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Innovative Investment andInnovative Investment andFinancial Services in AustraliaFinancial Services in Australia
Michael Hawker,Michael Hawker,Group Executive,Group Executive,
Australian Business and Personal Banking, Westpac Australian Business and Personal Banking, Westpac
September 2000
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AgendaAgenda
• Westpac Banking Corporation• Overview of Australian market• Trends in an innovative and sophisticated
market• Sydney - a Regional Financial Centre
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The material contained in the following presentation is intended to begeneral background information on Westpac Banking Corporation andthe Australia market at 18 September 2000.
The information is supplied in summary form and is therefore notnecessarily complete. Also, it is not intended that it be relied upon asadvice to investors or potential investors, who should consider seekingindependent professional advice depending upon their specificinvestment objectives, financial situation or particular needs.
DisclaimerDisclaimer
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Westpac - Australia’s First BankWestpac - Australia’s First Bank
• Founded in 1817 - first bank in Australia• Listed on the Australian Stock Exchange since 1871• First foreign bank listed on London Stock Exchange
in 1853• Listed on New York Stock Exchange (ADRs since
1989); Tokyo Stock Exchange since 1986• Westpac Group includes
– Westpac Banking Corporation– WestpacTrust Bank, NZ– Bank of Melbourne, VIC– Challenge Bank, WA– Westpac Financial Services– Australian Guarantee Corporation
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Westpac - Australia’s First BankWestpac - Australia’s First Bank
• Westpac Group is one of the 6 largest companiesranked by market capitalisation on Australian StockExchange
• Leading provider of banking and financial services inAustralia and New Zealand– 1 of 4 major banking organisations in Australia– 1 of 3 largest banks in New Zealand– branches and affiliates through the Pacific region and
maintain offices in key financial centres around the world
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Westpac - Australia’s First BankWestpac - Australia’s First Bank
• Provide a broad range of banking and financialservices– retail, commercial and institutional banking– investment management and insurance– finance company activities
• 32,846 employees (at 31/3/00)
• 7.5 million customers• access 24hrs 7 days
– 876 Branches (traditional, instore, home loan store etc)– 1,500 ATM appliances– 44,000 EFTPOS appliances– 2 mill + Phone subscribers– 335,000 Internet subscribers (9/8/00)
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Westpac - an Olympic SponsorWestpac - an Olympic Sponsor
• Importance of Olympics for Australia as a whole• 12,000 staff to the Olympics
– Olympic Circle - staff reward and recognition– Volunteers– Banking sites
• 15,000 customers to the Olympics• 50 Olympic athletes employed
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WBC comparable in sizeWBC comparable in size with international banks competing in Asiawith international banks competing in Asia
Market Capitalization (US$ billion)
113.2
22 21 20.9 17 16.2 13 9.2 3.50
50
100
150
HSBC NAB HangSeng CBA DBS StanChart Westpac OCBC BEA
US
$ bi
llion
Loans (US$ billion)
261.6
108.869.6 63.4 46.4 30.2 25.4 18.4 10.9
0
100
200
300
HSBC NA
B
Westpa
cCB
A
StanC
hart
DBS
Hang
Seng
OCBC
BEA
US
$ bi
llion
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Comparable in size with international banks competing in AsiaComparable in size with international banks competing in Asia
Shareholders' Equity (US$ billion)
35.3
12.26.2 5.7 5.4 5.1 4.3 4.2 2
010203040
HSBC NA
BDB
S
Westpa
c
StanC
hart
Hang
Seng CB
AOCB
CBE
A
US
$ bi
llion
Total Assets (US$ billion)
580.3
191.195.5 93.3 87.2 62 56.9 30.9 18.7
0200400600800
HSBC NA
BCB
A
Westpa
c
StanC
hart
DBS
HangSe
ngOC
BC BEA
US$
billio
n
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Return on Equity of the Australian big 4 banksReturn on Equity of the Australian big 4 banks is comparable to that of the overseas major banksis comparable to that of the overseas major banks
