MP65402

MAPS : Trends in the Eurozone: July 2002

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This report covers: savings trends in the Eurozone, equities, Belgium, German, pension market, Dutch market, low-risk investments, France, French, Germany, Italy, Spain, The Netherlands,

companies covered include:

EXECUTIVE SUMMARY

Executive Summary

UK LEAD IN FINANCIAL ASSETS

As a whole, UK households are more asset-rich than anywhere else in Europe, due mainly to the long tradition of funded occupational pensions. However, UK citizens also borrow more than other Europeans. The Belgians and the Dutch have, per head, 89.9% and 88.5% respectively of the financial assets of the UK. The distribution of financial assets shows a concentration in North-West Europe, and a diminution as one travels southwards and eastwards.

Among the six Euroland countries under review — Belgium, France, Germany, Italy, The Netherlands and Spain — ownership of notes and coins, as a percentage of all financial assets, is highest in Spain and lowest in The Netherlands and Belgium. In France, Italy, Spain and Belgium, over 40% of households' financial assets are in shares and other equities. Transferable deposits, such as cheque accounts and no-notice deposit accounts, are proportionately highest in Italy. The Belgians and Dutch, who are substantial investors in life assurance and equities respectively, hold very few transferable deposits.

BELGIANS GO FOR EQUITIES

The tax regime prompts Belgians to favour investments in shares over cash savings, and Belgians cast their net wide, far beyond the domestic scene. Private pensions remain of limited importance because of the compulsory occupational schemes, but there are good possibilities for life insurance sales. Belgo-French and Belgo-Dutch companies are replacing purely Belgian ones.

FRENCH DEMAND FOR LOW-RISK INVESTMENTS

The French market used to be characterised by state protection, but is now much more open. French savers and investors are pro-active in their search for capital growth and opt for products that minimise tax liability. New investments in shares will become a little harder to attract because of the still-high taxation levels, and the lacklustre returns from shares since 2000. However, individuals have mounting concern about their income when they retire, creating new demand for low-risk investments in life and pensions. Planning for inheritance is also of significant interest to the French, because of the high levels of inheritance tax.

NEW GERMAN PENSIONS MARKET

Financial organisations see limited opportunities in the home market, apart from the new personal pensions sector. A general election is scheduled for autumn 2002, but, whoever wins, major alterations to savings incentives and regulations are unlikely. Inflows into private-pension plans may not reach the levels the Government wants because state pensions remain generous. Commercial banks will need to convince customers that they are sufficiently protected from the risks of loan defaults if they are to maintain their share of the savings and investment markets. A continuing substantial role for the savings banks and the credit co-operatives seems assured, and insurance companies, notably Allianz, should benefit from contributions to the new pensions.

ITALIANS PRESS TO KEEP GENEROUS WELFARE

Italians like to hold shares directly, and they continue to have little interest in private pensions. The tax-reducing policies of the Berlusconi Government should, in theory, liberate income for households to save and invest — but, from the perspective of spring 2002, it seems improbable that the economy will grow sufficiently for Berlusconi to implement all his promises. Italians in the labour force, and the millions already in receipt of pensions, have more to gain from a continuation of generous state benefits than they do from a reduction in taxation.

LIMITED PROSPECTS IN MATURE DUTCH MARKET

Large increases in public spending to meet pension and welfare needs are not expected for another decade, so the Dutch have time to plan for their future financial needs. The rate of savings is already so substantial, however, that major growth in savings and investments, especially from high-income households, is unlikely. The international awareness and outlook of leading financial organisations, such as Fortis and ING, mean that it will be difficult for foreign newcomers to make much headway in the domestic market. On the other hand, continued Dutch expansion in other European markets is likely.

DIRECT SELLERS ADVANCE IN SPAIN

Spain's savers remain attached to the mutual savings banks, but they are also attracted to online saving. The savings banks, carrying the heavy costs of their large branch networks, will come under increasing pressure from direct sellers that `cherry pick' profitable customers. Savers prefer to be able to access their money at will, and are nervous of long-term commitments for life and pensions. Market prospects are not sufficient to sustain a large number of new entrants.

