Asia Banking

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E.L. & C. Baillieu Stockbroking Ltd ABN 74 006 519 393 www.baillieu.com.au Please read the disclaimer at the end of this report. Page 1

Wednesday, 26 May 2010

BANKS REVIEW

ANZ Banking Group (ANZ)

Commonwealth Bank (CBA)

Same offices, different strategies | 8 Connaught Place, Hong Kong

Analyst | Stewart Oldfield

Email | [email protected]

Contact | 03 9602 9255

Disclosure: The author owns no shares in ANZ or CBA.


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ANZ BANKING GROUP (ANZ)

Short Term: Hold

Long Term: Hold

Risk: Medium

Price: $21.34

Price Target: $23.94

Snapshot

Monthly Turnover $6,200.7m

Market Cap $54,070m

Shares Issued 2,533.7m

52 Week high $26.23

52 Week Low $14.90

Sector Financials

12 month Price and Volume

COMMONWEALTH BANK (CBA)

Short Term: Buy

Long Term: Buy

Risk: Medium

Price: $50.31

Price Target: $57.75

Snapshot

Monthly Turnover $7,050.0m

Market Cap $77,916m

Shares Issued 1,548.7m

52 Week high $60.00

52 Week Low $33.95

Sector Financials

12 month Price and Volume


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ANZ is not the only Australian major bank offeringexposure to Asia

We believe that it is wrong for investors to consider that ANZrepresents the only meaningful leverage to Asian growth inthe financial services industry.

It is true that ANZ has the most aggressive expansion plansof the major Australian banks.

But thanks to its growing footprint in Asia and its status ashaving the biggest bank presence in the China-leveragedWestern Australian economy we see CBA as offering lowerrisk yet still credible leverage to the globes fastest growingregion.

For instance CBA chief Ralph Norris has said publicly thatBankWest could contribute between 10 percent and 12percent of domestic bank earnings within 18 to 24 months asbad debts subside and the Western Australian economy re-asserts itself as the countrys engine room.

Within the next five years we expect CBA to derive ameaningful and sustainable if not significant (currentlysignificant profit contribution is about $350 million for CBA)

profit directly from its Asian operations as it, for instance,doubles its footprint in Indonesia.

In other words from a scale perspective Asia is a medium tolong term play for CBA.

Unlike ANZ, CBA is not under pressure to make decisions inthe short term that are key to meeting long-term goals.

With Chinese banks such as Industrial and CommercialBank of China (ICBC) looking to aggressively expandoutside the mainland through acquisition we do not see thecurrent time as ideal for ANZ to be looking to grow throughacquisition in Asia. In hindsight a decade ago when Asiawas gripped in its own financial crisis now looks in hindsightto have been the best time to expand.

Neither CBA or ANZ has the trackrecord in Asia of the mostsuccessful foreign participants HSBC or StandardChartered. However the two Aussie banks are amongst onlya handful of foreign banks with the capacity or inclination toaggressively expand in the region over the next few years.Others banks looking to expand their regional presence inAsia include a handful of banks out of Japan and China.

Unlike ANZ, CBA has the premier retail banking franchise inAustralia on which to build its Asian franchise, it trades at asignificant premium to its peers and has at least as good a

reputation in Asia amongst regulators and other keystakeholders.

With ANZ planning a site visit of their Asian operations inJune we believe that it is an ideal time for investors to reviewthe strategies of both ANZ and CBA in the region.

ANZ and CBA are pursuing very different growth strategiesin Asia. In simple terms ANZ is pursuing more of a cross-border strategy while CBA is focussed on in-market growth

in a limited number of countries.

ANZ has historically fostered trade business which CBA didnot target. This allows it to pursue a more traditional growthstrategy in Asia for instance by targeting trade financeactivities.

Traditionally trade finance, cash management, globalmarkets and general banking are seen as the easiest meansto enter a new market as an international entrant.

Consumer and SME banking work less well as thesesegments usually require local scale and depth.

The typical ramp up in Asia by a foreign player

- Open an unprofitable representative office which isessentially devoted to meeting and greeting.

- Establish a subsidiary.

- Start with trade finance and foreign exchange

- Offers cash management and other deposit services.

- Enter some capital markets operations such asderivatives on interest rates

- Start lending to Australian companies operating in theregion.

- Start lending to multi-nationals operating in the region.

- Start credit assessment work

- Then take on some national corporations.

CBA looks to be at least five years behind ANZs rollout andis adopting a more measured approach to expansion.

In contrast we believe it is possible that ANZ couldcontemplate a transforming deal in a number of jurisdictionsincluding either Hong Kong (the headquarters of itsinstitutional business or Singapore (the base of its retailoperations) if one became available. We see these twomarkets as more mature with greater competition.

In our view neither bank can yet claim sufficient critical massin Asia for a sustainable operation but ANZ is obviously

closest to that goal.

Number of branches in Asia

CBA 80

ANZ about 170

How many countries?

CBA 7

ANZ 13

Market capitalisation - Chinese banks win

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The current profitability of the two businesses is verydifferent.

The financial disclosure by CBA on its Asian operations isnot extensive. In the December half CBAs InternationalFinancial Services Asia business made just $22 millionprofit, double the same period a year earlier. However IFSAsia does not include the institutional banking and marketsand Colonial First State global asset managementbusinesses operating out of Asia. We expect CBA could

double its profit contribution from Asia again this year on theback of a strong performance from its Chinese investmentsin particular.

By contrast ANZ made $230 million out of the Asian Pacificoperations in the March half, 10 percent of group profit. IfEuropean and American operations are included this rises to13 percent of group profit.

Unlike CBAs disclosures this includes institutional andwealth businesses.

But with acquisition opportunities in its home market limitedby competition concerns we believe CBA is now moreaggressively looking to Asia as a source of future growth.

The GFC has elevated the stature of the Australian banks toa new level encouraging them to push more aggressivelyinto overseas markets.

In the past two years ANZ has attracted some impressivetalent from the likes of HSBC, Standard Chartered Bank andCiti as it rolls out its platform in the region.

CBA has also attracted some talent.

The recent hiring of Indonesian specialist Tony Costa fromRabobank as President Director (Head) of CBAs IndonesianBank (PTBC), is evidence of CBAs growing ambitions andstature in Indonesia.

Prior to the GFC we doubt an Australian bank could attractsomeone of Costas calibre into their Asian operations.

CBA looks to be taking a long-term and necessarily patientapproach to building its business in Asia.

ANZ is a higher risk proposition in our view.

Why Australian banks should be expanding intoAsia

Currently each of the major banks source more than 80percent of their profits from Australia and New Zealand.

Longer term all the major banks have to look beyondAustralian shores for higher growth rates and we expectAsia to be the premier source of global growth for decadesto come.

