Financial Results for the year ended 31 December 2002.
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Transcript of Financial Results for the year ended 31 December 2002.
![Page 1: Financial Results for the year ended 31 December 2002.](https://reader035.fdocuments.net/reader035/viewer/2022062515/56649cea5503460f949b4eb5/html5/thumbnails/1.jpg)
Financial Results
for the year ended 31 December 2002
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Programme
• Year in review– Richard Laubscher
• Financial review– Stuart Morris
• Strategic review– Derek Muller & Tom Boardman
• Prospects– Richard Laubscher
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Year in review
Richard Laubscher
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The year in contextMacro issues• Microlending malaise• Small bank crisis• Industry consolidation• International bank departures• Rising inflation and interest rates• Strengthening Rand• Community Reinvestment Act and
Financial Charter mooted• Mortgage originators and integrators
A challenging year
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Strategic initiatives
• Acquisition of BoE• Acquisition of NIB minorities• Integration of banking subsidiaries• New operating structures developed• Enhanced capital structure• Wealth Management rationalisation• Old Mutual Bank JV refined• Acquisition of Planet Finance
Created a stronger group
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Strategic scorecard
AcquisitionsBoE Imperial Gerrard Private Bank FBC Fidelity ENF Didata AlliancesOld Mutual Bank/Bancassurance Pick ’n Pay Go Banking JD/Capital One microlending market Amex/Capital One Outsourcing
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Year in review
• Core earnings up from R3,1bn to R3,4bn• Core eps up 4% to 1 330c• Organic growth in interest-earning assets
+17% boosted to +31% by BoE• Topline revenue growth
– Organic: NII +12% NIR +15%– Acquired: NII + 8% NIR +22%
• Expense growthOrganic: +13% Acquired: +22%
• R266m net contribution from BoE– Net profit of R520m offset by funding cost
of R254m• Provisions – SME & Microlending
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Segmental performances
(Rm) % ch 2002 2001
Nedbank Retail +87 353 189
Nedbank Commercial -56 256 579
Nedbank Corporate -8 866 945
Nedbank International -30 112 161
Peoples Bank +53 299 195
NIB +22 760 625
Cape of Good Hope Bank +26 120 95
T&O Strategic Investments -171 (32) 45
Group Operations +24 238 192
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Acquisitions and alliances’performance
265BoE (net of funding)
20012002% ch(Rm)
-44
-213
+72
+83
+94
(39)
(47)
110
56
72
(27)
(15)
64
30
37
Bancassurance initiatives
JD/Capital One
Pick ’n Pay Go Banking
Gerrard Private Bank
Imperial Bank
(25) 2Amex/Capital One
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Merger and integration
• Group restructure triggered by:
– BoE purchase for R7,7bn
– NIB minorities buyout
• Synergy estimates of R905m per annum by 2005
• Regulatory approvals for merger finalised
• R9,2bn new capital raised, enhancing capital structure
– Ordinary capital R3,2bn
– Subordinated debt R4bn
– Preference shares R2bn
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Merger and integrationEarly successes• Legal Day One successful• Key decisions on product offering made• Future technology architecture agreed• Healthy funding flow back into BoE
– NBS deposits 103%; Probanker 100%; Business Banking book 107%; BoE assets 115%; no large depositor concentration issues
• Client and staff retention good• Initial staff survey very positive• Nine sets of terms & conditions and nine payrolls
into one from 1 April 2003• Employee Development & Deployment Centre up and
running• Over 20 000 employee positions finalised• Operational merger going to plan
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Major merger milestones
