PwC Bank Restructuring Conference 2018 Banking on the future

Transcription

1 PwC Bank Restructuring Conference 2018 Banking on the future

2 Welcome Richard Thompson Global Leader Financial Services Deals PwC (UK)

3 Not just an event app.. On your own device You get to keep it! Focused articles, videos & blogs at your fingertips New and interesting content every week

4 Big themes Richard Thompson Global Leader Financial Services Deals PwC (UK) Andrew Kail Head of Financial Services PwC (UK)

5 Big themes Technological change Richard Thompson Global Leader Financial Services Deals PwC (UK) Dealing with legacy issues Reshaping distribution Andrew Kail Head of Financial Services PwC (UK) Regulation

6 Note: views of conference attendees

7 in billions European bank loan portfolio transaction trends

8 in billions Loan portfolio transactions by country Italy Spain UK Ireland Other Germany Netherlands

9 in billions Loan portfolio transactions by asset class Unsecured retail SME/Corporate CRE Specialised Secured retail

10 Agenda - Morning Macro-economic landscape Commercial implications of changes to the banking sector Open Banking... implications and opportunities Coffee break How to restore bank profitability - cost simplification Update on China Lunch

11 Agenda - Afternoon Disintermediation of banks and the impact of direct investment from institutional investors Spotlight on Greece Banking M&A and loan portfolio transactions Conclusions Drinks

12 The macro-economic landscape Dr Andrew Sentance Director & Senior Economic Advisor PwC (UK)

13 Outline The late-2010s global economic upswing Why the European economy is performing well The impact of Brexit so far European and global economic outlook

14 Global growth picking up to above long-run trend % per annum change in world real GDP and consumer prices GDP growth Inflation GDP growth trend Source: IMF World Economic Outlook, October 2017

15 2017: broad-based upswing across global economy 3.1 Canada UK Ireland 1.7 Germany 2.5 Russia Greece US 2.3 France Japan Mexico 2.1 Spain Italy China India 6.4 Australia Key x.x = GDP growth in 2017 Brazil 1.0 South Africa Latest National GDP Growth Estimates

16 with strong growth also projected for Canada UK Ireland 1.5 Germany 2.3 Russia Greece US 2.4 France Japan Mexico 2.1 Spain Italy China India 7.4 Australia Key x.x = GDP growth in 2018 Brazil 1.8 South Africa PwC December 2017 Global Economy Watch

17 GDP growth in 10 largest EU economies % p.a. increase in GDP in year to Q Poland Sweden Spain Netherlands Austria Germany France Belgium Italy UK 0,0% 1,0% 2,0% 3,0% 4,0% 5,0% Source: Eurostat and national sources

18 European growth now outpacing US % per annum change in real GDP 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% US EU Source: OECD and PwC forecasts

19 Why is Europe now growing more strongly? Underpinning of continued healthy growth in more competitive Northern and Eastern European economies Structural reforms in a number of economies especially Spain Process of repairing bank balance sheets is further advanced Confidence has recovered following euro crisis, with growth now returning to the worst affected economy Greece Political systems have been resilient to shocks, and Macron government in France has restored centrist Franco-German leadership to EU Sustained fall in unemployment which has continued for five years Low inflation and relatively strong euro have boosted consumer purchasing power, supporting growth of domestic demand

20 UK consumer spending has slowed significantly % annual change in volume of retail sales, 3-month moving average 7 6 Retail sales growth Average since Source: Office for National Statistics

21 while business investment has also weakened % p.a. change in UK business investment in real terms* 20% 15% Investment average 10% 5% 0% -5% -10% -15% -20% Source: Office for National Statistics and PwC estimate for 2017 *total fixed capital spending pre-1997

22 Brexit much work still needed on the key issues Payment: Future contributions to EU Budget People: Status of EU citizens in UK and vice versa, and impact of new controls on migration into UK Trade: How closely aligned will the UK be with the Single Market, the Customs Union and how will this impact key sectors, including financial services? Transition: How long before significant changes take effect? Ireland: Solving the North/South border issue

23 Global and European economic outlook Global growth should continue at a reasonably healthy rate through 2018 and into 2019, with all major regions (Asia, North America and Europe) contributing Within Europe, UK likely to continue to underperform due to Brexit uncertainty. Economic prospects are favourable for most other economies A successful programme of economic reform in France under Macron could deliver a further boost to the European economy Interest rates set to continue to rise in US, and BoE and ECB likely to follow with gradual and cautious upward moves, in the absence of major economic shocks Key threat to this benign global outlook is that rivalry and rising tension between major powers (US/China/Russia/EU) spills over into a new wave of global protectionism