National Australia Bank may disagree but we believeAustralian banks have little to offer European or Americanbanking markets.

By contrast, Australia operates in Asias time zone, isgeographically closer and has stronger trade linkages.

Further there is the old adage that the banking services indeveloping economies expand faster than growth in grossdomestic product.

Therefore while China grew its GDP by less than 10 percentlast year its retail and commercial banking markets eachexpanded by more than 30 percent.

Experienced banking executives in the region see no reasonfor this level of growth to moderate in the short-term.

The challenges

In hindsight the best time to deals in Asia would have beenin the wake of the tech boom. Like now the Australian bankswere relatively strong, but unlike this time around, the Asianbanks were then in relatively poor shape.


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We see CBA as having a lower-risk strategy that is notdependent on acquisitions that are becoming more difficultto execute at attractive multiples as the world recovers fromthe GFC.

Chinese banks are now expanding aggressively in theregion.

For instance we understand that Chinese interests wereunderbidders to the sale of a stake in Bank International ofIndonesia which forced Maybank of Malaysia to eventuallypay more than four times book for the asset.

Valuation of Asian banking stocks have risen 70 percent

in the past year.

Bloomberg Asia Pacific Banks Index

Back closer to longer-term average price to bookmultiples

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CBA is not under the same market pressure to do deals inthe short-term as is ANZ and we see this as an attraction ofthe stock.

There is more imperative for ANZ to expand in Asia as itdoes not have the same strength in retail distribution ofbanking products as CBA has in its home market.

With shareholders money already in its back pocket ANZcan undertake transactions that are dilutive in the short tomedium term.

ANZ maintains that attractive acquisition opportunities inAsia still exist particularly as capital constrained foreignbanks wind back their operations in the region. One of themost obvious is the Chinese and Indian operations of RBS.The sale of the assets that RBS wants to sell in thesecountries looks to have been delayed by regulatory issues.

We estimated that ANZ could spend more than $2 billion onan acquisition in Asia without threatening their conservativecapital levels. We note that ANZ CEO Mike Smith has alsoflagged the possibility of a transformational deal within fiveto 10 years.

In presentations to the market ANZ has warned investorsnot to expect the same returns from Asia in the mean timeas the bank has been able to generate in Australia as itbuilds up its Asian footprint.

ANZ commented in 2008: Below group average ROC inearly years supported by high organic growth

They partly attribute this to the capital intensity of the start-up phase.

This should serve as a warning to shareholders with a shortto medium term focus in our view.

We see execution, acquisition and key-man risk (MikeSmith) all being more prevalent with ANZ than CBA.

This should not be seen as a personal slight against theefforts of ANZ.

The first years of a multi-year transformational strategy ofany organisation are inherently the most risky. However thisdoes mean that the risk profile of ANZ should be seen asfundamentally different to CBA and Westpac (NAB should

also be considered higher risk because of its exposure to thebasketcase UK economy).

CBAs strategy in Asia

CBA is following an In market strategy essentially as adomestic bank in the Asian countries it is targeting.

They are attracted to the higher net interest margins, highertop line growth and diversification benefits of Asia.

CBAs footprint is well defined, with the focus being on thehigh growth Chinese, Indonesian and Vietnamese markets.

Their other exposures in Japan and India are considered

longer term and more difficult prospects.

They see themselves as being able to offer potentialpartners a high level of intellectual capital transfer.

There are two prongs to CBAs strategy in Asia: lifeinsurance and banking ie a bancassurance model that is notdissimilar to the strategy being adopted in the Australianmarket.

The intent is to broaden the offering of financial servicesproducts over time.

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Bank values P/E (2011) P/B (2012)

Indonesia 11.5 2.4Hong Kong 11 1.7

Malaysia 12.5 1.9Singapore 12 1.4

Australia 12.2 1.8


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Like ANZ, CBA has a different strategy in each Asiancountry in which it operates.

In general however we see CBA as being more focussed ondeveloping countries in Asia rather than developed marketssuch as Singapore and Hong Kong, where ANZ has agreater presence.

This is a justifiable approach given CBAs in marketstrategy.

Unlike ANZs bent towards commercial lending and tradefinance, the focus is more likely to be lower risk retail andSME segments, in which CBA already has expertise.

The strategy is probably more organic growth focussed thanthat of ANZ. While there are no explicit profit targets eachcountry is expected to grow profits on a consistent basis.

So far this has been largely achieved.

In the six months to December, CBA doubled its profits fromthe region.

We expect profits from the region to more than double againthis financial year. While the profits from the Indonesianoperations are being invested back into the roll out of newbranches the two Chinese bank investments look to bedramatically growing their profitability.

For instance we believe that Bank of Hangzhou couldgenerate $300 million in profits this year (of which CBA isentitled to a 20 percent share while Qilu Bank couldgenerate up to $100 million in profits).

In general, we get the sense that CBA is happier with itsexisting footprint in Asia than ANZ. ANZ has suggested that

its footprint in Asia could be modified as it seeks the bestplatform for growth.

For instance recent reports have suggested ANZ is lookingat selling it 10 percent stake in Sacombank as it focuses onits ANZ branded business.

CBAs management in Asia

Who is Simon Blair?

Simon Blair CBA Group ExecutiveInternational Financial Services

Simon Blair was appointed Head ofInternational Financial Services inJune 2009. In this role, Simon isresponsible for the Groups offshore growth in the Asianregion. He is also responsible for managing the Groupsexisting Asian banking and life operations in China, India,Indonesia, Hong Kong and Vietnam, as well as its WesternAustralian subsidiary Bankwest.

Simon joined the Commonwealth Bank Group in November2006 as the Managing Director for Sovereign, the Groupsinsurance arm in New Zealand. Prior to this, Simon wasChief Operating Officer of Medibank Private, Australiasbiggest health insurer.

CBAs history in Asia

Unlike ANZ, CBA have been reasonably consistent with their

strategy in Asia over the past decade, focussing on Chinaand Indonesia and the high net worth and SME segmentswithin those geographies.

However they have been slower than ANZ in entering keymarkets such as China and Vietnam which could hampergrowth.

The strategy was initially championed by former CEO DavidMurray.

When Ralph Norris was appointed CEO we raised concernsthat CBA might exit its Asian exposures but with the likes ofglobally-focussed John Schubert and Harrison Young on theboard we should not have been concerned.

Much of the current footprint can be attributed to formerhead of International FinancialServices Garry Mackrell.

Garry Mackrell was appointedHead of InternationalFinancial Services inSeptember 2001 but steppeddown from the position lastyear.