-30
-20
-10
0
10
20
30
1998 1999
CanadaHong KongJapaneseUK BanksUS BanksAustralia
%
Source: KPMG Financial Institutions PerformanceSurvey 2000
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Overview of Australian FinancialOverview of Australian FinancialServices SectorServices Sector
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Australian EconomyAustralian Economy
• Advanced industrial economy with a sophisticated manufacturingand services base. Manufacturing accounts for around 17% ofAustralia's GDP and services for nearly 65%
• One of the fastest growing of OECD economies• Australia’s GDP in 1999 was US$388 billion, making it the world’s
13th largest economy.• The Australian and NSW economies continue to grow strongly, by
4.5% and 4.1% respectively in the 1998-99 financial year. This isthe sixth successive year that growth in both economies has beenabove 3.5%
• Throughout the 1990s Australia's inflation rate has been lowerthan its major trading partners and below the OECD average
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Australian EconomyAustralian Economy
• Australia's current competitive advantage in the region is set tocontinue, with analysts forecasting inflation rates for many otherAsian economies to remain high in the medium to long term
• 9 out of Australia's top 10 export markets are in the Asia-Pacificregion
• Among OECD countries, Australia provides the 2nd greatestproportion of total foreign investment into Asia, after Japan
• Australia now has among the most deregulated financial andtelecommunications markets in the world
• Australia’s legal and business law system is similar to that ofmuch of Europe and Canada
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DemographicsDemographics
• 19 million Australians - multicultural• 9.5 million Australians in workforce• Well educated, highly skilled - 45% of Australia's workforce has
university, trade or diploma qualifications• Australia's management pool is around 8 times larger than that
of Singapore and 4 times that of Hong Kong• Multilingual - spanning both European and Asian languages -
2.5 million speak a language other English at home• 1 in 20 Australians was born in Asia - 1 in 5 has an Asian
background
Source: Invest Australia, Dept Industry, Science & Resources, Canberra
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DemographicsDemographics
• Australia offers the familiarity of a Western business culturewith a workforce skilled at operating in both Asian and Westernbusiness environments.
• Cathay Pacific does much of its booking from Sydney using amultilingual workforce
• Citibank processes many of its travellers cheques in Sydney• Amex has 2,000 person call centre able to deal with enquires
from 17 Asian countries in 11 languages
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5 3 9
5 1 0
5 0 8
5 0 7
5 0 7
492
4 7 7
4 7 6
4 1 7
4 0 8
0 1 0 0 2 0 0 3 0 0 4 0 0 5 0 0
U S A
S w e d en
F i n l a n d
I c e l a n d
N o r w a y
A u s t r a l i a
D e n m a r k
C a n a da
N e wZ e a l a n d
S w i t z e r l a n d
C o m p u t e r s p e r 1 , 0 0 0P o p u l a t i o n
Computer Access per Capita inComputer Access per Capita inAustralia is 6Australia is 6thth highest in the world. highest in the world.
Sources: IMD World Competitiveness Yearbook 2000.
ABS Cat. 8147.0 February 2000.
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The ASX was ranked 13th in the world (in terms of market capitalisation) in April 2000(highest in the Pacific, excluding Japan).
Market Capitalisation(a)
USA 49.7Japan 13.0United Kingdom 9.7France 5.2Germany 4.4Switzerland 2.6Netherlands 2.5Canada 2.4Italy 2.0Sweden 1.7Finland 1.7Spain 1.3Australia 1.1Hong Kong 1.1Singapore 0.5 (a) Morgan Stanley Capital International (MSCI) World Indices (Market
Capitalisation weighted).
Source:Australian Stock Exchange, Monthly Index Analysis.
Australian Stock Exchange is a major player in the regionAustralian Stock Exchange is a major player in the region
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Share Ownership(%)(a)
Australia 54Canada 52US 48UK 40New Zealand 38Germany 25 (a) Includes direct and indirect share ownership.
