1. 1 Corporate & Institutional Banking www.nabmarkets.com Opportunities for Actuaries in Banking Paul Carrett Associate Director, Capital Markets National Australia Bank Presentation to University of New South Wales, 28 April, 2003

2. 2 Corporate & Institutional Banking www.nabmarkets.com Agenda: 3 big questions WHY should you consider the opportunities in banking? WHERE are the opportunities? Two case studies HOW does one go about realising these opportunities?

3. 3 Corporate & Institutional Banking www.nabmarkets.com Why should we get busy about banking? Interesting careers Right sorts of incentives for certain personalities Turning the risk/reward dials Different gradient for the salary/seniority scales

4. 4 Corporate & Institutional Banking www.nabmarkets.com Where are the opportunities?

5. 5 Corporate & Institutional Banking www.nabmarkets.com Banking covers a broad range of businesses BANK GROUP Corporate & Institutional Banking Retail Financial Services Banking ServicesWealth ManagementTraded Product Balance sheet product

6. 6 Corporate & Institutional Banking www.nabmarkets.com Corporate & Institutional: lines of business Corporate & Institutional Banking Balance Sheet Lending Traded product (Markets) Bond issuance and sales Foreign exchange Derivatives: equity/interest rates/FX Commodity hedging Securitisation Loan Syndications Corporate Lending Project Finance Structured Finance Transactional services

7. 7 Corporate & Institutional Banking www.nabmarkets.com Corporate & Institutional Banking: Profits How we make money influences the sorts of people that we seek. Different risks and reward structure to traditional actuarial employment Most profits come from one-off transactions – “SUCCESS FEE” ONLY Franchise provides for some annuity style income, eg corporates that do interest rate swap business with us each year Staff remuneration arrangements match the above profit profile More volatile than other parts of the bank Relatively low salary, high bonus expectations

8. 8 Corporate & Institutional Banking www.nabmarkets.com Where are the opportunities? In Corporate and Institutional Banking Credit risk modelling Quantitative Research Project Finance Structured capital markets product (eg securitisation, hybrids)

9. 9 Corporate & Institutional Banking www.nabmarkets.com Where are the opportunities? In Retail Financial Services Credit risk modelling across pools Customer relationship management research Product economics

10. 10 Corporate & Institutional Banking www.nabmarkets.com Applying your learning to banking situations Project Finance Credit Risk Modelling

11. 11 Corporate & Institutional Banking www.nabmarkets.com Project Finance: what is it Project Project Sponsor Debt providersSPV 3 rd party equity providers eg. coal mine, airport, tollroad, power station debt financingequity financing operations & maintenance, possibly equity investor

12. 12 Corporate & Institutional Banking www.nabmarkets.com Project Finance FeatureComments Non recourseCash flow matters Cash flow projections are vital and complex Large, Highly gearedHundreds of millions to billions (= stress) Time constrained bid situationsSometimes a poor work/life balance

13. 13 Corporate & Institutional Banking www.nabmarkets.com Project Finance: how your skills can help Cash flow modelling is where all good project financiers start Revenue Expense Capital expenditure Tax Debt (principal and interest, highly customised) Equity

14. 14 Corporate & Institutional Banking www.nabmarkets.com Credit risk modelling If you lend to someone, will they pay you back (ON TIME IN FULL) Modelling can be similar to general insurance Probability of default (claim frequency) Loss given default (average claim size)

15. 15 Corporate & Institutional Banking www.nabmarkets.com This one is close to my heart A stochastic credit risk model Model the risk-free yield curve (eg Hull White model) Model changes in credit ratings levels (Markov Chains) Model changes in the prices / credit spreads charged by investors for bearing credit risk SUCH MODELS CAN HELP INVESTORS ASSESS THE RISK IN THEIR ASSET OR ASSET-LIABILITY PORTFOLIOS

16. 16 Corporate & Institutional Banking www.nabmarkets.com Realising the opportunities

17. 17 Corporate & Institutional Banking www.nabmarkets.com Some tips for young beginners Salary and workload different to other actuarial opportunities Need to overcome some of the perceptions of actuaries Sense of humour required Need to reinforce some of the positive perceptions of actuaries! This can sometimes be hard to live up to!

18. 18 Corporate & Institutional Banking www.nabmarkets.com Opportunities at National Australia Bank We have had some success with actuarial students in Corporate & Institutional Banking We do have a graduate programme: nabmarkets.com Recruitment Contact Chris Evely Corporate and Institutional Banking Group Level 30, 500 Bourke Street Melbourne VIC 3000 Email: chris_evely@national.com.au

19. 19 Corporate & Institutional Banking www.nabmarkets.com Feel free to contact me Paul Carrett Associate Director, Debt Capital Markets  (02) 9237 1779  (02) 9237 1660 Email: paul_a_carrett@national.com.au