SHAPING
OUR FUTURE
2009 ANNUAL REPORT
1
Annual Report
Contents
Chairman’s Report
Chief Executive Offi cer’s Report
Chief Financial Offi cer’s Report
Ten Year Summary
Directors’ Report
Principal Activities
Result
State of Aff airs
Dividends
Review of Operations
Events since the end of the Financial Year
Future Developments
Environmental Regulation
Directors’ Qualifi cations, Experience and Special Responsibilities
Company Secretaries’ Qualifi cations and Experience
Non-Audit Services
Lead Auditor’s Independence Declaration
Directors and Offi cers who were previously partners
of the Auditor
Chief Executive Offi cer/Chief Financial Offi cer Declaration
Directors’ And Offi cers’ Indemnity
Rounding Of Amounts
Executive Offi cers’ and Employee Share Options
Remuneration Report
Remuneration Overview
Remuneration Report
Non-Executive Director Remuneration
Executive Remuneration
Contract Terms
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 Signifi cant 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
14 Net Loans and Advances
2
4
6
16
18
18
18
18
18
18
19
19
19
20
20
20
21
21
21
21
22
22
23
24
27
29
34
50
51
52
68
72
72
73
74
75
76
76
88
90
91
92
93
94
95
96
96
96
97
103
104
Notes to the Financial Statements (continued)
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
Benefi t 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
105
105
108
109
110
111
111
113
113
114
114
115
116
119
121
122
122
125
126
151
158
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161
163
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200
ANZ Annual Report 2009 1
FRONT COVER // Tim Taylor had been a long-standing
ANZ customer when he approached ANZ
Relationship Manager, Michael Hubbard, for funding
to start a new building company, Millenium Homes,
with partner Andrew Quinlan.
Since then, ANZ has worked closely with Tim and
Andrew to gain a better understanding of their
business and help them grow Millenium Homes
into the highly regarded modern home building
company it is today.
TIM TAYLOR & ANDREW QUINLAN
Millenium Homes, Toowoomba, Queensland
Chairman’s Report
A MESSAGE FROM ChARLES GOODE
ANZ delivered a solid result in 2009 against the backdrop of the global financial crisis and a major downturn
in the world economy.
Our Performance
ANZ’s statutory profit after tax for the year ended 30 September 2009
was $2,943 million, down 11%, reflecting higher provisions. With an
increase in the weighted average number of shares of 16%, this led
to a fall in earnings per share of 23%. The dividend for the year was
$1.02 per share fully franked, down 25%.
Excluding the impact of $829 million from one-off items, hedging
timing differences and non-continuing businesses our underlying
profit1 for 2009 was $3,772 million, up 10%.
Underlying revenue growth of 17% was strong while costs increased
by 12%, with our underlying cost-to-income ratio at 42.2%, down
from 44%. Provisions were at cyclical highs with the total credit
impairment charge up 46% to $3,056 million, with increases across
all regions but most pronounced in New Zealand.
Importantly, ANZ maintained its AA-credit rating, one of only
11 banks remaining in the world with a AA-rating.
These results were achieved at a time the global financial system
and the world economy came under extraordinary pressure and they
reflect the very significant efforts of our management and our staff
during the year. I thank them for their contribution.
Capital Management
During 2009 ANZ took further steps to manage its capital position
and funding programs to ensure we were strongly positioned given
the difficult financial and economic conditions.
In May, we undertook a fully underwritten $2.5 billion institutional
share placement. In July, we completed a Share Purchase Plan for
retail shareholders which saw us issue $2.2 billion of ordinary equity.
Over 40% of our retail shareholders participated, making it one
of the most successful Share Placement Plans undertaken by an
Australian company. The new shares were issued at $14.40 compared
to ANZ’s year-end share price of $24.39 representing a strong return
to participating shareholders.
Including the underwritten Dividend Reinvestment Plan in July,
ANZ raised $5.7 billion of ordinary equity and the Group ended 2009
as one of the world’s best capitalised banks.
ANZ’s Tier 1 capital ratio was 10.6% at the end of 2009 compared to
7.7% a year earlier. Adjusting for the acquisitions we made during the
year but which have not yet been completed, the pro-forma Tier 1
ratio is estimated to be 9.5%.
Expansion and Growth
Our financial performance and strong capital position allowed ANZ
to capitalise on significant strategic opportunities that arose during
the year and our super regional strategy was advanced through both
organic growth and acquisitions.
In August, we announced an agreement to acquire certain selected
businesses of the Royal Bank of Scotland (RBS) in East Asia for
approximately US$550 million (A$626 million).
The acquisition includes the RBS Retail, Wealth and Commercial
businesses in Taiwan, Singapore, Indonesia and hong Kong and the
Institutional businesses in Taiwan, the Philippines and Vietnam. It
creates a new platform for our Retail and Wealth businesses in Asia.
ANZ also moved to strengthen its franchise in Australia and New Zealand
with an agreement to acquire the 51% held by the ING Group in the
ANZ-ING wealth management and life insurance joint ventures.
Board Changes
John Morschel, one of Australia’s most respected business leaders,
has agreed to succeed me as Chairman in February 2010.
John has been a director of ANZ since October 2004 and has made
a major contribution since joining the Board. he has extensive
experience as a chief executive and more recently as a non-executive
director and chairman of major Australian and international companies.
John also brings to the role a strong background in banking and
financial services. he will make an excellent Chairman for ANZ.
We have also welcomed three new directors to the Board during
the year - Peter hay, Alison Watkins and Lee hsien Yang – to facilitate
a transition with the planned retirements of some Directors.
At ANZ, we are facing some headwinds in 2010 including the strength
of the Australian dollar, a less favourable global markets environment
and a 13% increase in the weighted average number of shares to be
serviced.2 Our regional growth focus however puts us in a unique
position to capitalise on Asia’s recovery and growth.
however, we also have some tail winds with the recovery in the
economies of Australia, New Zealand and the region, continued
profitable expansion in East Asia and a moderation in the outlook
for doubtful debts.
We have a strong management team, a strong capital position, strong
liquidity and a well thought out strategy to be a super regional bank.
The bank is being managed for the medium term and the outlook is
for an improvement in profits in 2010 and a strong 2011.
ChARlES GOODE
ChAIRMAN
Peter hay has a strong background in company law and investment
banking advisory work, with strong experience in mergers and
acquisitions. Alison Watkins is an experienced CEO and established
director with a grounding in finance and accounting. Lee hsien Yang
is one of Asia’s most respected business leaders and has considerable
knowledge of the region.
I would also like to acknowledge the outstanding contribution made
to ANZ over 15 years by Margaret Jackson who retired from the Board
in April 2009.
Customers and the Community
While the global financial and economic conditions have been
testing, ANZ has maintained the momentum established in
recent years by focusing on its customers and contributing to
the community.
In Australia, we maintained the highest level of customer satisfaction
of any of the major banks and we began the roll out of our new global
brand identity and positioning for ANZ.
A number of the communities in which ANZ operates experienced
disasters during the year. These included natural disasters in Asia
and the Pacific and the bushfires in Victoria. ANZ contributed to the
relief efforts through donations, direct grants and the efforts of many
ANZ staff.
During 2009, ANZ was named as the most sustainable bank globally
in the Dow Jones Sustainability Index for the third consecutive year.
Outlook
Looking ahead, the actions taken by governments around the
world have gained traction and are now moderating the effects
of the global economic downturn.
While it is clear that Australia and Asia have weathered the crisis
better than the US and Europe, there is still uncertainty about
the shape of the recovery and it is prudent to be cautious. In
New Zealand, there are early signs the economy has stabilised,
however economic recovery is likely to be slow.
1 Adjusted for material items that are not part of the normal ongoing operations of the Group
including one-off gains and losses, gains and losses on the sale of businesses, non-continuing
businesses, timing differences on economic hedges, and acquisition related costs. Refer page 6.
2 Shares on issue at 30 September 2009 divided by weighted average number of shares
during 2009.
2 ANZ Annual Report 2009
Chairman’s Report 3
Chief Executive Officer’s Report
A MESSAGE FROM MIChAEL SMITh
Two years ago, we took a decision at ANZ that although we had great individual businesses in Australia, New Zealand and
Asia Pacific, there was a unique opportunity to create value for shareholders by becoming a super regional bank – a bank
of global quality with regional focus.
2009 represents a turning point in delivering that aspiration. We’ve
worked hard to reposition ANZ to face up to what we called the ‘new
reality’ following the global financial crisis and we’ve built a strong
foundation through careful, disciplined management of our balance
sheet, capital and liquidity.
At the same time, we’ve made significant progress in completing
change and remediation in the business in order to place ANZ on
a new footing. Together, that’s allowed us to shift our focus this year
to the opportunities that are available to a strongly capitalised bank
and to the growth available in our region which is now the best
performing region in the world economy.
Our operating environment
Our 2009 financial year began just weeks after the collapse of
Lehman Brothers, one of the leading Wall Street investment banks.
In the weeks that followed some household names in finance
disappeared and as at the end of 2009 over 100 banks in the
United States had failed and many of what were the world’s
largest banks are now effectively in the hands of their respective
national governments.
As the financial crisis unfolded, its impact on the world economy
became very clear. As a result we’ve seen unprecedented action by
governments to save the global financial system and to rescue the
world economy which entered into the most globalised downturn
since the Great Depression.
In Australia, even with provisions at or near cyclical highs, Australian
banks are in good shape relative to their international peers. Today,
Australia’s four major banks, including ANZ, are among just 11 AA-rated
banks left in the world.
In this very difficult environment, ANZ has consistently called the
trends early in the economic cycle and the global financial situation.
Today, in Australia and in Asia, the economies are showing early
positive signs of recovery and although the economic cycle is still
playing out, there are reasons for optimism.
In the region, China and India are continuing to show good growth
and we believe the urbanisation and fundamental transformation
occurring in those economies will see that growth continue.
We strongly believe Asia will be an engine for global growth for
many decades to come, and given the trade and investment flows
between Australia and New Zealand and Asia, it’s an essential part
of the long-term growth strategy for any business.
Our business performance
In this environment, ANZ has remained financially strong, maintained
momentum in the business and worked hard to position ANZ for
future growth.
Statutory profit for the year was $2.9 billion, down 11%. Taking
into account the impact of some one off items and non-continuing
businesses, underlying profit1 increased 10% to $3.8 billion.
Australia performed well with underlying profit* up 13% to
$2,560 million. The Retail and Institutional businesses in the
region were standout performers. Commercial produced a
credible result, given the difficult year experienced by middle
market and small business managers.
Importantly we are also delivering for our customers. ANZ
remains the highest rated of the major banks when it comes
to customer satisfaction.
In New Zealand, trading conditions remained challenging.
New Zealand’s economic downturn has been more pronounced
and protracted than that in Australia and while we maintained
our market leading position, the economic environment led to
a 34% decline in underlying profit after tax to $513 million.
The Asia Pacific, Europe & America region produced an outstanding
performance with underlying profit up 81% to $699 million, with
strong contributions from our partnerships and the Institutional
business driving much of this growth.
ANZ has continued to invest significantly in the region including
deepening the Institutional business and advancing the Retail and
Wealth platforms. We’ve continued to build our branch networks
in Indonesia, Vietnam and China and are acquiring business in six
countries in Asia from the Royal Bank of Scotland.
The Institutional Division has turned around its performance,
delivering an underlying profit of $1.4 billion, up 82% on last year.
A key feature of the Institutional result was Global Markets revenue
growth with both customer flow and trading revenue up strongly.
Interest rate and general market volatility coupled with increased
customer penetration drove the significant increase in revenue
within the Global Markets business.
The Institutional team leveraged their strong revenue growth to
make investments in improved systems and processes and to begin
to grow frontline staff numbers.
Strategic growth
During 2009, we’ve been able to take advantage of the global
financial crisis and ANZ’s strong balance sheet to advance our
super regional strategy.
In August we reached agreement with the Royal Bank of Scotland
Group to acquire selected RBS businesses in East Asia for around
US$550 million ($626 million) delivering a further stepping stone
in our super regional strategy and creating a new platform for our
businesses in Asia.
The acquisition, which is still subject to regulatory approvals, includes
the RBS retail, wealth and commercial businesses in Taiwan, Singapore,
Indonesia and hong Kong, and the institutional businesses in Taiwan,
the Philippines and Vietnam.
Together, the businesses are an attractive portfolio of well provisioned
banking assets at a reasonable price which complement our existing
businesses across China, Indochina and South East Asia and provide
our franchise with further growth momentum.
In September, we signed an agreement with ING to acquire its
51% shareholding in the ANZ-ING joint ventures in Australia and
New Zealand for $1.76 billion. The transaction brings certainty to
our wealth management position through full ownership of what
is an established specialist wealth management and protection
business with a 120-year history in Australia.
Importantly for shareholders, it will be accretive to underlying
earnings in 2010 before some significant revenue and cost synergies.
In the medium term, it also gives us a foundation to build a significant
wealth business with the flexibility to pursue further growth
opportunities without the constraints of a joint venture structure.
Organisational capability
This year we’ve also put a new customer focused business model and
organisation structure in place. A new competitive era and strategy
demanded a new business model and structure, one that can support
our aspirations to become a super regional bank.
We are now organised around three key regions – Australia,
New Zealand and Asia Pacific, Europe and America with Institutional
operating as a global business. We have also put in place a simpler,
less complex structure for Operations, Technology, human Resources,
Finance and Risk.
We’ve continued to reshape our top management team during the
year, with several new appointments made.
The latest addition, which completes the management team, is
the appointment of Phillip Chronican to lead the Australia Division.
Phillip joins ANZ after a 27-year career with Westpac where he built
a reputation as one of Australia’s leading banking executives.
Also this year, Joyce Phillips joined ANZ as head of Strategy, M&A,
Marketing and Innovation from GE and Citigroup and Shayne Elliott,
was appointed as head of Institutional also from Citigroup and most
recently EFG-hermes.
Our customers and brand
Part of our strategy is to design our business around our customers’
needs, not our product lines. We made significant progress with this
with our new organisation structure.
But we also need to shift our thinking from selling commoditised
product to looking at differentiating the way we market ourselves,
the way we package and segment our offering and the way we
service our customers. Part of that involves investing in developing
a great regional brand and so this year we’ve worked hard to develop
a new global brand identity and positioning for ANZ in support of
our super regional strategy.
having one strong, unified brand across all our geographies, which
tells the world that we are ‘One ANZ’ wherever customers choose to
deal with us, is an important part of our future growth. It identifies
who we are as a business and what we stand for.
