Morgan Stanley European Banks & Financials Conference London, Andreas Treichl, CEO, Erste Group
Disclaimer Cautionary note regarding forward-looking statements THE INFORMATION CONTAINED IN THIS DOCUMENT HAS NOT BEEN INDEPENDENTLY VERIFIED AND NO REPRESENTATION OR WARRANTY EXPRESSED OR IMPLIED IS MADE AS TO, AND NO RELIANCE SHOULD BE PLACED ON, THE FAIRNESS, ACCURACY, COMPLETENESS OR CORRECTNESS OF THIS INFORMATION OR OPINIONS CONTAINED HEREIN. CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT MAY BE STATEMENTS OF FUTURE EXPECTATIONS AND OTHER FORWARD-LOOKING STATEMENTS THAT ARE BASED ON MANAGEMENT S CURRENT VIEWS AND ASSUMPTIONS AND INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR EVENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN SUCH STATEMENTS. NONE OF OR ANY OF ITS AFFILIATES, ADVISORS OR REPRESENTATIVES SHALL HAVE ANY LIABILITY WHATSOEVER (IN NEGLIGENCE OR OTHERWISE) FOR ANY LOSS HOWSOEVER ARISING FROM ANY USE OF THIS DOCUMENT OR ITS CONTENT OR OTHERWISE ARISING IN CONNECTION WITH THIS DOCUMENT. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO PURCHASE OR SUBSCRIBE FOR ANY SHARES AND NEITHER IT NOR ANY PART OF IT SHALL FORM THE BASIS OF OR BE RELIED UPON IN CONNECTION WITH ANY CONTRACT OR COMMITMENT WHATSOEVER. 2
Presentation topics Concentrating on core strengths rationale for the insurance sale Key topics Romania, structured credit, funding Growth opportunities remain in place Financial update and guidance 3
Strategic rationale for insurance sale Creating a win-win situation in fast growing CEE Sale of Erste Group s insurance operations to Vienna Insurance Group (VIG) Covering s Versicherung and all other CEE insurance operations Transaction is accompanied by a 15-year distribution agreement with renewal provision Erste Group to become preferred and primary banking partner of VIG Cash consideration equals EUR 1,455m Erste Group retains 5% in each of the life insurance entities, selling an 85% stake in Austrian s Versicherung and up to 95% in CEE insurance companies Consideration implies price/gross written premium multiple for 2007 of 1.2x (1) Positive impact on net profit after tax and minorities of close to EUR 1,000m Net positive contribution expected to be above EUR 600m in 2008 Strengthening of capital base, increased strategic flexibility Positive impact on Erste Group tier 1 ratio of about 70 bps Based on reported FY 2007 tier 1 ratio of 7.0%; Tier 1 ratio at YE 2008 expected to surpass 8% Positive net profit impact of around EUR 600m expected in 2008 Allocation of value of distribution agreement over 15 years Closing of transaction targeted for Q3 2008 Closing contingent on necessary approvals by regulatory authorities (1) Based on valuation of EUR 1.60bn for 100% and a 2007 GWP volume of EUR 1.29bn in 2007 4
Strategic rationale for insurance sale What will be sold? Country A CZ SK HU HR RO Economic interest (1) 90.0% 94.4% 96.7% 90.0% 80.9% Life: 64.6% P&C: 60.8% (2) GWP (EUR m) Life: 791.7 P&C: 16.9 Life: 231.0 Life: 24.8 Life: 36.0 Life: 8.9 Life: 24.8 P&C: 1.9 P&C: 155.1 Ownership Market share (3) post sale 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Source: Erste Group (1) Interest held directly and indirectly via Erste Bank AG, Immorent AG, local Erste Bank s entities and s Versicherung (2) GWP = Gross written premium in 2007 (3) Direct interest held by local subsidiaries 5
Strategic rationale for insurance sale Distribution agreement details 15-year partnership: Markets covered: - Preferred partnership for sale of life, non-life and health products existing P&C cooperation to remain in place - Agreement can be renewed for another 10 years - VIG is preferred partner of Erste Group and vice versa 15-year distribution agreement Covering all markets where Erste Bank is currently present 1. Austria 2. Czech Republic 3. Slovakia 4. Hungary 5. Croatia 6. Romania 7. Ukraine 8. Serbia - Distribution agreement is a principal framework for conclusion of local distribution agreements 6
Strategic rationale for insurance sale Focus on core strengths, stronger capital base Focus on core banking business Disposal of non-core activities of Erste Group Focus on core strengths distribution platform for financial services and products in CEE Enhanced service proposition Ability to leverage VIG s skills in terms of product development Synergies from shared services Maximising crossselling opportunities Increased strategic flexibility Geographic overlap and high market shares of VIG maximise cross-selling potential Access to VIG s more than 10 million customers across the markets in which Erste Group operates as well Gain on disposal strengthens tier 1 ratio Likely to surpass 8% at year-end 2008 Increasing Erste Group s strategic flexibility 7
