Westpac Banking Corporation

Transcription

1 Westpac Banking Corporation Philip Chronican Chief Financial Officer October 2004

2 Westpac at a glance Established 1817 Top 100 bank globally 1 Core markets of Australia, New Zealand and near Pacific 7.7 million customers Leader in sustainability Total assets Market cap Dividend yield 2 Tier 1 Ratio Credit Rating 31 Mar 2004 A$234bn A$32.5bn 4.8% 7.2% AA- / Aa3 1 Euromoney June As at 28 September 2004 JP Morgan Australasian Investment Conference Oct

3 Delivering consistent financial outcomes $m 4,000 3,500 3,000 2,500 5 Year CAGR 1 Revenue 7% 2 Expenses 3% Core earnings 12% 2,000 1,500 1, H99 2H99 1H00 2H00 1H01 2H01 1H02 2H02 1H03 2H03 1H04 Cash earnings Cash EPS ROE (5 year avg) 5 year CAGR 1. Underlying basis (excl. significant items but not adjusted for acquisitions and disposals) 2. Excluding goodwill amortisation JP Morgan Australasian Investment Conference Oct % 11% 20%

4 Financial position has never been stronger Strategy seeks to achieve an optimal growth/return mix - No sacrifice of returns for unprofitable growth - Balanced business mix Composition of operating income BT 8% Other 3% Mortgages 13% Cards 6% Other 13% Significant reduction in risk profile over the last 5 years - Enhanced risk systems and data - Lower credit concentrations - Simplified, more transparent reporting Focus on managing cost growth - Restructured cost base to achieve a more optimal fixed/variable mix - Cost growth better aligned to revenue generation New Zealand 15% Institutional Bank 14% BCB - Business 28% BCB - Consumer 32% BCB Business & Consumer Banking, Australia JP Morgan Australasian Investment Conference Oct

5 Returning value back to shareholders Strong record of returning excess capital to shareholders Consistency in dividend trend Prepared to endure some volatility in pay-out to maintain consistent dividend payment path Current pay-out ratio 63% Buy-backs regularly used to realign capital ratios $3.2bn shares bought back in the last 5 years Dividends per share (cents) H00 2H00 1H01 2H01 1H02 2H02 1H03 2H03 1H04 Buybacks completed ($m) $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 505 FY 1999/00 1,682 FY 2000/ FY 2001/02 38 FY 2002/ FY 2003/04 JP Morgan Australasian Investment Conference Oct

6 Medium term earnings scenarios In 2002/03 Westpac ceased providing specific earnings guidance given both business and regulatory considerations Assuming stable macroeconomic environment, medium term earnings scenarios provided would lead to the likely ranges indicated in the table in most scenarios No change to previously provided medium term drivers Conversion to IFRS likely to alter the treatment of key drivers and broaden the range of outcomes in any one year Medium term earnings scenarios Interest Income Implicit in this range is credit growth of 7-11% and margin contraction of 5-10 bps per annum Non-Interest Income Operating Revenue Expenses Bad debts Tax Rate Post-Tax Cash Earnings Earnings per share Capital management initiatives can leverage EPS by 1-3% Likely Ranges (%) bps JP Morgan Australasian Investment Conference Oct

7 Points of differentiation Strategy - Focused on core markets of Australia, New Zealand and near Pacific - Customer centric organisational structure - Balanced wealth management position - Proven execution capability with strong management team Customer franchise - Large customer base skewed towards higher value segments Low risk - Continued improvement in asset quality, sound provisioning coverage - Strong capital position Leader in sustainability - Corporate governance and sustainability ethic embedded in the organisation JP Morgan Australasian Investment Conference Oct

8 Good progress in delivering our strategy Core elements of strategy Embed a high performance culture Enhance customer satisfaction Broaden customer relationships Improve wealth management position Drive operational efficiency Build corporate reputation What we have achieved in last 2 years Staff commitment up 5% Customer satisfaction up 11% SME and middle market satisfaction up 18% Institutional banking - equal lead bank Increased market share by 40 basis points 1 Acquired and Integrated BT now beginning to reap benefits. $96m in run rate synergies achievable by Sep 04 Expense growth average of 3% for last 3 years. Cost to income ratio now below 50% Broad recognition of improved corporate governance, sustainability agenda. Leading bank globally in Dow Jones Sustainability Index for three years in a row 1 June 2002 June 2004 JP Morgan Australasian Investment Conference Oct

9 An experienced executive team David Morgan Chief Executive Officer Mike Pratt Group Executive Business & Consumer Banking Philip Chronican Chief Financial Officer David Clarke 1 Chief Executive Officer BT Financial Group Phil Coffey Group Executive Institutional Bank Ann Sherry Group Executive Westpac New Zealand & Pacific Michael Coomer Group Executive Business & Technology Solutions & Services Ilana Atlas Group Executive People and Performance 1. David Clarke will be leaving Westpac in Feb 2005 and Rob Coombe has been appointed to take over as CEO BT JP Morgan Australasian Investment Conference Oct

10 Some noteworthy items in the 2004 full year result In the 2004 result a few factors will effect expense lines but will have minimal impact on overall cash earnings: - One additional month of BT Financial Group Expenses adds $15m to expenses - Consolidation of warehoused specialised capital entities (Epic) adds around $18m in expenses - Performance fees from success in private equity business - adds $13m to expenses As a result, expense growth for the 2004 financial year will be marginally above the medium term earnings scenarios of 2% to 4% growth JP Morgan Australasian Investment Conference Oct

11 Some noteworthy items in the 2004 full year result cont The purchase of the Epic assets by Hastings Funds Management Limited for resale has implications: - Will be fully consolidated at balance date (30 Sept) - Increases assets by $360m - Results in a 20bps deduction from ACE and Total Regulatory Capital - Sale process is currently progressing Cash earnings adjustment for hybrid equity revaluation (TPSII) expected to be a $6m deduction JP Morgan Australasian Investment Conference Oct

