2008 Annual Report
For personal use only For personal use only Annual Report
Contents
Chairman’s Report
Chief Executive Officer’s Report
Chief Financial Officer’s Report
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’ Qualifications, Experience and Special Responsibilities
Company Secretaries’ Qualifications and Experience
Non-Audit Services
Lead Auditor’s Independence Declaration
Directors and Officers who were previously partners
of the Auditor
Chief Executive Officer/Chief Financial Officer Declaration
Directors’ And Officers’ Indemnity
Rounding Of Amounts
Executive Officers’ and Employee Share Options
Remuneration Report
Director Remuneration
Non-executive Directors’ Remuneration
Executive Remuneration Structure
Chief Executive Officers’ Remuneration
Disclosed Executives’ Contract terms
Equity Instruments Relating to Disclosed Directors
and Executives
Copy of the Auditor’s Independence Declaration
Corporate Governance Statement
Shareholder Information
Financial Report
Income Statements
Balance Sheets
Statements of Recognised Income and Expense
Cash Flow Statements
Notes to the Financial Statements
1 Significant Accounting Policies
2 Critical Estimates and Judgements Used
in Applying Accounting Policies
Income
3
4 Expenses
5 Compensation of Auditors
6 Current 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
2
3
4
14
16
16
16
16
16
16
16
17
17
17
17
18
18
18
18
18
19
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20
20
24
25
29
32
33
41
42
56
60
60
61
62
63
64
64
76
78
79
80
81
82
83
84
84
84
85
91
Notes to the Financial Statements (continued)
14 Net Loans and Advances
15 Impaired Financial Assets
16 Provision for Credit Impairment
17 Shares in Controlled Entities, Associates
and Joint Venture Entities
18 Tax Assets
19 Goodwill and Other Intangible Assets
20 Other Assets
21 Premises and Equipment
22 Deposits and Other Borrowings
23 Income Tax Liabilities
24 Payables and Other Liabilities
25 Provisions
26 Bonds and Notes
27 Loan Capital
28 Share Capital
29 Reserves and Retained Earnings
30 Minority Interests
31 Capital Management
32 Assets Charged as Security for Liabilities and
Collateral Accepted as Security for Assets
33 Financial Risk Management
34 Fair Value of Financial Assets and Financial Liabilities
35 Maturity Analysis of Assets and Liabilities
36 Segment Analysis
37 Notes to the Cash Flow Statements
38 Controlled Entities
39 Associates
40
41 Securitisations
42 Fiduciary Activities
43 Commitments
44 Credit Related Commitments, Guarantees,
Interests in Joint Venture Entities
Contingent Liabilities and Contingent Assets
45 Superannuation and Other Post Employment
Benefit Schemes
46 Employee Share and Option Plans
47 Key Management Personnel Disclosures
48 Transactions with Other Related Parties
49 Exchange Rates
50 Events Since the End of the Financial Year
Directors’ Declaration
Independent Auditor’s Report
Financial Information
Interest Spreads and Net Interest Average Margins
1 Capital Adequacy
2 Average Balance Sheet and Related Interest
3
4 Special Purpose and Off-Balance Sheet Entities
5 Leveraged Finance
6 Asset-Backed Securities
Glossary of Financial Terms
Alphabetical Index
92
93
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96
99
100
101
101
103
103
104
104
105
106
109
111
112
113
115
116
141
148
148
152
154
155
155
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192
ANZ Annual Report 2008 1
For personal use only
Chairman’s
Report
A message from Charles Goode
ANZ has weathered a challenging year in 2008 and been able to maintain the dividend for shareholders. Our underlying
business performance was solid, however dislocation in global financial markets and the change in the cycle in Australia
and New Zealand impacted parts of our business. The Board and our new Chief Executive acted decisively to address the
changing environment and a number of process and control issues in the Bank. While the economic outlook is softer, we
have a clear strategy and the foundations on which to plan positively for the future.
OUR PERFORMANCE
ANZ’s profit after tax for the year ended 30 September 2008 was
$3,319 million, down 21% and cash profit* was $3,029 million,
down 23%. Both reflect credit related losses.
BOARD
Four new Directors will be appointed to the Board over the next
twelve months to add further experience and expertise and to
facilitate a transition with the planned retirements of some directors.
Margaret Jackson and Jerry Ellis will retire during 2009. Both have
made a very considerable contribution to the Board. We appointed
Peter hay, a leading Australian corporate lawyer with experience
in investment banking, and Alison Watkins, who has experience
in small business, retailing and financial services, to our Board
in November.
Sir Rod Eddington, one of Australia’s most respected business
leaders with extensive international business experience, has
agreed to join the Board and succeed me as Chairman. he will join
the Board in the third quarter of 2009 when he has relinquished
some of his current commitments and will assume the Chair after
a transition period at which time I will retire from the Board.
We aim to be a super regional bank and this involves further
expansion into Asia. We are very pleased that Lee hsien Yang,
an experienced Asian business leader who lives in Singapore
and has considerable knowledge of the region, has also agreed
to join our Board from 1 February 2009.
OUTLOOK
Looking ahead, although coordinated action by governments
and regulators has helped to provide stability to the global
financial system, economic growth will be much softer in 2009.
The underlying performance of our business and our strategic
focus on Asia however provide the foundation for us to manage
through these uncertain times and deliver acceptable returns
for shareholders over the longer term.
Importantly, our business remains strong and we maintained the
dividend at 136 cents per share fully franked.
The global economic environment softened and financial markets
were in turmoil as a result of the US sub-prime crisis. In this
environment ANZ experienced a significant increase in provisions
for credit impairment following the cyclical lows in 2007. We kept
shareholders informed as these issues emerged through trading
updates during the year.
A number of deficiencies in our Institutional Division in risk
management and operational controls were identified and
remedial action is being taken. We are addressing a backlog
of expenditure in our technology and systems.
Our results were a solid achievement in a time when many
other banks in the world faced considerable difficulty. I thank
management and staff for their contribution.
ExPANSION AND GROWTh
ANZ has an aspiration to become a super regional bank through
expanding in Asia. Our underlying performance and progress across
the Group in 2008 reinforces that ANZ has a good foundation on
which to build and achieve this aspiration.
We have made a number of senior management appointments
to strengthen and expand ANZ. Susie Babani joined from hSBC
and was appointed Group Managing Director human Resources.
Christopher Page, also from hSBC, initially joined ANZ as head
of Risk for Asia Pacific and was subsequently appointed Chief
Risk Officer. Margaret Payn was appointed to lead Strategy and
Marketing and focus on strategic productivity improvements
across the Bank.
We are in a strong liquidity position and well capitalised consistent
with our AA credit rating. We took the opportunity with the Interim
and Final Dividend to improve our capital position by offering a
discount of 1.5% under our Dividend Reinvestment Plan and having
it underwritten.
ANZ’s Tier 1 capital ratio of 7.7% compares well globally and against
domestic peers.
Charles Goode Chairman
* Adjusted for non-core items (i.e. significant items and non-core income arising from the
use of derivatives in economic hedges and fair value through profit and loss).
2 ANZ Annual Report 2008
For personal use only Chief Executive
Officer’s Report
A message from Michael Smith
At ANZ we have taken the decision that it is time to change and set ourselves up to become a super regional bank
focused on Australia, New Zealand and Asia Pacific. 2008 has been a difficult year in banking around the world but
we have demonstrated a high level of resilience given the international turmoil. Our results show we have the right
foundation with solid underlying momentum in our business. At the same time we need to take the necessary steps
to ensure we are well managed during the challenging economic conditions ahead.
ANZ is positioned well in a difficult environment. Although ANZ’s
earnings fell 21% in 2008, underlying revenue* grew 12%. Lending
growth for the year was 16% and growth in deposits and other
borrowings was 21% highlighting an increased reliance on AA rated
banks, the relative strength of the regional economy and the quality
of ANZ’s franchise.
The Personal Division and our rapidly growing Asia Pacific Division
delivered very good performances. The Institutional Division
improved on an underlying basis but provisions and valuation
adjustments had a significant impact on the result for the Group
as a whole. The performance in New Zealand was softer reflecting
a weaker economy.
Our results demonstrated ANZ’s ability to weather an extremely
challenging year. We have maintained our dividend, provided
security and confidence for our customers and worked hard to
meet community expectations with responsible, sustainable
banking services.
Since I joined ANZ in October 2007, we have done much to put
the Bank on a new footing with a clear strategy focused on creating
a super regional bank. We recognised the new reality in financial
markets early and strengthened the balance sheet, increased
capital and liquidity and systematically tackled some deficiencies
in operating processes and controls.
We have identified four areas that we will focus on to deliver on
our aspiration and we have made good progress in bringing them
alive. These areas are:
CuSTOMER FOCuS. Our business should be designed around our
customers’ needs rather than product lines. This means removing
silos and boundaries in our business and bringing us closer together
as ‘One ANZ’.
MARkETING AND SAlES. We need to shift our thinking from selling
commodity products to looking at differentiating the way we market
ourselves, the way we segment our offering and the way we serve
our customers.
TEChNOlOGY. We need a different philosophy to bring us up to the
levels of technology used by banks globally, not just in Australia or
New Zealand.
PERFORMANCE. We need out performance at every level – financial
out performance, out performing in customer service and in our
work ethic.
We have made good progress in 2008, however there is much
that needs to be done over the next four years to deliver on our
aspirations.
Although we expected credit costs to increase in 2008, provisions
were high. In the wake of these losses, we have undertaken a review
of our business to ensure that everything we do is core to our clients’
needs and our risk appetite is managed well.
We undertook a review of our Securities Lending business. Action was
taken against a number of employees and we committed to a 13-point
remediation plan.
In September, we announced a new structure for our business
to accelerate progress with our strategy and to improve financial
performance.
We have also built a strong management team of bankers with
over 250 years of banking experience on our management board.
I believe there is no substitute for bankers with experience of good
times and bad, and the experience to understand and see difficult
times through.
These actions will ensure ANZ will be a stronger, more effective
business in the future.
ANZ now has the right foundation to build upon and there are
significant opportunities emerging. Continuing to manage in a
steady decisive manner will set ANZ up to deliver on our aspiration
to become a super regional bank. This is the key to creating greater
value and out-performance for our shareholders over the longer term.
I believe we have a clear direction and the capacity to make ANZ a
great regional company. We are in the right place in the Asia Pacific
region, at the right time with the right people to deliver performance
and value to our shareholders.
Michael Smith Chief Executive Officer
* Adjusted for non-core items (i.e. significant items and non-core income arising from the
use of derivatives in economic hedges and fair value through profit and loss), credit risk
on derivatives and a structured trading transaction offset in tax expense.
Chief Executive Officer’s Report 3
For personal use only Chief Financial Officer’s
Report
A message from Peter Marriott
ANZ reported a profit after tax of $3,319 million for the year ended 30 September 2008.
Income Statement ($m)
Net interest income
Other operating income1
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense
Minority interest
Profit attributable to shareholders of the Company
1 Includes share of joint venture and associates profit.
2008
7,850
4,309
12,159
(5,696)
6,463
(1,948)
4,515
(1,188)
(8)
3,319
2007
7,302
4,038
11,340
(4,953)
6,387
(522)
5,865
(1,678)
(7)
4,180
Movt
8%
7%
7%
15%
1%
large
-23%
-29%
14%
-21%
ANZ reported a profit attributable to shareholders of the Company
of $3,319 million for the year ended 30 September 2008, down
$861 million from $4,180 million for the year ended 30 September
2007. The results were impacted by a $1,426 million increase in
credit impairment charges and a $721 million charge for credit risk
on derivatives.
Key factors influencing the decrease in profit were:
Net interest income increased $548 million (8%) from $7,302
million for the year ended 30 September 2007 to $7,850 million
for the year ended 30 September 2008. Net interest income
was driven by lending growth of 16% and deposits and other
borrowings growth of 21%, partially offset by a decline in net
interest margin of 18 basis points.
Other operating income increased $271 million (7%) from
$4,038 million for the year ended 30 September 2007 to
$4,309 million for the year ended 30 September 2008. The
increase included a $353 million gain on Visa shares, an increase
over 2007 of $188 million arising from volatility from the use of
derivatives in economic hedges and use of the fair value option,
and reductions in other operating income relating to an increase
in credit risk on derivatives of $676 million, which is treated as
negative income, a decrease of $127 million relating to a
structured trading transaction, which is offset by an equivalent
credit in income tax expense and gains from the sale of Fleet
Partners Pty Limited and Truck Leasing Limited in 2007 not
repeated in 2008.
Operating expenses increased $743 million (15%) from $4,953
million for the year ended 30 September 2007 to $5,696 million
for the year ended 30 September 2008. The increase included
costs associated with an organisational transformation of $218
million and $34 million for an impairment of an intangible asset.
Provision for credit impairment increased $1,426 million from
$522 million for the year ended 30 September 2007 to $1,948
million for the year ended 30 September 2008 as a result of the
ongoing deterioration in the global credit market and a softening
in the New Zealand and Australian economies.
Income tax expense decreased $490 million (29%) from $1,678
million for the year ended 30 September 2007 to $1,188 million
for the year ended 30 September 2008. The effective tax rate was
26.3%, a reduction of 2.3% from 30 September 2007. The decrease
primarily reflects higher equity accounted earnings, increased
concessionally taxed Offshore Banking Unit (OBU) income, mainly
as a result of the structured transaction referred to above, the
restatement of deferred tax balances in 2007 for the announced
New Zealand tax rate change and non-assessable mark-to-market
gains on fair valued assets related to our associate investments.
These items were partially offset by the usage of capital losses,
which offset the gain from the sale of Esanda Fleetpartners.
Analysis in greater detail of business performance in major income
and expense categories follows.
NET INTEREST INCOME
Net interest income increased $548 million (8%) to $7,850 million
for the year ended 30 September 2007. Net interest income was
driven by an increase in average interest earning assets of 17% and
growth in average deposits and other borrowings of 22%, partially
offset by a decline in net interest margin of 18 basis points.
The increase in average interest earning assets included a 16%
increase in net advances, primarily in Mortgages, from growth in
retail housing and investment loans. Institutional grew 30% due to
corporate re-intermediation following the tightening of global credit
markets earlier in the year and New Zealand grew 8% with growth
primarily across the Retail and Rural businesses.
4 ANZ Annual Report 2008
For personal use only Other interest earning assets increased 26% due to higher trading
and investment securities and other liquid assets, primarily in
Markets, following our decision to hold a higher liquidity portfolio
during the current market turmoil.
Other income increased $89 million primarily in Asia Pacific from
higher equity accounted income from our investments in AMMB
holdings Berhad (AMMB) and Shanghai Rural Commercial Bank
(SRCB) and increased income from Panin Bank.
Average deposits and other borrowings increased 22%, with
customer deposits growing by 12%. Personal grew 14% as a result
of ongoing marketing campaigns, branch expansion and higher
deposit rates. Institutional grew 16% due to customer acquisition
and a flight to cash investments reflecting share market volatility.
Wholesale funding grew 58% to fund growth in the asset book with
growth in Group Treasury, Institutional and New Zealand.
Net interest margin was down 18 basis points to 2.01% from
September 2007, with the key drivers being:
Credit market impacts (-7 basis points) due to higher wholesale
funding costs and competitive pressures offset by out of cycle
rate adjustments and the benefit in a rising rate environment on
deposits and capital.
Funding mix (-5 basis points). Margins were impacted by a lower
proportion of funding through deposits and a higher proportion
of wholesale funding.
Asset mix (-2 basis points) resulting from a lower proportion
of high margin lending assets in Personal and an increase in
the proportion of low margin in business in Institutional.
Other items (-4 basis points). higher funding costs associated
with unrealised trading gains, however this is directly offset by
an equivalent increase in trading income.
OThER OPERATING INCOME
Other operating income increased $271 million (7%) to $4,309
million for the year ended 30 September 2008. Excluding the gain
on Visa shares of $353 million, the increase of $188 million arising
from volatility from the use of derivatives in economic hedges and
use of the fair value option and reductions relating to the increase
in credit risk on derivatives of $676 million that is treated as
negative income (refer page 6) and the decrease of $127 million
relating to a structured trading transaction offset in tax expense
and gains from the sale of Fleet Partners Pty Limited and Truck
Leasing Limited of $195 million recognised in 2007, other operating
income increased $728 million (18%).
Net fee and commission income increased $276 million, with
an increase of $104 million in lending fees primarily in Personal
(reflecting volume growth particularly in Banking Products,
Mortgages and Consumer Finance) and Institutional (reflecting
volume growth in Relationship Lending, Corporate Finance, Markets
and Business Banking). Non lending fee income increased $172
million with the main areas of growth being Consumer Finance and
Banking Products within Personal following pricing initiatives and
account acquisitions, and Corporate Finance within Institutional
following strong deal activity.
Foreign exchange earnings increased $250 million primarily in
Markets, due to volatility in global currency markets and higher
sales volumes, and Group Centre, which benefited from hedge
gains due to the weaker NZD and USD.
OPERATING ExPENSES
Operating expenses increased $743 million (15%) to $5,696 million
for the year ended 30 September 2008. Excluding the impact
of the costs associated with an organisational transformation of
$218 million and $34 million for an impairment of an intangible
asset, operating expenses increased $491 million (10%).
Personnel costs were up $269 million (9%) as a result of annual
salary increases and a 7% increase in staff numbers from additional
staff to support new initiatives and business growth. Premises
costs increased $50 million (11%), driven mainly by higher rental
expense reflecting additional space requirements, the impact of
the sale and leaseback program and market rental growth. Computer
costs increased $15 million (3%) due to an increase in computer
contractors to enhance technology risk management and for
architecture investment programs.
Other expenses increased $157 million (17%) with the major
increases being professional fees, mainly from the review of the
Securities Lending business, initiatives pursuant to the growth
strategy in Asia Pacific, advertising spend in Personal to support
growth campaigns, sponsorship in Group Centre, and an increase
in non-lending losses.
PROVISION FOR CREDIT IMPAIRMENT
Provision for credit impairment increased $1,426 million to
$1,948 million for the year ended 30 September 2008. The
individual provision charge increased $691 million. Institutional
increased $532 million reflecting the deterioration in global credit
markets and a softening Australian economy with downgrades
for a small number of customers in the broking, finance, mining,
business services and manufacturing sectors, together with an
impairment expense of $98 million relating to securities backed
by US Alt-A mortgages and corporate debt instruments held in
the liquidity portfolio accounted for on an available-for-sale basis.
New Zealand increased $105 million driven by higher retail
consumer and small to medium business provisioning charges as
weak economic conditions impacted household income, consumer
spending and small businesses. Personal increased $44 million
driven by higher losses in Esanda, Personal Loans and Small
Business Banking Products which have been mostly offset by an
improved loss rate in Consumer Credit Cards.
The collective provision charge increased $735 million. This
included an economic cycle adjustment charge of $225 million
due to the deterioration in global credit markets and a slowing
New Zealand economy, as well as an incremental risk charge of
$300 million to reflect higher portfolio concentration risk within
the Institutional portfolio. In addition, Institutional increased
$181 million due to portfolio growth and risk movements.
New Zealand increased an additional $30 million from an increase
in unsecured consumer delinquencies and a weakening in the small
to medium business risk profiles.
Chief Financial Officer’s Report 5
For personal use only Chief Financial Officer’s Report (continued)
CREDIT RISK ON DERIVATIVES
ANZ recognised $721 million of credit risk on derivatives during the year as negative revenue in the Income Statement.
Full year
Sep 08
$m
Full year
Sep 07
$m
531
156
34
721
–
–
45
45
IMPAIRED ASSETS
Gross non-performing loans at $1,750 million represent a
$1,084 million increase over 30 September 2007. The increase
is principally in Institutional and due to a number of downgrades
spread across the finance sector (including broking and financial
asset investors), health care and business services segments.
The New Zealand Businesses increase was primarily driven by
customer downgrades in the retail and small to medium business
portfolios. The increase in Personal was driven by higher retail
chattel default rates in Esanda (particularly in the commercial and
used car sectors), margin lending and residential investment loan
defaults relating to a very small number of private bank customers
and an increase in defaults across commercial and agriculture
customers in Regional and Rural Banking.
CAPITAL AND FUNDING
ANZ’s Tier 1 capital ratio of 7.7% compares well globally and
against domestic peers. The Group has been proactive throughout
the year in its efforts to further strengthen capital, undertaking a
series of initiatives including exchanging StEPS for ordinary equity,
underwriting the 2007 final and 2008 interim dividend and raising
$1.7 billion in hybrid Tier 1 capital. To further strengthen its capital
ratios ANZ will also underwrite the final 2008 dividend.
Notwithstanding particularly challenging capital market conditions,
ANZ has issued a record $39 billion of term wholesale debt during
the year to further strengthen our funding and liquidity position.
Additionally, since 30 September 2008 the liquid asset portfolio
has been significantly increased to over $53 billion, which provides
sufficient cover for 1 year of all offshore wholesale debt maturities.
Credit risk on derivatives
Credit intermediation trade related
Counterparty defaults
Other counterparties
Credit risk on derivatives
This charge arose from:
changes to the creditworthiness of counterparties to our
structured credit intermediation trades,
defaults on customer derivative exposures with two mining
companies and a financial institution, and
changes in counterparty credit ratings on the remainder of
our derivatives portfolio.
ANZ entered into a series of structured credit intermediation trades
from 2004 to 2007. The underlying structures involve credit default
swaps (CDS) over synthetic collateralised debt obligations (CDOs)
(80%), portfolios of external collateralised loan obligations (CLOs)
(12%) or specific bonds/floating rate notes (FRNs) (8%).
ANZ sold protection using credit default swaps over these structures
and then to mitigate risk purchased protection via credit default
swaps over the same trades from eight US financial guarantors many
of which are rated AAA.
As derivatives, both the sold protection and purchased protection
are marked-to-market. Prior to the commencement of the global
credit crisis, gains and losses were not significant and offset each
other in income.
The value of the obligation under the sold protection has grown
to USD1.4 billion, for which the purchased protection has provided
only a partial offset as:
one of the purchased protection counterparties has defaulted, and
ANZ has made a credit valuation adjustment on the remaining
counterparties. Although many of the US financial guarantors
are AAA or AA, their credit spreads have increased significantly.
As a result of the above, the aggregate of credit risk expense for
credit intermediation trades is USD425 million ($531 million) for
the financial year 2008.
It is likely there will continue to be substantial volatility in this
market value, however ANZ expects the mark-to-market adjustment
for credit risk on these structured credit derivatives to substantially
reverse as either credit spreads contract and/or the derivatives
reach maturity.
6 ANZ Annual Report 2008
For personal use only Chief Financial Officer’s Report (continued)
BALANCE ShEET SUMMARY
Assets
Liquid assets
Due from other financial institutions
Trading and available-for-sale assets
Derivative financial instruments
Net loans and advances including acceptances
Other
Total assets
liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial instruments
Liability for acceptances
Bonds and notes
Other
Total liabilities
Total equity
ANZ recorded solid balance sheet growth through the year ended
30 September 2008 with asset and liability growth of 20%.
Major movements in asset and liability categories include:
Liquid assets increased $8.0 billion to $25.0 billion at
30 September 2008 mainly from an increase in bank
certificates of deposit of $5.1 billion primarily in the United
Kingdom, Singapore and the United States. Repurchase
agreements increased $1.6 billion in Group Treasury and cash
holdings increased $1.2 billion, primarily in New Zealand.
Derivative assets increased $14.7 billion to $36.9 billion, and
derivative liabilities increased $7.7 billion to $31.9 billion at
30 September 2008 driven by significant volatility in the foreign
exchange, interest rate and credit derivative markets and gains
on hedges of our foreign currency debt.
Net loans and advances including acceptances increased
$47.1 billion to $350.5 billion at 30 September 2008. Growth in
Australia was $31.3 billion or 15%. Personal grew by $17.0 billion
(12%) mainly due to growth in housing loans from Mortgages.
Institutional grew by $14.3 billion (21%) largely driven by
re-intermediation of corporate customers following the tightening
of global credit markets. New Zealand Businesses grew by
$6.6 billion (9%) mainly due to increases in Retail and Private
Banking and Rural Banking. Overseas Markets increased
$9.2 billion (76%) due primarily to growth in corporate lending
in Asia and the United Kingdom.
As at
Sep 08
$m
As at
Sep 07
$m
Movt
Sep 08 v.
Sep 07
25,030
9,862
32,657
36,941
350,484
16,050
471,024
20,092
283,966
31,927
15,297
67,323
25,867
16,987
8,040
29,173
22,204
303,415
12,954
392,773
19,116
233,743
24,180
14,536
54,075
25,075
444,472
370,725
26,552
22,048
47%
23%
12%
66%
16%
24%
20%
5%
21%
32%
5%
24%
3%
20%
20%
Deposits and other borrowings increased $50.2 billion to
$284.0 billion at 30 September 2008. Australia increased
$29.6 billion (19%) largely as a result of growth in Personal of
$8.1 billion (12%) following branch expansion, ongoing marketing
campaigns and improved attractiveness of bank deposits given
higher interest rates and share market volatility; Institutional
increased $7.2 billion (13%) due mainly to growth in term and other
high interest deposit accounts and Treasury increased $14.3 billion
largely due to an increase in certificates of deposit to fund lending
growth. New Zealand increased $4.6 billion (8%) with increases
largely in Treasury and Retail Banking. Overseas Markets increased
$16.0 billion (82%) due to an increase in customer term deposits
and higher certificates of deposit issued to fund lending growth.
Bonds and notes increased $13.2 billion to $67.3 billion at
30 September 2008 in Australia and New Zealand. $5.6 billion of
the growth was in response to increased term funding requirements
and $7.6 billion was the result of exchange rate movements.
Chief Financial Officer’s Report 7
For personal use only Chief Financial Officer’s Report (continued)
PERSONAL DIVISION
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense and minority interest
Profit after tax
Total assets
Employee numbers
2008
3,424
1,481
4,905
(2,349)
2,556
(437)
2,119
(634)
1,485
2007
3,112
1,326
4,438
(2,150)
2,288
(386)
1,902
(572)
1,330
167,863
150,523
13,132
12,767
Movt %
10%
12%
11%
9%
12%
13%
11%
11%
12%
12%
3%
Profit after tax increased $155 million (12%) to $1,485 million for
the year ended 30 September 2008. This increase was driven by
strong income from average lending and customer deposit growth
(both at 12%), and the continued benefits from ongoing investment
in the business.
Net interest income increased 10% with strong balance sheet growth,
while margins reduced 3 basis points reflecting increased funding
costs, competition and a shift to lower margin products. Other
operating income increased 12% driven by new customer account
acquisition and revenue initiatives. Operating expenses increased
9% or $199 million, with the main drivers including increased
personnel costs mainly from increased customer facing and support
roles. Premises costs and marketing costs increased to drive footprint
expansion and revenue growth. The branch investment program
concluded, meaning we incurred nearly a full year of costs relating
to our expanded branch operations. Non-lending losses increased
$13 million, while technology expenses to support initiatives and
the branch network increased $13 million. Credit costs increased
13% with the major drivers being volume growth, acquisition growth
and a decline in market conditions leading to higher delinquencies
and bankruptcies.
8 ANZ Annual Report 2008
For personal use only Chief Financial Officer’s Report (continued)
INSTITUTIONAL DIVISION1
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense and minority interest
Profit after tax
Total assets
Employee numbers
2008
2,259
1,071
3,330
(1,492)
1,838
(1,218)
620
(94)
526
2007
1,984
1,481
3,465
(1,335)
2,130
(24)
2,106
(624)
1,482
208,040
157,661
6,051
5,373
Movt %
14%
-28%
-4%
12%
-14%
large
-71%
-85%
-65%
32%
13%
1 Institutional Asia Pacific is included in both Institutional and Asia Pacific business units consistent with how this business is internally managed.
Profit after tax decreased $956 million (65%) to $526 million for the
year ended 30 September 2008. These results have been adversely
impacted by the global credit crisis, including recognition of
significant credit risk on derivatives of $721 million.
Net interest income increased 14% with growth in average net
lending assets of 30% and average deposits of 27%. The main
impacts on margins were higher funding costs, partially offset by
repricing of the book which led to an improved margin performance.
Other operating income (excluding credit risk on derivatives)
increased by 17%. Non-lending fees increased by 14%, and foreign
exchange earnings by 30%. Growth rates in New Zealand (50%) and
Asia (58%) were particularly strong.
Operating expenses grew 12% driven by growth in staff numbers
of 13%, with increases concentrated in our strategic growth areas
of Asia and Markets and in frontline relationship staff.
Provisioning for credit impairment increased materially. The collective
provision charge for the year of $672 million reflected balance sheet
growth, a general deterioration in the overall quality of the lending
portfolio and the charges taken to reflect increased concentration
risk to financial institutions (including securities lending) and the
property sector. Individual provision charges were dominated by two
large securities firms’ exposures, two mining exposures, the collapse
of an offshore financial institution and the write-down and sales
of certain corporate debt securities and certain bonds backed by
US Alt-A mortgages held for liquidity purposes. Income tax expense
decreased as a result of a structured transaction that had a positive
outcome after tax. This transaction reduced income tax expense
$127 million, with an offsetting reduction to revenue.
Chief Financial Officer’s Report 9
For personal use only Chief Financial Officer’s Report (continued)
NEW ZEALAND BUSINESSES
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense and minority interest
Profit after tax
Total assets
Employee numbers
2008
1,644
506
2,150
(1,027)
1,123
(240)
883
(283)
600
2007
1,658
508
2,166
(1,036)
1,130
(69)
1,061
(341)
720
76,256
9,178
70,550
9,087
Movt %
-1%
0%
-1%
-1%
-1%
large
-17%
-17%
-17%
8%
1%
Profit after tax decreased $120 million (17%) to $600 million for
the year ended 30 September 2008. The result was impacted by
the devaluation of the average NZD exchange rate, with NZD profit
declining NZD100 million or 12%. The combination of domestic
recession and the impact of the global credit crunch has had a
significant impact on business performance in 2008. The Retail
businesses have been most affected by the economic slowdown
which has been led by the household sector: they have experienced
a marked slowdown in the volume of new business, increased
levels of household sector stress (driven by higher interest rates,
fuel and food costs) and a switch to intense competition for
domestic deposits as global funding conditions have tightened.
Net interest income decreased 1%, however excluding the impact
of exchange rates increased 4% with balance sheet growth (lending
9% and customer deposits 6%) partially offset by a 21 basis point
contraction in margins. Deposit margins contracted as a result
of increased competition and unfavourable mix in a high rate
environment with migration of customers from low to high yielding
products.
Operating expenses decreased 1%, however excluding the impact
of exchange rates increased 4%. Cost growth was due to annual
increases in salaries, an increase in the number of customer-facing
staff and investment in businesses initiatives, partially offset by
strong control of discretionary expenditure. The cost to income ratio
was stable at 47.8%.
The individual provision charge increased $105 million, largely
reflecting increasing mortgage, consumer and small-to-medium
business arrears in response to the significant downturn in the
economy and resultant stress in the household sector. The collective
provision charge increase of $66 million mainly reflected the impact
of the economic environment on mortgages, personal loans, credit
cards and small-to-medium size business lending, and an economic
cycle adjustment of $34 million to reflect the rapid deterioration in
the economy during 2008.
10 ANZ Annual Report 2008
For personal use only ASIA PACIFIC DIVISION1
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense and minority interest
Profit after tax
Total assets
Employee numbers
2008
480
559
1,039
(470)
569
(64)
505
(92)
413
2007
347
365
712
(322)
390
(42)
348
(77)
271
32,147
4,394
17,051
3,308
Movt %
38%
53%
46%
46%
46%
52%
45%
19%
52%
89%
33%
1 Institutional Asia Pacific is included in both Institutional and Asia Pacific business units consistent with how this business is internally managed.
Profit after tax increased $142 million (52%) from $271 million
for the year ended 30 September 2007 to $413 million for the
year ended 30 September 2008. This growth was driven mainly by
partnerships in Asia with full year earnings received for investments
in AMMB holdings Berhad (AMMB) and Shanghai Rural Commercial
Bank (SRCB), which were acquired late in 2007, and mark-to-market
gains on warrants in P.T. Bank Pan Indonesia (Panin). Institutional
Asia Pacific profit grew 38% reflecting increased markets capability
and income from our investment in Saigon Securities Inc (SSI).
These gains were partly offset by increased investment in our
organic business particularly in front office markets capability and
investments in branches in key strategic markets such as Vietnam
and Indonesia.
Net interest income increased 38% driven by growth of 56% in
average lending assets and 29% in average deposits. The growth
in the loan book was largely funded through increased customer
deposits as we leveraged the corporate and retail network throughout
the region.
Other operating income grew 53%, which was due mainly to
increased equity accounted earnings from our various partnerships in
Asia. Other factors contributing to the increase include higher income
in Markets Asia Pacific on the back of volatility in the global markets,
increased product offering and sales strength in Asia, increased
trade flows in Papua New Guinea and the booking of mark-to-market
gains on bonds convertible into shares in SSI and warrants in Panin.
Operating expenses increased 46% as we extended the branch
networks in Vietnam, Cambodia, Papua New Guinea, Indonesia
and Solomon Islands. Client relationship and specialist resources
were boosted in Asia in order to build the business notwithstanding
underlying inflationary pressures brought about by strong economic
growth in the Asian countries. Our regional hubs in hong Kong and
Singapore were also extended to house the increased leadership and
support resources required to drive the growth agenda. Provision for
credit impairment increased 52%, due primarily to asset growth and
an increase in the collective provision to reflect global credit market
turmoil during 2008.
Chief Financial Officer’s Report 11
For personal use only Chief Financial Officer’s Report (continued)
ING AUSTRALIA JOINT VENTURE
Income Statement ($m)
Funds management income
Risk income
Operating income
Expenses
Gross tax on operating profit
Profit after tax, before capital investment earnings
Capital investment earnings after tax
Profit after tax before minority interest
Minority interest
Profit after tax
ANZ share
ANZ share @ 49%
Net Funding
Net return to ANZ
2008
497
328
825
(468)
(86)
271
(18)
253
–
253
124
2
126
2007
501
284
785
(474)
(68)
243
69
312
(1)
311
152
3
155
Movt %
-1%
15%
5%
-1%
26%
12%
large
-19%
-100%
-19%
-18%
-33%
-19%
Despite the adverse market conditions, the joint venture achieved
12% year-on-year growth in operating profit after tax before capital
investment earnings. Other highlights included strong growth in the
aligned financial adviser force, Standard & Poor’s Ratings Services
raising its insurer financial strength rating on the core life company
ING Life Ltd to AA- from A+ (outlook stable) and a significant
organisational restructure.
Funds management income fell 1% despite the 9% reduction in
funds under management, due mainly to the timing (and non-
recurrence) of the exceptional inflows into superannuation products
driven by tax incentives experienced during mid-2007. Risk income
was 15% higher with the increase driven by growth in the in-force
books of term life, group life and consumer credit and was assisted
by reinsurance recoveries on income protection claims in 2008 and
continued favourable mortality and morbidity experience.
Funds management expenses were well contained due to scale
efficiencies and increased automation. Life risk expenses increased
due to the increased cost base associated with supporting the
growth in retail risk and consumer credit business. Tax on operating
profit was significantly higher due to the non-recurrence of prior
year one-off deductions. Capital investment earnings after tax were
significantly lower than 2007 due to the cost of meeting capital-
guaranteed obligations on a closed book of business causing the
market value decline on the assets which back this liability, the
non-recurrence in 2008 of a one-off realisation of capital gains of
$12 million following a capital restructure in 2007, a more defensive
investment asset mix, significantly lower realisable investment gains,
and the impact of rising domestic interest rates on the value of the
risk reserves and on the cost of servicing parent company loans.
12 ANZ Annual Report 2008
For personal use only OThER1
Income Statement ($m)
Net interest income
Other operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense and minority interest
Profit after tax
Employee numbers
1 Other includes Group Centre and significant items.
2008
210
787
997
(498)
499
(9)
490
(149)
341
2007
290
370
660
(200)
460
(2)
458
(110)
348
4,344
4,110
Movt %
-28%
large
51%
large
8%
large
7%
35%
-2%
6%
Profit after tax decreased by $7 million (2%) to $341 million for the
year ended 30 September 2008.
Net interest income decreased 28% due primarily to reduced interest
earned on surplus capital following investments in Asia and higher
funding costs relating to less favourable tax timing differences and
lower Treasury income. Other income increased materially with the
inclusion of a gain on Visa shares of $353 million, an increase over
2007 of $188 million arising from volatility from the use of
derivatives in economic hedges and use of the fair value option,
partly offset by a gain of $195 million in 2007 from the sale of
Esanda Fleetpartners.
In addition, other income increased following an improvement in
earnings from matured revenue hedges and an increase in profits
on sales of properties. Operating expenses increased $298 million
largely from costs associated with an organisational transformation
of $218 million and an impairment of an intangible asset of
$34 million. The effective tax rate increased 6.4% to 30.4% for
the year ended 30 September 2008, primarily from the usage of
capital losses in 2007, which offset the gain from sale of Esanda
Fleetpartners, partially offset by the restatement of deferred tax
balances in 2007 for the announced New Zealand tax rate change.
Chief Financial Officer’s Report 13
For personal use only Ten Year
Summary
Financial Performance1
Net interest income
Other operating income
Operating expenses
Profit before income tax, credit
impairment and non-core items1
Provision for credit impairment
Income tax expense
Minority interest
Cash profit1
Non-core items1
Profit 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
– final
– 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
– final
Other information
Points of representation10
No. of employees (full time equivalents)
No. of shareholders11
2008
$m
7,850
3,645
(5,444)
6,051
(1,948)
(1,066)
(8)
3,029
290
3,319
471,024
26,552
7.7%
14.5%
0.8%
47.4%
-33.5%
38,263
136c
100%
100%
$31.74
$15.07
$18.75
170.4c
82.6%
$10.72
2,040.7
$20.82
–
1,346
36,925
376,813
2007
$m
7,302
3,720
(4,953)
6,069
(522)
(1,616)
(7)
3,924
256
4,180
392,773
22,048
6.7%
20.9%
1.2%
44.9%
15.6%
55,382
136c
100%
100%
$31.50
$25.75
$29.70
224.1c
60.9%
$9.36
1,864.7
$29.29
$27.33
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%
20.7%
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%
18.3%
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%
19.1%
1.2%
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
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
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
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
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
1 Cash profit excludes non-core items. Non-core items are disclosed separately in the income
statement to remove volatility from the underlying business result, and include significant
items, ANZ National Bank incremental integration costs and non-core income arising from
the use of derivatives in economic hedges on fair value through profit and loss. Significant
items are items that have a substantial impact on the profit after tax, or the earnings used in
the earnings per share calculation. Significant items also do not arise in the normal course
of business and are infrequent in nature. In addition, the 2005 result has been calculated on
an IFRS 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 1999 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. Basel II has been applied from 1 January 2008.
4 Excludes minority interest. The 2005 ratio has been calculated on an IFRS basis that is
comparable with that of 2006.
14 ANZ Annual Report 2008
For personal use only
Financial Performance1
Net interest income
Other operating income
Operating expenses
Profit before income tax, credit
impairment and non-core items1
Provision for credit impairment
Income tax expense
Minority interest
Cash profit1
Non-core items1
Profit 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
– interim
Share price7
– final
– 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
– final
Other information
Points of representation10
No. of employees (full time equivalents)
No. of shareholders11
2008
$m
7,850
3,645
(5,444)
6,051
(1,948)
(1,066)
(8)
3,029
290
3,319
471,024
26,552
7.7%
14.5%
0.8%
47.4%
-33.5%
38,263
136c
100%
100%
$31.74
$15.07
$18.75
170.4c
82.6%
$10.72
2,040.7
$20.82
–
1,346
36,925
376,813
2007
$m
7,302
3,720
(4,953)
6,069
(522)
(1,616)
(7)
3,924
256
4,180
392,773
22,048
6.7%
20.9%
1.2%
44.9%
15.6%
55,382
136c
100%
100%
$31.50
$25.75
$29.70
224.1c
60.9%
$9.36
1,864.7
$29.29
$27.33
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%
20.7%
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%
18.3%
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%
19.1%
1.2%
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
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
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
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
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
5 For the periods 1999 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 IFRS 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 accordance with changes to accounting standards 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 15
For personal use only
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 2008
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 financial
products and services to retail, small business, corporate
and institutional clients.
The Group conducts its operations primarily in Australia and
New Zealand (90% of total assets at 30 September 2008 are
related to these operations). The remainder of the Group’s
operations are conducted across the Asia Pacific region and
in a number of other countries including the United Kingdom
and the United States.
At 30 September 2008, the Group had 1,346 branches and
other points of representation worldwide excluding Automatic
Teller Machines (ATMs).
RESULT
Consolidated profit after income tax attributable to shareholders
of the Company was $3,319 million, a decrease of 21% over the
prior year.
The decrease in profit is due to an increase in the provision for
credit impairment charge of $1,426 million following the ongoing
deterioration in the global credit market and softening economies
in Australia and New Zealand. In addition, the result was impacted
by an increase in credit risk on derivatives of $676 million mainly
relating to structured credit intermediation trades, which is treated
as negative income.
Balance sheet growth has been strong over the past 12 months
with total assets increasing 20%. The major components of this
increase include:
Net advances, which increased by $46.3 billion or 16% to
$335.2 billion primarily from growth in housing loans in
Australia and New Zealand and corporate lending in Institutional
particularly in Australia, Asia and the United Kingdom.
Funding composition: the Group issued a record $39 billion
of term wholesale debt during the year to further strengthen our
funding and liquidity position. In addition, customer deposits
increased 13%.
Further details are contained on pages 4 to 13 of this Annual Report.
STATE OF AFFAIRS
In the directors’ opinion, there have been no significant changes in
the state of affairs of the Group during the financial year, other than:
Impaired financial assets – an increase in gross non-performing
loans of $1.1 billion over 30 September 2007 mainly reflected a
number of downgrades in Institutional spread across the finance
sector, including broking and financial asset investors, health care
and business service segments.
16 ANZ Annual Report 2008
16 ANZ Annual Report 2008
Capital raisings – ANZ Convertible Preference Shares of $1.1 billion
and ANZ Convertible Notes of $0.6 billion were raised, dividends were
fully underwritten and ANZ StEPS were converted to ordinary shares.
Securities Lending – ANZ conducted a review of its Securities
Lending business and publicly reported key findings. Remedial
actions are in progress.
Asia expansion – ANZ has progressed its super regional growth
strategy on a number of fronts including further branch expansion
in Cambodia and Indonesia and receiving regulatory approvals
to open branches in Gungzhou province in China and in Vietnam.
Further review of matters affecting the Group’s state of affairs is
also contained in the Chief Financial Officer’s Report on pages
4 to 13 of this Annual Report.
DIVIDENDS
The directors propose that a final fully franked dividend of 74 cents
per fully paid ordinary share shall be paid on 18 December 2008.
The proposed payment amounts to approximately $1,511 million.
During the financial year, the following fully franked dividends were
paid on fully paid ordinary shares:
Type
Final
2007
Interim
2008
Cents
per share
Amount before bonus
option plan adjustment
$m
74
62
1,381
1,192
Date of
payment
21 December
2007
1 July
2008
The proposed final dividend of 74 cents together with the interim
dividend of 62 cents brings total dividends in relation to the year
ended 30 September 2008 to 136 cents fully franked.
REVIEW OF OPERATIONS
Review of the Group during the financial year and the results of
those operations, including an assessment of the financial position
and business strategies of the Group, is contained in the Chairman’s
Report, the Chief Executive Officer’s Report and the Chief Financial
Officer’s Report on pages 2 to 13 of this Annual Report.
EVENTS SINCE ThE END OF ThE FINANCIAL YEAR
Since balance date, global financial and equity markets have
exhibited significant volatility. The impact of this volatility on future
earnings is not capable of reliable measurement.
The adjustment for credit risk on structured credit derivatives
purchased has moved significantly since balance date, reflecting the
depreciation of the AUD against the USD (these derivative trades are
in USD) and the impact of extreme market turmoil impacting spreads
and correlation, and there will continue to be substantial volatility
in this adjustment. however, ANZ expects the adjustment for credit
risk on these structured credit derivatives to substantially reverse as
either credit spreads contract and/or the derivatives reach maturity.
For personal use only
FUTURE DEVELOPMENTS
Details of likely developments in the operations of the Group
and its prospects in future financial 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 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.
ANZ operations in Australia are categorised as a ‘high energy user’
under the Energy Efficiency Act 2006. ANZ has a mandatory obligation
to identify energy efficiency opportunities and report to the Federal
Government on progress with implementation of the opportunities
identified. As is required, ANZ has submitted a five year energy
efficiency assessment plan and will report to the Government and
publicly by 31 December 2008 and each subsequent year until the
end of the five year reporting cycle.
ANZ envisages no problems on complying with the legislation as the
organisation is committed to energy efficiency and has publicly stated
targets in support of electricity reduction.
The National Green house Reporting Act introduced in July 2008 has
been designed to create a national framework for energy reporting
including creating a baseline for the emissions trading. The Act makes
registration and reporting mandatory for corporations whose energy
production, energy use, or greenhouse gas emissions trigger the
specified threshold.
ANZ is one of the 1,000 companies that meets the criteria and
will have to make its first report by October 2009. ANZ has
previously provided this information as part of the Greenhouse
Challenge Plus and makes data available each year in the Corporate
Responsibility Report. ANZ expects to be able to comply with
this new legislation.
DIRECTORS’ QUALIFICATIONS, ExPERIENCE
AND SPECIAL RESPONSIBILITIES
At 1 October 2007, the Board comprised seven independent
non-executive directors and one executive director, the Chief
Executive Officer.
At the date of this report, the Board comprises seven non-
executive directors who have a diversity of business and
community experience and one executive director, the Chief
Executive Officer, who has extensive banking experience. The
names of directors and details of their skills, qualifications,
experience and when they were appointed to the Board are
contained on pages 43 to 45 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 50
to 53 of this Annual Report.
Details of directorships of other listed companies held by each
current director in the three years prior to the end of the 2008
financial year are listed on pages 43 to 45.
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 49. Their
qualifications are as follows:
Bob Santamaria, BCom, LLB (hons),
Group General Counsel and Company Secretary.
Mr Santamaria joined ANZ in 2007. he had previously been a
Partner at the law firm 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
firm, together with significant 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
Affiliate of Chartered Secretaries Australia.
Peter Marriott, BEc (hons),
Chief Financial Officer and Company Secretary.
Mr Marriott has been involved in the finance 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 office 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 qualified 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.
Directors’ Report 17
Directors’ Report 17
For personal use only 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 41 and forms
part of this Directors’ Report for the year ended 30 September 2008.
DIRECTORS AND OFFICERS WhO WERE PREVIOUSLY
PARTNERS OF ThE AUDITOR
The following persons were during the financial year and are
currently directors or officers 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 Officer
(left KPMG in January 1993).
ChIEF ExECUTIVE OFFICER/ChIEF FINANCIAL OFFICER
DECLARATION
The Chief Executive Officer and the Chief Financial Officer have
given the declarations to the Board concerning the Group’s financial
statements required under section 295A(2) of the Corporations Act
2001 and Recommendation 7.3 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 officer or employee of the Company against liabilities
(so far as may be permitted under applicable law) incurred in the
execution and discharge of the officer’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 in carrying out their role. The indemnity
protects employees and former employees who incur a liability
when acting as an employee, trustee or officer 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.
Directors’ Report (continued)
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 conflict 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 their own work.
Specifically 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 (or up to a specified amount
by the Chief Financial Officer or the Group General Manager,
Financial Reporting and Policy) and notified to the Audit
Committee; and
requires the external auditor to not commence an audit engagement
(or permitted non-audit service) for the Group, until the Group has
confirmed that the engagement has been pre-approved.
Further details about the policy can be found in the Corporate
Governance Statement on page 53.
The Audit Committee has reviewed a summary of non-audit services
provided by the external auditor for 2008, and has confirmed that
the provision of non-audit services for 2008 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 confirmed 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 2008.
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 2008
are as follows:
Non-audit service
ANZ Nominees confirmation procedures
Due diligence agreed upon procedures
Trustee certification
Compliance testing for securitisation transaction
Training courses
Total
Amount paid/
payable $’000s
2008
28
106
6
–
70
210
2007
–
–
–
66
44
110
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 2008 is compatible with
the general standard of independence for auditors imposed
by the Corporations Act 2001.
18 ANZ Annual Report 2008
18 ANZ Annual Report 2008
For personal use only ExECUTIVE OFFICERS’ AND EMPLOYEE ShARE OPTIONS
Details of share options issued over shares granted to the Chief
Executive Officer 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 46 of
the 2008 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.
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 officers
of related body corporates or of another company. To the extent
permitted by law, the Company indemnifies the individual for
all liabilities, including costs, damages and expenses incurred
in their capacity as an officer of the company to which they have
been appointed.
The Company has indemnified the trustees and former trustees
of certain of the Company’s superannuation funds and directors,
former directors, officers and former officers of trustees of various
Company sponsored superannuation schemes in Australia. Under
the relevant Deeds of Indemnity, the Company must indemnify
each indemnified person if the assets of the relevant fund are
insufficient to cover any loss, damage, liability or cost incurred
by the indemnified person in connection with the fund, being loss,
damage, liability or costs for which the indemnified person would
have been entitled to be indemnified 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 indemnified persons are or were directors
or executive officers of the Company.
The Company has also indemnified 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 indemnified or made an agreement
to indemnify any person who is or has been an officer or auditor
of the Company or of a related body corporate.
During the financial year, and again since the end of the financial
year, the Company has paid a premium for an insurance policy
for the benefit of the directors and employees of the Company
and 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
financial statements have been rounded to the nearest million
dollars except where otherwise indicated.
Directors’ Report 19
Directors’ Report 19
Directors’ Report 19
For personal use only Remuneration Report (Audited)
Introduction
This Remuneration Report discusses ANZ’s remuneration policies
which relate to key management personnel (KMP) as defined under
the Corporations Act. In the report we identify the link between
remuneration and ANZ’s performance, along with individual
outcomes for ANZ’s directors and executives.
The report covers both the KMP of the Company and of the Group
(which includes the directors of the parent) and the five highest
paid executives in the Company and the Group. KMP are 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 specific responsibilities.
Section A: Remuneration Tables
TABlE 1: DIRECTOR REMuNERATION
For the year ended 30 September 2008,
remuneration details of the KMP identified
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
Total of all Non-Executive Directors
Executive Director
M Smith (Appointed October 2007)8,9
Chief Executive Officer
Former Executive Director
J McFarlane (Appointed October 1997;
retired 30 September 2007)8,10
Former Chief Executive Officer
Total of all Directors
ShORT-TERM
EMPLOYEE BENEFITS
POST-
EMPLOYMENT
TERMINATION
BENEFITS4
ShARE-BASED PAYMENTS5
Financial
Year
Cash
salary/fees
$
Value of shares
acquired in lieu of
cash salary/fees1
$
Committee
fees (cash)
$
$
Short term
incentive 2
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2007
2008
2007
783,000
93,314
142,900
144,000
177,860
157,368
134,750
192,000
152,000
89,556
200,000
192,000
165,283
156,797
–
–
–
–
689,566
57,084
47,962
22,114
34,624
65,234
47,974
29,852
47,974
47,962
–
–
40,000
36,400
35,000
42,000
73,000
69,000
65,000
27,062
87,000
77,400
73,000
69,000
135,581
1,755,793
1,160,616
8,399
240,380
858,365
36,750
373,000
357,612
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
$
–
–
–
–
–
–
–
–
–
–
–
–
–
Other
17,98211
1,14012
17,982
1,140
181,870
2,387,155
2,377,733
9,515
79,698
82,354
2008
3,000,000
–
–
2,400,000
566,56713
5,966,567
–
45,788
–
1,839,734
5,111,391
12,963,480
2007
2008
2007
528,587
1,553,377
–
2,090,000
1,124,50714
4,755,793
1,689,203
240,380
2,411,742
373,000
357,612
2,400,000
2,090,000
584,549
1,125,647
5,296,471
8,353,722
7,674,204
417,975
79,698
500,329
45,788
–
–
915,261
–
915,261
123,411
123,411
–
1,839,734
5,111,391
–
–
6,753,11814
15,430,333
9,213,205
Total
$
Super
contributions3
$
783,000
782,880
239,984
228,362
252,956
233,992
272,984
261,000
264,974
146,470
287,000
269,400
286,257
273,759
–
–
13,283
12,797
13,283
12,797
13,283
12,797
13,283
12,797
13,283
8,854
13,283
12,797
LONG TERM
EMPLOYEE
BENEFITS
Long service
leave accrued
during the year
$
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 amortisation
value of LTI options
$
Total amortisation
value of LTI
Performance Rights
$
Total amortisation
value of Sign-on
Award
$
Remuneration6
Total
$
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
796,283
795,677
253,267
241,159
266,239
246,789
286,267
273,797
278,257
155,324
300,283
286,257
273,759
282,197
n/a
n/a
n/a
191,385
2,466,853
2,460,087
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
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
–
–
Commentary on Changes between 2007 & 2008
Non-Executive Directors
Despite the increase in NED fees for 2007/08 (refer to B1), there is
only a slight increase in 2008 Total Remuneration for Non-executive
Directors (NEDs) compared with 2007 ($6,766). The small difference
can be primarily attributed to the retirement of D Gonski in June
2007. For all other NEDs (excluding I Macfarlane), the year-on-year
change is small (i.e. less than $20,000). For I Macfarlane, the notable
year-on-year difference is due to his commencement part way
through the 2007 year. Refer to section B1 for fee structure details.
1 Shares acquired through participation in Directors’ Share Plan. Value reflects
the price at which the shares were purchased on-market on 29 October 2007
(amortisation not applicable).
2 100% of the cash incentive vested during the financial year that performance relates to.
The possible range of short-term incentive (STI) payments is between 0 and 2 times target
STI. The 2008 STI awarded to M Smith as a percentage of target was 80% and was approved
by the Board on 21 October 2008. The below target STI payment reflects ANZ’s performance
in 2008 (John McFarlane received 95% of his target STI in 2007).
3 As M Smith 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. For J McFarlane, the amount of $417,975 includes $300,000
additional employer contribution, agreed as part of his contract extension announced
26 October 2004. For J Morschel, superannuation guarantee contributions are paid to him
as cash in lieu.
4 Comprises $550,000 for the 3 month unexpired portion of J McFarlane’s employment
contract and a $365,261 pro-rata long service leave entitlement.
20 ANZ Annual Report 2008
20 ANZ Annual Report 2008
For personal use only
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 human Resources (hR) 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 pages 51 and 52
of the Corporate Governance Report for more details about the
Committee’s role, and anz.com > about ANZ > Corporate Governance
> ANZ human Resources Committee Charter, which details the terms
of reference under which the Committee operates). On a number
of occasions throughout the year, both the Board hR Committee
and management received external advice on matters relating to
remuneration. The following advisors were used: Ernst & Young,
hay Group, Freehills, and PricewaterhouseCoopers.
ShORT-TERM
EMPLOYEE BENEFITS
Financial
Year
Value of shares
Cash
acquired in lieu of
salary/fees
cash salary/fees1
$
$
Committee
fees (cash)
$
$
Short term
incentive 2
Other
POST-
EMPLOYMENT
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
$
Total amortisation
value of LTI
Performance Rights
$
Total amortisation
value of Sign-on
Award
$
Total
Remuneration6
$
783,000
782,880
239,984
228,362
252,956
233,992
272,984
261,000
264,974
146,470
287,000
269,400
286,257
273,759
–
–
13,283
12,797
13,283
12,797
13,283
12,797
13,283
12,797
13,283
8,854
13,283
12,797
135,581
1,755,793
1,160,616
8,399
240,380
858,365
36,750
373,000
357,612
1,14012
17,982
1,140
181,870
2,387,155
2,377,733
9,515
79,698
82,354
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
2008
3,000,000
–
–
2,400,000
566,56713
5,966,567
–
45,788
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
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
796,283
795,677
253,267
241,159
266,239
246,789
286,267
273,797
278,257
155,324
300,283
282,197
286,257
273,759
n/a
n/a
n/a
191,385
2,466,853
2,460,087
–
1,839,734
5,111,391
12,963,480
528,587
1,553,377
–
2,090,000
1,124,50714
4,755,793
1,689,203
240,380
2,411,742
373,000
357,612
2,400,000
2,090,000
584,549
1,125,647
5,296,471
8,353,722
7,674,204
417,975
79,698
500,329
–
45,788
–
915,261
–
915,261
123,411
–
123,411
–
–
6,753,11814
1,839,734
–
5,111,391
–
15,430,333
9,213,205
Section A: Remuneration Tables
TABlE 1: DIRECTOR REMuNERATION
For the year ended 30 September 2008,
remuneration details of the KMP identified
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
Total of all Non-Executive Directors
Executive Director
M Smith (Appointed October 2007)8,9
Chief Executive Officer
Former Executive Director
J McFarlane (Appointed October 1997;
retired 30 September 2007)8,10
Former Chief Executive Officer
Total of all Directors
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2007
2008
2007
2007
2008
2007
783,000
93,314
142,900
144,000
177,860
157,368
134,750
192,000
–
152,000
89,556
200,000
192,000
–
–
165,283
156,797
–
689,566
57,084
47,962
22,114
34,624
65,234
47,974
29,852
47,974
47,962
–
–
40,000
36,400
35,000
42,000
73,000
69,000
65,000
27,062
87,000
77,400
73,000
69,000
17,98211
$
–
–
–
–
–
–
–
–
–
–
–
–
–
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
5 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/performance rights 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/performance rights
become exercisable.