A timeline of CBAs presence in Asia

- Singapore branch opened in 1982

- Tokyo branch opened in 1986- Hong Kong branch, established in 1986

- Beijing Representative Office opens in 1994

- Shanghai Representative Office in 1995

- CBA enters 50/50 joint venture with Bank InternationalIndonesia (BII) in 1997

- Establishment of 49 percent China Life CMG lifeinsurance (Shanghai) JV

- In 2000, CBA invests $50 million to become majorityshareholder in BII.


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- 2004 CBA buys 11 percent of Jinan City CommercialBank

- 2005 CBA buys 20 percent of Hangzhou CityCommercial Bank

- Ho Chi Minh City branch opened in 2008

- 2010 opens branches in Mumbai and Shanghai.

- 2010 announces plans to take up to 20 per cent ofVietnam International Bank.

What next for CBA in Asia?

This year we are expecting more obvious progress fromCBA than last year.

For instance in April it announced a strategic partnershipwith Vietnam International Bank with a plan to move to 20percent ownership within the next couple of years.

With a 10-year trackrecord, CBA looks to be becoming moreaggressive with its aspirations for Indonesia.

PT Bank Commonwealth has 74 branches in Indonesia withplans for further significant growth.

They are also investing further capital to the BoCommLife

insurance joint venture in China to support the roll out of newbranches.

In China they are also examining the merits of taking 100percent of a country banking operation, which is allowableunder Chinese regulation. The attraction of this move is thatsuch branches can write local currency business from dayone, while the downside are the geographical challenges.

Following a soft opening on April 1 CBA is planning a formalopening of its new office in Mumbai India in August.Previously there was a representative office in Bangalore.

A briefing on their Asian footprint is possible in conjunctionwith ANZs tour slated for June.

The leverage to Asia offered by BankWest

CBA is the bank most leveraged to the economy of WesternAustralia thanks to its purchase of BankWest in December2008 for $2.2 billion, representing a 30 percent discount tothe then book value.

We therefore see CBA as offering useful leverage to theChina growth story through its WA operations.

China is Western Australias major trading partner and theStates largest export market.

The State Government recently its GDP forecast from thestate from 2.25 percent to 3.75 percent.

CBA chief Ralph Norris has said publicly that BankWestcould contribute between 10 percent and 12 percent ofdomestic bank earnings within 18 to 24 months.

In the December half BankWest generated cash net profit ofjust $64 million following a near three fold increase in baddebt charges half on half to $313 million.

If we assume that BankWest generates about 10 percent ofdomestic bank earnings in FY2012 we are talking about abusiness generating at least $600 million in profit, ie a five

fold increase on current levels. (This would be far in excessof expectations of every analyst in the land).

We should also acknowledge here that ANZ is focussing onexploiting the linkages between Australias resource sectorand Asia. For instance in a recent presentation, ANZclaimed to be generating revenues three times other 3major domestic banks combined from its natural resourcesclient base.

A timetable of ANZs presence in Asia

1969 | Establishes representative office in Tokyo, Japan

1984 | Purchases Grindlays Bank

1989 | Establishes a backoffice and IT presence inBangalore

1993 | Joint venture established with PT Panin Bank,Indonesia

Opens a branch in Hanoi and a representativeoffice in Ho Chi Minh City, Vietnam

Opens a branch in Shanghai and a representativeoffice in Guangzhou, China

1996 | ANZ opens its second Vietnamese branch at HoChi Minh City

1998 | Acquires stake in PT Panin Bank, Indonesia

2000 | Sells Grindlays to Standard Chartered Bank

2004 | Flags, then withdraws, planned investment in ThaiMilitary Bank.

2006 | Completes 20 percent investment in China's TianjinCity Commercial Bank

2007 | Mike Smith is appointed CEO and details hisstrategic vision to become a Super Regional Bankin Asia.

Completes investment in Malaysia's AMMBHoldings Berhad, China's Shanghai Rural

Commercial Bank, Vietnam's Saigon SecuritiesIncorporation and ANZ Vientiane CommercialBank, Laos

2008 | Receives licence for incorporation in Vietnam

Opens new regional hub office in Hong Kong forbusiness expansion throughout Asia

2009 | Acquisitions of RBS Asia

Opened their first rural bank in western Chinamaking ANZ the first Australian bank, and one ofthe first international banks, to enter Chinas ruralmarket.

2010 | Receives preparatory approval for localincorporation from the China Banking Regulatory

Commission.


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ANZs strategy in Asia To become a superregional bank

Expectations for the Asia Pacific by 2012

ANZs Asian expansion plans were formally enunciated by

CEO Mike Smith in December 2007.

ANZ sees itself as a pan Asian bank similar to StandardChartered Banks Asian operations but with a lower tilttowards retail banking.

The bank aspires to generate $1.5 billion in profit out of theregion by 2012 through a network of 300 branches and1,000 ATMs.

This represents about 20 percent of forecasted group profitcompared with about 7 percent achieved in FY2007 and 10percent achieved in the first half.

Since a restructuring in September last year American andEuropean earnings are also now counted towards the Asian

operations. Including this contribution the region contributed13 percent of group profit in the first half.

ANZ says it will achieve its financial goals by leveragingANZs home grown products and expertise including aperceived competitive technology advantage.

Liability growth is, and will remain, fully funded by deposits.

ANZ warn against pursuing strong organic market sharegrowth ie well above system.

Instead it has evolved a niche strategy targeting high networth customers on a segmented basis.

An important part of the ANZ proposition in Asia is to offer aseamless experience across Asia including access into theAustralian market.

They are targeting a 50/50 institutional/ retail split for thebusiness.

This is comparable to the strategy of Standard Charteredbefore it moved into investment banking.

Like CBA, the ANZ strategy in Asia differs from country tocountry.

However there are some common themes. ANZ is focusingon the top 5 per cent to 10 per cent of Asias most wealthyretail customers rather than compete head-to-head withgiant regional players such as Standard Chartered or HSBC.

This is an acknowledgement that they cannot compete withthese big scalable banks in retail and wealth across Asia.

ANZ aims to attract rich customers to the retail bankingservices rather than chase market share.

It has probably been the most aggressive higher in the Asianregion over the past two years increasing its headcount bymore than 60 percent in the region to about 8,000. It hassuggested that it could have about 10,000 people in Asia bythe end of next year.

As mentioned above ANZ has country specific strategies.

ANZ wants to be a top four foreign bank operating in greater

China and India and a top four locally-incorporate bank inVietnam, Malaysia and Indonesia.

ANZ is seeking to build a full-service franchise in VietnamIndonesia, Malaysia, Greater China and India.

Institutional, commercial, retail and wealth services will beoffered in each of these markets.