The new brand identity and positioning followed 18 months of
detailed research involving more than 1,300 customers and 250 staff
in Australia, New Zealand and Asia Pacific that showed our customers
want us to care about them as people and appreciate how complex
life has become.
As part of the launch, we introduced a new global tagline, ‘We live in
your world’.
This aspiration is at the heart of our brand promise – no matter where
our customers deal with us, we want to give them one high standard of
experience, based on understanding their world better than anyone else.
We know there’s a lot to do to really deliver on this and all our people
are committed to the task.
2009 and the future
Reflecting on what has been a full year of activity at ANZ, we’ve
remained financially very strong, we have a very clear growth strategy
and we have a very experienced team of real bankers to make sure we
keep hitting our targets and growing the bank with an acceptable risk
profile. In doing so, I believe we have created real value for shareholders.
Looking forward to 2010, we are going to have to manage continuing
volatility in financial markets and the global economy. The recovery
in Europe and the United States is still in a very sensitive position and
there’s going to be good and bad news in the slow advance forward.
I also want to sound a note of caution. While the inevitable aftermath
of the recent failures in the financial system and in business is
going to be greater regulation, in my view, the real challenge is for
governments to avoid acting on populist rhetoric. Regulators and
business need to work together to identify how we create the right
balance between free markets which are the best tool we know for
fostering innovation and generating wealth, and ensuring there
is a watchful eye from regulators that can help markets avoid
overshooting and spinning out of control.
Against this backdrop, ANZ is clearly established as one of the
best capitalised banks in the world. We have largely completed the
remediation and change needed in parts of the business and we
have taken advantage of opportunities to grow, as we progress on our
journey to build a super regional bank that delivers performance and
growth for our shareholders, customers and the communities in which
we operate.
MIChAEl SMITh
ChIEF ExECUTIVE OFFICER
4 ANZ Annual Report 2009
Chief Executive Officer’s Report 5
1 Adjusted for material items that are not part of the normal ongoing operations of the Group
including one-off gains and losses, gains and losses on the sale of businesses, non-continuing
businesses, timing differences on economic hedges, and acquisition related costs. Refer page 6.
Chief Financial Officer’s Report
A MESSAGE FROM PETER MARRIOTT
ANZ reported a profit after tax of $2,943 million for the year ended 30 September 2009.
Income Statement ($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
Minority interest
Profit attributable to shareholders of the Company
Underlying profit
2009
9,808
3,802
13,610
(6,225)
7,385
(3,005)
4,380
(1,435)
(2)
2,943
2008
7,850
4,309
12,159
(5,696)
6,463
(1,948)
4,515
(1,188)
(8)
3,319
Movt
25%
-12%
12%
9%
14%
54%
-3%
21%
-75%
-11%
Profit has been adjusted to exclude non-core items to arrive at underlying profit, the result for the ongoing business activities of the Group.
The principles set out in the Australian Institute of Company Directors’ (AICD’s) and the Financial Services Institute of Australasia’s (Finsia’s)
joint recommendations “Principles for reporting of non-statutory profit information” have been adopted in determining underlying profit.
Income Statement ($m)
Statutory profit attributable to shareholders of the Company
2009
2,943
2008
3,319
Movt
-11%
Adjust for the following gains/(losses) included in statutory profit (net of tax)
Tax on New Zealand Conduits
Economic hedging – fair value gains/(losses) (incl. revenue and net investment hedges)
Gain on Visa shares
Organisational transformation costs (incl. One ANZ restructuring)
Impairment of intangible – Origin Australia
New Zealand tax rate change
ANZ share of ING NZ investor settlement
Non continuing businesses
Credit intermediation trades
Other
Underlying profit
Underlying profit by key line item
Net interest income
Other operating income1
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment1
Profit before income tax
Income tax expense
Minority interest
Profit attributable to shareholders of the Company
(196)
(227)
–
(100)
–
–
(121)
(69)
(116)
3,772
9,810
4,557
14,367
(6,068)
8,299
(3,056)
5,243
(1,469)
(2)
3,772
–
217
248
(152)
(24)
1
–
(371)
(26)
3,426
7,855
4,440
12,295
(5,406)
6,889
(2,090)
4,799
(1,365)
(8)
3,426
n/a
large
-100%
-34%
-100%
-100%
n/a
-81%
large
10%
25%
3%
17%
12%
20%
46%
9%
8%
-75%
10%
1 Credit valuation adjustments on defaulted or impaired exposures of $82 million are reclassified as provision for credit impairment (Sep 2008: $156 million).
ANZ reported a profit attributable to shareholders of the Company
of $2,943 million for the year ended 30 September 2009, down
$376 million or 11% from $3,319 million for the year ended
30 September 2008. Growth in profit before credit impairment
and income tax of 14% was offset by an increase in provision
for credit impairment of $1,057 million or 54% and a higher
effective tax rate, largely as a result of a $196 million provision
for New Zealand conduit transactions.
Analysis of business performance on an underlying basis by major
income and expense categories follows.
Net Interest Income
Net interest income increased $1,955 million (25%) to $9,810 million
for the year ended 30 September 2009. Net interest income was
driven by an increase in average interest earning assets of 9% and
growth in average deposits and other borrowings of 12% as well as
an increase in net interest margin of 28 basis points, or 16 basis points
excluding cash flow on derivatives.
The increase in average interest earning assets included a 7% increase
in net advances, primarily in Mortgages within Australia region,
reflecting increased market share and customer demand. Other
interest earning assets increased 22% driven by increases in trading
and available-for-sale assets, interbank lending and higher liquid assets.
Average deposits and other borrowings increased 12% with customer
deposits growing by 16%. Australia region grew by 16% due primarily
to an uplift in term deposits driven by competitive pricing and
customer acquisition. Asia Pacific, Europe & America region grew by
57%, spread across all countries driven by deposit raising strategies and
customer acquisitions. Customer deposits grew by $31.1 billion (16%).
Net interest margin was up 28 basis points to 2.29% (or 16 basis
points excluding the impact of cash flow on derivatives). The key
drivers of the improved margin performance were:
Improved asset margin from repricing activities and rate adjustments
(+45 basis points) which were required to offset higher funding costs
and increased risk in the loan book as a result of the flow through
effects of the global credit crisis. higher funding costs came through
as an increase in wholesale funding costs (-6 basis points), lower
margin on deposits (-28 basis points) and lower interest on capital
(-7 basis points).
Markets (+17 basis points) continued to perform strongly in
their balance sheet businesses (+8 basis points) and the impact
of funding benefits associated with unrealised trading gains and
losses on derivatives (+12 basis points) $524 million directly offset
in other operating income, partly offset by the mix impact of
Markets balance sheet on the Group (-3 basis points).
Additional capital raised during 2009, mainly through the share
purchase and share placement plans, had a +4 basis points mix
impact on margin.
Other asset and funding mix changes (+4 basis point) were as a
result of a lower proportion of wholesale funding (+7 basis points),
favourable benefit from non interest bearing items (-3 basis point).
Asset mix impact was neutral.
Other items (-1 basis point) include New Zealand lower mortgage
prepayment income (-1 basis point) driven by the downward
movement in New Zealand market rates, higher sub-debt
premiums (-1 basis point) and other net impacts (+1 basis point).
Other Operating Income
Other operating income increased $117 million (3%) to $4,557 million
for the year ended 30 September 2009. Major movements include:
Fee income increased $80 million (3%). Lending fee income
increased $169 million (28%) due mainly to the Institutional
business across the regions. Non-lending fee income decreased
$89 million (4%) with Investment and Insurance Products down
$48 million as a result of downturn in investment markets.
Relationship Banking decreased $18 million and Specialised
Lending reduced $17 million both driven by lower lending volumes.
Net foreign exchange earnings increased $243 million (35%)
principally in Markets Australia with a $134 million increase as
a result of volatility in global currency markets and higher sales
volumes and in Asia Pacific, Europe & America grew $103 million
reflecting increased earnings in Taiwan and Korea, United Kingdom
and Europe and Indonesia. New Zealand increased $26 million due
to strong Institutional earnings.
Profit on trading instruments decreased $194 million (38%) which
included a $524 million decrease in unrealised trading gains offset
in net interest income. Excluding the offset, the Markets business
performed strongly benefiting from increased volatility in the
interest rate market and higher sales volumes.
Operating Expenses
Operating expenses increased $662 million (12%) for the year ended
30 September 2009. Across the Group, movements in exchange rates
contributed 1% of the increase. Excluding this, around 35% of the
dollar cost growth was attributable to Asia Pacific, Europe & America
(costs up 54%) with substantial investment in expanding branch
networks across the region, and increased resources to drive the
growth agenda. Within the Australia and New Zealand regions,
Institutional drove the majority of the cost growth, up 19% and
representing 32% of the Group’s total cost growth through
investment in the “Rebuild and Refocus” program and increased
remuneration costs. Elsewhere in Australia, costs in the Australian
division were up only 4%, however there was an increase in centrally
funded transformation projects and infrastructure investment in
the Group Centre. Cost growth was limited to 1% (or 4% in NZD)
in New Zealand region. Further details on the major expense
categories are on the following page.
6 ANZ Annual Report 2009
Chief Financial Officer’s Report 7
ChIEF FINANCIAL OFFICER’S REPORT (continued)
Personnel costs were up $349 million (11%) as a result of growth
in remuneration costs associated with attracting and retaining
talent and additional bankers and specialists to support growth.
Asia Pacific, Europe & America increased staff numbers by
827 employees due to continued growth in the business.
Premises costs increased $45 million (9%), driven mainly by
a $30 million higher rental expense reflecting additional space
requirements, the impact of the sale and leaseback program
and market rental growth.
Computer costs grew $157 million (26%), due to increased
software purchased of $50 million including higher licence costs
and increasing technology initiatives, higher amortisation charges
of $31 million, a $24 million increase in software written-off, a
$15 million increase on computer contractors, $11 million increase
in rentals and repairs, $8 million higher data communications costs
and a $23 million increase in other computer costs which include
super regional network costs.
Other expenses increased $111 million (11%) with minor
movements across many categories. Professional fees grew
$21 million including an increase in Group Centre due to various
project work. Advertising costs increased $13 million due mainly
to increased marketing costs in South Asia. Card processing costs
increased $9 million reflecting increased volumes. New Zealand
other expenses increased $26 million including the impact from
the acquisition of a controlled entity during the second half of
2008. Travel costs reduced $22 million due to increased focus on
cost management.
Provision for Credit Impairment
Provision for credit impairment charge increased $966 million
from 2008 to $3,056 million. The challenging economic environment,
reducing business confidence and rising levels of commercial losses
combined to put pressure on the provisioning levels. The individual
provision charge increased across all regions partially offset by
a decrease in collective provision charge, primarily as a result of a
release of concentration risk provision taken up in 2008 as losses
were crystallised, a lower economic cycle adjustment charge and
reduced lending volumes.
Total individual provision charge increased $1,542 million to
$2,814 million from 2008. The increase in Australia of $1,199 million
was driven by higher loss rates across all portfolios within the region,
and rising levels of bankruptcies and commercial losses in line with
higher business liquidations and lower realisable asset values as
well as the large single provisions raised for customers within the
Commercial Property, Finance and Brokering Services portfolios in
Institutional Australia. The increase in New Zealand of $349 million
occurred across all segments as weaker global and local economic
conditions impacted export, household incomes, consumer spending
and business sectors. The Asia Pacific, Europe & America increase of
$72 million was due to higher losses in South Asia, Indonesia Cards as
well as commercial property downgrades in Cambodia and North Asia.
The collective provision charge decreased $576 million during
the year to $242 million, with a decrease in Australia partially offset
by increases in New Zealand and Asia Pacific, Europe & America.
The decrease in Australia was due mainly to lower institutional
lending and concentration provision releases following defaults
by a small number of large customers within Institutional crystallising
losses which were provided for in 2008. This was partly offset by
increases within the Cards portfolio due to higher delinquencies
and bankruptcies, and risk deterioration in Esanda and Investment
and Insurance Products. The New Zealand charge increased
$127 million reflecting a rise in unsecured consumer delinquencies
and a weakening risk profile across the portfolio. Unfavourable risk
movements were also experienced in Asia Pacific, Europe & America,
particularly across Europe and America and this, coupled with
refinements to methodology, resulted in increased charges of
$106 million.
Credit Risk on Derivatives
ANZ recognised $135 million of credit risk on derivatives during the year as a reduction to other income in the Income Statement in the
statutory accounts. The charge relating to the credit intermediation trades are part of the adjustments to arrive at underlying profit. The
decrease of $552 million over the 2008 year resulted from narrowing credit spreads.
Credit risk on derivatives
Credit intermediation trade related
Credit risk on impaired derivatives
Credit risk on derivatives
2009
$m
53
82
135
2008
$m
531
156
687
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)
(78%), portfolios of external collateralised loan obligations (CLOs)
(13%) or specific bonds/floating rate notes (FRNs) (9%).
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.
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.
At 30 September 2009, the value of the obligation under the sold
protection is USD 897 million, for which the purchased protection
has produced only a partial offset as:
one of the purchased protection counterparties has defaulted
and many of the remaining were downgraded, and
ANZ has made a credit valuation adjustment on the remaining
counterparties reflective of changes to credit spreads.
The current charge includes $85 million in realised losses relating
to restructuring trades to reduce risks which were unhedged due
to default by the purchased protection counterparty. It also includes
net foreign exchange hedging losses.
The credit risk expense on structured credit derivatives is very
volatile reflecting the impact of market movements in credit spreads
and USD/AUD rates. It is likely there will continue to be substantial
volatility in this market value.
Impaired assets
Gross impaired loans at $4,392 million represent a $2,642 million
increase over 30 September 2008, driven mainly by increases
in Australia and New Zealand. The increase in Australia was
predominantly across entities within the Institutional Relationships,
Corporate Banking and Financial Institution portfolios, with the
ten largest impaired loan customers representing 60% of the total
Australia gross impaired loans balance. There was an increase in
Australia division across most businesses, as deterioration in the
economic environment resulted in higher levels of default,
particularly within Esanda, Business Banking and Investment and
Insurance Products. The New Zealand increase of $699 million was
driven primarily by customer downgrades in the small business,
commercial, agribusiness segments and mortgages portfolios.
Asia Pacific, Europe & America increased slightly, driven by increases
in Europe and America.
Capital and funding
ANZ took early and measured steps to manage its capital and funding
programs throughout the global financial crisis. This included initiatives
to strengthen the balance sheet, boost liquidity and the quantity and
composition of capital, to stay ahead of changes in the cycle and to
allow the Group to capitalise on opportunities that have and will arise.
