CREDEM & ABN AMRO Winning Together Presentation to ABN Amro Board of Directors Amsterdam, August 3 rd 2005 1
Agenda ¡ ¡ ¡ ¡ Cross Border M&A Deals in Europe Regulatory and legal issues Credem – Top Mid-Size Italian Bank Credem Valuation Strategical Fit & Synergies Transaction Structure Final Remarks 2
Cross Broader Deals ¡ ¡ ¡ 9. 65 bn Euro takeover of Abbey by Spain's BSCH Uni. Credito, Italy's largest bank, acquired HVB, 16 bn Euro. We have yet to see comparable transactions that involve Italian banks. Spanish bank Banco Bilbao Vizcaya Argentaria (BBVA) recently failed attempt to acquire Italian bank BNL. Antonio Fazio, Bank of Italy governor, is being threatened with legal action by the EU because of his alleged role in blocking the two foreign approaches. 3
Credem: geographical fit for ABN Amro 4
Agenda ¡ ¡ ¡ ¡ Cross Border M&A Deals in Europe Regulatory and legal issues Credem – Top Mid-Size Italian Bank Credem Valuation Strategical Fit & Synergies Transaction Structure Final Remarks 5
Legal and Regulatory Environment Lisbon Agenda ¡ ¡ ¡ Lisbon Agenda- Financial Services Action Plan launched by European Commission aims at a single market for financial services Lisbon Agenda is the driver of all regulatory actions Regulators can impede a cross border acquisition of an Italian bank by an EU bank only on the basis of: l Competition Law Concerns l Banking Stability Concerns 6
Legal and Regulatory Environment Consolidated Banking Directive ¡ ¡ ¡ EU Directive 2000/12/EC l Article 16, Paragraph 1 Prior notification of the size of intended holding (exceeding 5%) Prior notification of intended acquisition of voting rights (20%, 33%, 50%) Regulators may oppose within 3 months on the basis of suitability of the “person” (acquirer) Refusal of authorization (Article 7, paragraph 2) 7
Legal and Regulatory Environment Leading EU Cases ¡ ¡ ¡ Banco Santander/Abbey National (2004) l The Commission held that the retail activities of the two concentrating banks did not overlap. Abbey National is present in the UK and to a limited extent in France and Banco Santander only in Spain. Corporate banking activities are very small in both cases Merita/Nordbanken (1997) l The two merging entities were solely active in their domestic markets. The merger was allowed as it was held that it does not create a competition impeding effect Effect: Government authorizations in cross border banking M&A within EU have become weaker 8
Legal and Regulatory Environment National Law-Italy ¡ ¡ ¡ Civil Code: governs mergers, share deals, and asset deals in the form of going concern transfers Legislative Decree 58 of February 24 1998 (the Consolidated Law on Financial Intermediation: Where a listed company is involved Tax issues covered by Presidential Decree 917 of December 22 1986 (the Consolidated Law on Revenue Taxes) Antitrust Law (Law 287 of October 10 1990) Transactions in regulated sectors - such as telecommunications, media, gas and energy, banking, insurance and financial services - are subject to industryspecific rules and to the control of public supervision authorities 9
Legal and Regulatory Environment The 1993 Banking Law ¡ ¡ ¡ Article 57: 1. The Bank of Italy shall authorize mergers and divisions involving banks where they are not in conflict with the principle of sound and prudent management Procedures for the entry of a planned merger can not be initiated without prior authorization Article 19: 1. Prior authorization by the Bank of Italy is required where the acquisition exceeds 5% of the voting capital 10
