being different
2007 Annual Report
has its rewards
ANNUAL REPORT
CONTENTS
Chairman’s Report
Overview of Operations
Overview of Business Divisions
Ten Year Summary
Directors’ Report
Principal Activities
Result
State of Affairs
Dividends
Review of Operations
Events Since the End of the
Financial Year
Future Developments
Environmental Regulation
Directors’ Qualifi cations, Experience
and Special Responsibilities
Company Secretaries’ Qualifi cations
and Experience
Non-Audit Services
Lead Auditor’s Independence
Declaration
Directors and Offi cers Who Were
Previously Partners of the Auditor
Chief Executive Offi cer /
Chief Financial Offi cer Declaration
Directors’ and Offi cers’ Indemnity
Rounding of Amounts
Executive Offi cers’ and
Employee Share Options
Remuneration Report
Director Remuneration
Executive Remuneration
Chief Executive Offi cers’
Remuneration
Disclosed Executives’
Remuneration
Equity Instruments Relating
to Disclosed Directors and
Executives
Corporate Governance Report
Shareholder Information
3
4
6
8
10
10
10
10
10
10
10
10
10
11
11
11
12
12
12
12
12
12
14
14
19
22
25
26
36
50
Financial Report
Income Statements
Balance Sheets
Statements of Recognised
Income and Expense
Cash Flow Statements
Notes to the Financial Statements
1 Signifi cant Accounting Policies
2 Critical Estimates and
Judgements Used in Applying
Accounting Policies
Income
3
4 Expenses
5 Compensation of Auditors
6
Income Tax Expense
7 Dividends
8 Earnings per Ordinary Share
9 Liquid Assets
10 Due from Other
Financial Institutions
11 Trading Securities
12 Derivative Financial Instruments
13 Available-for-sale Assets
14 Net Loans and Advances
15 Impaired Financial Assets
16 Provision for Credit Impairment
17 Regulatory Deposits
18 Shares in Controlled Entities,
Associates and Joint
Venture Entities
19 Deferred Tax Assets
20 Goodwill and Other Intangible
Assets
21 Other Assets
22 Premises and Equipment
23 Due to Other Financial Institutions
24 Deposits and Other Borrowings
25 Income Tax Liabilities
26 Payables and Other Liabilities
27 Provisions
28 Bonds and Notes
29 Loan Capital
30 Share Capital
31 Reserves and Retained Earnings
32 Minority Interests
54
54
55
56
57
58
65
68
69
70
71
72
74
74
74
75
75
83
86
87
88
89
89
92
93
94
94
96
96
97
97
98
98
99
102
104
105
106
109
110
122
33 Average Balance Sheet and
Related Interest
34 Interest Spreads and Net Interest
Average Margins
35 Financial Risk Management
36 Interest Rate Risk
37 Fair Value of Financial Assets
and Financial Liabilities
123
129
38 Segment Analysis
39 Notes to the Cash Flow Statements 132
134
40 Controlled Entities
135
41 Associates
135
42 Interests in Joint Venture Entities
136
43 Fiduciary Activities
44 Commitments
137
45 Contingent Liabilities,
Contingent Assets and Credit
Related Commitments
138
46 Superannuation and Other Post
Employment Benefi t Schemes
143
47 Employee Share and Option Plans 148
48 Key Management Personnel
Disclosures
49 Transactions with Other
Related Parties
50 Exchange Rates
51 Events Since the End
of the Financial Year
Directors’ Declaration
Independent Auditor’s Report
Financial Information
1 Cross Border Outstandings
2 Certifi cates of Deposit and Term
Deposit Maturities
3 Volume and Rate Analysis
4 Concentrations of Credit Risk
5 Provision for Credit Impairment
– Industry Analysis
6 Short Term Borrowings
7 Capital Management
8 Additional Financial Instrument
Risk Disclosures
Glossary of Financial Terms
Alphabetical Index
154
155
155
155
156
157
158
158
159
160
161
162
162
166
170
172
ANZ Annual Report 2007 1
2 ANZ Annual Report 2007
Chairman’s
report
a message from Charles goode
2007 has been a year of achievement and change. ANZ has performed solidly during 2007, delivering value for
shareholders, customers and the community. Our level of staff engagement grew and our approach to corporate
responsibility gained increasing recognition. Looking ahead, we are conscious of the demands of increasing
competition and the turbulence in world markets.
OuR peRfORmanCe
anZ’s performance in 2007 was
characterised by strong revenue growth
and a prudent approach to risk.
Our profit after tax for the year ended
30 September 2007 of $4,180 million was
up by 13%. Cash profit1 was $3,924 million,
up by 9%.
The dividend is 136 cents per share fully
franked, a 9% increase on 2006.
These results reflect the efforts of our
management and staff, and I thank them
for their contribution.
expanSIOn and gROwTh
The personal division delivered another very
strong result driven by revenue growth of
12%. In new Zealand we increased market
share in a number of key segments and
delivered improved financial performance.
The Institutional division had a mixed year
but should perform better in 2008.
we continued our expansion in asia. we
acquired an initial 19% of malaysia’s ammB
holdings Berhad; 20% of China’s Shanghai
Rural Commercial Bank; 60% of the Vientiane
Commercial Bank in Laos; 10% of Vietnam’s
Saigon Securities Incorporation; and 100%
of the Citizens Security Bank in guam.
In australia, we completed the successful
acquisition of eTRade australia Limited.
we have committed approximately
$1.5 billion to investments during 2007.
given this, we are taking the opportunity to
enhance our strategic flexibility by offering
a discount of 1.5% under our dividend
Reinvestment plan, which is underwritten
and expected to raise an additional
$1 billion in capital.
LeadeRShIp
John mcfarlane completed his term as
Chief executive on 30 September having
occupied that position for ten years. John
made an enduring contribution to anZ’s
development, especially in the areas of
customer satisfaction, staff engagement,
lifting our position in the community and
consistently delivering on promises to
shareholders. anZ now has a strong
foundation and on behalf of shareholders
and the Board, I thank him for his
contribution and service.
michael Smith commenced as Chief
executive on 1 October. michael is an
outstanding all round international banker.
he joins us from hSBC where he had
responsibility for hSBC’s business in asia.
david gonski retired from the Board in June
2007. david made a significant contribution
and we thank him. Ian macfarlane, former
governor of the Reserve Bank of australia,
joined the Board in february 2007.
OuTLOOk
Looking ahead, there are some global
uncertanties however the economies of
australia, new Zealand and asia remain
supportive of growth. anZ remains in good
shape, with a strong liquidity and funding
position. we are well positioned for 2008.
Charles goode Chairman
1 anZ excludes from cash profit significant items, anZ national
Bank integration costs and volatility associated with fair value
movements relating to economic hedges.
Chairman’s Report 3
OVERVIEW OF OPERATIONS
ANZ recorded a profi t after tax of $4,180 million for the year ended 30 September 2007, an increase of 13% over the
September 2006 year.
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Provision before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense
Minority interest
Profi t attributable to shareholders of the Company
2007
7,302
4,083
11,385
(4,953)
6,432
(567)
5,865
(1,678)
(7)
4,180
2006
6,943
3,209
10,152
(4,531)
5,621
(407)
5,214
(1,522)
(4)
3,688
Movt
%
5%
27%
12%
9%
14%
39%
12%
10%
75%
13%
ANZ recorded a $492 million (13%)
increase in profi t attributable to
shareholders of the Company, from
$3,688 million for the year ended
30 September 2006 to $4,180 million for
the year ending 30 September 2007. Key
factors infl uencing this increase were:
Net interest income increased $359
million (5%) from $6,943 million for the
year ended 30 September 2006 to $7,302
million for the year ended 30 September
2007. Net interest income was driven by
average lending growth of 11% and average
deposit growth of 8%, partially offset by a
decline in net interest margin of 12 basis
points.
Other operating income increased $874
million (27%) from $3,209 million for the
year ended 30 September 2006 to $4,083
million for the year ended 30 September
2007. The increase included a $195 million
gain on sale from Fleet Partners Pty Limited
and Truck Leasing Limited, and an increase
over 2006 of $74 million arising on volatility
from the use of derivatives in economic
hedges and use of the fair value option.
Operating expenses increased $422
million (9%) from $4,531 million for the
year ended 30 September 2006 to $4,953
million for the year ended 30 September
2007. The increase was impacted by a $113
million cost recovery during 2006 following
the settlement of a claim against a number
of reinsurers in relation to the National
Housing Bank (NHB) matter, partly offset by
ANZ National Bank integration costs of $39
million incurred in 2006.
Provision for credit impairment increased
$160 million (39%) from $407 million for
the year ended 30 September 2006 to
$567 million for the year ended
30 September 2007.
Income tax expense increased $156
million (10%) from $1,522 million for the
year ended 30 September 2006 to $1,678
million for the year ended 30 September
2007. The effective tax rate was 28.6%,
a reduction from 29.2% at 30 September
2006. The decrease includes the usage
of capital losses which offset the capital
gains made on the sale of Fleet Partners Pty
Limited and other assets, and the non-
assessable gain on the sale of Truck Leasing
Limited, partially offset by the restatement
of deferred tax balances for the announced
New Zealand tax rate change which takes
effect on 1 October 2008.
Analysis in greater detail of business
performance in major income and expense
categories follows.
NET INTEREST INCOME
Net interest income increased $359 million
(5%) to $7,302 million for the year ended
30 September 2007. Net interest income
was driven by an increase in average
interest earning assets of 11% and average
deposit and other borrowings growth of 8%,
partially offset by a decline in net interest
margin of 12 basis points.
The growth in average interest earning
assets included an increase in Personal
of 11% in lending assets, primarily in
Mortgages, and from growth in retail
loans and one-off borrowings following
superannuation legislation changes.
Institutional grew 9% as a result of
continuing strong customer demand for debt
products, especially in Relationship Lending
in the latter part of the year and Business
Banking. New Zealand Businesses grew 13%
with robust growth across all businesses.
Trading securities and available-for-sale
assets grew by 16% refl ecting Institutional’s
Debt Capital Markets’ strategy to expand
their on-balance sheet trading portfolio and
liquid assets.
Average deposits and other borrowings
increased 8% with customer deposits
growing by 15%. Personal grew 13% as a
result of ongoing marketing campaigns, in-
4 ANZ Annual Report 2007
branch promotions and simplifi cation
of account opening procedures. Institutional
grew 25%, mainly in Trade & Transaction
Services resulting from customer acquisition
and the impact of new superannuation
laws. New Zealand grew 11% with growth
in both Institutional and the Retail brands.
Other deposits and borrowings decreased
by 12%, primarily in the United States due
to the wind up of the Group’s Delaware
commercial paper program in February
2007.
Net interest margin was down 12 basis
points to 2.19% from September 2006 with
the key drivers being:
Competition (-9 basis points). Competitive
pressures reduced margins, particularly
in Australian and New Zealand Mortgages.
In addition, net interest margin declined
due to lower lending related fees and
migration to high yielding deposits and
low rate credit cards.
Wholesale rates (+3 basis points). Earnings
from the investment of capital and rate
insensitive deposits increased, partially
offset by an increase in basis risk on
variable rate mortgages and credit cards.
Other items (-6 basis points). NZD revenue
hedging was included in interest income
in prior periods, and in 2007 is included in
foreign exchange earnings. Higher funding
costs associated with unrealised trading
gains (-3 basis points) were directly offset
by an equivalent increase in trading income.
OTHER OPERATING INCOME
Other operating income increased $874
million (27%) to $4,083 million for the
year ended 30 September 2007. Excluding
the gain on sale from Fleet Partners Pty
Limited and Truck Leasing Limited of $195
million, the increase of $74 million arising
from volatility from the use of derivatives
in economic hedges and the use of the
fair value option and the $14 million
received on settlement of ANZ National
Bank claims during 2006, other operating
income increased $619 million (20%). Fee
income increased $235 million, largely in
non-lending fee income following volume
growth and revenue initiatives particularly
within Consumer Finance, Investment and
Insurance Products and Banking Products
within Personal, and Corporate Finance and
Working Capital within Institutional.
Foreign exchange earnings and profi t on
trading securities increased $160 million
refl ecting growth in derivative positions in
Markets, the funding of which is included in
net interest income.
Other income increased $184 million,
including an increase in brokerage income
of $39 million following the consolidation
of ETRADE Australia Limited for the fi rst
time as full ownership was achieved. The
acquisition of Stadium Australia during
the fi rst half of 2007 also contributed
additional other income of $38 million. In
addition, equity accounting income was
higher in Partnerships and Private Bank
due to increased earnings from INGA, a full
year result from Bank of Tianjin and new
investment in AMMB Holdings Berhad.
OPERATING EXPENSES
Operating expenses increased $422
million (9%) to $4,953 million for the year
ended 30 September 2007. Excluding the
impact of the $113 million cost recovery
during 2006 in relation to NHB, and the
ANZ National Bank integration costs of
$39 million incurred in 2006, operating
expenses increased $348 million (8%).
Personnel costs were up $236 million
(9%) as a result of annual salary increases
and a 7% increase in staff numbers from
acquisitions and additional staff to support
new initiatives and business growth.
Premises costs increased $51 million
(12%), driven mainly by higher rental
expense refl ecting additional space
requirements, opening of new branches,
additional ATMs and market rental growth.
Computer costs increased $43 million (8%)
from increased software purchases due
mainly to internet banking licence fees and
increased information system usage. Other
expenses increased $18 million (2%) largely
following an increase in Corporate Finance
following the consolidation of Stadium
Australia (mainly event costs).
PROVISION FOR CREDIT IMPAIRMENT
Provision for credit impairment increased
$160 million (39%) to $567 million for
the year ended 30 September 2007. The
individual provision charge increased
$146 million. Personal increased due to
prior years’ growth in low rate cards, higher
bankruptcies and increased servicing
pressure from higher interest rates, housing
costs and fuel prices. Esanda experienced
lower realisable values on defaulted large
motor vehicles due to the impact of higher
fuel prices. New Zealand Businesses
returned to more normal provisioning levels
following higher than usual writebacks last
fi nancial year. Institutional provisions have
been infl uenced by two customers, offset
by a substantial recovery in the fi rst half
($47 million).
The collective provision charge increased
$14 million. The charge for the year was
driven by asset growth and changes in
portfolio risk. This was partially offset
by the continued release of the scenario
impact provision taken in 2005 to refl ect
the risk change due to materially higher
and sustained oil prices. The increase in
2007 was primarily due to growth in New
Zealand, which was partially offset by a
lower charge in Personal from continued
prudent management of unsecured lending,
particularly in Consumer Finance (due
to tightened credit standards, reduced
business in certain segments and improved
collections) and lower risk movement,
particularly in Esanda.
INCOME TAX EXPENSE
Income tax expense increased $156 million
(10%) to $1,678 million for the year ended
30 September 2007. Excluding the impact
of the usage of capital losses which offset
the capital gains made on the sale of Fleet
Partners Pty Limited and other assets, the
non-assessable gain on the sale of Truck
Leasing Limited partially offset by the
restatement of deferred tax balances for
the announced New Zealand tax rate change
which takes effect on 1 October 2008, the
effective tax rate was 29.1%, a reduction
from 29.3% at 30 September 2006. The
decrease was due primarily to increased
profi ts from associates (net of Australian
top-up tax) and Offshore Banking Unit
(OBU) benefi ts, partially offset by the run-off
of structured fi nance transactions.
Chief Financial Offi cer’s Report 5
OVERVIEW OF BUSINESS DIVISIONS
PERSONAL DIVISION
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Provision before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense and minority interest
Profi t after tax
Cost to income
Employee numbers
2007
3,282
1,411
4,693
(2,240)
2,453
(393)
2,060
(618)
1,442
2006
3,017
1,166
4,183
(2,081)
2,102
(336)
1,766
(527)
1,239
Movt %
9%
21%
12%
8%
17%
17%
17%
17%
16%
47.7%
49.7%
14,096
12,913
9%
Profi t after tax increased $203 million (16%) to $1,442 million for the year ended 30 September 2007. This increase was driven by strong
lending and customer deposit growth and the benefi ts from ongoing investment in the business. Expansion of the footprint continued with
39 extra branches in 2007, a further 400 ATMs and 1,183 additional staff, mainly in customer-facing and transformation roles. Five months
of ETRADE Australia results were consolidated as full ownership was achieved (an increase of $37 million operating income and $28 million
in operating expenses).
Operating income was up 12% driven by volume growth, partly offset by margin decline of 5 basis points. Consumer Finance grew 12% due
to increasing volumes and the impact of growth initiatives. Banking Products increased 15% mainly from new customer accounts. Mortgages
grew 6% with lending growth of 12% offset by higher funding costs and continued competitive pressure on margins. Operating expenses
increased 8% due to additional branches, ATMs and frontline staff as part of the investment in building “Australia’s Most Convenient Bank”.
Credit costs increased 17% mainly refl ecting volume growth, a strategic risk mix shift to low rate business, and higher delinquencies and
bankruptcies in Consumer Finance.
INSTITUTIONAL DIVISION
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Provision before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense and minority interest
Profi t after tax
Cost to income
Employee numbers
2007
1,975
1,527
3,502
(1,378)
2,124
(69)
2,055
(607)
1,448
2006
2,015
1,241
3,256
(1,256)
2,000
(58)
1,942
(579)
1,363
Movt %
(2%)
23%
8%
10%
6%
19%
6%
5%
6%
39.3%
38.6%
5,225
4,915
6%
Profi t after tax increased $85 million (6%) to $1,448 million for the year ended 30 September 2007. The Markets business continued to
benefi t from diversity of product and geographic cover, with sales revenue particularly strong. Corporate Finance continued to grow with
Alternative Assets increasing Funds Under Management and strong returns from earlier investments in the Private Equity business, although
revenue growth was slowed by the substantial decline in capital market activity in the last two months of the year. Trade & Transaction
Services maintained steady growth and solid volume growth in Business Banking was impacted in the fi rst half by competitive pressures on
margins on the secured lending book. Stadium Australia became a wholly owned subsidiary during the year as part of the Alternative Assets
business (an increase of $35 million in operating income and $29 million in operating expenses).
Operating income was up 8% driven by an increase of 7% in average net lending assets and 17% in average deposit and other borrowings
volumes partially offset by a decline in net interest margin of 18 basis points. Strong revenue growth was achieved in Markets and Corporate
Finance from increased customer activities. Operating expenses increased 10%, refl ecting an increase of 310 in employee numbers and
continued investments in technology in Markets and Trade and Transaction Services. Provision for credit impairment increased 19% with
two large individual provisions offsetting a large recovery in the fi rst half ($47 million).
6 ANZ Annual Report 2007
NEW ZEALAND BUSINESSES
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Provision before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense and minority interest
Profi t after tax
Cost to income
Employee numbers
2007
1,666
507
2,173
(1,034)
1,139
(69)
1,070
(344)
726
2006
1,507
481
1,988
(987)
1,001
(4)
997
(322)
675
Movt %
11%
5%
9%
5%
14%
large
7%
7%
8%
47.6%
49.6%
8,923
8,788
2%
Profi t after tax increased $51 million (8%) to $726 million for the year ended 30 September 2007. Strong revenue growth, largely from
continued momentum in lending growth, supported continued reinvestment in the business and the strengthening of the customer
proposition. The result included an increase in credit impairment expense of $65 million from unusually low levels in 2006.
Operating income was up 9% driven by robust balance sheet growth, with lending growth increasing 12% and customer deposits 7%,
moderated by a 9 basis point contraction in margins. The disposal of the remaining MasterCard shares generated $9 million for the retail
businesses ($4 million in 2006). Operating expenses increased 5% due to annual increases in salaries and investment in frontline staff and
other business initiatives, partly offset by control of discretionary expenditure. The 2006 result included costs of $9 million in relation to
the New Zealand Commerce Commission’s action on disclosure of optional issuer fees. The cost to income ratio reduced 200 basis points to
47.6%. Provision for credit impairment increased $65 million from $4 million in 2006, refl ecting high levels of recoveries and writebacks of
past provisions in the Corporate and Business Banking portfolios last year.
PARTNERSHIPS & PRIVATE BANK
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Provision before credit impairment and income tax
Provision for credit impairment
Profi t before income tax
Income tax expense and minority interest
Profi t after tax
Cost to income
Employee numbers
2007
133
289
422
(123)
299
(34)
265
(18)
247
2006
107
208
315
(95)
220
(24)
196
(12)
184
Movt %
24%
39%
34%
29%
36%
42%
35%
50%
34%
29.1%
30.2%
1,574
1,102
43%
Profi t after tax increased $63 million (34%) to $247 million for the year ended 30 September 2007. INGA earnings were up 27% driven by
increased funds management activities. ANZ Private Bank profi t after tax increased 16% with volume growth and increased sales of advisory
and alternative investment products. 2007 also included signifi cant Partnership activity with the completion of investments in AMMB
Holdings Berhad in Malaysia, ANZ Vientiane Commercial Bank in Laos and Shanghai Rural Commercial Bank in China.
Operating income was up 34% primarily from volume growth in Indonesia Cards and Personal and Private Bank business in Asia. In addition,
INGA equity accounted income was up 27% refl ecting strong core operating profi t benefi ting from superannuation legislation changes,
buoyant investment markets and higher capital investment earnings. International Partnerships other operating income increased 73% as a
result of stronger Panin earnings, the full year impact of new partnerships and the fi rst time booking of a full quarter of earnings from AMMB
Holdings Berhad. ANZ Private Bank other income increased 62% due to higher income from the distribution of alternative investment and
advisory products. Operating expenses increased 29% as a result of ongoing investment across all of the businesses. Provision for credit
impairment increased 42% due to the impact of regulatory changes and business volume growth in Indonesia Cards.
Overview of Business Divisions 7
TEN YEAR SUMMARY
Financial Performance1
Net interest income
Other operating income
Operating expenses
Profi t before income tax, credit
impairment and non-core items1
Provision for credit impairment
Income tax expense
Minority interest
Cash profi t1
Non-core items1
Profi t attributable to shareholders of the company
Financial Position
Assets2
Net Assets
Tier 1 capital ratio3
Return on average ordinary equity4,5
Return on average assets4
Cost to income ratio6
Shareholder value – ordinary shares
Total return to shareholders
(share price movement plus dividends)
Market capitalisation
Dividend
Franked portion
Share price7
–interim
–fi nal
–high
–low
–30 Sep
Share information
(per fully paid ordinary share)
Earnings per share7 –basic
Dividend payout ratio8
Net tangible assets per ordinary share9
No. of fully paid ordinary
shares issued (millions)
Dividend Reinvestment Plan (DRP) issue price
–interim
–fi nal
Other information
Points of representation10
No. of employees (full time equivalents)
No. of shareholders11
2007
$m
7,302
3,765
(4,953)
6,114
(567)
(1,616)
(7)
3,924
256
4,180
392,613
22,048
6.7%
19.6%
1.1%
44.8%
15.6%
55,382
136c
100%
100%
$31.50
$25.75
$29.70
224.1c
60.9%
$9.37
1,864.7
$29.29
–
1,327
34,353
327,703
2006
$m
6,943
3,146
(4,605)
5,484
(407)
(1,486)
(4)
3,587
101
3,688
334,640
19,906
6.8%
20.1%
1.1%
45.6%
17.1%
49,331
125c
100%
100%
$28.66
$22.70
$26.86
200.0c
62.6%
$8.53
1,836.6
$26.50
$28.25
1,265
32,256
291,262
2005
$m
6,371
2,935
(4,340)
4,966
(565)
(1,247)
(3)
3,151
24
3,175
300,885
19,538
6.9%
19.0%
1.1%
46.6%
32.6%
43,834
110c
100%
100%
$24.45
$19.02
$24.00
169.5c
65.0%
$7.77
1,826.4
$21.85
$23.85
1,223
30,976
263,467
2004
$m
5,252
3,267
(4,005)
4,514
(632)
(1,147)
(4)
2,731
84
2,815
259,345
17,925
6.9%
17.8%
1.1%
45.3%
17.0%
34,586
101c
100%
100%
$19.44
$15.94
$19.02
153.1c
67.5%
$7.51
1,818.4
$17.84
$19.95
1,190
28,755
252,072
1 ANZ excludes from cash profit significant items, ANZ National Bank integration costs and
volatility associated with ineffectiveness arising from designated accounting hedges,
volatility arising from the usage of the fair value option and volatility from approved classes
of derivatives not designated in accounting hedge relationships but that are considered to be
economic hedges. ANZ excludes these items to provide a better indication of the underlying
business performance. In addition, the 2005 result has been calculated on an AIFRS basis
that is comparable with 2006 with the net effect of these adjustments included in non-core items,
allowing readers to see the impact on 2005 results of accounting standards that have only
been applied from 1 October 2005.
2 From 1998 to 2001, consolidated assets include the statutory funds of ANZ Life as required
by an accounting standard. For the year 2004, consolidated assets include the statutory funds
of NBNZ Life Insurance Limited. ANZ Life was sold in May 2002 and NBNZ Life Insurance was
sold on 30 September 2005.
3 Calculated in accordance with Australian Prudential Regulation Authority requirements
effective at the relevant date.
4 Excludes non-core items and minority interest. The 2005 ratio has been calculated on an
AIFRS basis that is comparable with that of 2006.
8 ANZ Annual Report 2007
2003
$m
4,311
2,808
(3,228)
3,891
(614)
(926)
(3)
2,348
–
2,348
195,591
13,787
7.7%
20.6%
1.2%
45.1%
6.7%
27,314
95c
100%
100%
$18.45
$15.01
$17.17
142.4c
64.2%
$7.49
1,521.7
$18.48
$16.61
1,019
23,137
223,545
2002
$m
4,018
2,796
(3,153)
3,661
(610)
(880)
(3)
2,168
154
2,322
183,105
11,465
7.9%
21.6%
1.3%
46.0%
15.3%
26,544
85c
100%
100%
$19.70
$15.23
$16.88
141.4c
57.8%
$6.58
1,503.9
$19.24
$18.32
1,018
22,482
198,716
Previous AGAAP
2001
$m
3,833
2,573
(3,092)
3,314
(531)
(911)
(2)
1,870
–
1,870
185,493
10,551
7.5%
20.2%
1.1%
48.0%
26.2%
23,783
73c
100%
100%
$16.71
$12.63
$15.28
112.7c
62.0%
$5.96
1,488.3
$15.05
$18.33
1,056
22,501
181,667
2000
$m
3,801
2,583
(3,314)
3,070
(502)
(863)
(2)
1,703
44
1,747
172,467
9,807
7.4%
19.3%
1.1%
51.7%
36.3%
20,002
64c
100%
100%
$12.87
$9.18
$12.70
102.5c
59.1%
$5.49
1,506.2
$11.62
$14.45
1,087
23,134
179,829
1999
$m
3,655
2,377
(3,300)
2,732
(510)
(736)
(6)
1,480
–
1,480
152,801
9,429
7.9%
17.6%
1.0%
54.5%
19.6%
16,045
56c
75%
80%
$12.11
$8.12
$9.80
86.9c
62.1%
$5.21
1,565.4
$10.95
$11.50
1,147
30,171
179,945
1998
$m
3,547
2,142
(3,442)
2,247
(487)
(576)
(9)
1,175
(69)
1,106
153,215
8,391
7.2%
15.9%
0.7%
60.9%
–15.6%
13,885
52c
60%
60%
$11.52
$7.65
$8.62
69.7c
67.8%
$4.98
1,539.4
$10.64
$10.78
1,205
32,072
151,564
5 For the periods 1998 to 2002, the return on average ordinary equity calculation accrues the
dividend over the year. From 2003, dividends may no longer be accrued and are not included
in the calculation of return on average ordinary equity.
6 Excludes non-core items. Periods prior to 2005 also exclude goodwill amortisation. The
2005 ratio has been calculated on an AIFRS basis that is comparable with that of 2006.
7 Periods prior to 2004 adjusted for the bonus elements of the November 2003 Rights Issue.
8 From 2003, the dividend payout ratio includes the final dividend proposed but not provided
for in terms of AASB 1044 Provisions, Contingent Liabilities and Contingent Assets which was
effective from the September 2003 financial year.
9 Equals shareholders’ equity less preference share capital, goodwill, software and other
intangible assets divided by the number of ordinary shares. For periods prior to 2005, this
equals shareholders’ equity less preference share capital and unamortised goodwill divided
by the number of ordinary shares.
10 Includes branches, offices, representative offices and agencies.
11 From 2000 onwards, the number of shareholders does not include the number of employees
whose only shares are held by ANZEST Pty Ltd as the trustee for shares issued under the
terms of any ANZ employee incentive plan.
Ten Year Summary 9
DIRECTORS’ REPORT
The directors present their report together with the Financial Report of the consolidated entity (the Group), being Australia
and New Zealand Banking Group Limited (the Company) and its controlled entities, for the year ended 30 September 2007
and the Independent Auditor’s Report thereon. The information is provided in conformity with the Corporations Act 2001.
PRINCIPAL ACTIVITIES
The Group provides a broad range of
banking and fi nancial products and services
to retail, small business, corporate and
institutional clients.
The Group conducts its operations primarily
in Australia and New Zealand (93% of total
assets at 30 September 2007 are related
to these operations). The remainder of the
Group’s operations are conducted across
the Asia Pacifi c region and in a number
of other countries including the United
Kingdom and the United States.
At 30 September 2007, the Group had
1,327 branches and other points of
representation worldwide excluding
Automatic Teller Machines (‘ATMs’).
RESULT
Consolidated profi t after income tax
attributable to shareholders of the Company
was $4,180 million, an increase of 13% over
the prior year.
The increase in profi t is due to revenue
growth of 12% which includes a one-off
gain on the sale of Esanda Fleetpartners
of $195 million.
The provision for credit impairment charge
increased by 39% to $567 million. The
increase is principally due to higher individual
provision charges in Personal Division
resulting from planned growth and lower
recoveries in 2007 as compared to 2006.
One of the key drivers of the Group’s
performance has been strong overall
balance sheet growth over the past 12
months. The major components of the
Group’s balance sheet and the related
movements from prior year are as follows:
Net loans and advances increased by
13% from $255,922 million to $288,846
million, primarily due to growth in
mortgage and institutional lending in
Australia.
Deposits and other borrowings increased
by 15% from $204,794 million to
$234,873 million, principally to fund
business growth.
Bonds and notes increased by 8% from
$50,050 million to $54,075 million,
primarily to fund asset growth.
10 ANZ Annual Report 2007
Further details are contained on pages 4 to
7 of this Annual Report.
STATE OF AFFAIRS
In the directors’ opinion, there have been no
signifi cant changes in the state of affairs of the
Group during the fi nancial year, other than:
In October 2006, ANZ sold the Esanda
Fleetpartners business.
In May 2007, ANZ acquired an initial
19% investment in AMMB Holdings Berhad
(“AMMB”).
In June 2007 ANZ fi nalised its acquisition
of ETRADE Australia Limited.
In July 2007 ANZ acquired 100%
of Citizens Security Bank in Guam.
In August 2007 ANZ acquired 10%
of Saigon Securities Incorporation.
In September 2007 ANZ acquired
a 20% investment in Shanghai Rural
Commercial Bank.
In September 2007 ANZ acquired 60% of
the ANZ Vientiane Commercial Bank in Laos.
During the year, ANZ applied for
deregistration from the US Securities
and Exchange Commission (SEC) as a
Foreign Private Issuer of Securities in the
United States. This became effective in
October 2007.
Further review of matters affecting the
Group’s state of affairs is also contained in
the Overview of Operations on pages 4 and
5 of this Annual Report.
DIVIDENDS
The directors propose that a fi nal fully
franked dividend of 74 cents per fully paid
ordinary share shall be paid on 21 December
2007. The proposed payment amounts to
approximately $1,381 million.
During the fi nancial year, the following fully
franked dividends were paid on fully paid
ordinary shares:
Cents
per
share
Amount before bonus
option plan adjustment
$m
Type
Date of
payment
Final
2006
Interim
2007
69
62
15 December
2006
2 July
2007
1,267
1,144
The proposed fi nal dividend of 74 cents
together with the interim dividend of 62 cents
brings total dividends in relation to the year
ended 30 September 2007 to 136 cents
fully franked.
REVIEW OF OPERATIONS
Over the past decade ANZ has improved
fi nancial performance, productivity and
returns to shareholders. We have continued
to focus on our customers, our people and
our communities.
The Group has produced a solid result
based on solid business performance
for the year ended 30 September 2007.
Divisional performance showed good
growth primarily in Personal and New
Zealand Businesses, with more subdued
growth in Institutional.
Further review of the Group during the
fi nancial year and the results of those
operations, including an assessment of the
fi nancial position and business strategies
of the Group, is contained in the Chairman’s
Report, the Overview of Operations and the
Overview of Business Divisions on pages
3 to 7 of this Annual Report.
EVENTS SINCE THE END OF THE
FINANCIAL YEAR
There were no signifi cant events from 30
September 2007 to the date of this report.
FUTURE DEVELOPMENTS
Details of likely developments in the
operations of the Group and its prospects
in future fi nancial years are contained in
this Annual Report under the Chairman’s
Report. In the opinion of the directors,
disclosure of any further information
would be likely to result in unreasonable
prejudice to the Group.
ENVIRONMENTAL REGULATION
ANZ recognises our obligation to our
stakeholders – customers, shareholders,
staff and the community – to operate in
a way that advances sustainability and
mitigates our environmental impact. Our
commitment to improve our environmental
performance is integral to our “making
a sustainable contribution to society”.
We acknowledge that we have an impact
on the environment:
directly through the conduct of our
business operations; and
indirectly through the products and
services we provide to our customers.
As such, ANZ has established an
Environment charter, strategy and internal
responsibilities for reducing the impact of
our operations and business activities on
the environment.
The operations of the Group are not
subject to any particular and signifi cant
environmental regulation under a law of
the Commonwealth or of a State or Territory.
However, the operations of the Group may
become subject to environmental regulation
when enforcing securities over land. ANZ
has developed policies to manage such
environmental risks. Having made due
enquiry, to the best of our knowledge no
member of the Group has incurred any
material environmental liability during
the year.
DIRECTORS’ QUALIFICATIONS,
EXPERIENCE AND SPECIAL
RESPONSIBILITIES
At 1 October 2006, the Board comprised
7 independent non-executive directors and 1
executive director, the Chief Executive Offi cer.
Mr David Gonski retired on 30 June 2007 and
Mr John McFarlane’s term as Chief Executive
Offi cer and Managing Director ended on 30
September 2007. Mr Ian Macfarlane was
appointed to the Board as an independent
non-executive director on 16 February 2007
and Mr Michael Smith was appointed as Chief
Executive Offi cer and Managing Director on 1
October 2007.
At the date of this report, the Board
comprises 7 non-executive directors
who have a diversity of business and
community experience and 1 executive
director, the Chief Executive Offi cer, who
has extensive banking experience. The
names of directors and details of their
skills, qualifi cations, experience and when
they were appointed to the Board are
contained on pages 37 to 39 of this
Annual Report.
Details of the number of Board and
Board Committee meetings held during
the year, directors’ attendance at those
meetings, and details of directors’ special
responsibilities are shown on pages 43 to
45 of this Annual Report.
Details of directorships of other listed
companies held by each current director
in the 3 years prior to the end of the 2007
fi nancial year are listed on pages 37 to 39.
COMPANY SECRETARIES’
QUALIFICATIONS AND EXPERIENCE
Currently there are three people appointed
as Company Secretaries of the Company.
Details of their roles are contained on page
42. Their qualifi cations are as follows:
Bob Santamaria, BCom, LLB (Hons),
Group General Counsel and Company
Secretary.
Mr Santamaria joined ANZ on 27 August
2007. He had previously been a Partner at
the law fi rm Allens Arthur Robinson since
1987. He was Executive Partner Corporate,
responsible for client liaison with some of
Allens Arthur Robinson’s largest corporate
clients. Mr Santamaria brings to ANZ a
strong background in leadership of a
major law fi rm, together with signifi cant
experience in securities, mergers and
acquisitions. He holds a Bachelor of
Commerce and Bachelor of Laws (Honours)
from the University of Melbourne. He is
also an Affi liate of Chartered Secretaries
Australia.
Peter Marriott, BEc (Hons),
Chief Financial Offi cer and Company
Secretary.
Mr Marriott has been involved in the fi nance
industry for more than 25 years. Mr Marriott
joined ANZ in 1993. Prior to his career
at ANZ, Mr Marriott was a Partner in the
Melbourne offi ce of the then KPMG Peat
Marwick. He is a Fellow of a number
of professional organisations including
the Institute of Chartered Accountants
in Australia and the Australian Institute
of Banking and Finance. He is also a
Member of the Australian Institute of
Company Directors.
John Priestley, BEc, LLB, FCIS,
Company Secretary.
Mr Priestley, a qualifi ed lawyer, joined ANZ
in 2004. Prior to ANZ, he had a long career
with Mayne Group and held positions
which included responsibility for the
legal, company secretarial, compliance
and insurance functions. He is a Fellow of
Chartered Secretaries Australia and also a
member of Chartered Secretaries Australia’s
National Legislation Review Committee.
NON-AUDIT SERVICES
The Company’s Relationship with External
Auditor Policy (which incorporates
requirements of the Corporations Act 2001)
states that the external auditor may not
provide services that are perceived to be
in confl ict with the role of the auditor.
These include consulting advice and
sub-contracting of operational activities
normally undertaken by management,
and engagements where the auditor may
ultimately be required to express an opinion
on its own work.
Specifi cally the policy:
limits the non-audit services that may
be provided
requires that audit and permitted
non-audit services must be pre-approved
by the Audit Committee, or pre-approved by
the Chairman of the Audit Committee and
notifi ed to the Audit Committee
requires the external auditor to not
commence an audit engagement (or
permitted non-audit service) for the Group,
until the Group has confi rmed that the
engagement has been pre-approved.
The Audit Committee has reviewed a
summary of non-audit services provided
by the external auditor for 2007, and has
confi rmed that the provision of non-audit
services for 2007 is consistent with the
Company’s Relationship with External
Auditor Policy and compatible with the
general standard of independence for
auditors imposed by the Corporations Act
2001. This has been formally advised to
the Board of Directors.
The external auditor has confi rmed to the
Audit Committee that they have complied
with the Company’s Relationship with
External Auditor Policy on the provision of
non-audit services by the external auditor
for 2007.
The non-audit services supplied to the Group
by the Group’s external auditor, KPMG, and
the amount paid or payable by the Group
by type of non-audit service during the year
ended 30 September 2007 are as follows:
Non-audit service
Sustainability review
Compliance testing for
securitisation transaction
Training courses
Total
Amount paid/
payable $’000s
2007
–
66
44
2006
203
—
44
110
247
Directors’ Report 11
DIRECTORS’ REPORT CONTINUED
For the reasons set out above, the directors
are satisfied that the provision of non-audit
services by the external auditor during
the year ended 30 September 2007 is
compatible with the general standard of
independence for auditors imposed by
the Corporations Act 2001.
LEAD AUDITOR’S INDEPENDENCE
DECLARATION
The lead auditor’s independence declaration
given under section 307C of the
Corporations Act 2001 is set out on page 35
and forms part of this Directors’ Report for
the year ended 30 September 2007.
DIRECTORS AND OFFICERS WHO
WERE PREVIOUSLY PARTNERS OF
THE AUDITOR
The following persons were during the
fi nancial year and are currently directors
or offi cers of the Group and were partners
of KPMG at a time when KPMG was the
auditor of Australia and New Zealand
Banking Group Limited:
Ms Margaret Jackson, Non-executive
director (left KPMG in June 1992)
Mr Peter Marriott, Chief Financial Offi cer
(left KPMG in January 1993).
CHIEF EXECUTIVE OFFICER/CHIEF
FINANCIAL OFFICER DECLARATION
The Chief Executive Offi cer and the Chief
Financial Offi cer have given the declarations
to the Board concerning the Group’s
fi nancial statements required under section
295A(2) of the Corporations Act 2001 and
recommendations 4.1 and 7.2 of the ASX
Corporate Governance Council’s Principles
of Good Corporate Governance and Best
Practice Recommendations.
DIRECTORS’ AND OFFICERS’
INDEMNITY
The Company’s Constitution (Rule 11.1)
permits the Company to indemnify each
offi cer or employee of the Company against
liabilities (so far as may be permitted under
applicable law) incurred in the execution
and discharge of the offi cer’s or employee’s
duties. It is the Company’s policy that its
employees should not incur any liability for
acting in the course of their employment
legally, within the policies of the Company
and provided they act in good faith.
Under the policy, the Company will indemnify
employees against any liability they incur
12 ANZ Annual Report 2007
in carrying out their role. The indemnity
protects employees and former employees
who incur a liability when acting as an
employee, trustee or offi cer of the Company,
or a subsidiary of the Company at the
request of the Company.
The indemnity is subject to applicable law
and will not apply in respect of any liability
arising from:
a claim by the Company;
a claim by a related body corporate;
a lack of good faith;
illegal or dishonest conduct; or
non-compliance with the Company’s
policies or discretions.
The Company has entered into Indemnity
Deeds with each of its directors, with certain
secretaries of the Company, and with
certain employees and other individuals
who act as directors or offi cers of related
body corporates or of another company.
To the extent permitted by law, the
Company indemnifi es the individual for
all liabilities, including costs, damages
and expenses incurred in their capacity
as an offi cer of the company to which they
have been appointed.
The Company has indemnifi ed the
trustees and former trustees of certain
of the Company’s superannuation funds
and directors, former directors, offi cers
and former offi cers of trustees of various
Company sponsored superannuation
schemes in Australia. Under the relevant
Deeds of Indemnity, the Company must
indemnify each indemnifi ed person if the
assets of the relevant fund are insuffi cient
to cover any loss, damage, liability or
cost incurred by the indemnifi ed person
in connection with the fund, being loss,
damage, liability or costs for which the
indemnifi ed person would have been
entitled to be indemnifi ed out of the assets
of the fund in accordance with the trust
deed and the Superannuation Industry
(Supervision) Act 1993. This indemnity
survives the termination of the fund.
Some of the indemnifi ed persons are
or were directors or executive offi cers
of the Company.
The Company has also indemnifi ed certain
employees of the Company, being trustees
and administrators of a trust, from and
against any loss, damage, liability, tax,
penalty, expense or claim of any kind or
nature arising out of or in connection with
the creation, operation or dissolution of
the trust or any act or omission performed
or omitted by them in good faith and in a
manner that they reasonably believed to be
within the scope of the authority conferred
by the trust.
Except for the above, neither the Company
nor any related body corporate of the
Company has indemnifi ed or made an
agreement to indemnify any person who
is or has been an offi cer or auditor of the
Company or of a related body corporate.
During the fi nancial year, and again since
the end of the fi nancial year, the Company
has paid a premium for an insurance policy
for the benefi t of the directors, secretaries,
and senior managers of the Company,
and directors, secretaries and senior
managers of related bodies corporate of
the Company. In accordance with common
commercial practice, the insurance policy
prohibits disclosure of the nature of the
liability insured against and the amount
of the premium.
ROUNDING OF AMOUNTS
The Company is a company of the kind
referred to in Australian Securities and
Investments Commission class order 98/100
(as amended) pursuant to section 341(1)
of the Corporations Act 2001.
As a result, amounts in this Directors’ Report
and the accompanying fi nancial statements
have been rounded to the nearest million
dollars except where otherwise indicated.
EXECUTIVE OFFICERS’ AND
EMPLOYEE SHARE OPTIONS
Details of share options issued over shares
granted to the Chief Executive Offi cer and
disclosed executives, and on issue as at
the date of this report are detailed in the
Remuneration Report.
Details of share options issued over shares
granted to employees and on issue as at the
date of this report are detailed in note 47 of
the 2007 Financial Report.
No person entitled to exercise any option
has or had, by virtue of an option, a right to
participate in any share issue of any other
body corporate. The names of all persons
who currently hold options are entered in
the register kept by the Company pursuant
to section 170 of the Corporations Act 2001.
This register may be inspected free of charge.
This page has been left blank intentionally.
Directors’ Report 13
REMUNERATION REPORT
Introduction
This Remuneration Report details ANZ’s remuneration policies which
apply to key management personnel (KMP) and ANZ executives
classifi ed as “secretaries or senior managers” as defi ned in the
Corporations Act. The report identifi es the link between remuneration
and ANZ’s performance, and individual outcomes relating to
remuneration and equity for ANZ’s directors and executives (as
required by AASB 124 and the Corporations Act).
This report covers the KMP of the Company and the Group (which
includes the directors of the parent) and the fi ve highest paid
executives in the Company and the Group. KMP were selected
according to the following criteria:
All directors of the ANZ Board: Based on responsibility for
providing direction in relation to the management of ANZ. The Board
Charter clearly sets out the Board’s purpose, powers, and specifi c
responsibilities.
Section A: Remuneration Tables
TABLE 1: DIRECTOR REMUNERATION
For the year ended 30 September 2007,
remuneration details of the KMP identifi ed
as directors of the Company, are set out below:
Current Non-Executive Directors
C Goode (Appointed director July 1991; appointed
Chairman August 1995)
Independent Non Executive Director, Chairman
G Clark (Appointed February 2004)
Independent Non Executive Director
J Ellis (Appointed October 1995)
Independent Non Executive Director
M Jackson (Appointed March 1994)
Independent Non Executive Director
I Macfarlane (Appointed February 2007)
Independent Non Executive Director
D Meiklejohn (Appointed October 2004)
Independent Non Executive Director
J Morschel (Appointed October 2004)
Independent Non Executive Director
Former Non-Executive Directors
D Gonski (Appointed February 2002; retired 30 June 2007)7
Independent Non Executive Director
R Deane (Appointed September 1994; retired 30 June 2006)7
Independent Non Executive Director
Total of all Non-Executive Directors
Executive Director
J McFarlane (Appointed October 1997;
retired 30 September 2007)8,9
Chief Executive Offi cer
Total of all Directors
Financial
Year
Cash
salary/fees
$
Value of shares
acquired in
lieu of cash
salary/fees1
$
Associated
entity Board
fees (cash)
$
2007
2006
2007
2006
2007
2006
2007
2006
2007
2007
2006
2007
2006
2007
2006
2006
2007
2006
2007
2006
2007
2006
93,314
78,724
144,000
137,250
157,368
144,426
192,000
183,000
89,556
192,000
183,000
156,797
149,526
135,581
122,521
137,250
1,160,616
1,135,697
689,566
621,118
47,962
45,738
34,624
38,551
–
–
29,852
–
–
47,962
45,738
8,399
60,446
–
858,365
811,591
528,587
50
1,689,203
1,135,747
1,553,377
2,071,192
2,411,742
2,882,783
–
–
–
–
–
–
–
–
–
–
–
122,14110
–
122,141
–
–
–
122,141
SHORT-TERM
EMPLOYEE BENEFITS
Committee
fees (cash)
$
–
–
36,400
34,808
42,000
65,500
69,000
65,500
27,062
77,400
66,866
69,000
40,000
36,750
46,775
21,025
357,612
340,474
–
–
357,612
340,474
COMMENTARY ON CHANGES BETWEEN 2006 & 2007
Non-Executive Directors
There is a slight decrease in 2007 Total Remuneration for Non-
Executive Directors (NEDs) compared with 2006. This can be primarily
attributed to the retirement of R Deane in June 2006, whose Total
Remuneration was greater than the typical NED due to the associated
entity Board Fees. Director fees were increased (effective 1 October
2006) by 5% and the Chairman’s fee by 12%. Refer to section B1 for
more details.
Executive Director (Chief Executive Offi cer)
The variation in the CEO’s remuneration between 2006 and 2007
is primarily attributed to his contractual and statutory payments
(relating to his benefi ts on retirement), and the payment for the
relinquishment of his performance shares. Further details can be
found in section D1.
14 ANZ Annual Report 2007
Executives: Based on direct reports of the CEO with key responsibility
for the strategic direction and management of a major revenue-
generating division or who control material revenue and expenses.
The Board People Committee has responsibility for director and
executive remuneration and executive succession, and for making
recommendations to the Board on remuneration and succession
matters related to the CEO (refer to page 44 of the Corporate
Governance Report for more details about the Committee’s role,
and anz.com > about ANZ > Corporate Governance > ANZ People
Committee Charter, which details the terms of reference under which
the Committee operates). On a number of occasions throughout the
year, both the Board People Committee and management received
external advice on matters relating to remuneration. The following
advisors were used: Blake Dawson Waldron, Ernst & Young, Hay
Group, Greenwoods & Freehills, and PricewaterhouseCoopers.
POST-
EMPLOYMENT
Short term
incentive1,2
$
Other
$
Total
$
Super
contributions3
$
LONG TERM
EMPLOYEE
BENEFITS
Long service
leave accrued
during the year
$
TERMINATION
BENEFITS4
SHARE-BASED
PAYMENTS5
Total
amortisation
value of
LTI options
$
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
–
–
–
–
–
–
–
–
–
1,14011
–
1,60011
1,140
1,600
782,880
699,842
228,362
217,796
233,992
248,477
261,000
248,500
146,470
269,400
249,866
273,759
235,264
181,870
229,742
282,016
2,377,733
2,411,503
2,090,000
2,420,005
2,090,000
2,420,005
1,124,50711,12,13,14
219,37012,13
1,125,647
220,970
5,296,471
4,710,617
7,674,204
7,122,120
12,797
12,276
12,797
12,276
12,797
12,276
12,797
12,276
8,854
12,797
12,276
–
–
9,515
12,276
9,104
82,354
82,760
417,975
428,700
500,329
511,460
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Total
Remuneration6
$
795,677
712,118
241,159
230,072
246,789
260,753
273,797
260,776
155,324
282,197
262,142
273,759
235,264
191,385
242,018
291,120
2,460,087
2,494,263
–
59,376
–
59,376
915,261
–
915,261
–
123,411
756,311
123,411
756,311
6,753,118
5,955,00415
9,213,205
8,449,267
1 Shares acquired through participation in Directors’ Share Plan. Value reflects the price at
which the shares were purchased on-market (amortisation not applicable). For the CEO, this
also included his 2006 cash incentive which he elected to receive 100% as restricted shares.
Share purchases for NEDs were made on 30 October 2006, 7 May 2007 and 31 August 2007
for the 2007 year and on 31 October 2005 and 1 May 2006 for the 2006 year.
2 100% of the CEO’s cash incentive vested during the financial year that performance relates to.
The possible range of short-term incentive (STI) payments is between 0% and 150% of Fixed
Remuneration. The 2007 STI awarded as a percentage of Fixed Remuneration was 95%.
Includes $300,000 additional employer contribution, agreed as part of the CEO’s contract
extension announced 26 October 2004 (refer to section D2). For J Morschel, superannuation
guarantee contributions paid in respect of each other NED, are paid to him as cash in lieu.
4 Comprises $550,000 for the 3 month unexpired portion of his employment contract and a
3
5
$365,261 pro-rata long service leave entitlement.
In accordance with the requirements of AASB 2 Share-based Payment, the amortisation value
includes a proportion of the fair value (taking into account market-related vesting conditions)
of all equity that had not yet fully vested as at the commencement of the financial year. It is
assumed that the options will vest at the commencement of their exercise period (i.e. the
shortest possible vesting period is assumed). The fair value is determined at grant date and
is allocated on a straight-line basis over the expected vesting period. The amount included as
remuneration is not related to nor indicative of the benefit (if any) that may ultimately be realised
should the options become exercisable.
covered by the insurance policy as, based on all available information, the directors believe that
no reasonable basis for such allocation exists.
7 The following benefits were paid under the ANZ Directors’ Retirement Scheme to the following
former directors: R Deane (retired 30 June 2006) – $723,107; D Gonski (retired 30 June 2007)
– $340,676 based on sale of shares relating to Retirement Scheme.
8 Amortisation value of options as a percentage of total remuneration (as shown in the Total
column above) was 2% in 2007 (13% in 2006).
9 J McFarlane, ANZ’s only executive director, elected to use almost all of his cash salary and 100%
of his 2006 incentive to purchase on market restricted shares under the Directors’ Share Plan.
The purchase dates were 30 October 2006, 29 January 2007 and 7 May 2007 for the 2007 year
and 31 October 2005, 30 January 2006, 1 May 2006 and 7 August 2006 for the 2006 year.
10 Amounts paid in NZD are converted to AUD at an average rate for the 2006 year of 1.1433.
11 Other for R Deane and D Gonski relates to a non-monetary benefit received on retirement as a gift
from the Board. The gift for J McFarlane was $7,000.
12 Includes reimbursement to J McFarlane of $93,461 in 2007 (2006: $202,837) for the additional
tax liability on his UK Pension Plan holdings, arising as a result of Australian Foreign Investment
Fund rules, and J McFarlane’s continuing Australian residency (in accordance with the contractual
arrangements detailed in section D1.1).
13 Includes $24,046 professional services rendered in respect of taxation matters in 2007 ($16,533
in 2006).
14 Includes a $1million payment for the relinquishment of the CEO’s Performance Shares. Refer to
6 Amounts disclosed for remuneration of directors exclude insurance premiums paid by the
section D.1.3 for further details.
consolidated entity in respect of directors’ and officers’ liability insurance contracts which cover
current and former directors and officers, including senior managers of the entity and directors,
senior managers and secretaries of the controlled entities. The total premium, which cannot be
disclosed because of confidentiality requirements, has not been allocated to the individuals
15 Due to ANZ acquiring the CEO’s Performance Shares, the CEO’s 2006 Total Remuneration is
$1,310,649 (i.e. amortised amount) less than what was disclosed in 2006. Refer to section D1.3
for further details.
Remuneration Report 15
Section A: Remuneration Tables (continued)
TABLE 2: EXECUTIVE KEY MANAGEMENT PERSONNEL
REMUNERATION AND TOP 5 REMUNERATED
For the year ended 30 September 2007, remuneration
details of the KMP identifi ed as executives of the
Group, (as required under AASB 124), and the fi ve
most highly remunerated executives in the Company
and the Group (as required under the Corporations
Act), other than the Chief Executive Offi cer, are set
out below:
Current Executives
R Edgar
Senior Managing Director
B Hartzer
Group Managing Director, Personal
G Hodges9
Chief Executive, ANZ National Bank
Limited (New Zealand)
P Hodgson10
Group Managing Director, Institutional
P Marriott
Chief Financial Offi cer
A Thursby11
Group Managing Director, Asia Pacifi c
Former Key Management Personnel
S Targett12
Former Group Managing
Director, Institutional
E Funke Kupper
(resigned effective 1 February 2006)13
Group Managing Director, Asia Pacifi c
Total of all Executive KMPs
Total of all Disclosed Executives
SHORT-TERM
EMPLOYEE BENEFITS
POST-
EMPLOYMENT
Total cash
incentive2,3
$
Total
$
Super
contributions
$
Financial
Year
2007
2006
2007
2006
2007
2006
2007
2006
2007
2006
2007
Cash
salary/fees
$
795,275
787,068
931,232
883,626
900,000
841,866
808,456
701,393
889,425
842,618
70,000
Non
monetary
benefi ts1
$
9,620
14,788
61,963
59,640
56,600
71,920
9,620
6,313
9,620
6,313
770
1,060,000
850,000
1,315,000
1,300,000
900,000
895,000
850,000
825,000
1,090,000
1,080,000
–
1,864,895
1,651,856
2,308,195
2,243,266
1,856,600
1,808,786
1,668,076
1,532,706
1,989,045
1,928,931
70,770
2007
2006
983,675
936,600
–
6,313
550,000
1,000,000
1,533,675
1,942,913
2006
2007
2006
2007
2006
234,483
5,378,063
4,526,261
5,378,063
5,227,654
2,110
148,193
161,084
148,193
167,397
–
236,593
5,765,000
5,125,000
5,765,000
5,950,000
11,291,256
9,812,345
11,291,256
11,345,051
49,725
49,725
61,425
58,500
–
7,459
50,544
43,875
55,575
52,650
–
61,425
58,500
14,663
278,694
241,497
278,694
285,372
COMMENTARY ON CHANGES BETWEEN 2006 & 2007
Consistent with previous years, a market review of 2006/2007
remuneration was undertaken. Overall, it was found that reward
levels were generally market competitive and therefore only Fixed
Remuneration was adjusted in line with market movements. From
an individual perspective, the 14% increase in Peter Hodgson’s Total
Remuneration refl ects the increased responsibilities associated with
the change in his role from Chief Risk Offi cer to Group Managing
Director Institutional.
Other year-on-year variations include:
i) E Funke Kupper only disclosed in 2006 based on the four month
period he was classifi ed as a KMP; not included in 2007 totals.
ii) Inclusion of A Thursby in 2007 totals for the 1 month period he
was a KMP (i.e. commenced 3 September 2007).
16 ANZ Annual Report 2007
LONG-TERM
EMPLOYEE BENEFITS
SHARE-BASED
PAYMENTS5
Retirement
benefi t accrued
during year4
$
Long service
leave accrued
during the year
$
Total
amortisation value
of STI shares
$
Total
amortisation value
of LTI shares
$
Total
amortisation value
of LTI options
$
Total
amortisation value
of performance
rights
$
Total amortisation
of other
equity allocations6
$
Total
Remuneration7,8
$
3,297
–
–
–
610
–
–
–
–
–
–
–
–
–
3,907
–
3,907
–
13,278
37,607
21,938
40,575
29,940
48,447
52,121
11,716
25,533
34,830
–
18,283
20,020
–
161,093
181,479
161,093
193,195
31,928
108,692
30,613
94,597
23,569
82,179
38,553
130,541
39,638
127,015
–
–
–
273,389
503,179
93,063
175,183
79,066
150,066
100,838
113,241
97,621
206,816
–
79,418
181,819
91,008
174,542
77,386
149,602
17,809
30,377
95,807
206,831
–
419,586
202,340
513,944
216,792
466,213
202,340
386,289
173,434
474,537
209,566
–
–
–
–
–
–
–
–
–
–
–
24,763
2,735,516
2,735,218
3,120,186
3,003,455
2,533,384
2,448,879
2,314,230
2,035,890
2,777,756
2,766,639
95,533
44,857
44,857
43,215
43,215
482,864
216,795
1,003,152
1,166,859
3,187,471
3,493,159
104,930
164,301
517,413
164,301
647,954
146,895
688,834
1,226,996
688,834
1,340,237
147,119
404,643
903,128
404,643
933,505
152,622
2,743,433
1,200,455
2,743,433
1,373,889
–
802,822
1,027,915
1,166,859
1,027,915
1,166,859
16,764,076
15,250,172
16,764,076
17,286,062
1 Non-monetary benefits consist of salary packaged items such as car parking, novated
lease motor vehicles and G Hodges’ non-monetary benefits include housing and airfares.
2 Total cash incentive relates to the full incentive amount for the financial year that the
performance relates to. 100% of the cash incentive awarded in both 2006 and 2007 vested
to the person in the applicable financial year.
3 The possible range of short-term incentive (STI) payments is between 0% and 150% of
Fixed Remuneration. The actual incentive received is dependant on ANZ Group, division and
individual performance (refer to C4.1 for more details). The 2007 STI awarded as a percentage
of Fixed Remuneration was: B Hartzer 125%; R Edgar 125%; G Hodges 100%; P Hodgson
100%; P Marriott 115%; S Targett 76%.
5
4 Accrual relates to Retirement Allowance. As a result of being employed with ANZ prior to
November 1992, R Edgar and G Hodges are eligible to receive a Retirement Allowance on
retirement, retrenchment, death, or resignation for illness, incapacity or domestic reasons. The
Retirement Allowance is calculated as follows: 3 months of notional salary (which is 65% of
Fixed Remuneration) plus an additional 3% of notional salary for each year of full-time service
above 10 years, less the total accrual value of long service leave (including taken and untaken).
In accordance with the requirements of AASB 2, the amortisation value includes a proportion
of the fair value (taking into account market-related vesting conditions) of all equity that
had not yet fully vested as at the commencement of the financial year. It is assumed that the
options / performance rights will vest at the commencement of their exercise period (i.e. the
shortest possible vesting period is assumed) and that deferred shares will vest after 3 years.
The fair value is determined at grant date and is allocated on a straight-line basis over the
3-year vesting period. The amount included as remuneration is not related to nor indicative
of the benefit (if any) that may ultimately be realised should the options / performance rights
become exercisable. For deferred shares, the fair value is the volume weighted average price
of the Company’s shares traded on the ASX on the day the shares were granted.
6 Amortisation of other equity allocations for S Targett relates to the grant of deferred shares
beginning on 11 May 2004 (four tranches to the value of $700,000 each issued at 6 month
intervals in May and November in 2004 and 2005) and hurdled A options (refer to section
F10.1 for performance hurdle details) to compensate S Targett for the loss of access to equity
as a result of his resignation from his previous employer.
Amortisation of other equity allocations for A Thursby relates to the allocation of $1m of 3 year
deferred shares to compensate for equity foregone from his previous employer.
7 Remuneration amounts disclosed exclude insurance premiums paid by the consolidated entity
in respect of directors’ and officers’ liability insurance contracts which cover current and former
directors and officers, including senior managers of the entity and directors, senior managers
and secretaries of the controlled entities. The total premium, which cannot be disclosed
because of confidentiality requirements, has not been allocated to the individuals covered
by the insurance policy as, based on all available information, the directors believe that no
reasonable basis for such allocation exists.
8 Amortisation value of options and rights as a percentage of total remuneration was: B Hartzer
19% (2006: 13%); R Edgar 18% (2006: 14%); G Hodges 21% (2006: 14%); P Hodgson 17%
(2006: 10%); P Marriott 21% (2006: 15%); S Targett 21% (2006: 15%).
9 Prior to November 2005, G Hodges was the Group Managing Director, Corporate. Between
1 November 2005 and 31 December 2005, he was the Chief Executive Designate
(New Zealand), with his position changing to Chief Executive, ANZ National Bank Limited,
New Zealand effective 1 January 2006.
10 P Hodgson commenced in the position of Group Managing Director, Institutional on 8 June
2007. Prior to this, P Hodgson was the Chief Risk Officer for the period 1 December 2004 to
7 June 2007.
11 A Thursby commenced employment with ANZ in the position of Group Managing Director,
Asia Pacific on 3 September 2007. As A Thursby is a holder of a long stay visa, his Fixed
Remuneration does not include the 9% Superannuation Guarantee contribution, however
he is able to elect voluntary superannuation contributions.
12 S Targett ceased as the Group Managing Director, Institutional 7 June 2007, and his
employment with ANZ will terminate on 7 June 2008.
13 E Funke Kupper received a final payment on resignation of $165,554 relating to his accrued
annual leave and long service leave. With the inclusion of the final payment his total
remuneration for 2006 would be $968,376.
Remuneration Report 17
Section B. Non-executive Directors’ Remuneration
B1. NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY
Non-executive Directors’ (NEDs) fees are reviewed annually by the Board People Committee and are determined by the Board of Directors based
on advice from external advisors and with reference to fees paid to other NEDs of comparable companies. The total of NEDs’ fees (including
superannuation contributions) are within the maximum annual aggregate limit agreed to by shareholders at the Annual General Meeting held on
16 December 2005 ($3 million, excluding superannuation benefi t payouts and retirement benefi ts), and are set at levels that fairly represent the
responsibilities of, and the time spent by the NEDs on Group matters.
NEDs receive a fee for being a director of the Board, and additional fees for either chairing or being a member of a committee. Work on special
committees may attract additional fees of an amount considered appropriate in the circumstances. An additional fee is also paid if a NED serves
as a director on a subsidiary board. NEDs do not receive any performance / incentive payments and are not eligible to participate in any of the
Group’s incentive arrangements.
Effective 1 October 2006, NED fees and Committee membership fees were increased by 5% and the Chairman’s fee by 12%. These fee increases
were based on an independent assessment of the competitiveness of ANZ’s NED remuneration in comparison to other major companies and
consideration of the relativity between the NED and Chairman fees. The NED fees are also refl ective of their increased accountability and time
commitment, largely driven by the increased corporate governance, regulatory requirements and complexities of operating a global business.
The fee structure is disclosed in Table 3 below:
TABLE 3
Role
Chairman
Non-Executive Director
Committee Chair (Risk, Audit & People)
Committee Chair (Governance, Technology)
Committee Member (Risk, Audit & People)
Committee Member (Governance, Technology)
2006/07 Fees
$
2005/06 Fees
$
783,000
192,000
48,000
28,000
21,000
8,400
700,000
183,000
45,500
26,775
20,000
8,033
For details of remuneration paid to directors for the year ended 30 September 2007, refer to Table 1 in section A of this Remuneration Report.
NED SHAREHOLDING GUIDELINES
NEDs have agreed to accumulate ANZ shares, over a fi ve-year period, to the value of 100% (200% for Chairman) of the base annual NED Fee
(i.e. $192,000 for 2006/2007) and to maintain this shareholding while a director of ANZ. NEDs have agreed to apply up to 25% of their base
fee annually through the Directors’ Share Plan or other means, towards the purchase of ANZ shares in order to achieve / maintain the desired
holding level. This guideline was approved by the Board in September 2005.
B2. NON-EXECUTIVE DIRECTORS’ RETIREMENT POLICY
The NED retirement scheme was closed effective 30 September 2005. Accrued entitlements relating to the ANZ Directors’ Retirement Scheme
were fi xed at 30 September 2005 and NEDs had the option to convert these entitlements into ANZ shares. Such entitlements, either in ANZ
shares or cash, will be carried forward and transferred to the NED when they retire (including interest accrued at the 30 day bank bill rate for
cash entitlements).
The accrued entitlements fi xed under the ANZ Directors’ Retirement Scheme as at 30 September 2005 are as follows: C Goode – $1,312,539;
G Clark – $83,197; J Ellis – $523,039; M Jackson – $487,022; D Meiklejohn – $64,781; J Morschel – $60,459.
B3. DIRECTORS’ SHARE PLAN
The Directors’ Share Plan (the plan) is available to both non-executive and executive directors. Directors may elect to forego remuneration
to which they may have otherwise become entitled and receive shares to the value of the remuneration foregone, and therefore the shares
acquired are not subject to performance conditions. Participation in the plan is voluntary. Shares acquired under the plan are purchased
on market and are subject to a minimum 1 year restriction, during which the shares cannot be traded. In the event of serious misconduct,
all shares held in trust will be forfeited. All costs associated with the plan are met by the Company.
18 ANZ Annual Report 2007
Section C. Executive
Remuneration Structure
C1. REMUNERATION GUIDING PRINCIPLES
ANZ’s reward policy, approved by the Board,
shapes the Group’s remuneration strategies
and initiatives.
The following principles underpin ANZ’s
reward policy:
1. Focus on creating and enhancing value for
all ANZ stakeholders;
2. Differentiation of individual rewards
commensurate with contribution to
overall results and according to individual
accountability, performance and potential;
3. Signifi cant emphasis on “at risk”
components of total rewards; and
4. The provision of a competitive reward
proposition to successfully attract, motivate
and retain the highest quality individuals
required to deliver ANZ’s business and
growth strategies.
SHAREHOLDING GUIDELINES
Direct reports to the CEO are expected
to accumulate ANZ shares over a fi ve
year period, to the value of 200% of their
Fixed Remuneration and to maintain this
shareholding while an executive of ANZ. The
next most senior executives are expected to
accumulate ANZ shares to the value of 100%
of their Fixed Remuneration and to maintain
this shareholding while an executive of ANZ.
This guideline was introduced in June 2005.
New executives are expected to accumulate
the required holdings within fi ve years of
commencement.
C2. REMUNERATION STRUCTURE
OVERVIEW
The executive remuneration program and
structure detailed in Section C refl ects
the remuneration of senior managers and
the company secretary (as defi ned in the
Corporations Act) and KMP (excluding the
CEO and NEDs) as defi ned by AASB 124. The
program aims to differentiate remuneration
on the basis of achievement against group,
business unit and individual performance
targets which are aligned to sustained
growth in shareholder value using a
balanced scorecard approach. The executive
remuneration program also complies with
the existing and revised ASX Corporate
C4. VARIABLE REMUNERATION
Variable remuneration forms a signifi cant
part of executives’ potential remuneration,
providing an at-risk component that is
designed to drive performance in both the
short-term (annually) and in the medium and
long-term (3 years plus). The opportunities
available to executives under ANZ’s variable
remuneration programs are designed to
reinforce the achievement of short and
long term performance targets and to
ensure remuneration competitiveness in
the relevant markets in which they operate.
Executives participate in the STI plan
detailed in section C4.1 and the LTI plan
detailed in section C4.2. As specifi ed in
the ANZ Securities Trading Policy, equity
allocated under ANZ incentive schemes
must remain at risk until fully vested (in the
case of Deferred Shares) or exercisable (in
the case of Options or Performance Rights).
As such, it is a condition of grant that no
schemes are entered into that specifi cally
protect the unvested value of Shares,
Options and Performance Rights allocated.