ANZ’s capital base has been progressively strengthened since late
2007 but most recently through the raising of $5.7 billion of ordinary
equity. The Group’s Tier 1 capital ratio was 10.6% at the end of
September 2009 compared to 7.7% a year ago. Adjusting for the
announced acquisitions of certain RBS assets in Asia and the ING
Group’s share of the ING Australia and ING New Zealand joint
ventures, the pro-forma Tier 1 ratio reduces to 9.5%.
Global liquidity conditions have improved over the year. Deposit
growth has been strong with the proportion of total funding from
customers increasing from 50% to 55%. ANZ executed its full year
term wholesale funding requirements well ahead of schedule raising
a total of $25.8 billion. A combination of stronger deposit growth and
consistent term debt issuance has reduced the reliance on short term
wholesale funding from 22% to 17%.
8 ANZ Annual Report 2009
Chief Financial Officer’s Report 9
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
Analysis of movements in balance sheet captions on a statutory basis is set out on the following page.
2009
$m
2008
$m
25,317
4,985
47,566
37,404
345,769
15,946
476,987
19,924
294,370
36,516
13,762
57,260
22,726
444,558
32,429
25,030
9,862
32,657
36,941
349,851
15,952
470,293
20,092
283,966
31,927
15,297
67,323
25,136
443,741
26,552
Movt
1%
-49%
46%
1%
-1%
0%
1%
-1%
4%
14%
-10%
-15%
-10%
0%
22%
Excluding the impact of exchange rates the contraction was
smaller at $0.7 billion (1%), with growth in Rural Banking of
$1.2 billion (8%) being offset by reductions in the Institutional
business of $0.9 billion (13%) and Corporate & Commercial
Banking of $0.6 billion (5%). Asia Pacific, Europe & America
decreased $2.4 billion (11%) due to a reduction in the United
Kingdom and America of $1.4 billion (18%).
Deposits and other borrowings increased $10.4 billion to
$294.4 billion at 30 September 2009. Excluding the impact
of exchange rate movements, deposits and other borrowings
increased $14.6 billion (5%), driven by an increase in customer
deposits of $29.4 billion (14%), partly offset by a decrease in
wholesale funding of $14.8 billion (19%). Australia increased
$10.6 billion (6%) predominantly driven by the robust growth
in retail deposits. Growth was mainly in Deposits ($15.5 billion),
partly offset by decreases in Esanda of $9.1 billion, following the
winding back of debentures, and Group Treasury ($5.4 billion).
New Zealand Businesses decreased $5.9 billion (9%) driven by
a reduction in commercial paper issued by Treasury. Asia Pacific,
Europe & America increased $5.7 billion (16%) primarily from
Singapore through successful initiatives to raise deposit levels
and additional certificates of deposit issued in the United Kingdom
for funding requirements.
Bonds and notes decreased $10.1 billion to $57.3 billion at
30 September 2009 driven by exchange rate movements.
Growth in the balance sheet was subdued reflecting the challenging
economic environment experienced during the last twelve months
with asset growth of $6.7 billion or 1% and liability growth of
$0.8 billion. Movements in exchange rates have resulted in a decrease
of $6.7 billion for the year ended 30 September 2009. Excluding the
impact of exchange rates, total assets increased 3%.
Movements in the major asset and liability categories include:
Liquid assets increased $0.3 billion to $25.3 billion at 30 September
2009. Strong growth was evident in America (up $4.5 billion)
due primarily to an increase in bills receivable and Singapore (up
$2.2 billion) within bank certificates of deposits where funds were
redeployed from interbank placements for better yields. This was
partially offset by reductions in the United Kingdom of $2.9 billion,
New Zealand of $1.4 billion and Group Treasury of $0.9 billion.
Due from other financial institutions decreased $4.9 billion to
$5.0 billion at 30 September 2009 due mainly to a reduction in
interbank lending volumes in Transaction Banking in Australia
and Singapore.
Trading and available-for-sale assets increased $14.9 billion
to $47.6 billion at 30 September 2009, primarily in trading
securities within the Markets business in Australia due to a build
up in liquidity levels. These securities are high quality paper.
Derivative assets increased $0.5 billion to $37.4 billion at
30 September 2009 and derivative liabilities increased $4.6 billion
to $36.5 billion at 30 September 2009. The increase was driven
by volatility in foreign exchange, interest rate and credit derivative
markets.
Net loans and advances including acceptances contracted
slightly by 1% to $345.8 billion at 30 September 2009. Australia
grew by $0.7 billion, with housing loans in Mortgages increasing
by $12.7 billion (10%), partially offset by reduced lending in
Institutional, primarily in Specialised Lending and Markets, of
$12.1 billion (20%) driven by equity raisings in capital markets
and widespread deleveraging prompting paydown of loan
balances. New Zealand declined by $2.4 billion or 3%.
10 ANZ Annual Report 2009
Chief Financial Officer’s Report 11
ChIEF FINANCIAL OFFICER’S REPORT (continued)
Australia Region
Income Statement ($m)
Net interest income
Other external operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense
Minority interest
Underlying profit
Adjustments between statutory profit and underlying profit1
Profit
2009
7,085
2,677
9,762
(4,034)
5,278
(2,053)
3,675
(1,113)
(2)
2,560
(476)
2,084
2008
5,677
2,849
8,526
(3,677)
4,849
(1,663)
3,186
(917)
(2)
2,267
(160)
2,107
Movt
25%
-6%
14%
10%
18%
23%
15%
21%
0%
13%
large
-1%
Asia Pacific, Europe and America Region
Income Statement ($m)
Net interest income
Other external operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense
Minority interest
Underlying profit
Adjustments between statutory profit and underlying profit1
Profit
2009
846
1,121
1,967
(852)
1,115
(276)
839
(140)
–
699
1
700
2008
473
736
1,209
(554)
655
(176)
479
(87)
(6)
386
(5)
381
Movt
79%
52%
63%
54%
70%
57%
75%
61%
-100%
81%
large
84%
1 Adjusted for material items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing businesses,
1 Adjusted for material items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing businesses,
timing differences on economic hedges, and acquisition related costs. Refer page 6.
timing differences on economic hedges, and acquisition related costs. Refer page 6.
Profit after tax decreased $23 million or 1% to $2,084 million
for the year ended 30 September 2009. On an underlying basis
profit increased $293 million (13%).
Significant influences on underlying profit were:
Net interest income increased 25% driven by an increase in net
interest margin of 29 basis points, while average net loans and
advances grew by 7% and average deposits grew by 11%. higher
funding benefits associated with unrealised trading gains (offset
by a decrease in trading income) had an 11 basis point positive
impact. Excluding this, margin improved by 18 basis points with
higher margins in Australia division in Retail and Commercial
reflecting repricing for risk and recouping higher funding costs and
increased margins in Institutional Australia reflecting repricing on
the corporate lending book and management of interest rate risk
in Markets. Growth in balance sheet volume was driven by Australia
division, with Retail customer deposits up 28% reflecting increased
market share and net loans and advances up 10% in Mortgages.
Other external operating income decreased 6%. Excluding the
offset to the derivative funding benefit in net interest income, other
external operating income increased 5% driven by strong trading
and sales revenues generated in a volatile market and favourable
growth in Retail driven by fee revenue mainly in Deposits. This
was partially offset by a decline in income in Wealth from lower
investment and advisory income and a lower contribution from
the INGA business.
Operating expenses increased 10% or $357 million. Institutional
Australia increased 21% or $178 million due primarily to investment
in frontline staff and systems, salary inflation and remuneration
costs. Australia division increased 4% or $114 million with
increased volume growth related personnel in service delivery and
collections areas, salary inflation, premises costs and investment in
systems, partly offset by savings due to productivity, restructuring
and offshoring activities. Increases of $61 million within Group
Centre include increased expenditure on transformation activity.
Provision for credit impairment increased $390 million (23%).
The individual provision charge increased by $1,199 million
driven by higher loss rates across all portfolios and increased
bankruptcies, liquidations and a significant reduction in Retail
resale options. In addition, Institutional Australia experienced
several large single name provisions. The collective provision
charge decreased by $809 million with the release of collective
provision provided in 2008 as actual losses crystallised and flowed
through the 2009 individual provision charge within Institutional
Australia, partly offset by increases within the Cards portfolio due
to higher delinquencies and bankruptcies and Esanda and Wealth
due to risk deterioration.
Profit after tax increased $319 million or 84% (55% excluding
exchange rate impacts) to $700 million for the year ended
30 September 2009 (on an underlying basis profit grew
$313 million or 81%).
This increase was driven by strong growth in the Institutional
business as it benefited from currency and rates volatility in the
region particularly in the early part of the year. Continued investment
in front office sales capability generated a significant increase in
trade sales. The Asia Partnerships also contributed significantly to
the result with increased equity accounted earnings, particularly
from Shanghai Rural Commercial Bank (SRCB) and Bank of Tianjin
(BoT) in China and AMMB holdings Berhad (AMMB) in Malaysia
(including improved assessment of credit provisioning requirements),
offsetting an impairment charge relating to the carrying value of our
investment in Saigon Securities Inc (SSI) in Vietnam.
Operating expenses increased as a result of the continued investment
in the key strategic markets of Indonesia, Vietnam and China as well
as building our operating and support capabilities.
Key factors affecting the underlying result were:
Net interest income increased by 79% (43% excluding exchange
rate impacts) due to significant increases in our Global Markets
business. While net loans and advances were down 11% year on
year as we de-risked our balance sheet, overall external assets
were up 3% due primarily to increased Markets activities. Customer
deposits grew a healthy 35% improving our deposits to loans ratio
to 160%. Margins increased by 47 basis points to 170 basis points
(18 basis points increase excluding cash flow on derivatives).
Other external operating income grew by 52% (40% excluding
exchange rate impacts), of which more than half was contributed
by equity accounted earnings from our Asia Partnerships which
included benefit from reassessed credit provisioning requirements.
Fee and other income were significantly higher in the Markets
businesses leveraging off volatility in the currency markets.
Operating expenses increased 54% (32% excluding exchange rate
impacts) through a combination of new investments, and growth
across the region in employee numbers. Employees increased by
1,786 as we continue to build core capability in the region and
increase our operations and technology support staff in Bangalore.
Provision for credit impairment increased by 57% ($100 million)
due primarily to risk grade decreases and an additional $43 million
as a result of a refinement to the collective provision calculation
in 2009.
12 ANZ Annual Report 2009
Chief Financial Officer’s Report 13
ChIEF FINANCIAL OFFICER’S REPORT (continued)
New Zealand Region
Income Statement ($m)
Net interest income
Other external operating income
Operating income
Operating expenses
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense
Underlying profit
Adjustments between statutory profit and underlying profit1
Profit
2009
1,879
759
2,638
(1,182)
1,456
(727)
729
(216)
513
(354)
159
2008
1,705
855
2,560
(1,175)
1,385
(251)
1,134
(361)
773
58
831
Movt
10%
-11%
3%
1%
5%
large
-36%
-40%
-34%
large
-81%
Institutional Division
(Global line of business, also included in each of the regions discussed on pages 12 to 14).
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
2009
3,041
1,907
4,948
(1,583)
3,365
(1,408)
1,957
(556)
2008
1,823
1,801
3,624
(1,245)
2,379
(1,281)
1,098
(327)
Underlying profit
1,401
771
Movt
67%
6%
37%
27%
41%
10%
78%
70%
82%
1 Adjusted for material items that are not part of the normal ongoing operations of the Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing businesses,
timing differences on economic hedges, and acquisition related costs. Refer page 6.
Profit decreased 81% impacted by negative adjustments between
statutory profit and underlying profit of $412 million, principally
tax provisioning on Conduits and the ING investor settlement. After
excluding adjustments to arrive at statutory profit, underlying profit
reduced 34%, largely driven by a $344 million after tax increase
in credit impairment expense, with credit cycle impacts felt across
all businesses. Operating income in the New Zealand Businesses
declined 7%, with lending growth constrained by de-leveraging
underway in the consumer and business sectors, and net interest
margin contracting as a result of deposit competition. The
Institutional business, however, delivered a 33% increase in revenue,
with Markets taking advantage of opportunities presented by
volatility during the first half.
Net interest income increased 10%. After adjusting for a
$185 million increase in net interest income from derivative
and liquidity positions that was offset by a decrease in trading
income, net interest income was down 1%. The result was driven
by a strong contribution from positioning the balance sheet
(mismatch earnings) and earnings on higher levels of retained
capital, moderated by margin contraction of 26 basis points
in our core Retail and Commercial businesses. Margin contraction
reflected intensified competition for deposits driven by increased
wholesale funding spreads, and the delay in passing these costs
on due to the predominance of fixed rate mortgages in the lending
book, as well as adverse break costs on mortgages as customers
take advantage of falling interest rates.
Excluding the change in composition of the derivative and liquidity
result referred to above, other external operating income increased
10%, largely reflecting a strong Markets result.
Operating expenses increased 1%. Costs have been well managed,
reflecting benefits from business transformation strategies that
have been in place over the last year, as well as from strong control
of discretionary expenditure. These have offset the increase in costs
from the acquisition of a subsidiary as part of a debt restructure,
higher remuneration costs in Institutional and higher business
transformation costs.
Provision for credit impairment charge increased $476 million as
a result of credit cycle impacts across the businesses. The individual
provision charge increased $349 million, reflecting an increase
in loss rate from the relatively low level of 20 basis points in the
2008 year to 64 basis points in 2009. This was largely from general
deterioration across the book, with the largest increase in the
Commercial businesses, albeit from relatively low levels in 2008.
An increase of $42 million in Institutional largely related to a
single name exposure. The collective provision charge increased
$130 million with the largest increases in the Commercial
businesses as a result of economic cycle risk adjustments booked
in the second half. The total provision coverage (ratio of total
provisions held to credit risk weighted assets) at September 2009
was strong at 2.12%, up from 1.11% in 2008.
Profit after tax increased $630 million or 82% to $1,401 million
for the year ended 30 September 2009.
The refocus on Institutional’s global client segment propositions
drove revenue in areas of core client demand. Interest rate and
general market volatility and increased customer focus delivered
Global Markets trading and sales revenue growth of 77%. Transaction
Banking revenue grew by 12% and Specialised Lending revenue
grew by 23%. Net lending assets fell by 18% during the year, where
an increase in equity raisings in capital markets and a general
response to the economic environment prompted the pay down
of lending. Net interest margin (excluding cash flow on derivatives)
increased by 32 basis points in response to widening credit spreads
and repricing for risk. Customer deposits increased by $12.5 billion
during the year reflecting our focus on core client needs in a volatile
environment while reducing reliance on wholesale borrowing.
