Firstrand Limited · JSE:FSR
Firstrand — Corporate Update (June 2009)
60 slides from Firstrand's corporate update, Jun 23, 2009
Slide 1: FirstRand Limited Investor Update
FIRSTRAND LIMITED INVESTOR UPDATE 23 JUNE 2009
Slide 2: Introduction
INTRODUCTION PAUL HARRIS x Sy FIRSTRAND
Slide 3: Purpose of the Investor Update
Purpose p of the Investor Update p • Provide an update on the Group’s performance • Provide insight into strategies to deal with the current environment • Provide insight into succession planning and discuss management changes • Expose investors to strategic thinking of the new management team
Slide 4: Macro themes
Macro themes • Early signs of improvement / slower rate of deterioration • Real economyy not reflectingg equity q y market rally, y, but confidence improving • Counter C t cyclical li l – provisions i i were worstt att the th ttop off the th market k t • Most overseas banks have legacy portfolios •
Slide 5: Landmines / side effects of economic medicine
Landmines / side effects of economic medicine • Deficit and sovereign debt • Refinancing / roll-over of existing debt • Other unfunded deficits • US social security / health • Pensions funds, e.g. GM • Federal Housing Authority (FHA) subprime portfolio • Distressed industries and sectors • Legacy po
Slide 6: FirstRand house view on SA: Slow puncture
FirstRand house view on SA: Sl Slow puncture t • SA can can’tt escape international crisis • Real economy slowing down • Consumers and small business stressed / job losses • B l Balance off payments t and d now fifiscall d deficit fi it • Strong rand puts more pressure on export industries • On O th
Slide 7: FirstRand: Dealing with the environment
FirstRand: Dealing g with the environment • Saw signs of problems early in 2008 and expressed bearish outlook in September 08 • November 08 – FirstRand conference theme: “Survive to Thrive” • Agreed a 10 point plan, e.g. capital preservation, de-risking, cost cutting, liquidity buffers, tightening c
Slide 8: Franchise quality = acceleration out of bottom of cycle
Franchise quality = acceleration out of bottom of cycle Price/Earnings Price/Earnings good ratios ratios times Profit Price/Book P i /B k ratios ti / growth th provisions / prospects value of assets (MTM) bad times Income Customers NOT Products MTM People Provisions F Franchises hi
Slide 9: Capital allocation mix
Capital p allocation mix • Capital allocation mi mix: In Investments estments and Franchises • FirstRand’s allocation to investments was too big • Large portion allocated to offshore investments • Equity market declines and volatility were severe • Investments performed similar to those of internati
Slide 10: Dealing with legacy portfolios
Dealing g with legacy g yp portfolios • All international peers ha have e them • Now seen as “non-core” / back to basics • Dilemma – fire sale or hold or take off balance sheet • MTM still creates earnings volatility • Our legacy portfolio • Small relative to international peers, large relative to S
Slide 11: Succession planning
Succession planning p g • Succession philosophy: It is not the end of one race and the start of another, butt rather b th a relay l where h the th incumbent i b t runs alongside l id th the successor th then passes over the baton and continues to run alongside until the successor is in his or her st
Slide 12: Expectations for 2009 and 2010
Expectations p for 2009 and 2010 • Continued tough environment in 2009 with slow improvement from 2010 as lower interest rates and fiscal stimulus kicks in • Excellent franchises and core businesses • FNB: Mass, Consumer, Commercial, Corporate, Botswana, Namibia • RMB: Investment Banking, FICC, Priv
Slide 13: Unpacking the Performance
UNPACKING THE PERFORMANCE JOHAN BURGER
Slide 14: Contextualising the performance of FirstRand Limited
Contextualising the performance of FirstRand Limited Normalised earnings R millions 10,000 (30% – 35%) 5,000 0 2004 2005 2006 2007 2008 2009
Slide 15: What has changed since guidance provided in March 2009?
What has changed since guidance provided id d iin M March h 2009? • RMB • Poor FICC performance • Deterioration in Private Equity associate earnings income • Losses from exiting marginal international businesses in IBD • Further losses in SPJI portfolio • FNB • Larger than anticipated endowment impa
Slide 16: Contextualising performance of SA and African franchises versus offshore
Contextualising performance of SA and Af i African franchises f hi versus offshore ff h activities ti iti R millions Local cycle y 9 500 9,500 • Interest rates • Bad debts • Asset growth • Lower corporate and retail activity 3,500 Volatility • Private Equity • Poor FICC performance Offshore strategi
Slide 17: Cycle: Relationship between debt servicing costs and impairments
Cycle: Relationship between debt servicing costs t andd iimpairments i t h has broken b k d down Impairment ratio Debt servicing cost 2.0% 18% Bad debt forecast 09: 175-185 bps 16% 14% 1.5% 12% 10% 1.0% 8% 6% 0.5% 4% 2% 0.0% 0% 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 19
Slide 18: Cycle: Balance sheet still growing
Cycle: Balance sheet still growing Balance sheet Strategic, market and Normalised change operational changes change Euroloans ▲8% ▼18 % Reverse repos ▲7% ▲9% Corporate Money market ▲6% Netting (LROS) ▲6% Commercial ▲13% Netting (LROS) ▲1% ▲14% 0% Market activity reduction and 0% Retail credit adjust
Slide 19: Context for RMB's performance and strategy going forward
Context for RMB’s performance and strategy gy g going g forward Alan Pullinger An Authorised Financial Services Provider
Slide 20: Lower run rate in second half for RMB
Lower “run rate” in second half for RMB Net income H2 H1 R millions 5,000 4,000 ((50% – 55%)) 3,000 2 000 2,000 1,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 FirstRand Investor Update – 23 June 2009
Slide 21: Business unit headlines
Business unit headlines • Good year for Investment Banking • Private Equity loss in 2nd half • Contributions across the board – No realisations • Significantly slower 2nd half due to – Lower associate earnings – Lower corporate activity – Counterparty impairments – Impairments p raised – Losses on e
Slide 22: Legacy positions
Legacy positions International Equities • Reduced to $18m (no losses in last quarter) Developed Markets C dit Credit • Pull to par benefits for DM Credits S P p y will take longer • Indian Fund & Property g Investment in J Indian Fund to realise I • Quantum manageable (±$225m remaining) Internationa
Slide 23: Revised game plan – Focus on Primary Markets
Revised game plan – Focus on Primary Markets Primary Market Activities Secondary Markets Principal Financing Prop Ad i Advisory Hedging E Execution ti T di Trading Investing (E it ) (Equity) (D bt) (Debt) South Africa Focus on SADEC Primary Market activities in SA, Africa Africa (and Trade corridors
Slide 24: Revised game plan – Net income core and legacy
Revised game plan – Focus on Primary Markets Net income Core Legacy R millions 5,000 4,000 3,000 2,000 1,000 0 -1,000 -2,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 FirstRand Investor Update – 23 June 2009
Slide 25: Revised game plan – Net income core pro forma
Revised game plan – Focus on Primary Markets Net income* Core R millions 5,000 4,000 3,000 2,000 1,000 0 -1,000 -2,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 * Pro forma FirstRand Investor Update – 23 June 2009
Slide 26: Our natural game – Primary Markets: franchise and reputation
Our natural game – Primary Markets • Strong franchise and reputation BEE Structured M&A Listings Spire Awards Deals Finance 2008 WINNER 2009 1st 1st 1st 1st BEST FIXED INCOME HOUSE Best Bond Trading House 2007 1st 1st 3rd 1st Best Derivatives Team (sales and structuring) Best Derivative Tradingg Hou
Slide 27: Our natural game – African expertise
Our natural game – Primary Markets • Strong franchise and reputation • Wealth of African (& African trade corridors) expertise FirstRand Investor Update – 23 June 2009
Slide 28: Our natural game – African expertise
Our natural game - Primary Markets • Strong franchise and reputation • Wealth of African (& African trade corridors) expertise FirstRand Investor Update – 23 June 2009
Slide 29: Our natural game – Client relationships and partnerships
Our natural game – Primary Markets • Strong franchise and reputation • Wealth of African (& African trade corridors) expertise • Exceptional client relationships & strong partnerships Resources Telcos LBOs Transport & Infrastructure Africa BEE Logistics FirstRand Investor Update – 23 June 2009
Slide 30: Our natural game – Leverage group platforms
Our natural game – Primary Markets • Strong franchise and reputation • Wealth of African (& African trade corridors) expertise • Exceptional client relationships & strong partnerships • Leverage group platforms FirstRand Investor Update – 23 June 2009
Slide 31: Looking forward
Looking forward • Strong experienced management team in place • Core businesses in good health • RMB RMB’s s cost base proved flexible • New strategic direction • A platform l tf for f growth th has h been b established t bli h d FirstRand Investor Update – 23 June 2009
Slide 32: Strategic Overview
STRATEGIC OVERVIEW SIZWE NXASANA
Slide 33: Strategy & business model
Strategy & business model Co-ordination Management structure COO portfolio Franchise priorities
Slide 34: Strategic response to changing operating environment
Strategic response to changing operating environment i t • Refine strategy for local and international businesses • Refine our business model under the new order A year to • Implement p an appropriate pp p management g structure to consolidate & refocus deliver the strategy • Improve co-ordination •
Slide 35: Reaffirming the Group's guiding philosophy
Reaffirming the Group’s guiding philosophy hil h • Divisions strive to be the leading franchises in their markets …the guiding • FirstRand must attract and retain the best philosophy for industry skills FirstRand will continue • The “owner manager” culture is retained owner manager • Entrepreneurshi
Slide 36: Redefining our business model
Redefining g our business model • FirstRand will continue as an integrated financial services group with both banking and insurance businesses • Universal banking back in vogue Our business • Produce less volatile earnings model • Operate where we have competitive advantage • Avoid A id diversificat
Slide 37: Refining the Group's strategy
Refining g the Group’s p strategy gy As an integrated financial services group, we will: • consolidate our position as a leading African financial services group • focus on client driven activities rather than on proprietary trading or investment activities Our • link secondary market activities to
Slide 38: Refining the international strategy
Refining g the international strategy gy • In line with the need to grow the business whilst preserving capital • We have examined • Where we are strong and where we are not • Where we may succeed and where we may not
Slide 39: Lessons learnt in international markets
Lessons learnt in international markets • “Silo Silo approach” approach – where business units were driving expansion into international markets • Mono-line businesses in markets in which FirstRand does not have a competitive advantage, or there is a sole dependence on professional funding • e.g. e
Slide 40: Focus on markets where we can achieve our objectives
Focus on markets where we can achieve our objectives bj ti • Consolidate our position in those markets that strengthen g our position as a leading African financial services group • Africa will be the focus with FirstRand’s objective to position itself as a strong regional player • Our India strateg
Slide 41: Operating platforms and entry strategies key to success
Operating platforms and entry strategies k to key t success • Leverage off existing operating platforms • Client bases • Balance sheet • I f t t / Infrastructure/systems t • Products and services • FNB will be the primary platform for banking activities in Collaborate Africa, with WesBank and RMB ut
Slide 42: Creating an international gene pool
Creating g an “international” gene g p pool • Increased resources to co-ordinate international growth efforts Focus on… • Incentivise and reward people who build franchises • Blend of local and international talent • Expand on our International Expansion “Toolkit”
Slide 43: Will the international strategy move the earnings needle?
