JP Morgan Australasian Investment Conference 2003 · Times s y stem g r owth. 12 JP Morgan...

JP Morgan Australasian Investment Conference 2003

October 2003

Mike Pratt Group Executive Business and Consumer Banking

JP Morgan Conference October 032

Westpac at a glance

• Established 1817

• Top 100 bank globally1

• Core markets of Australia, New Zealand and near Pacific

• 7.5 million customers

• Leader in sustainabilityA$206bnTotal assets

A$30bnMarket cap3

4.6%Dividend yield3

21%Return on equity2

11%4 year EPS CAGR

March 2003

1 Euromoney June 20032 Cash earnings basis3 As at 30 June 2003


Consistent earnings and dividend growth

• Strong growth across all businesses

• Performance driven by:- Solid asset growth- Sustaining margins- Further improvement

in asset quality• Dividends growing at or

above earnings

Earnings per share1 (cents)

4249 51 55 55 59 60

43

010203040506070

2H99

1H00

2H00

1H01

2H01

1H02

2H02

1H03

1 Underlying cash earnings

26 28 30 32 34 36 38

242

05

10152025303540

2H99

1H00

2H00

1H01

2H01

1H02

2H02

1H03

Dividends per share (cents)

2 Unfranked


Revenue has been a key driver of growth

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1H99

2H99

1H00

2H00

1H01

2H01

1H02

2H02

1H03

Revenue Expenses

$m1 Underlying business basis

4 Year CAGR1

Revenue 7%

Expenses 2%


Points of differentiation

• Focused strategy- Core markets - Australia, New Zealand and near Pacific- Right exposure to contemporary wealth management business

• Low risk- De-risked income streams- Leading asset quality and strong provisioning coverage

• Leader in sustainability

• Large, high quality customer franchise

• Superior execution capability


Core markets offer a favourable growth-return mix

Actual and forecast return/growth profile for major banking sectors 2002-04

5

7

9

11

13

15

17

19

21

23

0 5 10 15 20 25Earnings per share (EPS) growth %

Ret

urn

on e

quity

(RO

E) %

Source: Deutsche Bank and CSFB actuals and estimates

ROE and EPS growth represent 2 or 3 year average of actuals reported in prior year and forecasts for the 2003 & 2004 years for the major banks in each economy. Canada & Asian estimates have been normalised for large swings in EPS.

Westpac

Australia US S&P 500 Banks

CanadaUK

Singapore Taiwan

Hong Kong

Thailand

Korea NPV3

NPV2

NPV1


Acquisition strategy

• No specific requirement to acquire customers- Three regional bank acquisitions 1995 - 1998

• Filled major strategic capability gaps- Two wealth acquisitions in 2002

• Opportunities will continue to arise in core markets, with not all assets in the hands of their natural owners

• Disciplined approach - Aligned with strategic direction- Strict valuation criteria- Minimal franchise stress


An aligned, customer focused business model

Strategy How? OutcomesVisionDifferentiator: Superior

Execution�Our high performance

culture:�Quality people�Effective people &

performance management processes

�Values

Core Group Objectives 2003

�Increase employee commitment by at least 5%

�Improve customer satisfaction by at least 5%

�Achieve 7-9% EPS growth�Top 5 corporate citizenship

ranking

“To be a great Australian Company”�A great place to work�A superior customer

experience�1st quartile shareholder

returns�A good corporate citizen

Customer Focus

Service – Profit Chain

Internal Service Quality

Employee Commitment

Employee Retention

Employee Productivity

Superior Customer

Experience

Customer Satisfaction

Customer Loyalty

Revenue Growth

Profitability

Shareholder Value

Employee Customer ShareholderMission“To be the No.1 service

organisation in the financial services industry by September 2005”

ValuesTeamwork

IntegrityPerformance

‘Ask Once’


Business & Consumer Banking

• Australian retail banking and wealth distribution

• Customer-driven organisational structure

• Optimal geographic footprint

• 5.1 million customers

• Main bank customer share:

– 13% Consumer– 20% Middle Markets– 16% SME

• 13,841 staff

Cash earnings by business unit (1H03)

Other 5%

BCB53%

Wealth8%

Institutional19%

NZ Retail15%


Business & Consumer Banking – March 03

14482550Profit on operations

(18)(126)(149)Bad debts

340bps57.3%53.9%Expense to income

(29)579

(251)

830

979(1,145)

2,124

1H03

-(29)Goodwill13511Cash earnings

(21)(207)Tax & OEI

16718Operating profit

16844Core earnings(1)(1,131)Operating expenses

81,975Operating income

% Mov’t1H02$m• Cash earnings up 13%

• Expense to income down 340bps

• Bad debt increase primarily due to dynamic provisioning for rebuild of equipment finance book


