Milano, 09 September 2002

 

 

GROWTH, EFFICIENCY AND VALUE CREATION

in the 2003-2005 Business Plan

€1.5bn increase in revenue; € 1.5 bn reduction in costs

Cost/income down to 52% (in 2005) from 67% (in 2001)

ROE up to 14.8% (in 2005) from 6.7% (in 2001)

Capital ratios at healthy levels in 2003 with no capital increase

Complete exit from Latin America

Partnerships with Crédit Agricole, Generali Group and Lazard

 

Chaired by Giovanni Bazoli, IntesaBciBci’s Board of Directors met today and approved the half-yearly report as of 30^th June 2002 and the 2003-2005 Business Plan presented by Managing Director and CEO Corrado Passera.

 

The Plan addresses and solves the main issues, leverages on the great unexpressed growth potentials of the Group and leads to a positive turnaround with tangible results already in 2003, allowing the Group to reach satisfactory results possibly already by 2004 and certainly by 2005.

 

The Plan settles the IntesaBci Group issues

 

1) Asset Quality and Risk Profile

In order to improve the Group’s asset quality and reduce its risk profile, different directions are being followed such as:

• Reduction of the exposure of the Group to corporate business, with particular reference to Large Corporate.
• Reduction of international exposure, through the exit from Latin America and reduction of international corporate lending (Large and Mid corporate).
• Down-sizing of some non-core operations, such as credit derivatives trading.
• Strong reinforcement of the activities of the Credit and Risk Management Departments of the Group, in addition to all the other internal systems related to granting and monitoring credits.

This will result in:

• a bigger weight of the Retail sector (Retail Division, Italian Banks Division and Product Companies) compared to the Corporate sector: from 42 % in 2001 up to 60% in 2005;
• a bigger weight of domestic operations versus foreign activities: the percentage of total assets in Italy will increase from 71% in 2001 to 87% in 2005;
• a reduction of over one third of the net NPL/Total Loans ratio from 3% in 2001 to at least 2% in 2005.

 

2) Latin America

The Plan includes the complete exit from Latin America over the next months and, to the best knowledge available by the closing of the 2002 financial statements, the inclusion in the 2002 results of the additional charges from disposals. While a capital gain is probably going to derive from the sale of Sudameris Brazil, further extraordinary charges are likely to arise from the complex disposals of Argentina, Peru and the other minor countries (Uruguay, Paraguay, etc.).

 

3) Capital Base

The Plan includes a substantial improvement in current capital ratios which will be negatively affected in the second half of 2002 following the exercise of the Put Warrant. No capital increase is foreseen in the Plan but a set of short-term actions are included aimed at reducing non-core assets (equity investments and real estate for at least 24 billion euro) and non-core and/or not profitable loans (over 19 billion euro). Starting from 2003, capital ratios will also benefit from the first significant improvement in profitability and

from the disposal of treasury shares received as a result of the exercise of the Put Warrant.

 

4) Profitability and Value Creation

 

The main objective of the Plan is to allow the IntesaBci Group to create value by 2003 and to join the group of best performers by 2005 in terms of value creation by leveraging on the relevant non-exploited potential of the Group, on its role in Italy and on professional competencies and commitment of its human resources.

 

The following general key indicators summarise the targets of the Plan:

 

IntesaBci Group – key indicators
	2001	Targets by 2005
Cost/income	67%	52%
ROE	6.7%	14.8%
EVA®	€ -768 million	€ 620 million
EPS	€ 0.14	€ 0.31-0.35
Tier 1 capital ratio	6.0%	8.6%
Tier1 ratio net of pref. shares	5.3%	7.7%

 

In order to achieve such important improvements in results clear responsibilities have been attributed through a new organisational structure entrusted to a strong managerial team.

 

The new organisational structure is clearly streamlined and brings the Group back to unity, ensures clarity in decision-making under a single CEO and accelerates the integration of all the components of the organisation. The new structure is based on:

 

• four Business Divisions - Retail, Italian Banks, Foreign Banks and Corporate (under way) - that are responsible for all the clients of the Group;
• Product Companies that support the Business Divisions and will also further broaden the market presence of the Group;
• Central Functions (Head Office Departments and Services Companies) that have clear targets in terms of quality, growth and profitability.