In more mature markets, ie Hong Kong and Singapore,institutional and private banking services will be offered withwealth services offered only at the wealthiest end ofpopulation. Finally in other Asian counties only institutionalbanking services will be offered to top end corporate clients.

ANZ bought RBSs unprofitable portfolio of Asian banking

assets outside of India and China last August for $US550million ($602 million). This deal brought US$3.2 billion ofloans and US$7.1 billion of deposits.

This included operations in Singapore, Taiwan, Indonesia,Hong Kong, The Philippines and Vietnam.

We understand that one reason that ANZ was able to securethese assets was because incumbents such as StandardChartered were not bidders given they already had adequatepresence in the countries in which RBS had operated.


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The number of people employed at ANZ's Asia-Pacificdivision surged from 5500 to 8000 in the past two years.

Who is Alex Thursby?

Alex Thursby is ChiefExecutive Officer, AsiaPacific, Europe and America.

Alex joined ANZ in 2007

after 20 years with StandardChartered Bank where heheld various seniorwholesale banking roles in Hong Kong, London, Indonesiaand Singapore.

Most recently, he had held the positions of Senior ManagingDirector and Group Head of Corporate and InstitutionalClient Relationships, Wholesale Banking in Singapore.

Alex, who is British by birth, completed his secondary andtertiary education in Australia.

ANZs divisional breakdown

Institutional Asia headed by MD Mark Whelan

The institutional business targets Asian regional corporates,local corporates in each jurisdiction in which it operates andAustralian, New Zealand and European corporates operatingin Asia.

Institutional banking in Asia, based in Hong Kong, aims togenerate 10 percent of group profit by 2012, through a morethan doubling of staff compared with 2008 levels and a fivefold increase in customers to 5,000. Key industries beingtargeted include natural resources, agriculture, infrastructureand financial institutions.

Retail Asia headed by MD Wendy Lim

The retail business targets affluent customers through itsown network and mass affluent and SME customers throughits partners.

Asia is forecast to have more than 4 million households withat least US$100,000 of assets.

Retail in Asia is expected to contribute 10 percent of profit by2012 through 200 branches, 10 million credit cards and 1.5million customers, up from just 131,000 in 2008.

Because they are not aggressively pursuing mortgage andcredit card loan growth ANZs net interest margins are notgoing to be attractive as some peers in the region.

But it is worth emphasizing that Asian bank income is lessbalance sheet focused and more focused on trade payment

and fee generation. This means that net interest incomemakes up about half as much of total income in Asia as itdoes in Australia.

Whats next for ANZ in Asia?

They have previously expressed a preference for expandingin the region by buying the local operations of departingforeign banks rather than the takeover of listed or familyowned institutions.

They believe that acquisition opportunities still exist in Asiadespite improving economic conditions.

Mike Smith was recently quoted as saying that he hoped for

a transformational transaction to take place in five to tenyears once ANZ had built its Asian foundations.

The same reports linked ANZ to the sale process of a USequity funds controlling stake in Korea Exchange Bank, adeal that could be worth more than $4 billion.

While the bank says it will look at every acquisitionopportunity on its merits we think the Korean deal is unlikely.

We see the reported potential buyout of the Gunawanfamilys 46% stake in PT Bank Panin as more likely andmore on-message.

Based on current exchange rates, the Gunawan familysstake is worth about $1.6 billion.

The stock currently trades at 15 times 2011 earnings equalto 2.1 times book.

ANZ already has a 39.5% stake in PT Bank Panin whichfocusses on mass market banking.

The bank also appears to be emphasising the benefits oforganic growth in the short-term rather than growth throughacquisition.

Forecast Asian retail banking CAGR - 17% between 2007 and 2012Foreast Australian retail banking CAGR - 5% between 2007 and 2012

Forecast Asian insto banking CAGR - 13% between 2007 and 2012Forecast Australian insto banking CAGR - 6% between 2007 and 2012

Panin - value is now well recognised in the market

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In short, the bank has three options in Asia.

- A dilutive but strategic transaction that rebalances thebank decisively towards its super-regional aspirations.

- Bolt on acquisitions that are more palatable amongstshareholders but do not have a dramatic impact on thedistribution of profit.

- Focus on organic growth

They have also previously suggested their footprint ofpartnerships could be modified over time.

ANZ have previously signalled that the best way to grow inthe affluent retail space is through organic expansion (seebelow).

ANZ maintains that there remain acquisition opportunitiesamongst foreign banks departing the region. However there

are now an increasing number of buyers for potential assets.

Last year it added about 1,000 staff and we suspect that asimilar number will be added by the end of the currentfinancial year.

In our view the most compelling deal would be a friendlymerger with Hang Seng Bank but given that this bank is 62.1percent owned by HSBC such a deal looks unlikely.

There is also little prospect of a tie up with StandardChartered. We assume that the most likely buyer of thatbusiness is the Singaporean Government via Temasek,which increased its stake from 12 to 19 percent in 2008.

Alternatively ANZ could target a relatively cheap listedSingaporean bank such as OCBC: market cap A$22.2billion, forward P/E of 13.6 times and 1.5 times book.

Cautions about CBAs Asian strategy

CBA are a later entrant to most Asian markets than ANZ.

They are also adopting an in market strategy which is notthe typical means of expansion into the region by foreignbanks.

This will put them in competition with local banks which willinvariably have a stronger market presence. It also puts

them into contact with local businesses which may have adifferent approach to doing business than what CBA is usedto in its home market where it is a significant player andused to getting its own way.

Minority stakes and joint ventures also bring inherent riskswhich are not present when a bank owns 100 percent of aforeign operation.

Any renewed strength of the Australian dollar against the US

dollar, to which some of CBAs Asian earnings are tied, willpush against short-term profit growth.

The expansion of its life insurance operations will not yieldinstant results in terms of profitability.

It is worth remembering that AXA Asia Pacific has taught usthat growing a life insurance business from scratch is aboutgrowing embedded value as opposed to NPAT in the earlyyears.

This means that NPAT growth will not be the best indicatorof the short-term growth prospects of CBAs bancassurancemodel.

Some caution for ANZ in AsiaAlthough ANZ is building its Asian footprint rapidly, thebank's presence throughout the region remains piecemeal inour view. Even with the addition of RBS's banking assets inTaiwan, Singapore and Indonesia and Hong Kong, the bankhas a modest presence in those markets.

Its focus is also distracted by the need to integrate theassets from RBS and manage a mix of wholly-owned andpartly owned businesses.

While ANZ has done wonderfully well in expanding thebench strength of its Asian executive team, key man riskassociated with CEO Mike Smith remains an issue.

Mr Smith was effectively a top five executive with HSBC asits head of Asia.

However like every other foreign banker who has operatedin the Asian region over an extended period of time he hashis supporters and critics in political and corporate spheres.