Doing so would constitute a breach of the
grant conditions and would result in the
forfeiture of the relevant Shares or Options.
To monitor adherence to this policy, ANZ’s
senior executives are required to sign an
annual declaration stating that they have not
entered into (and are not currently involved
in) any schemes to protect the value of their
interests in any unvested ANZ securities.
Based on the 2007 declarations, we can
advise that all senior executives are fully
compliant with this policy.
Governance Principles. The program
comprises the following components which
are benchmarked against the fi nance market
median:
Fixed Remuneration component: salary,
non-monetary benefi ts and superannuation
contributions (Refer to C3).
Variable or “at risk” component (Refer to C4):
– Short-Term Incentive (STI); and
– Long-Term Incentive (LTI).
Depending on the competitive market,
the proportion of remuneration “at risk”
generally increases for the most senior or
complex roles, or for those roles where there
is strong market pressure to provide greater
levels of remuneration. Figure 1 below
shows the relative mix of Fixed, STI and LTI
at target payment levels. The plan design
allows for the opportunity to earn upper
quartile total remuneration for signifi cant
out performance, and signifi cantly reduced
payment for underperformance. In this
way the remuneration structure is heavily
weighted towards “reward for performance”.
C3. FIXED REMUNERATION
Fixed Remuneration comprises cash salary,
a superannuation contribution, and the
remainder as nominated benefi ts. The
types of benefi ts that can be packaged
include novated car leases, additional
superannuation contributions, car parking,
child care, laptops and contributions towards
the Employee Share Save Scheme. Fixed
Remuneration is reviewed annually based on
individual performance and market data.
Fixed Remuneration at ANZ operates with
a midpoint targeted to the local market
median being paid in the fi nance industry
in the relevant global markets in which ANZ
operates, and a range around this midpoint.
Figure 1: Target reward mix
36%
36%
Disclosed Executives1
Large Senior Executive Roles2
41%
27%
1 2007 reward mix for disclosed executives (current KMP only) pertains to R Edgar,
26%
61%
28%
32%
13%
B Hartzer, G Hodges, P Hodgson, P Marriott and A Thursby.
2 Large senior executive roles are those we classify as being most reflective of “the
company secretary and senior managers” (excluding disclosed executives) as defined
in the Corporations Act.
Fixed Remuneration %
STI %
LTI %
Remuneration Report 19
C4.1 Short-Term Incentives
ANZ’s Short-term incentive (STI) approach
supports our strategic objectives by
providing rewards that are signifi cantly
differentiated on the basis of achievement
against performance targets. All STI plans are
reviewed and approved by the Board People
Committee.
Determination of STI Levels
The size of the overall pool available is
based on performance against a cash
earnings per share (EPS) growth target and
a profi t before provisions (PBP) growth
target. This pool is then spread between
the Divisions based on their performance
against a balanced scorecard of fi nancial and
qualitative measures, and then distributed to
individuals based on relative performance.
The Board People Committee is required
to approve the STI Group and Division
outcomes and the distribution of the STI pool
amongst the Divisions. Each executive has
a target STI which is determined according
to job size and market relativities. The size
of the actual STI payment made at the end
of each fi nancial year to individuals may be
at, above or below the target and this will be
determined according to ANZ Group, Division
and Individual Performance aligned with
ANZ’s overall balanced scorecard.
Performance objectives under ANZ’s
balanced scorecard include a number of
qualitative and quantitative measures which
include, but are not limited to:
Financial Measures including: Economic
Value Added (EVATM); Revenue, EPS and Net
Profi t After Tax
Customer Measures including: Customer
Satisfaction and Market Share
Employee Engagement, Risk Management
and Compliance Measures
Environment, Health & Safety and
Community Measures.
The performance of relevant executives
against these objectives is assessed at
the end of the year by the Board People
Committee. The STI is payable 100% in
cash (except where specifi c business plans
require otherwise). Executives are able to
elect to sacrifi ce part or all of their incentive
towards the purchase of ANZ shares which are
restricted from sale for 12 months, or towards
additional superannuation contributions.
As the incentive amount has already been
earned, there are no performance measures
attached to the shares. The target STI award
20 ANZ Annual Report 2007
level for disclosed executives is 100% of
Fixed Remuneration in 2007 with a maximum
STI award of 150% of Fixed Remuneration.
For large senior executive roles in the ANZ
STI plan, the target STI is 67% of Fixed
Remuneration, with a maximum of 100% of
Fixed Remuneration. Note, the target and
maximum STI amounts for executive roles may
vary for customised incentive schemes.
C4.2 Long-Term Incentives
The long-term incentives (LTIs) are designed
to link a signifi cant portion of executives’
remuneration to the attainment of sustained
growth in shareholder value. LTI is delivered
as 100% Performance Rights, with a single
long-term performance measure (refer
to section F10 for details of legacy LTI
programs). A Performance Right is a right
to acquire a share at nil cost, subject to
meeting time and performance hurdles.
Performance Rights are designed to reward
executives for share price growth dependent
upon the Company’s Total Shareholder
Return (TSR) outperforming peers. TSR
represents the change in the value of a share
plus the value of reinvested dividends paid.
TSR was chosen as the most appropriate
comparative measure as it focuses on
the delivery of shareholder value and is a
well understood and tested mechanism to
measure performance. The conditions under
which Performance Rights are granted are
approved by the Board in accordance with
the rules of the ANZ Share Option Plan.
In the event of a takeover or a scheme of
arrangement, the ANZ Share Option Plan
specifi es that the Board has absolute
discretion to permit the exercise of options
or rights. If a company obtains control of ANZ
and both the acquiring company and ANZ
agree, ANZ may on the exercise of options,
provide shares of the acquiring company
(or its parent) to the same value as the ANZ
shares that would have been issued.
Each Performance Right has the following
features:
Performance Rights held by eligible
executives will be tested once only
against the performance hurdle at the end
of three years;
Subject to the performance hurdle being
met, the executive has a two-year exercise
period that commences three years after
the grant date;
Upon exercise, each Performance Right
entitles the executive to one ordinary
share;
In case of dismissal for serious misconduct,
Performance Rights are forfeited;
In case of resignation or termination on
notice, unless the Board determines
otherwise, only Performance Rights that
become exercisable by the end of the
notice period may be exercised; and
In case of death or total & permanent
disablement, the performance hurdle is
waived and a grace period is provided in
which to exercise all Performance Rights.
The proportion of Performance Rights that
become exercisable will depend upon a
single point testing of the TSR achieved
by ANZ relative to the companies in the
comparator group (shown below) at the
end of a three-year period. An averaging
calculation will be used for TSR over a 90 day
period for start and end values in order to
reduce the impact of share price volatility.
TSR Vesting Scale
Relative TSR Performance
% Vesting
< 50th percentile
50th to 74th percentile
75th percentile or above
0%
50% – 98%
100%
Where median performance is achieved,
executives’ total remuneration will
typically be below market median for the
fi nancial services industry. 75th percentile
performance is required for full vesting which
enables executives to receive the full value
of their LTI. To ensure an independent TSR
measurement, ANZ engages the services of
an external organisation (Macquarie Financial
Services) to calculate ANZ’s performance
against the TSR hurdle.
Comparator Group
The peer group of companies against which
ANZ’s TSR performance is measured,
comprises the following companies:
AMP Limited
AXA Asia Pacifi c Holdings Limited
Commonwealth Bank of Australia
Insurance Australia Group Limited
Macquarie Bank Limited
National Australia Bank Limited
QBE Insurance Group Limited
St George Bank Limited
Suncorp-Metway Limited
Westpac Banking Corporation
The companies in this comparator group were
chosen because they represent ANZ’s key
competitors in the fi nancial services industry,
are an appropriate reference group for
investors and are of suffi cient size by market
capitalisation and weight in ASX Top 50.
Size of LTI Grants
The size of individual LTI grants is determined
by an individual’s level of responsibility,
performance and the assessed potential of
the executive. The target LTI for disclosed
executives is around 28% of the individual’s
target reward mix, and 32% for large senior
executive roles. Executives are advised of
their LTI dollar value, which is then converted
into a number of Performance Rights based
on a valuation. ANZ engages external experts
(PricewaterhouseCoopers and Mercer Finance
& Risk Consulting) to independently value the
Performance Right, taking into account factors
including the performance conditions, share
price volatility, life of instrument, dividend
yield and share price at grant date. The
highest acceptable value is then approved by
the Board People Committee as the allocation
value. LTI allocations are made annually
around the end of October. The following
example uses the October 2006 allocation
value.
Example
Executive granted LTI value of $200,000
Approved Allocation Valuation
is $13.08 per Performance Right
$200,000 / $13.08 = 15,290 Performance
Rights allocated to executive
C5. PERFORMANCE OF ANZ
Table 4 shows ANZ’s annual performance over the fi ve-year period spanning 1 October 2002 to 30 September 2007. The table illustrates the
impact of ANZ’s performance on shareholder wealth, taking into account dividend payments, share price changes and other capital adjustments
during the fi nancial year.
TABLE 4
Basic Earnings Per Share (EPS)
NPAT ($m)
Total Dividend (cps)
Share price at 30 September ($)
Total Shareholder Return (%)
* Figures are based on AIFRS results
FY 2007*
FY 2006*
224.1
4,180
136
29.70
15.6
200.0
3,688
125
26.86
17.1
FY 2005
160.9
3,018
110
24.00
32.6
FY 2004
153.1
2,815
101
19.02
17.0
FY 2003
142.4
2,348
95
17.17
6.7
In Table 4, ANZ’s TSR (which includes share price growth, dividends and other capital adjustments) has been shown for each individual fi nancial
year between 2003 and 2007. Figure 2 compares ANZ’s TSR performance against the median TSR of the LTI comparator group and the S&P/ASX
200 Banks Accumulation Index over the 2003 to 2007 measurement period.
Figure 2: ANZ 5-Year
Cumulative Total
Shareholder Return
Performance
ANZ TSR
Median of Peer Group
Upper Quartile of Peer Group
S&P/ASX 200 Banks
Accumulation Index
300
280
260
240
220
200
180
160
140
120
100
80
Total shareholder return %
2
0
t
c
O
3
0
r
p
A
3
0
t
c
O
4
0
r
p
A
4
0
t
c
O
5
0
r
p
A
5
0
t
c
O
6
0
r
p
A
6
0
t
c
O
7
0
r
p
A
7
0
t
c
O
Performance period end date
Remuneration Report 21
3
,
8
8
X
7
,
X
X
X
3
,
5
6
0
3
,
1
3
3
2
,
8
5
8
2
,
3
0
8
03
04
05
06
07
Figure 3: ANZ – Cash Earnings & Average STI payments ($ million)
Cash earnings (AGAAP)1
Cash earnings (AIFRS)2
Average STI payments against target
Target STI
125
100
75
Figure 3 illustrates the relationship between the average actual STI payments
against target and the Group’s performance measured using cash earnings
over the last 5 years. The average STI payments for each year are based on
those executives (including the CEO) disclosed in each relevant reporting
period. As illustrated in the chart, the average STI payments are generally
in alignment with the cash earnings trend.
1 Earnings excluding goodwill, significant items and NBNZ incremental integration costs.
2 Earnings adjusted for non-core items, AIFRS adjustments and preference share dividends.
% of target STI paid
to executive directors
and disclosed executives
Section D. Chief Executive Offi cers’ remuneration
This section details the remuneration arrangements for J McFarlane who ceased as CEO of ANZ on 30 September 2007 (after 10 years as
CEO), and his successor, M Smith, who commenced as CEO on 1 October 2007. The CEO is the only executive director at ANZ.
D1.REMUNERATION OVERVIEW FOR J MCFARLANE
The structure of J McFarlane’s remuneration for the purposes of the 2006 and 2007 fi nancial year disclosures was in accordance with his
employment agreement and was as follows:
Fixed Remuneration: Consisted of salary, benefi ts and superannuation contributions. Since October 2003, J McFarlane elected to receive almost
all of his Fixed Remuneration in the form of shares purchased under the Directors’ Share Plan. These shares were not subject to a performance
condition as they were provided in place of cash remuneration at the CEO’s choice. However, they were subject to forfeiture in case of
termination for serious misconduct.
Short-Term Incentive: The Board set J McFarlane’s balanced scorecard at the beginning of the fi nancial year. The Board then assessed
performance against these objectives at the end of the year to determine the appropriate incentive (relative to target). These objectives were
aligned with the achievement of ANZ’s business plan, and were the most appropriate indicators of performance. These objectives included
a number of quantitative and qualitative measures, which included (but were not limited to) fi nancial, customer, people, environment and
community measures. J McFarlane’s STI was able to be paid in cash or in shares purchased under the Directors’ Share Plan.
Long-Term Incentive: J McFarlane’s Long-Term Incentive was made up of Hurdled Options and Performance Shares as approved by
shareholders at the 2001 and 2004 Annual General Meetings respectively. No long-term incentive equity was issued to J McFarlane in the
2006 or 2007 fi nancial years. The performance conditions pertaining to the Options and Performance Shares issued during the 2005 year are
indicated in F10.1 Hurdled A options and F10.3 respectively. They were linked to Company performance and increasing shareholder value.
The remuneration of J McFarlane for the year ended 30 September 2007 is set out in Table 1 in section A of this Remuneration Report.
The mix of remuneration for J McFarlane was made up as follows:
Fixed Remuneration of $2,200,000 per annum;
Target variable Short-Term Incentive of $2,200,000 per annum;
Long-Term Incentive of $2,600,000 granted on 31 December 2004, as per his 26 October 2004 contract - based on valuation at grant
of last LTI allocation of 175,000 Performance Shares in December 2004. Note, the fair value of LTI equity granted since December 2003,
and annualised over the period from grant date to 30 September 2007 is $1,530,000. This amount has been refl ected in the reward
mix bar in Figure 4 below.
Figure 4: Chief Executive Officer
37%
37%
26%
Fixed Remuneration %
STI %
LTI %
22 ANZ Annual Report 2007
D1.1 Contract Terms
On 5 December 2006, the Company
announced an extension to the terms of
J McFarlane’s 26 October 2004 contract
(which was also an extension of his contract
dated 23 October 2001). The contract was
extended by 3 months to 31 December
2007 (from 30 September 2007) to provide
fl exibility for orderly succession at ANZ. The
following terms formed part of J McFarlane’s
26 October 2004 contract.
In addition to mandatory superannuation
contributions, the Company made
additional employer contributions of
$300,000 per annum (effective from
1 October 2003), paid quarterly to
J McFarlane’s chosen superannuation
fund; and
J McFarlane was granted 175,000
Performance Shares on 31 December
2004.
Tax Liabilities on UK Pension Plan holdings
The terms of J McFarlane’s contract provided
for reimbursements for any additional tax
liabilities that occurred on J McFarlane’s
UK Pension Plan holdings as a result of his
continuing Australian residency. Under this
agreement, ANZ reimbursed J McFarlane for
additional tax liability incurred on his UK
Pension Plan during his employment with
ANZ, arising as a consequence of Australian
Foreign Investment Fund rules.
D1.2 Participation in Equity Programs
Hurdled Options:
At the 2001 Annual General Meeting, four
tranches of options were approved for
granting by the Board: 500,000 in 2001;
1,000,000 in 2002; 1,000,000 in 2003 and
500,000 in 2004. For options granted to
the CEO, the exercise price was equal to the
weighted average share price during the fi ve
trading days immediately after the Annual
General Meeting held in respect of the
fi nancial year that ended before the date of
the grant of the relevant tranche of options.
The exercise of these options was subject
to performance hurdles being satisfi ed.
J McFarlane’s specifi c performance hurdles
are indicated in section F10.1 (Hurdled A),
and for Performance Shares in section F10.3.
For options granted to the CEO, the life and
exercise period may differ, as disclosed in F3.
Performance Shares:
175,000 Performance Shares were issued to
J McFarlane on 31 December 2004 as part of
his 26 October 2004 contract, as approved
by shareholders at the 2004 Annual General
Meeting. No dividends were payable on the
shares until vesting. Vesting was subject
to time and performance hurdles being
satisfi ed as detailed in section F10.3.
Directors’ Share Plan:
J McFarlane participated in the Directors’
Share Plan, which is explained in section B3.
Please refer to section F for details of grants
and holdings.
D1.3 Termination Benefi ts
On J McFarlane’s departure on 30 September
2007, he received the following:
Contractual and Statutory Payments
J McFarlane received a payment of $550,000
(equal to 3 months of his Total Employment
Cost) for the unexpired portion of his
employment contract (being the 3 months
from 1 October 2007 to 31 December 2007).
J McFarlane was also paid all statutory leave
entitlements, including a payment for pro
rata long service leave totalling $365,261.
Short-Term Incentive
As part of the usual remuneration process
at the end of the fi nancial year, the Board
considered and determined the extent to
which J McFarlane satisfi ed the applicable
performance criteria under the short-term
incentive program for the 2007 fi nancial
year. As a result of that determination,
Mr McFarlane received an STI payment
in relation to the 2007 fi nancial year of
$2,090,000.
Long-Term Incentive
Of the 3,000,000 Hurdled Options granted
to J McFarlane from December 2001 to
December 2004, 250,000 Hurdled Options
have not yet vested as at 31 October 2007.
In accordance with the rules of the ANZ
Employee Option Plan, under which the
Hurdled Options were granted, the unvested
options may be held by J McFarlane
until their expiry date (of 31 December
2008) set out in the terms of grant and
his employment contract. The Hurdled
Options will be subject to the performance
condition and will be tested in accordance
with their terms of grant until their expiry
date, at which point they will lapse if the
performance hurdle is not met.
The 175,000 Performance Shares granted
to J McFarlane have not yet met their
performance hurdle. In accordance with
their terms of grant the Performance Shares
may be held by J McFarlane (subject to the
performance conditions) until the expiry
date set out in their terms of grant and
his employment contract and tested in
accordance with the terms of grant until
their expiry date (31/12/09). J McFarlane
is taxed at the time of retirement on the
Performance Shares as if they had passed
the performance hurdles. For tax paid
on Performance Rights and Options, the
taxpayer will receive a refund of tax paid
if the performance hurdles are not met.
However this is not the case for Performance
Shares in contrast to the position for Rights
and Options. This is in ANZ’s opinion
inequitable and ANZ agreed to acquire
J McFarlane’s interest in the Performance
Shares on his departure for a payment
of $1,000,000. The Shares have been
reclassifi ed and are now available for
allocation to other employees under ANZ’s
employee share plan.
Shares held under the ANZ Directors’
Share Plan
J McFarlane elected to receive almost all
of his remuneration (including annual
bonuses) in the form of ANZ shares
purchased under the ANZ Directors’ Share
Plan. On his cessation from ANZ, J McFarlane
was entitled to all shares held on trust on
his behalf under the ANZ Directors’ Share
Plan.
D1.4 Shareholding Guideline
The Chief Executive Offi cer of ANZ is
expected to accumulate ANZ shares, over
a fi ve year period, to the value of 200% of
his Fixed Remuneration and to maintain
this shareholding while CEO of ANZ. This
shareholding guideline was introduced in
September 2005. J McFarlane was always
well above the shareholding guideline.
D2. REMUNERATION OVERVIEW FOR
M SMITH
M Smith commenced as CEO and Executive
Director of ANZ on 1 October 2007 on a
rolling twelve month contract with a minimum
term of three years. The key terms of his
employment arrangement are summarised
below. They are in line with industry practice
(based on external advice on Australian and
international peer company benchmarks) and
ASX Corporate Governance Principles.
Remuneration Report 23
Termination without notice by ANZ
in the event of serious misconduct: All
Performance Rights (or cash equivalent) and
sign-on award will be forfeited; and
Death or total and permanent
disablement: All Performance Rights (or
cash equivalent) and sign-on award will
vest.
D2.3 Relocation
Costs associated with M Smith’s relocation to
Melbourne will be paid consistent with ANZ’s
international relocation policies. Certain
relocation expenses will also be paid in the
event of termination of his employment.
Fixed Remuneration: A fi xed component
of $3 million per annum which consists
of salary, benefi ts and superannuation
contributions. M Smith’s Fixed Remuneration
will be constant for three years, and will be
reviewed annually thereafter.
Short-Term Incentive: The short-term
incentive target is 100% of Fixed
Remuneration per annum. The actual short-
term incentive awarded will be determined
at the discretion of the Board based on
ANZ and CEO performance against annual
performance targets.
Long-Term Incentive: The LTI covering the
fi rst three years of employment consists of
3 tranches of Performance Rights, each to
be granted after the 2007 Annual General
Meeting, and each to a maximum value of
$3 million. The performance periods for each
tranche begin on date of grant and end on the
3rd, 4th and 5th anniversaries respectively.
The grant of these Performance Rights will be
subject to shareholder approval which will be
sought at the 2007 Annual General Meeting.
If shareholder approval is not obtained,
the LTI will be a cash award equivalent to
the value of the Performance Rights which
would have become exercisable for each
tranche and performance period, subject
to satisfaction of the performance and time
hurdles. The level of vesting for each tranche
will be based on ANZ Total Shareholder
Return (TSR) performance against a
comparator group of companies consistent
with the senior executive LTI program (refer
to C4.2). Refer to section C4.2 for change of
control provisions in relation to these Rights.
D2.1 Sign-On Award
The Board agreed to provide M Smith $9
million compensation in consideration for
remuneration foregone from his previous
employer on joining ANZ. As per the terms
of M Smith’s contract, he elected at the
commencement of his employment to receive
100% of this compensation in the form of
ANZ Deferred Shares. Shareholder approval
will be sought at the 2007 Annual General
Meeting for M Smith’s sign-on award, to be
held in trust until the end of the relevant
vesting period.
One third of the sign on award will vest at
each of the 1st, 2nd and 3rd anniversaries
from commencement of employment as CEO.
Given the purpose of the sign-on award for M
Smith is to compensate him for remuneration
foregone, the ANZ Deferred Shares will not
be subject to any performance hurdles.
The allocation of ANZ Deferred Shares and
the time vesting component, will however
strengthen the alignment of M Smith’s
interests with shareholders. If shareholder
approval is not granted, the Company will
pay the value of the sign-on award to
M Smith in cash. On vesting, the cash amount
paid will be the initial value of the relevant
amount escalated at the 30 day bank bill rate
throughout the period from commencement
of employment as CEO until vesting,
assuming interest is credited each 30 days.
D2.2 Termination Benefi ts
M Smith or ANZ may terminate the
employment agreement by providing 12
months’ written notice. If ANZ terminates
M Smith’s employment within the fi rst 3
years, ANZ will give M Smith the greater of
12 months’ written notice or notice equal
to the unexpired term of three years from
commencement as CEO. ANZ may elect to pay
in lieu all or part of the notice period based
on M Smith’s Fixed Remuneration.
In circumstances of serious misconduct,
M Smith is only entitled to payment of Fixed
Remuneration up to the date of termination.
In relation to M Smith’s LTI (Performance
Rights) and sign-on award the following will
apply:
Resignation by M Smith: All unexercised
Performance Rights (or cash equivalent) and
unvested sign-on award will be forfeited;
Termination on notice by ANZ: All
Performance Rights (or cash equivalent)
which have vested or vest during the
notice period will be retained and become
exercisable; all Performance Rights (or
cash equivalent) which have not yet vested
will be retained and will vest and become
exercisable subject to the relevant time and
performance hurdles being satisfi ed. Sign-
on award will vest in full;
24 ANZ Annual Report 2007
Section E. Disclosed executives’ contract terms
Contractual terms are similar, but do, on occasion, vary to suit different needs. Section E1 details the contractual terms for
disclosed executives.
E1. CONTRACTS: R EDGAR, B HARTZER, G HODGES, P HODGSON, P MARRIOTT, S TARGETT AND A THURSBY
Length of Contract
Open-ended.
Fixed Remuneration
Remuneration consists of salary, 9% Superannuation Guarantee (SG) contributions (except for G Hodges)
and nominated benefi ts.
Short-Term Incentive
Eligible to participate (refer to section C4.1 for details of short-term incentive arrangements).
Long-Term Incentive
Eligible to participate at the Board’s discretion (refer to section C4.2 for long-term incentive arrangements).
Resignation
Employment may be terminated by giving 6 months’ written notice.
On resignation any options and unvested deferred shares will be forfeited.
Termination on Notice by ANZ
Redundancy
Death or Total and
Permanent Disablement
Termination for
serious misconduct
Other Aspects
ANZ may terminate the executive’s employment by providing 12 months’ written notice or payment in lieu
of the notice period based on Fixed Remuneration.
On termination on notice by ANZ any Options or LTI Deferred Shares that have vested, or will vest during the
notice period will be released, in accordance with the ANZ Share Option Plan Rules. LTI shares that have not yet
vested will generally be forfeited, although for some executives (B Hartzer and P Marriott) these shares will be
released in full. Deferred shares granted under STI arrangements will vest in full for all executives.
There is discretion to pay short-term incentives on a pro-rata basis (depending on termination date and subject
to business performance).
If ANZ terminates employment for reasons of bona fi de redundancy, a severance payment will be made that
is equal to 12 months’ Fixed Remuneration.
All STI Deferred Shares are released. All Options are released on a pro-rata basis. All LTI Deferred Shares are
released on a pro-rata basis.
There is discretion to pay short-term incentives on a pro-rata basis (depending on termination date and
subject to business performance).
All Options and Shares are released; pro-rata short-term incentive.
ANZ may immediately terminate the executive’s employment at any time in the case of serious misconduct, and
the employee will only be entitled to payment of Fixed Remuneration up to the date of termination. Payment of
statutory entitlements of long service leave and annual leave applies in all events of separation.
On termination for serious misconduct any Options and any Deferred Shares still held in trust will be forfeited.
As part of A Thursby’s employment arrangement and to compensate for equity foregone from his previous
employer, A Thursby has been offered 3 separate tranches of Deferred Shares to the value of $1,000,000
per annum, subject to Board approval. The fi rst tranche was approved by the Board on 3 September 2007,
with the second and third tranches to be approved around the fi rst and second anniversary of A Thursby’s
employment with ANZ. The Shares will be restricted and held in trust for three years from the date of
allocation for the benefi cial interest of A Thursby, during which period they will be forfeited if employment
ceases for any reason other than retrenchment, death or total and permanent disablement, and that for
the whole period that the Shares remain in trust (including any further period) they will be forfeited for any
serious misconduct.
E2. PARTICIPATION IN EQUITY PROGRAMS
A number of Shares and Options are granted to executives under the remuneration programs detailed in Section C. For disclosed executives,
details of all grants made during the year and legacy LTI programs are listed in Section F. Aggregate holdings of Shares and Options are also
shown.
Remuneration Report 25
Section F. Equity instruments relating to disclosed directors and executives
F1. SHAREHOLDINGS OF NON-EXECUTIVE DIRECTORS (INCLUDING MOVEMENTS DURING THE 2006 & 2007 YEARS)
Balance of
shares held as
at 30 Sept
2007 Financial Year
Shares
acquired during
the year in lieu
of salary2
Shares resulting
from any other
change during
the year3
Balance of
shares as at
1 Oct
20061
20071,4
Name
C Goode
G Clark
J Ellis
D Gonski
M Jackson
I Macfarlane
D Meiklejohn
J Morschel
2006 Financial Year
Name
C Goode
G Clark
R Deane
J Ellis
D Gonski
M Jackson
D Meiklejohn
J Morschel
Balance of
shares held as
at report
sign-off date1
669,496
10,479
125,159
53,005
95,673
4,574
7,156
10,677
627,028
6,920
114,810
68,948
93,297
–
7,156
7,422
23,799
1,654
1,194
365
–
973
–
1,654
18,669
–
17
(16,308)
199
2,000
–
–
669,496
8,574
116,021
53,005
93,496
2,973
7,156
9,076
Balance of
shares as at
1 Oct
20051
Shares
acquired during
the year in lieu
of salary2
Shares resulting
from any other
change during
the year3
Balance of
shares held as
at 30 Sept
20061,5
Balance of
shares held as
at report
sign-off date1
535,637
5,000
75,364
91,196
54,904
93,297
5,156
5,502
26,046
1,920
–
1,614
2,534
–
–
1,920
65,345
–
–
22,000
11,510
–
2,000
–
627,028
6,920
75,364
114,810
68,948
93,297
7,156
7,422
648,003
8,501
75,364
115,951
68,948
93,297
7,156
9,003
1 Balance of shares held at 1 October 2005/2006, 30 September 2006/2007, 1 November 2006 and 7 November 2007, includes directly held shares, nominally held shares and shares
held by related parties.
2 All shares acquired in lieu of salary were done so under the Directors’ Share Plan (refer to section B3 of this Remuneration Report for an overview of the Directors’ Share Plan).
3 Other shares resulting from any other changes during the year include the net result of any shares purchased/sold or acquired under the Dividend Reinvestment Plan.
4 The following shares were nominally held as at 30 September 2007: C Goode – 354,910; G Clark – 8,574; J Ellis – 49,092; D Gonski – 66,076; M Jackson – 10,831; I Macfarlane – 2,973;
D Meiklejohn – 4,656; J Morschel – 5,076.
5 The following shares were nominally held as at 30 September 2006: C Goode – 408,553; G Clark – 1,920; R Deane – 73,000; J Ellis – 47,898; D Gonski – 66,076; M Jackson – 10,632;
D Meiklejohn – 4,656; J Morschel – 3,422.
F2. SHAREHOLDINGS OF CEO, J MCFARLANE (INCLUDING MOVEMENTS DURING THE 2006 & 2007 YEARS)
2007
2006
Balance of
shares as
at 1 Oct
2005/2006 1
Shares acquired
during the year
in lieu of salary2
Shares acquired
during the year
through the exercise
of options3
Shares resulting
from any other
change during
the year4
Balance of
shares held as
at 30 Sept
2006/20071,5
Balance of
shares held
as at report
sign-off date1,6
1,973,422
1,819,715
52,581
81,118
750,000
(2,091,569)
684,434
509,434
2,000,000
(1,927,411)
1,973,422
2,074,993
1 Balance of shares held at 1 October 2005/2006, 30 September 2006/2007, 1 November 2006 and 7 November 2007 includes directly held shares, nominally held shares and shares
held by related parties.
2 All shares acquired in lieu of salary were done so under the Directors’ Share Plan (refer to section B3 of this Remuneration Report for an overview of the Directors’ Share Plan).
3 All options held/exercised by the CEO have been approved by shareholders (December 1999 and December 2001).
4 Other shares resulting from any other changes during the 2006 / 2007 years include the net result of any shares purchased, sold, or acquired under the Dividend Reinvestment Plan.
For 2006, it also includes those shares received on 31 October 2005 in regards to the 2005 incentive (for the period ending 30 September 2005)
5 1,486,294 shares were held nominally as at 30 September 2006 and 311,249 shares as at 30 September 2007.
6 The relinquishment of the CEO’s Performance Shares (175,000) has been factored into this balance. Refer to section D1.3 for further details.
26 ANZ Annual Report 2007
F3. OPTIONS GRANTED TO CEO, J McFARLANE1
Financial Year
2006
2007
Type of
options
Hurdled A
Hurdled A
Hurdled A
Hurdled A2
Total
Grant date
31-Dec-01
31-Dec-02
31-Dec-03
31-Dec-04
First date
exercisable
31-Dec-03
31-Dec-04
31-Dec-05
31-Dec-06
Date of
expiry
31-Dec-07
31-Dec-07
31-Dec-08
31-Dec-08
Exercise
price3
$
16.80
16.69
17.48
20.49
Number
granted4,5
500,000
1,000,000
1,000,000
500,000
3,000,000
Number vested
during the
2006/2007 FY
–
–
1,000,000
500,000
1,500,000
Percentage that
vested during
the 2006/2007
FY %
Vested and
exercisable as
at 30 Sept
2006/2007
Vested and
unexercisable as
at 30 Sept6
2006/2007
–
–
100
100
–
500,000
–
–
500,000
–
500,000
–
250,000
750,000
1 All options granted to the CEO have been approved by shareholders (December 1999 and December 2001).
2 The fair value per option at the 31 December 2004 grant date is $1.98.
3 The exercise price is equal to the weighted average share price during the 5 trading days immediately after the Company’s Annual General Meeting for the financial year that ended before the
grant date. Note, the original exercise price of options issued prior to the Renouncable Rights issue in November 2003 have been reduced by 72 cents, because of the dilution of share capital
associated with the Renouncable Rights issue.
4 Nil options forfeited or expired during the period.
5 The amortisation balance is nil for subsequent financial years and the value will be nil if the performance hurdle on the 250,000 unexercisable options is not achieved by 31 December 2008.
6 The options have met the time vesting hurdle, however only 50% of the 1.5 million granted had passed the performance hurdle as at 30 September 2007.
F4. OPTION HOLDINGS OF CEO, J McFARLANE (INCLUDING MOVEMENTS DURING THE 2006 & 2007 YEARS)1
Type of
options
2007
Hurdled
2006
Hurdled
Balance as
at 1 Oct
2005/2006
1,000,000
Exercised
during
the year
Date of
exercise of
options
Number of
ordinary
shares issued
on exercise
of options
Value of
options
exercised
during the
year2
$
300,000
200,000
250,000
20-Dec-06
31-Aug-07
31-Aug-07
300,000
200,000
250,000
3,513,000
2,398,000
2,047,500
3,000,000
500,000
500,000
1,000,000
03-Jul-06
04-Jul-06
31-Aug-06
500,000
500,000
1,000,000
4,955,000
5,030,000
9,730,000
Share price
on date of
exercise of
options
$
28.40
28.68
28.68
26.71
26.75
27.21
Balance
as at
30 Sept
2006/2007
250,000
1,000,000
Amount
paid per
share
$
16.69
16.69
20.49
16.80
16.69
17.48
Total value
of options
granted and
exercised
during the year
$
3,513,000
2,398,000
2,047,500
4,955,000
5,030,000
9,730,000
1 All options granted to the CEO have been approved by shareholders (December 1999 and December 2001).
2 The value per option used in this calculation is based on the difference between the volume weighted average price of the Company’s shares traded on the ASX on the day the options were
exercised, and the exercise price. This is then multiplied by the number granted.
Remuneration Report 27
F5. DEFERRED SHARES GRANTED TO DISCLOSED EXECUTIVES
Financial Year
2006
2007
LTI Deferred Shares1
Name
R Edgar
Total
E Funke Kupper4
Total
B Hartzer
Total
G Hodges
Total
P Hodgson
Total
P Marriott
Total
S Targett
Grant date
Vesting date
Number
granted2,3
Number that
vested during
the 2006 or
2007 year
Percentage that
vested during
the 2006 or
2007 year
%
23-Oct-02
20-May-03
05-Nov-03
05-Nov-03
11-May-04
05-Nov-04
05-Nov-04
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
08-Dec-04
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
23-Oct-05
20-May-06
05-Nov-06
05-Nov-06
11-May-07
05-Nov-07
05-Nov-07
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
08-Dec-07
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
05-Nov-04
05-Nov-07
7,600
8,500
8,889
25,000
8,452
6,519
26,000
90,960
8,000
6,800
6,838
6,256
6,018
33,912
6,600
6,500
7,408
7,135
9,127
36,770
3,800
6,500
5,699
6,586
7,522
30,107
900
1,000
1,097
1,111
1,974
12,481
18,563
9,300
9,100
9,573
9,275
8,475
45,723
6,519
7,600
8,500
8,889
25,000
8,452
–
–
58,441
8,000
6,800
–
–
–
14,800
6,600
6,500
7,408
7,135
–
27,643
3,800
6,500
5,699
6,586
–
22,585
900
1,000
1,097
1,111
–
–
4,108
9,300
9,100
9,573
9,275
–
37,248
–
100
100
100
100
100
–
–
64
100
100
–
–
–
44
100
100
100
100
–
75
100
100
100
100
–
75
100
100
100
100
–
–
22
100
100
100
100
–
81
–
1 LTI deferred shares were last granted under the ANZ Long-Term Incentive Program in the 2005 year, and therefore were not granted in the 2006 or 2007 years. LTI is now delivered in the form
of Performance Rights (refer to section C4.2). The LTI deferred shares are restricted for 3 years and may be held in trust beyond this time. Refer to section F10.2 for more details.
2 Nil shares forfeited during the 2007 year; 19,112 shares forfeited during the 2006 year.
3 The maximum amortisation balance for each executive for subsequent financial years is as follows: R Edgar $22,130; B Hartzer $6,211; G Hodges $5,119; P Hodgson $16,996;
P Marriott $5,768; S Targett nil.
4 E Funke Kupper forfeited unvested deferred shares on resignation.
28 ANZ Annual Report 2007
F5. DEFERRED SHARES GRANTED TO DISCLOSED EXECUTIVES (CONTINUED)
Financial Year
2006
2007
STI Deferred Shares1
Name
R Edgar
Total
E Funke Kupper4
Total
B Hartzer
Total
G Hodges
Total
P Hodgson
Total
P Marriott
Total
Grant date
23-Oct-02
20-May-03
05-Nov-03
11-May-04
23-Oct-02
20-May-03
05-Nov-03
11-May-04
23-Oct-02
20-May-03
05-Nov-03
11-May-04
23-Oct-02
20-May-03
05-Nov-03
11-May-04
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
23-Oct-02
20-May-03
05-Nov-03
11-May-04
Vesting date
23-Oct-05
20-May-06
05-Nov-06
11-May-07
23-Oct-05
20-May-06
05-Nov-06
11-May-07
23-Oct-05
20-May-06
05-Nov-06
11-May-07
23-Oct-05
20-May-06
05-Nov-06
11-May-07
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
Number that
vested during
the 2006 or
2007 year
6,423
5,622
6,781
7,683
26,509
8,554
4,148
–
–
12,702
4,457
1,992
7,322
7,244
21,015
4,761
4,503
5,129
5,653
20,046
8,305
4,776
7,835
9,330
4,262
34,508
8,527
5,403
7,978
9,604
31,512
Percentage that
vested during
the 2006 or
2007 year
%
100
100
100
100
100
100
100
–
–
46
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Number
granted2
6,423
5,622
6,781
7,683
26,509
8,554
4,148
7,636
7,052
27,390
4,457
1,992
7,322
7,244
21,015
4,761
4,503
5,129
5,653
20,046
8,305
4,776
7,835
9,330
4,2623
34,508
8,527
5,403
7,978
9,604
31,512
1 STI deferred shares issued were granted under a historical ANZ Short-Term Incentive Program. (STI is now delivered generally as 100% cash, therefore no STI deferred shares were granted
to the Executives during the year. Refer to section C4.1). STI deferred shares are restricted for 3 years and may be held in trust beyond this time.
2 Nil shares forfeited during the 2006 & 2007 years, and as at 30 September 2007, 100% of STI Deferred Shares have vested.
3 These STI deferred shares were granted as part of the Institutional Bonus Scheme in 2004. 20% of bonus amounts in excess of $125,000 were delivered as one year deferred shares.
4 Unvested shares were forfeited on resignation.
Other Deferred Shares
Name
S Targett1
Total
A Thursby2
Grant date
11-May-04
05-Nov-04
13-May-05
07-Nov-05
Vesting date
11-May-07
05-Nov-07
13-May-08
07-Nov-08
03-Sep-07
03-Sep-10
Number
granted3,4
38,419
35,105
32,080
29,838
135,442
34,602
Value of deferred
shares granted
during the 2006 or
2007 year 5
$
–
–
–
703,282
703,282
1,005,188
Number that vested
during the year
38,419
–
–
–
38,419
–
Percentage that
vested during
the year
%
100
–
–
–
28
–
1 Other shares issued to S Targett relate to the issue of deferred shares (four tranches to the value of $700,000 each issued at 6 month intervals in May and November in 2004 and 2005) to
compensate S Targett for the loss of access to equity as a result of his resignation from his previous employer upon commencement with ANZ.
2 Other shares issued to A Thursby relate to the issue of deferred shares to compensate A Thursby for the loss of access to equity as a result of his resignation from his previous employer upon
commencement with ANZ.
3 Nil shares forfeited during the 2007 year; 14,688 shares forfeited during the 2006 year.
4 The maximum amortisation balance for subsequent financial years for S Targett is nil and A Thursby is $980,425.
5 The value of shares granted is based on the volume weighted average price of the Company’s shares traded on the ASX on the day the shares were granted, multiplied by the number granted.
Remuneration Report 29
F6. SHAREHOLDINGS OF DISCLOSED EXECUTIVES (INCLUDING MOVEMENTS DURING THE 2006 & 2007 YEARS)
2007 Financial Year
Name
R Edgar
B Hartzer
G Hodges
P Hodgson
P Marriott
S Targett
A Thursby
2006 Financial Year
Name
R Edgar
E Funke Kupper5
B Hartzer
G Hodges
P Hodgson
P Marriott
S Targett
Balance of
shares as at
1 Oct 2006 1
Shares granted
during the year
as remuneration
421,733
96,083
239,319
53,759
660,513
142,961
–
–
–
–
–
–
–
34,602
Balance of
shares as at
1 Oct 2005 1
Shares granted
during the year
as remuneration
421,733
189,892
88,638
171,919
59,557
641,633
113,123
–
–
–
–
–
–
29,838
Number of
shares acquired
during the year
through exercise
of options
66,666
269,194
42,735
–
11,000
153,688
–
Number of
shares acquired
during the year
through exercise
of options
–
–
–
67,400
–
168,000
–
Shares resulting
from any other
change during
the year2
Balance
of shares
held as at
30 Sept 20071,3
(100,000)
(33,185)
–
–
(98,884)
(152,667)
–
388,399
332,092
282,054
53,759
572,629
143,982
34,602
Shares resulting
from any other
change during
the year2
Balance
of shares
held as at
30 Sept 20061,4
–
(89,450)
7,445
–
(5,798)
(149,120)
–
421,733
100,442
96,083
239,319
53,759
660,513
142,961
1 Balance of shares held at 1 October 2005/2006 and 30 September 2006/2007, include directly held shares, nominally held shares and shares held by related parties.
2 Other shares resulting from any other changes during the year include the net result of any shares purchased, or sold or any acquired under the Dividend Reinvestment Plan.
3 The following shares were held nominally as at 30 September 2007: R Edgar – 213,510; B Hartzer – 78,607; G Hodges – 146,747; P Hodgson – 53,759; P Marriott – 177,930;
S Targett – 141,961; A Thursby – 34,602.
4 The following shares were held nominally as at 30 September 2006: R Edgar – 213,510; E Funke Kupper – 0; B Hartzer – 78,607; G Hodges – 104,012; P Hodgson – 53,759;
P Marriott – 177,930; S Targett – 141,961.
5 Amounts shown do not include ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS). Elmer Funke Kupper held 500 ANZ StEPS up to and including 30 September 2006.
No other disclosed executives held ANZ StEPS.
F7. OPTIONS GRANTED TO DISCLOSED EXECUTIVES1
Financial Year
2006
2007
Name
R Edgar
Total
E Funke Kupper8
Total
B Hartzer
Type of
options2
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Hurdled A
Hurdled A
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights
Total
30 ANZ Annual Report 2007
Grant
date
First date
exercisable
Date of
expiry3
Exercise
price4,5
$
Number
granted6,7
24-Oct-08
25-Oct-04
24-Oct-01
24-Apr-09
24-Apr-05
24-Apr-02
23-Oct-02
22-Oct-09
23-Oct-05
20-May-03 20-May-06 19-May-10
05-Nov-03
04-Nov-10
05-Nov-06
11-May-04 11-May-07 10-May-11
04-Nov-11
05-Nov-07
05-Nov-04
18-Nov-10
19-Nov-08
18-Nov-05
24-Oct-11
25-Oct-09
24-Oct-06
23-Oct-02
22-Oct-09
23-Oct-05
20-May-03 20-May-06 19-May-10
05-Nov-06 04-Nov-10
05-Nov-03
11-May-04 11-May-07 10-May-11
05-Nov-07 04-Nov-11
05-Nov-04
19-Nov-08 18-Nov-10
18-Nov-05
24-Apr-08
24-Apr-04
24-Apr-01
24-Oct-08
24-Oct-04
24-Oct-01
24-Apr-09
24-Apr-05
24-Apr-02
24-Apr-09
24-Apr-05
24-Apr-02
23-Oct-02
22-Oct-09
23-Oct-05
20-May-03 20-May-06 19-May-10
05-Nov-03
05-Nov-06 04-Nov-10
11-May-04 11-May-07 10-May-11
05-Nov-07 04-Nov-11
05-Nov-04
19-Nov-08 18-Nov-10
18-Nov-05
24-Oct-11
25-Oct-09
24-Oct-06
16.33
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00
17.34
17.60
17.55
18.22
20.68
0.00
12.98
16.33
18.03
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00
34,000
41,000
125,000
147,000
66,666
63,115
52,000
60,346
45,872
634,999
131,000
119,000
51,282
46,722
48,000
45,518
441,522
42,000
36,000
59,000
50,000
109,000
113,000
55,555
53,279
72,800
64,656
64,985
720,275
Number
vested
during the
2006 or
2007 year
–
–
125,000
147,000
66,666
63,115
–
–
–
401,781
131,000
119,000
–
–
–
–
250,000
–
–
–
–
109,000
113,000
55,555
53,279
–
–
–
330,834
Percentage that
vested during
the 2006 or
2007 year
%
–
–
100
100
100
100
–
–
–
63
100
100
–
–
–
–
57
–
–
–
–
100
100
100
100
–
–
–
46
Vested and
exercisable
as at 30 Sept
2006 or 2007
–
–
–
31,557
–
–
–
31,557
–
–
–
–
–
–
–
42,000
36,000
59,000
50,000
–
–
–
–
–
–
–
187,000
F7. OPTIONS GRANTED TO DISCLOSED EXECUTIVES1 (CONTINUED)
Financial Year
2006
2007
Name
G Hodges
Total
P Hodgson
Total
P Marriott
Total
9
S Targett
Total
Type of
options2
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights
Hurdled A
Hurdled A
Hurdled A
Hurdled A
Index Linked
Index Linked
Hurdled A
Hurdled A
Hurdled B
Performance Rights
Performance Rights
Grant
First date
Date of
expiry3
date
exercisable
24-Apr-02
24-Apr-05
24-Apr-09
24-Apr-02
24-Apr-05
24-Apr-09
22-Oct-09
23-Oct-05
23-Oct-02
20-May-03 20-May-06 19-May-10
05-Nov-03
05-Nov-06 04-Nov-10
11-May-04 11-May-07 10-May-11
05-Nov-07 04-Nov-11
05-Nov-04
19-Nov-08 18-Nov-10
18-Nov-05
24-Oct-11
25-Oct-09
24-Oct-06
Exercise
price4,5
$
18.03
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00
24-Oct-04 24-Oct-08
24-Oct-01
24-Apr-05 24-Apr-09
24-Apr-02
23-Oct-02
23-Oct-05 22-Oct-09
20-May-03 20-May-06 19-May-10
05-Nov-03
05-Nov-06 04-Nov-10
11-May-04 11-May-07 10-May-11
05-Nov-07 04-Nov-11
05-Nov-04
19-Nov-08 18-Nov-10
18-Nov-05
25-Oct-09 24-Oct-11
24-Oct-06
23-Feb-03 23-Feb-07
23-Feb-00
21-Nov-03 21-Nov-07
21-Nov-00
24-Oct-04
24-Oct-08
24-Oct-01
24-Apr-05 24-Apr-09
24-Apr-02
23-Oct-05 22-Oct-09
23-Oct-02
20-May-03 20-May-06 19-May-10
05-Nov-03
05-Nov-06 04-Nov-10
11-May-04 11-May-07 10-May-11
05-Nov-07 04-Nov-11
05-Nov-04
19-Nov-08 18-Nov-10
18-Nov-05
25-Oct-09 24-Oct-11
24-Oct-06
16.33
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00
9.39
13.62
16.33
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00
18.22
20.68
0.00
0.00
Number
vested
during the
2006 or
2007 year
–
–
63,000
113,000
42,735
49,181
–
–
–
267,916
–
–
14,700
17,200
8,221
8,300
–
–
–
48,421
–
–
–
–
153,000
158,000
71,794
69,263
–
–
–
452,057
307,377
–
–
–
307,377
Percentage that
vested during
the 2006 or
2007 year
%
–
–
100
100
100
100
–
–
–
52
–
–
100
100
100
100
–
–
–
27
–
–
–
–
100
100
100
100
–
–
–
46
100
–
–
–
64
Vested and
exercisable
as at 30 Sept
2006 or 2007
–
–
–
–
–
24,590
–
–
–
24,590
9,000
9,600
–
–
8,221
4,150
–
–
–
30,971
–
170,000
–
–
–
–
71,794
34,631
–
–
–
276,425
–
–
–
–
–
Number
granted6,7
17,400
50,000
63,000
113,000
42,735
49,181
60,000
60,346
57,340
513,002
9,000
9,600
14,700
17,200
8,221
8,300
15,750
51,725
45,872
180,368
25,000
170,000
73,000
70,000
153,000
158,000
71,794
69,263
67,600
62,501
57,340
977,498
307,377
52,000
64,657
57,340
481,374
Hurdled A
Hurdled B
Performance Rights
Performance Rights
11-May-04 11-May-07 10-May-11
05-Nov-07 04-Nov-11
05-Nov-04
19-Nov-08 18-Nov-10
18-Nov-05
25-Oct-09 24-Oct-11
24-Oct-06
1 Options granted pertains to those options granted, vested or exercised during the year, options yet to vest and any unexercised options.
2 Refer to section F10.1 for more details pertaining to hurdled A, hurdled B and index linked options.
3 Treatment of options on termination of employment is explained in section E of the Remuneration Report.
4 The exercise price for hurdled A & B options and index linked options is equal to the weighted average share price over the 5 trading days up to and including the grant date. The exercise price
for performance rights is nil. Note, the original exercise price of options issued prior to the Renouncable Rights issue in November 2003 have been reduced by 72 cents, because of the dilution
of share capital associated with the Renouncable Rights issue. Given index-linked options have a dynamic exercise price, the original exercise price is shown in F7 (refer to F10.1 for more details).
5 Refer to section F9 for details of the valuation methodology and inputs for performance rights granted in 2006 and 2007.
6 For the 2007 report, Performance Rights were granted on 30 October 2007 (before the report sign-off date). The allocation price was $12.96 with an expiry date of 5 years from the date of
grant. The number of Performance Rights granted to each disclosed executive is as follows: R Edgar 19,290; B Hartzer 65,586; G Hodges 57,870; P Hodgson 57,870; P Marriott 57,870;
A Thursby 46,296. These amounts relate to the 2008 financial year.
7 The maximum amortisation balance for each executive for subsequent financial years is as follows: R Edgar $684,141; B Hartzer $877,162; G Hodges $788,172; P Hodgson $643,108;
P Marriott $798,309; S Targett $806,544. The value will be nil however, if the minimum performance hurdles are not achieved.
8 E Funke Kupper forfeited unvested options on resignation.
9 S Targett was granted Hurdled Options to compensate for the loss of equity from his previous employer.
Remuneration Report 31
F8. OPTION HOLDINGS OF DISCLOSED EXECUTIVES (INCLUDING MOVEMENTS DURING THE 2006 & 2007 YEARS)
2007 Financial Year
Name
R Edgar
Type of
options
Hurdled
Index-Linked
Performance Rights
B Hartzer
Hurdled
G Hodges
P Hodgson
P Marriott
Index-Linked
Performance Rights
Hurdled
Index-Linked
Performance Rights
Hurdled
Index-Linked
Performance Rights
Hurdled
Index-Linked
Performance Rights
Other3
S Targett
Hurdled
Performance Rights
2006 Financial Year
Name
R Edgar
E Funke Kupper
B Hartzer
G Hodges
P Hodgson
P Marriott
S Targett
Type of
options
Hurdled
Index-Linked
Performance Rights
Hurdled
Index-Linked
Performance Rights
Hurdled
Index-Linked
Performance Rights
Hurdled
Index-Linked
Performance Rights
Hurdled
Index-Linked
Performance Rights
Hurdled
Index-Linked
Performance Rights
Other3
Hurdled
Performance Rights
Balance as at
1 Oct 2006
181,781
272,000
60,346
368,634
222,000
64,656
151,916
176,000
60,346
50,871
31,900
51,725
378,657
311,000
62,501
11,442
359,377
64,657
Granted during
the year as
remuneration
Resulting from
any other change
during year
–
–
45,872
–
–
64,985
–
–
57,340
–
–
45,872
–
–
57,340
–
–
57,340
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Value of options
granted during
the year1
$
–
–
600,006
–
–
850,004
–
–
750,007
–
–
600,006
–
–
750,007
–
–
750,007
Exercised during
the year
66,666
–
–
42,000
36,000
59,000
50,000
55,555
26,639
–
–
42,735
–
–
–
–
–
–
–
–
5,000
5,000
1,000
153,688
–
Balance as at
1 Oct 2005
Granted during
the year as
remuneration
Resulting from
any other change
during year5
Value of options
granted during
the year1
$
Exercised during
the year
181,781
272,000
–
146,004
250,000
–
368,634
222,000
–
219,316
176,000
–
50,871
31,900
–
546,657
311,000
–
11,442
359,377
–
–
–
60,346
–
–
45,518
–
–
64,656
–
–
60,346
–
–
51,725
–
–
62,501
–
–
64,657
–
–
–
(146,004)
(250,000)
(45,518)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
702,427
–
–
529,830
–
–
752,596
–
–
702,427
–
–
602,079
–
–
727,512
–
–
752,607
–
–
–
–
–
–
–
–
–
17,400
50,000
–
–
–
–
–
25,000
73,000
70,000
–
–
–
–
–
1 The value of options granted during the year is based on the fair value of the option multiplied by the number granted. Refer to section F9 for details of the valuation methodology and inputs.
2 The value per option used in this calculation is based on the difference between the volume weighted average price of the Company’s shares traded on the ASX on the day the options were
exercised, and the exercise price. This is then multiplied by the number granted.
3 Other refers to share options granted to a related party. 11,000 of these options were vested and exercisable as at 30 September 2006 and 442 at 30 September 2007.
32 ANZ Annual Report 2007
Date of exercise
of options
Number of ordinary
shares issued on
exercise of options
Value of options
exercised during
the year2
$
Share price on
date of exercise
of options
$
Amount paid
per share
$
15-Nov-06
–
–
16-May-07
16-May-07
16-May-07
16-May-07
16-May-07
16-May-07
–
–
14-Nov-06
–
–
–
–
–
–
–
–
17-May-07
17-May-07
17-May-07
11-May-07
–
66,666
–
–
42,000
36,000
59,000
50,000
55,555
26,639
–
–
42,735
–
–
–
–
–
–
–
–
5,000
5,000
1,000
153,688
–
765,326
–
–
693,000
473,400
675,550
572,500
662,771
299,955
–
–
488,461
–
–
–
–
–
–
–
–
93,000
77,450
16,710
1,887,289
–
29.03
–
–
29.48
29.48
29.48
29.48
29.48
29.48
–
–
28.98
–
–
–
–
–
–
–
–
29.69
29.69
29.69
30.50
–
17.55
–
–
12.98
16.33
18.03
18.03
17.55
18.22
–
–
17.55
–
–
–
–
–
–
–
–
11.09
14.20
12.98
18.22
–
Balance as at
30 Sept 20074
115,115
272,000
106,218
99,440
222,000
129,641
109,181
176,000
117,686
50,871
31,900
97,597
378,657
311,000
119,841
442
205,689
121,997
Date of exercise
of options
Number of ordinary
shares issued on
exercise of options
Value of options
exercised during
the year2
$
Share price on
date of exercise
of options
$
Amount paid
per share
$
Balance as at
30 Sept 20066
–
–
–
–
–
–
–
–
–
17-May-06
17-May-06
–
–
–
–
–
10-Nov-05
11-Nov-05
11-Nov-05
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17,400
50,000
–
–
–
–
–
25,000
73,000
70,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
158,166
454,500
–
–
–
–
–
342,000
511,730
371,700
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27.12
27.12
–
–
–
–
–
23.07
23.34
23.34
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18.03
18.03
–
–
–
–
–
9.39
16.33
18.03
–
–
–
–
–
181,781
272,000
60,346
–
–
–
368,634
222,000
64,656
151,916
176,000
60,346
50,871
31,900
51,725
378,657
311,000
62,501
11,442
359,377
64,657
4 Aggregate value of options exercised, granted and forfeited during the 2007 year for each disclosed executive is as follows: R Edgar $1,365,332;
B Hartzer $4,227,180; G Hodges $1,238,468; P Hodgson $600,006; P Marriott $937,167; S Targett $2,637,296.
5 Refers to forfeiture of options upon resignation for E Funke Kupper. Value of options on forfeiture was $2,229,912.
6 Aggregate value of options exercised, granted and forfeited during the 2006 year for each disclosed executive is as follows: R Edgar – $702,427;
E Funke Kupper – $2,229,912; B Hartzer – $752,596; G Hodges – $1,315,093; P Hodgson – $602,079; P Marriott – $1,952,942; S Targett – $752,607.
Remuneration Report 33
F9. OPTION VALUATIONS
Option type
Grant date
Option
value1
$
Exercise price
(5 day VWAP)
$
Share price
at grant
$
Performance Rights
Performance Rights
18-Nov-05
24-Oct-06
11.64
13.08
–
–
24.05
28.15
ANZ
expected
volatility2
%
15.00
15.00
Option
term
(years)
5
5
Vesting
period
(years)
Expected
life
(years)
3
3
4
4
Expected
dividend
yield3
%
5.00
4.80
Risk free
interest
rate4
%
5.31
6.00
1 PricewaterhouseCoopers and Mercer Finance & Risk Consulting independently valued these options. In accordance with AASB 2 the valuation model takes into account a range of factors to
determine the value of a Performance Right such as the life of the Rights, the probability of vesting, the price of the underlying shares at grant, expected volatility of the share price and the
dividends expected on the shares.
2 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is the
annualised standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical average
annualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options.
3 In estimating the fair value of the ANZ option grant, expected dividends were included in the application of the model. The expected dividend yield applied to the model was based on an
analysis of ANZ’s historical dividend payments and yields.
4 The risk-free interest rate is based on the implied yield currently available on zero-coupon bonds issued by the Australian government, with a remaining term equal to the expected life of
ANZ’s options.
hurdles also pertain to the options granted
to the CEO during the year:
1. Half the options may only be exercised
once ANZ’s TSR exceeds the percentage
change in the S&P/ASX 200 Banks (Industry
Group) Accumulation Index, measured over
the same period (since issue) and calculated
as at the last trading day of any month (once
the exercise period has commenced); and
2. The other half of hurdled options may
only be exercised once the ANZ TSR exceeds
the percentage change in the S&P/ASX 100
Accumulation Index, measured over the same
period (since issue) and calculated as at
the last trading day of any month (once the
exercise period has commenced).
Index-linked options (Granted from October
2002 to May 2003)
Index-linked options have a dynamic
exercise price that acts as a built-in
performance hurdle, i.e. the exercise price
is adjusted in line with the movement in
the S&P/ASX 200 Banks (Industry Group)
Accumulation Index (excluding ANZ). As an
additional constraint, the adjusted exercise
price can only be set at or above the original
exercise price. They are exercisable between
the 3rd and 7th year after grant date, subject
to the adjusted exercise price being above
the prevailing share price.
F10. LEGACY LONG TERM
INCENTIVE (LTI) PROGRAMS
F10.1 Options (Granted prior to
October 2005)
Each option has the following features:
An exercise price (or for index-linked
options, the original exercise price) that
is set equal to the weighted average sale
price of all fully paid ordinary shares in the
Company sold on the Australian Securities
Exchange during the 1 week prior to and
including the date of grant;
A maximum life of 7 years and an exercise
period that commences 3 years after the
date of grant, subject to performance hurdles
being met. Options are re-tested monthly
(if required) after the commencement of the
exercise period;
Upon exercise, each option entitles the
option-holder to one ordinary share;
In case of resignation or termination on
notice or dismissal for misconduct: options
are forfeited;
In case of redundancy: options are pro-
rated and a grace period is provided in which
to exercise the remaining options (with
hurdles waived, if applicable);
In case of retirement, death or total &
permanent disablement: a grace period is
provided in which to exercise all options
(with hurdles waived, if applicable); and
Performance hurdles, which are explained
below for each type of option.
Hurdled Options (Hurdled B) (Granted
November 2004)
In November 2004 hurdled options were
granted with a relative TSR performance
hurdle attached.
The proportion of options that become
exercisable will depend upon the TSR
achieved by ANZ relative to the companies
in the comparator group shown below.
Performance equal to the median TSR of
the comparator group will result in half the
options becoming exercisable. Performance
above median will result in further options
becoming exercisable, increasing on a
straight-line basis until all of the options
become exercisable where ANZ’s TSR is
at or above the 75th percentile in the
comparator group.
Comparator Group
AMP Limited
AXA Asia Pacifi c Holdings Limited
Commonwealth Bank of Australia
Insurance Australia Group Limited
Macquarie Bank Limited
National Australia Bank Limited
QBE Insurance Group Limited
St George Bank Limited
Suncorp-Metway Limited
Westpac Banking Corporation
Hurdled Options (Hurdled A) (Granted to
Executives from February 2000 until July
2002, and from November 2003 until May
2004. Granted to CEO from December 2001
until December 2004)
Until May 2004, hurdled options were granted
to executives with the following performance
hurdles attached. The following performance
34 ANZ Annual Report 2007
F10.2 Deferred Shares (Granted from
February 2000)
Deferred Shares granted under the LTI
arrangements were designed to reward
executives for superior growth whilst also
encouraging executive retention and an
increase in the Company’s share price.
Shares are subject to a time-based vesting
hurdle of 3 years, during which time they are
held in trust;
During the deferral period, the employee is
entitled to any dividends paid on the shares;
Shares issued under this plan may be held
in trust for up to 10 years;
The value used to determine the number of
LTI deferred shares to be allocated has been
based on the volume weighted average price
of the shares traded on the ASX in the week
leading up to and including the date of issue;
In case of resignation or termination on
notice or dismissal for misconduct: LTI shares
are forfeited;
In case of redundancy: the number of
LTI shares that are released is pro-rated
according to the time held as a proportion
of the vesting period; and
In case of retirement, death or total &
permanent disablement: LTI shares are
released to executives.
Deferred Shares no longer form part of
the executive remuneration program
detailed in section C, however there may
be circumstances (such as retention) where
this type of equity (including Deferred Share
Rights) will be issued.
F10.3 Performance Shares (Granted
December 2004 to CEO)
In December 2004 Performance Shares were
granted to the CEO of ANZ with a relative TSR
performance hurdle attached. The proportion
of shares that vest will depend upon the TSR
achieved by ANZ relative to the companies
in the comparator group shown below.
Performance equal to the median TSR of
the comparator group will result in half the
Performance Shares becoming exercisable.
Performance above median will result in
further Performance Shares becoming
exercisable, increasing on a straight-line basis
until all of the Performance Shares become
exercisable where ANZ’s TSR is at or above
the 75th percentile in the comparator group.
No dividends will be payable on the shares
until they vest, with the earliest possible
vesting date being 31 December 2006.
Comparator Group
AMP Limited
AXA Asia Pacifi c Holdings Limited
Commonwealth Bank of Australia
Insurance Australia Group Limited
Macquarie Bank Limited
National Australia Bank Limited
QBE Insurance Group Limited
St George Bank Limited
Suncorp-Metway Limited
Westpac Banking Corporation
COPY OF THE AUDITOR’S INDEPENDENCE
DECLARATION
Lead Auditor’s Independence Declaration
under Section 307C of the Corporations
Act 2001
To: the directors of Australia and New Zealand
Banking Group Limited
I declare that, to the best of my knowledge
and belief, in relation to the audit for the
fi nancial year ended 30 September 2007
there have been:
i) no contraventions of the auditor
independence requirements as set out in the
Corporations Act 2001 in relation to the audit;
and
ii) no contraventions of any applicable code of
professional conduct in relation to the audit.
KPMG
Melbourne
Michelle Hinchliffe
Partner
7 November 2007
Signed in accordance with a resolution
of the directors
Charles Goode
Chairman
Michael R P Smith
Director
7 November 2007
Remuneration Report 35
CORPORATE GOVERNANCE
A SOLID FOUNDATION AT ANZ
This report sets out ANZ’s annual statement on its corporate governance framework. Further details and copies/summaries
of relevant documents are contained on anz.com > about ANZ > Corporate Governance, including how ANZ has applied the
ASX Governance Principles (see below).
ANZ’s Board is responsible to shareholders
for the strategic guidance and oversight
of the Company as set out in its publicly
available Charter. The Board recognises its
overriding responsibility to act honestly,
fairly, and diligently, in accordance with
the law, in building sustainable value for
shareholders while acknowledging ANZ’s
shareholders, people, customers and
the communities in which it operates as
important stakeholders in an integrated
and responsible approach to business.
Corporate governance is an important
issue for ANZ and so receives close
scrutiny from the Governance Committee
which reports regularly to the Board. The
Board considers that a comprehensive
corporate governance framework provides
ANZ with a strong commercial advantage
– it enables the Board and ANZ to achieve
ethical and stewardship obligations and
at the same time facilitates the making of
effective and timely decisions.
In relation to governance, the Board seeks to:
embrace principles and practices
it considers to be best practice
internationally;
be an ‘early adopter’, where possible,
by complying before a published law or
recommendation takes effect; and
take an active role in discussions
regarding the development of corporate
governance best practice and associated
regulation in Australia and overseas.
COMPLIANCE WITH CORPORATE
GOVERNANCE CODES
ANZ has equity securities listed on the
Australian (ASX) and New Zealand (NZX)
Securities Exchanges and has debt
securities listed on these and other
overseas Securities Exchanges. As such,
ANZ must comply with a range of listing and
corporate governance requirements from
both Australia and overseas.
36 ANZ Annual Report 2007
AUSTRALIA
As a company listed on the ASX, ANZ is
required to disclose how it has applied
the Recommendations contained within
the ASX Corporate Governance Council’s
Principles of Good Corporate Governance
and Best Practice Recommendations (ASX
Governance Principles) during the fi nancial
year, explaining any departures from
them. In August 2007, the ASX Corporate
Governance Council issued a revised version
of the ASX Governance Principles which
will be effective in respect of ANZ’s 2009
reporting period.
ANZ actively contributed to the
development of the revised ASX Governance
Principles and is supportive of the “if
not, why not” disclosure approach to
governance enshrined within both the
current and revised ASX Governance
Principles. ANZ has complied with each
of the Recommendations contained
within the current ASX Governance
Principles throughout the fi nancial year,
and also complies with each of the
Recommendations contained within the
revised ASX Governance Principles.
NEW ZEALAND
As an overseas listed issuer on the NZX,
ANZ is deemed to comply with the NZX
Listing Rules provided that it remains listed
on the ASX, complies with the ASX listing
rules and provides the NZX with all the
information and notices that it provides
to the ASX. ANZ has complied with these
requirements during the fi nancial year.
The ASX Governance Principles differ from
the NZX’s corporate governance rules
and the principles of the NZX’s Corporate
Governance Best Practice Code. More
information about the corporate governance
rules and principles of the ASX can be found
at www.asx.com and, in respect of the NZX,
at www.nzx.com.
Irrespective of any differences, ANZ
complies with all applicable governance
principles and requirements both in
Australia and New Zealand.
OTHER JURISDICTIONS
United States of America – ANZ delisted its
American Depositary Receipts from the New
York Stock Exchange (NYSE) in July 2007,
and subsequently deregistered from the
US Securities and Exchange Commission.
As a result, ANZ is no longer required to
comply with certain corporate governance
requirements contained in US securities
laws, including applicable sections of the
Sarbanes-Oxley Act of 2002 and applicable
NYSE Listing Standards. While these steps
were taken to reduce administrative burdens
and costs, ANZ continues to be committed
to best practice in preparing its fi nancial
statements. ANZ will maintain the strong
control and fi nancial goverance frameworks
established under Sarbanes-Oxley
compliance, tailoring them to the Group’s
specifi c processes and procedures.
ANZ also monitors best practice
developments in corporate governance
across other relevant jurisdictions including
the US.
WEBSITE
Full details of the location of the references
in this statement (and elsewhere in the
Annual Report) which specifi cally set out
how ANZ applies each Recommendation
of both the current and revised ASX
Governance Principles are contained on
www.anz.com > about ANZ > Corporate
Governance.
This section of ANZ’s website also contains
copies of all the charters and summaries
of many of the documents and policies
mentioned in this report, as well as
summaries of other ANZ policies of interest
to shareholders and stakeholders. The
website is regularly updated to ensure
it refl ects ANZ’s most recent corporate
governance information.
DIRECTORS
Mr C B Goode, AC
B COM (HONS), MBA, HON LLD (MELB), HON LLD (MONASH)
Non-executive director since July 1991.