Expenses grew by 27% reflecting the investment in the “Rebuild and
Refocus” program and building our client franchises particularly in
Asia where employee numbers increased by 188 to support business
growth in that region. In addition, remuneration costs increased
associated with attracting experienced bankers and specialist staff.
Provision for credit impairment was up 10%. Individual provisions
of $1.5 billion were predominantly in Australia in the first half, largely
related to securities lending, property exposures, agribusiness and
a limited number of corporate names. This was offset in part by a net
release of collective provision of $136 million, reflecting the release
of some of the $300 million concentration risk and economic cycle
collective provision booked in the prior financial year for exposures
to financial services and property sectors which crystallised during
the year, lower volumes and allowance for concentration risks
at the end of the year. Net non performing loans grew to $1.8 billion,
although the rate of growth slowed significantly in the second half.
Significant factors affecting the result were as follows:
Global Markets revenue increased 77% to $2.2 billion with strong
trading and sales revenues generated in a volatile market.
Net interest margin increased by 69 basis points to 2.05%.
Excluding the impact of higher funding benefits associated
with unrealised trading gains (offset by an equivalent decrease
in trading income), net interest margin increased 32 basis points
reflecting widening spreads and repricing for risk.
Asia Pacific, Europe & America revenue increased reflecting
strategic investment in the region.
New Zealand revenue growth was 33%, despite poor local economic
conditions. Revenue growth was driven mainly by Global Markets.
14 ANZ Annual Report 2009
Chief Financial Officer’s Report 15
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
Underlying profit1
Adjustments between statutory profit and underlying profit1
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
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
2009
$m
9,810
4,557
(6,068)
8,299
(3,056)
(1,469)
(2)
3,772
(829)
2,943
476,987
32,429
10.6%
10.3%
0.6%
42.2%
40.3%
61,085
102c
100%
100%
$24.99
$11.83
$24.39
131.0c
82.3%
$11.02
2,504.5
$15.16
–
1,352
37,687
396,181
2008
$m
7,855
4,440
(5,406)
6,889
(2,090)
(1,365)
(8)
3,426
(107)
3,319
470,293
26,552
7.7%
14.5%
0.8%
44.0%
-33.5%
38,263
136c
100%
100%
$31.74
$15.07
$18.75
170.4c
82.7%
$10.72
2,040.7
$20.82
$13.58
1,340
36,925
376,813
2007
$m
7,302
3,765
(4,953)
6,114
(567)
(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
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
2001
$m
3,833
2,573
(3,092)
3,314
(531)
(911)
(2)
1,870
–
1,870
185,493
10,551
7.5%
20.2%
1.1%
48.0%
26.2%
23,783
73c
100%
100%
$16.71
$12.63
$15.28
112.7c
62.0%
$5.96
1,488.3
$15.05
$18.33
1,056
22,501
181,667
2000
$m
3,801
2,583
(3,314)
3,070
(502)
(863)
(2)
1,703
44
1,747
172,467
9,807
7.4%
19.3%
1.1%
51.7%
36.3%
20,002
64c
100%
100%
$12.87
$9.18
$12.70
102.5c
59.1%
$5.49
1,506.2
$11.62
$14.45
1,087
23,134
179,829
1 Adjusted for material items that are not part of the normal ongoing operations of the
Group including one-off gains and losses, gains and losses on the sale of businesses,
non-continuing businesses timing differences on economic hedges, and acquisition
related costs, refer page 6. Prior to 2009 these were adjustments to arrive at cash profit
in accordance with market convention.
2 From 2000 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.
5 For the periods 2000 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 Excludes employees whose only ANZ shares are held in trust under ANZ employee share schemes.
16 ANZ Annual Report 2009
Ten Year Summary 17
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 2009
and the Independent Auditor’s Report thereon. The information is provided in conformity with the Corporations Act 2001.
Organisational structure – Esanda Finance Corporation Limited
transitioned from a wholly owned subsidiary towards being a
division of the Company and ANZ established a licensed banking
branch in New Zealand.
Asia expansion – ANZ is continuing to progress its super regional
growth strategy with further branch expansion in Indonesia and
Vietnam. In addition, ANZ is the one of the first International banks
to open a rural bank in Western China.
Refer also to ‘Events Since the End of the Financial Year’ below for
details on acquisitions which are expected to occur in 2010.
Further review of matters affecting the Group’s state of affairs is also
contained in the Chief Financial Officer’s Report on pages 6 to 15 of
this Annual Report.
Dividends
The directors propose that a final fully franked dividend of 56 cents
per fully paid ordinary share shall be paid on 18 December 2009.
The proposed payment amounts to approximately $1,403 million.
During the financial year, the following fully franked dividends were
paid on fully paid ordinary shares:
Type
Final 2008
Interim 2009
Cents
per share
Amount before bonus
option plan adjustment
$m
Date of
payment
74
46
1,514
993
18 December 2008
1 July 2009
The proposed final dividend of 56 cents together with the interim
dividend of 46 cents brings total dividends in relation to the year
ended 30 September 2009 to 102 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 15 of this Annual Report.
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 and the Asia Pacific region. It also operates in
a number of other countries including the United Kingdom
and the United States.
At 30 September 2009, the Group had 1,352 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 $2,943 million, a decrease of 11% over the
prior year.
Strong growth in profit before credit impairment and income tax
of $922 million or 14% was offset by an increase in the provision
for credit impairment of $1,057 million or 54% reflecting the
challenging economic conditions evident in each of the regions,
but most pronounced in New Zealand.
Balance sheet growth was curtailed with total assets increasing 1%
and total liabilities were largely in line with prior year. Movements
within the major components include:
Net advances growth contracted by 1% with growth in Mortgages
within Australia of $12.7 billion offset by a reduction in lending in
Institutional Australia of $12.2 billion as corporates deleveraged.
Customer deposits and other funding liabilities increased by
14%, reducing the reliance on short term wholesale funding.
During 2009, $25.8 billion of term wholesale debt was raised.
Further details are contained on pages 6 to 15 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 $2.6 billion over 30 September 2008 mainly reflected a
number of downgrades in Australia and New Zealand as deterioration
in the economic environment resulted in a higher level of default.
The rate of growth in impaired financial assets slowed in the second
half of the financial year.
Capital raisings – ANZ ordinary shares of $2.5 billion were raised
via an institutional placement, a further $2.2 billion through a Share
Purchase Plan to existing shareholders, and the final 2008 dividend
was fully underwritten.
Events Since the End of the Financial Year
On 25 September 2009, the Company announced it had reached
agreement with ING Groep to acquire ING Groep’s 51% shareholdings
in the ANZ-ING wealth management and life insurance joint ventures
in Australia and New Zealand for $1,760 million, taking its ownership
interest to 100%. Completion is subject to various conditions,
including regulatory approval, and is expected to occur during the
fourth quarter of calendar 2009. Once completed, the acquisition
will result in the Group fully consolidating the assets, liabilities and
operations of ING Australia Limited (“INGA”) and ING (NZ) holdings
Limited (“INGNZ”) and its subsidiary companies into the Group’s
results. At acquisition date, under the step acquisition provisions
of AASB3R Business Combinations (Revised) which will come into
effect in 2010, the Group will remeasure its existing 49% interests
which are accounted for under the equity method at acquisition
date fair values and will recognise the resulting gain or loss in the
income statement.
On 4 August 2009 the Company announced it had reached
agreement with Royal Bank of Scotland Group plc to acquire
selected businesses in Taiwan, Singapore, Indonesia1, hong Kong,
Phillipines and Vietnam. The purchase price is based on the fully
recapitalised net tangible book value of these businesses plus a
premium of USD50 million and whilst the ultimate purchase price
is not determinable until completion it is estimated to amount to
approximately USD550 million (AUD626 million). Each acquisition
is subject to regulatory approval in the relevant jurisdictions,
which is expected to occur from late calendar 2009 through 2010.
Accordingly these acquisitions are expected to be progressively
consolidated into the 2010 results including the impacts of
acquisition accounting, integration and acquisition costs.
1 The Indonesian business will be acquired through ANZ’s 85% owned subsidiary
P.T. Bank Pan Indonesia.
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 obligations 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 successfully navigating responsible growth.
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 that we procure
and that we provide to our customers.
As such, ANZ has established strategies and internal responsibilities
for reducing the impact of our operations and business activities on
the environment.
The operations of the Group 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 has historically made data publicly available on its direct
and indirect emissions on an annual basis through our Corporate
Responsibility Report as well as through other avenues such as
the Carbon Disclosure Project. ANZ is also subject to two key pieces
of legislation.
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 progress with the implementation
of the opportunities identified. As required under the legislation,
ANZ submitted a five year energy efficiency assessment plan and
reports to the Government annually, every December, until the
end of the five year reporting cycle in 2011.
The National Greenhouse Energy Reporting Act introduced
in July 2008 has been designed to create a national framework
for energy reporting including creating a baseline for emissions
trading. The Act makes registration and reporting mandatory for
corporations whose energy production, energy use, or greenhouse
gas emissions trigger the specified corporate or facility threshold.
ANZ is over the corporate threshold for this legislation and as a result
we were required to submit our first report on 31 October 2009.
18 ANZ Annual Report 2009
Directors’ Report 19
DIRECTORS’ REPORT (continued)
Directors’ Qualifications, Experience
and Special Responsibilities
At the date of this report, the Board comprises nine 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 53 to 55 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 56 to 64 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 2009
financial year are listed on pages 53 to 55.
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 20. 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), FCA
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.
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, Finance)
and endorsed by 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 52.
The Audit Committee has reviewed a summary of non-audit services
provided by the external auditor for 2009, and has confirmed that
the provision of non-audit services for 2009 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 2009.
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 2009 are
as follows:
Non-audit service
Market Risk benchmarking review
Market Risk system capability review
Training courses
Accounting Advice
ANZ Nominees confirmation procedures
Due diligence agreed upon procedures
Trustee certification
Total
Amount paid/payable
$’000’s
2009
2008
75
41
35
17
–
–
–
168
–
–
70
–
28
106
6
210
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 2009 is compatible with the general
standard of independence for auditors imposed by the Corporations
Act 2001.
Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration given under section
307C of the Corporations Act 2001 is set out on page 51 and forms
part of this Directors’ Report for the year ended 30 September 2009.
Directors and Officers who were Previously Partners
of the Auditor
The following persons during the financial year were 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 who retired from
the Board on 21 March 2009 (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
Principles and 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;
serious misconduct, gross negligence, or a lack of good faith;
illegal, dishonest or fraudulent conduct; or
material non-compliance with the Company’s policies or
discretions.
The Company has entered into Indemnity Deeds with each of its
directors, with certain secretaries of the Company, and with certain
employees and other individuals who act as directors or 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.
20 ANZ Annual Report 2009
Directors’ Report 21
DIRECTORS’ REPORT (continued)
REMUNERATION REPORT
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 2009 Financial Report.
Details of shares issued as a result of the exercise of options granted
to employees as at the date of this report are detailed in note 46 of
the 2009 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 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.
Contents
Remuneration Overview
Remuneration Structure
Non-Executive Directors
CEO and Executives
2009 Actual Remuneration Outcomes
Non-Executive Directors
CEO
Executives
Remuneration Report
Board Oversight of Remuneration
Non-Executive Directors
Non-Executives Directors – Summary
Executives
Executives – Summary
1. Non-Executive Director Remuneration
1.1. Board Policy on Remuneration
1.2. Components of Non-Executive Director Remuneration
1.3. Shareholdings of Non-Executive Directors
1.4. Remuneration paid to Non-Executive Directors
2. Executive Remuneration
2.1. Remuneration Guiding Principles
2.2. Performance of ANZ
2.3. Remuneration Structure Overview
2.4. Remuneration Components
2.5. CEO Remuneration
2.6. Executive Remuneration
2.6.1. Fixed Remuneration
2.6.2. Variable Remuneration
2.6.3. Short Term Incentives (STI)
2.6.4. Long Term Incentives (LTI)
2.7. Equity Granted as Remuneration
2.8. Equity Valuations
2.9. Equity Vested/Exercised/Lapsed during the 2008/09 year
2.10. Shareholdings of Executives
2.11. Legacy LTI Programs
2.12. Remuneration Paid to Executives
3. Contract Terms
3.1. CEO’s Contract Terms
3.2. Executives’ Contract Terms
24
24
24
24
24
24
24
25
27
27
27
27
28
29
29
29
30
31
32
34
34
34
35
36
36
37
37
37
38
39
41
42
43
44
46
47
50
50
50
22 ANZ Annual Report 2009
Remuneration Report 23
REMUNERATION REPORT (Unaudited) (continued)
Remuneration Overview
This overview has been written to provide you with a clear and
simple summary of ANZ’s remuneration structure and the actual
value derived from the various remuneration components by
executives in 2008/09. Detailed data is provided in the Directors’
Remuneration Report on pages 27-51.
Remuneration Structure
NON-ExECUTIVE DIRECTORS
Full details of the fees paid to Non-Executive Directors (NEDs)
in 2008/09 are provided on page 32 of the Remuneration Report.
In summary, NEDs receive a base fee for being a director of the
Board and additional fees for either chairing or being a member
of a committee, working on special committees and/or for serving
on a subsidiary board. They do not receive any performance/incentive
payments and are not eligible to participate in any of the Group’s
incentive arrangements.
CEO AND ExECUTIVES
ANZ’s remuneration framework is designed to create and enhance
value for all ANZ stakeholders and to ensure there is strong alignment
between the short and long term interests of shareholders and
executives. A key feature of ANZ’s reward structure is the role it plays
in helping drive ANZ’s strategy to build a culture of out-performance
with integrity, by ensuring differentiation of rewards and recognition
of key contributors. To achieve this, remuneration for the CEO and
Executives is comprised of:
Fixed pay: This is the only ‘guaranteed’ part of the remuneration
package. ANZ positions fixed pay for Executives against the median
of the relevant financial services market.
Short Term Incentive (STI): The STI provides an annual opportunity
for an incentive award if certain company and individual objectives
are met and there have been no inappropriate behaviour or risk/
compliance/audit breaches.
long Term Incentive (lTI): The LTI provides an annual opportunity
for an equity award that aligns a significant portion of overall
remuneration to shareholder value over the longer term.
2009 Actual Remuneration Outcomes
NON-ExECUTIVE DIRECTORS
In 2008 the Board agreed not to increase the NED fees for 2008/09.
As a result, the fee structure has been maintained at 2008 levels for
the current year.