Legal and Regulatory Environment Bank of Italy-Anti Trust Role ¡ ¡ Competition Authority (Law 287/1990) makes the Bank of Italy responsible for the antitrust function in the banking sector Product market definition: l The Bank of Italy defines as relevant products the markets for funds (sight and time deposits) and for credit (both short and long-term) l Other relevant markets concern traditional lending and deposit taking products e. g. leasing, factoring, asset management 11
Legal and Regulatory Environment Bank of Italy-Anti Trust Role ¡ ¡ Geographic market definition: l Provinces are the basic geographic units for fundraising markets and “Regions” for loan markets l For the other financial product markets geographic dimension is “national” In-depth investigations are unlikely to be opened for operations involving firms with an aggregate share of less than 25 per cent of the relevant market 12
Legal and Regulatory Environment Disclosures, Reps & Warranties ¡ The Consolidated Law on Financial Intermediation requires a prospectus to be prepared and made public in respect of IPOs, public takeovers and any other price sensitive or extraordinary corporate transactions affecting listed companies ¡ The Civil Code lays down that a party may be liable for damages by way of pre-contractual liability in case of unjustified withdrawal ¡ A party who knows of, or should by using reasonable diligence know of, any reason for invalidating a proposed agreement and does not disclose is liable for the damages ¡ Courts have interpreted more narrowly. In the absence of an extensive pre-acquisition due diligence and an comprehensive contractual representations and warranties buyer can remain unprotected against seller's lack of transparency 13
Agenda ¡ ¡ ¡ ¡ Cross Border M&A Deals in Europe Regulatory and legal issues Credem – Top Mid-Size Italian Bank Credem Valuation Strategical Fit & Synergies Transaction Structure Final Remarks 14
Target Engaged: Credito Emiliano Medium sized Italian bank ¡ 14 th banking group as market cap ¡ 12 th bank as asset under management ($40 bln) ¡ 453 branches throughout Italy ¡ $ 2. 5 bln market cap ¡ 15
Credem: Financials Snapshot 16
Credem Ownership Structure 17
Credem: Structure & Business 18
Agenda ¡ ¡ ¡ ¡ Cross Border M&A Deals in Europe Regulatory and legal issues Credem – Top Mid-Size Italian Bank Credem Valuation Strategical Fit & Synergies Transaction Structure Final Remarks 19
Credem Current Valuation 20
Credem Competitors Key Ratios 21
Credem Valuation Comparison with American and Italian Banks 8. 81 22
Credem Valuation Shortfalls of Multiples Valuation is a comparison to other pure play banks ¡ Credem is a combination of traditional commercial banking, Asset Management, and Investment Banking ¡ 23
Credem Valuation Shortfalls of Multiples Valuation (con’t) ¡ ¡ ¡ Credem’s revenue outlook is more attractive vs. Italian banking sector average Net interest income should grow due to superior lending growth and resilient spreads Non-interest income should be driven by AM (volumes and margins) and rapid growth of Investment Banking Division as well as higher traditional banking fees which are due to be raised Source: Cheuvreux 24
Credem Valuation Sum of Parts Source: Divisional weights, P/E estimates from Cheuvreux analysts Current Share Price Sum of Parts Share Price 25
Agenda ¡ ¡ ¡ ¡ Cross Border M&A Deals in Europe Regulatory and legal issues Credem – Top Mid-Size Italian Bank Credem Valuation – Why Credem Strategical Fit & Synergies Transaction Structure Final Remarks 26
A Perfect Deal at the Right Time ¡ European banking industry is HOT although Italian economy is a turnaround play (recession since 4 Q 04) ¡ Italian banking system is growing at an higher pace l Consumer credit is growing double digit l Highest savings rate among Western European countries l Banking industry is highly fragmented ¡ On Jan 13 th Mr. Maramotti who owns a controlling stake in Credem Holding passed away l l ¡ The family could sell its stake in the banking business focusing only on fashion Maramotti’s heirs are currently working in the Fashion business Italian Central Bank is weakened by EU and Italian Courts judgments 27
