Firstrand Limited · JSE:FSR
Firstrand — UBS 2005 Financial Services Conference
46 slides from Firstrand's conference presentation, October 2005
Slide 1: UBS 2005 Financial Services Conference
UBS 2005 Financial Services Conference Michael Pfaff October 2005
Slide 2: The Turning Points of Our Business
The Turning Points of Our Business “Anybody in investment banking that says they have a five year strategy is mistaken. This is a reactive business. We don’t control the minds of the clients, the regulators or the whiz kids thinking up new ideas.” Goldman Sachs Executive “McKinsey’s techniques of st
Slide 3: Many Building Blocks
Many Building Blocks …. Rm Profit Before Tax 2,000 1,500 1,000 Balance Sheet Merger 500 Niche Player 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Slide 4: Impact of the Balance sheet
Impact of the Balance sheet Leverage 120 R 110bn 100 80 31 x R bn Capital 60 Assets R 52bn 40 20 15 x Capital R 17bn 0 1998 1999 …. …. … …. … 2005
Slide 5: Impact of the Balance sheet: More Sustainable Earnings – Annuity Income
Impact of the Balance sheet More Sustainable Earnings – Annuity Income 100% 100% 5% 8% 9% 80% 80% 25% 36% 60% 70% 60% 17% 4% 40% 40% 50% 51% 20% 20% 25% 0% 0% 1992 2004 2005 Annuity New asset income Risk based Fee income
Slide 6: Impact of the Balance sheet: Portfolio Effect
Impact of the Balance sheet More Sustainable Earnings – Portfolio Effect Net Income by Driver 600 500 400 300 200 100 0 Private Corporate SPJ Treasury Equity Project Structured Equity Finance International Trading Trading Finance Finance Investment Fee Trading Structuring Credit
Slide 7: Impact of the Balance sheet: Portfolio Effect
Impact of the Balance sheet More Sustainable Earnings – Portfolio Effect Net Income by Driver 600 500 400 300 200 100 0 Investment Fee Trading Structuring Credit
Slide 8: Many Building Blocks
Many Building Blocks …. Rm Profit Before Tax Equity House 2,000 1,500 Equity Focus 1,000 Balance Sheet 500 Niche Player 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Slide 9: Emergence as Equity House
Emergence as Equity House 1,200 1,000 800 Rm 600 400 200 0 2002 2003 2004 2005 Debt Equity
Slide 10: Emergence as Equity House: Slowdown in Debt Businesses
Emergence as Equity House Slowdown in Debt Businesses 1,200 1,000 800 Rm 600 400 200 0 2002 2003 2004 2005 Debt Equity
Slide 11: Slowdown in Debt Businesses: Demise of Tax Based Structuring
Slowdown in Debt Businesses Demise of Tax Based Structuring In the Headlines ……………. “Convertible loans draw taxman’s eye” 5 April 2002 “SARS probe into finance deals rakes in R2.5 billion” 3 November 2003 “Structured Finance faces the axe” 3 May 2004
Slide 12: Slowdown in Debt Businesses: Disintermediation
Slowdown in Debt Businesses Disintermediation Corporate Lending picked up in Capital Markets Corporate bond market by sector 100,000 80,000 60,000 40,000 20,000 - 2000 2001 2002 2003 2004 Bank ing Other c orp Sec uritis ation C onduits
Slide 13: International High Yield Credit Spreads
Slowdown in Debt Businesses International High Yield Credit Spreads bps US High Yield Bond Credit Spreads 1200 1000 800 600 400 200 0 Aug-02 Aug-03 Aug-04 Aug-05 May-02 May-03 May-04 May-05 Feb-02 Feb-03 Feb-04 Feb-05 Nov-02 Nov-03 Nov-04 Lehman Bros
Slide 14: International High Yield Credit Spreads
Slowdown in Debt Businesses International High Yield Credit Spreads International Credit Portfolio Exposures $m 1,000 900 800 700 600 500 400 300 200 100 0 Jul-03 Nov-03 Jan-04 Mar-04 May-04 Jun-04 Jul-04 Nov-04 Jan-05 Mar-05 May-05 Jun-05 Jul-05 Aug-03 Sep-03 Oct-03 Dec-03 Feb-04 Apr-04 Aug-04 Sep-
Slide 15: Delays in Infrastructure Spend
Slowdown in Debt Businesses Delays in Infrastructure Spend PPP Debt Funding * 6 5 4 R bn 3 2 1 0 2001 2002 2003 2004 2005 2006 2007 PPP Public Private Partnerships * Estimated
