Strategic Advantage through Business Transformation Hugh Scott-Barrett

Strategic Advantage through Business Transformation Hugh Scott-Barrett - Member of the Managing Board and COO ABN AMRO Bank N. V. March 2004 - JP Morgan Investment Banking Conference 2004

Agenda w Overview of WCS w WCS Transformation Programme – IT Outsourcing – Offshoring w Focus on Cross SBU Synergies w Conclusions w Q&A 2

Overview of WCS

WCS Organisation Wilco Jiskoot (Chairman) Board Member WCS Executive Committee Products Client Coverage w Financial Markets w Financial Institutions and Public Sector BU (FIPS) w Working Capital w Global Specialised Industries BU (GSI) w Corporate Finance and Equities w w Industrials BU Private Equity WCS Services 4

WCS Strategy w A client-led approach and focus on profitable Financial Institutions and Large Caps w Integrated wholesale offering w Significant proportion of revenues from annuity and flow products w Efficient resource management and allocation process (capital and people) w Focus on asset quality and independent risk management w Supported by a transformation in infrastructure 5

How has WCS evolved? w Integrating BU Loan Products and BU GFM - integration implemented and BU FM showing positive results w Develop and grow new working capital offer - Working Capital offer is implemented and will be further developed in 2004 w Re-position Equities and CF to defensible positions - Closure of US and Japan Equities and US Corporate Finance businesses w Closure of unprofitable businesses / transformation in infrastructure cost base down by 17 % from EUR 5, 302 mln in 2001 to EUR 4, 389 mln in 2003. Savings from EDS seen from 2004 onwards w Decrease in RWA - RWA at EUR 61. 6 bn (Q 4 03) from EUR 100 bn (Q 2 01) w Investments in Financial Markets top 5 franchises w EP positive returns - Q 3 and Q 4 03 EP positive 6

WCS strategy delivering results. . . Net profit WCS (EUR mln) 163 134 110 106 76 63 34 17 (20) (29) (44) (125) (188) Q 1 02 was negatively affected by restructuring costs related to closure of US Equities and Corporate Finance businesses, while Q 2 02 was negatively affected by high provisioning related to unexpected losses in the US 7

… partly due to strict cost control and IT related savings FTEs and operating expenses 23, 003 5, 175 5, 302 22, 423 20, 238 4, 549 4, 389 17, 624 8

WCS expected to provide significant delta in 2004 w Net profit in 2004 expected to be in Iine with Q 4 2003 run rate 1 – revenues expected to increase in 2004 compared to FY 2003 on basis of growing market share with clients, investments and differentiated business model – cost base will be managed on dynamic basis – provisioning as % of RWA expected to be below 50 basis points 1 Statements based on underlying revenue and cost base (excluding Prime Brokerage Business) 9

WCS Transformation Programme - IT Outsourcing

High WCS Sourcing Strategies Outsource to high value provider Effective service delivery can be achieved through partnerships where advantaged market offering exists e. g. with 3 rd party providers (EDS) or captive operators (ACES) w Product strengths can be exploited to maximise revenue through increased volumes e. g. insourcing programmes - Barclays, AIB Keep Outsource to high competence provider Realising maximum shareholder return relies on achieving most effective mix of partners for service and product delivery w Keep and reengineer or partner with outsourcer Low Competitively Critical w Low Current Capability Level High 11

Transformation in Support Services Infrastructure w w WCS Services 1 set aggressive target to achieve annualised savings of EUR 408 mln by 2002 Target operating model defined based on concept of simplification, rationalisation and consolidation Services Transformation programme achieved savings target by: – focusing on removing duplication and inefficiency through regionalising and globalising service provision – adopting sourcing strategies that allowed for move to variable cost structure whilst retaining ownership of core skills and services where competitive advantage existed – providing services closely aligned with strategic direction of front office business Provided solid foundation for further sourcing programmes within WCS Services and beyond 1 - WCS Services comprises Finance, Operations, HR and Technology - previously referred to as TOPS 12

Drivers for new approach to IT Services delivery w Extensive study commissioned into IT service costs against peer group - WCS found to be significantly out of alignment with little prospect of achieving parity without step change in approach w Benchmarking of WCS IT against peer group average indicated pursuable value gap w Flexibility of service provision and ability to react to market cycles seen as key requirement for efficient organisation w Ability to make cost base variable and match technology “supply” to business “demand” seen as fundamental in achieving required cost and efficiency targets w Creation of nimble and business aligned technology function acted as strategic enabler 13

WCS Outsourcing Transaction - Key Features w WCS deal signed with EDS following rigorous selection and due diligence process - transition and transformation began March 2003 w EUR 1. 3 bn 5 year deal covering top 7 WCS locations w Extensive variablising of and flexibility in technology cost base w Aggressive move towards offshore applications delivery w Circa 2, 300 staff resources (permanent staff and contractors) transferred from WCS to EDS w Reduction in cost of outsourced functions by 20 -25% over contract life 14

