IMF, class action specialist, takes on the Australian major banks.

1. BBY Limited
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This report may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or
accounts. Before making an investment or trading decision, the recipient must consider market developments subsequent to the date of this document, and whether
the advice is appropriate in light of his or her financial circumstances or seek further advice on its appropriateness or should form his/her own independent view
given the person’s investment objectives, financial situation and particular needs regarding any securities or Financial Products mentioned herein. Although every
attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which
cannot be excluded) is specifically excluded by BBY, its associates, officers, directors, employees and agents. A full international disclaimer is contained on the final
page of this report.
CLASH OF THE TITANS: IMF v the banks
Quantifying the impact of IMF’s bank exception fee class action
IMF (Australia) Ltd (IMF), Australia’s largest litigation funding company (LFC), announced Australia’s
largest class action against 12 banks, including the four major banks – Australia and New Zealand
Banking Group Ltd (ANZ), Commonwealth Bank of Australia Ltd (CBA), National Australia Bank Ltd
(NAB) and Westpac Banking Corporation Ltd (WBC). IMF’s class action challenges the legal validity of
“exception fees”, which include late payment fees, honour fees, dishonour fees and over limit fees.
BBY’s analysis concludes that: (i) the per share accretive NPV impact to IMF is from
5cps (low case) to 50cps (high case); and (ii) the high case impact on the major banks is marginal,
with FY10F EPS decreases ranging from 1.1% (ANZ) to 1.8% (WBC).
We conclude that the total addressable claim value is from A$7.3bn to A$8.4bn. The key value driver
for IMF (and downside risk for the major banks) is the plaintiff class participation rate. BBY’s Base
Case assumes only 5% plaintiff class participation and BBY’s High Case assumes 10% participation,
implying a total litigation claim value of A$250M − A$730M.
IMF’s claim is based on the common law precedent that liquidated damages for breach of contract are
only allowable if they are a genuine pre-estimate of actual costs. IMF claims that banks’ exception fees
exceeded the banks’ costs and are therefore not legal. IMF will be claiming a full refund of the fees
plus interest from the date of the exception fee.
This class action follows the passage of “unfair contract” legislative protections in March 2010 and
major banks’ reduction of exception fees from 1 October 2009. The Trade Practices Amendment
(Consumer Law Bill) 2009 renders void clauses in a standardised contract which are deemed “unfair”.
This legislation prompted the major banks to remove or materially reduce their exception fee charges,
generally from 1 October 2009.
Assuming the banks eventually settle at 30% (low case) − 55% (high case) of IMF’s claim face value,
then the 12 banks will pay from A$75M (low case) − A$403M (high case) in total. This would translate
to A$9M – A$68M in NPAT to IMF, implying 5 − 50cps NPV accretion. Given IMF closed at A$1.43 prior
to this announcement, we would expect IMF to trade within the A$1.59 (base case) to A$1.93
(high case) share price range.
George Gabriel, CFA
+61 9226 0091
ggg@bby.com.au
13 May 2010

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BBY Limited 13 May 2010 2
CLASH OF THE TITANS: IMF V THE MAJOR BANKS
EXECUTIVE SUMMARY
We expect IMF to trade
within the A$1.59 to A$1.93
share price range.
The impact on major banks
is marginally negative.
We estimate that this class action will add from 5cps (low case) to 50cps (high case) to IMF’s
NPV. Given IMF was at A$1.43 prior to the announcement, this implies a share price range of
A$1.59 to A$1.93.
We believe the impact on the major banks’ earnings will be marginally negative, with the high
case implying 1.1% cash NPAT downside for ANZ and CBA; 1.4% downside for NAB and
1.8% downside for WBC.
Background to the class action
IMF has launched Australia’s
largest class action against
12 banks, including the four
majors.
IMF, Australia’s largest litigation funding company (LFC), announced Australia’s largest class
action against 12 banks, including the four majors. The action is targeting
“exception fees” – including late payment fees, honour fees, dishonour fees and over limit
fees – which are typically from A$25.00 to A$60.00 per transaction.
IMF’s claim is based on the common law precedent that liquidated damages for breach of
contract are only allowable if they are a genuine pre-estimate of actual costs. IMF claims that
banks’ exception fees exceeded the banks’ costs and are therefore not legal. IMF will be
claiming a full refund of the fees plus interest from the date of the fee.
This class action follows the passage of “unfair contract” legislative protections in March 2010
and major banks’ reduction of exception fees from 1 October 2009. The Trade Practices
Amendment (Consumer Law) Bill 2009 renders void clauses in a standardised contract which
are deemed “unfair”. This legislation prompted the major banks to remove or materially
reduce their exception fee charges, mostly from 1 October 2009.
Quantifying the impact on major banks
The key swing factors are:
(i) % plaintiff class
participation; and
(ii) % claim value received
as settlement.
Table 1 summarises the expected impact on major banks. We conclude that the cash
earnings impact on the major banks is from -1.1% to -1.8%.
Based on our analysis, we conclude that IMF’s total potential claim value is from
A$7.3bn – A$8.4bn (including interest).
Our base case assumes only 5% of the plaintiff class participates, implying a litigation
claim value of A$379M.
Our high case assumes 10% of the litigation class participates, implying a litigation claim
value of A$730M.
Assuming the banks eventually settle at 40% (base case) − 55% (high case) of litigation
claim value, total settlement value from the banks will be from A$152M (base case) to
A$403M (high case).
Note that the totals paid by the major banks do not add to the total expected settlement
amount in the class action because the major banks only account for approx. 72% of the
total expected settlement amount.