12 Current regulatory issues being efficiently managed IFRS - Group-wide program tracking to plan, with estimated cost of $26m over 2003/04 and 2004/05 Basel II - Westpac will be capable of reporting under new accord by end 2006 with an estimated implementation cost of $20m NZ Structured finance - The New Zealand Inland Revenue Department is challenging certain structured finance transactions being undertaken by the major banks in New Zealand, and Westpac has received amended assessments for the 1999 year NZ Corporate structure - Westpac has proposed a buttressed branch model to the RBNZ to meet their needs without having to fully incorporate our NZ operations JP Morgan Australasian Investment Conference Oct

13 IFRS - managing earnings volatility The introduction of IFRS will significantly impact the volatility of Bank s reported earnings We have yet to reach a conclusion on acceptable degrees of earnings volatility Key areas of impact Hedge Accounting Bad debt charges Superannuation Comments High impact - significant volatility if hedge accounting not achieved. Moderate increase - volatility moves with economic cycle Significant increase - volatility as mark to market of fund surplus subject to market movements Preliminary assessment of potential volatility conducted Assessing viability and cost/benefit of volatilitymitigating actions e.g. externalising hedges and the investment mix of super fund Net bad and doubtful debt charges pre and post DP Basis points FY 97 1H 98 2H98 1H 99 2H99 1H 00 2H00 Bad Debt charge before DP Bad Debt charge including DP 1H 01 2H01 1H 02 2H02 1H 03 2H03 1H04 JP Morgan Australasian Investment Conference Oct

14 Basel II progress Basel II developments: - Final accord released end June 2004 recalibration of factors could still occur - Start date delayed to 2008 Repeated quantitative impact studies show Westpac s risk weighted assets falling by at least 25% Proportion of assets across classes 40% 30% 20% 10% 0% Group 1 banks Westpac Corporate Mortgage Other Retail SME Other Exposure Change in RWA under Advanced IRB 20% Initial capital release likely to be more modest as APRA examines full impact 0% -20% -40% -60% -80% Corporate Mortgage Other Retail SME Other Exposure Group 1 banks Westpac Group 1 banks are large, diversified with Tier 1 capital in excess of Euro 3bn JP Morgan Australasian Investment Conference Oct

15 NZ structured finance Westpac conducts certain structured finance transactions with exposure primarily to global financial institutions. These transactions have been under review by the NZ Inland Revenue Department (IRD) since late 2003 Westpac initially sought multiple layers of advice to ensure the transactions conformed with New Zealand tax law and this was confirmed by the IRD in a binding ruling on one transaction Westpac has received amended assessments from the IRD for the 1999 year only. Total potential liability (tax and interest) based on 1999 transactions is NZ$127m JP Morgan Australasian Investment Conference Oct

16 NZ Structured Finance recent changes On 21 September 2004 the NZ government announced a change in taxation rules with the introduction of a thin capitalisation regime New rules specific to banks will deny interest deductions if the Bank does not hold a level of capital equivalent to four percent of New Zealand risk weighted assets Change will make current structured finance activities in New Zealand uneconomic (no new transaction done in NZ in over 2 years) New rules apply from 1 July 2005 Impact on Westpac: - Reduced NZ Structured Finance revenue going forward, from ~$85m 1 for year ended 30 September 04, ~$40m 1 to 30 September 2005 and nil in Total Structured Finance revenue is approximately ~$180m 1 for year ended 30 September Alternate transaction structures outside New Zealand may see loss of NZ revenue offset by around half by Grossed up pre-tax equivalent JP Morgan Australasian Investment Conference Oct

17 New Zealand corporate structure The Reserve Bank of New Zealand (RBNZ) has adopted a policy that systemically important NZ banks should be incorporated in NZ Westpac NZ currently operates as a branch in NZ and has been in discussion with the RBNZ over recent years, seeking to achieve an alternative outcome Recent statements from Australian and New Zealand Ministers suggest a regulatory convergence of Australian and New Zealand regimes is desirable In June 2004 Westpac presented the RBNZ with a possible corporate structure model developed in a consultative process the buttressed branch model providing: - Increased certainty for NZ authorities on the identification and quarantining of NZ assets and operations in the event of failure - Local governance processes - Maintaining the flexibility of the branch structure particularly for funding Currently awaiting a response from the RBNZ JP Morgan Australasian Investment Conference Oct

18 Australasian economic prospects remain strong Australia and New Zealand economic fundamentals sound due to: - Solid domestic demand - Low unemployment In addition, business surveys continue to paint a positive outlook Australian incomes have been boosted by a strengthening of our terms of trade Further slight rise in interest rates expected later in 2004 Key economic indicators Financial year ended World (Calendar year) GDP Australia GDP Unemployment New Zealand GDP Unemployment Sep 04 % Sep 05 % JP Morgan Australasian Investment Conference Oct

19 Credit growth expected to ease as housing cools Australian credit growth Forecasts ( To Sep 2005) % % Sep-90 Sep-92 Sep-94 Sep-96 Sep-98 Sep-00 Sep-02 Sep-04 Source: RBA, Westpac Housing Business Total Housing average Total (Aust) Total credit average Sep-05-8 JP Morgan Australasian Investment Conference Oct

20 Some increase in competition evident Medium term expectations are for margins to ease 5 to 10 basis points per annum Some increase in competition at the margin on both lending and deposits, driven by: - Strong industry returns - Distraction of some established players - New entrants Competition partially offset by more favourable interest rate environment Long term group margins and spreads Margins Spreads Series break due to reclassifications H02 2H02 1H03 2H03 2H04 Current levels of competition in line with the experience over the last decade Accordingly, medium term expectations remain appropriate JP Morgan Australasian Investment Conference Oct