6 Amounts disclosed for remuneration of directors exclude insurance premiums paid by the
consolidated entity in respect of directors’ and officers’ liability insurance contracts which
cover current and former KMP 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.
7 $340,676 was paid under the ANZ Directors’ Retirement Scheme to D Gonski
(retired 30 June 2007), based on the sale of shares relating to the Retirement Scheme.
8 Amortisation value of options/rights as a percentage of total remuneration (as shown in
the Total column above) was 14% in 2008 for Mike Smith and 2% in 2007 for J McFarlane.
9 The amortisation value of LTI performance rights and the sign-on award for M Smith relates
to the grant of ANZ equity that was approved by shareholders at the 2007 Annual General
Meeting. Refer to section D1 for further details.
10 J McFarlane elected to use almost all of his cash salary to purchase shares under the
Directors’ Share Plan. The purchase dates were 30 October 2006, 29 January 2007
and 7 May 2007 for the 2007 year.
11 Other for J Ellis relates to car parking and office space.
12 Other for D Gonski relates to a non-monetary benefit received on retirement as a gift
from the Board.
13 Other for M Smith relates to relocation benefits and professional service fees rendered
in respect of taxation matters.
14 Other for J McFarlane relates to a $1 million payment for the relinquishment of his
Performance Shares (refer to section D2.3 for further details), a $7,000 gift from the Board,
$24,046 worth of professional service fees rendered in respect of taxation matters,
and reimbursement to J McFarlane of $93,461 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 his contractual arrangements).
Remuneration Report 21
Remuneration Report 21
For personal use only
Section A: Remuneration Tables (continued)
TABlE 2: EXECuTIVE kEY MANAGEMENT PERSONNEl
REMuNERATION AND TOP 5 REMuNERATED
For the year ended 30 September 2008, remuneration
details of the KMP identified as executives of
the Group, and the five most highly remunerated
executives in the Company and the Group other
than the Chief Executive Officer, are set out below:
Current Executives
R Edgar
Senior Managing Director
B hartzer
Group Managing Director, Personal
G hodges
Chief Executive, ANZ National Bank
Limited (New Zealand)
P Marriott
Chief Financial Officer
A Thursby10
Group Managing Director,
Asia Pacific and Acting Group
Managing Director Institutional
Former key Management Personnel
P hodgson11
Former Group Managing
Director, Institutional
S Targett12
Former Group Managing
Director, Institutional
Total of all Executive kMPs
Total of all Disclosed Executives
ShORT-TERM
EMPLOYEE BENEFITS
POST-
EMPLOYMENT
LONG-TERM
EMPLOYEE BENEFITS
ShARE-BASED PAYMENTS5
Financial
Year
Cash
salary/fees
$
$
Non monetary
benefits1
$
Total cash
incentive2,3
Total
$
Super
contributions
$
Retirement
benefit accrued
during year4
Long service
leave accrued
during the year
Total
Total
amortisation
amortisation
value of
STI shares
value of
LTI shares
$
Total
amortisation
value of
LTI options
$
Total
amortisation
value of LTI
performance
rights
$
Total
amortisation
of other equity
allocations6
$
$
Termination
benefits7
Grand Total
benefits
Remuneration 8,9
Total
excluding
termination
$
$
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2007
2008
2007
2008
2007
958,878
795,275
1,460,741
931,232
1,000,000
900,000
930,483
889,425
9,786
9,620
11,799
61,963
90,705
56,600
9,786
9,620
450,000
1,060,000
850,000
1,315,000
550,000
900,000
450,000
1,090,000
1,418,664
1,864,895
2,322,540
2,308,195
1,640,705
1,856,600
1,390,269
1,989,045
875,000
70,000
453,456
770
–
1,050,000
2,378,456
70,770
36,122
49,725
32,246
61,425
–
–
64,517
55,575
–
–
31,928
30,613
23,569
39,638
21,516
273,389
6,039
93,063
4,977
79,066
5,607
97,621
4,155
79,418
5,817
91,008
4,795
77,386
5,402
95,807
506,025
–
419,586
–
780,312
–
513,944
–
701,280
–
466,213
–
709,626
–
474,537
–
–
–
–
–
–
–
–
–
2,065,457
2,735,516
3,221,856
3,120,186
2,399,207
2,533,384
2,196,292
2,777,756
2,065,457
2,735,516
3,221,856
3,120,186
2,399,207
2,533,384
2,196,292
2,777,756
–
–
–
–
174,414
–
365,291
24,763
–
–
2,932,538
2,932,538
95,533
95,533
852,120
808,456
–
8,905
9,620
850,000
861,025
1,668,076
53,330
50,544
52,121
38,553
16,732
100,838
1,259
17,809
200,327
–
199,778
–
1,334,282
–
1,132,673
2,127,719
2,466,955
2,127,71913
983,675
–
550,000
1,533,675
6,077,222
5,378,063
6,077,222
5,378,063
584,437
148,193
584,437
148,193
3,350,000
5,765,000
3,350,000
5,765,000
10,011,659
11,291,256
10,011,659
11,291,256
61,425
186,215
278,694
186,215
278,694
22,333
3,907
22,333
3,907
18,283
214,242
161,093
214,242
161,093
44,857
43,215
482,864
1,003,152
–
3,187,471
3,187,471
164,301
164,301
54,871
688,834
54,871
688,834
21,428
404,643
21,428
404,643
3,071,984
365,291
1,334,282
13,948,023
15,282,305
2,556,922
1,027,915
–
16,577,565
16,577,565
3,071,984
365,291
1,334,282
13,948,023
15,282,305
2,556,922
1,027,915
–
16,577,565
16,577,565
$
59,677
13,278
74,902
21,938
44,415
29,940
20,871
25,533
14,377
–
–
19,298
3,297
–
3,035
610
$
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
new business model for 2009 finanCial year
From the beginning of the 2009 financial year (i.e. 1 October 2008),
ANZ has organised around its three geographies (Australia,
New Zealand and Asia Pacific) and its global Institutional client
business. As a result, the position titles and roles for current
Executive KMP from 1 October 2008 are as follows: B hartzer –
CEO Australia (and Global segment lead for Retail), G hodges –
CEO New Zealand, A Thursby – CEO Asia Pacific (and acting Group
MD Institutional until a permanent appointment is made),
B Edgar – Deputy CEO and P Marriott – CFO (no change).
Commentary on Changes between 2007 & 2008
Overall, the year-on-year total remuneration (with and without
Peter hodgson’s termination benefits) has decreased between
2007 and 2008. This can be attributed to the following:
There was a reduction in overall STI allocation (as % of target STI)
for executive KMP, to reflect ANZ’s 2008 performance. 100%
of the short-term incentive amounts disclosed in 2007, were
delivered as 100% cash. As a large portion of STI is now deferred
as shares which are not granted until post year end, only the
cash component of the STI allocated has been expensed in 2008
(refer to section C4.1). The amortisation of deferred STI equity
will commence from the 31 October grant date.
The majority of amortised equity from historical STI/LTI programs
vested in the early stages of the 2008 financial year, therefore a
smaller proportion of equity was amortised in 2008 (relative to 2007).
Other year-on-year variations include:
A Thursby 2007 amount relates only to the 1 month period he
was a KMP (i.e. commenced 3 September 2007).
$3.2 million total remuneration for S Targett included in 2007
remuneration aggregate (and not in 2008).
Fixed remuneration changes reflect individual performance
and outcomes from the annual market analysis.
22 ANZ Annual Report 2008
For personal use only
TABlE 2: EXECuTIVE kEY MANAGEMENT PERSONNEl
REMuNERATION AND TOP 5 REMuNERATED
For the year ended 30 September 2008, remuneration
details of the KMP identified as executives of
the Group, and the five most highly remunerated
executives in the Company and the Group other
than the Chief Executive Officer, are set out below:
Current Executives
Senior Managing Director
R Edgar
B hartzer
G hodges
Group Managing Director, Personal
Chief Executive, ANZ National Bank
Limited (New Zealand)
P Marriott
Chief Financial Officer
A Thursby10
Group Managing Director,
Asia Pacific and Acting Group
Managing Director Institutional
Former key Management Personnel
P hodgson11
Former Group Managing
Director, Institutional
S Targett12
Former Group Managing
Director, Institutional
Total of all Executive kMPs
Total of all Disclosed Executives
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2008
2007
2007
2008
2007
2008
2007
958,878
795,275
1,460,741
931,232
1,000,000
900,000
930,483
889,425
9,786
9,620
11,799
61,963
90,705
56,600
9,786
9,620
450,000
1,060,000
850,000
1,315,000
550,000
900,000
450,000
1,090,000
1,418,664
1,864,895
2,322,540
2,308,195
1,640,705
1,856,600
1,390,269
1,989,045
875,000
70,000
453,456
1,050,000
770
–
2,378,456
70,770
36,122
49,725
32,246
61,425
64,517
55,575
–
–
–
–
852,120
808,456
8,905
–
9,620
850,000
861,025
1,668,076
53,330
50,544
983,675
–
550,000
1,533,675
6,077,222
5,378,063
6,077,222
5,378,063
584,437
148,193
584,437
148,193
3,350,000
5,765,000
3,350,000
5,765,000
10,011,659
11,291,256
10,011,659
11,291,256
61,425
186,215
278,694
186,215
278,694
ShORT-TERM
EMPLOYEE BENEFITS
POST-
EMPLOYMENT
LONG-TERM
EMPLOYEE BENEFITS
ShARE-BASED PAYMENTS5
Financial
Year
Cash
salary/fees
$
$
Non monetary
benefits1
$
Total cash
incentive2,3
Total
$
Super
contributions
$
Retirement
benefit 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 LTI
performance
rights
$
Total
amortisation
of other equity
allocations6
$
$
Termination
benefits7
Total
excluding
termination
benefits
$
$
Grand Total
Remuneration 8,9
–
–
–
–
–
–
–
–
19,298
3,297
–
3,035
610
59,677
13,278
74,902
21,938
44,415
29,940
20,871
25,533
14,377
–
–
31,928
–
30,613
–
23,569
–
39,638
21,516
273,389
6,039
93,063
4,977
79,066
5,607
97,621
4,155
79,418
5,817
91,008
4,795
77,386
5,402
95,807
506,025
419,586
–
–
780,312
513,944
–
–
701,280
466,213
–
–
709,626
474,537
–
–
–
–
–
–
–
–
–
–
2,065,457
2,735,516
3,221,856
3,120,186
2,399,207
2,533,384
2,196,292
2,777,756
2,065,457
2,735,516
3,221,856
3,120,186
2,399,207
2,533,384
2,196,292
2,777,756
–
–
–
–
–
–
174,414
–
365,291
24,763
–
–
2,932,538
95,533
2,932,538
95,533
–
52,121
–
38,553
16,732
100,838
1,259
17,809
200,327
199,778
–
–
1,334,282
–
1,132,673
2,127,719
2,466,955
2,127,71913
22,333
3,907
22,333
3,907
18,283
214,242
161,093
214,242
161,093
–
44,857
43,215
482,864
1,003,152
–
3,187,471
3,187,471
–
164,301
–
164,301
54,871
688,834
54,871
688,834
21,428
404,643
21,428
404,643
3,071,984
2,556,922
365,291
1,027,915
3,071,984
2,556,922
365,291
1,027,915
–
–
1,334,282
1,334,282
13,948,023
16,577,565
15,282,305
16,577,565
13,948,023
16,577,565
15,282,305
16,577,565
1 Non-monetary benefits generally consist of salary packaged items such as car parking and
novated lease motor vehicles. For G hodges, his non-monetary benefits relate to a housing
allowance and education expenses. For A Thursby, non-monetary benefits relate to costs
associated with his relocation to Melbourne and airfares.
2 For the 2007 year, total cash incentive relates to the full incentive amount, and for the 2008
year, the disclosed incentive relates to the cash component only, with the deferred equity
component to be amortised from the 31 October grant date in the 2009 Remuneration
Report (refer to section C4.1 for details). The cash incentive component was approved by
the Board on 21 October 2008. 100% of the cash incentive awarded in both 2007 and 2008
vested to the person in the applicable financial year.
3 The possible range of short-term incentive (STI) payments is between 0 and 2 times target
STI. The actual incentive received is dependant on ANZ Group, division and individual
performance (refer to C4.1 for more details). The 2008 STI awarded (cash and equity
component) as a percentage of target STI was: B hartzer 83% (2007: 125%); R Edgar 58%
(2007: 125%); G hodges 75% (2007: 100%); P Marriott 58% (2007: 115%); A Thursby
181%; P hodgson 0% (2007: 100%).
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 preserved 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).
5 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 3 year deferred shares (one tranche in
2007 and 2008 to the value of $1m each year) to compensate for equity foregone from his
previous employer.
7 Termination benefits for P hodgson include 12 months pay in-lieu of notice, as per
employment agreement (refer to section E), and annual and long service leave entitlements.
8 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 KMP 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.
9 Amortisation value of options and rights as a percentage of total remuneration was:
B hartzer 24% (2007: 19%); R Edgar 25% (2007: 18%); G hodges 30% (2007: 21%);
P Marriott 33% (2007: 21%); A Thursby 6%; P hodgson 8% (2007: 17%); S Targett
(2007: 21%).
10 A Thursby commenced employment with ANZ in the position of Group Managing Director,
Asia Pacific on 3 September 2007, and took on the additional role of Acting Group Managing
Director Institutional on 22 August 2008. 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.
11 P hodgson ceased as the Group Managing Director Institutional on 22 August 2008,
and his employment with ANZ was terminated on 29 August 2008. P hodgson was the
Chief Risk Officer for the period 1 December 2004 to 7 June 2007, and commenced in
the position of Group Managing Director Institutional on 8 June 2007.
12 S Targett ceased as the Group Managing Director, Institutional on 7 June 2007,
and his employment with ANZ ended on 7 June 2008.
13 P hodgson’s 2007 Total Remuneration is $186,510 (i.e. amortised amount) less than
what was disclosed in 2007 due to the forfeiture of his Performance Rights on cessation
of his employment.
Remuneration Report 23
For personal use only
Section B. Non-executive Directors’ Remuneration
b1. non-eXeCutiVe direCtors’ remuneration PoliCy
Non-executive Directors’ (NEDs) fees are reviewed annually by the Board hR Committee and are determined based on advice from
external advisors and with reference to fees paid to other NEDs of comparable companies.
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 2007, NED fees and Committee membership fees (excluding hR Committee) were increased based on an independent
assessment of the competitiveness of ANZ’s NED remuneration in comparison to other major companies and forecast market movements.
The Chairman’s fee remained unchanged for 2008. The fees reflect the increased accountability and time commitment of NEDs, 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)
Committee Chair (hR)
Committee Chair (Governance & Technology)
Committee Member (Risk & Audit)
Committee Member (hR)
Committee Member (Governance & Technology)
2007/08 Fees
$
2006/07 Fees
$
783,000
200,000
52,000
48,000
30,000
25,000
21,000
10,000
783,000
192,000
48,000
48,000
28,000
21,000
21,000
8,400
For details of remuneration paid to directors for the year ended 30 September 2008, refer to Table 1 in section A of this Remuneration Report.
inCrease to ned fee CaP
ned shareholding guidelines
The current total of NED fees (including superannuation
contributions) is within the maximum annual aggregate limit
agreed to by shareholders at the 2005 Annual General Meeting
($3 million, excluding superannuation benefit payouts and
retirement benefits). The 2005 increase to the NEDs’ fee cap was
primarily to accommodate for the fee adjustment to compensate for
removal of the Directors’ Retirement Scheme. It is proposed that the
NED fee cap be increased by $500,000, taking the maximum annual
aggregate amount to $3,500,000. The fee increase is considered
necessary in order to allow for the appointment of additional
directors to the Board to:
enable appropriate succession at the Board; and
ensure that the Board (and its Committees) continue to have
available Directors with the appropriate mix of skills, expertise
and experience, taking account of the nature and location of the
Company’s business and operations.
The increase to the NED fee pool will be subject to shareholder
approval which will be sought at the 2008 Annual General Meeting.
It is important to note that there will not be an increase to the current
NED fees paid to directors in 2008/09. The proposed increase to
the NED fee cap will however provide the Company the flexibility to
ensure that a high calibre Board of appropriate size continues to
serve the Company and its members effectively, as well as enabling
appropriate succession management.
NEDs have agreed to accumulate ANZ shares, over a five-year period,
to the value of 100% (200% for Chairman) of the base annual NED
Fee (i.e. $200,000 for 2007/2008) 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 fixed 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 fixed 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.
24 ANZ Annual Report 2008
For personal use only 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.
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 for executive
KMP, defined on pages 22 and 23 (including company secretaries
and senior managers):
1. Focus on creating and enhancing value for all ANZ stakeholders;
2. Differentiation of individual rewards in line with ANZ’s culture of
rewarding for out performance;
3. Significant 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 five 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.
C2. remuneration struCture oVerView
The executive remuneration program and structure detailed in
Section C reflects the remuneration of KMP (excluding the CEO
and NEDs). 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 ASx
Corporate Governance Principles. The program comprises
the following components which are benchmarked against the
finance market median:
Fixed Remuneration component: salary, non-monetary benefits
and superannuation contributions (Refer to C3).
Variable or “at risk” component (Refer to C4):
– Short-Term Incentive (STI); and
– Long-Term Incentive (LTI).
Figure 1 below shows the relative mix of Fixed, STI and LTI at target
payment levels for executive KMP. The remuneration structure provides
for upper quartile variable reward for significant out performance,
and significantly reduced payment for underperformance. In this way
the remuneration structure is heavily weighted towards “reward for
performance”.
Figure 1: 2008 Target Reward Mix1
37%
26%
19%
18%
Fixed Remuneration %
Cash STI %
Deferred equity %
LTI %
1 2008 target reward mix for current executive KMP pertains to R Edgar, B hartzer, G hodges,
P Marriott and A Thursby.
C3. fiXed remuneration
Fixed Remuneration generally comprises cash salary, a
41%
superannuation contribution, and the remainder as nominated
Large Senior Executive Roles2
benefits (e.g. novated car leases, additional superannuation
contributions, car parking, child care and contributions towards
13%
the Employee Share Save Scheme). Fixed Remuneration is reviewed
annually based on individual performance and market data.
61%
27%
26%
32%
Fixed Remuneration at ANZ operates with a midpoint targeted to
the local market median being paid in the finance industry in the
relevant global markets in which ANZ operates, and a range around
this midpoint.
C4. Variable remuneration
Variable remuneration forms a significant part of executives’ potential
remuneration (around 63% for 2007 and 2008), 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).
As a result of our ongoing review of the executive remuneration
program, a portion of STI will now be delivered in the form of deferred
shares and deferred options. Therefore, while the overall proportion
of variable target remuneration remains unchanged, the proportion
of the variable component paid as cash reduces and the proportion
delivered as ANZ equity has increased.
The rationale for the revised variable remuneration strategy is to
place an increased emphasis on having a variable structure that is
flexible, continues to be performance linked, has significant retention
elements and motivates executives to drive continued performance
over the longer term. These changes achieve this, whilst balancing
the needs of ANZ, the executive and shareholders as follows:
ANZ
Provides a significantly greater retention element
Places significant focus on annual performance as well as directing
the executives to focus on sustained share price growth over the
longer term
Maintains a focus on both absolute and relative share price
performance
Remuneration Report 25
For personal use only Executive
Provides greater ability to influence STI outcome (line-of sight)
Introduces options as a means to provide a leveraged reward element
Provides a cash component which is still meaningful
Shareholder
Places heavier weighting on ANZ equity, thereby increasing
shareholder alignment
Provides performance linkages both in determining overall
quantum and delivery of variable pay
Ensures LTI performance measure remains focused on relative
Total Shareholder Return against peers
As specified in the ANZ Global Employee Securities Trading and
Conflict of Interest 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 specifically 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 executive KMP (including
CEO) 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 2008 declarations, we can advise that executive KMP
(incuding CEO) are fully compliant with this policy.
C4.1 short-term incentives
ANZ’s Short-term incentive (STI) approach supports ANZ’s strategic
objectives by providing rewards that are significantly differentiated
on the basis of achievement against performance targets. ANZ’s main
STI plans are reviewed and approved by the Board hR Committee.
Determination of STI levels
The size of the overall pool available is based on an assessment of
the financial performance of the Group, with this pool then spread
between the Divisions based on their relative performance against
a balanced scorecard of financial and qualitative measures. The
Board hR 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 market relativities. The size of the actual STI payment
made at the end of each financial 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 strategy.
Individual performance objectives include a number of qualitative
and quantitative measures which may include:
Financial Measures including: Revenue Growth, Net Profit After
Tax Growth and Operating Costs
Customer Measures including: Customer Satisfaction, Share
of Wallet and Market Share
Process Measures including Process Improvements and
Cost Benefits
26 ANZ Annual Report 2008
People Measures including Staff Turnover, Diversity Targets
and Performance Management
Behaviour, Risk, Compliance Measures/Standards.
The specific targets and features relating to these qualitative and
quantitative measures have not been provided in detail due to their
commercial sensitivity.
The performance of relevant executives against these objectives is
assessed at the end of the year by the Board hR Committee, as per the
Board hR Committee Charter (refer to anz.com > about ANZ > Corporate
Governance > ANZ human Resources Committee Charter, which details
the terms of reference under which the Committee operates).
Mandatory STI Deferral
For the 2008 remuneration review and beyond, the following tiered
STI deferral approach will apply:
STI up to AUD 200,000 paid in cash1
25% of STI amounts above AUD 200,000 to be deferred for 1 year
(half allocated in the form of shares2 and the other half as options3)
25% of STI amounts above AUD 200,000 to be deferred for 2 years
(half allocated in the form of shares2 and the other half as options3)
The balance (i.e. 50%) of STI amounts above AUD 200,000 to be
paid as cash1
The mix of options and shares for the mandatory STI deferral provides
a strong retention element in both flat and growth economic cycles.
Options contain an in-built price hurdle given that they are designed
to reward for share price growth. That is, options can provide benefits
to the extent the ANZ share price increases above the option exercise
price. Options deliver no value where the ANZ share price is equal
to or below the option exercise price during the exercise period.
As the incentive amount has already been earned, there are no
performance measures attached to the shares and options; rather,
the delivery of STI in the form of equity provides a balance between
retention based equity and LTI performance based equity. The
target STI award level for current executive KMP is 120% of Fixed
Remuneration in 2008 with a maximum STI award of 2 times target
STI. As shown in Figure 3 (page 28), 2008 STI payments for disclosed
executive KMP (incl. CEO) are aligned with the performance of ANZ,
with average STI payments equating to 76% of target STI (on average).
1 Executives are able to elect to take any cash bonus amounts they may be awarded as cash,
super, equity (shares and/or options) or a mix of these.
2 G hodges will receive share rights rather than shares due to taxation implications in
New Zealand. A share right effectively provides a right in the future to acquire a share in
ANZ at nil cost to the employee. The right value at grant is discounted (relative to the value
of an ANZ share at grant), due to the fact that dividends will not be received during the
deferral period.
3 B hartzer will receive shares in the place of options due to taxation implications in the
United States of America, as a result of his US citizenship.
For personal use only C4.2 long-term incentives
The long-term incentives (LTIs) are designed to link a significant
portion of executives’ remuneration to the attainment of sustained
growth in shareholder value. Consistent with the CEO, LTI is delivered
to executive KMP 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 specifies 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. Performance equal to the median
TSR of the comparator group will result in half the Performance
Rights becoming exercisable. Performance above median will result
in further Performance Rights becoming exercisable, increasing
on a straight-line basis until all of the Performance Rights become
exercisable where ANZ’s TSR is at or above the 75th percentile of
TSRs in the comparator group. 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.
Where median performance is achieved, executives’ total
remuneration will typically be below market median for the financial
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 Pacific 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 financial services industry, are
an appropriate reference group for investors and are of sufficient size
by market capitalisation and weight in ASx Top 50.
Size of lTI Grants
The size of individual LTI grants for executive KMP 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 18% of the individual’s target reward mix and around 50%
of Fixed Remuneration. 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) 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 higher acceptable value is then approved by the Board hR
Committee as the allocation value. LTI allocations are made annually
around the end of October. The following example uses the October
2007 allocation value.
Example
Executive KMP granted LTI value of $500,000
Approved Allocation Valuation is $12.96 per Performance Right
$500,000/$12.96 = 38,580 Performance Rights allocated to
executive KMP
Remuneration Report 27
For personal use only 340
320
300
280
260
240
220
200
180
160
140
120
100
C5. PerformanCe of anZ
Table 4 shows ANZ’s annual performance over the five-year period spanning 1 October 2003 to 30 September 2008. The table illustrates the
impact of ANZ’s performance on shareholder wealth, taking into account dividend payments, share price changes and other capital adjustments
during the financial year.
TABlE 4
Basic Earnings Per Share (EPS)
NPAT ($m)
Total Dividend (cps)
Share price at 30 September ($)
Total Shareholder Return (%)
* Figures based on previous AGAAP.
FY 2008
170.4
3,319
136
18.75
-33.5
FY 2007
224.1
4,180
136
29.70
15.6
FY 2006
200.0
3,688
125
26.86
17.1
FY 2005
169.5
3,175
110
24.00
32.6
FY 2004*
153.1
2,815
101
19.02
17.0
In Table 4, ANZ’s TSR (which includes share price growth, dividends and other capital adjustments) has been shown for each individual
financial year between 2004 and 2008. Figure 2 compares ANZ’s TSR performance against the median TSR of the LTI comparator group and
the S&P/ASx 200 Banks Accumulation Index over the 2004 to 2008 measurement period. Cumulative TSR has been baselined at 100%.
Cumulative Total shareholder return % (baseline of 100%)
Figure 2: ANZ 5-Year Cumulative Total
Shareholder Return Performance
ANZ Cumulative TSR
Median of Peer Group
Upper Quartile of Peer Group
S&P/ASX 200 Banks
Accumulation Index
% of target STI paid
to executive directors
80
and disclosed executives
3
0
t
c
O
4
0
r
p
A
3
,
8
8
X
7
,
X
X
X
3
,
5
6
0
2
,
9
8
3
3
,
1
3
3
2
,
8
5
8
109%
4
0
t
c
O
111%
5
0
r
p
A
112%
110%
5
0
t
c
O
76%
04
05
06
07
08
125
100
6
75
0
r
p
A
Performance period end date
6
0
t
c
O
7
0
r
p
A
7
0
t
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O
8
0
r
p
A
8
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e
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3
,
8
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X
7
,
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X
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3
,
5
6
0
3
,
1
3
3
2
,
8
5
8
2
,
9
8
3
125
100
75
109%
111%
112%
110%
76%
% of target STI paid
to executive directors
and disclosed executives
Figure 3: ANZ – Cash Profit & Average STI payments ($m)
Cash profit (AGAAP)1
Cash profit (IFRS)2
Average STI payments against target
Target STI
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, with the 2008 STI payments (as
a percentage of target STI) trending down with the decrease in cash earnings.
04
05
06
07
08
1 Profit excluding goodwill, significant items and NBNZ incremental integration costs.
2 Profit adjusted for non-core items, IFRS adjustments and preference share dividends.
Figure 3: ANZ – Cash Profit & Average STI payments ($m)
28 ANZ Annual Report 2008
Cash profit (AGAAP)1
Cash profit (IFRS)2
Average STI payments against target
Target STI
For personal use only
Section D. Chief Executive Officers’ Remuneration
This section details the remuneration arrangements for M Smith,
who commenced as CEO on 1 October 2007 and J McFarlane who
ceased as CEO of ANZ on 30 September 2007. The CEO is the only
executive director at ANZ.
d1.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.
fixed remuneration: A fixed component of $3 million per annum
which consists of salary, benefits and voluntary superannuation
contributions. M Smith’s Fixed Remuneration will be constant for
three years, and will be reviewed annually thereafter.
Short-Term Incentive: M Smith’s target variable STI is $3 million
per annum (i.e. 100% of Fixed Remuneration). The Board approved
M Smith’s 2008 balanced scorecard and then assessed his
performance against these objectives at the end of the 2008 year
to determine the appropriate incentive (relative to target). As per the
Board hR Committee Charter, robust performance measures and targets
for the CEO that encourage superior performance and ethical behaviour
are recommended by the Board hR Committee to the full Board. The key
objectives for 2008 included a number of quantitative and qualitative
measures, aligned with ANZ’s strategy, which included (but were not
limited to) financial goals, risk management, strategy development,
strengthening the management bench, and people/culture measures.
Long-Term Incentive: M Smith’s LTI (as approved by shareholders at the
2007 Annual General Meeting), consists of 3 tranches of Performance
Rights, each to a maximum value of $3 million. The performance
periods for each tranche begin on the date of grant of 19 December
2007 and end on the 3rd, 4th and 5th anniversaries respectively (i.e.
only one performance measurement for each tranche). 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.
The remuneration for M Smith for the 2008 year is set out in Table 1
in section A and the mix of remuneration for M Smith is illustrated in
Figure 4.
Figure 4: Target Reward Mix for Chief Executive Officer, M Smith1
1/3
1/3
1/3
Fixed Remuneration %
STI %
LTI %
1 The target reward mix for M Smith does not include the $9m sign-on award (refer to D1.1)
given that it relates to remuneration forgone from his previous employer on joining ANZ.
d1.1 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. Shareholders
approved 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.
The grant date for the sign on award was 19 December 2007, with
one third of the sign on award vesting at each of the 1st, 2nd and
3rd anniversaries from the commencement of his 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 are not
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.
d1.2 termination benefits
M Smith or ANZ may terminate the employment agreement by
12 months’ written notice. If ANZ terminates M Smith’s employment
within the first 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 and
unvested sign-on award will be forfeited;
Termination on notice by ANZ: All Performance Rights which
have vested or vest during the notice period will be retained and
become exercisable; all Performance Rights which have not yet
vested will be retained and will vest and become exercisable
subject to the relevant time and performance hurdles being
satisfied. Sign-on award will vest in full;
Termination without notice by ANZ in the event of serious
misconduct: All Performance Rights and sign-on award will
be forfeited; and
Death or total and permanent disablement: All Performance Rights
and sign-on award will vest.
d1.3 relocation
Costs associated with M Smith’s relocation to Melbourne were
paid consistent with ANZ’s international relocation policies. Certain
relocation expenses will also be paid in the event of termination of
his employment.
Remuneration Report 29
For personal use only d1.4 grant of options to m smith
The Board recently reviewed the contract and retention arrangements
of M Smith to ensure that they continue to be market competitive.
This is particularly important in the current global financial markets,
as the attraction of talented and globally experienced banking
executives is in strong demand. Following this review, the Board
considers it reasonable and appropriate to grant M Smith 700,000
Options on 18 December 2008, subject to shareholder approval at
the 2008 AGM. The rationale for the grant of Options to M Smith is
as follows:
The grant of Options recognises M Smith’s performance in
establishing a solid foundation to enable ANZ to achieve its longer
term vision. M Smith has demonstrated very strong internal and
external leadership during the significant challenges the Company
has faced over the last year, and many of the reasons for ANZ’s
financial results are attributable to decisions made prior to
M Smith’s appointment.
Options will help to drive a longer term focus on sustained share
price growth, thereby strengthening the alignment of M Smith’s
interests with shareholders.
Using Performance Rights as part of the long-term incentive
program and this special grant of Options for retention purposes,
provides a strong motivation and retention element.
As Options are designed to reward for share price growth, the greater
the increase in ANZ’s share price, the greater the leverage opportunity
for M Smith and the greater the benefit to shareholders. Options
deliver no value where the ANZ share price is equal to or below the
Option exercise price during the exercise period.
Options will be available for exercise after the three year time based
hurdle has been met, with the Option exercise price being equal to
the market value of ANZ shares at the date the Options are granted.
Upon exercise, each Option entitles the holder to one ordinary ANZ
share. Once an Option has been exercised, it will no longer be subject
to forfeiture.
M Smith must remain employed with ANZ during the 3 year time
based hurdle to exercise vested Options at the end of the 3 year
period. Subject to the terms set out below M Smith must also be
an employee of ANZ at the time of exercise of the Options. If this
employment condition is not satisfied all Options which have not
vested or been exercised at the date of cessation of employment will
be forfeited. The only exception to this employment condition is in the
case of death or total and permanent disability where all Options will
vest and may be exercised. In the case of resignation after the 3 year
period, M Smith will forfeit any vested unexercised Options at the point
notice of resignation is given by M Smith. In the case of termination
on notice after the 3 year period, M Smith will be provided a 12 month
grace period to exercise any vested unexercised Options.
d1.5 shareholding guideline
The CEO of ANZ is expected to accumulate ANZ shares, over a five
year period, to the value of 200% of his Fixed Remuneration and to
maintain this shareholding while CEO of ANZ.
M Smith currently has around 100% of his Fixed Remuneration in
vested or beneficially held shares. We anticipate that M Smith will
achieve the 200% guideline by 1 October 2009, when further shares
(related to his sign on award) vest.
d2.remuneration oVerView for former Ceo, J mCfarlane
d2.1 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 flexibility for orderly succession at ANZ.
The remuneration of J McFarlane for the year ended 30 September
2007 is set out in Table 1 in section A. The structure of J McFarlane’s
remuneration for the purposes of the 2007 financial year disclosures
was in accordance with his employment agreement and was as
follows:
Fixed Remuneration: Consisted of salary, benefits 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.
Short-Term Incentive: The Board assessed J McFarlane’s performance
against his balanced scorecard at the end of the year to determine
the appropriate incentive relative to target.
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 2007 financial year.
d2.2 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. hurdles specific
to these option grants are indicated in section F10.1 (hurdled A).
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 (i.e. 2 year deferral) and performance hurdles
being satisfied as detailed in section F10.3.
30 ANZ Annual Report 2008
For personal use only In accordance with the terms of grant, J McFarlane was able to hold
these Performance Shares (subject to the performance conditions)
until the expiry date of 31 December 2009. The decision to acquire
these Shares was due to the fact that J McFarlane would have been
taxed at the time of retirement on the Performance Shares as if they
had passed the performance hurdles, and would not have received a
refund of tax paid if the performance hurdles were not subsequently
met. This was in ANZ’s opinion inequitable, particularly given tax
can be reclaimed on Performance Rights and Options if performance
hurdles are not met. The Shares were reclassified and made
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.
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 equity grants and holdings.
d2.3 termination benefits
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
The Board considered and determined the extent to which
J McFarlane satisfied the applicable performance criteria under
the short-term incentive program for the 2007 financial year.
As a result of that determination, Mr McFarlane received an STI
payment in relation to the 2007 financial 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 2008.
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 continue to 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.
In relation to J McFarlane’s 175,000 Performance Shares (which
had not met their performance hurdle before his cessation), the
Board agreed to acquire J McFarlane’s interest in them for a payment
of $1,000,000 on 1 October 2007. The value of the Performance
Shares at the point of payment was nil (due to the fact that the
performance hurdle had not been passed at this date), however
assuming achievement of the performance hurdle at this date
the Performance Shares would have been valued at $5.2 million
(i.e. 1 day VWAP of $29.71 x 175,000).
Remuneration Report 31
For personal use only 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 executive KMP.
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 A Thursby) and nominated benefits.
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. Under the new STI program (effective from 2008), vested shares will be released in full
and Executive KMP will be provided with a 12 month grace period to exercise any vested unexercised Options.
All unvested equity as at the date termination of notice is given, will be forfeited.
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 fide redundancy, a severance payment will be made
that is equal to 12 months’ Fixed Remuneration.
All STI Deferred Shares are released. Options and LTI Deferred Shares are either released in full or 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 first tranche was approved by the Board on 3 September 2007,
and the second on 28 August 2008, with the third tranche to be approved around the 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 beneficial 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.
32 ANZ Annual Report 2008
For personal use only Section F. Equity instruments relating to disclosed directors and executives
f1. shareholdings of non-eXeCutiVe direCtors (inCluding moVements during the 2007 & 2008 years)
2008 Financial Year
Name
C Goode
G Clark
J Ellis
M Jackson
I Macfarlane
D Meiklejohn
J Morschel
2007 Financial Year
Name
C Goode
G Clark
J Ellis
D Gonski
M Jackson
I Macfarlane
D Meiklejohn
J Morschel
Balance of
shares as at
1 Oct
20071
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
20081,4
Balance of
shares held as
at report
sign-off date1
669,496
8,574
116,021
93,496
2,973
7,156
9,076
–
1,905
738
2,177
1,601
–
1,601
68,783
2,000
23,622
555
4,000
8,000
–
738,279
12,479
140,381
96,228
8,574
15,156
10,677
738,279
12,479
151,182
96,228
9,574
15,156
11,860
Balance of
shares as at
1 Oct
20061
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
20071,5
Balance of
shares held as
at report
sign-off date1
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
669,496
10,479
125,159
53,005
95,673
4,574
7,156
10,677
1 Balance of shares held at 1 October 2006/2007, 30 September 2007/2008, 7 November 2007 and 7 November 2008, includes directly and indirectly 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 held on behalf of NEDs (i.e. indirect beneficially held shares) as at 30 September 2008: C Goode – 395,821; G Clark – 12,479; J Ellis – 73,430; M Jackson – 13,563;
I Macfarlane – 2,574; D Meiklejohn – 12,656; J Morschel – 6,677.
5 The following shares were held on behalf of NEDs (i.e. indirect beneficially held shares) 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.
f2.1 2008 shareholdings of Ceo, m smith (inCluding moVements during the 2008 year)
Balance of
shares as
at 1 Oct
20071
Shares acquired
during the year due
to sign-on award2
Shares resulting
from any other
change during
the year3
Balance of
shares held as
at 30 Sept
20081,4
Balance of
shares held
as at report
sign-off date1
2008
–
330,033
43,950
373,983
373,983
1 Balance of shares held at 1 October 2007, 30 September 2008, and 7 November 2008 includes directly and indirectly held shares, and shares held by related parties.
2 330,033 Deferred Shares were granted to M Smith (and approved by shareholders at the 2007 AGM) to compensate him for remuneration foregone from his previous employer on joining ANZ.
Refer to section D1.1 for details.
3 Other shares resulting from any other changes during the 2008 year include the net result of any shares purchased, sold, or acquired under the Dividend Reinvestment Plan.
No shares were acquired during the year through the exercise of Options/Rights.
4 330,033 shares were held on behalf of M Smith (i.e. indirect beneficially held shares) as at 30 September 2008.
f2.2 2007 shareholdings of former Ceo, J mcfarlane (inCluding moVements during the 2007 year)
Balance of
shares as
at 1 Oct
20061
Shares acquired
during the year
due to sign-on
award2
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
20071,5
Balance of
shares held as at
2007 report
sign-off date1,6
2007
1,973,422
52,581
750,000
(2,091,569)
684,434
509,4347
1 Balance of shares held at 1 October 2006, 30 September 2007, and 7 November 2007 includes directly and indirectly held shares, and shares held by related parties.
2 All ANZ ordinary 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 J McFarlane were approved by shareholders (December 1999 and December 2001).
4 Other shares resulting from any other changes during the 2007 year include the net result of any shares purchased, sold, or acquired under the Dividend Reinvestment Plan.
5 311,294 shares were held on behalf of J MacFarlane (i.e. indirect beneficially held shares) as at 30 September 2007.
6 The relinquishment of the CEO’s Performance Shares (175,000) were factored into this balance. Refer to section D2.3 for further details.
7 In accordance with requirements in NZ, the NZ exchange were notified of the sale (in February 2008) of 409,434 of J McFarlane’s ANZ shares.
Remuneration Report 33
For personal use only
f3.1 PerformanCe rights granted to Ceo, m smith1
Grant date2
19-Dec-07
19-Dec-07
19-Dec-07
Total
First date exercisable3
19-Dec-10
19-Dec-11
19-Dec-12
Date of expiry
19-Dec-11
19-Dec-12
19-Dec-13
Number granted
258,620
259,740
260,642
779,002
1 All Performance Rights granted to M Smith were approved by shareholders at the 2007 AGM. Balance of Performance Rights at 1 October 2007 equals zero and as at 30 September 2008
equals 779,002.
2 Refer to section F9 for details of the valuation methodology, inputs and fair value for the Performance Rights granted to M Smith on 19 December 2007. The maximum amortisation balance
is $7,160,245 for subsequent financial years and the value will be nil if the performance hurdles are not achieved.
3 The exercise price for Performance Rights is nil, with M Smith entitled to one ANZ ordinary share upon the exercise of each Performance Right. First tranche of Performance Rights is not able
to be exercised until 19 December 2010 (subject to meeting performance hurdles).
f3.2 oPtions granted to former Ceo, J mCfarlane1
Financial Year
2007
2008
First date
exercisable
31-Dec-04
31-Dec-06
Date of
expiry
31-Dec-07
31-Dec-08
Exercise
price2
$
16.69
20.49
Grant date
31-Dec-025
31-Dec-046
Total
Number
granted3,4
Number vested
during the
2007 FY
Percentage that
vested during
2007
FY %
Vested and
exercisable as
at 30 Sept
2007
Unexercisable as
at 30 Sept6
2007
1,000,000
500,000
1,500,000
–
500,000
500,000
–
100
–
–
–
–
250,000
250,000
1 All options granted to J McFarlane were approved by shareholders (December 1999 and December 2001).
2 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.
3 Nil options forfeited or expired during the 2007 period.
4 The amortisation balance is nil and the value will be nil if the performance hurdle on the 250,000 unexercisable options is not achieved by 31 December 2008.
5 500,000 of the 1,000,000 options granted were exercised in the 2006 year, and the 500,000 balance exercised in the 2007 year on 20 Dec 06 and 31 Aug 07 (refer to F4). Therefore,
nil vested and exercisable and nil unexercisable as at 30 Sep 2007.
6 250,000 of the 500,000 options granted were exercised in the 2007 year on 31 Aug 07 (refer to F4). The remaining 250,000 have not yet passed their performance hurdle (as at the
2008 report sign-off), and will expire on 31 Dec 08. As such, 250,000 remained unexercisable as at 30 Sep 2007.
f4. 2007 oPtion holdings of former Ceo, J mcfarlane (inCluding moVements during the 2007 year)1
Balance as
at 1 Oct
2006
1,000,000
Exercised
during
the year
300,000
200,000
250,000
Date of
exercise of
options
20-Dec-06
31-Aug-07
31-Aug-07
Number of
ordinary
shares issued
on exercise
of options
300,000
200,000
250,000
Value of
options
exercised
during the
year2
$
3,513,000
2,398,000
2,047,500
Share price
on date of
exercise of
options
$
28.40
28.68
28.68
Amount
paid per
share
$
16.69
16.69
20.49
Balance
as at
30 Sept
2007
250,000
1 All options granted to J McFarlane were approved by shareholders (December 1999 and December 2001), with J McFarlane entitled to one ANZ ordinary share upon the exercise of each option.
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.
34 ANZ Annual Report 2008
For personal use only
f5. deferred shares granted to disClosed eXeCutiVes
Financial Year
2007
2008
LTI Deferred Shares1
Name
R Edgar
Total
B hartzer
Total
G hodges
Total
P Marriott
Total
P hodgson
Total
S Targett
Grant date
Vesting date
05-Nov-03
05-Nov-03
11-May-04
05-Nov-04
05-Nov-04
05-Nov-06
05-Nov-06
11-May-07
05-Nov-07
05-Nov-07
05-Nov-03
11-May-04
05-Nov-04
05-Nov-06
11-May-07
05-Nov-07
05-Nov-03
11-May-04
05-Nov-04
05-Nov-06
11-May-07
05-Nov-07
05-Nov-03
11-May-04
05-Nov-04
05-Nov-06
11-May-07
05-Nov-07
05-Nov-03
11-May-04
05-Nov-04
08-Dec-04
05-Nov-06
11-May-07
05-Nov-07
08-Dec-07
05-Nov-04
05-Nov-07
Number
granted2
8,889
25,000
8,452
6,519
26,000
74,860
7,408
7,135
9,127
23,670
5,699
6,586
7,522
19,807
9,573
9,275
8,475
27,323
1,097
1,111
1,974
12,481
16,663
6,519
Number that
vested during
the 2007 or
2008 year
Percentage that
vested during the
2007 or 2008 year
%
8,889
25,000
8,452
6,519
26,000
74,860
7,408
7,135
9,127
23,670
5,699
6,586
7,522
19,807
9,573
9,275
8,475
27,323
1,097
1,111
1,974
12,481
16,663
6,519
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1 LTI deferred shares were last granted to KMP (for nil consideration) under the ANZ Long-Term Incentive Program in the 2005 year, and therefore were not granted in the 2007 or 2008 years.
LTI is currently delivered to executive KMP in the form of Performance Rights (refer to section C4.2). The LTI deferred shares (i.e. ANZ ordinary 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 and 2008 years, and as at 30 September 2008, 100% of LTI Defered Shares had vested.
STI Deferred Shares1,3
Name
R Edgar
Total
B hartzer
Total
G hodges
Total
P hodgson
Total
P Marriott
Total
Grant date
Vesting date
05-Nov-03
11-May-04
05-Nov-06
11-May-07
05-Nov-03
11-May-04
05-Nov-06
11-May-07
05-Nov-03
11-May-04
05-Nov-06
11-May-07
05-Nov-03
11-May-04
05-Nov-06
11-May-07
05-Nov-03
11-May-04
05-Nov-06
11-May-07
Number
granted2
6,781
7,683
14,464
7,322
7,244
14,566
5,129
5,653
10,782
7,835
9,330
17,165
7,978
9,604
17,582
Number that
vested during
the 2007 or
2008 year
Percentage that
vested during
the 2007 or
2008 year
%
6,781
7,683
14,464
7,322
7,244
14,566
5,129
5,653
10,782
7,835
9,330
17,165
7,978
9,604
17,582
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1 These STI deferred shares were granted under a historical ANZ Short-Term Incentive Program (for nil consideration). No STI deferred shares were granted to executive KMP during the 2007
and 2008 years. These STI deferred shares (i.e. ANZ ordinary shares) were restricted for 3 years, however they may be held in trust beyond this time.
2 Nil shares forfeited during the 2007 & 2008 years, and as at 30 September 2008, 100% of STI Deferred Shares had vested.
3 For the 2008 report, STI Deferred Shares were granted on 31 October 2008 (before the report sign-off date). The allocation price was $17.18 (based on the 1 week weighted average price
of ANZ shares traded on the ASx in the week prior to and including the date of grant). The number of STI Deferred Shares (or Deferred Share Rights for G hodges), granted to each disclosed
executive is as follows: R Edgar 7,275; B hartzer 37,834; G hodges 11,004; P Marriott 7,275; A Thursby 24,738.
Remuneration Report 35
For personal use only
f5. deferred shares granted to disClosed eXeCutiVes (Continued)
Financial Year
2007
2008
Other Deferred Shares
Name
A Thursby1
Total
S Targett2
Total
Grant date
Vesting date
03-Sep-07
28-Aug-08
03-Sep-10
28-Aug-11
11-May-04
05-Nov-04
13-May-05
07-Nov-05
11-May-07
05-Nov-07
13-May-08
07-Nov-08
Number
granted3,4
34,602
62,735
97,337
38,419
35,105
32,080
29,838
135,442
Value of
deferred shares
granted during the
2007 or 2008 year5
1,005,188
1,013,170
2,018,358
$
–
–
–
–
–
Number
that vested
during the year
Percentage that
vested during
the year
%
–
–
–
38,419
35,105
32,080
29,838
135,442
–
–
–
100
100
100
100
100
1 Other ANZ ordinary shares issued to A Thursby relate to the issue of deferred shares (for nil consideration) 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.
2 Other ANZ ordinary shares issued to S Targett (for nil consideration) 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 equity foregone as a result of his resignation from his previous employer upon commencement with ANZ.
3 Nil shares forfeited during the 2007 and 2008 years.
4 The maximum amortisation balance for subsequent financial years for A Thursby is $1,627,387 and nil for S Targett.
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.
f6. shareholdings of disClosed eXeCutiVes (inCluding moVements during the 2007 & 2008 years)
2008 Financial Year
Name
R Edgar
B hartzer
G hodges
P Marriott
A Thursby
P hodgson
2007 Financial Year
Name
R Edgar
B hartzer
G hodges
P Marriott
A Thursby
P hodgson
S Targett
Balance of
shares as at
1 Oct 20071
Shares granted
during the year
as remuneration
388,399
332,092
282,054
572,629
34,602
53,759
–
–
–
–
62,735
–
Balance of
shares as at
1 Oct 2006 1
Shares granted
during the year
as remuneration
421,733
96,083
239,319
660,513
–
53,759
142,961
–
–
–
–
34,602
–
–
Number of
shares acquired
during the year
through exercise
of options
31,577
–
–
241,794
–
9,000
Number of
shares acquired
during the year
through exercise
of options
66,666
269,194
42,735
11,000
–
–
153,688
Shares resulting
from any other
change during
the year2
Balance
of shares
held as at
30 Sept 20081,3
(38,000)
–
–
(240,196)
–
(29,000)
381,976
332,092
282,054
574,227
97,337
33,759
Shares resulting
from any other
change during
the year2
Balance
of shares
held as at
30 Sept 20071,4
(100,000)
(33,185)
–
(98,884)
–
–
(152,667)
388,399
332,092
282,054
572,629
34,602
53,759
143,982
1 Balance of shares held at 1 October 2006/2007 and 30 September 2007/2008, include directly and indirectly 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 on behalf of executive KMP (i.e. indirect beneficially held shares) as at 30 September 2008: R Edgar – 200,645; B hartzer – 0; G hodges – 146,747;
P hodgson – 0; P Marriott – 177,930; A Thursby – 97,337.
4 The following shares were held on behalf of executive KMP (i.e. indirect beneficially held shares) 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.
36 ANZ Annual Report 2008
For personal use only
f7. oPtions granted to disClosed eXeCutiVes1
Financial Year
2007
2008
Name
R Edgar
Total
B hartzer
Total
G hodges
Total
P Marriott
Total
A Thursby
P hodgson
Total
S Targett10
Total
Type of
options2
Index Linked
Index Linked
hurdled A
hurdled A
hurdled B
Performance Rights
Performance Rights
Performance Rights
hurdled A11
hurdled A11
hurdled A11
hurdled A11
Index Linked
Index Linked
hurdled A
hurdled A
hurdled B
Performance Rights
Performance Rights
Performance Rights
Index Linked
Index Linked
hurdled A
hurdled A
hurdled B
Performance Rights
Performance Rights
Performance Rights
hurdled A
Index Linked
Index Linked
hurdled A
hurdled A
hurdled B
Performance Rights
Performance Rights
Performance Rights
Performance Rights
hurdled A
hurdled A
Index Linked
Index Linked
hurdled A
hurdled A
hurdled B
Performance Rights
Performance Rights9
Performance Rights9
hurdled A
hurdled B
Performance Rights
Performance Rights
Grant
date
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
30-Oct-07
24-Apr-01
24-Oct-01
24-Apr-02
24-Apr-02
23-Apr-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
30-Oct-07
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
30-Oct-07
21-Nov-00
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
30-Oct-07
30-Oct-07
24-Oct-01
24-Apr-02
23-Oct-02
20-May-03
05-Nov-03
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
30-Oct-07
11-May-04
05-Nov-04
18-Nov-05
24-Oct-06
First date
exercisable
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
31-Oct-10
24-Apr-04
24-Oct-04
24-Apr-05
24-Apr-05
23-Apr-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
31-Oct-10
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
31-Oct-10
21-Nov-03
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
31-Oct-10
31-Oct-10
24-Oct-04
24-Apr-05
23-Oct-05
20-May-06
05-Nov-06
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
31-Oct-10
Date of
expiry3
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
30-Oct-12
24-Apr-08
24-Oct-08
24-Apr-09
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
30-Oct-12
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
30-Oct-12
21-Nov-07
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
30-Oct-12
31-Oct-12
24-Oct-08
24-Apr-09
22-Oct-09
19-May-10
04-Nov-10
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
30-Oct-12
11-May-07
05-Nov-07
19-Nov-08
25-Oct-09
10-May-11
04-Nov-11
18-Nov-10
24-Oct-11
Exercise
price4,5
$
17.34
17.60
17.55
18.22
20.68
0.00
0.00
0.00
12.98
16.33
18.03
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00
0.00
17.34
17.60
17.55
18.22
20.68
0.00
0.00
0.00
13.62
17.34
17.60
17.55
18.22
20.68
0.00
0.00
0.00
0.00
16.33
18.03
17.34
17.60
17.55
18.22
20.68
0.00
0.00
0.00
18.22
20.68
0.00
0.00
Number
granted6,7
125,000
147,000
66,666
63,115
52,000
60,346
45,872
19,290
579,289
42,000
36,000
59,000
50,000
109,000
113,000
55,555
53,279
72,800
64,656
64,985
65,686
785,961
63,000
113,000
42,735
49,181
60,000
60,346
57,340
57,870
503,472
170,000
153,000
158,000
71,794
69,263
67,600
62,501
57,340
57,870
867,368
46,296
9,000
9,600
14,700
17,200
8,221
8,300
15,750
51,725
45,872
57,870
238,238
307,377
52,000
64,657
57,340
481,374
Number
vested
during the
2007 or
2008 year
–
–
66,666
63,115
52,000
–
–
–
181,781
–
–
–
–
–
–
55,555
53,279
72,800
–
–
–
181,634
–
–
42,735
49,181
60,000
–
–
–
151,916
–
–
–
71,794
69,263
67,600
–
–
–
208,657
–
–
–
–
–
8,221
8,300
15,750
–
–
–
32,271
307,377
52,000
–
–
359,377
Percentage that
vested during
the 2007 or
2008 year
%
–
–
100
100
100
–
–
–
31%
–
–
–
–
–
–
100
100
100
–
–
–
30%
–
–
100
100
100
–
–
–
30%
–
–
–
100
100
100
–
–
–
24%
–
–
–
–
–
100
100
100
–
–
–
14%
100
100
–
–
75%
Vested and
exercisable
as at 30 Sept
2007 or 2008
–
–
–
31,557
–
–
–
–
31,557
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24,590
–
–
–
–
24,590
170,000
–
–
71,794
34,631
–
–
–
–
276,425
–
9,000
9,600
–
–
8,221
4,150
–
–
–
–
30,971
–
–
–
–
–
Unexercisable
as at 30 Sept
2007 or 20088
125,000
147,000
–
31,558
52,000
–
–
–
355,558
–
–
–
–
109,000
113,000
–
26,640
72,800
–
–
–
321,440
63,000
113,000
–
24,591
60,000
–
–
–
260,591
–
153,000
158,000
–
34,632
67,600
–
–
–
413,232
–
–
–
14,700
17,200
–
4,150
15,750
–
–
–
51,800
153,689
–
–
–
153,689
1 Options granted pertains to those options granted, vested or exercised during the year, options yet to vest and any unexercised options. The exercise of each option (including Performance Rights),
entitles the holder to one ANZ ordinary share.
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 was 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 the 2007 and 2008 years.
6 For the 2008 report, Performance Rights and Deferred Options were granted on 31 October 2008 (before the report sign-off date). The Performance Rights allocation price was $9.99 and the
Deferred Options allocation price, $2.58. The number of Performance Rights and Deferred Options granted respectively to each disclosed executive is as follows: R Edgar 25,025 and 48,385;
B hartzer 75,075 and 0; G hodges 50,050 and 67,739; P hodgson 0 and 0; P Marriott 50,050 and 48,385; A Thursby 55,055 and 164,509. These amounts relate to the 2009 financial year.
7 The maximum amortisation balance for each executive for subsequent financial years is as follows: R Edgar $631,465; B hartzer $1,199,309; G hodges $1,064,749; P hodgson $5,305;
P Marriott $1,064,840; A Thursby $395,027.
