Private Banking. Made by Deutsche Bank How to differentiate in a competitive industry Bernd-A. von Maltzan Divisional Board Member Private Banking Deutsche Bank Group Lehman Brothers Private Banking Conference London, 31 May 2001 Agenda n What DB expects from the industry n How DB is prepared for these challenges n Conclusions 2 Agenda n What DB expects from the industry n How DB is prepared for these challenges n Conclusions 3 Market outlook remains positive, but... Slower growth rates HNWI Wealth Worldwide 1998 - 2005(e) USD trillion 39.7 34.0 27.0 21.6 CAGR + 8% p.a. 1998 2000 2003(e) 2005(e) Source: World Wealth Report 2001 Merrill Lynch/Gemini Consulting n Industry has not entered a "down cycle" but it will be more difficult for players to generate a stable earnings stream n Sources of revenues will change n Major players will have to outperform the market n Much will depend on handling the key success factors in individual markets as they are at different stages of maturity 4 Changing client needs Demand for more interactivity will challenge the existing business models Discretionary Portfolio Management Advised Clients 50% 55% 40% 30% Direct Brokerage 10% 2001 2004 2001 2004 2001 15% 2004 Client needs/wishes interactivity Client delegates capital to Relationship Manager Client demands "one-toone" relationship Client with own knowledge of capital management But client seeks advice on special areas Client makes financial decisions without advice Client seeks research, information and wealth management tools e.g. via Internet Source: The Forrester Report (February 1999); Deutsche Bank n Traditional segmentation according to wealth bands does not enable players to target products and services to specific client groups and client preferences 5 Spotlight on specialised products and strategies Wealth management is more than stocks / bonds / savings accounts Clients expect... Suppliers need to react with... increased depth of product offering: best-of-breed products n open architecture (distribution of third-party products) n credit products increased breadth of product offering: n institutional investors’ products (e.g. Alternative Investments) large product offering n integrated Internet approach; sophisticated e-business solutions n wealth with responsibility, family trusts focused individual solutions: personalised services n family offices represent a return to exclusivity of client focus n tax-optimised solutions in co-operation with client advisors Source: World Wealth Report 2001 Merrill Lynch/Gemini Consulting; Deutsche Bank 6 Industry will become even more competitive Consolidation process through all forms of partnering n Only players with a global network will be able to serve "global citizens" n The challenge will be to grow while keeping client relationships intact n Size is meaningful to realise economies of scale and scope n Players are forced to offer investment banking & wealth management services 7 Cost management will become a major challenge As a result of a growing and more complex industry Cost drivers are: n Competition for staff / War for talent / Hiring and retaining skilled people n Increased complexity and transparency of IT / Operating systems n Impact of rapid and more sophisticated product development n Effect of strategic investments / Need to take advantage of external growth opportunities 8 Agenda n What DB expects from the industry n How DB is prepared for these challenges n Conclusions 9 Our mission is clear Best advice n We provide advice and solutions through a comprehensive process of understanding our clients financial needs. n We leverage divisional capabilities of Deutsche Bank Group. Private Banking - n We pursue a global business model. on the move n We want to be among the worldwide top 3 leading financial services providers to wealthy individuals and selected smaller institutions by 2004. 10 Our target clients are the HNWI and U-HNWI Private client portfolio in Deutsche Bank Complexity of products and services Best Advice We will move from a "wealth band" to a Best Choice behaviour-based client segmentation approach Best Access Complexity of advice n DB Group is targeting private clients (retail, mass affluent, HNWI, U-HNWI) n Private Banking offers the highest complexity of products, services and advice according to client needs 11 Our cross-border power of distribution Private Banking Centers in 40 countries, hubs + booking locations in 16 countries United States Germany International Latin America Argentina Brazil Cayman Islands Chile Mexico Uruguay Venezuela Europe Austria Belgium Channel Islands France Greece Italy Luxembourg Monaco The Netherlands Portugal Spain Switzerland United Kingdom Middle East Abu Dhabi/UAE Bahrain Egypt Turkey Australia n We see convergence between on- / offshore and no dichotomy Asia Hong Kong India Indonesia Japan Malaysia Pakistan Philippines Singapore Sri Lanka Taiwan Thailand n Growth opportunities still exist in the offshore/Swiss domestic business 12 Our integrated business model Distinctiveness from our peers Investment Banking Products and Brokerage + n n DB DB Private Private Banking Banking integrates integrates activities activities & & Wealth Management Services businesses, businesses, which which competitors competitors run run on on