November 2002 Investor Roadshow David Murray Chief Executive - - PowerPoint PPT Presentation

November 2002 Investor Roadshow

David Murray Chief Executive Officer Stuart Grimshaw Chief Financial Officer

www.commbank.com.au

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The material that follows is a presentation of general background information about the Bank‟s activities current at the date of the presentation, 4 November 2002. 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

• bjectives, financial situation or needs of any particular investor.

These should be considered, with or without professional advice when deciding if an investment is appropriate. A full colour version of this presentation is available on the News & Information page of the Commonwealth Bank‟s Shareholder Centre website http://shareholders.commbank.com.au/display

Disclaimer

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Speaker’s Notes

 Speaker‟s notes for this presentation are

attached below each slide.

 To access them, you may need to save

the slides in PowerPoint and view/print in “notes view.”

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Agenda

 The Australian Economy and recent Equity Market

Performance

 Commonwealth Bank: Track Record, Differentiators and

Growth Drivers

 How is Commonwealth Bank Positioned Against the

Current Outlook?

The Australian Economy and recent Equity Market Performance

6

Australia’s Economy has been Resilient

% % % Source: Commonwealth Research

V A L U E O F R E T A I L T R A D E

5 1 0 1 5 J u l -9 5 J u l -9 7 J u l -9 9 J u l -0 1 5 1 0 1 5 % p a % p a

R E L A T IV E G D P G R O W T H (a n n u a l % c h a n g e )

• 3

3 6 9

S e p - 8 7 S e p - 9 0 S e p - 9 3 S e p - 9 6 S e p - 9 9 S e p - 0 2

%

U S

A u s tra lia

G D P (a n n u a l % ch a n g e )

• 2

2 4 6

S e p -8 8 S e p -9 1 S e p -9 4 S e p -9 7 S e p -0 0

%

L o n g -ru n a ve ra g e

P R O F I T S

( % o f G D P )

8 1 2 1 6 2 0

S e p -9 0 S e p -9 3 S e p -9 6 S e p -9 9 S e p -0 2 C o rp o ra te p ro fits * (p riv n o n -fa rm ) S m a ll b u s in e s s in c o m e * * % G D P (fc )

%

7

Interest Rates & Credit Growth

Source: Commonwealth Research

CREDIT

(3 month-ended annual rates)

• 10

10 20 30

Jul-97 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02

Business Housing Other personal

%

THE CASH RATE

4 5 6 7 Jul-98 Jul-99 Jul-00 Jul-01 Jul-02

CBA (f) Market (f) (Jun „02) Market (f) (Oct „02)

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2 4 6 Jul-86 Jul-89 Jul-92 Jul-95 Jul-98 Jul-01 15 30 45 $bn '000

Owner-occupied (ex refinance) (rhs) Investor (lhs)

50 100 150 200 250 Sep-86 Sep-90 Sep-94 Sep-98 Sep-02 4 6 8 10 12 14 16 18

M

• rtgage rate (rhs)

All Ords (lhs) H

• use Prices* (lhs)

Housing Market

Source: Commonwealth Research % Index

*CBA Est. House Price Index

EQUITIES AND HOUSE PRICES (RELATIVE PERFORMANCE) HOUSING LOAN APPROVALS

Compound Annual Growth Rate: 1986-2002 2000-2002 All Ordinaries Index: 6.2% -3.5% House Prices: 10.1% 20.5%

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Housing Market

Brisbane Sydney Melbourne Darwin Perth Adelaide Hobart Canberra

House Price as Multiple

• f Gross Yearly AWE*

Source: CBA Research AWE: average weekly earnings

Sep-02 Sep-99 C hange Sydney 10.6 8.5 25% Melbourne 6.7 5.3 26% Brisbane 6.0 4.8 25% Perth 5.0 4.6 9% Adelaide 5.0 3.8 32% H

• bart

3.7 3.5 6% C anberra 5.6 4.5 24% D arw in 5.6 5.1 10% T

• tal Australia

7.6 6.2 23%

10

Housing Market

Source: Commonwealth Research, unless otherwise marked $‟000 %pa %pa

Source: Residex *assumes principal repayment ratio fixed at 1997/98 level

5 10 15 20 <30 31-50 51-70 71-100 >100 5 10 15 20

% %

Income ($'000pa)

DEBT REPAYMENT LEVELS

(% of h/hold income, Mar'02)

