Westpac Banking Corporation · ASX:WBC
Westpac Banking — H1 2009 Earnings Presentation
31 slides from Westpac Banking's earnings presentation, May 2009
Slide 1: Westpac 2009 Interim Results
Westpac 2009 Interim Results Gail Kelly Chief Executive Officer
Slide 2: Key messages
Key messages • Sound result benefiting from a diversified portfolio • Franchise in good shape; actively supporting customers • Merger progressing well with St.George showing improved momentum • Strongly provisioned, most stress across commercial and corporate customers • Bolstered balance sheet for
Slide 3: Sound performance in challenging conditions
Sound performance in challenging conditions % Change 1H08 – 1H09 Cash earnings1 $2,295m - 6 Reported NPAT $2,175m - 1 Core earnings1 $4,952m + 24 Impairment charge to average loans1 73bps + 46bps Cash EPS2 82.4c - 16 Cash ROE2 14.3% - Large Cost to income ratio (cash basis) 1 40.4% - 440bps Fully fr
Slide 4: Benefiting from a diversified portfolio
Benefiting from a diversified portfolio % Change 1H08 – 1H09 Core Cash earnings1 earnings Westpac Retail & Business Banking Strong performance with good lending and deposit growth + 20 + 17 Westpac Institutional Bank2 Very strong revenues offset by significant rise in impairment charges + 44 - 62 St
Slide 5: Merger progressing well
merger progressing well • Synergy benefits on track • New operating model up and running • Momentum in St.George improving • Employee engagement up, ahead of global high performing norm • Excellent customer retention and high customer satisfaction • Projects underway to implement wealth and insuranc
Slide 6: Strengthened balance sheet
Strengthened balance sheet Tier 1 Ratio (%) • Strong Tier 1 ratio at 8.4% 9 8 - $4.7bn Tier 1 capital raised over half 7 8.4 7.4 7.8 - Dividend 56 cents, down 20% 6 5 on pcp 1H08 2H08 1H09 Collectively assessed provisions/credit risk weighted assets (bps) • Higher provisioning cover 120 100 - Collec
Slide 7: Assessment of 1H09 performance
Assessment of 1H09 performance 3 Excellent revenue performance 2 Significant and rapid rise in stressed exposures 3 Restored deposit momentum and enhanced funding profile 2 Margin lending impairment charges 3 Strengthened balance sheet with 2 Operational service issues stronger Tier 1 ratio and high
Slide 8: Westpac 2009 Interim Results
Westpac 2009 Interim Results Phil Coffey Chief Financial Officer
Slide 9: Approach to 1H09 reporting
Approach to 1H09 reporting • Full pro forma accounts for the Westpac Group and each Provide business unit with two comparative periods clarity on performance • No changes to St.George or Westpac prior period numbers • Align accounting/risk policies Maintain full • Produce statutory and cash earnings
Slide 10: Sound performance in current conditions
Sound performance in current conditions • Cash earnings1 down 6% Cash earnings1 1H08 – 1H09 ($m) 4,000 Writebacks & • Very strong revenue performance: 1,103 (131) recoveries $4m 3,500 (1,070) - Good volumes with improved margins IAP - Exceptional markets income 3,000 • Expense growth easing 2,500 2,
Slide 11: Solid volume/margin mix
Solid volume/margin mix • Lending up 9%; customer deposits up Group net interest margin (%) 3.5 24%; market share gains offsetting 3.1 slowing environment 2.7 2.3 • Margins up 24bps; includes 17bps from 1.9 Treasury, WIB and Markets 1.5 1 1 1 08 08 09 • Retail and business margins up 7bps: 98 99 00
Slide 12: Strong Markets and Treasury revenues
Strong Markets and Treasury revenues • Improved volumes, better market Markets revenue1 ($m) 1H08 2H08 1H09 spreads and trading gains. Revenue Customer activity 180 190 337 benefited from: Trading 170 124 376 - Strong customer flows Total 350 314 713 - Increased market volatility Average VaR2 7.1 9.
