AIG GROUP AND AIG BANK IN POLAND – SHORT

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Information about AIG GROUP AND AIG BANK IN POLAND – SHORT
Business & Mgmt

Published on November 18, 2008

Author: Intelace

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AIG GROUP AND AIG BANK IN POLAND – SHORT
OVERVIEW

AIG GROUP AND AIG BANK IN POLAND – SHORT OVERVIEW November, 2008 Intelace Research

AGENDA AIG GROUP IN POLAND AIG Group in Poland AIG Bank AIG Bank valuation 2 Intelace Research

AIG HAS MULTIPLE BUSINESSES IN POLAND WORTH IN TOTAL ~ 6 BILLION PLN (US$ 2 BN) AIG Group – Key subsidiaries Business size (3Q08) Sector Subsidiary in PLN Valuation (Oct. 08) • Assets: 7.31bn 1.5-2.2 bn PLN Retail Banking AIG Bank Polska S.A. AIG GROUP IN POLAND • Equity: 811m Consumer credit (also AIG Credit S.A.) • Revenue: 700m • Net profit: 219m • AuM: 11.41 bn 0.8-1.1 bn PLN Pension AIG PTE S.A. • Revenue: 73.4m (1H 08) • Net profit: 26.3m (1H 08) • GWP: 1.26 bn 2.5-3.5 bn PLN Life insurance Amplico Life S.A. • Revenue: 764m • Net profit: 250m Non-life insurance AIG Europe S.A. • GWP: PLN 145m 0.1-0.2 bn PLN Oddział w Polsce • AuM: 1.72 bn Investment Funds AIG TFI S.A. • Net profit: 31m (2007) 0.1-0.2 bn PLN • n/a • n/a Transatlantic Polska Sp. z o.o. Other AIG-CET Capital Management AIG/Lincoln Polska Sp. z o.o. etc. Total: PLN 5.0-7.0 bn 3 * As of 1H 2008 Intelace Research Source: AIG, Rzeczpospolita, Intelace

AGENDA AIG GROUP IN POLAND AIG Group in Poland AIG Bank AIG Bank valuation 4 Intelace Research

AIG BANK HAS BEEN GROWING FASTER THAN THE OVERALL BANKING MARKET CAGR* AIG Bank assets evolution, 2004-3Q2008 PLN billion 7.31 • In the years 2004- AIG GROUP IN POLAND 35.8 5.55 2008 AIG bank has been growing quickly 3.74 Rank ~25 2.85 according 2.32 to assets • In absolute terms bank is still a minor player with rank ~25 in Poland (according to 2004 2005 2006 2007 3Q2008 3Q 2008 assets) and has a very low market share: 0.82% Market share evolution, 2004-3Q2008 Percent (of commercial banks assets) 0.58 0.74 0.82 0.46 0.52 2004 2005 2006 2007 3Q2008 5 * Compound Annual Growth Rate Intelace Research Source: AIG , Rzeczpospolita, Intelace Research

SO FAR BANK HAS FINANCED ITS LENDING MOSTLY ON THE INTERBANK MARKET Client* loans Client* deposits CAGR PLN billion PLN billion 5.74 39.1 4.65 3.18 74.4 1.90 AIG GROUP IN POLAND 2.38 0.43 0.45 0.59 2005 2006 2007 Aug-08 2005 2006 2007 Aug-08 Client* loans vs. deposits ratio Financing from banks & government sector PLN million 18% 14% 13% 33% 1.05 1.51 2.49 3.16 2005 2006 2007 Aug-08 2005 2006 2007 Aug-08 AIG bank has been reliant on external financing, but the freeze of inter-bank market forced it to quickly build-up own deposits base 6 * Individuals + corporate customers (excluding public sector & banks) Source: AIG, Rzeczpospolita, Intelace Research Intelace Research

