MPS Group: 2006-2009 business plan approved

• Net profit in the range of 1.4E to 1.5 billion
• Cost-to-income ratio at 51.2% (-13.6%)
• Tier I ratio at 7.5% and ROE at 18.1%
• Payout ratio: 65% (but with the potential to increase significantly during the period covered by the plan)
• Growth in volumes: CAGR in 2005-09 lending of 7.5% CAGR in 2005-09 funding of 5.5%
• Strengthening of the network and streamlining of the corporate units
• Three new business segments: Commercial Banking-Distribution Networks,
• Private Banking-Wealth Management, and Corporate Banking-Capital Markets
• Introduction of a CFO responsible for strategic planning of operations, tax planning, treasury and allocation, and capital and risk management
• Creation of a unit (the Group Service Centre) for cost rationalisation and the optimisation of organisational processes
• Opening of 200 branch offices and a 470,000 increase in clientele
• Reduction in personnel (-10%) and significant improvement in the frontoffice - back-office ratio ( 8% over 2005)

The Board of Directors of Banca Monte dei Paschi di Siena S.p.A., in their meeting of yesterday (26 June), approved the group`s new business plan for the next three years.

The plan has set a 2009 profit target in the range of 1.4E to 1.5 billion, and MPS seeks to become a market leader in retail lending and in certain other market segments. Designed to keep the customer and shareholders at the heart of business strategies, the objectives to be reached by 2009 are as follows: net profit of between 1.4E and 1.5 billion; a cost-to-income ratio of 51.2% (-13.6%); a reduction in the weight of equity investments and the real estate portfolio; a Tier I ratio at 7.5%; and ROE at 18.1%. Over the next three years, an additional 200 branch offices are to be opened and 470,000 new customers added, while personnel is to be reduced by 10% and the front office-back office ratio improved ( 8%). These results are to be obtained by strengthening the network and streamlining the corporate units, as well as by creating three new business segments: Commercial Banking-Distribution Networks, Private Banking-Wealth Management, and Corporate Banking-Capital Markets. Another important change is the introduction of the position of CFO.The more efficient use of technology and processes, as well as the conversion of resources from the back office to the front office, an acceleration in time to market for innovative products and services, and an extension of the availability of branch personnel will all lead to a reduction in customer response times. Two-thirds of the top management team that will be facing the coming challenges has been confirmed. The highly motivated team now has an average age of 49 and is spurred on by an incentives system that centres around value creation. The Chairman is Giuseppe Mussari (43), and the General Manager is Antonio Vigni (52). The board has also appointed the Deputy General Managers, who are to be as follows: Giuseppe Menzi (56), who will be heading up the Group Service Centre in place of Vicario; Marco Morelli (44), head of Corporate Banking and Capital Markets; and Nicola Romito (46), head of Private Banking and Wealth Management. Daniele Pirondini (54) has been named CFO, while Giancarlo Barbieri (43) is to be the head of Commercial Banking-Distribution Network.

The following are the strategic guidelines of the plan for the coming years.

Evolution in the business model and new organisational structure Corporate Banking & Capital Markets Private Banking & Wealth Management Commercial Banking & Distribution Network CFO as a new position

Three new business segments (Corporate Banking & Capital Markets, Private Banking & Wealth Management, Commercial Banking & Distribution Network) and simplified governance are to lay the groundwork for a multi-relational approach to the customer. The reduction in customer response times is to come from a more efficient use of technology and processes, as well as the conversion of resources from the back office to the front office, an acceleration in time to market for innovative products and services, and an extension of the hours of availability of branch personnel. The focus of the service models by micro-territories (covered by the new regional-sales units and organized by local market) and a specialisation by mobile customer clusters (e.g. industries divided by geographic area-district; foreign residents of a given domestic region) are just a few of the key innovations.
The Private Banking & Wealth Management unit shall be responsible for providing integrated management of asset management, private investment, and insurance segments of the Group, in part through a progressive multi-brand expansion of the product portfolio and the establishment of select joint ventures, and shall also be responsible for continuing the extension of the private investment platform with the development of a Family Office range of products and services, as well as for developing MPS Banca Personale, which is to be placed under the direct responsibility of this unit. The Commercial Banking & Distribution Network unit is to be responsible for managing the retail and small business segments with an increasing emphasis on customer clustering, thereby taking further advantage of the specialised skills of Consum.it (also through select joint ventures) and those that have been acquired in the mortgage loan segment by developing cross-selling opportunities.
The increasing emphasis for all units on customer satisfaction and total service quality is a strategic value underlying the plan`s development. Furthermore, in order to ensure centralised management of the rationalisation of organisational processes and the restructuring and optimisation of the investment portfolio (equity investments, real estate, and non-performing loans), a corporate unit, known as the Group Service Centre, has been established and is to be headed by the Deputy General Manager Vicario. The introduction of a CFO, responsible for financial planning and reporting, tax planning, treasury, and capital allocation and management, completes the Group`s reorganisation.

