Bank Citadele 24 August 2010
Content: Bank Citadele: Company profile and Strategy page 3 Business Overview page 17 Operating environment page 22 Key Facts on Restructuring of Parex banka page 26 2
Company profile and strategy 3
Company Profile and Strategy Brand Story Our name is Citadele. We will put our clients in control of their money. We will be their closest business partner and will help them to make the best connections. We are here to inspire and enable individual enterprise, for the growth and development of our region. Positive change = Citadele 4
Company profile and Strategy Bank Citadele at a Glance Bank Citadele is a full service financial institution offering its clients complete portfolio of banking, financial and wealth management services with primary focus on the Baltic region Established on 30 June 2010 by Latvian Privatization Agency within the framework of Parex banka's restructuring process, SC "Citadele banka" has launched its operations on 1 August 2010 aiming to continue the core business of SC "Parex banka By means of Parex Banka s restructuring and subsequent split, Citadele banka" has inherited (adopted) its solid customer base with more than 300,000 retail clients and around 30,000 corporates well established franchise with 62 full service branches in the Baltic countries presence in Germany, Sweden and Switzerland leading positions in various retail and corporate banking segments in Latvia LVL 1.4 bln in assets and around 1500 employees exclusive agreement with American Express company to issue and acquire American Express credit cards in Latvia and Lithuania proven track record with local expertise, long-term potential and reenforced market position in the Baltic States 5
Company Profile and Strategy Key Milestones 6
Company Profile and Strategy Corporate Governance Shareholders: Latvian Privatisation Agency 75% EBRD * 25% *EBRD holds 25 percent plus one share of voting rights Klāvs Vasks Chairman of the Supervisory Council Currently, K.Vasks is Chairman of the Board at Latvian Guarantee Agency. He has acquired extensive experience while working in SEB Bank in Latvia where he held various positions as vice-president, head of Restructuring Division and Head of Corporate Client Service Division Juris Vaskāns Supervisory Council: Deputy Chairman of the Supervisory Council J.Vaskāns has held non-executive and executive positions at Latvian Privatisation Agency, JSC Latvijas Krājbanka, Latvian Finnish Maritime Agency Ltd., JSC Ventbunkers, Ventshoes Ltd. and Royal Wood Ltd. Ģirts Freibergs Member of the Supervisory Council Ģ. Freibergs worked as the representative of Creditinfo Latvija and he has also been the representative of MCB Finance Latvia Laurence Phillip Adams Member of the Supervisory Council L.Adams is a lawyer specializing in banking with a 25-year experience in financial sector; he has worked for such foreign financial institutions as ABN AMRO and Citibank Geoffrey Dunn Member of the Supervisory Council G. Dunn has held position of Interim Finance Director at Northern Rock in the United Kingdom, when the Bank went through the restructuring process. Prior to that he has worked as Director of Business Performance Management in company Co-operative Financial Services, as well as has been Chief Financial Officer at the Bank of England and the global provider of secure financial messaging services S.W.I.F.T. 7
Company profile and Strategy Corporate Governance Executive Board: Guntis Beļavskis Member of the Board, Chief Business Officer Elected as Member of the Board, since December 2008 was member of the Management Board of Parex banka. G.Beļavskis also holds positions of Head of Retail Sector and Senior Vice President. G.Beļavskis joined the Bank in 2002 as head of Bank s Sales and Marketing Department. In a couple of years time became Head of Client Service Division and obtained position of Vice President of Client Service. G.Beļavskis has a Bachelor s degree in Business Administration from Riga Institute of Transportation and Communications. G.Beļavskis is Chairman of the Council of the subsidiary of the Bank, Parex bankas, JSC (Lithuania). Juris Jākobsons, Chairman of the Board, Chief Executive Officer Elected as Chairman of the Board. Previously Chaired Council of Parex banka. Since January 2010 Juris Jākobsons is Head of restructuring project of Parex banka in state JSC Privatisation Agency, previously occupying the positions of Chairman of the Management Board and President of Vereinsbank Riga (later renamed to HVB Bank Latvia, now UniCredit Bank) and member of the Management Board and Vice President at SEB Bank Latvija. J.Jākobsons has a Masters degree in Business Administration from Helsinki School of Economics and Business Administration. Valters Ābele Member of the Board Chief Risk Officer Elected as Member of the Board, since December 2008 was member of the Management Board of Parex banka. He is also Senior VP and Head of Risk and Compliance Sector. Prior to election to Management Board of the Bank V.Ābele was head of Bank s Credit Risk Division. Before joining Bank s team in 2008, he acquired an extensive experience as an auditor and financial consultant in companies such as Ernst & Young and Arthur Andersen. V.Ābele is a member of Latvian Chartered Auditors Association and ACCA. He has a Masters degree in Business Administration and International Economics Relations from University of Latvia. 8