DISTRIBUTION NETWORK HAS BEEN GROWING RAPIDLY Distribution network, 2005-2Q2008 Outlets by type 184 132 30 Agency* Current AIG GROUP IN POLAND 22 strategy 119 assumes 14 further quick 89 development 0 of external 154 Own 135 distribution branches network 105 89 (franchising) 2005 2006 2007 2Q 2008 + ~10,000 retail outlets (stores) offering consumer finance products of AIG bank 7 * Based on franchising principle Intelace Research Source: AIG , Rzeczpospolita, Intelace Research

AIG BANK HAS BEEN EXTREMELY PROFITABLE IN THE PAST Net interest revenue 19.8 Bank profitability Declining 17.5 14.5 Percent of average assets Extremely high NII revenues is gradually falling (May not always sum to 100% due to rounding) Net banking revenue 16.3 15.2 Other net revenue 13.5 2006 2007 2008* 0.0 0.0 0.0 High but declining Profit before tax Net fee & commission 7.8 2006 2007 2008* AIG GROUP IN POLAND 6.7 revenue profit margin 5.3 2006 2007 2008* 2006 2007 2008* Profit after tax 6.2 Falling F&C 5.3 4.2 2006 2007 2008* -1.1 costs -2.3 -3.5 Income tax Costs & charges Stable, low share of 2006 2007 2008* 8.9 8.4 8.1 personnel costs 1.6 1.4 1.1 Wages & social security Depreciation 2006 2007 2008* 2006 2007 2008* 1.6 1.7 1.7 0.1 0.1 0.1 Extremely high 2006 2007 2008* 2006 2007 2008* ROAE & very low C/I Cost to income ROAE Net reserves Other operating costs % %47.5 39.0 33.7 Reserves 25.8 30.3 29.9 4.6 3.8 4.1 slightly 2.6 2.8 2.3 increasing 2006 2007 2008* 2006 2007 2008* 2006 2007 2008* 2006 2007 2008* 8 * Annualized data for: Jan.-Aug. 2008 Intelace Research Source: AIG , Intelace Research

AGENDA AIG GROUP IN POLAND AIG Group in Poland AIG Bank AIG Bank valuation 9 Intelace Research

PAST M&A TRANSACTIONS SHOW A MIXED PICTURE IN TERMS OF BANKS VALUATION ON THE POLISH MARKET Price paid* Market share Date Buyer Target (for 100%) acquired** Description 2005 Société Eurobank 169m EUR ~0.3% • At the moment of transaction it had 110 Générale (P/BV~7) outlets countrywide and served ~240,000 retail clients in major cities AIG GROUP IN POLAND 2005 Getin Wschodni Bank 54m EUR ~0.2% • WBC was a small regional bank operating Holding Cukrownictwa (P/BV~2) in the sout-eastern part of the country 2006 Fortis AIG 170mEUR ~0.2% • AIG was a small retail bank with well Bank Bank (P/BV~7) developed branch network including a second hand car dealers. At the time of transaction AIG served ~350,000 clients 2006 DnB BISE Bank 140m EUR ~0.4% • BISE was a small bank in serving SMEs, (P/BV~3) municipalities, NGOs and cooperatives • At the time of transaction it had ~35 branches and ~45000 clients • After the spin-off, Bank BPH remained 2007 GE Bank BPH200 948m EUR ~1.3% with ~620,000 individual clients and (P/BV~2) 66,000 micro-enterprises (self-employed) • Bank had 200 outlets and 206 own ATMs countrywide * Implied price (valuation) of 100% stake 10 ** Market share in terms of assets Intelace Research Source: Banks, press, Intelace Research

