1998 Final Results Presentation Analysts

1
Delivering for Shareholders Australia and New
Zealand Banking Group Limited
David Ward General Manager Office of the Chief
Executive February 2000
2
Briefing Outline

• Review of ANZs 1999 Results
• - Financial Perspective
• - Business Perspective
• Outline Group Strategy with particular focus on
  Personal Financial Services strategy.

3
1999 - A Good Year for ANZ

• EPS 90.6c up 17. TSR up 19.6
• NPAT 1,480 million up underlying 18
• Return on Equity up to 17.2 (15.5). ROA 1.0
  (0.8)
• Costs down 4. Cost income ratio down to 55.0
  (60.9)
• Risks reduced. Gross non-accruals down 7, net
  down 27
• 500 million share buyback
• No abnormals. No Surprises.

4
Significant Improvement Achieved
Cost Income Ratio
ROE
Gross and Net Non-Accruals m
ROA
1,662
1,543
1,225
872
5
Good Progress Across the Board
m
Software Capitalisation 61
1700
Increased Tax (136)
1600
Growth in Other Income 42
Higher Provisions (23)
1500
1,480
Lending Fee Growth 87
Lower Costs 83
1400
Other Fee Growth 93
1300
Abnormal Items 69
1,175
1200
1,106
Net Interest Income Growth 98
1100
1000
900
Post Abnormals 1998
Pre Abnormals 1998
1999
6
Drivers of Performance
NII/Interest Earning Assets
Net Interest Assets
ROA
ROE
Other Income Assets
Cost/Income
Cost Assets
Provisions/NLA
Leverage
Provisions Assets
Risk
Business Mix
7
Delivering on Cost Reduction
Cost Income Ratios
WBC
CBA
ANZ
NAB
8
Reducing Risk
Asian Exposure
USb
Australian Lending Asset Profile
11.5

65b
90b
6.1
5.6
AAA-BBB BBB BB BB- ltB
Market Risk (VaR - Ave)
Am
23
23
Equities
Interest
7
FX
9
Non-Accrual Loans
m
Gross Non-Accrual Loans
As at 30 September m Gross Net
Cover Australia 623 345 44 New Zealand
50 30 40 International 870 282 65
Net Non-Accrual Loans
10
Provisioning ELP gt SP at Group Level
m
2100
482
510
FX Impact
1800
1395
1500
1401
Surplus over APRA Guideline
ELP Charge
Net SP Transfer
1200
967
900
600
300
0
Sep 98
Sep 99
APRA Guideline
ELP - Economic Loss Provision SP - Specific
Provision
11
Capital Strategy
Capital Adequacy Ratio

12
10.7

• Active capital management
• Maintain AA status and peer ratings
• Tier 1 (6.5 - 7.0)
• Inner Tier 1 (6.0 - 6.5)
• 500 million on-market buyback
• Major international acquisitions unlikely
• NZ Tracking Stock Issue in May

10
8
7.9
6
4
2
0
1996
1997
1998
1999
Inner Tier 1
Hybrid
12
Economic Value Added (EVA)
Net Income 5,966 Operating Expenses (3,294) ELP
Charge (510) Tax (676) Franking Other
Adjustments 352 Adjust Profit 1,838 Cost
of Capital _at_ 11 (1,004) EVA 834
million
Hurdle of 15 used in internal models
13
Business on Track

• Strategic re-positioning on track in all segments
  
• Good earnings growth in Australia and New
  Zealand
• Business mix substantially improved. High risk
  businesses exited
• Domestic market share up notwithstanding cost
  focus
• 140,000 Internet banking customers (8000). ANZ
  ETrade launched
• Major technology projects completed on time, on
  budget

14
Business Mix Improved
Business Segment Profit After Tax
m
Business Segment Proportion
Other
Down 20
International
Other
Personal
International
Corporate
Up 17
Personal
Corporate
Up 33
15
Gains in Australian Market Share
Total Market Share
Share of Housing Lending


NAB
CBA
WBC
ANZ
1993
1988
1998
Aug-99
Share of Credit Cards
Share of Business Lending


Aug-99
Aug-99
16
Overall Strategic Direction in Place

• Balance business mix towards consumer and low
  risk
• Personal offers greatest growth and earnings
  potential
• Leading position in corporate to be leveraged
• International to be simplified and focused
• A leading presence in e-Commerce to be
  established
• Transform management process to deliver EVA
• Withdraw from high-risk and non core segments
• Improve performance in suboptimal businesses
• Invest in high growth revenue streams
• Hold costs flat
• Optimise capital efficiency

17
Strategy for Personal

• Aggressively build market position in all
  consumer segments
• An intergrated financial services approach
• Special focus on insurance and retail funds
  management
• Differentiated service propositions by customer
  segment
• Build strong product businesses
• Continue intense focus on cost management
• Build a leading consumer e-Commerce capability

18
Integrated Personal Financial Services
Estimated Value of An Australian Retail Customer
(A Present Value)
Household Financial Assets
b
6000 - 7000
General Insurance Traditional Life
3000
Risk/Wealth Protection
Managed Funds
Investment
2000
1000
Traditional Banking
Banks/NFI
1989
1997
2005
19
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 Research 1998
20
The Opportunity with Australian Consumers
Customer Base 2.7m
Source Roy Morgan Research 1998
21
A New Dedicated Business for Premier Customers