Company Profile and Strategy New Brand New opportunities New Ideas = Citadele Excellent People = Citadele Good Change = Citadele Our vision is to become the most valued enterprise in the Baltics. Thus, We change the perception of the Bank We employ the best people We are open for everyone at any time We develop the best entrepreneurial network Citadele is a brand new and at once unique brand: it embodies a new beginning on the solid ground. Just established, it almost immediately equals many good things, which we received as a credit from our shareholders, clients, partners and employees. We feel our social responsibility: Citadele banka was born to inspire and enable individuals and businesses to develop economically, thus improving society in Latvia and the Baltic region. 9
Company Profile and Strategy Our Values Our values come form understanding of how the proven experience and new vision comes together to perform: We come to you so you do not have to come to us We open the door so you have new business opportunities We are entrepreneurs not just bankers We respect our business and your money so we will never put it at risk We have restructured our business so can you 10
Company Profile and Strategy Our Values Customers Personal Attitude Professional Environment The interests and prosperity of customers are the top priority of Citadele. We present personal attitude and suitable solutions for everyone! We are and we will continue to be the best bank in terms of servicing clients our bank was acknowledged to be the enterprise that has earned the largest amount of praise in the financial sector 23 917 votes within Praise good service! campaign. A new bank in a new building the complex of buildings at 2a Republikas laukums was recognized as one of the best buildings of 2009. Agnese Paegle, Head of Corporate Banking Sector: We are pleased to see the success in regaining the loyalty of our small and medium, as well as corporate customers. Moreover, the attraction of new customers is also productive. The loyalty of entrepreneurs shows that they appreciate our service. Roberts Idelsons, Head of the Sector of Private Capital Management: Our results show that we continue to be the leading investment management company in the Baltic States. The professionalism of the company is also seen in the international awards that it has received. Guntis Belavskis, Chief Business Officer: Why should people in Latvia choose Citadele as their bank? Because it belongs to all of us. The money that people in Latvia have paid in taxes is invested in this bank; therefore indirectly it belongs to every taxpayer in Latvia. Any owner of a company should verify how his or her enterprise works and if it does not work properly, he or she has the right to complain and to point out the shortcomings. In order to do this, I invite everyone to visit any of Citadele s branches and apply for a product offered by us 11
Company Profile and Strategy Our Values Excellent Team Effective Management Our employees are competent & solicitous professionals, who are focused on servicing our clients in the best manner. We entrust them to represent our company and we are proud of their achievements because professional and skilled specialists of the field are the cornerstone of any company s development and sustainability. On the basis of our predecessor s company Parex banka we went through the major transformation of our business model redefining core values and priorities, saving costs and increasing efficiency. In 2009 the bank s costs were decreased by 39%, but in the first quarter of this year, comparing to the 4th quarter of 2009, we have succeeded at reducing operational costs by another 13% equal to 1.7 million LVL. So Citadele has the necessary expertise in performing effectively. Inese Lazdovska, Head of Legal Sector: Perform every task with the utmost responsibility 2 August 2010: Citadele banka opens its doors for its clients 12
Company Profile and Strategy Strategic focus and priorities Solid and profitable business model with three main business segments: Retail, Corporate Wealth management Concentration on being a local business in Latvia, Lithuania and Estonia, with Latvia being the key market Controlled growth with emphasis on the improved risk criteria already implemented Capitalise on experience gained through crisis in combination with carefully studied future outlook Focus on: stability, risk management and cost effectiveness Truly local approach towards customers and interest in long term mutual relationships. 13
Company Profile and Strategy Geographical focus Strategy caters for varying presence in each of the Baltic markets. Operational economies of scale across the Baltic region due to three Baltic markets having a number of similarities. The Baltics and CIS is the key market of Private Capital Management (PCM) segment. Business done with customers in the Baltics gradually increase. 14