The distribution network, restructuring, and efficiency gains

• 150 new branches and 50 transfers
• Strengthening of market presence S
• treamlining of general management and the group parent The Innovative Channels area for MPS Net

In line with the initiatives for business development, the rationalisation and restructuring which began during the previous three years is scheduled to continue. In particular, personnel is to be reduced by 10%, through both the sale (beginning in October) of the tax collection segment and the reorganisation of the banking units and the product and service companies, which will include a significant programme of new hires and an equally significant retirement programme for the older employees. All necessary steps will be taken both to reduce corporate staff and to strengthen the distribution network, while reducing the average cost of personnel. The streamlining of general management and the rationalisation of the parent company branches will make it possible to free up time and resources in order to strengthen the distribution network (through employee retraining programmes), as well as to increase front-office personnel. In terms of administrative expenses, cost-cutting initiatives are to become increasingly structural, focusing on a focused centralisation of procurement marketing, a more sophisticated use of capital budgeting mechanisms, and additional cost management initiatives (in the amount of some 90E million). The plan to expand and rationalise the network during the three-year period calls for the opening of roughly 200 branches (150 new branches and 50 transfers) in geographic areas that show high profit potential and in which the MPS Group already has a presence. New private and small business centres are also to be opened, and the network of financial advisors of MPS Banca Personale shall be optimised. An innovative channels area will also be created (and will include MPSnet) and is to be responsible for developing multiple, integrated channels through the extensive use of technology in order to provide technical and service support to the commercial units.

Efficiency gains
More branches for Banca Toscana
Significant improvement in profitability

The business plan includes initiatives that focus on certain business units (Banca Toscana, MPS Banca per l`Impresa, MPS Leasing & Factoring) in order to significantly improve their profitability.

For Banca Toscana, the branches are scheduled to be strengthened (as they are currently insufficient), and the rollout of the corporate service models is to be completed in the near future. In addition, general management and the intermediate regional units (parent company branches) are to be streamlined, with resources being freed up for the distribution network.

For MPS Finance, the plan calls for the integration of capital market activities into the corporate line of business, which includes MPS Banca per l`Impresa. For MPS Leasing & Factoring, the plan calls for the Group`s trade receivables to be centralised and for customers to be redirected to factoring in place of other similar tools in order to better manage risk and to increase profits.

Active management of credit risk and optimisation of capital
Reduction of the weight of financial assets, equity investments, and other non-current assets

A great deal of emphasis shall be placed on actively managing credit risk, which is expected to benefit form the increased efficiency of the related line of business, as well as from the improvement in the processes of disbursement and monitoring by customer segment and the introduction of advanced credit risk management techniques following the Basel II project.
There will also be initiatives involving the Group`s capital structure in order to improve profitability and solidity. In particular, the weight of financial assets is to be reduced, and there is to be a reallocation in the capital allocated to non-current assets (equity investments, real estate, and non-performing loans) in favour of the distribution business (by some 7%). Both the structure and the cost of funding are also to be optimised. These actions will enable the MPS Group to strengthen its capital ratios (with the Tier I ratio at 7.5% and TTR of greater than 10%), as well as to ensure excellent returns for the shareholders (payout ratio at 65% by the end of the period, but with the potential for significant increases) and to generate a capital surplus that is significant beyond the targets, which will make MPS free to make strategic decisions in complete autonomy.