The activities of the Private Banking Division primarily targets medium to high net worth private clients, providing advisory services and wealth management solutions with a 360 degree approach. The Division operates in five countries (Italy, Germany, Austria, Luxembourg, and Poland) through a network of more than 1,200 private bankers located in about 250 branch offices in the countries.
Financial performance
The first half of 2011 was marked by high volatility in the financial markets, which gave rise to a mixed performance in the Division’s key countries throughout the entire period: compared to December 2010, stock exchange indices showed substantial stability in Italy (FTSE MIB +0.1%), an increase in Germany (DAX +6.7%), and a decline in Austria (ATX -4.7%).
In this environment, as at June 30, 2011 total financial assets under management and administration by the Division were€154.3 billion, a slight decline (-1.2%) compared to December 31, 2010.
Total Financial Assets (billion€)
AMOUNTS AS AT 06.30.2011 03.31.2011 12.31.2010 AMOUNT % PRIVATE BANKING Total Assets 154.3 156.5 156.1 -1.8 -1.2% Ordinary Assets 121.7 121.9 122.2 -0.4 -0.3% AuM 43.2 43.4 43.1 0.1 0.2% AuC 56.0 56.4 56.0 0.0 0.0%
Deposits (inc. Repos) 22.5 22.1 23.0 -0.5 -2.3%
CHANGE ON DEC '10
Net of the extraordinary components1as at June 30, 2011 financial assets were slightly below
€122 billion, essentially unchanged (-0.3%) compared to the beginning of the year. This trend benefited from a positive net inflow2of€0.7 billion during the six-month period, thanks to the healthy business results achieved in terms of indirect deposits, with positive net inflows of€1.3 billion of which €0.7 billion in asset management products. The market performance effect was instead negative by€1.1 billion as a whole, almost entirely attributable to the year’s second quarter.
The composition of financial assets2as at June 30, 2011 shows an increase, though moderate, in assets under management, representing 35.5% of total assets (from 35.3% as at December 31, 2010) and in assets under administration (46% compared to 45.9% as at December 31, 2010), relating to a decline in deposits that fell to 18.5% from 18.9% at the beginning of the year.
In terms of profitability performance, operating profit for the Private Banking Division as at June 30, 2011 was€190 million, up by 4.6% compared to the same six-month period in the previous year, benefiting both from a growth in operating income and a slight decrease in costs.
1
Extraordinary transactions are those that, because of their nature, large size and low or non-existent earning potential, are not attributable to any ordinary company assets (primarily assets of institutional clients and business client shareholding).
2
Income Statement (€ million) CHANGE CHANGE 2010 2011 2010 % Q2 Q1 % Q2 PRIVATE BANKING 0N Q1 2011 Operating income 474 466 + 1.6% 233 240 - 2.9% 228 Operating costs (284) (285) - 0.4% (142) (142) + 0.2% (143) Operating profit 190 182 + 4.6% 91 99 - 7.4% 85
Profit before tax 182 177 + 2.5% 85 97 - 13.1% 83
H1 2011
Revenues stood at€474 million, up by 1.6% over the first half of 2010. They were marked by: a sharp increase in net interest (+21.9% y/y), driven by a widening spread on deposits
(particularly in Italy) which was positively affected by a rising trend in market rates. The impact was only partially eroded by a fall in volumes of customer deposits from€25.8 billion as at June 30, 2010 to€24.4 billion as at June 30, 2011 (data include securities issued);
a decline in net commissions (-5.1% y/y), mainly driven by lower commissions from the placement of asset management products and brokerage business. Furthermore, it should be noted that the first half of 2010 benefited from non-recurring commissions (approximately 6 million) related to the tax amnesty in Italy.
Return on ordinary financial assets (ROA) was thus equal to 78 bp in the six-month period, an increase compared to the 75 bp in the same period of 2010.
Operating costs totaled€284 million, slightly down (-0.4% y/y) compared to the same period of 2010. The two main components showed diverging trends: payroll costs were slightly up (+1.1% y/y) due to an increase in the staff of the Division (+ 21 FTE) and salary and contractual adjustments, while cost containment efforts resulted in a decrease in other administrative expenses (-1.4% y/y).
There was a marked improvement in the cost/income ratio that at June 30, 2011 reached 59.9% compared to 61.1% in the same six-month period of 2010.
Profit before tax, equal to€182 million, grew by 2.5% over the six-month period of 2010, despite higher write-downs on loans in Germany and Austria because of specific events; they were only partially offset by a decline in provisions for risk and charges.
Key Ratios and Indicators
2011 2010 AMOUNT %
PRIVATE BANKING
EVA (€ million) 99 103 -4 - 3.6%
Absorbed Capital (€ million) 391 299 91 + 30.5%
RARORAC 50.7% 68.7% n.m.
ROA, bp (*) 78bp 75bp 3bp
Cost/Income 59.9% 61.1% -118bp
Operating costs/Total Financial Assets (**) 47bp 46bp 1bp
(*) Operating income on Total Financial Assets (average) net of extraordinary assets. (**) Total cost on total Financial Assets (average) net of extraordinary assets.
