Nedbank Group · JSE:NED
Nedbank — Debt Investor Presentation (August 2007)
49 slides from Nedbank's debt investor presentation, August 2007
Slide 1: Ned 11 Tier II Bond August 2007
Ned 11 Tier II Bond August 2007
Slide 2: Team Contact Details
Team Contact Details Nedbank Ltd - Mike Brown CFO 011 294 9999 - Markus Borner Head: Strategic Capital Management 011 295 8616 - Trevor Smith SM: Strategic Capital Management 011 295 5293 Nedbank Capital - Jason Hall Debt Origination Transactor 011 535 4027 - Terry Eichhoff Head: Placement & Distrib
Slide 3: Agenda
Agenda Introduction Financial Overview Liquidity & Credit Update Capital Management Update Instrument Details 3
Slide 4: Rationale for raising Tier II Capital
Rationale for raising Tier II Capital Support organic balance sheet growth Appropriate maturity profile for debt capital Part of capital structure and mix optimisation 4 … part of ongoing active capital management
Slide 5: Group Organisational Structure
Group Organisational Structure Effective holdings at 30 June 2007 Old Mutual plc 100% Old Mutual SA 52.6% 74.3% Nedbank Group Mutual and Federal (Holds 0.2% of Nedbank Group) 100% Nedbank Limited Ned 11 5 … Old Mutual remains key controlling shareholder
Slide 6: Agenda
Agenda Introduction Financial Overview Liquidity & Credit Update Capital Management Update Instrument Details 6
Slide 7: Key Financial Features – June 2007
Key Financial Features – 30 June 2007 Headline earnings up 31,9% ROE up – 18,3% to 21,2% ROE excluding goodwill up to 24,7% Efficiency ratio improved from 56,9% to 55,2% - Revenue growth of 18,5% - Expense growth of 14,9% Strong growth from Retail & Corporate Advances growth of 17,5% to R335bn … hig
Slide 8: Continuing to grow
Continuing to grow Net primary client growth across all businesses 5 000 4 500 Public sector client gains 4 000 4 435 3 500 Advances market share gains 3 000 3 167 Rm 2 500 2 775 2 000 2 104 Distribution rollout progressing well 1 500 1 743 1 398 1 000 Enhanced focus on transformation 500 802 0 Jun
Slide 9: Key Financial Indicators
Key Financial Indicators Six months ended % change Jun 2007 Jun 2006 Headline earnings (Rm) 31,9 2 775 2 104 Headline EPS (cents) 34,1 700 522 Diluted HEPS (cents) 32,2 673 509 ROE (%) 21,2 18,3 ROE (excluding goodwill) (%) 24,7 21,8 ROA (%) 1,26 1,16 Margin (%) 3,90 3,91 Credit loss ratio (%) 0,63
Slide 10: Income Statement
Income Statement Rm – six months ended % ch Jun 2007 Jun 2006 Net interest income 30,3 6 568 5 039 Impairments charge 26,1 (1 016) (806) Income from lending activities 31,2 5 552 4 233 Non-interest revenue 5,3 4 742 4 502 Total expenses 14,9 (6 238) (5 427) Indirect taxation (14,2) (133) (155) Assoc
Slide 11: Segmental Performance
Segmental Performance Headline earnings ROE Rm – six months ended % ch Jun Jun Jun Jun 2007 2006 2007 2006 Nedbank Capital (5,4) 545 576 33,4 30,6 Nedbank Corporate 28,6 1 541 1 198 22,5 21,7 Nedbank Retail 34,5 956 711 24,7 24,2 Imperial Bank 20,2 107 89 24,3 24,6 Operating units 22,3 3 149 2 574 2
Slide 12: NII - Margin Analysis
NII - Margin Analysis % of daily average interest-earning banking assets % Rm December 2006 3,94 10 963 H1 2007 asset growth 2 438 Net endowment effect 0,15 527 Current & savings accounts margin uplift 0,18 622 Squeeze due to cost of funds increase (0,12) (406) Balance sheet composition & competitiv
Slide 13: Impairments Charge
Impairments Charge Average Rm – six months ended advances Jun 2007 Jun 2006 split (%) Impairments charge 1 016 806 As % of NII (%) 15,5 16,0 As % of average advances (%) 100,0 0,63 0,61 Nedbank Capital 12,7 (0,10) 0,90 Nedbank Corporate 42,4 0,11 0,07 Nedbank Retail 35,8 1,35 1,12 Personal loans 10,
