28
Commonwealth Bank Stuart Grimshaw Group Executive Investment and Insurance Services Division 2 November 2004 Morgan Stanley Asia Pacific Summit
Commonwealth Bank
Stuart Grimshaw
Group Executive
Investment and Insurance Services Division
2 November 2004
Morgan Stanley Asia Pacific Summit
2
The material that follows is a presentation of general background
information about the Bank’s activities current at the date of the
presentation, 2 November 2004. 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.
Disclaimer
3
Commonwealth Bank’s Footprint
Market Conditions and Current Trends
Our Business Model
Key Achievements
Overview of our Business Operations
Insurance
Asset Management
Platforms
Distribution
Conclusion
Discussion Outline
4
Overview of Commonwealth Bank Group
Banking
Largest Australian retail bank with over 8 million retail customers
No.1 in retail deposits, No.1 in home lending
Over 1,000 branches, around 4,000 agencies and 3,000 ATMS
Strong positions in each segment of business banking
Funds Management
No.1 in retail FUM
No.1 in platform inflows
Insurance
No.1 in inforce premiums
International
Strong presence in NZ, and smaller scale operations in
Asia and the UK
Tier 1 ratio 7.43%
Credit ratings
- Moody’s
- S&P
- Fitch
Aa3
AA-
AA
Total assets A$306bn
Market cap A$38bn
5
Market trends shaping the Australian wealth
management industry
Funds Management:
Decline of retail and the rise of platform
Margin squeeze
Slowing, but healthy projected growth in funds management
Rising popularity of blend and model portfolios
Insurance:
Strong long-term growth
Rational approach to pricing
Underinsurance and the need for further education
Advice:
Independence of advice
Continuing consolidation of distribution
Soft dollar benefits
Quality of advice
6
The only segment with universal downward
pressure in margins is platforms / administration.
Revenue
Margins
Margin
Trends
Drivers
Asset
Management
Platform /
Marketing /
Administration
Distribution
10 – 100bps 50-120bps 40-100bps
• “perceived”
commoditisation
• high alpha providers
will maintain pricing
power – capacity is
an issue
• increasing variation in
range of fees
• commoditisation
• intense competition
• consolidation
• least commoditised
• move to fee for
service
Customer
Pays
200bps
7
We are well positioned in all the elements of the
value chain to take advantage of market conditions
IIS products and services by value chain element
Aligned
External
IIS
CBA Group
Dealer group
services
•
Research•
Compliance
Technology
Adviser Support
• Sales
effectiveness
• Training and
development
Direct
External
• IFA’s
• Brokers/Agents
• SME/Corporates
• Platforms
• Institutionals
Bank Channels
Fu
nd
Ma
na
ge
rs / B
DM
s
DistributionAdministration
Platforms
Master Trust
•FirstChoice
Wrap• Avanteos
Property
Advice/Support Services
Managed
Funds
Life
Insurance
General
Insurance
Product
Manufacturing
• Practice
management
•
Number 5
Number 1
Number 5
Number 1
Number 3
Number 7
Number 8
8
Our strategy is to foster a leading Australian
wealth management business
Efficiency
Platform
Innovation
Service
Distribution
Centre for Adviser Development
Launch of Enterprise121
Increased productivity and number of planners
IIS organisational restructure
Legacy rationalisation program on target
Cost to income ratio improvement
Market leading platform inflows through FirstChoice
Growth in Avanteos net flows since acquisition
FirstChoice enhancements
Launch of 5D
Boutique alliances
Launch of new CommInsure products
Award winning service
CommInsure service quality improvement
Performance
Strong FUM flows in First State International
CommInsure strong financial results
Fixed Interest and Credit and Global Resources fund performance
9
Commonwealth Bank’s Footprint
Market Conditions and Current Trends
Our Business Model
Key Achievements
Overview of our Business Operations
Insurance
Asset Management
Platforms
Distribution
Conclusion
Discussion Outline
10
There remains a significant level of underinsurance
in Australia, particularly life insurance
Market Environment
Under-penetration of the
industry
Strong growth 10%pa
Increasing importance of
corporate governance
Return to rational pricing
Need for further education
Hard to differentiate in
market
Opport
unity
Opport
unity
Opport
unity
Opport
unity
Opport
unity
Opport
unity
Opport
unity
0%
20%
40%
60%
80%
100%
Motor Contents Building Health Term Life Disability Trauma
Mark
et
