National Australia Bank Limited · ASX:NAB
National Australia Bank — FY2004 Earnings Presentation
70 slides from National Australia Bank's earnings presentation, Nov 26, 2004
Slide 1: Full Year Results
FULL YEAR ] RESULTS MOL ceca John Stewart, Michael Ullmer, Managing Director Group Chief Financial and CEO, Officer November 10, 2004
Slide 2: Agenda
Agenda Introduction Financial Overview Issues and Actions Questions and Answers John Stewart Michael Ullmer John Stewart National
Slide 3: Overview of Performance for the September 2004 half
Overview of Performance for the September 2004 half v Mar 04 Sep 04 Bank Peer HY HY Average™ Cash earnings™ growth 12.9%V $1,611M 9.3% Return on assets* 26 bps 0.70% 0.99% Return on equity* 5.7% poins 13.1% 18.2% Total shareholder return year (7%) 13% 3year A% 14% 5year 8% 17% * Before sigitoat tem
Slide 4: Rebuilding the National
Rebuilding the National Progress so far: Board and executive teams renewed Underlying problems identified Transitioning to a new operating model Embedding cultural change FX remedial actions Implementing Europe plans National
Slide 5: Agenda
Agenda Introduction John Stewart Financial Overview Michael Ullmer Issues and Actions Questions and Answers John Stewart National
Slide 6: Key areas impacting the Group during the second half
Key areas impacting the Group during the second half * Net interest income * Other operating income + Expenses * Corporate & Institutional Banking * Financial Services Australia + Financial Services Europe * Capital * Significant items and balance sheet adjustments + Business response to regulatory
Slide 7: Group Results
FULL YEAR RESULTS MOL ceca Group Results
Slide 8: Group profit and loss for September 2004 half
Group profit and loss for September 2004 half Half year to Change on Change on Sep04 Mar04 Mar04HY% Sep 03 FY % Banking net interest income 3540 3.519 08 (33) Banking other aperating income 1952 2,044 (45) (68) Wealth Management incame** 1,048 93a 124 529 Net operating income 6538 6,496 06 13 Bankin
Slide 9: Drivers of the Group result
Drivers of the Group result + Margin compression +FSE + FSA -CIB + Other income + Retail banking stalled across the Group + CIB down dramatically + Excessive cost growth across Group + Poor culture of cost containment + Regulatory & compliance + Protecting the Australian franchise + Amortisation of
Slide 10: September 2004 half cash earnings
September 2004 half cash earnings” Change on Change on Sep04 Maro4 = MarO4HY © SepOSFY Old Divisions HY HY % % Financial Services Australia 877 gga (12.2) flat Financial Services Europe 280 308 (68) (33.3) Financial Services New Zealand 71 158 82 58 Corporate & Institutional Banking 243 375 (35.2) (
Slide 11: Net interest margin September 2004 down 18bps on the year
Net interest margin September 2004 down 18bps on the year Sep 03 Yr NIM Financial Services Australia 3.14% Financial Services Europe 420% Financial Services New Zealand 2.71% Corporate & Institutional Banking 0.62% Other (inc WM & Elims) 0.22%) Sub Total 2.53% Change in Divisional Mix* NIM Sepo4¥r I
Slide 12: Net interest margin September half down 11bps on the March half
Net interest margin September half down 11bps on the March half MarosHY NIM SepO4HY _ AIEA % of Group Group NIM NIM Contraction “NIM Sep 04HY AIEA Contraction $Bn Mar O4HY Sep 04HY Financial Services Australia 2.91% 2% 128 41.2% 1.2% Financial Services Europe 4.16% 392% 88 187% 17.7% Financial Servi
Slide 13: Volume growth in the September half
Volume growth in the September half Group Lending Growth* Retail Deposit Growth* (average) (average) Housing FSNZ Business FSE Personal FSA 2 0 2 4 6 8 10 0% 2% 4% 6% Buto4 MB H204 Buc W204 1 {isa andioondle National
Slide 14: Banking other operating income down $83M in the September 2004 half
Banking other operating income* down $83M in the September 2004 half $m 15 (74) a —_ a= (2) MarG3 Sap03 MarD4 Markets Specialised Other FSA FSE FSNZ Other Exch Sep 04 HY HY HY Finance CIB Rate 14 * Before sicar tems ¥National
Slide 15: Banking expenses increased $324M in the September 2004 half
Banking expenses” increased $324M in the September 2004 half. $m 2 | ag 47 oy SS 4 oe 2 = Mahe Sor tS ue Regulatory eo pas Theat CIB Foe Other Other aw ae industy Franchise Et ad eee nie National
Slide 16: Significant drivers of banking expense growth
Significant drivers of banking expense growth 1. Regulatory spend Increase over Mar 04 HY Basel Il and IFRS §23m Sarbanes Oxley 54m 2. Regulatory spend - NAB specific APRA 9m SEC auditor independence 54m Management changes and business reviews §32m 3. Australian franchise re-investment Branding and
Slide 17: Divisional Contributions
FULL YEAR RESULTS MOL ceca Divisional Contributions
Slide 18: Corporate & Institutional Banking cash earnings down 36.3%
Corporate & Institutional Banking cash earnings* down 36.3%" on the March half Half year to 4% Change on* Sep 04 Mar 04 Mar 04HY Sep 03 FY msm exFR GREK Net interestincome 307371194) (188) Other operating income 452 898 55) (10) Total income 59 9673.) Total expenses (458) 400) 15) 85) Underiying pro
Slide 19: CIB income declined 23.2% while expense increased 11.5%
CIB income declined 23.2%* while expense increased 11.5%* on the March half Income down 23.2% Mer 04 HY Markets Sales Markets Risk & Trading Growth on Specialised Financel Mar 04 HY Custodian Services Deen on Financial Institutions Mar 04 HY Transactional Banking Corporate Banking $m Expenses up 11.