Source: Melbourne Institute

H O U S E P R I C E S

1 0 0 2 0 0 3 0 0 4 0 0 M a r - 6 0 M a r - 6 8 M a r - 7 6 M a r - 8 4 M a r - 9 2 M a r - 0 0

• 2 0

2 0 4 0 6 0 R e a l g r o w th ( r h s ) L e v e l ( lh s )

S Y D N E Y H O U S E P R I C E S

( d e f la t e d b y t h e C P I)

• 4 0
• 2 0

2 0 4 0 6 0 1 9 0 0 1 9 1 2 1 9 2 4 1 9 3 6 1 9 4 8 1 9 6 0 1 9 7 2 1 9 8 4 1 9 9 6 Q I- Q III 2 0 0 2 a t a n n u a l r a te 9 0 th p e r c e n tile

P R IN C IP A L R E P A Y M E N T S

10 2 0 3 0

S e p - 9 7 S e p - 9 9 S e p - 0 1 4 8 1 2 Cu m u la tiv e

• v e r p a y m e n t
• f p r in c ip a l*

( r h s ) Pr in c ip a l ( % o f m o tg a g e p a y m e n t) ( lh s )

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Australian Equity Market Performance

Source: Deutsche Bank As at close of business 15 October, 2002

World Equity Market Performance

(US$ Currency adjusted YTD%)

• 6%
• 11%
• 14%
• 15%
• 17%
• 18%
• 26%
• 34%
• 34%
• 62%
• 70%
• 60%
• 50%
• 40%
• 30%
• 20%
• 10%

0% ASX/AUSTRALIA NIKKEI/JAPAN BOLSA/MEXICO FTSE/LONDON HANG SENG/HK DJIA/US CAC/FRANCE NASDAQ/US DAX/GERMANY BOVESPA/BRAZIL Indices YTD Performance

12

Australian Banks - Credit Quality

BELGIUM GERMANY AUSTRALIA NORWAY FRANCE EURO RETAIL DENMARK EURO WHOLESALE EURO INTL ITALY SPAIN PORTUGAL US FIDUCIARY/TRUST UK US MONEY CENTERS US MID CAP REG US LARGE CAP REG SWEDEN CANADA SWISS SINGAPORE HK 40 60 80 100 120 140 160 180 200 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 2002E Median Nonperforming Loans/Loans (%) 2002E Median Loan Loss Reserves/Non Performing Loans (%) Developed Markets Median LLR/NPLs 100% Developed Markets Median NPL/Loans 1.7%

Source: Merrill Lynch Global Banks Team

Global Asset Quality Map - Selected Regions/Segments (2002E)

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Australian Banks - Shareholder Value Performance

1 3 12 25

CBA ANZ WBC NAB Index

Source: Oliver Wyman & Co Shareholder Performance Index, 2002. Period covered by index 1 Jan 1997 - 31 Dec 2001

Global Five Year Shareholder Performance Index

50 100 150 200 250 300

Commonwealth Bank:

 Our Track Record  Our Differentiators and Growth Drivers

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Recent Result Highlights

 Solid Earnings Growth  Reported Profit up 10.7% to $2,655m  Cash Profit up 10.6% to $2,501m  Cash EPS up 10.1% to $1.97  Costs steady year on year  Improved productivity and cost to income ratio  High dividend payout ratio relative to peers  Capital position remains strong  Credit Quality and Provisioning remains strong

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Net Profit*

* Net Profit after tax and outside equity interest - cash basis. Excludes appraisal value uplift and goodwill amortisation. 1,109 1,153 1,192 1,309 Full Year = 2,262 Full Year = 2,501

875 918 975 1092 156 164 121 97 78 71 96 120

200 400 600 800 1,000 1,200 1,400 Dec 2000 Jun 2001 Dec 2001 Jun-02 Banking Life & Super Funds M anagement

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ROE and EPS

Dec 00 Jun 01 Dec 01 Jun 02

94 88 91 103

12.46% 13.10% 13.14% 14.61%

10 20 30 40 50 60 70 80 90 100 110 EPS 0% 5% 10% 15% 20% 25% ROE

Earnings per share - cash basis ROE - cash basis

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Dividend Growth

20 20 24 36 38 45 46 49 58 61 68 20 22 36 46 52 57 58 66 75 82 72

25 50 75 100 125 150 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Cents 10 20 30 40 50 60 70 80 90 100 %