Consistently capturing above system credit growth

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Jan-0

0Mar-

00May

-00Ju

l-00

Sep-00

Nov-00

Jan-0

1Mar-

01May

-01Ju

l-01

Sep-01

Nov-01

Jan-0

2Mar-

02May

-02Ju

l-02

Sep-02

Nov-02

Jan-0

3Mar-

03May

-03Westpac’s credit growth as a multiple of Australian Financial System Credit growth

Tim

es s

yste

m g

row

th


Market share has similarly increased

13.7

14.3

11.1

12.2

17.8

Jun 03%

Credit

(10)18.117.9Housing

13.3

14.2

11.0

11.5

Mar 03%

4012.7Total retail deposits

1013.4Total credit

1010.0Other mainly business

7010.2Personal

Change (basis points)

Mar 03 –Jun 03

Mar 02%

Share of Reserve Bank of Australia financial system aggregates

1 Excludes impact of rebuilding AGC equipment finance book.


Strengths and opportunities

• Large customer franchise

• Strong mass-affluent bias in customer base

• Embedded sales and service culture

• Footprint aligned to Australia’s GDP growth profile

• Leading on-line customer penetration

• Below natural share in key segments – particularly small business and consumers in their later life stages

• Behind the leaders in technology infrastructure

• Excellent at growing the business (acquisition) but retention requires improvement

OpportunitiesStrengths


Integrated program to build sustainable success

Integrated wealth

2003-2005Re-position and unlock growth

People experience

Customer experience

Detailed environmental diagnostic

Mapped capabilities and positioning against optimum

Identified 80 “quick wins”

Redefine customer experience

Reposition to exploit key profit pools

Upscale retention capability

Optimise distribution

Delivery of lifecycle customer solutions

Advice and coordination driven distribution model

Deliver on ‘Ask Once’

Early 2003alignment, planning

& quick wins


Strategy is focused on profit pools

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Cards Mortgage PersonalSavings

ConsumerTransactions

PersonalLending

Short TermLending

Long TermLending

Leasing andEquipment

Finance

BusinessTransactions

Total

Australian Retail Banking Sector Profit Pool Estimated Profile of 2002 NPAT ($m)

15%

Mkt Share Competitors

Westpac

18.5% 18.0% 14.7% 14.0% 11.0% 16.0% 16.0% 6.0% 15.0%

Note: Market share figures based on outstandings, except cards which is based on NPAT estimates. Growth is for balances outstanding, for coming yearSource: Group Data Warehouse, Company reports, Analyst reports, Taylor Nelson, Roy Morgan, BAH Analysis


The SME Segment is large and attractive

• The Australian economy is dominated by the middle market and small business sectors

• Total profit pool available– Middle market $426m– SME $1,481m

Market profit pool for financial services

$0

$500

$1,000

$1,500

Middle Market SME

WBC ShareRest of Market

9%

26%

$m

200Corporate21 – 200Middle market0 – 20Small medium business(SME)

No. of employees

Definitions1

1 Source: Small Business in Australia 2001, Australian Bureau of Statistics


Opportunities identified by segment and geography

Geography

SegmentsSegments

Geography

State 1State 1

26

112

State 2State 2

32

74

State 3State 3

15

35

53

462

18

303

7

145

54

133

12

87*

5

42

State 4State 4

12

95

State 5State 5

10

44

34

389

18

182

31

112

8

52

TotalTotal

95

360

130

1481

111

426

133

707

62

464

27

223

78

596

36

279

335

c2.268

23% 43% 44% 22% 26%

11% 6% 5% 10% 9%

41% 14% 11% 16% 26%

19% 13% 12% 13% 15%

13%

9%

28%

13%

AgribusinessAgribusiness

SMESME

Middle MarketMiddle Market

TotalTotal

Estimated industry profit pool ($m)

Estimated Westpac profit ($m) Estimated share of pool %##

#Source : Westpac analysis


Major programs in place to tap opportunities

• Improve customer acquisition capability

• Strong relationships but weak share of wallet across existing customer base

• Customer satisfaction levels below par

Key Opportunities

Wealth

Manufacturing

Distribution

Sales Key Programs

Sunrise

Pinnacle

RedPower

Reach


Sales - Reach program

A cross product, cross geography, end-to-end sales and information management re-engineering program including CRM

Branch referral conversion rate

Outbound team leads actioning

Success rate per lead

Metrics from pilot

6.0X

1.5X

2.4X

• Relationship platform delivered to 111 managers

• Core training delivered • Pilot underway• FY2003 - deliver end-end

capabilities within SME market segment

• FY2004 - roll-out SME capabilities across all channels and segments

Performance above current model

Plans and objectives


Distribution - S-Pilot project

Part of the RedPower program, S-Pilot seeks to develop an enhanced branch based acquisition and servicing capability

