113
24th May 2007 Commonwealth Bank of Australia ACN 123 123 124 Premium Business Services Market Briefing
24th May 2007Commonwealth Bank of Australia ACN 123 123 124
Premium Business ServicesMarket Briefing
2
The material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation, 24 May 2007. 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
Agenda
Premium Business ServicesStuart Grimshaw
Global Markets and TreasuryMarten Touw
Institutional BankingIan Saines
Corporate Financial ServicesRobert De Luca
Local Business BankingMichael Blomfield
AgribusinessJon Sutton
Private Client ServicesEdward Tait
Panel Questions
Premium Business Services
4
Notes
5
Premium Business ServicesStrategy and Priorities
Stuart GrimshawGroup ExecutivePremium Business Services
6
Notes
7
* Banking - Business, Corporate and Institutional
Strategy and Priorities
Premium Business Services profile
5,800 people in 6 countries
300,000+ customers
2007 Interim Profit Announcement*:
$762m profit after tax for the half-year
$160.2b total assets
$216.5b total liabilities
8
Notes
9Strategy and Priorities
Then
Some misalignment with customer needs
Reduced Business Banking presence
Under utilised branch network
Complex policies, products and processes
De-risked financial markets business
Under investment in technology
Disenfranchised staff
10
Notes
11Strategy and Priorities
Now
Realigned client segments
Expanding footprint in Business Banking
Business Bankers in branches
Simplifying policies, products, systems and processes
Reinvigorated financial markets business
Growing investment in technologies
Investing in our people
12
Notes
13
Our structure
Distribution
Product
Operations and Support
Institutional Banking
Corporate Financial Services
Local Business Banking
Private Client ServicesAgribusiness
Global Markets & Treasury Banking Products
Client Delivery, Operations & Technology
Business Development &
Risk Management
Process and Project
Management People Services
Strategy and Priorities
14
Notes
15Strategy and Priorities
Progress
Signs of improvement in customer advocacy
Customer complaints have decreased
Strong growth in Institutional Banking
Corporate Financial Services, Local Business Banking and Agribusiness expanding footprint and improving customer service
Global Markets & Treasury performing well
CommSec benefiting from increased volumes
Overall credit quality remains good
16
Dec 06 Jun 06 Dec 05Dec 06 vs
Jun 06Dec 06 vs
Dec 05NII Corporate Banking 303 282 276 7% 10%
Financial Markets 240 261 235 8% 2%Lending & Finance 435 382 370 14% 18%
978 925 881 6% 11%
Other income Corporate Banking 212 184 210 15% 1%Financial Markets 418 347 362 20% 15%Lending & Finance 290 249 191 16% 52%
920 780 763 18% 21%
Banking Corporate Banking 515 466 486 11% 6%income Financial Markets 658 608 597 8% 10%
Lending & Finance 725 631 561 15% 29%1,898 1,705 1,644 11% 15%
Expenses 833 811 796 3% 5%Loan impairment 20 31 37 35% 46%Cost to income 43.9% 47.6% 48.4% 8% 9%
NPAT 762 617 589 24% 29%
Other key information
2007 Interim Profit Announcement: Business, Corporate & Institutional
Strategy and Priorities
17
Financials
Strong asset growth of 20%
Institutional average lending balances 22%
Margins stable over last six months
Strong performance from combined Global Markets & Treasury
Credit experience good, 67% of loans investment grade
5%833Operating expenses
46%20Loan Impairment
27%283Tax
15%1,898Total banking income
29%762Underlying Profit after Tax
21%920Other banking income
11%978Net interest income
Dec 06 vs
Dec 05
Dec 06$M
2007 Interim Profit Announcement: Business, Corporate & Institutional
Strategy and Priorities
18
Notes
19
Assets and liabilities
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Dec 06 Jun 06
($bn
)
13.0%
39.0%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
Dec 06 Jun 06
($bn
)
6.0%
5.0%
Institutional Banking Banking Products