Mr Goode was appointed Chairman in
August 1995 and is an ex-offi cio member
of all Board Committees.
Skills, experience and expertise
Mr Goode has a background in the fi nance
and resources industries and has been a
professional non-executive director since
1989. Mr Goode brings a wide range of skills
and signifi cant experience of the fi nance
industry to his role as Chairman of the Board.
Chairman, Independent Non-Executive Director
Current Directorships
Chairman: Australian United Investment
Company Limited (Director from 1990),
Diversifi ed United Investment Limited
(Director from 1991), and The Ian Potter
Foundation Ltd (Director from 1987).
Member: International Council of the
Asia Society (from 2000), Asia Society
Australasia Centre (from 2003), AsiaLink
Council (from 2002) and The Global
Foundation (from 1999).
Former Directorships include
Former Chairman: Woodside Petroleum
Limited (Director 1988-2007, Chairman
1999-2007).
Former President: Howard Florey Institute
of Experimental Physiology and Medicine
(Director 1987-2006, President 1997-2004).
Former Director: Singapore Airlines Limited
(1999-2006).
Age 69. Residence Melbourne.
Mr M R P Smith, OBE
Chief Executive Offi cer, Executive Director
BSC (HONS)
Chief Executive Offi cer since 1 October 2007.
Skills, experience and expertise
Mr Smith is an international banker with 29
years experience in banking operations in
Asia, Australia and internationally. Until June
2007, he was President and Chief Executive
Offi cer, The Hongkong and Shanghai
Banking Corporation Limited, Chairman,
Hang Seng Bank Limited, Global Head of
Commercial Banking for the HSBC Group and
Chairman, HSBC Bank Malaysia Berhad.
Previously, Mr Smith was Chief Executive
Offi cer of HSBC Argentina Holdings SA.
Mr Smith joined the HSBC Group in 1978
and during his international career he has
held a wide variety of roles in Commercial,
Institutional and Investment Banking,
Planning and Strategy, Operations and
General Management.
Current Directorships
Director: ANZ National Bank Limited
(from 2007).
Member: Chongqing Mayor’s International
Economic Advisory Council (from 2006).
Fellow: The Hong Kong Management
Association (from 2005).
Former Directorships include
Former Chairman: HSBC Bank Malaysia
Berhad (2004-2007) and Hang Seng Bank
Limited (2005-2007).
Former CEO and Director: The Hong Kong
and Shanghai Banking Corporation Limited
(2004-2007).
Former Director: HSBC Australia Limited
(2004-2007), HSBC Finance Corporation
(2006-2007) and HSBC Bank (China)
Company Limited (2007).
Former Board Member: Visa International
Asia Pacifi c (2005-2007).
Age 51. Residence Melbourne.
Dr G J Clark
Independent Non-Executive Director, Chairman of the Technology Committee
BSC (HONS), PHD, FAPS, FTSE
Non-executive director since February 2004.
Dr Clark is a member of the Governance
Committee.
Skills, experience and expertise
Dr Clark is Principal of Clark Capital Partners,
a US-based fi rm that advises internationally
on technology and the technology market
place. Previously he held senior executive
positions in IBM, News Corporation, and Loral
Space and Communications. He brings to the
Board international business experience and
a distinguished career in micro-electronics,
computing and communications.
Former Directorships include
Former Director: James Hardie Industries NV
(2002-2006) and Acton Semiconductor
Pty Limited (2001-2005).
Current Directorships
Chairman: GPM Classifi ed Directories
(from 2007).
Director: Babcock & Brown Capital Limited
(from 2006) and KaComm Communications
Pty Ltd (from 2006).
Age 64. Residence based in New York,
United States of America but also resides
in Sydney.
Corporate Governance 37
Mr J K Ellis
Independent Non-Executive Director
MA, FAICD, HON FIE AUST, FAUS IMM,
FTSE, HON DR ENG (CQU)
Non-executive director since October 1995.
Mr Ellis is a member of the Audit Committee
and the Technology Committee.
Skills, experience and expertise
Mr Ellis brings to the Board his analytical
skills together with his practical
understanding of operational issues,
investments and acquisitions arising from
his involvement across a range of sectors
including natural resources, manufacturing,
biotechnology and education.
Current Directorships
Chairman: Future Directions International
Pty Ltd (Director from 2003), Landcare
Australia Limited (from 2004), Golf Australia
(from 2005), and the Earth Resources
Development Council (from 2006).
Chancellor: Monash University (from 1999).
Member: Pacifi c Road Corporate Finance
Pty Limited Advisory Board (from 2002),
The Sentient Group Advisory Council
(from 2001) and Anglo American plc’s
Australian Advisory Board (from 2006).
Former Directorships include
Former Chairman: The Broken Hill
Proprietary Company Limited (Director
1991-1999, Chairman 1997-1999), Pacifi ca
Group Limited (Chairman and Director
1999-2007), Black Range Minerals Limited
(Chairman and Director 2000-2004),
Australia–Japan Foundation (1999-2005)
and National Occupational Health & Safety
Commission (2003-2005).
Former Director: GroPep Limited (2000-2005).
Age 70. Residence Melbourne.
Ms M A Jackson, AC
Independent Non-Executive Director, Chairman of the People Committee
BEC, MBA, HON LLD (MONASH), FAICD, FCA
Non-executive director since March 1994.
Ms Jackson is a member of the Audit
Committee.
Skills, experience and expertise
A Chartered Accountant, with signifi cant
fi nancial expertise, Ms Jackson has broad
industrial and commercial experience
including her involvement in transportation,
mining, the media, manufacturing and
insurance. This expertise coupled with her
work in health and education contribute to
her role on the Board.
Current Directorships
Chairman: Qantas Airways Limited (Director
from 1992), FlexiGroup Limited (from 2006)
and Asia Pacifi c Business Coalition on HIV/
AIDS (from 2006).
President: Australian Volunteers International
(from 2006).
Director: Billabong International Limited
(from 2000), Florey Neuroscience Institutes
(from 2007) and Australian Tissue
Engineering Centre (from 2006).
Former Directorships include
Former Deputy Chairman: Southcorp Limited
(Deputy Chairman and Director 2004-2005).
Former Co-Chairman: Australia NZ
Leadership Forum (2003-2006).
Former Director: John Fairfax Holdings
Limited (2003-2004) and Howard Florey
Institute of Experimental Physiology and
Medicine (1998-2006).
Former Partner: Consulting Division of KPMG
Peat Marwick (1991-1992).
Age 54. Residence Melbourne.
Mr I J Macfarlane, AC
Independent Non-Executive Director, Chairman of the Governance Committee
BEC (HONS), MEC, HON DSC (SYD), HON DCOM (MELB),
HON DLITT (MACQ), HON LLD (MONASH)
Non-executive director since February 2007.
Mr Macfarlane is a member of the Risk
Committee and the Technology Committee.
Skills, experience and expertise
During his 28 year career at the Reserve
Bank of Australia including a 10 year
term as Governor, Mr Macfarlane made a
signifi cant contribution to economic policy
in Australia and internationally. He has a
deep understanding of fi nancial markets as
well as a long involvement with Asia.
Current Directorships
Director: Woolworths Limited (from 2007),
Leighton Holdings Limited (from 2007), and
the Lowy Institute for International Policy
(from 2004).
Member: International Advisory Board of
Goldman Sachs International (from 2007).
Former Directorships include
Former Chairman: Payments System Board
(1998-2006), Australian Council of Financial
Regulators (1998-2006), and Financial
Markets Foundation for Children (1996-2006).
Former Governor: Reserve Bank of Australia
(Member 1992-2006, Chairman 1996-2006).
Age 61. Residence Sydney.
38 ANZ Annual Report 2007
38 ANZ Annual Report 2007
Mr D E Meiklejohn
Independent Non-Executive Director, Chairman of the Audit Committee
B COM, DIP ED, FCPA, FAICD, FAIM
Non-executive director since October 2004.
Mr Meiklejohn is a member of the Governance
Committee and the Risk Committee.
Skills, experience and expertise
Mr Meiklejohn has a strong background in
fi nance and accounting. He also brings to
the Board his experience across a number of
directorships of major Australian companies
spanning a range of industries.
Current Directorships
Chairman: PaperlinX Limited (Director from
1999).
Director: Coca Cola Amatil Limited (from
2005) and Mirrabooka Investments Limited
(from 2006).
President: Melbourne Cricket Club
(Committee member from 1987).
Former Directorships include
Former Chairman: SPC Ardmona Limited
(Chairman and Director 2002-2005).
Former Deputy Chairman: GasNet Australia
Limited (Deputy Chairman and Director
2001-2004).
Former Director: WMC Resources Limited
(2002-2005) and OneSteel Limited
(2000-2005). Director and Chief Financial
Offi cer Amcor Limited (1985-2000).
Age 65. Residence Melbourne.
Mr J P Morschel
DIPQS, FAIM
Non-executive director since October 2004.
Mr Morschel is a member of the People
Committee.
Skills, experience and expertise
Mr Morschel has a strong background in
banking, fi nancial services and property and
brings the experience of being a Chairman
and Director of major Australian and
international companies.
BOARD RESPONSIBILITY AND
DELEGATION OF AUTHORITY
The Board is chaired by an independent
non-executive Director. The roles of the
Chairman and Chief Executive Offi cer are
separate, and the Chief Executive Offi cer is
the only executive Director on the Board.
ROLE OF THE CHAIRMAN
The Chairman plays an important leadership
role and is involved in:
chairing meetings of the Board and
providing effective leadership to it;
monitoring the performance of the Board
(including overseeing the process) and
the mix of skills and effectiveness of
individual contributions;
being a member of all principal Board
Committees;
maintaining ongoing dialogue with the
Chief Executive Offi cer and providing
appropriate mentoring and guidance; and
Independent Non-Executive Director, Chairman of the Risk Committee
Current Directorships
Director: Singapore Telecommunications
Limited (from 2001), Tenix Pty Limited (from
1998) and Gifford Communications Pty
Limited (from 2000).
Former Directorships include
Former Chairman: Rinker Group Limited
(Chairman and Director 2003-2007) and
Leighton Holdings Limited (Chairman and
Director 2001-2004).
Former Director: Rio Tinto Plc (1998-2005),
Rio Tinto Limited (1998-2005), Westpac
Banking Corporation (1993-2001) and Lend
Lease Corporation Limited (1983-1995).
Age 64. Residence Sydney.
being a respected ambassador for
ANZ, including chairing meetings of
shareholders and dealing with key
customer, political and regulatory parties.
BOARD CHARTER
The Board Charter clearly sets out the
Board’s purpose, powers, and specifi c
responsibilities.
The Board is responsible for:
charting the direction, strategies
and fi nancial objectives for ANZ and
monitoring the implementation of
those policies, strategies and fi nancial
objectives;
monitoring compliance with regulatory
requirements, ethical standards and
external commitments; and
appointing and reviewing the performance
of the Chief Executive Offi cer.
In addition to the above and any matters
expressly required by law to be approved by
the Board, powers specifi cally reserved for
the Board include:
approval of appointment of Senior
Executives to roles leading ANZ
businesses or functions and reporting
to the Chief Executive Offi cer;
any matters in excess of any discretions
delegated to the Chief Executive Offi cer
and senior management;
annual approval of the budget and
strategic plan;
annual approval of the remuneration
and conditions of service for any
executive Directors, direct reports to
the Chief Executive Offi cer and other
key executives;
signifi cant changes to organisational
structure;
the acquisition, establishment, disposal
or cessation of any signifi cant business;
Corporate Governance 39
the issue of ANZ shares or other ANZ
equity securities;
any public statements which refl ect
signifi cant issues of ANZ policy or
strategy; and
any changes to the discretions delegated
from the Board.
The Board may delegate any of its powers
and responsibilities to Committees of the
Board (see pages 43 to 45).
Key 2007 fi nancial year highlights included:
Appointment of the new Chief Executive
Offi cer following a global search.
Appointment of Mr I J Macfarlane as an
independent non-executive Director.
ANZ ranked the most sustainable bank
globally in the Dow Jones Sustainability
Index.
ANZ named 2007 Money magazine Bank
of the Year.
Establishing a new Asia Pacifi c Division
and fi nalising a number of international
partnerships.
Overseeing the ETrade Australia
acquisition.
BOARD MEETINGS
The Board normally meets at least 8 times
each year, including an offsite strategy meeting.
Typically at Board meetings the agenda will
include:
minutes of the previous meeting, and
outstanding issues raised by Directors at
previous meetings;
the Chief Executive Offi cer’s report;
the Chief Financial Offi cer’s report;
Divisional Executive reports;
specifi c business proposals;
reports from Chairs of Committees which
have met since the last Board meeting on
matters considered at those meetings; and
for review, the minutes of Committee
meetings which have occurred since the
last Board meeting.
There are two private sessions held at
the end of each Board meeting which are
chaired by the Chairman of the Board.
The fi rst involves all Directors including
the CEO, and the second involves only the
non-executive Directors.
On a revolving basis, a Director is appointed
at each Board meeting to formally critique
the meeting and this critique is presented at
the end of the meeting and is minuted.
40 ANZ Annual Report 2007
The Chief Financial Offi cer usually also
attends all Board meetings. The Senior
Managing Director, Divisional Heads and
other members of Senior Management
attend Board meetings when an issue
under their areas of responsibility is being
considered or as otherwise requested
by the Board.
CEO AND DELEGATION TO
MANAGEMENT
The Board delegates to the Chief Executive
Offi cer, and through the Chief Executive
Offi cer to other senior management, the
authority and responsibility for managing
the everyday affairs of ANZ. The Board
monitors management and performance
on behalf of shareholders.
The Group Discretions Policy details the
comprehensive discretions framework
that applies within ANZ and to employees
appointed to operational roles or
directorships of related entities.
The Group Discretions Policy is maintained
by the Chief Financial Offi cer and reviewed
annually by the Audit Committee with the
outcome of this review reported to the Board.
BOARD COMPOSITION, SELECTION
AND APPOINTMENT
The Board strives to achieve a balance of
skills, knowledge, experience, tenure and
perspective among its Directors. Details
regarding the skills, experience and
expertise of each Director in offi ce at the
date of this Annual Report can be found
on pages 37 to 39.
The Governance Committee (see page 44)
has been delegated responsibility for the
director nomination process. The Committee
regularly reviews the size and composition
of the Board and Board Committees and
assesses whether there is a need for any
new non-executive Director appointments.
Nominations may be provided from time
to time to the Chairman of the Governance
Committee. The Committee also reviews and
recommends the process for the election
of the Chairman of the Board and reviews
succession planning for the Chairman of
the Board, making recommendations to the
Board as appropriate.
The Committee assesses potential
candidates against Board approved
selection criteria including integrity,
fi tness and propriety, skills, qualifi cations,
experience, communication capabilities
and community standing. If found
suitable, and where there is a need for
any new appointments, candidates are
recommended to the Board. Otherwise,
the Chairman of the Committee maintains
names of suitable candidates for succession
purposes. The Chairman of the Board is
responsible for approaching potential
candidates. During the course of the year,
this process was formalised in a new Board
Renewal and Performance Evaluation Policy.
Each new non-executive Director receives an
appointment letter accompanied by:
Directors’ Handbook – The Handbook
includes information on a broad range
of matters relating to the role of a Director,
including details of all applicable policies.
Directors’ Deed – Each Director signs
a Deed in the form approved by
shareholders at the 2005 Annual
General Meeting which covers a
number of issues including indemnity,
directors’ and offi cers’ liability
insurance, the right to obtain independent
advice and requirements concerning
confi dential information.
UNDERTAKING INDUCTION TRAINING
Every new Director takes part in a formal
induction program which involves the
provision of information regarding ANZ’s
values and culture, the Group’s governance
framework, the Directors’ Code of Conduct
and Director related policies, Board and
Committee policies, processes and key
issues, fi nancial management and business
operations, and is briefed individually
by senior management about matters
concerning their area of responsibility.
MEETING SHARE QUALIFICATION
Non-executive Directors are required to
accumulate within 5 years of appointment,
and thereafter maintain, a holding in ANZ
shares that is equivalent to at least 100%
of a non-executive Director’s base fee
(and 200% of this fee in the case of the
Chairman).
ELECTION AT NEXT ANNUAL GENERAL
MEETING
Subject to the provisions of ANZ’s
Constitution and the Corporations Act
2001, the Board may appoint a person as
a non-executive Director of ANZ at any time
but that person must retire, and may seek
election by shareholders, at the next Annual
General Meeting.
FIT AND PROPER
ANZ has an effective and robust framework
in place to ensure that individuals
appointed to relevant senior positions
within the Group have the appropriate
fi tness and propriety to properly discharge
their prudential responsibilities both on
appointment and throughout the course of
their appointment.
The framework, set out in ANZ’s Fit and
Proper Policy, addresses the requirements
of APRA’s Fit and Proper Prudential
Standard. It involves assessments being
carried out for each Director, relevant senior
executive and the external auditor prior
to a new appointment being made. These
assessments are carried out against a
benchmark of documented competencies
which have been prepared for each
role, and also involve attestations being
completed by each individual, as well
as the obtaining of evidence of material
qualifi cations and the carrying out of checks
such as criminal record, bankruptcy and
regulatory disqualifi cation checks.
These assessments are reviewed thereafter
on an annual basis.
The Governance Committee and the Board
have responsibility for assessing the fi tness
and propriety of non-executive Directors.
The People Committee is responsible
for assessing the fi tness and propriety
of the Chief Executive Offi cer and key
senior executives. The Audit Committee is
responsible for assessing the fi tness and
propriety of the external auditor.
INDEPENDENCE AND MATERIALITY
Under ANZ’s Board Charter, the Board
must contain a majority of non-executive
Directors who satisfy ANZ’s criteria for
independence. The Board Charter sets out
independence criteria in order to establish
whether a non-executive Director may
have a relationship with ANZ which could
(or could be perceived to) impede their
decision-making.
All non-executive Directors are required to
notify the Chairman of a potential change
in their outside Board appointments.
The Chairman reviews the proposed
appointments and will consult with other
Directors as the Chairman deems appropriate.
In the 2007 fi nancial year, the Board
conducted its annual review of criteria for
independence against international best
practices including the ASX Governance
Principles, NZX and NYSE Corporate
Governance Standards, and the US
Sarbanes-Oxley Act of 2002.
ANZ’s criteria are more comprehensive than
those set in most jurisdictions including
criteria stipulated specifi cally for audit
committee members. The criteria and review
process are both set out in the Corporate
Governance section of ANZ’s website.
In summary, a relationship with ANZ is
regarded as material if a reasonable person
would expect there to be a real and sensible
possibility that it would infl uence
a Director’s mind in:
making decisions on matters likely to
come regularly before the Board or its
Committees;
objectively assessing information and
advice given by management;
setting policy for general application
across ANZ; and
generally, carrying out the performance
of his or her role as a Director.
During 2007, the Board considered each
non-executive Director’s independence and
concluded that the independence criteria
were met by each non-executive Director.
The Board noted a corporate customer/
supplier relationship associated with one
non-executive Director as follows:
Ms Jackson is Chairman of Qantas Airways
Limited. ANZ has commercial relationships
with Qantas as a partner in the co-branded
ANZ Frequent Flyer Visa Cards, and ANZ also
acquires travel services from Qantas.
The Board concluded that having regard
to the nature and value of the commercial
relationship and the materiality criteria
described above, Ms Jackson remains
independent.
Directors’ biographies on pages 37 to
39 and on anz.com highlight their major
associations outside of ANZ.
CONFLICTS OF INTEREST
Over and above the issue of independence,
each Director has a continuing responsibility
to determine whether he or she has a
potential or actual confl ict of interest in
relation to any material matter which comes
before the Board. Such a situation may arise
from external associations, interests or
personal relationships.
Under the Directors Disclosure of Interest
Policy and Policy for Handling Confl icts of
Interest, a Director may not exercise any
infl uence over the Board if a potential
confl ict of interest exists. In such
circumstances, the Director may not receive
relevant Board papers and, unless the other
Directors have resolved to the contrary, may
not be present for Board deliberations on
the subject, and may not vote on any
related Board resolutions. These matters,
should they occur, are recorded in the
Board minutes.
INDEPENDENT ADVICE
In order to assist Directors in fulfi lling their
responsibilities, each Director has the right
(with the prior approval of the Chairman)
to seek independent professional advice
regarding his/her responsibilities at the
expense of ANZ. In addition, the Board and
each Committee, at the expense of ANZ,
may obtain whatever professional advice
it requires to assist in its work.
TENURE AND RETIREMENT
ANZ’s Constitution provides that an election
of Directors must be held at each Annual
General Meeting. Each non-executive
Director must retire from offi ce at the third
Annual General Meeting after being elected
or last re-elected, and may seek re-election.
A new Director appointee must stand for
election at the fi rst Annual General Meeting
after their appointment. These requirements
do not apply to the Chief Executive Offi cer,
whose appointment is a matter for the
Board.
In the opinion of the Board, the length of
service of a non-executive Director is not an
automatic disabling criterion affecting that
Director’s independence.
It is Board policy that the majority of the
non-executive Directors will have served
less than 9 years, except in circumstances
of an even number of non-executive
Directors in which case it will be fi fty percent
or more. The Board maintains that having
some Board members with a length of
service greater than 9 years is benefi cial in
complex organisations that are subject to
signifi cant economic cycles.
It is also Board policy that Directors
appointed since July 1993 will, except in
unusual circumstances, retire after 15 years
of service as a Director of ANZ.
During the 2007 fi nancial year, Mr David
Gonski (June 2007) and Mr John McFarlane
(September 2007) retired from the Board as
an independent non-executive Director and
Corporate Governance 41
executive Director respectively. In addition,
Mr Ian Macfarlane (February 2007) and Mr
Michael Smith (October 2007) joined the
Board as an independent non-executive
Director and executive Director respectively.
CONTINUING EDUCATION
ANZ Directors take part in a range of training
and continuing education programs. In
addition to a formal induction program (see
page 40), Directors also receive a quarterly
newsletter designed to keep them abreast
of matters relating to their duties and
responsibilities as Directors.
Each Committee also conducts its own
continuing education sessions from time
to time as appropriate. Internal and/or
external experts are engaged to conduct
all education sessions.
Directors also receive regular Divisional
briefi ngs at Board meetings. These briefi ngs
provide Directors with an insight into
each area of ANZ’s business, in particular,
performance, key issues, risks and
strategies for growth. In addition, Directors
participate in site visits from time to time
which provide them with the opportunity to
meet with staff and customers.
ACCESS TO DIRECTORS
Management is able to consult Directors as
required on a regular basis. Employees have
access to the Directors directly or through
the Company Secretary. Shareholders who
wish to communicate with the Directors
may direct correspondence to a particular
Director, or to the non-executive Directors
as a whole.
ROLE OF COMPANY SECRETARY
The Board is responsible for the
appointment of ANZ’s Company Secretaries.
The Board has appointed three Company
Secretaries.
The Group General Counsel and Company
Secretary is normally in attendance at
all Board and Committee meetings, and
prepares minutes and provides legal advice
to the Board as and when required. He
works closely with the Chairman of the
Governance Committee to develop and
maintain ANZ’s corporate governance
principles, and is responsible to the Board
for the Company Secretary’s Offi ce function.
42 ANZ Annual Report 2007
The Company Secretary is responsible for
the day-to-day operations of the Company
Secretary’s Offi ce including lodgements
with relevant securities exchanges and
other regulators, the administration of
Board and Board Committee meetings, the
management of dividend payments and
associated share plans, the administration
of the Group’s Australian subsidiaries and
oversight of the relationship with ANZ’s
Share Registrar.
The Chief Financial Offi cer is also appointed
as a Company Secretary. Profi les of ANZ’s
Company Secretaries can be found in the
Directors’ Report on page 11.
PERFORMANCE EVALUATIONS
Performance evaluations covering the
Board, each non-executive Director and
each principal Board Committee are
conducted annually, with the process set
out in the Board Renewal and Performance
Evaluation Policy approved by the
Governance Committee and described
below. The process and all associated
documentation are reviewed by an
independent third party.
Details of how the performance evaluation
process is undertaken in respect of the
Chief Executive Offi cer (by the Board)
and other key senior executives (by
the People Committee), including how
fi nancial, operational and qualitative
measures are assessed, are set out in the
Remuneration Report commencing on page
14. Performance evaluations were carried
out on this basis in respect of the 2006/07
reporting period.
BOARD, BOARD COMMITTEES
AND INDIVIDUAL DIRECTORS
The framework used to assess the
performance of Directors is based on the
expectation they are performing their
duties in a manner which should create
and continue to build sustainable value for
shareholders, and in accordance with the
duties and obligations imposed upon them
by ANZ’s Constitution and the law.
The performance criteria take into account
each Director’s contribution to:
the charting of direction, strategy and
fi nancial objectives for ANZ;
the monitoring of compliance with
regulatory requirements and ethical
standards;
the monitoring and assessing of
management performance in achieving
strategies and budgets approved by
the Board;
the setting of criteria for, and evaluation
of, the Chief Executive Offi cer’s
performance; and
the regular and continuing review of
executive succession planning and
executive development activities.
Board, Board Committee and non-executive
Director performance evaluations are
conducted in the following ways:
Annual review – On an annual basis,
the Chairman has a one-on-one meeting
with each Director specifi cally addressing
the performance criteria. In addition,
they discuss the effectiveness of the
Board and related issues including the
Board’s oversight and contribution to the
Company, Board discussion (including the
performance of the non-executive Directors
and the Chairman), Board memberships,
Committees, and other relevant issues
including compliance with the Directors’
Code of Conduct. They also discuss the
performance of the Board against its
Charter and goals set for the year. A report
is provided to the Governance Committee
and the Board on the outcome of these
meetings.
Board Committees – Board Committee
performance self-evaluations are conducted
annually to review performance against the
Committee Charter and goals set for the
year. The suitability of the Charter and any
areas for improvement are also assessed.
The review and stated objectives for the
new fi nancial year are submitted to the
Governance Committee (and to the Board in
the case of the Governance Committee).
Questionnaires – On an annual basis,
each Director is also asked to complete a
questionnaire setting out their views on the
roles and responsibilities of the Board, the
Chairman and the Directors as well as the
effectiveness and performance of the Board,
the Chairman, the Board’s Committees
and each Committee Chairman. The
questionnaires are returned to the Chairman
of the Governance Committee who presents
the fi ndings to the Governance Committee
and the Board.
The Board also seeks input from senior
management in relation to the clarity of
the respective roles of the Board and
senior management, the effectiveness of
their relationship, the level of information
provided to the Board, and potential areas
for process improvement. This input is
collated by the Chairman of the Governance
Committee and reported to the Governance
Committee and the Board.
Re-election statement – Directors when
nominating for re-election may submit
a written or oral statement to the Board
setting out the reasons why they seek
re-election. In the Director’s absence, the
Board evaluates this statement and the
Director’s performance (having regard to
the performance criteria) and resolves
whether to endorse the relevant Director’s
re-election.
Evaluations in accordance with the above
processes have been undertaken in respect
of the 2006/07 reporting period.
BOARD COMMITTEES
ANZ’s Board has fi ve principal Board
Committees: Audit Committee, Governance
Committee, People Committee, Risk
Committee and Technology Committee.
MEMBERSHIP AND ATTENDANCE
Each of the principal Board Committees
is comprised solely of independent
non-executive Directors, has its own
Charter and has the power to initiate
any special investigations it deems
necessary. Committee membership
is reviewed annually.
Membership criteria are based on each
Director’s skills and experience, as well as
his/her ability to add value and commit
time to the Committee.
The Chairman is an ex-offi cio member of
each principal Board Committee. The Chief
Executive Offi cer is invited to attend Board
Committee meetings as appropriate. His
presence is not automatic, however, and
he does not attend any meeting where his
remuneration is considered or discussed,
nor does he attend private sessions of
Committees where they meet in the absence
of management. Non-executive Directors
may attend any meeting of any Committee.
Each Board Committee may, within
the scope of its responsibilities, have
unrestricted access to management,
employees and information it considers
relevant and necessary to carrying out
its responsibilities under its Charter.
Each Board Committee may require the
attendance of any ANZ offi cer or employee,
or request the attendance of any external
party, at meetings as appropriate.
MEETINGS
The principal Board Committees plan
their annual agenda following a process
approved by the Board. The executives who
are appointed to assist the Chairman of
each Board Committee as a group, review
the calendars of business prepared by
each Committee to identify any potential
gaps and unnecessary overlaps between
the Committees. Any issues arising from
this are reported to, and resolved by, the
relevant Committee Chairmen. The results
of this process are then reported to the
Governance Committee to assist the Board
in fulfi lling its oversight responsibilities in
respect of the delegations it has made to
the various Board Committees.
Committees report at the next Board
meeting through the Committee Chairmen.
When there is a cross-Committee item, the
Committees will communicate with each
other through their Chairmen. Throughout
the year, Committee Chairmen also conduct
agenda planning meetings involving
relevant stakeholders to take account
of emerging issues.
AUDIT COMMITTEE
The Audit Committee is responsible for
oversight and monitoring of:
ANZ’s fi nancial reporting principles and
policies, controls and procedures;
the work of Internal Audit which reports
directly and solely to the Chairman of the
Audit Committee (refer to Internal Audit
on page 46 for more information);
the Audit Committees of subsidiary
companies such as ANZ National Bank
Limited; and
the integrity of ANZ’s fi nancial
statements, compliance with regulatory
requirements and the independent audit
thereof.
The Audit Committee is also responsible for:
the appointment, evaluation and
oversight of the external auditor,
including reviewing their independence
and fi tness and propriety;
compensation of the external auditor; and
where appropriate, replacement of the
external auditor.
Under the Committee Charter, all members
of the Audit Committee must be fi nancially
literate.
ANZ BOARD COMMITTEE MEMBERSHIPS – from 1 October 2006 – 30 September 2007*
Audit
People
Governance
Risk
Mr D E Meiklejohn C, FE
Ms M A Jackson C
Ms M A Jackson FE
Mr J K Ellis
Mr C B Goode (ex-offi cio)
Mr I J Macfarlane
(member from 1/3/2007)
Mr J P Morschel
Mr C B Goode (ex-offi cio)
Mr I J Macfarlane C
(member from 1/3/2007,
Chairman from 1/7/2007)
Dr G J Clark
Mr D E Meiklejohn
Mr C B Goode (ex-offi cio)
Mr J P Morschel C
Mr J K Ellis
Mr D E Meiklejohn
Mr C B Goode (ex-offi cio)
Technology
Dr G J Clark C
Mr I J Macfarlane
(member from 1/3/2007))
Mr C B Goode (ex-offi cio)
C – Chairman, FE – Financial Expert
*Mr I J Macfarlane
Appointed Director on 16 February 2007.
Member of People, Governance and Technology Committees from 1 March 2007 and Chairman of Governance Committee from 1 July 2007.
Chairman of Governance Committee and member of Risk Committee prior to retirement from Board on 30 June 2007.
*Mr D M Gonski
*For Board Committee memberships as at the date of this report, please see the Directors’ biographies on pages 37 to 39.
Corporate Governance 43
Mr Meiklejohn (Chair) and Ms Jackson
(member) were determined to be ‘fi nancial
experts’ for the 2007 fi nancial year for
the purposes of the US Sarbanes-Oxley
Act of 2002. Refer to pages 38 and 39 for
their qualifi cations. While the Board has
determined that Mr Meiklejohn and Ms
Jackson have the necessary attributes to
be ‘fi nancial experts’ within the meaning
of US laws, it is important to note that they
have no responsibilities additional to those
of other members of the Audit Committee
because of this.
The Audit Committee meets with the
external auditor without management
being present. The Chairman of the
Audit Committee meets separately and
regularly with the Group General Manager,
Internal Audit, the external auditor and
management.
The Group General Manager, Finance
has been appointed as the executive
responsible for assisting the Chairman of
the Committee.
Key 2007 fi nancial year highlights included:
Reviewing of reporting processes –
Following transitioning to Australian
Equivalents of International Financial
Reporting Standards (AIFRS) in 2006,
the Committee has overseen further
streamlining of reporting processes to
enhance the effectiveness and effi ciency
of ANZ’s Finance function.
Overseeing the controls over fi nancial
reporting – The Committee oversaw the
building of compliance with Section
404 of the US Sarbanes-Oxley Act
(SOX) into a fully integrated fi nancial
governance framework. This framework
is leveraging the SOX investment and
providing ongoing assurance about the
effectiveness of internal controls over
fi nancial reporting.
Addressing ANZ Internal Audit staff –
The Chairman of the Audit Committee
addressed ANZ Internal Audit staff as
part of the Committee’s ongoing interest
in reminding internal audit staff of the
importance of internal controls over
fi nancial reporting and what the Audit
Committee expects from Internal Audit.
44 ANZ Annual Report 2007
GOVERNANCE COMMITTEE
The Governance Committee is responsible
for:
identifying and recommending
prospective Board members and
succession planning for the position
of Chairman (see page 40);
reviewing and approving procedures
for the oversight and evaluation of
the performance of the Board, Board
Committees and non-executive Directors
(see page 42);
ensuring an appropriate Board and Board
Committee structure is in place;
reviewing and approving the Charters
for each Board Committee except its
own, which is reviewed and approved
by the Board;
reviewing the development of and
approving corporate governance policies
and principles applicable to ANZ; and
reviewing and approving management’s
proposed corporate responsibility
objectives and strategies for ANZ.
The Group General Counsel and Company
Secretary has been appointed as the
executive responsible for assisting the
Chairman of the Committee.
Key 2007 fi nancial year highlights included:
Board Composition – The Committee
proposed changes to Board composition.
Monitoring changes to domestic and
overseas legislation and regulations –
The Committee received regular updates
on changes to relevant legislation and
regulations and considered potential
impacts on ANZ’s customers, staff,
operations and the community. The
Committee oversaw related changes to
relevant Codes, Charters, policies and
procedures.
Review and approval of the Bank’s
submission on proposed revisions to the
ASX Governance Principles.
Performance Evaluation – The Committee
approved the Board Renewal and
Performance Evaluation Policy and
conducted reviews under the Policy.
PEOPLE COMMITTEE
The People Committee is responsible
for reviewing and approving the Group’s
compensation programs including any
equity-based programs, compensation
levels and policy guidelines (details in the
Remuneration Report on pages 14 to 35).
The Committee also evaluates the
performance of and approves the
compensation for Board Appointees and
makes recommendations to the Board
on matters relating to the Chief Executive
Offi cer (details in the Remuneration Report
on pages 14 to 35).
The Group General Manager, People Capital
and Breakout has been appointed as the
executive responsible for assisting the
Chairman of the Committee.
Key 2007 fi nancial year highlights included:
Annual review of remuneration for
non-executive Directors, the Chief
Executive Offi cer and direct reports to
Chief Executive Offi cer, and review of the
reward structure for the senior executive
population.
Review of succession plans – The
Committee conducted reviews of the
current succession plans for the Chief
Executive Offi cer, Chief Executive Offi cer’s
direct reports and other business-critical
roles.
Preparation of the 2006 Remuneration
Report.
Fit and Proper – The Committee completed
Fit and Proper assessments for Board
Appointees.
Review of remuneration matters
associated with the CEO succession.
Review of long-term incentive
arrangements for senior executives.
Review of Global Superannuation
arrangements, Health and Safety, and
Diversity at ANZ.
For more details on the activities of the
People Committee, please refer to the
Remuneration Report on pages 14 to 35.
RISK COMMITTEE
The Risk Committee is responsible for
overseeing, monitoring and reviewing the
Group’s risk management principles and
policies, strategies, processes and controls
including credit, market, liquidity, balance
sheet, operational risk and compliance.
It is also authorised to approve credit
transactions and other related matters
beyond the approval discretion of executive
management. The Chief Risk Offi cer is the
executive responsible for assisting the
Chairman of the Committee.
Key 2007 fi nancial year highlights included:
Embedding the Risk Appetite Framework
across the Divisions – The Committee put
particular focus on strategic and portfolio
issues in the past year. Considerable
effort was channelled into risk appetite,
asset writing strategies, reputational risk,
and model risk. Frameworks are being
implemented across the businesses.
Increased stress testing scenarios – The
Committee reviewed a number of stress
tests designed to assess how the Group
would perform under certain economic
downturn scenarios. Scenarios included
both Australia and New Zealand and a
mild recession and a liquidity crisis. A
number of specifi c portfolios were stress
tested, including rural and regional
Australia for drought impact.
Compliance – ANZ has a number of
initiatives underway to strengthen its
compliance with laws, codes of conduct
and related ANZ policies in each of
the countries where it operates. The
initiatives will enable ANZ to strive to
meet the Board defi ned appetite of “zero
tolerance” for compliance breaches. A key
initiative has been to explicitly recognise
compliance as its own unique risk within
the organisation through signifi cant
investment in capability development
across our people, processes and culture.
This initiative has for example seen the
development and recent implementation
of a renewed “Compliance Framework”
which provides structure and support for
embedding compliance as “everybody’s
business” in our organisation. ANZ views
effective compliance risk management
as fundamental to achieving its strategic
aspirations.
Basel II accreditation requirements
(including new Pillar III market disclosure
requirement) – ANZ made signifi cant
progress towards Basel II accreditation
over the past year, with particular focus
on systems development. The Risk
Committee requested that close attention
continue on the remaining Basel II
initiatives.
TECHNOLOGY COMMITTEE
The Technology Committee assists the
Board in the effective discharge of its
responsibilities in relation to technology and
operations related matters. The Committee
is responsible for the oversight and
evaluation of new projects in technology
above $50 million and security issues
relevant to ANZ’s technology processes
and systems. It is also responsible for the
review and approval of management’s
recommendations for long-term technology
and operations planning and the overall
framework for the management of
technology risk.
The Group Managing Director, Operations,
Technology and Shared Services has been
appointed as the executive responsible for
assisting the Chairman of the Committee.
Key 2007 fi nancial year highlights included:
Review of technology systems – The
Committee received reports on future
technology and associated operations
strategy for the Bank.
Progress on the Bank’s major projects –
The Committee received detailed reports
on the implementation of the Bank’s
major IT projects.
Monitoring evolving technologies –
The Committee received reports
and demonstrations on a number of
technologies that have the potential
for changing the nature of the Bank’s
operations.
Technology performance – The Committee
received reports from major Divisions on
their technology needs and performance.
ADDITIONAL COMMITTEES
In addition to the fi ve principal Board
Committees, the Board has constituted
a Shares Committee and an Executive
Committee, each consisting solely of
Directors, to assist in carrying out
specifi c tasks.
The Executive Committee has the full
power of the Board and is convened as
necessary between regularly scheduled
Board meetings to deal with urgent matters.
The Shares Committee has the power to
administer ANZ’s Employee Share Plan and
Employee Share Option Plan. The Board
also forms and delegates authority to
ad-hoc Committees of the Board as and
when needed to carry out specifi c tasks.
The number of Board meetings and meetings of Committees during the year the Director was eligible to attend, and the number of meetings
attended by each Director were:
Board
Risk
Committee
Audit
Committee
People
Committee
Governance
Committee
Technology
Committee
Executive
Committee
Shares
Committee
Committee
of the Board
G J Clark
J K Ellis
D M Gonski
C B Goode
M A Jackson
I J Macfarlane
J McFarlane
D E Meiklejohn
J P Morschel
A
9
9
7
9
9
5
9
9
9
B
9
8
7
9
7
5
9
9
8
A
–
6
4
6
–
–
–
6
6
B
–
6
4
6
–
–
–
6
6
A
–
7
–
7
7
–
–
7
–
B
–
7
–
7
6
–
–
7
–
A
–
–
–
5
5
4
–
–
5
B
–
–
–
5
4
4
–
–
5
A
5
–
4
5
–
2
–
5
–
B
5
–
4
5
–
2
–
5
–
A
4
–
–
4
–
2
–
–
–
B
4
–
–
4
–
2
–
–
–
A
1
1
–
4
2
1
4
2
1
B
1
1
–
4
2
1
4
2
1
A
–
–
–
1
2
–
1
–
–
B
–
–
–
1
2
–
1
–
–
A
–
1
–
4
2
–
4
3
–
B
–
1
–
4
2
–
4
3
–
Column A - Indicates the number of meetings the Director was eligible to attend.
Column B - Indicates the number of meetings attended. The Chairman is an ex-offi cio member of the Risk, Audit, People,
Governance and Technology Committees.
Corporate Governance 45
RISK MANAGEMENT AND
COMPLIANCE
ANZ has established a comprehensive risk
and compliance management framework.
The Board is principally responsible for
establishing risk tolerance, approving
related strategies and policies, monitoring
and assessing business management,
and overseeing policy compliance and
the effectiveness of the risk systems
and policies to meet the requirements of
applicable regulations and the interests of
shareholders, customers and staff.
The Risk Committee oversees the Group’s risk
management policies and controls, and may
approve credit transactions and other related
matters beyond the approval discretion of
executive management. On a day-to-day
basis, the various risks inherent in ANZ’s
operations are managed by both Group Risk
Management and each business unit.
For further information on ANZ’s risk
management framework, including a
description of the key risk developments,
please see pages 44 and 45 and the
Corporate Governance section of anz.com.
During the year, management has
reported to the Risk Committee as to the
effectiveness of ANZ’s Risk Management
framework and the management of material
business risks.
AUDIT AND FINANCIAL GOVERNANCE
INTERNAL AUDIT
Internal Audit provides independent
assurance that the design and operation
of the risk and control framework across
the Group is effective. It operates under a
Charter from the Audit Committee that gives
it unrestricted access to review all activities
of the Group. The Group General Manager,
Internal Audit reports to the Chairman of
the Audit Committee. The Audit Committee
reviews the performance of the Group
General Manager, Internal Audit.
A risk-based audit approach is used to
ensure that the higher risk activities in each
business are audited each year. All audits
are conducted in a manner that conforms
to international auditing standards.
Audit results also infl uence incentive
compensation of business heads.
The Audit Committee receives formal reports
on signifi cant issues to ensure that any
remedial action is undertaken promptly.
A robust process exists to ensure that audit
issues are resolved on a timely basis, which
includes regular reviews of progress by the
Chief Executive Offi cer and the Chairman of
the Audit Committee.
Internal Audit plays an active role in
ensuring compliance with the requirements
of supervisory regulatory authorities.
Internal Audit also works collaboratively
with the external auditor to ensure a
comprehensive audit scope.
The Risk Committee receives a quarterly
report from Internal Audit.
EXTERNAL AUDIT
The external auditor’s role is to provide an
independent opinion that ANZ’s fi nancial
reports are true and fair and comply
with applicable regulations. The external
auditor performs an independent audit
in accordance with Australian Auditing
Standards. The Audit Committee oversees
ANZ’s Policy on Relationship with the
External Auditor. Under the Policy, the
Audit Committee is responsible for the
appointment (subject to ratifi cation by
shareholders), compensation, retention and
oversight of the external auditor. The Policy
also stipulates that the Audit Committee:
pre-approves all audit and non-audit
services;
regularly reviews the independence of the
external auditor; and
evaluates the effectiveness of the
external auditor.
Details of non-audit services, together with
the statement from the Board as to their
satisfaction with KPMG’s compliance with
the related independence requirements
of the Corporations Act 2001, are in the
Directors’ Report on pages 11 and 12.
In addition, ANZ requires a 2 year period
before any former partner or employee
of the external auditor is appointed as a
Director or Senior Executive of ANZ.
The lead partner of the external auditor is
required to rotate off the ANZ audit after
5 years and cannot return for a further 5 years.
Certain other senior audit staff are required
to rotate off after a maximum of seven years.
Any potential appointments of ex-partners or
ex-employees of the external auditor as ANZ
fi nance staff, at senior management level or
higher, must be pre-approved by the
Chairman of the Audit Committee.
As disclosed in previous Annual Reports,
the US Securities and Exchange Commission
(SEC) commenced an inquiry into non-
audit services provided by ANZ’s auditor,
KPMG. ANZ has provided the information
requested by the SEC. This inquiry has not
concluded. Should the SEC determine that
services provided by KPMG did not comply
with the US auditor independence rules,
the SEC may seek sanctions, the nature and
amount of which are not known. Whilst ANZ
cannot predict the outcome of the inquiry,
based on information currently available,
ANZ does not believe it will have a material
adverse effect on the Company.
FINANCIAL CONTROLS
As previously noted, the Audit Committee of
the Board oversees ANZ’s fi nancial reporting
policies and controls, the integrity of ANZ’s
fi nancial statements, the relationship with
the external auditor, the work of Internal
Audit, and the Audit Committees of various
subsidiary companies.
During the year, ANZ deregistered from the
US Securities and Exchange Commission
(SEC) as a Foreign Private Issuer of
securities in the United States. As such,
ANZ is no longer required to comply with
Section 404 of the Sarbanes-Oxley Act.
However, ANZ is committed to ensuring that
it maintains its robust fi nancial reporting
control system.
ANZ has in place a Financial Reporting
Governance (FRG) Program which evaluates
the design and tests the operation of key
fi nancial reporting controls, including
Company-level controls, period-end
controls, process-level controls, and IT
general controls.
In addition, Preparers’ Statements in
the form of half-yearly certifi cations are
completed by Divisional Managing Directors
and Divisional Chief Financial Offi cers.
These Statements comprise representations
and questions about fi nancial results,
disclosures, processes and controls and
are aligned with ANZ’s external obligations.
46 ANZ Annual Report 2007
The process is independently evaluated
by Internal Audit and tested under the
FRG Program. Any issues arising from the
evaluation and testing are reported to the
Audit Committee.
This process assists the Chief Executive
Offi cer and Chief Financial Offi cer in making
the certifi cations to the Board under the
Corporations Act and ASX Governance
Principles as set out in the Directors’ Report
on page 12.
ETHICAL AND RESPONSIBLE
DECISION-MAKING
VALUES
The Board encourages management to
promote and maintain a culture within ANZ
which draws upon a set of unifying values
to guide the actions and decisions of the
Board and all employees (see the Corporate
Responsibility section of our website at
anz.com/cr).
More than 30,000 ANZ employees have
now participated in the Breakout culture
development program. The program
includes workshops to help staff to
apply values-based decision-making,
and to balance the competing needs of
staff, shareholders, customers and the
community in their roles and activities.
Details on ANZ’s comprehensive
approach can be found in ANZ’s Corporate
Responsibility Report and on our website
at anz.com/cr.
CODES OF CONDUCT
To assist Directors and employees in their
understanding of the culture and values of
the organisation, ANZ has three main codes
of conduct which guide everyday business
practice and decision-making throughout
the Group. These are detailed below.
Codes of Conduct for Directors and for
Employees – These two Codes set out
the ethical standards to which Directors
and employees are expected to adhere.
They require that Directors and employees
adhere to the law, disclose any relevant
interests, and act honestly and ethically
in all their dealings. The Codes also cover
the confi dentiality of information, limits on
acceptance of gifts or entertainment and on
use of ANZ goods, services and facilities.
The Codes of Conduct provide an ethical
framework within which ANZ employees
can work to build sustainable value for
shareholders by taking a responsible
approach to business. They acknowledge
the importance of ANZ’s shareholders,
our own people, our customers, and the
communities and environments in which
ANZ operates.
Adherence to the Directors’ Code of
Conduct forms part of a Director’s annual
performance evaluation. To ensure that
the Employee Code of Conduct is well
understood by new and existing staff,
ANZ has developed a Code of Conduct
training course which covers the practical
application of the Code of Conduct and a
Code of Conduct Declaration in which
staff indicate that they understand the
principles of the Code and agree to comply
with them.
Code of Conduct for Financial Offi cers –
(adopted from the Group of 100 Code of
Conduct for CFOs and Senior Financial
Offi cers). The Code requires that chief
fi nancial offi cers and other fi nance staff
infl uencing fi nancial reporting adhere to
principles of honesty and integrity, respect
confi dentiality of information, declare
confl icts of interest, maintain transparency
in reporting, exercise diligence and good
faith, ensure sound internal controls and set
a standard for other fi nancial professionals.
SECURITIES TRADING POLICY
ANZ has a Securities Trading Policy that
prohibits trading in ANZ securities or
the securities of other companies for all
employees, Directors, contractors and
consultants engaged by ANZ who are aware
of unpublished price-sensitive information.
The Policy specifi cally prohibits restricted
employees trading in ANZ securities during
‘blackout periods’ leading up to the day
following the half-yearly and annual results
announcements. Blackout periods also
apply for certain nominated employees in
respect of the periods leading up to the
trading updates which are announced to
the market on a six monthly basis.
Non-executive Directors are required to
seek approval from the Chairman in
advance of any trading in ANZ securities.
The Chairman of the Board is required to
seek approval from the Chairman of the
Governance Committee. Senior Executives
and other restricted employees are also
required to seek approval before trading
in ANZ securities.
The Policy requires certain prescribed
employees to submit a quarterly declaration
to Group Compliance to declare that they have
not traded in securities (ANZ’s and other
companies’ securities) while in possession
of unpublished, price-sensitive information.
It is a condition of the Policy and of the
grant of employee share options (including
Performance Rights) and deferred shares
that no schemes are entered into by any
employee that specifi cally protect the value
of such shares, options and Performance
Rights before the shares have vested or the
options or Performance Rights have entered
their exercisable period. Any breach of this
prohibition would constitute a breach of
the grant conditions and would result in the
forfeiture of the relevant shares, options or
Performance Rights.
WHISTLEBLOWER POLICY
The ANZ Whistleblower Policy is a
mechanism by which ANZ employees may
voice serious concerns or escalate serious
matters on a confi dential basis, without
fear of reprisal, dismissal or discriminatory
treatment.
The Policy is aligned to both ANZ’s values
and ANZ’s Employee Code of Conduct
and is one of a number of policies and
procedures within ANZ to support and
promote honest and ethical behaviour. The
Policy is intended as a last option, when all
other internal reporting avenues have been
exhausted or are not available.
ANZ employees can make complaints under
the Policy to designated Whistleblower
Protection Offi cers. If a complaint relates
to fi nance or audit-related matters, the
Protection Offi cer will consider whether
the matter should be referred to the Audit
Committee, or may refer the matter to ANZ’s
external auditors. If the report relates to
breaches of the law, regulations or ANZ
policies, the Protection Offi cer may refer the
matter to the Risk Committee.
Corporate Governance 47
Designated Disclosure Offi cers have
responsibility for reviewing proposed
disclosures and making decisions in
relation to what information can be or
should be disclosed to the market. Each
ANZ employee is required to inform a
Disclosure Offi cer regarding any potentially
price-sensitive information concerning ANZ
as soon as they become aware of it.
During the course of the year, the Policy was
reviewed and revised by the Governance
Committee to require Disclosure Offi cers
to regularly meet together as a Continuous
Disclosure Committee.
Apart from reviewing information to
determine whether disclosures are required
in order to comply with the requirements
of the Listing Rules of the ASX and other
overseas exchanges where ANZ securities
are listed, as well as the requirements of
applicable corporations and securities
legislation relating to the disclosure of
price-sensitive information, the Committee
also overviews the effectiveness of ANZ’s
systems and procedures for achieving
compliance with applicable regulatory
requirements in relation to the disclosure
of price-sensitive information.
In carrying out its role, the Committee
recognises ANZ’s commitment to achieving
best practice in terms of disclosure by
acting in accordance with the spirit,
intention and purposes of the applicable
regulatory requirements and by looking
beyond form to substance.
POLITICAL DONATIONS
In the year to 30 September 2007, ANZ
donated $150,000 to the Liberal Party and
$75,000 to the Australian Labor Party.
Prior to the Annual General Meeting,
shareholders are given the opportunity
to submit any questions they have for
the Chairman or Chief Executive Offi cer
to enable key common themes to be
considered.
The external auditor is present at ANZ Annual
General Meetings and available to answer
shareholder questions. The auditor can
respond on any matter that concerns them in
their capacity as auditor, including in relation
to the conduct of the audit and the preparation
and content of the auditor’s report.
The letter of appointment, which has been
agreed to and signed by all non-executive
Directors, states that Directors are also
expected to attend and be available to meet
shareholders at the Annual General Meeting
each year.
Shareholders have the right to vote on
various resolutions put to a meeting.
If shareholders are unable to attend a
meeting they can submit their proxies via
post or electronically through anz.com.
Where votes are taken on a poll, which
is usual ANZ practice, ANZ appoints an
independent party to verify the results,
which are reported to the ASX and posted
on anz.com.
CONTINUOUS DISCLOSURE
ANZ’s practice is to release all
price-sensitive information in a timely
manner and as required under the ASX
listing rules to all relevant securities
exchanges on which ANZ’s securities are
listed, and to the market and community
generally through ANZ’s media releases,
website and other appropriate channels.
Through ANZ’s Continuous Disclosure
Policy, ANZ demonstrates its commitment
to continuous disclosure.
The Policy refl ects relevant obligations
under applicable securities exchange
listing rules and legislation. For disclosure
purposes, price-sensitive information is
information that a reasonable person would
expect to have a material effect on the price
or value of ANZ’s securities.
COMMITMENT TO SHAREHOLDERS
Shareholders are the owners of ANZ, and
ANZ’s stated aim is to ‘perform and grow
to create value for our shareholders’.
The approaches described below are
enshrined in ANZ’s Shareholder Charter.
A copy of the Shareholder Charter can be
found on the Corporate Governance section
of anz.com.
COMMUNICATION
In order to make informed decisions about
ANZ, and to communicate views to ANZ,
shareholders need an understanding
of ANZ’s business operations and
performance.
ANZ encourages shareholders to take an
active interest in ANZ, and seeks to provide
shareholders with quality information in
a timely fashion generally through ANZ’s
reporting of results, ANZ’s Annual Report,
briefi ngs, half yearly newsletters and via
its dedicated shareholder site on anz.com.
ANZ strives for transparency in all its
business practices, and recognises the
impact of quality disclosure on the trust and
confi dence of the shareholder, the wider
market and the community. In the recently
announced Dow Jones Sustainability
Index, ANZ received the highest sector
score (100%) in relation to stakeholder
engagement.
Should shareholders require any
information, contact details for ANZ and
its Share Registrar are set out in the half-
yearly shareholder newsletters and the
shareholders section of anz.com.
MEETINGS
ANZ upholds shareholder rights and
provides shareholders with the opportunity
to be involved in shareholder meetings.
To allow as many shareholders as possible
to have an opportunity to attend a meeting,
ANZ rotates shareholder meetings around
capital cities and makes them available
to be viewed online using webcast
technology. Further details on meetings
and presentations held throughout this
fi nancial year are available on anz.com >
shareholders > Presentations.
48 ANZ Annual Report 2007
48 ANZ Annual Report 2007
This page has been left blank intentionally.
Corporate Governance 49
SHAREHOLDER INFORMATION
Ordinary shares
At 6 October 2007, the twenty largest holders of ordinary shares held 1,050,323,057 ordinary shares, equal to 56.32% of the total issued
ordinary capital.
Name
Number of shares
% Name
Number of shares
%
1. HKBA NOMINEES LIMITED
2. CHASE MANHATTAN NOMINEES LTD
3. NATIONAL NOMINEES LIMITED
4. CITICORP NOMINEES PTY LIMITED
5. ANZ NOMINEES LIMITED
6. RBC GLOBAL SERVICES AUSTRALIA
7. COGENT NOMINEES PTY LIMITED
8. QUEENSLAND INVESTMENT CORPORATION
9. AMP LIFE LIMITED
10. POTTER WARBURG NOMINEES PTY LIMITED
11. PSS BOARD
266,035,505
205,868,107
197,899,627
95,360,328
90,215,496
47,005,443
40,960,617
20,080,126
18,491,477
11,943,562
10,701,851
14.27
11.04
10.61
5.11
4.84
2.52
2.19
1.08
0.99
0.64
0.57
12. UBS NOMINEES PTY LTD
13. SUNCORP CUSTODIAN SERVICES PTY LIMITED
14. ANZEST PTY LTD (DEFERRED SHARE PLAN A/C)
15. TASMAN ASSET MANAGEMENT LTD
16. AUSTRALIAN FOUNDATION INVESTMENT
COMPANY LIMITED
17. ANZEST PTY LTD (ESAP SHARE PLAN A/C)
18. PERPETUAL TRUSTEE COMPANY LTD
19. ARGO INVESTMENTS LIMITED
20. RBC DEXIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
6,652,221
6,075,092
5,227,759
4,884,004
4,877,049
4,875,551
4,764,328
4,353,230
4,051,684
0.36
0.33
0.28
0.26
0.26
0.26
0.26
0.23
0.22
1,050,323,057
56.32
Total
Distribution of shareholdings
At 6 October 2007
Range of shares
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000
Total
At 6 October 2007:
Number of holders % of holders
Number of shares
% of shares
187,778
111,885
16,482
10,193
468
57.46
34.24
5.04
3.12
0.14
81,684,399
246,188,964
115,130,610
215,013,871
1,206,759,879
4.38
13.20
6.18
11.53
64.71
326,806
100.00
1,864,777,723
100.00
there were no entries in the register of Substantial Shareholdings;
the average size of holdings of ordinary shares was 5,706 (2006: 6,302) shares; and
there were 5,322 holdings (2006: 5,023 holdings) of less than a marketable parcel (less than $500 in value or 17 shares based on the market price of $ 30.57),
which is less than 1.63% of the total holdings of ordinary shares.
Voting rights of ordinary shares
The Constitution provides for votes to be cast:
i) on show of hands, 1 vote for each shareholder; and
ii) on a poll, 1 vote for each fully paid ordinary share.
50 ANZ Annual Report 2007
ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)
At 6 October 2007, the twenty largest holders of ANZ StEPS held 4,353,579 securities, equal to 43.54% of the total issued securities.
Name
Number
of securities
%
Name
Number
of securities
%
1. ANZ NOMINEES LIMITED
2. NATIONAL NOMINEES LIMITED
3. CHASE MANHATTAN NOMINEES LTD
4. POTTER WARBURG NOMINEES PTY LIMITED
5. CITICORP NOMINEES PTY LIMITED
6. UBS NOMINEES PTY LTD
7. HKBA NOMINEES LIMITED
8. UCA CASH MANAGEMENT FUND LTD
9. RBC GLOBAL SERVICES AUSTRALIA
10. COGENT NOMINEES PTY LIMITED
11. QUESTOR FINANCIAL SERVICES LIMITED (TPS RF A/C)
12. SHARE DIRECT NOMINEES PTY LTD
(GLOBAL MARKETS ACCOUNT)
1,067,385
616,752
581,247
492,583
287,503
279,566
248,991
152,500
93,497
73,269
70,900
56,922
10.67
6.17
5.81
4.93
2.88
2.80
2.49
1.52
0.93
0.73
0.71
0.57
Total
Distribution of ANZ StEPS holdings
At 6 October 2007
Range of securities
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000
Total
13. AUSTRALIAN EXECUTOR TRUSTEES LIMITED
53,618
0.54
(NO 1 ACCOUNT)
14. THE AUSTRALIAN NATIONAL UNIVERSITY
15. RBC DEXIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED (GSJBW A/C)
16. ECAPITAL NOMNINEES PTY LIMITED
(SETTLEMENT A/C)
17. RBC DEXIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED (NMSMT A/C)
18. UBS NOMINEES PTY LTD (TP00014 15 A/C)
19. GORDON MERCHANT NO 2 PTY LTD
(MERCHANT FAMILY A/C)
20. ARMADA INVESTMENTS PTY LTD
50,000
40,807
0.50
0.41
40,000
0.40
39,617
0.40
39,422
39,000
0.39
0.39
30,000
0.30
4,353,579
43.54
Number of holders % of holders
Number of securities
% of securities
11,611
652
55
45
8
93.86
5.27
0.44
0.36
0.07
3,175,541
1,454,239
428,903
1,214,790
3,726,527
31.76
14.54
4.29
12.15
37.26
12,371
100.00
10,000,000
100.00
At 6 October 2007: There were 2 holdings (2006: 3 holdings) of less than a marketable parcel (less than $500 in value or 5 securities based on the market price of $101.03), which is less than
0.02% of the total holdings of StEPS.
Voting rights of ANZ StEPS
A preference share does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:
a) on a proposal:
i) to reduce the share capital of ANZ;
ii) that affects rights attached to the preference shares;
iii) to wind up ANZ; or
iv) for the disposal of the whole of the property, business and undertaking of ANZ;
b) on a resolution to approve the terms of a buy-back agreement;
c) during the period in which a dividend which has been declared as payable on a dividend payment date has not been paid in full; or
d) during the winding-up of ANZ.
If a poll is conducted on a resolution on which a holder is entitled to vote, the holder has one vote for each preference share held.
Shareholder Information 51
Euro Trust Securities
In December 2004, ANZ issued 500,000
Floating Rate Non-cumulative Trust Securities
(“Euro Trust Securities”) at an issue price
of €1,000 each through ANZ Capital Trust
III (formed in the State of Delaware). Each
Euro Trust Security is a stapled security
comprising a preference share in Australia
and New Zealand Banking Group Limited and
an unsecured subordinated note issued by
ANZ Jackson Funding PLC. The Euro Trust
Securities are quoted on the Luxembourg
Stock Exchange. The unsecured subordinate
notes are listed on the Channel Islands
Stock Exchange. Prior to a conversion event,
the preference share and subordinated note
components of a Euro Trust Security cannot be
separately traded.
Employee shareholder information
At the Annual General Meeting in January
1994, shareholders approved an aggregate
limit of 7% of all classes of shares and
options, which remain subject to the rules
of a relevant incentive plan, being held by
employees and directors. At 30 September
2007 participants held 1.81% (2006: 2.25%)
of the issued shares and options of ANZ
under the following incentive plans:
ANZ Employee Share Acquisition Plan;
ANZ Employee Share Save Scheme;
ANZ Share Option Plan;
ANZ Directors’ Share Plan; and
ANZ Directors’ Retirement Benefi t Plan.
Stock exchange
The Australia and New Zealand Banking
Group Limited’s ordinary shares are listed
on the Australian Securities Exchange and
the New Zealand Stock Exchange.
The Group’s other stock exchange listings
include:
Australian Securities Exchange – ANZ
Stapled Exchangeable Preferred Securities
(ANZ StEPS) [ANZ Holdings (New Zealand)
Limited and Australia and New Zealand
Banking Group Limited]; senior and
subordinated debt [Australia and New
Zealand Banking Group Limited];
Channel Islands Stock Exchange –
Senior debt [ANZ Jackson Funding 2 Limited,
ANZ Jackson Funding 3 Limited] and
subordinated debt [ANZ Jackson Funding PLC]
London Stock Exchange – Non-cumulative
mandatory convertible stapled securities
(UK stapled Securities) [Australia and New
Zealand Banking Group Limited]; and senior
and subordinated debt [Australia and New
Zealand Banking Group Limited and ANZ
National (Int’l) Limited];
Luxembourg Stock Exchange –
Subordinated debt [Australia and New
Zealand Banking Group Limited]; and
non-cumulative Trust Securities (Euro Trust
Securities) [ANZ Capital Trust III];
New Zealand Stock Exchange – Senior
and subordinated debt [ANZ National Bank
Limited]; and
Swiss Stock Exchange – Senior debt
[Australia and New Zealand Banking
Group Limited].
52 ANZ Annual Report 2007
New York Stock Exchange Delisting
and US Securities and Exchange
Commission Deregistration
In June 2007, Australia and New Zealand
Banking Group Limited announced its
intention to withdraw the listing of its
American Depositary Receipts (“ADRs”) and
the underlying ordinary shares from the New
York Stock Exchange (“NYSE”) and deregister
from the United States Securities and
Exchange Commission (“SEC”).
The ADRs were delisted from the NYSE on
12 July 2007 and, upon fi ling a Form 15F
with the SEC seeking deregistration, the
Company’s reporting obligation to the
SEC were immediately suspended on 13
July 2007. With the SEC having raised no
objection to the Company’s Form 15F during
the prescribed 90 day period from fi ling,
the Company’s deregistration from the SEC
became effective on 13 October 2007.
American Depositary Receipts
Following the delisting of its American
Depository Receipts (ADRs) from the NYSE,
the Company’s ADRs now trade in the over-
the-counter (“OTC”) securities market on the
Pink Sheets electronic platform operated by
Pink Sheets LLC in the United States under
the new ticker symbol: ANZBY and the CUSIP
number: 05258304.
The Bank of New York Mellon Corporation
(“BNY Mellon”) is the Depositary for the
Company’s ADR program in the United
States. Holders of the Company’s ADRs
should deal directly with BNY Mellon on
all matters relating to their ADR holdings,
by telephone on 1-888-269-2377 (for
callers within the US), 1-212-815-3700
(for callers outside the US) or by email to
shareowners@bankofny.com.
ANZ StEPS
In September 2003, 10 million ANZ Stapled
Exchangeable Preferred Securities (ANZ
StEPS) were issued at an issue price of
$100.00 each. Each ANZ StEPS is a stapled
security comprising a preference share in
Australia and New Zealand Banking Group
Limited and an unsecured senior note issued
by ANZ Holdings (New Zealand) Limited.
ANZ StEPS are quoted on the Australian
Securities Exchange. Until the occurrence of
an assignment date, the preference shares
and senior note components of an ANZ StEPS
cannot be separately transferred.
This page has been left blank intentionally.
Shareholder Information 53
STATEMENTS OF RECOGNISED INCOME AND EXPENSE FOR THE YEAR ENDED 30 SEPTEMBER
FINANCIAL REPORT
INCOME STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER
Consolidated
The Company
Note
2007
$m
2006
$m
2007
$m
2006
$m
Total income
Interest income
Interest expense
Net interest income
Other operating income
Share of joint venture profi t from ING Australia and ING New Zealand
Share of associates’ profi t
Operating income
Operating expenses
3
3
4
3
3
3
4
30,293
25,510
21,588
17,914
26,210
(18,908)
22,301
(15,358)
17,809
(13,148)
14,618
(10,341)
7,302
6,943
4,661
4,277
3,824
172
87
3,015
138
56
11,385
(4,953)
10,152
(4,531)
3,779
–
–
8,440
(3,623)
4,817
(388)
3,296
–
–
7,573
(3,250)
4,323
(278)
Profi t before credit impairment and income tax
Provision for credit impairment
16
6,432
(567)
5,621
(407)
Profi t before income tax
Income tax expense
Profi t for the year
Comprising:
Profi t attributable to minority interests
Profi t attributable to shareholders of the Company1
Earnings per ordinary share (cents)
Basic
Diluted
Dividend per ordinary share (cents)
5,865
5,214
4,429
4,045
6
(1,678)
(1,522)
(878)
(871)
4,187
3,692
3,551
3,174
7
4,180
4
3,688
–
3,551
–
3,174
8
8
7
224.1
218.3
136
200.0
194.0
125
n/a
n/a
136
n/a
n/a
125
The notes appearing on pages 58 to 155 form an integral part of these financial statements.
1 The results of 2007 include the following items:
■ Gain on sale of Fleet Partners Pty Limited and Truck Leasing Limited, including previously unrecognised capital losses on the buyback of TrUEPrs
being applied against the gain following Australian Tax Office clearance ($195 million profit after tax, tax expense nil), Company (nil)
■ Restatement of deferred tax assets following the announced change in New Zealand company tax rate which takes effect
from 1 October 2008 ($24 million loss after tax), Company (nil)
The results of 2006 include the following items:
■ Settlement of ANZ National Bank warranty claims ($14 million profit after tax), Company (nil)
■ Settlement of NHB insurance claim ($79 million profit after tax), Group and Company
54 ANZ Annual Report 2007
CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER
BALANCE SHEETS AS AT 30 SEPTEMBER
Assets
Liquid assets
Due from other fi nancial institutions
Trading securities1
Derivative fi nancial instruments
Available-for-sale assets
Net loans and advances
Customers’ liability for acceptances
Due from controlled entities
Regulatory deposits
Shares in controlled entities
Shares in associates and joint venture entities
Deferred tax assets
Goodwill and other intangible assets2
Other assets
Premises and equipment
Total assets
Liabilities
Due to other fi nancial institutions
Deposits and other borrowings
Derivative fi nancial instruments
Liability for acceptances
Due to controlled entities
Current tax liabilities
Deferred tax liabilities
Payables and other liabilities
Provisions
Bonds and notes
Loan capital
Total liabilities
Net assets
Shareholders’ equity
Ordinary share capital
Preference share capital
Reserves
Retained earnings
Share capital and reserves attributable to shareholders of the Company
Minority interests
Total equity
Commitments (note 44)
Contingent liabilities, contingent assets and credit related commitments (note 45)
The notes appearing on pages 58 to 155 form an integral part of these financial statements.