ActivitiesReferralsInterviewsSales

ConversionsReferral to interviewInterview to salesReferral to salesAverage deal size

Metrics from pilot

small rise2X4X

2X2X4X2X

• FY2003 design and test two new face-to-face roles - Business Finance Manager & Banking Service Representative

• FY2004 roll-out SME capabilities across entire branch network

• Key Focus:- Increase sales opportunities- Improve customer satisfaction- Link with Reach

Performance above current model

Progress and plans


Embedded customer experience culture

• Mission ‘To be the No.1 service organisation in the financial services industry by September 2005’

• Ask Once is part of the Westpac DNA

• Capability in place to deliver


A disciplined approach to identify customer experience improvements

Complaint incidence

rate

Current customer

satisfaction levels# Customer

interactions count per month

Profit pool data

Complaints

count per month

1

2

3 4 5

Problem? How Happy?

Size of Prize $?

+ & &

Detailed list of prioritised

initiatives

Need & Evaluation

Offer & Purchase

Usage -Transactions

Usage -Enquiries Problems

Renew / Upgrade

Mortgage

Inv & Advice

Credit Card

Business

Trans

Savings

Risk

Other Lend


Initiative – ‘Ask Once’ coordinators

Impact of introducing ‘Ask Once’ coordinators into selected branches

Negative

Positive48% improvement

60%improvement 36%

improvement‘Ask Once’ Control

ENQUIRIESENQUIRIES PROBLEMSPROBLEMS COMPLAINTSCOMPLAINTS

89%improvement

‘Ask Once’ Control

‘Ask Once’ ControlSource: ANOP, July 2003, Ask Once Branch Pilot survey (n=170)


Initiative – Customer service commitment forms

0%

10%

20%

30%

40%

50%

60%

70%

80%

Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03Source: Customer Service Commitment (CSC), Initiative Progress Review – 6 August 2003

% of Complaints referred by branches to other areas of the bank are 30 percentage points lower when Commitment forms are used

Branches not usingCommitment forms

Branches using Commitment forms

Reduction in complaints referred to other areas

of the Bank

Pre Commitment Form

Post Commitment Form


Initiative – Westpac Academy

• Westpac Academy is changing the way we train and develop our people

• Key focus areas -customer experience, leadership, e-learning

• Customer experience module is training 11,000 staff by Dec 03

Early results delivering value

85% agree the training has improved customer experience

91% agree the insights their team received have been applied

97% agree the insights they received have been applied


Customer satisfaction is improving

SME satisfaction - total satisfied

40%

45%

50%

55%

60%

65%

Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03

Bank X WBC

Bank Z Bank Y

Consumer Satisfaction - % of main financial institution customers very or fairly satisfied

50%

52%

54%

56%

58%

60%

62%

64%

66%

68%

70%

Mar 01

Jun 0

1Sep

01Dec

01Mar

02Ju

n 02

Sep 02

Dec 02

Mar 03

Jun 0

3

Bank X Westpac Bank Y Bank Z

Middle Market Satisfaction - total satisfied

40%

45%

50%

55%

60%

65%

70%

75%

Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03

Bank X WBCBank Z Bank Y

Source: Consumer - Roy Morgan Research. Have deposit account with bank and regard it as MFI. Business - TNS Business Finance Monitor


What distinguishes Westpac?

• Straight forward and focused strategy, well executed

• Conservative risk profile

• Leader in sustainability

• Business & Consumer Banking – a key driver of growth- Strong momentum across the business

- SME opportunity beginning to deliver

- Leading the major banks in improving customer experience

Investor Discussion Pack

October 2003

Discussion Pack – October 200322

Disclaimer

The material contained in this presentation is intended to be general background information on Westpac Banking Corporation and its activities.

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.


Index

Summary of Interim 2003 earnings 4Business and Consumer Banking results 7What the market is asking 9

Loan growth 10Housing market 13Consumer opportunities 20Wealth Management 23

Credit quality and risk 28Basel II 33Outlook

Economic environment 35Broad earnings parameters 37

Investor Relations contacts and further information 42


Cash earnings

n/a(46)-Adjustment for embedded value uplift

33,5223,635Net operating income

109961,095Cash earnings(36)(25)(34)Preference dividends

(59)4978Goodwill31,0181,051Net profit after tax & OEI

(4)(431)1,486(214)(78)

(1,857)

