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i n s t i t u t i o n a l b a n k i n g

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.

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  1. 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

  2. Disclaimer 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.

  3. Outline • IB’s Business • Performance 2000/01 • Strategy • People • Environment 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

  4. IB’s Business An integrated, client focussed capital and risk management business 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

  5. IB’s Six Business Lines • Corporate Finance • Financial Markets • Transaction Services • Equities • CIM • Fund Services c l i e n t s o l u t i o n s Business Development i n s t i t u t i o n a l b a n k i n g

  6. Five Support Streams • Risk Management • Human Resources • Financial Control • Financial Markets Operations • Technology 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

  7. The Client Base • 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 pa 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

  8. Integrated Approach Risk Management Calculate the Equity Risk per Client Business Development Diagnose Needs Analyse Credit Risk Financial Markets Operations Financial Control Clients Information Technology Human Resources Deliver Products PRODUCT GROUPS Corporate Finance Investment Management Financial Markets Equities Transaction Services FundServices

  9. Outline • IB’s Business • Performance 2000/01 • Strategy • People • Environment 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

  10. Highlights of 2000/01 • Colonial integration completed in Jan 01 • Growth in Corporate Finance and internationalisation • Trading income up 30% • Equities • Implementation of VoiceBroker • Entry to IPOs 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

  11. Highlights of 2000/01 - contd • Development of Funds Management /Fund Services products focussed on IB’s origination skills • Integration of Middle Market business 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

  12. Market Share at June 2001 • 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 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

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

  14. Outline • IB’s Business • Performance 2000/01 • Strategy • People • Environment 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

  15. IB’s Strategy An integrated, client focussed capital and risk management business operating domestically and in niche markets offshore 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

  16. Migration to a Flow Business • 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 reducing 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

  17. Competitive Advantage • Broad range of products • Preferred access to both wholesale and retail clients • Developing skills in product integration 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

  18. What Makes us Different? • Risk Management • Client Service • Products • International • People 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

  19. Risk Management Superior risk management compared to Investment Banks • Credit Risk • Market Risk • Operational Risk 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

  20. Credit Risk Management • KMV • Large Credit Exposure Policy • Highly skilled analysis Diversification is key 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

  21. Impact of LCEP

  22. Market Risk Management • 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 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

  23. Client Service is Paramount • 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 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

  24. Better Service is our Business Model is better Business Development, better Risk Management and bundled product delivery c l i e n t s o l u t i o n s • Continuity of Coverage • Quality and Transparency • Responsiveness • Innovation i n s t i t u t i o n a l b a n k i n g

  25. Innovation • Financial Technology • “Technology” Technology 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

  26. Innovation Financial Technology • Cross Border Leases • Royal Bank of Scotland • ComputerFleet 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

  27. Technology Innovation • Develop technology for client self service • Examples: eCommCorporate CommSec - VoiceBroker • Ensures cost effective service levels 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

  28. eCommCorporate Client and trade volumes are growing

  29. VoiceBroker VoiceBroker is handling 45% of calls

  30. Product Set • Broad product range servicing providers and users of capital - retail & wholesale • Equities business • Corporate Finance focus on risk adjusted return • Exportable products 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

  31. International Strategy • 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 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

  32. Outline • IB’s Business • Performance 2000/01 • Strategy • People • Environment 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

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

  34. The Best Team • 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 overseas 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

  35. Remuneration Model 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 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

  36. Fixed vs Variable Remuneration c l i e n t s o l u t i o n s Variable remuneration Fixed remuneration TotalRemunerationCosts i n s t i t u t i o n a l b a n k i n g 98/99 99/00 00/01

  37. People Segmentation Strategy Risk and Relationship- 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 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

  38. Outline • IB’s Business • Performance 2000/01 • Strategy • People • Environment 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

  39. The Environment Spreads to Rating (AA+) on Kangaroo Bond Issues 45 40 35 30 25 20 15 2005 Issue 10 2003 Issue 5 0 03- 04- 05- 06- 07- 10- 11- 12- 13- 14- 17- 18- 19- 20- 21- Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Source: Commonwealth Research CBASpectrum 24 September 2001

  40. The Environment We are caught between a rock and a hard place 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

  41. The Rock The most dangerous words in Financial Services: “This time it’s different” 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

  42. The Hard Place “Generals (Management) always prepare to fight the last war not the next” 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

  43. Summary Mean reversion suggests that after 20 years of exceptional growth we should expect a long hard drought 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

  44. Conclusion • Focus on Costs • Focus on Large Exposures • Focus on Continuity 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

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