AGE IS THE BIG ISSUE

Significant threats to savings across Euroland include the ageing populations, and the prospect of steadily-rising taxation to help support the elderly. Governments across Europe are being forced to admit that they, and their successors, cannot afford to maintain pensions at current levels, let alone increase them, because of their ageing populations. By 2040, when today's babies will be just 38, over Europe as a whole there will be under two workers to every pensioner, if current trends continue. If EU nations do nothing more to reduce their future pension liabilities, several could find themselves burdened with a debt of more than double their gross domestic product (GDP), a recipe for commercial and political instability. It is in banks' and insurers' long-term interests to lobby EU governments continuously, to urge faster moves to funded pensions, to press for pensioners to be given tax incentives to continue working and for early retirement schemes to be abandoned.

RISK-AVERSE SAVERS

Savers in the coming decade are likely to seek out risk-averse homes for their cash, choosing mutual institutions and commercial organisations that have not over-extended themselves in a rush for growth, and which have a track record of successful performance. Savers will look more carefully at deposit-protection schemes and will avoid placing all their financial assets with a single organisation. Even the most profitable banks will probably seek to increase savers' and investors' confidence by increasing the amount of information they provide to the public about non-performing loans. Individuals who are willing to take risks will look increasingly at investing in shares of pharmaceutical, bio-technology, recycling and renewable energy companies, and companies providing products and services appealing to, or necessary for, the elderly. They will be less inclined to invest in overseas companies, preferring to stick with companies of which they have personal knowledge.

TABLE OF CONTENTS

Executive Summary 1

UK LEAD IN FINANCIAL ASSETS 1

BELGIANS GO FOR EQUITIES 1

FRENCH DEMAND FOR LOW-RISK INVESTMENTS 1

NEW GERMAN PENSIONS MARKET 2

ITALIANS PRESS TO KEEP GENEROUS WELFARE 2

LIMITED PROSPECTS IN MATURE DUTCH MARKET 2

DIRECT SELLERS ADVANCE IN SPAIN 2

AGE IS THE BIG ISSUE 3

RISK-AVERSE SAVERS 3

1. Introduction 10

THE TOPIC 10

METHODOLOGY AND RESEARCH 10

Problems in the Research Process 10

2. Strategic Overview 11

NORTHERN SCEPTICS 11

Table 1: The EU Population by Country (million and %), 1996 and 2002 11

INTERNATIONAL MONETARY FUND FORECASTS 12

Table 2: Real GDP, Unemployment and Consumer Prices in the EU (%), 1999-2002 13

Table 3: Net Debt Levels in Major Economies (% of GDP), 1998-2006 15

SMALL NATIONS ARE MOST PRODUCTIVE 15

Table 4: GDP per Capita in PPS (100=average), 1998-2002 16

Figure 1: GDP per Capita in PPS (100=average), 1998-2002 17

INCOMES MORE EQUAL IN THE NORTH THAN THE SOUTH 18

Table 5: Income Ratio Between Quintile with Highest Incomes and Quintile with Lowest Incomes, 1995 and 1998 18

UK HOUSEHOLDS HAVE THE GREATEST ASSETS 19

Table 6: EU Net National Saving at Current Prices by Country (% of GDP), 1999 20

Table 7: EU Households' Financial Assets by Country (nbn and % of GDP), 2000 21

Figure 2: EU Households' Financial Assets by Country (nbn and % of GDP), 2000 22

NOTES AND COINS INSIGNIFICANT 23

SHARES AND OTHER EQUITY PREDOMINATE IN EUROLAND 23

Table 8: EU Households' Financial Assets by Type by Country (% of total), 2000 24

Table 9: EU Households' Financial Assets by Value by Type by Country (ebn), 2000 25

Figure 3: EU Households' Financial Assets by Value by Type by Country (ebn), 2000 26

BELGIUM AND THE NETHERLANDS TOP EUROLAND IN PER CAPITA FINANCIAL ASSETS 26

Table 10: EU Households' Financial Assets per Head of Population by Country (e), 2000 27

Figure 4: EU Households' Financial Assets per Head of Population by Country (e), 2000 28

UNDERDEVELOPED LIFE AND PENSIONS MARKETS 29

Table 11: EU Households' Financial Assets per Head of Population by Value by Type by Country (e), 2000 29