1H03

(100)(2)Outside equity interests3(443)Tax21,463Net profit before tax

21(271)Bad debts(59)(49)Goodwill(7)(1,739)Operating expenses

% Change1H02$m


All businesses contributing

10%

13%

46%

64%

0 20 40 60 800 200 400 600 800

NZ Banking

InstitutionalBank

WealthMgmt

Business &ConsumerBanking

1H03 2H02 1H02

Cash earnings1

$m

Growth 1H02 – 1H03

1 Excluding significant items

53%

8%

19%

15%

Proportion of Group

Contribution


Significant momentum across the group

Key Messages

BCB

New Zealand

BTSS

BT Financial Group

WIB

Capital & Dividends

Sustainable

Financial

Performance

• Quick wins achieved, traction on customer experience

• Strategies in place to capture value across profit pools

• Transformation program delivering

• Leveraging off the Australian business model

• Integration on plan and ahead of budget

• Group-wide benefits beginning to be tapped

• Projects delivering improved customer experience

• Efficiencies supporting cost targets

• Performance sustainably enhanced

• Structured investments adding value across the group

• Strong pay-out ratio set to continue

• Sound capital structure with opportunities to further enhance


Business and Consumer Banking (BCB) – March 03

14482550Profit on operations

(18)(126)(149)Bad debts

340bps57.3%53.9%Expense to income

(29)579

(251)

830

979(1,145)

2,124

1H03

-(29)Goodwill13511Cash earnings

(21)(207)Tax & OEI

16718Operating profit

16844Core earnings(1)(1,131)Operating expenses

81,975Operating income

% Mov’t1H02$m• Cash earnings up 13%

• Expense to income down 340bps

• Bad debt increase primarily due to dynamic provisioning for rebuild of equipment finance book


BCB achievements - year to date

• Business-unit led initiatives contributed 13% to cash earnings – Pricing review– Disciplined cost management

• Branch and small business initiatives in place – quality of referrals up – customer satisfaction is up

• Lending process project (Pinnacle)– credit card scorecards upgraded– single customer view within collections

• CRM project (Reach) – early results– leads converted to opportunity 78%– cross-sell 23% of contacts, contact to sale 9%

• Customer experience– queues and credit cards being addressed

• Westpac Academy– 14% of staff have participated in the training


What the market is asking

• What is behind the strong growth in lending?

• What is happening in the mortgage book, and how are you managing the broker channel?

• How is Westpac going to differentiate itself from its peers on customer service?

• How are Westpac’s wealth management acquisitions progressing


Loan growth and market share in key products

27%16%

17%10%

18%10%

20%

15%

0 5 10 15 20 25 30

Retail depositsBusiness lending 1

Housing

Total depositsNon-housing term loans

Corporate - net loans & accept.Housing

Average interest earning assets

Annual % Change 1H02 to 1H03

13.7

14.3

11.112.217.8

Jun 03%

Credit(10)18.117.9Housing

13.3

14.2

11.011.5

Mar 03%

4012.7Total retail deposits

1013.4Total credit

1010.0Other mainly business7010.2Personal

Change (basis points)Mar 03 – Jun 03

Mar 02%

Share of Reserve Bank of Australia financial system aggregates

1 Excludes impact of rebuilding ex-AGC equipment finance book.


Growth in small and medium enterprises (SME)

• SME lending increased 10% over the year to March 03, excluding the reacquisition of the business finance portfolio. Initiatives boosting growth have included:

- Industry specialisation - 6 industry packages now in place and more planned

- Lifecycle packages – specialist business options tailored to each business’ lifecycle stage

- Rolling out CRM to business bankers- Reconfiguring use of branch model for business

bankers- For past 3 years, number 1 in customer

satisfaction compared to peers• Cash earnings from the re-build of the equipment

finance portfolio in 1H03 - $13m

• Equipment finance growth not a contributor to risk adjusted assets growth

• Growth achieved without compromising credit standards

• Business acquired from other financial institutions is subject to rigorous review and higher approval authorities

0.0

1.0

2.0

3.0

4.0

5.0

May-02 Jun-02 Sep-02 Mar-03 Sep-03 Sep-04

Actual re-acquisition ofbusiness bookInitial planned rate of re-acquisition

Equipment Finance portfolio (Original balance - $5.1bn)$bn

19

12

19

131416 16

13

0

3

6

9

12

15

18

21

NAB WBC CBA ANZ

1999 2001

%

Small business bank chosen if switching

Source: Greenwich Associates


Piloting new capabilities serving SME customers

Enhancing ‘SME’ in the Branch NetworkKey issues faced

Better serving SME customers in branch?

Delivering a cost effective servicing model

Improve acquisition capability?

Improving service/ problem resolution for small business customers - providing a ‘name’, ‘face’, ‘place’ relationship (i.e. institutionalised service model)?

Improve small business cross sell and retention?