First Half Second Half Payout Ratio

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Asset Quality Overview

First Half Second Half Charge for Bad & Doubtful Debts (6 months) $290m $159m Charge for Bad & Doubtful Debts to RWA (annualised) 0.42% 0.23% Impaired Assets (net of interest reserved) $983m $884m Specific Provisions $309m $270m General Provision $1,334m $1,356m General Provision to RWA 0.96% 0.96%

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Current Operating Outlook 2002-2003

 Core business remains sound  Equity market volatility has continued in the first quarter

• f 2003

 Additional costs of governance to be included in first half

result:

 expensing of employee option plans  restructuring provisions taken above the line

Commonwealth Bank: Differentiators

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Segmentation: Aligned Domestic Structure with Customer Needs

Retail Banking Services Premium Financial Services Investment & Insurance Services Institutional & Business Services Customer Group Personal banking customers, Small business banking customers Premium clients including professionals and business Agents, Brokers, Financial Advisers Institutional, Corporate, Commercial business customers Channels Branch, Ezy- Banking, ATM, EFTPOS, Phone, On-line, Mortgage brokers Relationship managers, Premium investment centres, phone,

• n-line.

Agents, Branches, Brokers, Financial Advisers, Premium investment centres, DirectDealerships, Institutional Clients Relationship managers, Business centres Support

Finance, Risk Management, Human Resources, Strategy, Technology, Legal, Secretariat

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Jun 2001 Dec 2001 Jun 2002

Home Loans^ 20.4% 20.1% 20.1%

(Residentially Secured)

Credit Cards 21.4% 21.4% 21.6% Retail Deposits^ 24.0% 24.1% 24.2% Retail FUM (Plan for Life) 16.1% 16.1% 15.7% Superannuation/Annuities 16.3% 16.4% 16.4% Retail Broking 9.0% 8.5% 9.2% Inforce Premiums 14.4% 14.5% 14.4%

^ Due to delays in implementing new APRA reporting methodology, no market share data has been available since March 2002.

Australian Market Share

Scale : Strong Market Share Positioning

Rank

1 1 1 1 1 2 2

* *

* March 2002 data

* *

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Australia’s Most Accessible Bank



Over 146m DirectBanking calls



Almost 2m registered NetBank users



Around 126,000 EFTPOS terminals



Over 10,000 third party advisers, brokers and agents



Around 4,000 ATMs



Nearly 4,000 postal and private agencies



Over 1,000 branches



Over 700 EzyBanking store locations



Around 700 personal lenders



Over 700 financial planners



Around 200 mobile bankers



Over 70 business banking centres



13 premium banking centres Customer Choice

Business Banking Financial Planners

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Brand: We Have More Relationships Than Any Other Financial Institution

Source: Research International, April 2002

Popularity of Australian Financial Institutions….

* Customers under 25 years of age ^ Excludes Youth customers 39 40 21 14 27 22 42 53

10 20 30 40 50 60

Overall Youth* Premium Retail^

%

NAB Group ANZ Group CBA Group Westpac Group St George Group

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Brand: We Achieve Consistently High Ratings from Retail Customers

Source: Research International Brand Monitor

Average across all brand attributes for CBA Vs average of ANZ, NAB and Westpac

%

• In touch with its

customers

• Is leading the way
• Is doing new and

different things

• Has knowledgable

and competent staff

• Has friendly and

reliable staff

5 10 15 20 25 30 35 40 Jan '01 Mar May Jul Sep Nov Jan '02 Mar May Jul CBA Other Major Banks

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Strong Corporate Governance Policies

 CEO is the only Executive Director  Roles of CEO and Chairman separate  Limits on Board members‟ terms of

• ffice

 Nominations Committee establish

criteria for Board appointment

 Board induction, continuing education

and succession planning

 Annual assessment of performance  Audit Committee independence  Limits placed on share trading  Options eliminated from executive

remuneration

 Closure of Directors‟ retirement

scheme

 Policy that covers non-audit work

conducted by External Auditor

 Rotation of External Audit Partner

Commonwealth Bank: Growth Drivers

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Established in All Components of the Wealth Management Value Chain

Investment Products

Sales Teams / BDMs

CommInsure

Sales Teams / BDMs

Retail Banking Services (Branch Network) Third Party Premium Financial Services Institutional & Business Services Online Direct (Mail & Telemarketing)

Customers

Commonwealth Bank Retail Distribution Channels (Sales & Advice)

Product Manufacturer

Banking Products

Sales Teams

Third Party

Non Commonwealth Bank Channels

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Brand - Colonial First State