1 Includes bills held in portfolio $2,305 million (September 2006: $1,569 million).
2 Excludes notional goodwill in equity accounted entities.
Note
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
9
10
11
12
13
14
17
18
18
19
20
21
22
23
24
12
25
25
26
27
28
29
30
30
31
31
32
16,987
8,040
15,167
22,237
14,006
288,846
14,536
–
235
–
3,430
113
3,677
3,846
1,493
15,019
9,665
9,179
9,164
10,653
255,922
13,435
–
205
–
2,200
253
3,337
4,499
1,109
10,618
6,134
13,359
21,403
11,383
198,610
14,523
15,481
148
8,405
582
87
511
2,136
739
10,427
6,253
7,508
8,787
8,657
172,287
13,425
9,418
132
11,424
307
135
419
2,558
527
392,613
334,640
304,119
252,264
17,986
234,873
24,180
14,536
–
468
135
10,507
1,021
54,075
12,784
14,118
204,794
8,753
13,435
–
569
253
10,679
957
50,050
11,126
14,110
161,195
25,001
14,523
5,371
587
103
8,387
710
43,157
11,886
11,652
128,321
8,442
13,425
12,556
701
267
8,823
688
39,839
10,251
370,565
314,734
285,030
234,965
22,048
19,906
19,089
17,299
8,946
871
(889)
13,082
22,010
38
8,271
871
(354)
11,084
19,872
34
8,946
871
(164)
9,436
8,271
871
(16)
8,173
19,089
–
17,299
–
22,048
19,906
19,089
17,299
Financial Report 55
STATEMENTS OF RECOGNISED INCOME AND EXPENSE FOR THE YEAR ENDED 30 SEPTEMBER
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
Items recognised directly in equity1
Currency translation adjustments
Exchange differences on translation of foreign operations taken to equity
(563)
(203)
(291)
97
15
(7)
36
(7)
(54)
80
109
(14)
74
(7)
77
20
(8)
121
(56)
(55)
(324)
(181)
100
(4)
40
–
75
(80)
4,187
3,692
3,551
3,174
3,863
3,511
3,471
3,254
7
4
–
–
3,856
3,507
3,471
3,254
Available-for-sale assets
Valuation gain taken to equity
Cumulative (gain) transferred to the income statement on sale
Cash fl ow hedges
Valuation gain taken to equity
Transferred to income statement for the year
Actuarial (loss)/gain on defi ned benefi t plans
Net (loss)/income recognised directly in equity
Profi t for the year
Total recognised income and expense for the year
Total recognised income and expense for the year attributable to
minority interests
Total recognised income and expense for the year attributable to
shareholders of the Company
The notes appearing on pages 58 to 155 form an integral part of these financial statements.
1 These items are disclosed net of tax (refer note 6).
56 ANZ Annual Report 2007
CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER
Cash fl ows from operating activities
Interest received
Dividends received
Fee income received
Other income received
Interest paid
Personnel expenses paid
Premises expenses paid
Other operating expenses paid
Recovery from NHB litigation
Income taxes paid
Australia
Overseas
Goods and services tax paid
(Increase)/decrease in operating assets
Liquid assets – greater than three months
Due from other fi nancial institutions – more than 90 days
Trading securities
Regulatory deposits
Loans and advances
Net intra-group loans and advances
Increase/(decrease) in operating liabilities
Deposits and other borrowings
Due to other fi nancial institutions
Payables and other liabilities
Net cash (used in)/provided by operating activities
Cash fl ows from investing activities
Net (increase)/decrease
Available-for-sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)
Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other
Net cash (used in)/provided by investing activities
Cash fl ows from fi nancing activities
Net increase/(decrease)
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Dividends paid
Share capital issues
Share capital buyback
Net cash provided by/(used in) fi nancing activities
Net cash (used in)/provided by operating activities
Net cash (used in)/provided by investing activities
Net cash provided by/(used in) fi nancing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign currency translation on opening balances
Cash and cash equivalents at end of year
The notes appearing on pages 58 to 155 form an integral part of these financial statements.
Note
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
27,024
99
2,327
943
(18,540)
(2,980)
(417)
(2,423)
–
(1,381)
(500)
(11)
(1,641)
(410)
(7,325)
(54)
(36,947)
–
33,964
4,326
(91)
(4,037)
23,014
53
2,082
1,057
(14,676)
(2,737)
(379)
(2,416)
114
(788)
(437)
(18)
(1,300)
1,318
(1,681)
(42)
(26,848)
–
16,129
1,859
541
(5,155)
17,788
1,134
1,616
833
(12,923)
(2,105)
(284)
(1,098)
–
(1,384)
(58)
(1)
(1,865)
(195)
(6,894)
(31)
(27,586)
(10,305)
34,585
3,050
(11)
(5,734)
14,623
1,151
1,434
1,273
(9,311)
(1,887)
(262)
(1,154)
114
(793)
(46)
–
(441)
177
(182)
(17)
(18,732)
66
14,736
2,462
1,221
4,432
(13,215)
9,701
(15,480)
16,239
(10,652)
7,770
(16,880)
13,695
(1,450)
444
(411)
79
1,588
(3,264)
(289)
14
(250)
19
1,697
1,950
(549)
67
(356)
7
1,034
(2,679)
(230)
10
(161)
12
(239)
(3,793)
16,443
(8,140)
17,506
(8,949)
15,149
(7,499)
14,316
(8,873)
3,013
(980)
(1,958)
132
–
8,510
(4,037)
(3,264)
8,510
1,209
20,344
(2,479)
19,074
1,248
(656)
(1,930)
147
(146)
7,220
(5,155)
1,950
7,220
4,015
13,702
2,627
20,344
2,691
(500)
(1,921)
132
–
8,052
(5,734)
(2,679)
8,052
(361)
13,570
(1,169)
12,040
1,188
(626)
(1,903)
147
(146)
4,103
4,432
(3,793)
4,103
4,742
7,899
929
13,570
39(a)
39(b)
Financial Report 57
NOTES TO THE FINA NCIAL STATEMENTS
1: Signifi cant Accounting Policies
i) Basis of preparation
These consolidated fi nancial statements
comprise a general purpose fi nancial report
and:
comply with the accounts provisions
of the Banking Act 1959
have been prepared in accordance with
the Australian Accounting Standards
(AAS), other authoritive pronouncements
of the Australian Accounting Standards
Board (AASB), AASB and Urgent
Issues Group Interpretations and the
Corporations Act 2001
are presented in Australian dollars
have been prepared in accordance with
the historical cost convention except
that the following assets and liabilities
are stated at their fair value: derivative
fi nancial instruments, including the
fair value of any applicable underlying
exposure; assets treated as available-
for-sale; fi nancial instruments held
for trading; term funding instruments
including specifi c loan capital and
bonds and notes; assets and liabilities
designated at fair value through the profi t
and loss; and defi ned benefi t plan assets
and liabilities.
The preparation of the fi nancial report
requires the use of management judgement,
estimates and assumptions that affect
reported amounts and the application of
policies. The estimates and associated
assumptions are based on historical
experience and various other factors that
are believed to be reasonable. Actual results
may differ from these estimates. Discussion
of these critical accounting treatments,
which include complex or subjective
decisions or assessments, are covered in
note 2. Such estimates may require review
in future periods.
The Parent entity is an entity of the kind
referred to in Australian Securities and
Investments Commission class order
98/100. Consequently, amounts in the
fi nancial report have been rounded to
the nearest million dollars except where
otherwise indicated.
The fi nancial report was authorised for issue
by the directors on 7 November 2007.
International Financial Reporting Standards
(IFRS) form the basis of Australian Accounting
Standards issued by the AASB, being AAS.
The Group’s application of AAS ensures that
the Group’s consolidated fi nancial
statements comply with IFRS. However the
Company’s fi nancial statements do not
comply with IFRS.
58 ANZ Annual Report 2007
The accounting policies have been
consistently applied by all consolidated
entities and to all periods presented in the
consolidated fi nancial report, except as
described in xxvi) below.
The following standards and amendments
were available for early adoption but have
not been applied by the Group in these
fi nancial statements:
AASB 7: ‘Financial Instruments:
Disclosure’. AASB 7 is applicable for
annual reporting periods beginning
on or after 1 January 2007.
AASB 2005-10: ‘Amendments to
Australian Accounting Standards’
(September 2005) makes consequential
amendments to AASB 132: ‘Financial
Instruments: Presentation and
Disclosure’, AASB 101: ‘Presentation
of Financial Statements’, AASB 114:
‘Segment Reporting’, AASB 117: ‘Leases’,
AASB 133: ‘Earnings per Share’, AASB
139: ‘Financial Instruments: Recognition
and Measurement’, AASB 1, AASB 4,
AASB 1023: ‘General Insurance Contracts’
and AASB 1038: ‘Life Insurance Contracts’
arising from the release of AASB 7. AASB
2005-10 is applicable for annual reporting
periods beginning on or after 1 January
2007.
AASB 7 requires the disclosure of the
signifi cance of fi nancial instruments on an
entity’s fi nancial position and performance
and of qualitative and quantitative
information about exposure to risks arising
from fi nancial instruments. AASB 2005-10
amendments arise from the release of
AASB 7 and are only applicable when an
entity adopts AASB 7.
The Group has not early adopted AASB 7;
however, certain disclosures have been
enhanced in preparation for the transition
to AASB 7.
The initial application of AASB 7 and AASB
2005-10 is not expected to have an impact
on the fi nancial results of the Company
or the Group as these standards are only
concerned with disclosures.
AASB 8: ‘Operating Segments’ replaces
the presentation requirements of
segment reporting in AASB 114: ‘Segment
Reporting’. AASB 8 is applicable for
annual reporting periods beginning on
or after 1 January 2009.
AASB 2007-3: ‘Amendments to
Australian Accounting Standards’ makes
consequential amendments to AASB 5:
‘Non-current Assets Held for Sale
and Discontinued Operations’, AASB
107: ‘Cash Flow Statements’, AASB
119: ‘Employee Benefi ts’, AASB 127:
‘Consolidated and Separate Financial
Statements’, AASB 134: ‘Interim Financial
Reporting’, AASB 136: ‘Impairment
Assets’, AASB 1023: ‘General Insurance
Contracts’ and AASB 1038: ‘Life Insurance
Contracts’ arising from the release of
AASB 8: ‘Operating Segments’. AASB
2007-3 is applicable for annual reporting
periods beginning on or after 1 January
2009.
The application of AASB 8 and AASB
2007-3 is not expected to have an impact
on the fi nancial results of the Company
or the Group as these standards are only
concerned with disclosures.
AASB Interpretation 10: ‘Interim Financial
Reporting and Impairment’ does not allow
an entity to reverse impairment losses
recognised in a previous interim period in
respect of goodwill, an equity instrument
or a fi nancial asset carried at cost. AASB
Interpretation 10 is applicable for annual
reporting periods beginning on or after
1 November 2006.
The application of this interpretation is
not expected to have a material impact on
the fi nancial results of the Company or the
Group as the Company or Group has not
recognised an impairment loss that would
be revised under the amended guidance.
AASB Interpretation 11: ‘AASB 2 Share-
based Payment – Group and Treasury
Share Transactions’ addresses the
classifi cation of share-based payment
transactions (as equity or cash settled)
when a parent or another group entity
transfers the shares. AASB Interpretation
11 is applicable for annual reporting
periods beginning on or after 1 March
2007.
AASB 2007-1: ‘Amendments to Australian
Accounting Standards’ amends AASB
2: ‘Share-based Payments’ to insert
the transitional provisions of IFRS
2, previously contained in AASB 1:
‘First-time Adoption of Australian
Equivalents to International Financial
Reporting Standards’, arising from AASB
Interpretation 11: ‘AASB 2 Share-based
Payments – Group and Treasury Share
Transactions’. AASB 2007-1 is applicable
for fi nancial reporting periods beginning
on or after 1 March 2007.
The application of AASB Interpretation 11
and AASB 2007-1 is not expected to have
a material impact on the fi nancial results
of the Company or the Group as the current
Group policy refl ects the amended guidance.
NOTES TO THE FINA NCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
AASB 2007-4: ‘Amendments to Australian
Accounting Standards arising from
ED 151: ‘Australian Additions to, and
Deletions from, IFRS’ was approved by the
AASB in May 2007. AASB 2007-4 brings
Australian equivalents to International
Financial Reporting Standards (AIFRS)
closer to their IFRS equivalents, making
consequential amendments to 34
different standards in all. New accounting
policy options are introduced and a large
number (but not all) of the Australian-
specifi c disclosures and requirements
have been eliminated. AASB 2007-4 is
applicable for annual reporting periods
beginning on or after 1 July 2007.
AASB 2007-7: ‘Amendments to Australian
Accounting Standards’ makes minor
consequential editorial amendments to
various accounting standards as a result
of the release of the AASB 2007-4. AASB
2007-7 is also applicable for annual
reporting periods beginning on or after
1 July 2007.
The application of AASB 2007-4 and AASB
2007-7 is not expected to have a material
impact on the fi nancial results of the
Company or the Group as the amendments
only deal with disclosure or introduce
accounting options that are unlikely to be
used by ANZ.
In June 2007 the AASB issued a revised
version of AASB 123: ‘Borrowing Costs’
which requires the capitalisation of all
borrowing costs directly attributable to the
acquisition, construction or production
of a qualifying asset. All other borrowing
costs are immediately recognised as
expense. The standard is applicable to
annual reporting periods beginning on or
after 1 January 2009.
AASB 2007-6: ‘Amendments to Australian
Accounting Standards arising from AASB
123’ makes consequential amendments
to AASB 1: ‘First-time adoption of
Australian Equivalents to International
Financial Reporting Standards’, AASB 101:
‘Presentation of Financial Statements’,
AASB 107: ‘Cash Flow Statements’, AASB
111: ‘Construction Contracts’, AASB 116:
‘Property, Plant and Equipment’, AASB
138: ‘Intangible Assets’ as a result of the
revision to AASB 123 ‘Borrowing Costs’.
These amendments are applicable to
annual reporting periods beginning on or
after 1 January 2009.
The impact of applying the revised AASB 123
and AASB 2007-6 is not expected to have a
material impact on the fi nancial results of
the Company or the Group as the qualifying
assets to which borrowing costs would be
applied already capitalise borrowing costs.
In October 2006, the AASB revised
AASB 101: ‘Presentation of Financial
Statements’ which removed some of
the additional Australian disclosure
requirements previously existing in
the standard. The revised AASB 101 is
applicable to annual reporting periods
beginning on or after 1 January 2007.
The application of this revised standard is
not expected to have a material impact on
the fi nancial results of the Company or the
Group as the amendments only relate to
disclosure.
AASB Interpretation 13: ‘Customer Loyalty
Programmes’ requires customer loyalty
award credits to be accounted for as a
separately identifi able component of a
sales transaction. Interpretation 13 is
applicable to fi nancial reporting periods
beginning on or after 1 July 2008.
The application of AASB Interpretation 13
is not expected to have a material impact
on the fi nancial results of the Company or
the Group as only a small element of the
revenue generated by the Group’s customer
loyalty programmes is impacted by the
interpretation.
AASB Interpretation 14: ‘The Limit on a
Defi ned Benefi t Asset, Minimum Funding
Requirements and their Interaction’
clarifi es the amount of surplus that can
be recognised by an entity sponsoring
a defi ned benefi t plan where minimum
funding requirements exist. AASB
Interpretation 14 is applicable for annual
reporting periods beginning on or after
1 January 2008.
The application of AASB Interpretation 14
is not expected to have a material impact
on the fi nancial results of the Company
or the Group as the defi ned benefi t asset
currently recognised by the Group is
relatively immaterial.
The Group does not intend to apply any
of the above pronouncements until their
operative date.
ii) Consolidation
The fi nancial statements consolidate
the fi nancial statements of Australia and
New Zealand Banking Group Limited (the
Company) and all of its controlled entities
where it is determined that there is a
capacity to control.
Where controlled entities have been sold
or acquired during the year, their operating
results have been included to the date of
disposal or from the date of acquisition.
Control means the power to govern directly
or indirectly the fi nancial and operating
policies of an entity so as to obtain benefi ts
from its activities. Control is usually present
when an entity has: power over more than
one-half of the voting rights of the other
entity; power to govern the fi nancial and
operating policies of the other entity;
power to appoint or remove the majority
of the members of the board of directors
or equivalent governing body; or power to
cast the majority of votes at meetings of the
board of directors or equivalent governing
body of the entity. In addition, potential
voting rights that are presently exercisable or
convertible are taken into account. However,
all the facts of a particular situation are
considered when determining whether
control exists. In relation to special purpose
entities, such control is also deemed to
exist even where an entity owns less than a
majority of the shareholder or Board voting
power of such companies, provided that the
following factors exist:
the majority of the benefi ts from their
activities accrue to the entity; and
the entity has the majority of the residual
risks and rewards of the special purpose
entity.
Further detail on special purpose entities
is provided in note 2(i).
The Group adopts the equity method of
accounting for associates and the Group’s
interest in joint venture entities.
The Group’s share of results of associates
and joint venture entities is included in the
consolidated income statement. Shares
in associates and joint venture entities
are stated in the consolidated balance
sheet at cost plus the Group’s share of
post acquisition net assets. Interests in
associates and joint ventures are reviewed
annually for impairment primarily using
a discounted cash fl ow methodology. In
the course of completing this impairment
review other methodologies are considered
to determine the reasonableness of the
valuation, including the multiples
of earnings methodology.
In the Company’s fi nancial statements,
investments in associates and joint venture
entities are carried at cost.
All signifi cant activities of the Group, with
the exception of the ING Australia Joint
Venture and the investment in AMMB
Holdings Berhad are operated through
wholly owned controlled entities.
Derecognition
The Group enters into transactions where it
transfers fi nancial assets recognised on its
balance sheet but retains either all risks and
rewards of the transferred assets or a portion
Financial Report 59
NOTES TO THE FINA NCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
of them. If all or substantially all risks and
rewards are retained, the transferred assets
are not derecognised from the balance
sheet. The main types of fi nancial assets
that do not qualify for derecognition are
debt securities held by counterparties as
collateral under repurchase agreements,
equity securities lent under securities
lending agreements and securitised assets.
In transactions where substantially all
the risks and rewards of ownership of a
fi nancial asset are neither retained nor
transferred, the Group derecognises the
asset if control over the asset is lost. The
rights and obligations retained in the
transfer are recognised separately as assets
and liabilities as appropriate. In transfers
where control over the asset is retained,
the Group continues to recognise the asset
to the extent of its continuing involvement,
determined by the extent to which it is
exposed to changes in the value of the
transferred asset.
iii) Foreign currency
Functional and presentation currency
Items included in the fi nancial statements
of each of the Group’s entities are measured
using the currency of the primary economic
environment in which the entity operates
(the functional currency).
The consolidated fi nancial statements are
presented in Australian dollars, which is
the Company’s functional and presentation
currency.
Translation differences on non-monetary
items, such as derivatives measured at fair
value through profi t or loss, are reported
as part of the fair value gain or loss on
these items. Translation differences on
non-monetary items measured at fair value
through equity, such as equities classifi ed
as available-for-sale fi nancial assets, are
included in the available-for-sale reserve
in equity. Translation differences on
monetary items are recognised in profi t or
loss in the period in which they arise.
Transactions and balances
Foreign currency transactions are translated
into the functional currency using the
exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and
losses resulting from (i) the settlement of
such transactions, and (ii) the translation
at year-end exchange rates of monetary
assets and liabilities denominated in
foreign currencies, are recognised in the
income statement, except when deferred
in equity as qualifying cash fl ow hedges
and qualifying net investment hedges.
60 ANZ Annual Report 2007
Foreign operations
The results and fi nancial position of all
Group entities (none of which has the
currency of a hyperinfl ationary economy),
that have a functional currency different
from the Group’s presentation currency,
are translated into the Group’s presentation
currency as follows:
(i) assets and liabilities of each foreign
operation are translated at the rates of
exchange ruling at balance date;
(ii) revenue and expenses of each foreign
operation are translated at the average
exchange rate for the period, unless this
average is not a reasonable approximation
of the rate prevailing on transaction date,
in which case revenue and expenses are
translated at the exchange rate ruling at
transaction date; and
(iii) all resulting exchange differences
are recognised in the foreign currency
translation reserve.
On consolidation, exchange differences
arising from borrowings and other currency
instruments designated as hedges of net
investment in foreign operations, are taken
to the foreign currency translation reserve.
When a foreign operation is disposed, such
exchange differences are recognised in the
income statement as part of the gain or loss
on sale.
Goodwill and fair value adjustments arising
on the acquisition of a foreign entity are
treated as assets and liabilities of the
foreign entity and translated at the rate
ruling at balance date.
iv) Interest income and interest expense
Interest income and interest expense are
recognised in the income statement as they
accrue, using the effective interest method.
The effective interest method calculates
the amortised cost of a fi nancial asset or
fi nancial liability and allocates the interest
income or interest expense, including fees
and directly related transaction costs that
are an integral part of the effective interest
rate, over the expected life of the fi nancial
instrument. Income and expense on the
fi nancial instruments are recognised on
an effective yield basis in proportion to
the amount outstanding over the period
to maturity or repayment.
Loan commitment fees, together with related
direct costs, are deferred and recognised
as an adjustment to the effective interest
rate on the loan once drawn or immediately
to the income statement for expired
commitments.
v) Fee and commission income
Fees and commissions that are integral to
the effective interest rate of a fi nancial asset
or liability are included in the determination
of the effective interest rate.
Fees and commissions that relate to the
execution of a signifi cant act (for example,
advisory or arrangement services, placement
fees and underwriting fees) are recognised
when the signifi cant act has been completed.
Fees charged for providing ongoing services
(for example, maintaining and administering
existing facilities) are recognised as income
over the period the service is provided.
vi) Offsetting of income and expenses
Income and expenses are not offset unless
required or permitted by an accounting
standard. At the Group level, this generally
arises in the following circumstances:
where transaction costs form an integral
part of the effective interest rate of a
fi nancial instrument which is measured
at amortised cost, these are offset against
the interest income generated by the
fi nancial instrument;
where gains and losses relating to fair
value hedges are assessed as being
effective;
where gains and losses arise from a group
of similar transactions such as foreign
exchange gains and losses;
where amounts are collected on behalf of
third parties, where the Group is acting as
an agent only; or
where costs are incurred on behalf of
customers from whom the Group is
reimbursed.
vii) Trading securities and fi nancial assets
at fair value through profi t or loss
Trading securities are fi nancial instruments
acquired principally for the purpose of
selling in the short-term or which are a part
of a portfolio which is managed for short-
term profi t-taking are initially recognised
and subsequently measured in the balance
sheet at their fair value. Additionally, this
valuation basis is used as an alternative
to hedge accounting for certain fi nancial
instruments where specifi c conditions
are met.
Derivatives that are neither fi nancial
guarantee contracts nor effective hedging
instruments are carried at fair value through
profi t and loss. In addition, certain fi nancial
assets and liabilities are designated and
measured at fair value through profi t or loss
where any of the following applies:
NOTES TO THE FINA NCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
doing so eliminates or signifi cantly
reduces a measurement or recognition
inconsistency that would otherwise arise
from measuring assets and liabilities, or
recognising the gains or losses thereon,
on different bases;
a group of fi nancial assets or fi nancial
liabilities or both is managed and its
performance evaluated on a fair value
basis; or
the fi nancial instrument contains
an embedded derivative, unless
the embedded derivative does not
signifi cantly modify the cash fl ows or
it is clear, with little or no analysis, that it
would not be separately recorded.
Changes in the fair value (gains or losses)
of these fi nancial instruments are
recognised in the income statement
in the period in which they occur.
Purchases and sales of trading securities are
recognised on trade date.
viii) Derivative fi nancial instruments
Derivative fi nancial instruments are
contracts whose value is derived from one
or more underlying price, index or other
variable. They include swaps, forward
rate agreements, futures, options and
combinations of these instruments.
Derivative fi nancial instruments are
entered into for trading purposes (including
customer-related reasons), or for hedging
purposes (where the derivative instruments
are used to hedge the Group’s exposures
to interest rate risk, currency risk, price risk,
credit risk and other exposures relating to
non-trading positions).
Derivative fi nancial instruments are
recognised initially on trade date at fair
value with gains or losses from subsequent
measurement at fair value being recognised
in the income statement. Where the
derivative is designated effective as a
hedging instrument, the timing of the
recognition of any resultant gain or loss
in the income statement is dependent on
the hedging designation. These hedging
designations and associated accounting are
as follows:
Fair value hedge
Where the Group hedges the fair value
of a recognised asset or liability or fi rm
commitment, changes in the fair value
of the derivative designated as a fair
value hedge are recognised in the
income statement. Changes in the fair
value of the hedged item attributable
to the hedged risk are refl ected in
adjustments to the carrying value of the
hedged item, which are also recognised
in the income statement.
Hedge accounting is discontinued
when the hedge instrument expires
or is sold, terminated, exercised or no
longer qualifi es for hedge accounting.
The resulting adjustment to the carrying
amount of the hedged item arising from
the hedged risk is amortised to the
income statement over the period to
maturity.
If the hedged item is derecognised
from the Group’s balance sheet, the
unamortised fair value adjustment is
recognised immediately in the income
statement.
Cash fl ow hedge
The Group designates derivatives as cash
fl ow hedges where the instrument hedges
the variability in cash fl ows of a recognised
asset or liability, a foreign exchange
component of a fi rm commitment or a
highly probable forecast transaction.
The effective portion of changes in the
fair value of derivatives qualifying and
designated as cash fl ow hedges is
deferred to the hedging reserve, which
forms part of shareholders’ equity. Any
ineffective portion is recognised
immediately in the income statement.
Amounts deferred in equity are recognised
in the income statement in the period
during which the hedged forecast
transactions take place.
When the hedge expires, is sold,
terminated, exercised, or no longer
qualifi es for hedge accounting, the
cumulative amount deferred in equity
remains in the hedging reserve, and is
subsequently transferred to the income
statement when the hedged item is
recognised in the income statement.
When a forecast hedged transaction
is no longer expected to occur, the
amount deferred in equity is recognised
immediately in the income statement.
Net investment hedge
Hedges of net investments in foreign
operations are accounted for similarly to
cash fl ow hedges. The gain or loss from
remeasuring the fair value of the hedging
instrument relating to the effective portion
of the hedge is deferred in equity and
the ineffective portion is recognised
immediately in the income statement.
Derivatives that do not qualify for
hedge accounting
All gains and losses from changes in the fair
value of derivatives that are not designated
in a hedging relationship but are entered
into to manage the interest rate and foreign
exchange risk of funding instruments are
recognised in the income statement. Under
certain circumstances, the component
of the fair value change in the derivative
which relates to current period realised and
unrealised interest is included in net interest
income. The remainder of the fair value
movement is included in other income.
Embedded derivatives
Derivatives embedded in fi nancial
instruments or other host contracts are
treated as separate derivatives when their
economic characteristics and risks are not
closely related to those of the host contracts,
and the host contracts are not measured
at fair value through profi t and loss. The
embedded derivative is measured at fair
value with changes in fair value immediately
recognised in the income statement.
Cash fl ow treatment
Movements in the derivative fi nancial
position are recorded in the cash fl ow
statement when they are settled.
Set-off arrangements
Fair value gains/losses arising from trading
derivatives are not offset against fair value
gains/losses on the balance sheet unless
a legal right of set-off exists and there is an
intention to settle net.
For contracts subject to master netting
agreements that create a legal right of set-off
for which only the net revaluation amount
is recognised in the income statement,
net unrealised gains on derivatives are
recognised as part of other assets and net
unrealised losses are recognised as part of
other liabilities.
Financial Report 61
NOTES TO THE FINA NCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
ix) Available-for-sale assets
Available-for-sale assets comprise non-
derivative fi nancial assets which the Group
designates as available-for-sale but which
are not deemed to be held principally
for trading purposes, and include equity
investments, certain loans and advances,
and fi xed term securities. They are initially
recognised at fair value plus transaction
costs. Subsequent gains or losses arising
from changes in fair value are included
as a separate component of equity in the
‘Available-for-sale revaluation reserve’.
When the asset is sold the cumulative gain
or loss relating to the asset is transferred
to the income statement.
Where there is objective evidence of
impairment on an available-for-sale asset,
the cumulative loss related to that asset
is removed from equity and recognised in
the income statement. If, in a subsequent
period, the amount of an impairment
loss relating to an available-for-sale debt
instrument decreases and the decrease can
be linked objectively to an event occurring
after the impairment event, the loss is
reversed through the income statement.
Premiums and discounts are included
within the calculation of the fair value of the
security. Interest income is accrued on an
effective yield basis and dividend income
is recognised when the right to receive
payment is established.
Purchases and sales of available-for-sale
fi nancial assets are recognised on trade
date as with all regular way assets, being
the date on which the Group commits to
purchase or sell the asset.
x) Net loans and advances
Net loans and advances are non-derivative
fi nancial assets with fi xed or determinable
payments that are not quoted in an active
market. They arise when the Group provides
money to a debtor with no intention of
trading the loans and advances. The loans
and advances are initially recognised at fair
value plus transaction costs that are directly
attributable to the issue of the loan or
advance. They are subsequently measured
at amortised cost using the effective
interest method (refer note 1(iv)). They are
derecognised when the rights to receive
cash fl ows have expired or the Group has
transferred substantially all the risks and
rewards of ownership.
All loans are subject to scrutiny and graded
according to the level of credit risk.
Net loans and advances includes direct
fi nance provided to customers such as
bank overdrafts, credit cards, term loans,
fi nance lease receivables and commercial
bills. Overdrafts, credit cards, fi nance lease
receivables, term loans and commercial bills
are carried at amortised cost.
Customer fi nancing through redeemable
preference shares is included within net
loans and advances. Dividends received
on redeemable preference shares are taken
to the income statement as part of interest
income.
xi) Impairment of loans and advances
Loans and advances are reviewed at least
at each reporting date for impairment.
Credit impairment provisions are raised
for exposures, including off-balance
sheet items such as commitments and
guarantees, that are known to be impaired.
Exposures are impaired and impairment
losses are recorded if, and only if, there is
objective evidence of impairment as a result
of one or more loss events that occurred
after the initial recognition of the loan and
prior to the reporting date, and that loss
event, or events, has had an impact on the
estimated future cash fl ows of the individual
loan or the collective portfolio of loans that
can be reliably estimated.
Impairment is assessed for assets that are
individually signifi cant (or on a portfolio
basis for small value loans), and then on
a collective basis for those exposures not
individually known to be impaired.
Exposures that are assessed collectively
are placed in pools of similar assets with
similar risk characteristics. The required
provision is estimated on the basis of
historical loss experience for assets with
credit risk characteristics similar to those
in the collective pool. The historical loss
experience is adjusted based on current
observable data.
The estimated impairment losses are
measured as the difference between the
assets’ carrying amount and the estimated
future cash fl ows discounted to their present
value. As this discount unwinds during the
period between recognition of impairment
and recovery of the cash fl ow, it is
recognised in interest income. The process
of estimating the amount and timing of cash
fl ows involves considerable management
judgment. These judgments are reviewed
regularly to reduce any differences between
loss estimates and actual loss experience.
62 ANZ Annual Report 2007
The provision for impairment loss
(individual and collective) is deducted from
loans and advances in the balance sheet
and the movement for the reporting period
is refl ected in the income statement.
When a loan is uncollectible, it is written-
off against the related provision for loan
impairment. Subsequent recoveries
of amounts previously written-off are
indirectly credited back to the income
statement.
Where impairment losses recognised
in previous periods have subsequently
decreased or no longer exist, such
impairment losses are indirectly reversed
in the income statement.
A provision is also raised for off-balance
sheet items such as commitments and
guarantees that are considered to be
onerous.
xii) Leasing
Leases as lessee
Leases entered into by the Group as lessee
are predominantly operating leases,
and the operating lease payments are
recognised as an expense on a straight-line
basis over the lease term.
Leases as lessor
Contracts to lease assets, and hire purchase
agreements are classifi ed as fi nance leases
if they transfer substantially all the risks
and rewards of ownership of the asset to
the customer or an unrelated third party.
All other lease contracts are classifi ed as
operating leases.
xiii) Acceptances
Commercial bills accepted but not held in
portfolio are accounted for as a liability with
a corresponding contra asset. The liability is
disclosed as liability for acceptances, and
the asset is disclosed as Customer’s liability
for acceptances
The Group’s own acceptances discounted
are held as part of the trading securities
portfolio.
NOTES TO THE FINA NCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
xiv) Goodwill and other intangible assets
Goodwill
Goodwill, representing the excess of the
purchase consideration over the fair value
of the identifi able net assets of a controlled
entity at the date of gaining control, is
recognised as an asset and not amortised,
but assessed for impairment annually and
whenever there is an indication that the
goodwill may be impaired. This involves,
where required, using the discounted
cash fl ow (DCF) or the capitalisation of
earnings methodology (CEM) to determine
the expected future benefi ts of the cash-
generating units. Where the assessment
results in the goodwill balance exceeding
the value of expected future benefi ts,
the difference is charged to the income
statement.
Any impairment of goodwill is not
subsequently reversed.
Other intangible assets
Other intangible assets include costs
incurred in acquiring and building software
and computer systems (“software”).
Software is amortised using the straight-
line method over its expected useful life
to the Group. The period of amortisation is
between 3 and 5 years, except for certain
core infrastructure projects where the useful
life has been determined to be 7 years.
At each reporting date, software assets
are reviewed for impairment. If any such
indication exists, the recoverable amount
of the assets are estimated and compared
against the existing carrying value. Where
the existing carrying value exceeds the
recoverable amount, the difference is
charged to the income statement.
Costs incurred in planning or evaluating
software proposals, or in maintaining
systems after implementation, are not
capitalised.
xv) Premises and equipment
Premises and equipment are carried at
cost less accumulated depreciation and
impairment.
The gain or loss on the disposal of premises
and equipment is determined as the
difference between the carrying amount of
the assets at the time of disposal and the
proceeds of disposal, and is included in the
results in the year of disposal.
Assets other than freehold land are
depreciated at rates based upon their
expected useful lives to the Group, using
the straight-line method.
The depreciation rates used for each class
of asset are:
1%
Buildings
10%
Building integrals
10%
Furniture & equipment
Computer & offi ce equipment 12.5%–33%
Leasehold improvements are amortised on
a straight-line basis over the shorter of their
useful lives or remaining terms of the lease.
Premises and equipment impairment
assessment
At each reporting date, the carrying amounts
of premises and equipment are reviewed
for impairment. If any such indication
exists, the recoverable amount of the assets
are estimated and compared against the
existing carrying value. Where the existing
carrying value exceeds the recoverable
amount, the difference is charged to the
income statement. If it is not possible to
estimate the recoverable amount of an
individual asset, the Group estimates the
recoverable amount of the cash generating
unit to which the asset belongs.
A previously recognised impairment loss
is reversed if there has been a change
in the estimates used to determine the
recoverable amount.
xvi) Repurchase agreements
Securities sold under repurchase
agreements are retained in the fi nancial
statements where substantially all the risks
and rewards of ownership remain with
the Group, and a counterparty liability is
disclosed under the classifi cations of due
to other fi nancial institutions or payables
and other liabilities. The difference between
the sale price and the repurchase price
is accrued over the life of the repurchase
agreement and charged to interest expense
in the income statement.
Securities purchased under agreements to
resell, where the Group does not acquire
the risks and rewards of ownership, are
recorded as liquid assets, net loans and
advances, or due from other fi nancial
institutions, depending on the term of
the agreement and the counterparty. The
security is not included in the balance
sheet. Interest income is accrued on the
underlying loan amount.
Securities borrowed are not recognised
in the balance sheet, unless these are
sold to third parties, at which point the
obligation to repurchase is recorded as
a fi nancial liability at fair value with fair
value movements included in the income
statement.
xvii) Capitalised expenses
Direct external expenses, comprising
direct and incremental costs related
to the acquisition of interest earning
assets, including structured institutional
lending, mortgages and fi nance leases,
are initially recognised as part of the cost
of acquiring the asset and amortised as
part of expected yield over its expected
life using the effective interest method.
The write-off is to interest income as part
of the effective interest rate. For assets
subject to prepayment, expected life is
determined on the basis of the historical
behaviour of the particular asset portfolio,
taking into account contractual obligations
and prepayment experience assessed on
a regular basis. Impairment of capitalised
expenses is assessed through comparing
the actual behaviour of the portfolio against
initial expected life assumptions.
xviii) Deposits and other borrowings
Deposits and other borrowings include
certifi cates of deposit, interest bearing
deposits, debentures and other related
interest bearing fi nancial instruments.
They are measured at amortised cost. The
interest expense is recognised using the
effective interest method as explained in
note 1(iv).
xix) Bonds, notes and loan capital
Bonds, notes and loan capital are
accounted for in the same way as deposits
and other borrowings, except for those
bonds and notes which are stated at fair
value, with fair value movements recorded
in the income statement.
xx) Employee benefi ts
Leave benefi ts
The amounts expected to be paid in respect
of employees’ entitlements to annual
leave are accrued at expected salary
rates including on-costs. Liability for long
service leave is calculated and accrued
for in respect of all applicable employees
(including on-costs) using an actuarial
valuation.
Defi ned contribution superannuation
schemes
The Group operates a number of
defi ned contribution schemes and also
contributes, according to local law, in the
various countries in which it operates, to
government and other plans that have
the characteristics of defi ned contribution
schemes. The Group’s contributions to
these schemes are recognised as an
expense in the income statement when
incurred.
Financial Report 63
NOTES TO THE FINA NCIAL STATEMENTS
1: Signifi cant Accounting Policies (continued)
The option pricing model takes into account
the exercise price of the option, the risk-free
interest rate, the expected volatility of ANZ
ordinary share price and other factors.
Market vesting conditions are taken into
account in estimating the fair value.
Performance rights: A Performance Right
is a right to acquire a share at nil cost to
the employee subject to satisfactorily
meeting time and performance hurdles.
Upon exercise, each Performance Right
entitles the holder to one ordinary share in
ANZ. The fair value of Performance Rights
is determined at grant date using an option
pricing model, taking into account market
conditions. The fair value is expensed
over the relevant vesting period. This is
recognised as an employee expense with a
corresponding increase in equity.
Other adjustments: Subsequent to the
grant of an equity-based award, the amount
recognised as an expense is adjusted
for vesting conditions other than market
conditions so that, ultimately, the amount
recognised as an expense is based on
the number of equity instruments that
eventually vests.
Treasury shares: Shares in the Company
which are purchased on-market by the
ANZ Employee Share Acquisition Plan are
classifi ed as treasury shares (to the extent
that they relate to unvested employee
share-based awards) and deducted from
share capital.
xxi) Provisions
The Group recognises provisions when there
is a present obligation, the future sacrifi ce
of economic benefi ts is probable, and the
amount of the provision can be measured
reliably. The amount recognised is the best
estimate of the consideration required to
settle the present obligation at reporting
date, taking into account the risks and
uncertainties surrounding the obligation
at reporting date. Where a provision is
measured using the cash fl ows estimated
to settle the present obligation, its carrying
amount is the present value of those cash
fl ows. Any expected third party recoveries
are recognised as an asset if it is virtually
certain that recovery will be received
and the amount of the receivable can be
measured reliably.
xxii) Offsetting of assets and liabilities
Assets and liabilities are offset and the net
amount reported in the balance sheet only
where there is:
a current enforceable legal right to offset
the asset and liability; and
an intention to settle on a net basis, or to
realise the asset and settle the liability
simultaneously.
xxiii) Contingent Liabilities
These items are recorded as liabilities
on the balance sheet when the following
requirements are met:
the transaction is probable in that the
contingency is likely to occur; and
the contingency can be reasonably
estimated.
Further disclosure is made in note 45,
where the above requirements are not
met but there is a possible obligation that
is more than remote. Specifi c details are
provided together with an estimate of the
range or a statement that such an estimate
is not possible.
xxiv) Income tax
Income tax expense
Income tax on earnings for the year
comprises current and deferred tax and is
based on the applicable tax law in each
jurisdiction. It is recognised in the income
statement as tax expense, except when it
relates to items credited directly to equity,
in which case it is recorded in equity, or
where it arises from the initial accounting
for a business combination, in which case
it is included in the determination
of goodwill.
Current tax
Current tax is the expected tax payable
on taxable income for the year, based on
tax rates (and tax laws) which are enacted
or substantively enacted by the reporting
date, including any adjustment for tax
payable in previous years. Current tax for
current and prior years is recognised as
a liability (or asset) to the extent that it is
unpaid (or refundable).
Deferred tax
Deferred tax is accounted for using the
comprehensive tax balance sheet method.
It is generated by temporary differences
between the carrying amounts of assets
and liabilities for fi nancial reporting
purposes and their tax base.
Defi ned benefi t superannuation schemes
The Group operates a number of defi ned
benefi t schemes. The liability and expense
related to providing benefi ts to employees
under each defi ned benefi t scheme are
calculated by independent actuaries.
A defi ned benefi t liability is recognised,
to the extent that the present value of
the defi ned benefi t obligation of each
scheme, calculated using the Projected
Unit Credit Method, is greater than the fair
value of each scheme’s assets. Where this
calculation results in a benefi t to the Group,
a defi ned benefi t asset is recognised, which
is capped at the recoverable amount. In
each subsequent reporting period, ongoing
movements in the defi ned benefi t liability or
asset carrying value is treated as follows:
the net movement relating to the current
period’s service cost, interest cost,
expected return on scheme assets, past
service costs and other costs (such as the
effects of any curtailments and settlements)
is recognised as an employee expense in
the income statement
movements relating to actuarial gains and
losses are recognised directly in retained
earnings
contributions incurred are recognised
directly against the net defi ned benefi t
position.
Share-based compensation
The Group has various equity settled
share-based compensation plans. These are
described in note 47 and largely comprise
the Employee Share Acquisition Plan and
the ANZ Share Option Plan.
ANZ ordinary shares: The fair value of ANZ
ordinary shares granted under the Employee
Share Acquisition Plan is measured at grant
date, using the one-day volume weighted
average market price of ANZ shares. The fair
value is expensed immediately when shares
vest immediately or on a straight-line basis
over the relevant vesting period. This is
recognised as an employee compensation
expense with a corresponding increase
in equity.
Share options: The fair value of share
options is measured at grant date, using
an option pricing model. The fair value is
expensed on a straight-line basis over the
relevant vesting period. This is recognised
as an employee compensation expense
with a corresponding increase in the share
options reserve.
64 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
Financial guarantees are initially recognised
in the fi nancial statements at fair value on
the date the guarantee was given. This is
typically the premium received. Subsequent
to initial recognition, the Group’s liabilities
under such guarantees are measured at the
higher of their amortised amount and the
best estimate of the expenditure required
to settle any fi nancial obligation arising at
the balance sheet date. These estimates are
determined based on experience of similar
transactions and history of past losses.
xxvi) Change in accounting policy
In May 2005, AASB 2005-1 (an amendment
to AASB 139: ‘Financial Instruments:
Recognition and Measurement’) was
issued which stipulated circumstances
in which a hedge of a forecast intragroup
transaction qualifi ed for hedge accounting.
As a result of this amendment, cash fl ow
hedge relationships covering New Zealand’s
revenue fl ows no longer qualifi ed for hedge
accounting. The realised gains on the
hedges of future years’ New Zealand dollar
revenues of $141 million (net of tax) that
were included in the hedging reserve at
30 September 2006 were, in line with the
transitional provisions of AASB 2005-1,
transferred directly to retained earnings as
at 1 October 2006.
1: Signifi cant Accounting Policies
(continued)
Deferred tax assets and liabilities are
measured at the tax rates that are expected
to apply to the year(s) when the asset and
liability giving rise to them are realised or
settled, based on tax rates (and tax laws)
that have been enacted or substantively
enacted by the reporting date. The
measurement refl ects the tax consequences
that would follow from the manner in which
the Group, at the reporting date, recovers or
settles the carrying amount of its assets and
liabilities.
Deferred tax liabilities are recognised for
all taxable temporary differences, other
than those in relation to taxable temporary
differences arising from goodwill.
Deferred tax liabilities are recognised for
taxable temporary differences arising on
investments in controlled entities, branches,
associates and joint ventures, except where
the Group is able to control the reversal of
the temporary differences and it is probable
that temporary differences will not reverse
in the foreseeable future. Deferred tax
assets associated with these interests
are recognised only to the extent that it is
probable that the temporary difference will
reverse in the foreseeable future and there
will be suffi cient taxable profi ts against
which to utilise the benefi ts of the temporary
difference.
Deferred tax assets, including those related
to the tax effects of income tax losses and
credits available to be carried forward,
are recognised only to the extent that it
is probable that future taxable profi ts will
be available against which the deductible
temporary differences or unused tax losses
and credits can be utilised.
Offsetting
Current and deferred tax assets and
liabilities are offset only to the extent that
they relate to income taxes imposed by the
same taxation authority, there is legal right
and intention to settle on a net basis and it
is allowed under the tax law of the relevant
jurisdiction.
xxv) Financial guarantee contracts
Financial guarantee contracts are contracts
that require the issuer to make specifi ed
payments to reimburse the holder for a loss
it incurs because a specifi ed debtor fails
to make payments when due. Financial
guarantees are issued in the ordinary course
of business, consisting of letters of credit,
guarantees and acceptances.
2: Critical Estimates and Judgements
Used in Applying Accounting Policies
The Group prepares its consolidated
fi nancial statements in accordance with
policies which are based on AAS, other
authoritative accounting pronouncements of
the Australian Accounting Standards Board
(AASB), AASB and Urgent Issues Group
Interpretations and the Corporations Act
of 2001. This involves the Group making
estimates and assumptions that affect
the reported amounts within the fi nancial
statements. Estimates and judgements are
continually evaluated and are based on
historical factors, including expectations
of future events that are believed to be
reasonable under the circumstances. All
material changes to accounting policies
and estimates and the application of these
policies and judgements are approved by
the Audit Committee of the Board.
A brief explanation of critical estimates and
judgements, and their impact on the Group,
follows:
Critical Accounting Estimates and
Assumptions
Provisions for credit impairment
The accounting policy, as explained in note
1(xi), relating to measuring the impairment
of loans and advances, requires the Group
to assess impairment regularly. The credit
provisions raised (individual and collective)
represent management’s best estimate of
the losses incurred in the loan portfolio at
balance date based on their experienced
judgement.
The collective provision is estimated on
the basis of historical loss experience for
assets with credit characteristics similar to
those in the collective pool. The historical
loss experience is adjusted based on
current observable data and events and an
assessment of the impact of model risk.
The use of such judgements and reasonable
estimates is considered by management to
be an essential part of the process and does
not impact on reliability.
Individual provisioning is applied when the
full collectibility of one of the Group’s loans
is identifi ed as being doubtful.
Individual and collective provisioning is
calculated using discounted expected
future cash fl ows. The methodology and
assumptions used for estimating both the
amount and timing of future cash fl ows are
revised regularly to reduce any differences
between loss estimates and actual loss
experience.
Financial Report 65
NOTES TO THE FINA NCIAL STATEMENTS
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
Critical judgements in applying the entity’s
accounting policies
i) Special purpose and off balance sheet
entities
The Group may invest in or establish special
purpose entities (SPEs) to enable it to
undertake specifi c types of transactions. The
main types of these SPEs are securitisation
vehicles, structured fi nance entities, and
entities used to sell credit protection.
Where the Group has established SPEs which
are controlled by the Group to facilitate
transactions undertaken for Group purposes,
these are consolidated in the Group’s
fi nancial statements.
The Group does not consolidate SPEs that
it does not control in accordance with the
Group’s policy outlined in note 1(ii). As it can
sometimes be diffi cult to determine whether
the Group has control of an SPE, it makes
judgements about its exposure to the risks
and rewards, as well as about its ability to
make operational decisions for the SPE in
question.
The table below summarises the main types
of SPEs that are not consolidated into the
Group, the reason for their establishment,
and the key risks associated with them. ANZ
does not bear the majority of residual risks
and rewards of these SPEs.
Type of SPE
Reason for establishment
Key Risks
Securitisation vehicles
Assets are transferred to an SPE which funds
the purchase by issuing securities. This enables
ANZ or customers to increase diversity of
funding sources.
The amount disclosed here is the total assets of
SPEs managed or arranged by ANZ. It includes
SPEs that purchase assets from sellers other
than ANZ.
ANZ may manage securitisation
vehicles, service assets in a vehicle
or provide liquidity or other support
and retains the risks associated with
the provision of these services.1 Credit
and market risks associated with the
underlying assets are not retained or
assumed by ANZ except to the limited
extent that ANZ provides arm’s length
services and facilities.
SPE Assets
2007
$m
2006
$m
7,786
9,381
Structured fi nance entities2
These entities are set up to assist with the
structuring of client fi nancing.
ANZ may manage these vehicles and
also provide derivatives.
n/a
n/a
Credit protection
These entities are set up to allow the Group
to sell the credit risk on portfolios.
ANZ may manage these vehicles.
2,145
2,145
1 Liquidity support facilities provided in relation to ANZ sponsored securitisation vehicles totalled $5.9 billion as at 30 September 2007,
of which $2.9 billion had been drawn as at that date.
2 ANZ’s net investment in the structured finance entities is $229 million as at 30 September 2007 (30 September 2006: $233 million).
ii) Valuation of investment in ING Australia
Limited (INGA)
The Group adopts the equity method of
accounting for its 49% interest in INGA. As
at 30 September 2007, the Group’s carrying
value was $1,519 million (September 2006:
$1,462 million).
The carrying value is subject to a recoverable
amount test to ensure that this does not
exceed its recoverable amount at the
reporting date.
Any excess of carrying value above
recoverable amount is written off to the
income statement as an impairment
write-down.
During the year the Group engaged Ernst &
Young [ABC] Limited (EY [ABC]) to provide an
independent valuation of INGA for 31 March
2007 assessment purposes. The valuation
was a stand alone market based assessment
of economic value, and excluded the Group’s
specifi c synergies. The independent valuation
was based on a discounted cashfl ow
approach, with allowance for the cost of
capital. EY [ABC] presented an independent
valuation range of $4,750 million to $5,083
million, refl ecting a range of sales and cost
base assumptions. Based on this review,
ANZ believed that no change was required
to the carrying value of the investment as
at 31 March 2007.
At 30 September 2007, impairment testing
via a management review was conducted
to determine whether there were any
indicators of impairment. The assessment
involved review of the following indicators of
impairment:
Performance
Operational and regulatory factors
Economic and industry factors
The assessment did not indicate the
existence of impairment indicators and
accordingly no write-down was required.
(iii) Valuation of investment in ING (NZ)
Holdings Limited (ING NZ)
The Group adopts the equity method of
accounting for its 49% interest in ING NZ.
As at 30 September 2007, the Group’s
carrying value was $162 million (September
2006: $146 million).
The carrying value is subject to a recoverable
amount test to ensure that this does not
exceed its recoverable amount at the
reporting date.
Any excess of carrying value above
recoverable amount is written off to
the income statement as an impairment
write-down.
During the year the Group engaged
PricewaterhouseCoopers (PwC) to provide an
impairment analysis of ING NZ for 31 March
2007 assessment purposes. The valuation
was based on a discounted cashfl ow
approach.
PwC presented a valuation range as at
31 December 2006 of $344 million to
$386 million (at 30 September 2007
exchange rates), refl ecting a range of sales
and cost base assumptions.
PwC also considered the additional cash
generated by ING NZ in the period between
31 December 2006 and 31 March 2007
in order to provide an assessment as at
31 March 2007 of the appropriateness of
the carrying value. Based on this review ANZ
believed that no change was required to the
66 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
transactions, particularly with respect to the
mix of business, geographic location, growth
prospects, riskiness of future earnings and
size of the overall business.
The results of the independent valuation
carried out as at 31 March 2007 showed
a fair value in excess of the then current
carrying value for the CGU and hence the
carrying value of the goodwill was not
considered impaired.
In June 2007 the Group obtained 100%
ownership of ETRADE Australia Limited. This
acquisition resulted in the recognition of
$264 million of goodwill.
At 30 September 2007, impairment testing
via a management review was conducted
to determine whether there were any
indicators of impairment in the carrying
value of ANZ National Bank Limited’s
goodwill and the goodwill recognised on
the acquisition of ETRADE Australia Limited.
The assessment involved review of the
following indicators of impairment:
Performance
Operational and regulatory factors
Economic and industry factors
The assessment did not indicate the
existence of impairment and accordingly no
write-down was required.
v) Signifi cant Associates
The carrying value of all investments
in associates is subject to an annual
recoverable amount test. This assessment
involves ensuring that either the
investment’s fair value (less costs to sell) is
greater than its carrying amount or its value
in use can be estimated to be close to its fair
value (less costs to sell).
The Group has made several recent
signifi cant investments in associates and
each will be subject to an annual recoverable
amount test. Furthermore, at each reporting
period, all investments are assessed against
potential impairment indicators.
carrying value of the investment as at
31 March 2007.
At 30 September 2007, impairment testing
via a management review was conducted to
determine whether there were any indicators
of impairment based on the 31 March 2007
valuation. The assessment involved review
of the following indicators of impairment:
Performance
Operational and regulatory factors
Economic and industry factors
The assessment did not indicate the
existence of impairment indicators and
accordingly no write-down was required.
iv) Goodwill
The carrying value of goodwill is reviewed
at each balance date and is written down,
to the extent that it is no longer supported
by probable future benefi ts.
Any excess of carrying value over recoverable
amount is taken to the income statement as
an impairment write-down.
Goodwill is allocated to cash-generating
units (CGU) for the purpose of impairment
testing, which is undertaken at the lowest
level at which goodwill is monitored for
internal management reporting purposes.
Impairment testing of purchased goodwill
is performed annually in March through
an independent valuation, by comparing
the fair value of the CGU with the current
carrying amount of its net assets, including
goodwill. Where the current carrying value
is greater than fair value, a charge for
impairment of goodwill will be recorded
in the income statement.
As at 30 September 2007, the balance
of goodwill recorded as an asset in ANZ
National Bank Limited was $2,781 million
(30 September 2006: $2,828 million). This
represents the most signifi cant component
of the Group’s goodwill balance.
In determining the fair value of the CGU
for testing of the goodwill in ANZ National
Bank Limited, an independent valuation
is obtained based on a capitalisation of
earnings approach. Under this methodology,
valuation multiples (such as the price to
earnings (PE) ratio) observed from previous
transactions in the banking sector and
current price/cash earnings multiples from
similar businesses are used to determine
an appropriate price/earnings multiple for
the CGU.
In determining an appropriate price multiple
for the valuation, judgement is applied
when assessing comparable companies and
As at 30 September 2007, the Group has
reviewed all investments in associates
against the following impairment indicators:
actual fi nancial performance against
budgeted fi nancial performance;
any material unfavourable operational
factors and regulatory factors;
any material unfavourable economic
outlook and market competitive factors;
carrying value against market value
(supported by third-party broker
valuation); and
carrying value against market
capitalisation (for listed investments).
Where appropriate, additional potential
impairment indicators are reviewed
which are more specifi c to the respective
investment.
As at 30 September 2007, no impairment
of associates was identifi ed as a result of
either the review of impairment indicators
listed above, or the recoverable amount test
performed on longer term investments.
Financial Report 67
NOTES TO THE FINA NCIAL STATEMENTS
3: Income
Interest income
Other fi nancial institutions
Trading securities
Available-for-sale assets
Loans and advances
Acceptances
Other
Controlled entities
Total interest income
Other operating income
Lending fees1
Non-lending fees and commissions arising from fi nancial assets and
liabilities not at fair value through profi t or loss
Fee income on trust and other fi duciary activities where ANZ holds or invests
assets on behalf of its customers
Other fees and commissions
Controlled entities
Total fee and commission income
Fee and commission expense2
Net fee and commission income
Other income
Net foreign exchange earnings
Net (losses)/gains from trading securities3
Net gains/(losses) from trading derivatives
Movements on fi nancial instruments measured at fair value through profi t or loss4
Settlement of ANZ National Bank Limited warranty claims
Gain on sale of Esanda Fleetpartners
Profi t/(loss) on sale of premises5
Stadium Australia income
Dividends received from controlled entities
Brokerage income
Other
Total other income
Total other operating income
Share of joint venture profi t from ING Australia and ING (NZ) (refer note 42)
Share of associates’ profi t (refer note 41)
Total share of joint venture and associates’ profi t
Total income6
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
488
955
629
22,049
1,072
1,017
26,210
–
407
526
736
18,802
969
861
22,301
–
373
749
498
14,192
1,072
586
17,470
339
254
384
448
11,791
969
507
14,353
265
26,210
22,301
17,809
14,618
491
150
20
1,956
2,617
–
2,617
(237)
430
131
17
1,808
2,386
–
2,386
(241)
374
139
–
1,340
1,853
178
2,031
(168)
336
121
–
1,222
1,679
173
1,852
(175)
2,380
2,145
1,863
1,677
510
(47)
416
100
–
195
37
38
–
55
140
1,444
447
(7)
216
49
14
–
2
–
–
3
146
870
523
(21)
133
80
–
–
–
–
1,134
–
67
203
(17)
167
36
–
–
–
–
1,145
2
83
1,916
1,619
3,824
3,015
3,779
3,296
172
87
259
138
56
194
–
–
–
–
–
–
30,293
25,510
21,588
17,914
1 Lending fees exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1(iv)).
2 Comprises interchange fees paid.
3 Does not include interest income.
4 Includes any fair value movements (excluding realised and accrued interest) on derivatives entered into to manage interest rate and foreign exchange risk on funding instruments,
and not designated as accounting hedges, ineffective portions of cashflow hedges, and fair value movements in financial assets and liabilities designated at fair value.
The net gain on financial assets and liabilities designated at fair value was $127 million (2006: $128 million) for the Group and $125 million (2006: $125 million) for the Company.
5 Gross proceeds on sale of premises is $63 million (2006: $4 million).
6 Total income includes external dividend income of $99 million (2006: $53 million) for the Group and $1 million (2006: $6 million) for the Company.
68 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
4: Expenses
Interest expense
Financial institutions
Deposits
Borrowing corporations’ debt
Commercial paper
Acceptances
Loan capital, bonds and notes
Other
Controlled entities
Total interest expense
Operating expenses
i) Personnel
Employee entitlements and taxes
Salaries and wages
Superannuation costs – defi ned benefi t plans (refer note 46)
Superannuation costs – defi ned contribution plans
Equity-settled share-based payments (refer note 47)
Temporary staff
Other
Total personnel expenses
ii) Premises
Amortisation of leasehold improvements (refer note 22)
Depreciation of buildings and integrals (refer note 22)
Rent
Utilities and other outgoings
Other
Total premises expenses
iii) Computer
Computer contractors
Data communication
Depreciation and amortisation1
Rentals and repairs
Software purchased
Software written-off
Other
Total computer expenses
iv) Other
Advertising and public relations
Amortisation of other intangible assets (refer note 20)
Audit and other fees (refer note 5)
Depreciation of furniture and equipment (refer note 22)
Freight and cartage
Loss on sale of equipment
Non-lending losses, frauds and forgeries
Postage and stationery
Professional fees
Settlement of NHB insurance claim
Telephone
Travel
Other
Total other expenses
Total operating expenses
Total expenses
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
872
10,123
671
1,210
915
4,628
489
18,908
–
636
8,000
652
1,440
809
3,387
434
15,358
–
764
6,876
–
394
915
3,509
386
12,844
304
527
5,296
–
245
809
2,537
299
9,713
628
18,908
15,358
13,148
10,341
236
1,892
11
180
62
131
479
2,991
207
1,746
11
160
76
121
461
2,782
163
1,314
6
139
50
94
353
2,119
137
1,201
6
121
65
75
338
1,943
22
22
254
138
26
462
50
71
208
73
134
16
40
592
157
6
12
57
53
3
43
115
130
–
55
152
125
908
18
15
228
128
23
412
47
64
208
68
117
10
41
555
175
3
12
48
47
4
55
116
120
(113)
56
136
123
782
16
4
169
96
19
304
38
44
174
54
100
14
13
437
97
4
8
44
46
2
48
74
89
–
27
102
222
763
12
2
146
92
24
276
39
40
170
49
84
10
19
411
123
3
8
36
40
2
18
73
91
(113)
30
89
220
620
4,953
4,531
3,623
3,250
23,861
19,889
16,771
13,591
1 Comprises software amortisation of $122 million (2006: $114 million), refer note 20, and computer depreciation of $86 million (2006: $94 million), refer note 22. The Company comprises
software amortisation of $109 million (2006: $100 million), refer note 20, and computer depreciation of $65 million (2006: $70 million), refer note 22.
Financial Report 69
NOTES TO THE FINA NCIAL STATEMENTS
5: Compensation of Auditors
KPMG Australia
Audit or review of fi nancial reports of the Company or Group
Other audit-related services1
Other assurance services2
Total
Overseas related practices of KPMG Australia
Audit or review of fi nancial reports of Group entities
Other audit-related services1
Other assurance services2
Total compensation of auditors
Consolidated
The Company
2007
$’000
2006
$’000
2007
$’000
2006
$’000
6,696
2,210
110
6,462
1,152
209
5,624
1,575
110
5,572
878
209
9,016
7,823
7,309
6,659
2,678
760
–
2,654
1,031
38
3,438
3,723
584
374
–
958
527
497
–
1,024
12,454
11,546
8,267
7,683
It is Group policy that KPMG Australia or any of its related practices may provide assurance and other audit-related services that, while outside the scope of the statutory audit, are consistent with
the role of auditor. These include regulatory and prudential reviews requested by the Company’s regulators such as the Australian Prudential Regulation Authority (APRA). KPMG Australia or any
of its related practices may not provide services that are perceived to be materially in conflict with the role of auditor. These include consulting advice and subcontracting of operational activities
normally undertaken by management, and engagements where the auditor may ultimately be required to express an opinion on its own work. However, non-audit services that are not perceived
to be materially in conflict with the role of auditor may be provided by KPMG Australia or any of its related practices subject to the approval of the Audit Committee.
1 Includes prudential supervision reviews for central banks and work required for local statutory purposes.
2 Other assurance services includes:
Consolidated
Sustainability review
Compliance testing for securitisation
transaction
Training course
Total
2007
$’000
–
66
44
110
2006
$’000
203
–
44
247
70 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
6: Income Tax Expense
(a) Income tax recognised in the Income Statement
Tax expense/(income) comprises:
Income tax expense/(income)
Adjustments recognised in the current year in relation to the current tax of prior years
Deferred tax expense/(income) relating to the origination and reversal of
temporary differences
Benefi ts arising from previously unrecognised tax losses, tax credits,
or temporary differences of a prior period that is used to reduce:
- current tax expense
Total income tax expense charged in the Income Statement
Reconciliation of the prima facie income tax expense on pre-tax profi t
with the income tax expense charged in the Income Statement.
Operating profi t before income tax
Prima facie income tax expense at 30%
Change in income tax expense due to:
Overseas tax rate differential
Rebateable and non-assessable dividends
Other non-assessable income
Profi t from associated and joint venture entities
Recognition of previously unrecognised capital losses
Restatement of deferred tax balances for New Zealand tax rate change
Foreign exchange translation of US Hybrid loan capital
Other
Income tax (over) provided in previous years
Total income tax expense charged in the Income Statement
Effective Tax Rate
Australia
Overseas
(b) Income tax recognised directly in equity
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
1,847
(2)
1,754
(4)
1,185
(4)
1,206
–
(101)
(225)
(238)
(333)
(66)
(3)
1,678
1,522
(65)
878
(2)
871
5,865
1,760
5,214
1,564
4,429
1,329
4,045
1,214
30
(10)
(3)
(75)
(54)
24
–
8
25
(6)
(9)
(57)
–
–
–
9
1,680
1,526
(2)
(4)
1,678
1,522
(2)
(340)
–
–
(54)
–
(67)
16
882
(4)
878
(5)
(345)
–
–
–
–
9
(2)
871
–
871
28.6%
29.2%
19.8%
21.5%
1,073
605
984
538
797
81
784
87
The following income tax amounts were charged directly to equity during the period
135
2
99
(3)
Tax consolidation
The Company and all its wholly owned Australian resident entities are part of a tax-consolidated group under Australian taxation law.
The Company is the head entity in the tax-consolidated group. Tax expense/income and deferred tax liabilities/assets arising from temporary
differences of the members of the tax-consolidated group are recognised in the separate fi nancial statements of the members of the tax-
consolidated group on a ‘group allocation’ basis. Current tax liabilities and assets of the tax consolidated group are recognised by the Company
(as head entity in the tax-consolidated group).
Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts are recognised as payable to or
receivable by the Company and each member of the group in relation to the tax contribution amounts paid or payable between the Company
and the other members of the tax-consolidated group in accordance with the arrangement.
Members of the tax-consolidated group have also entered into a tax sharing agreement that provides for the allocation of income tax liabilities
between the entities should the head entity default on its income tax payment obligations.
Financial Report 71
NOTES TO THE FINA NCIAL STATEMENTS
7: Dividends
Ordinary dividends1
Interim dividend
Final dividend2
Bonus option plan adjustment
Dividends on ordinary shares
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
1,144
1,267
(48)
1,024
1,078
(34)
1,144
1,267
(48)
1,024
1,078
(34)
2,363
2,068
2,363
2,068
1 Dividends are not accrued and are recorded when paid.
2 Proposed final dividend of $1,381 million for 2007, based on the forecast number of ordinary shares on issue at the dividend record date, is not included in the table above.
A fi nal dividend of 74 cents, fully franked, is proposed to be paid on each fully paid ordinary share on 21 December 2007 (2006: fi nal dividend
of 69 cents, paid 15 December 2006, fully franked). The 2007 interim dividend of 62 cents, paid 2 July 2007, was fully franked (2006: interim
dividend of 56 cents, paid 3 July 2006, fully franked).
The tax rate applicable to the franking credits attached to the interim dividend and to be attached to the proposed fi nal dividend is 30%
(2006: 30%).
Dividends paid in cash or satisfi ed by the issue of shares under the dividend reinvestment plan during the years ended 30 September 2007
and 2006 were as follows:
Consolidated
The Company
2007
$m
1,921
442
2006
$m
1,903
165
2007
$m
1,921
442
2006
$m
1,903
165
2,363
2,068
2,363
2,068
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
37
37
27
27
–
–
–
–
Paid in cash
Satisfi ed by issue of shares
Preference dividends
Euro Trust Securities
Dividends on preference shares
72 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
7: Dividends (continued)
Euro Trust Securities
On 13 December 2004, the Group issued 500,000 Euro Floating Rate Non-cumulative Trust Securities (“Euro Trust Securities”) at €1,000 each
into the European market, raising €500 million ($871 million at the spot rate at the date of issue, net of issue costs). The Euro Trust Securities
comprise 2 fully paid securities – an interest paying unsecured note issued by a United Kingdom subsidiary (ANZ Jackson Funding PLC) and
a fully paid €1,000 preference share issued by the Company, which are stapled together and issued as a Euro Trust Security by ANZ Capital
Trust III.
Distributions on Euro Trust Securities are non-cumulative and are payable quarterly in arrears (on 15 March, 15 June, 15 September,
15 December of each year) based upon a fl oating distribution rate equal to 3 month EURIBOR rate plus a 66 basis point margin. At each
payment date the 3 month EURIBOR rate is reset for the next quarter. Dividends are not payable on the preference share while it is stapled to
the note. If distributions are not paid on Euro Trust Securities, the Company may not pay dividends or return capital on its ordinary shares or
any other share capital or security ranking equal or below the preference share component. (Refer to note 30 for further details.)
Dividend Franking Account
The amount of franking credits available to the Company for the subsequent fi nancial year is $580 million (2006: $341 million) after adjusting
for franking credits that will arise from the payment of tax on Australian profi ts for the 2007 fi nancial year, $592 million of franking credits which
will be utilised in franking the proposed fi nal dividend and franking credits that may not be accessible by the Company at present.
Restrictions which Limit the Payment of Dividends
There are presently no signifi cant restrictions on the payment of dividends from controlled entities to the Company. Various capital adequacy,
liquidity, statutory reserve and other prudential requirements must be observed by certain controlled entities and the impact on these
requirements caused by the payment of cash dividends is monitored.
There are presently no restrictions on payment of dividends by the Company. Reductions of shareholders’ equity through payment of cash
dividends is monitored having regard to the regulatory requirements to maintain a specifi ed capital adequacy ratio. In particular, the Australian
Prudential Regulation Authority (APRA) has advised that a bank under its supervision must consult with it before declaring a coupon payment
on a Tier 1 instrument, including a dividend if the bank has incurred a loss, or proposes to pay coupon payments on Tier 1 instruments
(including dividends), which exceed the level of current year profi ts.
Dividend Reinvestment Plan
During the year, 3,613,226 ordinary shares were issued at $28.25 per share, and 11,621,468 ordinary shares at $29.29 per share, under the
dividend reinvestment plan (2006: 3,545,901 ordinary shares at $23.85 per share, and 3,039,401 ordinary shares at $26.50 per share).