21 Supportive credit quality environment Forward indicators of credit quality remain strong - Unemployment at generational low - Consumer confidence is at a decade high, households positive about their finances - Robust corporate profits - Comfortable levels of business gearing - No major corporate defaults - Low delinquency rates across portfolio Accordingly, the bad debt expense in the second half of 2004 is likely to be below the medium term guidelines of 25 to 35 basis points Households stress not apparent % Source: ABS, Westpac-MI Unemployment rate (lhs) Family finances vs year ago (rhs)* Sep-86 Sep-89 Sep-92 Sep-95 Sep-98 Sep-01 Sep-04 Corporate balance sheets in good shape Debt to equity ratio % Source: ABS index Mar-89 Mar-92 Mar-95 Mar-98 Mar-01 Mar-04 % * Family finances Westpac Melbourne Institute Consumer Sentiment Index August 2004 JP Morgan Australasian Investment Conference Oct

22 Summary The Australasian economic environment remains accommodating Signs of increased competition at the margin are consistent with long term trends Current local and international regulatory trends are under control and are not expected to materially adversely impact earnings With a strong position in its core markets and established momentum Westpac is well positioned to continue delivering returns at the top end of its peers JP Morgan Australasian Investment Conference Oct

23 Investor Discussion Pack October 2004

24 Index Note: All financial information is as at 31 March 2004 unless otherwise indicated. Cash earnings 3 Segment contributions 5 Market share 6 Margin analysis 8 Non-interest income 10 Credit card interchange 11 Financial Markets income 12 Expenses 13 Business markets strategy 15 BT Financial Group 19 Risk management 25 Credit quality and portfolio composition 29 Housing market 32 Capital 39 Hybrid equity reporting 40 Compliance projects, Basel II and IFRS 41 Epic 43 Structured finance 44 Quadrant 46 Economic Outlook 47 Strategy 49 Executive team 52 Risks 53 Investor Relations Contacts 54 2

25 1H 2004 Cash earnings up 13% Cash earnings $m 1,500 1, (68) 7 (98) (44) 1, ,095 1, Mar-03 Net Interest Income Non- Interest Income Expenses Bad Debts Tax Other Mar-04 3

26 Cash earnings half on half patterns Movement in 2H03 to 1H04 was more subdued than annual growth This pattern of growth has been consistent over time given: Dec/Jan are more subdued months June business refinancing cycle In 1H04 this pattern was exacerbated by credit card interchange fee changes which reduced the change in operating income between 2H03 and 1H04 by $33m $m H ,095 1,233 2H 981 1,067 1,176 - % 2H- 1H % 1H- 2H Net impact of recent credit card changes on operating income relative to 1H03 $m Net impact 2H H04 (9) na 4

27 Sound contribution across all businesses Cash earnings Growth 1 1H03-1H04 Business & Consumer Banking 19% BT 25% Institutional Bank NZ H H H % 11% 1 $m NZ % growth in AUD terms 5

28 Market share enhanced over year Westpac has consistently increased its market share in key segments over the last three years (to 30 June): Business lending up 170bps Retail deposits up 110bps Cautious approach to housing over the last three years (to 30 June): Household down 100bps Australian financial system market share 20% 18% 16% 14% 12% 10% 8% 6% 4% Business credit Total credit Household credit Retail deposits Source RBA Australian market share RBA financial system aggregates Jun 04 % Jun 03 % Change (bps) half year Credit Household (housing & other personal) bps Other (mainly business) bps Total credit bps Retail deposits bps 6 Note: Westpac s household and other market share statistics have been adjusted following the RBA s revision of its methodology for calculating credit data to better reflect the impact of securitisation, announced 31 May 2004.

29 Tax breakdown $m 1H04 2H03 1H03 Tax expense Tax expense as a % NPBT 25.9% 25.8% 24.0% Adjustments Policy holder tax recoveries (11) (18) 13 Normalised tax expense Normalised tax rate 25.3% 24.6% 24.9% Effective tax rate inc gross up % 30.7% 29.2% 1. The tax equivalent gross up represents the economic benefit the Group derives from entering into various structured financing transactions that generate income subject to either a reduced or zero rate of income tax. 7

30 Group margin dynamics Margins down 9 basis points over the year in line with long term expectations Spread down 21 basis points over year driven by normal decline and some cyclical factors including the change in the monetary policy cycle Of the 9 basis point fall in margins over the year, two thirds of the decline occurred in 2H03 Group margins 1H03 1H04 % Spreads Free funds benefit Most of the easing in margins in 1H04 can be traced back to lower Australian spreads Long term group margins and spreads (6bps) 2.59 (9bps) bps 3.5bps Series break due to reclassifications Margins Spreads H02 2H02 1H03 2H03 2H H03 Group margins 2H03 Australian Spreads NZ Spreads Other Spreads Free funds Hybrids 1H04

31 Australian margins The decline in Australian margins has been due to a variety of factors: - Transitory change in the cash/bills spread has impacted spread by around 6 basis points in 1H04 - Strong lending growth not fully matched by deposit growth - Mortgage spreads lower from product mix changes, with a high proportion of fixed rate lending and packaged products - Cards spreads lower due to introduction of Virgin card (low card rate) and reduced revolver rates across the portfolio Reduced asset spreads almost fully offset by improved liability spreads Australian deposits spreads increased basis points following increases in official cash rates Function Cash /30 Day bills spread Funding & portfolio Assets mix Liabilities Change in Australian spread Impact on Group margins Australian product spreads Product Mortgages Cards Business Consumer Deposits Business Deposits 2H H H03 to 1H04 Indicative (6bps) (5bps) (6bps) 4bps (13bps) (9bps) 2H03 1H

32 Non-interest income analysis $m 1, , ,400 (23) (9) 1,300 1,439 1,200 Mar-03 P'holder Rec. Financial Markets Net card impact BT Adjustment Core Noninterest income Mar-04 10