Slide 16: Strategic Focus on Equity
Emergence as Equity House Strategic Focus on Equity 1,200 1,000 800 Rm 600 400 200 0 2002 2003 2004 2005 Debt Equity
Slide 17: Strategic Focus on Equity
Strategic Focus on Equity • Corporate Finance – Climbing the value chain • Equity Trading – Moving offshore • Private Equity – Building a sustainable balance sheet business
Slide 18: Corporate Finance - Climbing the advice value chain
Strategic Focus on Equity Corporate Finance - Climbing the advice value chain … Principal involvement Pro-active Strategic M&A Capital advice raising Structuring Negotiation Valuation Implementation Sponsor Reactive Proactive Risk taking
Slide 19: Corporate Finance - Climbing the advice value chain
Strategic Focus on Equity Corporate Finance - Climbing the advice value chain … R4,1bn acquisition by Disposal of a R7,9bn equity stake R1,4bn acquisition of 7.25% of Mvelaphanda Holdings of 15% to a BEE consortium consisting Imperial Holdings by a BEE of Gold Fields of Kagiso Trust, MIT and WDB con
Slide 20: Equity Trading - Moving offshore to access liquid opportunities
Strategic Focus on Equity Equity Trading - Moving offshore to access liquid opportunities …
Slide 21: Private Equity: Profit before tax
Strategic Focus on Equity Private Equity Rm Profit before tax 600 500 74 % 400 300 60 % 200 33 % 100 0 2002 2003 2004 2005
Slide 22: Private Equity - Building a sustainable balance sheet business
Strategic Focus on Equity Private Equity – Building a sustainable balance sheet business 2,500 2,000 Rm 1,500 1,000 500 0 2002 2003 2004 2005 Profit before tax Unrealised profit Assets
Slide 23: Private Equity - Building a sustainable balance sheet business
Strategic Focus on Equity Private Equity – Building a sustainable balance sheet business • Broad portfolio • Invest on Balance Sheet • Position for BEE
Slide 24: Private Equity – Profit per Investment Team
Strategic Focus on Equity Private Equity – Profit per Investment Team 350 300 250 200 150 Rm 100 50 0 -50 -100 -150 2001 2002 2003 2004 2005 Corvest Ventures Ethos Offshore
Slide 25: Private Equity - Invest on Balance Sheet
Strategic Focus on Equity Private Equity – Building a sustainable balance sheet business • Broad portfolio • Invest on Balance Sheet – IRRs > 40% – ROC > 30% (without unrealised profits) – 1% of Group assets, 2% of RMB assets – Share of profit is double share of risk
Slide 26: Private Equity - Position for BEE
Strategic Focus on Equity Private Equity – Building a sustainable balance sheet business • Broad portfolio • Invest on Balance Sheet • Position for BEE – BEE creates liquidity of assets – All transactions have BEE element – Must have strategic relationships
Slide 27: Many Building Blocks
Many Building Blocks …. Rm Profit Before Tax Equity House 2,000 1,500 1,000 Balance Sheet 500 Niche Player 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Ability to attract and retain intellectual capital
Slide 28: Attracting Intellectual Capital
Attracting Intellectual Capital Deloitte – Best Company to Work For Rank 2000 2001 2002 2003 2004 2005 1 RMB ~~~~~ ~~~~~ ~~~~~ ~~~~~ ~~~~~ 2 ~~~~~ RMB ~~~~~ ~~~~~ ~~~~~ ~~~~~ 3 ~~~~~ ~~~~~ ~~~~~ ~~~~~ ~~~~~ RMB 4 ~~~~~ ~~~~~ RMB ~~~~~ ~~~~~ ~~~~~ 5 ~~~~~ ~~~~~ ~~~~~ ~~~~~ ~~~~~ ~~~~~ 6 ~~~~~ ~~~~~ ~
Slide 29: Next Chapter …
Next Chapter … 3,000 Profit Before Tax 2,500 Looking Forward ? 2,000 Equity House R m 1,500 1,000 Balance Sheet 500 Niche Player 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Ability to attract and retain intellectual capital
Slide 30: Next Chapter: Some possibilities
Next Chapter Some possibilities • High Growth Environment ? • Relationships ? • International Competition ? • BEE ? • External Shock ?