Why Credem? – ABN Amro’s View ¡ ABN Amro’s perspective l l ¡ Big players are costly from: l l ¡ ¡ Will to expand in Italian Banking system Enough capital base (capital increase in April 05) An economic standpoint (performance figures as industry) A political standpoint (both left and right parties won’t accept a foreigner) Smaller and “Popolari” Banks present law issues still unresolved A small bank acquisition won’t allow ABN Amro to enter the industry with a sufficient scale 28
Bank of Italy: The Real Obstacle ¡ Italian Central Bank should/could: l l l Authorize any merger in the banking industry Authorize any increase over the 5% ownership threshold Valuate banks on the basis of capital adequacy, risks, holdings, internal control systems Valuate any antitrust issue concerning banking companies More on 1993’s banking law 29
Recent Deals and Bank of Italy ¡ BBVA’s bid on BNL l l l Announced on in March 2005 2 nd largest Spanish bank willing to acquire 7 th Italian bank in which it has held a controlling stake for years Deal failed upon the higher offer of Unipol Bank of Italy has placed an high acceptance threshold Bank of Italy is rumored to have helped Unipol and its allies on their bid 30
Recent Deals and Bank of Italy ¡ ABN Amro’s bid on Antonveneta l l l Announced in March 2005 Fairly priced 100% cash offer (sweetened later on) Tender bid failed (only 2. 88% NTV’s shareholders tendered their shares) Bank of Italy encouraged and approved a worst offer from Banca Popolare Italiana Court & Parliament are watching and scrutinizing the deal closely 31
Interloper analysis ¡ Credem could be targeted by l l l Unicredito Italiano HSBC Banca Montepaschi Italian local entrepreneurs Barclay’s, Lehman Brothers & others interested in the Asset Mgmt business 32
Interloper Analysis - Unicredito ¡ Unicredito Italiano l l Now busy with HVB’s deal but… Credem would have a strategic fit Maramotti in UC’s Board ¡ Market share in Centre/North Italy ¡ Pioneer and Euro. SGR integration (1 st Italian Asset Manager) ¡ UC is willing to acquire well managed companies ¡ 33
Interloper Analysis: HSBC & MPS ¡ HSBC l l ¡ Not successful tentative to launch an Asset Management business in Italy Long term relationships with Credem (listed after Euromobiliare acquisition) Banca Montepaschi l l l Strategically stalled 5 th banking Italian banking group “environmentally” fitting with Credem 34
Interloper analysis: Italian entrepreneurs and other foreign banks ¡ Local Entrepreneurs l l l ¡ Italian Central regions have a specific, more laid back, way to live Italian industry is fragmented and local bank relationships are a competitive advantage Emilia is rich and unite enough to engender an “industrial” bidder (with the favor of next Italian government) Barclay’s & Lehman l l l Both willing to expand its AM business in Europe (Deutsche Bank and GLG deals) Financially sound Low expertise in the Italian commercial banking: should sell the branches (deal becomes complex) 35
Agenda ¡ ¡ ¡ ¡ Cross Border M&A Deals in Europe Regulatory and legal issues Credem – Top Mid-Size Italian Bank Credem Valuation Strategical Fit & Synergies Transaction Structure Final Remarks 36
Transaction Rationale 37
Strong Fit with ABN Amro Strategy Increase ABN Amro’s Consumer, Retail, Small Business, Mid-Market and Mortgage Business footprint in Europe Profitable franchise with high quality customer base complementing Asset & Wealth Management Strategy Value creating opportunity strengthening & leveraging ABN Amro commercial banking expertise inside and outside Italy 38