CEO
Fixed Pay: The level of fixed annual pay for the CEO was set for three
years at $3 million on his commencement in October 2007. This will
be reviewed in October 2010.
Short Term Incentive (STI): The CEO has an annual opportunity
to receive a bonus payment equivalent to the value of his fixed
remuneration, i.e. $3 million if targets are met. The actual amount
paid can increase or decrease from this target dependent on Group
and individual performance. The CEO’s STI payment for the 2009
year has been determined having regard to both the company’s
underlying profit for the current year as well as the significant
progress achieved in relation to ANZ’s long-term strategic goals.
The STI will be $4.5 million with $2.4 million paid in cash and
the balance awarded as deferred shares. half the deferred shares
will be restricted for 1 year and half for 2 years.
Special Equity Allocation: At the 2008 Annual General Meeting,
shareholders approved an additional grant of 700,000 options to
the CEO at an exercise price of $14.18 and with a vesting date of
18 December 2011. At grant the options were valued at $2.27 each,
i.e. a total value of $1.589 million. These options will only have any
value if, at the vesting date or during the subsequent exercise period
(i.e. 2 years after vesting), the share price exceeds $14.18. This value
will be the difference between the exercise price ($14.18) and the
price on the vesting date (as long as it is greater than $14.18)
multiplied by the total number of options. No options have been
granted in respect of the 2009 year.
long Term Incentive (lTI): Three tranches of performance rights were
provided to the CEO in December 2007, covering his first three years
in the role. The first of these tranches will be tested against a relative
Total Shareholder Return (TSR) hurdle after 3 years, i.e. December 2010
and the other two will be tested in December 2011 and December
2012 respectively. Therefore, since joining ANZ as CEO on 1 October
2007 the CEO has received no benefit from these LTI grants and will
only do so from December 2010 onwards and only if the performance
hurdles have been met. There is no retesting of these grants.
In addition to his standard remuneration arrangements, the CEO
was provided with additional equity as part of his original sign-on
arrangements to recognise remuneration forgone from his previous
employer in order to join ANZ. The CEO was offered $9 million on his
commencement which could have been taken in cash but which he
elected to take as shares, with one third vesting at his 1st, 2nd and
3rd anniversaries respectively. This equated to a total of 330,033
ANZ shares at the time of grant when the share price was $27.27.
On 2 October 2008, 110,011 shares became available to the CEO,
however, the value had declined significantly from the original grant
value of $3 million to $2.097 million (based on the one day value
weighted average price (VWAP) of $19.061 per share on 2 October
2008). The subsequent grants will vest on 2 October 2009 and 2010
respectively.
The following table, relating to the CEO, shows:
The actual amounts or grants made in respect of the year ended
30 September 2009;
Any amounts which had to be deferred in respect of the year ended
30 September 2009;
The actual amounts received in respect of the year ended
30 September 2009; and
The actual amounts received in respect of prior year allocations.
Chief Executive Officer
(M Smith)4
Amounts paid or granted in respect of 2008/09 year
less amounts which must be deferred in respect of 2008/09 year
Amount received – 2008/09 year
Amount received – related to prior year allocations1
Fixed Pay
($)
3,000,000
0
3,000,000
STI
($)
4,500,000
2,100,000
2,400,000
lTI5
($)
0
0
0
Other grants
/benefits
($)
TOTAl
($)
1,594,0002,3
9,094,000
1,589,0002
5,0003
3,689,000
5,405,000
0
Includes prior year deferred STI/LTI components and/or equity grants which first became payable in the 2008/09 year.
1
2 Special equity grant – Dec 08 – 700,000 options valued @ $2.27 per option.
3 Provision of Australian taxation return services by PwC.
4 On commencement with ANZ, M Smith was granted three tranches of equity valued at $3 million each. The first of these tranches of deferred shares became available on 2 Oct 08 – price at
vesting $19.0610 (based on 1 day VWAP as at 2 Oct 08). Therefore the value of this tranche at date of vesting was $2,096,920. This amount is not reflected in the table above as it relates to a
specific equity arrangement associated with his commencement and is not a part of his standard remuneration arrangements.
5 LTI grants covering the CEO’s first three years in the role were granted on his commencement and, therefore, no further grant was made in the 2008/09 year – details of the LTI grants are provided
in the LTI section above. No value was received from these LTI grants in the current year. Accordingly, no value for LTI is provided in the table as having been awarded or received in 2008/09.
long Term Incentive (lTI): The target LTI for Executives is 50% of
their fixed pay. This dollar value is converted into an actual number
of performance rights using an independent and audited external
valuation. These rights are subject to a relative TSR performance
hurdle that compares ANZ’s performance with a selection of other
comparable financial institutions over the three year period following
the grant. If the hurdle is achieved, the shares are released and if not,
they are forfeited. In the current year, the LTI grants made in 2005
and 2006 were tested in 2008 against the TSR performance of the
comparator groups and as the performance hurdle was not achieved
all of these rights were forfeited (i.e. Executives received no value
at all).
ExECUTIVES
Fixed pay: Some minor adjustments were made to fixed pay levels
in October 2008. Subsequently, a review identified that ANZ’s current
fixed remuneration levels for senior executives were at market. As a
result of this review and also being cognisant of the need for restraint
in the current climate, a decision was made earlier this year that a
salary freeze would be effected for the 2009 remuneration review.
Short Term Incentive (STI): Executives have an opportunity to receive
an on-target STI payment equivalent to 120% of their fixed pay, with
top performers able to receive incentive payments well above the
target level whereas poorer performers will receive a significantly
reduced or no incentive payment at all. All incentives paid this year
(paid in October 2008 but relating to FY2008 performance) were
impacted by the company’s performance with reductions applied
to the STI payments for each executive. The STI pool for the 2009 year
has also been reduced below on-target levels, reflecting the link
between performance and variable reward outcomes.
historically, STI payments were paid in cash at the end of each year.
however, in 2008 a deferral threshold level was established. Where
the STI payment exceeds this threshold, Executives are required to
take half of the payment in excess of the threshold in ANZ equity.
The equity is subject to mandatory deferral, with half of the deferred
equity unavailable for a 1 year period and the other half of the
deferred equity unavailable for a 2 year period. This is designed to
strengthen the link between the STI award and longer term alignment
with shareholder interests. This change resulted in Executives
receiving significantly less of their STI in cash with more deferred into
equity than had been the case in the past. If an executive resigns or is
terminated on notice from ANZ during the deferral period, the equity
is forfeited.
24 ANZ Annual Report 2009
Remuneration Report 25
REMUNERATION REPORT (Unaudited) (continued)
REMUNERATION REPORT (Audited)
The following table covers those disclosed Executives who were employed at the Executive level for the full year and details:
The actual amounts or grants made in respect of the year ended 30 September 2009;
Any amounts which had to be deferred in respect of the year ended 30 September 2009;
The actual amounts received in respect of the year ended 30 September 2009; and
The actual amounts received in respect of prior year allocations.
GMD, Operations, Technology and Shared Services
(D Cartwright)
Amounts paid or granted in respect of 2008/09 year
less amounts which must be deferred in respect of 2008/09 year
Amount received – 2008/09 year
Amount received – related to prior year allocations1
Deputy CEO and Acting CEO Australia
(G hodges)
Amounts paid or granted in respect of 2008/09 year
less amounts which must be deferred in respect of 2008/09 year
Amount received – 2008/09 year
Amount received – related to prior year allocations1
Chief Financial Officer
(P Marriott)
Amounts paid or granted in respect of 2008/09 year
less amounts which must be deferred in respect of 2008/09 year
Amount received – 2008/09 year
Amount received – related to prior year allocations1
Chief Risk Officer
(C Page)
Amounts paid or granted in respect of 2008/09 year
less amounts which must be deferred in respect of 2008/09 year
Amount received – 2008/09 year
Amount received – related to prior year allocations1
Fixed Pay
($)
850,000
0
850,000
Fixed Pay
($)
1,000,000
0
1,000,000
Fixed Pay
($)
1,000,000
0
1,000,000
STI
($)
730,000
265,000
465,000
STI
($)
860,000
330,000
530,000
STI
($)
850,000
325,000
525,000
Fixed Pay
($)
850,000
0
850,000
STI
($)
1,600,000
700,000
900,000
lTI
($)
350,000
350,000
Other grants
/benefits
($)
TOTAl
($)
128,9773,4
2,058,977
0
615,000
0
128,977
1,443,977
Other grants
/benefits
($)
134,810
TOTAl
($)
145,9404
2,505,940
0
830,000
lTI
($)
500,000
500,000
0
145,940
1,675,940
lTI
($)
500,000
500,000
0
lTI
($)
425,000
425,000
Other grants
/benefits
($)
0
0
0
Other grants
/benefits
($)
301,9884
0
0
301,988
0
TOTAl
($)
2,350,000
825,000
1,525,000
0
TOTAl
($)
3,176,988
1,125,000
2,051,988
0
CEO, Asia Pacific, Europe & America
(A Thursby)2
Amounts paid or granted in respect of 2008/09 year
less amounts which must be deferred in respect of 2008/09 year
Amount received – 2008/09 year
Amount received – related to prior year allocations1
Fixed Pay
($)
1,000,000
0
1,000,000
STI
($)
2,600,000
1,200,000
1,400,000
lTI
($)
550,000
550,000
0
Other grants
/benefits
($)
TOTAl
($)
88,3513,4
4,238,351
0
88,351
1,750,000
2,488,351
0
Remuneration Report
The Directors’ Remuneration Report is designed to provide shareholders with an understanding of ANZ’s remuneration policies which relate
to Key Management Personnel (KMP) as defined under the Corporations Act and the link between remuneration and ANZ’s performance, along
with individual outcomes for ANZ’s Directors and Executives.
This Remuneration Report has been prepared in accordance with section 300A of the Corporations Act for the Company and the consolidated
entity for the year ended 30 September 2009. The information provided in this Remuneration Report has been audited as required by section
308(3C) of the Corporations Act. This Remuneration Report forms part of the Directors’ Report.
Board Oversight of Remuneration
The Board human Resources (hR) Committee has responsibility for director and executive remuneration, executive succession, and for making
recommendations to the Board on remuneration and succession matters related to the CEO (refer to page 62 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 advice from external providers.
(The following advisors were used: Ernst & Young, hay Group, Freehills and PricewaterhouseCoopers.) The Board’s decisions were made
independently using the advice provided and having careful regard to ANZ’s position, strategic objectives and current requirements.
Non-Executive Directors
Throughout this report specific disclosures are provided in relation to the remuneration of the Non-Executive Directors (NEDs) set out in Table 1,
who fall within the definition of KMP of the Company and of the Group.
TABLE 1: NON ExECUTIVE DIRECTORS
Current Non-Executive Directors
C Goode
G Clark
J Ellis
P hay
h Lee
I Macfarlane
D Meiklejohn
J Morschel
A Watkins
Chairman, Independent Non-Executive Director – Appointed Director July 1991;
appointed Chairman August 1995
Independent Non-Executive Director – Appointed February 2004
Independent Non-Executive Director – Appointed October 1995
Independent Non-Executive Director – Commenced 12 November 2008
Independent Non-Executive Director – Commenced 1 February 2009
Independent Non-Executive Director – Appointed February 2007
Independent Non-Executive Director – Appointed October 2004
Independent Non-Executive Director – Appointed October 2004
Independent Non-Executive Director – Commenced 12 November 2008
Former Non-Executive Director
M Jackson
Independent Non-Executive Director – Appointed March 1994 – Retired 21 March 2009
Non-Executives Directors – Summary
Details
Fees
Summary
NEDs receive a fixed base fee for being a director of the Board and additional
fixed fees for either chairing or being a member of a committee, working on
special committees and/or for serving on a subsidiary board. Superannuation
contributions are also made at a rate of 9% (but only up to the Government’s
prescribed maximum contributions cap). It was agreed that fees would not
be increased for 2008/09. NEDs do not earn separate retirement benefits.1
Details of NED remuneration for 2008/09 including acquisitions under the
NED Share Plan can be found in Table 6.
Discussion in Report
Page 30
Page 32
1
2
Includes prior year deferred STI/LTI grants which first became payable in the 2008/09 year.
In addition to remuneration shown above, A Thursby received an equity grant in 2008/09 in accordance with his employment arrangements on joining ANZ. ANZ agreed to provide A Thursby
with 3 separate tranches of deferred shares to the value of $1 million per annum. The first grant was made on 3 September 2007, the second on 28 August 2008 and the final tranche was granted
on 22 September 2009. The shares are restricted and held in trust for three years from the date of allocation.
3 Taxation services provided by PricewaterhouseCoopers.
4 Relocation expenses and for G hodges includes an annual leave payment on change of contracts on transfer from New Zealand to Australia.
Remuneration Outcomes
26 ANZ Annual Report 2009
Remuneration Report 27
1 The NED retirement scheme was closed effective 30 September 2005. Accrued entitlements were fixed at that time and will be carried forward until the retirement of the relevant NEDs.
REMUNERATION REPORT (Audited) (continued)
Executives
Throughout this report specific disclosures are provided in relation to the remuneration of both the Chief Executive Officer (CEO) and other
executives (i.e. those 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) who fall within the definition of KMP of the Company and of the Group.
Also included are executives who are within the group of the five highest paid executives in the Company and the Group. This has been defined
as the five highest paid, relevant group and company executives who participate in making decisions that affect the whole, or a substantial part,
of the business of the company or who have the capacity to significantly affect the company’s financial standing.
Throughout this report the term “Executives” has been used to refer to these disclosed individuals. Details of these individuals are provided in
Table 2.
ANZ operates a matrix structure with three geographic Divisions (Australia, New Zealand and Asia Pacific Europe & America) and three business
segments (Retail, Wealth and Commercial) as well as the global Institutional client business. All of these are supported by enablement functions
(e.g. Finance, Risk). This structure was introduced for the 2009 financial year (i.e. 1 October 2008), which has resulted in changes in position titles
and roles for some Executives from those shown in the 2008 report.
