WestLB Business Model for 2005 Ready for Implementation
At its meeting yesterday, the Supervisory Board of WestLB AG reaffirmed its support for the strategic direction agreed on August 6, 2003 for tackling the current issues facing the bank. Based on this "three pillar model", the Managing Board will now accelerate the implementation of the necessary processes of change with the full support of the Supervisory Board. At the same time, the Supervisory Board expects that the detailed next steps will be further developed, underpinned by quantitative assessments. In conjunction with the budget for 2004, adjusted to reflect the agreed approach for 2005, the Supervisory Board will discuss the further development of the strategy for the period after 2005 at its next meeting.
The purpose of the business model for 2005 is two-fold: First, to ensure that the bank has sufficient capital resources and is generating adequate returns to prosper as a self-standing entity in 2005 after the elimination of the state guarantees. Second, to ensure that the bank maximises business opportunities by expanding its business with medium-sized European customers and further developing its unique network of relationships with the savings banks. On the basis of close consultation with the owners, the strategic reorientation for the period after 2005 will build on this.
As part of the strategy, the bank aims to improve the efficiency, profitability and risk profile of its core international and corporate business, while using its skills in areas where it has clear competitive advantage to develop new customer offerings which will enable it to increase its share of the market in small and medium-sized businesses in Germany and Europe, public sector institutions and savings banks. The new business model will be broader, more diversified and have an inherently improved risk profile. Underpinning the new strategy is a medium-term programme whose key elements are:
Focusing of International Business
The bank already has strong client relationships with multinational and large corporate clients worldwide. In future, it intends to increase its efficiency and reduce balance sheet exposure within this market segment by focusing on its areas of specific expertise in product structure and advice, laying off capital risks within the international markets wherever possible, reducing large concentrated credit exposures and trimming its operations outside of Europe.
Exploiting Potential with the Mittelstand
The bank already has a strong position today in business with medium-sized corporate customers; some 50% of the bank’s existing customers in Germany are within the medium-sized segment. We have identified a growing demand above all on the part of larger medium-sized customers for structured capital market solutions, for example securitisations. The bank intends to tap this unexploited potential to increase market share, primarily in Germany, by
improving the focus on trade and export-related finance as well as selected capital market products in which the bank has proven expertise, and establishing a standardised credit offer for medium-sized corporate customers.
Expansion of Services for the Savings Banks
The bank intends to realise the full potential within its relationships with the savings banks by clearly expanding its range of financial products developed specifically for the savings banks and their customers. It aims to grow market share in central bank services and facilities to savings banks, work alongside the savings banks to develop a joint customer approach and create shared product development to offer a wider range of bank services to savings bank customers, supporting their business through tailored offerings in risk management, trade finance, M&A, private equity and asset management.
In future, there will be a stronger focus on the provision of sophisticated financial solutions for the bank´s public sector clients, for example in the field of debt management and capital market products.
Strengthening of the Capital Base and Further Reduction of Costs
Alongside the focusing of international business and the stronger emphasis on business with the savings banks and medium-sized corporate customers, the bank is planning extensive measures to strengthen its capital base and reduce costs. These include:
- €500m of further cost reductions by the end of 2005 through a combination of headcount reductions and adjustments in operating expenditure. This is on top of the €540m of cost savings achieved in 2002 and 2003,
- a reduction in headcount from the existing 8,000 to roughly 6,200 by the end of 2005. Some 50% of this headcount reduction has already been agreed, for example the outsourcing of IT operations,
- selective sales/disposals of non-core assets, e.g. through securitisation, syndication, etc.
- a review of non-core equity holdings.
Taken together, the bank believes the measures outlined above will enable it to achieve a tier one capital ratio of approx. 7% in 2005. In the short term, the bank expects to increase its profitability off a lower business volume.
Dr Johannes Ringel, Chairman of the Managing Board, said:
"WestLB is bank which has a strong market position as a provider of sophisticated financial services to blue chip customers in Germany, Europe and worldwide. The business model we have announced today, together with the improved risk control measures we have already embarked upon, will enable us to achieve our key target of a tier one capital ratio of 7%."