Figure 5: EU Households' Financial Assets per Head of Population by Value by Type by Country (e), 2000 31

3. Belgium 32

SLOWING DOWN 32

Table 12: Demography, National Accounts and Employment and Incomes of Belgium and UK (million, %, $bn, $ and r), 1997 and Latest Available Years 32

LOTS OF SHARES AND NOT MUCH CASH 34

SHAREHOLDERS WITH INTERNATIONAL PERSPECTIVE 35

BANKING CONSOLIDATION 35

KBC LOOKS EASTWARDS 36

GLOBAL ING 36

AXA AND DEXIA 37

PENSIONS LIABILITIES MODERATE 37

SAVINGS TRENDS 38

4. France 39

STRONG PUBLIC SECTOR AIDS ECONOMIC STABILITY 39

PUBLIC SECTOR REAL WAGES STILL RISING 39

INVESTMENT IN SHARES AND PROPERTY 40

TAXES LIMIT WEALTH ACCUMULATION 40

Table 13: Demography, National Accounts and Employment and Incomes of France and the UK (million, %, $bn, $ and r), 1997 and Latest Available Years 41

STATE DEBT STILL UNDER CONTROL 42

TAX-SHELTER PRODUCTS FIND FAVOUR 43

SCOPE TO EXPAND FINANCIAL SERVICES FOR MANUAL AND OFFICE WORKERS 44

Table 14a: Household Wealth in France by Occupational Group by Type of Holding (% holding selected assets), 2000 44

Table 14b: Household Wealth in France by Occupational Group by Type of Holding (% holding selected assets), 2000 45

Table 15: Household Wealth in France by Type of Holding (% holding selected assets), 1996-2000 47

Figure 6: Household Wealth in France by Type of Holding (% holding selected assets), 1996-2000 48

HOUSEHOLDS' ASSETS WORTH NEARLY E5,600BN 48

BANKS SEEK EUROPEAN SCALE 49

PROFITABLE BUT IS THERE ENOUGH PROVISION FOR RISKS? 50

SAVINGS BANKS HAVE SOCIAL FUNCTIONS 50

GOVERNMENT TRIES TO FAVOUR FRENCH COMPANIES 51

FRENCH GIANT AXA SUFFERS IN 2001 51

SETBACK FOR LIFE INSURANCE 52

CONSERVATIVE DISTRIBUTION 53

SUMMARY 53

5. Germany 54

STEPS TO PREVENT PENSIONS CRISIS 54

A LITTLE OLDER, A LITTLE POORER BUT STILL IN CONTROL 54

Table 16: Demography, National Accounts and Employment and Incomes of Germany and the UK (million, %, $bn, $ and r), 1997 and Latest Available Years 55

FALLING REAL WAGES 57

Table 17: Contributions to Gross Wages and Salaries at Current Prices in Germany by Sector (%), 1999-2001 58

SAVINGS RATE RISES AGAIN 58

Table 18: Households' Saving Rate in Germany at Current Prices (% of disposable income), 1993-2001 58

Table 19: Savings Deposits in Germany by Value by Institution (tbn), 1995-2000 59

Figure 7: Savings Deposits in Germany by Value by Institution (tbn), 1995-2000 60

GERMANS LAG IN INSURANCE FUNDS 60

SAVINGS BANKS HAVE HALF OF DEPOSITS 61

Table 20: Savings Deposits in Germany by Value by Share by Institution (%), 1995-2000 61

Figure 8: Savings Deposits in Germany by Value by Share by Institution (%), 1995-2000 62

Table 21: Deposits, Loans and Savings Agreements in Germany (ebn), 1995-2000 63

CHASING BEST RATES 63

Table 22: Volumes of Savings Business† by Notice Period and Type of Account (%), 1993 and 2000 63

RAPID GROWTH IN ALL FORMS OF INSURANCE 64

Table 23: Gross Premiums and Capital Investments in Germany by Type (ebn), 1995-2000 64