Slide 31: Next Chapter - High Growth Environment ?
Next Chapter - High Growth Environment ? Potential impacts of high economic growth – Increased corporate borrowing – Increased infrastructure spend
Slide 32: Increased Infrastructure Finance
Next Chapter – High Growth Environment ? Increased Infrastructure Finance …… R bn Estimated PPP debt funding 6 5 4 • Gautrain • 2010, etc 3 2 1 0 2001 2002 2003 2004 2005 2006 2007
Slide 33: RMB has dominated the PPP market
Next Chapter – High Growth Environment ? RMB has dominated the PPP market …… Total Deals led Deals in number by RMB which RMB of deals has participated Toll roads 5 3 5 Power stations 1 1 1 Hospitals 1 1 1 Prisons 2 1 1 Accommodation 1 0 0 Grand total 10 6 8
Slide 34: Potential big impacts of high economic growth
Next Chapter – High Growth Environment ? Potential big impacts of high economic growth – More corporate borrowing – Increased infrastructure spend – Favourable bad debt environment – Higher Equity Market • Increased M&A and IPOs • Increased liquidity for trading • Higher value of Private Equity port
Slide 35: Next Chapter: Some possibilities
Next Chapter Some possibilities • High Growth Environment ? • Relationships ? • International Competition ? • BEE ? • External Shock ?
Slide 36: Next Chapter – Relationships ?
Next Chapter – Relationships ? Survey 2005 BEE Listings M&A Str & Private Forex Bonds Money Deals Project Equity & Mkt Finance Deriv. 1 RMB RMB RMB RMB RMB Std Bank Std Bank Std Bank & JPM & Ethos 2 Std Bank Deutsche Std Bank RMB RMB ABSA 3 JPM Investec Investec ABSA Investec ABSA ABSA RMB Chase 4 A
Slide 37: RMB is a product and intellectual capital leader
Next Chapter – Relationships ? RMB is a product and intellectual capital leader 1st 2nd • Seen as “Merchant Bank of choice” RMB X • Has the most “intellectual capital” RMB X • Is leader in innovation RMB Y • Is leader in PPP Funding RMB Z • Leading advisor in M&A RMB X • Leading advisor in BEE RMB X
Slide 38: We have been falling short in our relationship areas
Next Chapter – Relationships ? We have been falling short in our relationship areas 1st 2nd • Has best knowledge of SA market X RMB & strongest relationships • Has most comprehensive solutions X RMB • Is seen as good corporate citizen X RMB RMB Corporate Survey 2004
Slide 39: Next Chapter: Some possibilities
Next Chapter Some possibilities • High Growth Environment ? • Relationships ? • International Competition ? • BEE ? • External Shock ?
Slide 40: Next chapter - International Competition ?
Next chapter - International Competition ? Survey 2005 Marginal Very Extremely Loss Profitable Profits Profitable Profitable Retail Banking Investment Banking Local Bank Foreign Bank
Slide 41: Next Chapter: Some possibilities
Next Chapter Some possibilities • High Growth Environment ? • Relationships ? • International Competition ? • BEE ? • External Shock ?
Slide 42: Chapter – BEE ?
Next Chapter – BEE ? Structured Finance • Structuring • Lending BEE Private Equity Corporate Finance • Investment • Advisory • Equity Raising
Slide 43: Next Chapter: Some possibilities
Next Chapter Some possibilities • High Growth Environment ? • Relationships ? • International Competition ? • BEE ? • External Shock ?
Slide 44: Chapter - External Shock ?
Next Chapter - External Shock ? Opposite of High Growth Scenario In adversity there is always opportunity!
Slide 45: Next Chapter …?
Next Chapter …? 3,000 Profit Before Tax 2,500 Looking Forward ? Equity House 2,000 R m 1,500 1,000 Balance Sheet 500 Niche Player 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Ability to attract and retain intellectual capital
Slide 46: Rand Merchant Bank
RAND MERCHANT BANK A division of FirstRand Bank Limited TRADITIONAL VALUES. INNOVATIVE IDEAS.