Total Assets Total Liabilities
Source: CBA internal data
Total Assets Total Liabilities
Strategy and Priorities
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Dec 06 Jun 06
($bn
)
15.0%
7.2%
Total Assets Total Liabilities
Private Client Services
20
Notes
21
12.9%13.0%13.2%
June-06 Dec-06 Mar-07
Source: CBA, RBA
Market share
Strategy and Priorities
Business Lending - APRA
12.5%12.5%
12.1%
June-06 Dec-06 Mar-07
Source: CBA, APRA
Asset Finance
14.5%
13.9%
13.5%
June-06 Dec-06 Mar-07
Source: CBA, AELA
Business Lending - APRA Asset Finance
Business Deposits - APRA
11.9%12.0%
12.5%
June-06 Dec-06 Mar-07
Source: CBA, APRA
Equities Trading - CommSec
4.3%
4.4% 4.4%
June-06 Dec-06 Mar-07
Source: IRESS
Business Deposits - APRA Equities Trading - CommSec
Business Lending - RBA
22
Notes
23
Strategic priorities
Leveraging our strengths
Making things simpler for our customers and staff
CommSecMargin lendingPrivate Client Services
Refocussed segmentsScale and breadth of solutionsCFS, LBB and Agri
Industry expertiseTotal capital solutionsInstitutional Banking
Innovative product and structuring capabilityGlobal Markets & Treasury
To be Australia’s leading institutional and business bank
Strategy and Priorities
24
Notes
25
Premium Business ServicesGlobal Markets and Treasury
Marten TouwExecutive General ManagerGlobal Markets and Treasury
26
Notes
27
Global Markets & Treasury overview
Bank Wide Distribution
Institutional Banking
Institutional Banking
Corporate Financial Services
Corporate Financial Services
Local Business Banking
Local Business Banking
Private Client
Services
Private Client
ServicesAgri-
businessAgri-
business
Global Markets
Foreign ExchangeForeign Exchange
Interest Rate ProductsInterest Rate ProductsCommodities Commodities
Institutional EquitiesInstitutional EquitiesDerivativesDerivatives
Structured ProductsStructured Products
Debt Capital MarketsDebt Capital Markets Equity Capital MarketsEquity Capital Markets
Broad Product Range
Group FundingCapital Execution
Structured Finance
Global Markets & Treasury
Responsible for all of the activities associated with financial markets
Manages the balance sheet risk (non-traded market risk) of the Group
535 staff
28
Notes
29
Great results
Strong management with track record
Treasury expertise is proven
Pre-eminent Global Markets franchise
Recent executive additions add new talent
Growth from invigorated team gaining traction
Financial Results
Financial Markets contributed13%* to Banking revenue
Revenue growth +10% over 1H06
Global Markets & Treasury
0
100
200
300
400
500
600
700
1H06 (Dec 05) 1H07 (Dec06)
+ 10%
597
658
*2007 Interim Profit Announcement: Business, Corporate & Institutional
30
Notes
31
Industry awards and top client ratings
NEW CAPABILITY ESTABLISHED REAPS IMMEDIATE REWARDS
Global Markets & Treasury
Ranked No.1 All Australian Debt
ISR 2005 Deal of the Year Mobius $550mISR 2006 Deal of the Year Centro CMBS 2006 $899m
Australian Issuer of the Year 2006 - International Bonds
International Issuer of the Year - mtn-i
Best Equity-Linked Issue 2006 : PERLS III Securitisation Deal of the Year 2006: Medallion Trust SeriesInternational MTN Issuer of the Year 2006 Best Domestic Provider of FX Products & Structured IdeasBest Domestic Provider of FX Sales
Ranked No.1 Institutional FX Sales Team
Listed Equity Analysts “panel ranked” by major Australian Investors in sectorsincluding Gaming & Media, Small Caps and Retail
32
Notes
33Global Markets & Treasury
Our strengths
Balance sheet, scale and global product flow
Strength of relationships, market reputation and brand
Pay for performance culture
Emerging growth from newly established entrepreneurial spirit
Innovation and speed to market
CBA PAPER HEDGECBA PLASTIC HEDGECBA CPI SWAP
34
Notes
35
Market risk and sensitivity
Historical MVS of the current portfolio is limited to $150m.