TABLE 2: ExECUTIVES
Executive Director
Mike Smith
Current Executives
David Cartwright
Shayne Elliott
Jenny Fagg
Graham hodges
Peter Marriott
Chris Page
Alex Thursby
Former Executives
Robert (Bob) Edgar
Brian hartzer
Peter hodgson
Chief Executive Officer
Group Managing Director, Operations, Technology and Shared Services
Group Managing Director, Institutional – Appointed 1 June 2009
Chief Executive Officer, New Zealand – Appointed 1 May 2009
Deputy Chief Executive Officer and Acting Chief Executive Officer, Australia – Appointed 4 May 2009 (previously
Chief Executive Officer, New Zealand)
Chief Financial Officer
Chief Risk Officer
Chief Executive Officer, Asia Pacific, Europe & America (previously Chief Executive Officer, Asia Pacific and Acting Group
Managing Director, Institutional until 1 June 2009; Chief Executive Officer, Asia Pacific, Europe & America and Group
Managing Director, Strategy 1 June – 9 August 2009)
Deputy Chief Executive Officer – Retired 8 May 2009
Chief Executive Officer, Australia – Ceased employment 31 July 2009
Former Group Managing Director, Institutional – Ceased employment 29 August 2008
Executives – Summary
Details
CEO
Fixed Remuneration
Short Term Incentives
(STI)
Long Term Incentives
(LTI)
Other
Summary
Discussion in Report
The CEO is the only executive director at ANZ. The CEO’s remuneration arrangements are detailed
separately in section 2.5.
This is the only ‘guaranteed’ part of the remuneration package. ANZ seeks to position its fixed
remuneration for Executives against the median of the relevant financial services market in Australia.
It has been agreed that there will be no increases to fixed remuneration in 2009 for Executives
as part of the annual remuneration review.
The STI plan is designed to drive out-performance by providing rewards that significantly
differentiate individual achievement against targets. The STI provides an annual opportunity
for an incentive award if certain company and individual objectives are met and there have
been no inappropriate behaviour or risk/compliance/audit breaches.
half of the STI payment above a threshold level (currently $200,000) is subject to mandatory
deferral into equity. 50% of the deferred portion vests after 1 year and 50% vests after 2 years.
The LTI provides alignment of a significant portion of remuneration to sustained growth in shareholder
value over the longer term. Executives are granted Performance Rights which only vest if ANZ’s TSR
hurdle relative to a peer group of comparator companies is achieved over the three year period
from the date of grant. Performance equal to the median of the comparator group will result
in half of the Performance Rights vesting. Achieving TSR above the median will result in further
Performance Rights vesting, increasing on a straight line basis until ANZ’s TSR equals or exceeds
the 75th percentile of the comparator group at which time all the Performance Rights vest.
To ensure the interests of Executives continue to be aligned with those of shareholders, Executives
are subject to a shareholding guideline which requires them to accumulate and maintain ANZ
equity over a 5 year period equivalent to 200% of their fixed remuneration.
To ensure equity remains at risk until vested, Executives are prohibited from hedging any unvested
equity. ANZ has also extended its policy this year to prohibit Executives from providing ANZ
securities in connection with a margin loan or similar financing arrangement.
Page 36
Page 37
Page 38
Page 39
Page 40
Contract Terms
The contract terms for the CEO and other Executives are provided in Section 3.
Page 50
1. Non-Executive Director Remuneration
1.1. BOARD POLICY ON REMUNERATION
Table 3 sets out the key principles that underpin the Board’s policy on NED remuneration.
TABLE 3: PRINCIPLES UNDERPINNING ThE REMUNERATION POLICY FOR NEDS
Principle
Comment
Aggregate Board and
Committee fees are within
the maximum annual
aggregate limit approved
by shareholders
Fees are set by reference
to key considerations
The remuneration structure
preserves independence
whilst aligning interests
of NEDs and Shareholders
No Retirement Benefits
The current aggregate fee pool for NEDs of $3.5 million was approved by shareholders at the 2008 Annual
General Meeting. The increase from the previous cap of $3 million was considered necessary primarily to allow
for the appointment of additional directors to the Board to enable appropriate succession management.
The annual total of NEDs’ fees, including superannuation contributions, are within this agreed limit. NEDs
are also eligible for other payments outside the limit such as reimbursement for business related expenses,
including travel, and retirement benefits accrued as at September 2005.
Board and Committee fees are set by reference to a number of relevant considerations including:
general industry practice and best principles of corporate governance;
the responsibilities and risks attaching to the role of NED;
the time commitment expected of the NEDs on Group matters;
reference to fees paid to other NEDs of comparable companies; and
advice from external advisors.
So that independence and impartiality is maintained, fees are not linked to the performance of the Company
and NEDs are not eligible to participate in any of the Group’s incentive arrangements. NEDS also have adopted
Shareholding Guidelines (refer section 1.3).
NEDs do not accrue separate retirement benefits in addition to statutory superannuation entitlements. (Refer
to Table 4 for details of preserved benefits for NEDs who participated in the NED retirement scheme prior to its
closure in 2005).
28 ANZ Annual Report 2009
Remuneration Report 29
REMUNERATION REPORT (Audited) (continued)
1.2. COMPONENTS OF NON-ExECUTIVE DIRECTOR REMUNERATION
1.3. ShAREhOLDINGS OF NEDS
In recognising that ownership of Company shares aligns Directors’ interests with those of shareholders, Directors adopted shareholding
guidelines in 2005. These guidelines provide for Directors to accumulate shares, over a five year period, to the value of 100% (200% for the
Chairman) of the base annual NED Fee and to maintain this shareholding while a director of ANZ. Directors have agreed that where their holding
is below this guideline they will direct a minimum of 25% of their fees each year toward achieving this shareholding.
The movement during the reporting period in shareholdings of NEDs (held directly, nominally and by related parties) is provided below:
TABLE 5: NED ShAREhOLDINGS
Name
Current Non-Executive Directors
C Goode
G Clark
J Ellis
P hay6, 7
h Lee6
I Macfarlane
D Meiklejohn
J Morschel
A Watkins6
Former Non-Executive Directors
M Jackson
Balance as at
1 Oct 2008
Shares acquired
during the year
in lieu of fees1
Shares from
other changes
during the year2
Balance as at
30 Sep 20093
Balance as at
30 Sep 2009 as
a % of base fee4
Balance as at
report sign-off
date
738,279
12,479
140,381
2,963
–
8,574
15,156
10,677
15,000
–
–
10,801
2,598
1,575
–
–
1,183
3,419
34,972
1,042
3,161
1,445
–
4,042
1,042
1,042
1,042
773,251
13,521
154,343
7,006
1,575
12,616
16,198
12,902
19,461
96,228
–
2,964
99,192
9430%
165%
1882%
85%
19%
154%
198%
157%
237%
773,251
13,521
154,343
7,006
1,575
12,616
16,198
12,902
19,461
n/a5
1 All shares acquired in lieu of fees were done so under the Directors’ Share Plan (refer to section 1.2 of this Remuneration Report for an overview of the Directors’ Share Plan).
2 Shares from other changes during the year include the net result of any shares purchased/sold or acquired under the Dividend Reinvestment Plan or the ANZ Share Purchase Plan.
3 The following shares were nominally held as at 30 September 2009: C Goode – 424,843; G Clark – 13,521; J Ellis – 85,273; P hay – 2,676; h Lee – 1,575; I Macfarlane – 2,574; D Meiklejohn – 13,698;
J Morschel – 7,860; A Watkins – 18,419.
4 The value of shares has been calculated using the closing price on 30 September 2009 of $24.39. The percentage of base fee has been determined by comparing the share value against
the current base annual NED fee of $200,000.
5 M Jackson’s shareholding is not provided as she is no longer a NED as at the report sign-off date.
6 Commencing balance is based on holdings as at the date of commencement as a NED.
7 P hay acquired 1,600 ordinary shares on 2 November 2009 however these are excluded from the balance as at report sign-off date as settlement is due to occur on 6 November 2009.
NEDs receive a fee for being a director of the Board, and additional fees for either chairing or being a member of a committee. The Chairman
of the Board does not receive additional fees for service on Board Committees.
For the 2008/09 year, the Board has agreed not to increase fees from those applied in 2008. For details of remuneration paid to directors for the
year ended 30 September 2009, refer to Table 6 in this Remuneration Report.
TABLE 4: COMPONENTS OF REMUNERATION FOR NEDS
Elements
Details
Board/Committee Fees
For the year ended 30 September 2009
Fees per annum are:
Board
Risk & Audit Committees
hR Committee
Governance & Technology Committees
Chairman
$783,000
$52,000
$48,000
$30,000
NED
$200,000
$25,000
$21,000
$10,000
Other fees/benefits
Work on special committees or as a director on a subsidiary board may attract additional fees of
an amount considered appropriate in the circumstances.
Post-employment Benefits
Directors’ Share Plan
Superannuation contributions are made at a rate of 9% (but only up to the Government’s prescribed
maximum contributions limit) which satisfies the company’s statutory superannuation
contributions.
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 for current NEDs fixed under the ANZ Directors’ Retirement Scheme
as at 30 September 2005 are as follows:
C Goode
G Clark
J Ellis
D Meiklejohn
J Morschel
The accrued entitlement for M Jackson at that time was $487,022. On M Jackson’s retirement in
March 2009, a total payment of $604,392 was made to her for this entitlement and relevant interest.
$1,312,539
$83,197
$523,039
$64,781
$60,459
ANZ operates the Directors’ Share Plan (the Plan). Under the Plan, both non-executive and
executive directors were able to elect to sacrifice Fees in order to purchase ANZ shares. It has
been agreed that from 1 October 2009, no new purchases will be made under the Plan, although
existing shares will continue to be held in trust. As shares were purchased from remuneration
forgone, they were not subject to performance conditions. Participation in the plan was
voluntary. Shares acquired under the plan were purchased on market and were subject to a
minimum 1 year restriction, during which the shares could not 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.
The Plan is not a performance-based share plan and is not intended as an incentive component
of NED remuneration.
Included in
Fee limit
Yes
Yes
Yes
No
Yes
30 ANZ Annual Report 2009
Remuneration Report 31
REMUNERATION REPORT (Audited) (continued)
1.4. REMUNERATION PAID TO NEDs
Remuneration details of NEDs for the years ended 30 September 2009 and 2008 are set out below in Table 6.
There is an increase in overall 2009 Total Remuneration for NEDs compared with 2008. This variation is primarily attributable to two factors:
the appointment of additional Directors during the year; and
the termination benefit paid to M Jackson on her retirement from the Board comprised of the benefit accrued under the retirement scheme
which existed prior to September 2005
There was no increase in actual fee levels so any individual changes can be primarily attributed to changes in representation on different
committees. Refer to Section 1.2 for fee structure details.
TABLE 6: NED REMUNERATION FOR 2009 AND 2008
Financial
Year
Cash
salary/fees
$
Value of shares
acquired in lieu of
cash salary/fees1
$
Committee
fees (cash)
$
Short term
incentive
$
Other
$
Total
$
Super
contributions
$
long service
leave accrued
during the year
$
Total amortisation
value of equity
$
Total
Remuneration3
$
Short-Term
Employee Benefits
Post- Employment
long-Term
Employee Benefits
Termination
Benefits2
Share-Based
Payments
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
P hay (Appointed November 2008)
Independent Non-Executive Director
h lee (Appointed February 2009)
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
A Watkins (Appointed November 2008)
Independent Non-Executive Director
Former Non-Executive Directors
M Jackson (Appointed March 1994;
retired March 2009)
Independent Non-Executive Director
Total of all Non-Executive Directors5
2009
2008
2009
2008
2009
2008
2009
2009
2009
2008
2009
2008
2009
2008
2009
2009
2008
2009
2008
783,000
783,000
200,000
142,900
17,500
177,860
139,500
–
–
–
57,084
182,429
22,114
37,498
–
–
51,083
40,000
35,000
35,000
30,975
107,778
24,995
6,639
200,000
152,000
200,000
200,000
180,000
165,283
127,313
–
47,974
–
–
19,987
47,974
49,670
65,000
65,000
87,000
87,000
73,000
73,000
54,960
94,444
134,750
2,049,535
1,755,793
–
65,234
314,579
240,380
34,472
73,000
438,129
373,000
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
1 Shares acquired through participation in Directors’ Share Plan. The value reflects the fees forgone to purchase shares on market (amortisation is not applicable).
2 The termination benefit paid to M Jackson on her retirement from the Board relates to the benefit accrued under the retirement scheme which existed prior to September 2005 and interest
on that benefit.
3 Amounts disclosed for remuneration of directors exclude insurance premiums paid by the consolidated entity in respect of directors’ and officers’ liability insurance contracts. 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.
4 Other for J Ellis relates to car parking and office space.
5 Due to consistency of remuneration structure, the Remuneration details of the CEO (who is the only Executive Director) are included in Table 17 with other Executives.
–
–
–
–
18,0854
17,982
–
–
–
–
–
–
–
–
–
–
–
18,085
17,982
783,000
783,000
251,083
239,984
253,014
252,956
207,973
13,924
13,283
13,924
13,283
13,924
13,283
13,343
139,412
10,149
265,000
264,974
287,000
287,000
272,987
286,257
231,943
128,916
272,984
2,820,328
2,387,155
13,924
13,283
13,924
13,283
13,924
–
13,477
6,872
13,283
127,385
79,698
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
604,392
–
604,392
–
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
796,924
796,283
265,007
253,267
266,938
266,239
221,316
149,561
278,924
278,257
300,924
300,283
286,911
286,257
245,420
740,180
286,267
3,552,105
2,466,853
32 ANZ Annual Report 2009
Remuneration Report 33
REMUNERATION REPORT (Audited) (continued)
2. Executive Remuneration
2.1. 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 Executives:
Focus on creating and enhancing value for all ANZ stakeholders;
Emphasis on “at risk” components of total rewards;
Differentiation of individual rewards in line with ANZ’s culture of rewarding for out-performance, adherence to standards of behaviour
and to risk and compliance policies and processes; and
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.
2.2. PERFORMANCE OF ANZ
Sustained company performance over the long-term is a key focus for ANZ. The success of ANZ’s remuneration policy in aligning shareholder
and executive rewards is demonstrated by the close correlation that exists between Company performance and the benefits derived by
Executives from the ‘at-risk’ components of their remuneration over the past 5 years.
Table 7 shows ANZ’s annual performance over the five-year period spanning 1 October 2004 to 30 September 2009. 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 7: ANZ’S PERFORMANCE 2005 – 2009
Basic Earnings Per Share (EPS)
NPAT ($m)
Total Dividend (cps)
Share price at 30 September ($)
Total Shareholder Return (12 month %)
Underlying profit1
2008/09
2007/08
2006/07
2005/06
2004/05
131.0
2,943
102
24.39
40.3
3,772
170.4
3,319
136
18.75
-33.5
3,426
224.1
4,180
136
29.70
15.6
3,924
200.0
3,688
125
26.86
17.1
3,587
169.5
3,175
110
24.00
32.6
3,151
FIGURE 2: ANZ – UNDERLYING PROFIT1 & AVERAGE STI PAYMENTS
,
3
9
2
4
,
3
5
8
7
,
3
7
7
2
X
,
X
X
3
X
4
2
6
,
,
3
1
5
1
Underlying Profit1 ($milion)
Average STI payments against targets
Target STI
% of target STI paid
to executive directors
and disclosed executives
111%
112%
110%
76%
106%
05
06
07
08
09
125
100
75
Figure 2 illustrates the relationship between the average actual STI payments
against target and the Group’s performance measured using underlying profit
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 underlying profit trend, with the 2009 STI payments (as a percentage
of target STI) trending upwards as a result of the increase in underlying profit.