• Place Business Finance Managers (BFMs) in financial centre to gather business leads from 6-8 surrounding branches

• Add Banking Services Representative (BSR) role with business sales/servicing capability in each of the branches

• Provide Tiered relationship management model based on customer value and needs

BSR

BSRBSR

Financial CentreBFM

BSR

BSRBSR


Housing market – state of play

• Established house prices have risen sharply over last two years

• First home owners are now a smaller proportion of new lending

• Household gearing has increased moderately

• Affordability not stretched

• In Westpac’s portfolio over 70% of borrowers paying in excess of scheduled repayments

Household debt to assets.

10%15%

20%25%

30%35%40%

45%

88/89 90/91 92/93 94/95 96/97 98/99 00/01 02/03

%

6%8%10%12%14%16%18%20%22%%

Ratio to financial assets (lhs)Ratio to financial and dwelling assets (rhs)

Affordability – interest payments as a percent of income

0

2

4

6

8

10

Dec-77 Dec-82 Dec-87 Dec-92 Dec-97 Dec-02

%

0

2

4

6

8

10%

MortgageTotal Total (period average)Source: RBA


Drivers of housing credit growth

• Housing credit growth expected to return to decade average in year ahead

• 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

• Alterations and additions now accounting for a substantial proportion of dwelling investment

0.00.20.40.60.81.01.21.41.6

1990/91 1992/93 1994/95 1996/97 1998/99 2000/01

%

2.5

2.6

2.6

2.7

2.7

2.8

2.8

2.9People

Population growth (lhs)

Persons per dwelling, avg (rhs)

Drivers of household formation

0

2

4

6

8

Dec-79 Dec-83 Dec-87 Dec-91 Dec-95 Dec-99

$bn

New dwelling investment

Alterations & additions

Dwelling expenditure

Source: APRA


Housing credit – growth expected to slow

Housing credit growth

0

4

8

12

16

20

24

28

Dec-77

Dec-80

Dec-83

Dec-86

Dec-89

Dec-92

Dec-95

Dec-98

Dec-01

Dec-04

%

Long term average 14%

Market estimates


Characteristics of Westpac’s mortgage portfolio

• Investment loans grew 20% but only represent 33% of Australian portfolio

• Average LVR of new loans 61%

• 20% of portfolio mortgage insured

• Lending criteria tightened for specific ‘hot spots’

• Delinquencies continue to track at record lows

• Growth supported by a reduction in run-off from 23% to 18%

$37 $40 $41 $43

$19$21

$23$25

$7$5

$4$3

0

10

20

30

40

50

60

70

80

90

2H01 1H02 2H02 1H03

$bn

Owner occupied Investment housingEquity access

Australian Mortgage Portfolio

10%

33%

57%

Proportion of total


Mortgages - broker introduced loans

• 30% of outstanding mortgage portfolio is broker originated

• In April 03 brokers introduced 26% of new loans by number and 29% of new loans by value

• Average size of loan is up to 15% higher than branch originated loans

• Strict accreditation and monitoring processes in place for all brokers

• Same underwriting standards applied to all applications, and more rigorous validation process

• Broker introduced loans behave no differently to branch introduced loans

28

262628

27262324

0

5

10

15

20

25

30

35

Dec-01

Mar-02

Jun-02

Sep-02

Dec-02

Mar-03

Apr-03

Jun-03

%

Broker Introduced Loans(Proportion of total1 by number)

1 Australian Retail housing


Housing portfolio quality

• Average write-off less than 3 basis points

• Delinquencies remain at historic lows

• 100% mortgage insurance where loan to value (LVR) ratio > 80%

• Insurance required for loans > $1.3M and LVR > 70%, and for inner city apartments with LVR > 70%

• Behaviour of investment book and broker introduced loans track owner occupied portfolio

• Stress testing provides additional evidence of sound book quality

Housing Portfolio - 90 day delinquencies

1.04

0.64

0.160.38

0.150.230.250.26

0.0

0.5

1.0

1.5

1996 1997 1998 1999 2000 2001 2002 Q12003

%

Housing portfolio stress testing

10.1bpsTotal write-offs bps1

$71.0mTotal write-offs (joint impact)1

$3.3mUnemployment rate – 2% pt rise

$20.3mHousing prices fall - 20% decline

$5.2mInterest rates - 4% increase

1 Total write-offs on residential mortgage products should all factors coincide.


Investment lending for inner city apartments

• Market expected to soften:- Significant new supply

coming on stream- Vacancy rates between 3%

and 5%- Property yields between

3% and 4.5% • Average LVR 59%• Stress testing with 30%

decline in value and significantly higher probability of default suggest less than $10m loss

93

1214

67

Commit-ments

1,116Total

196Brisbane257Melbourne

662Sydney

ExposureMar 03 $m

Owner Occupied

Inner city owner occupied

Investment

Inner city investment

Total Housing portfolio composition $ 75bn

Equity access


In Consumer, mid life stages are the biggest opportunity

Products 45 - 64 45 - 64

12%

$1Bn

15%

$700M

15%

$1.6Bn

Consumer by Age Group

Estimated industry profit pool ($m)