ABN Amro's strategic agenda: accelerate growth and build scale in mid-market segments Italian economy is mainly characterized by small/medium businesses - whose main source of financing is bank loans allowing for cross sell of consumer banking products, as well as Asset & Wealth Management. Product Innovation Top Owners Private of Clients Companies Distribution “Sweet Spot” Mass Affluent Mass Retail Consumer Clients Provider of Scale Mid-Market Companies Small Business Commercial Clients 39
Italian mid-market has significant untapped potential CAGR of Consumer loans and mortgages Key growth drivers 13% u 5% 4% 3% 2% 2% Italy Spain UK Consumer Loans CAGR 04 - 07 France Increased penetration rate in retail segment u 7% 6% Pension reform u 8% High savings rate u 10% Increased demand for more sophisticated products and longer debt maturities in SME segment Germany Mortgages CAGR 04 - 07 Consumer Loans Size(1) (EUR bln) 55 Pen. /Per Capita 947 1, 390 4, 082 2, 118 1, 444 1, 253 % of GDP 56 246 128 119 20 4. 2 7. 5 15. 5 8. 2 5. 6 4. 5 Mortgages 140 263 1, 032 296 1, 069 389 2, 415 6, 524 17, 131 4, 892 12, 966 23, 838 11. 1 37. 6 65. 2 19. 3 50. 7 87. 2 Source: Countries Central Banks, brokers research report, and Datamonitor report (1)Size of the consumer loans market in 2003 and mortgage market in 2002 respectively 40
Detailed comparison for Credem vs other mid -size Italian Banks: Non-performing loans (NPL) ratio Asset quality is outstanding ¡ Sound risk management and prudent lending approach ¡ Credem has territorial presence in some of the wealthiest regions in Italy BP CR Italian Asset Quality ¡ Antonveneta NPL coverage ratio, 2003 BPU Milano Firenze Credem 48. 6% 37. 0% 39. 6% 59. 1% Total net problem loans as a % of market cap, 2003 44% 78% 10% 21% 4% Total net problem loans as a % of book value, 2003 75% 40% 18% 33% 7% NPL ratio (net) to total loans, 2004 A 3. 1% 1. 9% 0. 7% 1. 2% 0. 3% 41
Revenue/Profit Breakdown for Credem Italian Banks - Top Line Breakdown (2004 A data) EUR millions Interest Income Antonveneta BPU BP Milano CR Firenze Credem 1, 364 1, 517 662 680 324 564 789 521 286 367 2, 235 2, 506 1, 444 1, 112 832 Interest Income 61. 0% 60. 5% 45. 8% 61. 2% 38. 9% Commission Income 25. 2% 31. 5% 36. 1% 25. 7% 45. 2% Commission Income Total Income ¡ ¡ Well Balanced Businesses Mix Credem one of the least exposed banks in Italian market to interest income as a result of AM/WM strategy 42
Comparison of ROE for Credem vs other Italian medium-size banks Annualized, based on 1 H 04 data BPL CR Firenze Credem Tier 1 ratio 6. 3% 5. 2% 7. 2% ROE 11. 0% 16. 4% 16. 5% 58% 67% 72% Efficiency (cost/income) ratio 43
Antonveneta vs. Credem: geographical fit in case ABN Amro will be able to close Antonveneta deal Credem Antonveneta 1 0. 1% 1 1. 0% 39 1. 5% 109 1. 8% 12 1. 3% 296 9. 0% 66 7. 1% Total: 1, 000 98 3. 1% 20 0. 9% branches 35 1 3. 3% 0. 2% Focus area: 697 branches 6 89 1. 0% 3. 6% 2 75 1. 4% 5. 5% 27 1. 8% 2 0. 8% 28 5. 5% 93 8. 4% 44
ABN AMRO has successfully integrated and grown mid-market franchises in Brazil and North America Michigan National Corporation (NA) Announcement date 22 November 2000 Sudameris (Brazil) 16 April 2003 Completion date 02 April 2001 27 October 2003 Transaction size USD 2. 75 bln (100% stake) BRL 2. 19 bln (95% stake) or ~ EUR 600 mln Announced synergies USD 100 mln pa; from 3 rd year onwards BRL 300 mln pa; as of 2005 Cost synergies USD 100 mln pa; 25% target cost base BRL 300 mln pa; 30% target cost base Not communicated (internal targets) MNC integrated ahead of schedule Sudameris integrated ahead of schedule Total amount of synergies exceeding forecasts by 30%, with over-delivery in years 1 (+50%) and 2 (+16%) Synergies ahead of 2004 target, and clearly on course to realize the announced 2005 target of BRL 300 mn • Incremental sales in fee-based products • Additional benefits from leveraging La. Salle’s commercial banking coverage model, product suite, credit portfolio and risk management to MNC client base • Incremental contribution from enhanced portfolio management (credits/investments) • Additional benefits from cross-selling and applying best practice client coverage management across the client bases Revenue synergies Realization of synergies Cost synergies Revenue synergies 45