1 Underlying profit represents the directors’ assessment of the profit for the ongoing business activities of
the Group, and is based on guidelines published by the Australian Institute of Company Directors and the
Financial Services Institute of Australasia. ANZ applies this guidance by adjusting statutory profit for material
items that are not part of the normal ongoing operations of the Group including one-off gains and losses,
gains and losses on the sale of businesses, non-continuing businesses, timing differences on economic
hedges, and acquisition related costs. Refer to page 6 for details of adjustments.
2.3. REMUNERATION STRUCTURE OVERVIEW
The key aspects of ANZ’s remuneration strategy for Executives (including the CEO) is set out below:
REMUNERATION OBJECTIVES
1 Underlying profit represents the directors’ assessment of the profit for the ongoing business activities of the Group, and is based on guidelines published by the Australian Institute of Company
Directors and the Financial Services Institute of Australasia. ANZ applies this guidance by adjusting statutory profit for material items that are not part of the normal ongoing operations of the
Group including one-off gains and losses, gains and losses on the sale of businesses, non-continuing businesses, timing differences on economic hedges, and acquisition related costs. Refer to
page 6 for details of adjustments.
Shareholder
value creation
Emphasis on “at risk”
components
Reward differentiation to
drive out-performance
Attract, motivate
and retain talent
Figure 1 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 2005 to 2009 measurement period.
FIGURE 1: ANZ 5-YEAR CUMULATIVE TOTAL ShAREhOLDER RETURN PERFORMANCE
e
g
a
t
n
e
c
r
e
P
240
220
200
180
160
140
120
100
80
Upper Quartile
Median
Fin Index
ANZ
Pay for Performance
Total Remuneration set by reference
to geographic market
Fixed
At Risk
Fixed Remuneration
Short Term Incentive (STI)
Long Term Incentive (LTI)
Fixed remuneration is set based on financial
services market/internal relativities
reflecting: responsibilities, performance,
qualifications, experience and location
STI targets are linked to the
performance targets of the Group,
Division and Individual using a
balanced scorecard approach
LTI targets have direct links to
shareholder value creation
4
0
p
e
S
5
0
r
a
M
5
0
p
e
S
6
0
r
a
M
6
0
p
e
S
7
0
r
a
M
7
0
p
e
S
8
0
r
a
M
8
0
p
e
S
9
0
r
a
M
9
0
p
e
S
34 ANZ Annual Report 2009
Performance period
Remuneration Report 35
REMUNERATION REPORT (Audited) (continued)
REMUNERATION REPORT (Audited) (continued)
2.4. REMUNERATION COMPONENTS
The Board aims to achieve a balance between fixed and at-risk components of remuneration that reflects market conditions for each seniority level.
The relative proportion of fixed and at-risk remuneration is as set out below:
TABLE 8: ANNUAL TOTAL REWARD MIx PERCENTAGE (% BASED ON AT TARGET LEVELS OF PERFORMANCE)
CEO
Executives
1 The STI for all Executives is subject to mandatory deferral (refer to section 2.6.3 for details).
Fixed
Fixed remuneration
33%
37%
At Risk
STI
33%
45%1
lTI
33%
18%
The levels of reward within the remuneration structure are benchmarked against the financial services market median. however, the application
of the structure allows for the opportunity to earn upper quartile variable pay for significant out performance, and significantly reduced or nil
payment for underperformance. In this way the remuneration structure reflects “reward for performance”.
2.5. CEO REMUNERATION
The components of the CEO’s remuneration package are substantially the same as other Executives. however, there are some differences in
the quantum, delivery and timing of the CEO’s arrangements. In the interests of clarity and in order to ensure a thorough understanding of the
arrangements that are in place for the CEO, the following table provides a summary of these arrangements as well as cross references to other
sections of the report where these arrangements are outlined in further detail.
Discussion
in Report
STI – Refer
Page 38
Details
Summary
Fixed Remuneration
Short-Term Incentives
(STI)
Special Equity
Allocation
The level of fixed pay for the CEO was set at $3 million on his commencement in 2007. It was agreed this
would be held constant for the first three years until October 2010 and will be subject to annual review
from that time.
The CEO has an annual opportunity to receive an incentive payment equivalent to the value of his fixed
remuneration, i.e. $3 million if targets are met. The actual amount paid can increase or decrease from this
number dependent on performance. The actual incentive payment paid in November 2008, but which
related to the year ended 30 September 2008, was $2.4 million. (In addition the CEO received a Special
Equity Allocation – detailed below).
The Board approved the CEO’s 2009 balanced scorecard at the start of the year and then assessed his
performance against these objectives at the end of the 2009 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 long term performance and ethical behaviour are recommended by
the Board hR Committee to the full Board.
The key objectives for 2009 included a number of quantitative and qualitative measures aligned with
ANZ’s strategy, which included (but were not limited to) financial goals, risk management, progress
towards long-term strategic goals, strengthening the management bench, and people/culture measures.
A key focus of these objectives was on the strategic acquisition and disposal of assets in order to position
the company for the future.
Based on the Board’s assessment, the STI payment for the CEO for the 2009 year will be $4.5 million.
The CEO will be paid $2.4 million in cash and the balance will be awarded as deferred shares. half the
deferred shares will be restricted for 1 year and half for 2 years from the date of grant.
In 2008 the Board reviewed the contract and retention arrangements of the CEO to ensure that they
continued to be market competitive. Following this review, the Board considered it reasonable and
appropriate to grant the CEO 700,000 options. This resolution was approved by shareholders at the 2008
AGM and the options were granted on 18 December 2008.
The rationale for the grant of options to the CEO was:
As options only reward for uplift in the share price above the option exercise price, the award
helps drive a longer term focus on sustained share price growth while strengthening the alignment
of the CEO’s interests with shareholders;
Discussion
in Report
LTI – Refer
Page 39
2.5. CEO REMUNERATION (CONTINUED)
Details
Summary
Special Equity
Allocation continued
The grant recognised the CEO’s performance in establishing a solid foundation to enable ANZ
to achieve its longer term vision, as well as acknowledging his very strong internal and external
leadership during the significant challenges the organisation faced during that year;
Long-Term Incentives
(LTI) – Grants covering
first 3 years
Sign-On Award
The grant took into consideration the fact that the CEO’s STI payment was reduced by
20% in 2008 as a result of ANZ’s performance, however, this result was largely attributable
to decisions made prior to his appointment;
Using Performance Rights as part of the long-term incentive program and Options for retention
purposes provides a strong motivation and retention element in both flat and growth economic
cycles.
These options will be available for exercise from the date of vesting, December 2011, with the option
exercise price being equal to the market value of ANZ shares at the date they were granted i.e.
$14.18 per share. Upon exercise, each option entitles the CEO to one ordinary ANZ share. At grant
the options were independently valued at $2.27 each i.e. a total value of $1.589 million. however, these
options will only have any value if, at the vesting date or during the subsequent exercise period
(i.e. 2 years after vesting), the share price exceeds $14.18. This value will be based on the amount
by which the market price exceeds the exercise price multiplied by the total number of options.
Three tranches of performance rights were provided to the CEO in December 2007, each to a maximum
value of $3 million, covering his first three years in the role. The first of these tranches will be tested after
three years (i.e. December 2010) based on ANZ’s relative TSR against a comparator group, consistent with
the Executives LTI program (refer section 2.6.4). The other two tranches will be tested in December 2011
and December 2012 respectively. No retesting is available. Therefore, since joining ANZ as CEO on
1 October 2007 the CEO will only receive a benefit from December 2010 onwards if the performance
hurdles have been met.
In addition to his standard remuneration arrangements, the CEO was provided with additional equity
as part of his original sign-on arrangements to recognise remuneration forgone from his previous
employer in order to join ANZ. The CEO was offered $9 million on his commencement which he elected
to take as deferred shares, with one third of the award vesting in each of October 2008, 2009 and 2010
respectively. The sign-on award equated to a total of 330,033 ANZ shares at the time of grant when the
share price was $27.27.
Given the purpose of the sign-on award for the CEO was to compensate him for remuneration forgone,
the ANZ Deferred Shares were not subject to any performance hurdles. The allocation of Deferred Shares
will, however, strengthen the alignment of the CEO’s interests with shareholders.
On 2 October 2008, 110,011 of those shares became available to the CEO. however, the nominal value
of the shares had declined significantly from the original grant value of $3 million to $2.097 million
on 2 October 2008 (based on the one day VWAP of $19.0610 per share). The subsequent grants will
vest on 2 October 2009 and 2010 respectively.
2.6. ExECUTIVE REMUNERATION
2.6.1. FIxED REMUNERATION
The fixed remuneration amount is expressed as a total dollar amount which can be taken as cash salary, 9% superannuation contributions,
and other nominated benefits (e.g. novated car leases, superannuation contributions, car parking and contributions towards the Employee
Share Save Scheme).
Fixed Remuneration at ANZ is reviewed annually. ANZ sets remuneration ranges with a midpoint targeted to the local market median being
paid in the financial services industry in the relevant global markets in which ANZ operates.
2.6.2. VARIABLE REMUNERATION
Variable remuneration forms a significant part of Executives’ potential remuneration, providing at-risk components that are designed to drive
performance in the short, medium and long-term. The term “variable remuneration” within ANZ covers both the STI and LTI arrangements.
36 ANZ Annual Report 2009
Remuneration Report 37
REMUNERATION REPORT (Audited) (continued)
2.6.3. ShORT TERM INCENTIVES (STI)
Details of the STI arrangements for Executives are provided in Table 9 below:
2.6.4. LONG TERM INCENTIVES (LTI)
Details of the LTI arrangements for Executives are provided in Table 10 below:
TABLE 9: SUMMARY OF STI ARRANGEMENTS
TABLE 10: SUMMARY OF LTI ARRANGEMENTS
Purpose
Determining STI Pools
Performance Targets
The STI arrangements support ANZ’s strategic objectives by providing rewards that are significantly differentiated
on the basis of achievement against annual performance targets.
The introduction in 2008 of mandatory deferral of a portion of the STI places 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.
ANZ’s Employee Reward Scheme (ANZERS) structure is reviewed and approved by the Board hR Committee.
The size of the overall pool is determined by the Board and is based on an assessment of the balanced scorecard
of measures of the Group, with this pool then distributed between the different Divisions based on their relative
performance against a balanced scorecard of financial and qualitative measures.
The STI targets are set to ensure appropriate focus on achievement of ANZ Group, Division and individual
performance aligned with ANZ’s overall strategy.
Individual performance objectives for Executives are based on 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;
People Measures including Staff Turnover; Diversity Targets and Performance Management
Behaviour, Risk Management, Audit and 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 reviewed at the end of the year by the Board
hR Committee.
Determining Individual
Incentive Targets
Each Executive has a target STI percentage which is determined according to market relativities. The 2009 target STI
award level for Executives (excluding the CEO) is 120% of Fixed Remuneration.
Rewarding Performance The STI program and the targets that are set have been designed to motivate and reward superior performance.
The size of the actual STI payment made at the end of each financial year to individuals will be determined based
on performance as detailed above.
Within the overall incentive pool approved by the Board, Executives who out-perform relative to their peers and
significantly exceed targets may be rewarded with a maximum STI award which is significantly higher than their
target STI. Conversely, the poorest performers relative to their peers will not be eligible to receive any STI award.
Comparator Group
Mandatory Deferral
Since 2008, the following tiered STI deferral approach applies to Executives (excluding the CEO):
STI up to the threshold (currently $200,000) paid in cash1
25% of STI amounts above the threshold deferred in ANZ equity for 1 year
25% of STI amounts above the threshold deferred in ANZ equity for 2 years
The balance (i.e. 50%) of STI amounts above the threshold to be paid as cash1.
In 2009, Executives could elect to receive the deferral value as 100% shares or 50% shares/50% options2. Allowing
a 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 further performance measures attached to the
shares and options. however, all unvested deferred amounts are forfeited on resignation or termination on notice.
In the case of retrenchment, retirement, death or total and permanent disablement, the unvested deferred
amounts will vest unless the Board determines otherwise.
1 Executives are able to elect to take any cash bonus amounts they may be awarded as cash or superannuation.
2 J Fagg 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.
Purpose
The LTI arrangements are designed to link a significant portion of Executives’ remuneration to shareholder interests.
Type of Equity Awarded LTI is delivered to Executives as 100% Performance Rights. A Performance Right is a right to acquire a share at nil cost,
subject to meeting time and performance hurdles. Upon exercise, each Performance Right entitles the executive to
one ordinary share.
Time Restrictions
The Performance Rights awarded to Executives will be tested once only against the performance hurdle at the end
of three years. If they do not achieve the required performance hurdle they are forfeited at that time.
Subject to the performance hurdle being met, Executives then have a two-year exercise period.
Performance hurdle
The Performance Rights granted to Executives in October 2008 have a single long-term performance measure (refer
to section 2.11 for details of legacy LTI programs).
The Performance Rights are designed to reward Executives if the Company’s TSR is at or above the median TSR of a
group of peer companies over a three year period. 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.
Vesting Schedule
The proportion of Performance Rights that become exercisable will depend upon the TSR achieved by ANZ relative
to the companies in the comparator group (shown below) at the end of the three-year period.
ANZ’s TSR Ranking
% of Grant Vested
0 – 49th percentile
50th percentile
0%
50%
higher than 50th but
below the 75th percentile
An additional 2% for every 1.0 percentile above
the 50th percentile but below the 75th percentile
75th – 100th percentile
100%
An averaging calculation is used for TSR over a 90 day period for start and end values in order to reduce the impact
of share price volatility. 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. Where ANZ’s
performance falls between two of the comparators, TSR is measured on a pro-rata basis.
The peer group of companies against which ANZ’s TSR performance is measured, comprises the following
nine companies:
AMP Limited
Commonwealth Bank of Australia
Macquarie Bank Limited
QBE Insurance Group Limited
Westpac Banking Corporation
AxA Asia Pacific holdings Limited
Insurance Australia Group Limited
National Australia Bank Limited
Suncorp-Metway Limited
The comparator group that has been used since 2004 included all the above companies together with St George
Bank. After being acquired by Westpac, St George was subsequently delisted in November 2008 from the ASx.