Assumptions: 20 day hold, 97.5% Confidence Interval.
Treasury RiskNon traded market risk
Assumptions: 1 day hold, 97.5% Confidence Interval. Includes Liquidity Operations.
Total Global Markets VaR (YTD)
Global Markets RiskTraded market risk
02468
1012141618
Feb-
04
Jun-
04
Oct
-04
Feb-
05
Jun-
05
Oct
-05
Feb-
06
Jun-
06
Oct
-06
Feb-
07
Actual Limit
020406080
100120140160
Feb-
04
May
-04
Aug-
04
Nov
-04
Feb-
05
May
-05
Aug-
05
Nov
-05
Feb-
06
May
-06
Aug-
06
Nov
-06
Feb-
07
Actual Limit$m
$m
Global Markets & Treasury
36
Notes
37
Snapshot - key market risk metricsValue at Risk: Component analysis by BankValue at Risk Relative to Total Equity
Sources: 1. Derived from data in each bank's annual report; 2. S&P report entitled 'Lifting the Lid on Traded Market Risk' published 31-Oct-2006
Value at Risk: Component analysis by Bank
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
CBA Macquarie NAB Westpac ANZ
Source: Each bank's annual report
Valu
e at
Ris
k ($
mio
AU
D)
Interest RateForeign ExchangeCredit SpreadEquityCommoditiesVolatilityOther
0
10
20
30
40
50
60
Lehm
an Brot
hers
Merrill
Lync
h
J.P.M
organ
Chase
Goldman
Sachs
Morgan
Stanley
Bear S
tearns
Credit S
uisse
UBS AG
Deutsc
he Ban
k AG
Citigrou
p Inc
Wes
tpac
CBA NABANZ
(bas
is o
f tot
al e
quity
)
200220052006
0.00%
0.02%
0.04%
0.06%
0.08%
0.10%
0.12%
0.14%
CBA (reported)CBA (CSdiversified)
NAB (2005) Westpac ANZ (2005)
BanksSource: Each bank's annual report
VaR/
ACE CBA (reported)
CBA (CS diversified)NAB (2005)WestpacANZ (2005)
Value at Risk: Comparison of VaR/Adjusted Common Equity ratioValue at Risk: Component analysis by Bank
Value at Risk: Comparison by Bank (99%, One Day)Value at Risk Relative to Total Equity
Value at Risk: Component analysis by Bank
-
2.00
4.00
6.00
8.00
10.00
12.00
14.00
CBA Macquarie NAB Westpac ANZ
Source: Each bank's annual report
Valu
e at
Ris
k ($
mio
AU
D)
Interest RateForeign ExchangeCredit SpreadEquityCommoditiesVolatilityOther
0
10
20
30
40
50
60
Lehm
an Brot
hers
Merrill
Lync
h
J.P.M
organ
Chase
Goldman
Sachs
Morgan
Stanley
Bear S
tearns
Credit S
uisse
UBS AG
Deutsc
he Ban
k AG
Citigrou
p Inc
Wes
tpac
CBA NABANZ
(bas
is o
f tot
al e
quity
)
200220052006
0.00%
0.02%
0.04%
0.06%
0.08%
0.10%
0.12%
0.14%
CBA (reported)CBA (CSdiversified)
NAB (2005) Westpac ANZ (2005)
BanksSource: Each bank's annual report
VaR/
ACE CBA (reported)
CBA (CS diversified)NAB (2005)WestpacANZ (2005)
Value at Risk: Comparison of VaR /Adjusted Common Equity ratioValue at Risk: Component analysis by Bank
Value at Risk: Comparison by Bank (99%, One Day)Value at Risk Relative to Total Equity
Value at Risk: Comparison by Bank (99%, One Day)
0
5
10
15
20
25
2004 2005 2006
Valu
e at
Ris
k ($
Mio
AU
D)
CBA (reported)CBA (with CS diversified)NABWestpacANZ
Value at Risk: Comparison by Bank (99%, One Day) Value at Risk: Comparison of VaR/Adjusted Common Equity Ratio
0.00%
0.02%
0.04%
0.06%
0.08%
0.10%
0.12%
0.14%
CBA (reported) CBA (CSdiversified)
NAB Westpac ANZ
VaR /
AC
E
CBA (reported)
CBA (CS diversified)
NAB
Westpac
ANZ
Global Markets & Treasury
38
Notes
39
Leveraging our product capabilities across a broad range ofcustomers
Growth initiatives
Investing in people and technology to enhance our product, sales and trading capability
Better pricing, diversified risk management Energy tradingTrading
Expanded sales teams locally and overseasSales
Innovative and complex productsExpanded Asian Debt Capital Markets Enhanced equities business
Product
Global Markets & Treasury
40
Notes
41Global Markets & Treasury
Key messages
Strong management team in place
Track record
New talent
Risk controls well established and tested