All eligible shareholders can elect to participate in the dividend reinvestment plan.
A number of changes have been made to the terms and conditions of the dividend reinvestment plan and bonus option plan, effective for
the 2007 fi nal dividend only, including the application of a 1.5% discount. For the 2007 fi nal dividend only, the balance of the dividend
not reinvested by shareholders in the dividend reinvestment plan or foregone by shareholders under the bonus option plan, will be fully
underwritten by UBS AG, Australia branch.
Bonus Option Plan
The amount of dividends paid during the year has been reduced as a result of certain eligible shareholders participating in the bonus option
plan and foregoing all or part of their right to dividends. These shareholders were issued bonus shares.
During the year, 1,729,427 ordinary shares were issued under the bonus option plan (2006: 1,384,144 ordinary shares).
Final dividend 2006
Interim dividend 2007
Determined
dividend
$m
Bonus
option plan
adjustment
$m
1,267
1,144
2,411
(19)
(29)
(48)
Amount
paid
$m
1,248
1,115
2,363
Financial Report 73
NOTES TO THE FINA NCIAL STATEMENTS
8: Earnings per Ordinary Share
Basic earnings per share (cents)
Earnings reconciliation ($millions)
Profi t for the year
Less: profi t attributable to minority interests
Less: preference share dividend paid
Earnings used in calculating basic earnings per share
Weighted average number of ordinary shares (millions)
Diluted earnings per share (cents)
Earnings reconciliation ($millions)
Earnings used in calculating basic earnings per share
Add: US Trust Securities interest expense
Add: ANZ StEPS interest expense
Add: UK Hybrid interest expense
Earnings used in calculating diluted earnings per share
Weighted average number of ordinary shares (millions)
Used in calculating basic earnings per share
Add: potential conversion of options to ordinary shares
potential conversion of US Trust Securities to ordinary shares at current market price
potential conversion of ANZ StEPS to ordinary shares
potential conversion of UK Hybrid Securities to ordinary shares
Used in calculating diluted earnings per share
Consolidated
2007
224.1
4,187
7
37
4,143
1,848.5
218.3
4,143
44
50
21
4,258
1,848.5
15.2
42.0
34.5
10.7
1,950.9
2006
200.0
3,692
4
27
3,661
1,830.3
194.0
3,661
53
45
–
3,759
1,830.3
13.9
54.8
38.2
–
1,937.2
The weighted average number of converted and lapsed options, weighted with reference to the date of conversion or lapse, and included in the
calculation of diluted earnings per share is approximately 2 million.
9: Liquid Assets
Australia
Coins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Securities purchased under agreement to resell in less than 90 days
New Zealand
Coins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Other banks’ certifi cates of deposit
Securities purchased under agreement to resell in less than 90 days
Overseas Markets
Coins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Other banks’ certifi cates of deposit
Securities purchased under agreement to resell in less than 90 days
Total liquid assets
Maturity analysis based on original term to maturity
Less than 90 days
More than 90 days
Total liquid assets
10: Due from Other Financial Institutions
Australia
New Zealand
Overseas Markets
Total due from other fi nancial institutions
Maturity analysis based on original term to maturity
Less than 90 days
More than 90 days
Total due from other fi nancial institutions
74 ANZ Annual Report 2007
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
844
656
3,824
5,324
2,585
1,302
1,403
277
5,567
238
2,582
3,276
–
6,096
16,987
12,307
4,680
16,987
1,286
938
4,776
7,000
913
1,398
1,351
260
3,922
251
2,279
1,566
1
4,097
15,019
11,633
3,386
15,019
709
489
3,824
5,022
1,242
892
4,776
6,910
–
–
–
–
–
113
2,324
3,159
–
5,596
10,618
6,701
3,917
10,618
–
–
–
–
–
111
1,946
1,460
–
3,517
10,427
8,050
2,377
10,427
Consolidated
The Company
2007
$m
2,857
1,546
3,637
8,040
6,767
1,273
8,040
2006
$m
3,090
3,236
3,339
9,665
8,711
954
9,665
2007
$m
2,853
–
3,281
6,134
5,339
795
6,134
2006
$m
3,068
–
3,185
6,253
5,520
733
6,253
NOTES TO THE FINA NCIAL STATEMENTS
11: Trading Securities
Trading securities are allocated between Australia, New Zealand and Overseas Markets based on the domicile of the issuer
Listed – Australia
Other securities and equity securities
Listed – Overseas Markets
Other government securities
Total listed
Unlisted – Australia
Commonwealth securities
Local, semi-government and other government securities
ANZ accepted bills
Other securities and equity securities
Unlisted – New Zealand
Other government securities
Other securities and equity securities
Unlisted – Overseas Markets
Other government securities
Other securities and equity securities
Total unlisted
Total trading securities
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
31
31
27
27
58
556
3,611
2,305
6,204
12,676
124
1,489
1,613
299
521
820
15,109
15,167
5
5
44
44
49
328
2,635
1,569
2,639
7,171
210
1,220
1,430
–
529
529
9,130
9,179
31
31
27
27
58
556
3,611
2,305
6,020
12,492
–
–
–
288
521
809
13,301
13,359
5
5
44
44
49
328
2,635
1,569
2,363
6,895
37
–
37
–
527
527
7,459
7,508
12: Derivative Financial Instruments
Derivative instruments are contracts whose value is derived from one or more underlying variables or indices, require little or no initial net
investment and are settled at a future date. Derivatives include contracts traded on registered exchanges and contracts agreed between
counterparties, called “Over the Counter” or “OTCs”. The use of derivatives and their sale to customers as risk management products is an
integral part of the Group’s trading activities. Derivatives are also used to manage the Group’s own exposure to fl uctuations in exchange and
interest rates as part of its asset and liability management activities (i.e. balance sheet risk management).
Derivatives are subject to the same types of credit and market risk as other fi nancial instruments, and the Group manages these risks in a
consistent manner.
Types of derivative instruments
The principal foreign exchange rate contracts used by the Group are forward foreign exchange contracts, currency swaps and currency options.
Forward foreign exchange contracts are agreements to buy or sell a specifi ed quantity of foreign currency on a specifi ed future date at an agreed
rate. A currency swap generally involves the exchange, or notional exchange, of equivalent amounts of two currencies and a commitment to
exchange interest periodically until the principal amounts are re-exchanged on a future date. Currency options provide the buyer with the right,
but not the obligation, either to purchase or sell a fi xed amount of a currency at a specifi ed rate on or before a future date. As compensation for
assuming the option risk, the option writer generally receives a premium at the start of the option period.
The principal commodity contracts used by the Group are forward commodity contracts, commodity swaps and commodity options. Forward
commodity contracts are agreements for the payment of the difference between a specifi ed commodity price and a fi xed rate on a notional
volume of the commodity at a future date. A commodity swap generally involves the exchange of the return on the commodity for a fi xed or
fl oating interest payment without the exchange of the underlying commodity or principal amount. Commodity options provide the buyer with
the right, but not the obligation, to exchange the difference between a specifi ed commodity price and a fi xed rate on a notional volume of the
commodity at a future date. As compensation for assuming the option risk, the option writer generally receives a premium at the start of the
option period. In certain circumstances the option premium is paid at the end of the option period.
The principal interest rate contracts used by the Group are forward rate agreements, interest rate futures, interest rate swaps and options.
Forward rate agreements are contracts for the payment of the difference between a specifi ed interest rate and a reference rate on a notional
deposit at a future settlement date. There is no exchange of principal. An interest rate future is an exchange traded contract for the delivery of a
standardised amount of a fi xed income security or time deposit at a future date. Interest rate swap transactions generally involve the exchange
of fi xed and fl oating interest payment obligations without the exchange of the underlying principal amounts. Interest rate options provide the
buyer with the right but not the obligation either to receive or pay interest at a specifi ed rate on or before a future date. As compensation for
assuming the option risk, the option writer generally receives a premium at the start of the option period.
Financial Report 75
NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
The principal credit contracts used by the Group are default swaps. Default swaps are contracts that provide for a specifi ed payment to be made
to the purchaser of the swap following a defi ned credit event.
Derivatives, except for those that are specifi cally designated as effective hedging instruments, are classifi ed as held for trading. The held for
trading classifi cation includes two categories of derivative instruments: those held as trading positions and those used for the Group’s balance
sheet risk management.
Trading positions
Trading positions consist of both sales to customers and market making activities. Sales to customers include the structuring and marketing
of derivative products to customers which enable them to take or mitigate risks. Market making activities consist of derivatives entered into
principally for the purpose of generating profi ts from short-term fl uctuations in price or margins. Positions may be traded actively or held over a
period of time to benefi t from expected changes in market rates.
Gains or losses, including any current period interest, from the change in fair value of trading positions are recognised in the income statement
as ‘other income’ in the period in which they occur.
Balance sheet risk management
The Group designates balance sheet risk management derivatives into hedging relationships in order to minimise income statement volatility.
This volatility is created by differences in the timing of recognition of gains and losses between the derivative and the hedged item. Hedge
accounting is not applied to all balance sheet risk management positions.
Gains or losses from the change in fair value of balance sheet risk management derivatives that form part of an effective hedging relationship
are recognised in the income statement based on the hedging relationship. Any ineffectiveness is recognised in the income statement as ‘other
income’ in the period in which it occurs.
Gains or losses, excluding any current period interest, from the change in fair value of balance sheet risk management positions that are not
designated into hedging relationships are recognised in the income statement as ‘other income’ in the period in which they occur. Current
period interest is included in interest income and expense.
The following tables provide an overview of the Group’s and the Company’s foreign exchange rate, commodity, credit and interest rate
derivatives. They include all trading and balance sheet risk management contracts. Notional principal amounts measure the amount of the
underlying physical or fi nancial commodity and represent the volume of outstanding transactions. They are not a measure of the risk associated
with a derivative. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fl uctuations in market
rates relative to their terms. The aggregate contractual or notional amount of derivative fi nancial instruments on hand, the extent to which
instruments are favourable or unfavourable, and as a consequence the aggregate fair values of derivative fi nancial assets and liabilities, can
fl uctuate signifi cantly from time to time. The fair values of derivative instruments held and notional principal amounts are set out as follows.
76 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Consolidated at
30 September 2007
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Collateral
Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold
Credit contracts
Credit default swaps
Trading
Fair value
Hedging
Notional
principal
amount
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Fair value
Cash fl ow
Net investment
in foreign operations
Liabilities
$m
Assets
$m
278,479
141,881
144
6,476
9,718
–
4,605
6,270
7
1,047
–
(1,875)
(6,570)
(6,320)
(6)
–
(1,001)
1,612
436,698
10,054
(12,285)
–
440
–
–
–
–
440
–
(587)
–
–
–
–
(587)
15,429
1,664
(1,600)
–
–
137,039
944,079
96,815
26,621
22,711
13
7,755
961
142
–
(15)
(7,902)
(987)
–
(115)
1,227,265
8,871
(9,019)
–
538
–
–
–
538
–
(284)
–
–
–
(284)
1
–
–
–
–
–
1
–
2
311
18
–
–
331
–
–
–
–
–
–
–
–
–
(114)
(9)
–
–
(123)
47,702
307
(282)
–
–
–
–
31
–
–
–
–
–
31
–
–
–
–
–
–
–
–
1,727,094
20,896
(23,186)
978
(871)
332
(123)
31
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total fair value
of derivatives
Assets
$m
Liabilities
$m
4,637
6,710
7
1,047
–
(1,875)
(6,570)
(6,907)
(6)
–
(1,001)
1,612
10,526
(12,872)
1,664
(1,600)
15
8,604
979
142
–
(15)
(8,300)
(996)
–
(115)
9,740
(9,426)
307
(282)
22,237
(24,180)
Financial Report 77
NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Consolidated at
30 September 2006
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Collateral
Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold
Credit contracts
Credit default swaps
Trading
Fair value
Hedging
Notional
principal
amount
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Fair value
Cash fl ow
Net investment
in foreign operations
Liabilities
Assets
$m
$m
Total fair value
of derivatives
Assets
$m
Liabilities
$m
217,522
110,638
187
9,150
13,906
–
2,054
2,714
45
259
–
(1,279)
(2,195)
(2,247)
(29)
–
(202)
1,256
351,403
3,793
(3,417)
–
114
–
–
–
–
114
–
(64)
–
–
–
–
(64)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,793
1,055
(916)
–
–
–
–
96,147
589,135
99,184
17,733
33,638
14
3,296
249
141
–
(10)
(3,566)
(242)
–
(100)
835,837
3,700
(3,918)
–
212
–
–
–
212
–
(263)
–
–
–
(263)
–
211
2
–
–
213
–
(61)
(2)
–
–
(63)
23,965
76
(78)
–
–
–
–
1,218,998
8,624
(8,329)
326
(327)
213
(63)
1
–
–
–
–
–
1
–
–
–
–
–
–
–
–
1
(34)
–
–
–
–
–
2,055
2,828
45
259
–
(1,279)
(2,229)
(2,311)
(29)
–
(202)
1,256
(34)
3,908
(3,515)
–
1,055
(916)
–
–
–
–
–
–
–
14
3,719
251
141
–
(10)
(3,890)
(244)
–
(100)
4,125
(4,244)
76
(78)
(34)
9,164
(8,753)
78 ANZ Annual Report 2007
Trading
Fair value
Hedging
Total fair value
of derivatives
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Fair value
Cash fl ow
NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Company at
30 September 2007
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Collateral
Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold
Credit contracts
Credit default swaps
Notional
principal
amount
$m
263,920
164,933
144
6,047
9,481
–
4,333
7,089
7
1,033
–
(1,419)
(6,115)
(9,051)
(6)
–
(995)
1,513
–
356
–
–
–
–
356
–
(581)
–
–
–
–
(581)
444,525
11,043
(14,654)
15,429
1,664
(1,600)
–
–
85,748
730,968
81,560
26,568
22,700
11
6,481
957
124
–
(13)
(6,542)
(957)
–
(115)
947,544
7,573
(7,627)
47,680
307
(282)
1,455,178
20,587
(24,163)
–
222
–
–
–
222
–
578
–
(176)
–
–
–
(176)
–
(757)
–
–
–
–
–
–
–
–
2
218
18
–
–
238
–
238
–
–
–
–
–
–
–
–
–
(72)
(9)
–
–
(81)
4,333
7,445
7
1,033
–
(1,419)
(6,115)
(9,632)
(6)
–
(995)
1,513
11,399
(15,235)
1,664
(1,600)
13
6,921
975
124
–
(13)
(6,790)
(966)
–
(115)
8,033
(7,884)
–
307
(282)
(81)
21,403
(25,001)
Financial Report 79
NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Trading
Fair value
Hedging
Total fair value
of derivatives
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Fair value
Cash fl ow
Notional
principal
amount
$m
201,577
149,823
187
8,782
13,644
–
1,902
3,086
45
250
–
(1,279)
(1,948)
(2,292)
(29)
–
(193)
571
–
112
–
–
–
–
112
–
(64)
–
–
–
–
(64)
374,013
4,004
(3,891)
8,074
1,056
(917)
–
–
85,514
460,101
84,259
17,863
34,092
7
2,843
248
124
–
(6)
(2,992)
(241)
–
(100)
681,829
3,222
(3,339)
23,940
76
(78)
1,087,856
8,358
(8,225)
–
121
–
–
–
121
–
233
–
(106)
–
–
–
(106)
–
(170)
–
–
–
–
–
–
–
–
–
194
2
–
–
196
–
196
–
–
–
–
–
–
–
–
–
(45)
(2)
–
–
(47)
–
(47)
1,902
3,198
45
250
–
(1,279)
(1,948)
(2,356)
(29)
–
(193)
571
4,116
(3,955)
1,056
(917)
7
3,158
250
124
–
(6)
(3,143)
(243)
–
(100)
3,539
(3,492)
76
(78)
8,787
(8,442)
Company at
30 September 2006
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
Collateral
Commodity contracts
Derivative contracts
Interest rate contracts
Forward rate agreements
Swap agreements
Futures contracts
Options purchased
Options sold
Credit contracts
Credit default swaps
80 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
Credit risk on derivative instruments
The credit risk of derivative fi nancial instruments arises from the potential for a counterparty to default on its contractual obligation. Credit risk
arises when market movements are such that the derivative has a positive value to the Group. It is the cost of replacing the contract in the event
of counterparty default. The Group limits its credit risk within a conservative framework by dealing with creditworthy counterparties, setting
credit limits on exposures to counterparties, and obtaining collateral where appropriate.
The Group further restricts its exposure to credit losses by entering into master agreements with counterparties with which it undertakes a
signifi cant volume of transactions. The use of a master agreement does not generally result in an offset of balance sheet assets and liabilities.
However, the credit risk is reduced by a master agreement to the extent that if an event of default occurs, all contracts with the counterparty
are terminated and settled on a net basis. Despite this, as a result of the number of transactions that are usually subject to such master
agreements, the Group’s overall exposure to credit risk on derivative instruments can change substantially within a short period.
Hedging Relationships
There are three types of allowable hedging relationships: fair value hedges, cash fl ow hedges and hedges of a net investment in a foreign
operation. Each has specifi c requirements when accounting for the fair value changes in the hedging relationship. For details on the accounting
treatment of each type of hedging relationship refer to Note 1 (viii).
Fair value hedges
The risk being hedged in a fair value hedge is a change in the fair value of an asset or liability or unrecognised fi rm commitment that may affect
the income statement. Changes in fair value might arise through changes in interest rates or foreign exchange rates. The Group’s fair value
hedges principally consist of interest rate swaps that are used to protect against changes in the fair value of fi xed-rate long-term fi nancial
instruments due to movements in market interest rates.
The application of fair value hedge accounting results in the fair value adjustment on the hedged item attributable to the hedged risk being
recognised in the income statement at the same time the hedging instrument impacts the income statement. If a hedging relationship is
terminated, the fair value adjustment to the hedged item continues to be recognised as part of the carrying amount of the item or group of items
and is amortised to the income statement as a part of the effective yield over the period to maturity. Where the hedged item is derecognised
from the Group’s balance sheet, the fair value adjustment is included in the income statement as ‘other income’ as a part of the gain or loss
on disposal.
Cash fl ow hedges
The risk being hedged in a cash fl ow hedge is the potential volatility in future cash fl ows that may affect the income statement. Volatility in the
future cash fl ows may result from changes in interest rates or changes in exchange rates arising from recognised fi nancial assets and liabilities
and highly probable forecast transactions. The Group’s cash fl ow hedges consist principally of interest rate swaps, forward rate agreements
and foreign currency swaps that are used to protect against exposures to variability in future interest cash fl ows on non-trading assets and
liabilities which bear interest at variable rates or which are expected to be refunded or reinvested in the future. The Group primarily applies cash
fl ow hedge accounting to its variable rate loan assets, variable rate liabilities and short term re-issuances of fi xed rate customer and wholesale
deposit liabilities. The amounts and timing of future cash fl ows, representing both principal and interest fl ows, are projected for each portfolio
of fi nancial assets and liabilities on the basis of their forecast repricing profi le. This forms the basis for identifying gains and losses on the
effective portions of derivatives designated as cash fl ow hedges.
The effective portion of changes in the fair value of derivatives qualifying and designated as cash fl ow hedges is deferred to the hedging reserve
which forms part of shareholders’ equity. Amounts deferred in equity are recognised in the income statement in the period during which
the hedged forecast transactions take place and is fully amortised when the hedging relationship matures. The schedule below shows the
movements in the hedging reserve:
Balance at start of year
Adjustments on adoption of accounting policies specifi ed by AASB 132 and AASB 139
Adjustment on adoption of AASB 2005–11
Restated balance at start of year
Items recorded in the income statement
Tax effect of items recorded in the income statement
Valuation gain taken to equity
Tax effect of net gain on cash fl ow hedges
Closing Balance
Consolidated
2007
$m
227
–
(141)
86
(10)
3
106
(32)
153
2006
$m
n/a
162
–
162
(81)
25
179
(58)
227
The Company
2007
$m
2006
$m
40
–
–
40
–
–
57
(17)
80
n/a
11
–
11
(10)
3
53
(17)
40
1 All NZD revenue related cash flow hedging was de-designated at 30 September 2006. The amount deferred in the hedging reserve was transferred to retained earnings at 1 October 2006 on adoption
of AASB 2005-1.
Financial Report 81
NOTES TO THE FINA NCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
The table below shows the breakdown of the hedging reserve attributable to each type cash fl ow hedging relationship:
Variable rate loan assets
Variable rate liabilities
Short term re-issuances of fi xed rate customer and wholesale deposit
liabilities
NZD revenue related cash fl ow hedges1
Total hedging reserve
Consolidated
The Company
2007
$m
(64)
135
82
–
153
2006
$m
(8)
59
35
141
227
2007
$m
(53)
79
54
–
80
2006
$m
(15)
33
22
–
40
1 All NZD revenue related cash flow hedging was de-designated at 30 September 2006. The amount deferred in the hedging reserve was transferred to retained earnings at 1 October 2006 on adoption
of AASB 2005-1.
All underlying hedged cash fl ows are expected to be recognised in the income statement in the period in which they occur which is anticipated
to take place over the next 0–10 years (2006: 0–10 years).
The mechanics of hedge accounting results in the gain (or loss) in the hedging reserve above being released into the income statement at
the same time that the corresponding loss (or gain) attributable to the hedged item impacts the income statement. It will not necessarily be
released to the income statement uniformly over the period of the hedging relationship as the fair value of the derivative is driven by changes
in market rates over the term of the instrument. As market rates do not always move uniformly across all time periods, a change in market rates
may drive more value in one forecast period than another, which impacts when the hedging reserve is released to the income statement.
Net investment hedges (consolidated)
In a hedge of a net investment in a foreign operation, the risk being hedged is the exposure to exchange differences arising on consolidation of
foreign operations with a functional currency other than the Australian Dollar. Hedging is undertaken using forward foreign exchange contracts
or by fi nancing with borrowings in the same currency as the foreign functional currency involved.
Concentrations of Credit Risk
Concentrations of credit risk exist for groups of counterparties when they have similar economic characteristics. Major concentrations of credit
risk arise by location and type of customer.
The following table shows the concentrations of credit risk, by class of counterparty and by geographic location, measured by credit equivalent
amount.
Approximately 67% (2006: 72%) of the Group’s exposures are with counterparties which are either Australian banks or banks based in other
OECD countries.
OECD
governments
$m
567
80
41
688
OECD
governments
$m
133
57
19
209
Australian
and OECD
banks
$m
14,227
4,465
968
Corporations,
non-OECD
banks and
others
$m
7,535
994
357
Total
credit
equivalent
amount
$m
22,329
5,539
1,366
19,660
8,886
29,234
Australian
and OECD
banks
$m
10,099
2,134
912
Corporations,
non-OECD
banks and
others
$m
3,900
736
359
Total
credit
equivalent
amount
$m
14,132
2,927
1,290
13,145
4,995
18,349
Consolidated at
30 September 2007
Australia
New Zealand
Overseas Markets
Consolidated at
30 September 2006
Australia
New Zealand
Overseas Markets
82 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
13: Available-for-sale Assets
Available-for-sale assets are allocated between Australia,
New Zealand and Overseas Markets based on the domicile of the issuer
Listed – Australia
Other securities and equity investments
Listed – Overseas Markets
Other government securities
Other securities and equity investments
Total listed
Unlisted – Australia
Local and semi-government securities
Other securities and equity investments
Loans and advances
Unlisted – New Zealand
New Zealand government securities
Other securities and equity investments
Unlisted – Overseas Markets
Other government securities
Other securities and equity investments
Total unlisted
Total available-for-sale assets
No impairment loss was recognised or reversed in the Income Statement.
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
6
6
208
2,986
3,194
3,200
1,791
7,126
704
9,621
4
37
41
648
496
6
6
102
2,198
2,300
2,306
1,908
2,971
1,946
6,825
285
29
314
532
676
1,144
10,806
14,006
1,208
8,347
10,653
6
6
208
2,595
2,803
2,809
1,791
5,932
704
8,427
–
–
–
73
74
147
6
6
102
2,198
2,300
2,306
1,908
2,421
1,946
6,275
–
–
–
71
5
76
8,574
11,383
6,351
8,657
Financial Report 83
NOTES TO THE FINA NCIAL STATEMENTS
13: Available-for-sale Assets (continued)
Available-for-sale assets by maturities and yields
Based on remaining term to maturity at 30 September 2007
Australia
Local and semi-government securities
Other securities and equity investments
Loans and advances
Overseas
New Zealand government securities
Other government securities
Other securities and equity investments
Total
Weighted average yields1
Australia
Local and semi-government securities
Other securities and equity investments
Loans and advances
Overseas
New Zealand government securities
Other government securities
Other securities and equity investments
Less than
3 months
$m
Between 3
months and
12 months
$m
Between
1 year and
5 years
$m
Between
5 years and
10 years
$m
After
10 years
$m
No
maturity
specifi ed
$m
1,791
5,702
263
7,756
1
616
180
797
8,553
–
–
22
22
–
186
577
763
785
–
1,022
419
1,441
3
17
2,074
2,094
3,535
–
–
–
–
–
–
356
356
356
–
289
–
289
–
–
1
1
290
–
119
–
119
–
37
331
368
487
Total
fair
value
$m
1,791
7,132
704
9,627
4
856
3,519
4,379
14,006
Less than
1 year
%
Between
1 year and
5 years
%
Between
5 years and
10 years
%
After
10 years
%
6.38
6.80
7.84
8.17
5.08
5.37
–
6.77
7.23
7.20
4.69
5.59
–
–
–
–
–
5.76
–
7.11
–
–
–
2.76
1 Based on effective yields for loans and advances, fixed interest and discounted securities and dividend yield for equity investments at 30 September 2007.
84 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
13: Available-for-sale Assets (continued)
Available-for-sale assets by maturities and yields
Based on remaining term to maturity at 30 September 2006
Less than
3 months
$m
Between 3
months and
12 months
$m
Between
1 year and
5 years
$m
Between
5 years and
10 years
$m
After
10 years
$m
No
maturity
specifi ed
$m
Australia
Local and semi-government securities
Other securities and equity investments
Loans and advances
Overseas
New Zealand government securities
Other government securities
Other securities and equity investments
1,224
2,544
1,080
684
–
359
4,848
1,043
273
474
342
1,089
–
108
622
730
–
308
507
815
12
51
1,460
1,523
Total
5,937
1,773
2,338
–
–
–
–
–
–
96
96
96
–
107
–
107
–
1
336
337
444
–
18
–
18
–
–
47
47
65
Total
fair
value
$m
1,908
2,977
1,946
6,831
285
634
2,903
3,822
10,653
Weighted average yields1
Australia
Local and semi-government securities
Other securities and equity investments
Loans and advances
Overseas
New Zealand government securities
Other government securities
Other securities and equity investments
Less than
1 year
%
Between
1 year and
5 years
%
Between
5 years and
10 years
%
After
10 years
%
6.08
6.14
6.77
7.19
5.20
3.94
–
6.41
6.99
6.90
4.20
5.18
–
–
–
–
–
4.86
–
8.37
–
–
7.50
4.54
1 Based on effective yields for fixed interest and discounted securities and dividend yield for equity investments at 30 September 2006.
Financial Report 85
NOTES TO THE FINA NCIAL STATEMENTS
14: Net Loans and Advances
Loans and advances are classifi ed between Australia, New Zealand and Overseas markets based on the domicile of the lending point
Australia
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Hire purchase
Lease receivables (refer below)
Other
New Zealand
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Hire purchase
Lease receivables (refer below)
Other
Overseas Markets
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
Lease receivables (refer below)
Commercial bills
Other
Total gross loans and advances
Less: Provision for credit impairment (refer note 16)
Less: Unearned income
Add: Capitalised brokerage/mortgage origination fees
Total net loans and advances
Lease receivables
a) Finance lease receivables
Gross fi nance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
Less: unearned future fi nance income on fi nance leases
Net investment in fi nance lease receivables
b) Operating lease receivables
Gross operating lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
7,464
6,641
113,994
64,260
9,824
1,813
852
6,237
6,190
101,945
53,905
9,081
2,378
864
7,464
6,641
113,201
60,149
1,196
857
827
6,237
6,190
100,874
49,774
1,046
804
731
204,848
180,600
190,335
165,656
1,728
1,149
42,350
29,672
431
215
447
1,666
1,081
37,845
26,979
426
421
511
75,992
68,929
532
201
1,040
9,699
186
349
1
518
198
766
8,347
179
192
2
–
–
–
–
–
–
–
–
371
8
749
8,493
116
349
1
12,008
10,202
10,087
–
–
–
–
–
–
–
–
333
8
599
7,160
112
192
2
8,406
292,848
259,731
200,422
174,062
(2,294)
(2,226)
(1,631)
(1,566)
(2,278)
(2,122)
570
539
(348)
167
(367)
158
(4,002)
(3,809)
(1,812)
(1,775)
288,846
255,922
198,610
172,287
571
1,131
208
512
1,381
255
(238)
(382)
1,672
1,766
179
124
1
304
411
398
21
830
176
617
179
(121)
851
–
1
–
1
115
615
186
(189)
727
–
–
–
–
Total lease receivables
1,976
2,596
852
727
Present value of net investment in fi nance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
86 ANZ Annual Report 2007
567
1,075
185
1,827
516
1,172
188
1,876
167
553
157
877
55
512
158
725
NOTES TO THE FINA NCIAL STATEMENTS
15: Impaired Financial Assets
Summary of impaired fi nancial assets
Non-performing loans
Restructured loans
Unproductive facilities
Gross impaired fi nancial assets
Individual provisions
Non-performing loans
Unproductive facilities
Net impaired fi nancial assets
Real estate or other assets acquired through the enforcement of security
In the event of customer default, any loan security is usually held as mortgagee in possession and
therefore the Group does not usually hold any real estate or other assets acquired through the
enforcement of security
Accruing loans past due 90 days or more1
These amounts are not classifi ed as impaired assets as they are either 90 days or more past
due and well secured, or are portfolio managed facilities that can be held on an accrual basis
for up to 180 days past due
Consolidated
The Company
2007
$m
666
–
126
792
(260)
(42)
490
2006
$m
661
–
37
698
(279)
(7)
412
2007
$m
491
–
121
612
(172)
(42)
398
2006
$m
452
–
30
482
(179)
(6)
297
–
–
–
–
561
499
429
381
Interest and other income forgone on impaired fi nancial assets
The following table shows the estimated amount of interest and other income not recognised, net of interest recoveries and unwind of discount,
on average impaired fi nancial assets during the period.
Gross interest and other income receivable on non-performing loans,
restructured loans and unproductive facilities
Australia
New Zealand
Overseas Markets
Total gross interest and other income receivable on non-performing loans,
restructured loans and unproductive facilities
Interest recognised2
Australia
New Zealand
Overseas Markets
Total interest recognised
Net interest and other income foregone
Australia
New Zealand
Overseas Markets
Total net interest and other income not recognised
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
40
10
8
58
(23)
(4)
–
(27)
17
6
8
31
34
13
7
54
(20)
(6)
–
(26)
14
7
7
28
35
–
2
37
(23)
–
–
(23)
12
–
2
14
29
–
2
31
(20)
–
–
(20)
9
–
2
11
1 Includes unsecured credit card and personal loans 90 day past due accounts which are allowed by APRA to be retained on a performing basis for up to 180 days past due amounting to
$87 million (2006: $84 million). The remainder of 90 day past due accounts are predominately held on an accrual basis having been assessed as well secured.
2 The impairment loss on a non-performing loan is calculated as the difference between the loan’s carrying amount and the estimated future cashflows discounted to their present value.
As this discount unwinds during the period it is recognised as interest income. Refer note 1(xi) for explanation on how it arises.
Financial Report 87
NOTES TO THE FINA NCIAL STATEMENTS
16: Provision for Credit Impairment
Movement in provision for credit impairment
Collective provision
Balance at start of year
Adjustment due to adoption of accounting standard AASB139
Provisions disposed
Adjustment for exchange rate fl uctuations
Charge to income statement
Total collective provision1
Individual provision
Balance at start of year
Adjustment due to adoption of accounting standard AASB139
Charge to income statement
Adjustment for exchange rate fl uctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off
Total individual provision
Total provision for credit impairment
Provision movement analysis
New and increased provisions
Australia
New Zealand
Asia
Other overseas markets
Provision releases
Recoveries of amounts previously written off
Individual provision charge
Collective provision charge
Charge to income statement
Ratios
Provisions2 as a % of total advances
Individual
Collective
Provisions2 as a % of risk weighted assets
Individual
Collective
Bad debts written off as a % of total advances
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
1,940
–
(4)
(27)
83
2,167
(288)
–
(8)
69
1,381
–
–
(16)
52
1,564
(238)
–
3
52
1,992
1,940
1,417
1,381
286
–
484
(15)
(20)
(584)
151
302
273
(1)
338
(4)
(26)
(421)
127
286
185
–
336
(4)
(17)
(401)
115
214
145
4
226
(1)
(20)
(259)
90
185
2,294
2,226
1,631
1,566
632
81
31
12
756
(121)
635
(151)
484
83
567
%
0.1
0.7
0.1
0.7
0.2
508
81
24
5
618
(153)
465
(127)
338
69
407
%
0.1
0.7
0.1
0.8
0.2
530
–
1
8
539
(88)
451
(115)
336
52
388
%
0.1
0.7
0.1
0.7
0.2
417
–
–
2
419
(103)
316
(90)
226
52
278
%
0.1
0.7
0.1
0.8
0.1
1 The collective provision includes amounts for off balance sheet credit exposures, $261 million at September 2007 (2006: $260 million). The impact to the income statement for the year ended
30 September 2007 relating to off balance sheet credit exposures was $8 million charge (2006: $5 million charge).
2 Excludes provisions for unproductive facilities.
88 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
17: Regulatory Deposits
Overseas central banks
Maturity:
Less than 90 days
After 5 years
18: Shares in Controlled Entities, Associates and Joint Venture Entities
Total shares in controlled entities
Total shares in associates1 (refer note 41)
Total shares in joint venture entities2 (refer note 42)
Total shares in controlled entities, associates and joint venture entities
Consolidated
The Company
2007
$m
235
96
139
235
2006
$m
205
70
135
205
2007
$m
148
85
63
148
2006
$m
132
61
71
132
Consolidated
The Company
2007
$m
–
1,749
1,681
3,430
2006
$m
–
592
1,608
2,200
2007
$m
8,405
582
–
2006
$m
11,424
307
–
8,987
11,731
1 Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting and are carried at cost by the parent entity
2 Investments in joint venture entities are accounted for in the consolidated financial statements using the equity method of accounting and are carried at cost by the parent entity
ACQUISITIONS OF CONTROLLED ENTITIES
On 23 February 2007, the Group obtained control of Stadium Australia Group, which owns the long-term leasehold of the Telstra Stadium
in Sydney. Prior to this, the Group was a sole senior lender to, and a holder of convertible notes and stapled securities issued by Stadium
Australia Group.
Stadium Australia Group contributed revenues of $35 million and net profi t of $6 million to the Group for the period from 1 March 2007 to
30 September 2007. If the acquisition had occurred on 1 October 2006, consolidated revenue and consolidated profi t for the year ended
30 September 2007 would have been $53 million and $9 million respectively.
On 24 April 2007, the Group obtained a controlling interest in ETRADE Australia Limited (ETrade Australia), an online stockbroker. The Group has
since obtained 100% ownership of the shares in ETrade Australia. Prior to this, the Group held a stake in the entity and accounted for it as an
associate, applying the equity method of accounting.
ETrade Australia contributed revenues of $37 million and net profi t of $9 million to the Group for the period from 1 May 2007 to 30 September
2007. If the acquisition had occurred on 1 October 2006, consolidated revenue and consolidated profi t for the year ended 30 September 2007
would have been $95 million and $19 million respectively. These amounts have been calculated using the Group’s accounting policies and by
adjusting the results of the subsidiary to refl ect the impact as if the fair value adjustments had applied from 1 October 2006 less the amount of
the share of the associate’s earnings actually recognised by the Group, together with the consequential tax effects.
In addition, the Group and the Company obtained controlling stakes in the following entities:
Citizens Security Bank (CSB) – CSB is a community bank operating in Guam. In July 2007, the Group acquired 100% of CSB for $28 million.
ANZ Vientiane Commercial Bank (VCB) – VCB is a commercial bank operating in Laos. In September 2007, the Group acquired 60% of
VCB for $12 million.
Rabinov Property Management Limited (Rabinov) – Rabinov is the manager and responsible entity of a listed diversifi ed property trust.
Financial Report 89
NOTES TO THE FINA NCIAL STATEMENTS
18: Shares in Controlled Entities, Associates and Joint Venture Entities (continued)
The Company’s investments in ETrade Australia, CSB, VCB and Rabinov are carried at cost. The Company, therefore, does not recognise goodwill
separately.
Details of aggregate assets and liabilities of controlled entities acquired by the Group (Stadium Australia Group, ETrade Australia, CSB, VCB and
Rabinov) and cost of acquisitions, for the purposes of measuring goodwill on acquisitions of controlled entities are as follows:
Liquid assets and due from other fi nancial institutions
Financial assets – trading and available-for-sale
Net loans and advances
Premises and equipment
Deferred tax assets
Intangible assets1
Other assets
Due to other fi nancial institutions
Deposits and other borrowings2
Payables and other liabilities
Provisions and contingent liabilities
Deferred tax liabilities
Net assets
Interest previously held
Minority interests
Net identifi able assets acquired
Cost of acquisition
Cash paid
Equity instruments issued as purchase consideration
Loan receivable or other instruments existing on date of acquisition
Direct costs relating to acquisitions
Total cost of acquisitions
Goodwill
Consolidated
Acquiree’s
carrying
amount
$m
Fair value
$m
131
335
106
162
-
56
41
(2)
(456)
(331)
(2)
(7)
33
131
335
106
217
6
57
41
(4)
(240)
(348)
(2)
(17)
282
(23)
(5)
254
252
99
179
6
536
282
1 Fair value excludes $31 million of previously recognised goodwill of the acquiree, now included in total goodwill.
2 Included in deposits and other borrowings of acquiree were loans payable and other debt instruments held by the Group prior to acquisition. On acquisition these instruments are no longer
financial assets of the Group. They are treated as a cost of acquisition.
The fair value of assets and liabilities acquired are based on discounted cash fl ow models. No restructuring provisions were created. The
acquired entities did not have signifi cant contingent liabilities.
Of the total amount of goodwill on acquisition of $282 million recognised by the Group, $264 million relates to ETrade Australia.
Net cash consideration paid in acquisitions was as follows:
Cash consideration paid and direct costs relating to acquisitions
Less: Balances acquired of cash and equivalents
Outfl ow of cash to acquire subsidiaries, net of cash acquired
There were no material controlled entities acquired during the year ended 30 September 2006.
Consolidated
The Company
2007
$m
258
(55)
203
2006
$m
–
–
–
2007
$m
229
(52)
177
2006
$m
–
–
–
90 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
18: Shares in Controlled Entities, Associates and Joint Venture Entities (continued)
DISPOSAL OF CONTROLLED ENTITIES
On 31 October 2006, Fleet Partners Pty Limited and Truck Leasing Limited were sold. The gain before tax on disposal was $195 million
(tax expense: nil). Net tangible assets on disposal were $144 million.
Details of aggregate assets and liabilities of controlled entities disposed by the Group are as follows (the Company: nil):
Net loans and advances
Premises and equipment
Other assets, including allocated goodwill
Deposits and other borrowings
Payables and other liabilities
Provision for long-term employee benefi ts
Net assets disposed
Cash consideration received
Provisions for warranties and indemnities
Gain on disposal
Carrying amount
$m
1,420
2
25
(1,239)
(63)
(1)
144
377
(38)
195
Net proceeds received resulting in cash infl ow for the Group was as follows:
Cash consideration received and direct costs relating to acquisitions
Less: Balances of disposed cash and equivalents
Infl ow of cash from disposals, net of cash disposed
There were no material controlled entities disposed of during the year ended 30 September 2006.
Consolidated
2007
$m
377
–
377
2006
$m
–
–
–
The Company
2007
$m
2006
$m
–
–
–
–
–
–
Financial Report 91
NOTES TO THE FINA NCIAL STATEMENTS
19: Deferred Tax Assets
Deferred tax assets recognised in profi t and loss
Collective provision for impaired loans and advances
Deferred fee revenue
Provision for employee entitlements
Other provisions
Other
Deferred tax assets recognised directly in equity
Defi ned benefi t obligations
Available-for-sale revaluation reserve
Foreign currency translation reserve
Set-off of deferred tax assets pursant to set-off provisions1
Net deferred tax assets
Movements
Restated balance 1 October
Change on adoption of AIFRS
Movements in temporary differences during the year
Balance prior to set-off of deferred tax assets pursuant to set-off provisions1
Set-off of deferred tax assets pursuant to set-off provisions1
Closing balance at 30 September
Deferred tax assets by geography
Australia
New Zealand
Overseas Markets
Net deferred tax assets
Unrecognised deferred tax assets
The following deferred tax assets will only be recognised if:
assessable income is derived of a nature and an amount
suffi cient to enable the benefi t to be realised
the conditions for deductibility imposed by tax legislation are complied with; and
no changes in tax legislation adversely affect the Group in realising the benefi t.
Unused realised tax losses (on revenue account)
Unused realised capital losses
Total unrecognised deferred tax assets
Consolidated
The Company
2007
$m
600
73
119
277
126
2006
$m
596
92
107
270
247
1,195
1,312
19
–
–
19
67
2
3
72
(1,101)
(1,131)
113
253
1,384
–
(170)
1,214
(1,101)
1,389
64
(69)
1,384
(1,131)
113
253
2
6
105
113
4
85
164
253
2007
$m
429
55
86
198
9
777
21
–
–
21
(711)
87
867
–
(69)
798
(711)
87
9
–
78
87
2006
$m
417
70
75
182
56
800
66
1
–
67
(732)
135
806
41
20
867
(732)
135
–
–
135
135
17
–
17
20
63
83
7
–
7
9
63
72
1 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within the same
taxable group.
92 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
20: Goodwill and Other Intangible Assets
Goodwill
Gross carrying amount
Balance at start of year
Additions through business combinations
Derecognised on disposal
Foreign currency exchange differences
Balance at end of year1
Software and other intangible assets
Gross carrying amount
Balance at start of year
Impact of adoption of AIFRS: AASB139
Additions
Additions from internal developments
Additions through business combinations
Foreign currency exchange differences
Impairment
Balance at end of year
Accumulated amortisation and impairment
Balance at start of year
Impact of adoption of AIFRS: AASB139
Amortisation expense2 (refer note 4)
Foreign currency exchange differences
Impairment
Balance at end of year
Net book value
Balance at start of year
Balance at end of year
Goodwill, software and other intangible assets
Net book value
Balance at start of the year
Balance at end of the year1
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
2,900
282
(6)
(50)
3,015
2
–
(117)
3,126
2,900
987
–
2
202
55
(1)
(23)
1,222
550
–
128
(1)
(6)
671
437
551
898
(38)
2
135
–
(3)
(7)
987
455
(23)
117
(1)
2
550
443
437
3,337
3,677
3,458
3,337
–
–
–
–
–
888
–
2
188
33
(1)
(23)
1,087
469
–
113
–
(6)
576
419
511
419
511
–
–
–
–
–
808
(38)
2
128
–
–
(12)
888
386
(23)
103
–
3
469
422
419
422
419
1 Excludes notional goodwill in equity accounted entities.
2 Comprises software amortisation expense of $122 million (September 2006: $114 million) and amortisation of other intangible assets $6 million (September 2006: $3 million). The Company
comprises software amortisation expense of $109 million (September 2006: $100 million) and amortisation of other intangible assets $4 million (September 2006: $3 million).
Goodwill allocated to cash-generating units
The goodwill balance above largely comprises the goodwill purchased on acquisition of NBNZ Holdings Limited in December 2003.
Discussion of the goodwill and impairment testing for the cash generating unit containing this goodwill is discussed in note 2(iv).
Financial Report 93
Consolidated
The Company
2007
$m
1,626
124
7
97
671
201
31
1,089
3,846
2006
$m
1,569
102
5
69
1,377
799
31
547
4,499
Consolidated
2007
$m
2006
$m
838
(204)
634
318
(193)
125
843
(503)
340
949
(720)
229
632
(195)
437
253
(158)
95
734
(467)
267
906
(688)
218
165
92
1,493
1,109
2007
$m
1,052
111
–
41
550
–
31
351
2,136
2006
$m
1,088
74
–
30
1,074
3
31
258
2,558
The Company
2007
$m
95
(37)
58
195
(106)
89
641
(361)
280
711
(540)
171
141
739
2006
$m
80
(36)
44
159
(93)
66
538
(332)
206
674
(505)
169
42
527
NOTES TO THE FINA NCIAL STATEMENTS
21: Other Assets
Accrued interest/prepaid discounts
Accrued commission
Defi ned benefi t superannuation plan surplus (see note 46)
Prepaid expenses
Issued securities settlements
Operating leases residual value
Capitalised expenses
Other
Total other assets
22: Premises and Equipment
Freehold and leasehold land and buildings
At cost
Depreciation
Leasehold improvements
At cost
Amortisation
Furniture and equipment
At cost
Depreciation
Computer equipment
At cost
Depreciation
Capital works in progress
At cost
Total premises and equipment
94 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
22: Premises and Equipment (continued)
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Consolidated
Freehold and leasehold land and buildings1
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Depreciation
Foreign currency exchange difference
Carrying amount at end of year
Leasehold improvements
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Amortisation
Foreign currency exchange difference
Carrying amount at end of year
Furniture and equipment
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Depreciation
Foreign currency exchange difference
Carrying amount at end of year
Computer equipment
Carrying amount at beginning of year
Additions
Acquisitions
Disposals
Depreciation
Foreign currency exchange difference
Carrying amount at end of year
Capital works in progress
Carrying amount at beginning of year
Net additions
Carrying amount at end of year
Total premises and equipment
1 Includes integrals.
2007
$m
437
45
208
(29)
(22)
(5)
634
95
57
1
(4)
(22)
(2)
125
267
138
4
(10)
(57)
(2)
340
218
100
4
(4)
(86)
(3)
229
92
73
165
2006
$m
438
21
–
(5)
(15)
(2)
437
90
26
–
(5)
(18)
2
95
246
72
–
(3)
(48)
–
267
224
95
–
(6)
(94)
(1)
218
56
36
92
1,493
1,109
The Company
2007
$m
2006
$m
44
21
–
(1)
(4)
(2)
58
66
40
–
(1)
(16)
–
89
206
121
4
(7)
(44)
–
280
169
66
4
(3)
(65)
–
171
42
99
141
739
43
4
–
–
(2)
(1)
44
63
16
–
(5)
(12)
4
66
191
53
–
(2)
(36)
–
206
171
73
–
(5)
(70)
–
169
27
15
42
527
Financial Report 95
NOTES TO THE FINA NCIAL STATEMENTS
23: Due to Other Financial Institutions
Australia
New Zealand
Overseas Markets
Total due to other fi nancial institutions
24: Deposits and Other Borrowings
Consolidated
The Company
2007
$m
6,970
1,744
9,272
2006
$m
6,656
2,448
5,014
2007
$m
4,980
–
9,130
2006
$m
6,654
–
4,998
17,986
14,118
14,110
11,652
Deposits and other borrowings are classifi ed between Australia, New Zealand and Overseas Markets based on the location of the deposit
taking point.
Australia
Certifi cates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt1
Other borrowings
New Zealand
Certifi cates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt2
Overseas Markets
Certifi cates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Other borrowings
Total deposits and other borrowings
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
23,807
32,417
76,141
4,825
8,912
8,575
537
16,650
26,219
61,245
4,749
8,092
8,843
458
23,807
33,530
76,141
4,825
5,647
–
511
16,650
27,206
61,245
4,749
3,842
–
458
155,214
126,256
144,461
114,150
3,819
24,906
17,793
4,092
8,002
1,534
3,428
22,812
17,467
3,605
6,028
1,813
60,146
55,153
4,277
12,277
1,604
1,226
–
129
3,170
10,329
1,538
1,182
6,630
536
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,142
10,906
915
737
–
34
3,117
9,165
1,062
788
–
39
19,513
23,385
16,734
14,171
234,873
204,794
161,195
128,321
1 Included in this balance is debenture stock of controlled entities. $8 billion of debenture stock of the consolidated subsidiary company Esanda Finance Corporation Limited (Esanda), together
with accrued interest thereon, is secured by a trust deed and collateral debentures, giving floating charges upon the undertaking and all the assets of the entity other than land and buildings
($13.6 billion). All controlled entities of Esanda (except for some controlled entities which have been placed or are expected to be placed in voluntary de-registration and have minimal book
value) have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda. The only loans pledged as collateral are
those in Esanda and its subsidiaries.
2 This balance represents NZD1.8 billion of secured debenture stock of the consolidated subsidiary UDC Finance Limited (UDC) and the accrued interest thereon which are secured by a floating
charge over all tangible assets of UDC and its subsidiaries (NZD2.1 billion).
96 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
25: Income Tax Liabilities
Australia
Current tax payable
Deferred tax liabilities
New Zealand
Current tax payable
Deferred tax liabilities
Overseas Markets
Current tax payable
Deferred tax liabilities
Total current and deferred income tax liability
Total current tax payable
Deferred tax liabilities recognised in profi t and loss
Lease Finance
Treasury instruments
Capitalised expenses
Other
Deferred tax liabilities recognised directly in equity
Cash fl ow hedges
Foreign currency translation reserve
Available-for-sale revaluation reserve
Set-off of deferred tax liabilities pursuant to set-off provisions1
Net deferred tax liability
Movements
Restated balance at 1 October
Change on adoption of AIFRS
Movements in temporary differences during the year
Balance prior to set-off of deferred tax liabilities pursuant to set-off provisions1
Set-off of deferred tax liabilities pursuant to set-off provisions1
Closing Balance at 30 September
Unrecognised deferred tax liabilities2
The following deferred tax liabilities have not been brought to account as liabilities:
Other unrealised taxable temporary differences
Total unrecognised deferred tax liabilities
Consolidated
The Company
2007
$m
615
20
635
(160)
–
(160)
13
115
128
603
468
217
148
130
609
2006
$m
700
155
855
(163)
–
(163)
32
98
130
822
569
252
385
131
576
1,104
1,344
66
21
45
132
40
–
–
40
(1,101)
(1,131)
135
253
1,384
–
(148)
1,236
(1,101)
1,602
25
(243)
1,384
(1,131)
135
253
46
46
33
33
2007
$m
610
–
610
–
–
–
(23)
103
80
690
587
80
157
46
452
735
34
–
45
79
(711)
103
999
–
(185)
814
(711)
103
–
–
2006
$m
698
180
878
–
–
–
3
87
90
968
701
82
388
44
465
979
20
–
–
20
(732)
267
1,211
(49)
(163)
999
(732)
267
–
–
1 Deferred tax assets and liabilities are set-off where they relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities within the same
taxable group.
2 Represents additional potential foreign tax costs should all retained earnings in offshore subsidiaries be repatriated.
26: Payables and Other Liabilities
Creditors
Accrued interest and unearned discounts
Defi ned benefi t plan obligations (see note 46)
Accrued charges
Security settlements
Other liabilities
Total payables and other liabilities
Consolidated
The Company
2007
$m
5,021
2,809
75
619
590
1,393
2006
$m
4,282
2,488
229
604
1,236
1,840
10,507
10,679
2007
$m
4,431
2,001
75
413
588
879
8,387
2006
$m
4,030
1,832
229
392
1,104
1,236
8,823
Financial Report 97
NOTES TO THE FINA NCIAL STATEMENTS
27: Provisions
Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries3
Other4
Total provisions
Consolidated
The Company
2007
$m
400
37
186
398
1,021
2006
$m
366
74
187
330
957
2007
$m
299
32
138
241
710
2006
$m
267
61
125
235
688
Reconciliations of the carrying amounts of each class of provision, except for employee entitlements, are set out below:
Restructuring costs and surplus leased space2
Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Transfer/release of provision
Adjustment for exchange rate fl uctuations
Carrying amount at the end of the year
Non-lending losses, frauds and forgeries3
Carrying amount at beginning of the year
Provision made during the year
Transfer of provision
Release of provision
Carrying amount at the end of the year
Other provisions4
Carrying amount at beginning of the year
Provision made during the year
Payments made during the year
Transfer/release of provision
Adjustment for exchange rate fl uctuations
Carrying amount at the end of the year
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
74
43
(44)
(36)
–
37
187
79
(14)
(66)
186
330
335
(204)
(63)
–
398
77
51
(43)
(10)
(1)
74
184
52
(19)
(30)
187
293
235
(161)
(37)
–
330
61
40
(34)
(35)
–
32
125
69
(16)
(40)
138
235
253
(197)
(50)
–
241
57
41
(33)
(4)
–
61
136
17
(3)
(25)
125
197
197
(137)
(23)
1
235
1 The aggregate liability for employee benefits largely comprises employee entitlements provisions for annual leave and long service leave.
2 Restructuring costs and surplus leased space provisions arise from exit activities related to material changes in the scope of business undertaken by the Group or the manner in which that
business is undertaken and includes termination benefits. Costs related to on-going activities are not provided for. Provision is made when the Group is demonstrably committed, it is probable
that the costs will be incurred, though their timing is uncertain, and the costs can be reliably estimated.
3 Non-lending losses, frauds and forgeries provisions arise from inadequate or failed internal processes and systems, or from external events.
4 Other provisions comprise various other provisions including loyalty programs, workers’ compensation and make-good provisions on leased premises.
28: Bonds and Notes
Bonds and notes by currency
USD
GBP
AUD
NZD
JPY
EUR
HKD
CHF
CAD
NOK
SGD
CZK
United States dollars
Great British pounds
Australian dollars
New Zealand dollars
Japanese yen
Euro
Hong Kong dollars
Swiss francs
Canadian dollars
Norwegian krone
Singapore dollars
Czech koruna
Total bonds and notes
98 ANZ Annual Report 2007
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
20,306
7,963
1,300
1,546
1,395
13,664
3,301
2,562
1,911
-
51
76
16,957
6,528
1,371
1,350
787
14,821
3,153
2,216
2,631
85
73
78
14,570
6,264
1,300
379
1,307
11,816
2,921
2,562
1,911
-
51
76
11,004
5,423
1,371
303
685
13,337
2,633
2,216
2,631
85
73
78
54,075
50,050
43,157
39,839
NOTES TO THE FINA NCIAL STATEMENTS
29: Loan Capital
Hybrid loan capital (subordinated)
ANZ Stapled Exchangeable Preferred Securities (ANZ StEPS)1
US Trust Securities
USD 350m non-cumulative trust securities due 2053
USD 750m non-cumulative trust securities due 2053
UK Stapled Securities
Interest rate
%
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
BBSW + 1.00
1,000
1,000
1,000
1,000
4.484
5.36
6.54
397
851
1,033
3,281
468
1,003
–
2,471
397
851
1,033
3,281
468
1,003
–
2,471
Perpetual subordinated notes
300m
USD
350m
AUD
fl oating rate notes
fl oating rate notes
LIBOR + 0.15
BBSW + fl oating margin
LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.55
LIBOR + 0.53
BBSW + 0.29
6.75
BBSW + 0.57
7.04
7.61
7.40
LIBOR + 0.55
6.46
EURIBOR + 0.375
BBSW + 0.41
6.50
LIBOR + 0.20
6.00
5.625
4.45
LIBOR + 0.21
6.25
BBSW + 0.22
4.75
7.16
6.50
BBSW + 0.24
7.30
BBSW + 0.4
6.38
7.60
8.23
4.75
Subordinated notes4
USD
JPY
USD
JPY
USD
AUD
AUD
AUD
NZD
NZD
NZD
USD
NZD
EUR
AUD
AUD
USD
AUD
GBP
EUR
USD
AUD
AUD
GBP
NZD
AUD
AUD
AUD
AUD
GBP
NZD
NZD
GBP
1.8m
192.8m
4.1m
236.2m
79m
400m
400m
100m
300m
125m
125m
550m
100m
300m
380m
350m
400m
300m
200m
500m
250m
300m
300m
250m
350m
350m
350m
100m
100m
175m
250m
350m
400m
fl oating rate notes due 2007
fl oating rate notes due 2007
fl oating rate notes due 2008
fl oating rate notes due 2008
fl oating rate notes due 2008
fl oating rate notes due 2010
fi xed notes due 20123
fl oating rate notes due 20122
fi xed notes due 20122
fi xed notes due 20122
fi xed notes due 20122
fl oating rate notes due 20132
fi xed notes due 20132
fl oating rate notes due 20132
fl oating rate notes due 20142
fi xed notes due 20143
fl oating rate notes due 20152
fi xed notes due 20153
fi xed notes due 20152
fi xed notes due 20153
fl oating rate notes due 2016
fi xed notes due 20163
fl oating rate notes due 20162
fi xed notes due 20163
fi xed notes due 20163
fi xed notes due 2017
fl oating rate notes due 2017
fi xed notes due 2017
fl oating rate notes due 2017
fi xed notes due 2017
fi xed notes due 2017
fi xed notes due 2017
fi xed notes due 20183
Total loan capital
Loan capital by currency
AUD
NZD
USD
GBP
EUR
JPY
Australian dollars
New Zealand dollars
United States dollars
Great British pounds
Euro
Japanese yen
340
350
690
2
2
5
2
90
400
–
–
–
–
–
624
86
482
380
350
454
289
452
798
283
298
300
552
299
349
350
100
100
400
214
299
853
401
–
401
6
3
8
5
106
400
400
100
263
109
109
735
88
510
380
350
535
295
506
861
–
298
300
613
306
–
–
–
–
–
–
–
968
340
350
690
2
2
5
2
90
400
–
–
–
–
–
624
–
482
380
350
454
289
452
798
283
298
300
552
–
349
350
100
100
400
–
–
853
401
–
401
6
3
8
5
106
400
400
100
–
–
–
735
–
510
380
350
535
295
506
861
–
298
300
613
–
–
–
–
–
–
–
–
968
8,813
8,254
7,915
7,379
12,784
11,126
11,886
10,251
4,266
898
3,046
3,290
1,280
4
3,523
875
3,262
2,087
1,371
8
4,266
–
3,046
3,290
1,280
4
3,523
–
3,262
2,087
1,371
8
12,784
11,126
11,886
10,251
1 On 23 September 2008 the margin of 1.00% can be reduced if the security is not redeemed or converted.
2 Callable five years prior to maturity.
3 Callable five years prior to maturity and reverts to floating rate if not called.
4 Included within the carrying amount are, where appropriate, revaluations of the loan capital associated with fair value hedge accounting or an election to fair value the note through the
income statement.
Loan capital is subordinated in right of payment to the claims of depositors and all other creditors of the Company and its controlled entities which have issued the notes. The loan capital,
except for the ANZ StEPS, US Trust Securities and UK Stapled Securities constitutes Tier 2 capital as defined by APRA for capital adequacy purposes. ANZ StEPS and US Trust Securities constitute
Tier 1 capital, as defined by APRA, for capital adequacy purposes. UK Stapled Securities constitutes non-innovative Tier 1 capital, as defined by APRA, for capital adequacy purposes.
Financial Report 99
NOTES TO THE FINA NCIAL STATEMENTS
29: Loan Capital (continued)
ANZ STAPLED EXCHANGEABLE PREFERRED
SECURITIES (ANZ STEPS)
On 23 September 2003, the Company
issued 10 million ANZ StEPS at $100 each
pursuant to a prospectus dated 14 August
2003 raising $1 billion (excluding issue
costs of $13 million: net raising $987
million). ANZ StEPS comprise two fully paid
securities – an interest paying unsecured
note (issued by ANZ Holdings (New Zealand)
Limited, a New Zealand subsidiary of the
Company) stapled to a fully paid $100
preference share (issued by the Company).
Distributions on ANZ StEPS are non-
cumulative and are payable quarterly in
arrears based upon a fl oating distribution
rate equal to the 90 day bank bill rate
plus a 100 basis point margin. At each
payment date the 90 day bank bill rate is
reset for the next quarter. Distributions are
subject to certain payment tests (i.e. APRA
requirements and distributable profi ts being
available) and the basis for their calculation
may change on any reset date. Distributions
are expected to be payable on 15 March,
15 June, 15 September and 15 December of
each year. Dividends are not payable on the
preference share while it is stapled to the
note. If distributions are not paid on
ANZ StEPS, the Group may not pay dividends
or distributions, or return capital on ANZ
ordinary shares or any other share capital
or security ranking equal or junior to the
preference share component.
On any reset date, ANZ may change certain
terms (subject to certain restrictions)
including the next reset date, market reset
(from fl oating rate to a fi xed rate, or vice
versa), margin and the frequency and timing
of the distribution payment dates. The fi rst
reset date is 15 September 2008. Holders
of ANZ StEPS can require exchange on any
reset date or earlier if certain specifi ed
events occur. On exchange, a holder will
receive (at the Company’s discretion)
either $100 cash for each ANZ StEPS
exchanged or a variable number of ordinary
shares calculated in accordance with a
conversion ratio based on $100 divided by
the market price of ordinary shares at the
date of conversion less 2.5%. In certain
circumstances, the Company may also
require exchange other than on a reset date.
Upon the occurrence of an assignment
event, ANZ StEPS becomes unstapled.
In this case, the note will be assigned to a
subsidiary of the company, however, the
holder will retain the preference share and
the rights to exchange the preference share.
100 ANZ Annual Report 2007
The preference shares forming part of ANZ
StEPS rank equally with the preference
shares issued in connection with US Trust
Securities, UK Stapled Securities and Euro
Trust Securities in all respects. Except in
certain limited circumstances, holders of
ANZ StEPS do not have any right to vote in
general meetings of the Company.
On a winding up of the Company, the rights
of ANZ StEPS holders will be determined
by the preference share component of ANZ
StEPS. Those preference shares rank behind
all depositors and creditors, but ahead of
ordinary shareholders.
ANZ StEPS qualify as Innovative Tier 1
capital as defi ned by APRA.
US TRUST SECURITIES
On 27 November 2003, the Company
issued 1.1 million USD non-cumulative
Trust Securities (“US Trust Securities”)
at USD1000 each pursuant to offering
memorandum dated 19 November 2003
raising USD1.1 billion. US Trust Securities
comprise two fully paid securities – an
interest paying unsecured note (issued by
Samson Funding Limited, a wholly owned
NZ subsidiary of the Company) and a fully
paid USD1,000 preference share (issued by
the Company), which are stapled together
and issued as a US Trust Security by ANZ
Capital Trust I or ANZ Capital Trust II (the
“Trusts”). Investors have the option to
redeem the US Trust Security from the Trusts
and hold the underlying stapled security.
The issue was made in two tranches:
USD350 million tranche with a coupon
of 4.48% and was issued through ANZ
Capital Trust I. After 15 January 2010 and
at any coupon date thereafter, ANZ has
the discretion to redeem the US Trust
Security for cash. If it does not exercise
this discretion, the investor is entitled
to require ANZ to exchange the US Trust
Security into a number of ordinary shares
based on the formula in the offering
memorandum.
USD750 million tranche with a coupon
of 5.36% and was issued through ANZ
Capital Trust II. It has the same conversion
features as the USD350 million tranche
but from 15 December 2013.
Distributions on US Trust Securities are
non-cumulative and are payable half yearly
in arrears and are funded by payments
received by the respective Trusts on
the underlying note. Distributions are
subject to certain payment tests (i.e. APRA
requirements and distributable profi ts being
available). Distributions are expected to
be payable on 15 June and 15 December
of each year. Dividends are not payable on
the preference share while it is stapled to
the note. If distributions are not paid on the
US Trust Securities, the Group may not pay
dividends or distributions, or return capital
on ANZ ordinary shares or any other share
capital or security ranking equal or junior to
the preference share component.
At any time in the Company’s discretion
or upon the occurrence of certain other
“conversion events”, such as the failure
of the respective Trust to pay in full a
distribution within seven business days of
the relevant distribution payment date, the
notes that are represented by the relevant
US Trust Securities will be automatically
assigned to a subsidiary of the Company and
the preference shares that are represented
by the relevant US Trust Securities will be
distributed to investors in redemption of
such US Trust Securities. The distributed
preference shares will immediately become
dividend paying and holders will receive
non-cumulative dividends equivalent to
the scheduled payments in respect of the
US Trust Securities for which the preference
shares were distributed. If the US Trust
Securities are not redeemed or bought
back prior to the 15 December 2053, they
will be converted into preference shares,
which in turn will be mandatorily converted
into a variable number of ordinary shares
based upon the formula in the offering
memorandum.
The preference shares forming part of the US
Trust Securities rank equal to the preference
shares issued in connection with the ANZ
StEPS, UK Stapled Securities and Euro Trust
Securities in all respects. Except in limited
circumstances, holders of US Trust Securities
do not have any right to vote in general
meetings of the Company.
On winding up of the Company, the rights of
US Trust Security holders will be determined
by the preference share component of US
Trust Security. These preference shares rank
behind all depositors and creditors, but
ahead of ordinary shareholders.
The US Trust Securities qualify as Innovative
Tier 1 capital as defi ned by APRA.
NOTES TO THE FINA NCIAL STATEMENTS
As noted above, in a winding up of the
Company, the note component of the
UK Stapled Security will be assigned to
the Company and the holder will retain only
the preference share component of the
UK Stapled Security. Accordingly, the
rights of investors in UK Stapled Securities
in a winding up of the Company are the
rights conferred by the preference share
component of UK Stapled Securities. These
preference shares rank behind all depositors
and creditors, but ahead of ordinary
shareholders.
The UK Stapled Securities qualify as Non-
Innovative Tier 1 capital as defi ned by APRA.
29: Loan Capital (continued)
UK STAPLED SECURITIES
On 15 June 2007, the Company issued
9,000 non-cumulative, mandatory
convertible stapled securities (“UK Stapled
Securities”) at £50,000 each pursuant to
a prospectus dated 12 June 2007 raising
£450 million. UK Stapled Securities
comprise two fully paid securities – an
interest paying unsecured subordinated
£50,000 note issued by the Company
through its New York Branch and a £50,000
preference share issued by the Company,
which are stapled together.
Distributions on UK Stapled Securities are
non-cumulative and are payable half yearly
in arrears at a fi xed rate of 6.54% (until
converted into ordinary shares or the rate
is reset as provided in the prospectus).
Distributions are subject to certain payment
tests (including APRA requirements and
distributable profi ts being available).
Distributions are expected to be payable
on 15 June and 15 December of each year.
Dividends are not payable on a preference
share while it is stapled to a note. If
distributions are not paid on UK Stapled
Securities, the Group may not pay dividends
or distributions, or return capital, on ANZ
ordinary shares or any other share capital
or security ranking equal or junior to the
preference share component.
At any time in the Company’s discretion or
upon the occurrence of certain other events,
such as the commencement of proceedings
for the winding up of the Company, the note
component of the UK Stapled Security will be
assigned to the Company and the holder will
retain only the preference share component
of the UK Stapled Security.
On 15 June 2012 (“conversion date”), or an
earlier date under certain circumstances,
UK Stapled Securities will mandatorily
convert into a variable number of ordinary
shares in the Company determined
in accordance with the formula in the
prospectus. The mandatory conversion to
ordinary shares is however deferred for fi ve
years if the conversion tests set out in the
prospectus are not met.
The preference shares forming part of the
UK Stapled Securities rank equally with the
preference shares issued in connection
with ANZ StEPS, US Trust Securities and
Euro Trust Securities. Except in limited
circumstances, holders of UK Stapled
Securities do not have any right to vote in
general meetings of the Company.
Financial Report 101
NOTES TO THE FINA NCIAL STATEMENTS
30: Share Capital
Number of issued shares
Ordinary shares each fully paid
Preference shares each fully paid
Total number of issued shares
The Company
2007
2006
1,864,678,820
500,000
1,836,572,115
500,000
1,865,178,820
1,837,072,115
ORDINARY SHARES
Ordinary shares have no par value and entitle holders to receive dividends payable to ordinary shareholders and to participate in the proceeds
available to ordinary shareholders on winding up of the Company in proportion to the number of the shares held.
On a show of hands every holder of fully paid ordinary shares present at a meeting in person or by proxy is entitled to one vote, and upon
a poll one vote for each share held.