There are also obvious risks in the doubling of headcountexpected to be completed by 2012. While ANZ has generallyhired opportunistically and well, there remains risksassociated with such a rapid headcount increase.

ANZ has specifically cited the strength of the Australiandollar as a significant headwind for future earnings growth,with a potential FY10E negative EPS impact of 4 to 5

percent. (This was prior to the recent correction in thecurrency against the US dollar.)

But they have tipped ''high growth in earnings'' during 2011.

There is also the issue of what changes to the Asianstrategy new ANZ chairman John Morschel will bringfollowing his replacement of noted Asia-phile Charles Goodeand his failure to install his preferred successor Sir RodEddington, a former CEO of Cathay Pacific who was highlyrespected in Asia. Mr Morschel is yet to formally enunciatehis approach and priorities as chairman of the bank.


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The danger with (ANZs) targets

The danger with targets is that the market can be toofocussed on them being achieved as signs of definitiveprogress rather than focussing on the long-term growthpotential of a business.

We note that in a recent presentation ANZ refers to its goalof 20 percent of profit from the Asia Pacific by 2012 as itsstrategic direction. Back in 2008 ANZ was a little more

definitive about what they expected to achieve by 2012.

Spot the difference

ANZ presentation in 2008, note specific reference to ANZderiving 20 percent of its profits from Asia Pacific by 2012.

In a recent presentation 2012 had been replaced by

strategic direction

In the March half results we note that the 2012 target hadbeen reinstated.

In the March half Asian profits represented just 10 percent ofgroup underlying profits.

Since a restructuring in September last year American and

European earnings are also now counted towards the Asianoperations. Including this contribution the region contributed13 percent of group profit in the first half.

Missed opportunities

ANZ has had a coherent strategy for expansion in Asia since2007 but it is worth remembering that prior to that itscommitment to the region has been sporadic. Its decision tosell Grindlays in 2000 now looks short-sighted.

We are also old enough to remember the aborted plan tobuy a stake in Thai Military Bank in 2003 following an overlynegative reaction from ANZ shareholders to the plan.

Former ANZ chief executive John McFarlane took what

could be described as a more opportunistic approach toexpansion in Asia with a commitment to undertakingtransactions that were EPS accretive in their first year.

There have been a number of transactions in the region inrecent times that have been executed at comparatively highmultiples in which ANZ may have been an underbidder.

Last October, ING Group sold its Singapore-based ING AsiaPrivate Bank (IAPB) to Singapore-based Oversea-ChineseBanking Corporation Ltd (OCBC). OCBC paid US$1.45billion for the purchase.

Indonesian banking assets have been keenly sought inrecent years.

In 2008 Maybank paid US$2.7 billion or more than fourtimes book value when it bought a majority stake in BankInternasional of Indonesia.

The price was rumoured to have been bid up by theparticipation of Industrial & Commercial Bank of China, theworlds biggest bank by market capitalisation.

ANZ CEO Mike Smith reportedly described suggestions thatChina Merchant Bank would pay three times book value forHong Kong-based Wing Lung as crazy. ANZ was reportedlyan underbidder for Wing Lung. CMB ended up paying about2.9 times.

Why has there been less focus on CBAs Asianstrategy?

For a start CBAs expansion is less aggressive and itsfootprint smaller than that of ANZ.

Unlike ANZ, CBA sees little value in talking up its Asianaspirations. There are no external targets presented to the

market.

This is not to say that CBA does not see wonderfulopportunities in Asia. It is just that in the medium term theydo not see the point in talking up their Asian progress.

Instead they prefer to talk about the opportunities for growththey have in the Australian market: for instance the costsavings from a new technology platform and the integrationof BankWest.

Under new Asian chief Simon Blair, CBA is running its Asianbusiness to a series of internal five year and ten year goals.

By contrast, ANZ CEO Mike Smith has necessarily had topresent a simple and sensible for his aggressive expansioninto the region. He has done this through his target of beinga Super Regional bank.

ANZ has more at stake in Asia than CBA and this isreflected in the higher profile its Asian strategy has takenover the past three years including the hosting of anotherroadshow of its Asian investments in June.

Three strategically important Asian markets

1) The Chinese banking market


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- To put CBA and ANZ in context in the size of theChinese banking market their operations

Market structure

State-owned commercial banks (SCBs). The fourSCBs have a dominating position in the bankingsector, holding 51 percent of the assets in thebanking system. They collect more than half of allthe deposits in the country, but extend only 43percent of the loans.

Joint-stock commercial banks (JSCBs). Thereare total 12 JSCBs, and hold 15 percent of the total

assets in the banking system. These banks aremore active at the provincial or regional level.Although Bank of Communication is the largestamong these banks, many of them are comparablein size.

City commercial banks (CCBs) and urban creditcooperatives (UCCs). These are small financialinstitutions that operate in urban areas. In 2007,there were 124 CCBs, and 42 UCCs, reflectingconsolidation efforts undertaken during the decadeto transform more than 1,000 small UCCs intolarger CCBs.

Policy banks (PBs). There are three policy banks

in China. Unlike the other banks, these policybanks collect few deposits (less than 1 percent oftotal), but provide more than 15 percent of theloans in China.

Rural credit cooperatives (RCCs). There areseveral thousand RCCs that provide loans to therural population. Each RCC has local monopolypower, in the sense that a farmer can borrow onlyfrom the RCC of her village and cannot shoparound for better conditions (theoretically a farmercan request a loan from a city commercial bank,but this is not done in practice). RCCs are netcreditors, as they collect more deposits from therural population than provide loans to.

Foreign banks (FBs).There are 29 foreign banksin China (there were many more foreign bankbranches), and their total assets was only 2 percentof total assets of the banking system. These banksare active in the interbank market as they lendmuch more than their deposit base.

To put CBA and ANZs current operations incontext, they would currently rank at the top end ofthe biggest city commercial banks or the bottomend of the joint stock commercial banks.

- CBA in China

Any foreign bank participation in the Chinese financialservices industry must be viewed within a 15-year timehorizon in our view.

The approach taken by CBA to China is that it mustaccrue a number of options for expansion in theabsence of certainty about the single best means ofexpansion.

CBA has 20 percent equity stakes in two banks Bank ofHangzhou and Qilu Bank which was previously referredto as Jinan City Commercial bank.

It also has a share in the First State Cinda FundManagement Company Limited, the joint venturebetween Colonial First State Global Asset Management(CFSGAM), and China Cinda Asset ManagementCorporation, and has a 49 percent stake inBoCommLife Insurance Company.

Last August CBA injected another $160 million in Bankof Hangzhou to support growth, raise the banks capitalholdings ahead of proposed regulatory changes andmaintain its stake at 20 percent.