8 Unexercisable as options have not met performance hurdle. Only 50% of hurdled A options granted on 11 May 2004 are available for exercise. The remaining 50% will become available for exercise
once ANZ achieves the S&P/ASx 100 Accumulation Index performance hurdle. For hurdled B options granted on 5 November 2004, 100% are unexercisable as at 30 September 2008, as ANZ’s
relative TSR performance is below the median of the comparator group (i.e. minimum level required for vesting). Refer to section F10.1 for details of hurdled A and hurdled B performance hurdles.
9 P hodgson’s Performance Rights in relation to 2006 and 2007 have been 100% forfeited as a result of his termination (as per the conditions of grant). Therefore, nil are vested and exercisable/
unexercisable as at 30 Sep 2008.
10 S Targett was granted hurdled Options to compensate for the loss of equity from his previous employer.
11 Options exercised 16 May 2007.
Remuneration Report 37
For personal use only
f8. oPtion holdings of disClosed eXeCutiVes (inCluding moVements during the 2007 & 2008 years)
Balance as at
1 Oct 2007
Granted during
the year as
remuneration
Resulting from
any other change
during year
2008 Financial Year
Name
R Edgar
B hartzer
G hodges
Type of
options
hurdled
Index-Linked
Performance Rights
hurdled
Index-Linked
Performance Rights
hurdled
Index-Linked
Performance Rights
P Marriott
hurdled
P hodgson
2007 Financial Year
Name
R Edgar
Index-Linked
Performance Rights
Other3
hurdled
Index-Linked
Performance Rights
Type of
options
hurdled
Index-Linked
Performance Rights
B hartzer
hurdled
G hodges
P Marriott
P hodgson
S Targett
Index-Linked
Performance Rights
hurdled
Index-Linked
Performance Rights
hurdled
Index-Linked
Performance Rights
Other3
hurdled
Index-Linked
Performance Rights
hurdled
Performance Rights
–
–
19,290
–
–
65,586
–
–
57,870
–
–
57,870
–
–
–
57,870
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(103,742)
Value of options
granted during the year1
$
–
–
237,267
–
–
806,708
–
–
711,801
–
–
711,801
–
–
–
711,801
Exercised during
the year
31,557
–
–
–
–
–
–
–
–
170,000
71,794
–
–
–
9,000
–
–
Date of exercise
of options
14-Nov-07
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
31,557
332,295
28.75
18.22
07-Nov-07
08-Nov-07
170,000
71,794
2,781,200
776,093
29.98
28.36
13.62
17.55
16-Jul-08
12,240
17.69
16.33
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Date of exercise
of options
15-Nov-06
16-May-07
16-May-07
16-May-07
16-May-07
16-May-07
16-May-07
9,000
–
–
42,000
36,000
59,000
50,000
55,555
26,639
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
66,666
765,326
693,000
473,400
675,550
572,500
662,771
299,955
–
–
–
–
–
–
–
–
–
–
–
14-Nov-06
42,735
488,461
28.98
17.55
17-May-07
17-May-07
17-May-07
5,000
5,000
1,000
93,000
77,450
16,710
11-May-07
153,688
1,887,289
30.50
18.22
$
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
29.03
29.48
29.48
29.48
29.48
29.48
29.48
29.69
29.69
29.69
$
–
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
17.55
12.98
16.33
18.03
18.03
17.55
18.22
11.09
14.20
12.98
Balance as at
30 Sept 2008
83,558
272,000
125,508
99,440
222,000
195,227
109,181
176,000
175,556
136,863
311,000
177,711
442
41,871
31,900
51,725
Balance as at
30 Sept 2007
115,115
272,000
106,218
99,440
222,000
129,641
109,181
176,000
117,686
378,657
311,000
119,841
442
50,871
31,900
97,597
205,689
121,997
Granted during
the year as
remuneration
Resulting from
any other change
during year
Value of options
granted during the year1
$
Exercised during
the year
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
–
–
45,872
–
–
64,985
–
–
57,340
–
–
57,340
–
–
–
45,872
–
57,340
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
600,006
–
–
850,004
–
–
750,007
–
–
750,007
–
–
–
600,006
–
750,007
66,666
–
–
42,000
36,000
59,000
50,000
55,555
26,639
–
–
42,735
–
–
–
–
–
5,000
5,000
1,000
–
–
–
153,688
–
115,115
272,000
106,218
99,440
222,000
129,641
109,181
176,000
117,686
378,657
311,000
119,841
442
50,871
31,900
97,597
Balance as at
1 Oct 2006
181,781
272,000
60,346
368,634
222,000
64,656
151,916
176,000
60,346
378,657
311,000
62,501
11,442
50,871
31,900
51,725
359,377
64,657
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. 442 of these options were vested and exercisable as at 30 September 2007 and at 30 September 2008.
38 ANZ Annual Report 2008
For personal use only
f8. oPtion holdings of disClosed eXeCutiVes (inCluding moVements during the 2007 & 2008 years)
Balance as at
1 Oct 2007
Granted during
the year as
remuneration
Resulting from
any other change
during year
Value of options
granted during the year1
$
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 2008
2008 Financial Year
Name
R Edgar
B hartzer
G hodges
P hodgson
2007 Financial Year
Name
R Edgar
P Marriott
hurdled
B hartzer
hurdled
Type of
options
hurdled
Index-Linked
Performance Rights
hurdled
Index-Linked
Performance Rights
hurdled
Index-Linked
Performance Rights
Index-Linked
Performance Rights
Other3
hurdled
Index-Linked
Performance Rights
Type of
options
hurdled
Index-Linked
Performance Rights
Index-Linked
Performance Rights
hurdled
Index-Linked
Performance Rights
hurdled
Index-Linked
Performance Rights
Other3
hurdled
Index-Linked
Performance Rights
hurdled
Performance Rights
G hodges
P Marriott
P hodgson
S Targett
115,115
272,000
106,218
99,440
222,000
129,641
109,181
176,000
117,686
378,657
311,000
119,841
442
50,871
31,900
97,597
Balance as at
1 Oct 2006
181,781
272,000
60,346
368,634
222,000
64,656
151,916
176,000
60,346
378,657
311,000
62,501
11,442
50,871
31,900
51,725
359,377
64,657
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19,290
65,586
57,870
57,870
64,985
57,340
57,340
45,872
57,340
237,267
806,708
711,801
711,801
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
–
–
850,004
750,007
750,007
600,006
750,007
Exercised during
the year
31,557
170,000
71,794
9,000
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57,870
(103,742)
711,801
Granted during
the year as
remuneration
Resulting from
any other change
during year
Value of options
granted during the year1
45,872
600,006
14-Nov-07
–
–
–
–
–
–
–
–
07-Nov-07
08-Nov-07
–
–
–
16-Jul-08
–
–
Date of exercise
of options
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
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
31,557
–
–
–
–
–
–
–
–
170,000
71,794
–
–
–
9,000
–
–
332,295
2,781,200
776,093
12,240
28.75
–
–
–
–
–
–
–
–
29.98
28.36
–
–
–
17.69
–
–
18.22
–
–
–
–
–
–
–
–
13.62
17.55
–
–
–
16.33
–
–
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
$
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
–
83,558
272,000
125,508
99,440
222,000
195,227
109,181
176,000
175,556
136,863
311,000
177,711
442
41,871
31,900
51,725
Balance as at
30 Sept 2007
115,115
272,000
106,218
99,440
222,000
129,641
109,181
176,000
117,686
378,657
311,000
119,841
442
50,871
31,900
97,597
205,689
121,997
Remuneration Report 39
For personal use only
f9. PerformanCe right Valuations
Recipients
Executive KMP
Executive KMP
CEO, M Smith
CEO, M Smith
CEO, M Smith
Grant
date
Option
value1
Share price
at grant
ANZ expected
volatility2
Option term
(years)
Vesting period
(years)
Expected life
(years)
24-Oct-06
30-Oct-07
19-Dec-07
19-Dec-07
19-Dec-07
13.08
12.30
11.60
11.55
11.51
28.15
29.69
26.85
26.85
26.85
15
15
17
17
17
5
5
4
5
6
3
3
3
4
5
3
3
3
4
5
Expected
dividend
yield3
Risk free
interest rate4
%
4.80
4.50
4.50
4.50
4.50
6.00
6.63
6.82
6.73
6.66
1 PricewaterhouseCoopers and Mercer 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.
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.
40 ANZ Annual Report 2008
Comparator Group
AMP Limited
AxA Asia Pacific 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 J McFarlane from December 2001 until December 2004)
Until May 2004, hurdled options were granted to executives with the
following performance hurdles attached. The following performance
hurdles also pertain to the options granted to J McFarlane:
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.
For personal use only
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 former
CEO J McFarlane with a relative TSR performance hurdle attached.
While a decision was made upon J McFarlane’s cessation to acquire
his interest in these shares (refer to section D2.3), the hurdle attached
to these performance shares at grant was as follows: The proportion
of shares that vest will depend upon the TSR achieved by ANZ
relative to the companies in the comparator group (as per hurdled
B options). 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.
Signed in accordance with a resolution
of the directors
Charles Goode
Chairman
Michael R P Smith
Director
7 November 2008
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 financial year ended 30 September 2008 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
Michelle hinchliffe
Partner
Melbourne
7 November 2008
Remuneration Report 41
For personal use only Corporate
Governance
A solid foundation at ANZ
“The following statement sets out the governance framework the Board has adopted at ANZ to assist it in discharging its
responsibilities and details the substantive work undertaken by the Board and its Committees during the financial year.”
Charles Goode, Chairman
APPROACh TO GOVERNANCE
In relation to corporate 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 some other overseas Securities Exchanges.
As such, ANZ must comply with a range of listing and corporate
governance requirements from both Australia and overseas.
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 financial year, explaining any departures
from them. As announced last year, the revised version of the ASx
Governance Principles released in August 2007 will strictly only
apply to ANZ in respect of its 2009 reporting period.
In line with its stated approach to governance, ANZ has chosen
to be an early adopter of the revised ASx Governance Principles
and has complied with each of the Recommendations throughout
the financial year.
Full details of the location of the references in this statement
(and elsewhere in this Annual Report) which specifically set
out how ANZ applies each Recommendation of the revised
ASx Governance Principles are contained on www.anz.com >
About ANZ > Our Company > Corporate Governance.
42 ANZ Annual Report 2008
42 ANZ Annual Report 2008
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.
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.au and, in respect of the NZx, at www.nzx.com.
Irrespective of any differences, ANZ has complied with all applicable
governance principles both in Australia and New Zealand throughout
the financial year.
other JurisdiCtions
ANZ also monitors best practice developments in corporate
governance across other relevant jurisdictions including the US.
ANZ deregistered from the US Securities and Exchange Commission
with effect from October 2007. Despite no longer being required
to comply with US corporate governance rules, ANZ has decided
to continue with certain governance practices required under US
regulations as being best practice, including practices in relation
to the independence of Directors, the independence of the external
auditor and the financial expertise of certain members of the Audit
Committee, as described in this statement.
RECOGNITION
In 2008, ANZ received the Special Award for Governance Reporting
(Private Sector) at the 2008 Australasian Reporting Awards. ANZ
also received a rating of 95/100 for Corporate Governance in 2008
from the Dow Jones Sustainability Index, the highest rating for a
bank globally, as well as an 8/10 global rating from Governance
Metrics International.
WEBSITE
Full details of the location of the references in this statement (and
elsewhere in the Annual Report) which specifically set out how
ANZ applies each Recommendation of the revised ASx Governance
Principles are contained on www.anz.com > About ANZ > Our Company
> 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 statement, as well as summaries of other ANZ policies of
interest to shareholders and stakeholders. The website is regularly
updated to ensure it reflects ANZ’s most recent corporate governance
information.
For personal use only DIRECTORS
Mr C B Goode, AC Chairman, independent non-executive director
BCom (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-officio member of all Board
Committees.
skills, experience and expertise
Mr Goode has a background in the finance industry and has
been a professional non-executive director since 1989. Mr Goode
brings a wide range of skills and significant experience of the
finance industry to his role as Chairman of the Board.
Current directorships
Chairman: Australian United Investment Company Limited
(Director from 1990), Diversified United Investment Limited
(Director from 1991), Grosvenor Australia Properties Pty Ltd
Mr M R P Smith, OBE Chief executive officer, executive director
BsC (Hons)
Chief Executive Officer, since October 2007.
skills, experience and expertise
Mr Smith is an international banker with 30 years experience in
banking operations in Asia, Australia and internationally. Until June
2007, he was President and Chief Executive Officer, 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 Officer 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.
(Director from 2008) 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 70. residence Melbourne.
Current directorships
Director: ANZ National Bank Limited (from 2007) and The Financial
Markets Foundation for Children (from 2008). Member: Chongqing
Mayor’s International Economic Advisory Council (from 2006),
Australian Bankers’ Association Incorporated (from 2007) and Asia
Business Council (from 2008). 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
hongkong 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 Pacific)
Limited (2005–2007).
age 52. 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 firm 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.
Current directorships
Chairman: GPM Classified Directories (from 2007). Director: Babcock
& Brown Capital Limited (from 2006) and KaComm Communications
Pty Ltd (from 2006).
former directorships include
Former Director: James hardie Industries NV (2002–2006) and Acton
Semiconductor Pty Limited (2001–2005).
age 65. residence Based in New York, United States of America but
also resides in Sydney.
Corporate Governance 43
For personal use only 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: Landcare Australia Limited (from 2004), Future Eye
Pty Ltd Advisory Board (from 2008), Pacific Road Corporate
Finance Pty Limited Advisory Board (Director from 2002) and the
Earth Resources Development Council (from 2006). Director: Future
Directions International Pty Ltd (from 2003). Member: 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), Pacifica Group
Limited (Chairman and Director 1999–2007), Australia-Japan
Foundation (1999–2005), Golf Australia (2005–2008) and National
Occupational health & Safety Commission (2003–2005). Former
Chancellor: Monash University (1999–2007). Former Director:
GroPep Limited (2000–2005).
age 71. residence Melbourne.
Ms M A Jackson, AC independent non-executive director, Chairman of the human resources Committee
BeC, mBA, Hon LLD (monAsH), FAiCD, FCA
President: Australian Volunteers International (from 2006).
Non-executive director since March 1994. Ms Jackson is a member
of the Audit Committee.
skills, experience and expertise
A Chartered Accountant, with significant financial 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: FlexiGroup Limited (from 2006), Asia Pacific Business
Coalition on hIV/AIDS (from 2006) and the Ponting Foundation
(from 2008). Director: Billabong International Limited (from 2000)
and Australian Tissue Engineering Centre (from 2007).
former directorships include
Former Chairman: Qantas Airways Limited (Director 1992–2007,
Chairman 2000–2007). Former Co-Chairman: Australia NZ Leadership
Forum (2003–2006). Former Director: howard Florey Institute of
Experimental Physiology and Medicine (1998-2006) and Florey
Neuroscience Institute (2007–2008). Former Partner: Consulting
Division of KPMG Peat Marwick (1991–1992).
age 55. residence Melbourne.
Mr I J Macfarlane, AC independent non-executive director, Chairman of the governance Committee
Member: International Advisory Board of Goldman Sachs JB Were
(from 2007) and International Advisory Board of ChAMP Private
Equity (from 2007).
former directorships include
Former Chairman: Payments System Board (1998–2006), Australian
Council of Financial Regulators (1998–2006), Financial Markets
Foundation for Children (1996–2006) and Reserve Bank of Australia
(Board Member 1992–2006, Chairman 1996–2006).
age 62. residence Sydney.
BeC (Hons), meC, Hon DsC (syD), Hon DsC (Unsw), 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 significant contribution to economic policy in Australia and
internationally. he has a deep understanding of financial
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).
44 ANZ Annual Report 2007
44 ANZ Annual Report 2008
For personal use only Mr D E Meiklejohn independent non-executive director, Chairman of the audit Committee
bCom, 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 finance 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 Director: WMC Resources Limited (2002–2005)
and OneSteel Limited (2000–2005). Director and Chief Financial
Officer Amcor Limited (1985–2000).
age 66. residence Melbourne.
Mr J P Morschel independent non-executive director, Chairman of the risk Committee
DiPqs, FAim
Non-executive director since October 2004. Mr Morschel is a
member of the human Resources Committee.
skills, experience and expertise
Mr Morschel has a strong background in banking, financial services
and property and brings the experience of being a Chairman and
Director of major Australian and international companies.
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). 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 65. residence Sydney.
BOARD RESPONSIBILITY AND DELEGATION OF AUThORITY
The Board is chaired by an independent non-executive Director.
The roles of the Chairman and Chief Executive Officer are separate,
and the Chief Executive Officer 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 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 Officer
and providing appropriate mentoring and guidance; and
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 specific responsibilities.
The Board is responsible for:
charting the direction, strategies and financial objectives for
ANZ and monitoring the progress in relation to such matters;
monitoring compliance with regulatory requirements, ethical
standards and external commitments; and
appointing and reviewing the performance of the Chief Executive
Officer.
In addition to the above and any matters expressly required by law
to be approved by the Board, powers specifically reserved for the
Board include:
approval of appointment of Senior Executives to roles leading
ANZ businesses or functions and reporting to the Chief Executive
Officer;
any matters in excess of any discretions delegated to the Chief
Executive Officer and senior management;
annual approval of the budget and strategic plan;
Corporate Governance 45
For personal use only annual approval of the remuneration and conditions of service
for any executive Directors, direct reports to the Chief Executive
Officer and other key executives;
significant changes to organisational structure;
the acquisition, establishment, disposal or cessation
of any significant business;
the issue of ANZ shares or other ANZ equity securities;
any public statements which reflect significant issues
of ANZ policy or strategy; and
any changes to the discretions delegated from the Board.
Under ANZ’s Constitution, the Board may delegate any of its
powers and responsibilities to Committees of the Board. The roles
of the principal Board Committees are set out on pages 50 to 53.
Substantive areas of focus in the 2008 financial year included
oversight of:
ANZ’s responses to the deterioration in global financial markets,
including ANZ’s capital and funding requirements;
progress in relation to the Securities Lending Review and
the ongoing progress of remediation issues;
the “One ANZ” restructure of the ANZ business; and
approval of ANZ’s strategies in relation to its three year
super regional aspirations.
BOARD MEETINGS
The Board normally meets at least 8 times each year, including
an offsite meeting to review in detail the Group’s strategy.
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 Officer’s report;
the Chief Financial Officer’s report;
Divisional Executive reports;
specific 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.
CEO AND DELEGATION TO MANAGEMENT
The Board has delegated to the Chief Executive Officer, and
through the Chief Executive Officer 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
Officer and reviewed annually by the Audit Committee with the
outcome of this review reported to the Board.
At a senior Group level, ANZ has a Management Board which
comprises the Chief Executive Officer and ANZ’s most senior
executives.
As at 1 October 2008, the following senior executives, in addition
to the Chief Executive Officer, were members of Management
Board: Bob Edgar – Deputy Chief Executive Officer; Peter Marriott
– Chief Financial Officer; Brian hartzer – Chief Executive Officer,
Australia; Graham hodges – Chief Executive Officer, New Zealand;
Alex Thursby – Chief Executive Officer, Asia Pacific and Acting Group
Managing Director, Institutional; David Cartwright– Group Managing
Director, Operations, Technology and Shared Services; Susie Babani
– Group Managing Director, human Resources; Chris Page – Chief
Risk Officer; David hisco – Group Managing Director, Commercial
Banking; and Margaret Payn – Group Managing Director, Strategy
& Marketing.
Typically, the Management Board meets every week and has a full
day meeting each month to discuss performance, review shared
initiatives and build collaboration and synergy across the Group.
“ONE ANZ”
On 9 September 2008, ANZ announced a new business model
and organisation structure to accelerate progress with its strategy
to become a super regional bank, lift customer focus and drive
performance improvement.
ANZ is now organised around its three geographies – Australia,
New Zealand and Asia Pacific – and its global Institutional client
business. Each geography focuses on two customer segments –
Retail and Commercial, which are co-ordinated globally.
There are two private sessions held at the end of each Board meeting
which are each chaired by the Chairman of the Board.
The new structure became effective on 1 October 2008 with the
new business model being established progressively.
The first 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.
The Chief Financial Officer and the Group General Counsel and
Company Secretary are also present at all Board meetings. 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.
46 ANZ Annual Report 2008
For personal use only INTERNAL REVIEW
On 22 August 2008, ANZ released the findings of the Review Committee
which examined ANZ’s involvement in Securities Lending and its
relationship with Broker clients including the Opes Prime group.
The report followed an announcement in April 2008 that the Chief
Executive Officer would conduct a thorough review of the issues
surrounding ANZ’s Securities Lending business and publicly release
its findings.
The Review Committee examined business practice, governance
and management accountability related to the Securities Lending
business within ANZ and developed a comprehensive remediation
plan to address its findings.
The Review Committee’s report was presented to the Board which
accepted the findings and gave its full support to the remediation
program. The report provided to the Board was also provided to the
Australian Prudential Regulation Authority (APRA) and the Australian
Securities and Investments Commission (ASIC).
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
office at the date of this Annual Report can be found on pages 43
to 45.
The Governance Committee (see page 51) has been delegated
responsibility for the director nomination process. The Committee
regularly reviews the size and composition of the Board 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 new Director candidates against
Board approved selection criteria including integrity, fitness and
propriety, skills, qualifications, 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. This process is formalised in the Board Renewal and
Performance Evaluation Policy.
The composition of the principal Board Committees is reviewed
annually by the Board.
aPPointment doCumentation
Each new non-executive Director receives an appointment letter
accompanied by a:
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; and
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 officers’
liability insurance, the right to obtain independent advice and
requirements concerning confidential 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 Ethics, Director related policies, Board and Committee
policies, processes and key issues, financial management
and business operations. A briefing is also provided by senior
management about matters concerning their areas 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, if they
wish to continue in that role, must seek election by shareholders,
at the next Annual General Meeting.
fit and ProPer
ANZ has a robust framework in place to ensure that individuals
appointed to relevant senior positions within the Group have
the appropriate fitness 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 executives 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 qualifications and the carrying out of checks such as
criminal record, bankruptcy and regulatory disqualification checks.
These assessments are reviewed thereafter on an annual basis.
The Governance Committee and the Board have responsibility for
assessing the fitness and propriety of non-executive Directors.
The human Resources Committee is responsible for assessing the
fitness and propriety of the Chief Executive Officer and key senior
executives. The Audit Committee is responsible for assessing the
fitness and propriety of the external auditor.
Fit and Proper assessments were carried out in respect of each
non-executive Director, the Chief Executive Officer, key senior
executives and the external auditor during the 2008 financial year.
Corporate Governance 47
For personal use only indePendenCe and materiality
indePendent adViCe
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 has 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 2008 financial year, the Board conducted its annual review of
criteria for independence against the ASx Governance Principles and
APRA Prudential Standards, as well as the requirements of the NYSE
Corporate Governance Standards, and the US Sarbanes-Oxley Act of
2002 in relation to Audit Committe member independence.
ANZ’s criteria are more comprehensive than those set in many
jurisdictions including in particular criteria stipulated specifically 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 influence 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 2008, the Board considered each non-executive Director’s
independence and concluded that the independence criteria were
met by each non-executive Director.
Directors’ biographies on pages 43 to 45 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 conflict 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 Conflicts of Interest, which was reviewed by the Governance
Committee during the year, a Director may not exercise any influence
over the Board if a potential conflict 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.
In order to assist Directors in fulfilling 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, consistent with the ASx Listing Rules, provides
that a non-executive Director must seek re-election by shareholders
every 3 years if they wish to continue in their role as a non-executive
Director.
It is ANZ’s view that the length of service of a non-executive
Director is not an automatic disabling criterion affecting that
Director’s independence, and this is consistent with the revised
ASx Governance Principles. however, the Governance Committee
has recently approved a revision to the Board Renewal and
Performance Evaluation Policy so that non-executive Directors will
retire once they have served a maximum of three 3-year terms after
first being elected by shareholders unless invited by the Board to
extend their tenure due to special circumstances. This revised policy
applies to current non-executive Directors except where there is
an agreed retirement plan that has been made public and it also
applies to future non-executive Directors.
Continuing eduCation
ANZ Directors take part in a range of training and continuing
education programs. In addition to a formal induction program
(see page 47), Directors also receive a quarterly advice 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 business briefings at Board meetings. These
briefings are intended to provide Directors with information on each
area of ANZ’s business, in particular regarding performance, key
issues, risks and strategies for growth. In addition, Directors have
the opportunity to participate in site visits from time to time.
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.
48 ANZ Annual Report 2008
For personal use only 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 meetings, 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 Office function.
The Company Secretary is responsible for the day-to-day
operations of the Company Secretary’s Office including lodgements
with relevant Securities Exchanges and other regulators, the
administration of Board and Board Committee meetings (including
preparation of meeting minutes), 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 Officer is also appointed as a Company Secretary.
Profiles of ANZ’s Company Secretaries can be found in the Directors’
Report on page 17.
PERFORMANCE EVALUATIONS
oVerView
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. This is captured in ANZ’s Board Renewal and Performance
Evaluation Policy, which was reviewed by the Governance
Committee and substantially revised during the year following
a best practice benchmarking review.
The performance criteria take into account each Director’s
contribution to:
the charting of direction, strategy and financial 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
Officer’s performance; and
the regular and continuing review of executive succession
planning and executive development activities.
non-eXeCutiVe direCtors
Non-executive Director performance evaluations are conducted
in two ways:
Annual review – On an annual basis, or more frequently if
appropriate, the Chairman has a one-on-one meeting with each
non-executive Director specifically addressing the performance
criteria including compliance with the Directors’ Code of Conduct
and Ethics. To assist the effectiveness of these meetings, the
Chairman is provided with objective information about each Director
(e.g. number of meetings attended, Committee memberships,
other current directorships etc) and a guide for discussion to
ensure consistency. A report on the outcome of these meetings
is provided to the Governance Committee and to the Board.
Re-election statement – Non-executive Directors when nominating
for re-election are given the opportunity to submit a written or
oral statement to the Board setting out the reasons why they seek
re-election. In the non-executive Director’s absence, the Board
evaluates this statement (having regard to the performance criteria)
when it considers whether to endorse the relevant Director’s
re-election.
Chairman of the board
An annual review of the performance of the Chairman of the Board
is facilitated by the Chairman of the Governance Committee who
seeks input from each Director individually on the performance
of the Chairman of the Board against the competencies for the
Chairman’s role approved by the Board.
The Chairman of the Governance Committee collates the input in
order to provide an overview report to the Governance Committee
and to the Board, as well as feedback to the Chairman of the Board.
the board
For the year ended 30 September 2008, the performance of the
Board was assessed using an independent external facilitator,
who sought input from each Director and certain members of
senior management when carrying out the assessment.
The assessment was conducted in accordance with broad terms
of reference agreed by the Governance Committee. The results of the
assessment were discussed with the Chairman of the Governance
Committee who presented the results of the assessment and
recommendations to the Governance Committee and to the Board.
It is expected that externally facilitated reviews will occur approximately
every three years. The review process in the intervening years will
consider progress against any recommendations implemented arising
from the most recent externally facilitated review, together with any
new issues that may have arisen, and will be conducted internally.
Corporate Governance 49
For personal use only board Committees
membershiP and attendanCe
Each of the principal Board Committees conducts an annual
Committee performance self-assessment to review performance
using Guidelines approved by the Governance Committee. The
Guidelines set out that at a minimum, the self-assessments
should cover:
review of the scope of the Committee’s responsibilities
and duties as enshrined in its Charter;
review of the Committee’s performance against its Charter
and annual calendar of business;
review of the Committee’s performance against any goals
or objectives it set itself for the year under review;
review of major issues that faced the Committee during the year;
and
identification of future topics for training/education of the
Committee.
The outcomes of the performance self-assessments, along with
plans and objectives for the new financial year, are submitted to
the Governance Committee (and, in the case of the Governance
Committee, to the Board) for discussion and noting.
senior management
Details of how the performance evaluation process is undertaken
in respect of the Chief Executive Officer (by the Board) and other
key senior executives (by the human Resources Committee),
including how financial, operational and qualitative measures are
assessed, are set out in the Remuneration Report on pages 25 to 27.
Board and relevant senior management evaluations in accordance
with the above processes have been undertaken in respect of the
2007/8 reporting period, including an independently facilitated
review of the Board’s performance.
BOARD COMMITTEES
As set out on page 46 of this statement, the Board has the ability
under its Constitution to delegate its powers and responsibilities to
Committees of the Board. This allows the Board to spend additional
and more focused time on specific issues. ANZ’s Board has five
principal Board Committees: Audit Committee, Governance
Committee, human Resources Committee, Risk Committee and
Technology Committee.
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.
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. Composition is reviewed annually by the Board.
The Chairman is an ex-officio member of each principal Board
Committee. The Chief Executive Officer 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
officer 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
liaise as a group in order to review the calendars of business
prepared by each Committee and 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 fulfilling 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.
anZ board Committee membershiPs – from 1 october 2007 – 30 september 2008
Audit
Governance
human Resources
Risk
Mr D E Meiklejohn C, FE
Mr I J Macfarlane C
Ms M A Jackson C
Mr J P Morschel C
Ms M A Jackson FE
Dr G J Clark
Mr J P Morschel
Mr I J Macfarlane
Technology
Dr G J Clark C
Mr J K Ellis
Mr J K Ellis
Mr D E Meiklejohn
Mr C B Goode (ex-officio)
Mr D E Meiklejohn
Mr I J Macfarlane
Mr C B Goode (ex-officio)
Mr C B Goode (ex-officio)
Mr C B Goode (ex-officio)
Mr C B Goode (ex-officio)
C – Chairman, FE – Financial Expert
50 ANZ Annual Report 2008
For personal use only
audit Committee
goVernanCe Committee
The Audit Committee is responsible for oversight and monitoring of:
The Governance Committee is responsible for:
ANZ’s financial reporting principles and policies, controls and
procedures;
the work of Internal Audit which reports directly to the Chairman
of the Audit Committee (refer to Internal Audit on page 53 for more
information);
the Audit Committees of significant subsidiary companies;
prudential supervision procedures required by regulatory bodies
relating to financial reporting; and
the integrity of ANZ’s financial statements, compliance with related
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 fitness 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 financially literate.
Mr Meiklejohn (Chair) and Ms Jackson (member) were determined
to be ‘financial experts’ for the 2008 financial year under the
definition set out in the US Sarbanes-Oxley Act of 2002. Refer
to pages 44 and 45 for their qualifications. While the Board has
determined that Mr Meiklejohn and Ms Jackson have the necessary
attributes to be ‘financial 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, Financial Reporting and Policy has been
appointed as the executive responsible for assisting the Chairman of
the Committee.
Substantive areas of focus in the 2008 financial year included:
Internal Audit – The Committee approved the annual plan for
internal audit and kept progress against this plan under regular
review. Adjustments to the plan were made during the year to
accommodate high priority items.
Regulatory developments – Domestic and international
accounting and financial reporting developments were reported
to the Committee outlining relevant changes and implications
for ANZ.
Financial Reporting Governance Program – Notwithstanding that ANZ
has ceased to be registered with the SEC in the US, the Committee
requested management ensure that ANZ’s financial governance
framework retained the beneficial aspects of US regulation. The
2008 Program involved increased management testing with Internal
Audit providing an oversight role and the Committee received regular
Financial Reporting Governance updates providing comment on key
themes, areas of focus and status.
Whistleblowing – The Committee oversaw developments in respect
of amendments to the Group’s Whistleblower Protection Policy.
identifying and recommending prospective Board members and
succession planning for the position of Chairman (see page 47);
reviewing and approving procedures for the oversight and
evaluation of the performance of the Board, Board Committees
and non-executive Directors (see page 49);
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; and
reviewing the development of and approving corporate
governance policies and principles applicable to ANZ.
The Committee previously had responsibility for reviewing and
approving management’s proposed corporate responsibility
objectives and strategies for ANZ. In future, this area will be the
direct responsibility of the Board.
The Group General Counsel and Company Secretary has been
appointed as the executive responsible for assisting the Chairman
of the Committee.
Substantive areas of focus in the 2008 financial year included:
Governance framework –The Committee reviewed the Board’s
governance framework and principles including in relation to
Board composition, size, Director tenure, outside commitments,
nomination and appointment procedures, and Director
independence criteria.
Ethics Framework – The Committee received a report on work
in relation to the development of a new Ethics Framework to be
supported by an updated Code of Conduct and Ethics, related
policies, training and more frequent acknowledgement and
acceptance by employees.
Asia Pacific – The Committee received a report on the review
by the Asia Pacific business of its governance practices generally,
including details of various governance initiatives that are to be
progressively implemented.
Board and Committee Performance Evaluations – The Board
Renewal and Performance Evaluation Policy was comprehensively
reviewed and revamped. External governance consultants were
commissioned to conduct a review of the Board’s performance
with the results presented to the Committee.
Review and approval of Group policies – The Committee approved
amendments to existing Group policies including the Continuous
Disclosure Policy and Securities Trading Policy.
human resourCes Committee
The human Resources 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 20 to 41).
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 Officer
(details in the Remuneration Report on pages 20 to 41).
Corporate Governance 51
For personal use only In addition, the Committee considers and approves key executive
appointments, and senior executive succession plans as well as
policies with respect to health and safety issues and diversity.
The Group Managing Director, human Resources has been appointed as
the executive responsible for assisting the Chairman of the Committee.
Substantive areas of focus in the 2008 financial year included:
Management roles and performance – The Committee reviewed
the performance of the CEO and CEO’s direct reports, and set
targets for 2009. The Committee held a succession planning
session on Management Board roles and Business Critical roles.
Fitness and Propriety – The Committee completed initial
(where applicable) and annual Fit and Proper assessments
of Board Appointees.
Remuneration – The Committee approved the grant of ESAP
$1000 shares to employees, reviewed and approved a new
bonus framework for Institutional, reviewed and approved
changes to the ANZERS Bonus Plan, and reviewed and approved
changes to the reward structure for Management Board.
hR matters – The Committee received annual updates on
Superannuation, health & Safety and Diversity.
For more details on the activities of the human Resources Committee,
please refer to the Remuneration Report on pages 20 to 41.
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 frameworks.
It is also authorised to approve credit transactions and other related
matters beyond the approval discretion of executive management.
The Chief Risk Officer is the executive responsible for assisting the
Chairman of the Committee.
Substantive areas of focus in the 2008 financial year included:
Risk Appetite Framework – The Committee approved enhancements
to and further development of the Risk Appetite Framework.
Basel II – The Committee oversaw ANZ’s Basel II accreditation from
APRA and the Reserve Bank of New Zealand. The Committee also
focused on the delivery of Pillar 3 Market Disclosures required for
2008 financial year reporting.
Securities Lending Review – The Committee received the results of
the Review and will continue to focus attention on the remediation
of issues raised in the Review.
Provisioning – The Committee regularly reviewed provisioning in
light of the global financial crisis.
Liquidity – The Committee performed an ongoing and detailed
review of the Group’s liquidity and funding positions and risks.
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.
Substantive areas of focus in the 2008 financial year included:
Technology Architecture – The Committee monitored the definition
and execution of the Bank’s technology architecture strategy.
Future needs – The Committee received reports on the future
technology investment requirements for the Group and on the
Group’s future IT operating model.
Projects – The Committee received regular reports monitoring
the progress of ANZ’s major technology and property projects
from both a project management and a cost perspective. The
Committee also received a report on ANZ’s change and project
management capability.
833 Collins Street – The Committee received specific reports
on the progress of the building of the Group’s new Melbourne
headquarters and reviewed the technology strategy for the
new building.
Board
Audit
Committee
Governance
Committee
A
13
13
13
13
13
13
13
13
B
13
13
13
13
12
13
13
13
A
–
8
8
8
–
8
–
–
B
–
8
8
8
–
8
–
–
A
4
–
4
–
4
4
–
–
B
4
–
4
–
4
4
–
–
human
Resources
Committee
A
–
–
6
6
–
–
6
–
B
–
–
5
6
–
–
6
–
Risk
Committee
Technology
Committee
Executive
Committee
Shares
Committee
Committee
of the Board
A
–
–
6
–
6
6
6
–
B
–
–
6
–
6
6
6
–
A
3
3
3
–
3
–
–
–
B
3
3
3
–
2
–
–
–
A
–
–
1
1
1
1
1
1
B
–
–
1
1
1
1
1
1
A
–
–
7
5
–
1
1
4
B
–
–
7
5
–
1
1
4
A
–
2
5
–
–
3
–
4
B
–
2
5
–
–
3
–
4
G J Clark
J K Ellis
C B Goode
M A Jackson
I J Macfarlane
D E Meiklejohn
J P Morschel
M R P Smith
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-officio member of the Audit, Governance, human Resources, Risk and Technology Committees.
52 ANZ Annual Report 2008
For personal use only additional Committees
In addition to the five principal Board Committees, the Board has
constituted a Shares Committee and an Executive Committee, each
consisting solely of Directors, to assist in carrying out specific 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
specific tasks.
RISK MANAGEMENT AND COMPLIANCE
The Board is principally responsible for establishing risk tolerance,
approving related strategies and policies, and for the oversight of
policy compliance and the effectiveness of the risk and compliance
management framework that is in place.
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 and each business.
For further information on how ANZ manages its material business
risks, please see the disclosures in relation to AASB 7 “Financial
Instruments: Disclosure” in the notes to the financial statements
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 and compliance management
framework and the management of ANZ’s material business risks.
AUDIT AND FINANCIAL GOVERNANCE
internal audit
Internal Audit reviews various areas of ANZ’s business and
operations each year pursuant to an annual plan that is approved
by the Audit Committee. Through these reviews, Internal Audit
seeks to assess the effectiveness of the design and operation of
the Group’s risk and control framework. 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 which aims to focus on the
higher risk activities in each business. All audits are conducted in
a manner that conforms to international auditing standards. Audit
results also influence incentive compensation of business heads.
The Audit Committee receives formal reports on significant issues.
Internal Audit plays an active role in connection with the compliance
requirements of supervisory regulatory authorities. Internal Audit
also works collaboratively with the external auditor to enhance the
audit scope. The Risk Committee also receives a quarterly report
from Internal Audit.
eXternal audit
The external auditor’s role is to provide an independent opinion that
ANZ’s financial 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 ratification 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.
The Policy also requires that all services provided by the external
auditor, including the non-audit services that may be provided
by the external auditor, must be in accordance with the following
principles:
the external auditor should not have a mutual or conflicting
interest with ANZ;
the external auditor should not audit its own work;
the external auditor should not function as part of management
or as an employee; and
the external auditor should not act as an advocate of ANZ.
The Policy, which sets out in detail the types of services the external
auditor may and may not provide, can be found on the Corporate
Governance section of anz.com.
Details of the non-audit services provided by the external auditor,
KPMG, during the 2008 financial year, including their dollar
value, 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 set out in the
Directors’ Report on page 18.
In addition, ANZ requires a two 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 five 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 finance 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.
Corporate Governance 53
For personal use only ANZ Use of Systems, Equipment and Information Policy;
ANZ Global Fraud and Expense Policy;
ANZ Group Expense Policy;
ANZ Equal Employment Opportunity, Bullying and harassment Policy;
ANZ health and Safety Policy;
ANZ Global Employee Securities Trading and Conflicts of Interest
Policy;
ANZ Global Anti-Bribery Policy; and
ANZ Global Whistleblower Protection Policy.
These policies and the Codes have recently been redrafted to
clearly specify all obligations that are common to each staff
member working at ANZ. The revised ANZ Conduct and Ethics
Policy Framework was launched on 31 October 2008.
Within two months of commencing employment with ANZ, and
thereafter on an annual basis, all employees will be required
to sign up to the principles of the Employee Code, including key
relevant extracts of the policies set out above, to show that they
have understood and agree to comply with their obligations.
Directors’ compliance with the non-executive Directors’ Code
continues to form part of their annual performance review.
seCurities trading
ANZ’s Global Employee Securities Trading and Conflicts of Interest
Policy prohibits trading in ANZ securities or the securities of other
companies by all employees, Directors, contractors and consultants
engaged by ANZ who are aware of unpublished price-sensitive
information.
The Policy specifically prohibits restricted employees trading in
ANZ securities during ‘blackout periods’ leading up to the day
following the half-yearly and annual results announcements.
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 they, or their
associates, trade in ANZ securities.
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 specifically
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.
Directors are also prohibited from providing ANZ securities as
security in connection with any financing arrangement, including
but not limited to margin loans or similar arrangements.
finanCial Controls
As previously noted, the Audit Committee of the Board oversees
ANZ’s financial reporting policies and controls, the integrity of
ANZ’s financial statements, the relationship with the external
auditor, the work of Internal Audit, and the Audit Committees of
various significant subsidiary companies.
ANZ has in place a Financial Reporting Governance (FRG) Program
which evaluates the design and tests the operation of key financial
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 certifications
are completed by senior management, including senior finance
executives.
These Statements comprise representations and questions
about financial results, disclosures, processes and controls
and are aligned with ANZ’s external obligations. 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 Officer and Chief Financial Officer in making
the certifications to the Board under the Corporations Act and
ASx Governance Principles as set out in the Directors’ Report
on page 18.
EThICAL AND RESPONSIBLE DECISION-MAKING
Codes of ConduCt and ethiCs
ANZ has two main Codes of Conduct and Ethics, the Employee
Code and the non-executive Director Code. These Codes provide
employees and Directors with a practical set of guiding principles
to help them make decisions in their day to day work. having
two Codes recognises the different responsibilities that Directors
have under law but enshrines the same values and principles.
The Codes embody honesty, integrity, quality and trust, and
employees and Directors are required to demonstrate these
behaviours and comply with the Codes whenever they are
identified as representatives of ANZ.
The principles underlying ANZ’s Codes of Conduct and Ethics are:
We act in ANZ’s best interests and value ANZ’s reputation;
We act with honesty and integrity;
We treat others with respect, value difference and maintain
a safe workplace;
We identify conflicts of interest and manage them responsibly;
We respect and maintain privacy and confidentiality;
We do not make or receive improper payments, benefits or gains;
We comply with the Codes, the law and ANZ’s policies and
procedures; and
We immediately report any breaches of the Codes, the law
or ANZ policies and procedures.
The Codes are supported by the following detailed policies that
together form ANZ’s Conduct and Ethics Policy Framework:
ANZ Anti-Money Laundering and Counter-Terrorism Financing
Program;
54 ANZ Annual Report 2008
For personal use only whistleblower ProteCtion
The ANZ Global Whistleblower Policy provides a mechanism by which
ANZ employees may voice serious concerns or escalate serious
matters on a confidential basis, without fear of reprisal, dismissal or
discriminatory treatment.
ANZ employees can make complaints under the Policy to designated
Whistleblower Protection Officers, or via an independently managed
hotline that was introduced as part of the new Conduct and Ethics
Policy Framework that was launched recently.
COMMITMENT TO ShAREhOLDERS
Shareholders are the owners of ANZ and our approaches described
below are enshrined in ANZ’s Shareholder Charter, which was
reviewed by the Governance Committee during the year. 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 should have 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 and Shareholder Review, briefings, 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 and transparent disclosure on the trust and
confidence of the shareholder, the wider market and the community.
To this end, ANZ, outside of its scheduled result announcements,
issued three Trading Updates to the market during the financial year.
Should shareholders require any information, contact details for
ANZ and its Share Registrar are set out in the Shareholder Review,
the half yearly shareholder newsletters and the shareholders section
of anz.com.
meetings
To allow as many shareholders as possible to have an opportunity
to attend shareholder meetings, ANZ rotates meetings around capital
cities and makes them available to be viewed online using webcast
technology.
Further details on meetings and presentations held throughout this
financial year are available on anz.com > About ANZ > Shareholders >
Presentations. Prior to the Annual General Meeting, shareholders
are provided the opportunity to submit any questions they have for
the Chairman or Chief Executive Officer to enable key common themes
to be considered.
The external auditor is present at ANZ Annual General Meetings and
available to answer shareholder questions 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
www.investorvote.com.au. Where votes are taken on a poll, which
is usual ANZ practice, ANZ appoints an independent party to verify
the results, normally KPMG, which are reported as soon as possible
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 and then 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 reflects 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.
Designated Disclosure Officers 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 Officer regarding any
potentially price-sensitive information concerning ANZ as soon as
they become aware of it.
The Continuous Disclosure Oversight Sub-Committee also meets on
a regular basis each quarter to overview the effectiveness of ANZ’s
systems and procedures for achieving compliance with applicable
regulatory requirements in relation to the disclosure of price-sensitive
information. This Sub-Committee reports to the Governance Committee
of the Board on an annual basis.
In carrying out their role, the Disclosure Officers recognise 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.
DONATIONS
During the year ended 30 September 2008, ANZ contributed over
$10 million to charitable organisations. This included a contribution
in excess of $3 million to key Financial Literacy and Inclusion partners
together with whom ANZ has developed the successful MoneyMinded,
Saver Plus and Progress Loans programs. The community partners
deliver these programs in over 20 communities nationally, reaching
over 45,000 people in the year ended 30 September 2008. For more
information on this, go to www.anz.com/community. Financial Literacy
and Inclusion is the key strategic focus for ANZ’s community investment
work, targeting especially the most vulnerable Australians who may
be at risk of financial exclusion.
In addition, for the year to 30 September 2008, ANZ donated $50,000
to the Liberal Party and $50,000 to the Australian Labor Party.
Corporate Governance 55
For personal use only Shareholder
Information
Ordinary shares
At 7 October 2008, the twenty largest holders of ordinary shares held 1,082,202,140 ordinary shares, equal to 53.03% of the total issued
ordinary capital.
Name
Number of shares
% Name
Number of shares
%
1. hSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
2. J P MORGAN NOMINEES AUSTRALIA LIMITED
3. NATIONAL NOMINEES LIMITED
4. ANZ NOMINEES LIMITED (CASh INCOME A/C)
5. CITICORP NOMINEES PTY LIMITED
6. COGENT NOMINEES PTY LIMITED
7. RBC DExIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED (PIPOOLED A/C)
8. AMP LIFE LIMITED
9. QUEENSLAND INVESTMENT CORPORATION
10. UBS WEALTh MANAGEMENT AUSTRALIA
NOMINEES PTY LTD
11. CITICORP NOMINEES PTY LIMITED
(CFS WSLE GEARED ShR FND A/C)
284,041,518
250,281,276
235,282,402
62,287,665
57,246,270
32,602,490
26,293,267
21,785,483
19,246,821
13.92
12.26
11.53
3.05
2.81
1.60
1.29
1.07
0.94
12. CITICORP NOMINEES PTY LIMITED
(CFS WSLE IMPUTATION FND A/C)
13. AUSTRALIAN REWARD INVESTMENT ALLIANCE
14. COGENT NOMINEES PTY LIMITED (SMP ACCOUNTS)
15. CITICORP NOMINEES PTY LIMITED
(CFS IMPUTATION FND A/C)
16. RBC DExIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED (BKCUST A/C)
17. UBS NOMINEES PTY LTD
18. ANZEST PTY LTD (DEFERRED ShARE PLAN A/C)
19. hSBC CUSTODY NOMINEES (AUSTRALIA)
14,487,974
0.71
LIMITED – A/C 3
12,982,106
0.64
NOMINEES PTY LIMITED
20. RBC DExIA INVESTOR SERVICES AUSTRALIA
10,741,688
10,229,429
7,334,234
0.53
0.50
0.36
7,317,762
0.36
6,626,836
6,359,986
5,881,296
0.32
0.31
0.29
5,610,952
0.27
5,562,685
0.27
1,082,202,140 53.03
Total
distribution of shareholdings
At 7 October 2008
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 7 October 2008:
Number of holders % of holders
Number of shares
% of shares
219,032
127,009
18,750
11,192
463
58.18
33.74
4.98
2.97
0.13
93,841,793
281,938,153
131,293,749
234,522,550
1,299,080,218
4.60
13.82
6.43
11.49
63.66
376,446
100.00
2,040,676,463
100.00
there were no entries in the register of Substantial Shareholdings;
the average size of holdings of ordinary shares was 5,421 (2007: 5,706) shares; and
there were 10,095 holdings (2007: 5,322 holdings) of less than a marketable parcel (less than $500 in value or 28 shares based on the market price of $18.15),
which is less than 2.69% 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.
56 ANZ Annual Report 2008
56 ANZ Annual Report 2008
For personal use only
ANZ Convertible Preference Shares (ANZ CPS)
At 7 October 2008, the twenty largest holders of ANZ CPS held 3,134,894 securities, equal to 28.99% of the total issued securities.
Name
Number
of securities
%
Name
1. UBS WEALTh MANAGEMENT AUSTRALIA
NOMINEES PTY LTD
2. UBS NOMINEES PTY LTD
J P MORGAN NOMINEES AUSTRALIA LIMITED
3.
4. RBC DExIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED (MLCI A/C)
5. hARMAN NOMINEES PTY LTD
(hARMAN FAMILY A/C)
6. UCA CASh MANAGEMENT FUND LTD
7. hSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
8. ANZ NOMINEES LIMITED (CASh INCOME A/C)
9. CITICORP NOMINEES PTY LIMITED
10. GILLMAN PTY LIMITED
11. NATIONAL NOMINEES LIMITED
Total
distribution of anZ CPs holdings
At 7 October 2008
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
974,560
9.01
12. NETWEALTh INVESTMENTS LIMITED
259,000
257,309
2.40
2.38
243,880
2.26
200,000
162,790
139,029
99,792
93,115
89,000
85,658
1.85
1.51
1.29
0.92
0.86
0.82
0.79
(WRAP SERVICES A/C)
13. hSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
– A/C 2
14. CITICORP NOMINEES PTY LIMITED
(CFSIL CFS WS ENh YIELD A/C)
15. COGENT NOMINEES PTY LIMITED
16. RBC DExIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED (NMSMT A/C)
17. BALLARD BAY PTY LTD (BALLARD BAY
DISCRETIONARY AC)
18. SPINETTA PTY LTD
19. GOWING BROS LIMITED
20. WROxBY PTY LTD
Number
of securities
%
82,490
0.76
77,000
0.71
62,000
60,650
0.57
0.56
56,211
0.52
50,000
50,000
48,000
44,410
0.46
0.46
0.45
0.41
3,134,894
28.99
Number of holders % of holders
Number of securities
% of securities
11,364
840
104
74
7
91.73
6.78
0.84
0.60
0.05
3,452,255
2,034,425
881,480
2,207,396
2,236,568
31.93
18.82
8.15
20.42
20.68
12,389
100.00
10,812,124
100.00
At 7 October 2008: There were no holdings of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $98.00).
Voting rights of anZ CPs
An ANZ CPS does not entitle its holder to vote at any general meeting of ANZ except in the following circumstances:
i) on any proposal to reduce ANZ’s share capital, other than a resolution to approve a Redemption of the ANZ CPS;
ii) on a proposal that affects the rights attached to the ANZ CPS;
iii) on any resolution to approve the terms of a buy-back agreement, other than a resolution to approve a Redemption of ANZ CPS;
iv) on a proposal to wind up ANZ;
v) on a proposal for the disposal of the whole of ANZ’s property, business and undertaking;
vi) on any matter during a winding up of ANZ; and
vii) on any matter during a period in which a Divided remains unpaid.
On a resolution or proposal on which an ANZ CPS holder is entitled to vote, the ANZ CPS holder has:
i) on a show of hands, one vote; and
ii) on a poll, one vote for each ANZ CPS held.
Shareholder Information 57
For personal use only
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 2008
participants held 1.52% (2007: 1.81%) of the issued shares and
options of ANZ under the following incentive plans:
American Depositary Receipts
Australia and New Zealand Banking Group Limited (ANZ) has
American Depositary Receipts (ADRs) representing American
Depositary Shares (ADSs) that are traded on the over-the counter
(“OTC”) securities market on the Pink Sheets electronic platform
operated by Pink Sheets LLC in the United States under the ticker
symbol: ANZBY and the CUSIP number: 05258304.
ANZ Employee Share Acquisition Plan;
ANZ Employee Share Save Scheme;
ANZ Share Option Plan;
ANZ Directors’ Share Plan; and
ANZ Directors’ Retirement Benefit Plan.
Stock exchange listings
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 Convertible Preference Shares
(ANZ CPS) [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 ANZ Jackson Funding
4 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];
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 and
perpetual callable subordinated notes [ANZ National Bank Limited];
and
swiss stock exchange – Senior debt [Australia and New Zealand
Banking Group Limited and ANZ National (Int’l) Limited].
With effect from 23 July 2008, the ADR ratio changed from one
ADS representing five ANZ ordinary shares to one ADS representing
one ANZ ordinary share.
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
ANZ Stapled Exchangeable Preferred Securities (“ANZ StEPS”)
were stapled securities with each security comprising a preference
share in ANZ and an unsecured senior note issued by ANZ holdings
(New Zealand) Limited and were listed on the Australian Securities
Exchange (ASx). All ANZ StEPS were converted into ANZ ordinary
shares on 15 September 2008.
US Trust Securities
In November 2003, ANZ issued 1.1 million Fixed Rate Non-
cumulative Trust Securities (“US Trust Securities”) at an issue price
of USD1,000 each in two tranches through ANZ Capital Trust I or
ANZ Capital Trust II (formed in the State of Delaware). Each US Trust
Security is a stapled security comprising a preference share in ANZ
and an unsecured note issued by Samson Funding Limited. Prior
to a conversion event, the preference share and note components
of a US Trust Security cannot be separately traded. After 15 January
2010 and 15 December 2013, ANZ may redeem the USD350 million
US Trust Securities issued through ANZ Capital Trust I and the
USD750 million US Trust Securities issued through ANZ Capital Trust
II respectively. If ANZ fails to redeem, the US Trust Securities may
convert into ANZ ordinary shares at the discretion of the holder.
58 ANZ Annual Report 2008
For personal use only ANZ CPS
On 30 September 2008, ANZ issued 10,812,124 Convertible
Preference Shares (“ANZ CPS”) at an issue price of $100 each.
ANZ CPS are floating-rate and non-cumulative and will mandatorily
convert into ANZ ordinary shares on the Mandatory Conversion Date.
however, ANZ may elect for a third party to purchase the ANZ CPS
rather than delivering the ANZ ordinary shares issued on conversion
to the holder. The ANZ CPS are listed on the Australian Securities
Exchange. The Mandatory Conversion Date is 16 June 2014 or each
following quarterly dividend payment date provided that all of the
mandatory conversion conditions are satisfied.
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 ANZ and an unsecured
subordinated note issued by ANZ Jackson Funding PLC. The Euro
Trust Securities are listed on the Luxembourg Stock Exchange. The
unsecured subordinated 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.
UK Stapled Securities
In June 2007, ANZ issued 9,000 non-cumulative stapled securities
(“UK Stapled Securities”) at an issue price of £50,000 each. Each
UK Stapled Security is a stapled security comprising a preference
share in ANZ and an unsecured subordinated note issued by ANZ
through its New York branch. The UK Trust Securities are listed on the
London Stock Exchange. Prior to a conversion event, the preference
share and subordinated note components of the UK Stapled
Securities cannot be traded separately. The UK Stapled Securities
will mandatorily convert into ANZ ordinary shares on 15 June 2012.
however, the mandatory conversion is deferred for five years if the
conversion conditions are not satisfied.
Convertible Notes
On 26 September 2008, ANZ through its New York branch issued
1,200 Convertible Notes at an issue price of $500,000 each. The
Convertible Notes are perpetual, subordinated and non-cumulative,
pay floating rate interest payments and will convert into ANZ ordinary
shares on 28 September 2009 or each following quarterly interest
payment date, at the holders option, or earlier following the
occurrence of certain events. Subject to APRA approval, ANZ may
redeem the Convertible Notes on any monthly interest payment
date on or after 29 December 2008 or following the occurrence
of certain events.
Shareholder Information 59
For personal use only Financial Report
Income statements for the year ended 30 September
Income statements for the year ended 30 September
Interest income
Interest expense
Net interest income
Other operating income
Share of joint venture profit from ING Australia and ING New Zealand
Share of associates’ profit
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense
Profit for the year
Comprising:
Profit attributable to minority interests
Profit attributable to shareholders of the Company
Earnings per ordinary share (cents)
Basic
Diluted
Dividend per ordinary share (cents)
The notes appearing on pages 64 to 175 form an integral part of these financial statements.
The results of 2008 include the following items:
Note
3
4
3
3
3
4
16
6
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
32,604
(24,754)
26,210
(18,908)
23,634
(18,238)
17,809
(13,148)
7,850
3,948
143
218
7,302
3,779
172
87
12,159
(5,696)
11,340
(4,953)
6,463
(1,948)
6,387
(522)
5,396
4,437
–
–
9,833
(4,300)
5,533
(1,573)
4,661
3,735
–
–
8,396
(3,623)
4,773
(344)
4,515
5,865
3,960
4,429
(1,188)
(1,678)
(624)
(878)
3,327
4,187
3,336
3,551
8
3,319
7
4,180
–
3,336
–
3,551
8
8
7
170.4
162.2
136
224.1
218.3
136
n/a
n/a
136
n/a
n/a
136
n Gain arising from the allocation of shares in Visa Inc. measured at fair value ($248 million after tax, tax expense: $105 million), Company ($174 million after tax, tax expense: $105 million).
n Transformation costs associated with an organisational transformation ($152 million after tax, tax expense: $66 million), Company ($127 million after tax, tax expense: $54 million).
n
An expense associated with a write-down of an intangible asset relating to Origin Australia, reflecting the winding back of the mortgage manager business model ($24 million loss after tax,
tax expense $10 million), Group and Company.