24 Commercial implications of major changes to the banking sector Moderator David Teitelbaum Head of European Advisory Offices and Senior Managing Director Cerberus Colin Brereton FS Market Solutions Leader in EMEA PwC (UK) Andrew Harvey Managing Director Association for Financial Markets in Europe (AFME) Dr Andrew Sentance Director & Senior Economic Adviser PwC (UK)

25 In response to market, regulatory and technological pressures, over the next 12 months banks will? A. Reform their strategies and operating models and become more profitable B. Reform their strategies and operating models but lose money C. Respond to ad hoc challenges in incoherent ways with limited or no commercial effect D. Do nothing significant Note: views of conference attendees

26 Open Banking implications and opportunities Moderator Jonathan Turner Partner PwC (UK) David Beardmore Commercial Director Open Data Institute Isabelle Jenkins UK Banking Leader PwC (UK) In association with the... Uttiyo Dasgupta Head of Transaction Banking HSBC UK Imran Gulamhuseinwala OBE Trustee Open Banking Ltd Simon Vans-Colina Senior Engineer Monzo Bank

27 How to restore bank profitability... operating cost simplification Moderators Paolo Fiorentino Chief Executive Officer Carige Bank Mike Magee Partner PwC (UK) Jan Schildbach Director and Head of Banking Deutsche Bank Research Jon Hall Managing Director Masthaven Bank Joerg Reutschi Director PwC Strategy& Dominic Wade Head of Strategic Cost Reduction RBS

28 How to restore bank profitability... operating cost simplification Moderators Paolo Fiorentino Chief Executive Officer Carige Bank Mike Magee Partner PwC (UK) Jan Schildbach Director and Head of Banking Deutsche Bank Research Jon Hall Managing Director Masthaven Bank Joerg Reutschi Director PwC Strategy& Dominic Wade Head of Strategic Cost Reduction RBS Note: views of conference attendees

29 Deutsche Bank Research European bank performance 10 years after the crisis London, 21 March 2018 Deutsche Bank Research Jan Schildbach Jan Schildbach 21 March 2018

30 European banks have become more profitable, but revenue gap to US peers widened further in last few years Net income USD / EUR bn, up to Q Total revenues Q = 100, up to Q Tax reform US banks Large European banks Sources: FDIC, company reports, Deutsche Bank Research US banks Large European banks Sources: FDIC, company reports, Deutsche Bank Research Deutsche Bank Research Jan Schildbach 21 March

31 H1 09 H2 H1 10 H2 H1 11 H2 H1 12 H2 H1 13 H2 H1 14 H2 H1 15 H2 H1 16 H2 H1 17 H2 as low rates have hurt banks interest income with only limited impact on lending Net interest income EUR bn, top 20 European banks 140 Lending to the private sector % yoy, up to Jan Sources: Company reports, Deutsche Bank Research US Euro area Sources: ECB, FDIC, Deutsche Bank Research Deutsche Bank Research Jan Schildbach 21 March

32 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 yet low rates have massively helped asset quality Loan loss provisions USD / EUR bn, up to Q NPLs in selected countries Non-performing loans as % of total loans Deutsche Bank Research US banks Large European banks Sources: FDIC, company reports, Deutsche Bank Research Jan Schildbach 21 March 2018 France* UK Italy* Portugal Greece (right) Germany* US Spain Ireland Cyprus (right) * No data available for Q1 and Q3, data for Germany only available for Q4. Sources: IMF, Banco de España, Banco de Portugal, Banca d'italia, Deutsche Bank Research 32

33 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Dec 17 Cost pressure remains high, but capital issues have been resolved Cost-income ratio of Europe's 20 major banks %, unweighted average Core Tier 1/Common Equity Tier 1 ratio* of Europe's 20 largest banks %, unweighted average Sources: Company reports, Deutsche Bank Research Fully loaded Current/transitional rules * Basel II; Basel 2.5 applied from Q4 11 on, Basel III from Q1 14 on Sources: Company reports, Deutsche Bank Research Deutsche Bank Research Jan Schildbach 21 March

34 European banks shrink to (pro)fit 2017: second-best annual result since financial crisis Revenues still depressed Banks cut costs and benefit from improving asset quality driven by low interest rates and economic recovery what happens in the next recession? Capital levels have more than doubled since 2008 massive de-risking and shrinking US competitors are far ahead Revenues on a stable upward trend Loan growth and loan losses have suffered somewhat from rising interest rates, but overall remain resilient Profitability moving from one record to the next European outlook: Rising rates likely to strengthen interest margins, but also slow down volume growth (again) Deutsche Bank Research Jan Schildbach 21 March