Slide 20: Strategic issues facing CIB
Strategic issues facing CIB + Deployment of assets in non-core markets - focus on capital, risk- weighted assets consumed, and returns generated. + Earnings decline in transaction driven business - relationship driven business held up + Impact of currency options restrictions. + Clients waiting for
Slide 21: Financial Services Australia cash earnings down 12.2%
Financial Services Australia cash earnings* down 12.2% on the March half Half year to Change on Sep 0d Mar 04 Mar 04 HY Sep 03 FY sm $m % % Netinterestincome 1,753 1,799 (26) 0.9 Other Operating Income 1,004 9891.6 2.2 Total income 2767 2,708 (Nth Average Volume Growth Total expenses 1.401) 4,28 1.7
Slide 22: Financial Services Australia net interest margin down 20bps
Financial Services Australia net interest margin down 20bps on the half year 2.91% 2 0.03% 0.01% poi || Ga [0.05% any AOL: 2.71% fo) Maras [Basis Change in Change in| [Basis Change in Change i Capital IRM Sep 04 Hy [Risk Product Product | Risk Product Product] Beneft Mismatch HY Margins Mix Margins
Slide 23: Financial Services Australia expenses increased by $147M
Financial Services Australia expenses* increased by $147M in the half MarO3 Sep03 MarO4 Acctg Brand Personnel Base’ Prof Occupancy Other Sep 04 Hy HY HY Change Refresh IFRS Fees HY 2
Slide 24: Financial Services Australia: current state of the franchise
Financial Services Australia: current state of the franchise Market share SepO4 Mar04 — Rank* Business Lending # (inc! Bills") 21.6% 220% — #l Housing (incl Securitisation) 167% 17.2% Credit Cards 167% 178% #4 Business Deposits 27.8% 7% Ht Household Deposits 13.4% 136% FSA Customer Numbers 80,000 Cu
Slide 25: Financial Services Europe cash earnings down 11.6%
Financial Services Europe cash earnings* down 11.6% on the half Average Volume Growth Housing 7 Half year to Change on ” Sep 04 Mar 04 Mar 04 HY Sep 03 FY % % Net interest income 428 436—= (1.8) 2.8) Other operating income 187 172 29) G0) Total income 595 6081) G3) Total expenses @90) @74) 43) (16.3
Slide 26: Financial Services Europe net interest margin down 24bps
Financial Services Europe net interest margin down 24bps in the September 2004 half 4.16% [-0.01% Zp 99m) “o.08%) 0.01% 9.02% 0.02% 0.08%) o Ba 3.92% Maro4 | Basis Change in Changein|| Basis Change in Changein| Core IRM Sep 4 HY Risk Product Product |] Risk Product Product | Funds Mismatch HY Margin
Slide 27: Financial Services Europe expense growth driven by projects
Financial Services Europe — expense” growth driven by projects em 5 MarO3 Sep03 MarO4 Growth Base¥ UK — Other Pensions Sep 04 HY HY HY Initiatives IFRS Investment HY a
Slide 28: Financial Services Europe: current state of the franchise
Financial Services Europe: current state of the franchise Quarterly change % em 0% -0.20 -0.40 -0.60 -0.80 2,200 2,160 2,100 2,050 2,000 Net Movement FSE - Personal Customer Numbers TN oe Sep02 Mar03. = Sep03 = Mar04 = Sep 04 BFS Scotland Core Advances Volumes 1,950 Dec 02 Mar 03 Jun03 Sep 03 Dec 03
Slide 29: Financial Services New Zealand cash earnings up 5.6%
Financial Services New Zealand cash earnings* up 5.6% on the March half Half year to Change on NZ$m Sep 04 Mar 04 Mor Q4HY Sep OSFY Netinterestincome 40438258 Other operating income 188 1821.6 : Total income 589 564. 44 56 Average Volume Growth Total expenses (293) 8) 8) 8) Housing Underiying profit
Slide 30: Financial Services New Zealand net interest margin up 4bps
Financial Services New Zealand net interest margin up 4bps in the September 2004 o.04% © 2.60% o.01% | o.00% 2.56% 0.00% -.05% 008% 0.04% 0.00% Maro4 | Basis Change in Change in || Basis Change in Change in| Capital IRM Sep 04 HY Risk Product Product || Risk Product Product | Benefit Mismatch) HY Ma
Slide 31: Financial Services New Zealand: current state of the franchise