33 Credit cards fee impact of recent changes Interchange reforms have been accompanied by a significant increase in competitive intensity: Introduction of new lower rate cards Entry of companion cards More card users taking advantage of interest free periods (lower revolver rates) $m Interchange income 1H H H04 76 Our strategic response has been successful Growing balances from success of Virgin card Market share of outstandings 19.3% from 18.5% a year earlier Market share of accounts 16.3% from 15.8% a year earlier Successful roll-out of Amex companion card Net impact of interchange reforms and our strategic response will be broadly earnings neutral by 2005 and beyond. Repricing implemented in 1H03 Rewards costs Fee repricing Other fee income Cards noninterest income (76) (82) (81) Interchange reforms Oct 03 Reward point changes to impact in 2H04 and beyond 11

34 Financial markets income Financial markets income 20% lower than prior corresponding period and 6% below previous half. Result consistent with expected volatility, although recent performance has been below average Recent period accompanied by a small rise in the average value at risk (VaR). VaR is well within approved limits Measures to improve performance have been implemented - Ceasing coverage of interbank markets where we no longer have a competitive advantage - A number of operational changes Financial markets income ($m) H02 1H03 2H03 1H04 FX Interest Rate Product FM Other Monthly average VaR ($m) Distribution of Financial markets daily P&L 1H Apr-03 May-03 Monthly average VaR Board Limit Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Number of trading days to to to to to to to to 1.5 $m 2 to to to to to to 7.5 >8 12

35 Expense to income now under 50% Banking expense to income % % 1H02 2H02 1H03 2H03 1H04 Group - expense to income % % Wealth expense to income % H02 2H02 1H03 2H03 1H H99 1H00 2H00 1H01 2H01 1H02 2H02 1H03 2H03 1H04

36 Deferred expenses $m 1H04 2H03 1H03 % Change 1H03 1H04 Capitalised software Other deferred expenditure Deferred acquisition costs (funds management) Capitalised software - major projects $m Amortisation period (years) 1H04 1H03 % Change 1H03 1H04 Loan process re-engineering (Pinnacle) Institutional Bank (incl. Financial markets systems) Standardised PC platform (One Bank) Channel development and distribution Product enhancement Customer relationship management (Reach) Other Australia (23) Teller platform upgrade, New Zealand Other New Zealand (2) Total

37 Consistent strategy since 1999 to capture business market Business lending (SME and Middle Market) up 18% against market growth of around 6% Australian business credit market share 13% 12% Strategy focused on better meeting the needs of small and medium businesses 11% 10% 9% Source RBA 8% What small and medium businesses are asking Know my business Implementation of industry specialist teams Roll-out of business CRM underway Fast decision making Decision making process streamlined in 1999 Further process improvement being rolledout under re-engineering project (Pinnacle) Better relationships Business Online revamped and updated Selective return of business bankers back to the branches 15

38 Business banking re-positioning began in 1999 Market share of business credit (smoothed) 15% 10% 5% Five years of declining share Numerous competitor attacks on customer base Rigorous diagnostic started Efficiency program Streamlined loan & simplified credit Segmentation & packages solutions Westpac is open for business Launched Business Online Feet on the Street - new business branch roles Revamped SME Strategy Profit Pools We make it our business to understand your business Redefined customer segmentation Brand repositioned Reach pilot begins & Pinnacle rollout commences Note: Source: Actual market share results have been smoothed to show the underlying trend (12-month rolling average) RBA financial aggregate returns, business credit includes small and medium business customers as well as institutional customers 16

39 Industry specialisation a key differentiator Industry specialisation work started in 2000 Ten industry sectors targeted Packages represent unique solutions for each sector Supported by a nationwide network of industry specialist managers and relationship managers Industry Industry A (2002) Industry B (2002) Industry C (2001) Industry D (2003) Industry E (2003) Industry F (2002) Industry G (2001) Improvement since package introduced* Number of Connections 24% 29% 33% 2% 5% 8% 4% Average footings per connection 18% 14% 7% 7% 40% 17% 17% Average product penetration per connection 4% 4% 9% 5% 5% 2% 1% * Improvement on existing customer base before solution launch, after runoff 17

40 Customer satisfaction Consumer Satisfaction - % of main financial institution customers very or fairly satisfied 70% SME satisfaction 65% 60% 55% 50% WBC Peer Average 65% 45% Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 60% Middle Market & Priority satisfaction 75% 70% 55% Sep 00 Mar 01 Sep 01 Mar 02 Peer average Sep 02 Mar 03 Sep 03 WBC Mar 04 65% 60% 55% Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 WBC Peer Average Dec-03 Mar-04 Jun Source: Consumer - Roy Morgan Research. Data based on rolling four quarter average. Consumer satisfaction is up to May 2004 and based on consumers aged 14+ who regard Westpac as their MFI. Business - TNS Business Finance Monitor is since June 2002.

41 BT integration on track Integration progress People & Location Systems Complete In progress Synergies $m Synergies estimated at acquisition Updated estimated synergies 2003 actual achieved run rate Customer Contact Investment Management Registry consolidation Selected back-office insourcing 20 Jul-02 Oct-02 Jan-03 May-03 Aug-03 Nov-03 Mar-04 Jun-04 Sep-04 Oct-04 Nov-04 Dec

42 Performance turnaround: Australian equities BT Core Fund 1 vs S&P/ASX300 Accumulation Index BT Balanced fund performance against market % 6.0% % 4.0% 0.4% 0.0% -0.4% -0.8% 2.0% 0.0% -2.0% % -4.0% 5-1.6% -6.0% 5-2.0% -8.0% May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Monthly portfolio excess return (LHS) One-Year Excess Return (RHS) 1. BT Institutional Core Australian Share Sector Trust. Benchmark: ASX300, Pre Fee / Pre Tax 1. BT Institutional Core Australian Share Sector Trust. Benchmark: ASX300, Pre Fee / Pre Tax 0 1Mth 3mth 1yr 3yrs Fourth Quartile Third Quartile Second Quartile First Quartile BT Performance Source: Intech Interim Survey periods to 31 August