Estimated Westpac share of pool % ##

Source : Westpac analysis

TOTALProducts 18 - 29 18 - 29

Credit Cards

Mortgage

Personal Savings

Consumer Transactions

Personal Lending

30 - 44 30 - 44 Age 65+ Age 65+

$1.9Bn

13%

$280M $1.6Bn $300M c$3.8BnTotal Banking

11% 13% 11% 14%


Consumer - maximising value from profit pools

Integrated Wealth

People Experience

Customer Experience

Extend hours to meet customer need

Renew focus on customer retention

Internal cost savings

Increase product penetration

Meet more customer needs at first contact

Develop solutions that evolve with customer lifecycle

Align distribution to better capture profit pools

Integrated distribution model

Strengthen link between banking and wealth creation

Early 2003Alignment, planning

& quick wins

2003-2005Re-position and Unlock Growth


Projects to improve customer experience

Strategic

• Westpac Brand• Launch new communications positioning

• People and Performance (Align)• Several initiatives covering KPIs, redeployment, Change Management,

Learning & Development

• Joint Transformation Programs• Reach, Pinnacle and Redpower

• Complaints Handling - capture, resolution, analysis & tracking

• Runs on the Board

• Customer Experience Specification work

Theme Projects

Operational

• 4th Leaning Map across all business units and partners

• Westpac Academy Customer Experience Module Tactical

• Network Initiatives - Ask Once coordinators in Branches and Call Centres


Wealth position–represented across value chain

Customers Distribution & Advice

BundlingPlatform

ProductManufacture

InvestmentManagement Back Office

Outsourced partners for funds admin

Centralised back office servicing centre

Manage funds where comparative advantage

Use external managers elsewhere

Broad product range

Proven servicing capability

Leading wrap and corporate super platforms

700 Westpac planners & advisers

Over 15,000 EFAs

Access to 7.5m existing customers and through External Financial Advisor (EFA) channels


Integration synergies ahead of expectations

46 4865

102

70

51 51

85

116

0

20

40

60

80

100

120

140Synergies est at valuation – Aug 02

Updated synergies est – Nov 02

Updated synergies est – May 03

2003 2004 2005$m

Estimated integration synergies • Organisational integration virtually complete

• First major systems migrations (margin lending &banking services) on time and on budget

• Corporate super and back office systems to be migrated through September and October

• $ 47.7 million or 94% of 2003synergies now “locked in” (at end July 03)


Performance turnaround: Australian equities

-2.0%

-1.6%

-1.2%

-0.8%

-0.4%

0.0%

0.4%

0.8%

1.2%

May-02

Jun-0

2Ju

l-02

Aug-02

Sep-02

Oct-02

Nov-02

Dec-02

Jan-0

3Feb

-03Mar-

03Apr-

03May

-03Ju

n-03

Jul-0

3Aug

-03

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

Monthly portfolio excess return (LHS) One-Year Excess Return (RHS)

-6.33%

Sagitta Rothschild Australian Equity Sector Trust vs S&P/ASX300 Accumulation Index

Source : BT


Diversified business: performing well

New business

Sources: Retail - ASSIRT Jun 03 Wrap and Master Trust - ASSIRT Jun 03 Market share report Corporate super - Dexx&r Jun 03 Life and risk - Dexx&r Mar 03 Margin lending - BT loan book verses RBA industry total, Jun 03

410.2%na6.3%Life and risk

Outflow59.7%Retailna215.3%Margin lending

211.2%510.4%Wrap & master trust312.5%8 5.4%Corporate super

RankMarket share

Product Market share

Rank


Diversified business: continued Wrap strength

0

1

2

3

4

5

6

7

8

9

10

Mar-98

Sep-98

Mar-99

Sep-99

Mar-00

Sep-00

Mar-01

Sep-01

Mar-02

Sep-02

Mar-03

Jun-0

3

Number 1 WRAP for inflows(ASSIRT March 2003)

$bn

• Wrap products are the fastest growing sector in the market

• 6 new badges added since August 2002

• Continued new flow strength - June quarter inflow of $626 million and continued in September


De-risked earnings and increased disclosure

• Removed embedded value accounting for wealth management

• Sold lower growth, higher risk finance business (AGC)

• Conservative capitalisation/amortisation policy- Removed capitalisation of outsourced transactions- Expensing restructuring costs- No software currently amortised over more than 3 years

• Partially hedged offshore securities portfolio

• Significantly enhanced credit and other financial disclosures


Composition of portfolio

66% 63% 61% 60% 57%

30% 32% 34% 36% 39%

4%4%5%5%4%

0%

20%

40%

60%

80%

100%

Mar-01 Sep-01 Mar-02 Sep-02 Mar-03Business / Institutional Consumer Mortgages Other Consumer