Slide 14: Impairment Trends
Impairment Trends 14 000 0.70% 0.63% 0.61% 12 000 0.55% 0.60% 0.54% 0.52% 0.49% 10 000 0.50% 8 000 4 227 1 855 0.40% Rm 4 544 3 638 2 356 6 000 0.30% 3 014 4 000 0.20% 7 158 5 766 5 186 4 754 4 364 2 000 3 932 0.10% 0 0.00% 2004 H1 '05 2005 H1 '06 2006 H1 '07 Impaired advances retail (incl IB) Impai
Slide 15: Non-interest Revenue
Non-interest Revenue Rm – six months ended % change Jun 2007 Jun 2006 Commission & fees 12,9 3 541 3 137 Net trading income (41,2) 521 886 Exchange & non-interest dealings >100 405 147 Investment income (47,6) 43 82 Rental income 8,7 25 23 Foreign currency translation gains - 3 Sundry income (7,6) 2
Slide 16: Expenses
Expenses Rm – six months ended % change Jun 2007 Jun 2006 Staff costs 19,0 3 323 2 793 Computer processing 12,4 787 700 Accommodation 10,6 492 445 Marketing & PR 24,0 382 308 Fees & insurance 5,0 650 619 Alliance partner fees >(100) (6) 20 Other 11,1 529 476 Operating expenses 14,8 6 157 5 361 BEE 2
Slide 17: Balance Sheet
Balance Sheet Rm Annualised Jun 2007 Dec 2006 % change Cash & securities 13,7 71 835 67 258 Advances 17,5 335 340 308 563 Investments 9 414 8 062 Property & equipment 3 460 3 377 Computer software 1 260 1 266 Goodwill 3 703 3 695 Derivatives 9 446 15 273 Other 26 374 17 418 Total assets 17,0 460 832
Slide 18: Advances
Advances Annualised Rm Jun 2007 Dec 2006 % change Home loans 26,8 112 113 98 944 Commercial mortgages 28,1 52 645 46 212 Properties in possession 29,2 150 131 Credit cards 49,2 6 573 5 283 Overdrafts 11,9 14 575 13 761 Overnight loans (18,8) 15 769 17 392 Foreign currency lending (40,6) 13 835 17 32
Slide 19: Deposits
Deposits Annualised Rm % change Jun 2007 Dec 2006 Current accounts 5,3 42 444 41 349 Savings accounts 10,6 14 080 13 374 Term deposits 21,9 225 136 203 094 Credit card balances 1,2 853 848 Foreign currency liabilities 42,8 11 234 9 267 NCDs 42,3 55 070 45 518 Deposit repurchase agreements (61,2) 7 8
Slide 20: Value Metrics
Value Metrics cents 24.7% 10 000 25% 21.8% 22.1% 9 000 21.2% 8 000 18.9% 18.6% 20% 18.2% 18.3% 7 000 16.0% 15.5% 14.8% 14.3% 6 000 15% 11.7% 5 000 11.0% 4 000 10% 6 903 6 363 5 976 5 982 5 597 5 427 3 000 5 044 5 029 4 692 4 680 4 499 4 099 3 721 3 558 2 000 5% 1 000 0 0% Jun 04 Dec 04 Jun 05 Dec 05
Slide 21: Summary
Summary Performance achieved while: Gaining market share Increasing brand awareness Reducing fees Enhancing core banking platforms, systems & processes Rolling-out our distribution foot print Implementing NCA & Basel II Achieving positive shifts in staff commitment & values 21
Slide 22: Prospects – balance of 2007
Prospects – balance of 2007 Slower retail / good wholesale advances growth Margin pressure from funding & asset mix offset by endowment Prudent credit risk management but increasing impairments Positive NIR growth impacted by continued fee pressure Improved Trading Income Maintain strong cost discip
Slide 23: Group Targets
Group Targets Short-term ROE 20% 2007 targets Efficiency ratio 55% Medium to long-term targets post 2007 Jun 07 ROE > 20% & ROE (excl goodwill) 10% above monthly 21,2% √ weighted average cost of ordinary shareholders’ equity (24,7%) Efficiency ratio: < 55% 55,2% √ Growth in diluted HEPS: at least CP
Slide 24: Agenda
Agenda Introduction Financial Overview Liquidity & Credit Update Capital Management Update Instrument Details 24
Slide 25: Key Liquidity Messages
