Specialisation, eTransformation and Growth John McFarlane Chief Executive Officer 18 July 2000

Specialisation, eTransformation and Growth

John McFarlaneChief Executive Officer

18 July 2000

ANZ has now built a solid foundation

• Higher risk– significant presence in

developing countries– larger corporate book– higher trading activity– surprises

• Lower efficiency

• Ability to deliver doubted

• Higher risk– significant presence in

developing countries– larger corporate book– higher trading activity– surprises

• Lower efficiency

• Ability to deliver doubted

Historic view of ANZ

Current position

• Competitive cost structure – cost to income ratio at low 50s

• Demonstrated ability to make bold portfolio moves (Grindlays sold, ANZIB reconfigured, retail stockbroking sold)

• Demonstrated ability to execute fast against important imperatives (cost & risk positions transformed over 2 years)

• Most businesses displaying strong underlying momentum

• High calibre, committed, dynamic management team

Current position

• Competitive cost structure – cost to income ratio at low 50s

• Demonstrated ability to make bold portfolio moves (Grindlays sold, ANZIB reconfigured, retail stockbroking sold)

• Demonstrated ability to execute fast against important imperatives (cost & risk positions transformed over 2 years)

• Most businesses displaying strong underlying momentum

• High calibre, committed, dynamic management team

Group strategic direction built on specialisation, eTransformation and growth

Proposition

1 Integrated financial services firms will lose to specialists over time

2 The rise of specialists and new technologies will deliver superior customer value and erode margins

3 For ANZ more value will be created through focus and leverage of intangible assets than traditional concentration plays

Strategy

1 Reconceive and develop ANZ as a portfolio of specialist businesses

2 Become an “eBank with a human face”

3 Create a portfolio of high growth businesses which leverage capabilities and brandsG

row

theT

rans

form

atio

nSp

ecia

lisat

ion

Globalisation

Internet

Oldeconomy

Globalnew

economy

We are experiencing very profound change

Technology is driving costs down

0.001

0.01

0.1

1

10

100

1971 75 80 85 90 1995

Moore’s Law

DRAMmemoryCAGR = 39%

Intel microprocessorsCAGR = 38%

As the capacity of chips rises…Millions of transistors/chips

Elapsed time for 100kb transfer

Index, 1980=100

0.1

1

10

100

1980 1985 1990 1995 2000 2005

0

50

100

150

200

250

300

1930 1940 1950 1960 1970 1980 1990 2000

Cost of a 3-minute telephone call from New York to London

1996, $

50%

1995 2005

Interaction costs

Incumbents’ historic advantages

Privileged access to customers, technology, labour, and capital –

hard for others to compete

Familiarity with local ways of doing business

needed

Vertical integration the best model

Protection from capital market

pressure

. . . Neutralised in some/most cases

Access available to everyone – easier for new competitors to enter and for customers to compare and switch

Regional/global standards and protocols become common – local familiarity becoming less important

No real need for integration within the company – can be accomplished with external parties

Capital market rewards the strong and punishes the weak

The basis of success is changing

A disaggregated approach is required

HousePurchase

Product Manufacturing

Sales &Marketing

CreditCard

WealthMgmt

CashDeposit

YodleeQuicken

EDSIBM

Distribution Channels& Processing

CustomerNeed

FidelitySchwab

CountrywideAHL

MBNANextCard

EggING

Proposition 1: Specialists will win in the futureGlobalisation and the impact of the internet will give rise to