Portfolio by customer segment 2• Mortgages represent 39% of total commitments and 56% of funded lending

• 67% business / corporate portfolio exceeding investment grade

• Other consumer includes credit cards, personal lending and margin lending

19% 18% 19% 20% 15%

14% 12% 9%9%

14% 13% 13% 13%14%

17% 18% 19% 17% 18%

9%

1%1%1.3%1.5%1.2%

0%

20%

40%

60%

80%

Mar-01 Sep-01 Mar-02 Sep-02 Mar-03AAA to AA- A+ to A- BBB+ to BBB- BB+ to B+ <B+

Corporate/Business portfolio 2

(Total Westpac Group 1)

Personal Loans

CardsMargin Lending

Other consumer6%

Mortgages56%

Business / Institutional

38%

Other consumer portfolio

2 % of Total Exposure - 31 March 20031 On balance sheet funded lending - 31 March 2003


Stressed exposures lower - provisions increased

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Sep96

Sep97

Sep98

Sep99

Sep00

Sep01

Sep02

Mar-03

AGC stressed loansWatchlist & substandard90 days past due well securedImpaired

Categories of stressed exposuresas a % of total commitments

Specific provisions / impaired assets

20

30

40

50

60

FY98 FY99 FY00 FY01 1H02 FY02 1H03

%

%

General provisions / non-housing performing loans & acceptances

1.0

1.5

2.0

FY98 FY99 FY00 FY01 1H02 FY02 1H03

WBC ANZ CBA NAB


Reduced concentrations and focusing on core markets

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1998 2000 2002 1H03

Top 10 exposures as a % of total committed exposure1

225,81240110,06338,455176,893Total

100%Nom5%17%78%% of Total

7,672001,0036,772Unsecuredconsumer4

89,3900013,79975,488Secured Consumer3

2,277523596501,216<B+

40,979847056,77233,418BB+ to B+

85,4952678,99916,23059,999Invest grade

GroupAsia inc Japan

Europe &Americas

NZ / PacificAust$m

Total Exposure by Region2

2 As at 31 March 20033 Includes mortgages for housing, investment property loans, equity access loans

and margin lending.4 Credit cards and personal loans

1 31 March 2003, excluding banks and governments


Forward indicators in good shape

• Business delinquencies less than one third of levels recorded 4 years ago

• Consumer delinquencies returning to more normal levels

1.91

1.28

0.63

1.471.53

0.56

0.0

0.5

1.0

1.5

2.0

2.5

1998 1999 2000 2001 2002 1H 03

Business Banking - 90 day delinquencies

%

1.07 1.10

1.98

0.96 1.140.9

0.630.82

0.0

0.5

1.0

1.5

2.0

2.5

1996 1997 1998 1999 2000 2001 2002 1H 03

Including AGCExcluding AGC

Consumer Unsecured - 90 day delinquencies

%


Basel II – the story so far

• Basel II involves the development of more sophisticated and comprehensive risk measurement for banks globally including credit, market and operational risks.

• Third stage of detailed global benchmarking now complete (QIS3) resulting in a model which sees no overall reduction in capital held by the global banking system but some recalibration required across regions and banks

• Preliminary findings suggest Australian banks have less risk than offshore counterparts

• Any potential reduction in capital from implementation of the accord, contingent upon agreement with APRA and the rating agencies

AdvancedFoundationStandardised

-36%-30%2%Australian Banks (average)

-2%3%11%G10 Group 1 Banks1

QIS3 Results - expected percentage change in risk weighted assets based on the risk measurement methodology adopted - standardised, foundation or advanced. The more rigorous the methodology, the greater the potential reduction in risk assets

1. Group 1 banks include large diversified and internationally active banks with Tier 1 capital exceeding Euro 3bn


Basel II highlights the low risk of balance sheet

Proportion of assets across classes

0%

10%

20%

30%

40%

Corporate Mortgage OtherRetail

SME OtherExposure

Group 1 banksWestpac

• Westpac has more of its balance sheet in assets with a high average reduction in risk weight than the average Group 1 banks

• Across asset classes, Westpac has a lower average risk weight (except for other retail) than Group 1 banks leading to a larger reduction in risk assets

Change in RWA under Advanced IRB

-80%

-60%

-40%

-20%

0%

20%

Corporate Mortgage OtherRetail

SME OtherExposure

Group 1 banks

Westpac

Group 1 banks are large, diversified and internationally active with Tier 1 capital in excess of Euro 3bn


Economic environment

• Strong momentum in Australian economy:

- Solid domestic demand- Buoyant housing sector- Business sentiment strong

• In the year ahead, economy will be boosted by an improved rural contribution and higher exports, offset by a slowing housing sector.

