadly four competitive models, which
will all continue to exist with no one clear
winning model overall

• 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.

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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
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
gt1m of investable assets
Belgium
W. Europe onshore
Offshore
CEE

• 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

• 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

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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
  EPBs 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?
The headroom for growth that KBC PB and KBL EPB
('Puilaetco') can access is different
Type 2 Global PBs
Type 3b Offshore
Type 4 Other

• 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

Type 3a Local Pure Plays Puilaetco, Degroof,
Delen, Petercam
Type 1 Networked Retail/Universal KBC,
Dexia, Fortis, ING
Flows of Private Banking Assets
Retail Banks
Thickness of arrow indicate volume of asset
flow (note for simplicity, not all flows
included)
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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
Our endgame vision of the hub
Organisational impact

• 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

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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 projections1
In total, KBC Group projects 10 Net Income
growth per year till 2008
Net Income Growth
CAGR 10
This assumes normal market conditions
1. Excluding any future acquisitions
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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
Increase profitability and drive organic growth
in current businesses
1
Selectively acquire to reinforce current
positions of strength onshore (e.g. Netherlands,
Germany, UK, Spain)
2
Build critical mass in France (and Italy? )
3
Acquire offshore in Switzerland and Lux to
maintain scale
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Opportunistic acquisitions will imply an
investmentin the range of 150-250 mln a year