Activity
Legal Day OneMigration planningWealth Management LDOProduct offering decisionTreasury integrationCapital markets integrationSystems architecture designPayroll integrationCoGH integration into Nedbank retailCredit Life integrationBoE Business Bank customer migrationPEP Bank integration into Peoples BankCashbank integration into Peoples BankConsumer credit reorganisationPeoples Bank branding developedPrivate Wealth completionCIS (unit trusts) integrationInternational rationalisationPeoples Bank platform upgradesNBS integration into Peoples BankProperty & Asset Finance integrationBusiness Banking integration
Q1 Q2 Q3 Q4 Q4Q3Q2Q1Q4Q3Q2Q12003 2004 2005
1 Jan 2003V.1 Final
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Financial review
Stuart Morris
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Disclosure
• BoE and NIB separately disclosed
• BoE pre-acquisition adjustments
• Pro forma segmental in Annual Report
• AC133 effective 1 January 2003
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Income statement: core earningsyear ended 31 December
*Excluding BoE
2002 2002 2001 % ch % ch* Rm Rm* Rm
Net interest income +20 +12 6 300 5 874 5 268Non-interest revenue +37 +15 6 929 5 833 5 054
Total income +28 +13 13 229 11 707 10 322Provisions +68 +62 1 778 1 712 1 058
Net income +24 +8 11 451 9 995 9 264Expenses +36 +13 7 334 6 140 5 416
Net operating income +7 – 4 117 3 855 3 848Taxation -25 -26 580 569 772
Net income after taxation 15 7 3 537 3 286 3 076Associate income -11 -18 162 148 181Minorities 103 103 (333 (333 (164
Core earnings +9 – 3 366 3 101 3 093Core eps +4 -5 1 330 1 226 1 284
) ) )
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NIB BoE*Funding
365 (363)1 173 -1 538 (363) 30 -1 508 (363) 515 -
993 (363) (150) (109)
843 2549 -
92 -
Net interest income Non-interest revenue Total income Provisions Net income Expenses Net operating income Taxation Net income after taxation Associate income Minorities Core earnings 760 254
BoE*
789 1 0961 885
661 819
1 194625
119506
14 -
520
BoE*contribution
426 1 0961 522
661 456
1 194262
10252
14 -
266
2002Rm
* July – December 2002
Handout only
Income statementsyear ended 31 December
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Core earnings to headline earnings
Dec Dec% 2002 2001
change Rm Rm
Core earnings 9 3 366 3 093
Translation gains/(losses) (1 011 1 096
General risk provision 400 (400Merger costs (170 –
Headline earnings -32 2 585 3 789
Headline eps -35 1 022 1 574
)
))
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Rand appreciation
Rand expectations: using end 2000 as base
6
7
8
9
10
11
12
13
00 01 02 03
actual and forecasthighlowexpected
99 00 01 02
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Headline earnings to attributable income
Dec2002
Rm
2 585
(501)
Headline earnings
Goodwill
Dec2001
Rm
3 789
Didata revaluation (1 080) (3 298)
(273)
192
984
Taxation
Attributable income
(171)
13
Merger costs (35)
(177)Other impairments (34)
389Attributable eps 5
–
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Goodwill and capital writedowns
Handout only
2002 2001Rm Rm
Goodwill 501 273BoE 214 –The Internet Solution – 131IQ Business Group 58 21Other T&O investments 59 74MBCA (Zimbabwe) 36 –Other goodwill 134 47Impairments 119 34Investment sold 58 –
Total 678 307
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Net interest income
2,500
3,000
3,500
4,0004,500
5,000
5,500
6,000
6,500
1998 1999 2000 2001 2002
2.0
2.5
3.0
3.5
4.0
4.5
NII (Rm) Grossed-up margin (%)
Margin (%) BoE (Rm)
Margin after prov. (%)
Rm %
+10.4% +11,1% +8,6%+11,3%
+19,6%
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Non-interest revenue
2,000
3,000
4,000
5,000
6,000
7,000
1998 1999 2000 2001 2002
40
45
50
55
NIR (Rm) NIR: Total income (%) BoE (Rm)
Rm %
+23,0% +8,6%+23,1%
+29,0%
+37,1%