• Interest rates expected to rise March quarter 2004

5.25%4.75%Cash rate

3.9%2.9%World growth

2.6%2.7%CPI

6.1%

3.2%

Jun 04(f)

UnemploymentAust GDP

Jun 03(f)

6.1%

2.7%

Key economic indicators1

1. Westpac Economics estimates


Credit growth

-8

-4

0

4

8

12

16

20

24

Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04

% ann

-8

-4

0

4

8

12

16

20

24

Housing Business Total

Market estimates

Australian Credit Growth

Source: RBA


Operating revenue parameters

• Credit growth expected to fall from recent experience of 10-13% to 7-11% growth per annum

• Margins- Prior guidance suggested 10-12 bps erosion per annum

- Last 2 years performance has been more modest

- Medium term erosion to continue, potentially in a narrower band 5-10 bps

• Non-interest income growth will continue to be volatile given, income derived from wealth management, transaction fees and financial markets

• Overall operating revenue growth potentially 5-8% in most scenarios

-4

0

4

8

12

16

20

24

77 79 81 83 85 87 89 91 93 95 97 99 01 03

% a

nn

Marketestimates

Australian credit growth

2.0

2.5

3.0

3.5

4.0

1996 1997 1998 1999 2000 2001 1H02 2H02 1H03Reported Margin Adjusted Margin (Note 1)

Margins

1. Adjusted for the impact of sale of AGC and affect of bill financing

%


Expense outlook

• In a normal year we face - 4% salary increases- 2-4% increase in other prices

(some much higher)- Continued volume growth

• Expense pipeline targeted at sterilising organic cost growth and creating headroom for investment

• 1999-2003 track record is 2.3% CAGR (ex M&A)

• Forward outlook is for same factors - but outcome likely to be higher, say 2-4% p.a.

-4

-2

0

2

4

6

1H99 2H99 1H00 2H00 1H01 2H01 1H02 2H02 1H03

Annual growth in expenses

%

132779360

16953180

123777219

160451102

11573 46-

115 349257

OutsourcingOrg simplificationWealth integrationLending processesOther cost initiativesCumulative totalAnnual increment

FY05FFY04FFY03FEfficiency pipeline $m


Other factors

20011H022H021H03

1H022H021H03

Recent Experience

32 bps39 bps26 bps29 bps

30.5% 29.0%#

30.5%

Excluding policy holder tax recoveries, and including gross-up

Capital levels close to optimal –some further opportunity flowing from Basel II implementation

Some volatility due principally to WIB exposures and unsecured portfolios

CommentsMedium Term Guidance

Unchanged - near term organic

surplus capital growth of 2-3% pa

Gearing

25 – 35 bps of gross loans and

acceptances

Bad Debts

29 - 31%Tax

# Adjusted for AGC sale impact


Medium term earnings scenarios

Assuming stable macro-economic environment, medium term drivers of earnings would lead to following outcomes in most scenarios

25-35 bpsBad debts

6-10Post-Tax Cash Earnings29-31Tax Rate

2-4Expenses5-8Operating Revenue5-9Non-Interest Income5-8Interest Income

Likely Ranges (%)

Surplus capital generation can leverage cash earnings up by 1 – 3% in cash EPS terms NB: This is not 2004 earnings guidance


First half 2003 – actual capital outcome

• Organic growth opportunities exceeded expectations without eroding returns. This, combined with a higher payout to shareholders, resulted in no excess capital being accumulated in H1 2003

0%

14%(annualised)

27%

63%

21%

H1 2003actual

5%Growth in surplus capital

Organic opportunities saw risk asset growth double expectations7%Risk weighted asset

growth

DRP participation slightly higher

Increased payout ratio

Strong cash returns on equity maintained

Comments

23%

61%

20%

Preliminary 2003

estimate

Dividend reinvestment plan participation

Dividends payout ratio

Return on equity

Growth in loans and acceptances June quarter 2003 4.6%, 20% annualised


Investor relations contacts

Westpac’s Investor Relations Team

Andrew Bowden 61 2 9226 [email protected]

Hugh Devine 61 2 9226 [email protected]

Suzanne Evans 61 2 9226 [email protected]

AddressLevel 2560 Martin PlaceSydney NSW 2000AustraliaFax 61 2 9226 1539

For further information on Westpac including:

• Annual reports• Financial result announcements• Presentations and webcasts• Corporate history• Key policies

Please visit our dedicated investor website

www.westpac.com.au/investorcentre

JP Morgan Australasian Investment Conference 2003 · Times s y stem g r owth. 12 JP Morgan...

Documents

Transcript of JP Morgan Australasian Investment Conference 2003 · Times s y stem g r owth. 12 JP Morgan...