Additional adjustment relating to restatement of deferred tax assets following the change in New Zealand company tax rate ($1 million after tax) Company (nil).
n
The results of 2007 include the following items:
n
n
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).
60 ANZ Annual Report 2008
For personal use only Balance sheets as at 30 September
Assets
Liquid assets
Due from other financial institutions
Trading securities1
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Customers’ liability for acceptances
Due from controlled entities
Shares in controlled entities
Shares in associates and joint venture entities
Current tax assets
Deferred tax assets
Goodwill and other intangible assets2
Other assets
Premises and equipment
Total assets
liabilities
Due to other financial institutions
Deposits and other borrowings
Derivative financial 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 43)
Contingent liabilities, contingent assets and credit related commitments (note 44)
Consolidated
The Company
Note
2008
$m
20073
$m
2008
$m
20073
$m
9
10
11
12
13
14
17
17
18
18
19
20
21
22
12
23
23
24
25
26
27
28
28
29
29
30
25,030
9,862
15,177
36,941
17,480
335,187
15,297
–
–
4,375
809
455
3,741
5,078
1,592
16,987
8,040
15,167
22,204
14,006
288,879
14,536
–
–
3,430
160
113
3,677
4,081
1,493
18,081
8,573
12,846
33,298
15,103
236,757
15,262
26,661
9,144
869
680
337
623
3,352
1,005
10,618
6,134
13,359
21,370
11,383
198,643
14,523
15,481
8,405
582
–
87
511
2,284
739
471,024
392,773
382,591
304,119
20,092
283,966
31,927
15,297
–
61
247
10,076
1,217
67,323
14,266
19,116
233,743
24,180
14,536
–
628
135
10,507
1,021
54,075
12,784
18,001
203,328
31,455
15,262
17,469
2
243
7,484
908
52,071
12,776
17,240
158,065
25,001
14,523
5,371
587
103
8,387
710
43,157
11,886
444,472
370,725
358,999
285,030
26,552
22,048
23,592
19,089
12,589
871
(742)
13,772
26,490
62
8,946
871
(889)
13,082
22,010
38
12,589
871
(75)
10,207
23,592
–
8,946
871
(164)
9,436
19,089
–
26,552
22,048
23,592
19,089
The notes appearing on pages 64 to 175 form an integral part of these financial statements.
1 Includes bills held in portfolio $3,736 million (September 2007: $2,305 million).
2 Excludes notional goodwill in equity accounted entities.
3 Prior period balances are reclassified in certain instances to aid comparability with current disclosures. The main reclassification is a transfer of $1.5 billion from Deposits and other
borrowings to Due to other financial institutions for the Group and for the Company.
Financial Report 61
For personal use only Statements of recognised income and expense for the year ended 30 September
Items recognised directly in equity1
Currency translation adjustments
Exchange differences on translation of foreign operations taken to equity
393
(563)
254
(291)
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
Available-for-sale assets
Valuation gain/(loss) taken to equity
Cumulative (gain)/loss transferred to the income statement
Transfer on step acquisition of associate
Cash flow hedges
Valuation gain/(loss) taken to equity
Transferred to income statement for the year
Actuarial gain/(loss) on defined benefit plans
Adjustment on step acquisition of associate
Net (loss)/income recognised directly in equity
Profit 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 64 to 175 form an integral part of these financial statements.
1 These items are disclosed net of tax (refer note 6).
(305)
60
60
(39)
(35)
(79)
1
56
3,327
3,383
109
(14)
–
74
(7)
77
–
(324)
4,187
3,863
(272)
63
60
(34)
5
(60)
–
16
3,336
3,352
100
(4)
–
40
–
75
–
(80)
3,551
3,471
8
7
–
–
3,375
3,856
3,352
3,471
62 ANZ Annual Report 2008
62 ANZ Annual Report 2008
62 ANZ Annual Report 2008
For personal use only Cash flow statements for the year ended 30 September
Cash flows 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
Net cash paid from settlement of derivatives
Income taxes paid
Australia
Overseas
Goods and services tax paid
(Increase)/decrease in operating assets
Liquid assets – greater than three months
Due from other financial institutions – greater than 3 months
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 financial institutions
Payables and other liabilities
Net cash (used in)/provided by operating activities
Cash flows 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 assets
Net cash (used in)/provided by investing activities
Cash flows from financing activities
Net increase/(decrease)
Bonds and notes
Issue proceeds
Redemptions
Loan capital
Issue proceeds
Redemptions
Dividends paid
Share capital issues
Net cash provided by/(used in) financing activities
Net cash (used in)/provided by operating activities
Net cash (used in)/provided by investing activities
Net cash provided by/(used in) financing 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 64 to 175 form an integral part of these financial statements.
1 Comparative information has been restated to conform with current year’s presentation.
Note
Consolidated
2008
$m
20071
$m
The Company
2008
$m
20071
$m
32,189
84
2,696
692
(24,186)
(3,156)
(465)
(1,284)
(1,628)
(2,006)
(464)
(10)
(4,692)
(739)
31
(232)
(46,855)
–
49,796
976
(1,189)
(442)
26,088
99
2,327
136
(18,444)
(2,980)
(418)
(1,174)
(2,154)
(1,381)
(500)
(11)
(1,642)
(410)
(5,913)
(54)
(36,943)
–
33,964
4,326
23
(5,061)
23,341
304
1,953
70
(17,852)
(2,256)
(324)
(1,101)
(796)
(2,002)
(38)
18
(3,620)
(674)
501
(134)
(38,446)
2,222
43,503
761
(2,513)
2,917
17,807
1,134
1,616
671
(12,941)
(2,105)
(284)
(915)
(963)
(1,384)
(58)
(1)
(1,865)
(195)
(5,846)
(31)
(27,606)
(10,305)
34,585
3,050
(11)
(5,647)
(30,228)
26,914
(13,215)
9,701
(28,555)
25,189
(10,652)
7,770
(450)
128
(559)
98
(1,101)
(5,198)
(1,450)
444
(409)
79
41
(4,809)
(291)
113
(396)
10
(1,000)
(4,930)
(549)
67
(356)
7
(20)
(3,733)
29,200
(21,091)
16,443
(7,622)
22,545
(17,319)
15,149
(7,499)
3,823
(1,975)
(46)
67
9,978
(442)
(5,198)
9,978
4,338
19,074
75
23,487
3,013
(980)
(1,958)
132
9,028
(5,061)
(4,809)
9,028
(842)
20,344
(428)
19,074
2,851
(1,455)
–
67
6,689
2,917
(4,930)
6,689
4,676
12,040
440
17,156
2,691
(500)
(1,921)
132
8,052
(5,647)
(3,733)
8,052
(1,328)
13,570
(202)
12,040
37(a)
37(b)
Financial Report 63
Financial Report 63
Financial Report 63
For personal use only
Notes to the Financial Statements
1: Significant Accounting Policies
The financial report of Australia and New Zealand Banking Group
Limited (the Company or the Parent entity) and its controlled entities
(the Group) for the year ended 30 September 2008 was authorised
for issue in accordance with the resolution of the directors on
7 November, 2008.
The principal accounting policies adopted in the preparation of
the financial report are set out below. These policies have been
consistently applied by all consolidated entities and to all periods
presented in the consolidated financial report.
A) BASIS OF PREPARATION
i) Statement of compliance
The financial report of the Company and Group is a general
purpose financial report which has been prepared in accordance
with the accounts provisions of the Banking Act 1959 (as amended),
Australian Accounting Standards (AASs), Australian Accounting
Standards Board (AASB) Interpretations, other authoritative
pronouncements of the AASB, and the Corporations Act 2001.
International Financial Reporting Standards (IFRS) are Standards and
Interpretations adopted by the International Accounting Standards
Board (IASB). IFRS forms the basis of AASs and Interpretations issued
by the AASB. The Group’s application of AASs and Interpretations
ensures that the consolidated financial report of the Group and the
financial report of the Company comply with IFRS.
ii) Use of estimates and assumptions
The preparation of the financial 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.
iii) Basis of measurement
The financial report has been prepared in accordance with the
historical cost basis except that the following assets and liabilities
are stated at their fair value:
derivative financial instruments, including in the case of fair
value hedging (refer note 1 E(ii)) the fair value of any applicable
underlying exposure;
assets treated as available-for-sale;
financial instruments held for trading;
assets and liabilities designated at fair value through profit
and loss; and
defined benefit plan assets and liabilities.
64 ANZ Annual Report 2008
iv) Changes in accounting policy and early adoptions
There has been no material change in accounting policies or
early adoption of AASs in the preparation or presentation of this
financial report.
This is the first year that AASB 7 Financial Instruments: Disclosures
has been applied in the Group’s financial statements. This standard
requires disclosures about the significance of financial instruments
to the Group’s financial position and result and the nature and
extent of credit, market and liquidity risks arising from financial
instruments, including how they are managed. This standard has no
impact on the recognition or measurement of financial instruments,
and therefore no impact on the Group’s financial position or result.
v) Rounding
The Parent entity is an entity of the kind referred to in Australian
Securities and Investments Commission class order 98/100 dated
10 July 1998 (as amended). Consequently, amounts in the financial
report have been rounded to the nearest million dollars, except
where otherwise indicated.
vi) Comparatives
Certain amounts in the comparative information have been
reclassified to conform with current period financial statement
presentations.
vii) Principles of consolidation
Subsidiaries
The financial statements consolidate the financial statements of the
Company and all its subsidiaries where it is determined that there is
a capacity to control.
Where subsidiaries 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
financial and operating policies of an entity so as to obtain benefits
from its activities. All the facts of a particular situation are considered
when determining whether control exists. 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 financial 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 in determining whether
control exists.
In relation to special purpose entities, control is deemed to exist
where:
in substance, the majority of the residual risks and rewards from
their activities accrue to the Group; or
in substance, the Group controls decision making powers so as to
obtain the majority of the risks and rewards from their activities.
Further detail on special purpose entities is provided in note 2(i).
For personal use only Notes to the Financial Statements
1: Significant Accounting Policies (continued)
Associates and joint ventures
The Group adopts the equity method of accounting for associates
and the Group’s interest in joint venture entities.
When a foreign operation is disposed, exchange differences
are recognised in the income statement as part of the gain or
loss on sale.
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 carried 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 for
any indication of impairment at least at each reporting date. This
impairment review may use a discounted cash flow methodology
and other methodologies to determine the reasonableness of the
valuation, including the multiples of earnings methodology.
In the Company’s financial statements, investments in associates
and joint venture entities are carried at cost.
viii) Foreign currency translation
Functional and presentation currency
Items included in the financial 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 financial statements are presented in Australian
dollars, which is the Company’s functional and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions.
Monetary assets and liabilities resulting from foreign currency
transactions are subsequently translated at the spot rate at
reporting date.
Exchange differences arising on the settlement of monetary items
or on translating monetary items at rates different to those at which
they were initially recognised or included in a previous financial
report, are recognised in the income statement in the period in
which they arise.
Goodwill arising on the acquisition of a foreign entity is treated
as an asset of the foreign entity and translated at the rate ruling
at balance date.
B) INCOME RECOGNITION
i) Interest income
Interest income is recognised as it accrues using the effective
interest rate method.
The effective interest method calculates the amortised cost of a
financial asset or financial liability and allocates the interest income
or interest expense over the expected life of the financial asset or
financial liability so as to achieve a constant yield on the financial
asset or liability.
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.
ii) Fee and commission income
Fees and commissions received that are integral to the effective
interest rate of a financial asset are recognised using the effective
interest method as summarised in note 1(B)(i). For example, loan
commitment fees, together with related direct costs, are deferred
and recognised as an adjustment to the effective interest rate on
a loan once drawn. Commitment fees to originate a loan which is
unlikely to be drawn down are recognised as fee income as the
service is provided.
Fees and commissions that relate to the execution of a significant
act (for example, advisory or arrangement services, placement fees
and underwriting fees) are recognised when the significant act has
been completed.
Translation differences on non-monetary items, such as derivatives
measured at fair value through profit or loss, are reported as part of
the fair value gain or loss on these items.
Fees charged for providing ongoing services (for example,
maintaining and administering existing facilities) are recognised
as income over the period the service is provided.
Translation differences on non-monetary items measured at fair
value through equity, such as equities classified as available-for-sale
financial assets, are included in the available-for-sale reserve in equity.
Foreign operations
The results and financial position of all Group entities (none of
which has the currency of a hyperinflationary economy), that have a
functional currency different from the Group’s presentation currency,
are translated into the Group’s presentation currency as follows:
assets and liabilities of each foreign operation are translated
at the rates of exchange ruling at balance date;
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
all resulting exchange differences are recognised in the foreign
currency translation reserve.
iii) Dividend income
Dividends are recognised as revenue when the right to receive
payment is established.
iv) Leasing income
Finance income on finance leases is recognised on a basis that
reflects a constant periodic return on the net investment in the
finance lease.
v) Gain or loss on sale of property, plant and equipment
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 recognised as an item of other income in the year in which
the significant risks and rewards of ownership are transferred to
the buyer.
Financial Report 65
For personal use only Notes to the Financial Statements
1: Significant Accounting Policies (continued)
C) ExPENSE RECOGNITION
i) Interest expense
Interest expense on financial liabilities measured at amortised
cost is recognised in the income statement as it accrues using
the effective interest method as described in note 1(B)(i).
ii) Loan origination expenses
Certain loan origination expenses are an integral part of the effective
interest rate of a financial asset measured at amortised cost. These
loan origination expenses include:
fees and commissions payable to brokers in respect of originating
lending business; and
other expenses of originating lending business, such as external
legal costs and valuation fees, provided these are direct and
incremental costs related to the issue of a financial asset.
Such loan origination expenses are initially recognised as part
of the cost of acquiring the financial asset and amortised as part
of the expected yield of the financial asset over its expected life
using the effective interest method.
iii) Share-based compensation expense
The Group has various equity settled share-based compensation
plans. These are described in note 46 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.
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.
The option pricing model takes into account the exercise price
of the option, the risk-free interest rate, the expected volatility
of ANZ’s 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 the share options reserve.
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 vest.
66 ANZ Annual Report 2008
iv) Lease payments
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.
D) INCOME TAx
i) 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.
ii) 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 at the
reporting date, including any adjustment for tax payable in previous
periods. Current tax for current and prior periods is recognised as
a liability (or asset) to the extent that it is unpaid (or refundable).
iii) 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 financial reporting
purposes and their tax base.
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
profits will be available against which the deductible temporary
differences or unused tax losses and credits can be utilised.
Deferred tax liabilities are recognised for all taxable temporary
differences, other than those relating to taxable temporary
differences arising from goodwill. They are also 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 sufficient taxable profits against which to utilise the
benefits of the temporary difference.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the period(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 reflects 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.
iv) 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 a legal right and intention to settle on a net basis
and it is allowed under the tax law of the relevant jurisdiction.
For personal use only Notes to the Financial Statements
1: Significant Accounting Policies (continued)
E) ASSETS
Financial assets
i) Financial assets and liabilities at fair value through profit
or loss
Trading securities are financial 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 profit-taking. Trading
securities are initially recognised and subsequently measured in
the balance sheet at their fair value.
Derivatives that are neither financial guarantee contracts nor
effective hedging instruments are carried at fair value through
profit or loss. In addition, certain financial assets and liabilities
are designated and measured at fair value through profit or loss
where the following applies:
doing so eliminates or significantly 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 financial assets or financial liabilities or both is
managed and its performance evaluated on a fair value basis; or
the financial instrument contains an embedded derivative, unless
the embedded derivative does not significantly modify the cash
flows or it is clear, with little or no analysis, that it would not be
separately recorded.
The designation of a financial asset or liability at fair value through
profit or loss is irrevocable.
Changes in the fair value (gains or losses) of these financial
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.
ii) Derivative financial instruments
Derivative financial instruments are contracts whose value is
derived from one or more underlying price, index or other variables.
They include swaps, forward rate agreements, futures, options and
combinations of these instruments.
Derivative financial 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 financial instruments are recognised initially at fair
value with gains or losses from subsequent measurement at fair
value being recognised in the income statement. Included in the
determination of the fair value of derivatives is a credit valuation
adjustment to reflect the credit worthiness of the counterparty,
modelled using the counterparty’s credit spreads. The valuation
adjustment is influenced by the mark-to-market of the derivative
trades and by movement in credit spreads.
Where the derivative is designated and is 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 firm 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 reflected 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 qualifies 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 of the hedged item.
If the hedged item is sold or repaid, the unamortised fair value
adjustment is recognised immediately in the income statement.
Cash flow hedge
The Group designates derivatives as cash flow hedges where
the instrument hedges the variability in cash flows of a recognised
asset or liability, a foreign exchange component of a firm
commitment or a highly probable forecast transaction. The effective
portion of changes in the fair value of derivatives qualifying and
designated as cash flow 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, is terminated, is exercised,
or no longer qualifies 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 flow 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 the foreign currency translation reserve
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 accrued interest is included in net interest income. The
remainder of the fair value movement is included in other income.
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 67
For personal use only Notes to the Financial Statements
1: Significant Accounting Policies (continued)
iii) Available-for-sale financial assets
Available-for-sale assets comprise non-derivative financial 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 quoted debt
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, as an
impairment expense for debt instruments or as non-interest income
for equity instruments. 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 through the impairment expense line.
Purchases and sales of available-for-sale financial 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.
iv) Net loans and advances
Net loans and advances are non-derivative financial assets with
fixed 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 rate method (refer note 1(B)(i)), unless specifically
designated on initial recognition at fair value through profit or loss.
All loans are graded according to the level of credit risk.
Net loans and advances includes direct finance provided to
customers such as bank overdrafts, credit cards, term loans,
finance lease receivables and commercial bills.
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 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 flows of the individual loan or the collective
portfolio of loans that can be reliably estimated.
Impairment is assessed for assets that are individually significant
(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 such as changed economic conditions.
The provision also takes account of the impact of inherent risk of
large concentrated losses within the portfoilo.
68 ANZ Annual Report 2008
The estimated impairment losses are measured as the difference
between the assets’ carrying amount and the estimated future
cash flows discounted to their present value. As this discount
unwinds during the period between recognition of impairment
and recovery of the cash flow, it is recognised in interest income.
The process of estimating the amount and timing of cash flows
involves considerable management judgment. These judgments
are reviewed regularly to reduce any differences between loss
estimates and actual loss experience.
Impairment of capitalised acquisition expenses is assessed
through comparing the actual behaviour of the portfolio against
initial expected life assumptions.
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 reflected in the
income statement.
When a loan is uncollectible, either partially or in full, it is
written-off against the related provision for loan impairment.
Unsecured facilities are normally written-off when they become
180 days past due or earlier in the event of the customer’s
bankruptcy or similar legal release from the obligation. however
a certain level of recoveries is expected after the write-off, which
is reflected in the amount of the provision for credit losses. In the
case of secured facilities, remaining balances are written-off after
proceeds from the realisation of collateral have been received if
there is a shortfall.
Where impairment losses recognised in previous periods have
subsequently decreased or no longer exist, such impairment
losses are reversed in the income statement.
A provision is also raised for off-balance sheet items such as
commitments that are considered to be onerous.
v) Lease receivables
Contracts to lease assets and hire purchase agreements are
classified as finance 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 classified
as operating leases.
vi) Repurchase agreements
Securities sold under repurchase agreements are retained in the
financial statements where substantially all the risks and rewards
of ownership remain with the Group, and a counterparty liability
is disclosed under the classifications of due to other financial
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 receivables in liquid assets, net loans and advances, or due from
other financial 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 financial liability at fair value with
fair value movements included in the income statement.
For personal use only Notes to the Financial Statements
1: Significant Accounting Policies (continued)
vii) Derecognition
The Group enters into transactions where it transfers financial assets
recognised on its balance sheet yet retains either all the risks and
rewards of the transferred assets or a portion of them. If all, or
substantially all, the risks and rewards are retained, the transferred
assets are not derecognised from the balance sheet.
In transactions where substantially all the risks and rewards of
ownership of a financial asset are neither retained nor transferred,
the Group derecognises the asset if control over the asset is lost.
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. The rights and
obligations retained or created in the transfer are recognised
separately as assets and liabilities as appropriate.
Non-financial assets
viii) Goodwill
Goodwill represents the excess of the purchase consideration
over the fair value of the identifiable net assets of a controlled
entity at the date of gaining control. Goodwill is recognised as
an asset and not amortised, but assessed for impairment at
least annually or more frequently if there is an indication that
the goodwill may be impaired. This involves using the discounted
cash flow (DCF) or the capitalisation of earnings methodology
(CEM) to determine the expected future benefits of the cash-
generating units. Where the assessment results in the goodwill
balance exceeding the value of expected future benefits, the
difference is charged to the income statement. Any impairment
of goodwill may not be subsequently reversed.
Buildings
Building integrals
Furniture & equipment
Computer & office equipment
1%
10%
10%
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.
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.
F) LIABILITIES
Financial liabilities
i) Deposits and other borrowings
Deposits and other borrowings include certificates of deposit,
interest bearing deposits, debentures and other related interest
bearing financial instruments. They are measured at amortised
cost. The interest expense is recognised using the effective interest
method as explained in note 1(B)(i).
ix) 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.
ii) 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.
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.
x) Premises and equipment
Premises and equipment are carried at cost less accumulated
depreciation and impairment.
Borrowing costs incurred for the construction of qualifying assets
(principally the new office building in Docklands area, Melbourne
Australia) are capitalised during the period of time that is required to
complete and prepare the asset for its intended use. The calculation
of borrowing costs is based upon the Group’s internal cost of capital.
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:
iii) 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 designated at fair value through profit or loss
on initial recognition, with fair value movements recorded in the
income statement.
iv) Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer
to make specified payments to reimburse the holder for a loss it
incurs because a specified 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. Financial
guarantees are initially recognised in the financial statements at
fair value on the date the guarantee was given; typically this is 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 financial obligation arising at the balance
sheet date. These estimates are determined based on experience
of similar transactions and the history of past losses.
Financial Report 69
For personal use only Notes to the Financial Statements
1: Significant Accounting Policies (continued)
v) Derecognition
Financial liabilities are derecognised when the obligation specified
in the contract is discharged, cancelled or expires.
Non-financial liabilities
vi) Employee benefits
leave benefits
The amounts expected to be paid in respect of employees’
entitlements to annual leave are accrued at expected salary
rates including on-costs. Expected future payments for long
service leave are discounted using market yields at the reporting
date on national government bonds with terms to maturity that
match, as closely as possible, the estimated future cash outflows.
Liability for long service leave is calculated and accrued for in
respect of all applicable employees (including on-costs) using
an actuarial valuation.
Defined contribution superannuation schemes
The Group operates a number of defined 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 defined contribution schemes.
The Group’s contributions to these schemes are recognised as an
expense in the income statement when incurred.
Defined benefit superannuation schemes
The Group operates a small number of defined benefit schemes.
The liability and expense related to providing benefits to employees
under each defined benefit scheme are calculated by independent
actuaries.
A defined benefit liability is recognised to the extent that the present
value of the defined benefit 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 benefit
to the Group, a defined benefit asset is recognised, which is capped
at the recoverable amount. In each subsequent reporting period,
ongoing movements in the defined benefit 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; and
contributions incurred are recognised directly against the net
defined benefit position.
70 ANZ Annual Report 2008
vii) Provisions
The Group recognises provisions when there is a present obligation,
the future sacrifice of economic benefits 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
flows estimated to settle the present obligation, its carrying amount
is the present value of those cash flows.
G) EQUITY
i) Ordinary shares
Ordinary shares in the Company are recognised at the amount paid
per ordinary share net of directly attributable issue costs.
ii) Treasury shares
Shares in the Company which are purchased on-market by the
ANZ Employee Share Acquisition Plan or issued by the Company
to the ANZ Employee Share Acquisition Plan are classified as
treasury shares (to the extent that they relate to unvested employee
share-based awards) and deducted from share capital.
iii) Minority interests
Minority interests represent the share in the net assets of
subsidiaries attributable to equity interests not owned directly
or indirectly by the Company.
iv) Reserves
Foreign currency translation reserve
As indicated in note 1(A)(viii), exchange differences arising on
translation of the assets and liabilities of all Group entities are
reflected in the foreign currency translation reserve. Any offsetting
gains or losses on hedging these balances, together with any tax
effect, are also reflected in this reserve.
Available-for-sale revaluation reserve
This reserve includes changes in the fair value of available-for-sale
financial assets, net of tax. These changes are transferred
to the income statement (in non-interest income) when the asset
is derecognised. Where the asset is impaired, the changes are
transferred to impairment expense line in the income statement
for debt instruments and in the case of equity instruments to
non-interest income.
Cash flow hedging reserve
This reserve includes the fair value gains and losses associated with
the effective portion of designated cash flow hedging instruments.
Share-based payment reserves
Share-based payment reserves include the share options reserve
and other equity reserves which arise on the recognition of share-
based compensation expense (see note 1(C)(iii)).
For personal use only Notes to the Financial Statements
1: Significant Accounting Policies (continued)
h) PRESENTATION
I) OThER
i) Contingent liabilities
A contingent liability is a liability of sufficient uncertainty that it
does not qualify for recognition as a provision.
Further disclosure is made in note 44 where the above requirements
are not met, but there is a possible obligation that is higher than
remote. Specific details of the nature of the contingent liability are
provided and, where practicable, an estimate of its financial effect.
Alternatively, where no disclosure is made of its financial effect
because it is not practicable to do so, a statement to that effect.
ii) Earnings per share
Basic earnings per share is calculated by dividing net profit after
tax applicable to equity holders of the Company, excluding any
costs of servicing other equity instruments, by the weighted average
number of ordinary shares outstanding during the financial year.
Diluted earnings per share adjusts the figures used in the determination
of basic earnings per share to take into account the after income tax
effective interest and other financing costs associated with dilutive
potential ordinary shares and the weighted average number of
additional ordinary shares that would have been outstanding
assuming the conversion of all dilutive potential ordinary shares.
i) 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 financial instrument which is measured at
amortised cost, these are offset against the interest income
generated by the financial instrument;
where gains and losses relating to fair value hedges are assessed
as being effective; or
where gains and losses arise from a group of similar transactions,
such as foreign exchange gains and losses.
ii) Offsetting 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.
iii) Cash and cash equivalents
For cash flow statement presentation purposes, cash and cash
equivalents includes cash on hand, deposits held at call with other
financial institutions, other short-term, highly liquid investments
with original terms to maturity of three months or less that are readily
convertible to cash and which are subject to an insignificant risk of
changes in value.
iv) Segment reporting
A segment is a distinguishable component of the Group that is
engaged either in providing products or services (business segment),
or in providing products or services within a particular economic
environment (geographical segment), that is subject to risks
and returns that are different from those of other business or
geographical segments.
v) Goods and services tax
Income, expenses and assets are recognised net of the amount
of goods and services tax (GST), except where the amount of GST
incurred is not recoverable from the Australian Tax Office (ATO).
In these circumstances the GST is recognised as part of the cost
of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST
included. The net amount of GST recoverable from or payable to the
ATO is included as an other asset or liability in the balance sheet.
Cash flows are included in the cash flow statement on a gross
basis. The GST components of cash flows arising from investing
and financing activities which are recoverable from or payable
to the ATO are classified as operating cash flows.
Financial Report 71
For personal use only Notes to the Financial Statements
1: Significant Accounting Policies (continued)
iii) Accounting Standards and Interpretations not early adopted
The following standards and amendments were available for early adoption but have not been applied by the Group in these financial
statements. The Group does not intend to apply any of the above pronouncements until their effective date.
AASB amendment/
standard
Affected Standard(s)
AASB 3
AASB 3 Business Combinations (revised)
AASB 8
AASB 8 Operating Segments
AASB 101
AASB 101 Presentation of Financial Statements
(revised)
Application date
for the Group1
1 October 2009
1 October 2009
1 October 2009
Possible impact on Group’s financial report in period of initial adoption
This standard makes changes to certain aspects of
accounting for business combinations including:
Transaction costs associated with a business
combination are immediately expensed, unless the
cost relates to issuing debt or equity securities; and
Contingent consideration must be recognised at its
fair value at acquisition date and classified as a liability
or equity. If the contingent consideration is classified
as a liability, subsequent changes in that liability are
recognised in profit or loss. If classified as equity, it
is not remeasured in subsequent periods.
The potential impact of this revised Standard on the
Company or the Group has not yet been determined.
This standard requires the ‘management approach’ to
disclosing information about reportable segments. Under
this approach, financial information is reported on the same
basis as is used internally by the chief decision maker for
evaluating operating segment performance and on deciding
how to allocate resources to operating segments.
The application of this standard is not expected to have
a material impact of the financial results of the Company
or the Group as this standard is only concerned with
disclosure.
The main change made by this standard is the specification
of a new structure for financial statements under which:
The “balance sheet” will revert to its former title
“statement of financial position” and the “cash flow
statement” will revert to its former title “statement of
cash flows”;
A “statement of comprehensive income” will be required
showing revenues and expenses recognised in profit or
loss and directly against equity. Alternatively, an income
statement may be presented showing revenues and
expenses recognised in profit or loss and, separately,
a statement of comprehensive income showing net profit
or loss and revenues and expenses recognised directly
in equity; and
A “statement of changes in equity” showing total
comprehensive income, transactions with owners in
their capacity as owners and the effect of retrospective
applications or restatements.
The application of this standard is not expected to have
a material impact of the financial results or position of the
Company or the Group as this standard is only concerned
with disclosure.
72 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
1: Significant Accounting Policies (continued)
iii) Accounting Standards and Interpretations not early adopted (continued)
AASB amendment/
standard
Affected Standard(s)
AASB 127
AASB 127 Consolidated and Separate Financial
Statements (revised)
AASB 2007-8
Makes amendments to a number of Australian
Accounting Standards and Interpretations as a
result of the revision of AASB 101 Presentation
of Financial Statements (applicable to annual
reporting periods beginning on or after 1 January
2009)
AASB 2008-1
AASB 2 Share-based Payment
AASB 2008-2
AASB 2008-3
AASB 7 Financial Instruments: Disclosures
AASB 101 Presentation of Financial Statements
AASB 132 Financial Instruments: Presentation
AASB 139 Financial Instruments: Recognition
and Measurement
Interpretation 2 Members’ Shares in
Co-operative Entities and Similar Instruments
Makes amendments to a number of Australian
Accounting Standards and Interpretations as
a result of the revision of AASB 3 Business
Combinations and of AASB 127 Consolidated
and Separate Financial statements (both
standards applicable to annual reporting
periods beginning on or after 1 July 2009)
Possible impact on Group’s financial report in period of initial adoption
The standard makes changes to certain aspects of
accounting for non-controlling interests (currently
referred to as a ‘minority interests’). For example, total
comprehensive income must be attributed to the owners
of the parent and to the non-controlling interests even if this
results in the controlling interests having a deficit balance.
Requirements have been added to clarify that changes in
a parent’s ownership interest in a subsidiary that do not
result in the loss of control of a subsidiary are recognised
directly in equity. When loss of control of a subsidiary
occurs, any gain or loss arising from this event is recognised
in profit or loss and the investment retained in the former
subsidiary is measured at its fair value at the date control
is lost.
The amendments regarding minority interests are not
expected to have a material impact on the Group’s financial
results or position as minority interests are not material to
the Group.
The amendments regarding accounting for changes in a
parent’s ownership interest in a subsidiary are not expected
to have a material impact on the Company as these types
of changes occur relatively infrequently for the Company
and normally involve amounts which are not material to
the Company.
This standard makes technical amendments to a number
of Australian Accounting Standards arising from revised
AASB 101. No material impact on the Company or the Group
is expected.
This standard clarifies that vesting conditions only include
service and performance conditions. The application of this
standard is not expected to have an impact of the financial
results of the Company or the Group as the treatment of
vesting conditions under the Group’s existing share-based
plans is clear.
This standard defines puttable instruments and requires
puttable instruments with certain characteristics to be
classified as equity.
The application of this standard is not expected to have
an impact of the financial position of the Company or the
Group as the Group or Company has not issued, nor expects
to issue, puttable instruments with characteristics covered
by the standard.
This standard makes technical amendments to a
number of Australian Accounting Standards arising
from revised AASB 3 and AASB 127. No material impact
on ANZ is expected.
Application date
for the Group1
1 October 2009
1 October 2009
1 October 2009
1 October 2009
1 October 2009
Financial Report 73
For personal use only Notes to the Financial Statements
1: Significant Accounting Policies (continued)
iii) Accounting Standards and Interpretations not early adopted (continued)
AASB amendment/
standard
Affected Standard(s)
AASB 2008-5
AASB 5
Non-Current Assets held for Sale
and Discontinued Operations
Financial Instruments: Disclosures
AASB 7
AASB 101 Presentation of Financial
Statements
AASB 102 Inventories
AASB 107 Cash Flow Statements
AASB 108 Accounting Policies, Changes in
Accounting Estimates and Errors
Possible impact on Group’s financial report in period of initial adoption
This standard makes amendments to 25 standards that
result in terminology or editorial changes to standards
as well as presentation, recognition and measurement
changes to certain standards. Most of the amendments
are of a technical or clarifying nature and are not expected
to have a material impact on the Company or the Group.
Application date
for the Group1
1 October 2009
AASB 110 Events after the Balance
Sheet Date
AASB 116 Property, Plant and Equipment
AASB 118 Revenue
AASB 119 Employee Benefits
AASB 120 Accounting for Government Grants
and Disclosure of Government
Assistance
AASB 123 Borrowing Costs
AASB 127 Consolidated and Separate
Financial Statements
AASB 128 Investments in Associates
AASB 129 Financial Reporting in
hyperinflationary Economies
AASB 131 Interests in Joint Ventures
AASB 132 Financial Instruments: Presentation
AASB 134 Interim Financial Reporting
AASB 136 Impairment of Assets
AASB 138 Intangible Assets
AASB 139 Financial Instruments: Recognition
and Measurement
AASB 140 Investment Property
AASB 141 Agriculture
AASB 1023 General Insurance Contracts
AASB 1038 Life Insurance Contracts
AASB 2008-6
AASB 1
AASB 5
First-time Adoption of Australian
Equivalents to International
Financial Reporting Standards
Non-current Assets held for Sale
and Discontinued Operations
1 October 2009
This standard amends AASB 1 to require a first-time adopter
to apply AASB 127 Consolidated and Separate Financial
Statements (as amended in July 2008) prospectively from
the date of transition to Australian equivalents to IFRSs.
An amendment has also been made to AASB 5 to require
an entity that is committed to a sale plan involving loss
of control of a subsidiary to classify all the assets and
liabilities of that subsidiary as held for sale when specified
criteria are met, regardless of whether the entity will retain
a non-controlling interest in its former subsidiary after
the sale.
No material impact on the Company or the Group is
expected as a result of these amendments.
74 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
1: Significant Accounting Policies (continued)
iii) Accounting Standards and Interpretations not early adopted (continued)
AASB amendment/
standard
Affected Standard(s)
AASB 2008-7
AASB 1
First-time Adoption of Australian
Equivalents to International
Financial Reporting Standards
AASB 118 Revenue
AASB 121 The Effects of Foreign
Exchange Rates
AASB 127 Consolidated and Separate
Financial Statements
AASB 136 Impairment of Assets
AASB 2008-8
AASB 139 Financial Instruments: Recognition
and Measurement
AASB 1039
AASB 1039 Concise Financial Reports
Application date
for the Group1
1 October 2009
1 October 2009
1 October 2009
Possible impact on Group’s financial report in period of initial adoption
This standard amends AASB 1 to allow first-time adopters,
in their separate financial statements, to use a deemed
cost option for determining the cost of an investment in
a subsidiary, jointly controlled entity or associate.
AASB 118 has been amended to remove the requirement
to deduct dividends declared out of pre-acquisition profits
from the cost of an investment in a subsidiary, jointly
controlled entity or associate.
AASB 127 has been amended to require, in certain
circumstances, a new parent entity established in a group
reorganisation to measure the cost of its investment at the
carrying amount of the share of equity items shown in the
separate financial statements of the original parent at the
date of the reorganisation.
AASB 136 has been amended to include, as an impairment
indicator, recognising a dividend from a subsidiary, jointly
controlled entity or associate, together with other evidence.
Consequential amendments have also been made to
AASB 121.
The amendments are not expected to have a material
impact on the Company or the Group.
The Group monitors developments on the enablement of
the formation of a non-operating holding company (NOhC).
This standard clarifies the effect of using options as hedging
instruments and the circumstances in which inflation risks
can be hedged.
The above amendments are not expected to have a material
impact as ANZ does not have hedges involving these types
of items.
AASB 1039 has been revised to achieve consistency with
the terminology and descriptions of financial statements
used in AASB 101 (effective for the Group on 1 October
2009) and to achieve consistency with the disclosure
requirements for segments in AASB 8 (effective for the
Group on 1 October 2009).
The above amendments are not expected to have a material
impact on ANZ as the Group no longer issues a concise
financial report.
1 Unless otherwise indicated, the initial application date for the Group is for annual reporting periods beginning on or after the date specified.
Financial Report 75
For personal use only Notes to the Financial Statements
2: Critical Estimates and Judgements Used in Applying Accounting Policies
The Group prepares its consolidated financial statements in
accordance with policies which are based on Australian Accounting
Standards (AAS), other authoritative accounting pronouncements
of the Australian Accounting Standards Board (AASB), AASB
Interpretations and the Corporations Act 2001. This involves
the Group making estimates and assumptions that affect the
reported amounts within the financial 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(E)(iv), relating
to measuring the impairment of loans and advances, requires
the Group to assess impairment at least at each reporting date.
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 provision also takes into account the
impact of large concentrated losses within the portfolio.
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 identified as being doubtful.
Individual and collective provisioning is calculated using discounted
expected future cash flows. The methodology and assumptions used
for estimating both the amount and timing of future cash flows are
revised regularly to reduce any differences between loss estimates
and actual loss experience.
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 specific types of transactions. The main
types of these SPEs are securitisation vehicles, structured finance
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 financial statements.
The Group does not consolidate SPEs that it does not control in
accordance with the Group’s policy outlined in note 1(A)(vii). As
it can sometimes be difficult 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 with which the Group is involved, the reason for their establishment, and the control factors
associated with ANZ’s interest in them. Although there may be some indicators of control, ANZ does not bear the majority of residual risks and
rewards of the SPEs which are not consolidated.
Type of SPE
Reason for establishment
Control factors
Securitisation vehicles
Securitisation is a financing technique whereby assets
are transferred to an SPE which funds the purchase by
issuing securities. This enables ANZ (in the case where
transferred assets originate within ANZ) or customers
to increase diversity of funding sources.
Structured finance entities
Credit protection
These entities are set up to assist the Group’s Corporate
Finance function with the structuring of client financing.
The resulting lending arrangements are at arms length
and ANZ typically has limited ongoing involvement with
the entity.
There is one special purpose entity in this category which
was created to allow ANZ to purchase credit protection.
The entity is not consolidated but has issued credit linked
notes to the external market. This SPE is a collateralised
debt obligation.
ANZ may manage these securitisation vehicles, service
assets in the vehicle or provide liquidity or other support.
ANZ retains the risks associated with the provision of
these services. For any SPE which is not consolidated,
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.
ANZ may manage these vehicles, hold minor amounts
of capital, provide financing or derivatives.
ANZ manages this vehicle and holds a small proportion
of the most senior notes.
Refer to additional information in relation to special purpose and off-balance sheet entities in section 4 of the Financial Information (unaudited),
page 185.
76 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
ii) Valuation of investment in ING Australia limited (INGA)
The Group adopts the equity accounting method for its 49% interest
in INGA. As at 30 September 2008, the Group’s carrying value was
$1,589 million (September 2007: $1,519 million).
An independent valuation of the investment was performed during
the period, based on a stand alone market based assessment of
economic value excluding the Group’s specific synergies.
Management further reviewed the recoverable amount of the
investment as at 30 September 2008, taking into account the
annual independent valuation and the potential for reduction in
business performance as a result of recent declines in global equity
and property markets. This review concluded that the estimated
recoverable amount of the investment exceeded its carrying amount,
thus no impairment write-down was considered necessary.
Changes in the assumptions used in this review could materially
impact the assessment of the estimated recoverable amount.
(iii) Valuation of investment in ING (NZ) holdings limited (ING NZ)
The Group adopts the equity accounting method of accounting for
its 49% interest in ING NZ. As at 30 September 2008, the Group’s
carrying value was $178 million (September 2007: $162 million).
The carrying value of this investment is subject to an impairment
test to ensure that the carrying value does not exceed its recoverable
amount at the balance sheet date. Any excess of carrying value
over recoverable amount is taken to the income statement as an
impairment write-down.
The Group obtained an independent valuation of ING NZ as at
30 September 2008. The valuation was based on a value-in-use
methodology using a discounted cash flow approach. Changes
in the assumptions upon which the valuation is based, together
with changes in future cash flows, could materially impact the
valuation obtained.
Based on this independent valuation, the carrying value of the
Group’s investment is considered recoverable and no impairment
write-down is required.
iv) Significant Associates
The carrying values of all investments in associates (as disclosed
in note 39) are subject to an annual recoverable amount test. This
assessment involves ensuring that the investment’s fair value less
costs to sell or its value in use is greater than its carrying amount.
Judgement is applied when determining the assumptions supporting
these calculations.
Furthermore, at each reporting period, all investments are assessed
against potential impairment indicators.
As at 30 September 2008, the Group reviewed all investments
in associates against the following impairment indicators:
actual financial performance against budgeted financial 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 specific to the respective investment.
Whilst the review of impairment indicators listed above revealed
indicators of potential impairment primarily based on unfavourable
economic and market conditions, no impairment write-downs were
considered necessary for such investments on the basis that the
recoverable amount exceeded the carrying amount.
v) Available-for-sale financial assets
The accounting policy for impairment of available-for-sale financial
assets, as explained in note 1(E)(iii) requires the Group to assess
whether there is objective evidence of impairment. This requires
judgement when considering whether such evidence exists and if so,
in reliably determining the impact of such events on the estimated
cash flows of the asset.
vi) Financial Instruments at Fair Value
A significant portion of financial instruments are carried on the
balance sheet at fair value. For some of these financial instruments,
external references, such as a quoted price in an active market, are
not available. In such instances, the reported amounts are based on
measurements established using relevant valuation techniques. The
extent of the usage of valuation techniques for financial instruments
carried at fair value is disclosed in note 34(ii). Sensitivities of values to
inputs, including management estimates, are disclosed in note 34(iii).
vii) 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 benefits.
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, or
more frequently when there is an indication that the goodwill may be
impaired, by comparing the recoverable amount of the CGU with the
current carrying amount of its net assets, including goodwill. Where
the current carrying value is greater than recoverable amount, a charge
for impairment of goodwill will be recorded in the income statement.
As at 30 September 2008, the balance of goodwill recorded
as an asset in ANZ National Bank Limited was $2,713 million
(30 September 2007: $2,781 million). This represents the
most significant component of the Group’s goodwill balance.
In determining the recoverable amount of the CGU for testing of the
goodwill in ANZ National Bank Limited, an independent valuation
was obtained based on a capitalisation of earnings approach and
a discounted cash flow approach. Under the capitalisation of
earnings 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 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
30 September 2008 showed a fair value (less costs to sell) in
excess of the then current carrying value for the CGU and hence
the carrying value of the goodwill was not considered impaired.
Financial Report 77
For personal use only Notes to the Financial Statements
3: Income
Interest income
Other financial institutions
Trading securities
Available-for-sale assets
Loans and advances
Acceptances
Other
Controlled entities
Total interest income
Interest income is analysed by types of financial assets as follows:
Financial assets not at fair value through profit or loss
Trading securities
Financial assets designated at fair value through profit or loss
Other operating income
Lending fees1
Non-lending fees and commissions arising from financial assets
and liabilities not at fair value through profit or loss
Fee income on trust and other fiduciary activities
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
Credit risk on derivatives
Movements on financial instruments measured at fair value through profit or loss4
Gain on Visa shares5
Gain on sale of Esanda Fleetpartners
Profit on sale of premises6
Stadium Australia income
Dividends received from controlled entities
Brokerage income
Other
Total other income
Total other operating income
Share of joint venture profit from ING Australia and ING (NZ) (refer note 40)
Share of associates’ profit (refer note 39)7
Total share of joint venture and associates’ profit
Total income 8
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
535
1,125
1,008
27,417
1,370
1,149
32,604
–
32,604
31,446
1,125
33
32,604
488
955
629
22,049
1,072
1,017
26,210
–
26,210
25,255
955
–
26,210
435
940
863
18,269
1,370
709
22,586
1,048
23,634
22,668
940
26
23,634
373
749
498
14,192
1,072
586
17,470
339
17,809
17,060
749
–
17,809
595
491
455
374
166
21
2,130
2,912
–
2,912
(256)
2,656
708
–
344
(721)
348
281
–
57
19
–
78
178
1,292
3,948
143
218
361
150
20
1,956
2,617
–
2,617
(237)
2,380
518
(47)
405
(45)
100
–
195
38
38
–
55
142
1,399
3,779
172
87
259
153
–
1,472
2,080
248
2,328
(186)
2,142
340
(26)
164
(718)
342
281
–
4
–
1,805
–
103
2,295
4,437
–
–
139
–
1,340
1,853
178
2,031
(168)
1,863
531
(21)
126
(45)
80
–
–
–
–
1,134
–
67
1,872
3,735
–
–
–
36,913
30,248
28,071
21,544
1 Lending fees exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1B(ii)).
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 $251 million (2007: $127 million) for the Group and $235 million (2007: $125 million) for the Company.
5 Comprises gain arising from the allocation of shares in Visa Inc. measured at fair value. In addition, the Group has recognised a $72 million gain through its associate, Cards NZ Limited,
on that associate’s allocation of Visa Inc. shares (refer footnote 7 below).
6 Gross proceeds on sale of premises is $109 million (2007: $63 million).
7 September 2008 includes a $72 equity accounted gain arising from the allocation of shares in Visa Inc. through the Group’s associate, Cards NZ Limited, on Visa shares in New Zealand.
8 Total income includes external dividend income of $44 million (2007: $99 million) for the Group and $20 million (2007: $1 million) for the Company.
78 ANZ Annual Report 2008
For personal use only Notes to the Financial 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
Interest expense is analysed by type of financial liabilities as follows:
Financial liabilities not at fair value through profit or loss
Financial liabilities designated at fair value through profit or loss
Operating expenses
i) Personnel
Employee entitlements and taxes
Salaries and wages
Superannuation costs – defined benefit plans (refer note 45)
Superannuation costs – defined contribution plans
Equity-settled share-based payments (refer note 46)
Temporary staff
Other
Total personnel expenses
ii) Premises
Amortisation of leasehold improvements (refer note 21)
Depreciation of buildings and integrals (refer note 21)
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 19)
Audit and other fees (refer note 5)
Depreciation of furniture and equipment (refer note 21)
Impairment of Intangible – Origin Australia
Freight and cartage
Loss on sale and write-off of equipment
Non-lending losses, frauds and forgeries
Postage and stationery
Professional fees
Telephone
Travel
Other
Total other expenses
v) Restructuring
Total operating expenses
Total expenses
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
965
13,805
741
1,653
1,183
6,000
407
24,754
–
24,754
23,626
1,128
24,754
256
2,067
5
208
84
148
493
3,261
27
22
305
136
24
514
73
69
208
81
131
2
45
609
182
7
12
66
34
54
22
72
122
182
58
169
151
1,131
181
5,696
962
10,033
671
1,210
915
4,628
489
18,908
–
18,908
18,036
872
18,908
236
1,892
11
180
62
131
455
2,967
22
22
254
138
26
462
50
71
208
73
134
16
41
593
157
6
12
57
–
53
3
43
115
130
55
152
125
908
23
854
10,155
–
603
1,183
4,469
302
17,566
672
18,238
17,929
309
18,238
177
1,459
–
166
72
112
382
2,368
21
4
213
92
19
349
61
46
175
58
97
2
18
457
125
5
7
54
34
46
21
47
84
153
30
118
254
978
148
854
6,786
–
394
915
3,509
386
12,844
304
13,148
12,801
347
13,148
163
1,314
6
139
50
94
331
2,097
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
22
4,953
4,300
3,623
30,450
23,861
22,538
16,771
1 Comprises software amortisation of $127 million (2007: $122 million), refer note 19, and computer depreciation of $81 million (2007: $86 million), refer note 21. The Company comprises
software amortisation of $115 million (2007: $109 million), refer note 19, and computer depreciation of $60 million (2007: $65 million), refer note 21.
Financial Report 79
For personal use only Notes to the Financial Statements
5: Compensation of Auditors
kPMG Australia
Audit or review of financial reports of the Company or Group entities
Other audit-related services1
Other assurance services2
Total
Overseas related practices of kPMG Australia
Audit or review of financial reports of Group entities
Other audit-related services1
Other assurance services2
Total compensation of auditors
Consolidated
The Company
2008
$’000
2007
$’000
2008
$’000
2007
$’000
5,648
2,415
198
8,261
3,131
872
12
6,696
2,210
110
9,016
2,678
760
–
4,015
3,438
12,276
12,454
4,285
1,637
198
6,120
752
316
–
1,068
7,188
5,624
1,575
110
7,309
584
374
–
958
8,267
Group policy allows KPMG Australia or any of its related practices to 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 comprises:
Consolidated
ANZ Nominees confirmation procedures
Due diligence agreed upon procedures
Trustee certification
Compliance testing for securitisation
transaction
Training courses
Total
2008
$’000
2007
$’000
28
106
6
–
70
210
–
–
–
66
44
110
80 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
6: Current Income Tax Expense
(a) Income tax recognised in the Income Statement
Tax expense/(income) comprises:
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
Current 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
Benefits 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
1,202
1
1,847
(2)
(5)
(101)
(10)
(66)
1,188
1,678
534
–
97
(7)
624
1,185
(4)
(238)
(65)
878
Reconciliation of the prima facie income tax expense on pre-tax profit
with the income tax expense charged in the Income Statement.
Operating profit 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
Profit from associated and joint venture entities
Recognition of previously unrecognised capital losses
Restatement of deferred tax balances for New Zealand tax rate change
Structured transaction
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
4,515
1,355
5,865
1,760
3,960
1,188
4,429
1,329
23
(9)
–
(112)
–
(1)
(90)
–
21
30
(10)
(3)
(75)
(54)
24
–
–
8
1,187
1,680
1
(2)
1,188
26.3%
733
455
1,678
28.6%
1,073
605
(2)
(541)
–
–
–
–
(90)
38
31
624
–
624
(2)
(340)
–
–
(54)
–
–
(67)
16
882
(4)
878
15.8%
19.8%
552
72
797
81
The following income tax amounts were charged directly to equity during the period
182
135
122
99
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 financial 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 81
For personal use only
Notes to the Financial Statements
7: Dividends
Ordinary dividends1
Interim dividend
Final dividend2
Bonus option plan adjustment
Dividends on ordinary shares
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
1,192
1,381
(67)
1,144
1,267
(48)
1,192
1,381
(67)
1,144
1,267
(48)
2,506
2,363
2,506
2,363
1 Dividends are not accrued and are recorded when paid.
2 Proposed final dividend of $1,511 million for 2008, based on the forecast number of ordinary shares on issue at the dividend record date, is not included in the table above.
A final dividend of 74 cents, fully franked, is proposed to be paid on each fully paid ordinary share on 18 December 2008 (2007: final dividend
of 74 cents, paid 21 December 2007, fully franked). The 2008 interim dividend of 62 cents, paid 1 July 2008, was fully franked (2007: interim
dividend of 62 cents, paid 2 July 2007, fully franked).
The tax rate applicable to the franking credits attached to the 2008 interim dividend and to be attached to the proposed 2008 final dividend
is 30% (2007: 30%).
Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 30 September 2008
and 2007 were as follows:
Paid in cash1
Satisfied by issue of shares2
Preference dividends
Euro Trust Securities
Dividends on preference shares
Consolidated
The Company
2008
$m
–
2,506
2,506
2007
$m
1,921
442
2,363
Consolidated
2008
$m
46
46
2007
$m
37
37
2008
$m
–
2,506
2,506
2007
$m
1,921
442
2,363
The Company
2008
$m
2007
$m
–
–
–
–
1 During the year ended 30 September 2008, cash of $1,487 million was paid to shareholders who did not elect to participate in the dividend reinvestment plan or the bonus option plan.
Cash of the same amount was received from the issue of shares pursuant to dividend reinvestment plan underwriting agreements. There was no net cash outflow to ANZ.
2 Includes shares issued to participating shareholders under the dividend reinvestment plan and shares issued in accordance with dividend reinvestment plan underwriting agreements.
Euro Trust Securities
On 13 December 2004, the Group issued 500,000 Euro Floating Rate
Non-cumulative Trust Securities (“Euro Trust Securities”) at 1,0 00
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 floating 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 a preference share while it is stapled
to a 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 28 for further details.)
Dividend Franking Account
The amount of franking credits available to the Company for the
subsequent financial year is $35 million (2007: $580 million) after
adjusting for franking credits that will arise from the payment of tax on
Australian profits for the 2008 financial year, $648 million of franking
credits which will be utilised in franking the proposed 2008 final
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 significant 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 specified capital adequacy ratio.
82 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
7: Dividends (continued)
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 profits.
If any dividend, interest or redemption payments are not made,
or other distributions are not paid, on the scheduled payment date
or shares or other qualifying Tier 1 securities are not issued on the
applicable conversion or redemption dates on the Group’s Euro Trust
Securities, US Trust Securities, UK Stapled Securities, ANZ Convertible
Preference Shares and Convertible Notes in accordance with their
terms, the Group may be restricted from declaring or paying any
dividends or other distributions on ANZ ordinary shares and the
Euro Trust Securities for up to 12 months from the date of non-
payment or failure to issue. This restriction is subject to a number
of exceptions.
Dividend Reinvestment Plan
During the year, 20,500,208 ordinary shares were issued at $27.33
per share and 22,046,238 ordinary shares at $20.82 to participating
shareholders under the dividend reinvestment plan (2007: 3,613,226
ordinary shares at $28.25 per share, and 11,621,468 ordinary shares
at $29.29 per share). All eligible shareholders can elect to participate
in the dividend reinvestment plan. In addition, 28,270,906 ordinary
shares were issued at $27.71 and 33,263,186 ordinary shares
at $21.14 (2007: nil) to UBS Nominees Pty Ltd and a nominee of
J P Morgan Australia Limited respectively in accordance with dividend
8: Earnings per Ordinary Share
Basic earnings per share (cents)
Earnings reconciliation ($millions)
Profit for the year
Less: profit 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
Add: Convertible Preference Shares interest expense
Add: Convertible Perpetual Notes 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
reinvestment plan underwriting agreements.
A discount of 1.5% will be applied when calculating the “Acquisition
Price” used in determining the number of ordinary shares to be
provided under the dividend reinvestment plan and bonus option
plan terms and conditions. This discount will apply in respect of the
2008 final dividend and will continue to apply to future dividends
until such time as the Company announces otherwise.
For the 2008 final dividend, the “Pricing Period” under the dividend
reinvestment plan and bonus option plan terms and conditions will
be fifteen trading days commencing on and including 14 November
2008. For the 2008 final dividend, it is intended that a specified
number of ordinary shares in respect of 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
underwritten pursuant to an agreement with 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, 2,838,335 ordinary shares were issued under the
bonus option plan (2007: 1,729,427 ordinary shares). Details of
changes to the bonus option plan are described above in respect
of the dividend reinvestment plan.
Consolidated
2008
2007
170.4
224.1
3,327
8
46
3,273
1,921.1
162.2
3,273
41
55
63
–
1
3,433
1,921.1
6.7
73.4
57.9
56.9
0.2
0.4
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
–
–
weighted average number of convertible US Trust Securities at current market price
weighted average number of convertible ANZ StEPS securities
weighted average number of convertible UK hybrid Securities
weighted average number of Convertible Preference Shares
weighted average number of Convertible Perpetual Notes
Used in calculating diluted earnings per share
2,116.6
1,950.9
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 1 million.