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BBY Limited 13 May 2010 3
CLASH OF THE TITANS: IMF V THE MAJOR BANKS
TABLE 1: EXPECTED SETTLEMENT AMOUNTS PER MAJOR BANK – BASE AND HIGH CASES
WBC is the most impacted,
given its overweight
exposure to Australian retail
banking.
A$M
FY10F cash
earnings impact
Base Case expected
settlement value (A$M)
High Case expected
settlement value (A$M)
%
ANZ -1.1% 20.5 54.4 18.8%
CBA -1.1% 24.8 65.9 22.8%
NAB -1.4% 23.3 61.9 21.4%
WBC -1.8% 40.4 107.4 37.1%
108.9 289.5 100.0%
Source: BBY.
Quantifying the claim potential
BBY estimates that the total
potential claim value is from
A$7.3bn to A$8.4bn.
The major banks received
A$852M annualised
exception fees in 2009.
We estimate that the total claim potential value is from A$7.328Bn (high case) − A$8.39Bn
(high case), with base case A$7.581Bn. Our conclusion is based on the following:
RBA’s calculation of exception fees in 2008 at A$1.2bn (source: “Banking Fees in Australia,
May 2009”).
APRA’s split of “total fees and commissions” as 72% major banks, 17% domestic banks,
and 11% foreign subsidiaries (source: APRA quarterly banking statistics, September 2009).
Given IMF’s class action has limited foreign bank defendants, we mostly exclude foreign
banks from our calculation of the total claim pool. We include major banks
(72% x A$1.2bn = A$862M) and other domestic banks (17% x A$1.2bn = A$204M) and
conclude that A$1.069bn of exception fees in 2008 is captured by IMF’s claim.
BBY’s analysis of 1H10 results indicates that total major banks’ exception fee opportunity
cost in 1H10 is A$426M (ANZ – A$80M; CBA – A$97M; NAB – A$91M; WBC A$158M).
IMF’s claim captures exception fees going back up to six years (duration of the statute of
limitations) and also includes interest from the time of fee charge.
The four key value drivers to IMF are; (i) % of plaintiff class participation; (ii) settlement
ratio as % of face value of claim; (iii) litigation fees; and (iv) the number of years to settle
the case. We summarise the low, base and high cases in Table 3 below.
BBY’s base case total potential claim value is of A$7.581bn (including interest at 7%), or
A$5.656bn excluding interest.
IMF will charge class action plaintiffs a flat 25% fee. Clients will make zero contribution to the
litigation’s operating costs.
TABLE 2: BBY BASE CASE ESTIMATE OF TOTAL IMF CLAIM POTENTIAL (A$M)
Totals 2009 2008 2007 2006 2005 2004
Household exception fee growth rate (pa) 11% 11% 11% 11% 11% 11%
Business Exception fee growth rate (pa) 4% 4% 4% 4% 4% 4%
Household exception fees 985 887 799 720 649 585
Business exception fees 189 182 175 168 162 155
Subtotal exception fees claimable 5,656 1,174 1,069 974 888 810 740
Cumulative interest 1,925 170 241 303 358 406 448
Total IMF claim potential 7,581 1,344 1,310 1,277 1,246 1,216 1,188
Source: BBY, APRA, RBA, bank annual reports, IMF