0% 0% 5% 5% 10% 10% 15% 15% 20% 20% 25% 25% 7.30 7.30 7.45 7.45 7.60 7.60 7.75 7.75 7.90 7.90 8.05 8.05 8.20 8.20 8.35 8.35 0% 0% 20% 20% 40% 40% 60% 60% 80% 80% 100% 100% 34% 34% 36% 36% 38% 38% 40% 40% 42% 42% 44% 44%

AMP AMP AMP BT Colonial

• r

Colonial First State Colonial First State AXA Colonial First State ING Consumer Brand Awareness - Unaided

3

Consumer Brand Awareness - Total Consumer Purchase Intention

2 2

Adviser Brand Awareness - Overall Opinion of Organisation Colonial First State

Platinum

1

Perpetual

Source: Consumer Charts - Newspoll June 2002; Source: Adviser Chart - ASSIRT Service Level Survey 2002

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29 28 27 31 33 33 17 23 24 26 25 27 22 18 19 21

20 40 60 80 100 120 Dec 2000 Jun 2001 Dec 2001 Jun 2002

$billions

Au stralian Retail Fun ds Au stralian W holesale Fu n ds In tern ational Fu nds In tern al Life Assets Av erage FUM

Funds Under Management

$103bn

32

Innovation through FirstChoice Masterfund Product

You and your Financial Adviser Colonial First State FirstChoice Your financial future Structure Value Simplicity Service

Investments Pension Employer Super Personal Super

33

Premium and Business Opportunity

Business (Middle Market) Premium Customers

Source : Commonwealth Bank illustration

Current market share Natural market share Current number of premium customers Potential number of premium customers

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Premium: A Differentiated Business Model

Banking Platform Broking Platform

Borrowing Services Lending Services Transactional Banking Advisory Services Direct Investment Indirect Investment Debt Products Equity Products Personal Banker Commercial Banker Investment/ Equities Expert Event Based Adviser Insurance Expert

Client

Primary Relationship Manager Secondary Relationship Manager & specialised advice

35

Business: Increasing Cross-sell

Corporate Segment Example Bundled Products Example

26% Working Capital Services 26% of corporate clients use products from all three areas Financial Markets Corporate Finance

Business Banking Financial Markets Working Capital Services Interest rate risk management FX products Investments Bill financing Cash funded loans Overdrafts Transaction services

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Productivity: Focus on Efficiency

Remove all remaining back-office functions from branches Streamline home loan processes Streamline Business Banking processes Rationalise investment products & systems Organisational design

...to achieve:

• A better service

experience for customers, through greatly improved turnaround times

• Elimination of

duplication and inefficiencies

• Annual benefits from

FY 2004, following an incremental net cost

• f ~$120m in FY2003

Five productivity initiatives...

How is Commonwealth Bank Positioned Against the Current Outlook?

 Credit Quality  Capital Position  Investment Market Volatility  Productivity Focus

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Commonwealth Bank Group: Low Credit Risk Profile

 Housing Loans

• 53% of total loan book*
• Loan loss rate of < 3bps in 17 of last 20 years
• 55% average loan to valuation ratio
• Extensive stress testing of loan portfolio undertaken

 Asset Quality

• Impaired assets to risk weighted assets of less than 1%

in line with domestic peers

• Relatively low bad debt expense
• Well provisioned

* Excluding securitisation (or 57% including securitisation)

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Total Individually Rated* Exposures

Credit Risk

0% 20% 40% 60% 80% 100% Dec 2000 Jun 2001 Dec 2001 Jun 2002

Other BBB A AAA/AA

61% Investment Grade

* Corporate and business lending

40

Investment Grade Exposures by Size

$0-$50m $50m-$100m $100m-$250m $250m-$500m $500m-$750m $750m-$1bn >$1bn 8 customers 9 customers 13 customers 66 customers 99 customers 101 customers >15,000 customers

41

Offshore* Loans & Advances by Industry

Other Commercial Government Agriculture Finance Construction Personal Leasing

* Excludes New Zealand (ASB )

42

Aggregate Provisions

* Includes Colonial $millions

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 Jun 94 Jun 95 Jun 96 Jun 97 Jun 98 Jun 99 Jun 00* Jun 01* Jun 02 50 100 150 200 250 300 % General Provision Specific Prov ision Total Provisions/Gross Impaired Assets (axis on right)