The managerial team that has been shaped in the last three months also with new entries will be further strengthened in the next few months.

 

In order to achieve profitability and value creation targets the Plan sets an increase of over 1.5 billion euro in revenues and a 1.5 billion euro decline in costs and provisions leading to a 3 billion euro increase in income from operating activities.

 

Growth through a Striking Improvement in Customer Service

The improvement in customer service - both in retail and corporate - will be the result of a mix of actions including: the completion of the integration process, the fast unification of the IT systems of the Group, the simplification and reliability of procedures, the further improvement in personnel expertise (which is, in turn, related to long-term training scheme involving all personnel, as well as to rules and actions which will clearly aim at the full enhancement of talents and at the accountability of each individual on results), large investments in infrastructure upgrade, restructuring of the Group’s network - also through the transformation of the branches’ lay-out to a more functional and innovative structure and better geographical coverage - and a wide offer, consistent and tailored on specific client needs of increasingly diversified typologies of customers.

All these actions (some of them have been already started before the launch of the Plan) move towards a main target: that is to make customers really feel at the core of the Bank’s attention. This is one of the commitments that the IntesaBci Group makes to its clients with this Business Plan.

 

Cost Reduction to be competitive on the Market

Cost reduction will affect all components: personnel expenses (apart from a significant increase for training expenses); other operating costs (notwithstanding an amortisation increase from larger investments and expenses for business development (e.g. communication expenses); loan loss provisions (the Group will be back to normal standards of provisioning through improved credit quality).

 

 

Four Levers for the Change

 

1)      Innovation

In order to achieve a clear and fast improvement in customer service in all sectors the Plan includes an all-encompassing innovation - organisational, commercial and technological - programme spreading throughout the whole Group. In view of this over the 2003-2005 period 1.2 billion euro will be invested mostly in the upgrading and streamlining of the ITC structures, in the development and the upgrade of the branch network and in the implementation of the new branch lay-out.

 

2)      Investments in Human Resources

The quality and responsibility of all resources will play a primary role, particularly in the improvement of services to clients. The first objective is to accelerate integration, leading the different cultural models - which represent success stories of the original banks - to identify with the IntesaBci Group, with its value, rules and objectives. Internal communication will play a key role and will need to be constant, transparent and spread from the Central Functions across the operating units. Training is crucial for the execution of the Plan: a large investment will be made including 800,000 working days over the three years devoted to training.

 

3)      Partnerships

In the current market context - and even more in the future - partnerships have a key role for the achievement of critical mass to exploit economies of scale and scope, to support large investments and to make it possible for the Group to play a leading role on major international financial and banking markets. Three important partnerships are included in the Plan:

• with Crédit Agricole Group, in the new Private Bank, in Consumer Credit and in Bancassurance,
• with Assicurazioni Generali Group, in Bancassurance and in the pension funds business,
• with Lazard Group in the Advisory business (M&A and equity origination).

 

4)      Communication

The Plan includes a clear upgrading in this sector as well, in order to:

• create the Group’s new identity, redefining the Group’s logo (from IntesaBci to Banca Intesa) and all logos and brands in use, also in view of a revaluation of the Comit brand in Corporate Banking;
• build an even more transparent relationship with the market, the financial community and public opinion (especially through periodic information on plans and results of every structure of the Group, through meetings with the Group’s top management and through an even more constant presence of the Investor Relations function)
• create long-term relations with consumers’ associations (with a perspective of permanent monitoring of the quality of service and education to consumerism, also in order to identify, develop and launch products and services ever more in line with clients’ needs.