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BBY Limited 13 May 2010 4
CLASH OF THE TITANS: IMF V THE MAJOR BANKS
TABLE 3: SCENARIO ANALYSIS
Driver Low case Base case High Case
% of plaintiff class participation 3% 5% 10%
Settlement ratio as % of claim value 30% 40% 55%
Total litigation expenses A($M) -6 -5 -4
No. years to settle 3.0 1.5 1.0
Total settlement value (A$M) 75.5 151.6 403.1
IMF NPAT contribution (A$M) 9.0 23.0 67.7
Source: BBY
The defendants
IMF is pursuing 12 banks,
including the four majors.
IMF is targeting 12 banks, in three different categories:
The major banks – ANZ, CBA, NAB and WBC (Four).
Other domestic banks – Bank of Queensland Limited (BOQ); BankSA; BankWest;
Bendigo and Adelaide Bank Limited (BEN); Suncorp-Metway Limited (SUN); and
St George Bank (Six).
Foreign subsidiary banks – Citibank; and HSBC (two).
The plaintiff class
A key value driver is the rate
of plaintiff class
participation.
IMF’s plaintiff class is anyone who has incurred at least one exception fee in the last six
years.
IMF is targeting over 100,000 plaintiffs before proceeding. We understand that IMF signed
over 6,000 people in the first few hours since its announcement. This run-rate would give IMF
its target plaintiff number within one month.
One key value driver (for both IMF and the major banks) is the rate of plaintiff class
participation. To this end, IMF’s mass marketing strategy will be critical. Apart from the free
publicity generated by the high profile class action, IMF is using unconventional marketing
methods to achieve it target plaintiff numbers, including internet registration
(www.financialredress.com.au), viral marketing through Facebook and print media
advertising.
About Financial Redress Pty Ltd
Financial Redress has
already successfully run
individual exception fee
cases.
The class action is being managed by Financial Redress Pty Ltd (FR), a 100% subsidiary of
IMF. The CEO and founder of Financial Redress is James Middleweek, a former lawyer and
equities analyst (an excellent pedigree indeed!).
FR was established in early 2009 to recover compensation from financial institutions on a
range of grounds. Prior to IMF ownership, FR had successfully run individual exception fee
cases against major financial institutions.

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BBY Limited 13 May 2010 5
CLASH OF THE TITANS: IMF V THE MAJOR BANKS
About IMF
IMF is the dominant
Australian litigation funding
company.
IMF has successfully
prosecuted class actions
against blue chip
institutional defendants.
IMF has an excellent track
record, having lost only 4
out of 140 cases since its
listing.
Due diligence and case
selection are key success
factors.
Management is first class.
IMF is clearly Australia’s dominant litigation funding company (LFC). This is evidenced by
Financial Redress’ selection of IMF as a suitable partner to litigate against the major banks.
Indeed, other LFCs often revert to IMF when a particular case becomes too challenging
(eg. National Potato, Ericsson cases).
IMF’s track record against blue chip institutional defendants has given it the credibility to lead
a class action against the major banks. IMF’s class action defendants include
PricewaterhouseCoopers, KPMG, AWB, Lehman Brothers, Ericsson and Microsoft USA.
In our view, no other LFC has the scale, track record or confidence to contemplate such a
class action.
Furthermore, IMF has an excellent track record. Of IMF’s cases, 70% are successfully settled
before trial; up to 15% are discontinued; and the remaining 15% have proceeded to trial with
IMF having lost only four cases (out of 140 total) at trial.
Key to IMF’s success is the experience of its litigators and its due diligence process.
IMF typically rejects 90% of possible lawsuits, indicative of careful due diligence and risk
aversion.
In our view, IMF’s management is first class, with extensive business and litigation
experience. Key staff include:
CEO Hugh McLernon is a lawyer by training, worked as a Crown Prosecutor for eight
years, an independent barrister for nine years and a litigation partner at Clayton Utz for
three years. He effectively founded IMF in 1996 through a private LFC supported by the
entrepreneur Danny Hill.
Chairman Rob Ferguson is a former CEO of IMF and former CEO/Chairman of
BT Australia Investment Bank. His directorships include Primary Health Care, Westfield
Holdings Ltd, Vodafone Australia, GPT and Racing NSW.
Executive Director John Walker is an experienced commercial litigator. He established his
own LFC in 1998, which was acquired by IMF in 2001. He also acts as an Investment
Manager within IMF.
COO/CFO Diane Jones has over 15 years corporate restructuring, advisory and private
equity experience.
Executive Investment Manager Clive Bowman has over 20 years experience in litigation
and litigation funding. Clive has been instrumental in the formation and development of
IMF and has been involved with litigation funding since 1997.
Unresolved questions
The following remains unclear:
Will the banks co-operate with IMF and provide summary totals of exception fees paid for
each person who registers?
If only 10% of the plaintiff class joins the IMF class action (BBY High Case), what of the
residual 90%?

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BBY Limited 13 May 2010 6
CLASH OF THE TITANS: IMF V THE MAJOR BANKS
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