PRIVATE PENSION FUNDS FROM 2002 66

FIXED INTEREST SECURITIES MORE POPULAR THAN SHARES 66

BANKS NEED THEIR STRENGTH NOW 67

EUROPEAN AMBITIONS 68

CAUTION FOR DEUTSCHE BANK 68

COMMERZBANK'S ITALIAN TIE 69

MUNICH RE AND ALLIANZ: BUILDING BANCASSURANCE 69

OPENNESS MORE APPARENT THAN REAL 69

CONSUMER PROTECTION STRENGTHENED 70

SAVINGS BANKS STRONG 70

CREDIT CO-OPERATIVES RETAIL WIDE APPEAL 71

SUMMARY 72

6. Italy 73

FINANCIAL PROBLEMS OF AGEING 73

Table 24: Demography, National Accounts and Employment and Incomes of Italy and UK (million, %, $bn, $ and r), 1997 and Latest Available Years 74

FINANCIAL WEALTH `AVERAGE' FOR EU 75

OPPOSITION TO FOREIGN OWNERSHIP 76

DISASTROUS YEAR FOR INTESABCI 76

EUROPEAN ROLE FOR MEDIOBANCA 77

MASS MARKET IN MUNICIPAL BONDS 78

SAVINGS BANKS STILL IMPORTANT 78

OPPORTUNITIES FOR INSURANCE COMPANIES 78

PENSIONS PRECIPICE AWAITS 79

SAVINGS TRENDS 80

7. The Netherlands 81

CHAMPION SAVERS 81

ECONOMY SLOWS DOWN 81

Table 25: Demography, National Accounts and Employment and Incomes of The Netherlands and the UK (million, %, $bn, $ and r), 1997 and Latest Available Years 82

NOT SO EQUAL 84

HUGE ROLE FOR LIFE AND PENSIONS 84

INSURANCE DOMINANCE UNUSUAL 85

LOWER-INCOME GROUPS FAVOUR POSTBANK 86

A DUTCH GIANT GROWING 86

ING BRAND GOES INTERNATIONAL 87

SAVINGS TRENDS 87

8. Spain 88

RELATIVELY STRONG GDP GROWTH 88

Table 26: Demography, National Accounts and Employment and Incomes of Spain and the UK (million, %, $bn, $ and r), 1997 and Latest Available Years 89

INVESTMENT GROWTH FROM LATE 1990S 90

RAPID EXPANSION IN ONLINE SAVINGS 91

SAVINGS BANKS HAVE SOCIAL ROLE 91

COMMERCIAL BANKS LOOK TO ITALY 92

ANOTHER AGEING POPULATION 93

MODERATE FUTURE PENSIONS OUTFLOWS 94

PRIVATE PENSIONS DISADVANTAGED BY GENEROUS STATE SCHEMES 94

HOUSEHOLDS GO FOR SHARES 95

GROWING ROLE FOR INSURANCE COMPANIES 96

SAVINGS TRENDS 96

9. Strategic Assessment 98

THREATS FROM AGE AND EASTERN EUROPE 98

TAXING SAVINGS 98

ELECTIONS FOR FRANCE, GERMANY AND THE NETHERLANDS 99

THE EURO AND EURONEXT 99

MOVE TO FUNDED PENSIONS BUT CAN COMPANIES DELIVER? 100

AVOIDING THE DEBT OPTION? 101

OPPORTUNITIES BUT NOT ON A PLATE 101

10. The Future 103

TAXATION TAKE 103

Table 27: EU General Government Current Tax and Non-Tax Receipts by Country (% of GDP), 1990-2003 103

Huge Pensions Liabilities 103

ECONOMIES INTO REVERSE 104

SECURITY OR STAGNATION: THE FINELY POISED SAVINGS BALANCE 105

IMPACT OF LOW OR ZERO POPULATION GROWTH 105

Table 28: The Forecast EU Population From Different Sources by Country (million), 2002 and 2010 106

EITHER DEMOCRACY OR STABILITY? 107

WHERE SAVERS' CASH SHOULD GO 108

11. Glossary 110

13. Electronic Sources 112

Belgium 112

Europe 112

France 113

Germany 114

International 115

Italy 116

The Netherlands 117

Spain 117

12. Further Sources 118

General Sources 118

Bonnier Information Sources 119

Government Publications 119

Other Sources 120

Text © 2002 Key Note

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Last updated by Amanda Porteous September 2002