Australia and New Zealand Banking Group Limited

1
Australia and New Zealand Banking Group
Limited Background Briefing on New Zealand
Tracking Stock
David Ward General Manager Office of the Chief
Executive Officer
2
Presentation

• Strategic Direction
• Business Strategies
• Current Performance
• Proposed Tracking Stock Issue

3
ANZ Financial Parameters

• Assets A149 billion
• Shareholder Equity A9.2 billion
• Return on Equity 17.3
• 30,000 staff
• Return on Risk Weighted Assets 1.2
• Top 100 bank globally on Assets, profits and
  capital
• Market Capitalisation of A16 billion (Eighth
  largest company in Australia)

4
ANZ Profile

• 100B assets
• Full service
• 14 market share
• 4th largest bank
• 3 m customers
• Leader in Business Banking, Asset Finance, Credit
  Cards
• Bank of the Year - 1997 and 1998
• 20B assets
• Full service
• 18 market share
• 4th largest bank
• 1 m customers
• Leader in Business Banking, Asset Finance
• 30B assets
• Niche commercial banking
• Widest Represented Australian Bank
• Leading foreign Bank in South Asia/Middle East
  (Grindlays)

Australia
New Zealand
International
5
Span of International Operations

• UK Europe
• 3 of profit

• Australia
• Since 1835
• 67 of profit

6
Business Unit Parameters
Profit Assets m
b Personal 288 60 Corporate 244
64 International 115 19 Centre
69 6 ___ ___ Total 716 148
March 1999
Retail Asset Finance in Personal
7
Strategic Direction

• Rebalance business mix largely organically
• Focus on four strategic businesses
• accelerate growth in personal
• build on strong position in corporate
• simplify and focus International
• build leading presence in e-Commerce
• Transform management process to ensure execution
  and delivery

8
Optimising the Business Mix
Return
FX
International Consumer
Retail FM
Personal Banking
Capital Markets
Trade
Structured Finance
Risk
Target
Business Banking
Proprietary Trading
Asset Finance
International Corporate
Major Corporate
Institutional Stockbroking
Target
9
Business Strategies

• Accelerate growth in personal financial services
  particularly in funds management by harnessing
  our distribution power
• Build on our strength in the corporate sector, by
  growing services business, whilst reducing risk
  and improving return on assets
• Simplify our international network to improve
  return, by focusing on Asia and the Pacific, by
  reducing risk and by investing in growth
  franchises
• Swiftly build a leading e-Commerce presence,
  creating the banking platform of the future using
  internet technology

10
Gains in Market Share
Total Market Share

Share of Housing Lending

NAB
CBA
WBC
ANZ
1993
1988
1998
Share of Credit Cards
Share of Business Lending


11
ANZ Has a High Quality Personal Customer Base
Wealth Bands
20
100
200
500
1000
60
(000)
ANZ
Other
Industry Ave
0
10
20
30
40
50
60
70
80
90
100
Total Relationships ()
Source Roy Morgan 1998
12
The Opportunity with Australian Customers
Customer Base 2.7m
Source Roy Morgan 98
13
Banking Makes up Roughly Half of Financial
Services
Estimated Value of An Australian Retail Customer
(A Present Value)
6000 - 7000
General Insurance Traditional Life
Risk/Wealth Protection
Investment
Traditional Banking
Non-traditional products
14
A New Dedicated Business for Premier Customers

• Premier Financial Package
• Dedicated Managers
• Premier Suites
• Dedicated Service Officers

15
Build on Leading Corporate Position to Improve
Returns

• Market Leader in
• Business Banking
• Auto Finance
• Foreign Exchange
• Investment Banking restructured
• Need to
• Diversify Revenue Sources
• Reduce Risk
• Improve EVA
• Improve ROA

16
Business Banking Australia Risks reduced
Shareholder Value Increased
Risk Profile ( of Lending Assets)
EVA by customer decile
0
100
-50
50
Risk Level
High
Customer Deciles
1997
Low
1999
1996
1999 1H
17
Investment Banking Activities Restructured

• Restructured to focus on domestic markets and
  core products
• Withdrawn from non core activities such as London
  Capital Markets
• Reduction in risk levels and costs

FX Money Trading Revenues( m)

• No1 in FX in Australia (2nd year, BRW)

• Top 5 Asian FX house (Asia Money)

Only 1 negative week
Cumulative
18
Simplify and Focus International
UK Europe Money Centre Private Banking

• Grindlays
• Leading foreign bank
• 114 branches
• 1-10 market share

New York Money Centre

• Asia
• 11 footprint branches
• Trade and corporate
• negligible market share

• Pacific Islands
• Leading bank
• 36 branches
• 20-60share

Latin America Represntative Offices Closed
19
Simplify and Focus International

• Re-balance business mix towards consumer
• Maintain strong lending policies

Continue to Reduce Risk

• Target Top 2-3 foreign or Top 5 local position
• Leverage strong positions and global capabilities
• Deal with minor positions

Target Fewer, Deeper Positions
Imperatives for International
Create Future Growth Platforms

• Develop Asia-Pacific, e.g. Indonesia
• Pursue acquisitions only where it creates a
  desired position, and can be managed

