Co-operative Financial Services Capital Markets Presentation 28 - PowerPoint PPT Presentation

Co-operative Financial Services Capital Markets Presentation 28 April 2006 Co-operative Financial Services 1

Agenda David Anderson Chief Executive – CFS Structure, Purpose & Vision – Opportunities & Progress to date John Reizenstein Chief Financial Officer - Bank Performance - General Insurance Performance - Long Term Business Fund - Pensions - Challenges / Opportunities Co-operative Financial Services 2

David Anderson Chief Executive Co-operative Financial Services 3

Structure Co-operative Group (CWS) Ltd Not rated Co-operative Financial Services Ltd Not rated Regulatory ringfence Regulatory ringfence Regulatory ringfence CFSMS CIS CISGIL Bank Not rated A1 (Moody’s) Not rated A3 (Moody’s)/A (Fitch) Long Term Business Fund General Insurance Management Services Bank Co-operative Financial Services 4

Our Purpose To be a growing, pioneering financial services business delivering benefits to customers, members and communities through commitment to value, fairness and social responsibility. Co-operative Financial Services 5

Long Term Vision Vision To be the UK’s most admired financial services business Underpinned by five key measures • Profit generation to create a sustainable model • Market leading staff satisfaction • Market leading customer satisfaction • Market leading social responsibility approach • Membership growth Co-operative Financial Services 6

The Opportunities • Brand • Existing customers • Co-operative Group customers Co-operative Financial Services 7

Progress in last year • Restructured sales force • Contact Centres • Single organisational structure • Staff Terms and conditions harmonised • Pensions tackled Co-operative Financial Services 8

2005 Highlights • CFS operating profit before significant items was up 7% to £166.4m (2004:£155.8m) • This includes £66.5m from General Insurance (2004:£42.5m) and £97.8m from Banking activities (2004:£114.3m) • Pre-tax profit was up 3.8% at £135.7m (2004:£130.7m) including £96.5m (2004:£114.3m) from Banking and £37.1m (2004:£17.4m) from General Insurance • General Insurance claims ratio reduced to 76% (2004:86%) • Net revenue from Banking activities increased by £21.7m (4%) but bad debt increased to £99.8m (2004:£70.7m) • Total assets grew to £38.6bn (2004:£36.8bn) Co-operative Financial Services 9

What next • New branch trials • Further infrastructure investment • Focus on productivity • Change plan development Co-operative Financial Services 10

John Reizenstein Chief Financial Officer Co-operative Financial Services 11

Bank - Background Profitable Clearing Bank • Underpinned by £11.9bn assets and 2 million customers • Well balanced personal and business banking franchises • Broad product range • Unique brand – Ethical & partnership approach – Superior customer service • Extensive distribution channels • Strong capital & liquidity Co-operative Financial Services 12

Bank – Asset breakdown Fixed Assets & Other 4% • £11.9bn assets, 9% growth Residential Liquid Assets 29% mortgages 27% • Highly liquid balance sheet Credit Cards 9% • Diverse asset & Other Personal Corporate & customer type Lending 10% Commercial 21% Co-operative Financial Services 13

Stable mortgage portfolio £3.2bn mortgage book 5% 4% BTL To 100% 4% Self Cert 19% Rest To 90% 32% North 11% 39% West To 75% 17% Midlands Prime 91% South 19% East 38% To 50% London 21% LTV* Region Type Co-operative Financial Services * LTV at inception, not indexed 14

Strong credit characteristics Mortgages >3m Arrears (% of balance) Statistics 0.50% 68% new to Bank 0.40% 0.30% Avg loan £65k 0.20% Book LTV* 49% 0.10% 0.00% New business Nov-05 Jan-05 Jun-05 Dec-04 Feb-05 Mar-05 Apr-05 Jul-05 Aug-05 Sep-05 Dec-05 May-05 Oct-05 LTV 50% –Very low arrears levels –Book now seasoned, started in 2000 Co-operative Financial Services * LTV at inception, not indexed 15

Credit Cards £1.1bn £1.0bn 11% 12% • £1.1bn credit card book • Book stable 44% 43% – £35m growth – Static margin • Continued innovation 44% 46% – New Clear card – Fixed rate cards 2004 2005 Classic Advantage Fixed Rate Co-operative Financial Services 16

Credit cards arrears >4m Arrears (% of balance) • Bad debt charge increased from 3.1% of book balance to 4.8% • Provision rate increased from 3.8% to 2.75% 1.97% 5.2% • >210days reduced due 0.35% 0.30% to debt sales 0.37% 0.33% 0.37% 0.47% • 30-119 days fairly 2004 2005 constant in recent years at under 5% 120-149 days 150-179 days 180-209 days Over 210 days Co-operative Financial Services 17