specialist players who are very customer focused

Global niche players will increase their penetration of the domestic

markets through time

Over time, this will lead to the disaggregation of traditional

integrated financial services players

To succeed in this environment, winners must specialise in the

businesses where they have real capability and can compete long

term

Strategy 1: Reconceive ANZ as portfolio of specialist businesses

• Make each of our 21 businesses a specialist in its own right

• Establish three new stand alone customer businesses - Wealth

Management, Small Business and General Banking

• Accelerate the growth of our strong product monoline businesses

• Move towards open architecture, selectively over time

• Manage the portfolio and brands actively from the centre

Our portfolio comprises 21 distinct businesses

• Mortgages• Credit cards

Personal • Wealth Management• Small Business • General Banking

Corporate • Foreign Exchange• Capital Markets• GSF

• Institutional• Corporate

• Asset Finance

• GTS • B2B eCommerce

Customer Segments Products

International/

eCommerce

• Asia• Pacific

• ePortfolio• Asia• Australia/NZ

• ANZFM• B2C eCommerce

Internal • Utility • Payments • Technology

Personal

Corporate

International/eCommerce

Leader Competitive Weaker

Cards

CorporateStructured FinanceForeign ExchangeAsset FinanceB2B eCommerce

B2C eCommerceWealth ManagementMortgagesGeneral BankingSmall Business

Capital MarketsInstitutionalTransaction Services

Pacific Asia

Funds Management

We have mostly leading or competitive market positions

Contribution balanced between personal and corporate, and product and customer

International

PersonalCorporate

Other

0

100

Personal

Cards

Wealth Mgmt

Mortgages

Funds Mgmt

General Banking

Small Business

0

100

Corporate

Corporate

Foreign Exchange

Asset Finance

Capital Markets

Institutional

Structured Finance

Transaction Services

0 100AsiaPacific

% %

* Excluding Grindlays

738m*

37m*

368m 311m

International

CustomerBusinesses

A balanced portfolio of higher & lower capital businesses

Profit Contribution

Percentage of Group Economic Capital

= Proportion of Group Economic Capital

Contribution to Group Profit

Corporate

Institutional

PacificAsia

GSFWealth

Mortgages

General Banking

CardsSmallBus

GCM

GTS

GFX

Funds Management

Asset Finance

A bias towards high return, low risk

Asset Finance

Asia

GSF

Mortgage

WealthGeneral Banking

RAROC

Economic Capital

CardsSmall Bus.

Global FX

GlobalTrans

GCM

Lower

Higher

Pacific

Institutional

Corporate

Funds Manag

Fin.Products

Strategy 1: Reconceive ANZ as portfolio of specialist businesses

• Make each of our 21 businesses a specialist in its own right

• Establish three new stand alone customer businesses - Wealth Management, Small Business and General Banking

• Accelerate the growth of our strong product monoline businesses

• Move towards open architecture, selectively over time

• Manage the portfolio and brands actively from the centre


Proposition


2 The rise of specialists and new technologies will offer superior customer value and will erode margins


Strategy



3 Create a portfolio of high growth business which leverage capabilities and brands

0

1

2

Traditional RetailBank

Internet Bank Internet Bank (atscale)

UK Interest Margins

0

2

4

6

Customers Sales Branches Staff

Ratio Schwab to ANZ Retail

We have no choice but to transform our economicsOperating Costs

Retail Branch

Operating Costs

Other

SalariesOther

1.8

0.6

1.2

%FUM

Net

inte

rest

m

argi

n

-2

-1

0

1

2

3

4

5

Hea

dlin

e N

et In

tere

st

Mar

gin

Egg LaunchedHalifax

Lloyds/TSB

Supermarkets

Egg

95 96 97 98 99

%NIMExample: Entry of US Monolines into UK

Credit Card Market

5

0

10

15

20

91 93 95 97 99

MBNA, Capital OneMBNA, Capital One

~30% margin compression

%NIM

-60%

-90%

Time required to find a high rate certificate of deposit

Minutes

Telephone

WWW

WWW + agent

1

10

25

Technology transforms what customers expect

Schwab demonstrates the power of “Clicks and Mortar”

“I see the Internet as the single most empowering force for the individual investor. It allows people complete access to the world of information, giving them the ability to analyse their choices, make decisions and transact business”

Charles SchwabChairman and Co-CEO

Source: www.schwab.com

“At the same time, we’re in the business of building trust. Because we’re dealing with people’s money, we need to make sure that they feel secure. The human contact that our customers get in the branches and on the phone is all about building trust. So it’s that marriage of technology and people that we think is so important. The Internet is at the heart of our strategy, but it’s a partnership with people that makes that strategy successful”

David PottruckPresident and Co-CEO

Proposition 2: Winners will offer value at lower cost

The rise of specialists and the internet puts power into the hands

of the customer

Greater choice will enable customers to select the highest value

service from each provider

Rising customer expectations will demand greater personalisation

Specialists and the internet will drive out cross subsidisation and

reduce costs

Customers will require multi-channel interaction, including face to

face contact and will expect low cost

Strategy 2: Become an “eBank with a human face”

• Provide our customers with a multichannel, personalised experience through seamless channel integration, web enablement and CRM technology

• Create robust and flexible infrastructure by rationalising core systems and platforms, standardising desktops and servers and creating a single IP network across ANZ

• Build strong eCommerce capabilities through our eCommerce centre of excellence, ANZ Ventures disciplines and changing the way business and IT work together