Slide 13: Expense growth easing, matching the tougher environment
Expense growth easing, matching the tougher environment • Expenses up 4% over the year and Expense growth by business unit 2H08 – 1H09 (%) prior half contributing to lower expense to income ratio: Westpac Group - Westpac Group 40.4% - Banking 38.5% Westpac RBB Continuing • One-offs impacting current
Slide 14: Westpac RBB - Investment in front line delivering
Westpac RBB - Investment in front line delivering • Strong performance with cash earnings Cash earnings ($m) 1,400 up 17% 349 18 (96) 1,200 (62) (62) • Above system growth in mortgages 1,000 990 843 (+15%) and deposits (+21%), overall 800 margin up 600 17 % growth 1H08 Net Non - Expenses Impairment
Slide 15: WIB - Strong revenues offset by higher impairment charges
WIB - Strong revenues offset by higher impairment charges • Cash earnings $158m down $262m Revenue by segments ($m) from 1H08 1 FX&CCE • Revenue boosted by strong markets income Debt Markets • Strong transactional revenue +17% • Impairment charge $907m, including Global margin lending of $156m Trans
Slide 16: St.George - Momentum rebuilding
1 momentum rebuilding Cash earnings ($m) • Cash earnings up 6% 800 23 (9) (115) 700 • Maintaining distinctiveness: 144 529 600 500 (14) - High customer satisfaction (77%) and 500 excellent retention 400 - Momentum improving over the half, 300 1H08 Net Non- Operating Impairment Tax 1H09 particularly
Slide 17: BTFG - Market headwinds offset sound business performance
BTFG1 - Market headwinds offset sound business performance • Cash earnings down 17% % Change Key performance indicators 1H08 – 1H09 • FUA inflows sound, although FUM and Cash earnings 17 FUA impacted by market movements Funds management operating 15 income • Excellent BT Super for Life sales; mo
Slide 18: New Zealand - more difficult operating conditions
New Zealand - more difficult operating conditions • Cash earnings down 15% Cash earnings (NZ$m) 350 54 10 (8) (123) • Core earnings up 13% from solid 239 202 income growth 250 30 150 • Customer numbers up 3% over year 50 • Maintained modest expense 1H08 Net interest Non- interest Expenses Impairment
Slide 19: Further deterioration in the credit cycle
Further deterioration in the credit cycle • Sharp rise in stressed loans Stressed exposures as a % of TCE 2.5% • Impaired assets up: - 3 large corporate exposures $700m 2.0% Watchlist & substandard - Margin lending $160m 90 days past due well secured - Commercial segment 1.5% Impaired • 90 Days well
Slide 20: Disappointing margin lending performance
Disappointing margin lending performance • Weak performance driven by lower Margin Lending 1H08 2H08 1H09 volumes and a significant increase in Standard exposures impairment charges Total exposures $5.3bn $4.7bn $3.5bn Exposures >$10m $610m $430m $290m • Portfolio review in early 2008 reduced single
Slide 21: Significant increase in impairment coverage
Significant increase in impairment coverage • Sector leading coverage ratios across 1H08 2H08 1H09 the board Key coverage ratios WBC WBC WBC & • Individually assessed provisions (IAP) only only SGB up to $1,416m, with strong coverage Impaired - New IAPs typically required higher provisions/ 44.2% 45
Slide 22: Impairment charge supporting higher coverage
Impairment charge1 supporting higher coverage Charge Change on Category Comments ($m) 1H 08 ($m) Individually assessed WIB, from 3 large corporate exposures, increases in 567 stress in Premium Business Group & margin lending New IAP 1,030 St.George ($110m) mainly property lending; New 197 Zealand ($
Slide 23: Improved funding profile
Improved funding profile • Significantly improved the quality of our Funding composition by residual maturity1 (% of total funding) funding profile: 13% 9% Wholesale Offshore <1Yr - More customer deposits, up 8 percentage points 10% Wholesale Onshore <1Yr 15% - Increased term funding, up 2 4% Securi
Slide 24: Strengthened capital position
Strengthened capital position • Tier 1 ratio comfortably above target Tier 1 Capital 2H08 to 1H09 (Basel II) (%) range: 11 10.9% - $4.7bn in capital raised over the half - Merger fair value adjustments impacted 10 capital by $379m 9 8.4% - Strong cash earnings with lower dividend 140bps - Higher ‘Ot
Slide 25: 2H09 considerations
2H09 considerations Revenue • Treasury and Markets income remaining solid, but unlikely to match 1H09 • Financial system credit growth slowing but expect to grow above system • Higher cost of funds, including deposits; lending spreads also to rise Expenses • Merger benefits becoming more prominent •
Slide 26: Summary – a sound financial performance
Summary – a sound financial performance • Earnings supported by 15% revenue growth, offsetting impairment cycle • Franchise in good shape: - Improving market position in key products - Expense run-rate slowing - St.George momentum improving • Further deterioration in credit cycle, but strongly provi
Slide 27: Westpac 2009 Interim Results
Westpac 2009 Interim Results Gail Kelly Chief Executive Officer
Slide 28: Strategic priority areas
Strategic priority areas Objective Progress • Products per customer - best of banks (2.36) Earn all of our Customers customers’ business • Strong uplift in customer deposits, up 24% • Improving cross sell – Insurance, BT Super for Life • Multi-brand strategy taking shape Strengthen and drive • Westp
Slide 29: Strategic priority areas … continued
Strategic priority areas … continued Objective Progress Strengthen capability • Completed strategic roadmap incorporating merger & improve Technology flexibility/simplicity • Improved systems reliability • Significantly strengthened IT bench strength • Employee engagement up to 82% (from 78%) • Effe
Slide 30: Looking ahead
Looking ahead • Depth and length of current recession remains uncertain • Growth is expected to improve in 2010, although the recovery will be slower and will take longer than prior cycles • Household sector is expected to perform reasonably well, notwithstanding higher unemployment • Westpac risk s
Slide 31: Disclaimer
Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (Westpac) and its activities. The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be relied upon