The performance of the bank has been strong recentlyreporting non performing loans of less than 0.8 percentof gross loans.

On March 26 CBA formally opened its first proprietarybranch in Shanghai. If, after three years, the branch hasa two year track record of profitability, then it will beallowed to begin lending in local currency.

We believe CBA has the necessary patience to expandjudicially in the Chinese market including seekingregional banking investments of which it can hold 100percent and through which, even more importantly, itcan write local currency loans from day one.

There remain many attractive rural bankingopportunities that CBA could target. One example mightbe Wujiang, which is 54 kilometres from Shanghaisinternational airport. Wujiang has a population of about1 million with a high proportion of high salary earnersthanks to a clever strategy of offering rental incentivesto those with post graduate qualifications.

- Life insurance in China

Last June Bank of Communications (BoCom) said itwould replace China Life as the 51 percent partner inthe renamed BoCommLife Insurance Company jointventure with CBA.

China Life was required to sell down its exposure aspart of conditions associated with its list ing.

CBA believes that it has gained considerableexperience over the previous decade through the JVwith China Life.

The company says it wants to grow the businessnationally by tapping into BoComs resources andenormous distribution network. The goal is to create aleading and competitive life insurer that covers thenational market.

Chinese banking system -Total assets at end of 2009 RMB (100m)

Market share YonY growth

State owned commercial banks 400890 51% 26%

Joint stock commercial banks 117849 15% 34%

City commercial banks 56800 7% 37%

Other including foreign banks 212150 27% 26%

Total 787689


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BoCom has 2,600 branches in 143 cities, 10,000 self-help machines, and 350 wealth management centers inChina.

CBA says it is delighted with its new partnership withBoCom. Despite being early days the bank says thesales results so far have been outstanding.

CBA is investing less than $50 million to support therollout of new branches along Chinas east coast. The

joint venture currently has access to 2,000 branchesaround China

- ANZ in China

ANZ describes China as a strategically importantmarket and they therefore have a long termcommitment to continue to invest and broaden theirbusiness there.

ANZ has three foreign bank branches in Shanghai,Beijing and Guangzhou, a sub-branch in Shanghai anda rural bank in Liangping county, Chongqing.

ANZ has strategic partnerships in two of Chinas key

growth regions a 19.9 per cent stake in the ShanghaiRural Commercial Bank and 20 per cent stake in theBank of Tianjin.

ANZ recently received preparatory approval for localincorporation from the China Banking RegulatoryCommission.

Local incorporation will allow ANZ to continue theexpansion of its existing network in China byprogressively seeking approval to open additionaloutlets.

ANZ said it would apply for renminbi licences to meetthe needs of local retail customers in key cities upon theestablishment of the new entity.

2. The Indonesian banking Market

Indonesia is Southeast Asia s largest economy

Fifteen large banks dominated the majority (71 percent)of industry assets, claiming an additional

Rp165.8 trillion (10.4 percent), which saw total assetsexpand to Rp1,759.5 trillion for the group.

We see Indonesia as being an under banked and underinsured market which is growing rapidly.

A key attraction of the Indonesian banking market isthat it imposes relatively few restrictions on theexpansion of foreign banks into the local market.

Indonesias economy proved resilient during the globaldownturn because of that governments management ofthe economy, its large domestic market and relativelylow dependence on external trade.

Economic growth in Indonesia is expected to top 5

percent in 2010. Indonesias economic prospects aresupported by the governments commitment toinfrastructure development and to continued economicreform.

The countrys strengths in natural resources andagriculture mean it was well placed to benefit fromAsias continued growth, which is expected to bearound seven per cent in 2010, excluding Japan.

Net interest margins are seen as relatively attractive inIndonesia and there are growing trade links betweenIndonesia and Australia.

Indonesia looks to be an attractive expansionopportunity for CBA and ANZ with the economyimproving and the market considered to be underbanked and under insured.

Previously CBAs Indonesian presence has emphasiseddeposit gathering but it is now shifting its focus tolending.

We see further acquisition opportunities in Indonesia asbeing possible given that there are more than 100banks operating in Indonesia, many of them sub-scalefamily-controlled businesses.


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- CBA in Indonesia

From the outset CBAs strategy in Indonesia was totarget affluent families and their businesses andAustralian related companies.

CBA expanded its presence in Indonesiaopportunistically in 2000 when it moved to majorityownership.

By assets, we estimate that CBA is now a top 20 bankin Indonesia but a top five foreign bank in that country.

We believe that the appointment of Tony Costa isevidence of CBAs commitment to the country.

Tony has operated in Indonesia for the past 16 years.Before joining CBA at the end of March, headedRabobank in Indonesia.

If CBA were to make an acquisition we believe it couldwell be in Indonesia where its 10-year trackrecord givesit some confidence that it understands the drivers of thelocal market.

However acquisition targets are becoming more difficult

to find.

CBA was reportedly an underbidder to HSBCspurchase of Bank Ekonomi in Indonesia in late 2008.HSBC went on to pay just over four times historicalbook value for the business.

CBA believes it is making good organic progress in thatcountry.

CBA currently has 74 branches in Indonesia across allmajor cities which compares with ANZ which has 29branches following its purchase of RBS last year. CBAis targeting a footprint of about 150 branches.

In Indonesia, CBA believes it has built up some localknow how which could be to cope with furtheracquisitions.

We expect a doubling of staff numbers in Indonesiaover the next five years from 1600 staff at present.

Much of the potential profitability of the Indonesianoperations has been reinvested in branch openings.

- CBAs timetable in Indonesia

In 1997, a new entity, PT BII Commonwealth wasestablished to provide corporate banking services toIndonesian and other corporate entities.

In 2000, PT BII Commonwealth changed its name tobecome Commonwealth Bank, with the CBA as themajority shareholder.

In early 2007, the Commonwealth Bank offered toacquire a majority stake in Bank ANK (83 percent). Withthe acceptance of the offer by Bank ANKs owners andfollowing the signing of the acquisition deed on July 26,2007, preparations began for Bank ANK to be mergedinto the Commonwealth Bank.

The effective merger date was set for December 31,2007. Effective from January 2, 2008, Bank ANK beganoperating as an integral part of the CommonwealthBank.

- ANZ in Indonesia

ANZ operates in Indonesia through its 85 per cent-owned subsidiary PT ANZ Panin Bank, trading as ANZ.ANZ is in advanced discussions with Panin Bank toacquire an additional 14 per cent interest in PT ANZPanin Bank.

This business has a sizeable credit card operation.

Last years RBS acquisition and their own organicgrowth plans will see them invest up to $US100 millionin capital in Indonesia this year and expand theirpresence to a total to 28 branches across 11 cities withalmost 1,000 full-time employees.