43 Net fund flows Net retail FUM against acquisition model Tracking BT funds acquired from September 02 $bn Sep 02 Acquisition model Actual Dec 02 Mar-03 Jun-03 Sep-03 Acquisition value buffer Paid 80% of NPV Additional BT synergies Every $1bn in retail FUM below acquisition model reduces NPV by $40m Dec 03 Mar-04 Dec 04 Dec-05 Impact on assessed NPV $305m $328m $40m Quarterly net funds flows Total BT 1,000 $m ,000-1,500-2,000 Dec-02 Mar-03 Jun-03 Sep-03 Retail flows Wrap Flows Institutional Dec-03 Mar-04 Notes: Retail includes super, retail investment, mezzanine, corporate super and pensions. Wrap is all wrap flows Institutional includes PPM, institutional business and structured investment product flows. 21

44 Growth in most wealth products remains strong Current Australian market share Product Retail Corporate super Wrap and master trust Life and risk Margin lending Broking Institutional Market share (%) Rank Sources: Retail& Wrap & M trust - ASSIRT Preliminary market share report August 2004, data as at 30 June 2004 Corporate super - Dexx&r Employer Super League Table March 2004 Life and risk - Dexx&r Life analysis, Quarterly Statistics ending 31 March 2004 Margin lending - BT loan book verses RBA industry total June 2004 Broking - ASX market analysis August 2004 Institutional - Investor Supermarket March Share of new business Market share Rank (%) n/a n/a 3 n/a 22

45 Australian funds under management Sept 03 March 2004 Asset class $bn Total Retail Retail % Cash % Australian Fixed Interest % International Fixed Interest % Property % Australian Equities % International Equities % Other* % TOTAL % *Includes FX, currency & asset allocation 23

46 BT CEO Succession Mr Rob Coombe Mr Rob Coombe will replace Mr David Clarke as CEO BT Financial Group in February 2005 Mr Coombe, 41, joined the Westpac with the acquisition of the BT Financial Group in 2002, where he was Executive Vice President with responsibility for the asset accumulation business and CEO elect at the time. Following the BT acquisition, Mr Coombe headed up all of the asset accumulation functions and has been instrumental in the ongoing development of the highly successful BT Wrap Platform. Mr Coombe is currently responsible for the distribution of all investment and platform products, including BT Wrap, Westpac Broking and recently took over responsibility for Westpac s financial advisers and planners. 24

47 Risk management framework Board Board Committees Independent internal review Group Risk Reward Committee Executive risk committees Corporate Core - Group Risk Business units Considers and approves the risk / reward strategy of the Group Approves key risk parameters and monitor the effectiveness of risk management by Westpac Review and approve Westpac s Group risk management policies relating to credit risk, market risk, operational risk and compliance Ensure appropriate internal control mechanisms are in place and are being implemented Maintain a direct and ongoing dialogue with Westpac s auditors and, where appropriate, principal regulators Board Risk Management Committee Assists Board fulfil oversight responsibilities for matters relating to the management of credit, market and operational risks and compliance with legal and regulatory requirements. Approves credit and other transactions beyond executive management authority. Group Credit Risk Committee Optimisation of credit risk / reward and oversight of portfolio performance, determination of limits and authority levels within Board approved parameters Board Audit Committee Assists the Board in fulfilling its oversight responsibilities for integrity of financial reporting, internal and external audit. Group Market Risk Committee Optimisation of market risk / reward for traded and non traded market risk. Oversight of portfolio performance, determination of limits with Board approved parameters Enterprise wide view of risk and its impact on performance Development of Group wide strategy, framework and policies for all major risk classes Responsible for consistency, standardisation and control across the Group Define and promote Group wide risk management culture Board Social Responsibility Committee Assists the Board in fulfilling its oversight responsibilities for corporate responsibility and sustainability including matters relating to the monitoring and management of reputation risk. Group Assurance Independent reviews and evaluation of the adequacy and effectiveness of management s control of operational risk Independent evaluation of credit portfolio quality and performance Membership CEO (Chair), Group Executives and Group General Managers Sets and leads the risk optimisation agenda for the Group Recommends to Board appropriate risk reward positioning and links this to decisions on overall capital levels and composition Initiates and oversees strategies that alter the Group s risk reward profile and sets boundaries for risk appetite and earnings volatility Oversees the performance, role and membership of the Group Credit Risk, Group Market Risk & Group Operational Risk and Compliance committees Group Operational Risk & Compliance Committee Risk decisions and governance of operational risk and compliance including framework and Group policies as well as oversight of the Group s operational & reputation risk profile Managing risks inherent in their business including the development of business specific policies, controls, procedures and reporting for relevant risk classes, including reputation risk, within Group Framework and in consultation with Group Risk 25

48 Forward credit indicators in good shape Housing Portfolio - 90 day delinquencies % 1.5 Aust. Business Banking - 90 day delinquencies (3 month moving average) % H H04 Consumer Unsecured - 90 day delinquencies % H04 WIB - impaired assets to committed exposure % H04 26

49 Stressed exposures continue to decline Categories of stressed exposures as a % of total commitments 1.6% 1.4% 1.2% 1.0% Watchlist & substandard 90 days past due well secured Impaired % Specific provisions / impaired assets FY98 FY99 FY00 FY01 FY02 FY 03 1H04 0.8% 0.6% 0.4% General provisions / non-housing performing loans & acceptances % % % Sep 99 Sep 00 Sep 01 Sep 02 Sep 03 1H FY98 FY99 FY00 FY01 FY02 FY 03 1H04 WBC ANZ CBA NAB 27

50 Bad debt analysis $m 1H04 2H03 1H03 Write-offs (128) (133) (142) Net transfer to/from specific provisions (73) (70) 17 Recoveries of debts previously W/O Bad debt charge-off (166) (176) (78) Increase in general provision (41) (95) (136) Net bad debt expense (207) (271) (214) General provision 1,432 1,394 1,309 General provision to non-housing loans & acceptances 1.7% 1.7% 1.7% Total bad & doubtful debt charge (annualised) to average loans and acceptances bp 30 Long run expectation basis points Adjusted 1995($133m) 1996 for provisions 1997 transferred on sale 2000 of AGC H04 28