Financial Report 83
For personal use only
Consolidated
The Company
2008
$m
4,849
4,752
9,740
5,689
2007
$m
3,667
4,540
4,679
4,101
2008
$m
1,260
3,682
7,450
5,689
2007
$m
822
2,813
3,159
3,824
25,030
16,987
18,081
10,618
15,645
9,385
25,030
12,307
4,680
16,987
10,133
7,948
18,081
6,701
3,917
10,618
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
7,842
2,020
9,862
6,767
1,273
8,040
7,023
1,550
8,573
5,339
795
6,134
Consolidated
The Company
2008
$m
10
10
71
2,373
3,736
8,987
2007
$m
58
58
556
4,034
2,305
8,214
2008
$m
10
10
71
2,162
3,736
6,867
2007
$m
58
58
556
3,899
2,305
6,541
15,167
15,109
12,836
13,301
15,177
15,167
12,846
13,359
Notes to the Financial Statements
9: Liquid Assets
Coins, notes and cash at bankers
Money at call, bills receivable and remittances in transit
Other banks’ certificates of deposit
Securities purchased under agreement to resell in less than three months
Total liquid assets
Maturity analysis based on original term to maturity
Less than three months
More than three months
Total liquid assets
10: Due from Other Financial Institutions
Maturity analysis based on original term to maturity
Less than three months
More than three months
Total due from other financial institutions
11: Trading Securities
listed
Other securities and equity securities
unlisted
Commonwealth securities
Local, semi-government and other government securities
ANZ accepted bills
Other securities and equity securities
Total trading securities
84 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
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
fluctuations 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 financial 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 specified quantity of foreign currency on a specified 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 fixed amount of a currency at a specified 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 specified commodity price and a fixed 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 fixed or floating 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 specified commodity price and a fixed
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 specified 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 fixed
income security or time deposit at a future date. Interest rate swap
transactions generally involve the exchange of fixed and floating
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 specified 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 credit contracts used by the Group are default
swaps. Default swaps are contracts that provide for a specified
payment to be made to the purchaser of the swap following
a defined credit event.
Derivatives, except for those that are specifically designated as
effective hedging instruments, are classified as held for trading.
The held for trading classification 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
profits from short-term fluctuations in price or margins. Positions
may be traded actively or held over a period of time to benefit
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 tables on the following pages 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 financial 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 fluctuations in market rates relative to their terms.
The aggregate contractual or notional amount of derivative financial
instruments on hand, the extent to which instruments are favourable
or unfavourable, and as a consequence the aggregate fair values of
derivative financial assets and liabilities, can fluctuate significantly
from time to time. The fair values of derivative instruments held and
notional principal amounts are set out as follows.
Financial Report 85
For personal use only Notes to the Financial Statements
12: Derivative Financial Instruments (continued)
Trading
Fair value
hedging
Notional
principal
amount
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Fair value
Cash flow
Net investment
in foreign operations
Liabilities
$m
Assets
$m
Consolidated at
30 September 2008
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
222,003
205,894
134
8,929
17,761
–
7,698
15,940
72
899
–
(4,400)
(7,956)
(8,328)
(17)
–
(942)
2,607
454,721
20,209 (14,636)
–
727
–
–
–
–
727
–
(307)
–
–
–
–
(307)
27,349
1,609
(1,692)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
150,302
1,087,769
92,841
23,156
22,743
31
9,990
1,712
225
–
(32)
(10,253)
(1,658)
–
(115)
1,376,811
11,958
(12,058)
–
524
–
–
–
524
–
(812)
–
–
–
(812)
2
323
86
–
–
411
–
(343)
(47)
–
–
(390)
Credit default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased
12,455
14,414
1,212
201
Total credit derivatives purchased
26,869
1,413
–
(32)
(32)
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
14,060
11,256
25,316
–
48
48
(1,704)
(296)
(2,000)
52,185
1,461
(2,032)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total fair value
of derivatives
Assets
$m
Liabilities
$m
7,740
16,667
72
899
–
(4,400)
(7,956)
(8,635)
(17)
–
(942)
2,607
20,978 (14,943)
1,609
(1,692)
33
10,837
1,798
225
–
(32)
(11,408)
(1,705)
–
(115)
12,893 (13,260)
1,212
201
1,413
–
(32)
(32)
–
48
(1,704)
(296)
48
(2,000)
1,461
(2,032)
42
–
–
–
–
–
42
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
1,911,066
35,237
(30,418)
1,251
(1,119)
411
(390)
42
–
36,941 (31,927)
86 ANZ Annual Report 2008
For personal use only Trading
Fair value
hedging
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Fair value
Cash flow
Net investment
in foreign operations
Liabilities
$m
Assets
$m
Total fair value
of derivatives
Assets
$m
Liabilities
$m
Notes to the Financial 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 default swaps
Structured credit derivatives
purchased
Other credit derivatives purchased
Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
Notional
principal
amount
$m
278,479
141,881
144
6,476
9,718
–
4,605
6,259
7
1,047
–
(1,875)
(6,570)
(6,320)
(6)
–
(1,001)
1,612
–
440
–
–
–
–
440
–
(587)
–
–
–
–
(587)
436,698
10,043 (12,285)
15,429
1,664
(1,600)
–
–
1
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
137,039
944,079
96,815
26,621
22,711
13
7,733
961
142
–
(15)
(7,902)
(987)
–
(115)
1,227,265
8,849
(9,019)
–
538
–
–
–
538
–
(284)
–
–
–
(284)
2
311
18
–
–
331
–
(114)
(9)
–
–
(123)
10,976
10,970
21,946
10,976
7,689
18,665
40,611
152
71
223
–
84
84
–
(84)
(84)
(119)
(79)
(198)
307
(282)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
1,720,003
20,863 (23,186)
978
(871)
332
(123)
31
–
–
–
–
–
31
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31
–
–
–
–
–
–
4,637
6,699
7
1,047
–
(1,875)
(6,570)
(6,907)
(6)
–
(1,001)
1,612
– 10,515 (12,872)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,664
(1,600)
15
8,582
979
142
–
(15)
(8,300)
(996)
–
(115)
9,718
(9,426)
152
71
223
–
84
84
307
–
(84)
(84)
(119)
(79)
(198)
(282)
22,204 (24,180)
Financial Report 87
For personal use only Notes to the Financial Statements
12: Derivative Financial Instruments (continued)
The Company at
30 September 2008
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
Trading
Fair value
hedging
Total fair value
of derivatives
Notional
principal
amount
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Fair value
Cash flow
199,708
213,523
134
8,726
17,574
–
7,148
14,973
72
888
–
(3,909)
(7,759)
(10,615)
(17)
–
(930)
2,380
439,665
19,172
(16,941)
–
523
–
–
–
–
523
–
(307)
–
–
–
–
(307)
27,334
1,610
(1,697)
–
–
57,827
860,676
75,807
22,922
22,630
19
7,913
1,699
168
–
(25)
(8,123)
(1,653)
–
(114)
1,039,862
9,799
(9,915)
–
457
–
–
–
457
–
–
–
–
–
–
–
–
(292)
–
–
–
(292)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
188
86
–
–
276
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,148
15,496
72
888
–
(3,909)
(7,759)
(10,922)
(17)
–
(930)
2,380
19,695
(17,248)
1,610
(1,697)
–
(224)
(47)
–
–`
21
8,558
1,785
168
–
(25)
(8,639)
(1,700)
–
(114)
(271)
10,532
(10,478)
–
–
–
–
–
–
–
1,212
201
1,413
–
48
48
–
(32)
(32)
(1,704)
(296)
(2,000)
1,461
(2,032)
Credit default swaps
Structured credit derivatives purchased
Other credit derivatives purchased
12,455
14,408
1,212
201
Total credit derivatives purchased
26,863
1,413
–
(32)
(32)
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
14,060
11,256
25,316
–
48
48
(1,704)
(296)
(2,000)
52,179
1,461
(2,032)
Total
1,559,040
32,042
(30,585)
980
(599)
276
(271)
33,298
(31,455)
88 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
12: Derivative Financial Instruments (continued)
The 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 default swaps
Structured credit derivatives purchased
Other credit derivatives purchased
Total credit derivatives purchased
Structured credit derivatives sold
Other credit derivatives sold
Total credit derivatives sold
Trading
Fair value
hedging
Total fair value
of derivatives
Notional
principal
amount
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Assets
$m
Liabilities
$m
Fair value
Cash flow
263,920
164,933
144
6,047
9,481
–
4,332
7,078
7
1,033
–
(1,419)
(6,115)
(9,051)
(6)
–
(995)
1,513
444,525
11,031
(14,654)
–
356
–
–
–
–
356
–
(581)
–
–
–
–
(581)
15,429
1,664
(1,600)
–
–
85,748
730,968
81,560
26,568
22,700
11
6,460
957
124
–
(13)
(6,542)
(957)
–
(115)
947,544
7,552
(7,627)
10,976
10,948
21,924
10,976
7,689
18,665
40,589
152
71
223
–
84
84
307
–
(84)
(84)
(119)
(79)
(198)
(282)
–
222
–
–
–
222
–
–
–
–
–
–
–
–
(176)
–
–
–
(176)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
218
18
–
–
238
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,332
7,434
7
1,033
–
(1,419)
(6,115)
(9,632)
(6)
–
(995)
1,513
11,387
(15,235)
1,664
(1,600)
–
(72)
(9)
–
–
(81)
13
6,900
975
124
–
8,012
–
–
–
–
–
–
–
152
71
223
–
84
84
307
(13)
(6,790)
(966)
–
(115)
(7,884)
–
(84)
(84)
(119)
(79)
(198)
(282)
Total
1,448,087
20,554
(24,163)
578
(757)
238
(81)
21,370
(25,001)
Financial Report 89
For personal use only Notes to the Financial Statements
12: Derivative Financial Instruments (continued)
hedging Relationships
There are three types of allowable hedging relationships: fair value hedges, cash flow hedges and hedges of a net investment in a foreign
operation. Each type of hedging has specific 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.
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 firm 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 fixed-rate long-term financial
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.
Gain (loss) arising from fair value hedges
hedged item (attributable to the hedged risk only)
hedging instrument
Consolidated
The Company
2008
$m
(566)
587
2007
$m
39
(35)
2008
$m
(1,176)
1,132
2007
$m
349
(353)
Cash flow hedges
The risk being hedged in a cash flow hedge is the potential volatility in future cash flows that may affect the income statement. Volatility in the
future cash flows may result from changes in interest rates or changes in exchange rates arising from recognised financial assets and liabilities
and highly probable forecast transactions. The Group’s cash flow 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 flows 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
flow hedge accounting to its variable rate loan assets, variable rate liabilities and short term re-issuances of fixed rate customer and wholesale
deposit liabilities. The amounts and timing of future cash flows, representing both principal and interest flows, are projected for each portfolio
of financial assets and liabilities on the basis of their forecast repricing profile. This forms the basis for identifying gains and losses on the
effective portions of derivatives designated as cash flow hedges.
The effective portion of changes in the fair value of derivatives qualifying and designated as cash flow 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
Adjustment on adoption of AASB 2005-11
Restated balance at start of year
Items recorded in net interest income
Tax effect of items recorded in the income statement
Valuation gain taken to equity
Tax effect of net gain on cash flow hedges
Closing Balance
Consolidated
The Company
2008
$m
153
–
153
(53)
18
(56)
17
79
2007
$m
227
(141)
86
(10)
3
106
(32)
153
2008
$m
80
–
80
7
(2)
(49)
15
51
2007
$m
40
–
40
–
–
57
(17)
80
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.
90 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
12: Derivative Financial Instruments (continued)
The table below shows the breakdown of the hedging reserve attributable to each type of cash flow hedging relationship:
Variable rate loan assets
Variable rate liabilities
Re-issuances of short term fixed rate liabilities
Total hedging reserve
Consolidated
The Company
2008
$m
289
(96)
(114)
79
2007
$m
(64)
135
82
153
2008
$m
221
(95)
(75)
51
2007
$m
(53)
79
54
80
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.
All underlying hedged cash flows 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 (2007: 0–10 years).
All gains and losses associated with the ineffective portion of the hedging derivatives are recognised immediately as ‘other income’ in the
income statement. Ineffectiveness recognised in the income statement in respect of cash flow hedges amounted to a $12 million gain for the
Group (2007: $7 million gain) and a $9 million gain for the Company (2007: $4 million loss).
hedges of net investment in foreign operations
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 financing with borrowings in the same currency as the foreign functional currency involved.
Ineffectiveness arising from hedges of net investments in foreign operations and recognised as ‘other income’ in the income statement
amounted to $4 million loss (2007: $1 million loss).
13: Available-for-sale Assets
listed
Other government securities
Other securities and equity investments
Total listed
unlisted
Local and semi-government securities
Other government securities
Other securities and equity investments
Loans and advances
Total unlisted
Total available-for-sale assets
Consolidated
The Company
2008
$m
165
2,686
2,851
2,602
957
10,352
718
14,629
17,480
2007
$m
208
2,992
3,200
1,791
652
7,659
704
10,806
14,006
2008
$m
165
1,748
1,913
2,602
39
9,831
718
13,190
15,103
2007
$m
208
2,601
2,809
1,791
73
6,006
704
8,574
11,383
Total
fair
value
$m
2,602
1,122
13,038
718
17,480
Financial Report 91
An impairment loss of $98 million was recognised in the Income Statement (2007: nil), refer note 16.
Available-for-sale assets by maturities
Based on remaining term to maturity at 30 September 2008
Local and semi-government securities
Other government securities
Other securities and equity investments
Loans and advances
Total available-for-sale assets
Less than
3 months
$m
2,431
1,086
5,689
117
9,323
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
specified
$m
171
27
4,369
517
5,084
–
9
1,886
84
1,979
–
–
101
–
101
–
–
524
–
524
–
–
469
–
469
For personal use only Notes to the Financial Statements
13: Available-for-sale Assets (continued)
Based on remaining term to maturity at 30 September 2007
Local and semi-government securities
Other government securities
Other securities and equity investments
Loans and advances
Total available-for-sale assets
14: Net Loans and Advances
Overdrafts
Credit card outstandings
Term loans – housing
Term loans – non-housing
hire purchase
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 finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
Less: unearned future finance income on finance leases
Net investment in finance lease receivables
b) Operating lease receivables
Gross operating lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
Total lease receivables
Present value of gross investment in finance lease receivables
Less than 1 year
1 to 5 years
Later than 5 years
hire purchase receivables
Less than 1 year
1 to 5 years
Later than 5 years
92 ANZ Annual Report 2008
Less than
3 months
$m
1,791
617
5,882
263
8,553
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
specified
$m
–
186
577
22
785
–
20
3,096
419
3,535
–
–
72
–
72
–
–
574
–
574
–
37
450
–
487
Total
fair
value
$m
1,791
860
10,651
704
14,006
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
8,915
8,892
175,826
130,755
11,174
2,234
295
2,592
9,724
7,991
157,384
103,631
10,255
2,214
349
1,300
7,017
7,421
129,856
90,619
1,262
1,015
287
2,226
7,835
6,649
113,950
68,642
1,196
973
349
828
340,683
292,848
239,703
200,422
(3,496)
(2,600)
600
(2,262)
(2,277)
570
(2,632)
(508)
194
(1,598)
(348)
167
(5,496)
(3,969)
(2,946)
(1,779)
335,187
288,879
236,757
198,643
563
1,169
309
571
1,131
208
(273)
(238)
1,768
1,672
48
107
38
193
179
124
1
304
1,961
1,976
519
1,009
273
1,801
3,694
7,406
74
567
1,075
185
1,827
3,406
6,773
76
179
491
238
(158)
750
17
65
25
107
857
150
468
215
833
432
814
16
176
617
179
(121)
851
–
1
–
1
852
167
553
157
877
392
778
26
11,174
10,255
1,262
1,196
For personal use only Notes to the Financial Statements
15: Impaired Financial Assets
Presented below is a summary of impaired financial instruments that are measured on the balance sheet at amortised cost. For these items,
impairment losses are recorded through the impairment allowance account. This contrasts to financial assets carried on the balance sheet at
fair value, for which any impairment loss is recognised as a component of the overall fair value, and no impairment allowance account is used.
Detailed information on impaired financial assets is provided in Note 33 Financial Risk Management.
Summary of impaired financial assets
Non-performing loans
Restructured items1
Non-performing commitments and contingencies
Gross impaired financial assets
Individual provisions
Non-performing loans
Non-performing commitments and contingencies
Net impaired financial assets
Accruing loans past due 90 days or more2
These amounts are not classified 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
2008
$m
1,750
846
77
2,673
(646)
(29)
1,998
2007
$m
666
–
36
702
(261)
(9)
432
2008
$m
1,348
846
72
2,266
(459)
(29)
1,778
2007
$m
491
–
31
522
(172)
(9)
341
1,060
561
758
429
1 Represents customer facilities which for reasons of financial difficulty have been re-negotiated on terms which the Bank considers as uncommercial but necessary in the circumstances,
and are not considered non-performing. Includes both on and off balance sheet exposures.
2 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 $115 million (2007: $87 million) for the Group and $82 million (2007: $66 million) for the Company. The remainder of 90 day past due accounts are predominately held on an accrual
basis having been assessed as well secured.
16: 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
Impairment on available-for-sale assets
Collective provision charge
Charge to income statement
Consolidated
The Company
2008
$m
880
187
23
147
1,237
(105)
1,132
(100)
1,032
98
818
1,948
2007
$m
587
81
31
12
711
(121)
590
(151)
439
–
83
522
2008
$m
758
–
–
140
898
(72)
826
(63)
763
98
712
1,573
2007
$m
486
–
1
8
495
(88)
407
(115)
292
–
52
344
Financial Report 93
For personal use only Notes to the Financial Statements
16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by financial asset class
Consolidated
Collective provision
Balance at start of year
Provisions disposed
Adjustment for exchange rate fluctuations
Charge to income statement
Total collective provision
Individual provision
Balance at start of year
Charge to income statement
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off
Total individual provision
Total provision for
credit impairment
Liquid assets and due
from other financial
institutions
Net loans and advances
and acceptances
Other financial assets
Credit related
commitments1
Total provision
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,483
–
4
575
1,426
(4)
(32)
93
2,062
1,483
261
1,012
–
(28)
(699)
100
646
280
434
(15)
(20)
(569)
151
261
2,708
1,744
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2008
$m
509
–
7
243
759
9
20
–
–
–
–
29
2007
$m
2008
$m
2007
$m
514
–
5
(10)
1,992
–
11
818
1,940
(4)
(27)
83
509
2,821
1,992
6
5
1
–
(3)
–
9
270
1,032
–
(28)
(699)
100
675
286
439
(14)
(20)
(572)
151
270
788
518
3,496
2,262
The table below contains a detailed analysis of the movements in individual provision for Net loans and advances and acceptances.
Personal
Institutional
New Zealand
Businesses
Asia Pacific
Other business
units2
Less
Institutional
Asia Pacific
Net loans and
advances and
acceptances
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
47
52
(1)
(3)
(75)
17
37
13
32
(2)
–
(28)
4
19
21
31
(12)
–
(30)
3
13
2
9
(1)
–
(9)
1
2
1
1
–
–
–
–
2
(1)
3
(1)
–
(1)
–
–
–
–
–
–
–
261
1,012
280
434
–
(28)
(699)
(15)
(20)
(569)
(1)
(1)
100
646
151
261
Consolidated
2008
%
2007
%
0.2
0.8
0.2
0.1
0.7
0.2
Consolidated
Individual provision
Balance at start of year
Charge to income statement
Adjustment for exchange rate
fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously
written off
102
384
70
340
108
427
141
10
37
157
(1)
–
(404)
1
–
(380)
6
(23)
(162)
(3)
(17)
(84)
(1)
(5)
(95)
71
71
10
61
14
Total individual provision
152
102
366
108
107
1 Comprises undrawn facilities and customer contingent liabilities.
2 Other business units comprise ING Australia and Group Centre.
Ratios
Provision for credit impairment as a % of total advances
Individual
Collective
Bad debts written off as a % of total advances
94 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by financial asset class (continued)
The Company
Collective provision
Balance at start of year
Provisions disposed
Adjustment for exchange rate fluctuations
Charge to income statement
Total collective provision
Individual provision
Balance at start of year
Charge to income statement
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off
Total individual provision
Total individual provision
for credit impairment
Liquid assets and due
from other financial
institutions
Net loans and advances
and acceptances
Other financial assets
Credit related
commitments1
Total provision
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,028
–
7
484
993
–
(27)
62
1,519
1,028
172
743
4
(23)
(500)
63
178
287
(4)
(17)
(387)
115
459
172
1,978
1,200
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
389
–
8
228
625
9
20
–
–
–
–
29
388
–
11
(10)
1,417
–
15
712
1,381
–
(16)
52
389
2,144
1,417
7
5
–
–
(3)
–
9
181
763
4
(23)
(500)
63
185
292
(4)
(17)
(390)
115
488
181
654
398
2,632
1,598
The table below contains a detailed analysis of the movements in individual provision for Net loans and advances and acceptances.
Personal
Institutional
Asia Pacific
Other business
units2
Less Institutional
Asia Pacific
Net loans and
advances and
acceptances
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
The Company
Individual provision
Balance at start of year
Charge to income statement
Adjustment for exchange rate fluctuations
Discount unwind
Bad debts written off
Recoveries of amounts previously written off
62
300
(1)
–
(323)
51
40
269
1
–
(303)
55
107
425
5
(23)
(162)
10
136
14
(3)
(17)
(83)
60
Total individual provision
89
62
362
107
1 Comprises undrawn facilities and customer contingent liabilities.
2 Other business units comprise ING Australia and Group Centre.
Ratios
Provision for credit impairment as a % of total advances
Individual
Collective
Bad debts written off as a % of total advances
2
6
2
–
(5)
1
6
1
3
(2)
–
(1)
1
2
2
9
(1)
–
(9)
1
2
1
1
–
–
–
–
2
(1)
3
(1)
–
(1)
–
–
–
–
–
–
–
(1)
(1)
172
743
4
(23)
(500)
63
178
287
(4)
(17)
(387)
115
459
172
The Company
2008
%
2007
%
0.2
0.8
0.2
0.1
0.7
0.2
Financial Report 95
For personal use only
Notes to the Financial Statements
17: Shares in Controlled Entities, Associates and Joint Venture Entities
Total shares in controlled entities
Total shares in associates1 (refer note 39)
Total shares in joint venture entities2 (refer note 40)
Total shares in controlled entities, associates and joint venture entities
Consolidated
The Company
2008
$m
–
2,608
1,767
4,375
2007
$m
–
1,749
1,681
3,430
2008
$m
9,144
869
–
10,013
2007
$m
8,405
582
–
8,987
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
There were no material controlled entities acquired during the year ended 30 September 2008.
On 23 February 2007, the Group obtained control of Stadium Australia Group, which owns the long-term leasehold of the Telstra Stadium
in Sydney. The acquisition was executed through the Diversified Infrastructure Trust. Prior to this, the Group was the 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 profit 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 profit for the year ended
30 September 2007 would have been $53 million and $9 million respectively.
In 2008, ANZ sold down its interest in the trust, and deconsolidated it from 1 March 2008 (refer page 98).
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 profit 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 profit 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 reflect 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 in 2007:
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 diversified property trust.
The Company’s investments in ETrade Australia, CSB, VCB and Rabinov are carried at cost. The Company, therefore, does not recognise
goodwill separately.
96 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
17: Shares in Controlled Entities, Associates and Joint Venture Entities (continued)
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:
Consolidated at 30 September 2007
Liquid assets and due from other financial 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 financial institutions
Deposits and other borrowings2
Payables and other liabilities
Provisions and contingent liabilities
Deferred tax liabilities
Net assets
Goodwill calculation
Net assets of acquired entities
Interest previously held
Minority interests
Net identifiable 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
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
$m
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 have been treated as a cost of acquisition.
Financial Report 97
For personal use only Notes to the Financial Statements
17: Shares in Controlled Entities, Associates and Joint Venture Entities (continued)
The fair value of assets and liabilities acquired are based on discounted cash flow models. No restructuring provisions were created.
The acquired entities did not have significant 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
Outflow of cash to acquire subsidiaries, net of cash acquired
Consolidated
The Company
2008
$m
10
–
10
2007
$m
258
(55)
203
2008
$m
6
–
6
2007
$m
229
(52)
177
DISPOSAL OF CONTROLLED ENTITIES
During January – March 2008, the Group progressively disposed of 46% of its investment in Diversified Infrastructure Trust (DIT). A principal
investment held by DIT was in Stadium Australia Group, which owns the long-term leasehold of the ANZ Stadium in Sydney. Due to the
distribution of voting power to non-ANZ unit holders, ANZ no longer holds a controlling interest and de-consolidated DIT from 1 March 2008.
Subsequent to de-consolidation, and as of September 2008, ANZ treats the remaining holding as an investment in associate (refer to note 39
for further details).
On 31 October 2006, the controlled entities Fleet Partners Pty Limited and Truck Leasing Limited were sold.
Details of aggregate assets and liabilities of controlled entities disposed by the Group are as follows:
Net loans and advances
Premises and equipment
Shares in controlled entities
Other assets, including allocated goodwill
Deposits and other borrowings
Payables and other liabilities
Provision for long-term employee benefits
Less: Interest retained
Net assets disposed
Cash consideration received
Provisions for warranties and indemnities
Gain on disposal
Net proceeds received resulting in cash inflow for the Group was as follows:
Cash consideration received and direct costs relating to disposals
Less: Balances of disposed cash and equivalents
Inflow of cash from disposals, net of cash disposed
Consolidated
Carrying amount
The Company
Carrying amount
2008
$m
–
200
–
150
(123)
(50)
–
177
(98)
79
81
–
2
2007
$m
1,420
2
–
25
(1,239)
(63)
(1)
144
–
144
377
(38)
195
2008
$m
n/a
n/a
174
n/a
n/a
n/a
n/a
174
(97)
77
81
–
4
2007
$m
n/a
n/a
–
n/a
n/a
n/a
n/a
–
–
–
–
–
–
Consolidated
The Company
2008
$m
81
–
81
2007
$m
377
–
377
2008
$m
81
–
81
2007
$m
–
–
–
98 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
18: Tax Assets
Australia
Current tax asset
Deferred tax assets
New Zealand
Current tax asset
Deferred tax assets
Overseas Markets
Current tax asset
Deferred tax assets
Total current and deferred tax assets
Total current tax assets
Deferred tax assets recognised in profit and loss
Collective provision for impaired loans and advances
Individual provision for impaired loans and advances
Deferred fee revenue
Provision for employee entitlements
Other provisions
Other
Deferred tax assets recognised directly in equity
Defined benefit obligations
Available-for-sale revaluation reserve
Foreign currency translation reserve
Consolidated
The Company
2008
$m
680
–
680
129
98
227
–
357
357
1,264
809
850
218
87
130
288
268
2007
$m
–
2
2
160
6
166
–
105
105
273
160
600
95
73
119
182
126
2008
$m
680
14
694
–
–
–
–
323
323
1,017
680
650
165
65
99
187
208
1,841
1,195
1,374
47
58
–
105
19
–
–
19
40
50
–
90
2007
$m
–
9
9
–
–
–
–
78
78
87
–
429
71
55
86
127
9
777
21
–
–
21
Set-off of deferred tax assets pursuant to set-off provisions1
Net deferred tax assets
(1,491)
(1,101)
(1,127)
455
113
337
(711)
87
unrecognised deferred tax assets
The following deferred tax assets will only be recognised if:
assessable income is derived of a nature and an amount sufficient to enable the benefit
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 benefit.
Unused realised tax losses (on revenue account)
Total unrecognised deferred tax assets
7
7
17
17
–
–
7
7
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.
Financial Report 99
For personal use only
Notes to the Financial Statements
19: Goodwill and Other Intangible Assets
Goodwill
Gross carrying amount
Balance at start of year
Additions through business combinations
Writedown
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
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
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
2008
$m
2007
$m
The Company
2008
$m
2007
$m
3,126
5
(4)
–
(63)
3,064
1,222
–
286
–
(2)
(59)
1,447
671
134
1
(36)
770
551
677
2,900
282
–
(6)
(50)
3,126
987
2
202
55
(1)
(23)
1,222
550
128
(1)
(6)
671
437
551
3,677
3,741
3,337
3,677
–
–
–
–
–
–
–
–
–
–
–
–
1,087
–
256
–
(1)
(59)
1,283
888
2
188
33
(1)
(23)
1,087
576
120
–
(36)
660
511
623
511
623
469
113
–
(6)
576
419
511
419
511
1 Excludes notional goodwill in equity accounted entities.
2 Comprises software amortisation expense of $127 million (September 2007: $122 million) and amortisation of other intangible assets $7 million (September 2007: $6 million). The
Company comprises software amortisation expense of $115 million (September 2007: $109 million) and amortisation of other intangible assets $5 million (September 2007: $4 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 included in note 2(vii).
100 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
20: Other Assets
Accrued interest/prepaid discounts
Accrued commission
Defined benefit superannuation plan surplus (see note 45)
Prepaid expenses
Issued securities settlements
Operating leases residual value
Capitalised expenses
Other
Total other assets
21: 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
Consolidated
The Company
2008
$m
1,819
129
–
111
433
185
42
2,359
5,078
2007
$m
1,626
124
7
97
671
201
31
1,324
4,081
2008
$m
1,329
89
–
55
351
5
42
1,481
3,352
2007
$m
1,052
111
–
41
550
–
31
499
2,284
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
640
(208)
432
356
(202)
154
938
(568)
370
937
(722)
215
838
(204)
634
318
(193)
125
843
(503)
340
949
(720)
229
97
(42)
55
236
(127)
109
725
(418)
307
682
(527)
155
421
165
1,592
1,493
379
1,005
95
(37)
58
195
(106)
89
641
(361)
280
711
(540)
171
141
739
Financial Report 101
For personal use only Notes to the Financial Statements
21: Premises and Equipment (continued)
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
634
82
–
(261)
(22)
(1)
432
125
55
–
(1)
(27)
2
154
340
100
–
(4)
(66)
–
370
229
66
–
(1)
(81)
2
215
165
256
421
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
58
2
–
(1)
(4)
–
55
89
41
–
(1)
(21)
1
109
280
85
–
(4)
(54)
-
307
171
43
–
–
(60)
1
155
141
238
379
1,592
1,493
1,005
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
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.
102 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
22: Deposits and Other Borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest and other borrowings
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt1
Consolidated
The Company
2008
$m
52,346
89,225
100,575
9,367
22,422
10,031
2007
$m
31,903
69,600
95,074
10,143
16,914
10,109
2008
$m
47,656
62,225
79,098
5,322
9,027
–
2007
$m
27,949
44,436
74,471
5,562
5,647
–
Total deposits and other borrowings
283,966
233,743
203,328
158,065
1 Included in this balance is debenture stock of controlled entities. $8.3 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 ($13.9 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.
In addition, this balance also includes NZD1.7 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 assets of UDC (NZD2.0 billion).
23: Income Tax Liabilities
Australia
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 profit and loss
Lease Finance
Treasury instruments
Capitalised expenses
Other
Deferred tax liabilities recognised directly in equity
Cash flow 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
unrecognised deferred tax liabilities
The following deferred tax liabilities have not been brought to account as liabilities:
Other unrealised taxable temporary differences2
Total unrecognised deferred tax liabilities
Consolidated
The Company
2008
$m
–
–
–
61
247
308
308
61
234
637
147
674
2007
$m
615
20
635
13
115
128
763
628
217
148
130
609
2008
$m
–
–
–
2
243
245
245
2
114
658
53
524
1,692
1,104
1,349
31
15
–
46
66
21
45
132
21
–
–
21
(1,491)
(1,101)
(1,127)
247
135
243
46
46
46
46
11
11
2007
$m
610
–
610
(23)
103
80
690
587
80
157
46
452
735
34
–
45
79
(711)
103
4
4
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 branches and subsidiaries be repatriated.
Financial Report 103
For personal use only Notes to the Financial Statements
24: Payables and Other Liabilities
Creditors
Accrued interest and unearned discounts
Defined benefit plan obligations (see note 45)
Accrued charges
Security settlements
Other liabilities
Total payables and other liabilities
25: Provisions
Employee entitlements1
Restructuring costs and surplus leased space2
Non-lending losses, frauds and forgeries3
Other4
Total provisions
Consolidated
The Company
2008
$m
3,441
3,563
154
734
379
1,805
2007
$m
5,021
2,809
75
619
590
1,393
10,076
10,507
2008
$m
3,025
2,561
132
499
318
949
7,484
2007
$m
4,431
2,001
75
413
588
879
8,387
Consolidated
The Company
2008
$m
444
183
169
421
2007
$m
400
37
186
398
1,217
1,021
2008
$m
340
155
140
273
908
2007
$m
299
32
138
241
710
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
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
Payments made during the year
Transfer/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
Carrying amount at the end of the year
Consolidated
The Company
2008
$m
37
185
(15)
(24)
183
186
37
(38)
(16)
169
398
281
(186)
(72)
421
2007
$m
74
43
(44)
(36)
37
187
79
(14)
(66)
186
330
335
(204)
(63)
398
2008
$m
32
153
(9)
(21)
155
138
15
(5)
(8)
140
241
263
(183)
(48)
273
2007
$m
61
40
(34)
(35)
32
125
69
(10)
(46)
138
235
253
(197)
(50)
241
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.
104 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
26: 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
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
24,783
7,263
2,984
1,414
5,644
17,365
3,230
2,560
1,692
53
240
95
20,306
7,963
1,300
1,546
1,395
13,664
3,301
2,562
1,911
–
51
76
15,940
5,608
2,934
131
4,853
15,479
2,975
2,246
1,692
53
65
95
14,570
6,264
1,300
379
1,307
11,816
2,921
2,562
1,911
–
51
76
67,323
54,075
52,071
43,157
Financial Report 105
For personal use only Notes to the Financial Statements
27: 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
ANZ Convertible Preference Shares (ANZ CPS)
Convertible Notes (ANZ CN)
Perpetual subordinated notes
300m
USD
350m
AUD
835m
NZD
floating rate notes
floating rate notes
fixed rate notes5
Subordinated notes4
USD
JPY
USD
JPY
USD
AUD
USD
NZD
EUR
AUD
AUD
USD
AUD
GBP
EUR
USD
AUD
AUD
GBP
NZD
AUD
AUD
AUD
AUD
GBP
NZD
NZD
GBP
AUD
AUD
AUD
AUD
AUD
1.8m
192.8m
4.1m
236.2m
79m
400m
550m
100m
300m
380m
350m
400m
300m
200m
500m
250m
300m
300m
250m
350m
350m
350m
100m
100m
175m
250m
350m
400m
290m
210m
100m
365m
500m
floating rate notes due 2007
floating rate notes due 2007
floating rate notes due 2008
floating rate notes due 2008
floating rate notes due 2008
floating rate notes due 2010
floating rate notes due 20132
fixed notes due 20132
floating rate notes due 20132
floating rate notes due 20142
fixed notes due 20143
floating rate notes due 20152
fixed notes due 20153
fixed notes due 20152
fixed notes due 20153
floating rate notes due 2016
fixed notes due 20163
floating rate notes due 20162
fixed notes due 20163
fixed notes due 20163
fixed notes due 2017
floating rate notes due 2017
fixed notes due 2017
floating rate notes due 2017
fixed notes due 2017
fixed notes due 2017
fixed notes due 2017
fixed notes due 20183
fixed rate notes due 20173
floating rate notes due 20172
floating rate notes due 20172
floating rate notes due 20182
floating rate notes due 20182
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
Interest rate
%
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
BBSW + 1.00
–
1,000
–
1,000
4.48
5.36
6.54
BBSW + 2.50
BBSW + 2.00
LIBOR + 0.15
BBSW + floating margin
9.66
LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.50
LIBOR + 0.55
LIBOR + 0.53
BBSW + 0.29
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
7.75
BBSW + 0.75
BBSW + 0.70
BBSW + 1.20
BBSW + 2.05
438
938
1,014
1,081
600
4,071
375
–
700
1,075
–
–
–
–
12
400
–
–
–
380
350
500
297
446
892
313
298
300
555
293
349
350
100
100
403
204
293
821
289
210
100
365
500
397
851
1,033
–
–
3,281
438
938
1,014
1,081
600
4,071
397
851
1,033
–
–
3,281
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
–
–
–
–
–
375
–
–
375
–
–
–
–
12
400
–
–
–
380
350
500
297
446
892
313
298
300
555
–
349
350
100
100
403
–
–
821
289
210
100
365
500
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
–
–
–
–
–
9,120
8,813
8,330
7,915
14,266
12,784
12,776
11,886
6,069
1,490
2,576
3,239
892
–
4,266
898
3,046
3,290
1,280
4
6,069
–
2,576
3,239
892
–
4,266
–
3,046
3,290
1,280
4
14,266
12,784
12,776
11,886
1 On 15 September 2008 the security was converted to ordinary shares in accordance with the terms of the security.
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 associated with fair value hedge accounting or an election to fair value the note through the income statement.
5 Fixed until the first call date, 18 April 2013, whereupon the rate resets to the Five Year Swap Rate +2.00, if not called and remains fixed until the next call date, 18 April 2018 whereupon
reverts to floating at the Three month FRA rate +3.00 and is calculable quarterly thereafter.
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, UK Stapled Securities, ANZ CPS and ANZ CN constitutes Tier 2 capital as defined by APRA for capital adequacy
purposes. ANZ StEPS, US Trust Securities and ANZ CN constitute innovative Tier 1 capital, as defined by APRA, for capital adequacy purposes. UK Stapled Securities and ANZ
CPS constitute non-innovative Tier 1 capital, as defined by APRA, for capital adequacy purposes.
106 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
27: 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 comprised 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).
All ANZ StEPS were converted to ordinary shares on 15 September
2008.
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 an 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 profits 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 UK
Stapled Securities, ANZ CPS, ANZ CN 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 defined
by APRA.
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 fixed 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 profits 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 five
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
US Trust Securities, ANZ CPS, ANZ CN 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.
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 defined by APRA.
Financial Report 107
For personal use only Notes to the Financial Statements
27: Loan Capital (continued)
ANZ CONVERTIBLE PREFERENCE ShARES (ANZ CPS)
On 30 September 2008, the Company issued 10.8 million ANZ
CPS at $100 each pursuant to a prospectus dated 4 September
2008 raising $1,081 million (excluding issue costs of $13 million:
net raising of $1,068 million). ANZ CPS are fully-paid, preferred,
non-cumulative mandatorily convertible preference shares. ANZ
CPS are listed on the Australian Stock Exchange.
Distributions on ANZ CPS are non-cumulative and are payable
quarterly in arrears on each 15 December, 15 March, 15 June,
15 September and will be franked in line with the franking applied
to the ordinary shares. The distribution will be based on a floating
distribution rate equal to the aggregate of the 90 day bank bill
rate plus a 250 basis point margin, multiplied by one minus the
Australian tax rate. At each quarter, the 90 day bank bill rate is reset
for the next quarter. Should the distribution not be fully franked,
the terms of the security provide for a cash gross up for the amount
of the franking benefit not provided. Distributions are subject to
the absolute discretion of the Board of Directors of the Company
and certain payment tests (including APRA requirements and
distributable profits being available). If distributions are not paid
on ANZ CPS, 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 ANZ CPS.
On 16 June 2014 (the ‘conversion date’), or an earlier date under
certain circumstances, ANZ CPS will mandatorily convert into a
variable number of ordinary shares in the Company determined
in accordance with the formula in the prospectus based on $100
divided by the average market price of ordinary shares over a 20 day
trading period ending at the conversion date less a 2.5% discount.
The mandatory conversion to ordinary shares is however deferred
for a quarter if the conversion tests set out in the prospectus are
not met.
The ANZ CPS rank equally with the ANZ CNs and the preference
shares issued in connection with US Trust Securities, UK Stapled
Securities and Euro Trust Securities. Except in limited circumstances,
holders of ANZ CPS do not have any right to vote in general meeting
of the Company.
In a winding up of the Company, the ANZ CPS rank behind all
depositors and creditors, but ahead of ordinary shareholders.
ANZ CPS qualify as Non-innovative Residual Tier 1 capital as defined
by APRA.
CONVERTIBLE NOTES (ANZ CN)
On 26 September 2008, the Company issued 1,200 ANZ CN at
$500,000 each (‘face value’) raising $600 million. ANZ CN are
perpetual, subordinated, unsecured, interest bearing convertible
notes issued by the Company through its New York Branch.
Distributions on ANZ CN are non-cumulative and are payable monthly
in arrears. The distribution will be based on a floating distribution
rate equal to the 30 day bank bill rate plus a 200 basis point
margin. Distributions are subject to certain payment tests (including
APRA requirements and distributable profits being available).
If distributions are not paid on ANZ CN, 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
ANZ CN.
On 26 September 2009, and on each 3rd interest payment date
thereafter (the ‘conversion dates’), or an earlier date under
certain circumstances, ANZ CN holders have the option to request
conversion into a variable number of ordinary shares in the Company
determined in accordance with the formula in the notes terms based
on $500,000 divided by the average market price of ordinary shares
over a 15 day trading period ending at the conversion date less a
1% discount.
ANZ has call rights for face value on various dates including
interest payment dates or if the holders request conversion to
ordinary shares. Call rights require APRA’s prior written approval.
The ANZ CN rank equally with the preference shares issued
in connection with US Trust Securities, UK Stapled Securities,
ANZ CPS and Euro Trust Securities. Except in limited circumstances,
holders of ANZ CN do not have any right to vote in general meeting
of the Company.
In a winding up of the Company, the ANZ CN rank behind all
depositors and creditors, but ahead of ordinary shareholders.
ANZ CN qualify as Innovative Tier 1 capital as defined by APRA.
108 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
28: Share Capital
Number of issued shares
Ordinary shares each fully paid
Preference shares each fully paid
Total number of issued shares
The Company
2008
2007
2,040,656,484
500,000
1,864,678,820
500,000
2,041,156,484
1,865,178,820
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
DRP underwriting
ANZ employee share acquisition plan
ANZ share option plan2
Conversion of StEPS
Consideration for purchase of ETrade Australia
Balance at end of year
Ordinary share capital
Balance at start of year
Dividend reinvestment plan1
DRP underwriting
ANZ employee share acquisition plan2
Treasury shares3,4
ANZ share option plan2
Conversion of StEPS
Consideration for purchase of ETrade Australia
Balance at end of year
The Company
2008
2007
1,864,678,820
2,838,335
42,546,446
61,534,092
2,975,312
4,115,132
61,968,347
–
1,836,572,115
1,729,427
15,234,694
–
–
7,840,564
–
3,302,020
2,040,656,484
1,864,678,820
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
8,946
1,019
1,487
80
(10)
67
1,000
–
12,589
8,271
442
–
57
(55)
132
–
99
8,946
8,946
1,019
1,487
80
(10)
67
1,000
–
12,589
8,271
442
–
57
(55)
132
–
99
8,946
1 Refer to note 7 for details of plan.
2 Refer to note 46 for details of plan.
3 On-market purchase of shares for settlement of amounts due under share-based compensation plans. In addition, 2,356,857 shares were issued during the September 2008 year to the
Group’s Employee Share Trust for settlement of amounts due under share-based compensation plans.
4 As at 30 September 2008, there were 4,374,248 Treasury shares outstanding (2007: 2,592,893).
Financial Report 109
For personal use only Notes to the Financial Statements
28: 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 floating 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 profits 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.
Preference share balance at start of year
– Euro Trust Securities
Preference share balance at end of year
– Euro Trust Securities
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 fixed 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 each Euro Trust Security rank
equal to the Convertible Notes (ANZ CN), ANZ Convertible Preference
Shares (ANZ CPS) and the preference shares issued in connection
with the 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 defined
by APRA.
Consolidated
The Company
2008
$m
871
871
2007
$m
871
871
2008
$m
871
871
2007
$m
871
871
110 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
29: 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 of options lapsed to retained earnings3
Total share option reserve
c) Available-for-sale revaluation reserve
Balance at start of year
Valuation gain/(loss) recognised after tax
Cumulative (gain)/loss transferred to the income statement
Transfer on step acquisition of associate
Total available-for-sale revaluation reserve
d) hedging reserve
Balance at start of year
Adjustment on adoption of AASB 2005-12
Restated balance at beginning of year
Gain/(loss) recognised after tax
Transfer (to)/from income statement
Total hedging reserve
Total reserves
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
(1,209)
393
(646)
(563)
(816)
(1,209)
70
14
(1)
83
97
(305)
60
60
(88)
153
–
153
(39)
(35)
79
(742)
63
7
–
70
2
109
(14)
–
97
227
(141)
86
74
(7)
153
(889)
(407)
254
(153)
70
14
(1)
83
93
(272)
63
60
(56)
80
–
80
(34)
5
51
(75)
(116)
(291)
(407)
63
7
–
70
(3)
100
(4)
–
93
40
–
40
40
–
80
(164)
1 Further information about share based payments to employees is disclosed in note 46 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 E (ii)).
3 The transfer of balances from the share option and capital reserves to retained earnings represent items of a distributable nature.
Financial Report 111
For personal use only Notes to the Financial Statements
29: Reserves and Retained Earnings (continued)
Retained earnings
Restated balance at start of year
Adjustment on adoption of AASB 2005-12
Restated balance at beginning of year
Profit attributable to shareholders of the Company
Adjustment on step acquisition of associate
Transfer of options lapsed from share option reserve1,3
Actuarial gain/(loss) on defined benefit plans after tax4
Ordinary share dividends paid
Preference share dividends paid
Retained earnings at end of year
Total reserves and retained earnings
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
13,082
–
13,082
3,319
1
1
(79)
(2,506)
(46)
11,084
141
11,225
4,180
–
–
77
(2,363)
(37)
13,772
13,082
13,030
12,193
9,436
–
9,436
3,336
–
1
(60)
(2,506)
–
10,207
10,132
8,173
–
8,173
3,551
–
–
75
(2,363)
–
9,436
9,272
1 Further information about share based payments to employees is disclosed in note 46 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 1E(ii)).
3 The transfer of balances from the share option, general and capital reserves to retained earnings represent items of a distributable nature.
4 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 1F(vi) and note 45).
a) Foreign currency translation reserve
The translation reserve comprises exchange differences, net of hedges, arising on translation of the financial statements of foreign operations,
as described in note 1A(viii). 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 1C(iii).
c) Available-for-sale revaluation reserve
Changes in the fair value and exchange differences on the revaluation of available-for-sale financial assets are taken to the available-for-sale
revaluation reserve. Where a revalued available-for-sale financial asset is sold, that portion of the reserve which relates to that financial asset,
is realised and recognised in the Income Statement. Where the available-for-sale financial asset is impaired, that portion of the reserve which
relates to that asset is recognised in the Income Statement. Refer to note 1E(iii).
d) hedging reserve
The hedging reserve represents hedging gains and losses recognised on the effective portion of cashflow 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 1E(ii).
Consolidated
2008
$m
29
33
62
2007
$m
16
22
38
30: Minority Interests
Share capital
Retained profits
Total minority interests
112 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
31: Capital Management
ANZ pursues an active approach to capital management. This involves
on going review of the level and composition of the Group’s capital
base, assessed against the following key objectives and policies:
Regulatory compliance such that capital levels exceed the
Australian Prudential Regulation Authority’s (APRA), ANZ’s primary
prudential supervisor, minimum prudential capital ratios (PCRs)
both at a Group and the Extended Licensed Entity (the Company
and specified subsidiaries) level, and those set by the US Federal
Reserve given the Group’s Foreign holding Company licence;
Available capital (i.e. shareholders’ equity including preference
shares and Tier 1 loan capital) exceeds the level of Economic
Capital required to support the Ratings Agency ‘default frequency’
confidence level for a “AA” rated bank. (Economic Capital is an
internal estimate of capital levels required to support risk and
unexpected losses above a desired target solvency level);
Capital levels are commensurate with ANZ maintaining its preferred
“AA” credit rating category for senior long term unsecured debt
given its risk appetite outlined in its strategic plan; and
Capital levels are sufficient to remain above both Economic Capital
and PCR requirements under stressed economic scenarios.
The Group achieves these objectives through an Internal Capital
Adequacy Assessment Process (ICAAP) whereby the Group
conducts a detailed strategic plan over a medium term time horizon.
This process involves:
Reviewing capital ratios, targets and levels against the Group’s
risk profile and appetite outlined in the strategic plan;
Performing ICAAP related stress-tests of those outcomes under
different economic conditions and reassessing the Group’s capital
position both before and after mitigating actions; and
Determining current and future capital requirements for the
Group and the Extended Licensed Entity and identifying strategies
to maintain capital flexibility to fund unplanned events.
From this process, a capital plan is developed which defines the
framework of capital levels and the mix of components of capital.
The capital plan is maintained and updated through a monthly
review of forecasted financial performance, economic conditions
and development of business initiatives and strategies.
The Group has adopted the Tier 1 capital ratio as its principal
capital management target. Since March 2008 ANZ has set a
minimum management target of 7.0%, however management
seeks to operate well above this minimum given current economic
and financial markets conditions.
For regulatory purposes, ANZ adheres to standards set by APRA.
APRA uses 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. For regulatory
purposes capital comprises two components, Tier 1 and Total
Qualifying Capital. From 1 January 2008, Basel II Accord principles
took effect in Australia and New Zealand, changing the way in which
ANZ measures capital and capital adequacy.
The following changes have impacted the capital ratios:
Adoption of Basel II methodologies for calculating risk weighted
assets (RWA) and expected loan losses;
Inclusion of a capital charge for operating risk and interest rate
risk in the banking book;
Replacement of collective provision for loan losses (which was
included in Upper Tier 2 capital) with expected losses. A deduction
is now taken 50% from Tier 1 and 50% from Tier 2 for the
excess of expected losses over eligible provisions (net of tax);
Deductions from Total Capital under Basel I now deducted 50%
from Tier 1 and 50% from Tier 2;
Loss of AIFRS transitional relief received in July 2006;
hybrid limits are now 25% of net Tier 1, split between ‘innovative’
(15%) and ‘non-innovative’ (10%). ANZ has transitional relief until
January 2010 in respect of the ‘innovative’ limit; and
Introduction of a capital floor based upon 90% of capital required
under Basel I methodology. At 30 September 2008, the floor had
no impact on ANZ’s reported capital ratios.
Under Basel II Accord principles, Tier 1 capital comprises
shareholders’ equity adjusted to include hybrid Tier 1 instruments
treated as debt for financial reporting purposes and excludes reserves
that APRA does not allow as Tier 1 Capital. Specific deductions such
as goodwill and intangibles are deducted from Tier 1 capital and
others are deducted 50% from Tier 1 and 50% from Tier 2 capital.
Total Qualifying Capital is Tier 1 capital plus Tier 2 capital (less
specific and 50% deductions). Tier 2 is capped at the volume of Tier
1 capital, and is split into Upper and Lower Tier 2 capital, with Lower
Tier 2 capital capped at 50% of Tier 1. Upper Tier 2 capital includes
asset revaluation type reserves, hybrid Tier 1 instruments excluded
from Tier 1, and undated subordinated notes. Lower Tier 2 capital
comprises dated subordinated notes.
APRA determines PCRs for Tier 1 and Total Capital ratio at both a
Group and the Extended Licensed Entity level under its prudential
capital standards “APS110 – Capital Adequacy” and “APS 111 –
Capital Adequacy: Measurement of Capital”, with RWA calculations
predominantly contained in “APS 113 – Capital Adequacy: Internal
Ratings-based Approach to Credit Risk”, “APS115 – Capital Adequacy:
Advanced Measurement Approach to Operational Risk”, “APS116
Capital Adequacy: Market Risk” and “APS 117 – Capital Adequacy:
Interest Rate Risk in the Banking Book”. ANZ is not a Level 3 reporter
under APRA’s prudential standards.
In addition to the prudential capital oversight that APRA conducts
over the Company and the Group, the Company’s branch operations
and major banking subsidiary operations are overseen by local
regulators such as the Reserve Bank of New Zealand, the US Federal
Reserve and the UK Financial Services Authority who may impose
minimum capitalisation rates on those operations.
Throughout the financial year, the Company and the Group
maintained compliance with the minimum Tier 1 and Total Capital
ratios set by APRA and the US Federal Reserve, as well as applicable
capitalisation rates set by local regulators in countries where the
Company operates branches and subsidiaries.
Financial Report 113
For personal use only Notes to the Financial Statements
31: Capital Management (continued)
The table below provides the composition of capital used for regulatory purposes and capital adequacy ratios.
Regulatory Capital – Qualifying Capital
Tier 1
Shareholders’ equity and minority interests
Prudential adjustments to shareholders’ equity
Fundamental Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments
Gross Tier 1 capital
Deductions1
Transitional Tier 1 capital relief
Tier 1 capital
Tier 2
Upper Tier 2 capital
Subordinated notes2
Deductions
Tier 2 capital
Total capital deductions3
Total qualifying capital
Capital adequacy ratios
Tier 1
Tier 2
Deductions
Total
Basel II as at
September 08
$m
Basel I as at
September 07
$m
26,552
(2,409)
24,143
2,095
2,847
29,085
(7,856)
–
22,048
(2,318)
19,730
1,033
3,119
23,882
(6,170)
716
21,229
18,428
1,374
9,170
(1,206)
2,296
8,826
–
9,338
11,122
n/a
(1,837)
30,567
27,713
7.7%
3.4%
6.7%
4.1%
11.1%
10.8%
n/a
(0.7%)
11.1%
10.1%
1 Includes goodwill (excluding associates) of $3,064 million (2007: $3,126 million).
2 For capital adequacy calculation, 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.
3 Not applicable under Basel II.
114 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
32: Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets
Assets charged as security for liabilities
The following assets are pledged as collateral:
Mandatory reserve deposits with local central banks in accordance with statutory requirements. These deposits are not available to finance
the Group’s day to day operations.
Securities provided as collateral for liabilities in standard lending and stock borrowing and lending activities, and securitised loans where
de-recognition criteria have not been met (refer to note 41 Securitisations). These transactions are conducted under terms that are customary
to standard lending, and stock borrowing and lending activities.
Debenture undertakings covering the assets of Esanda Finance Corporation Limited (Esanda) and its subsidiaries and UDC Finance Limited
(UDC). The debenture stock of Esanda and its subsidiaries and UDC is secured by a trust deed and collateral debentures, giving floating
charges upon the undertaking of all the tangible assets of the entity, other than land and buildings. All controlled entities of Esanda and UDC
have guaranteed the payment of principal, interest and other monies in relation to all debenture stock and unsecured notes issued by Esanda
and UDC respectively. The only loans pledged are those in Esanda and UDC and their subsidiaries.
Cash placed on deposit with a third party that is provided as collateral for a liability in a structured funding transaction. The funding
was raised through a subsidiary, and to achieve more favourable pricing terms, ANZ provided cash collateral, given by the Company.
The carrying amounts of assets pledged as security are as follows:
Consolidated
The Company
Carrying Amount
Related Liability
Carrying Amount
Related Liability
2008
$m
2007
$m
Regulatory deposits
Securities sold under arrangements to repurchase
Assets pledged as collateral under debenture undertakings
Cash deposited in structured funding transaction
469
1,696
15,566
918
235
2,330
15,347
1,680
Collateral accepted as security for assets
ANZ has accepted cash as collateral on securities loaned to other parties.
2008
$m
n/a
1,654
9,902
2,000
2007
$m
n/a
2,324
9,539
2,000
2008
$m
298
1,615
–
918
2007
$m
148
2,072
–
1,680
2008
$m
n/a
1,573
–
–
2007
$m
n/a
2,066
–
–
ANZ has received securities that it is permitted to sell or re-pledge without the event of default by a counterparty. Where the received securities
are sold or re-pledged to third parties, ANZ is obliged to return equivalent securities.
These transactions are conducted under terms that are customary to standard stock borrowing and lending activities.
The fair value of collateral received and provided is as follows:
Securities lending activities1
Cash collateral received on securities loaned
Fair value of lent securities
Equity financing activities1
Cash collateral given on securities borrowed
Fair value of received securities
Consolidated
The Company
2008
$m
2007
$m
2008
$m
2007
$m
2,096
2,093
3,464
3,298
2,096
2,093
3,464
3,298
94
98
1,287
2,752
94
98
1,287
2,752
1 Additionally, ANZ has entered transactions involving the exchange of securities (scrip-for-scrip). The Group and the Company accepted stock to the value of $105 million (2007: $2,250 million)
against stock provided to counterparties to the value of $86 million (2007: $2,346 million).
Financial Report 115
For personal use only Notes to the Financial Statements
33: 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 financial instruments are a significant 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 financial markets and seeks to minimise
potential adverse effects on the financial performance of the Group.
CREDIT RISK
Credit risk is the risk of financial loss from counterparties being
unable to fulfil their contractual obligations. The Group assumes
credit risk in a wide range of lending and other activities in diverse
markets and in many jurisdictions. The credit risks arise not only
from traditional lending to customers, but also from inter-bank,
treasury, international trade and capital market activities around
the world.