Presentation topics Concentrating on core strengths rationale for the insurance sale Key topics Romania, structured credit, funding Growth opportunities remain in place Financial update and guidance 8
Key topics: Romania Stable economic growth ahead Solid real GDP growth expected Inflation predicted to come down from higher 2007 levels CPI as well as wage inflation Unemployment forecast to remain stable External imbalances expected to stabilise Current account deficit forecast to increase to -15% before turning around Financing secured through low foreign indebtedness (39% in 2007) FDI inflows and remittances from Romanians working abroad in EUR thousand 8 6 4 2 0 Key economic indicators 7.7% 5.7% 6.1% 6.0% 6.6 4.4% 5.5 5.8 4.5 3.7 2005 2006 2007e 2008e 2009e GDP per capita Real GDP growth 9% 6% 3% 0% FDI vs trade and current account balance Unemployment vs inflation vs wage growth as of GDP 15% 10% 5% 0% -5% -10% -15% -20% -25% 6.5% 9.4% 6.0% 5.6% 4.7% -8.7% -10.3% -14.3% -15.0% -15.0% -9.8% -12.1% -14.9% -17.7% -18.8% 2005 2006 2007e 2008e 2009e 20% 15% 10% 5% 0% 17.8% 9.1% 12.4% 9.9% 8.6% 8.4% 6.6% 4.9% 5.4% 4.5% 5.9% 5.2% 4.1% 4.0% 3.9% 2005 2006 2007e 2008e 2009e Current account deficit Foreign direct investment Trade balance Unemployment CPI (eop, yoy-%) Real wage growth Source: Erste Group Research 9
Key topics: Romania Tightening monetary policy is beneficial NBR hikes policy rate by 200 bps Reference rate stands at 9.5%, up from 7.5% and 8.75% at year-end 2007 and 2006 respectively Main aim is to rein in mid single-digit inflation 4.0 3.8 RON/EUR NBR Fixing New provisioning guidelines by NBR Aiming to slow down FX loan growth - applicable under local reporting standards (no IFRS impact) Affects only 30% of BCR FX retail loans 3.6 3.4 3.2 3.0 2005 2006 2007 2008 Stabilisation of the local currency Currency is less volatile than perceived, even without central bank measures: 2007: +5.4% (ave), -6.8% (eop) 2006: +2.7% (ave), +8.0% (eop) Putting loan growth on a sustainable path Market growth rates averaged > 50% over the past 3 years, with customer loans amounting to 38% of GDP in 2007 (still well below CEE peers) Erste expectation at the time of acquisition was loan growth at CAGR 2006-2009 of 37% in RON billion 160 120 80 40 0 69% Market loan growth 151.6 54% 38% 45% 93.3 60.7 30.3 41.8 62% 2003 2004 2005 2006 2007 80% 60% 40% 20% 0% Customer loans Customer loan growth Source: Erste Group Research 10
Key topics: Romania BCR: stable loan growth, manageable risk costs Loan growth range: 30-40% in 2008 Stronger growth in retail vs corporate Focus on the underdeveloped mortgage market establishment of 6 mortgage centres in 2007 Stable underlying risk costs Current 2008 assumption: 100 120 bps in relation to average customer loans Share of consumer loans is higher compared to other CEE countries (65% of retail book at year-end 2007) Limited impact of currency depreciation Retail segment benefits from moderate LTV ratios (50-60%) and low indebtedness ratio <50% (measures repayment affordability) Corporate segment benefits from natural hedge through export revenues RON/EUR at 4.20 would translate into a 40 bps increase in retail risk costs (approx RON 110m) Source: Erste Group Research in RON billion in RON billion 25 20 15 10 5 0 40 30 20 10 0 Loan book trends 19 16 17 17 14 14 15 14 12 11 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Corporate loans Retail loans Loan vs deposit structure by currency 36.5 31.9 17.8 8.8 18.7 23.1 Customer loans Customer deposits LCY FX 11
Key topics: Romania BCR: well balanced FX retail business Self-funding retail business Retail loan/deposit ratio < 80% Retail FX lending is partly covered by FX deposits excellent risk mitigation Rationale for FX product demand Asset and liability side FX products are sought after for perceived stability, not for speculative purposes Higher level and volatility of local interest rates, higher inflation in local currency Housing finance is in its infancy Total housing loan volume amounted to only EUR 4bn at year-end 2007 or 3.6% of GDP Housing loans/capita <EUR 200 Small compared even to developed CEE peers Great prospects, limited risk a growth driver for the future in RON billion 30 20 10 0 60% 50% 40% 30% 20% 10% 0% Retail loan vs deposit structure by currency 19.4 9.5 9.8 Retail loans LCY 24.3 7.4 16.9 Retail deposits FX Housing loan penetration in CEE (2007) 50% 22.7% 16.4% 14.4%12.1% 8.7% 3.6% 3.6% EU-27 AUT CR CZ HU SK SR RO Source: Erste Group Research 12