• Continue aggressive cost reduction through using technology to improve productivity and eliminate activity in payments, processing and internal administration

• Differentiate by out-innovating and out-executing the competition

Proposition




Strategy



3 Create a portfolio of high growth business which leverage capabilities and brands


Many Australian institutions focused on consolidation stage

USA

EUROPE

AUSTRALIA

ASIA

leading to globalisation

consolidationFragmentation . . . to . . . and specialisation

Leading to globalisation

Market/Book Ratio

Book Equity

1

4

20 50

SpecialistsSpecialists Global Mega PlayersGlobal Mega Players

Geographic integratorsGeographic integrators

Geographic incumbentsGeographic incumbents

Given our position, our growth will come through leveraging capabilities rather than consolidation

Market/Book Ratio

Book Equity

1

4

20 50

Schwab

Citigroup

Bank of America




MBNA

SantanderAmexLloyds TSB


Market/Book Ratio

Book Equity

1

4

20 50

ANZ

Schwab

NAB

CBACitigroup

Bank of America




MBNA

SantanderAmexLloyds TSB

Macquarie

WBC

StGeorge


ANZ has strong growth prospects across time

Earnings

Timeframe

• Mortgages• General Banking• Small Business

• Asset Finance• GSF• Foreign Exchange• Institutional• Corporate

• Pacific

• Wealth Management• Cards• Funds Management

• GTS• Capital Markets

• Asia

• Authentication• B2B payments• eProcurement• eAuto

• eAsia

Corporate

• E-trade• ANZ Bizsite• E wealth

PersonalInternational

Extend & defend

core businesses

Create viable

growth options

Build emerging

businesses

Proposition 3: High growth companies with global capabilities will differentiate themselves

Market premium will increasingly be a function of higher than

system growth

Growth companies are more likely to be specialists focused on fast

growing segments than geographic integrators

Winners will be high growth companies which leverage intangible

assets such as capabilities and brands

Australian financial institutions will need to develop leading

positions internationally to grow

Strategy 3: Create growth businesses

• Build from our strong corporate franchise by creating new businesses in corporate ePayments and eProcurement

• Strengthen our consumer proposition through building on our early eCommerce momentum, creating strong core offers and new businesses

• Extend our leadership in the Pacific by replicating our model in new countries

• Leverage our consumer and corporate eCommerce and Cards capabilities by partnering to build new businesses in Asia

• Build a small number of regional and/or global niches which leverage our capabilities

• Be very selective about acquisitions, considering only those which add strategically to individual businesses or enhance capabilities and create value

Proposition



3 Winners will be high growth specialists that successfully leverage their real capabilities

Strategy



3 Create a portfolio of new high growth businesses which leverage capabilities and brands


Management changes

• In Personal, create 3 new customer businesses which integrate Banking Products:

– General Banking Larry Crawford– Small Business Graham Hodges– Wealth ManagementTBA

• New Growth Portfolio to be overseen by Elmer Funke Kupper in addition to his existing International responsibility

• Global Transaction Services will be headed by Kathryn Fagg

Group executive

Peter MarriottCFO

Peter HawkinsPersonal

Roger DavisCorporate

David BoylesCIO

John McFarlaneCEO

Larry CrawfordGeneral Banking

Satyendra ChelvendraPersonal eCommerce

Brian HartzerCards

Greg CammMortgages

Bob EdgarCorporate & InstitutionalBanking

Grahame MillerInvestment Banking

Peter McMahonAsset Finance

Elizabeth ProustCorporate Affairs& Human Resources

Alison WatkinsStrategy & Brand Management

Mark LawrenceRiskManagement

Exec

utive

Com

mitt

eePe

rson

alCo

rpor

ate

Gro

up

Elmer Funke KupperInternational/Growth

James MacKenzieFunds Management

Graham HodgesSmall Business

Murray Horn New Zealand

Kathryn FaggGlobal TransactionServices

TBAWealth Mgmt

ANZ in the mid game (3-5 years)

• Leading positions in a number of specialist businesses in Australia, New Zealand and Asia

• Portfolio of businesses likely to be narrower and more focused

• A performance orientated driver of individual businesses

• Portfolio actively re-shaped by the corporate centre

• Multiple strategic alliances

• A range of growth businesses and options

• A leader in eCommerce

• Higher market to book ratio

Documents

Specialisation, eTransformation and Growth John McFarlane Chief Executive Officer 18 July 2000