Australia and New Zealand Banking Group Limited
Background Briefing on
New Zealand Tracking Stock
David Ward
General Manager
Office of the Chief Executive Officer
Presentation
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Strategic Direction
Business Strategies
Current Performance
Proposed Tracking Stock Issue
ANZ: Financial Parameters
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Assets A$149 billion
Shareholder Equity A$9.2 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 A$16 billion (Eighth largest
company in Australia)
ANZ Profile
Australia
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New Zealand
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International
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$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)
Span of International Operations
UK & Europe
• 3% of profit
Americas
• 4% of profit
Asia Pacific
• Pacific Since 1880
• Asia Since 1970
• 5% of profit
South Asia/
Middle East
ANZ Grindlays
• Since 1854
• 7% of profit
Australia
• Since 1835
• 67% of profit
New Zealand
• Since 1840
• 14% of profit
Business Unit Parameters
Profit
$m
Assets
$b
Personal*
288
60
Corporate*
244
64
International
115
19
Centre
69
___
716
6
___
148
Total
* Retail Asset Finance in Personal
March 1999
Strategic Direction
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Rebalance business mix largely organically
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Focus on four strategic businesses
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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
Optimising the Business Mix
Return
FX
International Consumer
Retail FM
Personal Banking
Trade
Target
Capital Markets
Structured Finance
Business Banking
Asset Finance
Proprietary Trading
International Corporate
Major Corporate
Institutional
Stockbroking
Target
Risk
Business Strategies
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Accelerate growth in personal financial services particularly in funds
management by harnessing our distribution power
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Build on our strength in the corporate sector, by growing services business,
whilst reducing risk and improving return on assets
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Simplify our international network to improve return, by focusing on Asia
and the Pacific, by reducing risk and by investing in growth franchises
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Swiftly build a leading e-Commerce presence, creating the banking platform
of the future using internet technology
Gains in Market Share
20
%
Total Market Share
14
18
NAB
CBA
16
WBC
ANZ
12
20
Share of Housing Lending
13
12
14
10
%
1988
%
1993
11
10
Jun-94
1998
Share of Business Lending
30
%
Feb-96
Oct-97
Jun-99
Share of Credit Cards
18
25
16
14
20
12
10
Jun-94
Feb-96
Oct-97
Jun-99
15
Jun-94
Feb-96
Oct-97
Jun-99
ANZ Has a High Quality Personal Customer Base
Wealth Bands
$(000)
20
60
100
200
70
80
500
1000
ANZ
Other
Industry
Ave
0
10
20
30
40
50
60
90
100
Total Relationships (%)
Source: Roy Morgan 1998
The Opportunity with Australian Customers
Customer
Base
2.7m
All ANZ
Customers
High Value
to ANZ
High Value to True Retail
Industry
Market
but limited
ANZ business
Source: Roy Morgan 98
Banking Makes up Roughly Half of
Financial Services
Estimated Value of An Australian Retail
Customer (A$ Present Value)
$6000 - 7000
General Insurance &
Traditional Life
Risk/Wealth Protection
Investment
Traditional Banking
Non-traditional products
A New Dedicated Business for Premier Customers
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Premier Financial Package
Dedicated Managers
Premier Suites
Dedicated Service Officers
Build on Leading Corporate Position to
Improve Returns
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Market Leader in
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Business Banking
Auto Finance
Foreign Exchange
Investment Banking restructured
Need to
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Diversify Revenue Sources
Reduce Risk
Improve EVA
Improve ROA
Business Banking Australia: Risks reduced
Shareholder Value Increased
Risk Profile
(% of Lending Assets)
-50
Risk Level
EVA by customer decile
0
50
100
Customer Deciles
High
1997
1999
Low
1996
1999 1H
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)
Cumulative
350
300 No1 in FX in Australia (2nd year, BRW)
Top 5 Asian FX house (Asia Money)
250
200
150
100
50
0
1-Apr-97
1-Aug-97
1-Dec-97
1-Apr-98
Only 1 negative week
1-Aug-98
1-Dec-98
1-Apr-99
Simplify and Focus International
New York
Money Centre
Latin America
Represntative
Offices Closed
UK Europe
Money Centre
& Private
Banking
Grindlays
Leading foreign bank
• 114 branches
• 1-10% market share
Asia
•11 “footprint” branches
•Trade and corporate
•negligible market share
Pacific Islands
Leading bank
• 36 branches
• 20-60%share
Simplify and Focus International
Continue to
Reduce Risk
Imperatives
for International
Target Fewer,
Deeper
Positions
Create Future
Growth
Platforms
 Re-balance
business mix towards consumer
 Maintain strong lending policies