51 Composition of portfolio Mortgages represent 42% of total commitments and 57% of funded lending 65% business / corporate exposure exceed investment grade Other consumer includes credit cards, personal lending and margin lending Total Committed Exposure 1 by customer segment 100% 80% 60% 40% 20% 0% 9% 9% 8% 9% 9% 8% 34% 36% 38% 40% 42% 42% 57% 55% 54% 51% 49% 50% Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Business / Corporate Consumer Mortgages Other Consumer On balance sheet lending - March 2004 Business / Corporate 37% Mortgages 57% Other consumer 6% Margin Lending Personal Loans Cards 80% 60% 40% 20% 0% 1.3% 16% 12% 11% 8% Total Committed 1 Business / Corporate exposure 1.2% 0.9% 17% 15% 12% 11% 9% 0.9% 0.7% 16% 16% 16% 12% 12% 11% 8% 0.9% 7% 7% 17% 17% 18% 14% 13% 15% Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 AAA to AA- A+ to A- BBB+ to BBB- BB+ to B+ <B Total committed exposures include outstanding facilities and undrawn commitments that may give rise to lending risk or pre-settlement risk

52 Total exposure by region Exposures outside core markets represent less than 3% of total committed exposures sub investment grade represent less than 0.4% of total exposures (excluding core markets of Australia and New Zealand) $m Australia NZ/ Pacific Americas Europe Asia ex Japan Japan Group AAA to AA- 34,908 5, ,900 A+ to A- 14,786 1,914 1,350 1, ,282 BBB+ to BBB- 23,894 5, , ,755 BB+ to B+ 39,649 7, ,481 <B+ 1, ,050 Secured consumer 101,928 18, ,945 Unsecured consumer 20,486 2, , ,813 42,332 2,833 3, , Total committed exposures by booking office at 31 March

53 Reduced single name concentration Top 10 exposures to corporations and NBFIs March 04 Top 10 exposures as a % of total committed exposure March 04 S&P Rating or equivalent AA+ BBB+ BBB+ A A+ A A+ A- A BBB+ 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% Total exposure of Top 10 = $5.1bn - March ,000 $m 0.0% H04 31

54 Housing market beginning to slow 32 Overall housing lending up 13.5% against system growth of 19.8% leading to market share easing by 120 basis points over past year 1 Strategy has been to focus on profitable growth: - Proportion of third party originated loans constant at ~30% - Investor housing growing 19% against market growth closer to 27% - Cautious approach to low-doc loans 1 30 June 2003 to 30 June 2004 Australian housing finance no.'000 1st homebuyers 2nd homebuyers Investors - ex constr'n(rhs) Feb-92 Feb-94 Feb-96 Feb-98 Feb-00 Feb-02 Feb-04 Westpac housing loan drawdowns ($m) 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 Source: ABS Oct Nov Dec Jan Feb Mar Apr May Jun Jul $bn 2002/ /2004 Aug Sep

55 Housing market state of play Real housing prices have risen 76% over last 5 years Credit growth similarly strong, averaging 16% over last 5 years Recent growth driven by: - Second and subsequent home buyers - Spending on existing dwelling - Investment property lending (not by first home buyers and not for new dwelling construction) Real house prices indexed index / / / / /00 Housing finance no. ' * owner occupiers second home buyers first home buyers established ex-refinancing new dwellings Aug-92 Aug-96 Aug-00 Aug-92 Aug-96 Aug-00 index no. ' Source: ABS 33

56 Drivers of housing credit growth Housing credit growth will, on average, continue to grow ahead of nominal GDP, supported by: - Continuing positive population growth - Decrease in average household size - A higher proportion of earnings is devoted to dwelling investment as standards of living increase Growth expected to ease considerably in year ahead Drivers of household formation % Population growth (lhs) 1990/ / / / / /01 Housing credit growth % Jan-80 Jan-84 Persons per dwelling, avg (rhs) Jan-88 Jan-92 Long term average 14.6% Jan-96 Jan-00 People Source: ABS Jan Forecasts Source: RBA 34

57 Mortgage portfolio characteristics Market share of housing eased on strong volumes - Owner occupied up 8% - Investment up 22% - Equity Access up 66% Funding for alterations and additions has boosted equity access lending Average LVR of new loans 64% up from 63% in 2003 Impact of recent NSW Land Tax and Stamp Duty changes across Australia will be closely monitored. Australian Mortgage Portfolio $ Bn Owner occupied Investment Equity Access 5 23 CAGR = 17% Proportion of total 12% 35% 53% H02 2H02 1H03 2H03 1H04 35

58 Mortgages - broker introduced loans 27% of outstanding mortgage portfolio is broker originated Third party introduced loans represent 30% of new loans in 1H04 by value Same underwriting standards applied to all applications, and more rigorous validation process Broker introduced loans have shown lower churn and longer average life than bank originated Broker introduced loans (Proportion of total by value) % Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar

59 Housing portfolio quality Total bad debts less than 3 basis points Delinquencies at acceptable levels 100% mortgage insurance where loan to value (LVR) ratio > 80%. Some exceptions include LVR , short-term /bridging loans and some employee loans this represents approx. $2b in exposure. Mortgage insurance also required for loans >$1.3m and LVR>70% Stop loss reinsurance cover over all retained Lenders Mortgage Insurance underwriting risk in place with a "AA" rated re-insurer. Stop loss re-insurer assumes abnormally high claim costs incurred in any year above a 1 in 25 years loss event through to a 1 in 70 years loss event. Investment lending for CBD property stable at 2% of housing portfolio. Minimal impact expected from APRA proposed changes to risk weightings for Low Doc loans. Low doc loans currently outstanding represent less than $150m all are mortgage insured. Mortgage insurance structure 82% Proportion of portfolio with initial LVR > 80% 18% 100% Westpac Lenders Mortgage Insurance 30% - Reinsured AA Insurer Lending for CBD property $bn Sydney Melbourne Brisbane Other Total