Pen
etr
ati
on
(%
)
Market Penetration by insurance product
Source: Roy Morgan 2004
11
We believe there is significant opportunity to
build revenues through cross-selling
8% growth in risk inforce premiums
Improved General Insurance claims
ratio
Tight expense controls – expenses
flat
Continued growth in network channel
Simplified life insurance underwriting
Claims re-engineering
Portfolio re-pricing (in particular
Disability and Wholesale Life)
Significant service improvement
CommInsure Cross Sell Penetration
December 2003
%
Source: Roy Morgan 2004
36%
17% 17%
11%
0
10
20
30
40
Home Loan Credit Card Managed Funds Savings &
Transaction
12
Commonwealth Bank’s Footprint
Market Conditions and Current Trends
Our Business Model
Key Achievements
Overview of our Business Operations
Insurance
Asset Management
Platforms
Distribution
Conclusion
Discussion Outline
13
Across the industry investment returns have improved
and flows have responded, but not to previous levels.
Source: Investment returns: rolling annual returns based on a composite index made up of Australian Shares (50%),
International Shares (35%), Property Securities (15%)
Net flows: Plan for Life retail flows (ex-cash)
Ne
t fl
ow
s (
$b
)
1 y
ea
r Inve
stm
en
t Re
turn
-4
-2
0
2
4
6
8
Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04
-20%
-10%
0%
10%
20%
30%
40%
Industry Net Flows Industry Investment Returns
14
Our diversified asset management base
provides growth opportunities.
High
Growth
Potential
Low
Growth
Potential
Low
Margin
High
Margin
Source: CBA Internal Analysis and Market Forecasts
Australian
Property
Securities
Index
Funds
Australian
Equities
(core)
Credit
Funds
Infrastructure
Funds
Australian
Equities (GDP
Plus)
Private
Equity
Global
Equities
Hedge
Funds
Income funds
Fixed
interest
FirstChoice
(house product)
Global
Property
Securities
15
Investment performance has been generally
strong over the medium term.
Asset ClassPerformance Vs Benchmark
(1 yr)Performance Vs Benchmark (3 yr)
Fixed Interest
Global Credit
Australian Equities GDP+ Large Cap
Australian Equities GDP+ Small Cap
Australian Equities Core Large Cap
Australian Equities Core Small Cap
Global Equities
Global Resources
Australian Listed Property
Global Listed Property
Hedge Funds
Infrastructure
Private Equity
Mortgage Funds
16
17
13
9
5
1/01/1900 2/01/1900 3/01/1900 4/01/19002002 2003 2004 2005
Legacy system rationalisation is on track and
delivering savings
Source: Internal Projections. Policy Administration Systems rationalisation by calendar year end
Legacy Funds Management Systems Rationalisation
(2002 – 2005)
11 as at Oct 04
17
Commonwealth Bank’s Footprint
Market Conditions and Current Trends
Our Business Model
Key Achievements
Overview of our Business Operations
Insurance
Asset Management
Platforms
Distribution
Conclusion
Discussion Outline
18
Platforms now capture 80% of retail funds
Market Trends
Platform success driven by:
Adviser productivity
improvements
Greater choice for investors
and advisers
More convenience
Creation of new margins
Consolidated reporting
Master funds / platforms
Total retail (excluding cash)
Retail Market Flows1998 to 2003 actuals, 2004 to 2006 forecasts
Source: Plan for Life, DEXX&R
0
50
100
150
200
250
300
350
400
450
1998 1999 2000 2001 2002 2003 2004 2005 2006
$b
illi
on
19
We are well represented in the platform market
to capitalise on this market opportunity
FirstChoice has been the fastest growing platform in
the market since its launch two years ago
Over $8 billion FUA (Oct 2004)
Competitive pricing
Award-winning service
Recent enhancements offering more functionality
and investment options
New wholesale offering
Strong growth in Avanteos business through
acquisition of new clients
Telstra Super Financial Planning
FSP Group
Symetry
$2.3 billion FUA (Oct 2004)
Improved adviser and dealer group functionality
20
The Value Proposition - FirstChoice vs
mastertrusts
MLC Masterkey Custom
Summit
Navigator
BT Essentials / Skandia / Perpetual / Asgard Elements
FirstChoice
FirstChoice vs mastertrustsTypical Australian Equities MER 0.85%
Equalised advice fee 0.6%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Account Balance
Eff
ec
tive
Fe
e
Comparison based on Australian Equities portfolio of 0.85% MER. Equalised advice fee
Assumptions: No entry fees, all competitor fees are as stated in their PDS as at April 2004. Manager rebates and
volume discounts are not accounted for.