Key topics: Tangible equity Analysis of changes in equity and intangible assets Tangible equity = EUR 7.7bn at YE 2007 Adjusted for BCR goodwill and brand as well as other goodwill, but not for software, Ceska, SLSP and EBH goodwill BCR goodwill moves in tandem with currency translation effects in shareholders equity Tangible equity will be further bolstered after closing of insurance sale transaction in Q3 08 After tax gain on disposal in 2008: EUR 600m Tangible equity to total assets should move to about 4.5% by YE 2008 helped additionally by reduction of total assets of EUR 8bn in EUR million 12,000 10,000 8,000 6,000 4,000 2,000 Reconciliation of total to tangible equity (07) 0 11,403 2,951 8,452 Total equity Minority capital 2,730 360 BCR goodwill BCR brand 582 Other goodwill 7,731 Tangible equity 582 222 313 543 360 Intangibles composition (2007) 469 744 (EUR 5,963 m) 2,730 BCR Customer relationships (amortised) Brand Ceska goodwill Postabank goodwill Slovenska goodwill Other goodwill Other (software) in EUR billion 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 Example: volatility of BCR goodwill 3.14 2.90 2.93 2.94 2.73 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 13
Key topics: ABS/CDO portfolio General overview Total market value of ABS/CDO portfolio at FY 2007 EUR 3.2bn at Erste Bank and EUR 220m at savings banks Redemptions of approx. EUR 150m leading to decrease of portfolio in Q1 2008 No direct or indirect exposure to sub-prime or to US real estate markets No impairments all underlying assets continue to perform to expectations Possible deterioration of underlying assets will be easily covered by subordination All investments are intended to be held to maturity Erste Group values the portfolio on a mark-to-market (MTM) basis Going forward EB does not intend to increase its ABS/CDO portfolio, but will selectively replace redemptions 14
Key topics: ABS/CDO portfolio No material negative impact Limited impact on Group profitability (incl. savings banks portfolio) Pre-tax impact on P&L of EUR -30.2m from MTM valuation (Q4 07: EUR -10m) Pre-tax EUR 81m negative MTM valuation in AfS reserve (Q4 07: EUR -31m) SBs exposure of EUR 220m has no direct impact on bottom line profitability Pre-tax EUR -1.1m P&L impact from MTM valuation EUR 7m negative MTM valuation in AfS reserve in EUR million 3,500 3,000 2,500 2,000 1,500 1,000 500 0 ABS & CDO exposure development (including redemptions and reinvestments)* - 2.2% - 4.9% 3,266 3,195 3,361 3,197 Aug 07 Dec 07 Face value Market value Difference between face value and market value not fully comparable to MTM valuation impact in P&L and balance sheet Changes in value of HtM portfolio have no balance sheet impact ABS/CDO portfolio by book (Dec 2007)* in EUR m Face Value Market Value change +/- % FV (m-t-m) 492 462 (30) (6.1%) AfS (m-t-m) 1,460 1,375 (85) (5.8%) HtM (at cost) 1,408 1,360 (48) (3.4%) Total 3,361 3,197 (164) (4.9%) * Excluding savings banks portfolio 15
Key topics: Funding Funding costs contained in 2008 CDS widening will not lead to substantially higher funding costs, due to: Cover Pools + Investor Base + 2008 Needs = 2 Aaa rated cover pools (mortgage and public sector), which enables cheaper funding Stringent legal framework, comparable to Germany Pooling of group assets will increase pools by EUR 2bn this year Unparalleled access to 16m customers and 2,800 branches in Central and Eastern Europe Private market prices are more favourable Able to place deposits and retail bonds 60% of our issues are held with buy-and-hold investors EUR 5-6bn of new funding to replace redemptions and to fund new business, similar to 2007 Structured approach to tapping the private market Pfandbrief issuance expected to cover 1/2 of total new funding Successfully placed about 30% of this year s needs in Q1 2008 2008 Costs Total average funding costs planned at a max. of EURIBOR +40bp 16
Presentation topics Concentrating on core strengths rationale for the insurance sale Key topics Romania, structured credit, funding Growth opportunities remain in place Financial update and guidance 17