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Analysis of provisions by activity
% 2002 2001change Rm Rm
Retail Banking 1 417 411Peoples Bank 73 59 34Commercial (21 160 202Imperial Bank 64 105 64Cape of Good Hope Bank (19 29 36Corporate (18 50 61NIB (25 30 40Other 11 105
(10 861 953Microlending 550 195 30SME Book 775 656 75BoE 66 –
68 1 778 1 058
)
))
)
)
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SME ringfenced collection book
TradingStart statement Now
Rm Rm Rm
Carrying value 700 700 698Estimated collections (220 (64 (42
480 636 656
Planned provisioning 480 636 656
2002 – normal 190 190 190– additional – 400 466
2003 200 46 –2004 90 – –
) ) )
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Non-performing loans
% % %Rm adv Rm adv Rm adv
Non-performing loans 8 001 4,0 7 014 4,4 6 974 4,4Expected recoveries 3 836 2,0 3 603 2,3 3 473 2,2Expected losses 4 165 2,0 3 411 2,2 3 501 2,2Provisions (coverage) 6 553 3,1 4 691 3,0 5 154 3,3Adequacy of provisions– Gross
coverage (%) 82 67 74– Net
coverage (%) 157 138 147
Dec 2002 June 2002 Dec 2001
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Capitalised development costs
2002 2001
Opening balance 881 480
Development expenditure 386 549
Commissioned (772 (148
Closing balance 495 881
Software amortisation 182 92
) )
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Capital adequacy
2002 2001Rbn %* Rbn %*
Tier 1 14,5 7,0 14,1 8,6– Ordinary capital & reserves 12,5 6,0 14,1 8,6– Preference capital 2,0 1,0 – –Tier 2 8,5 4,0 4,6 2,8– Callable notes 6,0 2,6 2,0 1,2– Other 2,5 1,4 2,6 1,6Total 23,0 11,0 18,7 11,4
*Percentage of risk-weighted assets
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BoE acquisition
2,8Goodwill
4,9Adjusted net asset value
7,7Purchase consideration
Rbn
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BoE pre-acquisition adjustmentsPost-tax
Handout only
Rm
Net asset value – 31 March 2002 6 058
Headline earnings April – June 2002 97
Exceptional items (173
Net asset value – 30 June 2002 5 982
Fair value adjustments (899
Accounting policy alignments (170
Adjusted net asset value as at 30 June 2002 4 913
)
)
)
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Embedded value
Rm 2002Shareholders’ net assets 566Value of in-force business 59Embedded value 625Value of 15 months’ new business 1Embedded value earnings as a % of opening embedded value* (4,7%)
*Embedded value earnings negative due to change in assumptions
Handout only
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Indicative new segmental
Earnings AssetsNedbank Corporate 71% 70%
Corporate Banking 23% 15%Commercial Banking 19% 11%Property Finance 8% 14%International 6% 9%Imperial Bank 3% 4%Treasury 3% 12%Other 9% 5%
Retail 8% 20%
Wealth Management 6% 5%Retail Banking 2% 15%
Peoples Bank 4% 3%Capital & Group Services 17% 7%
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Strategic review
Derek Muller
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Nedbank Corporate
We are an integrated corporate and investment bank offering a full range of services (advisory, debt, equity, and transactional banking) to large and mid size corporates, based on strong enduring relationships, driven by innovative solutions and leading edge technology
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R5m turnover
R250m turnover
Nedbank Corporate
CorporateBanking
BusinessBanking
No. of clients : 1 700Market share : ± 22%
No. of clients : 25 000Market share : ± 24%
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Nedbank Corporate
Capital Markets
BrianK ennedy
CorporateFinance
R ob Shuter
BusinessBanking
R ichard Buchholz
Corporate Banking
G rahamD empster
ENF
C oenraadJ onk er
W Cape Group Exec
M ik e Thompson
BEE/ PublicSector/ AfricaS ipho P ityana
Property &Asset FinanceM ik e Brown
Treasury
Peter LaneI nternational
R occo R ossouw
Support Services