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Top 2-3 foreign or Top 5 local position
 Leverage strong positions and global
capabilities
 Deal with minor positions
 Develop Asia-Pacific,
e.g. Indonesia
 Pursue acquisitions only where it creates a
desired position, and can be managed
Building a Leading e-Commerce Position
Internet Banking Registrations
Strategies
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To build a strong e-financial
services capability with rapid
growth in registered users, online sales and site traffic
To create a powerful set of new
customer acquisition channels
To develop new e-Commerce
businesses, such as the
E*Trade alliance, Auto Group
70000
60000
50000
40000
30000
20000
10000
0
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
1998
1999
Building a Leading e-Commerce Position
Transform to new business
• Personalised
• Holistic
• Lifestyle aggregated
Customer Value
ANZ
Transact
• Account Transfer
• Applications
• Transactions
Inform
• Basic presence
• Brochureware
Entry Level
“Sticky”
Customer
Interact
•Interactivity
•Enquiry
Visitor
Functional Richness
Advanced
Execution is the Key
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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
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Shareholder Performance
Customer Experience
Building Talent
Out-delivering the
competition is
fundamental to
success
Organising to Deliver
CEO
John McFarlane
Group Functions
Strategy
Alison
Watkins
Finance
Peter
Marriott
People
Governance
Elizabeth
Proust
Activities
Business Groups
Personal
Peter Hawkins
Corporate
Roger Davis
International
Elmer Funke
Kupper
Technology
David Boyles
Presentation
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Strategic Direction
Business Strategies
Current Performance
Proposed Tracking Stock Issue
Momentum Evident in First Half
$M
800
700
716
625
134
International
102
New Zealand
446
480
Australia
Sep-98
Mar-99
550
600
500
182
400
70
97
300
200
373
100
0
Mar-98
Profit after Tax
Risk and Costs Reduced
11.5
US$b
Asian
Exposure
6.1
5.8
75
%
Cost Income Ratio
70
Sep-97
A$m
26
Equities
Interest
Sept-98
Mar-99
Market Risk
(Var)
6
FX
Sept-98
60
55
50
10
Mar-98
65
Mar-99
90
93
96
1H99
Relative Share Price Performance
Index 100 - 1 October 1998
160
150
140
130
120
110
100
90
80
70
60
01-Oct-98
ANZ
NAB
WBC
CBA
22-Dec-98
18-Mar-99
10-Jun-99
31-Aug-99
Second Half 1999
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Second half broadly in line with market expectations
Income up
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flat net interest income
growth in non-interest income
Costs stable
Provisioning stable
Cost income ratio down
Analyst’s 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….
Analyst’s Comments
Mike 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 $1.3b achieved our expectations. While ANZ has partially
recovered from a chronic oversold position, some work is required to take the next
step upwards.
Post Strategy Seminar
ANZ share price has underperformed CBA share price 30% and NAB by 15%
since December 1996. Cost cutting and rationalisation of below hurdle activities
suggest a price catch up is likely.
ANZ Vision
ANZ is a vibrant financial services company that
delivers:
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Superior performance and value for our shareholders
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An experience which delights our customers
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An environment where our people excel
Presentation
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Strategic Direction
Business Strategies
Current Performance
Proposed Tracking Stock Issue
ANZ Capital Management Principles
Economic Capital
Inner Tier 1
Equals Economic Capital
Peers
Rating Agencies
Risk Adjusted Tier 1 Ratio
Comparable to Peers
Capital
Structure
ie, AA Status
Shareholders
Reduce Cost
of Capital
Cycle
Manage Through
The Cycle
Rationale for Tracking Stock
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Align shareholder base with location of assets/profits
Increase ANZ Brand awareness
Cost Efficient form of high “Equity Credit” Capital
Diversify Shareholder Base/Reduce Cost of Capital
Opportunity for Customers and Staff to own their Bank
Increases ANZ weighting in the NZSE 40
ANZ New Zealand Tracking Stock
Main Features
An Investment in ANZ Group
• Denominated in NZ$
• Dividends in NZ$ equal to
ANZ’s dividend
• Imputation Credits
Attached
• Ability to exchange to ANZ
Shares
• Mandatory Exchange after
30 years
• Non Voting
Exchange Mechanism
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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
ANZ New Zealand Tracking Stock
An Investment in ANZ Group
 Key Differences Between This Security and ANZ Ordinary
Shares
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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
New Zealand Tracking Stock
Timing :
Access :
Q1 2000, subject to regulatory approvals
Via Lead Managers, Usual Broker or
ANZ Network
Size :
Sufficient to ensure liquidity
Regulatory Approvals: Proceeding well
Questions