The Group has an overall lending objective of sound growth for
appropriate returns. 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 credit risk management framework exists to provide a structured
and disciplined process to support those objectives. 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.
CREDIT RISK MANAGEMENT
The credit risk management framework ensures a consistent
approach is applied across the Group in managing, maintaining
and monitoring the credit risk appetite set by the Board. In
discharging its duty to oversee credit risk, the Board is assisted
and advised by the Board Risk Committee, which oversees the
effectiveness of the operational credit controls and processes.
The Board Risk Committee sets or recommends high level changes
to credit risk appetite, credit strategies, credit principles and credit
controls, as well as approving credit transactions beyond the
discretion of executive management.
Responsibility for the day-to-day operational execution and
management of the credit risk framework resides with the
Credit and Trading Risk Committee (CTC), which is an executive
management committee comprising senior risk, business and
group executives, chaired by the Chief Risk Officer. CTC receives
a delegated discretion from the Board Risk Committee to set
credit policies, review divisional credit risk appetite and make
credit decisions within set limits. CTC also further delegates credit
responsibility to the broader organization, based on a combination
of factors, including size of risk, level of risk, nature of counter party,
collateral support, risk concentration limits, location of risk and
expertise of specific credit points.
116 ANZ Annual Report 2008
Experienced and specialised risk professionals manage the credit
risk framework. Skills vary greatly depending on the nature of the
credit risk being managed and range widely from statistical modeling
expertise required to build, validate and monitor retail decision
tools; to making single judgmental credit decisions in specialist
Institutional segments that require expert knowledge of not only
the specific industry, but also an understanding of the risks inherent
in complex financial instruments and structures in a time of volatile
and uncertain financial markets.
The central risk function is broadly charged with the responsibility
of monitoring and assessing both counterparty and portfolio risks.
Credit risk operates in close partnership with credit originators,
but reports independently to the risk management function,
which in turn reports directly to the CEO. Although credit risk is
an independent function, responsibility for risk is firmly a shared
responsibility of both the risk and relationship functions.
COUNTRY RISK MANAGEMENT
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 flow 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 defined
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 flows.
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 finance.
Country limits are managed centrally for the Group, through a global
country risk exposure management system managed by a specialist
unit within Institutional Risk.
PORTFOLIO STRESS TESTING
Stress testing is integral to strengthening the predictive approach
to risk management and is a key component in managing risk
appetite, asset writing strategies and business strategies. It creates
greater understanding of impacts on financial 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.
For personal use only 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 portfolios, to identify and assess risk
concentrations. The Group’s strategy is to maintain well-diversified
low risk credit portfolios focused on achieving the best risk-return
balance. Credit risk portfolios are actively monitored and frequently
reviewed to identify, assess and guard against unacceptable
risk concentrations. Concentration analysis will typically include,
geography, industry, credit product and risk grade. Risk management
also applies single customer counterparty limits (SCCLs) to protect
against unacceptably large exposures to single name risk. These
limits are established based on a combination of factors including
nature of counter party, probability of default and collateral provided.
Analysis and reporting of concentration risk is a core focus of
Divisional & Group risk functions and where appropriate the Group
applies ‘concentration’ controls.
Notes to the Financial Statements
33: Financial Risk Management (continued)
PORTFOLIO ANALYSIS AND REPORTING
Credit portfolios are actively monitored at each layer of the risk
structure to ensure credit deterioration is quickly detected and
mitigated through the implementation of remediation strategies.
All businesses incurring credit risk undertake regular and
comprehensive analysis of their credit portfolios. Issue identification
and adherence to performance benchmarks are reported to risk
and business executives through a series of reporting processes,
which include a monthly ‘asset quality’ reporting function closely
supported and overseen by the Group Risk function. This ensures
an efficient and independent conduit exists to quickly identify
and communicate emerging credit issues to Group executives
and the Board.
COLLATERAL MANAGEMENT
ANZ credit principles specify to only lend what the counterparty
has the capacity and ability to repay and the Group sets limits
on the acceptable level of credit risk. Acceptance of credit risk
is firstly based on the counterparty’s assessed capacity to meet
contractual obligations, (i.e. interest and capital repayments).
Obtaining collateral is only used to mitigate credit risk. Procedures
are designed to ensure collateral is managed, legally enforceable,
conservatively valued and adequately insured where appropriate.
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 financial instruments, e.g. debt securities and
equities in support of trading facilities; and
financial guarantees.
In the event of customer default, any loan security is usually held
as mortgagee in possession while the Group is actively seeking to
realise it. Therefore the Group does not usually hold any real estate
or other assets acquired through the enforcement of security.
ANZ uses International Swaps and Derivatives Association (ISDA)
Master Agreements to document derivatives activities. Under the
ISDA Master Agreement, if a default of counterparty occurs, all
contracts with the counterparty are terminated. They are then
settled on a net basis at market levels current at the time of default.
In addition to the terms noted above, ANZ’s preferred practice is to
use a CSA (Credit Support Annex to the ISDA Master Agreement).
Under a CSA, open derivative positions with the counter party are
aggregated and cash collateral is exchanged daily. The collateral
is provided by the counter party that is out of the money. Upon
termination of the trade, payment is required only for the final
daily mark-to-market movement rather than the mark-to-market
movement since inception.
Financial Report 117
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
Concentrations of credit risk analysis
Composition of financial instruments that give rise to credit risk by industry:
Consolidated
Australia
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisure
and Tourism
Financial, Investment
and Insurance
Government and
Official Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other
New Zealand
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisure
and Tourism
Financial, Investment
and Insurance
Government and
Official Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other
Liquid assets and due
from other financial
institutions
Trading and
AFS1 assets
Derivatives
Loans and
advances and
acceptances
Other
financial
assets2
Credit related
commitments3
Total
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
23
17
2
–
16
2
-
57
–
–
–
–
–
411
31
20
535
23
48
10,507
5,941
4,597
8,850
4,529
4,434
210
131
102
126
64
63
6,357
2,333
3,446
4,888
1,887
1,893
17,565
8,453
8,167
14,415
6,505
6,438
–
2
19
202
360
6,487
5,388
144
76
1,827
1,897
8,662
7,740
4,305
3,214
16,204
18,550
26,256
15,632
12,615
11,036
170
156
9,610
12,379
69,160
60,967
3,508
139
–
3
38
9
537
597
3,809
43
–
1
49
5
84
115
5,341
144
–
25
129
18
20
1,595
2,862
65
42
–
–
–
85
760
69
316
–
391
51
160
237
735
63
670
1
104
197
184
356
607
96
9,357
147,066
25,165
9,558
6,366
6,647
7,143
72
8,796
133,001
20,270
6,856
5,359
6,445
4,019
2
206
1,054
540
212
102
143
188
1
124
1,073
286
97
76
91
82
492
8,021
28,046
6,678
2,697
2,419
5,565
7,589
1,032
9,371
24,495
6,074
2,589
2,625
6,390
5,706
9,508
18,183
176,166
32,802
12,685
9,074
13,149
17,847
7,839
19,069
158,612
26,735
9,788
8,249
13,451
11,289
9,178
7,338 23,535 22,383 28,879 18,780 251,545 219,055
3,204
2,315
85,080
81,226 401,421 351,097
86
–
–
19
3
–
–
–
–
–
–
–
62
8
1
11
6
–
15,087
1,020
774
12,401
1,008
656
–
–
23
17
6
38
892
780
2,959
4,108
1,984
1,355
4,290
2,407
1,561
2,309
155
156
–
–
299
26
19
34
37
53
–
–
59
6
103
140
209
7
–
–
–
3
–
12
131
3
–
–
–
24
–
124
232
174
–
17
11
17
9
70
29
83
–
–
31
16
5
88
549
2,680
45,552
7,832
1,755
1,186
1,583
2,315
468
2,539
42,927
6,383
1,199
828
1,118
3,376
118
8
6
7
12
4
21
358
61
13
9
12
13
241
20
13
3,710
249
191
3,246
258
184
19,063
1,285
972
15,918
1,295
853
15
218
278
1,146
1,128
45
376
579
11,182
10,803
9
49
271
124
23
16
22
66
133
648
11,285
1,919
427
288
383
426
120
636
11,724
1,681
352
279
276
406
1,282
3,686
57,195
9,829
2,505
1,529
2,006
2,870
794
3,363
54,922
8,188
1,664
1,169
1,524
4,200
3,734
4,528
2,238
1,654
4,897
2,714
82,786
75,992
642
914
20,253
20,019 114,550 105,821
1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer related contingents.
118 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):
Composition of financial instruments that give rise to credit risk by industry (continued):
Liquid assets and due
from other financial
institutions
Trading and
AFS1 assets
Derivatives
Loans and
advances and
acceptances
Other
financial
assets2
Credit related
commitments3
Total
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
–
–
–
–
42
7
1
–
–
–
56
–
9
–
27
2
90
4
8
58
20
1
2
2,946
1,544
141
881
442
67
13
696
550
16,927
8,500
4,546
4,102
2,634
592
1,222
913
4
4
–
–
–
–
28
168
146
116
–
–
131
14
227
310
1,610
38
–
23
–
82
–
63
1
407
2
12
–
2
105
40
15
113
–
18
33
31
60
101
3
25
–
4
7
7
13
23
297
4,793
2,379
302
444
1,553
3,052
2,280
398
3,644
1,671
422
640
230
931
1,548
55
29
3
13
23
6
90
65
6
8
29
57
43
13
7
1
2,869
691
760
1,351
343
200
5,960
2,268
968
2,316
800
298
8
488
–
1,255
573
14
7,311
10,862
32,663
24,983
6
55
121
6
10
3
14
23
1,396
11,222
387
35
278
393
7,298
2,810
–
9,471
46
590
848
326
3,457
2,346
3,328
16,260
2,831
384
763
2,088
10,495
5,465
554
13,718
1,840
1,034
1,636
582
4,747
4,290
17,131
9,494
6,418
4,709
3,165
710
21,649
12,337
427
281
35,938
29,840
84,728
57,371
109
17
2
–
77
12
1
–
57
–
56
25
9
–
27
563
43
29
566
30
50
28,540
8,505
5,512
22,132
5,979
5,157
383
168
111
380
91
77
12,936
3,273
4,397
9,485
2,488
2,277
42,588
12,006
10,107
32,649
8,600
7,589
38
266
411
8,075
6,718
164
99
2,533
2,175
11,063
9,441
24,191
15,822
22,734
24,007
33,180
18,631
15,398
14,258
205
215
17,297
23,820
113,005
96,753
3,667
299
–
3
337
35
584
799
3,992
212
–
1
239
25
414
565
7,160
189
–
48
129
103
20
1,670
2,994
475
44
12
–
26
190
924
316
603
–
426
95
208
306
906
95
778
1
108
235
207
374
718
942
16,830
194,997
33,299
11,757
9,105
11,282
11,738
938
14,979
177,599
27,075
8,695
6,417
8,494
8,943
12
317
1,477
607
233
140
212
244
16
228
1,465
416
130
95
127
171
2,021
19,891
39,718
8,632
3,402
3,100
13,246
10,825
1,152
19,478
36,265
8,345
3,789
3,230
10,123
8,458
14,118
38,129
236,192
43,015
15,953
12,691
25,650
26,182
9,187
36,150
215,374
35,957
13,088
10,000
19,722
19,779
Consolidated
Overseas Markets
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisure
and Tourism
Financial, Investment
and Insurance
Government and
Official Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other
Consolidated –
aggregate
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisure
and Tourism
Financial, Investment
and Insurance
Government and
Official Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other
Gross total
30,043
21,360
32,191
28,746
36,941
22,204 355,980 307,384
4,273
3,510 141,271 131,085 600,699 514,289
1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Financial Report 119
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):
Composition of financial instruments that give rise to credit risk by industry (continued):
Consolidated
Individual provision for
credit impairment
Collective provision for
credit impairment
Liquid assets and due
from other financial
institutions
Trading and
AFS1 assets
Derivatives
Loans and
advances and
acceptances
Other
financial
assets2
Credit related
commitments3
Total
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
–
–
–
–
–
–
–
–
–
–
–
–
(646)
(261)
(2,062)
(1,483)
–
–
–
–
(29)
(9)
(675)
(270)
(759)
(509)
(2,821)
(1,992)
30,043
21,360
32,191
28,746
36,941
22,204 353,272 305,640
4,273
3,510
140,483 130,567 597,203 512,027
Income yet to mature
Capitalised brokerage/
mortgage origination
fees
–
–
–
–
–
–
–
–
–
–
–
(2,600)
(2,277)
–
600
570
–
–
–
–
–
–
–
(2,600)
(2,277)
–
600
570
30,043
21,360
32,191
28,746
36,941
22,204 351,272 303,933
4,273
3,510
140,483 130,567 595,203 510,320
Excluded from analysis
above4
Net Total
4,849
3,667
466
427
–
–
–
–
–
–
–
–
5,315
4,094
34,892
25,027 32,657
29,173
36,941
22,204 351,272 303,933
4,273
3,510
140,483 130,567 600,518 514,414
1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
4 Equity instruments and cash are excluded from maximum exposure amount.
120 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):
Composition of financial instruments that give rise to credit risk by industry:
Liquid assets and due
from other financial
institutions
Trading and
AFS1 assets
Derivatives
Loans and
advances and
acceptances
Other
financial
assets2
Credit related
commitments3
Total
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
23
17
2
–
16
2
–
–
56
–
–
–
–
–
411
31
20
535
23
48
9,698
5,022
3,090
8,126
3,838
3,424
172
99
61
88
45
44
6,357
2,333
3,446
4,846
1,871
1,876
16,717
7,502
6,619
13,611
5,779
5,392
2
18
202
360
6,249
5,165
124
53
1,827
1,881
8,404
7,477
4,261
3,160
15,662
17,426
27,636
17,365
13,645
11,387
176
109
10,269
12,275
71,649
61,722
3,433
136
–
3
37
9
526
583
3,700
42
–
1
47
5
82
111
5,215
140
–
24
126
18
20
1,552
2,687
61
40
–
–
–
79
714
69
316
–
391
51
160
237
635
63
670
1
104
197
184
356
607
94
9,056
139,854
24,722
7,331
4,534
6,407
7,131
72
8,386
125,065
19,164
5,567
4,614
6,005
3,728
2
178
868
474
146
73
123
131
1
87
1,001
201
68
53
64
58
492
8,021
28,047
6,678
2,471
2,417
5,565
6,370
1,023
9,290
24,281
6,022
2,566
2,602
6,335
5,656
9,305
17,847
168,769
32,292
10,162
7,211
12,878
16,402
7,546
18,536
150,388
25,492
8,445
7,458
12,921
10,874
9,030
7,166 22,815 21,025 30,159 20,513 236,833 204,541
2,627
1,872
84,293
80,524 385,757 335,641
–
–
–
–
39
–
–
–
–
–
51
–
6
–
19
2
80
4
8
56
20
1
2
2,686
1,349
87
743
373
56
13
515
464
16,207
8,015
3,021
2,866
2,638
741
998
770
4
4
–
–
–
–
27
122
138
109
–
–
123
13
176
151
1,461
34
–
21
–
75
–
58
1
285
1
8
–
2
74
28
15
109
–
18
33
31
50
97
3
25
–
4
7
7
13
21
261
4,174
1,795
277
401
1,181
2,645
1,763
336
3,073
1,409
356
540
194
785
1,305
42
22
2
10
17
4
69
50
4
6
22
44
33
7
4
1
5
8
2,500
669
739
1,247
320
188
5,308
2,044
887
2,062
698
266
445
–
1,026
484
6,995
10,059
29,876
22,459
3
30
102
4
5
2
8
13
1,371
10,772
103
34
246
385
7,121
2,390
–
8,833
42
540
823
298
3,251
2,173
3,116
15,162
1,948
354
686
1,694
9,887
4,463
481
12,355
1,554
912
1,498
516
4,307
3,691
16,364
8,764
4,721
3,292
3,139
857
18,132
10,404
325
192
33,770
27,774
76,451
51,283
23
17
2
–
55
2
–
–
56
–
51
6
–
19
491
35
28
555
24
50
12,384
6,371
3,177
8,869
4,211
3,480
214
121
63
95
49
45
8,857
3,002
4,185
6,093
2,191
2,064
22,025
9,546
7,506
15,673
6,477
5,658
2
20
258
373
6,764
5,629
134
58
2,272
1,881
9,430
7,961
20,468
11,175
18,683
20,292
30,274
18,106
14,643
12,157
193
117
17,264
22,334
101,525
84,181
3,437
140
–
3
37
9
553
705
3,838
151
–
1
170
18
258
262
6,676
174
–
45
126
93
20
1,610
2,688
346
41
8
–
2
153
742
84
425
–
409
84
191
287
732
66
695
1
108
204
191
369
628
355
13,230
141,649
24,999
7,732
5,715
9,052
8,894
408
11,459
126,474
19,520
6,107
4,808
6,790
5,033
6
247
918
478
152
95
167
164
4
117
1,103
205
73
55
72
71
1,863
18,793
28,150
6,712
2,717
2,802
12,686
8,760
1,023
18,123
24,323
6,562
3,389
2,900
9,586
7,829
12,421
33,009
170,717
32,646
10,848
8,905
22,765
20,865
8,027
30,891
151,942
26,404
9,943
7,974
17,228
14,565
The Company
Australia
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisure
and Tourism
Financial, Investment
and Insurance
Government and
Official Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other
Overseas Markets
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisure
and Tourism
Financial, Investment
and Insurance
Government and
Official Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other
The Company –
aggregate
Agriculture, forestry,
fishing & mining
Business Services
Construction
Entertainment, Leisure
and Tourism
Financial, Investment
and Insurance
Government and
Official Institutions
Manufacturing
Personal Lending
Property Services
Retail trade
Transport and Storage
Wholesale trade
Other
Gross total
25,394 15,930 27,536 24,317 33,298 21,370 254,965 214,945
2,952
2,064 118,063 108,298 462,208 386,924
1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
Financial Report 121
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):
Composition of financial instruments that give rise to credit risk by industry:
The Company
Individual provision for
credit impairment
Collective provision for
credit impairment
Liquid assets and due
from other financial
institutions1
Trading and
AFS1 assets
Derivatives
Loans and
advances and
acceptances
Other
financial
assets2
Credit related
commitments3
Total
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
–
–
–
–
–
–
–
–
–
–
–
(459)
(172)
–
(1,519)
(1,028)
–
–
–
–
(29)
(9)
(488)
(181)
(625)
(389)
(2,144)
(1,417)
25,394 15,930 27,536 24,317 33,298 21,370 252,987 213,745
2,952
2,064 117,409 107,900 459,576 385,326
Unearned income
Capitalised brokerage/
mortgage origination fees
–
–
–
–
–
–
–
–
–
–
–
–
(508)
(348)
194
167
–
–
–
–
–
–
–
–
(508)
(348)
194
167
25,394 15,930 27,536 24,317 33,298 21,370 252,673 213,564
2,952
2,064 117,409 107,900 459,262 385,145
Excluded from analysis
above4
1,260
822
413
425
–
–
–
–
–
–
–
–
1,673
1,247
Net Total
26,654 16,752 27,949 24,742 33,298 21,370 252,673 213,564
2,952
2,064 117,409 107,900 460,935 386,392
1 Available-for-sale assets.
2 Mainly comprises trade dated assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
4 Equity instruments and cash are excluded from maximum exposure amount.
CREDIT QUALITY
Maximum exposure to credit risk
For financial assets recognised on the balance sheet, the maximum exposure to credit risk is the 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 financial assets that are subject to risks other than credit risk, such as equity investments which are
primarily subject to market risk, or bank notes and coins. For contingent exposures, the maximum exposure to credit risk is the maximum
amount the Group would have to pay if the instrument is 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 financial instruments before taking
account of any collateral held or other credit enhancements.
Consolidated
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Personal
– Institutional
– New Zealand Businesses
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Undrawn facilities
Contingent facilities
Total
Reported
Excluded1
Maximum exposure
to credit risk
2008
$m
25,030
9,862
15,177
36,941
17,480
164,494
105,400
74,611
13,253
1,553
(8,827)
4,273
2007
$m
16,987
8,040
15,167
22,204
14,006
147,363
82,869
68,672
7,300
1,740
(4,529)
3,510
2008
$m
4,849
–
20
–
446
–
–
–
–
–
–
–
2007
$m
3,667
–
47
–
380
–
–
–
–
–
–
–
2008
$m
20,181
9,862
15,157
36,941
17,034
164,494
105,400
74,611
13,253
1,553
(8,827)
4,273
2007
$m
13,320
8,040
15,120
22,204
13,626
147,363
82,869
68,672
7,300
1,740
(4,529)
3,510
459,247
383,329
5,315
4,094
453,932
379,235
111,265
30,006
107,269
23,816
141,271
131,085
–
–
–
–
–
–
111,265
30,006
107,269
23,816
141,271
131,085
600,518
514,414
5,315
4,094
595,203
510,320
1 Includes bank notes and coins and cash at bank for liquid assets and equity instruments within trading securities and available-for-sale financial assets.
122 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
Maximum exposure to credit risk (continued)
The Company
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Personal
– Institutional
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Undrawn facilities
Contingent facilities
Total
Reported
Excluded1
2008
$m
18,081
8,573
12,846
33,298
15,103
2007
$m
10,618
6,134
13,359
21,370
11,383
150,376
97,599
9,127
1,553
(6,636)
2,952
133,296
76,562
5,550
1,740
(3,982)
2,064
2008
$m
1,260
–
20
–
393
–
–
–
–
–
–
2007
$m
822
–
45
–
380
–
–
–
–
–
–
Maximum exposure
to credit risk
2008
$m
16,821
8,573
12,826
33,298
14,710
2007
$m
9,796
6,134
13,314
21,370
11,003
150,376
97,599
9,127
1,553
(6,636)
2,952
133,296
76,562
5,550
1,740
(3,982)
2,064
342,872
278,094
1,673
1,247
341,199
276,847
90,026
28,037
86,124
22,174
118,063
108,298
–
–
–
–
–
–
90,026
28,037
86,124
22,174
118,063
108,298
460,935
386,392
1,673
1,247
459,262
385,145
1 Includes bank notes and coins and cash at bank for liquid assets and equity instruments within trading securities and available-for-sale financial assets.
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 International Basel Committee on Banking Supervision have been encapsulated in these principles and policies including governance,
validation and modelling requirements.
The Group’s risk grade profile changes dynamically through new counterparty lending 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 (PD)) and the
loss in the event of default (LGD) (a factor of the security taken to support the lending). ANZ also uses financial and statistical tools to assist in
the risk grading of customers. Customer risk grades are actively reviewed and monitored to ensure the risk grade accurately reflects 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 remain statistically valid. ANZ applies a masterscale to the key outputs of the risk grading process, the
PD and LGD, to consistently report on ANZ lending portfolios.
Financial Report 123
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
Restructured items
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 restructuring facilities due to financial difficulty, 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.
Restructured facilities are classified as productive and must demonstrate sound prospects of being able to adhere to the modified contractual
terms. Where doubt exists as to the capacity to sustain the modified terms, the facilities remain impaired and an appropriate level of individual
provision is held.
Restructured loans that would otherwise be past due or impaired held by the Group are $846 million (2007: nil), and held by the Company
are $846 million (2007: nil). This represents customer facilities which for reason of financial difficulty have been re-negotiated on terms which
the Bank considers uncommercial but necessary in the circumstances and are not considered non-performing. Restructured loans includes
both on and off balance sheet exposures. The total on and off-balance sheet exposure is $823 million which includes a $23 million credit
valuation adjustment on derivative assets.
DISTRIBUTION OF FINANCIAL INSTRUMENTS BY CREDIT QUALITY
Consolidated
Neither past due nor
impaired
2008
$m
2007
$m
Past due but not
impaired
2008
$m
2007
$m
Restructured
2008
$m
2007
$m
Impaired
2008
$m
2007
$m
Total
2008
$m
2007
$m
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments 1
Available-for-sale assets 2
Net loans and advances and acceptances
– Personal
– Institutional
– New Zealand Businesses
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments 3
20,181
9,862
15,157
36,886
17,019
13,320
8,040
15,120
22,159
13,626
156,366
101,612
71,539
12,818
1,516
(8,734)
4,273
141,159
141,684
81,736
66,761
7,230
1,700
(4,526)
3,510
131,049
–
–
–
–
–
–
–
–
–
–
7,847
1,895
2,805
307
32
(2)
–
–
5,509
777
1,817
48
15
(2)
–
–
579,654
501,409
12,884
8,164
–
–
–
55
–
–
733
–
–
–
–
–
35
823
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15
281
1,160
267
128
5
(91)
–
77
–
–
–
45
–
170
356
94
22
25
(1)
–
36
20,181
9,862
15,157
36,941
17,034
13,320
8,040
15,120
22,204
13,626
164,494
105,400
74,611
13,253
1,553
(8,827)
4,273
141,271
147,363
82,869
68,672
7,300
1,740
(4,529)
3,510
131,085
1,842
747
595,203 510,320
The Company
Neither past due nor
impaired
2008
$m
2007
$m
Past due but not
impaired
2008
$m
2007
$m
Restructured
2008
$m
2007
$m
Impaired
2008
$m
2007
$m
Total
2008
$m
2007
$m
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments 1
Available-for-sale assets 2
Net loans and advances and acceptances
– Personal
– Institutional
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments 3
16,821
8,573
12,826
33,243
14,695
9,796
6,134
13,314
21,325
11,003
142,803
93,818
8,861
1,516
(6,543)
2,952
117,956
128,125
75,450
5,528
1,700
(3,980)
2,064
108,267
–
–
–
–
–
–
–
–
–
–
7,397
1,895
162
32
(2)
–
–
5,062
761
15
15
(1)
–
–
447,521
378,726
9,484
5,852
–
–
–
55
–
–
733
–
–
–
–
35
823
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15
176
1,153
104
5
(91)
–
72
–
–
–
45
–
109
351
7
25
(1)
–
31
16,821
8,573
12,826
33,298
14,710
9,796
6,134
13,314
21,370
11,003
150,376
97,599
9,127
1,553
(6,636)
2,952
118,063
133,296
76,562
5,550
1,740
(3,982)
2,064
108,298
1,434
567
459,262 385,145
1 Derivative assets, considered impaired, net of credit valuation adjustments.
2 Impaired Available-for-sale debt security where the cumulative mark-to-market loss has been transferred from equity to the Income Statement.
3 Comprises undrawn facilities and customer contingent liabilities.
124 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
Credit quality of financial assets neither past due nor impaired
The credit quality of financial assets is managed by ANZ using internal ratings which aim to reflect the relative ability of counterparties to fulfil,
on time, their credit-related obligations, and is based on their current probability of default.
Internal rating
Strong credit profile
Satisfactory risk
Customers that have demonstrated superior stability in their operating and financial performance over
the long-term, and whose debt servicing capacity is not significantly vulnerable to foreseeable events.
This rating broadly corresponds to ratings “Aaa” to “baa3” and “AAA” to “BBB-” of Moody’s and Standard
& Poor respectively.
Customers that have consistently demonstrated sound operational and financial 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 “Ba1” to “Ba3” and “BB+” to “BB-” of Moody’s and Standard & Poor
respectively.
Sub-standard but not past due
or impaired
Customers that have demonstrated some operational and financial instability, with variability and
uncertainty in profitability 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.
Consolidated
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Personal
– Institutional
– New Zealand Businesses
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1
The Company
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Personal
– Institutional
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1
1 Comprises undrawn facilities and customer contingent liabilities.
Strong credit profile
Satisfactory risk
2008
$m
2007
$m
2008
$m
2007
$m
18,526
9,146
14,304
34,511
15,842
11,802
7,990
14,619
20,957
12,763
1,496
578
840
1,870
1,077
1,491
38
368
821
863
121,760
64,589
48,642
7,815
717
(6,979)
4,246
110,390
110,035
55,258
45,709
4,487
973
(3,864)
3,510
100,690
26,986
33,999
20,493
4,749
769
(1,746)
27
27,397
24,349
24,620
19,178
2,574
723
(657)
–
28,518
Sub-standard but not
past due or impaired
2008
$m
159
138
13
505
100
7,620
3,024
2,404
254
30
(9)
–
3,372
2007
$m
27
12
133
381
–
7,300
1,858
1,874
169
4
(5)
–
1,841
Total
2008
$m
2007
$m
20,181
9,862
15,157
36,886
17,019
13,320
8,040
15,120
22,159
13,626
156,366
101,612
71,539
12,818
1,516
(8,734)
4,273
141,159
141,684
81,736
66,761
7,230
1,700
(4,526)
3,510
131,049
443,509
384,929
118,535 102,886
17,610
13,594
579,654 501,409
Strong credit profile
Satisfactory risk
2008
$m
2007
$m
2008
$m
2007
$m
15,423
7,884
11,973
31,288
14,542
8,484
6,102
13,284
21,325
11,003
1,239
557
840
1,507
65
1,290
22
28
–
–
Sub-standard but not
past due or impaired
2008
$m
159
132
13
448
88
2007
$m
22
10
2
–
–
Total
2008
$m
2007
$m
16,821
8,573
12,826
33,243
14,695
9,796
6,134
13,314
21,325
11,003
120,486
56,795
5,288
717
(5,084)
2,927
95,026
109,687
51,907
3,448
973
(3,359)
2,064
84,015
17,733
33,999
3,430
769
(1,455)
25
20,348
14,510
22,212
1,950
723
(617)
–
23,164
4,584
3,024
143
30
(4)
–
2,582
3,928
1,331
130
4
(4)
–
1,088
142,803
93,818
8,861
1,516
(6,543)
2,952
117,956
128,125
75,450
5,528
1,700
(3,980)
2,064
108,267
357,265
308,933
79,057
63,282
11,199
6,511
447,521 378,726
Financial Report 125
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
Credit quality of financial assets that are past due but not impaired
Ageing analysis of past due loans financial instruments that are not impaired:
Consolidated
The Company
As at 30 September 2008
Liquid assets
Due from other
financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
– Personal
– Institutional
– New Zealand Businesses
– Asia Pacific2
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1
As at 30 September 2007
Liquid assets
Due from other
financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
and acceptances
– Personal
– Institutional
– New Zealand Businesses
– Asia Pacific2
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1
1-5
days
$m
6-29
days
$m
30-59
days
$m
60-89
days
$m
≥90
days
$m
1-5
days
$m
6-29
days
$m
30-59
days
$m
60-89
days
$m
≥90
days
$m
–
–
–
–
–
–
–
–
–
–
1,733
335
1,018
–
10
–
–
–
4,287
624
961
240
8
–
–
–
–
–
–
–
–
960
138
396
–
10
–
–
–
–
–
–
–
–
353
538
171
42
–
–
–
–
Total
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
514
260
259
25
4
(2)
–
–
7,847
1,895
2,805
307
32
(2)
–
–
1,727
336
–
–
10
–
–
–
4,060
624
–
138
8
–
–
–
Total
$m
–
–
–
–
–
–
–
–
–
–
489
259
–
8
4
(2)
–
–
7,397
1,895
–
162
32
(2)
–
–
–
–
–
–
–
828
138
–
–
10
–
–
–
–
–
–
–
–
293
538
–
16
–
–
–
–
3,096
6,120
1,504
1,104
1,060
12,884
2,073
4,830
976
847
758
9,484
–
–
–
–
–
–
–
–
–
–
1,035
176
837
–
6
–
–
–
3,241
334
658
–
3
–
–
–
–
–
–
–
–
677
107
178
–
2
–
–
–
–
–
–
–
–
220
49
56
22
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
336
111
88
26
2
(2)
–
–
5,509
777
1,817
48
15
(2)
–
–
1,029
160
–
–
6
–
–
–
3,004
334
–
–
3
–
–
–
–
–
–
–
–
545
107
–
–
2
–
–
–
–
–
–
–
–
175
49
–
7
2
–
–
–
–
–
–
–
–
–
–
–
–
–
309
111
–
8
2
(1)
–
–
5,062
761
–
15
15
(1)
–
–
2,054
4,236
964
349
561
8,164
1,195
3,341
654
233
429
5,852
1 Comprises undrawn facilities and customer contingent liabilities.
2 For Asia Pacific in 2007, past due pools comprised 30-89 days and 90 days plus. In 2008 this was expanded to 1-29 days (shown above in the 6-29 days band).
Ageing analysis of past due loans is used by the Group to measure and manage emerging credit risks. Financial assets that are past due
but not impaired include those which are assessed, approved and managed on a portfolio basis within a centralised environment (for
example credit cards and personal loans), those which can be held on a productive basis until they are 180 days past due and those which
are managed on an individual basis.
A large portion of retail credit exposures, such as residential mortgages, are generally well secured. That is, the fair value of associated
security is sufficient to ensure that ANZ will recover the entire amount owing over the life of the facility and there is reasonable assurance
that collection efforts will result in payment of the amounts due in a timely manner.
126 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
For all lending proposals, ANZ business units assess the value of the assets being financed and judge the appropriateness of taking a security
interest in the assets being financed or other customer assets, based on the risk profile of the customer. Each security is held in favour of
the specific ANZ entity providing the facility to which it applies. ANZ business units assess the value of assets being financed and judge the
appropriateness of acquiring a security interest in either the assets being financed or over other customer assets. This is an important part
in setting the credit appetite for loan amounts. Collateral provided is valued conservatively on a realistically recoverable basis assuming an
event of default. Credit policy requires that collateral be re-valued on a regular basis with the frequency varying depending on the nature of
the security. The adequacy of security valuations must also be considered at each customer review. ANZ seeks to ensure that assets of non-
individual customer entities are covered by registered mortgage debenture or equivalent charge to give ANZ access to the assets in appropriate
circumstances. ANZ extends value against types of collateral based on likely recovery rates in the event of default. Parameters for calculating
extended values are determined after analysis of historical loss information. Extended values serve as guides in the determination of potential
losses in the event of default and also in setting appetites for loan amounts.
For the purposes of this disclosure, where security is valued at more than the corresponding credit exposure, coverage is capped at the value of
the credit exposure. Estimated value of collateral and other charges related to past due financial instruments that are past due but not impaired.
Consolidated
Liquid assets
Due from other
financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
and acceptances
– Personal
– Institutional
– New Zealand Businesses
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1
The Company
Liquid assets
Due from other
financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
and acceptances
– Personal
– Institutional
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1
Cash and securities
Real estate
Other
Total value of
collateral
Credit exposure
Unsecured portion
of credit exposure
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,292
243
1,765
–
1
–
–
–
4,125
179
1,039
–
4
–
–
–
693
1,020
388
–
30
–
–
–
553
543
149
–
7
–
–
–
6,985
1,263
2,153
–
31
–
–
–
4,678
757
1,188
–
11
–
–
–
7,847
1,895
2,805
307
32
(2)
–
–
5,509
777
1,817
48
15
(2)
–
–
–
–
–
–
–
862
632
652
307
1
(2)
–
–
–
–
–
–
–
831
20
629
48
4
(2)
–
–
35
8,301
5,347
2,131
1,252
10,432
6,634
12,884
8,164
2,452
1,530
Cash and securities
Real estate
Other
Total value of
collateral
Credit exposure
Unsecured portion
of credit exposure
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,292
242
–
1
–
–
–
4,125
179
–
4
–
–
–
345
1,018
–
30
–
–
–
245
497
–
7
–
–
–
6,637
1,260
–
31
–
–
–
4,370
711
–
11
–
–
–
7,397
1,895
162
32
(2)
–
–
5,062
761
15
15
(1)
–
–
–
–
–
–
–
760
635
162
1
(2)
–
–
–
–
–
–
–
692
50
15
4
(1)
–
–
35
6,535
4,308
1,393
749
7,928
5,092
9,484
5,852 1,556
760
1 Comprises undrawn facilities and customer contingent liabilities.
Financial Report 127
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
Credit quality of financial assets that are individually impaired
ANZ regularly reviews its portfolio and monitors adherence to contractual terms. When doubt arises as to the collectability of a credit facility,
the financial instrument (or ‘the facility’) is classified and reported as individually impaired and an individual provision is allocated against it.
As described in the summary of significant accounting policies, provisions are recorded using allowance accounts for financial instruments that
are reported on the balance sheet at amortised cost. For instruments reported at fair value, impairment provisions are treated as part of overall
change in fair value and directly reduce the reported carrying amounts.
Consolidated
The Company
Impaired instruments
Individual provision
balance
2008
$m
2007
$m
2008
$m
2007
$m
Impaired instruments
2008
$m
2007
$m
Individual provision
balance
2008
$m
2007
$m
Australia
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Personal
– Institutional
– Other business units
Other financial assets
Credit related commitments1
New Zealand
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Institutional
– New Zealand Businesses
Other financial assets
Credit related commitments1
Overseas Markets
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets2
Net loans and advances and acceptances
– Institutional
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments
Aggregate
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances
– Personal
– Institutional
– New Zealand Businesses
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1
–
–
–
–
–
281
1,020
5
–
72
1,378
–
–
–
–
–
7
267
–
5
279
–
–
–
–
15
133
128
–
(91)
–
–
185
–
–
–
–
15
281
1,160
267
128
5
(91)
–
77
1,842
–
–
–
45
–
170
344
–
–
31
590
–
–
–
–
–
5
94
–
5
104
–
–
–
–
–
7
22
25
(1)
–
–
53
–
–
–
45
–
170
356
94
22
25
(1)
–
36
747
–
–
–
–
–
152
333
2
–
29
516
–
–
–
–
–
4
107
–
–
111
–
–
–
–
–
29
19
–
–
–
–
48
–
–
–
–
–
152
366
107
19
2
–
–
29
675
–
–
–
–
–
102
103
–
–
9
214
–
–
–
–
–
1
37
–
–
38
–
–
–
–
–
4
13
2
(1)
–
–
18
–
–
–
–
–
102
108
37
13
2
(1)
–
9
270
–
–
–
–
–
176
1,020
5
–
72
1,273
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15
133
104
–
(91)
–
–
161
–
–
–
–
15
176
1,153
–
104
5
(91)
–
72
1,434
–
–
–
45
–
109
344
–
–
31
529
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
7
25
(1)
–
–
38
–
–
–
45
–
109
351
–
7
25
(1)
–
31
567
–
–
–
–
–
89
333
2
–
29
453
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
29
6
–
–
–
–
35
–
–
–
–
–
89
362
–
6
2
–
–
29
488
–
–
–
–
–
62
103
–
–
9
174
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4
2
2
(1)
–
–
7
–
–
–
–
–
62
107
–
2
2
(1)
–
9
181
1 Comprises undrawn facilities and customer contingent liabilities.
2 Impaired Available-for-sale debt security where the cumulative mark-to-market loss has been transferred from equity to the Income Statement.
128 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
Credit quality of financial assets that are individually impaired (continued)
Estimated value of collateral and other charges related to financial assets that are individually impaired. For the purposes of this disclosure,
where security held is valued at more than the corresponding credit exposure, coverage is capped at the value of the credit exposure.
Consolidated
Liquid assets
Due from other
financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
and acceptances
– Personal
– Institutional
– New Zealand Businesses
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1
The Company
Liquid assets
Due from other
financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
and acceptances
– Personal
– Institutional
– Asia Pacific
– Other business units
– Less: Institutional Asia Pacific
Other financial assets
Credit related commitments1
Cash and securities
Real estate
Other
Total value of
collateral
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
Credit exposure
2008
$m
2007
$m
Unsecured portion
of credit exposure
2008
$m
2007
$m
–
–
–
–
–
–
7
–
–
–
–
–
–
7
–
–
–
–
–
–
2
–
–
–
–
–
–
2
–
–
–
–
–
47
422
94
–
–
–
–
4
567
–
–
–
–
–
36
41
34
–
–
–
–
–
111
–
–
–
–
–
82
365
66
109
3
(91)
–
44
578
–
–
–
–
–
32
205
23
9
23
–
–
27
319
–
–
–
–
–
129
794
160
109
3
(91)
–
48
1,152
–
–
–
–
–
68
248
57
9
23
–
–
27
432
–
–
–
–
15
281
1,160
267
128
5
(91)
–
77
1,842
–
–
–
45
–
170
356
94
22
25
(1)
–
36
747
–
–
–
–
15
152
366
107
19
2
–
–
29
690
–
–
–
45
–
102
108
37
13
2
(1)
–
9
315
Cash and securities
Real estate
Other
Total value of
collateral
Credit exposure
Unsecured portion
of credit exposure
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
–
–
–
–
–
–
5
–
–
–
–
–
5
–
–
–
–
–
–
2
–
–
–
–
–
2
–
–
–
–
–
47
422
–
–
–
–
4
473
–
–
–
–
–
36
41
–
–
–
–
–
77
–
–
–
–
–
40
364
98
3
(91)
–
39
453
–
–
–
–
–
11
201
5
23
–
–
22
262
–
–
–
–
–
87
791
98
3
(91)
–
43
931
–
–
–
–
–
47
244
5
23
–
–
22
341
–
–
–
–
15
176
1,153
104
5
(91)
–
72
1,434
–
–
–
45
–
109
351
7
25
(1)
–
31
567
–
–
–
–
15
89
362
6
2
–
–
29
503
–
–
–
45
–
62
107
2
2
(1)
–
9
226
1 Comprises undrawn facilities and customer contingent liabilities.
Financial Report 129
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
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
fluctuations in bond, commodity or equity prices.
Market risk arises when changes in market rates, prices and
volatilities lead to a decline in the value of assets and liabilities,
including financial derivatives. Market risk is generated through
both trading activities and the interest rate risk inherent in the
banking book.
ANZ conducts trading operations in interest rates, foreign exchange,
commodities, securities and equities. Trading operations largely
focus on supporting customer hedging and investing activities,
rather than outright proprietary trading. Consequently, the Board
has set a medium market risk appetite for the Markets business
which is reflected in the low/moderate market risk limit framework.
ANZ has a detailed risk management and control framework to
support its trading and balance sheet activities. The framework
incorporates a risk measurement approach to quantify the
magnitude of market risk within trading and balance sheet portfolios.
This approach and related analysis identifies the range of possible
outcomes that can be expected over a given period of time,
establishes the relative likelihood of those outcomes and allocates
an appropriate amount of capital to support these activities.
Group-wide responsibility for the strategies and policies relating to
the management of market risk lies with the Board Risk Committee.
Responsibility for day to day management of both market risks
and compliance with market risk policy is delegated by the Risk
Committee to the Credit and Trading Risk Committee (‘CTC’) and
the Group Asset & Liability Committee (‘GALCO’). The CTC, chaired
by the Chief Risk Officer, is responsible for traded market risk, while
the GALCO, chaired by the Chief Financial Officer, is responsible for
non-traded market risk (or balance sheet risk). All committees receive
regular reporting on the range of trading and balance sheet market
risks that ANZ incurs.
Within overall strategies and policies, the control of market risk
at the Group level is the joint responsibility of Business Units and
Risk Management, with the delegation of market risk limits from
the Board and CTC allocated to both Risk Management and the
Business Units.
The management of market risk is supported by a comprehensive
limit and policy framework to control the amount of risk that the
Group will accept. Market risk limits are allocated at various levels
and are reported and monitored by Market Risk on a daily basis.
The detailed limit framework allocates individual limits to manage
and control asset classes (e.g. interest rates, equities), risk factors
(e.g. interest rates, volatilities) and P&L limits (to monitor and
manage the performance of the trading portfolios).
Market risk management and control responsibilities
To facilitate the management, 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 financial
instruments due to movements in price factors for both physical and
derivative trading positions. Trading positions arise from transactions
where ANZ acts as principal with customers, financial exchanges or
interbank counterparties.
The principal risk categories monitored are:
Currency risk is the potential loss arising from the decline in
the value of a financial 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 financial 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 benchmark.
Commodity risk is the potential loss arising from the decline in
the value of a financial instrument due to changes in commodity
prices, or their implied volatilities.
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.
Some instruments do not fall into either category that also expose
ANZ to market risk. These include equity securities classified as
available for sale financial assets that predominantly comprise long
term strategic investments.
Value at Risk (VaR) measure
A key measure of market risk is Value at Risk (VaR). VaR is a statistical
estimate of the possible daily loss and is based on historical market
movements.
ANZ measures VaR at a 97.5% and 99% confidence interval. This
means that there is a 97.5% or 99% chance that the loss will not
exceed the VaR estimate on any given day.
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, prices and volatilities 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
(e.g. stress testing) and risk sensitivity limits to measure and manage
market risk.
130 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
Traded Market Risk
Trading activities are typically focused on servicing customer hedging and investment requirements. The principal product classes
include foreign exchange, interest rate, debt securities, equity and commodity markets. These activities are managed along both global
and geographical product lines.
Below are aggregate VaR exposures covering both derivative and non-derivative trading positions for the Group’s product classes.
Consolidated
Value at risk at 97.5% confidence
Foreign exchange
Interest rate
Credit spread
Commodity
Diversification benefit
Total VaR
Value at risk at 99% confidence
Foreign exchange
Interest rate
Credit spread
Commodity
Diversification benefit
Total VaR
The Company
Value at risk at 97.5% confidence
Foreign exchange
Interest rate
Credit spread
Commodity
Diversification benefit
Total VaR
Value at risk at 99% confidence
Foreign exchange
Interest rate
Credit spread
Commodity
Diversification benefit
Total VaR
30 September 2008
30 September 2007
high for
year
$m
Low for
year
$m
Average
for year
$m
2.4
3.6
2.6
1.5
n/a
4.7
3.2
5.4
3.9
2.3
n/a
8.2
0.4
1.2
0.6
0.4
n/a
1.4
0.5
1.3
0.9
0.6
n/a
1.7
0.8
1.9
1.0
1.0
(2.2)
2.5
1.2
2.7
1.6
1.4
(3.4)
3.5
As at
$m
0.7
1.6
1.0
1.0
(2.6)
1.7
1.1
2.3
1.6
1.4
(3.7)
2.7
high for
year
$m
Low for
year
$m
Average
for year
$m
1.3
7.6
1.9
1.1
n/a
8.1
2.1
9.8
3.2
1.5
n/a
9.9
0.2
1.2
0.7
–
n/a
1.4
0.3
1.7
1.1
0.1
n/a
1.7
0.6
2.6
1.2
0.2
(1.8)
2.8
0.8
3.4
2.1
0.3
(2.7)
3.9
30 September 2008
30 September 2007
high for
year
$m
Low for
year
$m
Average
for year
$m
2.4
3.5
2.6
1.5
n/a
4.7
3.2
5.3
3.9
2.3
n/a
8.4
0.3
0.8
0.6
0.4
n/a
1.4
0.4
0.7
0.9
0.6
n/a
2.2
0.8
1.7
1.0
1.0
(2.2)
2.3
1.1
2.4
1.6
1.4
(3.0)
3.5
As at
$m
0.7
1.5
1.0
1.0
(2.6)
1.6
1.0
2.2
1.6
1.4
(3.6)
2.6
high for
year
$m
Low for
year
$m
Average
for year
$m
1.4
7.5
1.9
1.1
n/a
7.2
2.3
9.7
3.2
1.5
n/a
8.7
0.2
1.0
0.7
–
n/a
1.1
0.2
1.2
1.1
0.1
n/a
1.4
0.4
2.4
1.2
0.2
(1.8)
2.4
0.6
3.1
2.1
0.3
(2.7)
3.4
As at
$m
2.4
2.8
1.2
1.3
(3.6)
4.1
3.2
5.0
1.8
2.0
(6.1)
5.9
As at
$m
2.4
2.3
1.2
1.3
(4.0)
3.2
3.2
4.2
1.8
2.0
(6.4)
4.8
VaR is calculated separately for Foreign Exchange/Commodities, Interest Rate and Debt Markets, as well as for the Group. The diversification
benefit reflects the historical correlation between these products.
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 financial impact of identified extreme events on market risk
exposures of ANZ. Standard stress tests are applied on a daily basis and measure the potential loss arising from applying extreme market
movements to individual and groups of individual price factors. Extraordinary stress tests are applied monthly and measure the potential
loss arising as a result of scenarios generated from major financial market events.
Non-Traded Market Risk (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.
Financial Report 131
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
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
various techniques including: VaR and scenario analysis (to a 1% shock).
a) VaR Non-Traded Interest Rate Risk
The repricing assumptions used to determine the VaR and 1% rate shock have been revised to reflect the assumptions approved by APRA under
APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book. For interest rate risk modelling, assumptions are made about the interest rate
sensitivity of non-bearing interest (NBI) accounts. Previously some of these accounts were profiled at zero duration, but are now profiled based on
independently validated statistical analysis where this was deemed appropriate. NBI’s without statistical evidence or justification have remained
at zero duration. Below are aggregate VaR figures covering non-traded interest rate risk.
Consolidated
Value at risk at 97.5% confidence
Australia
New Zealand
Overseas Markets
Diversification benefit
Total
The Company
Value at risk at 97.5% confidence
Australia
Overseas Markets
Diversification Benefit
Total
30 September 2008
30 September 2007
high for
year
$m
Low for
year
$m
Average
for year
$m
As at
$m
high for
year
$m
Low for
year
$m
Average
for year
$m
11.7
3.4
3.6
n/a
15.4
11.7
3.0
n/a
12.3
5.6
1.8
1.7
n/a
7.9
5.6
1.4
n/a
6.6
8.3
2.7
2.7
(2.9)
10.8
8.3
2.2
(1.2)
9.3
9.2
2.4
3.3
(3.0)
11.9
12.8
2.6
4.1
n/a
14.9
9.2
3.0
(2.0)
10.2
12.8
3.0
n/a
13.7
3.2
1.5
1.5
n/a
3.4
3.2
1.0
n/a
3.5
8.2
2.0
2.3
(3.1)
9.4
8.2
1.8
(0.9)
9.1
As at
$m
11.7
3.4
3.1
(2.8)
15.4
11.7
2.6
(2.2)
12.1
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 financial impact of identified 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 quantification tool.
The figures in the table below indicate the outcome of this risk measure for the current and previous financial 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 signifies that a rate increase is negative for the next
12 months’ net interest income.
Consolidated
The Company
2008
2007
2008
2007
0.94%
0.94%
(0.55%)
0.47%
(0.53%)
0.69%
(0.96%)
0.38%
1.62%
1.62%
(0.74%)
0.77%
(0.81%)
0.93%
(1.59%)
0.59%
Impact of 1% Rate Shock
As at 30 September
Maximum exposure
Minimum exposure
Average exposure (in absolute terms)
132 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
Interest rate risk (continued)
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 quantifies 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 reflective of the actual interest rate sensitivity (for example, products priced at the Group’s
discretion), a profile 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 official rate increase
the Group does not reprice certain customer business until the first repricing date after the official 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 identified. 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 profiles.
Equity securities classified as available-for-sale
The portfolio of financial assets, classified as Available-for-sale for measurement and financial reporting purposes, also contains equity
investment holdings which predominantly comprise investments held for longer term strategic intentions. These equity investments are
also subject to market risk which is not captured by the VaR measures for traded and non-traded market risks. Regular reviews are performed
to substantiate valuation of the investments within the portfolio and the equity investments are regularly reviewed by management for
impairment. The fair value of the constituents of equity securities classified as available for sale can fluctuate considerably.
The table below outlines the composition of the equity holdings.
Visa Inc.
Sacombank (Vietnam)
Saigon Securities Inc. (Vietnam)1
Energy Infrastructure Trust
Other equity holdings
Impact on equity of 10% variation in value
1 Saigon Securities Inc became an associate effective July 2008 (refer to note 39).
Consolidated
The Company
2008
$m
243
92
–
46
65
446
45
2007
$m
–
219
107
50
4
380
38
2008
$m
190
92
–
46
65
393
39
2007
$m
–
219
107
50
4
380
38
Foreign Currency Risk – structural exposures
The investment of capital in foreign operations, such as branches, subsidiaries or associates with functional currencies other than the
Australian dollar, exposes the Group to the risk of changes in foreign exchange rates.
The main operating (or functional) currencies of ANZ Group entities are the Australian dollar and the New Zealand dollar, with a number of
overseas undertakings operating in various other currencies. The Group presents its consolidated financial statements in Australian dollars,
as the Australian dollar is the dominant currency. The Group’s consolidated balance sheet is therefore affected by exchange differences
between the Australian dollar and functional currencies of foreign operations. Variations in the value of these overseas operations arising
as a result of exchange differences are reflected in the foreign currency translation reserve in equity.
The Group routinely monitors this risk and conducts hedging, where it is expected to add shareholder value, in accordance with approved
policies. The Group’s exposures to structural foreign currency risks are managed with the primary objective of ensuring, where practical,
that the consolidated Tier 1 capital ratio is neutral to the effect of changes in exchange rates.
Selective hedges were in place during the 2008 and 2007 financial years. For details on the hedging instruments used and effectiveness
of hedges of net investments in foreign operations, refer to note 12 to these financial statements.
Financial Report 133
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
LIQUIDITY RISK
Liquidity risk is the risk that the Group has insufficient 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 cashflows and the related liquidity risk
is inherent in all banking operations, and may be impacted from
internal and/or external events, including: credit or operational
risks; bank-specific rumours; market disruptions; or systemic shocks.
The Group’s liquidity and funding risks are governed by a detailed
policy framework which is approved by the Board of Directors. The
management of the liquidity and funding positions and risks are
overseen by the Group Asset and Liability Committee (GALCO).
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.
Targeting wholesale and customer liability composition
(via funding metrics).
Targeting a diversified funding base, avoiding undue concentrations
by investor type, maturity, market source and currency.
holding a portfolio of high quality liquid assets to protect against
adverse funding 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 (introduced September 2000).
APRA supervises liquidity through individual agreements
with Authorised Deposit-taking Institutions (ADIs), taking into
consideration the specific risk characteristics of each organisations
operation. APRA requires ADIs to have a comprehensive Board
approved liquidity strategy defining: 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 maintains an APRA Compliance Plan for APS 210 - Liquidity.
The compliance 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
different scenarios, including the ‘going-concern’ and ‘name-crisis’.
‘Going-concern’: reflects the normal behaviour of cash flows 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
(‘available to fund’ limit), over at least the following 30 calendar
days. In estimating the funding requirement, the Group models
expected cashflows by reference to historical behaviour and
contractual maturity data.
To ensure that the Group has sufficient capacity to meet its going-
concern obligations, maturing wholesale funding is assessed
against a severe capital market disruption; whereby no wholesale
funding can be issued or rolled over. As protection against this
potential funding obligation, the Group manages and monitors
wholesale borrowing requirements against both its Liquidity
Portfolio and concentration limits for both domestic and offshore
wholesale debt maturities.
‘Name-crisis’: refers to a potential name-specific liquidity crisis
which models the behaviour of cash flows where there is a
problem (real or perceived) which may include, but is not limited
to, operational issues, doubts about the solvency of the Group or
adverse rating changes. Under this scenario the Group may have
significant difficulty rolling over or replacing funding. Under a name
crisis, APRA requires the Group to be cashflow positive over a five
business day period.
The Group models name-crisis expected cashflow behaviour
based on the type of customer and their level of sophistication,
and the type of asset/liability. Under name-crisis conditions,
a conservative set of APRA approved assumptions are applied
over an extended eight calendar day period (to cover APRA’s five
business day requirement), resulting in an accelerated outflow
of customer deposits and limited access to new wholesale funding.
As of September 2008, the Group’s position under this scenario
was cashflow positive, excluding any assumed inflows from the
Group’s internal Residential Mortgage Backed Securitisations.
The Group also 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, as has been experienced over the last 12–18 months, which
has resulted 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.
134 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
Group Funding Composition
The Group actively uses balance sheet disciplines to prudently manage funding requirements. Also, the Group employs funding metrics to
ensure that an appropriate proportion of the Group’s assets are funded by stable funding sources including customer liabilities, longer-dated
wholesale debt (with a remaining term exceeding one year), and equity. This approach recognises that long-term wholesale debt and other
sticky liabilities have favourable liquidity characteristics.
The table below outlines the Group’s funding composition.
Funding Composition
Customer deposits and other liabilities1
Personal
Institutional
New Zealand Business
Asia Pacific
Group Centre
less: Institutional Asia Pacific
Total customer deposits
Other2
Total customer deposits and other liabilities (funding)
Wholesale funding
Bonds and notes
Loan capital
Certificates of deposit (wholesale)
Commercial paper
Liability for acceptances
Due to other financial institutions
Other wholesale borrowings3
Total wholesale funding
Shareholders’ equity4
Total funding maturity
Short term wholesale funding
Liability for acceptances
Long term wholesale funding5
– less than 1 year residual maturity
– greater than 1 year residual maturity
Total customer deposits and other liabilities (funding)
Shareholders’ equity and hybrid debt4
Total funding and shareholders’ equity4
Consolidated
2008
$m
2007
$m
74,207
79,625
40,587
15,726
1,499
(6,915)
65,394
68,665
38,333
11,101
1,807
(4,071)
204,729
181,229
11,601
12,291
216,330
193,520
67,323
14,266
52,346
22,422
15,297
20,092
(3,532)
54,075
12,784
31,903
16,914
14,536
19,116
1,924
188,214
151,252
25,681
21,177
18.0%
3.6%
6.8%
14.2%
50.3%
7.1%
14.5%
4.0%
8.0%
13.7%
52.9%
6.9%
100.0%
100.0%
1 Includes term deposits, other deposits excluding Collateralised Loan Obligation and securitisation deposits.
2 Includes interest accruals, payables and other liabilities, provisions and net tax provisions.
3 Includes net derivative balances, special purpose vehicles, other borrowings and preference share capital Euro hybrids.
