Investor and Analyst Briefing David Willis Group Executive 8 September 2000
Disclaimer The material contained in the following presentation is intended to be general background information on Westpac Banking Corporation and its activities as at 8 September 2000. The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending upon their specific investment objectives, financial situation or particular needs. 2
WIB Management Team Jim Tate - Customer Origination Phil Coffey - Financial Markets Sean McElduff - Corporate Finance Simon Narroway - e-business David Makinson - Financial Control Bob Tomlin - Risk 3
Agenda 1.0 Introduction 2.0 Business Performance 3.0 Other 4.0 Conclusion 4
Agenda 1.0 Introduction 1.1 Our Business Defined 1.2 Our Strategy 1.3 The Environment 1.4 Competitive Positioning 5
Our Business Defined We assist and advise in the management of cash, funding, capital and market risk for companies and institutions operating or investing in Australia and New Zealand. 6
Customers: 2,800 Buying Behaviour: Three customer groups Global Corporates and Institutions 1358 Regional Corporates and Institutions 586 Small to Medium Sized Enterprises 860 7
Customers: 2,800 Industry Segments: 13 management teams Asian Business Banks Consumer Energy & Utilities Government Health Industrials Media NBFI s New Economy Property Resources Mid Sized Corp 8
Geography London 70 Staff New York 31 Staff Asia 80 Staff Australia 776 Staff New Zealand 246 Staff 9
Products Needs Group Products Advice Corporate, Resource, Property and Risk Advice Capital (Debt and Equity) Financial Markets Transaction Services (Cash) Loans, Bonds, Securitisation, Structured and Project Debt, Leasing, Loan Syndication, Equity Foreign Exchange (Options and Derivatives), Interest Rate Derivative Fixed Interest / Debt Securities, Commodities, Structured Hedging Domestic and International Clearing International Payment & Trade Services 10
Staff 1,203 Staff Average length of service is 8.6 years Many from global / investment banks Dynamic: average age is 35 Diversity: 60% male, 40% female Morale: exceeds industry norms 11
Staff: Morale Components Annual Staff Survey 79 WIB Global Norm Australian Norm 78 69 71 65 60 50 49 50 49 66 69 Working Relationships Communication Performance Work Processes % favourable response Source: International Survey Research 12
Agenda 1.0 Introduction 1.1 Our Business Defined 1.2 Our Strategy 1.3 The Environment 1.4 Competitive Positioning 13
Our Strategic Direction To be the pre-eminent wholesale bank in Australasia by leveraging customer relationships Customer relationship focus Full service provider to Regionals / SMEs Top 3 market share for core products Global business with regional focus 14
Our Strategic Imperatives e-business investment Distribution of product Extend equity and advisory services Strengthen relationship model 15
Global and Domestic Trends Consolidation of full service global and investment banks: ABN Amro Lloyds (1996) & BZW (1997) Citigroup SSB (1997) & Natwest (1998) Merrill Lynch McIntosh (1996) & Centaurus (1997) Macquarie Bank Bankers Trust (1999) UBS Warburg SBC (1998) Levelling of the e playing field Renewed global focus on AUD 16
Global and Domestic Trends Growing liquidity in debt capital markets Retail structuring of wholesale products Emergence of different distribution models 17
Agenda 1.0 Introduction 1.1 Our Business Defined 1.2 Our Strategy 1.3 The Environment 1.4 Competitive Positioning 18
Market Share: Customer 25 23.1 20 15 10 13.7 10.1 9.8 9.8 5 4.6 4.2 4.2 4.4 0 Westpac NAB CBA % Respondents ANZ Deutsche Citibank Macquarie CSFB Merrill Lynch Source: East and Partners Corporate Banking Report, April 2000 19
Market Share: Debt Product Off Balance Sheet On Balance Sheet Others 29.5% Westpac 22.6% Others 28.2% Westpac 19.8% Deutsche 10.5% NAB 20.7% Citibank 5.2% NAB 15.0% ANZ 16.6% CBA 15.6% ANZ 16.2% Source: East and Partners Corporate Banking Report, April 2000, Top 500 20
Market Share: Product Transaction Services Financial Markets Others 23.6% Westpac 27.2% Others 25.4% Westpac 19.1% DMG 10.4% CBA 13.1% ANZ 11.6% NAB 14.1% DMG 7.3% CBA 13.5% ANZ 16.6% NAB 18.1% Source: East and Partners Corporate Banking Report, April 2000, Top 500 21
Customer Satisfaction (1 = very dissatisfied / 5 = very satisfied) 5 4 4.5 4.3 4.2 4.2 4.1 4.0 4.0 4.0 4.0 3 JP Morgan Salomon Smith Barney Merrill Lynch Citibank Westpac ANZ Deutsche CSFB Warburg Dillon Read Source: East and Partners Corporate Banking Report, April 2000 22
Agenda 2.0 Business Performance 2.1 How are we Performing 2.2 Risk Management 23
Key Financial Measures Expense / Income Ratio 60% 54.7% 46.3% 59.9% 43.8% 51.5% 30% 0% 1997 1998 1999 WIB Peer Average Excludes Goodwill, Westpac Estimates 24
Key Financial Measures 500 400 Core Earnings 374 395 25% 20% ROAE 19.5% 21.5% 300 269 15% 14.8% 200 10% 10.5% 100 5% 0 FY 97 FY 98 FY 99 0% FY 97 FY 98 FY 99 HY 00 25