Growth strategy is on track
New initiatives producing tangible outcomes
Current activity to harness balance sheet and distribution power will add significant value
42
Notes
43
Premium Business ServicesInstitutional Banking
Ian SainesExecutive General ManagerInstitutional Banking
44
Notes
45
Institutional Banking overview
Over 3000 major corporate and government clients
380 staff organised by industry specialisation
Focus on people - capability and culture
Priorities:
Innovative culture
Exceptional client and industry knowledge
Superior client relationships and service
East & Partners Top 500 Survey
Ranked ahead of Westpac, NAB and ANZ in all five of the service attributes considered most important by CFOs. Ranked first in transaction banking.
Institutional Banking
46
Notes
47
Our value proposition
Our industry expertiseOur capabilities
DebtDebt EquityEquity
DistributionDistribution
Risk ManagementRisk Management
Transaction BankingTransaction Banking
Trade FinanceTrade Finance
+InfrastructureInfrastructure UtilitiesUtilities
Natural Resources
Natural Resources PropertyProperty
GovernmentGovernment Financial InstitutionsFinancial
Institutions
TelecomsTelecoms MediaMedia
=total capital solutions
Examples:
Institutional Banking
Industrials Industrials
48
Notes
49
Total capital solutions - case study
ROC Oil acquisition of oil assets in China
CBA sole underwriter of US$275m acquisition facility
Provider of oil hedging arrangements to underpin oil field economics
Co-manager and sub-underwriter of A$219m rights issue through ECM and CommSec
Won transaction banking from ANZ
Trade finance to support crude oil sales
FX transactions to hedge revenue flows and convert equity proceeds
Leasing and structured finance capability relevant to financing ROC’s plant and equipment
Institutional Banking
50
Notes
51
Progress
Stable margins
Strong focus on ROE
High staff engagement
Unique value proposition courtesy of CommSec platform
CommBiz
Mediclear
Limited exposure to Private Equity
No compromise on credit standards
Institutional Banking
52
Notes
53
Opportunities
Build profile as provider of total capital solutions
Broader geographic penetration
Further develop debt and equity capital markets profile, supported by CommSec platform
Key competencies in global industries that are enjoying strong growth
Supported by product and industry expertise
Institutional Banking
54
Notes
55
Premium Business ServicesCorporate Financial Services
Robert De LucaExecutive General ManagerCorporate Financial Services
56
Notes
57
Corporate Financial Services overview
Customers segmented by turnover, value and borrowings
Over 36,000 customers
1,300 staff
950 Relationship Managers and Bankers nationally
220 Specialists Sales force
130 Broker sales force
Institutional Banking
Corporate Financial Services
(CFS)
Local Business Banking
Top Tier
Corporate
SME
Customer Segments
Corporate Financial Services
58
Notes
59
Improving customer service
Top Tier Corporate SME
Prior Current
Relationship Manager Portfolios(No. of customers)
50-60
20-30
90-110
40-60
200-250
100-150
Some activities transferred to Premium Service Centre
Faster credit turnaround time through Auto-Decisioning
Integrated processes through CommSee
Reduced Portfolio Sizes Simpler & Faster Processes
Freeing up more time to service customers
Corporate Financial Services
60
Notes
61
Early signs of success
Overall Satisfaction with RM(Out of 10, as at May 2007)
Source: TNS, CBA Corporate Financial Services Client Satisfaction Experience Survey
Improvements incustomer satisfaction
Advocacy (Internal)
Client satisfactionwith RelationshipManagers (TNS)