Financial Services New Zealand: current state of the franchise Marketshare* Sep 04 Mar04 Rank Cards (outstandings) 29.9% 30.2% #1 Housing 156% 15.3% #4 Agribusiness 17.5% 18.5% = #2 Retail Deposits 19.0% 190% #8 Middle Markets 34.7% 33.0%% #1 Salletaction vith Main Bank - Personal Market * routes RE
Slide 32: Wealth Management profit down 14.9%
Wealth Management profit* down 14.9% in the September 2004 half ; Half year to Change on Operating profit after tax Sep04 Mar04 Mar04HY SeposFY $m $m % % Investments 102 87 73 33.4 Insurance 107 121 (11.6) 118 Private Bank EN 2 63) 107 Other (incl. Regulatory programs) i) @) 59.5 103 Spend on new pl
Slide 33: Revaluation profit reflects changing industry dynamics
Revaluation profit reflects changing industry dynamics evaluation nes before tx Gir Favela Loss (pr Ex corso] tobe as aan torent eet a iam fouad Mtoe | tac conete fm sain | Tmt sesurtore® | tinged 451m Scam Sept 08 * Lomer near term sales growth for Real investments ; * Lower marys on wholesale busi
Slide 34: Wealth Management
Wealth Management Master Fund Market Share plus Flows 18% 18% 12% 9% 6% 3% 0% + Sep-02 insur: Mar-O3 ‘ance - Retail Ris! Sep-03 k Market Share Mar-O4 > FUM market share — Annual inflows market share — Attrition rate Mar-O2 Sep-02 Mar-03 Sep-03 Mar-O4 Inforce premium market share — New sales market s
Slide 35: Link
Link to searchable text of slide shown abov e
Slide 36: Credit Quality & Provisioning
FULL YEAR RESULTS MOL ceca Credit Quality & Provisioning
Slide 37: Restatements
Restatements Gross Non-Accrual Loans 90 Days Past Due Loans 5 $m 1600+ ee 800: = 1,434 204 1,200+ 600: 492 soo | 400 400 | 200. 0 Sep 03" Mar04 Sep 04 Sep03 ° Mar04 "Sep 04 Il Restatement to include 1 large exposure OO Impact of 1 large exposure in current halt IB Restatement to exclude 1 large expo
Slide 38: Adjustment to the general provision
Adjustment to the general provision + Review undertaken of emerging trends in industry practice * Consideration of developments in accounting literature « Discount rate applied to cumulative probabilities of default reduced «Increase general provisions by $292m * Treated as a significant item 8 Nati
Slide 39: General provisioning coverage levels have increased
General provisioning coverage levels have increased Provision Coverage Ratios 250% 0025 Total Provisions / Total Impaired Assets 15096 10036 : Specific Provisions / Total Impaired Assets 50 et ti 06 Sen 99 ‘Sep OO Sep Ot ‘Sep O2 ‘Bop 08 ‘Bop of General Provisions to Risk Weighted Assets (Excluding H
Slide 40: Portfolio remains sound with write off levels down
Portfolio remains sound with write off levels down and key quality indicators improving 0.407 Total Net Write-offs to Risk-Weighted Assets (excl Housing) — NAB — cea ANZ — wee % + HY CHY HY HY CMY Hy Hy Hy Seng? Sep9e Sep99 Sep00 Seno! Sepo2 Senos Senos 459, STOUD Fully Secured lending % of Total Ba
Slide 41: Non-accrual levels down but impacted by reclassifications
N on-accrual levels down but impacted by reclassifications 4,00 3,000 2,000 1,900 ao Gross Non- Accrual Loans 3m % 4 a a 1 Ls rl , Sep85 Sep67 Sep 89 Sep9i Sep%s SepSS SepS7 Sep93 Sepoi Sen03 Sepo4 =S6ross NALS = Restated NAL — Gross NALs to Gross Loans & Acceptances 90+ Delinquency and Gross 12 Mon
Slide 42: Other Matters
FULL YEAR RESULTS MOL ceca Other Matters
Slide 43: Review of particular balance sheet items
Review of particular balance sheet items Capitalised software — Significant item $409m General loan loss provision - Significant item $292m Defined benefit pension accounting Wealth Management internally generated goodwill Capitalised mortgage broker commissions National
Slide 44: Capital remains within or above target ranges