4 Shareholders’ equity excludes preference share capital.
5 Long term wholesale funding amounts are stated at original hedged exchange rates. Movements due to currency fluctuations in actual amounts borrowed are classified as short term
wholesale funding.
Wholesale Funding
The Group’s global wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency
while targeting diversification by markets, investors, currencies, maturities and funding structures. To the extent that asset growth exceeds
funding generated from customer deposits, additional wholesale funds are sourced. 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.
The Group also uses maturity concentration limits and geographic diversification limits under the wholesale funding and liquidity
management framework. Maturity concentration limits ensure that the Group does not become reliant on issuing large volumes of new
wholesale funding within a short time period. Funding instruments used to meet the wholesale borrowing requirement must be on a
pre-established list of approved products.
Financial Report 135
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
Funding Capacity and Debt Issuance Planning
Senior Management (via the Group Asset and Liability Committee) are provided with and approve wholesale funding plans on a regular basis.
These plans cover targeted amounts, markets, investors, terms and currencies, for both senior, subordinated and hybrid transactions, while
recognising the need to be flexible in the current uncertain capital market environment. This plan is supplemented by a monthly forecasting
process which reviews the funding position to-date, and where appropriate takes action and revises planned issuance volumes.
The debt issuance plan is linked to the Group’s three-year strategic planning cycle, which is a key activity assisting the Group to understand
current and future funding requirements, and to quantify and plan volumes of funding required.
In aggregate the Group raised $39 billion of new term wholesale debt during 2008 from 338 transactions, comprising $24 billion of debt
issued with a tenor greater than one year, an additional $9 billion of debt with an effective term to maturity of approximately one year and
an additional $6 billion of extendible notes. The weighted average tenor of new term debt issued in 2008 (greater than one year) was
4.0 years. The average cost of new term debt increased by 64 basis points in 2008 as a result of credit market conditions.
Despite periods of instability in offshore short term markets, the Group was able to access all required short term funding during 2008.
Offshore commercial paper markets experienced a decline in average duration towards the end of the year. however this was offset by
ANZ’s issuance of higher volumes of one year debt than previous years, which was the result of a strategic decision to lengthen the
short-end maturity profile.
When calculating volumes of wholesale debt outstanding and the weighted average term to maturity of the term wholesale funding portfolio,
the ‘effective’ maturity of callable wholesale debt instruments is conservatively assumed to be the next call date (rather than final maturity)
as extension beyond the call date is uncertain.
Liquidity Portfolio Management
The Group holds a diversified portfolio of cash and unencumbered high-quality, highly-liquid securities that may be sold or pledged to provide
same-day liquidity. This portfolio helps protect the Group’s liquidity position by providing cash in a severely stressed environment. All assets
held in this portfolio are eligible securities for repurchase agreements with the applicable central bank (repo eligible).
The sizing 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.
Due to increased volatility and instability in the Financial markets, from financial year end 2007 to September 2008, the Group increased
the volume of eligible securities held, post repurchase (i.e. repo) discounts applied by the applicable central bank, by approximately
$14.6 billion to $34.7 billion. This includes the current market value of the $10.3 billion Australian internal mortgage securitisation (RMBS)
that was announced to the market in April 2008.
Since 30 September 2008, $20.6 billion of additional repo eligible internal mortgage securitisation has been executed (being $17.4 billion
($15.7 billion post repo discount) in Australia and NZD3.5 billion (NZD $2.9 billion post repo discount) in New Zealand). Together with the
impact of the Reserve Bank of Australia’s reduction in the repo discount (initial margin) applied to internal mortgage securitisations from
19% to 10%, the balance of the prime liquid asset portfolio as at the end of September together with the subsequent internal securitisations
increased by $19.2 billion to $53.9 billion.
The table below details liquidity portfolio holdings held in the Group’s major funding centres.
Eligible securities (Market Values1)
Australia
New Zealand
United States
United Kingdom
Internal RMBS (Australia)
Total
Internal securitisations occurring in October 2008
Internal RMBS (Australia) RBA initial margin adjustment
Internal RMBS (Australia) second tranche
Internal RMBS (New Zealand)2
Total
1 Market value is post the repo discount applied by the applicable central bank.
2 NZD3.5 billion.
2007
$m
9,281
5,474
3,070
2,251
–
20,076
2008
$m
12,899
6,620
2,739
4,157
8,305
34,720
923
15,685
2,560
19,168
53,888
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. These assets are not included in the Prime Global liquidity
Portfolio’s value outlined above.
136 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
33: Financial Risk Management (continued)
Liquidity Crisis Contingency Planning
The Group maintains APRA-endorsed liquidity crisis contingency plans defining 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-flow shortfalls;
Guidelines determining the priority of customer relationships in the event of liquidity problems; and
Assigned responsibilities for internal and external communications.
Contractual maturity analysis of the Group’s liabilities
The tables below analyses the Group’s contractual liabilities, within relevant maturity groupings based on the earliest date on which the
Group or Company may be required to pay. The amounts represent principal and interest cash flows and hence may differ compared to the
amounts reported on the balance sheet.
It should be noted that this is not how the Group manages its liquidity risk. The management of this risk is detailed above.
Contractual maturity analysis of financial liabilities at 30 September 2008:
Consolidated at 30 September 2008
Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3
Derivative liabilities (trading)
Derivative assets and liabilities (balance sheet management)
– funding
Receive leg (-ve is an inflow)
Pay leg
– other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
1 Includes at call instruments.
2 Includes perpetual investments brought in at face value only.
3 Any callable wholesale debt instruments have been included at their next call date.
Less than
3 months1
$m
3 to 12
months
$m
17,661
2,295
29,616
66,817
98,566
9,367
15,419
4,836
2,031
14,439
8,120
322
27,126
13,990
23,325
–
–
6,455
4,481
–
1,059
20,484
1,981
–
1 to
5 years
$m
418
11,518
1,737
–
–
1,876
1,376
–
–
43,101
10,804
–
After
5 years
$m
–
109
111
–
–
–
–
–
–
2,331
2,997
–
No
maturity
specified2
$m
Total
$m
–
20,374
–
–
–
–
–
–
–
–
–
1,075
–
55,233
91,990
98,566
9,367
23,750
10,693
2,031
15,498
74,036
17,179
27,126
(20,210)
20,117
(30,268)
31,357
(79,793)
83,327
(4,055)
4,457
(3,563)
3,481
(5,608)
5,290
(7,994)
8,138
(489)
455
–
–
–
–
(134,326)
139,258
(17,654)
17,364
Full mark-to-market of derivative liabilities held for trading purposes has been included in the ‘less than 3 months’ category. The undiscounted
cash flows for all derivative instruments used for the purposes of balance sheet management has been included based on the contractual
maturity of the instrument.
Financial Report 137
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
Contractual maturity analysis of financial liabilities at 30 September 2007:
Consolidated at 30 September 2007
Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Borrowing corporations’ debt
Other borrowings
Liability for acceptances
Bonds and notes3
Loan capital3
Derivative liabilities (trading)
Derivative assets and liabilities (balance sheet management)
– funding
Receive leg (-ve is an inflow)
Pay leg
– other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
1 Includes instruments at call.
2 Includes perpetual investments brought in at face value only.
3 Any callable wholesale debt instruments have been included at their next call date.
The Company at 30 September 2008
Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Other borrowings
Liabilities for acceptances
Bonds and notes3
Loan capital3
Derivative liabilities (trading)
Derivative assets and liabilities (balance sheet management)
– funding
Receive leg (-ve is an inflow)
Pay leg
– other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
1 Includes instruments at call.
2 Includes perpetual investments brought in at face value only.
3 Any callable wholesale debt instruments have been included at their next call date.
Less than
3 months1
$m
3 to 12
months
$m
18,450
667
17,690
49,971
94,088
10,143
14,726
5,065
986
14,585
4,583
175
15,774
8,416
18,328
–
–
2,717
4,467
–
593
19,186
2,704
–
1 to
5 years
$m
91
7,581
4,113
–
–
–
1,134
–
–
34,614
9,737
–
After
5 years
$m
360
8
57
–
–
–
–
–
–
1,252
1,855
–
No
maturity
specified2
$m
Total
$m
–
19,568
–
–
–
–
–
–
–
–
–
690
–
33,695
72,469
94,088
10,143
17,443
10,666
986
15,178
59,635
15,161
15,774
(19,671)
20,298
(27,004)
30,726
(52,391)
56,572
(3,033)
3,404
(1,867)
1,942
(5,475)
5,018
(7,585)
7,121
(206)
196
–
–
–
–
(102,099)
111,000
(15,133)
14,277
Less than
3 months1
$m
3 to 12
months
$m
15,859
2,279
25,972
47,921
79,089
5,322
6,790
9
14,404
6,338
305
28,168
12,807
14,745
–
–
1,516
–
1,059
14,311
1,930
–
1 to
5 years
$m
22
11,487
985
–
–
1,876
–
–
33,832
9,741
–
After
5 years
$m
–
109
110
–
–
–
–
–
1,823
2,997
–
(10,343)
10,258
(17,197)
18,370
(56,471)
59,352
(3,722)
4,141
(2,341)
2,269
(3,145)
2,900
(4,892)
4,929
(453)
421
No
maturity
specified2
$m
Total
$m
–
18,160
–
–
–
–
–
–
–
–
375
–
–
–
–
–
50,375
63,761
79,089
5,322
10,182
9
15,463
56,304
15,348
28,168
(87,733)
92,121
(10,831)
10,519
138 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
The Company at 30 September 2007
Due to other financial institutions
Deposits and other borrowings
Certificates of deposit
Term deposits
Other deposits bearing interest
Deposits not bearing interest
Commercial paper
Other borrowings
Liabilities for acceptances
Bonds and notes3
Loan capital3
Derivative liabilities (trading)
Derivative assets and liabilities (balance sheet management)
– funding
Receive leg (-ve is an inflow)
Pay leg
– other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
1 Includes instruments at call.
2 Includes perpetual investments brought in at face value only.
3 Any callable wholesale debt instruments have been included at their next call date.
Less than
3 months1
$m
3 to 12
months
$m
1 to
5 years
$m
More than
5 years
$m
No
maturity
specified2
$m
Total
$m
16,886
617
–
–
–
17,503
14,373
34,471
75,606
5,562
5,390
1
14,572
4,373
175
18,425
7,769
8,205
–
–
376
–
593
15,044
2,550
–
7,554
1,810
–
–
–
–
–
26,255
8,703
–
8
56
–
–
–
–
–
1,252
1,856
–
–
–
–
–
–
–
–
–
690
–
29,704
44,542
75,606
5,562
5,766
1
15,165
46,924
13,974
18,425
(13,536)
14,077
(18,878)
21,776
(41,619)
44,817
(3,033)
3,404
(792)
877
(2,177 )
2,096
(3,067)
2,853
(172)
162
–
–
–
–
(77,066)
84,074
(6,208)
5,988
CREDIT RELATED CONTINGENCIES
Undrawn facilities and issued guarantees comprises the nominal principal amounts of commitments, contingencies and other undrawn
facilities and represents the maximum liquidity at risk position should all facilities extended be drawn.
The majority of undrawn facilities are subject to customers maintaining specific credit and other requirements or conditions. Many of
these facilities are expected to be partially used, whereas others may never be required to be drawn upon. As such, the total of the nominal
principal amounts is not necessarily representative of future liquidity risks or future cash requirements.
The tables below analyses the Group’s undrawn facilities and issued guarantees into relevant maturity groupings based on the earliest date
on which ANZ may be required to pay.
30 September 2008
Undrawn facilities
Issued guarantees
30 September 2007
Undrawn facilities
Issued guarantees
Consolidated
More than
1 year
$m
Total
$m
–
–
111,265
30,006
Consolidated
More than
1 year
$m
Total
$m
50
–
107,269
23,816
Less than
1 year
$m
111,265
30,006
Less than
1 year
$m
107,219
23,816
The Company
More than
1 year
$m
–
–
The Company
More than
1 year
$m
50
–
Less than
1 year
$m
90,026
28,037
Less than
1 year
$m
86,074
22,174
Total
$m
90,026
28,037
Total
$m
86,124
22,174
The liquidity risk of credit related commitments, contingencies and other undrawn facilities may be less than the contract amount, however
the liquidity risk has been taken to be the contract amount. The amounts do not necessarily represent future cash requirements as many of
these facilities are expected to be partially used or to expire unused.
Financial Report 139
For personal use only
Notes to the Financial Statements
33: Financial Risk Management (continued)
OPERATIONAL RISK MANAGEMENT
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 notified 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.
Membership of OREC comprises senior executives and OREC
is chaired by the Chief Risk Officer.
The operational risk management process adopted by ANZ consists of
a staged approach involving establishing the context, identification,
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 quantification 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 specified 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 specific
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.
The Board delegates its authority for operational risk oversight to
the Board Risk Committee. The Operational Risk Executive Committee
(OREC) reports to the Board Risk Committee and is responsible for
the management of the operational risk framework and compliance
with operational risk policy.
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 efficient
and effective recovery.
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.
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 periodic testing.
ANZ’s Operational Risk Framework outlines the approach to
managing operational risk and specifically covers the core minimum
requirements that divisions/business units must undertake in the
management of operational risk.
ANZ utilises three lines of defence to manage operational and other
risks. The first line is the business with primary responsibility for
the day-to-day ownership and management of operational risks at
ANZ. The risk management function is the second line of defence
providing oversight, direction and specialist support to the business
in their management of risks and consistent implementation of the
Operational Risk Framework. The risk management function also
provides assurance that businesses are owning and managing
their risks. The third line of defence is Internal Audit, independently
assessing the effectiveness of controls, mitigation strategies,
governance and application of policies and frameworks.
140 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities
Fair value 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 determination of the fair value of financial instruments is fundamental to the financial reporting framework as all
financial instruments are recognised initially at fair value and, with the exception of those financial instruments carried at amortised cost,
are remeasured at fair value in subsequent periods.
The fair value of a financial 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 modification or repackaging, or
on a valuation technique whose variables include only data from observable markets.
Subsequent to initial recognition, the fair value of financial instruments measured at fair value is based on quoted market prices, where
available. In cases where quoted market prices are not available, fair value is determined using market accepted valuation techniques
that employ observable market data. In limited cases where observable market data is not available, the input is estimated based on
other observable market data, historical trends and other factors that may be relevant.
(i) Fair values of financial assets and financial liabilities
A significant number of financial instruments are carried at fair value in the balance sheet. Below is a comparison of the carrying amounts,
as reported on the balance sheet, and fair values of all financial assets and liabilities. The fair value disclosure does not cover those
instruments that are not considered financial instruments from an accounting perspective such as income tax and intangible assets.
In our view, the aggregate fair value amounts do not represent the underlying value of the Group.
In the tables below, financial instruments have been allocated based on their accounting treatment. The significant accounting policies
in note 1 describe how the categories of financial assets and financial liabilities are measured and how income and expenses, including
fair value gains and losses, are recognised.
Financial asset classes have been allocated into the following groups: amortised cost; financial assets at fair value through profit or loss;
derivatives in effective hedging relationships; and available-for-sale financial assets. Similarly, each class of financial liability has been allocated
into three groups: amortised cost; derivatives in effective hedging relationships; and financial liabilities at fair value through profit and loss.
The fair values are based on relevant information available as at the respective balance sheet dates and have not been updated to reflect
changes in market condition after the balance sheet date.
FINANCIAL ASSETS
Consolidated
30 September 2008
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets
Consolidated
30 September 2007
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets
At amortised
cost
At fair value through profit or loss
hedging
Available- for-
sale assets
Total
Total
Carrying amount
Fair Value
Designated
on initial
recognition
$m
–
–
–
–
–
248
–
–
248
held for
Trading
$m
–
–
15,177
35,237
–
–
–
–
Sub-total
$m
–
–
15,177
35,237
–
248
–
–
50,414
50,662
$m
25,030
9,862
–
–
–
334,939
15,297
4,273
389,401
$m
$m
$m
$m
–
–
–
1,704
–
–
–
–
1,704
–
–
–
–
17,480
–
–
–
25,030
9,862
15,177
36,941
17,480
335,187
15,297
4,273
25,030
9,862
15,177
36,941
17,480
334,379
15,297
4,273
17,480
459,247
458,439
At amortised
cost
At fair value through profit or loss
hedging
Available- for-
sale assets
Total
Total
Carrying amount
Fair Value
Designated
on initial
recognition
$m
–
–
–
–
–
125
–
–
125
held for
Trading
$m
–
–
15,167
20,863
–
–
–
–
–
Sub-total
$m
–
–
15,167
20,863
–
125
–
36,030
36,155
$m
16,987
8,040
–
–
–
288,754
14,536
3,510
331,827
$m
$m
$m
$m
–
–
–
1,341
–
–
–
–
1,341
–
–
–
–
14,006
–
–
–
16,987
8,040
15,167
22,204
14,006
288,879
14,536
3,510
16,987
8,040
15,167
22,204
14,006
288,191
14,536
3,510
14,006
383,329
382,641
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.
Financial Report 141
For personal use only Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL ASSETS (continued)
The Company
30 September 2008
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets
The Company
30 September 2007
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets
Loans and advances2
Customers’ liability for acceptances
Other financial assets
At amortised
cost
At fair value through profit or loss
hedging
Available-for-
sale assets
Total
Total
Carrying amount
Fair Value
Designated
on initial
recognition
$m
–
–
–
–
–
248
–
–
248
held for
Trading
$m
–
–
12,846
32,042
–
–
–
–
Sub-total
$m
–
–
12,846
32,042
–
248
–
–
44,888
45,136
$m
18,081
8,573
–
–
–
236,509
15,262
2,952
281,377
$m
$m
$m
$m
–
–
–
1,256
–
–
–
–
1,256
–
–
–
–
15,103
–
–
–
18,081
8,573
12,846
33,298
15,103
236,757
15,262
2,952
18,081
8,573
12,846
33,298
15,103
236,304
15,262
2,952
15,103
342,872
342,419
At amortised
cost
At fair value through profit or loss
hedging
Available-for-
sale assets
Total
Total
Carrying amount
Fair Value
Designated
on initial
recognition
$m
–
–
–
–
–
125
–
–
125
held for
Trading
$m
–
–
13,359
20,554
–
–
–
–
Sub-total
$m
–
–
13,359
20,554
–
125
–
–
33,913
34,038
$m
10,618
6,134
–
–
–
198,518
14,523
2,064
231,857
$m
–
–
–
816
–
–
–
–
816
$m
$m
$m
–
–
–
–
11,383
–
–
–
10,618
6,134
13,359
21,370
11,383
198,643
14,523
2,064
10,618
6,134
13,359
21,370
11,383
198,360
14,523
2,064
11,383
278,094
277,811
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 financial instruments where there
has been no significant change in credit risk is considered to
approximate their net fair values as they are short-term in nature,
defined as those which reprice or mature in 90 days or less, or are
receivable on demand.
TRADING SECURITIES
Trading securities are carried at fair value. Fair value is based on
quoted market prices, broker or dealer price quotations, or modelled
valuations using prices for securities with similar credit risk, maturity
and yield characteristics.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are carried at fair value. Exchange
traded derivative financial instruments are valued using quoted
prices. Over-the-counter derivative financial instruments are valued
using accepted valuation models (including discounted cash
flow models) based on current market yields for similar types of
instruments and the maturity of each instrument and an adjustment
reflecting the credit worthiness of the counterparty.
142 ANZ Annual Report 2008
AVAILABLE-FOR-SALE ASSETS
Available-for-sale assets are carried at fair value. 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 flow models) based on current market yields
for similar types of instruments and the maturity of each instrument.
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.
Fair value has been determined through discounting future cash flows.
For fixed rate loans and advances and acceptances, the discount rate
applied incorporates changes in wholesale market rates, ANZ’s cost
of wholesale funding and movements in customer margin. For floating
rate loans, only changes in wholesale market rates and ANZ’s cost of
wholesale funding are incorporated in the discount rate. For variable
rate loans where ANZ sets the applicable rate at its discretion, the fair
value is set equal to the carrying value.
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.
For personal use only Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES
Consolidated
30 September 2008
Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
Total financial liabilities
Consolidated
30 September 2007
Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
Total financial liabilities
The Company
30 September 2008
Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
Total financial liabilities
At amortised
cost
$m
20,092
–
273,098
15,297
60,927
12,024
9,537
Carrying amount
Fair Value
At fair value through profit or loss
hedging
Total
Total
Designated
on initial
recognition
$m
–
–
10,868
–
6,396
2,242
–
held for
Trading
$m
–
30,418
–
–
–
–
–
Sub-total
$m
–
30,418
10,868
–
6,396
2,242
–
$m
$m
$m
–
1,509
–
–
–
–
–
20,092
31,927
283,966
15,297
67,323
14,266
9,537
20,092
31,927
284,110
15,297
66,794
14,013
9,537
390,975
19,506
30,418
49,924
1,509
442,408
441,770
Carrying amount
Fair Value
At fair value through profit or loss
hedging
Total
Total
At amortised
cost
$m
19,116
–
225,608
14,536
49,079
10,524
10,079
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
–
328,942
15,391
23,186
38,577
$m
–
994
–
–
–
–
–
994
$m
$m
19,116
24,180
233,743
14,536
54,075
12,784
10,079
19,116
24,180
233,697
14,536
54,057
12,766
10,079
368,513
368,431
At amortised
cost
$m
18,001
–
203,328
15,262
45,675
10,534
7,304
300,104
Carrying amount
Fair Value
At fair value through profit or loss
hedging
Total
Total
Designated
on initial
recognition
$m
–
–
–
–
6,396
2,242
–
8,638
held for
Trading
$m
–
30,585
–
–
–
–
–
Sub-total
$m
–
30,585
–
–
6,396
2,242
–
30,585
39,223
$m
–
870
–
–
–
–
–
870
$m
$m
18,001
31,455
203,328
15,262
52,071
12,776
7,304
18,001
31,455
203,413
15,262
51,742
12,520
7,304
340,197
339,697
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 143
For personal use only Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES (continued)
The Company
30 September 2007
Due to other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
Total financial liabilities
At amortised
cost
$m
17,240
–
158,065
14,523
38,161
9,626
8,266
245,881
Carrying amount
Fair Value
At fair value through profit or loss
hedging
Total
Total
Designated
on initial
recognition
$m
–
–
–
–
4,996
2,260
–
7,256
held for
Trading
$m
–
24,163
–
–
–
–
–
Sub-total
$m
–
24,163
–
–
4,996
2,260
–
24,163
31,419
$m
–
838
–
–
–
–
–
838
$m
$m
17,240
25,001
158,065
14,523
43,157
11,886
8,266
17,240
25,001
158,099
14,523
43,157
11,886
8,266
278,138
278,172
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.
DEPOSITS AND OThER BORROWINGS
For interest bearing fixed maturity deposits and other borrowings
and acceptances with quoted market prices, market borrowing
rates of interest for debt with a similar maturity are used to discount
contractual cash flows. The fair value of a deposit liability without a
specified 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.
Certain deposits and other borrowings have been designated at
fair value through profit or loss and are carried at fair value.
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
flow model using a yield curve appropriate for the remaining term
to maturity of the debt instrument is used.
Certain bonds and notes and loan capital have been designated
at fair value through profit or loss and are carried at fair value.
The fair value is based on a discounted cash flow model based
on current market yields for similar types of instruments and the
maturity of each instrument. The fair value includes the effects of the
appropriate credits spreads applicable to ANZ for that instrument.
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
Adjustments to fair value for commitments and contingencies that
are not financial instruments recognised in the balance sheet, are
not included in this note.
(ii) Valuation methodology
A significant number of financial instruments are carried on the
balance sheet at fair value.
ANZ has implemented controls that ensure that the fair value
is either determined, or validated, by a function independent
of the party that undertakes the transaction.
The best evidence of fair value is a quoted price in an active
market. Accordingly, wherever possible fair value is based on
quoted market prices for the financial instrument. The net position
of non-derivative financial instruments with offsetting market risks
and all derivative portfolios, are valued at the quoted bid price for
assets and the quoted ask price for liabilities. The quoted market
price is not adjusted for any potential impact that may be attributed
to a large holding of the financial instrument.
Where quoted market prices are used, independent price
determination or validation is utilised. The results of independent
validation processes are reported to senior management, and
adjustments to the fair values are made as appropriate.
In the event that there is no quoted market price for the instrument,
fair values are based on present value estimates or other market
accepted valuation techniques which include data from observable
markets wherever possible. The majority of valuation techniques
employ only observable market data however, for certain financial
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 and tested
against historic transactions and observed market trends.
The valuation models incorporate the impact of the bid/ask spread,
counterparty credit spreads and other factors that would influence
the fair value determined by a market participant.
For fair values determined using a valuation model, the control
framework may include, as applicable, independent development or
validation of: (i) valuation models; (ii) any inputs to those models;
and (iii) any adjustments required outside of the valuation model,
and, where possible, independent validation of model outputs.
144 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)
The table below provides an analysis of the methodology used for valuing financial assets and financial liabilities that are required to be
remeasured at fair value. The fair value of the financial instrument has been allocated in full to the category which most accurately reflects
the determination of the fair value.
Consolidated
Financial Assets
Trading securities1
Derivative financial instruments2
Available-for-sale3
Loans and advances
Valuation technique
Quoted Markets price
Using observable inputs
With significant
non-observable inputs
Total
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
412
2,428
2,343
–
556
1,156
3,105
–
14,616
33,361
13,145
248
14,484
20,898
8,950
125
149
1,152
1,992
–
127
150
1,951
–
15,177
36,941
17,480
248
15,167
22,204
14,006
125
Total
5,183
4,817
61,370
44,457
3,293
2,228
69,846
51,502
Financial liabilities
Derivative financial instruments2
Deposits and other borrowings
Bonds and notes
Loan capital
2,032
–
–
–
1,135
–
–
–
28,102
10,868
6,396
2,242
22,887
8,135
4,996
2,260
1,793
–
–
–
158
–
–
–
31,927
10,868
6,396
2,242
24,180
8,135
4,996
2,260
Total
2,032
1,135
47,608
38,278
1,793
158
51,433
39,571
1 Trading securities valued using non-observable inputs relate to unquoted illiquid corporate bonds where the credit spread component of the bond value cannot be directly observed
in the market.
2 Derivative financial instruments valued using non-observable inputs relate to long date instruments which extend beyond the last observable point on the curve used to model the value,
structured credit products where the data on the specific counterparties credit spreads is extremely illiquid as well as adjustments relating to the credit exposure on derivative counterparties
where the specific counterparties credit spreads are not observable.
3 Available-for-sale assets valued using non-observable inputs relates to long dated Australian CPI indexed bonds that mature after 2020 and illiquid corporate bonds where the credit spread
component of the bond cannot be directly or indirectly observed in the market.
The Company
Financial Assets
Trading securities1
Derivative financial instruments2
Available-for-sale3
Loans and advances
Valuation technique
Quoted Markets price
Using observable inputs
With significant
non-observable inputs
Total
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
412
2,356
2,067
–
545
1,146
2,804
–
12,285
29,790
12,112
248
12,687
20,074
7,979
125
149
1,152
924
–
127
150
600
–
12,846
33,298
15,103
248
13,359
21,370
11,383
125
Total
4,835
4,495
54,435
40,865
2,225
877
61,495
46,237
Financial liabilities
Derivative financial instruments2
Bonds and notes
Loan capital
2,105
–
–
1,099
–
–
27,557
6,396
2,242
23,744
4,996
2,260
1,793
–
–
158
–
–
31,455
6,396
2,242
25,001
4,996
2,260
Total
2,105
1,099
36,195
31,000
1,793
158
40,093
32,257
1 Trading securities valued using non-observable inputs relate to unquoted illiquid corporate bonds where the credit spread component of the bond value cannot be directly observed in the
market.
2 Derivative financial instruments valued using non-observable inputs relate to long date instruments which extend beyond the last observable point on the curve used to model the value,
structured credit products where the data on the specific counterparties credit spreads is extremely illiquid as well as adjustments relating to the credit exposure on derivative counterparties
where the specific counterparties credit spreads are not observable.
3 Available-for-sale assets valued using non-observable inputs relates to long dated Australian CPI indexed bonds that mature after 2020 and illiquid corporate bonds where the credit spread
component of the bond cannot be directly or indirectly observed in the market.
Financial Report 145
For personal use only Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)
(iii) Additional information for financial instruments carried at fair value where the valuation incorporates non-observable market data
DEFERRED FAIR VALUE GAINS AND LOSSES
Where the fair value of a financial instrument is determined based on a valuation technique whose valuation is dependent on non-observable
data that may have a significant 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 financial 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 financial 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 table below shows movements in the aggregate amount of day one gain(loss) not recognised in the income statement on the initial
recognition of the financial instrument because difference between the transaction price and the modelled valuation price was not fully
supported by inputs that were observable in the market.
Opening balance
Deferral of gain (loss) on new transactions
Recognised in the income statement during the period
Exchange differences
Consolidated
The Company
2008
$m
–
5
–
–
5
2007
$m
3
–
(3)
–
–
2008
$m
–
5
–
–
5
2007
$m
3
–
(3)
–
–
SENSITIVITY TO DATA INPUTS
In limited circumstances, the subsequent determination of fair value of a financial instrument is based in whole or in part using valuation
techniques based on data derived and extrapolated from data which is not observable in the market. As the valuation models for these
instruments are based upon assumptions, changing the assumptions changes the resultant estimate of fair value. The effect of changing those
assumptions in valuation models that are not based on observable market data to reasonably possible alternative assumptions is quantified
below. The ranges of reasonably possible alternative assumptions are established by application of professional judgement to an analysis of
the data available to support each assumption.
Principal inputs used in the determination of fair value of financial instruments based on valuation techniques include data inputs such as
statistical data on delinquency rates, foreclosure rates, actual losses, counterparty credit spreads, market-quoted CDS prices, recovery rates,
implied default probabilities, market-quoted credit index tranche prices and correlation curves, some of which may not be observable in the
market. For both the Group and the Company, the potential effect of changing assumptions to reasonably possible alternative assumptions for
valuing financial instruments could result in an increase of $73 million or a decrease of $69 million in net derivative financial instruments as at
30 September 2008. In the prior period, based on conditions as of 30 September 2007, and the then existing portfolio of financial instruments
valued based on management assumptions, changes in assumptions to reasonably possible alternatives would not have a material effect on
the results of the Group or Company.
146 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
34: Fair Value of Financial Assets and Financial Liabilities (continued)
(iv) Additional information for financial instruments designated at fair value through profit or loss
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE ThROUGh PROFIT OR LOSS
The category loans and advances includes certain loans designated at fair value through profit or loss in order to eliminate an accounting
mismatch which would arise if the asset were otherwise carried at amortised cost. This mismatch arises as the derivative financial instruments,
which were acquired to mitigate interest rate risk of the loan and advances, are measured at fair value through profit or loss. By designating the
economically hedged loans, the movements in the fair value attributable to changes in interest rate risks, will also be recognised in the income
statement in the same periods.
At balance date, the credit exposure of the Group and the Company on these assets was $248 million (2007: $125 million). Of this, $119 million
(2007: $68 million) was mitigated by collateral held.
The cumulative change in fair value attributable to change in credit risk was, for the Group and the Company, a reduction to the assets of
$6 million (2007: $1 million). The amount recognised in the income statement attributable to changes in credit risk was a loss of $6 million
(2007: $1 million).
The change in fair value of the designated financial 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 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 financial liabilities at fair value through
profit or loss in order to eliminate an accounting mismatch which would arise if the liabilities were otherwise carried at amortised cost. This
mismatch arises as the derivatives acquired to mitigate interest rate risk within the financial liabilities are measured at fair value through profit
or loss.
The table below compares the carrying amount of financial liabilities carried at full fair value, to the contractual amount payable at maturity
and fair value gains and losses recognised during the period on liabilities carried at full fair value that are attributable to changes in ANZ’s own
credit rating.
Consolidated
Carrying amount
Amount by which carrying value is greater/(less) than
amount payable at maturity
Cumulative change in liability value attributable to own
credit risk:
– opening cumulative (gain)/loss
– (gain)/loss recognised during the year
– closing cumulative (gain)/loss
Company
Carrying Amount
Amount by which carrying value is greater/(less) than
amount payable at maturity
Cumulative change in liability value attributable to own
credit risk:
– opening cumulative (gain)/loss in liability
– (gain)/loss recognised during the year
– closing cumulative (gain)/loss
Deposits and other
borrowings
Bonds and notes
Loan Capital
2008
$m
20071
$m
2008
$m
2007
$m
2008
$m
2007
$m
10,868
8,135
6,396
4,996
2,242
2,260
(88)
(74)
(148)
–
(2)
(2)
–
–
–
–
–
–
–
–
–
–
–
–
–
2
(2)
(29)
(31)
(7)
12
(59)
(47)
5
29
(17)
12
(31)
(135)
(166)
6,396
4,996
2,242
2,260
(148)
(31)
(135)
(166)
2
(2)
(29)
(31)
(7)
12
(59)
(47)
5
29
(17)
12
1 The component of fair value gain/(loss) attributable to own credit risk for deposits and other borrowings is less than $1 million.
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).
Financial Report 147
For personal use only Notes to the Financial Statements
35: Maturity Analysis of Assets and Liabilities
The following is an analysis, by remaining contractual maturities at balance date, of selected asset and liability accounts and represents the
actual obligation date expected for the asset or liability to be recovered or settled within one year, and greater than one year.
Consolidated
Due from other financial institutions
Available-for-sale assets
Net loans and advances
Customers’ liability for acceptances
Due to other financial institutions
Deposits and other borrowings
Liability for acceptances
Bonds and notes
Loan Capital
36: Segment Analysis
Due within
one year
$m
9,230
14,407
78,259
15,297
19,615
267,333
15,297
16,198
12
2008
Greater than
one year
$m
632
3,073
256,928
–
477
16,633
–
51,125
14,254
Total
$m
9,862
17,480
335,187
15,297
20,092
283,966
15,297
67,323
14,266
Due within
one year
$m
7,434
9,338
72,460
14,536
18,768
224,259
14,536
17,696
11
2007
Greater than
one year
$m
606
4,668
216,419
–
348
9,484
–
36,379
12,773
Total
$m
8,040
14,006
288,879
14,536
19,116
233,743
14,536
54,075
12,784
For management purposes the Group is organised into four major business segments being Personal, Institutional, Asia Pacific and
New Zealand Business. An expanded description of the principal activities for each of the business segments is contained in the Glossary
on pages 188 to 190.
A summarised description of each business segment is shown below:
Personal
Provides:
Institutional
Provides:
Asia Pacific
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; and
Vehicle and equipment finance, rental services and fixed and at call investments.
A full range of financial services to the Group’s business banking, corporate and institutional customers
including Corporate Finance, Business Banking, Markets and Working Capital. Institutional has a major
presence in Australia and New Zealand and also has operations in Asia, Europe and the United States.
Personal and private banking business in Asia.
A portfolio of strategic retail partnerships in Asia.
Trade finance, relationship lending, markets and corporate finance businesses in Asia.
Retail banking services in the Pacific region.
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 2007 comparatives have been adjusted to be consistent with the
2008 segment definitions.
148 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
36: Segment Analysis (continued)
BUSINESS SEGMENT ANALYSIS1, 2
Consolidated
Year ended 30 September 2008
External interest income
External interest expense
Adjust for intersegment interest
Net interest income
Other external operating income
Share of net profit 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
Profit 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
Credit risk on derivatives5
Provisions for employee entitlements
Provision for restructuring
Financial Position
Total external assets6
Share of associate and joint venture companies
Total external liabilities7
Goodwill
Intangibles
Personal
$m
Institutional
$m
Asia Pacific
$m
New Zealand
Businesses
$m
13,444
(4,262)
(5,758)
3,424
1,481
–
4,905
(2,020)
(329)
(2,349)
(437)
2,119
(634)
–
1,485
15
(115)
(20)
(437)
–
(32)
(9)
11,753
(8,002)
(1,492)
2,259
1,074
(3)
3,330
(1,231)
(261)
(1,492)
(1,218)
620
(91)
(3)
526
57
(42)
(33)
(1,218)
(721)
(21)
(6)
1,124
(802)
158
480
413
146
1,039
(428)
(42)
(470)
(64)
505
(86)
(6)
413
43
(20)
(7)
(64)
–
(2)
(1)
6,668
(4,361)
(663)
1,644
487
19
2,150
(1,031)
4
(1,027)
(240)
883
(283)
–
600
40
(37)
(11)
(240)
–
(59)
(1)
Less:
Institutional
Asia Pacific4
$m
Consolidated
total
$m
(750)
509
71
(170)
(221)
–
(391)
92
49
141
20
32,604
(24,754)
–
7,850
3,948
361
12,159
(5,696)
–
(5,696)
(1,948)
(230)
4,515
57
1
(1,188)
(8)
(172)
3,319
–
1
–
20
–
–
–
559
(330)
(84)
(1,948)
(721)
(134)
(181)
Other3
$m
365
(7,836)
7,684
213
714
199
1,126
(1,078)
579
(499)
(9)
618
(151)
–
467
404
(117)
(13)
(9)
–
(20)
(164)
167,744
16
80,738
264
308
207,776
465
175,264
6
205
31,977
2,209
30,172
61
44
76,125
196
67,682
20
38
10,410
1,639
111,170
2,713
82
(23,463)
(150)
(20,862)
–
–
470,569
4,375
444,164
3,064
677
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, Group Centre 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 Institutional Asia Pacific is included in both the Institutional business segment and the Asia Pacific business segment consistent with how this business is internally managed.
Segment information for Institutional Asia Pacific therefore needs to be deducted to tie back to a consolidated total for Group.
5 This charge arose from changes to the credit worthiness of counterparties to our structured credit intermediation trades, defaults on customer derivative exposures and changes
in counterparty credit ratings on the remainder of our derivatives portfolio.
6 Excludes deferred tax assets.
7 Excludes income tax liabilities.
Financial Report 149
For personal use only Notes to the Financial Statements
36: Segment Analysis (continued)
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 profit 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
Capital expenditure
Non-Cash Expenses
Depreciation & amortisation
Equity-settled share-based payment expenses
Provision for credit impairment
Credit risk on derivatives5
Provisions for employee entitlements
Provision for restructuring
Financial Position
Total external assets6
Share of associate and joint venture companies
Total external liabilities7
Goodwill
Intangibles
Personal
$m
Institutional
$m
Asia Pacific
$m
New Zealand
Businesses
$m
10,811
(3,196)
(4,503)
3,112
1,322
4
4,438
(1,839)
(311)
(2,150)
(386)
1,902
(571)
(1)
9,062
(6,396)
(682)
1,984
1,465
16
3,465
(1,086)
(249)
(1,335)
(24)
2,106
(621)
(3)
43
(124)
(19)
(386)
–
(25)
(6)
26
(39)
(24)
(24)
(45)
(17)
(9)
844
(643)
146
347
299
66
712
(285)
(37)
(322)
(42)
348
(73)
(4)
271
26
(17)
(4)
(42)
–
(1)
1
5,811
(3,539)
(614)
1,658
488
20
2,166
(1,035)
(1)
(1,036)
(69)
1,061
(341)
–
720
36
(40)
(11)
(69)
–
(56)
–
Other3
$m
212
(5,491)
5,573
294
369
153
816
(762)
561
(201)
(2)
613
(111)
–
502
282
(96)
(4)
(2)
–
(22)
(9)
Less
Institutional
Asia Pacific4
$m
Consolidated
total
$m
(530)
357
80
(93)
(164)
–
(257)
54
37
91
1
26,210
(18,908)
–
7,302
3,779
259
11,340
(4,953)
–
(4,953)
(522)
(165)
5,865
39
1
(1,678)
(7)
(125)
–
1
–
1
–
–
–
4,180
413
(315)
(62)
(522)
(45)
(121)
(23)
150,403
16
72,516
264
312
157,503
177
143,628
4
141
16,998
1,557
16,672
57
11
70,602
181
58,509
20
22
8,370
1,499
87,792
2,781
65
(11,216)
–
(9,155)
–
–
392,660
3,430
369,962
3,126
551
Profit after income tax attributable to shareholders
of the company
1,330
1,482
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, Group Centre 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 Institutional Asia Pacific is included in both the Institutional business segment and the Asia Pacific business segment consistent with how this business is internally managed.
Segment information for Institutional Asia Pacific therefore needs to be deducted to tie back to a consolidated total for Group.
5 This charge arose from changes to the credit worthiness of counterparties to our structured credit intermediation trades, defaults on customer derivative exposures and changes
in counterparty credit ratings on the remainder of our derivatives portfolio.
6 Excludes deferred tax assets.
7 Excludes income tax liabilities.
150 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
36: Segment Analysis (continued)
The following analysis details financial 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.
2008
2007
$m
%
$m
%
25,033
9,110
2,770
36,913
321,705
100,270
48,594
470,569
460
40
59
559
68%
25%
7%
100%
69%
21%
10%
100%
82%
7%
11%
100%
20,134
8,092
2,021
30,247
272,968
91,193
28,499
392,660
326
36
51
413
66%
27%
7%
100%
70%
23%
7%
100%
79%
9%
12%
100%
Financial Report 151
For personal use only Notes to the Financial Statements
37: Notes to the Cash Flow Statements
a) Reconciliation of net profit after income tax to net cash provided
by operating activities
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
Inflows
(Outflows)
Inflows
(Outflows)
Inflows
(Outflows)
Inflows
(Outflows)
Operating profit after income tax attributable to shareholders of the Company
3,319
4,180
3,336
3,551
Adjustments to reconcile operating profit after income tax
to net cash provided by/(used in) operating activities
Provision for credit impairment
Credit risk on derivatives
Depreciation and amortisation
Profit on sale of businesses
Provision for employee entitlements, restructuring and other provisions
Payments from provisions
(Profit)/loss on sale of premises and equipment
(Profit)/loss on sale of available-for-sale assets
Amortisation of discounts/premiums included in interest income
Net foreign exchange earnings
Net gains/losses on trading derivatives
Share based payments
Net (increase)/decrease in operating assets
Trading securities
Liquid assets greater than three months
Due from other banks greater than three months
Loans and advances
Net derivative financial instruments
Net intra-group loans and advances
Regulatory deposits
Interest receivable
Accrued income
Net tax assets
Net (decrease)/increase in operating liabilities
Deposits and other borrowings
Due to other financial institutions
Payables and other liabilities
Interest payable
Accrued expenses
Other
Total adjustments
Net cash (used in)/provided by operating activities
1,948
721
330
(2)
584
(402)
(32)
(361)
(176)
(708)
(344)
14
31
(4,692)
(739)
(46,855)
(1,628)
–
(232)
(248)
40
(1,282)
49,796
976
(1,189)
754
115
(180)
522
45
315
(234)
336
(307)
(33)
(14)
(80)
(518)
(405)
7
(5,913)
(1,642)
(410)
(36,943)
(2,154)
–
(54)
(56)
(23)
(203)
33,964
4,326
23
367
23
(180)
1,573
718
259
(4)
418
(230)
(4)
(281)
2
(340)
(164)
14
501
(3,620)
(674)
(38,446)
(796)
2,222
(134)
(277)
22
(1,416)
43,503
761
(2,513)
560
86
(2,159)
344
45
242
(39)
286
(247)
4
(4)
–
(531)
(126)
7
(5,846)
(1,865)
(195)
(27,606)
(963)
(10,305)
(31)
(3)
(38)
(565)
34,585
3,050
(11)
206
25
383
(3,761)
(9,241)
(419)
(9,198)
(442)
(5,061)
2,917
(5,647)
b) Reconciliation of cash and cash equivalents
Cash and cash equivalents include liquid assets and amounts due from other financial institutions with an original term to maturity of less than three
months. Cash and cash equivalents at the end of the financial year as shown in the statements of cash flows are reconciled to the related items in the
statements of financial position as follows:
Liquid assets – less than three months (refer note 9)
Due from other financial institutions – less than three months (refer note 10)
Consolidated
2008
$m
2007
$m
15,645
7,842
12,307
6,767
The Company
2008
$m
10,133
7,023
2007
$m
6,701
5,339
Cash and cash equivalents in the statement of cashflows
23,487
19,074
17,156
12,040
152 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
37: Notes to the Cash Flow Statements (continued)
c) Acquisitions and disposals
Cash outflows from acquisitions and investments
Purchases of controlled entities (note 17)
Investments in controlled entities
Purchases of interest in associates and joint ventures
Cash inflows from disposals
Disposals of controlled entities (note 17)
Disposals of associates and joint ventures
d) Non-cash financing and investing activities
Share capital issues
Dividend reinvestment plans
e) Financing arrangements
Credit standby arrangements
Standby Lines
Other financing arrangements
Overdraft and other financing arrangements
Total finance available
Consolidated
The Company
2008
$m
10
–
440
450
81
47
128
2007
$m
203
–
1,247
1,450
377
67
444
2008
$m
6
62
223
291
81
32
113
2007
$m
177
6
366
549
–
67
67
2,506
442
2,506
442
Consolidated
2008
2007
Available
$m
Unused
$m
Available
$m
Unused
$m
1,419
1,419
1,134
1,134
–
–
–
–
1,419
1,419
1,134
1,134
Financial Report 153
For personal use only Notes to the Financial Statements
38: 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 Trust*
Arawata holdings Limited*
harcourt Corporation Limited*
Arawata Trust Company*
Endeavour Finance Limited*
Tui Endeavour Limited*
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 Royal Bank (Cambodia) Limited*1
Bank of Kiribati Ltd*1
LFD Limited
Minerva holdings Limited*
Upspring Limited*
Votraint No. 1103 Pty Limited
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*
Esanda Finance Corporation limited
ETRADE Australia limited
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
hong Kong
hong Kong
Vanuatu
Singapore
Singapore
Cambodia
Kiribati
Australia
England
England
Australia
Australia
Australia
Australia
Papua New Guinea
Guam
Guam
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
Finance
holding Company
Investment
Finance
Finance
Finance
Nominee
Finance
holding Company
Banking
Banking
holding Company
Merchant Banking
Banking
Banking
holding Company
holding Company
Finance
Investment
Mortgage Insurance
Nominee
holding Company
Banking
holding Company
Banking
General Finance
Online Stockbroking
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%) (2007: 150,000 $1 ordinary
shares (25%)); PT ANZ Panin Bank – 7,500 IDR 1 million shares (15%) (2007: 7,500 IDR 1 million shares (15%)); ANZ Royal Bank (Cambodia) Limited – 189,000 USD100 ordinary shares
(35%) (2007: 180,000 USD100 ordinary shares (45%)); ANZ Vientiane Commercial Bank Limited – 4,000,000 $1 ordinary shares (40%) (2007: 4,000,000 $1 ordinary shares (40%));
Omeros II Trust – residual capital unitholder (2007: residual capital unitholder).
154 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
39: Associates
Significant associates of the Group are as follows:
Date
became
an associate
Ownership
interest
held
Voting
interest
Incorporated
in
Carrying
value
$m
2008
Carrying
value
$m
2007
Fair
value3
$m
Reporting
date
AMMB holdings Berhad1
P.T. Bank Pan Indonesia
Shanghai Rural Commercial Bank
May 2007
April 2001
September 2007
19%
30%
20%
Bank of Tianjin
June 2006
20%
Saigon Securities Inc.1
Diversified Infrastructure Trust5
Cards NZ Limited2
Metrobank Card Corporation Inc
Other associates
Total carrying value of associates
July 2008
March 2008
August 2002
October 2003
19%4
Malaysia
30%
Indonesia
20% Peoples Republic
of China
20% Peoples Republic
of China
Vietnam
Australia
New Zealand
Philippines
18%
18%
54% 54%
25%
15%
40%
40%
999
406
403
218
150
100
72
30
230
804
252
307
164
n/a
n/a
–
28
194
2,608
1,749
7686
31 March
747 31 December
n/a 31 December
Principal
activity
Banking
Banking
Banking
n/a 31 December
Banking
1066 31 December Stockbroking
Investment
n/a 30 September
n/a 30 September Cards Services
31 December Cards Issuing
n/a
1 Significant influence was established via representation on the Board of Directors.
2 Equity accounted gain arising from the allocation of shares in Visa Inc. through the Group’s associate, Cards NZ Limited, on Visa shares in New Zealand.
3 Applicable to those investments in associates where there are published price quotations.
4 The investment in AMMB holdings Berhad comprises ordinary shares and bonds exchangeable into ordinary shares. 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 19%. 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.
5 ANZ has significant influence but not control over this entity (refer note 17 for further details).
6 A value-in-use estimation supports the carrying value of these investments.
Aggregate assets of significant associates (100%)
Aggregate liabilities of significant associates (100%)
Aggregate revenue of significant associates (100%)
Results of Associates
Share of associates profit before income tax
Share of income tax expense
Share of associates net profit – as disclosed by associates
Adjustments
– withholding tax
– provisioning
– release of acquisition fair value adjustments
– other
Share of associates net profit accounted for using the equity method
40: Interests in Joint Venture Entities
The Group has interests in joint venture entities as follows:
ING Australia Limited1, 5
49%2
49%
Australia
1,589
31 December
ING (NZ) holdings Limited3,5
49%4
50%
New Zealand
178
31 December
Ownership
interest
held
Voting
interest
held
Incorporated
in
Carrying
value6
$m
Reporting
dates
2008
$m
88,929
81,561
5,239
2007
$m
64,649
60,081
4,737
Consolidated
2008
$m
282
(57)
225
(1)
(21)
16
(1)
218
2007
$m
131
(37)
94
(4)
(2)
–
(1)
87
Principal
activity
Funds Management
and Insurance
Funds Management
and Insurance
Total interests in Joint Venture entities
1,767
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:
n ING Australia Limited is owned 51% by ING Group and 49% by ANZ.
n 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.
n 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.
n Refer to Critical Estimates and Judgements used in Applying Accounting Policies 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:
n ING (NZ) holdings Limited is owned 51% by ING Group and 49% by ANZ.
n 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.
n 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.
n 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 2007 carrying values as follows: ING Australia Limited $1,519 million; and ING (NZ) holdings Limited $162 million.
Financial Report 155
For personal use only
Notes to the Financial Statements
40: Interests in Joint Venture Entities (continued)
Retained profits 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
Share of net profit
Dividend received
Movement in reserves
Adjustment for exchange rate fluctuations
Carrying amount at the end of the year
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
Profit before income tax
Income tax expense
Profit after income tax
Net equity accounted profit
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
ING Australia Limited
ING (NZ) holdings
Limited
Consolidated
Total
2008
$m
313
410
1,519
124
(27)
(27)
–
1,589
2007
$m
256
313
1,462
152
(95)
–
–
1,519
12,498
2,340
14,712
1,817
14,838
16,529
13,311
516
14,881
698
13,827
15,579
1,011
950
396
(230)
166
(42)
124
124
141
51
192
27
27
433
(233)
200
(48)
152
152
150
19
169
27
27
2008
$m
39
58
162
19
–
–
(3)
178
65
134
199
(3)
9
6
193
77
(63)
14
5
19
19
7
–
7
–
–
2007
$m
19
39
146
20
–
–
(4)
162
70
137
207
19
9
28
179
69
(49)
20
–
20
20
3
–
3
–
–
2008
$m
352
468
1,681
143
(27)
(27)
(3)
1,767
2007
$m
275
352
1,608
172
(95)
–
(4)
1,681
12,563
2,474
14,782
1,954
15,037
16,736
13,308
525
14,900
707
13,833
15,607
1,204
1,129
473
(293)
180
(37)
143
143
148
51
199
27
27
502
(282)
220
(48)
172
172
153
19
172
27
27
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.
156 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
41: Securitisations
ANZ enters into transactions in the normal course of business by which it transfers financial assets directly to third parties or to special
purpose entities. These transfers may give rise to the full or partial derecognition of those financial assets.
Full derecognition occurs when ANZ transfers its contractual right to receive cash flows from the financial assets, or retains the right
but assumes an obligation to pass on the cash flows from the asset, and transfers substantially all the risks and rewards of ownership.
These risks include credit, interest rate, currency, prepayment and other price risks.
Partial derecognition occurs when ANZ sells or otherwise transfers financial assets in such a way that some but not substantially all of
the risks and rewards of ownership are transferred but control is retained. These financial assets are recognised on the balance sheet
to the extent of ANZ’s continuing involvement.
The following table summarises ANZ’s securitisation activities for ANZ-originated assets. The 2008 securitisation activity relates to an internal
residential mortgage securitisation creating instruments eligible for repurchase arrangements with the Reserve Bank of Australia.
Carrying amount of assets securitised (sold) during year
Net cash proceeds received
Retained interests
Gain/(loss) on securitisation/sale (pre-tax)
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
–
–
–
–
–
–
–
–
11,229
–
(11,229)
–
–
–
–
–
ANZ-originated financial assets that do not qualify for derecognition typically relate to loans that have been securitised under arrangements
by which ANZ retains a continuing involvement in the transferred assets. Continuing involvement may entail: retaining the rights to future
cash flows arising from the assets after investors have received their contractual terms providing subordinated interests; liquidity support;
continuing to service the underlying asset; or entering into derivative transactions with the securitisation vehicles. In such instances, ANZ
continues to be exposed to risks associated with these transactions.
The rights and obligations that ANZ retains from its continuing involvement in securitisations are initially recorded as an allocation of the fair
value of the financial asset between the portion that is derecognised and the portion that continues to be recognised on the date of transfer.
The carrying amount of ANZ-originated financial assets that did not achieve derecognition during the year are set out below:
Securitisations
Carrying amount of assets (original)
Carrying amount of assets (currently recognised)
Carrying amount of associated liabilities
Consolidated
The Company
2008
$m
–
–
–
2007
$m
–
–
–
2008
$m
11,229
10,360
10,360
2007
$m
–
–
–
Additional information in relation to securitisation exposures is included in Financial Information section 4 (unaudited disclosures).
42: Fiduciary Activities
The Group conducts various fiduciary activities as follows:
Investment fiduciary activities for trusts
The Group conducts investment fiduciary 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 sufficient 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 financial statements.
Financial Report 157
For personal use only Notes to the Financial Statements
42: Fiduciary Activities (continued)
The aggregate amounts of funds concerned are as follows:
Trusteeships
Consolidated
2008
$m
2007
$m
2,338
2,651
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 1A(vii), 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 specified 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
2008
$m
42,507
6,764
4,908
1,365
2007
$m
49,461
7,220
3,895
798
55,544
61,374
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 2008, ANZ Custodian
Services had funds under custody and administration of $143.2 billion (30 September 2007: $148.2 billion).
43: Commitments
Property
Contracts for construction of new office building in Docklands area, Melbourne Australia
Not later than 1 year
Later than one year but not later than 5 years
Acquisitions
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
1 Relates to premises and equipment.
158 ANZ Annual Report 2008
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
375
9
6
53
443
271
597
362
171
212
9
101
493
232
512
384
1,230
1,128
37
47
–
84
29
29
–
58
375
9
–
22
406
197
437
340
974
25
35
–
60
171
212
9
83
475
159
373
356
888
16
16
–
32
1,314
1,757
1,186
1,679
1,034
1,440
920
1,395
For personal use only Notes to the Financial Statements
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets
CREDIT RELATED COMMITMENTS GUARANTEES AND CONTINGENT LIABILITIES
Credit related commitments
Facilities provided
Undrawn facilities1
Australia
New Zealand
Overseas Markets
Total
Consolidated
The Company
2008
Contract
amount
$m
2007
Contract
amount
$m
2008
Contract
amount
$m
2007
Contract
amount
$m
111,265
107,269
90,026
86,124
71,911
18,818
20,536
70,692
18,765
17,812
71,109
–
18,917
69,999
–
16,125
111,265
107,269
90,026
86,124
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.
Guarantees and contingent liabilities
Details of the estimated maximum amount of guarantees and contingent liabilities that may become payable are disclosed on the following
pages. These guarantees and contingent liabilities relate to transactions that the Group has entered into as principal. Financial guarantees
are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified debtor fails
to make payment when due in accordance with the original or modified terms of a debt instrument.