Growth opportunities remain in place Erste Group benefits from strong franchise Czech R Clients: 5.3m Slovakia Ukraine Retail loans: 31.0% Clients: 2.5m Clients: 0.1m Retail dep.: 31.9% Retail loans: 25.0% Retail loans: 0.3% Branches: 636 Retail dep.: 31.3% Retail dep.: 0.1% Branches: 273 Branches: 71 Hungary Austria Clients: 0.8m Clients: 2.8m Retail loans: 18.6% Retail dep.: 19.3%(1) Branches: 993 Retail loans: 11.1% Retail dep.: 6.1% Branches: 197 Romania Croatia Clients: 4m Clients: 0.7m Retail loans: 23.4% Retail loans: 11.8% Retail dep.: 12.0% Serbia Retail dep.: 27.7% Branches: 115 Clients: 0.2m Branches: 562 Retail loans: 2.5% Indirect presence Source: Erste Group (1) Domestic deposit market share Retail dep.: 2.8% Branches: 61 18
Mortgage lending in Central and Eastern Europe Fast growth from a low base GDP/capita in Central and Eastern Europe GDP/capita in developed economies (2006) in EUR thousand 15 12 9 6 3 7.8 12.4 4.8 10.1 9.9 7.0 5.5 8.5 2.2 5.5 in EUR thousand 50 40 30 20 10 35.0 40.5 32.7 31.6 23.5 0 Czech R Slovakia Hungary Croatia Romania 0 US Denmark N'lands UK EU-27 2002 2007 Housing loans/capita in CEE Housing loans/capita in dev. economies (2006) in EUR thousand 15 12 9 6 3 0 1.9 0.3 0.9 1.2 1.4 0.1 0.3 0.4 0.00.2 Czech R Slovakia Hungary Croatia Romania in EUR thousand 50 40 30 20 10 0 42.0 40.8 32.2 26.3 11.5 US Denmark N'lands UK EU-27 2002 2007 19
Wealth management in CEE Much of the growth still lies ahead Funds under management/capita (2007) in EUR thousand 25.0 3.0 Developing 19.7 transformation economies 2.0 1.0 1.2 1.3 0.9 1.2 Emerging transformation economies 0.0 0.0 0.0 Austria Czech R Hungary Slovakia Croatia Serbia Romania 20
Presentation topics Concentrating on core strengths rationale for the insurance sale Key topics Romania, structured credit, funding Growth opportunities remain in place Financial update and guidance 21
FY 07 financial highlights Targets delivered in a challenging environment Net profit up 26.0% yoy to EUR 1,174.7m Exceeding guidance of minimum 25% increase NIM on interest bearing assets (IBA) at 2.5% up from 2.3% at FY 06 Total assets increase by 10.4% to EUR 200.5bn Tier 1 ratio reaches 7.0% Strong improvement from 6.6% at FY 06 Positive impact from application of Basel II Expected to exceed 8.0% by YE 2008, following sale of insurance operations Proposed dividend of EUR 0.75 per share 15% increase on 2006 dividend of EUR 0.65 in EUR 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Cash earnings per share * 3.92 2.98 3.14 2.18 1.83 3.76 2003 2004 2005 2006 2007 Cost/income ratio Cash return on equity * 70% 25% 65% 64.2% 64.1% 61.7% 20% 15% 16.6% 17.0% 19.5% 13.8% 14.6% 14.1% 60% 59.5% 58.8% 10% 5% 55% 0% 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 *) Red bars for 2007 denote reported EPS and ROE respectively. Decline in reported and cash ROE reflects 2006 capital increase. EPS calculation based on average number of shares for the period (ex treasury shares and shares owned by savings banks with EB participations). 22
Outlook Erste Group confirms guidance First indications for 2008 strengthen confidence of achieving 2008 target of minimum 20% net profit growth On this basis targets for 2009 are also confirmed Not including proceeds from sale of the insurance business Net profit (1) growth 2008: > 20% 2009: > 25% Cost/income ratio Below 55% in 2009 Return on equity (2) 18-20% in 2009 (1) Net profit after minorities (2) Based on a Tier 1 ratio of 7% 23
Shareholder structure Total number of shares: 316,288,945 By investor By region Capital Research and Mgmt. > 5.0% Austria Verein 4.9% DIE ERSTE österreichische Spar-Casse Privatstiftung 30.5% Continental Europe 11.7% Others 2.7% UK & Ireland 12.7% Institutional investors 42.1% Employees 3.0% Austria 53.8% Savings banks 6.7% Private investors 7.8% North America 19.1% 24
Investor relations contacts Erste Bank, Graben 21, 1010 Vienna Fax +43 (0)5 0100-13112 E-mail: investor.relations@erstebank.at Internet: www.erstebank.com Reuters: ERST.VI Bloomberg: EBS AV Datastream: O:ERS ISIN: AT0000652011 Investor relations Gabriele Werzer Tel: +43 (0)5 0100-11286 Thomas Sommerauer Tel: 43 (0)5 0100-17326 Peter Makray Tel: +43 (0)5 0100-16878 e-mail: gabriele.werzer@erstebank.at e-mail: thomas.sommerauer@erstebank.at e-mail: peter.makray@erstebank.at 25