Source:Australian Stock Exchange, 2000 Australian Share Ownership Study.
Australia leads the world in the levels of share ownershipAustralia leads the world in the levels of share ownership
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The Australian foreign exchange market is ranked 9th in the world by turnover;and the Australian dollar is the 7th most traded currency in the world.
By market(a) By currency
1 United Kingdom US dollar2 United States Euro3 Japan Japanese Yen4 Singapore Pound sterling5 Germany Swiss franc6 Switzerland Canadian dollar7 Hong Kong Australian dollar8 France9 Australia10 Netherlands (a) April 1998.
Source:RBA Bulletin.Rick Battellino Speech, Aug 1999.Bank for International Settlements.
Australian’s foreign exchange marketAustralian’s foreign exchange market is amongst the top 10 in the worldis amongst the top 10 in the world
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Debt Securities on Issue in Australia
100
110
120
130
140
150
160
170
180
190
200
Jun-
95
Aug
-95
Oct
-95
Dec
-95
Feb
-96
Apr
-96
Jun-
96
Aug
-96
Oct
-96
Dec
-96
Feb
-97
Apr
-97
Jun-
97
Aug
-97
Oct
-97
Dec
-97
Feb
-98
Apr
-98
Jun-
98
Aug
-98
Oct
-98
Dec
-98
Feb
-99
Apr
-99
Jun-
99
Aug
-99
Oct
-99
Dec
-99
Feb
-00
Apr
-00
100
110
120
130
140
150
160
170
180
190
200
Non-Government
Commonwealth & State Government
$(A) billion $(A) billion
Size of the Australian bond market is significant in own rightSize of the Australian bond market is significant in own right
Source:RBA Bulletin, table D4.
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Australian Funds under Management
0
100
200
300
400
500
600
700
800
Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00
$A billion
Managed Funds is a large and growing industry in AustraliaManaged Funds is a large and growing industry in Australia
Source:ABS Cat. 5655.0, Managed Funds Australia, Table 1 and 8.
Financial Times Article, 16 April 1999 (Hugh Carnegy).
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Australian Funds under Management industryAustralian Funds under Management industrycompares favourably with others in the regioncompares favourably with others in the region
• Australia is the largest regional centre for institutionalequities investment outside of Japan.· In 1999, Australian institutional equity assets totalled
US$116.4 billion.
· By comparison, Hong Kong institutional equity assetstotalled US$100.4 billion in 1999.
· Singapore institutional equity assets totalled only US$67.4billion in 1999.
Source: Axiss Australia Media release 28 June 2000(quoting 2000 International Target Cities Report by Thomson Financial Investor Relations).
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In1999 the SFE was the largest financial futures and options exchange in the Asia- Pacific
region. In global terms, the Futures Industry ranked the SFE 12th in 1999
(by futures and options volumes).
Rank
1 European Exchange (Eurex)2 Chicago Board of Trade3 Chicago Mercantile Exchange4 London International Financial Futures Exchange (LIFFE)5 New York Mercantile Exchange6 Marche des Options Negociables de Paris (MONEP)7 Korea Stock Exchange8 London Metal Exchange9 Chicago Board Options Exchange10 Brazilian Commodities and Futures Exchange (BM&F)11 Tokyo Commodity Exchange12 Sydney Futures Exchange13 Singapore Int'l Monetary Exchange14 OM Stockholm15 New York Board Of Trade
Source: Futures Industry.