Increase in share ofcustomers thatconsider CBA to betheir Main Bank (TNS)
8.2
8.4
8.2
8.0
Total Top Tier Corporate SME
Corporate Financial Services
62
Notes
63
Meeting more customer needs
Source: CBA Internal Data
Integrated relationshipmanagement model
Leverage technology andcustomer information
Targeted cross-sell focus
Wealth Management
5%
12%
InvestmentsSep-06 Apr-07
CFS Wealth Management Penetration(By Product Category, as at April 2007)
Corporate Financial Services
64
Notes
65
Enhancing the broker channel
0
25
50
75
100
125
150
175
200
Jul-0
6
Aug
-06
Sep
-06
Oct
-06
Nov
-06
Dec
-06
Jan-
07
Feb-
07
Mar
-07
Apr
-07
Commercial Broker Commercial Connect
Commercial Broker Volumes(No. of Transactions, as at April 2007)
Source: CBA internal data
Corporate Financial Services
66
Notes
67
Increasing our market presence
80 new sales people8 new sites1st year
270 new sales people25 new sites3 years
Corporate Financial Services
68
Notes
69Corporate Financial Services
Key messages
Improving customer service
Meeting more customer needs
Increasing our market presence
70
Notes
71
Premium Business ServicesLocal Business Banking
Michael BlomfieldExecutive General ManagerLocal Business Banking
72
Notes
73
Customers segmented by turnover, value and borrowings
Redefined small business model
Product set rationalised from 55 to 7
A simplified application form to cover all relevant products
New servicing model
585 staff
Relationship Managed
Branch Managed
Portfolio Managed 40,000
5,000
40,000
Customers
Local Business Banking
CustomerSegments
Single Product Only 150,000
Local Business Banking
74
Notes
75
New servicing model
Client
Branch Phone / Email Web
Personal Relationship
Manager13 19 98 LBB’s Phone #Business Banker
in Branches LBB Online
Banking AssociatesConciergeAdministrationExpertise
SpecialistsAsset FinanceMerchant
Local Business BankerValue AddRelationship Management
24 x 7
Local Business Banking
“Your business will always get an answer”
76
Notes
77
Progress update
Local Business Banking Online
Better customer experience
Over 100 new Business Bankers in Branches and 70 Local Business Banking Associates
Improving customer satisfaction
Local Business Banking
78
Notes
79Local Business Banking
Key messages
New scaleable business model
Increased availability
Phone
Internet
Branches
Increased productivity
Increased staff numbers – 3 month induction program
80
Notes
81
Premium Business ServicesAgribusiness
Jon SuttonExecutive General ManagerAgribusiness
82
Agribusiness presence
Western Australia
Northern Territory
South Australia
Queensland
New South Wales
Tasmania
Perth
Adelaide
Hobart
Rockhampton
Townsville
Bunbury
Geraldton
MilduraWagga Wagga
Toowoomba
Tamworth
Dubbo
Mt Gambier
Mackay
Roma
Berri
Emerald
Biloela
Griffith
Moree
Warrnambool
Horsham
Shepparton
Armidale
BrokenHill Muswellbrook
Launceston
AlburyBendigo
Goondiwindi
KingaroyChinchilla
St George
Warragul
AlbanyKatanning
Merredin
Moora
NarroginEsperance
BordertownNaracoorte
Port Augusta
PortLincoln
Clare
MaitlandGawler
Darwin
Longreach
Cloncurry
YoungSydney
Orange
Narrabri
Lismore
Agribusiness
Victoria
83
Corporate
Business
AgriLine N/A
100-120
30-40
Relationship Manager
Portfolio Size
AgribusinessCustomerSegments
Agribusiness
Agribusiness overview
Agribusiness includes
Farm gate
Aquaculture
Forestry
Services to Agriculture
Customers segmented by turnover, value and borrowings
260 staff
84
Notes
85
Agribusiness lending market
120,000 farms – reducing
More than 10 competitors in Agri lending
$43.5b in loans outstanding1
Long term credit growth rate 10.1% (over last 13 years)1
Growth skewed to >$2 million2
