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As a result of the integration in a supraregional division, Bank Austria Creditanstalt’s Retail Division has benefited from ongoing ex-changes of ideas and has gained important insights from best practice comparisons.
The Retail Division continued to work closely with the asset management product specialists and with the specialists from the investment management company Pioneer Investments Austria, now based in the PB&AM Division. This does not only apply to structured products such as capital guarantee products, one of the bank’s competitive strengths, but also to the support given in securities business and in brokerage. “FokusInvest”, the recently introduced standardised investment management product, is an example of specific, needs-oriented product design. With this product, an investor can make use of three varieties of active investment management with a minimum investment of € 15,000.
In addition, we have access to about 60 of Pioneer Investments Austria’s (formerly Capital Invest) publicly offered funds. Pioneer Investments Austria belongs to the Pioneer Investments Group, an international mutual fund provider, and thus has access to the expertise, experience and quality of an internationally active group.
The transfer of private banking and asset management activities, which are important sources of revenue, to the new PB&AM Division and the absorption of the business customer sub-segment with its below-average profitability from the former SMEs Austria segment has resulted in an unsatisfactory level of profitability in comparison to the former Private Customers Austria segment. The new segment presentation shows unacceptably high cost intensity, especially for the 2005 base year (over 90%). More-over, given the large proportion of lending business in the newly added lower SME sub-segment, the risk/earnings ratio was far above average – these were the main factors responsible for the negative result. The loss recorded in the Retail business segment also reflects numerous restructuring efforts, which were undertaken to restore the Division to profitability and which are to be seen against the background of a favourable development in operating activities.
The former SMEs Austria segment, which was split up in 2006, had been created with a view to restoring business with this customer group to profitability. The “SME plus” restructuring programme was completed as planned in 2006. By way of our comprehensive package of measures, for which we made restructuring provisions in 2005 and 2006, we are in the process of eliminating this structural weakness in profitability with our new business model. Visible progress was already made in 2006: adjusted for one-off effects in 2006 and 2005, the Retail Division recorded a profit before tax of € 67 m, after a loss before tax of € 118 m in 2005. This is still distinctly below the cost of capital.
Operating profit, not affected by the restructuring, is already showing a marked upward trend (€ 305 m after € 107 m in 2005). Both the income side (above all due to a strong increase in net fee and commission income) and a visible reduction in costs contributed to this.
Details of results are included in the segment reporting section of the management report of Bank Austria Creditanstalt.
In the current year we are working to further differentiate our service approach to customer groups with different needs and adjust it to the requested level of service intensity. Cross-selling is a further focal point in the sales network, especially in the business customer sub-segment. These efforts are also supported by our product policy, with a standardised and/or discretionary approach to lending and investment business. We are also reviewing our internal processes, in close cooperation with Global Banking Services, on an end-to-end basis covering the whole range of payment transactions to the entire credit process chain. One of the results of this work is the introduction of automated monitoring systems. Last but not least, we will adjust our incentives and compensation system to give more weight to performance.
Overall, our objective is to achieve a significant and sustainable improvement in results to restore the Division to profitability through revenue growth and strict cost management.