Sydney Futures Exchange - significant international playerSydney Futures Exchange - significant international player
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Total OTC Financial MarketsTotal OTC Financial Markets
0
5,000
10,000
15,000
20,000
25,000
30,000
94-95 95-96 96-97 97-98 98-99
$ bn
Annual Turnover (AUD) billion
Source: 199 AFMA Report
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Trends in an innovative andTrends in an innovative andsophisticated marketsophisticated market
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Financial Services Innovation in an e-WorldFinancial Services Innovation in an e-World
• Growth in technology and early adopter community hasprompted significant industry initiative:– ERG and smart card technology– Key Corp using Australia as test market for ideas– WAP technology with mobile phones
• Innovation in Consumer Banking:– Westpac’s Instore banking concept to provide face-to-face
banking services in small communities– Supermarket branches in Australia– Drive through ATMs; ATMs provide multi-product functionality
eg phone-cards, theatre tickets; Business ATMs
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Financial Services Innovation in an e-WorldFinancial Services Innovation in an e-World
§ Electronic processing:– Secure payments on the net
• sophisticated online banking and broking capabilities• third party payments
– Straight through processing of credit cards over the net– Ability to track home loan progress over the net
§ B2B marketplaces
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Financial Services Innovation in an e-WorldFinancial Services Innovation in an e-World
§ Australian Stock Exchange (ASX) - developinginternational alliances– Singapore Stock Exchange - agreement to develop co-
trading between markets– Global Equit Market - includes ASX, Bolsa de Valores de
Sau Paulo (Brazil), Euronext (Paris, Amsterdam, Brussels),Hon Kong Exchanges and Clearing, Bolsa Mexicana deValores (Mexico), New York Stock Exchange, Tokyo StockExchange and Toronto Stock Exchange
– NASDAQ Stock Market - agreement to pursue co-tradingand co-listing
– CHESS Depositary Interests (CDIs) - US companies canraise money and list on ASX. Digital Now and Axon arealready listed under these arrangements
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Ethical Investing and Screened FundsEthical Investing and Screened Funds
§ Ethical and screened investment funds – Westpacwas first big bank in Australia to offer a screenedinvestment when it launched the Australia Eco-ShareFund (screened for environment and social policies)
§ Westpac also introduced Australia’s first index ofenvironmentally friendly shares, the Westpac-Monash Eco Index
§ Sydney Futures Exchange and NSW State Forestsare setting up the world’s first futures market incarbon sequestration credits
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Innovations in Asset and Risk ManagementInnovations in Asset and Risk Management
• Asset Management– Home loan securitisation in Australia– Credit derivatives market developed
• Risk Management– Dynamic provisioning for credit risk in Australia
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Impact of TechnologyImpact of Technology
Advances in technology and communication are:• Driving costs down• Forcing single site processing• Single trading centres per time zone• Electronic delivery of product• Along with airline travel, changing the nature of geographical
boundaries - reducing the impact of geographical isolation• Building the sophistication and expectation of our customers
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Sydney -Sydney -a Global Financial Centrea Global Financial Centre
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Sydney - a Global Financial CentreSydney - a Global Financial Centre
§ Most sophisticated and deregulated domestic bankingsystem in the region
§ Progressive reform and deregulation of markets overpast 30 years
§ 1996 Uniform Consumer Credit Code§ 1997 Wallis Report - key recommendations included:
– rationalisation of approach to regulation of financial markets– lifting of restrictions on domestic life offices and foreign banks
acquiring major domestic banks– a reduced role for government in monitoring bank fees and
charges– opening the payments system to non-banks
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Sydney - a Global Financial CentreSydney - a Global Financial Centre
§ 1998 rationalisation of financial sector regulation:– Australian Securities and Investments Commission (ASIC) -
monitoring and promoting market integrity and consumerprotection in relation to the Australian financial system, provisionof financial services and the payments system
– Australian Prudential Regulation Authority (APRA) - prudentialsupervision of banks, life and general insurance companies andsuperannuation funds
– Australian Competition and Consumer Commission (ACCC) -ensuring that payments system arrangements comply with theprovision of the Trade Practices Act 1974
– Reserve Bank of Australia (RBA) - responsibility for monetarypolicy and maintenance of overall financial system stability,including stability of the payments system.