Capital remains within or above target ranges % 12 10 Targets Target Ranges| Sep 04 8 i) Actual 6 ACEIRWA 475-525 | 6.30 4 Tiert 700-750 | 7.34 24 |e Total Regulatory | 1000-1080] 10.58 Sep 03 Mar 04 Sep 04 3 ACE 1 ACE Target Range o Tier1 © Tier 1 Target Range m Total Regulatory Capital Total Regul
Slide 45: Movement in ACE & regulatory capital
Movement in ACE & regulatory capital % Movement in ACE Ratio 6.00 007 ate) os (0.46) 5.50 02) 44, 008 won oor LI a = 5.00 4.50 ACE Prof WMproft Signfeart OWidands Change Change FX Capitaiced Other Mors efore natof tems Sm AWA, inmariat_ impact. expanses sips signfioar dividends (atertax) dstbions cr
Slide 46: Dividend maintained
Dividend maintained Cents Dividend Growth per share 180 163 160 140 120 100 2000 «20012002 20082004 Final dividend Interim dividend
Slide 47: Regulation & compliance update
Regulation & compliance update Wide range of regulatory reviews. Significant direct and indirect costs. Must embed effective regulatory and compliance behaviours. Response to APRA — Have submitted 65 of 81 remedial actions — 24 actions have been closed ar National
Slide 48: Project / investment spend - IFRS and Basel II
Project / investment spend - IFRS and Basel Il Global Wealth IFRS Project (6m) ‘Aust Management Europe NZ __Total Enabling Infrastructure 32 2 15 2 4g Process Automation 14 2 4 2 17 Compliance Delivery 38 12 24 3 74 Total Cash Budget 78 14 43 5 140 Operational Expense 99 Capital Budget 44 Cash spend
Slide 49: Taxation
Taxation Wealth Management Concessionally taxed life product fees to be taxed at the corporate tax rate from 1 July 2005. Other Issues aecossmerit Resorermork! NZ Structured Finance deals NZ$57M NZ$387M EXCAPS $307M $135M TrUEPrs $150M $20M No provisions have been raised
Slide 50: March '05 half
March ’05 half Restructuring Charges + Developing detailed plans to move to the regional model + Changes already underway within wealth management + Some regions more progressed than others + Restructuring activity ongoing through the first half + Plans and charges finalised by the 04/05 half year r
Slide 51: Agenda
Agenda Introduction Financial Overview John Stewart Michael Ullmer Issues and Actions John Stewart Questions and Answers ot National
Slide 52: Underlying issues identified
Underlying issues identified 1. Culture and People 2. Regulatory & Compliance 3.Business Inefficiency 3. Stalled Revenue + Complexity + Bureaucratic + Inward looking + Business processes not customer focused 2 National
Slide 53: Employee engagement
TGikuesé | 2 Reaustone Peoole Comaince Employee engagement 2 Bugss | «ga NAB Employee Engagement 36% Australian Financial Services 54% Global High Performing Companies 69% Australian Best Employers 77% Average TSR - 9%pa 45% 65% Indifferent Average TSR > 20%pa Zone Average TSR is Negative Best Emplo
Slide 54: People and behaviours
People and behaviours > pugs | © gas Peter Scott John Hooper Lynne Peacock Elizabeth Hunter* Ross Pinney* Peter Thodey* Michael Ullmer Ahmed Fahour Cameron Clyne Gavin Slater Graeme Willis lan MacDonald * Not atesuls presentation National
Slide 55: Embedding cultural change
Embedding cultural change 4 Outre | 2.Reculatory a People Compliance 2. Business | 4. Stated Inefidency | Revenue New Leadership team Corporate principles Clarity of roles and responsibilities Reward strategy Performance Management Framework Talent Management Strategy 55 National
Slide 56: Group compliance and risk
“Gege' | “Congics Group compliance and risk > pace | 4 ga Compliance and Quality Failures Cost Homeside $3,873m NAFiM unit repricing issues $110m UK investment sales review $61m FX options trading $360m NIB Investigations $98m 58 National
Slide 57: Compliance and risk actions
Compliance and risk actions | ge: | + gue 1. outrea | 2Reculaony a People ‘Compliance Inefidency | Revenue New Finance and Risk structure FX remedial actions Clarifying roles and responsibilities Compliance embedded in performance management framework ov National