Half-yearly results

 

The half-yearly report as of June 30, 2002 closed with the following results:

 

operating margin decreased by 16.4% (down to 1,736 million euro from 2,076 million euro in the first half of 2001) due to a decline in revenues affected by the unfavourable macroeconomic conditions (net interest and other banking income recorded a 9% decline down to 5,195 million euro from 5,711 million euro ), only partially offset by declining operating costs (down 4.8% to 3,459 million euro from 3,635 million euro). It would have declined by 10,4% net of non-recurring dividend (a non-recurring dividend was booked in the first half of 2001 due to the Seat Pagine Gialle merchant banking transaction) and forex effect (a significant devaluation of the main Latam currencies affected IntesaBciBci’s subsidiaries located in South America);

 

income from operating activities dropped to 279 million euro in the first half of 2002 from 1,066 million euro in the first semester of 2001, due to the negative trend of operating margin and a tough provisioning policy which is consistent with the above-mentioned conservative approach of the Business Plan 2003-2005. Total provisions and adjustments showed an increase of approximately 450 million euro (+44.3% to 1,457 million euro from 1,010 million euro), of which over 200 million euro due to Marconi and Worldcom exposures and approximately 170 million euro due to the write off of the Peruvian equity investments;

 

consolidated net income down to 114 million euro from 1,386 million euro recorded in the corresponding period of 2001. These two figures, however, are barely comparable, due to a 776 million euro extraordinary income booked as of June 30, 2001 against a 62 million euro extraordinary income accounted for in the first semester of 2002. The Parent Company IntesaBciBci contributed with a 174 million euro net income (714 million euro recorded in the first semester of 2001).

 

loans to customers totalled approximately 177 billion euro, down 3.8% compared to December 2001 and 6.4% compared to June 2001. The incidence of net doubtful loans was 3.1%, compared to 3.0% as of December 2001, with a coverage ratio of doubtful loans up to 61% from 59%;

 

customer deposits under administration exceeded 504 billion euro, down 1.9% compared to December 2001 and up 0.6% compared to June 2001;

 

capital ratios recorded a 6.4% Tier 1 ratio (6.0% at the end of 2001) and a 10.3% Total capital ratio  (9.3% at the end of 2001).

 

In the second semester of 2002 two significant charges will be accounted for in addition to the charge for the mark to market of the Put Warrant:

• charges due to restructing costs
• charges due to the exit from Latin America.

This will allow to avoid further impacts on results in the next few years due to extraordinary events connected with Group refocusing and restructuring.

 

A Bank for the Country

 

The IntesaBci Group is one of the major assets of the Italian financial system. The 2003-2005 Plan aims at further strengthening this role of “bank for the country”. This in particular means:

 

• Following and supporting the development of Italian companies willing to grow, both in Italy and abroad (thanks to a more integrated and active presence in local markets, through products and services created for enterprises - especially for small and medium ones - but also and above all through dedicated professionals). This implies a significantly improved generation of local expertise, with advantages also in terms of improved risk profile and profitability.
• Making the citizens’ lives easier and improving the efficiency of the public sector, thanks to a product range increasingly competitive and innovative.
• Improving the competitiveness of the country through the modernisation of a significant portion of the Italian banking and financial system, thus contributing to the general growth of the efficiency of the system through partnerships and initiatives. These are aimed at supporting the creation and renewal of big Italian infrastructures as well as the growth of excellent Italian companies and ensuring a sustainable, well-balanced development.

 

* * *

 

The strict execution of the 2003-2005 Plan - composed of over 100 specific projects - is achievable for the IntesaBci Group. It will be a challenging task that will be implemented over the next three years. Results and improvements, however, must be already tangible in 2003 and will be disclosed for continuous monitoring by the market and public opinion.

 

 

 

The consolidated statement of income and consolidated balance sheet (reclassified in condensed format) included in the Report approved by the Board of Directors are attached in order to provide a more detailed picture of the results contained in the half-yearly financial statements. Furthermore, please note that the Auditing company in charge of performing the limited review of the half-yearly report has not as yet completed its analysis.

 

The Half-Yearly Report as of 30th June 2002 is disclosed according to the terms provided for by Art.82, par. 2, of Consob Regulation 11971 of 14^th May 1999 (as subsequently modified) instead of the Quarterly Report as of 30^th June 2002.

 

Lastly it must be noted that the Quarterly Report as of 30^th September 2002 will be approved by the Board of Directors on 12^th November 2002.

 

NEW ORGANISATIONAL STRUCTURE

 

 

 

Consolidated reclassified statement of income
Consolidated balance sheet data
Quarterly development of the reclassfied statement of income