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Sydney - a Global Financial CentreSydney - a Global Financial Centre
§ 1998 introduction of real time gross settlement (RTGS)for high value payments, offering a world standardclearance and settlement infrastructure
§ 2000 - major tax reform to encourage investment inservices rather than physical resources§ introduction of Goods and Services Tax in conjunction with the
phased removal of a range of existing taxes including stampduty, FID and BAD
§ Offshore Banking Unit - dropped withholding tax on interestpayments to foreign investors holding locally issued corporatedebt securities; extended tax concessions available to ‘offshorebanking units’; and relaxed the foreign investment fund taxrules.
§ tax relief for large project amortisation
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Sydney - a Global Financial CentreSydney - a Global Financial Centre• Cost competitive location
– Salaries for professionals and executives are 25% lowerthan Singapore and 45% lower than Hong Kong or Tokyo
– CBD offices space costs are 33% to 50% lower than similarproperty in Tokyo, Hong Kong, Singapore or Beijing
– Outer metropolitan industrial land prices are amongcheapest in region yet are fully supported bytelecommunications and transport infrastructure and utilities
• Depth of labour market - highly skilled, multicultural,multilingual with English as first language
• Deep technology capability - excellent low cost andefficient telecommunications and information systems
Source: Invest Australia, Dept Industry, Science and Resources, Canberra
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Sydney - a Global Financial CentreSydney - a Global Financial Centre
§ Political and economic stability§ Strong, stable, fair and equitable legal and regulatory
framework• Ideal time zone fit between New York and London§ Proactive supportive governments – both federal and
state§ Leading international stock exchange and futures
exchange;§ Tremendous executive and family lifestyle
opportunities.
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Name of Company Date Operations in Sydney
Citibank October 1998 Asia-Pacific foreign exchangeregional processing
Deutsche Bank January 1999 Asia Pacific regional responsibilityfor the Group’s metals trading, andEuropean and Australian foreignexchange trading
Western UnionFinancial Services
February 1999 Asia Pacific Regional OperationsCentre
Dow Jones Indexes July 1999 Asia Pacific regional headquarters
Goldman Sachs andMorgan Stanley DeanWitter
August 1999 Announced plans to set up majorbrokerage operations
ING DIRECT August 1999 The third location worldwide to beselected by the direct response bank
Merrill Lynch September 1999 Launch of their US based retail fundsto Australian investors from theirSydney headquarters.
MastercardInternational
October 1999 Relocation of key executives in credit,risk management and global productdevelopment from Singapore toSydney
Recent Finance Sector Wins for SydneyRecent Finance Sector Wins for Sydney
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Name of Company Date Operations in Sydney
HSBC Bank October 1999 Opened its first branch in the AsiaPacific under its new global brandingin Sydney.
Royal Bank of Scotland October 1999 Re-opened their Australian operationin Sydney, after an absence of 10years.
Rabobank October 1999 Announced its intention to expandinto a full service agribusiness bank
Deutsche AssetManagement (DAM)
October 1999 Announced that its Asia Pacificregional headquarters will move fromTokyo to Sydney in March 2000
Alliance CapitalManagement
November 1999 Launch of their US based retail fundsto Australian investors from theirSydney headquarters.
Charles Schwab January 2000 Launch Australian broking operation
World Bank March 2000 Pacific regional office relocated fromWashington to Sydney
Recent Finance Sector Wins for SydneyRecent Finance Sector Wins for Sydney
Moving to Sydney• UBS is moving its Australian credit derivatives trading book from Singapore to Sydney§Royal Bank of Canada is moving its financial exchange headquarters from Singapore to Sydney(Asiamoney July/August 2000)
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Total Assets Country $(A) million
BankWest** UK 17,523Citibank Group US 15,949Deutsche Bank Germany 15,383HSBC Bank Group UK 7,874Banque Nationale de Paris France 7,769Chase Manhattan Bank US 6,770ABN-AMRO Netherlands 4,365Dresdner Bank Germany 3,996WestLB Germany 3,387Toronto Dominion Bank US 3,216
Source: APRA, Australian Banking Statistics.
* subsidiary of Bank of Scotland
10 largest overseas owned banks10 largest overseas owned banksoperating in Australia in April 2000 were:operating in Australia in April 2000 were:
