Westpac Banking Corporation · ASX:WBC
Westpac Banking — Merrill Lynch Conference (March 2000)
29 slides from Westpac Banking's conference presentation, Mar 7, 2000
Slide 1: Creating Shareholder Value - Organisational Renaissance
Merrill Lynch Conference “Creating Shareholder Value - Organisational Renaissance” Mr Pat Handley Executive Director & Chief Financial Officer 7 March 2000 1
Slide 2: Disclaimer
Merrill Lynch Conference Disclaimer The material contained in the following presentation is intended to be general background information on Westpac Banking Corporation and its activities as at 7 March 2000. The information is supplied in summary form and is therefore not necessarily complete. Also,
Slide 3: Westpac retrospective - pre 1993
Merrill Lynch Conference Westpac retrospective - pre 1993 ❑ Inadequate risk/reward balance ❑ Less sophisticated capital management ❑ Lacking holistic customer information ❑ Volume more than value ❑ Sub-optimal shareholder value delivery 3
Slide 4: Value creation is a function of
Merrill Lynch Conference Value creation is a function of ❑ Excess returns ❑ Growth; and ❑ Sustainability of excess returns 4
Slide 5: Shareholder value creation starts with sound foundations
Merrill Lynch Conference Shareholder value creation starts with sound foundations ❑ Risk management ❑ Capital management ❑ Customer relationship management ❑ Value based management 5
Slide 6: Risk Management
Merrill Lynch Conference Risk Management 6
Slide 7: Inherited risk landscape
Merrill Lynch Conference Inherited risk landscape ❑ Decentralised and ineffective risk management structure ❑ Incomplete portfolio information ❑ Flawed incentive structure ❑ Poor risk/reward framework ❑ Historical provisioning ❑ Poor linkage to shareholder value 7
Slide 8: Risk portfolio management framework
Rapidly evolved a risk portfolio Merrill Lynch Conference management framework that enables: ❑ More accurate provisioning, capital allocation, and pricing ❑ Management of concentrations according to risk ❑ Active shedding of risk when appropriate ❑ Measurement of performance arising from changes in
Slide 9: Specific risk management initiatives
Merrill Lynch Conference Specific risk management initiatives involved ❑ Best practice risk grading systems ❑ Integrated portfolio diversification ❑ Dynamic provisioning 9
Slide 10: Shareholder value was thereby enhanced through
Shareholder value was thereby Merrill Lynch Conference enhanced through ❑ Better portfolio management ❑ Improved loan asset quality ❑ Lower impaired assets ❑ Reduced provisioning ❑ Reduced volatility in earnings and ❑ Ensuring an adequate return on capital employed against credit risk 10
Slide 11: Where we stand today
Merrill Lynch Conference Where we stand today Net impaired assets to equity & Total provisions to total general provision impaired assets % % 10 250 8 200 6 150 4 100 2 50 0 0 1996 1997 1998 1999 1996 1997 1998 1999 WBC Peer Average WBC Peer average 11
Slide 12: Capital Management
Merrill Lynch Conference Capital Management 12
Slide 13: Focus on reducing invested capital
Merrill Lynch Conference Focus on reducing invested capital ❑ Reviewed where capital was tied up in the business and forced a greater discipline on capital usage and efficiency ❑ Looked for ways to do more business with less capital ❑ Sold down or out-sourced value destroying assets eg. Property por
Slide 14: Reducing the cost of capital by restructuring the capital base
Merrill Lynch Conference Reducing the cost of capital by restructuring the capital base ❑ 1993 issued A$600M converting preference shares ❑ 1994 exercised call over 131.2M 12% non- cumulative reference shares ❑ 1996 - 1999 buy back programs - 382 million shares, retiring $3.4 billion in surplus capi
Slide 15: Where we stand today
Merrill Lynch Conference Where we stand today Capital Ratios External Debt Ratings 14 10 Aa3/AA- % 6 A1/A+ 2 A2/A+ 1993 1994 1995 1996 1997 1998 1999 -2 1994 1995 1996 1997 1998 1999 Tier 1 Tier 2 TARGET NZ Class Shares Ordinary Equity 0.9% - 0.5% 4.7% - 5.1% Hybrid Equity 0.9% 15
Slide 16: Value-adding capital outcome is that we have a larger bank
Merrill Lynch Conference Value-adding capital outcome is that we have a larger bank ❑ Using proportionately less capital ❑ With a lower capital cost profile ❑ More diversified source of capital; and ❑ Improved external ratings 16
Slide 17: Value-based customer relationship management
Merrill Lynch Conference Value-based customer relationship management 17
Slide 18: Consumer customer value by segment
Merrill Lynch Conference Consumer customer value by segment % 25 20 15 10 5 0 Customer Value Segments Low High % in Segment $ Value per customer 18
Slide 19: CRM initiatives based upon strategic imperatives
Merrill Lynch Conference CRM initiatives based upon a set of strategic imperatives ❑ GROW customers to become valuable customers through targeted programs to increase valuable product penetration ❑ RETAIN customers by recognising and rewarding their relationship with us ❑ ATTRACT customers by influe
Slide 20: Key CRM programs
Merrill Lynch Conference Key CRM programs ❑ Data mining and market analysis using predictive modelling ❑ Pro-actively contacting over 200,000 customers per year, with specific objectives for channel migration, business growth and attrition minimisation ❑ Customer value identification at all customer
Slide 21: Where we stand today
Merrill Lynch Conference Where we stand today ‘000 ‘000 2200 Consumer - Low value 700 Consumer - Priority customers Customers 2100 650 2000 600 1900 1800 550 1700 500 1600 1500 450 J-99 F-99 M-99 A-99 M-99 J-99 J-99 A-99 S-99 O-99 N-99 D-99 J-99 F-99 M-99 A-99 M-99 J-99 J-99 A-99 S-99 O-99 N-99 D-99
Slide 22: Value based management
Merrill Lynch Conference Value based management 22
Slide 23: Re-organising around the value chain
Re-organising around the value Merrill Lynch Conference chain Customer Sales & Product Servicing & Activities Marketing Solutions Processing •Sales & marketing •Product •Customer •Customer management, service information & needs development & •Transaction management sourcing processing •Product manu
Slide 24: Key benefits of aligning around the value chain
Merrill Lynch Conference Key benefits of aligning around the value chain ❑ Means to assess the market and our competition as the value chain unbundles ❑ Risk - adjusted framework for prioritising activities ❑ Better understanding of the economics of activities we perform ❑ Framework for prioritising
Slide 25: Embedding Value Based performance metrics
Merrill Lynch Conference Embedding Value Based performance metrics that ❑ Establish robust linkages between market value/share price appreciation and internal benchmarks ❑ Provide clarity on which key drivers and measures maximise value ❑ Ensure measurement systems are aligned to support value maxim
Slide 26: Customer and Business Evaluation System (CUBE)
To this end Westpac has implemented Merrill Lynch Conference a Customer and Business Evaluation System (CUBE) which ❑ Provides a consistent view and measure of performance across products, customer segments and organisational structure ❑ Uses economic profit as the financial performance measure ❑ Pr
Slide 27: Aligning management behaviour via economic profit metric
Merrill Lynch Conference Aligning management behaviour with shareholder value creation via an economic profit metric Impact on single Potential management actions period performance measure (unexpected by market) SHV EP EFCF NPAT ROE Improve cost / income ratio Grow assets at less than the cost of e
Slide 28: Conclusion
Merrill Lynch Conference Conclusion ❑ In conclusion, we believe that adoption of effective value-based management processes across our business, is the key to maintaining the current high returns sustainably into the future ❑ Westpac since 1993 has undergone an organisational renaissance in this res
Slide 29: Merrill Lynch Conference
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