Will the international strategy move the earnings i needle? dl ? • African economies are small, BUT • Size in itself is not a strategic g objective; j ; sustainable profitability key • We will distinguish between strategic acquisitions It’s a long-term to acquire the necessary building blocks versus
Slide 44: Africa will be the hub of our footprint
Africa will be the hub of our footprint London Middle East Indo-Africa trade Africa-China trade Overlap of FNB and Momentum footprint Momentum footprint Representative office Representative office – approval pending
Slide 45: African expansion progressing well
African expansion p progressing p g g well • FNB Zambia opened doors on 1 April 2009 • On the radar Growing the • Nigeria representative office f footprint i • Angola representative office • Full service banking in Tanzania • Selected markets in East and West Africa
Slide 46: Traction in India
Traction in India • Opened p doors 1 April p 2009 operating p g as a scheduled commercial bank • Target the Indo-Africa trade corridor as an entry strategy 32 people on the ground into India / look for strategic partnerships 31 d deals l iin • Ai tto establish Aim t bli h Fi FirstRand tR d as th the
Slide 47: Strategy & business model: Co-ordination
Strategy & business model Co-ordination Management structure COO portfolio Franchise priorities
Slide 48: Co-ordination key to thrive in the new world
Co-ordination key to thrive in the new world ld • New structure facilitates increased interface between business units and Centre in strategy formulation, setting targets and measuring performance Refined structure • Creation of STRATCO to define the group strategy • Stricter definition of mandates
Slide 49: Strengthened centre will drive co-ordination
Strengthened g centre will drive co-ordination • New management structure • COO position • Further capacity at the centre to support local and international strategy A more • Creation of the platforms to better align divisional strategies, empowered avoid duplication and utilise existing resources c
Slide 50: Strategy & business model: Management structure
Strategy & business model Co-ordination Management structure COO portfolio Franchise priorities
Slide 51: Management structure
Management structure CEO S. Nxasana entre Corrporate Ce Chief operating officer (COO) J. Burger Chief risk officer (CRO) Heads: Balance Sheet Head: Regulatory Operations Management Compliance CFO Human resources IT Board Secretariat Procurement anchises FNB RMB WesBank Momentum OUTsurance M Jordaan
Slide 52: Strategy & business model: COO portfolio
Strategy & business model Co-ordination Management structure COO portfolio Franchise priorities
Slide 53: The COO portfolio
The COO portfolio p D i execution Drive ti off strategies t t i Operational Performance More sustainable efficiencies management less volatile earnings • Eliminate cross-franchise • Measure delivery • BSM strategies underpin duplication against strategic sustainability • Systems objectives • BSM ali
Slide 54: BSM strategies underpin sustainability
BSM strategies g underpin p sustainability y Sustainability Value of franchise • Earnings • Tail risk • Capital Fi Financial i l strength t th
Slide 55: BSM's interface with BUs
BSM’s interface with BUs • Macro view • No more room for interpretation p • Business origination on Group’s “core view” • Risk appetite • Preservation of capital • Earnings volatility (defined tolerance) • Defined per risk type (i.e. credit and market risk) • Funding • Always been centrally managed
Slide 56: Strategy & business model: Franchise priorities
Strategy & business model Co-ordination Management structure COO portfolio Franchise priorities
Slide 57: FNB priorities
FNB priorities p • Grow ROE through focus on • Growing deposit franchise • Transactional income • Cross-sell • Credit origination through own channels • Continuously extract efficiencies • Increase footprint • Retain customers, particularly through innovation • e.g. FNB Connect, inContact, eBucks
Slide 58: WesBank priorities
WesBank priorities p • Credit origination • Repricing • Pricing more discriminately based on risk profile • Collections • Cost management is more than cost cutting, it’s about sustainable cost improvements p • Zero cost growth forecast for this year and next • Revenue protection and generation
Slide 59: Momentum priorities
Momentum priorities p • Optimise value of existing book (up- and cross-selling, retention initiatives and retailisation) • Operational efficiencies • Geographical g p diversification – g grow Momentum Africa • Channel diversification – grow Momentum agency force • Increase I earnings i contribution
Slide 60: Remains tough in the short term, but Group in good shape
Remains tough in the short term, b t Group but G in i goodd shape h • Operating environment en ironment will ill continue contin e to be diffic difficult lt until ntil the end of calendar 2009 • However… • Responded p to difficult macro environment early y • Legacy portfolios ring-fenced and activel