Company Profile and Strategy Strategic focus and priorities Enhanced Risk Management Growth and market share of the bank must not come at the expense of more elastic risk approach Adapt risk guidelines that are based on long term stability and performance, to ensure that shareowners interests are protected Risk management and compliance in line with Basel II framework Risk management controlled by independent unit Risk and Compliance sector AML Risk Credit Risk Market risk Further updates to behavioral scoring model for settlement and credit card balances. Implementation of scoring models and rating systems also in mortgage financing, leasing and consumer finance. In the corporate lending sector approach changed form collateralbased lending to cash flow based evaluations of the borrower s debt service capacity. Portfolio diversification to ensure acceptable concentration risk levels. Involvement in financial markets transactions mostly limited by maintaining the liquidity portfolio. Integration of limit controls into Bank s information systems. 15
Company Profile and Strategy Opening Balance Sheet LVL mio Assets Total cash and demand deposits with the Bank of Latvia Balances due from credit institutions: Loans Securities Investments in subsidiaries Other assets Total Assets Liabilities Balances repayable on demand and loans from credit institutions Customer deposits State Treasury Issued debt securities Other liabilities Subordinated liabilities Shareholders' equity: TOTAL Liabilities and Equity 01/08/2010 120 245 748 224 6 46 1 389 42 929 131 109 30 50 98 1 389 Interest earning: interest income from from issued loans, fixed income securities, interbank placements. Balance Sheet High quality: free from toxic exposures and bad loans. Well capitalised: estimated capital adequacy ratio of 12.6%. Liquid regulatory liquidity ratio exceeds 65%. Funding Solid deposit base Latvian government liquidity support - State Treasury deposits of LVL 131 mio (LVL 143 mio since 13 August 2010) Eurobonds due 5 May 2011. Subordinated debt from Latvian government and EBRD. 16
Business Overview 17
JSC Parex Citadele banka banka : Today Business Overview Summary of the New Business Model Solid and profitable business model with three main business segments: Retail, Corporate & Wealth management Concentration on being a local business in Latvia, Lithuania and Estonia, with Latvia the key market Operational economies of scale across the Baltic region due to three Baltic markets having a number of similarities The Baltics and CIS is the key market of Private Capital Management (PCM) segment. Business done with customers in the Baltics gradually increases Leasing companies in CIS countries are not included in core business, but the Baltic leasing operations, Western European branches and subsidiary in Switzerland (AP Anlage und PrivatBank AG) continue in the current operational mode Controlled growth with emphasis on the improved risk criteria already implemented Capitalize on experience gained through crisis in combination with carefully studied future outlook Focus on stability, risk management and cost effectiveness Truly local approach towards customers and interest in long term mutual relationships Retail Main business segments Corporate Latvia Lithuania Estonia Wealth Management 18
Business Parex banka Overview Today Strategy for main business lines Retail and SMEs: We will put you in control of your money! The Retail segment s strategic priorities: building savings franchise, enhancing the profitability of lending portfolio and increasing commission income stream Key driver for profitability of Retail consumer lending through credit cards commission income streams increased loan margins in local currency Focus on selected niche products (i.e. savings accounts/consumer lending credit cards) and customer activity to generate commission income Minimizing activity in wide range of "universal" product lines Retail branch network decreased to minimum, an anchor base for lending, sales operations and initial customer contact Switching customers to alternative service channels, i.e. internet bank, ATM and telephone sales service allows to service larger number of customers with low number of physical locations 19
Business Parex banka Overview Today Strategy for main business lines Corporate Sector: We are your closest business partner! Focus on strengthening positions in two main areas: institutional clients and small and medium size companies (SMEs) A clear segmentation of clients within the segment (large corporates, small and middlesized businesses and micro companies). In addition to the Bank s standard product offer, special offers and pricing will be designed for each segment, provided it results in business volumes and generates extra income A number of branches transformed to regional business competence centres Special focus on company servicing and lending Keep deposit base and increase in commission fee income 20
Parex banka Today Business Overview Strategy for main business lines Private Capital Management: We help you make the best connections! High quality private banking and asset management services delivered to clients by professional team of private bankers in Latvia and Switzerland Focus on increase of fee revenues through deepening of existing client relationships and offering higher value-added products Traditional private banking products, investment advisory and portfolio management, lifestyle management services Domestic and international clients mix, focus on clients from the Baltics and CIS: Long-term traditions and expertise in servicing clients from CIS countries transforms into access to the growing client base in CIS Leading local private banking service provider 21