Standby letters of credit are obligations on the part of the Group to pay to third parties when customers fail to make payments when due.
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 confirmatory 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 fulfil the
non-monetary terms of the contract.
To reflect the risk associated with these transactions, they are subjected to the same credit origination, portfolio management and collateral
requirements for customers that apply for loans. The contract amount represents the maximum potential amount that could be lost if the
counterparty fails to meet its financial obligations. As the facilities may expire without being drawn upon, the notional amounts do not
necessarily reflect future cash requirements.
Financial Guarantees
Standby letters of credit
Bill endorsements
Documentary letters of credit
Performance related contingencies
Other
Total
Australia
New Zealand
Overseas Markets
Total
Consolidated
The Company
2008
Contract
amount
$m
6,679
1,651
10
4,957
15,568
1,141
2007
Contract
amount
$m
5,410
1,476
28
3,238
12,671
993
2008
Contract
amount
$m
6,442
1,617
10
4,744
14,518
706
2007
Contract
amount
$m
5,194
1,474
28
3,080
12,091
307
30,006
23,816
28,037
22,174
13,170
1,435
15,401
10,535
1,253
12,028
13,184
–
14,853
10,525
–
11,649
30,006
23,816
28,037
22,174
Financial Report 159
For personal use only Notes to the Financial Statements
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
OThER BANK RELATED CONTINGENT LIABILITIES
GENERAL
There are outstanding court proceedings, claims and possible claims
against the Group, the aggregate amount of which cannot readily
be quantified. Appropriate legal advice has been obtained and,
in the light of such advice, provisions as deemed necessary have
been made. In some instances we have not disclosed the estimated
financial impact as this may prejudice the interests of the Group.
i) Opes Prime Stockbroking Limited
ANZ entered into Master Securities Lending Agreements (AMSLAs)
with Opes Prime and a related company on 26 July 2006. Under
the AMSLAs, ANZ acquired shares in various companies listed on
the ASx. On 20 March 2008, there was a reorganisation of security
arrangements between Opes Prime and ANZ. On 27 March 2008,
ANZ appointed a receiver and manager to Opes Prime and related
companies.
In relation to Opes Prime:
There are outstanding court proceedings and claims against ANZ
including a class action on behalf of some clients of Opes Prime.
ASIC is conducting an investigation into Opes Prime generally.
As part of that investigation, ASIC and ANZ have had extensive
correspondence concerning Opes Prime. ASIC has raised concerns
about disclosure requirements in respect of interests in entities
(arising under transactions entered into pursuant to the AMSLAs)
and various pother potential breaches of the Corporations Act.
From investigations to date, ANZ believes it has in all material
respects acted in accordance with the applicable laws.
It has been suggested that the reorganisation of security
arrangements between Opes Prime and ANZ might be challenged
under the Corporations Act by the liquidators of Opes Prime. In
a Notice to Creditors of Opes Prime issued on 6 October 2008,
the liquidators valued these potential claims in the region of
$205 million to $270 million and also flagged potential claims
against another financier, Merrill Lynch. They also pointed out
to the creditors that there would be complexities, risks and
considerable time periods involved, if these potential claims
were to be pursued by litigation.
ANZ and Merrill Lynch have engaged in a mediation process with the
liquidators and ASIC.
There are ongoing developments concerning the events surrounding
Opes Prime which may continue for some time. There is a risk that
further actions (court proceedings or regulatory actions) may be
commenced against various parties, including ANZ. The potential
impact or outcome of future claims (if any) cannot presently be
ascertained. ANZ would review and defend any claim, as appropriate.
ii) Contingent tax liability
The Australian Taxation Office (ATO) is reviewing the taxation
treatment of certain transactions, including structured finance
transactions, undertaken by the Group in the course of normal
business activities. Some assessments have been received which
are being challenged in the normal manner.
160 ANZ Annual Report 2008
The Inland Revenue Department (IRD) in New Zealand is reviewing
a number of conduit-relieved structured finance 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 finance
transactions. The Notices are not tax assessments and do not
establish a tax liability, but are the first 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 reflected in the Notices and in the tax assessments received,
the maximum potential tax liability would be approximately NZD541
million (including interest tax effected) for the period to 30 September
2008. Of that maximum potential liability, approximately NZD151
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.
Other audits or risk reviews are being undertaken by the ATO,
the 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.
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 certified 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.
iv) 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 (refer note 42).
v) 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.
For personal use only Notes to the Financial Statements
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
vi) 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 financial 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
ANZ Orchard Investments Pty Ltd2
ANZ Securities (holdings) Limited3
ANZ Commodity Trading Pty Ltd4
ANZ Funds Pty Ltd1
Votraint No. 1103 Pty Ltd2
1 Relief originally granted on 21 August 2001.
2 Relief originally granted on 13 August 2002.
3 Relief originally granted on 9 September 2003.
4 Relief originally granted on 11 August 2008.
It is a 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:
Profit before tax
Income tax expense
Profit after income tax
Retained profits at start of year1
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 defined benefit plans after tax
Retained profits 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’ equity2
1 The companies included in the class order changed in 2008. Accordingly, retained profits did not carry forward in 2008.
2 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.
Consolidated
2008
$m
3,950
(679)
3,271
10,105
–
13,376
(2,506)
–
(60)
2007
$m
4,835
(916)
3,919
8,240
141
12,300
(2,363)
–
75
10,810
10,012
18,081
15,103
236,772
107,542
1,043
10,618
11,383
198,610
78,242
802
378,541
299,655
203,328
253
150,461
908
161,195
669
117,992
710
354,950
280,566
23,591
19,089
23,591
19,089
Financial Report 161
For personal use only Notes to the Financial Statements
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
vii) 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
fixing 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 unquantified 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 assessed.
The court has now allocated a ten week fixture for the proceedings
beginning in October 2009.
viii) 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 financial 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 financial
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 fines. Based on current knowledge, it is difficult to predict the level
of fines. Nonetheless, the Group considers that it holds appropriate
provisions for these issues.
ix) ING New Zealand Funds
ANZ markets and distributes a range of wealth management products
in New Zealand which are managed by ING (NZ) Limited (of which
ANZ holds 49%). Trading in the New Zealand ING Diversified Yield
fund and the ING Regular Income Fund was suspended on 13 March
2008 by the fund manager, ING (NZ) Limited, due to the deterioration
in liquidity in credit markets. The matter is being reviewed by both
ANZ and ING (NZ) and it is too early to assess the nature or quantum
of any potential liability.
x) 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 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.
162 ANZ Annual Report 2008
The Indian authorities served notices on Grindlays and certain of
its officers 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,
with no material impact on the Group expected.
xi) 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.
xii) 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.
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 filed 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
monies paid into court which by then totalled Indian Rupees
16.45 billion (AUD 661 million at 19 January 2002 exchange rates),
with Grindlays receiving Indian Rupees 6.20 billion (AUD 248 million
at 19 January 2002 exchange rates) of the disputed monies.
ANZ in turn received a payment of USD 124 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 from NhB. however, the Indian
Taxation Department is claiming a statutory priority to all of the funds
available for distribution to creditors of that customer. The Special
Court passed an order in late 2007 scaling down the Income Taxation
Department’s priority, however, that order has been appealed by
the Income Taxation Department to the Supreme Court of India.
The appeal was heard in late August 2008 and a decision by the
Supreme Court of India is now pending.
For personal use only Country
Australia
New Zealand
Notes to the Financial Statements
45: Superannuation and Other Post Employment Benefit Schemes
Description of the Group’s post employment benefit schemes
The Group has established a number of pension, superannuation and post retirement medical benefit 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:
Scheme
Scheme type
Employee/participant
Employer
Contribution levels
ANZ Australian Staff
Superannuation Scheme1,2
Defined contribution scheme
Section C3 or
Optional8
Balance of cost10
ANZ National Bank Staff
Superannuation Scheme
(formerly ANZ Group
(New Zealand) Staff
Superannuation Scheme)1,2
National Bank Staff
Superannuation Fund1,2
Defined contribution scheme
Section A or
Defined benefit scheme
Pension Section4
Optional
9% of salary11
Nil
Balance of cost12
Defined benefit scheme5 or
Nil
Balance of cost13
Defined contribution scheme
Minimum of
2.5% of salary
7.5% of salary14
Defined benefit scheme6 or
5.0% of salary
Balance of cost15
Defined contribution scheme7
Minimum of
2.0% salary
11.5% of salary16
Defined benefit scheme7
5.0% of salary9
Balance of cost17
UK
ANZ UK Staff
Pension Scheme1
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% (2007: 9%) of members’ salaries.
11 2007: 9% of salary.
12 As determined by the Trustee on the recommendation of the actuary – currently nil (2007: nil).
13 As recommended by the actuary – currently nil (2007: nil).
14 2007: 7.5% of salary.
15 As recommended by the actuary – currently 24.8% (2007: 24.8%) of members’ salaries.
16 2007: 11.5% of salary.
17 As agreed by the Trustee and Group after taking the advice of the actuary – currently 26% (2007: 26%) of pensionable salaries and additional quarterly contributions of GBP 3.5 million
From 1 October 2003, all member contributions are at a rate of 5% of salary.
until December 2015.
Financial Report 163
For personal use only
Notes to the Financial Statements
45: Superannuation and Other Post Employment Benefit Schemes (continued)
Funding and contribution information for the defined benefit sections of the schemes
The funding and contribution information for the defined benefit sections of the schemes as extracted from the schemes’ most recent financial
reports are set out below.
In this financial report, the net (liability)/asset arising from the defined benefit obligation recognised in the balance sheet has been determined
in accordance with AASB 119 “Employee Benefits”. however, the excess or deficit of the net market value of assets over accrued benefits
shown below has been determined in accordance with AAS 25 ‘Financial Reporting by Superannuation Plans’. The excess or deficit 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.
2008 Schemes
ANZ Australian Staff Superannuation Scheme Pension Section1
ANZ UK Staff Pension Scheme1
ANZ UK health Benefits Scheme3
ANZ National Bank Staff Superannuation Scheme1
National Bank Staff Superannuation Fund2
Other4,5
Total
Net market
value of
assets held
by scheme
$m
Excess/(deficit)
of net
market value
of assets over
accrued benefits
$m
33
959
–
5
159
5
1,161
(2)
(124)
(12)
–
(5)
(2)
(145)
Accrued
benefits*
$m
35
1,083
12
5
164
7
1,306
* 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 2008), 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 2007.
2 Amounts were measured at 31 March 2007.
3 Amounts were measured at 30 September 2008.
4 Amounts were measured at 30 September 2007.
5 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.
2007 Schemes
ANZ Australian Staff Superannuation Scheme Pension Section2
ANZ UK Staff Pension Scheme2
ANZ UK health Benefits Scheme4
ANZ National Bank Staff Superannuation Scheme1
National Bank Staff Superannuation Fund3
Other4, 5
Total
Net market
value of
assets held
by scheme
$m
Excess/(deficit)
of net
market value
of assets over
accrued benefits
$m
35
967
–
6
163
5
1,176
(1)
(167)
(15)
–
(5)
(2)
(190)
Accrued
benefits*
$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.
Employer contributions to the defined benefit 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 benefit entitlements of
employees are fully funded by the time they become payable.
The Group expects to make contributions of $40 million to the defined benefit sections of the schemes during the next financial year.
164 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
45: Superannuation and Other Post Employment Benefit Schemes (continued)
The current contribution recommendations for the major defined 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 Benefits as at 31 December 2007 showed a deficit of $2 million and the actuary recommended that
Group contributions to the Pension Section remain suspended. The next full actuarial valuation is due to be conducted as at 31 December
2010, 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 deficit.
ANZ UK Staff Pension Scheme
A full actuarial valuation, conducted by consulting actuaries Watson Wyatt LLP, as at 31 December 2007 showed a deficit of GBP 55 million
($124 million at 30 September 2008 exchange rates).
Following the actuarial valuation as at 31 December 2007, the Group agreed to make regular contributions at the rate of 26% of pensionable
salaries. These contributions are sufficient to cover the cost of accruing benefits. To address the deficit, the Group agreed to continue 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 2009.
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
5.8% p.a.
7.2% p.a.
5.2% p.a.
3.4% p.a.
The Group has no present liability under the Scheme’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arise
in the event that 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.
A net liability representing the defined benefit obligation calculated under AASB 119 is recognised on the balance sheet. The basis of
calculation under AASB 119 is detailed in note 1F(vi), and on page 164.
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 2007 showed a deficit of NZD6 million ($5 million at 30 September 2008 exchange rates). The actuary recommended that the
Group make contributions of 24.8% of salaries in respect of members of the defined benefit 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 Fund’s Trust Deed to fund the deficit measured under AAS 25. A contingent liability may arise in
the event that the Fund 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 Fund an amount sufficient to ensure members do not suffer a reduction in benefits to which they would otherwise be entitled. The Group
intends to continue the Fund on an on-going basis.
A net liability representing the defined benefit obligation calculated under AASB 119 is recognised on the balance sheet. The basis of
calculation under AASB 119 is detailed in note 1F(vi), and on page 164.
Financial Report 165
For personal use only Notes to the Financial Statements
45: Superannuation and Other Post Employment Benefit 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 defined benefit sections of the schemes:
Amount recognised in income in respect of defined benefit 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 defined benefit schemes
Present value of funded defined benefit obligation
Fair value of scheme assets
Present value of net obligation
Amounts recognised in the balance sheet
Other assets (refer note 20)
Payables and other liabilities (refer note 24)
Present value of net obligation
Amounts recognised in equity in respect of defined benefit schemes
Actuarial (gains)/losses incurred during the year and recognised directly in retained earnings
Cumulative actuarial (gains)/losses recognised directly in retained earnings
Consolidated
2008
$m
2007
$m
The Company
2008
$m
2007
$m
10
70
(77)
–
2
5
(1,160)
1,006
(154)
–
(154)
(154)
112
48
14
71
(77)
1
2
11
(1,267)
1,199
(68)
7
(75)
(68)
(107)
(64)
8
60
(68)
–
–
–
(1,003)
871
(132)
–
(132)
(132)
84
28
11
61
(67)
1
–
6
(1,112)
1,037
(75)
–
(75)
(75)
(104)
(56)
The Group has a legal liability to fund deficits 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 deficits with an immediate contribution. For more information about the Group’s legal liability to fund
deficits, refer to the earlier description of the current contribution recommendations for the schemes.
Movements in the present value of the defined benefit obligation in the relevant period
Opening defined benefit obligation
Current service cost
Interest cost
Contributions from scheme participants
Actuarial (gains)/losses
Past service cost
Exchange differences on foreign schemes
Benefits paid
1,267
10
70
1
(83)
–
(35)
(70)
1,462
14
72
1
(101)
1
(111)
(71)
1,112
8
60
–
(93)
–
(32)
(52)
1,296
11
62
–
(92)
1
(108)
(58)
Closing defined benefit obligation
1,160
1,267
1,003
1,112
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
Benefits paid
Closing fair value of scheme assets1
Actual return on scheme assets
1,199
77
(195)
(45)
39
1
(70)
1,238
77
6
(92)
40
1
(71)
1,006
1,199
(118)
82
1,037
68
(177)
(42)
37
–
(52)
871
(109)
1,067
67
12
(89)
38
–
(58)
1,037
79
1 Scheme assets include the following financial instruments issued by the Group: Cash and short term debt instruments $59.1 million (September 2007: $4.8 million), fixed interest securities
$1.0 million ( September 2007: $1.0 million) and equities $0.3 million (September 2007: $0.2 million).
166 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
45: Superannuation and Other Post Employment Benefit Schemes (continued)
Consolidated
Fair value of scheme
assets
The Company
Fair value of scheme
assets
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 Benefits Scheme
ANZ National Bank 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 Benefits Scheme
ANZ National Bank 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 National Bank Staff Superannuation Scheme
National Bank Staff Superannuation Fund
Future medical cost trend – short term
ANZ UK health Benefits Scheme
Future medical cost trend – long term
ANZ UK health Benefits Scheme
2008
%
32
37
11
20
100
2007
%
48
33
13
6
100
2008
%
30
34
13
23
100
2008
%
5.25
7.00
7.20
6.04
6.04
8.50
7.40
n/a
4.50
5.50
5.50
3.00
3.00
3.70
2.50
2.50
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
11.00
10.00
6.00
5.50
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.
Consolidated
The Company
2008
$m
2007
$m
2006
$m
2005
$m
2008
$m
2007
$m
2006
$m
2005
$m
history of experience adjustments
Defined benefit obligation
Fair value of scheme assets
(1,160)
1,006
(1,267)
1,199
(1,462)
1,238
(1,246)
1,099
(1,003)
871
(1,112)
1,037
(1,296)
1,067
(1,076)
922
Surplus/(deficit)
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets
(154)
12
(195)
(68)
9
6
(224)
7
48
(147)
(6)
100
(132)
8
(177)
(75)
10
12
(229)
5
44
(154)
(7)
90
Information for 2004 is not available.
Financial Report 167
For personal use only Notes to the Financial Statements
46: Employee Share and Option Plans
ANZ operates a number of employee share and option schemes
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 2007 and 2008 financial years were the
$1,000 Share Plan, the Restricted Share Plan, the Deferred Share
Plan, Performance Shares and the Employee Share Save Scheme
(ESSS). Note the ESSS is an employee salary sacrifice plan and is
not captured as a share based payment expense.
$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 financial year, subject to 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, ANZ ordinary 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 2008 year, 926,878 shares with an issue price of
$28.24 were granted under the plan to employees on 13 December
2007 (2007 year: 901,374 shares with an issue price of $27.97
were granted on 4 December 2006 and a further 2,958 ANZ shares
with an issue price of $29.37 were granted under the plan to
ETRADE Australia 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 2007
or 2008 financial years. STI deferred shares with a two year deferral
period were granted under a business unit specific incentive plan
(primarily as a retention tool), and may be held in trust beyond the
deferral period. A new STI deferral program will be implemented for
2009 bonuses, with equity deferral relating to 50% of amounts above
a specified threshold. For Management Board members, mandatory
STI equity deferral commenced in 2008 (rather than 2009), with
expensing to begin in the 2009 financial year due to the 31 October
2008 grant date. Refer to page 26 of the Remuneration Report for
details. Unvested STI deferred shares (granted prior to 2008) are
forfeited on resignation or dismissal for serious misconduct.
In exceptional circumstances, sign-on deferred shares are granted
to certain employees upon commencement with ANZ to compensate
for equity foregone from their previous employer.
The vesting period generally aligns with the remaining vesting period
of equity forgone, and therefore varies between grants. Retention
three year deferred shares may also be granted occasionally to high
performing employees who are regarded as a significant 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 2008 year, 2,445,372 deferred shares with a weighted
average grant price of $28.26 were granted under the deferred share
plan (2007 year:1,275,132 shares with a weighted average grant
price of $29.13 were granted).
Restricted share plan
Eligible employees may elect a pre-tax sacrifice 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 2008 year, 354,384 shares with an issue price of $29.95
were granted under the Restricted Share Plan (2007 year: 339,269
shares with an issue price of $29.04 were granted).
168 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
46: Employee Share and Option Plans (continued)
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 former CEO, J McFarlane on 31 December
2004. ANZ agreed to acquire J McFarlane’s interest in the 175,000
Performance Shares on his departure. Refer to page 31 of the
Remuneration Report for further details.
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
financial 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.
Share valuations
The fair value of shares granted in the 2008 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 $105.3 million
based on 3,726,634 shares at a weighted average price of $28.26
(2007 year: fair value of shares granted is $72.7 million based on
2,518,733 shares at a weighted average price of $28.88). The volume
weighted average share price of all ANZ shares sold on the ASx 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 fixed
at the time the options/rights are granted. 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
on the ASx in the week leading up to and including the date of grant.
For rights, the exercise price is nil.
ANZ Share Option Plan schemes expensed in the 2007 and 2008
years are as follows:
Current Option Plans
Performance rights plan (excl. CEO performance rights)
Performance rights are granted to certain employees as part
of ANZ’s long-term incentive (LTI) program. The first 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 financial 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).
CEO Performance rights
CEO M Smith’s LTI (as approved by shareholders at the 2007
Annual General Meeting), consists of 3 tranches of performance
rights, each to a maximum value of $3 million. The performance
periods for each tranche begin on the date of grant of 19 December
2007 and end on the 3rd, 4th and 5th anniversaries respectively
(i.e. only one performance measurement for each tranche). 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 performance rights plan. Each tranche has a
1 year exercise period. In the case of resignation or dismissal for
serious misconduct, all unexercised performance rights will be
forfeited. In the case of 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).
Financial Report 169
For personal use only 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.
Options granted to former CEO, J McFarlane
Of the options granted to former CEO J McFarlane, only the balance
of the 31 December 2004 grant was expensed during the 2007
financial year (with all other grants expensed during previous
reporting periods). This option grant 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. 50% of these options remain unvested and may be held by
J McFarlane until their expiry date of 31 December 2008. Refer to the
Remuneration Report on page 31 for further details.
Notes to the Financial Statements
46: Employee Share and Option Plans (continued)
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 specified vesting
period. The fair value of rights is adjusted for the absence of
dividends during the restriction period.
Treatment of rights in respect of cessation relates to the purpose
of the grant (refer to Deferred Share Plan and Restricted Share
Plan sections).
Legacy Option Plans
The following legacy plans are no longer being offered to Group
employees, but were expensed during the 2007 and 2008 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, with 7 November
2005 being the last grant of LTI 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.
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.
hurdled options granted in November 2004 will be tested against a
comparator group consisting of major financial services companies,
excluding ANZ. The options become exercisable depending on ANZ’s
ranking within the comparator group.
170 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
46: 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 2008
financial year and movements during the 2008 financial year are set out below:
Weighted Average Exercise Price
$16.23
$0.00
$12.19
Opening Balance
1 October 2007
Options Granted
Options Forfeited
21,693,355
2,001,018
1,721,322
Options
Expired1
123,289
$17.15
Options Exercised
Closing Balance
30 September 2008
4,152,181
17,697,581
$16.09
$14.81
1 Numbers in the “Options Expired” 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 weighted average share price during the year ended 30 September 2008 was $21.74 (2007: $28.99).
The weighted average remaining contractual life of share options outstanding at 30 September 2008 was 2.5 years (2007: 3.0 years).
The weighted average exercise price of all exercisable share options outstanding at 30 September 2008 was $18.78 (2007: $16.79 ).
A total of 5,327,652 exercisable share options were outstanding at 30 September 2008 (2007: 8,876,289).
Details of options over unissued ANZ shares and their related weighted average exercise prices as at the beginning and end of the 2007
financial year and movements during the 2007 financial year are set out below:
Weighted Average Exercise Price
$17.18
–
$16.55
Opening Balance
1 October 2006
Options Granted
Options Forfeited
29,400,706
1,431,170
1,122,241
Options
Expired1
155,670
$17.32
Options Exercised
Closing Balance
30 September 2007
7,860,610
21,693,355
$16.77
$16.23
1 Numbers in the “Options Expired” 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.
Financial Report 171
For personal use only
Notes to the Financial Statements
46: Employee Share and Option Plans (continued)
The following options over ordinary shares have been granted since the end of the 2008 financial year up to the signing of the Directors’ Report
on 7 November 2008.
Performance Rights
1 year Deferred/Restricted Share Rights
2 year Deferred Share Rights
3 year Deferred Share Rights
1 year Deferred/Restricted Options
2 year Deferred Options
Grant date
Exercise price
$
Earliest exercise date
Expiry date
Options granted
31-Oct-2008
31-Oct-2008
31-Oct-2008
31-Oct-2008
31-Oct-2008
31-Oct-2008
0.00
0.00
0.00
0.00
17.18
17.18
31-Oct-2011
31-Oct-2009
31-Oct-2010
31-Oct-2011
31-Oct-2009
31-Oct-2010
31-Oct-2013
31-Oct-2013
31-Oct-2013
31-Oct-2013
31-Oct-2013
31-Oct-2013
368,368
84,659
89,121
370,224
1,212,216
418,766
Details of shares issued as a result of the exercise of options during the year ended 30 September 2008 are as follows:
Exercise price
$
No. of shares issued
Proceeds received
$
Exercise price
$
No. of shares issued
Proceeds received
$
0.00
0.00
0.00
12.98
12.98
13.62
13.91
13.91
14.20
14.61
17,473
14,507
5,069
451,191
27,600
194,000
264,500
194,050
729,716
54,750
–
–
–
5,856,459
358,248
2,642,280
3,679,195
2,699,236
10,361,967
799,898
16.09
16.33
17.34
17.55
17.60
18.03
18.22
18.55
20.68
23.49
12,750
322,570
149,062
339,691
154,991
211,685
395,538
19,525
584,587
8,926
205,148
5,267,568
2,584,735
5,961,577
2,727,842
3,816,681
7,206,702
362,189
12,089,259
209,672
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 since the end of the 2008 financial year up to the signing of the Directors’ Report
on 7 November 2008 are as follows:
Exercise price
$
No. of shares issued
Proceeds received
$
Exercise price
$
No. of shares issued
Proceeds received
$
0.00
0.00
16.33
18.03
12,481
50,671
397,775
1,925
–
–
6,495,666
34,708
17.34
17.60
17.55
18.22
1,082
2,351
4,287
2,574
18,762
41,378
75,237
46,898
172 ANZ Annual Report 2008
For personal use only
Notes to the Financial Statements
46: Employee Share and Option Plans (continued)
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 significant assumptions used to measure the fair value of instruments granted during the 2008 financial year are contained in the table
below.
Option Type
Performance
Rights
Performance
Rights
Performance
Rights
Deferred
Share Rights
Deferred
Share Rights
Deferred
Share Rights
Performance
Rights
Grant Date
Number of Options
Option Fair Value (AUD)
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
19-Dec-07
258,620
$11.60
$0.00
$26.85
17.0%
4 years
3 years
3 years
4.50%
6.82%
19-Dec-07
259,740
$11.55
$0.00
$26.85
17.0%
5 years
4 years
4 years
4.50%
6.73%
19-Dec-07
260,642
$11.51
$0.00
$26.85
17.0%
6 years
5 years
5 years
4.50%
6.66%
29-May-08
22,633
$18.38
$0.00
$21.35
N/A
5 years
3 years
3 years
5.00%
N/A
9-Nov-07
49,717
$25.59
$0.00
$27.95
15.0%
5 years
2 years
2 years
4.50%
6.77%
9-Nov-07
208,780
$24.49
$0.00
$27.95
15.0%
5 years
3 years
3 years
4.50%
6.69%
30-Oct-07
940,886
$12.30
$0.00
$29.69
15.0%
5 years
3 years
3 years
4.50%
6.63%
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 significant assumptions used to measure the fair value of instruments granted during the 2007 financial year are contained in the table
below.
Option Type
Grant Date
Number of Options
Option Fair Value (AUD)
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
Deferred
Share Rights
Deferred
Share Rights
Deferred
Share Rights
Deferred
Share Rights
Performance
Rights
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.
Financial Report 173
For personal use only Notes to the Financial Statements
47: 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 Morschel8
D M Gonski1
Executive Director
2008
M Smith2
2007
J McFarlane3,4
Other key management personnel
2008
R J Edgar
B C hartzer
G K hodges
P R Marriott
A Thursby7
2007
R J Edgar
B C hartzer5
G K hodges
P R Marriott
S Targett6
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
356,800
535,611
60,829
2,099,851
201,686
–
243,616
6,017,051
560,291
7,806,997
3,672,905
2,824,293
–
1,453,114
3,486,967
2,986,598
2,614,674
600,000
–
12,438,898
3,055,034
905,479
1,931,834
560,291
7,806,997
3,672,905
2,824,293
–
14,085
973,081
250,229
181,186
139,013
122,109
564,663
251,450
209,619
41,431
1,083,067
14,707,145
4,391,758
2,883,188
2,190,000
2,954,530
11,047,613
3,893,704
2,824,293
619,902
1 D Gonski retired effective 30 June 2007.
2 M Smith appointment as CEO effective 1 October 2007.
3 J McFarlane retired effective 30 September 2007.
4 The loan balances largely relate to loans for the purchase of ANZ shares, including the exercise of options.
5 Interest payments on the loan balances outstanding during the year were reduced as a result of a linked offset account.
6 S Targett ceased as the Group Managing Director effective 7 June 2007, and his employment with ANZ terminated on 7 June 2008.
7 A Thursby commenced employment with ANZ in the position of Group Managing Director Asia Pacific effective 3 September 2007.
8 Loan to an entity that does not meet the definition of a related party in 2008.
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
2008
2007
Other key management personnel
2008
2007
Opening balance
1 October
Closing balance
30 September
Interest paid and
payable in the
reporting period
Number in group at
30 September1
$
$
$
356,800
19,249,175
535,611
452,374
60,829
409,754
14,864,486
11,141,353
18,331,245
14,864,486
1,557,594
1,189,272
1
1
4
4
1 Number in the Group includes directors and specified executive with loan balances greater than $100,000.
174 ANZ Annual Report 2008
For personal use only Notes to the Financial Statements
48: Transactions with Other Related Parties
Joint Venture Entities
During the course of the financial year the Company and the Group conducted transactions with joint venture entities on normal commercial
terms and conditions as shown below:
Consolidated
The Company
Amounts receivable from joint venture entities
Interest revenue
Dividend revenue
Commissions received from joint venture entities
Costs recovered from joint venture entities
2008
$000
2007
$000
2008
$000
2007
$000
223,232
16,407
26,950
184,058
9,423
230,943
18,922
95,500
196,454
9,158
223,224
15,264
–
164,795
8,499
218,688
15,253
–
176,848
8,553
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 financial year the Company and Group conducted transactions with associates on normal terms and conditions as
shown below:
Consolidated
The Company
Amounts receivable from associates
Amounts payable to associates
Interest revenue
Interest payable
Other revenue
Dividend revenue
Costs recovered from associates
2008
$000
237,719
71,693
19,144
630
12,106
15,451
1,649
2007
$000
98,072
602
9,969
–
–
9,809
1,611
2008
$000
181,223
–
14,780
–
2,400
3,979
1,649
2007
$000
50,304
–
5,634
–
–
3,356
1,611
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 financial 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.
Other relationships
In the 2007 Annual Report, in relation to the independence of Margaret Jackson, a non-executive Director of ANZ, it was disclosed that ANZ
has commercial relationships with Qantas Airways Limited (in respect of which Ms Jackson was then Chairman) as a partner in the co-branded
ANZ Frequent Flyer Visa Cards, and that ANZ also acquires travel services from Qantas. having regard to the nature and value of the commercial
relationships and the Board’s materiality criteria, the Board concluded that Ms Jackson remained independent. Ms Jackson retired from the
Board of Qantas in November 2007.
49: 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
2008
2007
Closing
Average
Closing
Average
0.5568
0.4440
1.1934
0.7995
0.6030
0.4601
1.1918
0.9069
0.6223
0.4355
1.1643
0.8816
0.6072
0.4103
1.1330
0.8084
50: Events Since the End of the Financial Year
Since balance date, global financial and equity markets have exhibited significant volatility. The impact of this volatility on future earnings is not
capable of reliable measurement.
The adjustment for credit risk on structured credit derivatives purchased has moved significantly since balance date, reflecting the depreciation
of the AUD against the USD (these derivative trades are in USD) and the impact of extreme market turmoil impacting spreads and correlation, and
there will continue to be substantial volatility in this. however, ANZ expects the adjustment for credit risk on these structured credit derivatives to
substantially reverse as credit spreads contract and/or the derivatives reach maturity.
Financial Report 175
For personal use only Directors’ Declaration
The directors of Australia and New Zealand Banking Group Limited declare that:
a) in the directors’ opinion, the financial 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 financial position of the Company and of the consolidated entity as at 30 September 2008 and of their
performance as represented by the results of their operations and their cash flows, for the year ended on that date; and
iii) the financial statements and notes of the Company and the consolidated entity comply with International Financial Reporting Standards
as described in note 1(A)(i).
b) in the directors’ opinion, the remuneration disclosures that are contained on pages 20 to 41 of the Remuneration Report comply 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 44) 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 2008
Michael R P Smith
Director
176 ANZ Annual Report 2008
176 ANZ Annual Report 2008
For personal use only
Independent Auditor’s Report to the Members of
Australia and New Zealand Banking Group limited
REPORT ON ThE FINANCIAL REPORT
We have audited the accompanying financial report of Australia and New Zealand Banking Group Limited (the Company), which comprises the
balance sheets as at 30 September 2008, and the income statements, statements of recognised income and expense and cash flow statements
for the year ended on that date, a summary of significant accounting policies and other explanatory notes 1 to 50 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 financial year.
DIRECTORS’ RESPONSIBILITY FOR ThE FINANCIAL REPORT
The directors of the Company are responsible for the preparation and fair presentation of the financial report in accordance with Australian
Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes
establishing and maintaining internal control relevant to the preparation and fair presentation of the financial 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 financial report of the Group and of the Company, comprising the financial statements and notes, comply with
International Financial Reporting Standards.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on the financial 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 financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures
selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial 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 control. 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
financial report.
We performed the procedures to assess whether in all material respects the financial 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 financial position and of their performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
INDEPENDENCE
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
AUDITOR’S OPINION
In our opinion:
(a) the financial 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 financial position as at 30 September 2008 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 financial report of the Company and the Group also complies with International Financial Reporting Standards as disclosed in
note 1(A)(i).
REPORT ON ThE REMUNERATION REPORT
We have audited the Remuneration Report included in pages 20 to 41 of the directors’ report for the year ended 30 September 2008. The
directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of
the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance
with auditing standards.
AUDITOR’S OPINION
In our opinion, the remuneration report of Australia and New Zealand Banking Group Limited for the year ended 30 September 2008, complies
with Section 300A of the Corporations Act 2001.
kPMG
Melbourne, Australia
7 November 2008
Michelle hinchliffe
Partner
Financial Report 177
Financial Report 177
For personal use only
Table 1
Table 2
Table 3
Table 4
Table 2
Table 5
Basel II
As at
Sep 08
$m
26,552
(2,409)
24,143
2,095
2,847
29,085
(7,856)
–
21,229
1,374
9,170
(1,206)
9,338
n/a
30,567
7.7%
3.4%
11.1%
n/a
11.1%
Basel I
As at
Sep 07
$m
22,048
(2,318)
19,730
1,033
3,119
23,882
(6,170)
716
18,428
2,296
8,826
–
11,122
(1,837)
27,713
6.7%
4.1%
10.8%
(0.7%)
10.1%
Table 6
275,434
275,018
Financial Information
1: Capital Adequacy
Qualifying Capital
Tier 1
Shareholders’ equity and outside equity interests
Prudential adjustments to shareholders’ equity
Fundamental Tier 1 capital
Non-innovative Tier 1 capital instruments
Innovative Tier 1 capital instruments
Gross Tier 1 capital
Deductions
Transitional Tier 1 capital relief
Tier 1 capital
Tier 2
Upper Tier 2 capital
Subordinated notes
Deductions
Tier 2 capital
Deductions
Total qualifying capital
Capital adequacy ratios
Tier 1
Tier 2
Deductions
Total
Risk weighted assets
178 ANZ Annual Report 2008
For personal use only Financial Information
1: Capital Adequacy (continued)
Table 1: Prudential adjustments to shareholders’ equity
Reclassification of preference share capital
Accumulated retained profits and reserves of insurance, funds
management and securitisation entities and associates
Deferred fee revenue including fees deferred as part of loan yields
hedging reserve
Available-for-sale reserve
Dividend not provided for
Accrual for Dividend Reinvestment Plans
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 financial assets)
Investment in ANZ Lenders Mortgage Insurance
Earnings not recognised for prudential purposes
Other deductions
Sub-total
Deductions taken 50% from Tier 1 and 50% from Tier 2
Investment in ANZ Lenders Mortgage Insurance
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
Expected losses in excess of eligible provisions
Investment in other commercial operations
Other deductions
Sub-total
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 financial assets net of attributable
deferred tax asset1
Transitional Upper Tier 2 capital relief
Total
Basel II
As at
Sep 08
$m
(871)
(841)
351
(78)
88
(1,511)
453
(2,409)
(4,889)
(625)
(642)
(92)
–
(117)
(285)
(6,650)
50%
(65)
(34)
(262)
(610)
(167)
(36)
(32)
(1,206)
(7,856)
248
1,072
54
–
1,374
Basel I
As at
Sep 07
$m
(871)
(398)
306
(153)
(97)
(1,381)
276
(2,318)
(4,911)
(462)
(602)
(57)
(101)
–
(37)
(6,170)
–
–
–
–
–
–
–
–
(6,170)
197
690
1,392
17
2,296
Gross
(131)
(68)
(524)
(1,219)
(334)
(72)
(64)
(2,412)
1 Under Basel II, this consists of the surplus general reserve for impairment of financial assets net of tax and/or the provisions attributable to the standardised portfolio.
Financial Report 179
For personal use only Financial Information
1: Capital Adequacy (continued)
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. The fair
value adjustment is also excluded for prudential purposes as the prudential standard only permits
inclusion of cash received and makes no allowance for hedging.
Table 5: Deductions from Total capital1
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 (ADIs) and overseas equivalents
Investment in other commercial operations
Other
Total
Table 6: Risk weighted assets
On balance sheet
Commitments
Contingents
Derivatives
Total credit risk
Market risk – Traded
Market risk – Interest rate risk in the banking book
Operational risk
Total risk weighted assets
1
Not applicable under Basel II.
Basel II
As at
Sep 08
$m
Basel I
As at
Sep 07
$m
n/a
n/a
n/a
n/a
n/a
n/a
177,570
47,398
14,519
11,263
250,750
2,609
4,058
18,017
275,434
(85)
(525)
(1,025)
(124)
(78)
(1,837)
236,883
15,791
12,018
8,379
273,071
1,947
–
–
275,018
The measurement of risk weighted assets is based on: a) a credit risk-based approach whereby 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.
The Basel II Accord principles took effect from 1 January 2008. For calculation of minimum capital requirements under Pillar 1 (Capital
Requirements) of the Basel II Accord, ANZ has gained accreditation from APRA for use of Advanced Internal Ratings Based (AIRB) methodology
for credit risk weighted assets and Advanced Measurement Approach (AMA) for operational risk weighted asset equivalent.
Whilst accreditation has been received a number of aspects of the measurement of risk weighted assets and regulatory capital are still under
review in conjunction with APRA and changes are likely.
180 ANZ Annual Report 2008
For personal use only Financial Information
2: Average Balance Sheet and Related Interest
Averages used in the following table are predominantly daily averages. Interest income figures 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 financial 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 financial 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
Average
balance
$m
3,002
1,390
6,171
22,733
2,316
6,223
2008
Interest
$m
193
92
250
1,633
187
313
221,006
78,103
17,299
18,884
7,491
1,042
15,397
463
1,347
23
4,512
5,152
7,647
4,753
1,476
366
401
382
344
92
Average
rate
%
Average
balance
$m
2007
Interest
$m
113
111
264
1,157
212
215
2,011
1,598
4,987
18,164
2,701
3,904
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
%
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
6.4
6.6
4.1
7.2
8.1
5.0
8.5
9.6
6.0
8.7
5.0
8.1
7.8
5.0
7.2
6.2
397,643
33,040
(6,229)
(436)
340,314
26,670
(6,953)
(460)
391,414
32,604
8.3
333,361
26,210
7.9
24,656
4,358
1,889
1,513
15,136
(2,040)
(442)
(193)
44,877
436,291
303,257
94,765
44,498
442,520
(6,229)
436,291
31.6%
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%
Financial Report 181
For personal use only Financial Information
2: 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 financial 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
New Zealand
Average
balance
$m
71,698
29,653
25,274
18,062
1,819
584
54,900
15,720
1,273
6,234
1,746
10,804
11,293
9,282
–
8,637
1,484
15,397
463
62,458
14,848
359
4,495
87
38
6,229
2008
Interest
$m
5,224
2,444
1,016
778
60
8
3,193
1,063
19
412
106
447
834
819
–
618
123
1,160
23
4,653
1,322
25
280
95
32
436
Average
rate
%
Average
balance
$m
7.3
8.2
4.0
4.3
3.3
1.4
5.8
6.8
1.5
6.6
6.1
4.1
7.4
8.8
–
7.2
8.3
7.5
5.0
7.4
8.9
7.0
n/a
n/a
n/a
7.0
49,000
28,279
15,122
16,536
2,520
504
46,429
15,938
1,166
8,186
1,838
6,724
9,981
6,566
926
8,752
1,722
13,852
293
55,577
11,841
311
5,243
132
421
6,953
2007
Interest
$m
3,071
2,096
781
597
82
4
2,376
997
29
500
105
357
636
525
49
544
127
898
17
3,651
958
19
355
96
38
460
Average
rate
%
6.3
7.4
5.2
3.6
3.3
0.8
5.1
6.3
2.5
6.1
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
Intragroup elimination
(6,229)
(436)
(6,953)
(460)
372,837
25,190
314,812
19,368
366,608
24,754
6.8
307,859
18,908
6.1
1 Includes foreign exchange swap costs.
182 ANZ Annual Report 2008
For personal use only Financial Information
2: Average Balance Sheet and Related Interest (continued)
Non-interest bearing liabilities
Deposits
Australia
New Zealand
Overseas Markets
Derivative financial 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.
2008
Average
balance
$m
2007
Average
balance
$m
4,787
3,432
1,200
4,734
3,829
1,220
22,841
3,542
(884)
11,719
2,882
(494)
11,242
10,855
46,160
34,745
412,768
342,604
289,291
89,022
40,684
237,762
84,176
27,619
418,997
349,557
(6,229)
(6,953)
412,768
342,604
29.9%
30.6%
22,652
871
19,858
871
23,523
20,729
436,291
363,333
Financial Report 183
For personal use only Financial Information
3: 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 assets
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 assets
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 assets
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 assets
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.
184 ANZ Annual Report 2008
184 ANZ Annual Report 2008
2008
$m
2007
$m
5,614
1,703
533
7,850
5,036
1,817
449
7,302
271,403
86,961
39,279
(6,229)
230,313
82,779
27,222
(6,953)
391,414
333,361
%
%
8.39
9.40
5.35
8.33
1.62
(0.01)
1.61
0.46
2.07
1.42
(0.02)
1.40
0.56
1.96
1.33
(0.02)
1.31
0.05
1.36
1.59
(0.01)
1.58
0.43
2.01
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
For personal use only Financial Information
4: Special Purpose and Off-Balance Sheet Entities
Below is an analysis of the assets of consolidated and non-consolidated special purpose entities (SPEs) which ANZ has established or
manages. The disclosures do not include every transaction that the Group has entered into with an SPE. This note is designed to reflect the
Group’s main exposures to SPEs. This analysis excludes vehicles that are used in connection with stock-based compensation programs.
Total assets of SPEs
Securitisation vehicles
Structured finance entities1
Credit protection
Non-consolidated
SPEs
2008
$m
2007
$m
Consolidated
SPEs1
2008
$m
2007
$m
8,021
n/a
2,145
7,786
n/a
2,145
11,884
147
–
2,328
95
–
10,166
9,931
12,031
2,423
1 ANZ’s net investment in non-consolidated Structured Finance entities is $166 million at 30 September 2008 (30 September 2007: $229 million)
Total assets of SPEs:
Non-consolidated SPEs which
ANZ established or manage
Corporate loans1
Rural loans
Trade receivables
Residential mortgages
Credit cards and other personal loans
Car loans and equipment finance
Other2
Consolidated SPEs
Corporate loans
Trade receivables
Residential mortgages
Car loans and equipment finance
Other
Australia
New Zealand
Other
Total
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2,145
2,064
2,096
1,442
13
577
1,018
2,145
1,737
2,166
1,520
34
621
658
9,355
8,881
–
185
10,731
69
559
–
162
1,019
182
529
11,544
1,892
–
–
–
–
557
–
254
811
–
–
–
–
–
–
–
–
–
215
557
–
278
1,050
–
–
–
–
–
–
–
–
–
–
–
–
–
–
410
–
–
77
–
487
–
–
–
–
–
–
–
–
415
–
–
83
33
531
2,145
2,064
2,096
1,442
570
577
1,272
10,166
410
185
10,731
146
559
2,145
1,737
2,166
1,735
591
621
936
9,931
415
162
1,019
265
562
12,031
2,423
1 Exposures to corporate loans created through derivatives and a deposit with ANZ.
2 Includes investment loans and insurance premiums.
Maximum exposure to non-consolidated SPEs1
Liquidity support facilities (drawn)2
Liquidity support facilities (undrawn)
Credit default swaps (net fair value)
Other facilities (drawn)
Other facilities (undrawn)
Notes held in credit protection entities
Other derivatives (net fair value)
1 Excluding Structured Finance entities.
2 Facilities amounting to $0.9 billion were drawn on consolidated special purpose entities as at September 2007.
Non-consolidated
SPEs1
2008
$m
2007
$m
1,237
3,290
33
1,768
958
393
21
1,976
2,753
3
872
315
–
(4)
7,700
5,915
Financial Report 185
Financial Report 185
For personal use only Financial Information
5: Leveraged Finance
The Group has a dedicated Leveraged & Acquisition Finance team, which provides secured financing for the acquisition of companies through
the use of debt.
Leveraged & Acquisition Finance provides acquisition finance for private equity firms and other corporations with operations in Australia and
New Zealand, and concentrates on company cash flows. Target businesses are those with stable and established earnings and the ability to
reduce borrowing levels.
The tables below provide an analysis of the credit exposures arising from the provision of leverage finance. This excludes all public company
acquisition finance which may be undertaken by the Leveraged & Acquisition Finance Team because it has a different risk profile.
Unfunded commitments
Funded exposures
Total gross exposures
Individual provision
Net exposure
2008
$m
876
754
177
635
180
716
2007
$m
808
581
188
413
136
403
3,338
2,529
1,756
1,331
251
1,555
935
39
3,338
2,529
2008
$m
2007
$m
10
30
(18)
22
3
16
(9)
10
Exposure by industry
Manufacturing
Business services
healthcare
Retail
Media
Other
Exposure by geography
Australia
New Zealand
Other
2008
$m
141
139
46
103
34
50
513
271
175
67
513
2007
$m
270
145
55
83
89
110
752
588
164
–
752
2008
$m
744
628
131
532
146
666
2007
$m
548
436
133
330
47
293
2008
$m
885
767
177
635
180
716
2007
$m
818
581
188
413
136
403
2,847
1,787
3,360
2,539
1,507
1,156
184
977
771
39
1,778
1,331
251
1,565
935
39
2,847
1,787
3,360
2,539
2008
$m
2007
$m
(9)
(13)
–
–
–
–
(22)
(22)
–
–
(22)
(10)
–
–
–
–
–
(10)
(10)
–
–
(10)
Movements in individual provision
Balance at start of year
Charge to income statement
Bad debts written off
Total individual provision
186 ANZ Annual Report 2008
For personal use only Financial Information
6: Asset-Backed Securities
The Group may acquire asset-backed securities primarily as part of the trading activities (classified as trading securities), liquidity management
(classified as available-for-sale assets) or through investments in special purpose vehicles. Asset-backed securities are debt instruments that
are based on pools of assets or are collateralised by the cash flows from a specified pool of underlying assets. All asset-backed securities held
by the Group are carried at fair value on the balance sheet. Specifically with regard to residential mortgage backed securities originated in the
US, the following terminology may be used in the industry:
Subprime mortgages – sub-prime represents mortgages granted to borrowers with a poor or limited credit history. Sub-prime loans carry
higher interest rates to compensate for potential losses from default.
Alternative-A-paper – US mortgages underwritten with lower or alternative documentation than a full documentation mortgage loan or with
higher loan to valuation ratios than mortgages guaranteed by US Government sponsored enterprises. Alt-A mortgages have a stronger risk
profile than sub-prime mortgages.
Alt-A mortgages – these are loans that are underwritten with lower or alternative documentation than a full documentation mortgage loan.
As a result, Alt-A mortgage loans may have a higher risk of default than non-Alt-A mortgage loans. In reporting our Alt-A exposure, we have
classified mortgage loans as Alt-A if mortgage-related securities that we hold in our portfolio were labelled as Alt-A when we bought them.
While note 33 Financial Risk Management provides a comprehensive analysis of the quality of all financial instruments giving rise to credit risk,
the tables below contain a similar analysis for held asset-backed securities only.
Asset-backed securities
Collateralised debt obligations1
Commercial mortgage backed securities
Residential mortgage backed securities
Other asset-backed securities
Carrying amount by classification
of underlying assets
Sub-prime
Alt-A
A rated (mortgage) paper and other assets
Face value
Carrying amount1
2008
$m
395
140
892
461
1,888
2007
$m
33
156
1,118
549
1,856
2008
$m
393
138
655
453
1,639
2007
$m
28
154
1,070
543
1,795
Trading portfolio
Liquidity portfolio
Other
Total
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
–
–
161
161
–
–
174
174
–
318
211
529
–
530
243
773
–
–
949
949
–
–
848
848
–
318
1,321
1,639
–
530
1,265
1,795
AAA & AA
A
BBB
BB and below inc
not rated
Total
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
2008
$m
2007
$m
Carrying amount by rating and
location of underlying assets
Australia and New Zealand
U.S.A.
552
412
964
158
801
959
557
117
674
821
–
821
1
–
1
1
–
1
–
–
–
14
–
14
1,110
529
994
801
1,639
1,795
1 September 2008 comprises notes held in a credit protection SPE, refer page 76.
Financial Report 187
For personal use only Glossary
AAS – Australian Accounting Standards.
IFRS – International Financial Reporting Standards.
Impaired assets are those financial assets where doubt exists as
to whether the full contractual amount will be received in a timely
manner, or where concessional terms have been provided because
of the financial difficulties of the customer. Financial Assets are
impaired if there is objective evidence of impairment as a result
of a loss event that occurred prior to the reporting date, and that
loss event has had impact, which can be reliably estimated, on
the expected future cash flows of the individual asset or portfolio
of assets.
Income includes external interest income and other external
operating income.
Individual provision charge is the amount of expected credit
losses on those financial instruments assessed for impairment
on an individual basis (as opposed to on a collective basis).
It takes into account expected cash flow over the lives of those
financial instruments.
INGA includes the equity accounted earnings from our 49% stake
in ING Australia Ltd, a joint venture between ANZ and ING.
Institutional division provides a full range of financial 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 provides working capital solutions including
lending and deposit products, cash transaction banking
management, trade finance, 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,
diversification 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 excluding Relationship Lending provides
complex financing and advisory services, structured financial
products, leasing, private equity finance, project finance,
leveraged finance 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.
AASB – Australian Accounting Standards Board.
AFS – Available-for-sale assets.
AIFRS – Australian Equivalents to International Financial Reporting
Standards.
Alt-A – Alternative A-paper, US mortgages underwritten with lower
or alternative documentation than a full documentation mortgage
loan or with higher loan to valuation ratios than mortgages
guaranteed by US Government sponsored enterprises. Alt-A
mortgages have a stronger risk profile than sub-prime mortgages.
APRA – Australian Prudential Regulation Authority.
Asia Pacific – Asia Pacific includes the following:
– Retail Asia includes the Personal and Private Banking Asia business.
– Asian Partnerships is a portfolio of strategic retail partnerships in
Asia. This includes partnerships in Indonesia with PT Panin Bank, in
the Philippines with Metrobank, in Cambodia with the Royal Group,
in China with Bank of Tianjin and Shanghai Rural Commercial Bank,
in Malaysia with AMMB holdings Berhad and in Vietnam with
investments in Sacombank and Saigon Securities Incorporation.
– Institutional Asia Pacific includes the trade finance, relationship
lending, markets and corporate finance businesses in Asia and
foreign exchange activities in the Pacific Region.
– Retail Pacific provides retail and corporate banking services
to customers in the Pacific region.
– Executive & Support includes the central support functions
for the division.
Collective provision is the provision for Credit Losses that are
inherent in the portfolio but not able to be individually identified;
presently unidentified impaired assets. 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.
Customer Deposits represent term deposits, other deposits bearing
interest, deposits not bearing interest and borrowing corporations
debt excluding collateralised loan obligation and securitisation
vehicle funding.
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
profit 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 human Resources,
Group Strategic Development, Group Financial Management, Group
Risk Management, Capital Funding, Group Items and Private Bank.
Private Bank specialises in assisting high net worth individuals and
families to manage, grow and preserve their assets. The contribution
of the Private Bank business in the Group Centre includes only sales
commissions. Other revenue earned is recognised in Personal.
188 ANZ Annual Report 2008
For personal use only Glossary
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
insignificant risk of changes in value.
Net advances include gross loans and advances and acceptances
and capitalised brokerage/mortgage origination fees, 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 goodwill and 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 and Commercial Banking in New Zealand – incorporates
the ANZ and National Bank brands and provides financial 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.
UDC – provides motor vehicle and equipment finance, 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
significant items, and non-core income arising from the use of
derivatives in economic hedges on fair value through profit and loss.
Non-performing commitments and contingencies comprises
undrawn facilities and contingent facilities where the customer’s
status is defined as impaired.
Non-performing loans comprises drawn facilities where the
customer’s status is defined as impaired.
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-
office 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.
Personal is a division comprising Rural Commercial & Agribusiness
Products, Small Business Banking Products, Banking Products,
Mortgages, Consumer Finance, Investment and Insurance Products,
Esanda, and a number of other areas, including the branch network
and marketing and support costs in Australia.
Mortgages – provides housing finance 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 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 finance, operating
leases and investment products.
Investments and Insurance Products – comprises ANZ Australia’s
Financial Planning, Margin Lending, insurance distribution, Trustees
business and ETrade Australia, an online broking business.
Repo discount is a discount applicable on the repurchase by a central
bank of an eligible security pursuant to a repurchase agreement.
Restructured items refers to customers who have been provided
concessions due to their financial difficulties. 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.
Glossary 189
For personal use only Glossary
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 profit 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 profit 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.
Significant items are items that have a substantial impact on profit
after tax, or the earnings used in the earnings per share calculation.
Significant items also do not arise in the normal course of business
and are infrequent in nature. Divestments are typically defined as
significant items.
Sub-prime represents mortgages granted to borrowers with a poor
or limited credit history. Sub-prime loans carry higher interest rates
to compensate for potential losses from default.
Sub-standard assets are customers that have demonstrated some
operational and financial instability, with variablility and uncertainty
in profitability 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 classified as available-for-sale are excluded
from total advances.
190 ANZ Annual Report 2008
For personal use only This page has been intentionally left blank
Glossary 191
For personal use only Alphabetical Index
Asset-Backed Securities
187
Impaired Financial Assets
Assets Charged as Security for Liabilities and
Collateral Accepted as Security for Assets
Associates
Available-for-sale Assets
Average Balance Sheet and Related Interest
Balance Sheets
Bonds and Notes
Capital Adequacy
Capital Management
Cash Flow Statements
Chairman’s Report
Chief Executive Officer’s Report
Chief Financial Officer’s Report
Commitments
Compensation of Auditors
Controlled Entities
Corporate Governance Statement
Credit Related Commitments, Guarantees,
Contingent Liabilities and Contingent Assets
Critical Estimates and Judgements Used
in Applying Accounting Policies
Current Income Tax Expense
Deposits and Other Borrowings
Derivative Financial Instruments
Directors’ Declaration
Directors’ Report
Dividends
Due from 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 Information
Financial Report
Financial Risk Management
Glossary of Financial Terms
Goodwill and Other Intangible Assets
Income Statements
Income Tax Liabilities
Income
Independent Auditor’s Report
Interest Spreads and Net Interest Average Margins
Interests in Joint Venture Entities
Key Management Personnel Disclosures
Leveraged Finance
Liquid Assets
Loan Capital
Maturity Analysis of Assets and Liabilities
Minority Interests
Net Loans and Advances
Notes to the Cash Flow Statements
Notes to the Financial Statements
Other Assets
Payables and Other Liabilities
Premises and Equipment
Provision for Credit Impairment
Provisions
Remuneration Report
Reserves and Retained Earnings
Securitisations
Segment Analysis
Share Capital
Shareholder Information
Shares in Controlled Entities, Associates and
Joint Venture Entities
Significant Accounting Policies
Special Purpose and Off-Balance Sheet Entities
Statements of Recognised Income and Expense
Superannuation and Other Post Employment
Benefit Schemes
Tax Assets
Ten Year Summary
Trading Securities
Transactions with Other Related Parties
115
155
91
181
61
105
178
113
63
2
3
4
158
80
154
42
159
76
81
103
85
176
16
82
84
83
168
175
175
79
141
157
178
60
116
188
100
93
60
103
78
177
184
155
174
186
84
106
148
112
92
152
64
101
104
101
93
104
20
111
157
148
109
56
96
64
185
62
163
99
14
84
175
192 ANZ Annual Report 2008
For personal use only
For personal use only www.anz.com
Australia and New Zealand Banking Group Limited ABN 11 005 357 522
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