How a share buy-back will boost your EPS and meet your shareholders’ expectations John te Wechel Head of Group Funding Commonwealth Bank of Australia

The material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation, 24 July 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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AGENDA How much capital?How much capital? Capital StructureCapital Structure Cost of capitalCost of capital Adding Value for ShareholdersAdding Value for Shareholders

How much capital? Shareholder expectationsShareholder expectations RegulatorsRegulators Credit rating agenciesCredit rating agencies The marketThe market Economic EquityEconomic Equity

Shareholder expectations CBA share registerCBA share register Retail versus institutional investorsRetail versus institutional investors CBA dividend policyCBA dividend policy

Beneficial Shareholders by Domicile* * % of total shares on issue as at May 2001

Retail versus Institutional investors Retail Place high value on franking creditsPlace high value on franking credits Prefer a high pay-out ratioPrefer a high pay-out ratio Personal investors highest tax rate on revenue income close to 50%Personal investors highest tax rate on revenue income close to 50% Change in capital gains tax rates may not yet be fully understoodChange in capital gains tax rates may not yet be fully understoodWholesale More likely to balance value of franking credits against other forms of returnMore likely to balance value of franking credits against other forms of return Payout ratio only one amongst many factorsPayout ratio only one amongst many factors Super funds pay 15% tax rateSuper funds pay 15% tax rate Overseas investors incur witholding tax on unfranked dividends (may prefer capital growth to unfranked dividends)Overseas investors incur witholding tax on unfranked dividends (may prefer capital growth to unfranked dividends)

Regulatory Capital Tier 1 capitalTier 1 capital Total regulatory capitalTotal regulatory capital Capital treatment of investment in life insurance and funds management businessesCapital treatment of investment in life insurance and funds management businesses New Basle AccordNew Basle Accord

30 Jun Dec Jun Dec 00 Tier One Capital Total Shareholders’ Equity18,43519,461 Eligible Loan Capital Total Shareholders’ Equity and Loan Capital18,85319,884 Less Goodwill(5,905) (6,007) Less Preference shares (86) (39) Less Intangible component of investment in of investment in non-consolidated subsidiaries(2,656)(3,449) non-consolidated subsidiaries(2,656)(3,449) Less Outside equity interests in entities controlled in entities controlled by non-consolidated subsidiaries (588)(1,475) by non-consolidated subsidiaries (588)(1,475) Total Tier One Capital 9,618 8,914 Tier 1 Capital

Total Regulatory Capital 30 Jun Dec Jun Dec 00 Total Tier One Capital 9,618 8,914 Total Tier Two Capital 6,097 5,802 Tier One and Tier Two Capital 15,71514,716 Deductions (3,197) (2,278) Total Regulatory Capital 12,51812,438 Risk Weighted Capital Ratios (%) Tier one Tier two Less Deductions (2.49) (1.71) Total

Regulatory capital treatment of investment in life insurance and funds management businesses Net assets deducted from total regulatory capitalNet assets deducted from total regulatory capital Excess over net assets deducted from Tier 1 capitalExcess over net assets deducted from Tier 1 capital Four components of investment:Four components of investment: –Net assets –Value of acquired business-in-force –Value of self-generated business-in-force –Value of future new business

New Basel Accord Comes into effect 2005Comes into effect 2005 Operational risk specifically identifiedOperational risk specifically identified Credit risk moved to “realistic” basisCredit risk moved to “realistic” basis Deduction for life insurance and funds management businesses changed (again!)Deduction for life insurance and funds management businesses changed (again!)

Credit Rating Agencies Desire for AA credit ratingDesire for AA credit rating Not purely ratiosNot purely ratios The ability to generate capitalThe ability to generate capital

Capital Generation

The Market Capital Adequacy Ratios (%) (1)Capital Adequacy Ratios (%) (1) (1) Source /01 Half Year Results

Economic equity Management assessment of risksManagement assessment of risks Credit riskCredit risk Market riskMarket risk Operational riskOperational risk

Cost of capital CAPM used to determine cost of equityCAPM used to determine cost of equity Share capital now includes Commonwealth Bank PERLSShare capital now includes Commonwealth Bank PERLS Subordinated debt not used in cost of capital calculationSubordinated debt not used in cost of capital calculation

Adding value for shareholders (1) Buy-back from the Commonwealth Government (2) Off Market buy-backs (3) On Market buy-back Share buy-backs since listing

Adding value for shareholders $ CBA Share Price and Buy-Backs

Summary Shareholders expectations vary according to the taxation treatment of the returns they receiveShareholders expectations vary according to the taxation treatment of the returns they receive Regulators have a say in the amount of capital requiredRegulators have a say in the amount of capital required We must not compromise our credit ratingsWe must not compromise our credit ratings The ability to generate capital is keyThe ability to generate capital is key Active capital management enhances shareholder valueActive capital management enhances shareholder value