to form the new Eurohypo AG Merger of the property and public

to form the new Eurohypo AG Merger of the property and public

Merger of the property and
public sector financing activities of
to form the new
Eurohypo AG
Conference call for international analysts
6 November 2001
1
Introduction
2
Strategic positioning
3
Transaction objects, organisational structure, corporate
governance, integration
4
Synergies
5
Financial Data
6
The new Eurohypo – expertise, size, and clear focus on profitability
1
Introduction
“The merger at a glance”
1
4
n
Commerzbank, Deutsche Bank, and Dresdner Bank are bundling their propertyfinancing businesses, and are terminating their own activities in this area
n
The new institution is being created through a merger into Deutsche Hyp, and
will be named Eurohypo
n
Including free float, the relative valuation of the mortgage banks is Deutsche
Hyp 30%, Eurohypo 35%, and Rheinhyp 35%
n
The core capital ratio according to BIS (Bank for International Settlements) is
6%. In order to achieve this ratio, Commerzbank, and Dresdner Bank will
contribute additional equity
n
The target return on equity will clearly exceed the current cost of capital of
around 9%
n
Cost synergies will amount to around EUR120m p.a. beginning 2004
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Goals of the new Eurohypo
1
5
n
Leading provider of commercial-property financing in Germany and Europe with
mixed-bank status
n
Expansion of presence in North America
n
Increase in commission income through real estate investment banking and
syndicated loan business
n
Leading market position in servicing and refinancing of standardised home
loans in Germany
n
Public sector financing characterised by conservative risk policy and focus on
higher margin foreign business
n
Benchmark issuer in the Pfandbrief market and leading issuer of MBS
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Transaction background
1
Market environment
Increasing competitive pressure in
German property financing raises the
need to consolidate
n
Selective growth in foreign markets
n
More intensive use of instruments
for easing strain on balance sheet
n
Weak margin in German public
sector business
n
n
Real estate investment banking and
foreign markets offer growth and
margin potential
Restructuring of the real estate
activities of the three groups:
mortgage banks as centre of
competence of commercial-property
financing
n
Formation of partnerships between institutions of different banking groups to
n
–
–
n
6
Mortgage bank environment
significantly improve market position
realise synergy potential
Concentration of property financing expertise in one optimised unit
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2
Strategic positioning
Business model
2
Professional real estate customers/Commercial-property financing
n
Quality edge through bundling of expertise
n
Broader range of financing through use of mixed-bank status
n
Stronger European focus and expansion in North America
Standardised home loans
n
n
8
Public sector financing
Market leader in servicing and
refinancing
n Expansion
of higher-margin foreign
Sales handled by agents and through
agency agreements with parent
companies and third parties
n Conservative
business
n Realisation
risk policy
of adequate financing
volumes
n
Concentration on higher-margin business and expansion of commission
income business
n
Best possible risk diversification and realisation of economies of scale
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Market leader in commercial-property financing
2
Sales performance in 2000
(in EUR bn)
The new Eurohypo – share of
foreign business in sales performance
18.4
4.2
41%
68%
57%
14.2
59%
8.2
4.6
Eurohypo(1)
Hypo
Vereinsbank
DePfa
32%
43%
2.0
AHBR
1998
1999
International
2000
National
(1) Combined figure for Eurohypo, Rheinhyp, Deutsche Hyp, Deutsche Bank (real-estate centres); syndicated business shown separately
Sources: Annual reports, VdH, Deutsche Bank, Deutsche Hyp, Rheinhyp, Capital Data Loanware
n
n
9
The new Eurohypo is the leading German bank for commercial-property financing
Growth potential in the higher-margin foreign business – the new Eurohypo already has
an excellent track record
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Commercial-property financing – Operations
in Germany
2
Currently: 25 branches in 10 locations
In the future: 10 branches in 10 locations
Hamburg
Hamburg
Berlin
Dortmund
Düsseldorf
Cologne
Leipzig
Berlin
Dortmund
Düsseldorf
Cologne
Frankfurt
Frankfurt
Mannheim
Mannheim
Stuttgart
Stuttgart
Munich
Deutsche Hyp
(8 branches)
n
n
10