Other unsecured personal balances £1.1bn £1.1bn 10% 9% • Static book – Growth in personal 40% 42% loans – Direct loans static – £690m new business written in 2005 50% 49% 2004 2005 Personal Loans Direct Loans Variable lending Co-operative Financial Services 18

Other unsecured personal credit analysis >4m Arrears (% of balance) • Bad debt charge increased from 2.0% of book balance to 2.9% 2.85% 1.82% • Provision rate static at 3.7% 0.27% 0.29% • >210days reduced due to 0.31% 0.33% debt sales 0.32% 0.37% 2004 2005 120-149 days 150-179 days 180-209 days Over 210 days Co-operative Financial Services 19

Corporate Lending £2.3bn corporate lending • Book grown by £0.3bn Others 20% – 13% growth 39% Excluded* – exceeded £2bn size 4% Football 10% – diversified sectors from Retail SME to PFI Services 12% 11% Unsecured Care / 17% • Relationships Education – ‘Business Lender of the Year’ by Credit Today Property/ Construction 37% – Federation of Small Secured 50% Businesses Sector Secured *Excluded is 75% Structured & Asset Finance Co-operative Financial Services 20

Strong credit quality for corporate Arrears % of book • Impairment charge down by £2.6m to £11.5m – Provision rate reduced to 2.1% from 2.2% 4.2% 2.7% • Grading system – D :performing, close 1.8% 2.3% control – E :performing, provisioned – G :recovery action 3.0% 3.0% • Property & Construction 2004 2005 – 77% investment property D E G – Maximum LTV 70% Co-operative Financial Services 21

Income & Cost Trends 61.9% 63.3% 62.5% 61.5% • Income growth 4.3% 60.2% • Cost growth 2.8% 456 483 503 509 526 282 291 310 320 329 2001 2002 2003 2004 2005 2004 Income: Operating income Operating costs £509m per Stats Full IFRS £505m Cost Income Ratio 2001- 2003 UK GAAP. 2004 -2005 IFRS Co-operative Financial Services 22

Asset and liability balance sheet growth 7.6 Average Balance £’bn 6.9 2001-2005 CAGR 5.0 Total lending 20.9% 3.6 3.9 Personal 30.5% 1.9 2.2 3.2 5.1 5.5 Corporate 6.0% 1.7 1.7 1.8 1.8 2.1 1.7 1.8 1.9 2.1 2.2 2001-2005 CAGR 3.2 3.6 4.2 4.5 4.8 Total deposits 9.5% 4.9 Personal 10.9% 5.4 6.1 6.6 Corporate 6.9% 7.0 2001 2002 2003 2004 2005 Personal Corporate Co-operative Financial Services 23

Increasingly secured balance sheet Average balance £’bn • 42% of customer 7.6 6.9 loans are retail 2.3 mortgages 2.1 5.0 3.9 3.6 2.1 3.2 1.9 3.0 1.8 1.1 0.3 0.1 2.1 1.7 1.7 1.8 1.8 2001 2002 2003 2004 2005 Corporate Personal Secured Personal Unsecured Co-operative Financial Services 24

Bad debts 4.5% 4.7% • In 2005 adverse 2.7% personal unsecured 1.7% 2.1% bad debt partially off set by 100 – Benign corporate 12 71 environment 66 70 63 5 7 14 – High quality 6 personal secured portfolio 61 63 57 57 88 2001 2002 2003 2004 2005 Personal Corporate Co-operative Financial Services % Provision/Assets 25

Funding - overall Total Liabilities & Capital (£bn) 11.1 • Diversified and 9.9 1.3 stable funding base 8.8 1.2 8.0 1.0 2.8 – Strong and 7.3 0.8 2.1 growing retail 0.7 1.6 1.7 deposit base 1.7 – Increased wholesale funding via CP and MTN 4.9 5.5 6.2 6.6 7.0 2001 2002 2003 2004 2005 Retail Wholesale Capital & Other Note based on average balances Co-operative Financial Services 26

Funding - retail Retail Balances (£bn) 7.0 6.6 6.2 • Compound growth 5.5 of 9.5% for the last 5 4.9 2.8 years 2.7 2.5 – Even growth 2.4 2.2 1.0 0.9 across products 1.0 0.9 0.5 – Increased term 0.4 0.5 0.8 0.2 1.3 deposits 0.1 1.0 1.2 0.9 0.8 – Balance sheet strengthen by high 1.0 1.1 1.3 1.3 1.4 quality retail 2001 2002 2003 2004 2005 funding Non-interest bearing C/A Current account Term deposits ISA's Savings Co-operative Financial Services 27

Strong capital base Capital Ratios (%) • Strong capital ratios 15.0% 14.8% – More secured 14.1% asset base 13.7% 13.5% – Pensions addressed Total Capital – Low risk treasury operation 10.6% 10.5% 10.2% • Relatively low 9.9% 9.9% gearing of capital base Tier 1 Capital 2001 2002 2003 2004 2005 Co-operative Financial Services 28