Source: 1. RBA Table D9 – Rural Debt by Lender; 2. RBA Table D7 – Bank Lending to Business
Agribusiness
86
Notes
87
CBA share
CBA has been in Agribusiness for over 80 years
23,000 rural customers
Our share of lending is $7.5b – 17.2% (ranked third behind NAB & Rabo)*
Opportunity to meet more customer needs and improve customer satisfaction levels (TNS)
* Source: RBA Table D9 – Rural Debt by Lender
Agribusiness
88
Notes
89Agribusiness
Strategies
Expand footprint – 63 new locations
Reduced portfolio sizes
AgriLine
Strategic alliances – Principle Focus and ABB
Speed to market – CommSee, auto-decisioning, streamlined credit
Innovative product development – grain, commodities
Staff development – all staff degree qualified or trained through internal college system, service and sales training, graduate program
Staff engagement and performance culture
90
Notes
91
Key messages
Leading indicators are positive
Average weekly fundings have increased 21% in the last 12 months
Positioned well to service our customers better
Asset Lending
Water Policy
Drought
CBA will continue to value the underlying cashflow of a business rather than be an asset lender
Working with all industry bodies on water issues
Recent drought review conducted, and CBA book is in good order
Challenges CBA is well positioned
Agribusiness
92
Notes
93
Premium Business ServicesPrivate Client Services
Edward TaitExecutive General ManagerPrivate Client Services
94
Notes
95
Private Client Services overview
Private Banking7,600 customers, 157 staff
Margin Lending65,000 customers, 80 staff
Online Stockbroking1.4m customers, 325 staff
Investment ideas, solutions and financing for
DIY & High Net Worth individuals
Private Client Services
96
Notes
97Private Client Services
Business overviewStrong market conditions
Volumes up 30+%
Overall market share improving
ProgressManagement changes
CFDs, research, SMSF online
Operating enhancements (peaking capacity)
Focus on high volume clients
98
Notes
99Private Client Services
Priorities and opportunities
Technology investment – easier and faster to use
Expanding our wholesale client base
Expanding the product offered
Rewarding, recognising and training staff
100
Notes
101
Direct >>
Private Client Services
Margin Lending
Business overviewStrong market conditions
27% loan book growth
Market share holding steady
ProgressManagement changes
Service standards dramatically improved
Electronic feeds
Research support
FinancialIntermediaries >>
102
Notes
103Private Client Services
Margin Lending
Priorities and opportunities
Further investment in technology
Product innovation – structured and protected products
Sales focus in the stockbroking segment
Rewarding, recognising and training staff
104
Notes
105Private Client Services
Commonwealth Private
Business overviewStrong investment market conditions
14% growth in lending activities
Legislated growth
ProgressManagement changes
Client segmentation complete
From reactive to proactive
Advisory model now best practice
106
Notes
107Private Client Services
Commonwealth Private
Priorities and opportunities
Accessing the CBA network
Geographic expansion
Meeting more client needs
Sharpening the “look and feel”
Rewarding, recognising and training staff
108
Notes
109
Premium Business ServicesSummary and Panel Questions
Stuart GrimshawGroup ExecutivePremium Business Services
110
Notes
111
In summary
Growth business
Customer focussed
Great leadership team
Strong performance culture
Positive momentum
Realising our full potential
112
Notes
113
Panel questions
Robert De Luca Jon Sutton Marten Touw
Stuart Grimshaw Edward Tait
Ian Saines Michael Blomfield