CURRENT VALUATIONS OF LISTED BANKS ARE SIGNIFICANTLY LOWER THAN ONLY HALF A YEAR AGO CONSOLIDATED As of October, 2008 ACCOUNTS Market capitalization Valuation* Bank Billion EUR P / Earnings P / Book Value P / Assets 12.0 13.7 3.0 0.35 11.2 11.4 3.1 0.34 2.9 10.7 2.2 0.22 AIG GROUP IN POLAND 2.2 10.6 1.5 0.20 2.2 8.2 2.0 0.12 1.7 8.5 1.5 0.10 1.7 11.7 1.7 0.25 1.2 8.2 1.6 0.12 0.9 8.7 1.5 0.11 0.7 11.1 1.9 0.13 0.5 28.3 1.2 0.15 0.4 9.5 2.4 0.41 0.4 16.1 1.4 0.14 0.3 25.1 1.0 0.08 Weighted average, 11.3 (16.3) 2.34 (3.00) 0.23 (0.31) 11 * Based on consolidated results: Q3/07-Q2/08 10/08 vs. 3/08 Research Intelace Source: WSE, Banks, Intelace Research

AIG BANK IS CURRENTLY WORTH PLN 1.5-2.2 BILLION (EUR 0.4-0.6 BN) AIG Bank - Most AIG Bank - Financials, 2007-3Q2008 Valuation Valuation appropriate methods in million PLN multiples** million PLN this case Total Assets 7,311 5,554 880 - AIG GROUP IN POLAND 0.12 – 0.16 1170 2007 3Q2008 Equity * 1.5 – 2.0 1440 - 762 952 1900 2007 Aug-08 Net Profit 8-10 2160- 247 219 2700*** 2007 1-3Q 08 *** Based on assumed FY2008 net profit of PLN 270m ** Market multiples for top listed banks as of October 2008 12 * Excluding subordinated debt, including non-distributed net profit Intelace Research Source: Rzeczpospolita, AIG Bank, Intelace Research

AIG BANK IS A VERY ATTRACTIVE PLAYER ON CONSUMER FINANCE MARKET AIG BANK: SWOT Analysis Strengths Opportunities • Relatively strong brand and large client database • Still good perspectives for consumer finance • High specialization on few products (consumer sector create further growth opportunity finance including cards + term deposits) • Balancing asset / liabilities structure with more client deposits would immunize bank to AIG GROUP IN POLAND • Extremely high margins the situation on inter-bank market • Well developed distribution network including: own bank outlets, franchising partners and • Successful further conversion of installment presence at POS /retailers/ loan clients to credit cards could radically improve strength of client relationship and prevent churn Weaknesses Threats • Low level of client deposits in relation to client • Longer uncertainty about bank’s future could loans, high dependence on bank loans /inter- negatively affect ability to maintain business bank market/ growth and to retain key employees • Reputation suffering from AIG problems on • Expanding networks of other banks (db home market (in the US), negatively affecting kredyt, Lukas etc.) will increase competition ability to quickly collect new deposits • Very high margins may not be sustainable in • Limited product offer the future • Level of NPLs may increase quickly, should the unemployment rate grow 13 Intelace Research Source: Intelace Research

About this report About Intelace Research This report has been prepared using Intelace Intelace Research is an independent and privately Research proprietary research and publicly owned research firm based in the heart of Eastern available sources including: financial reports, Europe in Warsaw / Poland. press publications, industry magazines, directories, financial databases and expert Our company is specializing in value-added opinions. research services and tailored business AIG GROUP IN POLAND intelligence solutions. Views presented in this report reflect solely independent and unbiased opinion of Intelace Through our customized research services we Research and authors. help our clients to better understand their consumers, competitors and overall market All due care has been taken in the production of dynamics. this report. However, Intelace Research does not accept any responsibility or liability for any The lead researcher and founder of Intelace omissions or inaccuracies of the information Research is Marcin Mazurek. contained in this publication. Our contact details: This report is copyrighted. Any distribution, Intelace Research storage, replication and usage is restricted to Stryjenskich 13c/78, Intelace Research clients only. In case of any 02-791 Warszawa, Poland doubt please contact us at: info@intelace.com Tel. +48 22 408 66 20, Tel. +48 502 512 178 Fax. +48 22 349 21 40 mail: info@intelace.com url: www.intelace.com 14 IntelaceIntelace Research

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