35 Contact Jan Schildbach Deutsche Bank Research Head of Banking, Financial Markets and Regulation Mainzer Landstr Frankfurt/Main Germany Phone: Internet: Deutsche Bank Research Jan Schildbach 21 March 2018

36 Disclaimer Copyright Deutsche Bank AG, Deutsche Bank Research, Frankfurt am Main, Germany. All rights reserved. When quoting please cite Deutsche Bank Research. The above information does not constitute the provision of investment, legal or tax advice. Any views expressed reflect the current views of the author, which do not necessarily correspond to the opinions of Deutsche Bank AG or its affiliates. Opinions expressed may change without notice. Opinions expressed may differ from views set out in other documents, including research, published by Deutsche Bank. The above information is provided for informational purposes only and without any obligation, whether contractual or otherwise. No warranty or representation is made as to the correctness, completeness and accuracy of the information given or the assessments made. In Germany this information is approved and/or communicated by Deutsche Bank AG Frankfurt, licensed to carry on banking business and to provide financial services under the supervision of the European Central Bank (ECB) and the German Federal Financial Supervisory Authority (BaFin). In the United Kingdom this information is approved and/or communicated by Deutsche Bank AG, London Branch, a member of the London Stock Exchange, authorized by UK s Prudential Regulation Authority (PRA) and subject to limited regulation by the UK s Financial Conduct Authority (FCA) (under number ) and by the PRA. This information is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. and in Singapore by Deutsche Bank AG, Singapore Branch. In Japan this information is approved and/or distributed by Deutsche Securities Limited, Tokyo Branch. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Deutsche Bank Research Jan Schildbach 21 March 2018

37 Update on China Richard Thompson Global Leader Financial Services Deals PwC (UK) Ted Osborn Business Recovery Services Leader PwC (China & Hong Kong)

38 China s NPL levels keep rising but worries that China will have a credit crunch have dissipated ~$1.2 trillion % ~$1.5 trillion Dec 2016 Dec 2017 Banks AMCs

39 A typical China NPL portfolio US$ 100m - 250m ~$120m to ~$150m Loans to private enterprises generally small to medium enterprises 1.2x 1.5x gross collection multiple Typically between individual debtors One province portfolios Typical portfolio pricing Estimated cash recoveries Pledged real estate drives value Maybe a handful of unsecured assets

40 More and more foreign funds have closed deals over the last months Investor Shoreline Oaktree Lone Star Goldman Sachs PAG Bain Capital Credit Blackstone Number of China deals closed Several portfolios 4 portfolios 3 portfolios 4 portfolios 2 portfolios 1 portfolio 1 portfolio

41 Six things to keep in mind if you are considering investing 1. Real estate drives recovery value and collateral is sold via court auctions likely no negotiation with debtor 2. PRC legal process is predictable 24 months from lawsuit to enforcement to recovery 3. Foreign investors can only own loans. Real estate collateral must be sold and cannot be taken over by investors 4. No nationwide servicers rely on boutique law firms for recovery. Servicers need constant managing 5. Portfolios are all sold via managed auctions investors in pole position usually win 6. Domestic investors are the sleeping giant get in now

42 Agenda - Afternoon Disintermediation of banks and the impact of direct investment from institutional investors Spotlight on Greece Banking M&A and loan portfolio transactions Conclusions Drinks

43 Disintermediation of banks and the impact of direct investment from institutional investors Moderator Jeroen Van Hessen CEO DMFCO Vaibhav Piplapure Director M&G Investments Rob Boulding Partner PwC (UK) Munawar Shafi Head of Structured Finance Aviva Investors Sinead Leahy Partner, Pensions Investment Consulting PwC (UK)

44 Note: views of conference attendees

45 Spotlight on Greece Richard Thompson Global Leader Financial Services Deals PwC (UK) Christos Stefanidis Director PwC (Greece)

46 Banking M&A and loan portfolio transactions Moderators Ian Hares Chief Executive Officer UKAR Ben May Director PwC (UK) Steve McElwain Partner Apollo Damian Thompson MD and Head of UK FI Origination & Solutions Natwest Markets Jaime Bergaz Partner PwC (Spain) Mirko Briozzo Vice General Manager Credito Fondiario

47 Conclusions Richard Thompson Global Leader Financial Services Deals PwC (UK)

48 This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. This content includes some of the themes discussed during the European Bank Restructuring Conference and hence the views expressed here are not necessarily those of PwC PwC LLP. All rights reserved. In this document, PwC refers to PwC LLP which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.