Key Liquidity Messages Nedbank has no exposure to US sub-prime market Nedbank has limited committed liquidity facilities to conduits (R9.2 billion Synthesis and R600 million other) - Daily liquidity management of such facilities in place and no draw-downs to-date No undue liquidity concentrations an
Slide 26: Support to Synthesis Funding Ltd
Support to Synthesis Funding Ltd Nedbank has committed liquidity facilities to Synthesis. Current programme size - R9,2 billion – only invest in AA- (zaf) / Aa3.za or better assets – approx. 70% of portfolio consists of AAA (zaf) / Aaa.za rated assets (the only dual rated SA conduit by two Internati
Slide 27: Key Credit Messages
Key Credit Messages Growth and impairments in line with expectations - Wholesale credit growth on back of infrastructural spend - Slowing retail growth and increasing impairments No sub – prime exposure within Nedbank Group Credit Quality Messages - Weakening in retail over last 6 months - Strengthe
Slide 28: Nedbank Retail - Credit
Nedbank Retail - Credit Small Business, Private Bank & BoE stable Deterioration across most products in middle & mass markets Main issue affordability Most criteria tightened in the last 18 months - Minimum income / Repayment to income / Scorecard cut-offs Scorecards rebuilt for Basel II & NCA New c
Slide 29: Credit Risk Profile (exposure per PD)
Credit Risk Profile (exposure per PD) Excludes collateral % Exposure As at 30 June 2007 25% Primarily Retail & Business Banking 20% Primarily wholesale, financial services & 15% government Primarily Property Finance & Private Clients 10% 5% 0% NGR 00 NGR 01 NGR 02 NGR 03 NGR 04 NGR 05 NGR 06 NGR 07
Slide 30: Credit Risk Profile (exposure per EL)
Credit Risk Profile (exposure per EL) Includes collateral % Exposure As at 30 June 2007 30% 25% Primarily wholesale financial services 20% and government Primarily Retail and business 15% banking 10% 5% 0% NTR 01 NTR 02 NTR 03 NTR 04 NTR 05 NTR 06 NTR 07 NTR 08 NTR 09 NTR 10 Dec-05 Jun-06 Dec-06 Jun
Slide 31: Agenda
Agenda Introduction Financial Overview Liquidity & Credit Update Capital Management Update Instrument Details 31
Slide 32: Group Capital Adequacy
Group Capital Adequacy 14% 13.3% 11.8% 12.4% Targeted minimum 12% Total Basel I CAR 10% 9.1% 8.3% 8.3% Targeted minimum 8% Tier 1 Basel I CAR 6% 4% 2% 0% June 2006 Dec 2006 June 2007 Tier 1 Total 32 … capital in line with target levels
Slide 33: Capital Position – Nedbank Group
Capital Position – Nedbank Group Regulatory capital (Rm) Tier 1 Tier 2 Tier 3 Total RW assets 31 December 2006 22 932 9 593 158 32 683 276 913 Group capital adequacy (%) 8,3 3,4 0,1 11,8 Attributable income (excl FX) 2 952 2 952 Ordinary dividend (1 170) (1 170) Currency impact 27 27 Growth – risk-w
Slide 34: Nedbank Ltd Solo Supervision Capital Adequacy
Nedbank Ltd Solo Supervision Capital Adequacy 14% 12.8% 11.4% 11.9% Targeted minimum 12% Total Basel I CAR 10% 8.6% 7.9% 7.7% Targeted minimum 8% Tier 1 Basel I CAR 6% 4% 2% 0% June 2006 Dec 2006 June 2007 Tier 1 Total 34 … capital in line with target levels
Slide 35: Capital Position – Nedbank Ltd Solo Supervision
Capital Position – Nedbank Ltd Solo Supervision Regulatory capital (Rm) Tier 1 Tier 2 Tier 3 Total RW assets 31 December 2006 18 971 8 228 173 27 372 240 307 Nedbank capital adequacy (%) 7,9 3,4 0,1 11,4 Attributable income (excl FX) 1 822 1 822 Ordinary dividend (624) (624) Growth – risk-weighted a
Slide 36: Subordinated Debt Maturity Profile
Subordinated Debt Maturity Profile y 4 500 Redeemed Debt Debt in Issue Ned2 4 000 3 500 3 000 2 500 R 'm Ned1 Ned6 Ned8 Ned9 2 000 Ned5 Ned 11 1 500 Ned7 Ned10 1 000 Ned4 500 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 36 … create Nedbank yield curve & diversify internationally