Synergies – ABN Amro + Credem n Efficiency benefits from leveraging economies of scale (incl. general admin. ) and IT related costs n Wholesale product suite, risk and credit portfolio management n Transaction Banking n Implementation of new servicing model => enhancement of the multi-channel approach n n Total estimated restructuring charge: EUR 100 M Lower financing costs as a result of ABN Amro Credit Rating Millions EUR NPV of cost savings for year 2005 15% 322 20% 429 ABN Amro Beta 25% 536 Risk free rate 3. 29% Risk premium rate 7. 00% Cost saving synergies fully realized in 2005 -9 Basic Assumptions for Eurozone: ABN Amro WAAC for Credem based on Equity financing 15. 90% 1. 7 46
Synergies Target Earnings (FYE 2005) After Tax Synergy Interest Expense (6% for debt) Incremental Net Income EUR 1 bln EUR 430 mln EUR 180 mln EUR 1. 25 bln Pick-Up/Dilution Analysis Pre-Acquisition EPS Post Acquisition EPS EUR 3. 3 bln = EUR 1. 99 EUR 3. 3 bln + EUR 1. 25 bln = EUR 2. 74 1, 662, 420, 000 P/E 10. 5 (not changed – to be conservative) Implied share price EUR 28. 77 Current stock price EUR 20. 62 47
Conservative estimates: revenue upside not included in EPS calculations n Leverage ABN Amro’s: - n Servicing model from affluent / private banking clients Wholesale product capabilities International presence Expertise in asset management and derivatives Global consumer finance capabilities Offer of standard banking services in Italy to ABN Amro’s international clients through Credem network 48
Agenda ¡ ¡ ¡ ¡ Cross Border M&A Deals in Europe Regulatory and legal issues Credem – Top Mid-Size Italian Bank Credem Valuation Strategical Fit & Synergies Transaction Structure Final Remarks 49
Credem Offer: summary terms l l Credem price Tender for all 275. 5 mln shares currently outstanding not already owned by ABN AMRO l Offer subject to conditions precedent such as regulatory approvals, no frustrating actions and no material adverse change to Credem’s business l Offer structure Voluntary tender offer Total maximum consideration EUR 2. 87 bln for 100% of total shares, EUR 10. 4 per Credem share l 19. 34% premium to last price(8. 81/share); 23. 93% premium to average official price over last 6 months(8. 5/share) 50
Transaction Structure ¡ ¡ ¡ Credem is owned by Credem. Holding (73%) and by the market (27%) ABN Amro’s could only bid the holding company with a friendly offer The acquisition of a majority stake in a company indirectly controlling a public company bind the buyer to launch a tender offer to market’s stake l Tender offer price is the average between weighted average price of the last 12 months and highest price paid for the controlling stake 51
Structure of Acquisition ¡ ¡ ¡ The acquisition can be set up as reverse triangular Target stock will be de-listed after the transaction Cash deal will make the offer attractive to Credem and within the financial capability of ABN AMRO 100% ABN holding 100% Merge into Credem 52
Concluding Remarks ¡ EU pressing on Italy – regulatory barriers will fall ¡ Credem’s buyout is interesting on a strategic perspective l Short term: entrance in a high growth country l Long term: if ABN wins Antonveneta can create the 4 th banking group in Italy 53
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