Strategic Plan 2008-2010:
- Strengthening Capital base: Core Tier 1 Ratio 7.1% (Basel II) by 2010
- Strong value creation: EVA up by more than 60% from Euro 2.9 Bill. (2007) to Euro 4.8 Bill. (2010)
- Focusing on Cost Control: Operating Costs increase with 0.8% in Western Europe (CAGR 2007-2010) well below inflation rate
- Enhancement of Efficiency: Cost/Income Ratio from 56% (2007) to 51% (2010)
- Increasing Income: Revenues up by 6.7% annually (CAGR)
- Boosting Profitability: EPS (Earnings per Share) up by annually 10%-12% (CAGR)
Update for 2008
- Basel lI implementation: 23 bps Core Tier 1 improvement bringing Core Tier 1 at the end of the first quarter from 5.51% to 5.74%
- Bank Austria squeeze out fully financed by organic capital generation
- No additional net write-downs on ABS portfolio in the second quarter
- 2008 EPS target of Euro 0.52-0.56
The UniCredit Board of Directors has approved the Group's Strategic Plan for 2008-2010.
Thanks to dynamic growth in the CEE-region, further efficiency measures and intensified cost control, UniCredit Group aims to increase its Earnings per Share (EPS) by 10-12% annually (CAGR) excluding all extraordinary items. Revenues will grow annually by 6.7%, at a significantly higher rate than the operating costs (3.4% - all figures in terms of CAGR). All in all, value creation will be considerable: Economic Value Added (EVA) will rise over the next three years by more than 60% and reach by 2010 Euro 4.8 Billion.
The Group also disclosed an update on the current year, stating that the squeeze-out of Bank Austria minority shareholders has been fully financed by the organic capital generation. Furthermore UniCredit suffered no further net write-downs on its ABS trading portfolio in the second quarter and confirms all targets in terms of capital (Core Tier 1 of 6,0% at the end of the year/Basel I) and profitability (EPS Euro 0,52-0,56).
The starting position
The business plan is built on the fundamental belief, that in times of stress for the financial markets, banks with a strong franchise and a well diversified revenue base are best protected from uncertainties brought along with such crisis. No wonder, that the industry is going back to its basics with a strong emphasis on customer-relationships, local distribution networks and more traditional products. The rising cost of risk - due to the business cycle and deep structural changes in the financial markets - implies that commercial banks with a strong client base are structurally favored thanks to the higher quality of lending. Geographically the differences between more and less mature banking markets will continue to be striking: for the foreseeable future the CEE-region will continue to grow much faster than Western Europe.
This scenario means, that UniCredit's extensive customer franchise, unique regional footprint combined with its traditional commercial banking activities are key for the success of UniCredit Group. Fast-growing markets in Central and Eastern Europe will play a further role in the future development of the Group. Thanks to the leading network in Europe with more than 10.000 branches in 23 countries - 20 of them in the dynamically growing CEE-region - and 40 million customers, UniCredit is perfectly positioned for the present and future challenges of the banking industry.
The general strategy
Geographically, UniCredit aims to follow in the next years a Two-Tier-Strategy: in Central and Eastern Europe the Group will expand its network significantly, while in Western Europe the focus will be on optimization, efficiency, restructuring and cost control.
Much attention will be directed towards capital efficiency and a more value-oriented use of the balance sheet. In order to deliver that goal, capital will be reallocated with Risk Weighted Assets (RWA) decreasing in the Markets&Investment Banking and Corporate Divisions as well as in the Corporate Center. On the other hand the RWA's in the CEE-Region will expand dynamically.
Due to the planned efficiency-measures, cost containment efforts and the Group's strong organic capital generation, the overall capital position will be significantly strengthened. The Core Tier 1 ratio (Basel II) is expected to reach 7,1% in 2010.
During the 3-years-plan period a particular management attention will be dedicated to the full exploitation of UniCredit's centralized product factories and the further rationalization of its IT- and operations-platforms. Additional streamlining of the production and back-office activities will lead to still leaner processes and help extract full value of UniCredit's multinational distribution franchise.