60 Housing portfolio quality Westpac constantly conducts stress testing of its portfolios to uncover potential risks Current stress testing on housing demonstrates the strength of the portfolio APRA stress testing has further confirmed overall industry strength Westpac Capacity 2003 Stress to absorb Test Results interest rate Base rises casestrong Scenario with 73% A of amortising Scenario B borrowers repaying in excess of required minimum Interest rates - % pa Westpac Individual 2003 effect stress $m testing results Housing prices fall - % Individual effect $m Unemployment rate - % Individual effect $m Combined effect $m Combined effect - bps

61 Tier 1 and ACE ratios in target ranges ACE Tier 1 Capital ratios and target ranges Ratios as at 31 March TPS raising in April 04 (US$ 525m) May/June 2004 structured off-market buyback ($558.6m) July 2004 TOPrS called (US$ 322.5m) Deduction for capitalised expenses (effective 1 July 2004) Pro-forma ratios - 30 September % - -38bps +3bps - ** 4.75% 7.2% +46bps * -38bps -29bps -20bps 6.54% * A portion of this 46bps exceeds the APRA 25% hybrid limit ** Consistent with current ACE target range of 4.5.% - 5.0%, no planned deduction for capitalised expenses at this stage 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% Mar-00 Sep-00 Mar-01 Sep-01 Mar-02 Sep-02 Mar-03 Sep % 4.0% 3.5% 3.0% ACE Tier 1 Mar-04 Sep-04 39

62 2004 hybrid issue complicates reporting Historical practice USD issues accounted for as equity, no hedge accounting available Typically swapped into NZD Hedge achieved through offsetting USD capital invested in UK/US Sufficient capital deployed to offshore branches for commercial and regulatory purposes providing natural hedge Net profit after tax Goodwill amortisation Preference Dividends MTM TPS Hedge Cash earnings 1, (76) 0 1, Trust Preferred Securities Issued in USD (525m) and funds used in NZ (NZD) Swap put in place for risk management but not given hedge treatment Post IFRS implementation instrument will be debt and swap will be effective hedge Mark to market of swap will impact NPAT until 1 Oct 2005 (IFRS transition date) but we will isolate from cash earnings. For 2003/04 financial year, a $6m deduction from net profit is anticipated. 40

63 Conversion to IFRS Key areas of impact Business impact Financial impact Comments Hedge Accounting H H All derivatives at fair value, stricter hedge accounting requirements. Potential for significant volatility if hedge accounting not achieved Bad debt charges M H Current general provision levels will significantly reduce, general provision may only cover incurred losses Superannuation M H Further transitional adjustment on adoption following removal of corridor - earnings volatility when market over/under performs Life insurance H M Insurance contract vs investment contract, significant impact on reporting systems and disclosures. Debt vs equity H M Stricter debt/equity classifications, including impact on hybrids Special purpose vehicles (SPVs) M M Interpretation of control to converge under IFRS, consolidation of additional SPVs. Likely consolidation of securitisation vehicles Business combinations M M Amortisation of goodwill replaced by rigorous impairment testing, identifiable intangible assets must be identified and valued Transaction costs and fees & interest calculations M L Included in the initial measurement and recognised over the life of the asset or liability on an effective yield basis, system enhancements required Share based payments L L All share based remuneration expensed and amortised over the relevant vesting period 41 H = High M = Medium L = Low

64 WIB - Structure and distribution of alternative assets Listed Unlisted Retail Wholesale IPO Trust Structure Single Asset Multi Asset Electranet (Hastings Infrastructure Fund) Halcyon Notes Hastings Income Trust Foodland Property Trust Hastings Diversified Utilities Fund Australian Energy Income Fund 42

65 EPIC On 2 June 2004, Hastings Funds Management (51% owned by Westpac) acquired a 100 per cent holding in three strategically placed natural gas transmission pipeline assets ( EPIC ) via a trust structure including: - The Moomba to Adelaide Pipeline System in South Australia; - the South West Queensland Pipeline in Queensland; and - the Pilbara Pipeline System in Western Australia Assets to be sold to investors via the Hastings Diversified Utilities Fund Risk Weighted Assets Deduction to Total Regulatory Capital and ACE Expenses Cash Earnings Expected Impact FY04 +$360m -$297m +~$18m Minor Assets consolidated as 100% of seed equity provided by Westpac Assets remain on balance sheet as at 30 September

66 Structured Finance portfolio Westpac conducts certain structured finance transactions with exposure primarily to global financial institutions. Total portfolio size approx $10.6bn with a mix of asset and liability transactions Structured Finance transactions currently under review by the New Zealand Inland Revenue Department (IRD) since late tax year would have been statute barred at 31 March 2004 so Westpac granted a waiver to 30 September 2004 to allow further analysis to continue Westpac initially sought multiple layers of advice to ensure the transactions conformed with New Zealand tax law and this was confirmed by the IRD in a binding ruling on one transaction Other transactions were modelled on this ruling, and new recent advice confirms earlier view On 30 September 2004 Westpac received amended assessments relating to transactions in the 1999 year from the IRD. The maximum tax liability reassessed for the 1999 year only is NZ$ 25m (including interest) Structured finance portfolio by rating July 04 60% 50% 40% 30% 20% 10% 0% 7% 32% 51% 3% 4% 2% 1% AAA AA+ AA AA- A+ A A- Should the NZIRD take the same position across all of these transactions for the periods up to and including the year ended 30 September 2004, Westpac has calculated that the maximum potential overall primary tax liability in dispute would be approximately NZD647 million (tax effected) including interest 44

67 Structured Finance recent changes On 21 September 2004 the NZ government announced a change in taxation rules with the introduction of a thin capitalisation regime New rules specific to banks will deny interest deductions if the Bank does not hold a level of capital equivalent to four percent of New Zealand risk weighted assets Change will make current structured finance activities in New Zealand uneconomic (no new transaction done in NZ in over 2 years) New rules apply from 1 July 2005 Impact on Westpac: - Reduction in NZ Structured Finance revenue going forward, reducing from ~$85m 30 September 04, $39m to 30 June 05 and nil in Total Structured Finance revenue ~$180m at 30 September 04 - Alternate transaction structures in other jurisdictions may see loss of NZ revenue offset by around half by