Eurohypo
(8 branches)
Leipzig
Munich
Rheinhyp
(9 branches)
Combination of improved distribution and optimised cost basis
Branches to be merged by end of 2002
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Commercial property financing –
Foreign operations
2
Stockholm
London
Amsterdam
Warsaw
Chicago
Brussels
Paris
Los Angeles
Prague
Zurich
11
Budapest
Milan
Madrid
Lisbon
Vienna
New York
Barcelona
n
Presence in the most important business centres in Europe and the USA
n
Significant improvement in sales reach outside Germany
n
All locations are maintained, while the number of branches will be reduced from 33 to 17
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Growing commission income through
established real estate investment banking
2
Development of commission income
(in EUR m) (1)
Business model
89.0
Real estate
investment banking
Origination/
Structured
finance
n
Senior Debt
n Mezzanine
n Equity
Advisory
n
Securitisation
n Asset Sales
69.3
57.3
52.3
38.0
Funding
n On-balance
n MBS/CMBS
n Private
placements
1998
1999
2000
1H 2000 1H 2001
(1) Sum of Deutsche Hyp, Eurohypo, and Rheinhyp
Source: Annual and interim reports, Commerzbank, Deutsche Bank,
Dresdner Bank
12
n
Focus on structured finance and securitisation
n
Strong starting position through established activities in London and the USA
n
Dynamic growth of commission income maintained
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Syndicated loans
2
Syndicated real estate loans in Europe –
rankings in 2000 (US$ m)
1
2
3
4
5
Eurohypo (1)
Royal Bank of Scotland
Barclays
Société Générale
Crédit Lyonnais
3,979
1,962
1,842
1,272
1,014
Major transactions
Canary Wharf
Whitehall
MP
MILLENNIUM PARTNERS
EUR 1,600m
Eurohypo
EUR 431.6m
Eurohypo
Arranger
Arranger
US$ 400m
Dresdner Bank Real
Estate
Arranger
March 2001
(UK)
January 2001
(F)
February 2001
(USA)
(1) Combined syndicated volume of Deutsche Hyp, Eurohypo, and
Rheinhyp
Source: Capital Data Loanware, Rheinhyp, Deutsche Hyp
The new Eurohypo is market leader in Europe for syndicated real estate loans and
also holds a strong position in North America
13
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Standardised home loans – Distribution channels
2
Sales through agents
n
Continuation of Rheinhyp model
n
No end-consumer business
n
Current key figures (1)
Agency agreements
n
Existing co-operation models with the
parent banks to continue
n
Further agency agreements with third
parties are planned
– approx. 2,400 independent
sales agents
– approx. 140 full-time staff
– 20 offices
– EUR 794,1m
of new business volume(2)
(1) as of 30.06.2001
(2) 1st half year 2001
Reduction of acquisition costs per customer combined
with significant new business volume
14
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Standardised home loans – Servicing
2
Business model
15
n
“Factory-style“ processing and
administration of private home loans
n
Open platform – third-party providers
can convert their fixed costs into
variable costs through outsourcing
Structure
n
Rheinhyp's subsidiary prompter AG
responsible for servicing business
from third-party providers
n
Own portfolios will be processed in
two, instead of previous five, in-house
service centres
n
Currently over 425,000 loans in the
combined portfolio
n
Number of locations reduced to what is economically necessary
n
Cost leadership through economies of scale
n
Creation of additional, less volatile sources of commission income
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Broadly diversified property loan portfolio (1)
2
Split by property type
Other
11%
Office
building
22%
Residential
– other
26%
Trade
buildings
14%
Residential
– owner
occupied
27%
Total: EUR 90.0bn
Regional split
Former West
Germany
54%
Berlin
11%
GB/Ireland
35%
Spain/
Portugal
19%
Foreign
countries
16%
Former East
Germany
18%
Other
13%
France
12%
Scandinavia Austria/
10%
Switzerland
11%
International portfolio: EUR 14.6bn
(1) Deutsche Hyp, Eurohypo, and Rheinhyp combined,
as of June 30, 2001
Source: Annual reports, Deutsche Hyp, Eurohypo, Rheinhyp
n
n
n
n
16
Active portfolio management
Broad diversification by property type and region
Rising share of foreign business
Further diversification possible through North American operations
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Public sector financing
2
Total financing volume per 31.12.2000
(in EUR Mrd.)
The new Eurohypo –
Share of foreign business (2000)
138.3
112.4
65%
84%
69.8
42.9
35%
16%
Eurohypo(1)
DePfa
AHBR
HVB
Real Estate(2)
Total
New business
International National
(1) Deutsche Hyp, Eurohypo, and Rheinhyp combined, incl.