43

500 1000 1500 2000 2500

Jun 1994 Jun 1995 Jun 1996 Jun 1997 Jun 1998 Jun 1999 Jun 2000 Jun 2001 Jun 2002

6 12 18 24 30 36

%

Commowealth Bank Group (Other Countries)* Commonwealth Bank Group (Australia)* Net Impaired assets as % of Total Shareholder Equity* (axis on right)

Net Impaired Assets

* Excluding Colonial prior to 30 June 2000

Asian Crisis Acquisition

• f Colonial

Two Accounts

%

44

Non-Accrual Loans by Size

$5m<$10m $50m<$100m $20m<$50m $10m<$20m >=$100m <$5m

1 Customer 2 Customers 4 Customers 4 Customers 12 Customers

As at 30 June 2002

45

Non Accruals by Industry

Mining Manufacturing Agriculture Property & Business Services Finance Transport Government Other

As at 30 June 2002

Accommodation, Cafes & Restaurants

46

Industry Exposures

Insurance

• 1.0

2.0 3.0 4.0 5.0

Jun-00 Jun-01 Jun-02

0% 3% 6% 9% 12% 15%

Services to Agriculture, Forestry, Fishing & Mining

• 1.0

2.0 3.0 4.0 5.0

Jun-00 Jun-01 Jun-02

0% 3% 6% 9% 12% 15%

Agriculture

• 1.0

2.0 3.0 4.0 5.0

Jun-00 Jun-01 Jun-02

0% 3% 6% 9% 12% 15%

Transport and Storage

• 1.0

2.0 3.0 4.0 5.0 Jun-00 Jun-01 Jun-02 0% 3% 6% 9% 12% 15%

Metal Mining & Manufacturing

• 1.0

2.0 3.0 4.0 5.0 Jun-00 Jun-01 Jun-02 0% 3% 6% 9% 12% 15%

Exposure to selected industries

Accommodation, Cafes and Restaurants

• 1.0

2.0 3.0 4.0 5.0

Jun-00 Jun-01 Jun-02

0% 3% 6% 9% 12% 15% $b $b $b $b $b $b

Balances $m % Portfolio % Troublesome % Impaired Left Axis: Right Axis:

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0.00% 4.00% 8.00% 12.00%

Tier 1 Capital Total Capital

Strong Capital Position

2H01 1H02 2H02 2H01 1H02 2H02

Total Tier 1

CBA Target Range

 Strong credit ratings  Shareholders equity

up $637m

 Strong regulatory

capital ratios

 Payments to

shareholders of $1,622m

48

Economic Equity

 Regulatory capital ratios can be misleading:

• Risk weights are not risk aligned
• Capital required for residential mortgages is overstated
• No operational risk charge
• No value placed on earnings and risk diversification

 Internal models show the Group is strongly capitalised

49

R isk*

Group Unit Linked

Shareholder Funds in Life Insurance Companies

Income

$0.5 billion $2.1 billion 53% 47%

Growth

$2.6 billion 67% 33% 50% 50%

*Risk includes traditional, investment account, annuities, personal risk and group risk.

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Greater Cost Control & Targeted Investment in Priority Areas

53 54 55 56 57 58 59 60

31-Dec-00 30-Jun-01 31-Dec-01 30-Jun-02

Group Cost to Income Ratio (Normalised)

Upgrading infrastructure to improve service Developing and managing relationships with all customers Product simplification & rationalisation; packaging products for premium customers, and manufacture innovative new products

%

Focus on achieving further productivity improvements... ...by reducing costs and spending to improve service quality and drive revenue growth

51

Strategic Outcomes

Business Driver Profile 5-Year Plan

Growth in market share Major product groups At or above market Margins Comparable for Continuing decline business mix Sources of income Comparable financial Continued shift institutions toward non-interest Costs Reduction in cost- 3%-6% p.a. income - best practice productivity change Capital Management Optimise regulatory Rating AA- capital & maintain rating Total Shareholder Return Relative to peers Top Quartile

52

Summary

 The Australian Economy and the Australian Equities Market

• Have been relatively resilient
• Economic outlook remains positive in global context

 Commonwealth Bank‟s strengths include:

• Our track record
• Our differentiators
• Our growth drivers

 How is Commonwealth Bank Positioned Against

the Current Outlook?

• Low credit risk profile
• Strong capital position
• Productivity focus

November 2002 Investor Roadshow

David Murray Chief Executive Officer Stuart Grimshaw Chief Financial Officer

www.commbank.com.au