AMP
MLC Masterkey Custom
Summit
Navigator
BT Essentials / Skandia / Perpetual / Asgard Elements
FirstChoice
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Account Balance
Eff
ec
tive
Fe
e
Comparison based on Australian Equities portfolio of 0.85% MER. Equalised advice fee
Assumptions: No entry fees, all competitor fees are as stated in their PDS as at April 2004. Manager rebates and
volume discounts are not accounted for.
AMP
21
FirstChoice: well diversified support and
healthy CFS flows.
Source: internal data; channel split based on flows for 6 months ended 31 August 2004; Manager split based
on FUA at 31 August 2004
CFS
40%
External
60%
FirstChoice Split by Channel FirstChoice Split Internal vs External
External
39%
CBA Bank
Network
44%
CBA Aligned
Advisers
17%
Inflows: Managing the FUM:
22
FirstChoice margins are attractive, albeit less
than our other retail products
Revenue - net of external manager costs
0
50
100
150
200
FirstChoice Other Retail Wholesale
bp
Manufacturing Margin Commissions
90bp
125bp
65bp
60bp
45bp
23
Commonwealth Bank’s Footprint
Market Conditions and Current Trends
Our Business Model
Key Achievements
Overview of our Business Operations
Insurance
Asset Management
Platforms
Distribution
Conclusion
Discussion Outline
24
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
25-29 30-34 35-39 40-44 45-49 50-54 55-59
0%
2%
4%
6%
8%
10%
12%
14%
16%
Australian distribution challenges and
opportunities
Challenges/ Opportunities:
Ageing population with
inadequate savings
Choice for investors and
advisers
Growth in DIY products
Regulatory environment:
Quality of advice
Greater fee
transparency
Independence
Source: IFSA Retirement Savings Gap, August 2003;
Retirement Savings Gap by Age
Years of Age
Millio
ns
Retirement Savings Gap for Males
Additional Contribution Required
August 2003
25
We are continually strengthening our distribution
footprint
Centre for Adviser Development
Over 200 trained
Feedback very positive
Launch of Enterprise121
Opportunity in the market to offer advice, platform and dealership services to high net worth practices.
Increased productivity of network advisers
26% improvement
Recruitment of advisers
Network and aligned
26
Commonwealth Bank’s Footprint
Market Conditions and Current Trends
Our Business Model
Key Achievements
Overview of our Business Operations
Insurance
Asset Management
Platforms
Distribution
Conclusion
Discussion Outline
27
There are significant opportunities to achieve
strong growth
External/ market factors creating growth opportunities:
Improved market returns
Superannuation guarantee
Internal opportunities to drive growth:
Continuing product expansion and innovation
Distribution capacity and productivity improvements
Rationalisation and further efficiency gains
Capital efficiency improvements
Commonwealth Bank
Stuart Grimshaw
Group Executive
Investment and Insurance Services Division
2 November 2004
Morgan Stanley Asia Pacific Summit