W illie RossAsh ley S utton - Pryce
K evin H udson
D erek M uller M ichael K atz
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Nedbank Corporate
Assets No. of(Rm) people
Corporate Banking 36 600 310
Business Banking 22 300 3 720
Corporate Finance – 30
ENF – 200
Capital markets 10 700 350
Property & Asset Finance 25 000 1 200
International & Africa 23 200 670
Treasury 34 000 340
Total 151 800 6 820
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Nedbank Corporate
• Quality asset growth of 12%• RoE 21%• Excellent credit management with low
levels of specific provisions for the year• Strong growth in black empowerment
transactions• Global trade achieved significant market
share gains• Nedbank Investor Services ranked the
premier custody services provider
Handout only
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Nedbank Treasury
• Successful integration of treasury rooms• Integrated six back offices into central
processing area• Foreign currency trading profit up 33% on
prior year• Total trading profit up 16% on prior year
Handout only
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Nedbank Commercial
• Asset growth of 11% to R16bn Star performer was instalment credit (+18%)
• Client deposits up 27% to R25bn• NIR growth of 12% to R767m. Exceptional
performance in electronic banking and global trade
Handout only
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Nedbank International
Handout only
• African subsidiaries NPAT up 54%• African associates down 29%
(MBCA; HSBC Equator; SBM)
• Hong Kong NPAT down 26%• London NPAT down 17%
• Focus on trade finance & private banking
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Nedbank CorporateStrategic objectives 2003• Create a common culture• Build on our intellectual capital/
advisory capacity• Build on our very strong corporate relationships
• Maximise our regional strengths• Deeper penetration of the mid-market• Greater focus on public sector• Commitment to growth in Africa and offshore• Total commitment to black economic
empowerment
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Nedbank CorporateIntegration update• Treasury consolidation completed 1 February
2003• Systems selected• No funding difficulties• No clients lost• Lost very few senior people• Change management: roadshows/workshops
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Some recent deals
• Southern Sun/Tsogo Sun – funding• Cell C – funding & swaps• African Legend/Caltex – advisor• Resilient Properties – listing• Harmony/African Vanguard – advisor• Sandton Towers – property structure• Sasol Service Stations – funding• Telkom IPO – legal advisor• ICC/World Cup – legal advisor
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Synergy estimates
135
12
-
43
18
-
Capital Markets
Business Banking
Corporate Banking
Finance & International
Treasury
Total
Property & Asset Finance
62
Handout only
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Strategic review (continued)
Tom Boardman
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Nedbank Retail & Wealth Management
Retail
PeteBackw ell
W ealthManagem ent
Pau l Leaf- W right
Pete S outhw orth
Old Mutual Bank
J ack de B lanche
Tom Boardm an
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View of the market
High net worthTop 300 listed corporates,government, institutions
Businesses
BoE
Old Mutual Bank
Medium size listed,unlisted, professionals
Owner managed
Informal sector
Individuals
Middle income
Mass market
Nedbank Retail
Nedbank Corporate
Peoples Bank
Pick ‘n Pay Go Banking
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SA Retail market
Assets > R3 million
Income-basedclassification
BoE 17 000 clients
Asset-basedclassification
Nedbank Personal Banking85 000 clients
Nedbank Retail719 000 clients
Nedbank Private Banking13 000 clients
Income > R500 000 p.a.
Income > R36 000p.a.
Income > R200 000p.a.