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

22
Segmented Customer Service Propositions will now
Drive Delivery
Segmented Customer Service Approach
Customer Revenue curve
New Segmented approach
Traditional uniform cost to serve
High Value Customers
Low Value Customers
A fundamental shift to a customer-centric strategy
23
Leveraging Technology anz.com
Market share ( of Australian internet banking
users)
Customer takeup rate ( of customer base)
Number of internet banking users (Ord Minnett
12/99) / number of main banking
relationships(based on Ray Morgan 8/99 data)
Source Ord Minnett, Roy Morgan Research
24
International - Simplify and Focus

• Re-balance business mix towards consumer
• Reduce cross border risk

New Lending Policies
Continue to Reduce Risk

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

Target Fewer, Deeper Positions
Latin American Offices Closed
Create Future Growth Platforms
25 Interest in Panin, Cards acquisition

• Develop Asia-Pacific, e.g. Indonesia
• Pursue acquisitions only where it creates a
  desired position - likelihood of our making a
  major international acquisition this year is low

25
Continue to Deliver in 2000

• Increase ROE towards 20 target
• Target flat costs. Achieve 53 cost income ratio
  
• Improve asset quality, particularly International
• Progress towards target capital range
• Set stretch performance targets and linked
  incentives
• Target highest increase in e-Commerce customers
• No surprises

26
Outlook

• Positive view on world economy
• Australian economy strong but slowing slightly
• Business tracking close to our expectations,
  comfortable with Street expectations
• Abnormal writedown of FITB of 60m from tax
  changes will be partially offset by abnormal
  gains

27
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

28
ANZ New Zealand Tracking Stock
Main Features

• An Investment in ANZ Group
• NZDgt500m
• Denominated in NZ
• Dividends in NZ equal to ANZs dividend
• Imputation Credits Attached
• Ability to exchange to ANZ Shares after three
  years

• Mandatory Exchange after 30 years
• Non Voting
• Timing now May (after Interim Results on 1 May)

29
The Proposed Exchange Formula

• ANZ initiated exchange will be on a 11 basis, ie
  1 tracking unit for 1 ANZ share
• Investor initiated exchange
• A/B x .98 expressed as a decimal rounded to 2
  decimal places, where A/B cannot be less than .97
  or greater than 1.02
• A the A equivalent of the tracking stock price
  calculated as the weighted average price over the
  next 10 trading days
• B the weighted average ANZ share price over the
  next 10 trading days. This means that the
  exchange ratio will effectively have a cap of 11
  and a floor of 0.951
• The period of non-exchangeability (other than in
  certain events such as takeover, liquidation)
  remain at 3 years.
• Exchange should remain being able to be triggered
  at any time (but issues of shares processed
  fortnightly to reduce administrative burden).

30

• 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
• David Ward
• General Manager Office of the Chief Executive
• ph (613) 9273 4185 fax [phone] email
  david.ward_at_anz.com

31
Profit Loss
Sep-99
AM
Sep-97
Sep-98
3,645
Net Interest Income
3,437
3,547
1,754
Fees
1,459
1,574
340
FX
237
373
89
Trading Securities
182
lt83gt
138
Other
232
235
2,110
2,099
2,321
Non Interest Income
5,966
Net Income
5,547
5,646
1,732
Expenses
Personnel
1,949
1,854
314
Premises
362
347
344
Computer
330
341
813
Other
771
776
91
Restructuring Costs
90
120
3,294
Total Expenses
3,502
3,438
2,672
Profit Before Provisions
2,045
2,208
510
Doubtful Debts
400
487
676
Tax
466
537
1,480
NPAT Before
Abnormal Items
1,171
1,175
Abnormal Items
lt147gt
lt69gt
-
1,480
NPAT and
Abnormal Items
1,024
1,106
32
Profit Loss
Sep-99
Mar-99
AM
Mar-97
Sep-97
Mar-98
Sep-98
Net Interest Income
1,718
1,719
1,773
1,774
1,811
1,834
904
Fees
693
766
774
800
850
160
FX
111
126
196
177
180
45
Trading Securities
80
102
62
lt145gt
44
78
Other
116
116
96
139
60
1,187
Non Interest Income
1,000
1,110
1,128
971
1,134
3,021
Net Income
2,718
2,829
2,901
2,745
2,945
872
Expenses
Personnel
954
995
972
882
860
157
Premises
184
178
172
175
157
158
Computer
173
157
168
173
186
422
Other
383
388
385
391
391
1,609
Sub Total
1,694
1,718
1,697
1,621
1,594
Restructuring Costs
-
90
40
80
49
42
1,651
Total Expenses
1,694
1,808
1,737
1,701
1,643
1,370
Profit Before Provisions
1,024
1,021
1,164
1,044
1,302
252
Doubtful Debts
197
203
237
250
258
352
Tax
243
223
298
239
324
764
NPAT Before
Abnormal Items
580
591
625
550
716
-
Abnormal Items
lt31gt
lt116gt
-
lt69gt
-
764
NPAT and
Abnormal Items
549
475
625
481
716
33
Management Team

• John McFarlane CEO Citibank, Standard Chartered
• David Boyles CIO AMEX, BOA
• Roger Davis Corporate Citibank
• Peter Hawkins Personal ANZ
• Peter Marriott CFO ANZ, KPMG
• Greg Camm Mortgages ANZ
• Larry Crawford Distribution First Bank Systems,
  Wells Fargo
• Bob Edgar Business Bank ANZ
• Kathryn Fagg Banking Products McKinsey Co
• Brian Hartzer Cards First Manhattan
• Elmer Funke Kupper International McKinsey Co
• Mark Lawrence Risk Soc Gen New York
• Peter McMahon Asset Finance ANZ, Costain
• Grahame Miller ANZIB ANZ
• Elizabeth Proust People Victoria Public Service
• Alison Watkins Strategy McKinsey Co