Number of issued shares
Balance at start of year
Bonus option plan1
Dividend reinvestment plan1
ANZ employee share acquisition plan2
ANZ share option plan2
Consideration for purchase of ETrade Australia
Share capital buyback
Balance at end of year
Ordinary share capital
Balance at start of year
Dividend reinvestment plan1
ANZ employee share acquisition plan2
Consideration for purchase of ETrade Australia
ANZ share option plan2
Treasury shares3
Share Capital buyback
Balance at end of year
1 Refer to note 7 for details of plan.
2 Refer to note 47 for details of plan.
3 As at 30 September 2007, there were 1,313,392 treasury shares outstanding.
The Company
2007
2006
1,836,572,115
1,729,427
15,234,694
–
7,840,564
3,302,020
–
1,826,449,480
1,384,144
6,585,302
1,590,457
6,654,818
–
(6,092,086)
1,864,678,820
1,836,572,115
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
8,271
442
57
99
132
(55)
–
8,053
165
90
–
109
–
(146)
8,271
442
57
99
132
(55)
–
8,053
165
90
–
109
–
(146)
8,946
8,271
8,946
8,271
102 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
30: Share Capital (continued)
PREFERENCE SHARES
Euro Trust Securities
On 13 December 2004, the Company issued 500,000 Euro Floating Rate Non-cumulative Trust Securities (“Euro Trust Securities”) at €1000
each pursuant to the offering circular dated 9 December 2004, raising $871 million (at the spot rate at the date of issue, net of issue costs).
Euro Trust Securities comprise two fully paid securities – an interest paying unsecured note (issued by ANZ Jackson Funding PLC, a United
Kingdom subsidiary of the Company) and a fully paid, €1000 preference share (issued by the Company), which are stapled together and issued
as a Euro Trust Security by ANZ Capital Trust III (the Trust). Investors have the option to redeem the Euro Trust Security from the Trust and hold
the underlying stapled security.
Distributions on Euro Trust Securities are non-cumulative and are payable quarterly in arrears and are funded by payments received by the
Trust on the underlying note and/or preference share. The distribution is based upon a fl oating distribution rate equal to the 3 month
EURIBOR rate plus a 66 basis point margin up until 15 December 2014, after which date the distribution rate is the 3 month EURIBOR rate
plus a 166 basis point margin. At each payment date the 3 month EURIBOR rate is reset for the next quarter. Distributions are subject to
certain payment tests (i.e. APRA requirements and distributable profi ts being available). Distributions are expected to be payable on 15 March,
15 June, 15 September and 15 December of each year. Dividends are not payable on the preference shares while they are stapled to the
note, except for the period after 15 December 2014 when the preference share will pay 100 basis points to fund the increase in the margin.
If distributions are not paid on Euro Trust Securities, the Group may not pay dividends or distributions, or return capital on ANZ ordinary shares
or any other share capital or security ranking equal or junior to the preference share component.
At any time at ANZ’s discretion or upon the occurrence of certain other “conversion events”, such as the failure of the Trust to pay in full a
distribution within seven business days of the relevant distribution payment date or the business day prior to 15 December 2053, the notes
that are represented by the relevant Euro Trust Securities will be automatically assigned to a Branch of the Company and the fi xed number of
preference shares that are represented by the relevant Euro Trust Securities will be distributed to investors in redemption of such Euro Trust
Securities. The distributed preference shares will immediately become dividend paying and holders will receive non-cumulative dividends
equivalent to the scheduled payments in respect of the Euro Trust Securities for which the preference shares were distributed.
The preference shares forming part of the Euro Trust Security rank equal to the preference shares issued in connection with the ANZ StEPS,
US Trust Securities and UK Stapled Securities in all respects. Except in limited circumstances, holders of Euro Trust Securities do not have any
right to vote in general meetings of the Company.
On winding up of the Company, the rights of Euro Trust Security holders will be determined by the preference share component of the Euro Trust
Security. These preference shares rank behind all depositors and creditors, but ahead of ordinary shareholders.
The transaction costs arising on the issue of these instruments were recognised directly in equity as a reduction to the proceeds of the equity
instruments to which the costs relate.
Euro Trust Securities qualify as Innovative Tier 1 Capital as defi ned by APRA.
Preference share balance at start of year
- Euro Trust Securities
- ANZ StEPS1
Less ANZ StEPS securities reclassifi ed under AIFRS1
Adjusted preference share balance at start of year
Preference share balance at end of year
- Euro Trust Securities
1 Under AIFRS, ANZ StEPS securities are now classified as loan capital (refer note 29).
Consolidated
The Company
2007
$m
871
–
871
–
871
2006
$m
871
987
1,858
(987)
871
2007
$m
871
–
871
–
871
2006
$m
871
987
1,858
(987)
871
871
871
871
871
Financial Report 103
NOTES TO THE FINA NCIAL STATEMENTS
31: Reserves and Retained Earnings
a) Foreign currency translation reserve
Balance at beginning of year
Currency translation adjustments, net of hedges after tax
Total foreign currency translation reserve
b) Share option reserve1
Balance at beginning of year
Share-based payments
Transfer (to) retained earnings3
Total share option reserve
c) Available-for-sale revaluation reserve
Balance at start of year
Adjustments on adoption of accounting policies specifi ed by AASB 132 and AASB 139
Restated balance at beginning of year
Valuation gain recognised after tax
Cumulative (gain) transferred to the income statement on sale of fi nancial assets
Total available-for-sale revaluation reserve
d) Hedging reserve
Balance at start of year
Adjustments on adoption of accounting policies specifi ed by AASB 132 and AASB 139
Adjustment on adoption of AASB 2005-12
Restated balance at beginning of year
Gain/(loss) recognised after tax
Transfer (to) income statement
Total hedging reserve
e) General reserve
Balance at start of year
Transfer (to) retained earnings3
Total general reserve
f) Capital reserve
Balance at start of year
Transfer (to) retained earnings3
Total capital reserve
Total reserves
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
(646)
(563)
(1,209)
(443)
(203)
(646)
63
7
–
70
2
–
2
109
(14)
97
227
–
(141)
86
74
(7)
153
–
–
–
–
–
–
67
(3)
(1)
63
n/a
(10)
(10)
20
(8)
2
n/a
162
–
162
121
(56)
227
181
(181)
–
149
(149)
–
(116)
(291)
(407)
63
7
–
70
(3)
–
(3)
100
(4)
93
40
–
–
40
40
–
80
–
–
–
–
–
–
(213)
97
(116)
67
(3)
(1)
63
n/a
(11)
(11)
15
(7)
(3)
n/a
11
–
11
36
(7)
40
11
(11)
–
–
–
–
(889)
(354)
(164)
(16)
1 Further information about share based payments to employees is disclosed in note 47 to the financial statements.
2 Under the provisions of AASB 2005-1, hedge accounting is not available for the NZ revenue hedges, effective 1 October 2006 (refer note 1(viii)).
3 The transfer of balances from the share option, general and capital reserves to retained earnings represent items of a distributable nature.
104 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
31: Reserves and Retained Earnings (continued)
Retained earnings
Restated balance at start of year
Adjustment on adoption of accounting policies specifi ed by AASB 4, AASB 132
and AASB 1394
Adjustment on adoption of AASB 2005-12
Restated balance at beginning of year
Profi t attributable to shareholders of the Company
Transfers from reserves
Actuarial gain/(loss) on defi ned benefi t plans after tax5
Ordinary share dividends paid
Preference share dividends paid
Retained earnings at end of year
Total reserves and retained earnings
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
11,084
9,646
8,173
7,310
–
141
11,225
4,180
–
77
(2,363)
(37)
(431)
–
9,215
3,688
331
(55)
(2,068)
(27)
13,082
11,084
12,193
10,730
–
–
8,173
3,551
–
75
(2,363)
–
9,436
9,272
(201)
–
7,109
3,174
12
(54)
(2,068)
–
8,173
8,157
1 Further information about share based payments to employees is disclosed in note 47 to the financial statements.
2 Under the provisions of AASB 2005-1, hedge accounting is not available for the NZ revenue hedges, effective 1 October 2006 (refer note 1(viii)).
3 The transfer of balances from the share option, general and capital reserves to retained earnings represent items of a distributable nature.
4 Comprises:
- Remeasurement of the carrying value of the Group’s investment in INGA as at 1 October 2005
- Adjustment in respect of hedging derivative financial instruments as at 1 October 2005
- Recognition of the fair value of derivatives relating to securitisation and structured finance transactions as at 1 October 2005
- Deferral of previously recognised fees now treated as an adjustment to yield on 1 October 2005
- Restatement of credit loss provisions to an AIFRS basis.
5 ANZ has taken the option available under AASB 119 to recognise actuarial gains/losses on defined benefit superannuation plans directly in retained profits (refer note 1(xx) and note 46).
a) Foreign currency translation reserve
The translation reserve comprises exchange differences, net of hedges, arising on translation of the fi nancial statements of foreign operations,
as described in note 1(iii). When a foreign operation is sold, attributable exchange differences are recognised in the Income Statement.
b) Share option reserve
The share option reserve arises on the grant of share options to selected employees under the ANZ share option plan. Amounts are transferred
out of the reserve and into share capital when the options are exercised. Refer to note 1(xx).
c) Available-for-sale revaluation reserve
Changes in the fair value and exchange differences on the revaluation of available-for-sale fi nancial assets are taken to the available-for-sale
revaluation reserve. Where a revalued available-for-sale fi nancial asset is sold, that portion of the reserve which relates to that fi nancial asset,
is realised and recognised in the Income Statement. Where the available-for-sale fi nancial asset is impaired, that portion of the reserve which
relates to that asset is recognised in the Income Statement. Refer to note 1(ix).
d) Hedging reserve
The hedging reserve represents hedging gains and losses recognised on the effective portion of cashfl ow hedges. The cumulative deferred gain
or loss on the hedge is recognised in the Income Statement when the hedged transaction impacts the Income Statement. Refer to note 1(viii).
e) General reserve and f) Capital reserve
The transfer of balances from the general and capital reserves to retained earnings represent items of a distributable nature.
32: Minority Interests
Share capital
Retained profi ts
Total minority interests
Consolidated
2007
$m
16
22
38
2006
$m
14
20
34
Financial Report 105
NOTES TO THE FINA NCIAL STATEMENTS
33: Average Balance Sheet and Related Interest
Averages used in the following table are predominantly daily averages. Interest income fi gures are presented on a tax-equivalent basis.
Impaired loans are included under the interest earning asset category ‘loans and advances’. Intragroup interest earning assets and interest
bearing liabilities are treated as external assets and liabilities for the geographic segments.
Interest earning assets
Due from other fi nancial institutions
Australia
New Zealand
Overseas Markets
Trading and available-for-sale assets
Australia
New Zealand
Overseas Markets
Loans and advances
Australia
New Zealand
Overseas Markets
Customers’ liability for acceptances
Australia
Overseas Markets
Other assets
Australia
New Zealand
Overseas Markets
Intragroup assets
Australia
Overseas Markets
Intragroup elimination
Non-interest earning assets
Derivative fi nancial instruments
Australia
New Zealand
Overseas Markets
Premises and equipment
Other assets
Provision for credit impairment
Australia
New Zealand
Overseas Markets
Total average assets
Total average assets
Australia
New Zealand
Overseas Markets
Intragroup elimination
% of total average assets attributable to overseas activities
106 ANZ Annual Report 2007
Average
balance
$m
2,011
1,598
4,987
18,164
2,701
3,904
2007
Interest
$m
113
111
264
1,157
212
215
188,582
73,426
10,387
14,752
6,536
761
13,852
293
1,054
18
4,794
5,054
3,608
2,910
4,043
355
404
258
232
228
Average
rate
%
Average
balance
$m
2006
Interest
$m
Average
rate
%
5.6
6.9
5.3
6.4
7.8
5.5
7.8
8.9
7.3
7.6
6.1
7.4
8.0
7.2
8.0
5.6
1,442
2,236
4,061
15,957
2,459
2,883
71
146
190
946
182
134
170,576
65,203
9,538
12,478
5,653
671
13,786
216
3,833
4,361
4,155
–
11,501
958
11
317
283
261
–
559
4.9
6.5
4.7
5.9
7.4
4.6
7.3
8.7
7.0
6.9
5.1
8.3
6.5
6.3
–
4.9
340,314
26,670
(6,953)
(460)
312,207
22,860
(11,501)
(559)
333,361
26,210
7.9
300,706
22,301
7.4
12,708
3,227
667
1,318
14,319
(1,688)
(412)
(167)
29,972
363,333
249,686
89,969
30,631
370,286
(6,953)
363,333
32.1%
9,600
2,593
(579)
1,074
12,696
(1,567)
(419)
(191)
23,207
323,913
220,710
81,072
33,632
335,414
(11,501)
323,913
31.9%
NOTES TO THE FINA NCIAL STATEMENTS
33: Average Balance Sheet and Related Interest (continued)
Interest bearing liabilities
Time deposits
Australia
New Zealand
Overseas Markets
Savings deposits
Australia
New Zealand
Overseas Markets
Other demand deposits
Australia
New Zealand
Overseas Markets
Due to other fi nancial institutions
Australia
New Zealand
Overseas Markets
Commercial paper
Australia
New Zealand
Overseas Markets
Borrowing corporations’ debt
Australia
New Zealand
Liability for acceptances
Australia
Overseas Markets
Loan capital, bonds and notes
Australia
New Zealand
Overseas Markets
Other liabilities1
Australia
New Zealand
Overseas Markets
Intragroup liabilities
Australia
New Zealand
Average
balance
$m
49,000
28,279
15,122
16,536
2,520
504
47,837
15,938
1,166
6,787
1,838
6,724
9,981
6,566
926
8,752
1,722
13,852
293
55,577
11,841
311
5,234
132
421
–
6,953
2007
Interest
$m
3,071
2,096
781
597
82
4
2,466
997
29
410
105
357
636
525
49
544
127
898
17
3,651
958
19
355
96
38
–
460
Average
rate
%
Average
balance
$m
6.3
7.4
5.2
3.6
3.3
0.8
5.2
6.3
2.5
6.0
5.7
5.3
6.4
8.0
5.3
6.2
7.4
6.5
5.8
6.6
8.1
6.1
n/a
n/a
n/a
–
6.6
42,907
26,064
13,699
15,087
2,981
566
38,935
12,452
1,003
4,151
1,961
5,965
10,858
6,315
7,373
9,117
1,863
13,786
216
45,244
9,293
135
5,122
149
510
5,146
6,355
2006
Interest
$m
2,445
1,822
646
480
124
10
1,751
700
22
223
107
306
637
470
333
522
130
799
10
2,677
703
7
304
94
36
169
390
Average
rate
%
5.7
7.0
4.7
3.2
4.2
1.8
4.5
5.6
2.2
5.4
5.5
5.1
5.9
7.4
4.5
5.7
7.0
5.8
4.6
5.9
7.6
5.2
n/a
n/a
n/a
3.3
6.1
Intragroup elimination
(6,953)
(460)
(11,501)
(559)
314,812
19,368
287,253
15,917
307,859
18,908
6.1
275,752
15,358
5.6
1 Includes foreign exchange swap costs.
Financial Report 107
2007
Average
balance
$m
2006
Average
balance
$m
4,734
3,829
1,220
11,719
2,882
(494)
4,412
3,883
1,123
8,642
2,663
(635)
10,855
9,457
34,745
29,545
342,604
305,297
237,762
84,176
27,619
210,364
75,331
31,103
349,557
316,798
(6,953)
(11,501)
342,604
305,297
30.6%
32.8%
19,858
871
17,745
871
20,729
18,616
363,333
323,913
NOTES TO THE FINA NCIAL STATEMENTS
33: Average Balance Sheet and Related Interest (continued)
Non-interest bearing liabilities
Deposits
Australia
New Zealand
Overseas Markets
Derivative fi nancial instruments
Australia
New Zealand
Overseas Markets
Other liabilities
Total average liabilities
Total average liabilities
Australia
New Zealand
Overseas Markets
Intragroup elimination
% of total average liabilities attributable to overseas activities
Total average shareholders’ equity
Ordinary share capital1
Preference share capital
Total average liabilities and shareholders’ equity
1 Includes reserves and retained earnings.
108 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
34: Interest Spreads and Net Interest Average Margins
Net interest income1
Australia
New Zealand
Overseas Markets
Average interest earning assets
Australia
New Zealand
Overseas Markets
Intragroup elimination
Gross earnings rate2
Australia
New Zealand
Overseas Markets
Group
Interest spreads and net interest average margins may be analysed as follows
Australia
Gross interest spread
Interest foregone on impaired assets3
Net interest spread
Interest attributable to net non-interest bearing items
Net interest average margin – Australia
New Zealand
Gross interest spread
Interest foregone on impaired assets3
Net interest spread
Interest attributable to net non-interest bearing items
Net interest average margin – New Zealand
Overseas Markets
Gross interest spread
Interest foregone on impaired assets3
Net interest spread
Interest attributable to net non-interest bearing items
Net interest average margin – Overseas Markets
Group
Gross interest spread
Interest foregone on impaired assets3
Net interest spread
Interest attributable to net non-interest bearing items
Net interest average margin – Group
1 On a tax equivalent basis.
2 Average interest rate received on interest earning assets. Overseas Markets includes intragroup assets.
3 Refer note 15.
2007
$m
2006
$m
5,036
1,817
449
7,302
4,763
1,724
456
6,943
230,313
82,779
27,222
(6,953)
205,594
74,259
32,354
(11,501)
333,361
300,706
%
%
7.67
8.77
6.41
7.86
1.77
(0.01)
1.76
0.43
2.19
1.60
(0.01)
1.59
0.61
2.20
1.35
(0.03)
1.32
0.33
1.65
1.73
(0.01)
1.72
0.47
2.19
7.18
8.44
5.64
7.43
1.94
(0.01)
1.93
0.39
2.32
1.72
(0.01)
1.71
0.61
2.32
1.02
(0.02)
1.00
0.41
1.41
1.87
(0.01)
1.86
0.45
2.31
Financial Report 109
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management
STRATEGY IN USING FINANCIAL
INSTRUMENTS
Financial instruments are fundamental to
the Group’s business, constituting the core
element of its operations. Accordingly, the
risks associated with fi nancial instruments
are a signifi cant component of the risks
faced by the Group. Financial instruments
create, modify or reduce the credit, market
(including traded or fair value risks and
non-traded or interest and foreign currency
related risks) and liquidity risks of the
Group’s balance sheet. These risks and
the Group’s policies and objectives for
managing such risks are outlined below.
The Group’s overall risk management
programme focuses on the unpredictability
of fi nancial markets and seeks to minimise
potential adverse effects on the fi nancial
performance of the Group.
The Group uses derivative fi nancial
instruments such as foreign exchange
contracts, credit contracts and interest rate
contracts to hedge certain risk exposures
(refer note 12).
CREDIT RISK
Credit risk is the risk of fi nancial loss
from counterparties being unable to fulfi l
their contractual loan or credit equivalent
obligations.
The Group has an overall lending objective
of sound growth for appropriate returns.
The credit risk management framework
exists to provide a structured and
disciplined process to support this objective.
The Group assumes credit risk in a wide
range of lending and other activities in
diverse markets and many jurisdictions.
The credit risks arise not only from
traditional lending to Retail, Corporate
and Institutional customers, but also
from lending for Government, inter-bank,
treasury, international trade and capital
market activities around the world.
CREDIT RISK MANAGEMENT
The credit risk management framework
is in place across the Group with the aim
of ensuring a structured and disciplined
approach is maintained in achieving the
objective set by the Board. The framework
focuses on policies, people, skills, vision,
values, controls, risk concentrations
and portfolio balance. It is supported
by portfolio analysis and asset-writing
strategies which guide lending decisions
and identify segments of the portfolio
requiring attention. The effectiveness of the
framework is monitored through a series of
compliance and reporting processes.
110 ANZ Annual Report 2007
The Group sets limits on the acceptable level
of credit risk. Acceptance of credit risk is
fi rstly based on the counterparty’s assessed
capacity to meet contractual obligations,
(i.e. interest and capital repayments).
Obtaining collateral supports this.
An independent Risk Management function,
at Group, Divisional and Business Unit
levels, is staffed by risk specialists. In
regards to credit risk management, the
objective is for Risk Management to provide
robust credit policies, to make independent
credit decisions and to provide strong
support to front line staff in the application
of sound credit practices.
In addition to providing independent
credit assessment on lending decisions,
Risk Management also perform key roles
in portfolio management, credit risk
measurement system development and
validation, loan asset quality reporting,
and development of credit standards
and policies.
All credit decisions greater than
predetermined thresholds require
approval from both business writers and
independent risk personnel. These credit
approval discretions (CADs) are delegated
to individuals, at progressively diminishing
levels, thus forming a credit approval
hierarchy that ensures larger and more
complex credits are given greater scrutiny.
CREDIT RISK GOVERNANCE
The authority to make credit decisions
is delegated by the Board through the
Board Risk Committee to the Credit and
Trading Risk Committee (CTC) and Executive
Management.
The CTC ensures that the necessary Group
Executive judgment and experience is
applied to critical credit decisions relating
to the Group’s larger and higher risk
customers.
The CTC is able to make decisions on credit-
related submissions (including proposals
for new and increased credit limits for
customers, annual reviews of existing
limits, and new and increased provisions
for impaired assets) within the discretions
delegated by the Board Risk Committee.
Submissions requiring decisions
above these discretion thresholds are
recommended for approval by the CTC to the
Board Risk Committee.
The CTC comprises senior Risk Executives,
senior Executives and Business Unit
Managing Directors, and is chaired by the
Chief Risk Offi cer.
The CTC’s scope also includes delegated
authority for the approval of credit, trading
risk and non-traded market risk controls,
including portfolio management, risk
concentration limits, changes to credit
policy, Value-at-Risk (VaR) limits, new
products and regulatory compliance.
CREDIT RISK MEASUREMENT
A core component of the Group’s credit risk
management capability is the risk grading
framework used across all major Business
Units and geographic areas.
A set of risk grading principles and policies
are supported by a complementary risk
grading methodology. Pronouncements
by the Basel Committee on Banking
Supervision have been encapsulated in
these principles and policies including
governance, validation and modelling
requirements.
The Group’s risk grade profi les change
dynamically through new counterparty
acquisitions and/or existing counterparty
movements in either risk or volume. All
counterparty risk grades are subject to
frequent review, including statistical and
behavioural reviews in consumer and
small business segments, and individual
counterparty reviews in segments with larger
single name borrowers.
ANZ uses a two-dimensional risk grading
system, which measures both the
customer’s ability to repay (probability
of default) and the loss in the event of
default (a factor of the security taken to
support the facilities). ANZ uses fi nancial
and statistical tools to assist in the risk
grading of customers. Customer risk grades
are reviewed periodically (typically at least
annually for large customers) to ensure
the risk grade refl ects the credit risk of the
customer and the prevailing economic
conditions. Similarly, the performance of
risk grading tools used in the risk grading
process is reviewed regularly to ensure the
tools maintain statistical validity.
To measure the probability of default,
ANZ applies a risk grading scale of 0 to 10
to its lending - with ratings 0 through 8
representing productive ratings and ratings
of 9 and 10 representing impaired assets.
The Institutional Division and the corporate
portfolios in New Zealand risk grades of
1 to 8 are further refi ned by the application
of + and - modifi ers, making a total of 27
separate risk grades.
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
To measure the loss in event of default,
a scale ranging from A to G is applied.
Security Indicator A represents more than
130% security coverage, while Security
Indicator G is applied to unsecured customer
borrowings. The Institutional Division has
four additional security indicators: K - Cash
Cover, M - Mezzanine, S – Sovereign and
I – Intragroup.
Risk Management and Business Unit
Executives monitor large exposure
concentrations. Senior Management is
provided each month with a list of ANZ’s top
Corporate exposures. The CTC (six monthly)
and Board Risk Committee (annually) review
a comprehensive list of single customer
concentration limits and customers’
adherence to these limits.
COUNTRY RISK MEASUREMENT
Some customer credit risks involve Country
Risk whereby actions or events at a national
or international level could disrupt servicing
of commitments. Country Risk arises when
payment or discharge of an obligation will,
or could, involve the fl ow of funds from one
country to another or involve transactions in
a currency other than the domestic currency
of the relevant country.
Country ratings are assigned to each country
where ANZ incurs country risk and have a
direct bearing on ANZ’s risk appetite for each
country. The country rating is determined
through a defi ned methodology based
around external ratings agencies’ ratings
and internal specialist opinion. It is also
a key risk consideration in ANZ’s capital
pricing model for cross border fl ows.
The recording of country limits provides the
Group with a means to identify and control
Country Risk.
Country limits ensure that there is a country-
by-country ceiling on exposures that involve
Country Risk. They are recorded by time to
maturity and purpose of exposure e.g. trade,
markets, project fi nance.
Country limits are managed centrally for the
ANZ Group, through a global country risk
exposure management system managed by
a specialist unit within Institutional Risk.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk arise when a
number of customers are engaged in similar
business activities or activities within the
same geographic region, or when they have
similar risk characteristics that would cause
their ability to meet contractual obligations
to be similarly affected by changes in
economic or other conditions.
The Group monitors its portfolio, largely
comprising net loans and advances,
customers’ liability for acceptances,
derivatives and available-for-sale loan
assets, to assess risk concentrations.
Concentration limits are used to guard
against large single customer or correlated
credit risks.
PORTFOLIO STRESS TESTING
Stress testing is integral to strengthening
the predictive approach to risk management
and is a key component to managing
risk appetite, asset writing strategies
and business strategies. It creates
greater understanding of impacts on
fi nancial performance through modelling
relationships and sensitivities between
geographic, industry and business unit
exposures under a range of macro economic
scenarios.
ANZ has a dedicated stress testing team
within Risk Management that models and
reports periodically to management and
the Board Risk Committee on a range of
scenarios and stress tests.
IMPAIRED ASSETS
ANZ’s policy relating to the recognition and
measurement of impaired assets conforms
with APRA’s guidelines.
Loans are classifi ed as either performing
or impaired. Impaired assets are credit
exposures where there is doubt as to
whether the full contractual amount
(including interest) will be received, and/
or where a material credit obligation is 90
days past due but not well secured, or where
concessional terms have been provided due
to the fi nancial diffi culties of the customer.
The provision for credit impairment
represents management’s best estimate
of the losses incurred in the loan portfolio
at balance date based on its experienced
judgement.
In line with accounting standards, credit
exposures, including loans and advances
and off-balance sheet items, such as
commitments and guarantees, are
reviewed at least at each reporting date for
impairment. Exposures are impaired and
impairment losses are recorded if, and only
if, there is objective evidence of impairment
as a result of one or more loss events that
occurred after the initial recognition of the
loan and prior to the reporting date, and that
a loss event or events has (or have) had an
impact on the estimated future cash fl ows of
the individual loan or the collective portfolio
of loans that can be reliably estimated.
When ANZ recognises an impairment
loss in an individual asset or portfolio
of assets, ANZ is recognising that future
economic benefi ts (previously assessed as
being available to the entity) are no longer
probable.
ANZ’s methodology for determining the total
provision for loan losses establishes both
an individual component for assets that are
individually signifi cant (or on a portfolio
basis for small value loans) and then a
collective component for those exposures
not individually known to be impaired. The
individual provision represents the results
of analysis of individual loans within ANZ’s
portfolio. ANZ reviews its loan portfolios and
monitors adherence to terms, conditions
and lending covenants. The reviews
undertaken employ a variety of statistical
measures and experienced judgement to
determine the continuing collectability of
credit facilities. When objective evidence
arises as to the collectability of a credit
facility, the exposure is classifi ed and
reported as individually impaired and an
individual provision for credit impairment is
allocated against it.
Exposures that are assessed collectively
are placed into pools of similar assets
with similar risk characteristics to be
collectively assessed for losses that have
been incurred, but not yet identifi ed. The
collective provision is estimated on the
basis of historical loss experience for assets
with credit risk characteristics similar to
those in the collective pool. Historical
loss experience is determined using loan
and portfolio risk gradings, associated
default and loss expectancy rates and an
assessment of the emergence period. The
historical loss experience may be refi ned
based on current observed default data.
The collective provision is also reviewed
to ensure it is adequate for the term of the
portfolio.
PORTFOLIO ANALYSIS AND REPORTING
Global credit portfolios are analysed by
the Risk Committees, and Senior Business
and Board Risk Management. A central risk
reporting area produces credit portfolio
analysis which is distributed to senior
Risk and Business Executives through
monthly, half yearly and ad hoc reporting,
or as set agenda reports to the various
Risk Committees. This area provides an
independent mechanism to ensure that
signifi cant and emerging credit risks are
proactively identifi ed and communicated
Financial Report 111
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
to Group, Risk and Business Executives,
including the Executive Management and
Board Risk Committee.
CREDIT RISK ASSURANCE
The credit risk objectives of the Group are
set by the Board and are implemented
and monitored within a tiered structure of
delegated authority, designed to oversee
multiple facets of credit risk, including asset
writing strategies, credit policies/controls,
single exposures, portfolio monitoring and
risk concentrations. The integrity of the
credit risk function is maintained by the
independence of the credit chain and is
supported by comprehensive risk analysis,
risk tools, monitoring processes and
policies.
ANZ manages its credit risk within a
framework by dealing with creditworthy
counterparties, setting credit limits on
exposures to counterparties, and obtaining
collateral where appropriate.
To provide specialist management of
problem loans, Portfolio Management
departments perform a role as workout
specialists for identifi ed sub-standard
assets.
The credit risk review function within Group
Audit also provides further independent
checks and balances as to the quality of
credit decisions. This includes providing an
independent periodic check on asset quality
and compliance with agreed standards and
policies across the Group.
COLLATERAL MANAGEMENT
ANZ credit principles specify to only lend
what the counterparty has the capacity
and ability to repay. Obtaining collateral is
used to mitigate credit risk. Procedures are
designed to ensure collateral is managed,
legally enforceable, conservatively valued
and adequately insured. ANZ policy sets out
the types of acceptable collateral, including:
cash;
mortgages over property;
charges over business assets, e.g.
premises, stock and debtors;
charges over fi nancial instruments, e.g.
debt securities and equities in support of
trading facilities; and
fi nancial guarantees.
In the event of customer default, any loan
security is usually held as mortgagee in
possession and therefore the Group does
not usually hold any real estate or other
assets acquired through the enforcement
of security.
ANZ uses ISDA Master Agreements to
document derivatives activities to limit
exposure to credit losses. The credit risk
is reduced by a master agreement to the
extent that if an event of default occurs,
all contracts with the counterparty are
terminated and settled on a net basis.
Further, it is ANZ’s preferred practice to
include all products covered by the ISDA in
the Credit Support Annex (“CSA”), in order
to achieve the objective of further credit
exposure reduction. Under a CSA, collateral
is passed between the parties, depending
on the aggregate mark-to-market (positive
or negative) of derivatives trades between
the two entities, to mitigate the market-
contingent counterparty risk inherent in
the outstanding positions.
112 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Concentrations of credit risk by industry and geographic analysis:
Based on carrying amount at 30 September 2007 and 30 September 2006
Consolidated
Australia
Agriculture, forestry, fi shing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and offi cial institutions
Lease fi nance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other
New Zealand
Agriculture, forestry, fi shing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and offi cial institutions
Lease fi nance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other
Overseas Markets
Agriculture, forestry, fi shing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and offi cial institutions
Lease fi nance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other
Net loans and advances
Customers’ liabilities
2007
$m
2006
$m
2007
$m
2006
$m
Available-for-sale
loans and advances1
2007
$m
2006
$m
Total
2007
$m
2006
$m
7,618
5,488
4,215
4,357
8,148
67
1,813
7,259
18,377
13,718
112,279
11,293
10,216
7,079
4,882
3,757
4,408
4,795
52
2,378
7,050
15,579
10,229
100,362
10,106
9,923
1,294
876
245
1,041
1,079
5
–
1,547
332
4,519
–
2,053
1,216
1,116
687
202
1,186
970
7
–
1,508
239
4,108
–
2,155
1,060
204,848
180,600
14,207
13,238
163
–
110
98
184
–
–
22
–
–
–
–
127
704
1,030
12
146
243
132
–
–
113
–
–
–
–
270
1,946
12,401
1,008
656
780
2,094
468
215
2,539
2,538
6,383
40,389
2,317
4,204
11,180
627
554
756
2,573
656
421
1,991
3,041
6,368
35,766
1,540
3,456
75,992
68,929
879
442
67
550
588
398
186
3,566
629
422
1,042
1,479
1,760
718
209
73
681
536
237
179
2,562
651
205
881
1,137
2,133
12,008
10,202
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
–
–
139
–
–
78
–
–
–
92
18
329
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9
–
–
4
68
–
–
86
–
–
–
30
–
197
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,075
6,364
4,570
5,496
9,411
72
1,813
8,828
18,709
18,237
112,279
13,346
11,559
9,225
5,581
4,105
5,837
5,897
59
2,378
8,671
15,818
14,337
100,362
12,261
11,253
219,759
195,784
12,401
1,008
656
780
2,094
468
215
2,539
2,538
6,383
40,389
2,317
4,204
11,180
627
554
756
2,573
656
421
1,991
3,041
6,368
35,766
1,540
3,456
75,992
68,929
881
442
67
550
727
398
186
3,644
629
422
1,042
1,571
1,778
727
209
73
685
604
237
179
2,648
651
205
881
1,167
2,133
12,337
10,399
Gross total
292,848
259,731
14,536
13,435
704
1,946
308,088
275,112
Individual provision for credit impairment
Collective provision for credit impairment
Income yet to mature
Capitalised brokerage/mortgage origination fees
(302)
(1,992)
(286)
(1,940)
(2,294)
(2,226)
(2,278)
570
(2,122)
539
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(302)
(1,992)
(286)
(1,940)
(2,294)
(2,226)
(2,278)
570
(2,122)
539
Net total
288,846
255,922
14,536
13,435
704
1,946
304,086
271,303
1 Available-for-sale loans and advances only includes loan products originated by the Group. Capital Markets products and equity investments are excluded.
2 Personal includes consumer lending except for lease finance facilities and those facilities secured by a mortgage.
3 Real estate - commercial includes all business lending relating to commercial property.
4 Real estate - mortgage includes all consumer lending secured by a mortgage.
Financial Report 113
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Aggregate concentrations of credit risk by industry analysis1
Consolidated
Agriculture, forestry, fi shing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and offi cial institutions
Lease fi nance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other
2007
$m
2006
$m
22,357
7,814
5,293
6,826
12,232
938
2,214
15,011
21,876
25,042
153,710
17,234
17,541
21,132
6,417
4,732
7,278
9,074
952
2,978
13,310
19,510
20,910
137,009
14,968
16,842
308,088
275,112
1 Calculated prior to deduction for provisions and unearned income.
2 Personal includes consumer lending except for lease finance facilities and those facilities secured by a mortgage.
3 Real Estate commercial includes all business lending relating to commercial property.
4 Real Estate mortgage includes all consumer lending secured by a mortgage.
MARKET RISK
Market risk is the risk to the Group’s earnings arising from changes in interest rates, currency exchange rates, credit spreads, or from
fl uctuations in bond, commodity or equity prices.
Market risk management and control responsibilities
To facilitate the management, control, measurement and reporting of market risk, ANZ has grouped market risk into two broad categories:
a) Traded market risk
This is the risk of loss from changes in the value of fi nancial instruments due to movements in price factors for both physical and derivative
trading positions. They arise in trading transactions where ANZ acts as principal with clients or with the market.
The principal risk categories monitored are:
Currency risk is the potential loss arising from the decline in the value of a fi nancial instrument due to changes in foreign exchange rates
or their implied volatilities.
Interest rate risk is the potential loss arising from the change in the value of a fi nancial instrument due to changes in market interest rates
or their implied volatilities.
Credit spread risk is the potential loss arising from a change in value of an instrument due to a movement of its margin or spread relative to
a bench mark.
b) Non-traded market risk (or balance sheet risk)
This comprises the management of non-traded interest rate risk, liquidity, and the risk to the Australian dollar denominated value of the Group’s
capital and earnings as a result of foreign exchange rate movements.
The Board of Directors through the Risk Committee has responsibility for oversight of market risk within the Group. Routine management of
market risk is delegated to two senior management committees. The CTC, chaired by the Chief Risk Offi cer, is responsible for traded market
risk, while the Group Asset and Liability Committee (GALCO), chaired by the Chief Financial Offi cer, is responsible for non-traded market risk (or
balance sheet risk).
CTC monitors traded market risk exposures (including Value at Risk and Stress Testing) and is responsible for authorising the trading risk limit
framework. In addition, GALCO delegates to CTC responsibility for the monthly monitoring of non-traded market risk exposures. GALCO reviews
balance sheet based risk measures and strategies quarterly, or more frequently if required.
114 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Value at Risk (VaR) measure
A key measure of market risk is Value at Risk (VaR). VaR is a statistical estimate of the likely daily loss and is based on historical market
movements.
The confi dence level is such that there is 97.5% or 99% probability that the loss will not exceed the VaR estimate on any given day. The 99%
confi dence level encompasses a wider range of potential outcomes.
The Group’s standard VaR approach for both traded and non-traded risk is historical simulation. The Group calculates VaR using historical changes
in market rates and prices over the previous 500 business days. Traded and Non-Traded VaR is calculated using a one-day holding period.
It should be noted that because VaR is driven by actual historical observations, it is not an estimate of the maximum loss that the Group could
experience from an extreme market event. As a result of this limitation, the Group utilises a number of other risk measures (eg. stress testing)
and associated detailed control limits to measure and manage market risk.
Traded and non-traded market risks are considered separately below.
Traded Market Risks
Trading activities are focused on customer trading, distribution and underwriting of a range of securities and derivative instruments.
The principal activities include foreign exchange, interest rate and debt markets. These activities are managed on a global product basis.
Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the Group’s principal trading centres.
Value at risk at 97.5% confi dence
Foreign exchange
Interest rate
Credit spread
Diversifi cation benefi t
Total VaR
Value at risk at 99% confi dence
Foreign exchange
Interest rate
Credit spread
Diversifi cation benefi t
Total VaR
As at
Sep 2007
$m
High for
year
Sep 2007
$m
Low for
year
Sep 2007
$m
Average
for year
Sep 2007
$m
As at
Sep 2006
$m
High for
year
Sep 2006
$m
Low for
year
Sep 2006
$m
Average
for year
Sep 2006
$m
1.2
1.6
1.0
(2.1)
1.7
1.8
2.3
1.6
(3.0)
2.7
1.5
7.6
1.9
n/a
8.1
2.2
9.8
3.2
n/a
9.9
0.2
1.2
0.7
n/a
1.4
0.3
1.7
1.1
n/a
1.7
0.6
2.6
1.2
(1.6)
2.8
0.8
3.4
2.1
(2.4)
3.9
0.5
1.7
1.1
(1.4)
1.9
0.6
2.0
2.8
(2.9)
2.5
1.6
3.2
1.7
n/a
3.6
2.0
4.4
3.6
n/a
4.9
0.3
0.8
0.7
n/a
0.9
0.3
1.3
1.1
n/a
1.2
0.7
1.8
1.1
(1.5)
2.1
0.8
2.4
2.3
(2.6)
2.9
VaR is calculated separately for Foreign Exchange/Commodities and for Interest Rate/Debt Markets businesses as well as for the Group.
The diversifi cation benefi t refl ects the historical correlation between Foreign Exchange, Commodity, Interest Rate and Debt Markets.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at a Group level. ANZ’s
stress-testing regime provides senior management with an assessment of the fi nancial impact of identifi ed extreme events on market risk
exposures of ANZ.
Non-Traded Market Risks (Balance Sheet Risk)
The principal objectives of balance sheet management are to manage interest income sensitivity while maintaining acceptable levels of interest
rate and liquidity risk and to manage the market value of the Group’s capital. Liquidity risk is dealt with in the next section.
Interest rate risk
The objective of balance sheet interest rate risk management is to secure stable and optimal net interest income over both the short (next 12
months) and long term. Non-traded interest rate risk relates to the potential adverse impact of changes in market interest rates on the Group’s
future net interest income. This risk arises from two principal sources: mismatches between the repricing dates of interest bearing assets and
liabilities; and the investment of capital and other non-interest bearing liabilities in interest bearing assets. Interest rate risk is reported using
three measures: VaR; scenario analysis (to a 1% shock); and interest rate sensitivity gap (refer note 36).
Financial Report 115
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
a) VaR Non-Traded Interest Rate Risk
Below are aggregate VaR fi gures covering non-traded interest rate risk.
Value at risk at 97.5% confi dence
Australia
New Zealand
Overseas Markets
Diversifi cation Benefi t
Total
As at
Sep 2007
$m
High for
year
Sep 2007
$m
Low for
year
Sep 2007
$m
Average
year
Sep 2007
$m
As at
Sep 2006
$m
High for
year
Sep 2006
$m
Low for
year
Sep 2006
$m
Average
year
Sep 2006
$m
18.1
9.3
2.8
(4.5)
25.7
19.6
9.6
3.4
n/a
26.7
14.0
5.7
0.9
n/a
19.0
16.1
7.5
1.6
(3.4)
21.8
12.3
6.3
1.5
(2.4)
17.7
14.8
7.6
1.7
n/a
19.3
8.7
5.7
1.1
n/a
13.7
11.5
6.5
1.5
(3.3)
16.2
VaR is calculated separately for Australia, New Zealand and Overseas Markets, as well as for the Group.
To supplement the VaR methodology, ANZ applies a wide range of stress tests, both on individual portfolios and at Group level. ANZ’s stress-
testing regime provides senior management with an assessment of the fi nancial impact of identifi ed extreme events on market risk exposures
of ANZ.
b) Scenario Analysis – A 1% Shock on the Next 12 Months’ Net Interest Income
A 1% overnight parallel positive shift in the yield curve is modelled to determine the potential impact on net interest income over the
succeeding 12 months. This is a standard risk quantifi cation tool.
The fi gures in the table below indicate the outcome of this risk measure for the current and previous fi nancial years – expressed as a percentage
of reported net interest income. The sign indicates the nature of the rate sensitivity with a positive number signifying that a rate increase is
positive for net interest income over the next 12 months. Conversely, a negative number signifi es that a rate increase is negative for the next
12 months’ net interest income.
Impact of 1% Rate Shock
As at 30 September
Maximum exposure
Minimum exposure
Average exposure (in absolute terms)
Consolidated
2007
2006
0.19%
1.78%
0.19%
1.22%
1.50%
1.85%
0.81%
1.51%
The extent of mismatching between the repricing characteristics and timing of interest bearing assets and liabilities at any point has
implications for future net interest income. On a global basis, the Group quantifi es the potential variation in future net interest income
as a result of these repricing mismatches each month using a static gap model.
The repricing gaps themselves are constructed based on contractual repricing information. However, for those assets and liabilities where the
contractual term to repricing is not considered to be refl ective of the actual interest rate sensitivity (for example, products priced at the Group’s
discretion), a profi le based on historically observed and/or anticipated rate sensitivity is used. This treatment excludes the effect of basis risk
between customer pricing and wholesale market pricing. For example, when wholesale market rates are anticipating an offi cial rate increase the
Group does not reprice certain customer business until the fi rst repricing date after the offi cial rate rise.
The majority of the Group’s non-traded interest exposure exists in Australia and New Zealand. In these centres, a separate balance sheet
simulation process supplements this static gap information. This allows the net interest income outcomes of a number of different scenarios –
with different market interest rate environments and future balance sheet structures – to be identifi ed. This better enables the Group to quantify
the interest rate risks associated with the balance sheet and to formulate strategies to manage current and future risk profi les.
Foreign currency related risks
This risk relates to the potential loss arising from the decline in the value of foreign currency positions due to changes in foreign exchange rates.
The Group’s investment of capital in non-Australian operations generates an exposure to changes in the relative value of individual currencies
against the Australian Dollar. Variations in the value of these foreign currency investments are refl ected in the foreign currency translation
reserve.
The Group incurs some non-traded foreign currency risk related to the potential repatriation of profi ts from non-Australian business units.
This risk is routinely monitored and economic hedging is conducted in accordance with policy and where it is likely to add shareholder value.
116 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
LIQUIDITY RISK
Liquidity risk is the risk that the Group has insuffi cient capacity to fund increases in assets, or is unable to meet its payment obligations as they
fall due, including repaying depositors or maturing wholesale debt.
The timing mismatch of cashfl ows and the related liquidity risk is inherent in all banking operations, and may result from internal and/or
external events, including: credit or operational risks; bank-specifi c rumours; market disruptions; or systemic shocks. The following outlines the
Group’s approach to liquidity and funding risk management. Principles include:
Ensuring the liquidity management framework is compatible with local regulatory requirements.
Daily liquidity reporting and scenario analysis to quantify the Group’s positions.
Monitoring wholesale and customer liability composition (via funding metrics).
Targeting a diversifi ed funding base, avoiding undue concentrations by investor type, maturity, market source and currency.
Holding a portfolio of high quality liquid assets to protect against short-term adverse conditions and to support day-to-day operations.
Establishing detailed contingency plans to cover different liquidity crisis events.
Supervision and Regulation
APRA supervises prudential standards for managing liquidity risk and has adopted guidelines based on the ‘Basel Committee’ “Sound Practices
for Managing Liquidity in Banking Organisations”: APS 210 - Liquidity.
APRA supervises liquidity through individual agreements with Authorised Deposit-taking Institutions (ADIs), taking into consideration the
specifi c risk characteristics of each organisations operation. APRA requires ADIs to have a comprehensive Board approved liquidity strategy
defi ning: policy, systems and procedures for measuring, assessing, reporting and managing domestic and foreign currency liquidity. This must
include a formal contingency plan for dealing with a liquidity crisis.
The Group has implemented an APRA Compliance Plan for APS 210 - Liquidity. The Plan documents methods, processes, controls and
monitoring activities required to support compliance with the Standard and assigns responsibilities for these activities.
Scenario Modelling
A key component of the Group’s liquidity management framework is scenario modelling. APRA requires ADIs to assess liquidity under at least
two specifi c scenarios
‘Going-concern’: the normal behaviour of cash fl ows in the ordinary course of business. APRA requires that the Group must be able to meet
all commitments and obligations under a going concern scenario, within the ADIs normal funding capacity, over at least the next 30 calendar
days. In estimating the funding requirement, the Group models expected cashfl ows by reference to historical behaviour and contractual
maturity data.
‘Name crisis’: refers to a potential name-specifi c liquidity crisis in which the ADI may have signifi cant diffi culty rolling over or replacing
liabilities. APRA requires the Group to be cashfl ow positive over a 5 business day period under a name crisis scenario. The Group models
expected cashfl ow behaviour under such a scenario based on the type of customer and their level of sophistication, and the type of asset/
liability.
In addition, the Group models a number of other stress tests and liquidity scenarios over a variety of time horizons, including the impact of
credit rating downgrades, and reduced access to wholesale debt in domestic and offshore markets.
Generally, it would take an extreme event to challenge the Group’s continued solvency. A more likely outcome is a period of tight liquidity,
resulting in increased funding costs. To assess these risks, the Group models and continually monitors the probability and earnings impact
of changes in the Group’s credit margin. These changes may be caused by general market factors and/or credit rating downgrades.
Customer and Wholesale Funding Composition
The Group employs actual cashfl ow based funding metrics to determine appropriate balance sheet liquidity and funding risk strategies.
These metrics are used to measure and manage the proportion of the Group’s external assets which are funded by customer liabilities,
wholesale debt, equity and loan capital.
Managing these metrics assist in ensuring that an appropriate proportion of the Group’s assets are funded by either ‘sticky’ customer liabilities;
or long-term wholesale debt funding (with a remaining term exceeding 1 year). This approach recognises that long-term wholesale debt and
other sticky liabilities have favourable liquidity characteristics thereby assisting in reducing any adverse impact or volatility caused by short-
term funding, and in monitoring the impact of deposit-gathering strategies.
Financial Report 117
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Funding Composition
Customer deposits1
Personal
Institutional
New Zealand
Other
Total customer deposits
Wholesale funding
Bonds and notes
Loan capital
Certifi cates of deposit (wholesale)
Commercial paper
Liability for acceptances
Due to other fi nancial institutions
Other wholesale borrowings2
Total wholesale funding
Total customer deposits
Total wholesale funding
Consolidated
2007
$m
2006
$m
68,119
70,099
38,334
6,127
60,135
55,314
35,940
5,371
182,679
156,760
54,075
12,784
31,903
16,914
14,536
17,986
1,570
50,050
11,126
23,248
20,750
13,435
14,118
213
149,768
132,940
182,679
149,768
156,760
132,940
332,447
289,700
1 Represents: term deposits; other deposits bearing interest; deposits not bearing interest and borrowing corporations’ debt. Excludes collateralised loan obligation and securitisation
vehicle funding.
2 Includes net derivative balances, special purpose vehicles (SPV) balances and Euro Hybrid.
Wholesale Funding
The Group’s global wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost
effi ciency while targeting diversifi cation by markets, investors, currencies, maturities and funding structures. Short-term wholesale funding
requirements, with a contractual maturity of less than one year, are managed through Group Treasury and local Markets operations.
Long-term wholesale funding is managed and executed through Group Treasury operations in Australia and New Zealand.
Maturity concentration limits and geographic diversifi cation limits have been established within the wholesale funding and liquidity
management framework. Funding instruments used to meet the wholesale borrowing requirement must be on a pre-established list
of approved products.
118 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Funding Capacity and Debt Issuance Planning
Under APRA’s going concern scenario, borrowing capacity is an estimate of the amount of funding that can be raised in the wholesale markets
in normal market conditions. The Group adopts a conservative approach to determine its funding capacity. Funding capacity limits are
determined at the Group level and allocated to individual sites based on their requirements.
The Funding Plan is ratifi ed by the Group’s Senior Management annually. The plan is supplemented by monthly updates, and is linked to
the Group’s three-year strategic planning cycle. This ensures that planned volumes are sustainable, without adversely impacting market
conditions.
During the 2007 fi nancial year, the Group issued approximately $24 billion of new long-term wholesale debt from 293 transactions with a
weighted average term to maturity of approximately 3.2 years. (During the 2006 fi nancial year, the Group issued approximately $23 billion
of new long-term wholesale debt from 149 transactions with weighted average term to maturity of approximately 3.6 years).
Liquidity Portfolio Management
The Group holds a diversifi ed portfolio of cash and high-quality highly-liquid securities to support payment obligations and contingent
funding in the event of a market disruption. The Portfolio is managed globally through the Group’s funding centres in Melbourne, Wellington,
New York and London, and is well diversifi ed by product, geography and currency.
The size of the Group’s Liquidity Portfolio is based on the amount of liquidity required to meet: day-to-day operational requirements; potential
name crisis; or potential wholesale ‘funding stress’ requirements.
Supplementing its liquidity position, the Group holds additional cash and liquid asset balances. Also, the Markets business holds secondary
sources of liquidity in the form of highly liquid instruments in its trading portfolios.
Liquidity Crisis Contingency Planning
The Group maintains APRA-endorsed liquidity crisis contingency plans defi ning an approach for analysing and responding to a liquidity-
threatening event at a country and Group-wide basis. The framework is compliant with APRA’s key liquidity contingency crisis planning
requirements and guidelines and includes:
The establishment of crisis severity/stress levels.
Clearly assigned crisis roles and responsibilities.
Early warning signals indicative of an approaching crisis, and mechanisms to monitor and report these signals.
Outlined action plans, and courses of action for altering asset and liability behaviour.
Procedures for crisis management reporting, and making up cash-fl ow shortfalls.
Guidelines determining the priority of customer relationships in the event of liquidity problems.
Assigned responsibilities for internal and external communications.
Financial Report 119
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Maturity analysis of the Group’s assets and liabilities
The tables below analyse the Group’s assets and liabilities, as required by AASB 130 ‘Disclosures in the Financial Statements of Banks
and Similar Financial Institutions’, into relevant maturity groupings based on the remaining period at balance sheet date to the contractual
maturity date.
It should be noted that this is not how the Group manages its liquidity risk. The management of this risk is detailed above.
Maturity analysis for selected assets and liabilities at 30 September 2007:
Consolidated
Assets
Due from other fi nancial institutions
Available-for-sale assets
Net loans and advances
Customers’ liabilities for acceptances
Liabilities
Due to other fi nancial institutions
Deposits and other borrowings
Bonds and notes
Loan capital
Less than1
3 months
$m
3 to 122
months
$m
1 to
5 years
$m
After
5 years
$m
No
maturity
specifi ed
$m
6,834
8,553
32,385
11,258
15,928
184,535
2,093
4
600
883
40,042
3,278
1,390
33,425
15,603
7
271
3,437
53,475
–
344
16,900
33,146
1,404
335
646
162,944
–
324
13
3,233
10,679
–
487
–
–
–
–
–
690
Maturity analysis for selected assets and liabilities at 30 September 2006:
Consolidated
Assets
Due from other fi nancial institutions
Available-for-sale assets
Net loans and advances
Customers’ liabilities for acceptances
Liabilities
Due to other fi nancial institutions
Deposits and other borrowings
Bonds and notes
Loan capital
1 Includes credit cards.
2 Includes revolving facilities.
OPERATIONAL RISK MANAGEMENT
Less than1
3 months
$m
3 to 122
months
$m
1 to
5 years
$m
After
5 years
$m
No
maturity
specifi ed
$m
8,420
5,937
24,437
13,435
13,407
165,302
662
–
820
1,773
36,192
–
659
27,094
5,633
–
372
2,338
48,788
–
10
12,383
41,984
528
53
540
146,505
–
42
15
1,771
10,197
–
65
–
–
–
–
–
401
Total
$m
8,040
14,006
288,846
14,536
17,986
234,873
54,075
12,784
Total
$m
9,665
10,653
255,922
13,435
14,118
204,794
50,050
11,126
Operational risks are the risks arising from day-to-day operational activities which may result in direct or indirect loss. These losses can result
from both internal and external events and include:
failure to comply with policies, procedures, laws and regulations;
failure in execution, dealing and process management;
fraud or forgery;
a breakdown in the availability or integrity of services, systems and information; or
damage to ANZ’s reputation.
The authority for operational risk oversight is delegated by the Board to the Board Risk Committee. The Operational Risk Executive Committee
(OREC) supports the Board Risk Committee in respect of operational risk oversight including compliance.
The key responsibilities of OREC include:
endorsing the ANZ Operational Risk Framework and approving ANZ’s Compliance Framework and operational risk policies;
monitoring the state of operational risk management and instigating any necessary corrective actions;
being notifi ed of all material actual, potential or near miss risk events for review; and
approving the strategy and approach for new and emerging risks and monitoring associated action plans.
120 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
35: Financial Risk Management (continued)
Membership of OREC comprises senior executives and OREC is chaired by the Chief Risk Offi cer.
OREC is designed to ensure that the necessary senior executive judgement and experience is applied to critical operational risk decisions
relating to the Group’s larger operational risk exposures. Extensive reporting is provided to OREC to assist in this decision making process.
Senior executive management, risk management and technical experts may be asked to attend to advise on specifi c submissions or policies.
Primary responsibility for day to day management of current, new and emerging operational risks lies with ANZ divisions/Business Units.
This is supported by an independent Operational Risk function which provides oversight, direction, the operational framework, policies and
processes.
ANZ’s Operational Risk Framework outlines the approach to managing operational risk and specifi cally covers the core minimum requirements
that divisions/business units must undertake in the management of operational risk.
The operational risk management process adopted by ANZ consists of a staged approach involving establishing the context, identifi cation,
analysis, treatment and monitoring of current, new and emerging operational risks. This is based on the Risk Management Standard issued by
Standards Australia/New Zealand (AS/NZS 4360).
ANZ’s Operational Risk Framework is supported by a number of operational risk policies and procedures with the effectiveness of the
framework assessed through a series of assurance reviews and processes. This is supported by an independent review program by Internal
Audit.
ANZ employs the “Risk Drivers and Controls Approach” (RDCA), underpinned by a statistical quantifi cation model to measure the level of
operational risk and to determine and allocate operational risk capital.
The RDCA is effectively a system, which:
assesses the level of ANZ’s exposure to specifi ed drivers of risk;
assesses the scope and quality of ANZ’s internal control environment, key operational processes and risk mitigants; and
directly links these assessments to Operational Risk Capital
The approach requires completion of a set of scorecards by business units on a half yearly basis. The scorecards provide an assessment of the
‘riskiness’ of the business unit’s activities for specifi c operational risk categories.
ANZ’s business continuity and crisis management capabilities continue to be reviewed, tested and, where necessary, strengthened in
response to new and emerging threats.
Business Continuity is viewed as a critical management responsibility within the overall operational risk framework, which seeks to minimise
the likelihood of a disruption to normal operations, constrain the impact were an event to occur and achieve effi cient and effective recovery.
Crisis Management planning at Group and Country levels supplements Business Continuity Plans in the event of a broader Group or Country
crisis. Crisis Management plans include crisis team structures, roles, responsibilities and contact lists, and are subject to testing.
Financial Report 121
NOTES TO THE FINA NCIAL STATEMENTS
36: Interest Rate Risk
The Group has an exposure to the effects of fl uctuations in market interest rates on both cashfl ow and fair value risks associated with its
fi nancial assets and liabilities. Interest margins are impacted as a result of such changes and there are Group strategies in place to manage
these risks.
The tables following summarises the Group’s exposure to interest rate risks as at 30 September 2007 and 30 September 2006.
The tables show the interest rate sensitivity (or repricing profi le) of the Group’s fi nancial assets and liabilities based on the earlier of contractual
maturity or repricing.
Repricing gaps are based upon the earliest of contractual repricing or maturity dates except where the contractual terms are not considered to
be refl ective of actual interest rate sensitivity (eg. those assets and liabilities priced at the Group’s discretion). In such cases, the rate sensitivity
is based upon historically observed and/or anticipated rate sensitivity.
Repricing gaps arise from mismatches in the period to repricing of assets and that of the corresponding liability funding. These mismatches
are managed within policy guidelines for mismatch positions which have been approved by the Board.
The majority of the Group’s loan/deposit business is conducted in the domestic balance sheets of Australia and New Zealand and is priced
on a fl oating rate basis. The mix of repricing maturities in these books is infl uenced by the underlying fi nancial needs of customers.
Offshore operations, which are generally wholesale in nature, are able to minimise interest rate sensitivity through closely matching the
maturity of loans and deposits. Given both the size and nature of their business, the interest rate sensitivities of these balance sheets
contribute little to the aggregate risk exposure, which is primarily a refl ection of the positions in Australia and New Zealand.
In Australia and New Zealand, a combination of pricing initiatives and derivatives is used in the management of interest rate risk. For example,
where a strong long term rate view is held, hedging and pricing strategies are used to modify the profi le’s rate sensitivity so that it is positioned
to take advantage of the expected movement in interest rates. However, such positions are taken within the overall risk limits specifi ed
by policy.
The objectives and policies in managing the interest risks are also covered under note 35 ‘Financial Risk Management’, under the heading
‘Market Risk’.
At 30 September 2007
Liquid assets and due from other fi nancial institutions
Trading and available-for-sale assets
Derivative fi nancial instruments
Net loans and advances
Other assets1
Less than
3 months
$m
21,609
20,110
–
197,220
14,387
Between 3
months and
6 months
$m
Between 6
months and
12 months
$m
1,905
2,823
–
10,323
22
59
330
–
16,894
86
Between
1 year and
5 years
$m
157
3,918
–
63,417
167
After
5 years
$m
72
1,703
–
992
96
Not
bearing
interest
$m
1,225
289
22,237
–
12,572
Total
$m
25,027
29,173
22,237
288,846
27,330
Total assets
253,326
15,073
17,369
67,659
2,863
36,323
392,613
Certifi cates of deposit and term deposits
Other deposits
Other borrowings and due to other fi nancial institutions
Derivative fi nancial instruments
Other liabilities1
Bonds, notes and loan capital
71,968
86,899
31,128
–
17,869
39,128
14,291
1,022
3,991
–
67
534
9,925
1,633
3,823
–
6
2,075
5,287
5,335
4,518
–
254
21,532
24
–
884
–
97
3,590
8
10,792
1,331
24,180
8,374
–
101,503
105,681
45,675
24,180
26,667
66,859
Total liabilities
246,992
19,905
17,462
36,926
4,595
44,685
370,565
Total equity
Derivative items affecting interest rate sensitivity
–
(40,805)
–
52,111
–
276
–
(13,800)
–
2,218
22,048
–
22,048
–
Interest sensitivity gap
– net
– cumulative
(34,471)
(34,471)
47,279
12,808
183
12,991
16,933
29,924
486
30,410
(30,410)
–
–
–
1 Customers’ liability for acceptances are classified as interest earning assets in line with AAS.
122 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
36: Interest Rate Risk (continued)
At 30 September 2006
Liquid assets and due from other fi nancial institutions
Trading securities and available-for-sale assets
Derivative fi nancial instruments
Net loans and advances
Other assets1
Less than
3 months
$m
21,572
11,493
–
177,049
13,891
Between 3
months and
6 months
$m
Between 6
months and
12 months
$m
Between
1 years and
5 years
$m
1,121
1,874
–
9,248
34
175
697
–
14,325
57
200
4,051
–
54,223
357
After
5 years
$m
–
1,697
–
1,077
50
Not
bearing
interest
$m
1,616
20
9,164
–
10,649
Total
$m
24,684
19,832
9,164
255,922
25,038
Total assets
224,005
12,277
15,254
58,831
2,824
21,449
334,640
Certifi cates of deposit and term deposits
Other deposits
Other borrowings and due to other fi nancial institutions
Derivative fi nancial instruments
Other liabilities
Bonds, notes and loan capital
58,227
71,710
31,808
–
17,230
35,858
11,209
776
4,994
–
3
1,961
6,985
1,556
3,874
–
3
1,014
6,142
5,025
3,996
–
658
19,850
25
1
875
–
291
2,493
20
10,718
971
8,753
7,708
–
82,608
89,786
46,518
8,753
25,893
61,176
Total liabilities
214,833
18,943
13,432
35,671
3,685
28,170
314,734
Total equity
Derivative items affecting interest rate sensistivity
–
(563)
–
8,896
–
596
–
(10,789)
–
1,860
19,906
–
19,906
–
Interest sensitivity gap
– net
– cumulative
8,609
8,609
2,230
10,839
2,418
13,257
12,371
25,628
999
26,627
(26,627)
–
–
–
1 Customers’ liability for acceptances are classified as interest earning assets in line with AAS.
37: Fair Value of Financial Assets and Financial Liabilities
All fi nancial instruments are recognised initially at fair value, which is the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm’s length transaction.
The fair value of a fi nancial instrument on initial recognition is normally the transaction price, however, in certain circumstances the initial fair
value may be based on other observable current market transactions in the same instrument, without modifi cation or repackaging, or on a
valuation technique whose variables include only data from observable markets. For the majority of short-term fi nancial instruments, defi ned
as those which reprice or mature in 90 days or less, with no signifi cant change in credit risk, the fair value was assumed to equate to the
carrying amount in the Group’s balance sheet.
Subsequent to initial recognition, the fair value of fi nancial instruments measured at fair value is based on quoted market prices, where
available. In cases where quoted market prices are not available, fair values are based on present value estimates or other market accepted
valuation techniques which include data from observable markets wherever possible.
For certain instruments the fair value cannot be determined in whole with reference to current market transactions or valuation techniques
whose variables only include data from observable markets. In respect of the valuation component where market observable data is not
available, the fair value is determined using valuation techniques based on data derived and extrapolated from market data. Where fair value
is determined based on a valuation technique whose valuation is dependant on unobservable data that may have a signifi cant impact on
the valuation of the instrument any difference between the transaction price and the amount determined based on the valuation technique
(day one gain or loss) arising on initial recognition of the fi nancial instrument is deferred on the balance sheet. The day one gain or loss is
recognised in the income statement only to the extent that it arises from a change in factors (including time) that a market participant would
consider in setting the price for the instrument.
The fair value recorded in the fi nancial statements for these instruments is the sum of:
the value given by application of a valuation model, based on the best estimate of the most appropriate model inputs which market
participants would use in setting prices for the instrument;
any fair value adjustments to account for any market features not included within the valuation model (for example, bid-mid spreads,
counterparty credit spreads and/or market data uncertainty); and
unamortised day one gain or loss not recognised immediately in the income statement.
The fair values are based on relevant information available as at the respective balance sheet dates. While judgement is used in obtaining the
fair value of fi nancial instruments, there are inherent weaknesses in any estimation technique. Many of the estimates involve uncertainties and
matters of signifi cant judgement and changes in underlying assumptions could signifi cantly affect these estimates.
The fair value amounts have not been updated for the purposes of these fi nancial statements since 30 September 2007, and therefore the fair
value of the fi nancial instruments subsequent to 30 September 2007 may be different from the amounts reported.
Financial Report 123
NOTES TO THE FINA NCIAL STATEMENTS
37: Fair Value of Financial Assets and Financial Liabilities (continued)
In the tables below, classes of fi nancial assets have been allocated into the following groups: amortised cost, fi nancial assets at fair value
through profi t or loss, derivatives in effective hedging relationships and available-for-sale fi nancial assets. Similarly, each class of fi nancial
liability has been allocated into three groups: amortised cost, fi nancial liabilities at fair value through profi t and loss and derivatives in effective
hedging relationships.
The signifi cant accounting policies in note 1 describe how the categories of fi nancial assets and fi nancial liabilities are measured and how
income and expenses, including fair value gains and losses, are recognised. The carrying amount and fair value of the Group’s fi nancial assets
and fi nancial liabilities are set out below.
A signifi cant number of fi nancial instruments are carried at fair value in the balance sheet. Additional disclosure of the fair value of those
fi nancial instruments not carried at fair value has been provided below. The fair value disclosure does not cover those instruments that are not
considered fi nancial instruments from an accounting perspective such as income tax and intangible assets. The aggregate fair value amounts
do not represent the underlying value of the Group.
At amortised cost
At fair value through profi t or loss
Hedging
Available- for-
sale assets
Carrying amount
Consolidated at
30 September 2007
Financial assets
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other fi nancial assets
Loans and
receivables
$m
Other fi nancial
assets at
amortised cost
$m
–
8,040
–
–
–
288,721
14,536
3,510
16,987
–
–
–
–
–
–
–
Sub-total
$m
16,987
8,040
–
–
–
288,721
14,536
3,510
Total fi nancial assets
314,807
16,987
331,794
Designated
on initial
recognition
$m
–
–
–
–
–
125
–
–
125
Held for Trading
$m
Sub-total
$m
$m
$m
–
–
15,167
20,896
–
–
–
–
–
–
15,167
20,896
–
125
–
–
–
–
–
1,341
–
–
–
–
–
–
–
–
14,006
–
–
–
Total
$m
16,987
8,040
15,167
22,237
14,006
288,846
14,536
3,510
36,063
36,188
1,341
14,006
383,329
At amortised cost
At fair value through profi t or loss
Hedging
Available-
for-sale
assets
Fair value
Consolidated at
30 September 2007
Financial assets
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other fi nancial assets
Loans and
receivables
$m
Other fi nancial
assets at
amortised cost
$m
–
8,040
–
–
–
288,066
14,536
3,510
16,987
–
–
–
–
–
–
–
Sub-total
$m
16,987
8,040
–
–
–
288,066
14,536
3,510
Total fi nancial assets
314,152
16,987
331,139
–
–
–
–
–
125
–
–
125
Designated
on initial
recognition
$m
Held for
Trading
$m
Sub-total
$m
$m
$m
–
–
15,167
20,896
–
–
–
–
–
–
15,167
20,896
–
125
–
–
–
–
–
1,341
–
–
–
–
–
–
–
–
14,006
–
–
–
36,063
36,188
1,341
14,006
382,674
Total
$m
16,987
8,040
15,167
22,237
14,006
288,191
14,536
3,510
1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
124 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
37: Fair Value of Financial Assets and Financial Liabilities (continued)
Consolidated at
30 September 2006
Financial assets
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other fi nancial assets
At amortised cost
Other
fi nancial
assets at
amortised
cost
$m
15,019
–
–
–
–
–
–
–
Sub-total
$m
15,019
9,665
–
–
–
255,922
13,435
3,596
Loans and
receivables
$m
–
9,665
–
–
–
255,922
13,435
3,596
Total fi nancial assets
282,618
15,019
297,637
17,803
Consolidated at
30 September 2006
Financial assets
Liquid assets
Due from other fi nancial institutions
Trading securities
Derivative fi nancial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other fi nancial assets
At amortised cost
Other
fi nancial
assets at
amortised
cost
$m
15,019
–
–
–
–
–
–
–
Sub-total
$m
15,019
9,665
–
–
–
255,688
13,435
3,596
Loans and
receivables
$m
–
9,665
–
–
–
255,688
13,435
3,596
Carrying amount
At fair value
through profi t
or loss
Available-
for-sale
assets
Hedging
Fair value
At fair value
through profi t
or loss
Available-
for-sale
assets
Hedging
Held for
Trading
$m
–
–
9,179
8,624
–
–
–
–
Held for
Trading
$m
–
–
9,179
8,624
–
–
–
–
$m
$m
Total
$m
–
–
–
540
–
–
–
–
540
–
–
–
–
10,653
–
–
–
15,019
9,665
9,179
9,164
10,653
255,922
13,435
3,596
10,653
326,633
$m
$m
Total
$m
–
–
–
540
–
–
–
–
540
–
–
–
–
10,653
–
–
–
15,019
9,665
9,179
9,164
10,653
255,688
13,435
3,596
10,653
326,399
Total fi nancial assets
282,384
15,019
297,403
17,803
1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial assets within loans and advances. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
LIQUID ASSETS AND DUE FROM/TO OTHER
FINANCIAL INSTITUTIONS
The carrying values of these fi nancial
instruments are considered to approximate
their net fair values as they are short-term in
nature or are receivable on demand.