Source: Annual reports, Deutsche Hyp, Rheinhyp
foreign subsidiaries (Europäische Hypothekenbank S.A., Rheinhyp Europe plc)
(2) Sum of Bayerische Handelsbank, NürnbergHyp, Südboden, and PBI
(Pfandbrief Bank International, Luxembourg)
Source: VdH, DePfa 2000 annual report, PBI 2000 annual report
n
n
n
17
Strong position in public sector financing
Continuation of conservative risk policy
Further growth in higher-margin foreign business
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Establishing as a benchmark issuer
2
Pfandbriefe – Volume outstanding
(in EUR bn)(1)
Pfandbriefe – New issue volume
in 2000 (in EUR bn)
183.1
27.4
9.5
74.4
21.5
5.6
59.8
59.5
12.9
48.3
17.9
15.8
10.5
5.2
0.7
9.8
7.7
Eurohypo(2) AHBR
DePfa
HVB Real HypothekenEstate(3)
bank
in Essen
(1) as of 31.12.2001
(2) Deutsche Hyp, Eurohypo, and Rheinhyp combined
Source: Annual reports
n
n
18
Eurohypo
AHBR
7.0
7.0
HVB Real Hypotheken- DePfa
Estate(3) bank in Essen
Public sector Pfandbriefe
Mortgage Pfandbriefe
(3) Bayerische Handelsbank, NürnbergHyp, Südboden
Source: Annual reports, HVB, Deutsche Hyp
Economies of scale
Realisation of funding advantages through status as a benchmark issuer
Development of agency status
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Reduction of capital burden through (synthetic)
securitisation
2
MBS transaction volume of German
banks (EUR bn)(1)
Issuer
Name
Volume(3)
Date
Rheinhyp
Europa I
EUR 1.336m
Mar. 2000
Eurohypo
2000-1
EUR 500m
Jun. 2000
2,3
Rheinhyp
Europa II
EUR 1.520m
Apr. 2001
Eurohypo
2001-1
GBP 1.083m
Aug. 2001
6,3
0,7
0,3
1.8
1.8
1998
1999
2000
2001 ytd
(2)
Eurohypo
Total
(1) as of 30.09.2001
(2) Eurohypo and Rheinhyp combined, without credit default swaps
Source: Deutsche Bank, Global Markets Research
19
Selected transactions
(3) Volume including credit default swaps
Source : Eurohypo, Rheinhyp
n
Eurohypo and Rheinhyp have had a strong impact on the German MBS market
n
In the future innovative structures will be used to reduce capital burden
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3
Transaction objects, organisational structure,
corporate governance, integration
Transaction objects
3
Merger of
mortgage-bank
subsidiaries
Commerzbank
Dresdner Bank
Deutsche Bank
Rheinhyp
Deutsche Hyp
Eurohypo
Total assets:
Equity(1):
Employees:
EUR 78,3m
EUR 1,0m
867
Total assets : EUR 93,7m
Equity(1):
EUR 1,4m
Employees:
845(2)
Total assets : EUR 71,4m
Equity(1):
EUR 1,4m
Employees:
788
Change of name to
Eurohypo
Planned
transfer of
current parent
company
activities
Commercial property business
of branches in Germany and
real estate banking in USA
Real estate investment
banking of Dresdner Bank in
USA
Deutsche Bank's share of
property centres and REIB
structured finance team in
Europe
(1) Sum of subscribed capital, reserves, and funds for general banking risks
(2) After reduction of workforce by 440 employees to be reflected in the P&L of fiscal year 2001
Source: Interim Reports 2001
n
21
Merger into Deutsche Hyp to preserve mixed-bank status
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Shareholder structure
3
Relative valuation of mortgage banks (including free float)(1)
Eurohypo
35%
Rheinhyp (2)
35%
Deutsche Hyp
30%
(1) As of today
(2) Including property financing units in Berlin and Hamburg and Commerzbank's new property financing business in Germany
22
n
Prior to the merger, Commerzbank and Dresdner Bank will contribute additional equity
of EUR500m and EUR280m, respectively
n
In the next few years, an increase of the company’s free float is planned. This will enable
the new Eurohypo to raise equity via the capital market
n
To cover potential risks in the existing portfolio, parent banks are providing guarantees
limited in terms of duration and scope
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Organisational structure
3
Supervisory Board
2 representatives 2 representatives 2 representatives
Commerzbank
Deutsche Bank
Dresdner Bank
6 employee
representatives
Chairman of supervisory board: Dr. v. Harbou
Board of Managing
Directors (1)
Divisions
Dr. v. Köller
CEO
Knobloch
Deputy CEO
Schuh
Deputy CEO
Corporate
clients (Europe,
excl. Germany
and UK)
Corporate
clients
(UK, USA)
Internal auditing
Risk
management/
Credit, Market
and operational
risks
Corporate
communications
Human
resources
Legal services
Dr. Danne
Plesser
Rasche
Private
clients/
Servicing
Corporate
clients
(Germany)
Capital
market/
Treasury
IT/
Organisation
Internal and
external
reporting
Public sector
financing
(1) designated Board members
23
n
Realisation of business model while structuring business lines and assigning
departments
n
