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i n s t i t u t i o n a l b a n k i n g c l i e n t s o l u t i o n s i n s t i t u t i o n a l b a n k i n g c l i e n t s o l u t i o n s Institutional Banking Performance and Strategy Michael Katz Commonwealth Bank of Australia 27 September 2001

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Institutional Banking Performance and Strategy Michael Katz Commonwealth Bank of Australia 27 September 2001. c l i e n t s o l u t i o n s. i n s t i t u t i o n a l b a n k i n g. Disclaimer. - PowerPoint PPT Presentation

Citation preview

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Institutional Banking

Performance and Strategy

Michael Katz

Commonwealth Bank of Australia

27 September 2001

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The material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation, 27 September 2001. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate.

Disclaimer

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•IB’s Business

•Performance 2000/01

•Strategy

•People

•Environment

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Outline

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An integrated, client focussed

capital and risk management

business

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IB’s Business

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• Corporate Finance

• Financial Markets

• Transaction Services

• Equities

• CIM

• Fund Servicesi n s

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IB’s Six Business Lines

Business Development

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• Risk Management

• Human Resources

• Financial Control

• Financial Markets Operations

• Technology

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Five Support Streams

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• Financial Institutions

• Government Entities including State and Local Government

• Large Corporates - Turnover greater than $75m pa

• Middle Market since 1 July 2001 - Turnover between $40m and $75m pai n

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l b

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The Client Base

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Financial MarketsOperations

Financial Control

Human Resources

Information Technology

PRODUCT GROUPSInvestment

Management Corporate

FinanceFinancial Markets

EquitiesTransaction

Services

Deliver Products

DiagnoseNeeds

RiskManagement

AnalyseCredit Risk

BusinessDevelopment

Calculate the EquityRisk per Client

Clients

Integrated Approach

FundServices

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• IB’s Business

• Performance 2000/01

• Strategy

• People

• Environment

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Outline

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• Colonial integration completed in Jan 01

• Growth in Corporate Finance and internationalisation

• Trading income up 30%

• Equities

– Implementation of VoiceBroker

– Entry to IPOs

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Highlights of 2000/01

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• Development of Funds Management /Fund Services products focussed on IB’s origination skills

• Integration of Middle Market business

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Highlights of 2000/01 - contd

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• CommSec - 38% (1)

• Margin Lending - 24% (2)

• Domestic Bonds - 10% (3)

• FX - 10% (4)

• Transaction Banking - 22% (5)

• Sources: (1) ASX; (2) RBA; (3) IFR; (4) RBA; (5) Greenwich Survey

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Market Share at June 2001

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Capital Raised

Syndication

Equity

Loans

Orgination

IB raised $17 bn of Capital for its Clients, an increase of 49% over 1999/00

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• IB’s Business

• Performance 2000/01

• Strategy

• People

• Environment

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Outline

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An integrated, client focussed

capital and risk management

business

operating domestically

and in niche markets offshore

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IB’s Strategy

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• Commercial banks are a stock business - rely on balances for revenue

• Flow business - transition through the balance sheet

• IB’s dependency on the lending business is reducingi n

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Migration to a Flow Business

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• Preferred access to both wholesale and retail clients

• Developing skills in product integration

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Competitive Advantage

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• Client Service

• Products

• International

• People

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What Makes us Different?

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Investment Banks

• Credit Risk

• Market Risk

• Operational Risk

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Risk Management

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• KMV

• Large Credit Exposure Policy

• Highly skilled analysis

Diversification is key

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Credit Risk Management

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Impact of LCEP

Term of LoanRiskRating

1 yr 3 yr 5 yr 10 yr

1 100% 82% 71% 51%2 68% 59% 52% 39%3 48% 41% 34% 27%4 29% 21% 19% 18%

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• CBA maintains the lowest VaR across the big 4*

– CBA 2.9

– ANZ 4.0

– WBC 4.8

– NAB 13.0

* Data to 31 March 01 based on CBA Analysis

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Market Risk Management

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• Unique presence in Australian market place

• Have a relatively lower cost base

• Will succeed by providing better broader service to the chosen segment

• Lack international client and product coverage of global competitors

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Client Service is Paramount

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Model is better Business Development, better Risk Management and bundled product delivery

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Better Service is our Business

• Continuity of Coverage

• Quality and Transparency

• Responsiveness

• Innovation

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• “Technology” Technology

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Innovation

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• Cross Border Leases

• Royal Bank of Scotland

• ComputerFleet

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Innovation

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s

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t i o

n s • Develop technology for client self

service

• Examples: eCommCorporateCommSec -

VoiceBroker

• Ensures cost effective service levelsi n s

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Technology Innovation

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eCommCorporate

Client and trade volumes are growing

Jul-00 Sep-00 Nov-00 Jan-01 Mar-01 May-01

Trades Clients

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VoiceBroker

VoiceBroker is handling 45% of calls

Jul-00 Sep-00 Nov-00 Jan-01 Mar-01 May-01

Call centre VoiceBroker

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• Broad product range servicing providers and users of capital - retail & wholesale

• Equities business

• Corporate Finance focus on risk adjusted return

• Exportable productsi n s

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Product Set

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• Product focus rather than client focus

• Growth from product initiatives

– distribute institutional equity offshore

– export ComputerFleet technology

– residual value risk - ships, planes, trains

• Develop position as Asian Dollar Bloc specialist - AUD, NZD, HKD

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International Strategy

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• IB’s Business

• Performance 2000/01

• Strategy

• People

• Environment

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Outline

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Staff growth

Staff numbers have increased by 35% over the last two years

1,000

1,500

2,000

2,500

FY 99 FY 00 FY 01

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• Executive team of 12 with average age of 45 and 23 years post-graduate experience each

• Intranet based 360 degree performance review for all staff

• International staff rotation program - 25 Australian staff posted overseasi n

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The Best Team

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s

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n s Remuneration system is closely aligned

with business performance with incentive payments based on a factor of:

• Year on year growth in net profit after tax

• Return on Target Equity

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Remuneration Model

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Fixed vs Variable Remuneration

98/99 99/00 00/01

Tot

al R

emun

erat

ion

Cos

ts Variable remuneration

Fixed remuneration

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- Provide client continuity and service levels required- Domestic skill base

Product- Provide the focus for international expansion- Have international skill sets- Accept a degree of turnover

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People Segmentation Strategy

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• IB’s Business

• Performance 2000/01

• Strategy

• People

• Environment

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Outline

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The Environment

Spreads to Rating (AA+) on Kangaroo Bond Issues

0

5

10

15

20

25

30

35

40

45

03-Sep

04-Sep

05-Sep

06-Sep

07-Sep

10-Sep

11-Sep

12-Sep

13-Sep

14-Sep

17-Sep

18-Sep

19-Sep

20-Sep

21-Sep

2005 Issue

2003 Issue

Source: Commonwealth Research CBASpectrum 24 September 2001

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We are caught between

a rock and

a hard place

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The Environment

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The most dangerous words in Financial Services:

“This time it’s different”

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The Rock

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“Generals (Management)

always prepare to fight

the last war

not the next”

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The Hard Place

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Mean reversion suggests that

after 20 years of

exceptional growth

we should expect

a long hard drought

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Summary

Page 44: i n s t i t u t i o n a l   b a n k i n g

i n s

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• Focus on Costs

• Focus on Large Exposures

• Focus on Continuity

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Conclusion