H1 CHANGE
Staff Numbers
06.30.2011 03.31.2011 12.31.2010 AMOUNT %
PRIVATE BANKING
Full Time Equivalent 3,020 3,014 3,013 7 + 0.2%
CHANGE ON DEC '10 AS AT
Breakdown by business, geographic area and company
The Private Banking Division is composed of 5 business lines, corresponding to the countries in which it operates: PB Italy, PB Germany, PB Austria, PB Luxembourg, and PB Poland.
Key figures for each business line are outlined below. % Contribution by country as at June 30, 20113
54.2% 50.5% 59.1% 26.6% 27.0% 26.1% 14.9% 18.5% 9.8% 2.3% 1.7% 3.3% 1.7% 2.3% 2.0%
Operating income Operating costs Operating profit
POLAND LUXEMBOURG AUSTRIA GERMANY ITALY
Financial assets for Private Banking Italy totaled€93.7 billion. Ordinary assets, equal to €77.1 billion at June 30, 2011, were slightly down compared to the beginning of the year (-1%). The satisfactory business results in terms of assets under administration (+€0.9 billion) and assets under management (+€0.3 billion) more than offset the deposit outflows (-€0.7 billion), bringing the overall net inflow of ordinary assets to€0.5 billion.
Operating profit for the first half of 2011 was€118 million, a 4.2% rise over the same period in the previous year. The increase in revenues (+1.6% y/y) was driven by the strongly positive trend in net interest (+32.1% y/y), which benefited from a strong increase in the spread on deposits despite a contraction in relative volumes. However, net commissions fell (-4.2% y/y) due to a slowdown in the placement of asset management products and securities brokerage but also as a result of non-recurring commissions reported during the first half of 2010 totaling€6 million (following the tax amnesty), net of which the change came to -1.4% y/y.
The cost/income ratio was 54%, down from 55.2% over the same six-month period in the previous year. Private Banking Germany reported€30.9 billion in total financial assets as at June 30, 2011, of which €26.2 billion in ordinary assets. The latter figure was down by 0.9% from December 31, 2010. The net outflow of ordinary assets totaling -€0.1 billion for the period was marked by positive results in assets under management (€0.3 billion) and by outflows of assets under administration (-€0.3 billion) and deposits (-€43 million).
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As for income, operating profit totaled€52 million. The 3.6% y/y increase was driven by a rising net interest (+15.5% y/y), which was positively influenced by a healthy trend in the spread on deposits; this offset a decline in net commissions (-5.9% y/y), especially in terms of lower profits from the assets under administration segment.
As for operating costs, the 1.6% y/y rise is attributable primarily to an increase in payroll costs (+6.1% y/y), also as a result of a higher headcount compared to the same six-month period in the previous year. Other administrative expenses were down by 2.1% y/y.
The cost/income ratio was 58.7% compared to 59.2% as at June 30, 2010.
As at June 30, 2011 Private Banking Austria had financial assets totaling€17 billion; ordinary assets, equal to€15 billion, rose by 2.4% from the beginning of the year, thanks to a net inflow of 0.2 billion, driven by deposits.
Operating profit was€20 million, down by 11.9% compared to June 30, 2010, as a result of lower revenues (-1.5% y/y). The sharp increase in net interest (+22.5% y/y), which was due to higher spreads and increasing volumes of deposits, could not offset a decline in net commissions (-10% y/y), mainly because of lower upfront fees on asset management products. Operating costs rose (+3.2% y/y) both in terms of payroll costs (+2.4% y/y) – in this instance also as a result of a higher headcount over the comparable period – and in terms of other administrative expenses (+5.1% y/y).
The cost/income ratio was 72.1%, up from 68.8% in the first half of the previous year.
As at June 30, 2011, Private Banking Luxembourg had financial assets totaling€10.9 billion, of which €1.7 billion were ordinary assets. The latter experienced a growth trend of 11.4% over that of the beginning of the year, generated by a net inflow of ordinary assets of€0.2 billion, that was essentially attributable to assets under administration (+€0.1 billion) and assets under management (+€0.1 billion). As at June 30, 2011 operating profit was€6 million, which marked an increase compared to June 30, 2010, thanks to a decline in operating costs (-51.8% y/y). This is attributable to synergies deriving from a reorganization of company business (particularly in terms of other administrative expenses) and rising revenues (+1.9% y/y). Given a significant stability in net interest (-0.4% y/y), net commissions were the major driver of profit (+3.3% y/y).
The cost/income ratio was 41.7%, down by more than half compared to the same figure as at June 30, 2010 (88.2%).
Finally, in Poland financial assets at the end of June 2011 amounted to 1.9 billion, a decrease (- 3.9%4) compared to December 31, 2010. There was a net outflow in ordinary assets of€0.1 billion in the first half of 2011, due to deposit outflows, which was only partially offset by an inflow in assets under management. As for income, operating profit, equal to€3 million, was up by 24.8% y/y4, driven by the healthy trend of revenues (+13.5% y/y4) both in terms of net interest (+11.2% y/y4) and net commissions (+16.6% y/y4). The cost/income ratio was 66%, an improvement over the 69.1% in the first half of the previous year.
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