Westpac. Active Management of our Funding & Capital

Transcription

1 Westpac Active Management of our Funding & Capital 1

2 Objectives Meet the needs of the franchise Low risk profile Lower cof than our competitors Optimum level and structure Sep 96 Sep 97 Sep 98 Mar 99 TOTAL ASSETS Liabilities Retail Funding Wholesale Funding Other Equity TOTAL LIABILITIES Focus of this presentation is wholesale funding and capital 2

3 Strategy Retail deposits; at a minimum maintain share but not at a cost over wholesale funding. term deposits; based on our current understanding of our cost structure we would need a 3% increase in volume per 1bp increase in customer rates to break even in EVA terms. Wholesale funding; securitisation debt markets as a brand franchise active diversification strong risk culture, similar to credit, market and operational risk medium term outcome is lowest cost Capital find the optimum level and structure ROOE EPS 3

4 Discussion: Retail Deposits Retail Deposits Dis-intermediation of bank deposits Super Funds Management Increase competition ADIs Internet BANKING SYSTEM FUNDING SHORTFALL Forecast Non funding loan growth Deposit growth Shortfall Change in shortfall

5 Discussion: Wholesale Funding Securitisation liquifies the asset side of the balance sheet issued $6.90b public $1.85b private $8.75b total best international Australian bond issue 1997, 1998 Euroweek most market players agreed. that the deal proved a successful debut Euromoney 5

6 Discussion: Wholesale Funding Wholesale Funding Building the brand meet investor demand generate ongoing participation active ongoing investor contact credit positioning intermediary sponsorship appropriate fee for risk 6

7 Discussion: Wholesale Funding Public Transactions 13% of wholesale funding optimal size to open new markets achieves term preference Build the brand appropriate fees to intermediaries investor friendly approach to issuance fair value/relative value = Higher cost in the shorter term, yet lower cost in the longer term 7

8 Spread differential between Commerzbank (AA-/Aa3) USD1,000m 5.375% due Feb 04 and WBC (AA-/Aa3) USD500m 5.75% due April 04 8

9 Discussion: Wholesale Funding Private placement and continuous debt issuance 87% of wholesale funding lower cost leveraged off the brand who they gonna call intermediary sponsorship investor diversification flexibility to meet investor preferences anytime anywhere = Lower cost 9

10 Discussion: Wholesale Funding Diversified sources; anytime, anywhere = lower risk Offshore Market Access to > 3 Year Term Debt over the last 3 years WBC ANZ CBA NAB Traditional bank funding investor base typically money market funds, bank/corporate treasury investors Euro US$ FRN Euro FRN Euro FRN Institutional & Retail Investor Base Euro US$ fixed rate Institutional Retail Euro fixed rate Euro MBS Global MBS Japanese retail (Uridashi) Swiss Retail (Fixed CHF) Benelux retail (Euro A$/NZ$) Yankee market 10

11 Discussion: Wholesale Funding Managing the term Volume AUD bio % 85% 79% 99% 76% 24% 21% 15% 7% 1% Sep 95 Sep 96 Sep 97 Sep 98 Mar 99 Products < 1 Yr Products > 1 Yr Average Maturity Monthly Refinancing Task Months Longer term = lower liquid assets 11

12 Discussion: Wholesale Funding Market feedback loose bonds kill investor appetite over reliance in one market may mean overpaying in another lower number of intermediaries selected external testimonials Independent market awards: - Australian Borrower of the Year Euromoney Magazine - Financial Institution Borrower of the Year Euroweek Magazine (as voted by market intermediaries) - Australian borrower of the Year Euromoney Magazine Deal specific commentary reflecting market reception of public deals: - Westpac one of the market s favourite financial credits Euroweek April and Westpac is now established as a name that sells International Insider Bondwatch Screen April its strategy of spreading its funding across different sources means that it never overreaches itself in any single market, and it is able to maintain something of a rarity value premium. Euroweek, January 1999 Summary Good strategy can buy you lower risk and overall lower cost wholesale funding 12

13 Capital: The story so far Strong equity formation through pricing for risk managing the spread 3.20% Interest Spreads - Group 3.00% 2.80% 2.60% 2.40% 2.20% 1H H1997 1H1998 2H1998 1H % WBC ANZ CBA NAB SGB Interest Margins _ Group 4.00% 3.50% 3.00% 2.50% 2.00% WBC ANZ CBA NAB SGB 1H H1997 1H1998 2H1998 1H

14 Capital: The story so far Impact of buybacks In total total consideration for volume bought back = $2.863b 2.863b x.0475 = $136m per annum ($87m NPAT) Per 1% of equity ratio (as at 1H99) Tier 1 = -$48m Net Interest Income -$31m NPAT -.048% margin TOE/TA = -$66m Net Interest Income -$42m NPAT -.065% margin 14

15 Capital: The story so far Sustainable growth in equity through acquisitions that improve and protect franchise dynamic provisioning 15

16 Capital: The story so far Our growth in equity has been applied to: organic business growth acquisitions on market buyback Avg Start Sought(m) Actual(m) Buyback % of mkt Date Price 04 Apr Nov May Nov May Mar

17 Capital: The story so far: Results $701m 36.3c 23.0c 16.4% 58.7% 1H97 2H97 1H98 2H98 1H99 1H97 2H97 1H98 2H98 1H99 1H97 2H97 1H98 2H98 1H99 1H97 2H97 1H98 2H98 1H99 1H97 2H97 1H98 2H98 1H Profit* EPS* Dividends ROOE* Expense: Income Ratio * Return on Operating Equity (Pre abnormals) 17

18 Capital: Is it enough? Yes, but competitor activity business changes capitalisation of NZ franchise value in NZ advent of Tier 1 hybrids why did we wait? stakeholders re-evaluation of equity required to maintain franchise APRA rating agents economic equity 18

19 Capital: In future, what are the options to apply growth in equity: Constraint: Activity must generate returns in excess of our cost of capital (approx. 11%) Growth retail assets mortgages - 1 in 4 for new production business assets corporate assets Acquisitions On market buyback 19

20 Capital: In future, what are the options to apply growth in equity: Off market - Put Back Option offer to purchase say 73m shares (1 for 20) premium between 7% and 10% equal access listed shareholders who do not deliver shares may sell their right on market or their right will be auctioned and the proceeds forwarded to them 20

21 Capital: In future, what tools could we use to grow the equity base Constraints: source equity when its cheap ie. when you don t need it create diversified sources Securitisation retail MBS CLO Tier 1 US TOPrS Australian Tier 1 Common equity with a twist 21

22 Capital: Tools: Tier 1 US TOPrS USD 300m (Greenshoe USD 22.5m, Total USD 322.5m) 8% Fixed perpetual swaps into < Libor + 70 Australian Tier 1 up to AUD 500m BAB +[125] perpetual 22

23 Capital: Tools: Common equity with a twist NZ class capitalise NZ operations significant franchise value would be the only listed banking stock would trade same as Westpac ordinaries adjusted for currency 23

24 Potential Outcomes Issue of up to AUD 1.6b in new equity Tier 1 target of 6% - 6.5% Potential capital structure Common 5.1% NZ Class 0.5 Ordinary 5.6 Hybrid EPS positive ROOE positive 24