ANZ expects to complete the acquisition of the RBSretail and commercial businesses in Indonesia in June2010, subject to regulatory approval.

3. The Vietnamese banking market

With a young population of 87 million, a rapid uptake ofinternet and mobile phone technologies and onlyaround 15 percent of the population currently usingbanking services, we expect the demand for f inancialservices in Vietnam to increase significantly in thecoming years.

Bank account ownership in the four major cities climbedfrom 14 percent in 2001 to 35 percent. However wenote that income per capita is st ill less than US$900 peryear according to the World Bank.

The margins in Vietnam are not as attractive as China

or Indonesia despite it being a smaller market that hasnot so far attracted as many foreign players.

The five state-owned commercial banks account for 70-80 percent of the total market share.

The four urban joint venture and foreign bank branchesmake up the next 10-15 percent of market share, whileanother 35-plus joint-stock banks have the remaining10-15 percent.

To date, five 100 percent foreign-banks have beenlicensed in Vietnam.

The regulatory framework is not as developed as it is in

Indonesia or China.

Large foreign banks are balancing their strong interestin serving multinationals in Vietnam and frustration withcontinuing restrictions on their activities

There is also a wariness of foreign banks, that is notpresent in Indonesia for instance.

Last year the country grew its economy by 5.3 percent -its worst performance in a decade.


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Australia is home to the second largest Vietnamesepopulation outside Vietnam so the trade linkages aresignificant.

- CBA in Vietnam

CBA sees Vietnam as a long-term, perhaps a 10 yearstory.

In April this year CBA committed to its most significant

investment in an Asian bank outside of China andIndonesia after agreeing to buy 20 per cent of one ofVietnam's newest commercial banks VietnamInternational Bank (VIB).

Given the bank currently has a market capitalisation ofabout US$240 million this would suggest that CBAwould have to commit about US$50 million.

Upon completion of the deal they would expect to be atop five private joint stock commercial bank in Vietnam

CBA was a comparatively late entrant to Vietnam.

- ANZ in Vietnam

ANZ has been in Vietnam since 1993, making it one ofthe first foreign banks to start operations there.

Last year it established a 100 percent owned retailfranchise and recently opened its 10th branch. Itspresence has been bolstered by the acquisition of theRoyal Bank of Scotland Group plc operations.

ANZ announced in March it was selling its 10 per centstake in Sacombank which was acquired in 2005.

- Other countries in which CBA has a presence

We see CBAs presence in India and Japan as beinglonger-term plays for CBA.

- Other countries in which ANZ has a presence

Indian banking licence has been pre-approved.

On March 4, it said it would open an Indian branch in ayear.

Conclusion

We believe Australian investors need to seek increasedexposure to Asia, the fastest growing part of the worldeconomy.

We consider it a national tragedy that the exposure AXAAsia Pacific offered to the region is likely to be lost toAustralian investors.

Australian financial institutions and its banks in particularhave product suite and skill base that should give them acompetitive advantage in operating in the Asian region.

Therefore, we believe banks should be eyeing exposure todeveloping markets in particular Indonesia.

Be under no illusions that it is a long term play.

Australian companies track record in Asia is patchy at bestand the danger of dramatic short-term moves is that we

repeat that history.

Having the best retail footprint in Australia gives CBA astrong base from which to expand into Asia.

It trades at a higher multiple than ANZ, which means thatany future acquisitions funded by fresh capital raisings canbe more easily made earnings per share accretive.

We have a Buy recommendation on CBA with a 12 monthprice target of $57.75 and a Hold recommendation on ANZwith a price target of $23.94.


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E.L. & C. Baillieu Stockbroking LtdAustralia and New Zealand Banking Group Limited (ANZ)Analyst: Stewart OldfieldDate: 25 May 2010Share Price: ($A) $21.34

Issued Shares: 2,533.7mMarket Cap: $54,070m

Financial Performance ($m)Year End: September 2009 (A) 2010 (E) 2011 (E) 2012 (E)

Net Interest Income 9,808.0 10,536.4 11,227.4 11,836.9

Non-Interest Income 3,337.0 3,548.7 4,216.8 4,580.6

Total Income 13,610.0 15,109.0 16,628.3 17,770.7

Operating Expenses 6,225.0 6,916.6 7,482.4 8,070.5

Bad Debts -3,005.0 -2,111.8 -1,534.5 -1,309.0

Reported NPAT 2,943.0 4,328.0 5,470.2 6,031.7

Significant Items

Cash NPAT 3,383.0 4,789.0 5,481.2 6,031.7

Balance Sheet and Capital Adequacy ( $b)

Year End: September 2009 (A) 2010 (E) 2011 (E) 2012 (E)Australia housing 141.7 155.0 167.7 181.4Australia non-housing 106.6 106.6 107.1 114.0

Total Australian loans 238.4 255.7 274.8 295.3

New Zealand housing 44.7 42.0 44.6 47.3

New Zealand non-housing 36.2 33.6 35.6 37.7

Total New Zealand loans 80.9 75.6 80.1 85.0

Overseas housing 1.7 3.9 4.4 5.1

Overseas non-housing 17.4 21.1 25.5 29.7

Total overseas loans 19.1 25.0 29.9 34.8

Total Average Interest-Earning Assets 427.5 442.4 475.8 516.5

RWA 252.0 259.8 283.5 308.9

Total Equity 32.4 34.1 37.2 40.6

Tier-one Capital 26.6 27.2 29.1 31.1Total Capital 34.4 32.4 33.7 34.9

Tier-one Ratio 10.6% 10.4% 10.3% 10.1%

Total Capital Ratio 13.7% 12.5% 11.9% 11.3%

Recommendations:

Short Term: HoldLong Term: Hold

Valuation: $22.68Price Target $23.94

Ratios

Year End: September 30 2009 (A) 2010 (E) 2011 (E) 2012 (E)

Return on Assets (%) 0.7% 1.0% 1.1% 1.2%

Return on Equity (%) 11.5% 14.4% 15.4% 15.5%

Cost to Income (%) 45.7% 45.8% 45.0% 45.4%

Interest Margin (%) 2.3% 2.4% 2.4% 2.3%

Book Value Per Share 11.3 13.3 14.4 15.4

Price to Book 2.1 1.8 1.7 1.6

Valuation


Cash EPS 149.6 189.4 213.0 230.8

Reported EPS 129.5 171.1 212.6 230.8Cash EPS Growth -3.6% 26.6% 12.5% 8.4%

Cash PE 14.3 11.3 10.0 9.2

DPS 103.3 113.7 138.4 150.0Yield (%) 4.8% 5.3% 6.5% 7.0%

Franking (%) 100% 100% 90% 80%

Asset Quality


Total Impaired Assets 5,468.0 4,350.5 5,886.2 5,442.4

Net Write-Offs 1,889.0 2,010.2 740.9 1,199.6

Recommendations

Buy: Share price expected to appreciate by more than 10% during next twelve months.Accumulate: Share price expected to appreciate by more than 10% during next twelve months, however further short-term weakness possible.Hold: Share price expected to trade between +10% and -10%.Lighten: Share price expected to fall by more than 10% during next twelve months, however share price may appreciate marginally in short term.Sell: Share price expected to fall by more than 10% during next twelve months.