Operating environment 22
Operating environment Macroeconomic overview Baltics Three Baltic States experienced a sizeable contraction of their economies in 2009; however, GDP performance in 2Q 2010 outlined further improvement: 20% 15% 10% Consumer Price Index, % change y-o-y Estonia Latvia Lithuania Estonia: +3.5% y-o-y; 5% Latvia: -3.9% y-o-y; Lithuania: +1.1% y-o-y. Price levels are not adjusting evenly showing inflation in Estonia and Lithuania and annual price deflation in Latvia in July 2010: Estonia: + 2.8%; Latvia: -0.7%; Lithuania: +1.7%. Manufacturing production has been trending up and is now considerably above its lowest point in all three countries. Economic sentiment continues to improve in all Baltic countries since the beginning of 2009 Estonia is set to switch from EEK to EUR on 1 January 2011 0% Source: Country statistics -5% 2007 2008 2009 2010 120 115 110 105 100 95 90 85 80 Economic Sentiment Indicator (Long-term average = 100) Estonia Latvia Lithuania Euro zone 75 Source: European Commission 70 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 23
Operating environment Macroeconomic overview Latvia 6% Retail Sales, m-o-m 3m avg (Real SA) The Latvian economy has reached its lowest point: 4% 2% 0% -2% Exports & manufacturing have been in recovery since early 2009 Exports: +20% y-o-y (Jan-Apr 2010) Wood production: +40% yoy Retail sales have increased in early 2010 confirming the stabilization of domestic demand -4% Food, beverages, tobacco -6% Non-food & motor fuel -8% Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 The weak banking sector is dampening the recovery: Deleveraging continues in spite of recovery in the volume of deposits 20 16 12 8 4 Bank Deposits + Liabilities to MFIs, b LVL Liabilities to MFIs Resident Household Resident Corporate Resident Goverment Non-resident 0 2004 2006 2008 2010 24
Macroeconomic overview Macroeconomic forecasts - Latvia Macro development according to our baseline scenario: Growth to return to potential in 2011 If low point has been reached in Q1 2010, unemployment should start trending down in H2 2010 Major risk: double-dip in Europe 6 5 4 3 2 1 0-1 -2-3 -4-5 Latvian Real GDP Forecasts, % Parex Local Analysts Average IMF Bank of Latvia Ministry of Finance Moody's 2010 2011 2012 2013 2014 Banking sector assumptions: Loan growth resumes in late 2010, but is slow going forward due to already high market saturation Deposits to become more important funding source for local banks 25 20 15 10 Latvian Banking Sector, b LVL Liabilit. to OECD MFIs Deposits, Non-resident Deposits, Res. Housh. Deposits, Res. Corp. 5 Loans, Res. Housh. Loans, Res. Corp. 0 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f 25
Key Facts on Restructuring of Parex banka 26
Key Facts on Restructuring of Parex banka Restructuring framework Over 2008 2010 the fundamentals of Parex banka s business have been severely tested. To address these challenges, the new management has been adjusting the Bank s strategies to focus on the key business priorities and create a sound business model. In November 2008, during the financial crisis and major downturn of 2007-2010, Parex banka sought and received Latvian Government support and the EC approves providing of state aid to SC Parex banka In December 2008 was taken into the state ownership. In March 2009, the negotiations on the restructuring of syndicated loans successfully close. In May 2009, the Cabinet of Ministers approves the business strategy and restructuring plan of SC Parex banka. In May 2009, the EC approves capital increase and Latvian Privatisation Agency increases the share capital and issues a subordinated loan to the Bank. On 3 September 2009, the European Bank for Reconstruction and Development became shareholder of the Bank. 14 Septemer 2009, the Bank s administrative body moves to the new headquarter building Republikas laukums 2A. The main branch Citadele commences its operations at this address. In October 2009, the Bank decides not to sell AP Anlage und Privatbank AG in Switzerland, stating its strategic importance to the new business plan In December 2009, Fitch Ratings approves Bank s ratings at the previous level On 23 March 2010 the Cabinet of Ministers of the Republic of Latvia has initiated the plan to restructure SC Parex banka. On 1 June 2010 the Cabinet of Ministers decides to establish a new bank On 30 June 2010, the Financial Capital and Market Commission (Regulator) issued license to Joint Stock Company "Citadele banka" and it has commenced its operations on August 2, 2010. On 30 July 2010, the EBRD enters shareholding structure of SC Citadele banka On 1 August 2010, the transfer of assets from SC Parex banka to SC Citadele banka is successfully closed and bank Citadele commences its operations. 27
Thank you! Bank Citadele Republikas laukums 2A Riga, Latvia LV-1050 Phone +371 6 777 8585 Fax +371 6 777 8569 e-mail: international.relations@citadele.lv 28