Systematic separation of sales responsibility and risk management
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High-quality risk management
3
Independent risk management
right up to board level
Active management
of market risk
n
n
Value at risk and
sensitivity-based
risk management
Conservative limits
set for market risk
Efficient processes
and instruments
n
n
n
n
24
Internal rating
system credit
standing and
transaction)
Lean, know-howoriented lending
process
Systematic
early warning
recognition of risk
Constant analysis
of individual risks
Active portfolio
management
n
n
Diversification for
optimising risks
and returns
All-inclusive
portfolio
management
Strong equity basis
n
6% core capital
– 10%overall capital
–
– selective new
business
– permanent
portfolio analysis
– modern control
instruments
Active management of equity
resources:
n
(according to BIS
rules)
Allocation of
equity through
risk-adjusted
pricing
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Integration timetable
3
Milestones
November 2001
Signing of heads of
agreement
Jan. 2002 April/May 2002 2nd half 2002
Due diligence AGM approval
Entry into
completed
from
commercial
subsidiaries
register
n
Implementation
n
Conception
Transaction
n
Completion
of business &
organisation
model
n
Completion of
due diligence
n
2001
n
Preparation
of measures
n
n
Mid-2003
Entry into
implementation phase
Realisation of
measures
Monitoring of
implementation
Verification of
synergies and
integration targets
Implementation
plan
Legal
implementation
2002
n Con-
tribution
REF (1)
n Con-
tribution
REIB(2)
2003
(1) Deutsche Bank’s real estate centres
(2) Deutsche Bank’s Structured Finance team in London, Commerzbank’s Real Estate Investment Banking in New York, Dresdner Bank’s Real
Estate Banking in the US
25
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Integration structure
3
Steering committee
6 future members
of Supervisory Board
Integration committee
Future Eurohypo Board
of Managing Directors
Integration office
Project groups according to business and function
Efficient and swift implementation of merger by 2003
based on a tight integration structure
26
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4
Synergies
Optimised cost base through realisation of
synergy potential
4
30
Others
30
IT
50
50
Others
10
IT
40
140
Personnel 90
Personnel
Cost synergies
70
Gross earnings
synergies
Dissynergies
p.a. starting in 2004
Net synergies
Restructuring costs
non-recurring in
2002 and 2003
n
Net synergies of around €140m p.a. starting in 2004
n
Annual cost synergies of around €120m correspond to 28% of the combined cost base (1)
n
After two years, non-recurring restructuring costs of EUR170m will be covered by synergies
(1) Cost basis after Deutsche Hyp’s reduction of work force by 440 employees to be reflected in the P&L of fiscal year 2001
28
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Cost synergies
4
Personnel
n
n
n
29
Reduction of workforce by approx. 800
employees forms a significant part of
expected synergy potential
Staff reduction will be done under
economic and socially-acceptable
considerations and in close cooperation with the staff council
Through its focus on expertise and
international expansion, the new
Eurohypo will be an attractive employer
for qualified personnel
IT systems
n
All three merger partners use an SAPbased system
n
Agreement already reached on a
common system. As a result:
–
accelerated migration (completion
mid-2003) at low cost, and
–
realisation of high synergy effects
through reduction of redundancies
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5
Financial Data
Financial figures as of June 30, 2001
5
Deutsche Hyp
Eurohypo
Rheinhyp
Equity(1)
(EURm)
1,354.0
1,446.3
999.9
Total assets
(EURm)
93.7
71.4
78.3
Net interest income
(EURm)
190.6
185.6
172.2
Net commission income (EURm)
2.2
13.4
-10.9
Operating expenses
(EURm)
102.6 (2)
60.4
59.6
Operating result after
risk provisioning
(EURm)
36.2
123.2
75.7
(1) Sum total of subscribed capital, reserves, and funds for general banking risks
(2) Including EUR 34.5m of restructuring costs
31
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6
The new Eurohypo – expertise, size, and
clear focus on profitability
The new Eurohypo – expertise, size, and clear
focus on profitability
6
The new Eurohypo –
the European property
financing institution
Rising commission
income
Higher margin
potential
Market leader in
commercial-property
financing
Leader
in know-how
and quality
Benchmark issuer
Optimised cost
base
Improved risk
position
33
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