Two pronged approach to Western Europe and the CEE
In the CEE-Region UniCredit will continue its strong growth by opening 1.300 new branches and add 11.500 employees to its workforce. The roll-out of the initiatives will take place in a flexible and progressive way according to the opportunities of the respective local markets. Revenues from CEE-countries will grow - according to the plan - annually by 19%.
Based on to the macro-economical perspective used to build the Strategic Plan, the more mature markets of Western Europe (Italy, Germany, Austria) will grow only moderately, also as a result of the economic cycle. Consequently, the attention of the Group will be focused here on further restructuring and on the full integration of the recent acquisitions. Staffing in these countries will be right-sized, which will impact some 9,000 of the 100,000 jobs, largely due to the full Capitalia-Integration and cuts in the Corporate Centers.
Costs and Efficiency
Operating costs in the three Western European core-markets are expected to grow annually only by an average of 0.8% - well below the forecasted inflation-rates. Together with this important cost containment effort, the structural healthy Retail Market in Italy and the strong Corporate Banking Sector in Germany are the main drivers for the enhancement of profitability in Italy, Germany and Austria.
In order to fully leverage on its economies of scale, UniCredit Group will build up a multinational IT-platform: in the next three years the commercial banking systems in Italy, Germany, Austria and Poland will migrate on one sole Group platform (Eurosig). This harmonization will significantly reduce IT-expenses and back-office costs for the network.
The overall Cost-Income-Ratio of UniCredit Group is expected to fall from 56% to 51% in 2010.
Divisional highlights 2008-2010:
Retail:
- Continuing the successful integration of Capitalia by seeking considerable efficiency gains
- continuing the German and Austria's retail turnaround and business selectivity to achieve soon a very positive ROE and EVA
- Maintain leadership in customer satisfaction
- Strong expansion of household finance into CEE
Corporate:
- Focus on intelligent use of the balance sheet/RWA Optimisation
- Cross-selling between Corporate/MIB and Private Banking
- Full deployment of customer satisfaction
- Maintain excellence in cost and risk management
Markets&Investment Banking:
- Positioning as European Regional Specialist
- Focus on service to our corporate customers
- CEE is the key growth driver
- Tight management of risks and costs
Private Banking:
- Positioning as a leading European on-shore Private Banking franchise
- Leverage on UniCredit's network to attract and strengthen client relationships with entrepreneurs
- Aspire for efficiency leadership
Asset Management (Pioneer Investments):
- Maintain top EVA production
- Increase 4/5 star performance strategies and unify solutions for UCG channels
- Increase 3rd party weight on total AUM while returning positive in UniCredit Group distribution
- New investments financed by further improvement in efficiency
Vienna, June 26th.2008.
GLOSSARY
CAGR (COMPOUND ANNUAL GROWTH RATE)
The yearly average growth rate over a specified period of time.
COST OF RISK
One of the chief indicators used to determine the risk of bank assets, the cost of risk is assessed by the ratio of loan loss provisions to average Risk Weighted Assets (RWA).
EVA (ECONOMIC VALUE ADDED)
A measure of a company's capacity to create value in monetary terms, determined by calculating the difference between NOPAT (Net Operating Profit After Tax) and the invested capital charge.
RWA (RISK-WEIGHTED ASSETS)
A bank's assets (on- and off-balance sheet), weighted by factors representing their risk and potential for default in order to calculate a capital adequacy ratio (the minimum amount of capital required within banks and other institutions as set forth in international accords).
TIER 1 RATIO
It measures the Capital Adequacy of a bank: it's the ratio between the Tier 1 Capital and the risk-weighted assets.
CORE TIER 1 RATIO
It measures the Capital Adequacy of a bank: it's the ratio of Core T1 capital to RWA.
About UniCredit
With market capitalization of ca. €54 billion, ranking among the top 3 financial groups in Eurozone, UniCredit has a presence in 23 countries, with over 40 million clients, 10,000 branches and approximately 180,000 employees as at June 2008.
In the CEE region, UniCredit has the largest international banking network with over 3,600 branches and outlets and more than 70,000 employees.
The Group operates in the following countries: Austria, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Italy, Germany, Hungary, Latvia, Lithuania, Kazakhstan, Kyrgyzstan, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Tajikistan, Turkey and Ukraine.