TRADING SECURITIES
Trading securities are carried at fair
value. Fair value is generally based on
quoted market prices, broker or dealer
price quotations, or prices for securities
with similar credit risk, maturity and yield
characteristics.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair values of derivative fi nancial
instruments are determined using market
prices and market accepted valuation
models as appropriate (including discounted
cash fl ow models) based on current market
yields for similar types of instruments and
the maturity of each instrument
AVAILABLE-FOR-SALE ASSETS
Fair value is based on quoted market prices
or broker or dealer price quotations. If this
information is not available, fair value is
estimated using quoted market prices for
securities with similar credit, maturity and
yield characteristics, or market accepted
valuation models as appropriate (including
discounted cash fl ow models) based on
current market yields for similar types
of instruments and the maturity of each
instrument.
Financial Report 125
NOTES TO THE FINA NCIAL STATEMENTS
37: Fair Value of Financial Assets and Financial Liabilities (continued)
NET LOANS AND ADVANCES AND
ACCEPTANCES
The carrying value of loans and advances
and acceptances includes deferred fees and
expenses, and is net of provision for credit
impairment and income yet to mature. The
estimated fair value of loans, advances and
acceptances is based on the discounted
amount of estimated future cash fl ows
and accordingly has not been adjusted for
provision for credit impairment. Estimated
contractual cash fl ows for performing loans
are discounted at estimated current bank
credit spreads to determine fair value. For
loans with doubt as to collection, expected
cash fl ows (inclusive of the value of security)
are discounted using a rate, which includes
a premium for the uncertainty of the fl ows.
The difference between estimated fair values
for loans and advances and acceptances
and their carrying value refl ects changes in
interest rates and the credit worthiness of
borrowers since loan origination.
Consolidated at
30 September 2007
Financial liabilities
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
Total fi nancial liabilities
Consolidated at
30 September 2007
Financial liabilities
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
Total fi nancial liabilities
OTHER FINANCIAL ASSETS
Included in this category are accrued interest
and fees receivable. The carrying values of
accrued interest and fees receivable are
considered to approximate their net fair
values as they are short term in nature or are
receivable on demand.
The change in fair value of the designated
fi nancial assets attributable to changes
in credit risk has been calculated by
determining the change in credit rating
and credit spread implicit in the loans and
advances issued by entities with similar
credit characteristics.
FINANCIAL ASSETS DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
The category loans and advances includes
certain loans designated at fair value
through profi t or loss. At balance date, the
credit exposure on these assets was $125
million (2006: nil). Of this, $68 million
(2006: nil) was mitigated by collateral held.
The cumulative change in fair value
attributable to change in credit risk was a
reduction to the assets of $1 million (2006:
nil). The amount recognised in the income
statement attributable to changes in credit
risk was a loss of $1 million (2006: nil).
At amortised cost
At fair value through profi t or loss
Hedging
Total
Carrying Amount
$m
17,986
–
226,738
14,536
49,079
10,524
10,079
328,942
Designated
on initial
recognition
$m
–
–
8,135
–
4,996
2,260
–
Held for
Trading
$m
–
23,186
–
–
–
–
–
Sub-total
$m
–
23,186
8,135
–
4,996
2,260
–
$m
$m
–
994
–
–
–
–
–
17,986
24,180
234,873
14,536
54,075
12,784
10,079
15,391
23,186
38,577
994
368,513
At amortised cost
At fair value through profi t or loss
Hedging
Total
Fair value
$m
17,986
–
226,692
14,536
49,061
10,506
10,079
328,860
Designated
on initial
recognition
$m
–
–
8,135
–
4,996
2,260
–
Held for
Trading
$m
–
23,186
–
–
–
–
–
Sub-total
$m
–
23,186
8,135
–
4,996
2,260
–
$m
$m
–
994
–
–
–
–
–
17,986
24,180
234,827
14,536
54,057
12,766
10,079
15,391
23,186
38,577
994
368,431
1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
126 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
37: Fair Value of Financial Assets and Financial Liabilities (continued)
Consolidated at
30 September 2006
Financial liabilities
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
Total fi nancial liabilities
Consolidated at
30 September 2006
Financial liabilities
Due to other fi nancial institutions
Derivative fi nancial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
Total fi nancial liabilities
At amortised cost
At fair value through profi t or loss
Hedging
Total
Carrying Amount
Designated
on initial
recognition
$m
Held for
Trading
$m
Sub-total
$m
–
–
6,015
–
3,611
2,778
–
–
8,329
–
–
–
–
–
–
8,329
6,015
–
3,611
2,778
–
12,404
8,329
20,733
$m
$m
–
424
–
–
–
–
–
424
14,118
8,753
204,794
13,435
50,050
11,126
10,108
312,384
$m
14,118
–
198,779
13,435
46,439
8,348
10,108
291,227
At amortised cost
At fair value through profi t or loss
Hedging
Total
Fair value
Designated
on initial
recognition
$m
Held for
Trading
$m
Sub-total
$m
–
–
6,015
–
3,611
2,778
–
–
8,329
–
–
–
–
–
–
8,329
6,015
–
3,611
2,778
–
12,404
8,329
20,733
$m
$m
–
424
–
–
–
–
–
424
14,118
8,753
204,791
13,435
50,051
11,122
10,108
312,378
$m
14,118
–
198,776
13,435
46,440
8,344
10,108
291,221
1 Derivative financial instruments classified as ‘held for trading’ include derivatives entered into as economic hedges which are not designated as accounting hedges.
2 Fair value hedging is applied to financial liabilities within bonds and notes and loan capital. The resulting fair value adjustments mean that the carrying value differs from the amortised cost.
Financial Report 127
NOTES TO THE FINA NCIAL STATEMENTS
37: Fair Value of Financial Assets and Financial Liabilities (continued)
DEPOSITS AND OTHER BORROWINGS
The fair value of a deposit liability without
a specifi ed maturity or at call is deemed to
be the amount payable on demand at the
reporting date. The fair value is not adjusted
for any value expected to be derived from
retaining the deposit for a future period of
time.
For interest bearing fi xed maturity deposits
and other borrowings and acceptances
without quoted market prices, market
borrowing rates of interest for debt with
a similar maturity are used to discount
contractual cash fl ows.
BONDS AND NOTES AND LOAN CAPITAL
The aggregate fair value of bonds and
notes and loan capital is calculated based
on quoted market prices. For those debt
issues where quoted market prices were
not available, a discounted cash fl ow
model using a yield curve appropriate for
the remaining term to maturity of the debt
instrument is used.
PAYABLES AND OTHER FINANCIAL LIABILITIES
This category includes accrued interest and
fees payable for which the carrying amount
is considered to approximate the fair value.
COMMITMENTS AND CONTINGENCIES
As outlined in note 45, the Group has
various credit related commitments. Based
upon the level of fees currently charged for
granting such commitments, taking into
account maturity and interest rates, together
with any changes in the creditworthiness
of counterparties since origination of the
commitments, their estimated replacement
or net fair value is not material.
FINANCIAL LIABILITIES DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
Parts of loan capital, bonds and notes
and deposits and other borrowings have
been designated as fi nancial liabilities at
fair value through profi t or loss in order to
eliminate an accounting mismatch which
would arise if the liabilities were otherwise
carried at amortised cost.
Deposits and other borrowings
At balance date, the carrying amount of
deposits and other borrowings designated at
fair value through profi t or loss was $8,135
million (2006: $6,015 million). This is $74
million (2006: $92 million) lower than the
contractual amount payable to the holder
at maturity. The accumulated amount of the
change in fair value attributable to changes
in credit risk on these liabilities was less
than $1 million (2006: less than $1 million).
Bonds and notes
At balance date, the carrying amount of
bonds and notes designated at fair value
through profi t or loss was $4,996 million
(2006: $3,611 million). This is $2 million
(2006: $43 million) higher than the
contractual amount payable to the holder
at maturity. The accumulated amount of
the change in fair value attributable to
changes in credit risk on these liabilities
was a decrease in the liability of $31
million (2006: a decrease in the liability
of $2 million). During the year a gain of
$29 million (2006: loss of $1 million) was
recognised from the change in credit risk
associated with bonds and notes.
Loan capital
At balance date, the carrying amount of
loan capital designated at fair value through
profi t or loss was $2,260 million (2006:
$2,778 million). This is $5 million (2006:
$67 million) higher than the contractual
amount payable to the holder at maturity.
The accumulated amount of the change in
fair value attributable to changes in credit
risk on these liabilities was an increase
in the liability of $12 million (2006: an
increase in the liability of $29 million).
During the year a gain of $17 million (2006:
gain of $4 million) was recognised from the
change in credit risk associated with loan
capital.
For each of loan capital, bonds and notes
and deposits and other borrowings, the
change in fair value attributable to changes
in credit risk has been determined as the
amount of change in fair value that is not
attributable to changes in market conditions
that give rise to market risks (benchmark
interest rate, and foreign exchange rates).
128 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
38: Segment Analysis
For management purposes the Group is organised into three major business segments being Personal, Institutional and New Zealand Business.
An expanded description of the principal activities for each of the business segments is contained in the Glossary on pages 170 to 171.
A summarised description of each business segment is shown below:
Personal
Provides:
Rural Commercial & Agribusiness Products, Small Business Banking Products, Banking
Products, Consumer Finance, Investment and Insurance Products, Mortgages and other
(including the branch network) in Australia;
Retail banking services in the Pacifi c region; and
Vehicle and equipment fi nance, rental services and fi xed and at call investments.
Institutional
Provides:
A full range of fi nancial services to the Group’s business banking, corporate and institutional
customers including Corporate Finance, Business Banking, Markets and Working Capital.
New Zealand Businesses
Provides:
A full range of banking services for personal, small business and corporate customers
in New Zealand.
Including ANZ Retail, NBNZ Retail, Corporate and Commercial Banking, Investment Insurance
Products, Private Banking, Rural Banking and Central Support.
As the composition of segments was amended during the year, September 2006 comparatives have been adjusted to be consistent with the
2007 segment defi nitions.
BUSINESS SEGMENT ANALYSIS1, 2
Consolidated
Year ended 30 September 2007
External interest income
External interest expense
Adjust for intersegment interest
Net interest income
Other external operating income
Share of net profi t of equity accounted investments
Segment revenue
Other external expenses
Net intersegment (income)/expenses
Operating expenses
Provision for credit impairment
Segment result
Income tax expense
Minority interests
Profi t after income tax attributable to shareholders of the company
Capital expenditure
Non-Cash Expenses
Depreciation & amortisation
Equity-settled share-based payment expenses
Provision for credit impairment
Provisions for employee entitlements
Provision for restructuring
Financial Position
Total external assets4
Share of associate and joint venture companies
Total external liabilities5
Goodwill
Intangibles
Personal
$m
Institutional
$m
New
Zealand
Businesses
$m
11,047
(3,275)
(4,490)
3,282
1,407
4
4,693
(1,894)
(346)
(2,240)
(393)
2,060
(616)
(2)
1,442
60
(132)
(21)
(393)
(25)
(10)
8,982
(6,396)
(611)
1,975
1,511
16
3,502
(1,070)
(308)
(1,378)
(69)
2,055
(604)
(3)
1,448
32
(37)
(25)
(69)
(17)
(9)
5,879
(3,539)
(674)
1,666
487
20
2,173
(1,023)
(11)
(1,034)
(69)
1,070
(344)
–
726
36
(39)
(11)
(69)
(55)
(2)
Other3
$m
Consolidated
total
$m
302
(5,698)
5,775
379
419
219
26,210
(18,908)
–
7,302
3,824
259
1,017
11,385
(966)
665
(301)
(36)
680
(114)
(2)
564
285
(107)
(5)
(36)
(24)
(22)
(4,953)
–
(4,953)
(567)
5,865
(1,678)
(7)
4,180
413
(315)
(62)
(567)
(121)
(43)
153,488
16
74,942
307
319
156,516
177
143,623
4
136
71,284
181
58,506
20
22
11,212
3,056
92,891
2,795
74
392,500
3,430
369,962
3,126
551
1 Results are equity standardised.
2 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3 Includes INGA & Private Bank, Treasury, Operations, Technology & Shared Services, Corporate Centre, Group Risk Management, Group Financial Management and significant items.
Also includes the London headquartered project finance and certain structured finance transactions that ANZ has exited as part of its de-risking strategy.
4 Excludes deferred tax assets.
5 Excludes income tax liabilities.
Financial Report 129
NOTES TO THE FINA NCIAL STATEMENTS
38: Segment Analysis (continued)
The following analysis details fi nancial information by business segment.
BUSINESS SEGMENT ANALYSIS1, 2
Consolidated
Year ended 30 September 2006
External interest income
External interest expense
Adjust for intersegment interest
Net interest income
Other external operating income
Share of net profi t of equity accounted investments
Segment revenue
Other external expenses
Net intersegment expenses
Operating expenses
Provision for credit impairment
Segment result
Income tax expense
Minority interests
Profi t after income tax attributable to the shareholders
of the Company
Capital expenditure
Non-Cash Expenses
Depreciation & amortisation
Equity-settled share-based payment expenses
Provision for credit impairment
Provisions for employee entitlements
Provision for restructuring
Financial Position
Total external assets4
Share of associate and joint venture entities
Total external liabilities5
Goodwill
Intangibles
Personal
$m
Institutional
$m
9,344
(2,669)
(3,658)
3,017
1,159
7
4,183
(1,766)
(315)
(2,081)
(336)
1,766
(526)
(1)
1,239
57
(126)
(25)
(336)
(22)
(15)
7,595
(4,894)
(686)
2,015
1,226
15
3,256
(955)
(301)
(1,256)
(58)
1,942
(576)
(3)
1,363
10
(23)
(28)
(58)
(13)
(23)
New
Zealand
Business
$m
5,070
(3,122)
(441)
1,507
461
20
1,988
(982)
(5)
(987)
(4)
997
(322)
–
675
47
(43)
(9)
(4)
(51)
(1)
Other3
$m
Consolidated
total
$m
292
(4,673)
4,785
404
169
152
725
(828)
621
(207)
(9)
509
(98)
–
411
136
(100)
(14)
(9)
(9)
(12)
22,301
(15,358)
–
6,943
3,015
194
10,152
(4,531)
–
(4,531)
(407)
5,214
(1,522)
(4)
3,688
250
(292)
(76)
(407)
(95)
(51)
136,915
22
67,151
33
269
118,996
152
107,913
–
92
63,717
164
52,330
20
19
14,759
1,862
86,518
2,847
57
334,387
2,200
313,912
2,900
437
1 Results are equity standardised.
2 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
3 Includes Partnerships & Private Bank, Treasury, Operations, Technology & Shared Services, Corporate Centre, Group Risk Management and Group Financial Management and significant items.
Also includes the London headquartered project finance and certain structured finance transactions that ANZ has exited as part of its de-risking strategy.
4 Excludes deferred tax assets.
5 Excludes income tax liabilities.
130 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
38: Segment Analysis (continued)
The following analysis details fi nancial information by geographic location.
GEOGRAPHIC SEGMENT ANALYSIS1, 2
Consolidated
Income
Australia
New Zealand
Overseas Markets
Total assets3
Australia
New Zealand
Overseas Markets
Capital Expenditure
Australia
New Zealand
Overseas Markets
1 Intersegment transfers are accounted for and determined on an arm’s length or cost recovery basis.
2 The geographic segments represent the locations in which the transaction was booked.
3 Excludes deferred tax assets.
2007
2006
$m
%
$m
%
20,180
8,092
2,021
30,293
272,968
91,033
28,499
392,500
326
36
51
413
66%
27%
7%
100%
70%
23%
7%
100%
79%
9%
12%
100%
16,861
6,962
1,687
25,510
229,973
82,772
21,642
334,387
171
47
32
250
66%
27%
7%
100%
69%
25%
6%
100%
68%
19%
13%
100%
Financial Report 131
NOTES TO THE FINA NCIAL STATEMENTS
39: Notes to the Cash Flow Statements
a) Reconciliation of net profi t after income tax to net cash provided by operating activities
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
Infl ows
(Outfl ows)
Infl ows
(Outfl ows)
Infl ows
(Outfl ows)
Infl ows
(Outfl ows)
Operating profi t after income tax attributable to shareholders of the Company
4,180
3,688
3,551
3,174
Adjustments to reconcile operating profi t after income tax
to net cash provided by/(used in) operating activities
Provision for credit impairment
Depreciation and amortisation
Profi t on sale of Businesses
Provision for employee entitlements, restructuring and other provisions
Payments from provisions
(Profi t)/loss on sale of premises and equipment
(Profi t)/loss on sale of available-for-sale assets
Share based payments
Net (increase)/decrease in operating assets
Trading securities
Liquid assets greater than three months
Due from other banks-more than 90 days
Loans and advances
Net intra-group loans and advances
Regulatory deposits
Interest receivable
Accrued income
Net tax assets
Amortisation of discounts/premiums included in investing activities
Net (decrease)/increase in operating liabilities
Deposits and other borrowings
Due to other fi nancial institutions
Payables and other liabilities
Interest payable
Accrued expenses
Other
Total adjustments
Net cash (used in)/provided by operating activities
567
309
(234)
336
(307)
(33)
(14)
7
(7,325)
(1,641)
(410)
(37,403)
–
(54)
(56)
(23)
(203)
(80)
33,964
4,326
(91)
367
23
(242)
407
292
–
250
(223)
4
(8)
31
(1,681)
(1,300)
1,318
(26,848)
–
(42)
(119)
(24)
297
(151)
16,129
1,859
541
482
10
(67)
(8,217)
(8,843)
(4,037)
(5,155)
388
242
(39)
286
(245)
4
(4)
7
(6,894)
(1,865)
(195)
(27,739)
(10,305)
(31)
(3)
(38)
(565)
–
34,585
3,050
(11)
206
25
(144)
(9,285)
(5,734)
278
223
–
106
(83)
5
(7)
31
(182)
(441)
177
(18,732)
66
(17)
4
(27)
32
–
14,736
2,462
1,221
830
13
563
1,258
4,432
b) Reconciliation of cash and cash equivalents
Cash and cash equivalents include liquid assets and amounts due from other fi nancial institutions with an original term to maturity of less than 90
days. Cash and cash equivalents at the end of the fi nancial year as shown in the statements of cash fl ows are reconciled to the related items in the
statements of fi nancial position as follows:
Liquid assets – less than 90 days (refer note 9)
Due from other fi nancial institutions – less than 90 days (refer note 10)
Consolidated
2007
$m
2006
$m
12,307
6,767
11,633
8,711
The Company
2007
$m
6,701
5,339
2006
$m
8,050
5,520
Cash and cash equivalents in the statement of cashfl ows
19,074
20,344
12,040
13,570
132 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
39: Notes to the Cash Flow Statements (continued)
c) Acquisitions and disposals
Cash outfl ows from acquisitions
Purchases of controlled entities (note 18)
Purchases of interest in associates and joint ventures
Cash infl ows from disposals
Disposals of controlled entities (note 18)
Disposals of associates and joint ventures
No material acquisitions and disposals have occured in 2006.
d) Non-cash fi nancing and investing activities
Share capital issues
Dividend reinvestment plans
e) Financing arrangements
Credit standby arrangements
Standby Lines
Other fi nancing arrangements
Overdraft and other fi nancing arrangements
Total fi nance available
Consolidated
The Company
2007
$m
203
1,247
1,450
377
67
444
2006
$m
–
289
289
–
14
14
2007
$m
177
372
549
–
67
67
2006
$m
–
230
230
–
10
10
442
165
442
165
2007
2006
Available
$m
Unused
$m
Available
$m
Unused
$m
192
3,429
3,621
184
727
911
827
3,466
4,293
821
985
1,806
Financial Report 133
NOTES TO THE FINA NCIAL STATEMENTS
40: Controlled Entities
Ultimate parent of the Group
Australia and New Zealand Banking Group Limited
All controlled entities are 100% owned unless otherwise noted.
The material controlled entities of the Group are:
Amerika Samoa Bank
ANZ Capel Court Limited
ANZ Capital Funding Pty Ltd
ANZ Capital Hedging Pty Ltd
ANZ Commodity Trading Pty Ltd
ANZcover Insurance Pty Ltd
ANZ Trustees Limited
ANZ Funds Pty Ltd
ANZ Bank (Europe) Limited*
ANZ Bank (Samoa) Limited*
ANZ Holdings (New Zealand) Limited*
ANZ National Bank Limited*
ANZ Investment Services (New Zealand) Limited*
ANZ National (Int’l) Limited*
Arawata Finance Limited*
Arawata Holdings Limited*
Harcourt Corporation Limited*
Airlie Investments Limited*
Nerine Finance No. 21
Arawata Trust Company*
Arawata Trust*
Endeavour Finance Limited*
Tui Endeavour Limited*
National Bank of New Zealand Custodians Limited*
Alos Holdings Limited*
NBNZ Holdings Ltd*
Private Nominees Limited*
UDC Finance Limited*
ANZ International (Hong Kong) Limited*
ANZ Asia Limited*
ANZ Bank (Vanuatu) Limited*
ANZ International Private Limited*
ANZ Singapore Limited*
ANZ Online Holdings Pty Ltd
ETRADE Australia Limited
ANZ Royal Bank (Cambodia) Limited*1
Bank of Kiribati Ltd*1
LFD Limited
Minerva Holdings Limited*
Upspring Limited*
ANZ Investment Holdings Pty Ltd
530 Collins Street Property Trust
ANZ Lenders Mortgage Insurance Pty Limited
ANZ Nominees Limited
ANZ Orchard Investments Pty Ltd
Australia and New Zealand Banking Group (PNG) Limited*
Citizens Bancorp Inc
Citizens Security Bank (Guam) Inc
Coral Finance Limited1
Esanda Finance Corporation Limited
Kingfi sher Trust 2004-1G1
Omeros II Trust1
PT ANZ Panin Bank*1
ANZ Vientiane Commercial Bank Limited*1
Incorporated in
Nature of Business
Australia
Banking
American Samoa
Australia
Australia
Australia
Australia
Australia
Australia
Australia
England
Samoa
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Hong Kong
Hong Kong
Vanuatu
Singapore
Singapore
Australia
Australia
Cambodia
Kiribati
Australia
England
England
Australia
Australia
Australia
Australia
Australia
Papua New Guinea
Guam
Guam
England
Australia
Australia
Australia
Indonesia
Laos
Banking
Investment Banking
Funding
Hedging
Finance
Captive-Insurance
Trustee/Nominee
Investment
Banking
Banking
Holding Company
Banking
Fund Manager
Finance
Finance
Holding Company
Investment
Investment
Finance
Finance
Finance
Finance
Finance
Custodians
Finance
Holding Company
Nominee
Finance
Holding Company
Banking
Banking
Holding Company
Merchant Banking
Holding Company
Online Stockbroking
Banking
Banking
Holding Company
Holding Company
Finance
Holding Company
Investment
Mortgage Insurance
Nominee
Holding Company
Banking
Holding Company
Banking
Securitisation
General Finance
Securitisation
Securitisation
Banking
Banking
* Audited by overseas KPMG firms.
1 Minority interests hold ordinary shares or units in the controlled entities listed above as follows: Bank of Kiribati Ltd - 150,000 $1 ordinary shares (25%) (2006 : 150,000 $1 ordinary shares
(25%); PT ANZ Panin Bank – 7,500 IDR 1 million shares (15%) (2006: 7,500 IDR 1 million shares (15%); Nerine Finance No. 2 – 3,650 NZD100,000 redeemable preference shares and 35 NZD1
Class ‘A’ shares (42%) (2006: 3,650 NZD100,000 redeemable preference shares and 35 NZD1 Class ‘A’ shares (42%)); ANZ Royal Bank (Cambodia) Limited – 180,000 USD100 ordinary shares
(45%) (2006: 99,000 USD100 ordinary shares (45%)); Coral Finance Limited – GBP 1 ordinary share (67%) (2006: GBP 1 ordinary share (67%)); Kingfisher Trust 2004 – 1G residual capital
unitholder (2006: residual capital unitholder); ANZ Vientiane Commercial Bank – 4,000,000 $1 ordinary shares (40%) (2006: n/a); Omeros II Trust – residual capital unitholder (2006: residual
capital unitholder).
134 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
41: Associates
Signifi cant associates of the Group are as follows:
P.T. Bank Pan Indonesia1
Bank of Tianjin (formerly Tianjin City
Commercial Bank)2
Metrobank Card Corporation Inc3
AMMB Holdings Berhad4
Shanghai Rural Commercial Bank5
Other associates
Total carrying value of associates
Ownership
interest
held
30%
20%
40%
19%
20%
Voting
interest
30%
20%
40%
14%8
20%
Incorporated
in
Carrying
value6
$m
Indonesia
Peoples Republic
of China
Philippines
Malaysia
Peoples Republic
of China
252
164
28
804
307
194
1,749
Reporting
date
31 December
31 December
31 December
31 March
31 December
Fair
value7
$m
527
n/a
n/a
873
n/a
n/a
Principal
activity
Banking
Banking
Cards Issuing
Banking
Banking
1 An associate from 1 April 2001.
2 An associate from 13 June 2006.
3 An associate from 9 October 2003.
4 An associate from 18 May 2007.
5 An associate from 20 September 2007.
6 2006 carrying values as follows: P.T. Bank Pan Indonesia $222 million, Bank of Tianjin $164 million, Metrobank Card Corporation Inc $28 million, and Other associates $178 million. Total $592 million.
7 Applicable to those investments in associates where there are published price quotations.
8 The investment in AMMB Holdings Berhad comprises ordinary shares, preference shares mandatorily converting into ordinary shares, and bonds exchangeable into ordinary shares. The terms of the
preference shares allow ANZ to convert the preference shares into ordinary shares any time, and they will mandatorily convert after 5 years on issue. The terms of the exchangeable bonds allow ANZ to
convert the exchangeable bonds into ordinary shares at any time within the 10 year period to maturity. Currently held ordinary shares provide ANZ a voting interest of 14%. The other instruments could
increase ANZ’s voting interest and ownership interest up to 25%, when converted or exchanged in full. An increase above 20% would require regulatory approval.
Aggregate assets of signifi cant associates
Aggregate liabilities of signifi cant associates
Aggregate revenue of signifi cant associates
Results of Associates
Share of associates profi t before income tax
Share of income tax expense
Share of associates net profi t – as disclosed by associates
Adjustments
- withholding tax
- provisioning
- other
Share of associates net profi t accounted for using the equity method
42: Interests in Joint Venture Entities
The Group has interests in joint venture entities as follows:
Ownership
interest
held
Voting
interest
held
Incorporated
in
Carrying
value6
$m
Reporting
dates
ING Australia Limited1, 5
49%2
49%2
Australia
1,519
31 December
ING (NZ) Holdings Limited3,5
49%4
50%4
New Zealand
162
31 December
2007
$m
64,649
60,081
4,737
2006
$m
16,784
15,356
586
Consolidated
2007
$m
131
(37)
94
(4)
(2)
(1)
87
2006
$m
70
(17)
53
(2)
4
1
56
Principal
activity
Funds Management
and Insurance
Funds Management
and Insurance
Total interests in Joint Venture entities
1,681
1 A joint venture entity from 1 May 2002.
2 This represents the Group’s 49% share of the assets and liabilities of ING Australia Limited. The Group has joint control of the joint venture, and accordingly the entity is not consolidated.
Key details of the joint venture are:
■ ING Australia Limited is owned 51% by ING Group and 49% by ANZ.
■ Both shareholders have an equal say in strategic decisions with a number of matters requiring the approval of both shareholders (i.e. require unanimous approval).
These include major items of capital expenditure, acquisitions or disposals in excess of $20 million and changes to the Board structure.
■ Equal board representation with four Group nominees and four ING Group nominees. All key issues (including business plans, major capital expenditure, acquisitions etc) require unanimous
Board approval.
■ Refer to Critical Accounting Estimate item (ii) for details regarding valuation of investment in ING Australia Limited.
The Joint Venture includes the majority of the Group’s and ING’s funds management and insurance activities in Australia.
3 A joint venture entity from 30 September 2005.
4 This represents the Group’s 49% share of assets and liabilities of ING (NZ) Holdings Limited. The Group has joint control of the joint venture, and accordingly the entity is not consolidated.
Key details of the joint venture are:
■ ING (NZ) Holdings Limited is owned 51% by ING Group and 49% by ANZ.
■ Both shareholders have an equal say in strategic decisions with a number of matters requiring the approval of both shareholders (i.e. require unanimous approval). These include major
items of capital expenditure, acquisitions or disposals in excess of $20 million and changes to the Board structure.
■ Equal board representation with four Group nominees and four ING Group nominees. All key decisions (including business plans, major capital expenditure, acquisitions etc) require
unanimous Board approval.
■ Refer to Critical Estimates and Judgements used in Applying Accounting Policies item (iii) for details regarding valuation of investment in ING (NZ) Holdings Limited
The joint venture includes the majority of the Group’s and ING’s funds management and insurance activities in New Zealand.
5 ING Australia Limited and ING (NZ) Holdings Limited have different reporting dates than the Consolidated Group to align with the ING Group parent entity.
6 2006 carrying values as follows: ING Australia Limited $1,462 million; and ING (NZ) Holdings Limited $146 million.
Financial Report 135
NOTES TO THE FINA NCIAL STATEMENTS
42: Interests in Joint Venture Entities (continued)
ING Australia Limited
ING (NZ) Holdings
Limited
Consolidated
Total
Retained profi ts attributable to the joint venture entity
At the beginning of the year
At the end of the year
Movement in the carrying amount of the joint venture entity
Carrying amount at the commencement of the year
IFRS opening balance sheet adjustments
Share of net profi t
Dividend received
Movement in reserves
Adjustment for exchange rate fl uctuations
2007
$m
256
313
1,462
–
152
(95)
–
–
2006
$m
183
256
1,530
(138)
119
(46)
(3)
–
Carrying amount at the end of the year
1,519
1,462
2007
$m
19
39
146
–
20
–
–
(4)
162
70
137
207
19
9
28
2006
$m
–
19
131
–
19
–
–
(4)
146
70
154
224
45
16
61
2007
$m
275
352
1,608
–
172
(95)
–
(4)
2006
$m
183
275
1,661
(138)
138
(46)
(3)
(4)
1,681
1,608
14,782
1,954
12,563
1,724
16,736
14,287
14,900
707
12,475
751
15,607
13,226
14,712
1,817
12,493
1,570
16,529
14,063
14,881
698
12,430
735
15,579
13,165
950
898
179
163
1,129
1,061
433
(233)
200
(48)
152
152
150
19
169
27
27
372
(216)
156
(37)
119
119
154
18
172
65
65
69
(49)
20
–
20
20
3
–
3
–
–
59
(39)
20
(1)
19
19
3
–
3
–
–
502
(282)
220
(48)
172
172
153
19
172
27
27
431
(255)
176
(38)
138
138
157
18
175
65
65
Share of assets and liabilities1
Investments
Other assets
Share of total assets
Policy holder liabilities
Other liabilities
Share of total liabilities
Share of net assets
Share of revenues, expenses and results
Revenues
Expenses
Profi t before income tax
Income tax expense
Profi t after income tax
Net equity accounted profi t
Share of commitments
Lease commitments
Other commitments
Share of total expenditure commitments
Share of contingent liabilities
In relation to ANZ’s interest in the joint venture entity2
1 This represents the Group’s share of the assets and liabilities of ING Australia Limited and ING (NZ) Holdings Limited, less minority interests and including goodwill on acquisition of ANZ Funds
Management entities.
2 This represents Deeds of Subordination with ASIC and buyer of last resort.
43: Fiduciary Activities
The Group conducts various fi duciary activities as follows:
Investment fi duciary activities for trusts
The Group conducts investment fi duciary activities for trusts, including deceased estates. These trusts have not been consolidated as the Group
does not have direct or indirect control.
Where the Company or its controlled entities incur liabilities in respect of these operations as trustee, where the primary obligation is
incurred in an agency capacity as trustee of the trust rather than on the Group’s own account, a right of indemnity exists against the assets
of the applicable funds or trusts. As these assets are suffi cient to cover the liabilities and it is therefore not probable that the Company or its
controlled entities will be required to settle the liabilities, the liabilities are not included in the fi nancial statements.
136 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
43: Fiduciary Activities (continued)
The aggregate amounts of funds concerned are as follows:
Trusteeships
Consolidated
2007
$m
2006
$m
2,651
2,080
Funds management activities
Funds management activities are conducted through the ING Australia Limited and ING (NZ) Holdings Limited joint ventures and certain
subsidiaries of the Group. As stated in note 1 (ii), shares in joint venture entities are stated in the consolidated balance sheet at cost plus the
Group’s share of post acquisition earnings. Funds under management on behalf of customers are not consolidated because these funds invest
in specifi ed investments on behalf of clients.
The Group controlled or jointly controlled fund management companies with funds under management as follows:
ING Australia Limited Joint Venture
ING (NZ) Holdings Limited Joint Venture
Controlled entities – New Zealand
Controlled entities – Australia
2007
$m
49,461
7,220
3,895
798
2006
$m
42,783
7,256
3,721
150
61,374
53,910
Custodian services activities
Custodian services are conducted through ANZ Custodian Services. ANZ Custodian Services holds investment assets under custody on behalf
of external customers and as a consequence the assets are not consolidated in the Group’s accounts. As at 30 September 2007, ANZ Custodian
Services had funds under custody of $148.2 billion (30 September 2006: $120.2 billion).
44: Commitments
Property
Contracts for construction of new offi ce building in Docklands area, Melbourne Australia
Not later than 1 year
Later than one year but not later than 5 years
Aquisitions2
Not later than 1 year
Capital expenditure
Contracts for outstanding capital expenditure
Not later than 1 year
Total capital expenditure commitments1
Lease rentals
Land and buildings
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years
Furniture and equipment
Not later than 1 year
Later than 1 year but not later than 5 years
Later than 5 years
Total lease rental commitments
Total commitments
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
171
212
9
101
493
232
512
384
–
–
–
55
55
227
567
433
1,128
1,227
29
29
–
58
24
19
1
44
171
212
9
83
475
159
373
356
888
16
16
–
32
1,186
1,679
1,271
1,326
920
1,395
–
–
–
16
16
151
399
399
949
17
10
–
27
976
992
1 Relates to premises and equipment.
2 At 30 September 2007, the Group had entered into conditional contracts, subject to regulatory and shareholder approval, to acquire a 40% equity interest in Sacom Cards for $9 million.
Financial Report 137
NOTES TO THE FINA NCIAL STATEMENTS
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments
CUSTOMER RELATED CREDIT RELATED COMMITMENTS AND CONTINGENT LIABILITIES
Credit related commitments
Facilities provided
Undrawn facilities1
Australia
New Zealand
Overseas Markets
Total
Consolidated
The Company
2007
Contract
amount
$m
2006
Contract
amount
$m
2007
Contract
amount
$m
2006
Contract
amount
$m
107,269
98,554
86,124
77,720
70,692
18,765
17,812
62,746
18,840
16,968
69,999
–
16,125
61,741
–
15,979
107,269
98,554
86,124
77,720
1 The credit risk of the undrawn facilities may be less than the contract amount, however the credit risk has been taken to be the contract amount. The majority of undrawn facilities are subject
to customers maintaining specific credit standards. The amount does not necessarily represent future cash requirements as many of these facilities are expected to be partially used or to
expire unused.
Contingent liabilities
Details of the estimated maximum amount of contingent liabilities that may become payable are disclosed on the following pages. These
contingent liabilities relate to transactions that the Group has entered into as principal. By contrast, the quantitative tabular presentation below
relates to customer contingent liabilities, i.e. direct credit substitutes and trade and performance related items.
Guarantees, Standby letters of credit, Bill endorsements and Other are classifi ed by APRA as direct credit substitutes and exhibit the same
credit risk characteristics as a direct extension of credit. The maximum potential amount of future payments represents the contract amount
that could be lost if the counterparty fails to meet its fi nancial obligations.
Documentary letters of credit involve the issue of letters of credit guaranteeing payment in favour of an exporter secured against an underlying
shipment of goods or backed by a confi rmatory letter of credit from another bank.
Performance related contingencies are liabilities that oblige the Group to make payments to a third party should the customer fail to fulfi l the
non-monetary terms of the contract.
The Group guarantees the performance of customers by issuing standby letters of credit and guarantees to third parties. The risk involved is
essentially the same as the credit risk involved in extending loan facilities to customers, therefore these transactions are subjected to the same
credit origination, portfolio management and collateral requirements for customers applying for loans. As the facilities may expire without being
drawn upon, the notional amounts do not necessarily refl ect future cash requirements.
The credit risk of these facilities may be less than the contract amount, however the credit risk has been taken to be the contract amount.
138 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)
Guarantees
Standby letters of credit
Bill endorsements
Documentary letters of credit
Performance related contingencies
Other
Total customer contingent liabilities
Australia
New Zealand
Overseas Markets
Total customer contingent liabilities
Consolidated
The Company
2007
Contract
amount
$m
5,410
1,476
28
3,238
12,671
993
2006
Contract
amount
$m
4,690
1,468
100
3,078
11,710
1,009
2007
Contract
amount
$m
5,194
1,474
28
3,080
12,091
307
2006
Contract
amount
$m
4,611
1,296
100
2,939
11,265
628
23,816
22,055
22,174
20,839
10,535
1,253
12,028
9,473
1,011
11,571
10,525
–
11,649
9,462
–
11,377
23,816
22,055
22,174
20,839
ASSETS PLEDGED AS SECURITY AND SECURED LIABILITIES
The following assets are pledged as collateral:
mandatory reserve deposits held with local central banks in accordance with statutory requirements. These deposits are not available to
fi nance the Group’s day to day operations; and
debenture undertakings covering the assets of Esanda Finance Corporation Limited (Esanda) and its subsidiaries and UDC Finance Limited.
The debenture stock of Esanda and its subsidiaries and UDC Finance Limited is secured by a trust deed and collateral debentures, giving
fl oating charges upon the undertaking of all the tangible assets of the entity, other than land and buildings. All controlled entities of Esanda
and UDC Finance Limited have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and
unsecured notes issued by Esanda and UDC Finance Limited respectively. Note that the only loans pledged are those in Esanda and UDC
Finance Limited.
The value of assets pledged as security is as follows:
Regulatory deposits
Assets pledged as collateral under debenture undertakings1
1 Related liabilities is $9,539 million (2006: $9,757 million).
Consolidated
2007
$m
2006
$m
235
15,347
205
16,028
15,582
16,233
The Company
2007
$m
148
–
148
2006
$m
132
–
132
The Group has accepted collateral that it is permitted to sell or repledge in connection with its stock-lending activities. The fair value of the
collateral accepted is $3.5 billion (2006: $3.3 billion) and this equates to our obligation to our counterparties.
OTHER BANK RELATED CONTINGENT
LIABILITIES
The details and estimated maximum amount
of contingent liabilities that may become
payable are set out below.
i) Clearing and settlement obligations
In accordance with the clearing and
settlement arrangements set out:
in the Australian Payments Clearing
Association Limited Regulations for the
Australian Paper Clearing System, the
Bulk Electronic Clearing System, the
Consumer Electronic Clearing System and
the High Value Clearing System (HVCS),
the Company has a commitment to comply
with rules which could result in a bilateral
exposure and loss in the event of a failure
to settle by a member institution; and
in the Austraclear System Regulations
and the CLS Bank International Rules, the
Company has a commitment to participate
in loss-sharing arrangements in the
event of a failure to settle by a member
institution.
For HVCS and Austraclear, the obligation
arises only in limited circumstances.
ii) Nominee activities
The Group will indemnify each customer
of controlled entities engaged in nominee
activities against loss suffered by reason
of such entities failing to perform any
obligation undertaken by them to a
customer.
iii) Interbank deposit agreement
ANZ has entered into an Interbank Deposit
Agreement with the major banks in the
payments system. This agreement is a
payment system support facility certifi ed
by the Australian Prudential Regulation
Authority, where the terms are such that if
any bank is experiencing liquidity problems,
the other participants are required to
deposit equal amounts of up to $2 billion for
a period of 30 days. At the end of 30 days
the deposit holder has the option to repay
the deposit in cash or by way of assignment
of mortgages to the value of the deposit.
Financial Report 139
NOTES TO THE FINA NCIAL STATEMENTS
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)
relating to those businesses and, where it
was anticipated that payments would be
likely under the warranties or indemnities,
made provisions to cover the anticipated
liability. The issues below have not
impacted adversely the reported results. All
settlements, penalties and costs have been
covered within the provisions established at
the time.
FERA
In 1991 certain amounts were transferred
from non-convertible Indian Rupee accounts
maintained with Grindlays in India. These
transactions may not have complied with
the provisions of the Foreign Exchange
Regulation Act, 1973. Grindlays, on its own
initiative, brought these transactions to
the attention of the Reserve Bank of India.
The Indian authorities have served notices
on Grindlays and certain of its offi cers in
India and civil penalties have been imposed
which are the subject of appeals. Criminal
prosecutions are pending and will be
defended. The amounts in issue are not
material.
Tax Indemnity
ANZ provided an indemnity relating to tax
liabilities of Grindlays (and its subsidiaries)
and the Jersey Sub-Group to the extent to
which such liabilities were not provided
for in the Grindlays accounts as at 31 July
2000. Claims have been made under this
indemnity also, with no material impact on
the Group expected.
vi) Trade Sanctions
On 1 February 2007, following a review
of its compliance with United States (US)
economic sanctions and discussions with
US regulators, the Group announced that it
had curtailed fi nancial transactions with
US sanctioned countries and had taken
further action to ensure compliance with
US sanction regulations. A small number
of transactions, 42 in total, involved
parties from US sanctioned countries. The
Group has made voluntary disclosures
to US fi nancial regulators and remains in
discussion with US regulators regarding the
transactions. The Group has also briefed
Australian and New Zealand regulators.
The US sanctions regime includes the
possibility of fi nes. Based on current
knowledge, it is diffi cult to predict the level
of fi nes. Nonetheless, the Group considers
that it holds appropriate provisions for
these issues.
iv) Contingent tax liability
The Australian Taxation Offi ce is reviewing
the taxation treatment of certain
transactions, including legacy structured
fi nance transactions, undertaken by the
Group in the course of normal business
activities.
The Inland Revenue Department (IRD) in
New Zealand is reviewing a number
of conduit-relieved structured fi nance
transactions as part of normal revenue
authority audit procedures. This is part
of an industry-wide review by the IRD of
these transactions undertaken in New
Zealand. The IRD has issued Notices of
Proposed Adjustment (the ‘Notices’) in
respect of some of those structured fi nance
transactions. The Notices are not tax
assessments and do not establish a tax
liability, but are the fi rst step in a formal
dispute process. In addition, the IRD has
issued some tax assessments as a follow
up to the Notices in some cases. Should
the same position be adopted by the IRD
on the remaining transactions of that
kind as refl ected in the Notices and in the
tax assessments received, the maximum
potential tax liability would be approximately
NZD506 million (including interest tax
effected) for the period to 30 September
2007. Of that maximum potential liability,
approximately NZD142 million is subject
to tax indemnities provided by Lloyds TSB
Bank PLC under the agreement by which
ANZ acquired the National Bank of New
Zealand and which relate to transactions
undertaken by the National Bank of New
Zealand before December 2003. All of these
conduit-relieved transactions have now
either matured or been terminated.
Additional issue-specifi c audits and other
investigations are being undertaken by the
New Zealand IRD, and by revenue authorities
in other jurisdictions as part of normal
revenue authority activity in those countries.
The Company has assessed these and other
taxation claims arising in Australia, New
Zealand and elsewhere, including seeking
independent advice where appropriate,
and considers that it holds appropriate
provisions.
v) Sale of Grindlays businesses
On 31 July 2000, ANZ completed the sale
to Standard Chartered Bank (SCB) of ANZ
Grindlays Bank Limited and the private
banking business of ANZ in the United
Kingdom and Jersey, together with ANZ
Grindlays (Jersey) Holdings Limited and its
subsidiaries, for USD1.3 billion in cash. ANZ
provided warranties and certain indemnities
140 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)
vii) Deed of Cross Guarantee in respect of certain controlled entities
Pursuant to class order 98/1418 (as amended) dated 13 August 1998, relief was granted to a number of wholly owned controlled entities
from the Corporations Act 2001 requirements for preparation, audit, and publication of individual fi nancial statements. The results of these
companies are included in the consolidated Group results. The entities to which relief was granted are:
ANZ Properties (Australia) Pty Ltd1
ANZ Capital Hedging Pty Ltd1
Alliance Holdings Pty Ltd1
1 Relief originally granted on 21 August 2001.
2 Relief originally granted on 13 August 2002.
3 Relief originally granted on 9 September 2003.
ANZ Orchard Investments Pty Ltd2
ANZ Securities (Holdings) Limited3
ANZ Funds Pty Ltd1
Votraint No. 1103 Pty Ltd2
It is the condition of the class order that the Company and each of the above controlled entities enter into a Deed of Cross Guarantee. A Deed of
Cross Guarantee under the class order was executed by them and lodged with the Australian Securities and Investments Commission. The Deed
of Cross Guarantee is dated 1 March 2006. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in
the event of winding up any of the controlled entities under certain provisions of the Corporations Act 2001. If a winding up occurs, the Company
will only be liable in the event that after six months any creditor has not been paid in full. The controlled entities have also given similar
guarantees in the event that the Company is wound up. The consolidated income statement and consolidated balance sheet of the Company
and its wholly owned controlled entities which have entered into the Deed of Cross Guarantee are:
Profi t before tax
Income tax expense
Profi t after income tax
Retained profi ts at start of year
Adjustment on adoption of accounting policies specifi ed by AASB 4, AASB 132 and AASB 139
Adjustment on adoption of AASB 2005–1
Total available for appropriation
Ordinary share dividends provided for or paid
Transfer from reserves
Actuarial gains/(losses) on defi ned benefi t plans after tax
Retained profi ts at end of year
Assets
Liquid assets
Available-for-sale assets
Net loans and advances
Other assets
Premises and equipment
Total assets
Liabilities
Deposits and other borrowings
Income tax liability
Payables and other liabilities
Provisions
Total liabilities
Net assets
Shareholders’ equity1
1 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.
Consolidated
2007
$m
4,835
(916)
3,919
8,240
–
141
2006
$m
4,161
(922)
3,239
7,103
(29)
–
12,300
(2,363)
–
75
10,313
(2,068)
49
(54)
10,012
8,240
10,618
11,383
198,610
78,242
802
10,428
8,657
172,155
50,532
603
299,655
242,375
161,195
669
117,992
710
128,321
1,067
95,000
688
280,566
225,076
19,089
17,299
19,089
17,299
Financial Report 141
NOTES TO THE FINA NCIAL STATEMENTS
45: Contingent Liabilities, Contingent Assets and Credit Related Commitments (continued)
viii) Underpinning agreement – ANZ
National Bank Limited
The Company is party to an underpinning
agreement with ANZ National Bank Limited
whereby the Company undertakes to assume
risk in relation to credit facilities extended
by ANZ National Bank Limited to individual
customers which exceed 35% of ANZ
National Bank Limited’s capital base.
ix) Underpinning agreement – Australia
and New Zealand Banking Group (PNG)
Limited
The Company is party to an underpinning
agreement with Australia and New Zealand
Banking Group (PNG) Limited whereby
the Company undertakes to assume risk
in relation to credit facilities extended by
Australia and New Zealand Banking Group
(PNG) Limited to individual customers which
exceed 25% of Australia and New Zealand
Banking Group (PNG) Limited’s capital base.
x) New Zealand Commerce Commission
In November 2006, the New Zealand
Commerce Commission brought proceedings
under the Commerce Act 1986 against Visa,
MasterCard and all New Zealand issuers of
Visa and MasterCard credit cards, including
ANZ National Bank Limited. The Commission
alleges price fi xing and substantially
lessening competition in relation to the
setting of credit card interchange fees and
is seeking penalties and orders under the
Commerce Act.
Subsequently, several major New Zealand
retailers have issued proceedings against
ANZ National Bank and the other above
mentioned defendants seeking unquantifi ed
damages, based on allegations similar
to those contained in the Commerce
Commission proceedings. ANZ National
Bank is defending the proceedings. At this
stage, the risks and any potential liabilities
cannot be assesed.
GENERAL
There are outstanding court proceedings,
claims and possible claims against the
Group, the aggregate amount of which
cannot readily be quantifi ed. Appropriate
legal advice has been obtained and, in the
light of such advice, provisions as deemed
necessary have been made. The gross
amounts of provisions made for material
litigation contingencies as at 30 September
2007 is $440 million (2006: $405 million).
CONTINGENT ASSETS
National Housing Bank
In 1992, Grindlays received a claim
aggregating to approximately Indian Rupees
5.06 billion from the National Housing
Bank (NHB) in India. The claim arose out
of cheques drawn by NHB in favour of
Grindlays, the proceeds of which were
credited to the account of a Grindlays
customer.
Grindlays won an arbitration award in March
1997, under which NHB paid Grindlays an
award of Indian Rupees 9.12 billion. NHB
subsequently won an appeal to the Special
Court of Mumbai, after which Grindlays fi led
an appeal with the Supreme Court of India.
Grindlays paid the disputed money including
interest into court. Ultimately, the parties
settled the matter and agreed to share
the moneys paid into court which by then
totalled Indian Rupees 16.45 billion ($661
million at 19 January 2002 exchange rates),
with Grindlays receiving Indian Rupees
6.20 billion ($248 million at 19 January
2002 exchange rates) of the disputed
monies. ANZ in turn received a payment
of USD124 million (USD equivalent of the
Indian Rupees received by Grindlays) from
Standard Chartered Bank under the terms
of an indemnity given in connection with
the sale of Grindlays to Standard
Chartered Bank.
ANZ recovered $114 million in 2006 from its
insurers in respect of the above.
In addition, ANZ is entitled to share with
NHB in the proceeds of any recovery from
the estate of the customer whose account
was credited with the cheques drawn
by NHB. However, the Indian Taxation
Department is claiming a statutory priority
to all of the funds available for distribution
to creditors of that customer. Proceedings
are currently afoot in the Special Court of
Mumbai to determine these issues. The
hearing in the Special Court of Mumbai has
concluded and the parties are awaiting an
order from the Court.
Visa prospectus
Visa has released their prospectus as
at September 2007 and as part of this
prospectus ANZ will be entitled to an initial
allocation of shares determined under a
methodology that was agreed on among the
Visa participating regions. This will result in
the infl ow of economic benefi ts, the amount
and timing of which are uncertain.
142 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
46: Superannuation and Other Post Employment Benefi t Schemes
Description of the Group’s post employment benefi t schemes
The Group has established a number of pension, superannuation and post retirement medical benefi t schemes throughout the world. The
Group may be obliged to contribute to the schemes as a consequence of legislation and provisions of trust deeds. Legal enforceability is
dependent on the terms of the legislation and trust deeds.
The major schemes with assets in excess of $25m are:
Country
Australia
Scheme
Scheme type
Employee/participant
Employer
Contribution levels
ANZ Australian Staff
Superannuation Scheme1,2
Defi ned contribution scheme
Section C3 or
Optional8
Balance of cost10
New Zealand
ANZ Group (New Zealand)
Staff Superannuation
Scheme1,2
National Bank Staff
Superannuation Fund1,2
UK
ANZ UK Staff
Pension Scheme1
Defi ned contribution scheme
Section A or
Defi ned benefi t scheme
Pension Section4
Defi ned benefi t scheme5 or
Optional
9% of salary11
Nil
Nil
Balance of cost12
Balance of cost13
Defi ned contribution scheme
Minimum of
2.5% of salary
7.5% of salary14
Defi ned benefi t scheme6 or
5.0% of salary
Balance of cost15
Defi ned contribution scheme7
Minimum of
2.0% salary
11.5% of salary16
Defi ned benefi t scheme7
5.0% of salary9
Balance of cost17
Balance of cost: the Group’s contribution is assessed by the actuary after taking account of members’ contributions and the value of the
schemes’ assets.
These schemes provide for pension benefits.
These schemes provide for lump sum benefits.
1
2
3 Closed to new members in 1997.
4 Closed to new members. Operates to make pension payments to retired members or their dependants.
5 Closed to new members on 31 March 1990. Operates to make pension payments to retired members of that section of the scheme or their dependants.
6 Closed to new members on 1 October 1991.
7 Closed to new members on 1 October 2004.
8 Optional but with minimum of 1% of salary.
9
10 As determined by the Trustee on the recommendation of the actuary - currently 9% (2006: 9%) of members’ salaries.
11 2006: 9% of salary.
12 As determined by the Trustee on the recommendation of the actuary - currently nil (2006: nil).
13 As recommended by the actuary - currently nil (2006: nil).
14 2006: 7.5% of salary.
15 As recommended by the actuary - currently 24.8% (2006: 24.7%) of members’ salaries.
16 2006: 11.5% of salary.
17 As agreed by the Trustee and Group after taking the advice of the actuary - currently 26% (2006: 26%) of pensionable salaries and additional quarterly contributions of GBP 3.5 million until
From 1 October 2003, all members’ contributions are at a rate of 5% of salary.
December 2015.
Financial Report 143
NOTES TO THE FINA NCIAL STATEMENTS
46: Superannuation and Other Post Employment Benefi t Schemes (continued)
Funding and contribution information for the defi ned benefi t sections of the schemes
The funding and contribution information for the defi ned benefi t sections of the schemes as extracted from the schemes’ most recent fi nancial
reports are set out below.
In this fi nancial report, the net (liability)/asset arising from the defi ned benefi t obligation recognised in the balance sheet has been determined
in accordance with AASB 119 “Employee Benefi ts”. However, the excess or defi cit of the net market value of assets over accrued benefi ts
shown below has been determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’. The excess or defi cit for funding
purposes below differs from the net (liability)/asset in the balance sheet because AAS 25 prescribes a different measurement date and basis
to those used for AASB 119 purposes.
2007 Schemes
ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK Health Benefi ts Scheme4
ANZ Group (New Zealand) Staff Superannuation Scheme1
National Bank Staff Superannuation Fund3
Other4, 5
Total
Net market
value of
assets held
by scheme
$m
Excess/(defi cit)
of net
market value
of assets over
accrued benefi ts
$m
35
967
–
6
163
5
1,176
(1)
(167)
(15)
–
(5)
(2)
(190)
Accrued
benefi ts*
$m
36
1,134
15
6
168
7
1,366
* Determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 ‘Employee Benefits’. Under AASB 119 the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2007), rather than the
expected return on scheme assets as at the most recent actuarial valuation date, set out below, as prescribed by AAS 25.
1 Amounts were measured at 31 December 2004.
2 Amounts were measured at 31 December 2006.
3 Amounts were measured at 31 March 2007.
4 Amounts were measured at 30 September 2007.
5 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.
2006 Schemes
ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK Health Benefi ts Scheme4
ANZ Group (New Zealand) Staff Superannuation Scheme1
National Bank Staff Superannuation Fund3
Other 4, 5
Total
Net market
value of
assets held
by scheme
$m
Excess/(defi cit)
of net
market value
of assets over
accrued benefi ts
$m
35
997
–
6
166
5
1,209
(4)
(252)
(13)
–
(4)
(2)
(275)
Accrued
benefi ts*
$m
39
1,249
13
6
170
7
1,484
* Determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’, which prescribes a different measurement date and basis to those applied in this financial report under
AASB 119 ‘Employee Benefits’. Under AASB 119 the discount rates used are based on prevailing government and corporate bond rates at the reporting date (30 September 2006), rather than the
expected return on scheme assets as at the most recent actuarial valuation date, set out below, as prescribed by AAS 25.
1 Amounts were measured at 31 December 2004.
2 Amounts were measured at 31 December 2005.
3 Amounts were measured at 31 March 2006.
4 Amounts were measured at 30 September 2006.
5 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.
Employer contributions to the defi ned benefi t schemes are based on recommendations by the schemes’ actuaries. Funding recommendations
are made by the actuaries based on assumptions of various matters such as future investment performance, interest rates, salary increases,
mortality rates and turnover levels. The funding methods adopted by the actuaries are intended to ensure that the benefi t entitlements of
employees are fully funded by the time they become payable.
The Group expects to make contributions of $41 million to the defi ned benefi t sections of the schemes during the next fi nancial year.
144 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
46: Superannuation and Other Post Employment Benefi t Schemes (continued)
The current contribution recommendations for the major defi ned sections of the schemes are described below.
ANZ Australian Staff Superannuation Scheme Pension Section
The Pension Section of the ANZ Australian Staff Superannuation Scheme is closed to new members. A full actuarial valuation, conducted by
consulting actuaries Russell Employee Benefi ts as at 31 December 2004 showed a defi cit of $5 million and the actuary recommended that
Group contributions to the Pension Section remain suspended. An interim actuarial valuation conducted as at 31 December 2006 showed a
defi cit of $1 million and the expectation is that this defi cit has remained materially unchanged since that date. The next full actuarial valuation
is due to be conducted as at 31 December 2007, at which time the funding position will be reassessed.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return
Pension indexation rate
8% p.a.
3% p.a.
The Group has no present liability under the Scheme’s Trust Deed to commence contributions or fund the defi cit.
ANZ UK Staff Pension Scheme
A full actuarial valuation, conducted by consulting actuaries Watson Wyatt LLP, as at 31 December 2005 showed a defi cit of GBP 100 million
($230 million at 30 September 2007 exchange rates).
Following the actuarial valuation as at 31 December 2005, the Group agreed to make regular contributions at the rate of 26% of pensionable
salaries. These contributions are suffi cient to cover the cost of accruing benefi ts. To address the defi cit, the Group also agreed to pay additional
quarterly contributions of GBP 3.5 million until 31 December 2015. These contributions will be reviewed at the next actuarial valuation which is
scheduled to be undertaken as at 31 December 2007.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return on existing assets
Rate of investment return for determining ongoing contributions
Salary increases
Pension increases
5.1% p.a.
6.8% p.a.
4.8% p.a.
3.0% p.a.
The Group has no present liability under the Scheme’s Trust Deed to fund the defi cit measured under AAS 25. A contingent liability may arise
if the Scheme was wound up. If this were to happen, the Trustee would be able to pursue the Group for additional contributions under the UK
Employer Debt Regulations. The Group intends to continue the Scheme on an on-going basis.
On adoption of AIFRS, a net liability representing the defi ned benefi t obligation calculated under AASB 119 was recognised on the balance
sheet. The basis of calculation under AASB 119 is detailed in note 1(xx), and on page 144.
National Bank Staff Superannuation Fund
A full actuarial valuation of the National Bank Staff Superannuation Fund, conducted by consulting actuaries AON Consulting NZ, as at 31 March
2006 showed a defi cit of NZD6 million ($5 million at 30 September 2007 exchange rates). The actuary recommended that the Group make
contributions of 24.8% of salaries in respect of members of the defi ned benefi t section.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return (net of income tax)
Salary increases
Pension increases
5.5% p.a.
3.0% p.a.
2.5% p.a.
The Group has no present liability under the Scheme’s Trust Deed to fund the defi cit measured under AAS 25. A contingent liability may arise if
the Scheme was wound up. Under the Fund’s Trust Deed, if the Fund were wound up, the Group is required to pay the Trustees of the Scheme
an amount suffi cient to ensure members do not suffer a reduction in benefi ts to which they would otherwise be entitled. The Group intends to
continue the Scheme on an on-going basis.
On adoption of AIFRS, a net asset representing the defi ned benefi t surplus calculated under AASB 119 was recognised on the balance sheet.
The basis of calculation under AASB 119 is detailed in note 1(xx), and on page 144.
Financial Report 145
NOTES TO THE FINA NCIAL STATEMENTS
46: Superannuation and Other Post Employment Benefi t Schemes (continued)
The following tables summarise the components of the expense recognised in the income statement and the amounts recognised in the
balance sheet under AASB 119 for the defi ned benefi t sections of the schemes:
Amount recognised in income in respect of defi ned benefi t schemes
Current service cost
Interest cost
Expected return on assets
Past service cost
Adjustment for contributions tax
Total included in personnel expenses (refer note 4)
Amounts included in the balance sheet in respect of its defi ned benefi t schemes
Present value of funded defi ned benefi t obligation
Fair value of scheme assets
Present value of net obligation
Amounts recognised in the balance sheet
Other assets (refer note 21)
Payables and other liabilities (refer note 26)
Present value of net obligation
Amounts recognised in equity in respect of defi ned benefi t schemes
Actuarial (gains)/losses incurred during the year and recognised directly in retained earnings
Cumulative actuarial (gains)/losses recognised directly in retained earnings
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
14
71
(77)
1
2
11
12
64
(70)
3
2
11
11
61
(67)
1
–
6
9
55
(61)
3
–
6
(1,267)
1,199
(1,462)
1,238
(1,112)
1,037
(1,296)
1,067
(68)
(224)
(75)
(229)
7
(75)
(68)
(107)
(64)
5
(229)
(224)
78
43
–
(75)
(75)
(104)
(56)
–
(229)
(229)
77
48
The Group has a legal liability to fund defi cits in the schemes, but no legal right to use any surplus in the schemes to further its own interests.
The Group has no present liability to settle defi cits with an immediate contribution. For more information about the Group’s legal liability to fund
defi cits, refer to the earlier description of the current contribution recommendations for the schemes.
Movements in the present value of the defi ned benefi t obligation in the relevant period
Opening defi ned benefi t obligation
Current service cost
Interest cost
Contributions from scheme participants
Actuarial (gains)/losses
Past service cost
Exchange differences on foreign schemes
Benefi ts paid
1,462
14
72
1
(101)
1
(111)
(71)
1,246
12
64
1
126
3
84
(74)
1,296
11
62
–
(92)
1
(108)
(58)
1,076
9
55
–
121
3
89
(57)
Closing defi ned benefi t obligation
1,267
1,462
1,112
1,296
Movements in the fair value of scheme assets in the relevant period
Opening fair value of scheme assets
Expected return on scheme assets
Actuarial gains/(losses)
Exchange differences on foreign schemes
Contributions from the employer
Contributions from scheme participants
Benefi ts paid
Closing fair value of scheme assets1
Actual return on scheme assets
1,238
77
6
(92)
40
1
(71)
1,099
70
48
70
24
1
(74)
1,067
67
12
(89)
38
–
(58)
922
61
44
77
20
–
(57)
1,199
1,238
1,037
1,067
82
118
79
105
1 Scheme assets include the following financial instruments issued by the Group: Cash and short term debt instruments $4.8 million (September 2006: $2.5 million), fixed interest securities
$1.0 million ( September 2006: $5.7 million) and equities $0.2 million (September 2006: $0.6 million).
146 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
46: Superannuation and Other Post Employment Benefi t Schemes (continued)
Consolidated
The Company
Analysis of the scheme assets
Equities
Debt securities
Property
Other
Total assets
Key actuarial assumptions used (expressed as weighted averages)
Discount rate
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefi ts Scheme
ANZ Group (New Zealand) Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Expected rate of return on scheme assets
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ UK Health Benefi ts Scheme
ANZ Group (New Zealand) Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future salary increases
ANZ UK Staff Pension Scheme
National Bank Staff Superannuation Fund
Future pension increases
ANZ Australian Staff Superannuation Scheme – Pension Section
ANZ UK Staff Pension Scheme
ANZ Group (New Zealand) Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future medical cost trend – short term
ANZ UK Health Benefi ts Scheme
Future medical cost trend – long term
ANZ UK Health Benefi ts Scheme
Fair value of scheme
assets
2007
%
2006
%
48
33
13
6
50
33
14
3
100
100
Fair value of scheme
assets
2007
%
48
30
15
7
100
2007
%
6.25
5.90
6.00
6.50
6.50
8.50
7.00
n/a
4.50
5.50
5.15
3.00
3.00
3.35
2.50
2.50
10.00
5.50
2006
%
51
30
16
3
100
2006
%
5.50
5.00
5.10
6.00
6.00
7.50
6.50
n/a
4.50
5.50
4.75
3.00
3.00
2.95
2.50
2.50
7.30
4.50
To determine the expected returns of each of the asset classes held by the relevant scheme, the directors assessed historical return trends and
market expectations for the asset classes. The overall expected rate of return on assets for each scheme is determined as the weighted average
of the expected returns for the asset classes.
Assumed medical cost trend rates do not have a material effect on the amounts recognised as income or included in the balance sheet.
History of experience adjustments
Defi ned benefi t obligation
Fair value of scheme assets
Surplus/(defi cit)
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets
Consolidated
2007
$m
2006
$m
The Company
2007
$m
2006
$m
(1,267)
1,199
(1,462)
1,238
(1,112)
1,037
(1,296)
1,067
(68)
9
6
(224)
7
48
(75)
10
12
(229)
5
44
Financial Report 147
NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans
ANZ operates a number of employee share
and option schemes which operate under
the ANZ Employee Share Acquisition Plan
and the ANZ Share Option Plan.
ANZ EMPLOYEE SHARE ACQUISITION PLAN
ANZ Employee Share Acquisition Plan (ESAP)
schemes that existed during the 2006
and 2007 fi nancial years were the $1,000
Share Plan, the Restricted Share Plan, the
Deferred Share Plan, the Performance Share
Plan and the Employee Share Save Scheme
(ESSS). Note the ESSS is an employee
salary sacrifi ce plan and is not captured as
an expense in the share based payment
expense model.
$1,000 share plan
Each permanent employee (excluding senior
executives) who has had continuous service
for one year is eligible to participate in the
$1,000 scheme enabling the grant of up
to $1,000 of ANZ shares in each fi nancial
year, subject to ANZ’s performance and the
approval of the Board. At a date approved
by the Board, the shares will be granted
to all eligible employees using the 1 week
weighted average price of ANZ shares traded
on the ASX in the week leading up to and
including the date of grant.
In Australia and most overseas locations,
shares are granted to eligible employees
for nil consideration and vest immediately
when granted, as there is no forfeiture
provision. It is a requirement, however,
that shares are held in trust for three years
from the date of grant, after which time
they may remain in trust, be transferred to
the employee’s name or sold. In general,
dividends received on the shares are
automatically reinvested into the Dividend
Reinvestment Plan.
Shares granted to eligible New Zealand
employees under this plan vest subject
to the satisfaction of a three year service
period, after which time they may remain
in trust, be transferred into the employee’s
name or sold. At the time of transfer,
employees are required to pay NZD
1 cent per share. Shares may be forfeited
in the event of dismissal for serious
misconduct or resignation. Dividends are
received as cash.
During the 2007 year, 901,374 shares
with an issue price of $27.97 were granted
under the plan to employees on 4 December
2006. (2006 year: 1,012,008 shares with
an issue price of $23.81 were granted on
5 December 2005). A further 2,958 ANZ
shares with an issue price of $29.37 where
granted under the plan to ETRADE Australia
148 ANZ Annual Report 2007
Limited employees on 22 June 2007
(following the ANZ acquisition).
Deferred share plan
Selected employees may also be granted
long-term incentive (LTI) deferred shares
which vest to the employee up to three
years from the date of grant. Ordinary
shares granted under this LTI plan may be
held in trust beyond the deferral period.
Unvested LTI deferred shares are forfeited
on resignation, dismissal for serious
misconduct or termination on notice. In
the event of death or total and permanent
disablement, all shares will be released to
the employee in full.
Short-term incentive (STI) three year deferred
shares were granted under a historical
ANZ STI program, and may be held in trust
beyond the deferral period. The last grant of
three year STI deferred shares was made on
11 May 2004 (with the vesting date being
11 May 2007). There were no 3 year STI
deferred share grants in the 2006 or 2007
fi nancial years. STI deferred shares with a
two year deferral period are still granted
under a business unit specifi c incentive
plan (primarily as a retention tool), and may
be held in trust beyond the deferral period.
Unvested STI deferred shares are only
forfeited on resignation or dismissal
for serious misconduct.
In exceptional circumstances, sign-on two
or three year deferred shares are granted
to certain employees upon commencement
with ANZ to compensate for equity foregone
from their previous employer. Retention
three year deferred shares may also be
granted occasionally to high performing
employees who are regarded as a signifi cant
retention risk to ANZ. Sign-on and
retention deferred shares will be forfeited
on resignation, dismissal for serious
misconduct or termination on notice. In
the event of death or total and permanent
disablement, all shares will be released to
the employee in full.