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Nedbank (Retail) – highlights
• Strategy development started in 2000, focusing on 3 main issues:– Create appropriate working environment– Build sustainable competitive advantage– Fix poor performance
• Detailed 5-year plan, ahead of plan at end 2002
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Nedbank (Retail)Financial highlights
• Retail Division has delivered outstanding results for 2002:– Client assets +11%– NII +18%– NIR +13%– Expenses +12%– NIAT +87%
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Nedbank RetailIntegration update• Moved product teams to a new “shared
service” Product Division• Moved Unit Trust Company to Wealth
Management• Move of Wealth Management from
Nedbank Private Bank to Wealth Management – in progress
• Move of Cape of Good Hope Bank branches, staff and retail clients into Retail Division – well on track
• Integration of Manager Direct into Nedbank Retail
Handout only
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Pick ’n Pay Go Banking
• Phase 3 commenced July 2002– 236 Go Bankers in 14 Hypermarkets and
113 Supermarkets– In-store card delivery– Exclusive discounts– 85 000 accounts / 3 000 new applications per week
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Old Mutual Bank
• Division of Nedbank Ltd – 50/50 JV• Leverage dominant Old Mutual brand• Banking products, systems and processes
supplied by Nedcor• Sales, marketing and channel management
supplied by Old Mutual
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OMB Business Opportunities
• 2 million OMPF customers• 300 000 ex-Permanent Bank customers• No need to create a brand• Huge intermediary network• Established branch distribution network• No need to use expensive originators for
mortgages
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Nedcor Wealth Management
Jointly-owned Businesses with Old Mutual
Private Clients
(South Africa)
Credit Protection
(South Africa)
Wholly-owned Businesses
Retail Investment Products & Services
International Companies
(On and Offshore)
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Nedcor Wealth Management
Jointly-owned Businesses with Old Mutual
Private Clients
(South Africa)
Credit Protection
(South Africa)
Wholly-owned Businesses
• Scope of offering to High Net Worth Individuals:– Discretionary Portfolio Management– Private Banking– Other Investment Products– Fiduciary Services:Trusts, Wills,
Estates
Complete offeringboth onshore & offshore
Retail Investment Products & Services
International Companies
(On and Offshore)
No. of staff 554/Clients 17500/AUM R23bn
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Private Clients business structure
Old Mutual Trust
BoE Private Bank
BoE Personal Stockbrokers
Nedbank Syfrets Private Banking Wealth Mngmnt
Syfrets Trust
FTNIB Private Client Asset Mgt
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Private ClientsOne client-centric model
In-sourcing products
FAIRBAIRN
CAPITALNEDBANK
Relationship Manager Distribution
Products• Private Client Asset Mgmnt • Stockbroking • Structured Lending • Fiduciary
Product provision
Product provision
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Private ClientsImpact of merger• Six different business models to be
combined into one business - presently working with McKinsey & Co to determine optimal business model
• Extended product range for clients– Off-shore opportunities with Gerrard Private Bank– Increase share of wallet of existing customers
(currently single product clients only)• Economies of scale lead to decrease in
relative costs– increasing profitability– eliminate duplication of operations
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Private ClientsInternational joint venture• Old Mutual and Nedbank have a joint
initiative in Gerrard Private Bank– Comprehensive offering to high net worth individuals– Will be BoE’s offshore offering– Full product range now available on a ‘seamless’
basis• Banking• Trust and Fiduciary Services• Investment Management
– With the representative office recently opened - perfectly positioned to service clients
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Nedcor Wealth Management
Jointly-owned Businesses with Old Mutual
Private Clients
(South Africa)
Credit Protection
(South Africa)
Wholly-owned Businesses
• Scope of providing banking customers with credit protection– Nedbank customers– JV and Alliances – Other banks customers
Retail Investment Products & Services
International Companies
(On and Offshore)
No. of staff 105 / Premium income R491m / EV R44m
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Credit ProtectionImpact of merger• Single focus on credit protection• Repositioning of business as a ‘Bank
Life Company’• Utilise the strengths of both
shareholders– distribution from Nedbank
– expertise from Old Mutual
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Nedcor Wealth Management
Jointly-owned Businesses with Old Mutual