20
Building a Leading e-Commerce Position
Internet Banking Registrations
70000

• Strategies
• To build a strong e-financial services capability
  with rapid growth in registered users, on-line
  sales and site traffic
• To create a powerful set of new customer
  acquisition channels
• To develop new e-Commerce businesses, such as the
  ETrade alliance, Auto Group

60000
50000
40000
30000
20000
10000
0
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
1998
1999
21
Building a Leading e-Commerce Position

• Transform to new business
• Personalised
• Holistic
• Lifestyle aggregated

Customer Value
Sticky Customer
ANZ

• Transact
• Account Transfer
• Applications
• Transactions

• Interact
• Interactivity
• Enquiry

• Inform
• Basic presence
• Brochureware

Visitor
Entry Level
Advanced
Functional Richness
22
Execution is the Key

• Difficult to differentiate strategically
• Aggressive targets to stimulate innovation
• Organic emphasis for the next 2/3 years
• New performance management discipline
• Real differentiation is through execution
• Shareholder Performance
• Customer Experience
• Building Talent

Out-delivering the competition is fundamental to
success
23
Organising to Deliver
CEO John McFarlane
Group Functions
Finance Peter Marriott
Strategy Alison Watkins
People Elizabeth Proust
Governance Activities
Business Groups
International Elmer Funke Kupper
Technology David Boyles
Corporate Roger Davis
Personal Peter Hawkins
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Presentation

• Strategic Direction
• Business Strategies
• Current Performance
• Proposed Tracking Stock Issue

25
Momentum Evident in First Half
M
800
716
700
625
International
134
550
600
182
102
New Zealand
500
97
70
400
300
Australia
480
446
200
373
100
0
Mar-98
Sep-98
Mar-99
Profit after Tax
26
Risk and Costs Reduced
Asian Exposure
11.5
USb
USb
Cost Income Ratio

6.1
75
5.8
70
65
Mar-99
Sept-98
Sep-97
60
Am
Am
26
Market Risk (Var)
Equities
55
50
Interest
10
90
93
96
1H99
6
FX
Mar-99
Sept-98
Mar-98
27
Relative Share Price Performance
Index 100 - 1 October 1998
31-Aug-99
28
Second Half 1999

• Second half broadly in line with market
  expectations
• Income up
• flat net interest income
• growth in non-interest income
• Costs stable
• Provisioning stable
• Cost income ratio down

29
Analysts Comments Alastair Hunter, J B Were
Post FY98 Result Global concerns overshadow a
strong domestic performance ... The reduction in
the risk profile will add value to the
shareholders... Post HY99 Result For further
share price appreciation we will need to
see continued improvement in sentiment towards
Asia, positive revisions to earnings forecasts,
implementation of the strategic plan, improved
confidence in management and a regeared balance
sheet. Post Strategy Seminar ANZ has a clear
vision and strategy in place. The key issue for
investors now becomes confidence in management to
execute the strategy. We are warming to the
execution capability of ANZ.
30
Analysts CommentsMike Macrow, Merrill Lynch
Post FY98 Result Our reduction in opinion
reflects the higher asset quality risk inherent
in a more commercially oriented bank Post HY99
Result The underlying result of 1.3b achieved
our expectations. While ANZ has partially
recovered from a chronic oversold position, some
work is required to take the next step
upwards. Post Strategy Seminar ANZ share price
has underperformed CBA share price 30 and NAB by
15 since December 1996. Cost cutting and
rationalisation of below hurdle
activities suggest a price catch up is likely.
31
ANZ Vision
32
Presentation

• Strategic Direction
• Business Strategies
• Current Performance
• Proposed Tracking Stock Issue

33
ANZ Capital Management Principles
Economic Capital
Inner Tier 1
Equals Economic Capital
Peers
Capital Structure
Rating Agencies
Risk Adjusted Tier 1 Ratio
ie, AA Status
Comparable to Peers
Cycle
Shareholders
Reduce Cost
Manage Through
of Capital
The Cycle
34
Rationale for Tracking Stock

• Align shareholder base with location of
  assets/profits
• Increase ANZ Brand awareness
• Cost Efficient form of high Equity Credit
  Capital
• Diversify Shareholder Base/Reduce Cost of Capital
• Opportunity for Customers and Staff to own their
  Bank
• Increases ANZ weighting in the NZSE 40

35
ANZ New Zealand Tracking Stock
Main Features

• An Investment in ANZ Group
• Denominated in NZ
• Dividends in NZ equal to ANZs dividend
• Imputation Credits Attached

• Ability to exchange to ANZ Shares
• Mandatory Exchange after 30 years
• Non Voting

36
Exchange Mechanism

• Both parties have the ability to trigger exchange
  at any time after initial period
• Slight discount applies if initiated by investor
• Investors can buy or sell the securities at any
  stage on the NZSE

37
ANZ New Zealand Tracking Stock

• An Investment in ANZ Group
• Key Differences Between This Security and ANZ
  Ordinary Shares
• Is a Hybrid Security
• Expect New Zealand Investors to Receive
  Imputation Credits
• The Exchange Mechanism plus same Dividend Yield
  ensures price will track ANZ head shares
• Increases ANZ weighting in NZSE 40

38
New Zealand Tracking Stock

• Timing Q1 2000, subject to regulatory
  approvals
• Access Via Lead Managers, Usual Broker or
  ANZ Network
• Size Sufficient to ensure liquidity
• Regulatory Approvals Proceeding well

39
Questions