The Australian Banking Scene

1
The Australian Banking Scene
- competing in a globalising world
Presentation to XXXI World Congress of the
International Association of Financial Executives
Institutes John McFarlane Chief Executive
Officer 10 October 2000
2
The four major banks account for a substantial
share of the traditional banking market
Source Roy Morgan Research, Roberts Research,
APRA
3
Superannuation is growing at the expense of
deposits, but asset growth continues


Source APRA
4
Deregulation of the banking industry has
transformed customer choice
Source ABA/RBA
5
Australia has been an early adopter of Internet
Banking
ANZ
Sep-00

• Australia behind Scandinavian countries, but
  compares well to other countries

• ANZ is leading Australian banks in terms of
  penetration of customer base

Source CSFB, ANZ
6
Increasing need to balance broader stakeholder
objectives
Shareholders
Customers
Staff
Corporations
Communities
Governments
7
Forces driving change
Globalisation
Financial services
War for talent
Technology/internet
Customer experience
Imperative to perform
Community expectations
Need for growth
Competition - costs/margins
8
Transitioning to the global new economy
Liberalisation
Globalneweconomy
Oldeconomy
Mobility of capital
Digital world
Revolution in Interaction Costs
9
Technology transforms what customers expect
Cost of a 3-minute telephone call from New York
to London
Time required to find a high rate certificate of
deposit
1996,
25 min
Telephone
10 min
www
www with agent
1 min
10
We have no choice but to transform our economics
FUM
Ratio Schwab to ANZ Retail
Operating Costs
1.8
Retail Branch
1.2
Other
0.6
Operating Costs
Other
Salaries
Example Entry of US Monolines into UK Credit
Card Market
UK Interest Margins
NIM
20
15
30 margin compression
10
5
0
91
93
95
97
99
MBNA, Capital One
11
Specialists are targeting segments of the value
chain
12
Specialists have been more successful than
integrators
Schwab
MBNA
Lloyds TSB
Global Mega Players
Specialists
Amex
Santander
Macquarie
Citigroup
4
Market/Book Ratio
CBA
WBC
Bank of America
NAB
ANZ
StGeorge
Geographic incumbents
Geographic integrators
1
20
50
Book Equity
13
Many Australian institutions focused on
consolidation stage
USA
EUROPE
AUSTRALIA
ASIA
14
Improving performance requires a good balance
between EPS growth and increasing expectations
PE Ratio
Aspiration Improved EPS growth and higher PE ratio

PE growth
EPS growth
EPS growth
15
The basis of success is changing
Incumbents historic advantages
. . . Neutralised in some/most cases
Privileged access to customers, technology,
labour, and capital hard for others to compete
Access available to everyone easier for new
competitors to enter and for customers to compare
and switch
Familiarity with local ways of doing business
needed
Regional/global standards and protocols become
common local familiarity becoming less important
Vertical integration the best model
No real need for integration within the company
can be accomplished with external parties
Protection from capital market pressure
Capital market rewards the strong and punishes
the weak
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ANZs response

• Proposition
• Specialists will win over integrated firms
• New technologies will deliver superior customer
  value and erode margins
• Value creation requires a balance of earnings
  growth

• Strategy
• Reconceive ANZ as a portfolio of specialists
• Become an e-Bank with a human face
• Create portfolio of growth businesses which
  leverage capabilities

• Implications
• Concentrate resources in targeted businesses
• Use technology to reduce costs and improve
  service proposition
• Manage short term earnings growth to ensure
  realisation of longer term growth opportunities

Specialisation
e-Transformation
Growth
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Talent is a critical determinant of future
performance

• Increasing job mobility
• More complexity
• multi-cultural/lingual
• technology literacy
• global acumen
• entrepreneurial skills
• Competing with start-ups
• Demand exceeds supply
• Importance of intangible assets
• know how
• know how
• relationships
• intellectual property

• Freedom to create
• Building wealth
• Modern values
• Learning
• Meritocracy

War for talent
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ANZ in the medium term
ANZ in 1 - 3 years
ANZ in 4 - 7 years

• Change of emphasis in portfolio
• Substantial e-transformation reducing costs and
  focused service
• Performance optimised
• Eps, ROE, investment
• capital management
• Transformational cultural change

• Substantial portfolio shifts
• Narrower, more focused portfolio with leading
  positions
• Increased investment in high growth business
• Modern performance culture
• Higher stock rating

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Copy of presentation available on www.anz.com
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The material in this presentation is general
background information about the Banks
activities current at the date of the
presentation. It is information given in summary
form and does not purport to be complete. It is
not intended to be relied upon as advice to
investors or potential investors and does not
take into account the investment objectives,
financial situation or needs of any particular
investor. These should be considered, with or
without professional advice when deciding if an
investment is appropriate. For further
information visit www.anz.com or contact Philip
Gentry Head of Investor Relations ph (613) 9273
4185 fax [phone] email
gentryp_at_anz.com