68 Quadrant Westpac s private equity business Westpac operates a number of small private equity funds principally investing in a small number of unlisted companies the Quadrant funds The funds have a 10 year life and source money from high net worth individuals along with seed capital from Westpac. In 2004, one of those funds achieved a very high return from investments in Pumpkin Patch, Village Life, Law & Economics Consulting Group (LECG) and Tasman building products This performance had the following financial consequences - An increase in reported revenues by around $43m, a combination of a direct return on funds investment and performance fees from the management of the funds - An increase in reported expenses of around $13m related to performance fees payable to managers These results will be reported within the Institutional Bank 46

69 Australian and New Zealand economic outlook Australia and New Zealand economic fundamentals sound due to: - Solid domestic demand - Low unemployment Key economic indicators Financial year ended World (Calendar year) GDP Jun 04 % 4.4 Jun 05 % 4.0 Export recovery to boost economy in 2004, driven by stronger global economy and the recent rebound in farm output Further slight rise in interest rates expected later in 2004 Australia GDP Unemployment New Zealand GDP Unemployment Source: Westpac 47

70 Economy operating with a more sustainable mix Key contributors to GDP 8 8 Percentage point contribution / / / /04f 2004/05f Domestic demand Net exports GDP -4 Source: ABS, Westpac 48

71 Clear and simple strategy Vision Strategy How? Outcomes To be a great Australian and NZ Company A great place to work A superior customer experience 1st quartile shareholder returns A good corporate citizen Customer Focus Differentiator: Superior Execution Our high performance culture: Quality people Effective people & performance mgt processes Values Medium term Objectives Best practice employee commitment Service leadership in our industry Top quartile shareholder returns Leader in corporate responsibility Mission To be at the forefront for service in our industry by September 2005 Values Teamwork Integrity Performance Internal Service Quality Employee Commitment Employee Retention Employee Productivity Service Profit Chain Employee Customer Shareholder Superior Customer Experience Customer Satisfaction Customer Loyalty Revenue Growth Profitability Shareholder Value Ask Once 49

72 Improving sustainability staff, customers, community Employee commitment % of employees reporting a positive score 70 Consumer Satisfaction - % of main financial institution customers very or fairly satisfied 70% % Westpac Global high performing companies Australian large company national norm Global large financial services company norm 60% 55% Sep 00 Mar 01 Sep 01 Mar 02 Peer average Sep 02 Mar 03 Sep 03 WBC Mar 04 GovernanceMetrics International One of 22 (out of 2,100) companies globally to achieve a top 10.0 score for corporate governance Number 1 In the global banking sector 2004/2005 for third consecutive year Australia - Number 1 company overall only company to receive a AAA rating. 50

73 Acquisition guidelines No particular requirement to acquire customers - Customer franchise enhanced in Australia and New Zealand with three regional bank acquisitions Filled major strategic gaps - Wealth management capability enhanced with three acquisitions in 2002 Subject to acquisition disciplines, some opportunities remain in core markets with not all assets in the hands of their natural owners Disciplined approach - Aligned with strategic direction - Strict valuation criteria - Not unduly diverting 51

74 An experienced executive team Name Title Date joined Group Executive Biography David Morgan Chief Executive Officer Oct 1990 Joined 1990, CEO since Headed all major business units in Westpac prior to CEO appointment in March Extensive prior experience in financial sector including in the IMF and the Australian Federal Treasury Ilana Atlas Group Executive People and Performance Nov 2002 Joined Westpac 2000, as Group Secretary and General Counsel. Previously Partner of a Major Law firm, Mallesons Stephen Jaques. In current role since 2002 Philip Chronican Chief Financial Officer Jan 2001 Joined Westpac 1982, Appointed CFO in Feb Previously Deputy CFO and has held CFO roles in both retail and institutional banking David Clarke 1 Chief Executive Officer BT Financial Group Jul 2000 Joined Westpac 2000, and appointed to current role September Prior to that headed the Australian Business & Consumer Bank. Before joining Westpac was an Executive Director of Lend Lease and CEO of MLC Ltd Philip Coffey Group Executive Westpac Institutional Bank May 2002 Joined Westpac 1996, in current role since Previously with AIDC, Citicorp Global Asset Management and Citigroup Michael Coomer Group Executive Business & Technology Solutions & Services Jan 2002 Joined Westpac to current role in January Michael has 30 years experience in Information Technology covering a broad range of industries Mike Pratt Group Executive Business and Consumer Banking Apr 2002 Joined Westpac in April 2002 as Group Executive New Zealand & Pacific Banking. Appointed to current role in August Extensive experience in retail banking including CEO Australian Financial Services for National Australia Bank and CEO Bank of New Zealand Ann Sherry Group Executive New Zealand & Pacific Banking Mar 1999 Joined Westpac in 1994, in current role since October Ann has headed People and Performance for the Group and was CEO Bank of Melbourne following the Merger in David Clarke will be leaving Westpac in Feb 2005 and Rob Coombe has been appointed to take over as CEO BT 52

75 Where are the risks? Risk Probability of occurrence Irrational competition Medium Housing market collapse Low Blow-out in bad debts Low Greater than expected funds outflows Low Re-regulation Low New wave of corporate collapses Low Global economic recession Low 53

76 Investor relations contacts Westpac s Investor Relations Team Andrew Bowden andrewbowden@westpac.com.au Hugh Devine hdevine@westpac.com.au Suzanne Evans suzanneevans@westpac.com.au Address Level Martin Place Sydney NSW 2000 Australia Fax Natasha O Reilly noreilly@westpac.com.au For further information on Westpac including: Annual reports Financial result announcements Presentations and webcasts Corporate history Key policies Please visit our dedicated investor website 54