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E.L. & C. Baillieu Stockbroking LtdCommonwealth Bank of Australia (CBA)Analyst: Stewart OldfieldDate: 25 May 2010Share Price: ($A) $50.31

Issued Shares: 1,548.7mMarket Cap: $77,916m

Financial Performance ($m)Year End: June 30 2009 (A) 2010 (E) 2011 (E) 2012 (E)

Net Interest Income 9,595.3 12,065.4 12,752.1 13,780.6

Non-Interest Income 6,731.0 7,344.7 7,649.1 8,619.1

Total Income 16,326.3 19,410.1 20,401.2 22,399.7

Operating Expenses 7,282.0 -8,606.4 -8,949.5 -9,327.3

Bad Debts 2,935.0 -2,439.4 -1,954.0 -2,085.1

Reported NPAT 4,723.3 6,013.5 7,084.5 8,181.8

Significant Items

Cash NPAT 4,360.3 5,970.5 6,988.5 8,085.8

Balance Sheet and Capital Adequacy ( $b)

Year End: June 30 2009 (A) 2010 (E) 2011 (E) 2012 (E)Home lending 279.6 317.9 357.2 393.8Personal lending 19.3 21.6 23.3 25.2

Business lending 160.1 152.8 162.1 175.3

Total lending 459.0 492.3 542.6 594.4Non-lending interest 75.2 76.8 83.1 89.8

Securitised home loans 0.0 12.0 13.0 14.1Total average non-interest 93.7 74.1 78.7 83.5

Total Average Interest-Earning Assets 481.6 476.0 517.1 568.2

RWA 297.4 298.6 320.6 337.8

Total Equity 30.3 35.8 40.5 40.5

Tier-one Capital 23.3 28.9 33.3 38.5Total Capital 30.3 35.8 33.3 45.6

Tier-one Ratio 8.1% 9.7% 10.4% 11.4%

Recommendations:

Short Term: BuyLong Term: Buy

Valuation: $54.41Price Target $57.75

Ratios

Year End: June 30 2009 (A) 2010 (E) 2011 (E) 2012 (E)

Return on Assets (%) 0.8% 0.9% 1.0% 1.1%

Return on Equity (%) 16.3% 18.2% 18.5% 18.9%

Cost to Income (%) -45.3% 44.0% 43.5% 41.3%

Interest Margin (%) 2.1% 2.2% 2.1% 2.0%

Book Value Per Share 19.7 23.0 25.4 27.9

Price to Book 2.8 2.4 2.1 1.9

Valuation


Cash EPS 305.6 388.9 443.9 501.0

Reported EPS 331.2 391.4 450.4 506.7Cash EPS Growth -14.2% 27.2% 14.1% 12.9%

Cash PE 16.5 12.9 11.3 10.0

DPS 228.0 280.4 332.9 375.7Yield (%) 4.5% 5.6% 6.6% 7.5%

Franking (%) 100% 100% 100% 100%

Asset Quality


Total Impaired Assets 4,210.0 4,532.1 3,524.9 2,865.2

Net Write-Offs 1,056.0 2,102.9 2,255.2 2,474.1

Recommendations

Buy: Share price expected to appreciate by more than 10% during next twelve months.Accumulate: Share price expected to appreciate by more than 10% during next twelve months, however further short-term weakness possible.Hold: Share price expected to trade between +10% and -10%.Lighten: Share price expected to fall by more than 10% during next twelve months, however share price may appreciate marginally in short term.Sell: Share price expected to fall by more than 10% during next twelve months.


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Disclaimer

This document has been prepared and issued by E.L. & C. BaillieuStockbroking Ltd. Australian Financial Services Licence No

245421. Participant of ASX Group.

Disclosure of Potential Interest and Disclaimer

E.L. & C. Baillieu Stockbroking Ltd and/or its associates may

receive commissions, calculated at normal client rates, from

transactions involving securities of the companies mentioned herein

and may hold interests in securities of the companies mentioned

herein from time to time.

Your adviser will earn a commission of up to 50% of any brokerage

resulting from any transactions you may undertake as a result of this

advice.

(a) In preparing the advice, the licensee did not take into account

the investment objectives, financial situation and particular

needs of any particular person; and

(b) Before making an investment decision on the basis of that

advice, the investor or prospective investor needs to consider,

with or without the assistance of a securities adviser, whether

the advice is appropriate in light of the particular investment

need, objectives and financial circumstances of the investor or

prospective investor.

No representation, warranty or undertaking is given or made in

relation to the accuracy of information contained in this advice, such

advice being based solely on public information which has not been

verified by E.L. & C. Baillieu Stockbroking Ltd.

Save for any statutory liability that cannot be excluded, E.L. & C.

Baillieu Stockbroking Ltd and its employees and agents shall not be

liable (whether in negligence or otherwise) for any error or

inaccuracy in, or omission from, this advice or any resulting loss

suffered by the recipient or any other person.

E.L. & C. Baillieu Stockbroking Ltd assumes no obligation to update

this advice or correct any inaccuracy which may become apparent

after its given.

Contact Details

E.L. & C. Baillieu Stockbroking LtdA.B.N 74 006 519 393

Website: www.baillieu.com.au

MelbourneLevel 26, 360 Collins Street, Melbourne Victoria 3000PO Box 48, Collins Street West, Melbourne Victoria 8007Ph (03) 9602 9222 Fax (03) 9602 2350Email: [email protected]

SydneyLevel 18, 1 Alfred Street, Sydney NSW 2000PO Box R1797, Royal Exchange NSW 1225Ph (02) 9250 8900Fax (02) 9247 4092Email: [email protected]

BendigoCnr Bridge & Baxter Streets, Bendigo Victoria 3550PO Box 40, Bendigo North Victoria 3550Ph (03) 5443 7966 Fax (03) 5442 4728Email: [email protected]

NewcastleLevel 1, 120 Darby Street, Cooks Hill NSW 2300PO Box 111, The Junction NSW 2291Ph (02) 4925 2330 Fax (02) 4929 1954Email: [email protected]

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