Private Clients
(South Africa)
Credit Protection
(South Africa)
Wholly-owned Businesses
• Develops, distributes and supports both international and SA investment product solutions to chosen target markets
Retail Investment Products & Services
International Companies
(On and Offshore)
No. of staff 80/Unit holders 133 000/AUM R7bn
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Retail InvestmentProducts & services
Retail Products
& Services
OutsourcedAsset
Management
TargetMarket
OutsourcedSupportServices
Both SA & International
• Product research & development
• All collective investment schemes
• Marketing, sales, distribution support
SA
• BoE Private Clients
• BoE Trust Services
• HNW Intermediaries
• LISPs/FOFs
• Nedbank Retail
• Nedbank Corporate
• Group Alliances
International
• Gerrard Private Bank
• Offshore Trust Companies
• HNW Intermediaries
• Gerrard UK
• Offshore Life Companies
SA
• BoE
• Aka
• Nedbank Treasury
• SYmmETRY
• OMAM
International
• Stenham Gestinor
• NIBi
• Chiswell Associates
• OMUS
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Retail InvestmentImpact of merger• Amalgamation of four unit trust management
companies (BoE, FT-NIB, Nedbank, NIBi)• Definition of a new value proposition and
product set covering active, passive, multi-managed and absolute ranges
• Rationalisation of more than 50 unit trust funds
• Release R30m of under-utilised capital• Distribution, marketing and operational
consolidation, yielding economies of scale• Consolidated negotiation with suppliers on
performance-related SLAs
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Nedcor Wealth Management
• 3 main focus areas– Private Clients– Specialised Asset Mgmt– Private Banking
Jointly-owned Businesses with Old Mutual
Private Clients
(South Africa)
Credit Protection
(South Africa)
Wholly-owned Businesses
Retail Investment Products & Services
International Companies
(On and Offshore)
No. of staff 430/Clients 26 000/AUM £4,25bn
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International Businesses
Chiswell Associates Fairbairn Trust
Gerrard Private Bank
NIBi International
Stenham Gestinor
BoE International
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International BusinessesNature of business• Private client asset gathering and
management– Fiduciary services– Hedge Funds – Syndicated Property Investments– Linked Investment platform– Retail pooled investments
• Asset Management - manage investments of– families – charities and small institutional funds
• Gerrard Private Bank - offers clients integrated– banking– asset management– fiduciary services– treasury products
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International BusinessesImpact of merger• Creation of one multi-management
business – Stenham Gestinor Asset Management
– NIBi
• Rationalise the trust businesses– BoE Trust Co
– SG Trustee Services (Channel Islands. Switzerland, Luxembourg)
– Fairbairn Trust/Gerrard Trust
– NIBi Trust Company
• Integration of the management and operations of the international businesses
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Wealth ManagementLong-term opportunities• We have all the products that are
needed• We have a huge client base providing
growth potential• Our businesses are already profitable
Leads to rapid growth!
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Synergy estimates
660
245
103
36
135
127
14
Shared Services
Nedbank Corporate
Nedbank Retail
Peoples Bank
T&O
Total
Wealth Management
R’m
Integration costs being estimated
Synergies will benefit the Group fully in 2005
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Strategic review (continued)
Richard Laubscher
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Peoples BankHighlights• Total assets increased 6% despite 19%
decline in FBC assets• 37% increase in NIR• Net effect of “excess” provisions only
R30m• R130m benefit from assessed losses• Restructuring proceeding well
– Risk and compliance centralised
– More than 1 million transactional clients
– Total assets R12bn (R10bn in advances)
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Technology & OperationsHighlights• Financial performance • Process culture • M&R Integration • Digitisation
– CAMSII
– Alpha cost savings– NetBank
• International – Swisscard on track
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Prospects Richard Laubscher
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Strategy
SA Banking
Corporates
Individuals
Businesses
WealthManagement
Peoples Bank
International
OutsourcingT&O platform
Bancassurance
Alliances
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The year ahead
• Strategic platform in place• Retain and grow client base• Integrate operations• Extract synergies• Address non-performing assets• 2002 low base: 2003 therefore
statistically better• 2004: the power in the model should
evidence itself
Implementation & execution
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