The employee receives all dividends on
deferred shares while held in trust (cash or
dividend reinvestment plan). The issue price
for deferred shares is based on the volume
weighted average price of the shares traded
on the ASX in the week leading up to and
including the date of grant.
During the 2007 year, 1,275,132 deferred
shares with a weighted average grant price
of $29.13 were granted under the deferred
share plan (2006 year: 269,032 shares with
a weighted average grant price of $23.68
were granted).
Restricted share plan
Management level employees and eligible
non-management employees may elect a
pre-tax sacrifi ce of part or all of their annual
cash bonus for ANZ shares. The shares are
subject to a 12 month restriction period,
however, they may be left in trust beyond
the restriction period. The shares are
subject to forfeiture on dismissal for serious
misconduct. The shares are released to
the employee on termination for any other
reason. The employee receives all dividends
on these restricted shares (cash or dividend
reinvestment plan). The issue price is based
on the volume weighted average price of
the shares traded on the ASX on the week
leading up to and including the date
of grant.
During the 2007 year, 339,269 shares
with an issue price of $29.04 were granted
under the Restricted Share Plan (2006
year: 401,575 shares with an issue price
of $23.49 were granted).
Performance share plan
Performance shares are essentially LTI
deferred shares with a performance hurdle.
They were granted to i) a small number of US
based employees on 7 November 2005 to
accommodate local taxation laws, and ii) to
J McFarlane on 31 December 2004 (as per
his employment contract).
Based on the conditions of grant, the
proportion of performance shares that vest
will depend upon the total shareholder
return (TSR) achieved by ANZ relative to
a comparator group of major fi nancial
services companies. Performance equal to
the median TSR of the comparator group
will result in half the performance shares
vesting. Vesting will increase on a straight-
line basis until all of the performance shares
vest where ANZ TSR is at or above the 75th
percentile of TSRs in the comparator group.
Where ANZ’s performance falls between two
of the comparators, TSR is measured on a
pro-rata basis.
J McFarlane (who ceased as CEO of ANZ on
30 September 2007), was granted 175,000
Performance Shares on 31 December
2004, with no dividends payable on the
shares until vesting. In accordance with
the terms of the grant, the Performance
Shares were restricted for two years from
the date of grant, with vesting subject
to the achievement of the performance
hurdle. Performance against the hurdle
was tested monthly (from 31 December
2006) in accordance with the terms of the
grant. The issue price was $15.02. ANZ
agreed to acquire J MCFarlane’s interest
NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans (continued)
in the 175,000 Performance Shares on
his departure. Refer to page 23 of the
Remuneration Report for further details.
Share valuations
The fair value of shares granted in the
2007 year under the $1,000 share plan,
the Deferred Share Plan and the Restricted
Share Plan, measured as at the date of grant
of the shares, is $72.7 million based on
2,518,733 shares at a weighted average
price of $28.88 (2006 year: fair value of
shares granted is $40 million based on
1,682,615 shares at a weighted average
price of $23.66). The volume weighted
average share price of all ANZ shares sold
on the Australian Securities Exchange
on the date of grant is used to calculate
the fair value of shares. No dividends are
incorporated into the measurement of the
fair value of shares.
ANZ SHARE OPTION PLAN
Selected employees may be granted
options/rights, which entitle them to
purchase ordinary fully paid shares in ANZ
at a price fi xed at the time the options/
rights are granted (with the exception of
index-linked options). Voting and dividend
rights will be attached to the unissued
ordinary shares when the options/rights
have been exercised. Each option/right
entitles the holder to one ordinary share
subject to the terms and conditions imposed
on grant. The exercise price of the options,
determined in accordance with the rules
of the plan, is generally based on the
weighted average price of the shares traded
in the week leading up to and including the
date of grant. For zero priced options and
performance rights, the exercise price is
nil. Index-linked options have a dynamic
exercise price that is adjusted in line with
the movement in the S&P/ASX 200 Banks
(Industry Group) Accumulation Index
(excluding ANZ).
ANZ Share Option Plan schemes expensed
in the 2006 and 2007 years are as follows:
Current Option Plans
Performance rights plan
Performance rights are granted to certain
employees as part of ANZ’s long-term
incentive (LTI) program. The fi rst grant of
performance rights was in November 2005,
and provides the right to acquire ANZ shares
at nil cost, subject to a three-year vesting
period and a Total Shareholder Return (TSR)
performance hurdle. The proportion of LTI
performance rights that become exercisable
will depend upon the TSR achieved by ANZ
relative to a comparator group of major
fi nancial services companies, measured
over the same period (since grant) and
calculated at the third anniversary of grant.
Performance equal to the median TSR of
the comparator group will result in half the
performance rights becoming exercisable.
Vesting will increase on a straight-line basis
until all of the performance rights become
exercisable where ANZ TSR is at or above the
75th percentile of TSRs in the comparator
group. Where ANZ’s performance falls
between two of the comparators, TSR
is measured on a pro-rata basis. The
performance hurdle will only be tested once
at the end of the three year vesting period.
If the performance rights do not pass the
hurdle on the testing date, or they are not
exercised by the end of the exercise period
(5 years from the date of grant), they will
lapse. In the case of dismissal for serious
misconduct, all unexercised performance
rights will be forfeited. In the case of
resignation or termination on notice, only
performance rights that become exercisable
(and pass the performance hurdle) by the
end of the notice period may be exercised.
In the case of death or total and permanent
disablement, all performance rights are
available for exercise (with the performance
hurdle waived).
Deferred share rights
(No performance hurdles)
Deferred share rights are granted instead
of deferred shares to accommodate off-
shore taxation implications. They provide
the right to acquire ANZ shares at nil cost
after a specifi ed vesting period. In the case
of resignation, only rights that become
exercisable by the end of the notice period
may be exercised. All other rights will lapse.
In the case of termination on notice, death
or total and permanent disablement, all
rights will be available for exercise. The fair
value of rights is adjusted for the absence of
dividends during the restriction period.
Legacy Option Plans
The following legacy plans are no longer
being offered to Group employees, but were
expensed during the 2006 and 2007 years.
Performance option plan
(No performance hurdle applies)
Performance options were granted to certain
employees (below executive levels) as part
of a historical LTI program. Performance
options are no longer part of ANZ’s current
equity strategy, with 7 November 2005
being the last grant of performance options.
The options can only be exercised after a
three-year vesting period and before the
seventh anniversary of the grant date. There
are no performance conditions attached
to these options as they were primarily
granted as a retention tool. All unexercised
options are forfeited on dismissal for serious
misconduct, resignation and termination
on notice. On death or total and permanent
disablement, all unvested options will
become available for exercise.
Zero-priced options (ZPOs)
A ZPO is a right to acquire an ANZ share
at nil cost. ZPOs were granted to Sir John
Anderson (former CEO of ANZ National
Bank Limited NZ) as part of his employment
contract, with the last grant occuring on
7th November 2005. The ZPOs had no time
based vesting criteria, so were able to
be exercised at any time during his
employment and within six months of
termination of his employment.
Deferred share rights
(No performance hurdle)
Special deferred share rights were granted to
a small number of New Zealand employees
in December 2004. They provide the right
to acquire ANZ shares at nil cost after a
three year vesting period. Rights must be
exercised by the seventh anniversary of
the grant date. They may be forfeited at
the Company’s discretion if the employee
ceases employment for any reason. The fair
value of rights is adjusted for the absence
of dividends during the restriction period.
Hurdled options
Hurdled options were granted to certain
employees as part of a historical LTI
program. The options can only be exercised
subject to the satisfaction of time and
performance based hurdles. Options may
be exercised during the four year period
commencing three years, and ending seven
years after the grant date, subject to meeting
the relevant performance hurdle. The
performance hurdle will be measured during
the exercise period by comparing ANZ’s Total
Shareholder Return (ANZ’s TSR) against the
comparator group relevant to the hurdled
option grant.
Financial Report 149
NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans (continued)
CEO options
Options were granted to J McFarlane (who
ceased as CEO of ANZ on 30 September
2007) as per his employment contract
and were approved by shareholders at the
December 1999 and December 2001 Annual
General Meetings.
Of the options granted to J McFarlane, only
the 31 December 2002, 2003 and 2004
grants were expensed during the 2006 and
2007 fi nancial years. These option grants
may be exercised subject to the following:
one half of the options may be exercised
only if the ANZ TSR calculated over the
period commencing on the date of grant
and ending on the last day of any month
after the second anniversary of the date of
grant, exceeds the percentage change in
the S&P/ASX 200 Banks (Industry Group)
Accumulation Index over that same period;
and the other half of the options may be
exercised only if the ANZ TSR calculated over
the relevant period exceeds the percentage
change in the S&P/ASX 100 Accumulation
Index over that same period. J McFarlane
has exercised all his vested options. Refer
to the Remuneration Report on page 23 for
further details.
Hurdled options granted in November
2004 will be tested against a comparator
group consisting of major fi nancial services
companies, excluding ANZ. The options
become exercisable depending on ANZ’s
ranking within the comparator group. ANZ
must rank at the 50th percentile for 50%
of the options to become exercisable. For
each 1% increase above the 50th percentile
an additional 2% of options will become
exercisable, with 100% being exercisable
where ANZ ranks at or above the 75th
percentile. This will be calculated as at the
last trading day of any month (once the
exercise period has commenced).
Other hurdled option grants will be
measured against the S&P/ASX 200 Banks
Accumulation Index, and the S&P/ASX 100
Accumulation Index. Half the options may
only be exercised once ANZ’s TSR exceeds
the percentage change in the S&P/ASX 200
Banks (Industry Group) Accumulation Index,
measured over the same period (since grant)
and calculated as at the last trading day of
any month (once the exercise period has
commenced); and the other half of hurdled
options may only be exercised once the
ANZ TSR exceeds the percentage change
in the S&P/ASX 100 Accumulation Index,
measured over the same period (since grant)
and calculated as at the last trading day of
any month (once the exercise period has
commenced). The forfeiture provisions are
the same as the performance option plan.
Index linked options
Index linked options have a dynamic
exercise price that acts as a built-in
performance hurdle, i.e. the exercise price
is adjusted in line with the movement in
the S&P/ASX 200 Banks (Industry Group)
Accumulation Index (excluding ANZ) since
the grant date. As an additional constraint,
the adjusted exercise price can only be set
at or above the original exercise price. Index
linked options are exercisable between the
3rd and 7th year after grant date, subject
to the adjusted exercise price being above
the prevailing share price. Unexercised
options are forfeited on dismissal for serious
misconduct, resignation and termination
on notice. On death or total and permanent
disablement, entitlements to options will be
pro-rated over the three-year vesting period.
150 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans (continued)
Option Movements
Details of options over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of the 2007
fi nancial year and movements during the 2007 fi nancial year are set out below:
Weighted Average Exercise Price
Opening Balance
1 October 2006
Options Granted
Options Forfeited1
29,400,706
1,431,170
$17.18
-
1,122,241
$16.55
Options
Expired
155,670
$17.32
Options Exercised
Closing Balance
30 September 2007
7,860,610
$16.77
21,693,355
$16.23
The weighted average share price during the year ended 30 September 2007 was $28.99 (2006: $25.25).
The weighted average remaining contractual life of share options outstanding at 30 September 2007 was 3.0 years (2006: 3.7 years).
The weighted average exercise price of all exercisable share options outstanding at 30 September 2007 was $16.79 (2006: $15.49).
A total of 8,876,289 exercisable share options were outstanding at 30 September 2007 (2006: 7,357,614).
Details of options over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of the 2006
fi nancial year and movements during the 2006 fi nancial year are set out below:
Opening Balance
1 October 2005
Options Granted
Options Forfeited1
Options
Expired1
Options Exercised
Closing Balance
30 September 2006
TOTALS
Weighted Average Exercise Price
33,447,778
4,551,276
$17.35
$15.00
1,943,530
$17.39
-
-
6,654,818
$16.45
29,400,706
$17.18
1 Numbers in the “Options Forfeited” column includes any options which may have expired due to a termination of employment whereby the employee was offered a grace period in which to
exercise. The number of options to expire under these circumstances is immaterial.
Financial Report 151
NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans (continued)
The following options over ordinary shares have been granted since the end of the 2007 fi nancial year up to the signing of the Directors’ Report
on 7 November 2007.
Performance rights
Total
Grant date
Exercise price
Earliest exercise date
Expiry date
Options granted
30/10/2007
$0.00
30/10/2010
30/10/2012
940,886
Details of shares issued as a result of the exercise of options during the year ended 30 September 2007 are as follows:
Exercise price
$
No. of shares issued
Proceeds received
$
Exercise price
$
No. of shares issued
Proceeds received
$
$0.00
$9.39
$11.09
$12.03
$13.62
$13.91
$13.91
$14.20
$12.98
$12.98
$12.98
$14.61
$15.77
$16.09
$16.33
$16.33
22,549
20,000
57,000
10,000
126,804
213,175
148,000
648,432
85,200
344,573
6,200
49,550
76,000
16,000
91,700
480,655
–
187,800
632,130
120,300
1,727,070
2,965,264
2,058,680
9,207,734
1,105,896
4,472,558
80,476
723,926
1,198,520
257,440
1,497,461
7,849,096
16.33
18.03
18.03
18.03
18.55
17.34
16.69
17.60
17.55
17.55
18.22
18.22
20.68
20.68
20.49
23.49
50,000
522,283
172,600
175,000
34,575
422,365
500,000
552,245
968,518
620,868
646,321
387,732
102,828
49,319
250,000
10,118
816,500
9,416,762
3,111,978
3,155,250
641,366
7,323,809
8,345,000
9,719,512
16,997,491
10,896,233
11,775,969
7,064,477
2,126,483
1,019,917
5,122,500
237,672
Details of shares issued as a result of the exercise of options during the year ended 30 September 2006 are as follows:
Exercise price
$
No. of shares issued
Proceeds received
$
Exercise price
$
No. of shares issued
Proceeds received
$
0.00
9.39
11.09
12.03
12.98
12.98
12.98
13.62
13.91
13.91
14.20
14.61
16.09
16.33
16.33
16.69
9,961
102,000
28,500
12,500
49,500
286,725
5,150
101,000
185,825
108,500
568,869
59,950
5,000
140,000
485,949
500,000
–
957,780
316,065
150,375
642,510
3,721,691
66,847
1,375,620
2,584,826
1,509,235
8,077,940
875,870
80,450
2,286,200
7,935,547
8,345,000
16.80
17.34
17.48
17.55
17.55
17.60
18.03
18.03
18.03
18.12
18.22
18.22
18.55
18.55
20.68
20.68
500,000
741,736
1,000,000
54,972
35,385
395,687
650,837
193,200
140,000
8,611
40,875
20,884
110,000
63,185
22,131
27,886
8,400,000
12,861,702
17,480,000
964,759
621,007
6,964,091
11,734,591
3,483,396
2,524,200
156,031
744,743
380,506
2,040,500
1,172,082
457,669
576,682
Details of shares issued as a result of the exercise of options since the end of the 2007 fi nancial year up to the signing of the Directors’ Report
on 7 November 2007 are as follows:
Exercise price
$
No. of shares issued
Proceeds received
$
Exercise price
$
No. of shares issued
Proceeds received
$
13.62
13.91
13.91
14.20
12.98
12.98
14.61
16.33
18.03
18,000
24,000
20,250
70,960
37,813
1,150
6,500
35,850
37,100
245,160
333,840
281,678
1,007,632
490,813
14,927
94,965
585,431
668,913
18.55
17.34
17.60
17.55
18.22
18.22
20.68
20.68
23.49
3,000
31,270
32,468
47,910
16,866
70,012
4,934
43,748
8,926
55,650
542,222
571,437
840,821
307,299
1,275,619
102,035
904,709
209,672
152 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
47: Employee Share and Option Plans (continued)
A range of outcomes is possible given the uncertainty and assumptions in relation to option valuation. In determining the fair value below,
we used standard market techniques for valuation including Monte Carlo and/or Black Scholes pricing models. The models take into account
early exercise, non-transferability and market based performance hurdles.
The signifi cant assumptions used to measure the fair value of instruments granted during the 2007 fi nancial year are contained in the table
below.
Option Type
Deferred Share Rights
Deferred Share Rights
Deferred Share Rights
Deferred Share Rights
Performance Rights
Grant Date
Number of Options
Option Fair Value (A$)
Exercise Price (5 day VWAP)
Share price at date of grant
ANZ expected Volatility1
Option Term
Vesting period
Expected life
Expected Dividend Yield
Risk Free Interest Rate
11-July-07
44,431
$25.94
$0.00
$29.60
15%
5 years
3 years
3 years
4.50%
6.37%
1-Nov-06
4,060
$27.54
$0.00
$29.54
15%
5 years
1.5 year
1.5 year
4.80%
6.11%
1-Nov-06
29,905
$25.66
$0.00
$29.54
15%
5 years
3 years
3 years
4.80%
6.02%
1-Nov-06
129,856
$26.89
$0.00
$29.54
15%
5 years
2 years
2 years
4.80%
6.11%
24-Oct-06
1,223,018
$13.08
$0.00
$28.15
15%
5 years
3 years
4 years
4.80%
6.00%
1 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is the
annualised standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical average
annualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options.
The signifi cant assumptions used to measure the fair value of instruments granted during the 2006 fi nancial year are contained in the table
below.
Option Type
Performance Options
Deferred Share Rights
Performance Rights
Zero-priced options
Grant Date
Number of Options
Option Fair Value (A$)
Exercise Price (5 day VWAP)
Share price at date of grant
ANZ expected Volatility3
Option Term
Vesting period
Expected life
Expected Dividend Yield
Risk Free Interest Rate
7-Nov-05
2,905,812
$3.05
$23.49
$23.60
17%
7 years
3 years
n/a1
5.41%
5.30%
7-Nov-05
10,845
$22.48
$0.00
$23.60
15%
7 years
1 year
1 year
5.00%
5.54%
18-Nov-05
1,624,6582
$11.64
$0.00
$24.05
15%
5 years
3 years
4 years
5.00%
5.31%
7-Nov-05
9,961
$23.57
$0.00
$23.60
n/a
1 year
Immediate
n/a
n/a
n/a
1 To allow maturity/marketability a 10% pa turnover rate (post vesting has been assumed, as well as that option holders will exercise their options if the share price is greater than twice the
exercise price.
2 This number includes an additional 59,400 rights allocated in May 2006, with the same terms and conditions as the 18 November 2005 grant.
3 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is the
annualised standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical average
annualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options.
Financial Report 153
NOTES TO THE FINA NCIAL STATEMENTS
48: Key Management Personnel Disclosures
KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Details regarding loans outstanding at the reporting date to directors of the Company and other key management personnel of the Group
including their personally related parties, where the individuals aggregate loan balance exceeded $100,000 at any time in the reporting period,
are as follows:
Directors
Non-executive Directors
2007
J P Morschel
D M Gonski1
2006
J P Morschel
D M Gonski1
Executive Director
2007
J McFarlane2,3
2006
J McFarlane2,3
Other key management personnel
2007
R J Edgar
B C Hartzer4
G K Hodges
P R Marriott
S Targett
2006
R J Edgar
E Funke Kupper4,5
B C Hartzer4
G K Hodges
P R Marriott
S Targett
Opening balance
1 October
Closing balance
30 September
Interest paid and
payable in the
reporting period
Highest balance
in the reporting
period
$
$
$
$
705,489
18,342,000
452,374
–
60,641
105,497
707,342
18,342,000
716,880
18,342,000
705,489
18,342,000
51,567
1,088,498
716,880
18,342,000
201,686
–
243,616
6,017,051
6,264,681
201,686
335,603
25,624,811
1,453,114
3,486,967
2,986,598
2,614,674
600,000
918,284
680,000
2,703,626
1,019,242
–
–
560,291
7,093,816
3,672,905
2,824,293
575,000
1,453,114
n/a
3,486,967
2,986,598
2,614,674
600,000
122,109
564,663
251,450
209,619
41,431
85,329
624
209,367
133,617
160,485
52,278
2,954,530
11,047,613
3,893,704
2,824,293
619,902
1,458,129
680,000
3,868,314
3,616,438
2,614,674
600,000
1 D Gonski resigned effective 30 June 2007.
2 J McFarlane resigned effective 30 September 2007.
3 The loan balances largely relate to loans for the purchase of ANZ shares, including the exercise of options.
4 Interest payments on the loan balances outstanding during the year were reduced as a result of a linked offset account.
5 E Funke Kupper resigned effective 1 February 2006.
Details regarding the aggregate of loans made, guaranteed or secured by any entity in the Group to each group of directors and other key
management personnel including related parties are as follows:
Directors
2007
2006
Other key management personnel
2007
2006
Opening balance
1 October
Closing balance
30 September
Interest paid and
payable in the
reporting period
Number in group at
30 September1
$
$
$
19,249,175
25,323,561
452,374
19,249,175
409,754
1,475,668
11,141,353
5,321,152
14,726,305
11,141,353
1,189,272
641,700
1
3
5
5
1 Number in the Group includes directors and specified executive with loan balances greater than zero.
154 ANZ Annual Report 2007
NOTES TO THE FINA NCIAL STATEMENTS
49: Transactions with Other Related Parties
Joint Venture Entities
During the course of the fi nancial year the Company and the Group conducted transactions with joint venture entities on normal commercial
terms and conditions as shown below:
Amounts receivable from joint venture entities
Interest revenue
Dividend revenue
Commissions received from joint venture entities
Costs recovered from joint venture entities
Consolidated
2007
$000
2006
$000
The Company
2007
$000
2006
$000
230,943
18,922
95,500
196,454
9,158
398,714
18,093
45,570
162,172
11,033
218,688
15,253
–
176,848
8,553
301,999
13,607
–
142,072
9,022
There have been no guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.
Associates
During the course of the fi nancial year the Company and Group conducted transactions with associates on normal terms and conditions as
shown below:
Amounts receivable from associates
Interest revenue
Dividend revenue
Consolidated
The Company
2007
$000
98,072
9,969
8,609
2006
$000
78,417
9,070
5,487
2007
$000
50,304
5,634
3,356
2006
$000
37,761
5,973
5,487
There have been no guarantees given or received. No outstanding amounts have been written down or recorded as allowances, as they are
considered fully collectible.
Subsidiaries
During the course of the fi nancial year subsidiaries conducted transactions with each other and joint ventures and associates on normal terms
and conditions. They are fully eliminated on consolidation. No outstanding amounts have been written down or recorded as allowances, as they
are considered fully collectible.
50: Exchange Rates
The exchange rates used in the translation of the results and the assets and liabilities of major overseas branches and controlled entities are:
Euro
Great British pound
New Zealand dollar
United States dollar
51: Events Since the End of the Financial Year
There were no signifi cant events from 30 September 2007 to the date of this report.
2007
2006
Closing
Average
Closing
Average
0.6223
0.4355
1.1643
0.8816
0.6072
0.4103
1.1330
0.8084
0.5882
0.3982
1.1455
0.7476
0.6071
0.4150
1.1433
0.7468
Financial Report 155
DIRECTORS’ DECLAR ATION
The directors of Australia and New Zealand Banking Group Limited declare that:
a) in the directors’ opinion, the fi nancial statements and notes of the Company and the consolidated entity have been prepared in accordance
with the Corporations Act 2001, including that they:
i) comply with applicable Australian Accounting Standards, (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001; and
ii) give a true and fair view of the fi nancial position of the Company and of the consolidated entity as at 30 September 2007 and of their
performance as represented by the results of their operations and their cash fl ows, for the year ended on that date; and
iii) the Annual Report of the consolidated entity complies with International Financial Reporting Standards as disclosed in note 1.
b) in the directors’ opinion, the remuneration disclosures that are contained on pages 14 to 35 of the Remuneration Report comply with
Australian Accounting Standard AASB 124 “Related Party Disclosures” when read in conjunction with the Corporations Act 2001; and
c) the directors have received the declarations required by section 295A of the Corporations Act 2001; and
d) in the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable; and
e) the Company and certain of its wholly owned controlled entities (listed in note 45) have executed a Deed of Cross Guarantee enabling them
to take advantage of the accounting and audit relief offered by class order 98/1418 (as amended), issued by the Australian Securities
and Investments Commission. The nature of the Deed of Cross Guarantee is to guarantee to each creditor payment in full of any debt in
accordance with the terms of the Deed of Cross Guarantee. At the date of this declaration, there are reasonable grounds to believe that the
Company and its controlled entities which executed the Deed of Cross Guarantee are able, as an economic entity, to meet any obligations
or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee.
Signed in accordance with a resolution of the directors.
Charles Goode
Chairman
7 November 2007
Michael R P Smith
Director
156 ANZ Annual Report 2007
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
AUSTR ALIA AND NEW ZEALA ND BANKING GROUP LIMITED
We have audited the accompanying fi nancial report of Australia and New Zealand Banking Group Limited (the Company), which comprises the
balance sheets as at 30 September 2007, and the income statements, statements of recognised income and expense and cash fl ow statements
for the year ended on that date, a summary of signifi cant accounting policies and other explanatory notes 1 to 51 and the directors’ declaration
of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the fi nancial year.
We have also audited the remuneration report contained in pages 14 to 35 of the directors’ report. As permitted by the Corporations
Regulations 2001, the company has disclosed information about the remuneration of directors and, including those required by Australian
Accounting Standard AASB 124 Related Party Disclosures, under the heading “remuneration report” in pages 14 to 35 of the directors’ report
and not in the fi nancial report.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL REPORT AND THE AASB 124 DISCLOSURES CONTAINED IN THE DIRECTORS’ REPORT
The directors of the Company are responsible for the preparation and fair presentation of the fi nancial report in accordance with Australian
Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes
establishing and maintaining internal controls relevant to the preparation and fair presentation of the fi nancial report that is free from material
misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are
reasonable in the circumstances. In note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation
of Financial Statements, that the fi nancial report of the Group, comprising the fi nancial statements and notes, complies with International
Financial Reporting Standards but that the fi nancial report of the Company does not comply.
The directors of the company are also responsible for the remuneration report contained in the directors’ report.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the fi nancial report based on our audit. We conducted our audit in accordance with Australian
Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and
plan and perform the audit to obtain reasonable assurance whether the fi nancial report is free from material misstatement. Our responsibility
is also to express an opinion on the remuneration report contained in the directors’ report based on our audit.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial report and the
remuneration disclosures contained in the directors’ report. The procedures selected depend on the auditor’s judgement, including the
assessment of the risks of material misstatement of the fi nancial report and the remuneration report contained in the directors’ report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair
presentation of the fi nancial report and the remuneration report contained in the directors’ report in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the
directors, as well as evaluating the overall presentation of the fi nancial report and the remuneration report contained in the directors’ report.
We performed the procedures to assess whether in all material respects the fi nancial report presents fairly, in accordance with the Corporations
Act 2001 and Australian Accounting Standards (including the Australian Accounting Interpretations), a view which is consistent with our
understanding of the Company’s and the Group’s fi nancial position and of their performance and whether the remuneration report is in
accordance with Australian Accounting Standard AASB 124.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.
AUDITOR’S OPINION ON THE FINANCIAL REPORT
In our opinion:
(a) the fi nancial report of Australia and New Zealand Banking Group Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Company’s and the Group’s fi nancial position as at 30 September 2007 and of their performance
for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations
Regulations 2001.
(b) the fi nancial report of the Group also complies with International Financial Reporting Standards as disclosed in note 1 but the fi nancial
report of the Company does not comply.
AUDITOR’S OPINION ON THE REMUNERATION REPORT CONTAINED IN THE DIRECTORS’ REPORT
In our opinion the remuneration report on pages 14 to 35 of the directors’ report complies with Australian Accounting Standard AASB 124
Related Party Disclosures.
KPMG
Melbourne, Australia
7 November 2007
Michelle Hinchliffe
Partner
Financial Report 157
FINANCIAL INFORMATION
1: Cross Border Outstandings
Cross border outstandings of the Group to countries which individually represented in excess of 0.75% of the Group’s total assets are shown
below.
There were no cross border outstandings to any other country exceeding 0.75% of total assets.
Cross border foreign outstandings are based on the country of domicile of the borrower or guarantor of the ultimate risk and comprise loans
(including accrued interest), placements with banks, acceptances and other monetary assets denominated in currencies other than the
borrower’s local currency.
For certain countries, local currency obligations are also included. Cross border foreign outstandings are before individual and collective
provisions.
At 30 September 2007
USA
United Kingdom
China
At 30 September 2006
United Kingdom
China
USA
Governments
and other
offi cial
institutions
$m
Banks
and other
fi nancial
institutions
$m
Other
commercial
and industrial
$m
1
–
49
19
4
14
3,498
1,942
3,119
2,231
3,166
2,753
1,679
2,392
456
2,685
372
459
Total
$m
5,178
4,334
3,624
4,935
3,542
3,226
2: Certifi cates of Deposit and Term Deposit Maturities
The following table shows the maturity profi le of the Group’s certifi cates of deposit and term deposits in excess of $100,000 issued at
30 September 2007.
% of
Group’s
assets
1.3
1.1
0.9
1.5
1.1
1.0
Total
$m
23,807
27,172
50,979
3,819
18,974
22,793
4,234
11,521
15,755
Less than
3 months
$m
11,450
22,740
34,190
3,213
10,615
13,828
3,266
10,018
13,284
Between
3 months and
6 months
$m
Between
6 months and
12 months
$m
4,252
2,551
6,803
481
3,539
4,020
14
944
958
1,886
1,768
3,654
104
3,374
3,478
937
494
1,431
8,563
After
1 year
$m
6,219
113
6,332
21
1,446
1,467
17
65
82
61,302
11,781
7,881
89,527
Australia
Certifi cates of deposit
Term deposits
New Zealand
Certifi cates of deposit
Term deposits
Overseas Markets
Certifi cates of deposit
Term deposits
Total
158 ANZ Annual Report 2007
FINANCIAL INFORMATION
3: Volume and Rate Analysis
The following table allocates changes in interest income and interest expense between changes in volume and changes in rate for the past two
years. Volume and rate variances have been calculated on the movement in average balances and the change in the interest rates on average
interest earning assets and average interest bearing liabilities. The variance caused by the change of both volume and rate has been allocated
in proportion to the relationship of the absolute dollar amounts of each change to the total.
Interest earning assets
Due from other fi nancial institutions
Australia
New Zealand
Overseas Markets
Investments in trading securities and AFS assets
Australia
New Zealand
Overseas Markets
Customers’ liability for acceptances
Australia
New Zealand
Overseas Markets
Loans and advances
Australia
New Zealand
Overseas Markets
Other interest earning assets
Australia
New Zealand
Overseas Markets
Intragroup assets
Australia
Overseas Markets
Change in interest income
Intragroup elimination
Interest bearing liabilities
Time deposits
Australia
New Zealand
Overseas Markets
Savings deposits
Australia
New Zealand
Overseas Markets
Other demand deposits
Australia
New Zealand
Overseas Markets
Due to other fi nancial institutions
Australia
New Zealand
Overseas Markets
Commercial paper
Australia
New Zealand
Overseas Markets
Borrowing Corporation debt
Australia
New Zealand
Liability for acceptances
Australia
New Zealand
Overseas Markets
Loan capital, bonds and notes
Australia
New Zealand
Overseas Markets
Other interest bearing liabilities
Australia
New Zealand
Overseas Markets
Intragroup liabilities
Australia
New Zealand
Change in interest expense
Intragroup elimination
Change in net interest income
Volume
$m
31
(44)
47
137
19
53
5
–
4
1,372
729
61
74
49
(37)
–
(409)
2,091
409
2,500
368
160
70
49
(17)
(1)
436
212
4
156
(7)
40
(54)
19
(333)
(21)
(10)
4
–
4
657
203
11
7
(11)
(7)
–
38
2007 over 2006
Change due to
Rate
$m
Other
$m
11
9
27
74
11
28
91
–
3
902
154
29
(36)
72
34
–
78
1,487
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
232
–
232
(78)
(232)
1,409
258
114
65
68
(25)
(5)
279
85
3
31
5
11
53
36
49
43
7
95
–
3
317
52
1
44
13
9
–
32
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(169)
–
(169)
169
–
–
1,977
1,643
(38)
1,939
561
(32)
1,611
(202)
Total
$m
42
(35)
74
211
30
81
96
–
7
2,274
883
90
38
121
(3)
232
(331)
3,810
99
3,909
626
274
135
117
(42)
(6)
715
297
7
187
(2)
51
(1)
55
(284)
22
(3)
99
–
7
974
255
12
51
2
2
(169)
70
3,451
99
3,550
359
2006 over 2005
Change due to
Volume
$m
Rate
$m
Other
$m
31
–
58
302
15
(4)
–
–
–
1,243
350
25
108
91
51
–
80
2,350
(80)
2,270
196
52
104
37
(15)
1
220
27
4
145
15
55
174
(101)
35
(12)
(6)
–
–
–
405
341
–
48
33
35
(3)
32
1,822
(29)
1,793
528
(2)
20
42
55
34
38
–
–
–
564
232
185
99
30
21
–
149
1,467
(149)
1,318
123
128
159
30
29
6
99
63
5
(8)
(1)
85
20
50
127
16
11
–
–
–
134
27
3
(195)
(40)
(16)
186
14
1,055
(200)
855
412
–
–
–
–
–
–
958
–
11
–
–
–
–
–
–
–
–
969
–
969
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
799
–
10
–
–
–
–
–
–
–
–
809
–
809
160
Total
$m
29
20
100
357
49
34
958
–
11
1,807
582
210
207
121
72
–
229
4,786
(229)
4,557
319
180
263
67
14
7
319
90
9
137
14
140
194
(51)
162
4
5
799
–
10
539
368
3
(147)
(7)
19
183
46
3,686
(229)
3,457
1,100
Financial Report 159
FINANCIAL INFORMATION
4: Concentrations of Credit Risk
Concentrations of credit risk exist if a number of counterparties are engaged in similar activities and have similar economic characteristics that
would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Off balance sheet
transactions of the Group are substantially with other banks.
Australia
Agriculture, forestry, fi shing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and offi cial institutions
Lease fi nance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other
Overseas
Agriculture, forestry, fi shing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Government and offi cial institutions
Lease fi nance
Manufacturing
Personal2
Real estate – commercial3
Real estate – mortgage4
Retail and wholesale trade
Other
2007
Individual5
provision
for credit
impairment
$m
Loans and1
advances
$m
2006
Individual5
provision
for credit
impairment
$m
Loans and1
advances
$m
7,618
5,488
4,215
4,357
8,148
67
1,813
7,259
18,377
13,718
112,279
11,293
10,216
204,848
13,280
1,450
723
1,330
2,682
866
401
6,105
3,167
6,805
41,431
3,796
5,964
88,000
12
7
3
6
3
–
9
54
41
3
27
21
18
7,079
4,882
3,757
4,408
4,795
52
2,378
7,050
15,579
10,229
100,362
10,106
9,923
15
13
4
5
2
–
12
59
28
2
19
31
23
204
180,600
213
6
1
1
2
10
–
1
9
14
1
–
2
9
56
11,898
836
627
1,437
3,109
893
600
4,553
3,692
6,573
36,647
2,677
5,589
79,131
3
–
–
–
8
–
–
26
21
–
2
–
6
66
Total portfolio
292,848
260
259,731
279
1 Loans and advances exclude acceptances.
2 Personal includes consumer lending except for lease finance facilities and those facilities secured by a mortgage.
3 Real estate commercial includes all business lending relating to commercial property.
4 Real estate mortgage includes all consumer lending secured by a mortgage.
5 Individual provision for credit impairment above relates to on balance sheet exposures. Individual provisions in respect of off balance sheet facilities were $42 million in 2007 and
$7 million in 2006.
160 ANZ Annual Report 2007
FINANCIAL INFORMATION
5: Provisions for Credit Impairment – Industry Analysis
i) Total write-offs by industry
Australia
Agriculture, forestry, fi shing and mining
Business service
Construction
Entertainment, leisure and tourism
Financial, investment and insurance
Lease fi nance
Manufacturing
Personal1
Real estate – commercial2
Real estate – mortgage3
Retail and wholesale trade
Other
New Zealand
Overseas
Total write-offs
ii) Total recoveries by industry
Australia
Agriculture, forestry, fi shing and mining
Business service
Construction
Entertainment, leisure and tourism
Lease fi nance
Manufacturing
Personal1
Real estate – commercial2
Retail and wholesale trade
Other
New Zealand
Overseas
Total recoveries
Net write-offs
Ratio of net write-offs to average loans and acceptances
1 Personal includes all consumer lending except for lease finance facilities and those facilities secured by a mortgage.
2 Real estate – commercial includes all business lending relating to commercial property.
3 Real estate – mortgage includes all consumer lending secured by a mortgage.
2007
$m
2006
$m
(51)
(17)
(6)
(3)
(2)
(4)
(11)
(337)
(1)
(11)
(22)
(13)
(75)
(31)
(584)
1
1
1
3
1
1
65
–
53
3
17
5
(1)
(10)
(5)
(3)
–
(1)
(11)
(264)
(1)
(5)
(10)
(20)
(68)
(22)
(421)
3
–
–
–
–
6
53
1
12
16
19
17
151
(433)
0.1%
127
(294)
0.1%
Financial Report 161
FINANCIAL INFORMATION
6: Short Term Borrowings
The Group’s short-term borrowings comprise commercial paper, as well as unsecured notes issued by subsidiary borrowing corporations with
an original term to maturity of less than one year. The Group has commercial paper programs in the United States, Europe and Asia where it
issues paper directly to investors. Prior to 27 November 2006, the Group issued commercial paper in the United States through ANZ
(Delaware) Inc.
Balance at end of year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other
Weighted average interest rate at end of year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other
Maximum amount outstanding at any month end during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other
Average amount outstanding during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other
Weighted average interest rate during year
Commercial paper – ANZ (Delaware) Inc.
Commercial paper – other
7: Capital Management
2007
$m
2006
$m
–
16,914
6,630
14,120
–
6.93%
4,711
19,431
926
16,547
5.30%
7.01%
5.35%
6.16%
7,528
19,018
7,373
17,173
4.51%
6.43%
APRA adopts a risk-based capital assessment framework for Australian banks based on internationally accepted capital measurement
standards. This risk-based approach requires eligible capital to be divided by total risk weighted assets, with the resultant ratio being used as a
measure of a bank’s capital adequacy.
Capital is divided into Tier 1, carrying the highest capital elements, and Tier 2, which has lower capital elements but still adds to the overall
strength of the entity. Tier 1 is divided into ‘Fundamental’ and ‘Residual’ capital, and Tier 1 deductions. ‘Residual’ capital covers hybrid Tier 1
instruments with limits restricting the volume that can be counted as Tier 1 capital. Tier 2 capital is divided into Upper and Lower Tier 2 capital;
with Lower Tier 2 capital being dated subordinated debt. Limits apply to the volume of Tier 2 and Lower Tier 2 that can be counted as capital for
prudential purposes. Further, in calculating the total capital, deductions are taken for any strategic holdings of other banks’ capital instruments
and investments in entities engaged in life insurance, funds management and securitisation activities. APRA introduced new prudential capital
standards as at 1st July 2006 which contain various transitional rules which run through to different dates in 2008 and 2010 to coincide with
Basel II implementation.
The measurement of risk weighted assets is based on: a) a credit risk-based approach wherein risk weightings are applied to balance sheet
assets and to credit converted off-balance sheet exposures. Categories of risk weights are assigned based upon the nature of the counterparty
and the relative liquidity of the assets concerned; and b) the recognition of risk weighted assets attributable to market risk arising from trading
and commodity positions. Trading and commodity balance sheet positions do not attract a risk weighting under the credit risk-based approach.
APRA has recently released a number of draft proposed changes to the prudential standards which will become effective from 1 January 2008.
These drafts include the following changes which will impact the capitol ratios:
Basel II methodologies for calculating Risk Weighted Assets and Expected Losses.
Loss of Collective Provision for credit impairment from Upper Tier 2. This amount will be replaced with either an amount in Upper Tier
2 of Eligible Provisions in excess of Expected Losses or 50% Tier 1 and 50% Tier 2 deductions of Expected Losses in excess of Eligible
Provisions, net of tax.
Total Capital deductions split between Tier 1 50% and Tier 2 50%.
Loss of AIFRS transitional relief of $716 million from Tier 1 Capital and $17 million from Tier 2 Capital.
Hybrid Limits become 25% of net Tier 1 capital, split between Innovative (15%) and Non-innovative (10%). ANZ has applied for transitional
relief to January 2010 as to the Innovative limit.
Additional capital requirements for the Holding Company’s investments in non-banking subsidiaries.
ANZ has modelled the impact of these changes and does not expect a signifi cant change in the level of regulatory capital requirements.
The ultimate impact of these changes is subject to the fi nal form of the prudential standards, ANZ receiving Basel II accreditation and any
associated transitional arrangements.
162 ANZ Annual Report 2007
FINANCIAL INFORMATION
7: Capital Management (continued)
Qualifying Capital
Tier 1
Shareholders’ equity and outside equity interests
Prudential adjustments to shareholders’ equity (refer Table 1)
Fundamental Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments
Gross Tier 1 capital
Deductions (refer Table 2)
Transitional Tier 1 capital relief
Tier 1 capital
Tier 2
Upper Tier 2 capital (refer Table 3)
Subordinated notes (refer Table 4)
Tier 2 capital
Deductions (refer Table 5)
Total qualifying capital
Adjusted Common Equity
Tier 1 capital
Less: Non-innovative Tier 1 capital instrument1
Innovative Tier 1 capital instruments (refer Table 6)1
Transitional Tier 1 capital relief
Deductions
Adjusted Common Equity (ACE)
Capital adequacy ratios
Tier 1
Tier 2
Deductions
Total
Adjusted Common Equity
Risk Weighted Assets
1 Converted at balance date spot rates.
As at
Sep 07
$m
As at
Sep 06
$m
22,048
(2,318)
19,906
(2,333)
19,730
1,033
3,119
17,573
–
3,342
23,882
20,915
(6,170)
716
(5,274)
716
18,428
16,357
2,296
8,826
1,946
8,177
11,122
10,123
(1,837)
(1,073)
27,713
25,407
18,428
(1,033)
(3,052)
(716)
(1,837)
16,357
–
(3,321)
(716)
(1,073)
11,790
11,247
6.7%
4.1%
10.8%
-0.7%
6.8%
4.2%
11.0%
-0.4%
10.1%
10.6%
4.3%
4.7%
275,018
240,219
Financial Report 163
FINANCIAL INFORMATION
7: Capital Management (continued)
Table 1: Prudential adjustments to shareholders’ equity
Reclassifi cation of preference share capital
Accumulated retained profi ts and reserves of insurance, funds management and securitisation entities and associates
Deferred fee revenue and expenses including fees deferred under AIFRS forming part of loan yields
Hedging reserve
Available-for-sale revaluation reserve
Dividend not provided for
Accrual for Dividend Reinvestment Plans
Other adjustments
Total
Table 2: Deductions from Tier 1 capital
Unamortised goodwill & other intangibles
Capitalised software
Capitalised expenses including loan and lease origination fees, capitalised securitisation establishment costs
and costs associated with debt raisings
Applicable deferred tax assets (excluding the component relating to the general reserve for impairment of
fi nancial assets)
Investment in ANZ Lenders Mortgage Insurance
Other adjustments
Total
Table 3: Upper Tier 2 capital
Eligible component of post acquisition earnings and reserves in associates and joint ventures
Perpetual subordinated notes
General reserve for impairment of fi nancial assets net of attributable deferred tax asset
Transitional Upper Tier 2 capital relief
Total
Table 4: Subordinated notes
For capital adequacy calculation purposes, subordinated note issues are reduced by 20% of the original amount
over the last four years to maturity and are limited to 50% of Tier 1 capital.
Table 5: Deductions from Total capital
Investment in Funds Management and Securitisation entities
Investment in joint ventures with ING in Australia and New Zealand
Investment in other Authorised Deposit Taking Institutions and overseas equivalents
Investment in other commercial operations
Other
Total
Table 6: Innovative Tier 1 capital instruments
Euro hybrid (converted at current rates)
US Stapled Trust Security
ANZ StEPS
Total
As at
Sep 07
$m
As at
Sep 06
$m
(871)
(398)
306
(153)
(97)
(1,381)
276
–
(871)
(289)
343
(227)
(2)
(1,267)
–
(20)
(2,318)
(2,333)
(4,911)
(462)
(602)
(3,996)
(397)
(569)
(57)
(290)
(101)
(37)
(31)
9
(6,170)
(5,274)
197
690
1,392
17
2,296
184
401
1,344
17
1,946
(85)
(525)
(1,025)
(124)
(78)
(86)
(526)
(370)
–
(91)
(1,837)
(1,073)
(804)
(1,248)
(1,000)
(850)
(1,471)
(1,000)
(3,052)
(3,321)
164 ANZ Annual Report 2007
FINANCIAL INFORMATION
7: Capital Management (continued)
Balance Sheet
Zero risk weighted assets1
Claims on approved banks and local governments
Advances secured by mortgages and other assets eligible for 50% risk weighting
Other assets - credit risk2
Total statement of fi nancial position assets - credit risk
Trading assets - market risk
Total balance sheet
Assets
Sep 2007
$m
Sep 2006
$m
Risk Weighted Assets
Sep 2007
$m
Sep 2006
$m
52,703
24,190
145,054
158,731
380,678
11,935
34,115
19,584
131,134
138,119
322,952
11,688
–
4,838
72,527
159,518
236,883
n/a
-
3,917
65,567
138,119
207,603
n/a
392,613
334,640
236,883
207,603
Off-balance sheet exposures3
Direct credit substitutes
Trade and performance related items
Commitments
Foreign exchange, interest rate and other market
related transactions
Notional Amount
Credit Equivalent
Risk Weighted Assets
Sep 2007
$m
Sep 2006
$m
Sep 2007
$m
Sep 2006
$m
Sep 2007
$m
Sep 2006
$m
8,114
15,909
107,269
7,588
14,788
98,554
8,114
6,983
18,445
7,588
6,470
17,030
5,796
6,222
15,791
5,432
5,657
14,611
1,692,885
1,169,553
29,019
18,010
8,379
5,240
Total off-balance sheet exposures – credit risk
1,824,177 1,290,483
62,561
49,098
36,188
30,940
Total risk weighted assets – credit risk
Risk weighted assets – market risk
Total risk weighted assets
273,071
1,947
238,543
1,676
275,018
240,219
1 Includes $2,069 million (September 2006: $1,938 million) in assets of subsidiaries consolidated on adoption of AIFRS excluded for risk weighting calculations for
APRA reporting purposes.
2 In 2007, risk weighted assets includes intragroup assets with entities deconsolidated for prudential purposes.
3 Excludes off-balance sheet exposures in subsidiaries consolidated under accounting standards as required by APRA.
Financial Report 165
FINANCIAL INFORMATION
8: Additional Financial Instrument Risk Disclosures
The Group has not early adopted AASB 7: ‘Financial Instruments: Disclosure’ which is applicable for the year ending 30 September 2008. As
part of ANZ’s transition to AASB 7 compliance, the Group has enhanced its disclosures on market and liquidity risks in Note 35 and the fair
value of fi nancial instruments in Note 37. The following additional disclosures on credit risk associated with fi nancial instruments are made to
assist readers with the transition to AASB 7 disclosures.
Credit Risk
Equity investments classifi ed as available-for-sale fi nancial assets are excluded from the disclosures below.
Distribution of fi nancial assets by credit quality
The credit quality of the portfolio is assessed by reference to the Group’s risk grading principles and policies supported by a complementary risk
grading methodology. As detailed in Note 35, ANZ uses a two dimensional risk grading system, which measures both the customer’s ability to
repay and the loss in the event of default.
Past due but not impaired
Refers to APRA 90 Days Past Due defi nition. This applies where contractual payments are past due greater than
90 days, or where the facility remains outside of contractual arrangements for greater than 90 consecutive days,
but the Group believes that impairment has not occured on the basis of the level of security/collateral available.
Well secured
Portfolio managed
Impaired
A facility, subject to a regular repayment schedule, is classifi ed as 90 Days Past Due when at least 90 calendar
days have elapsed since the due date of a contractual payment has not been met in full. The total amount outside
of contractual arrangements has to be equivalent to at least 90 days worth of contractual payments and the
facility is well secured.
Facilities that do not have a regular repayment schedule are considered 90 days past due when the facility has
remained continuously outside of contracted arrangements for 90 or more consecutive days and the facility is
well secured.
Well secured is when the fair value of the associated security is suffi cient to ensure that ANZ will recover the
entire amount owing over the life of the facility and there is reasonable assurance that collective efforts will
result in payment of the amounts due in a timely manner.
Financial assets which are homogenous with similar characteristics and are assessed, approved, and
controlled on a portfolio basis within a centralised environment (for example Credit Cards, Personal Loans,
Home Loans). When the fi nancial assets are managed on a portfolio basis, the assets can be held on a
non impaired basis for up to 180 days.
Impaired assets are credit exposures where there is doubt as to whether the full contractual amount will
be received, and/or where a material credit obligation is more than 90 days past due where it is not well
secured. In the event where the value of collateral is suffi cient to repay both the principal debt and all
potential interest and there is no concern of the creditworthiness of the counterparty in question, the
exposure is then classifi ed as past due but not impaired.
Consolidated
2007
$m
2007
$m
2007
$m
2007
$m
Due
from other
fi nancial
institutions
Gross
loans and
advances
Customers’
liabilities for
acceptances
Available-for-
sale assets
8,040
291,621
14,536
13,626
–
–
–
474
87
666
–
–
–
–
–
–
8,040
292,848
14,536
13,626
–
126
–
–
8,040
292,974
14,536
13,626
Gross carrying amounts of fi nancial assets
Neither past due nor impaired
Past due but not impaired
Well Secured
Portfolio Managed
Impaired
Unproductive facilities
166 ANZ Annual Report 2007
FINANCIAL INFORMATION
8: Additional Financial Instrument Risk Disclosures (continued)
Credit quality of fi nancial assets neither past due nor impaired
The credit quality of fi nancial assets is managed by ANZ using internal ratings which aim to refl ect the relative ability of counterparties to fulfi l,
on time, their credit-related obligations, and is based on their current probability of default.
Internal rating
Satisfactory risk
Sub-standard but not impaired
Internal rating
Satisfactory risk
Sub-standard but not impaired
Customers that have consistently demonstrated sound operational and fi nancial stability over the medium to
long term, even though some may be susceptible to cyclical trends or variability in earnings. This rating broadly
corresponds to ratings “Aaa” to “Ba3” and “AAA” to “BB-” of Moody’s and Standard & Poor respectively.
Customers that have demonstrated some operational and fi nancial instability, with variability and
uncertainty in profi tability and liquidity projected to continue over the short and possibly medium term.
This rating broadly corresponds to ratings “B1” to “Caa” and “B+” to “CCC” of Moody’s and Standard & Poor
respectively.
2007
$m
Due
from other
fi nancial
institutions
Consolidated
2007
$m
2007
$m
2007
$m
Gross
loans and
advances
Customers’
liability for
acceptances
Available-for-
sale debt
assets
8,040
–
287,259
4,923
14,357
179
13,626
–
8,040
292,182
14,536
13,626
Renegotiated facilities
The Group distinguishes between facilities renegotiated on a commercial basis, on terms similar to those offered to new clients with similar
risk, and those renegotiated on non commercial terms as a result of a client’s inability to meet original contractual obligations.
In the course of renegotiating facilities due to fi nancial diffi culty, the Group may consider modifying its terms to include concessions such as a
reduction in the principal amount, a deferral of repayments, and/or an extension of the maturity date materially beyond those typically offered
to new facilities with similar risk.
Renegotiated facilities are classifi ed as productive and must demonstrate sound prospects of being able to adhere to the modifi ed contractual
terms. Where doubt exists as to the capacity to sustain the modifi ed terms, the facilities remain impaired and an appropriate level of individual
provision is held.
Renegotiated loans that would otherwise be due or impaired are nil (2006: nil).
Individually impaired fi nancial assets
ANZ regularly reviews its portfolio and monitor adherence to contractual terms. When doubt arises as to the collectability of a credit facility, the
fi nancial asset is classifi ed and reported as individually impaired and an individual provision is allocated against it.
Gross carrying amount of impaired fi nancial assets
Individual provision balance on impaired fi nancial assets
Unproductive facilities
Individual provision balance on unproductive facilities
Consolidated
2007
$m
2007
$m
2007
$m
Due
from other
fi nancial
institutions
Gross
loans and
advances
Available-for-
sale debt
assets
–
–
–
–
–
–
666
(260)
406
126
(42)
84
–
–
–
–
–
–
Financial Report 167
FINANCIAL INFORMATION
8: Additional Financial Instrument Risk Disclosures (continued)
The following table presents an analysis of gross amounts of individually impaired fi nancial assets by type and geographic region:
Due from other fi nancial institutions
Loans and advances:
Agricultural, Forestry, Fishing and Mining
Business Service
Construction
Entertainment, Leisure and Tourism
Finincial, Investment and Insurance
Government and Offi cial Institutions
Lease Finance
Manufacturing
Personal
Real Estate – Commercial
Real Estate – Mortgage
Retail and Wholesale Trade
Other
Available-for-sale assets
Unproductive facilities
2007
$m
Consolidated
2007
$m
2007
$m
Australia
New
Zealand
Overseas
Markets
–
66
15
6
9
4
–
13
138
50
27
63
39
84
514
–
121
–
12
2
3
2
32
–
1
28
8
1
2
4
4
99
–
5
635
104
–
1
–
1
1
1
–
–
3
35
1
–
2
8
53
–
–
53
2007
$m
Total
–
79
17
10
12
37
–
14
169
93
29
65
45
96
666
–
126
792
Security held in respect of individually impaired gross loans and advances in the analysis above has an estimated fair value of $214 million
(security held in respect of impaired off-balance sheet facilities amounts to $6 million).
The analysis above does not have a separate category for Customers’ liability for acceptances. When customers’ liabilities for acceptances
become impaired, the resulting balances are recorded under loans and advances.
168 ANZ Annual Report 2007
FINANCIAL INFORMATION
8: Additional Financial Instrument Risk Disclosures (continued)
Maximum exposure to credit risk
For fi nancial assets recognised on the balance sheet, the exposure to credit risk equals their carrying amount. In certain circumstances, there
may be differences between the carrying amounts reported on the balance sheet and the amounts reported in the table below. Principally,
these differences arise in respect of fi nancial assets that are subject to risks other than credit risk, such as equity investments or banknotes and
coins. Other differences are determined to be insignifi cant.
For contingent exposures, the maximum exposure to credit risk is the maximum amount that ANZ would have to pay if the contingents are called
upon. For undrawn facilities, the maximum exposure to credit risk is the full amount of the committed facilities.
The following table presents the maximum exposure to credit risk of on-balance sheet and off-balance sheet fi nancial instruments before taking
account of any collateral held or other credit enhancements.
On-balance sheet positions
Liquid assets (other than cash and coins at bankers)
Due from other fi nancial institutions
Trading securities (other than equity instruments)
Derivative fi nancial instruments
Available-for-sale assets (other than equity instruments)
Net loans and advances
Customers’ liability for acceptances
Other fi nancial assets
Off-balance sheet positions
Undrawn facilities
Contingent facilities
Total
Consolidated
2007
$m
2006
$m
13,320
8,040
15,120
22,237
13,626
288,846
14,536
3,510
12,569
9,665
9,179
9,164
10,588
255,922
13,435
3,596
379,235
324,118
107,269
23,816
98,554
22,055
131,085
120,609
510,320
444,727
Financial Report 169
GLOSSARY
AAS – Australian Accounting Standards
(also known as AIFRS).
AASB – Australian Accounting Standards
Board.
Adjusted Common Equity (ACE) is Tier 1
capital less preference shares and other
Hybrid Capital at current exchange rates,
regulatory deductions from total capital and
transitional capital relief as approved by
APRA.
AFS – Available-for-sale assets.
AIFRS – Australian Equivalents to
International Financial Reporting Standards.
APRA – Australian Prudential Regulation
Authority.
Collective provision is the provision for
Credit Losses that are inherent in the
portfolio but not able to be individually
identifi ed. A collective provision may only be
recognised when a loss event has already
occurred. Losses expected as a result of
future events, no matter how likely, are not
recognised.
Credit equivalent represents the calculation
of on-balance sheet equivalents for market
related items.
Equity standardisation. Economic Value
Added (EVATM) principles are in use
throughout the Group, whereby risk adjusted
capital is allocated and charged against
business units. Equity standardised profi t
is determined by eliminating the impact
of earnings on each business unit’s book
capital and attributing earnings on the
business unit’s risk adjusted capital. This
enhances comparability of business unit
performance. Geographic results are not
equity standardised.
Group Centre division includes Operations,
Technology and Shared Services, Treasury
(funding component), Group People
Capital, Group Strategic Development,
Group Financial Management, Group Risk
Management, Capital Funding and Group
Items.
Impaired assets are those whose carrying
value is greater than the amount expected
to be recovered over their lives. More
specifi cally, in relation to loans or other
credit facilities, impairment may arise
where there is reasonable doubt about the
collectability of interest, fees (past and
future) or principal outstanding, or where
concessional terms have been provided
because of the fi nancial diffi culties of the
customer.
Income includes external interest income
and other external operating income.
170 ANZ Annual Report 2007
Individual provision charge is the amount of
expected credit losses on those loans and
advances assessed for impairment on an
individual basis. It takes into account the
NPV of expected cash fl ow over the lives of
those loans and advances.
Institutional division provides a full range of
fi nancial services principally to ANZ Australia
and New Zealand corporate and institutional
customers in all geographies. Institutional
has a major presence in Australia and New
Zealand and also operations in Europe, USA
and Asia.
Working Capital consists of Trade and
Transaction Services and Relationship
lending. Trade and Transaction services
provides working capital solutions
including lending and deposit products,
cash transaction banking management,
trade fi nance, international payments,
clearing and custodian services
principally to Institutional and Corporate
customers. Relationship Lending
manages the Institutional and Corporate
balance sheets with a particular focus
on credit quality, diversifi cation and
maximising risk adjusted returns.
Markets provides risk management
services to Corporate and Institutional
clients globally in relation to foreign
exchange, interest rates, credit and
commodities. This includes the business
providing origination, underwriting,
structuring and risk management
services, advice and sale of credit and
derivative products globally. Markets also
manages the Group’s interest rate risk
position.
Business Banking provides a full range
of banking services, including risk
management, to metropolitan based
small to medium sized business clients
with up to $50 million turnover.
Corporate Finance provides complex
fi nancing and advisory services,
structured fi nancial products, leasing,
private equity fi nance, project fi nance,
leveraged fi nance and infrastructure
investment products to our global client
set.
Relationships & Infrastructure includes
Institutional Banking, Financial
Institutions and Corporate Banking. These
units use our client relationship teams
for our global Institutional and Financial
Institutions customers and our Corporate
customers in Australia.
Liquid assets are cash and cash equivalent
assets. Cash equivalent assets are highly
liquid investments with short periods to
maturity, are readily convertible to cash
at ANZ’s option and are subject to an
insignifi cant risk of changes in value.
Net advances include gross loans and
advances and acceptances less income
yet to mature and allowance for credit
impairment.
Net interest average margin is net interest
income as a percentage of average interest
earning assets. Non-assessable interest
income is grossed up to the equivalent
before tax amount for the purpose of these
calculations.
Net interest spread is the average interest
rate received on interest earning assets less
the average interest rate paid on interest
bearing liabilities. Non-assessable interest
income is grossed up to the equivalent
before tax amount for the purpose of these
calculations.
Net non-interest bearing items, which are
referred to in the analysis of interest spread
and net interest average margin, includes
shareholders’ equity, impairment of loans
and advances, deposits not bearing interest
and other liabilities not bearing interest,
offset by premises and equipment and other
non-interest earning assets. Non-performing
loans are included within interest bearing
loans, advances and bills discounted.
Net tangible assets equals share capital
and reserves attributable to shareholders of
the Group less preference share capital and
unamortised intangible assets (including
software).
New Zealand Businesses includes the
following businesses:
ANZ Retail - operating under the ANZ
brand in New Zealand provides a full
range of banking services to personal and
business banking customers.
NBNZ Retail - operating under the National
Bank brand in New Zealand, provides a
full range of banking services to personal
and business banking customers.
Corporate Banking in New Zealand -
incorporates the ANZ and National Bank
brands and provides fi nancial solutions
through a relationship management
model for medium-sized businesses with
a turnover up to NZD100 million.
Rural Banking in New Zealand - provides a
full range of banking services to rural and
agribusiness customers.
Private Banking and Retail Specialist
Units - includes ANZ’s 49% stake in ING
New Zealand, Private Banking operating
under the ANZ and National brands and
Bonus Bonds.
GLOSSARY
UDC - provides motor vehicle and
equipment fi nance, operating leases and
investment products.
Non-core items are disclosed separately in
the income statement to remove volatility
from the underlying business result, and
include signifi cant items, ANZ National Bank
incremental integration costs and non-core
income arising from the use of derivatives in
economic hedges on fair value through profi t
and loss.
Non-performing loans comprises loans
where there is reasonable doubt about the
collectability of interest, fees (past and
future) or principal outstanding, or where
concessional terms have been provided
because of fi nancial diffi culties of the
customer.
Operating expenses exclude the provision
for impairment of loans and advances
charge.
Operating income in business segments
includes equity standardised net interest
and other operating income.
Operations, Technology & Shared Services
comprises the Group’s core support units
responsible for operating the Group’s global
technology platforms, development and
maintenance of business applications,
information security, the Group’s payments
back-offi ce processing, and the provision
of other essential shared services to the
Group, including property, people capital
operations, procurement and outsourcing.
Overseas includes the results of all
operations outside Australia, except if New
Zealand is separately shown.
Overseas Markets includes all operations
outside of Australia and New Zealand. The
Group’s geographic segments are Australia,
New Zealand and Overseas Markets.
Partnerships & Private Bank is responsible
for ANZ’s partnerships with other institutions
in Australia and Asia, along with ANZ’s
Private Bank business, and includes the
following:
INGA includes the equity accounted
earnings from ANZ’s 49% stake in ING
Australia Ltd, a joint venture between
ANZ and ING.
International Partnerships – ANZ
continues to develop a portfolio of
strategic retail partnerships in Asia. ANZ
currently has partnerships in Indonesia
with PT Panin Bank, in the Philippines
with Metrobank, in Cambodia with the
Royal Group, in China with Bank of Tianjin
(formerly Tianjin City Commercial Bank)
and Shanghai Rural Commercial Bank,
in Vietnam with Sacombank and AMMB
Holdings Berhad in Malaysia. These
partnerships are focused on leveraging
ANZ Australia’s capabilities into faster
growing personal and small business
banking markets via the established client
bases of the local partners.
Other includes Private Bank, Personal and
Private Banking Asia and support units
within the division.
Personal is a division comprising Rural
Commercial & Agribusiness Products,
Small Business Banking Products, Banking
Products, Mortgages, Consumer Finance,
Investment and Insurance Products, Esanda,
Pacifi c Banking and a number of other areas,
including the branch network and marketing
in Australia.
Mortgages – provides housing fi nance
to consumers in Australia for both owner
occupied and investment purposes.
Banking Products – provides transaction
banking and savings products, such
as term deposits, V2+, and cash
management accounts.
Consumer Finance – provides consumer
and commercial credit cards, ePayment
products, personal loans, merchant
payment facilities in Australia and ATM
facilities.
Rural Commercial & Agribusiness Products
– provides a full range of banking services
to personal customers across regional
and rural Australia, and to small business
and agribusiness customers in rural and
regional Australia.
Small Business Banking Products –
provides a full range of banking services
for metropolitan-based small businesses
in Australia with unsecured loans up to
$100,000.
Esanda – provides motor vehicle and
equipment fi nance, operating leases and
investment products.
Pacifi c – provides retail and corporate
banking services to customers in the
Pacifi c Region.
Investments and Insurance Products
– comprises ANZ Australia’s Financial
Planning, Margin Lending, insurance
distribution, Trustees business and ETrade
Australia, an online broking business.
Restructured facilities refers to customers
who have been provided concessions due
to their fi nancial diffi culties. In the course
of restructuring facilities, the following
concessions might be considered: a
reduction in the principal amount; a deferral
of repayments; and/or an extension of
the maturity date materially beyond those
typically offered to new facilities with
similar risk.
Return on asset ratios include net intra
group assets which are risk weighted at
0% for return on risk weighted assets
calculations.
Revenue includes net interest income and
other operating income.
Segment assets represents total external
assets excluding deferred tax assets.
Segment result represents equity
standardised profi t before income tax
expense.
Segment revenue includes equity
standardised net interest income and other
operating income.
Service transfer pricing is used to allocate
services that are provided by central areas
to each of their business units. The objective
of service transfer pricing is to remove cross-
subsidies between business units, and
ensure each business accounts for the cost
of the services it uses.
Service transfer pricing charges are reported
in the profi t and loss statement of each
business unit as:
Net inter business unit fees – includes
intra-group receipts or payments for sales
commissions and branch service fees. A
product business will pay a distribution
channel for product sales. Both the
payment and receipt are shown as net
inter business unit fees.
Net inter business unit expenses –
consists of the charges made to business
units for the provision of support services.
Both payments by business units and
receipts by service providers are shown
as net inter business unit expenses.
Signifi cant items are items that have a
substantial impact on profi t after tax, or
the earnings used in the earnings per share
calculation. Signifi cant items also do not
arise in the normal course of business and
are infrequent in nature. Divestments are
typically defi ned as signifi cant items.
Sub-standard assets are customers that
have demonstrated some operational and
fi nancial instability, with variablility and
uncertainty in profi tability and liquidity
projected to continue over the short and
possibly medium term.
Total advances include gross loans and
advances and acceptances less income
yet to mature (for both as at and average
volumes). Loans and advances classifi ed
as available-for-sale are excluded from total
advances.
Unproductive facilities comprises off-
balance sheet facilities (such as standby
letters of credit, bill endorsements,
documentary letters of credit, guarantees to
third parties, foreign currency and interest
rate products) and undrawn on balance
sheet facilities where the customer is
defi ned as impaired.
Financial Report 171
ALPHABETICAL INDEX
Additional Financial Instrument
Risk Disclosures
Associates
Available-for-sale Assets
Average Balance Sheet
and Related Interest
Balance Sheets
Bonds and Notes
Capital Management
Cash Flow Statements
Certifi cates of Deposit and
Term Deposit Maturities
Chairman’s Report
Commitments
Compensation of Auditors
Concentrations of Credit Risk
Contingent Liabilities, Contingent
Assets and Credit Related
Commitments
Controlled Entities
Corporate Governance Report
Critical Estimates and Judgements
Used in Applying Accounting
Policies
Cross Border Outstandings
Deferred Tax Assets
Deposits and Other Borrowings
Derivative Financial Instruments
Directors’ Declaration
Directors’ Report
Dividends
Due from Other Financial Institutions
166
135
83
106
55
98
162
57
158
3
137
70
160
138
134
36
65
158
92
96
75
156
10
72
74
Due to Other Financial Institutions
Earnings Per Ordinary Share
Employee Share and Option Plans
Events Since the End of the
Financial Year
Exchange Rates
Expenses
Fair Value of Financial Assets
and Financial Liabilities
Fiduciary Activities
Financial Risk Management
Glossary
Goodwill and Other Intangibles
Assets
Impaired Financial Assets
Income
Income Statements
Income Tax Expense
Income Tax Liabilities
Independent Auditor’s Report
Interest Rate Risk
Interest Spreads and
Net Interest Average Margins
Interests in Joint Venture Entities
Key Management Personnel
Disclosures
Liquid Assets
Loan Capital
Minority interests
Net Loans and Advances
Notes to the Cash Flow Statements
96
74
148
155
155
69
123
136
110
170
93
87
68
54
71
97
157
122
109
135
154
74
99
105
86
132
Other Assets
Overview of Business Divisions
Overview of Operations
Payables and Other Liabilities
Premises and Equipment
Provisions
Provisions for Credit Impairment
Provision for Credit Impairment –
Industry Analysis
Regulatory Deposits
Reserves and Retained Earnings
Segment Analysis
Share Capital
Shareholder Information
Shares in Controlled Entities,
Associates and Joint
Venture Entities
Short Term Borrowings
Signifi cant Accounting Policies
Statements of Recognised
Income and Expense
Superannuation and Other
Post Employment Benefi t Schemes
Ten Year Summary
Trading Securities
Transactions with Other
Related Parties
Volume and Rate Analysis
94
6
4
97
94
98
88
161
89
104
129
102
50
89
162
58
56
143
8
75
155
159
172 ANZ Annual Report 2007
Australia and New Zealand Banking Group Limited
www.anz.com ABN 11 005 357 522