Progress of Deal - What has gone well and lessons learnt w Results to date: – project and ongoing business teams remained focused during period of change. Transition went smoothly and run as partnership – operation running satisfactorily, savings on track. Number of locations within partnership extended – Execution of Transformation Programme in 2004 critical to delivery of step change in customer service quality and further cost reductions w Lessons Learnt – business communication on key changes in service delivery essential early on in activities – vendor management requires different skills set from management of IT organisation – contract structure should be closely aligned to nature of services – vertical approach worked well for WCS but horizontal approach may provide additional value from Group perspective 15

WCS Transformation Programme - Offshoring

Offshoring is providing significant support for WCS transformation w Offshoring is altering competitive dynamics of global organisations forcing transformation in operating models to remain competitive w Leverages proven service capability of Indian subsidiary, ABN AMRO Central Enterprise Services (ACES) w Allows for consolidation of operating sites giving greater efficiencies w Enables structural reduction in cost base through hubbing and offshoring processing activities w Combined with insourcing opportunities, enables low cost capacity build out enabling higher margins, efficient service delivery, growth in business opportunity and reduced unit processing costs w Benefits include variable/flexible resourcing, greater asset utilisation, lower service costs and improved service quality 17

What activities are being offshored? w To date, ACES has primarily served WCS, but increasingly focus will be on cross (S)BU opportunities and synergies w Business Process Offshoring (BPO) accounts for main bulk of offshored work including Trade, Cash and Payments, Securities Processing, Investigations, Finance, HR, Equities Research w Some Application Development and Maintenance (ADM) work may be undertaken offshore in future although most likely to be done in conjunction with 3 rd party providers, e. g. EDS w Only call centre work to date is to support AAB India w Insourcing work increasingly undertaken in ACES, e. g. Barclays, A. I. B. 18

Key Challenges and Mitigants w Line management buy in - strong/visible leadership and support from senior management w Complexity of project - diverse skills set required, significant cross geography/cross BU co-ordination, strong project management w Maintenance of existing service levels during period of considerable change - activities moved on “lift and drop basis” with re-engineering occurring in new location post steady state operations w Agreement with Workers Councils - ongoing transparent communication and negotiation w Impact upon staff morale - timely, transparent and effective communication programmes, significant training and development programmes w IT capacity and bandwidth - support from EDS, operational and IT platforms not managed by India 19

WCS Insourcing Potential w ABN AMRO well placed to become one of the industry leaders for delivery of Outsourcing / Strategic Partnership services – global presence, brand recognition, award winning product capability – not seen as competitive threat by local banks – track record of delivery – cost pressures in industry requires focus on core-competencies w 60% of mid-tier FIs will outsource (part of) non-strategic processes (source BCG payment study & Deloitte Consulting) w AAB demonstrated success – Barclays and AIB Trade Servicing Agreements – GTA established 32 insourcing relationships in US, Asia, and Europe, CFA outsourcing deals include X-border payment processing, CLS white labelling and Corporate Account Services – FX: initials steps made and a small number of mandates won 20

Going Forward w Offshoring not an objective in itself but will underpin business process redesign/re-engineering of the (S)BUs facilitated by GSS to allow greater efficiencies, cost benefits and realisation of cross (S)BU synergies w Outsourcing and offshoring activity underway provides future store of cost savings through 2004 and 2005 w Using structural reforms already in place, cost control will remain a focus for WCS management with 2004 costs anticipated to be at or below 2003 levels w Structural approach to cost savings provides cushion to invest further in core Client and Product franchises w Continue to explore further opportunities for improvement 21

Focus on Cross SBU Synergies

Focus on group synergies is key priority for 2004 w Realignment of Managing Board responsibilities and creation of COO position signals strength of commitment to realising Group revenue and cost synergies w Creation Group Shared Services (GSS) to realise operating efficiency and further cost savings. Bank wide operations represent significant % of Group operating costs therefore opportunity to deliver step change in AAB’s efficiency ratio w Group Shared Services (GSS) will build on structural successes from WCS Transformation Programme. Seasoned change managers have been rotated through organisation from WCS to exploit experience gained to date w Transfer success from WCS - lead by example 23

Conclusions

Conclusions w Outsourcing / offshoring recognised as powerful tools in achieving enhanced service delivery and EV contribution w ABN AMRO has undertaken significant transformation programme as illustrated in this presentation which has focussed on WCS - but more still to be done w Significant advantages gained from GSS ‘one company - one approach’ attitude to service delivery with increased EV potential over “silo based” (S)BU approach w Commitment of Bank to ‘one company’ approach for services delivery underlines belief that it will deliver increased shareholder returns by enabling increased business performance 25

Questions

Strategic Advantage through Business Transformation Hugh Scott-Barrett —