1. OPERATIONS IN FINANCIAL INSTITUTIONS - WHY IT’S MORE THAN JUST PROCESSES B60.2315.20 OPERATIONS IN FINANCIAL SERVICES Spring 2002 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

2. NY-101613.103/020417YlpolSL1 1 OPERATIONS – THE HEART OF FINANCIAL INSTITUTIONS Example elements of “operations” Check processing Branch network Credit servicing and processing Printing and statementing Retail banks Trade processing Report production Corporate action processing Trading P&L generation Investment banks Client servicing Position and order management Trade processing Custodian interactions Asset managers Underwriting Claims processing Field and client servicing Insurance companies Operations is a integral function for financial institutions Customer quality and satisfaction Economies Technology dependent

3. NY-101613.103/020417YlpolSL1 2 Retail bank efficiency ratio Purchased costs (non- IT) Branch/physical network IT Corporate center 55-60 SIGNIFICANT COMPONENT OF COST BASE - RETAIL BANK EXAMPLE Percent of revenues Judgment-intensive processing Factory-like processing Contact centers 6-9 3-6 6-8 4-6 6-9 11-14 14-21 Operational environment Examples Judgment- intensive processing Factory-like processing Contact centers Credit underwriting Collections Investment management Item processing Account maintenance Transaction processing Call centers Web sites Typical cost savings is 15-20% or 2-4 points of efficiency ratio impact

4. NY-101613.103/020417YlpolSL1 3 30%70% IT Front office Admin Accounting/ risk Back office Ops/mid office Note: Headcount distribution is more skewed to back office due to lower cost per person SIGNIFICANT COMPONENT OF COST BASE - INVESTMENT BANK EXAMPLE Percent of personnel costs

5. NY-101613.103/020417YlpolSL1 4 *For example, credit card companies **For example, Citigroup ***Same or next day decline (depending on timing of earning announcement) during 2000 Source:Zacks Consensus Research as of 2/3/01 Market expectations for growth remain high... Brokerages/ investment banks Consolidated loan companies* Miscellaneous financial services** Regional banks EPS growth last 5 years Percent Expected EPS growth for 2001 Percent Banks – money center 20%... with the penalty for missing expectations severe Bank America – 3Q Charles Schwab – 3Q Negative EPS surprise Percent Decline in stock price*** Percent First Union – 1Q Citigroup – 4Q Wachovia – 4Q Amex – 4Q First National – 4Q MSDW – 3Q Bank One – 3Q National City – 3Q 16% MARKET PRESSURE TO MAINTAIN HIGH GROWTH RATES

6. NY-101613.103/020417YlpolSL1 5 ADDITIONAL PRESSURE ON OPERATIONS – INVESTMENT BANKING EXAMPLE