Agenda 2.0 Business Performance 2.1 How are we Performing 2.2 Risk Management 26
Managing Our Risk Core to sustainability and ROAE Three areas: Market, Operational, Credit Tied to capital allocation Market risk - Phil Coffey 27
Credit Risk Asset Levels 43 $BN 40 35 40 36 30 20 FY 97 FY 98 FY 99 HY 00 28
Credit Risk Total Committed Exposure 100% 80% 60% 40% 20% 0% Sep 97 Sep 98 Sep 99 Mar 00 AAA, AA A BBB BB & Below 29
Credit Risk Net Impaired Assets 400 300 402 314 268 $M 200 100 0 31 Mar 99 30 Sept 99 31 Mar 00 Total Westpac Institutional Bank Only 30
Credit Risk By Country of Ultimate Risk - March 2000 50 40 40 $A BN 30 20 14 14 10 0 Australia North America 2 Asia 6 New Zealand Europe 1 Japan 31
Operational Risk Managed at the business unit level Quarterly Review Annual certification by APRA Independent appraisal by Group Audit 32
Operational Risk Map Effective Controls Qualified Controls Requires Improvement Net Severity High Low 1 5 20 Annual Events Frequency 33
Financial Markets Phil Coffey 34
Agenda 3.0 Other 3.1 Financial Markets 3.2 Relationship with Westpac 3.3 e-business 35
Overview of Business Successful customer focused business concentrating on AUD & NZD Excellence customer survey places us number 1 in market share amongst Top 500 (Greenwich Associates Treasury Survey Report) and number 1 in AUD & NZD in London / New York Return on Equity has average 25% over the last three years Offices in Aust / NZ, New York, London, Asia Total of 375 front office staff 36
Our Customers Our delivery model is tailored to meet the needs of our customers Institutional 37% Business Bank 35% % Revenue by Key Segment Corporate 28% 37
Financial Markets Product Our products span the full spectrum of AUD & NZD markets Foreign Exchange 37% Growth Products 12% Long Term Interest Rates 21% % Revenue by Product Group Short Term Interest Rates 30% 38
Operating Efficiency Processing Asian and Northern Hemisphere operations in Australia has significantly reduced our offshore cost base. Asia & Northern Hemisphere Cost Base $M 150 102 100 45 50 0 93/94 98/99 Our goal is STP for ourselves and our customers STP 43% Straight Through Processing Manual 57% 39
Market Risk Management We aim for best practice in market risk management Board delegated limit Independent risk calculation and monitoring EAR risk framework using full portfolio historical simulation Daily stress testing 40
Market Risk Management A$m 16 Daily Earnings at Risk 14 12 Board Limit 10 12 month view of aggregated daily earnings at risk 8 6 4 2 0 Daily Earnings at Risk Quarterly Average Daily EAR Apr 1999 May 1999 Jun 1999 Jul 1999 Aug 1999 Sep 1999 Oct 1999 Nov 1999 Dec 1999 Jan 2000 Feb 2000 Mar 2000 41
e-business Development Customer buying behaviour determines our investment approach Global portals Regional portals Proprietary applications 42
Agenda 3.0 Other 3.1 Financial Markets 3.2 Relationship with Westpac 3.3 e-business 43
Westpac Structure Customer Corporate and Institutional Business Customers Consumer Customers Product WIB Product Other Bank Products Processing and IT 44
A Competitive Advantage Bank product to WIB customers Transaction Services: $82M Funds Management / Custody / Insurance: $10M revenue WIB product to bank customers Financial Markets: $73M revenue Corporate Finance: $250M mezzanine debt 45
Agenda 3.0 Business Performance 3.1 Financial Markets 3.2 Relationship with Westpac 3.3 e-business 46
Investment Strategy High Create a New Business New value networks New value propositions New business models IT Enabled Transformation Extend the Enterprise Increase business scope Reconfigure business networks Low Enhance Business Execution e-enable core systems & processes web site & Intranet. Supply chain Low Potential for new customers and Likelihood of alliances High 47
Enhance / Extend Examples Internal Contact Management: CONNECT Human Resources (SAP) Credit Origination & Approval Process Intranet Upgrade Electronic Document Management Straight through processing/workflow automation Video mail, Team Rooms, Instant Messaging 48
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Enhance / Extend Examples Customer StateStreet yieldbroker.com FXall e-bonds Online FX Online Research Vostro Online ImpEx New look internet site FX portals 51
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Agenda 4.0 Conclusion 4.1 Future Growth 4.2 How We Are Different 57
Growth Increased share of wallet from existing customers Customer focused model Full range of services Leveraging franchise knowledge Acquisitions By product By customer By geography 58
Agenda 4.0 Conclusion 4.1 Future Growth 4.2 How We Are Different 59
Differences Superior financial performance from: Strength of our customer franchise Depth of people Product strength e-business: strong market position 60
Questions 61