Slide 37: Capital Management
Capital Management Nedbank Limited - Perpetual preference share issue of R364,4 million - Rating upgrades: CA-Ratings, Moody’s & Fitch Nedbank Group Limted - Cash dividend vs capitalisation award, H1 2007 dividend is a scrip alternative - s38 promulgated, awaiting effective date Basel II on track -
Slide 38: Agenda
Agenda Introduction Financial Overview Capital Management Update Credit Analysis Instrument Details 38
Slide 39: Instrument Profile
Instrument Profile Subordinated debt issued by Nedbank Ltd - existing R15 bn listed DMTN programme (currently being increased from R 10 bn) Intention to issue a R 1 – 1.5 bn, with SARB approval in place to issue up to R 2bn Ned 11 - Term • Legal maturity: 13 years • Call date: 8 years after issue da
Slide 40: Ratings
Ratings Nedbank Limited December 2006 June 2007 Fitch Foreign currency Short-term F3 F2 Long-term BBB BBB+ Long-term rating outlook Positive Stable Local currency Long-term senior BBB+ BBB+ Long-term rating outlook Stable Stable National Short-term F1+ (zaf) F1+ (zaf) Long-term AA- (zaf) AA- (zaf) M
Slide 41: Relative Value Chart as at August 2007
Relative Value Chart as at 22 August 2007 Credit Spread over Govt Zero Curve (AA-) Bps 150 NED7 BID01 140 NED8 130 BEER01 IPL4 SNT01 120 NED5 110 AG01 BAW1 SMF1 NED6 SLI2 100 IPL2 SLI1 90 80 IPL3 MGL01 2 LB01 R = 0.3177 70 60 SFL2 50 0.0 2.0 4.0 6.0 8.0 10.0 Years Source: BESA & Nedbank (22 August 2
Slide 42: Market-making
Market-making Citi appointed as manager & dealer on NED 11 bond issue Market-making is Citi’s primary role Indicative bid/offer terms (1): - NED11 7 bps in R5mn notional 12 bps in R10mn notional >R10m by negotiation - Citi's commitment is subject to changes in market conditions &/or material changes
Slide 43: Bookbuild Details
Bookbuild Details Roadshow 27-29 August 2007 Bookbuild launch & pricing 12 Sept 2007 (09h00 - 11h30) Bookbuild hotline (011) 535 4027 Bookbuild contacts Terry / Lucille / Trish Key bookbuild points Price guidance will be provided prior to bookbuild No feedback within first hour and early bidders pre
Slide 44: Appendix
Appendix 44
Slide 45: AIRB credit risk methodology
AIRB credit risk methodology 45
Slide 46: Master credit rating scale – Nedbank Group
Master credit rating scale – Nedbank Group Rating Category Rating PD (bp) Lower Upper Corresponding Class Bound Bound S&P grade* Performing NGR00 0 - - NGR01 1 - 1.2 AAA NGR02 1.4 1.2 1.7 AA+ NGR03 2 1.7 2.4 AA NGR04 2.8 2.4 3.4 AA- NGR05 4 3.4 4.8 A+ NGR06 5.7 4.8 6.7 A+ to A NGR07 8 6.7 9.5 A to A
Slide 47: Master credit rating scale – Nedbank Group (cont.)
Master credit rating scale – Nedbank Group (cont.) Rating Category Rating PD (bp) Lower Upper Corresponding Class Bound Bound S&P grade* NGR15 128 108 152 BB NGR16 181 152 215 BB to BB- NGR17 256 215 304 BB- to B+ NGR18 362 304 431 B+ NGR19 512 431 609 B+ to B NGR20 724 609 861 B to B- Watchlist NGR
Slide 48: Nedbank’s master transaction rating scale
Nedbank’s master transaction rating scale The combination of PD’s, EAD’s, LGD’s and Portfolio Correlations is then classified according to the following table for rating individual advances EL as % of EAD Rating Lower Upper class bound bound NTR01 0.00% 0.05% NTR02 0.05% 0.10% NTR03 0.10% 0.20% NTR0
Slide 49: Disclaimer
Disclaimer Nedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as 'forward-looking statements' within the meaning of United States securities le
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