Slide 58: Indirect costs
Indirect costs 1 outree | 2.Reculaory a People Compliance 9 Business | 4. tates Inefidency | © Revenue Proportion of costs charged to one business unit by another business unit 2002 2003 2004 Europe Clydesdale 36% 36% 38% Yorkshire 36% 38% 41% National Irish 33% 32% 34% Northern 34% 31% 39% Australi
Slide 59: Amortisation burden
‘oatwree | 2Reaustorve People Comaince Amortisation burden © fignese | «gal CAGR $m 2001 = 2002-2003 = 2004 = (2001-04) Cash Spend (814) (510) (496) (489) -16% Amortisation (65) (106) (152) (189) 43% Software write-downs (18) (147) (59) (444) Year End Software Balance 840 884 955. 655. cy National
Slide 60: Process Inefficiency
Process Inefficiency Teams | Inefidency | © Revenue Purchase of John Stewart’s Computer 2 Marge prove octestonn ost Tl puareneoy ea 7.Stago8 dostiop ag gr Solna bp woods 6. Roviter send ‘eplopte Gaegow to sottvareifaltion 4. Roqusat purchase of ‘eomputr S.Organiss approval-faca {obsqow and rporgiali
Slide 61: Regional operating model
Regional operating model 9 Busnes | 4 inetiene Old Model One customer Three discrete offerings By With [Three separate| businesses [Three separate| infrastructures New Model One customer a One integrated offering By focused business One customer With One streamlined infrastructure eo National
Slide 62: Europe: Integration and efficiency
+ Outre | 2. Regulatory People Compliance 3, Business Europe re F Integration and efficiency + Legal entity merger + Moving from 77 to 16 core products + Integrating back offices + New operating model 62 National
Slide 63: Europe: Growth
+ Outre | 2. Regulatory People Compliance 3, Business Europe re F Growth + Brand repositioning + New products — offset mortgage + IFS opened 8 new centres + Third party mortgage distribution launched in April '04 + Customer attrition has declined by 5.8% in 2004 + Customer acquisition has grown 6% i
Slide 64: Projects and technology
Projects and technology * Clear benefits tracking * Six sigma * Technology to support customer 64 National
Slide 65: Business Australia
Business Australia 1 outree | 2.Reculaory a eool Compliance 2. Business | 4. Stalag Ineficency | Revenue BFS FTE's Full Time Employees 3800 3700 3600 3500 PfG staff reductions 3400 3300 3200 Rebuilding capability| Sep-02 Mar-O02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 65 National
Slide 66: Tightening risk settings
Tightening risk settings vege |e, Annual Growth Rates (%) Housing Lending - Australia Annual Growth Rates (%) 26 24 22 20 18 4 Ntional 16 Financial System 14 Aug-03 Oct-03 Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 68 National
Slide 67: Restoring risk settings
1 outree | 2.Reculaory a People Compliance Restoring risk settings vege |e, Consumer risk settings * More high rated approvals at front line * Restore LVR ratios for investment properties Business risk settings * Removing 24 restrictions on banker's authorities * Simplify credit applications and pro
Slide 68: Outlook
Outlook * Poor result * Baked in costs and slowing revenue momentum make our starting point for ’05 difficult * Expect earnings to bottom in current half and recover in following 12 months * Expect to maintain first half dividend at current levels 68 National
Slide 69: Looking Forward
Looking Forward *¢ Platform for change * Relentless execution is the key * Great franchises * Know what needs to be done 69 National -
Slide 70: Searchable text section of graphics shown above
Searchable text section of graphics shown above FUL L YEAR RESULTS 04 [LOGO] John Stewart, Managing Director and CEO Michael Ullmer, Group Chief Financial Officer November 10, 2004 Age nda Introduction John Stewart Financial Overview Michael Ullmer Issues and Actions John Stewart Questions and Answe
National Australia Bank — FY2004 Earnings Presentation on 6ix