disconnected disconnected basis basis "The "The attacker attacker in in the the private private banking banking market." market." n n MSDW, MSDW, Feb Feb 2000 2000 n n E-Commerce + "Innovative "Innovative business business model." model." Ian Ian Woodhouse, Woodhouse, PwC, PwC, Oct Oct 2000 2000 Relationship Banking 5-Star-Rating 5-Star-Rating for for one one of of the the three three leading Internet sites in leading Internet sites in the the worldwide worldwide private private banking banking segment. segment. n n Lafferty Lafferty Group, Group, Jan Jan 2001 2001 Onshore + n n Offshore "DB "DB Private Private Banking Banking ranks ranks within within top top 44 in in Europe Europe due due to to their their aggressiveness aggressiveness and international and international presence." presence." 13 Peer Peer Group Group Opinion Opinion -- Poll Poll with with 134 134 Private Private Banks Banks in in Europe, Europe, Unpublished Unpublished Study Study PwC, PwC, May May 2001 2001 We focus strongly on HNWI/U-HNWI New segmentation approach Global Business Model Global GlobalBusiness BusinessModel Model Connecting Connectingacross acrossregions regionsand andbusinesses businesses Traditional Wealth / Heirs Modern Entrepreneurs / IPO‘s Germany New Achievers / VIP‘s Corporate Executives / DB Executives USA Investment Advice for Corporates n Matrix organization is ensuring connectivity n Processes drive efficiency Global Client Strategy n Focus on core HNW client segments n Need driven, not wealth band approach International Regional Ownership & Implementation U-HNW Business Note: Core client segments are descriptive labels, sub-segments exist 14 n Three market units n Go-to-market Strategy considers historic differences and culture n Global co-ordination unit for U-HNW Business We are attractive to best people Recent senior hirings Goldman Sachs Germany JP Morgan Europe Geneva BNP Paribas Geneva JP Morgan, Latin America Team New York ABN Amro, Miami Team Miami UBS UK 15 We co-operate closely with Corporate & Investment Bank Our clients have access to all resources of DB Group PCAM Private Banking Interfaces Dedicated PB Centers of Competence and PB Corporate & Executive Services in place in USA and Germany Corporate & Investment Bank Traditional Wealth / Heirs Modern Entrepreneurs IPO’s Ongoing Client Relationship Client Acquisition Target Identification New Achievers / VIP’s Corporate Executives / DB Executives Deal Identification Filter process Investment Advice for Corporates 16 CIB deals We have improved our revenue structure Further shift towards fee-driven business Revenue Composition 1996 - 1Q 2001 German revenues by type of business in % of total Total PB Revenues by region in % of total 8% 76% DB PB USA 74% 49% 64% 37% 50% 21% DB Alex Brown 63% 50% 36% 51% 21% PB Intern. 24% 1996 2000 Germany 26% 1996 1Q 2001 Non-German 2000 Transaction based commissions 1Q 2001 Non-transaction fees Improved share of recurring revenues in Germany Growing share of Non-German revenues 17 Growth and profitability Business expansion, cost effectiveness and return on equity since 1996 30% Asset gathering Profitability Assets under Control (EUR billion) Pretax Profit (EUR million) 208 CAGR RoE 2000 72 1996 2000 27% 572 CAGR CIR 2000 221 1996 2000 18 92% 69% First Quarter 2001 Private Banking was affected by market turbulence 120 1Q 2001 Profit before Tax in EUR mn 89 38 10 Germany International US Onshore -21 DB AB Private Clients PB Total -59 Others* * includes Goodwill, Central Areas & Support “The “Theindustry industryseems seemsover-optimistic over-optimisticabout aboutthe thenear nearterm termfuture. future.[...] [...]We Wetherefore thereforeexpect expect increased increaseddivergence divergencebetween betweenthe thesuccessful successfulparticipants participantsand andthe theless lesssuccessful.” successful.” PwC PwCMay May2001, 2001,European EuropeanPrivate PrivateBanking/Wealth Banking/WealthManagement ManagementSurvey Survey2000/2001 2000/2001 19 We will continue to outperform the industry Our plan to 2003 - too ambitious? Profit before Taxes (EUR bn) 19 % 1.02.0 Target CAGR Assets under Control (EUR bn) 26 % 808° 627 Target CAGR Asset Growth 2003 (EUR bn) Market appreciation 9% Organic incl. DB AB 35% 28 627° 110 0.6 2000 313 313 2003p before Goodwill, before Central Areas & Support 174 2000 2003p M&A + Alliances 56% AuC 2000 pro forma with DB Alex Brown AuC 2003 including market appreciation n We will grow organically and through smart partnering & acquisition initiatives 20 Agenda n What DB expects from the industry n How DB is prepared for these challenges n Conclusions 21 Private Banking is a young growth area, not a cash cow for DB for the following reasons: nConnectivity / cross selling between Corporate & Investment Bank and PCAM Private Banking (for e.g. Latin America) nWorld-wide U-HNWI initiative nIntegrated Internet approach and innovative e-business solutions nProfitable growth is key for us while managing costs will remain an issue nInfrastructure is concentrated in Germany, New York and Geneva 22 We will continue our success story n1996: Private Banking (outside Germany) was not visible n 2001: Private Banking is on the radar screen of our peers, clients and talented staff on a global scale DB Private Banking will move on ! 23