Consideration was given to a possible substitute company to be included in the comparator group. however, other
possible inclusions had either a significantly different market cap or different business/market. Accordingly, the
Board determined that comparisons for all existing grants would be made with the remaining nine companies from
the original comparator group. The removal of St George did not have any material impact on vesting of existing
equity grants.
38 ANZ Annual Report 2009
Remuneration Report 39
REMUNERATION REPORT (Audited) (continued)
TABLE 10: SUMMARY OF LTI ARRANGEMENTS (CONTINUED)
2.7. EQUITY GRANTED AS REMUNERATION
Size of LTI Grants
Cessation of
Employment
Provisions
The size of individual LTI grants for Executives is determined by an individual’s level of responsibility, their
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 the dollar
value of their LTI Grant, which is then converted into a number of Performance Rights based on an independent
valuation. Refer to section 2.8 for further details on the valuation approach and inputs.
LTI allocations are made annually after the annual review which occurs in October. The following example uses
the October 2008 allocation value.
Example: Executive granted LTI value of $500,000
Approved Allocation Valuation is $9.99 per Performance Right
$500,000 / $9.99 = 50,050 Performance Rights
The following provisions apply in the case of cessation of employment:
In case of dismissal for misconduct, Performance Rights are forfeited;
In case of resignation all unvested or vested but unexercised Performance Rights are forfeited at the time
notice is given:
In case of termination on notice, unless the Board determines otherwise, only Performance Rights that are
vested may be exercised and all unvested Performance Rights will be forfeited; 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.
Conditions of Grant
The conditions under which Performance Rights are granted are approved by the Board in accordance with the
rules of the ANZ Share Option Plan.
hedging and Margin
Lending Prohibitions
Shareholding
Guidelines
As specified in the ANZ Securities Trading Policy, equity allocated under ANZ incentive schemes must remain at
risk until fully vested (in the case of Deferred Shares) or exercisable (in the case of Options or Performance Rights).
As such, it is a condition of grant that no schemes are entered into that 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, Options or Performance Rights.
The Policy was also extended this year to incorporate a prohibition on Executives providing ANZ securities in
connection with a margin loan or similar financing arrangements under which they may be subject to a call.
To monitor adherence to this policy, ANZ’s Executives are required to sign an annual declaration stating that they
have not entered into (and are not currently involved in) any schemes to protect the value of their interests in any
unvested ANZ securities. Based on the 2009 declarations, ANZ can advise that Executives are fully compliant with
this policy.
Executives 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. This guideline was introduced
in June 2005. New Executives are expected to accumulate the required holdings within five years of appointment.
Shareholdings for this purpose include all vested and allocated but unvested equity which is not subject to
performance hurdles.
Details of Deferred Shares, Options and Performance Rights granted to Executives during the 2009 year are set out in Table 11 below.
TABLE 11: DEFERRED ShARES, OPTIONS AND PERFORMANCE RIGhTS GRANTED AS REMUNERATION DURING 2009
Name
Type of Equity
Number
granted
Grant date
Vesting date
Date of
option expiry
Option
exercise price
$
Fair Value8
$
Current Executives
M Smith
D Cartwright
S Elliott
J Fagg6
G hodges
P Marriott
C Page
A Thursby
Former Executives
R Edgar
B hartzer
Special Options1
STI Restricted Shares2
STI Deferred Shares3
STI Deferred Shares3
STI Deferred Options3
STI Deferred Options3
LTI Performance Rights4
Other Deferred Shares5
Other Deferred Shares5
STI Deferred Options3
STI Deferred Options3
STI Deferred Share Rights3
STI Deferred Share Rights3
LTI Performance Rights4
STI Deferred Shares3
STI Deferred Shares3
STI Deferred Options3
STI Deferred Options3
LTI Performance Rights4
LTI Performance Rights4
STI Deferred Shares3
STI Deferred Shares3
STI Deferred Options3
STI Deferred Options3
Other Deferred Shares7
LTI Performance Rights4
STI Deferred Shares3
STI Deferred Shares3
STI Deferred Options3
STI Deferred Options3
LTI Performance Rights4
STI Deferred Shares3
STI Deferred Shares3
LTI Performance Rights4
700,000
18-Dec-08
18-Dec-11
17-Dec-13
40,745
7,276
7,275
48,385
48,385
40,040
7,530
7,530
33,870
33,869
5,341
5,663
50,050
3,638
3,637
24,193
24,192
50,050
38,038
12,369
12,369
82,255
82,254
43,610
55,055
3,638
3,637
24,193
24,192
25,025
18,917
18,917
75,075
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
11-Jun-09
11-Jun-09
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-09
31-Oct-09
31-Oct-10
31-Oct-09
31-Oct-10
31-Oct-11
11-Jun-10
11-Jun-11
31-Oct-09
31-Oct-10
31-Oct-09
31-Oct-10
31-Oct-11
31-Oct-09
31-Oct-10
31-Oct-09
31-Oct-10
31-Oct-11
–
–
–
30-Oct-13
30-Oct-13
31-Oct-13
–
–
30-Oct-13
30-Oct-13
30-Oct-13
30-Oct-13
31-Oct-13
–
–
30-Oct-13
30-Oct-13
31-Oct-13
31-Oct-08
31-Oct-11
31-Oct-13
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
22-Sep-09
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-09
31-Oct-10
31-Oct-09
31-Oct-10
22-Sep-12
31-Oct-11
31-Oct-09
31-Oct-10
31-Oct-09
31-Oct-10
31-Oct-11
31-Oct-09
31-Oct-10
31-Oct-11
–
–
30-Oct-13
30-Oct-13
–
31-Oct-13
–
–
30-Oct-13
30-Oct-13
31-Oct-13
–
–
31-Oct-13
14.18
–
–
–
17.18
17.18
0.00
–
–
17.18
17.18
0.00
0.00
0.00
–
–
17.18
17.18
0.00
0.00
–
–
17.18
17.18
–
0.00
–
–
17.18
17.18
0.00
–
–
0.00
2.27
16.38
16.38
15.45
2.80
2.94
9.99
16.83
16.83
2.80
2.94
16.38
15.45
9.99
16.38
15.45
2.80
2.94
9.99
9.99
16.38
15.45
2.80
2.94
23.22
9.99
16.38
15.45
2.80
2.94
9.99
16.38
15.45
9.99
1 Options granted to the CEO, M Smith were approved by shareholders at the 2008 AGM. Refer to Section 2.5 for further details of the grant and Table 12 for details of the valuation inputs and fair value.
In 2008 Executives could voluntarily elect to defer some/all of their cash STI payment into shares and/or options. Shares granted under this election were restricted for a 12 month period. The
2
number of shares granted was based on the 1-week VWAP up to and including the date of grant.
3 Executives are required to take half of all STI amounts above the threshold as equity. Refer to Table 9 for further details of the Mandatory Deferral arrangements and Table 12 for details of the
valuation methodology, inputs and fair value.
4 The 2008 LTI grants for Executives were delivered as Performance Rights. Refer to Table 10 for further details of the LTI grant and Table 12 for details of the valuation, inputs and fair value.
5 Other ordinary shares issued to S Elliott relate to the issue of deferred shares as part of his employment arrangements on commencement with ANZ. Refer to Table 19 for further details on the
grant and restrictions.
6 J Fagg has not received any equity grants since being appointed as a KMP.
7 Other ordinary shares issued to A Thursby relate to the issue of deferred shares as part of his employment arrangements on commencement with ANZ. Refer to Table 19 for further details of the
grant and restrictions.
8 The estimated maximum value of the grant can be determined by multiplying the number granted by the fair value of the equity investments. The minimum value of the grants, if the applicable
conditions are not met, is nil.
40 ANZ Annual Report 2009
Remuneration Report 41
REMUNERATION REPORT (Audited) (continued)
2.8. EQUITY VALUATIONS
2.9. EQUITY VESTED/ExERCISED/LAPSED DURING ThE 2008/09 YEAR
ANZ engages two external experts (Mercer and PricewaterhouseCoopers) to independently value any required Options, Rights and Shares,
taking into account factors including the performance conditions, share price volatility, life of instrument, dividend yield and share price
at grant date. These are then audited by internal audit and KPMG and the higher of the two values passing audit is then approved by the
Board hR Committee as the allocation and/or expensing/disclosure value. The following table provides details of the valuations of the
various equity instruments issued during the year:
TABLE 12: EQUITY VALUATION INPUTS
Recipients
Type of Equity
CEO
Executives
Executives
Executives
Executives
Executives
Special Options
STI Deferred Options
STI Deferred Options
STI Deferred Share Rights
STI Deferred Share Rights
LTI Performance Rights
Grant date
18-Dec-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
Equity
value
($)
2.27
2.80
2.94
16.38
15.45
9.99
Share
closing price
at grant
($)
ANZ
expected
volatility
(%)
Equity
term
(years)
Vesting
period
(years)
Expected
life
(years)
Expected
dividend
yield
(%)
Risk free
interest rate
(%)
14.27
17.36
17.36
17.36
17.36
17.36
30
30
30
30
30
30
5
5
5
5
5
5
3
1
2
1
2
3
4
3
3.5
1
2
3
6.00
6.00
6.00
6.00
6.00
6.00
3.37
4.48
4.64
4.28
4.48
4.25
Details of the number and value of Deferred Shares, Options and Performance Rights granted to Executives in prior years which vested, were
exercised or which lapsed during the 2009 year are set out in the table below.
TABLE 13: EQUITY VESTED/ExERCISED/LAPSED DURING ThE 2008/09 YEAR
Vested
lapsed
Exercised
Name
Type of Equity
Current Executives
Number
granted
Grant
date
First date
exercisable
Date
of expiry Number
% Number
% Number
%
Value of
vested,
lapsed or
exercised1
$
Vested and
exercisable
as at 30 Sep
2009
Unexercisable
as at 30 Sep
2009
M Smith
Sign-on Shares2
110,011
19-Dec-07
02-Oct-08
– 110,011
D Cartwright STI Restricted Shares3
7,846 02-Nov-07
02-Nov-08
2,096,920
110,011
134,810
7,846
S Elliott
J Fagg
G hodges
P Marriott
C Page
A Thursby
–
–
–
–
–
–
–
–
–
Performance Rights4
Performance Rights4
Performance Rights4
Performance Rights4
Other5
49,656 18-Nov-05
10,690 15-May-06
19-Nov-08
19-Nov-08
18-Nov-10
18-Nov-10
53,794 18-Nov-05
8,707 15-May-06
442 05-Nov-04
19-Nov-08
19-Nov-08
05-Nov-07
18-Nov-10
18-Nov-10
04-Nov-11
–
–
–
–
–
–
–
–
Former Executives
R Edgar
B hartzer
STI Deferred Shares6
STI Deferred Shares6
DRP STI Deferred Shares7
STI Deferred Options6
STI Deferred Options6
hurdled Options8
hurdled Options9
Index-Linked Options9
Performance Rights4
Performance Rights4
Performance Rights10
Performance Rights10
Performance Rights11
STI Deferred Shares6
STI Deferred Shares6
DRP STI Deferred Shares7
hurdled Options9
hurdled Options9
Index-Linked Options9
Index-Linked Options9
Performance Rights4
Performance Rights4
Performance Rights10
Performance Rights10
Performance Rights10
31-Oct-08
3,638
31-Oct-08
3,637
various
629
31-Oct-08
24,193
24,192
31-Oct-08
31,558 11-May-04
52,000 05-Nov-04
23-Oct-02
125,000
44,828 18-Nov-05
15,518 15-May-06
24-Oct-06
45,872
30-Oct-07
19,290
31-Oct-08
25,025
31-Oct-08
18,917
31-Oct-08
18,917
various
2,124
26,640 11-May-04
72,800 05-Nov-04
109,000
23-Oct-02
113,000 20-May-03
62,759 18-Nov-05
1,897 15-May-06
24-Oct-06
64,985
30-Oct-07
65,586
31-Oct-08
75,075
–
31-Oct-09
–
31-Oct-10
–
12-May-09
30-Oct-13
31-Oct-09
31-Oct-10
30-Oct-13
11-May-07 10-May-11
04-Nov-11
05-Nov-07
22-Oct-09
23-Oct-05
18-Nov-10
19-Nov-08
18-Nov-10
19-Nov-08
24-Oct-11
25-Oct-09
30-Oct-12
31-Oct-10
31-Oct-13
31-Oct-11
31-Oct-09
31-Oct-10
31-Jul-09
–
–
–
11-May-07 10-May-11
04-Nov-11
05-Nov-07
23-Oct-05
22-Oct-09
20-May-06 19-May-10
18-Nov-10
19-Nov-08
18-Nov-10
19-Nov-08
24-Oct-11
25-Oct-09
30-Oct-12
31-Oct-10
31-Oct-13
31-Oct-11
100
100
–
–
–
–
–
–
–
–
–
–
–
–
–
(49,656)
(10,690)
(53,794)
(8,707)
(442)
–
–
–
100
–
100
–
100
–
100
–
100
–
–
–
(52,000)
– (125,000)
(44,828)
–
(15,518)
–
(45,872)
–
(19,290)
–
(20,855)
–
–
(18,917)
–
(18,917)
100
–
–
(26,640)
(72,800)
–
– (109,000)
– (113,000)
(62,759)
–
(1,897)
–
(64,985)
–
(65,586)
–
(75,075)
–
–
–
–
–
100
100
100
100
100
–
–
–
–
–
–
–
–
100
100
100
100
100
100
83
100
100
–
100
100
100
100
100
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(31,558)
–
–
–
–
–
–
4.170
–
–
–
–
–
100
–
–
–
–
–
–
17
–
–
(632,617)
(136,191)
(685,336)
(110,927)
(1,851)
–
–
58,221
58,205
10,066
(17,182)
(17,181)
58,165
(38,802)
(510,775)
(571,109)
(197,699)
(723,998)
(304,454)
(247,879)
–
–
–
–
–
–
–
–
–
–
–
–
(348,928)
–
(348,928)
–
39,178
–
(5,999)
–
(162,693)
–
(120,467)
–
(95,508)
–
(799,550)
–
–
(24,168)
– (1,198,661)
– (1,209,747)
– (1,252,859)
7,846
–
–
–
–
–
–
–
–
–
3,638
3,637
629
24,193
24,192
–
–
–
–
–
–
–
–
–
–
2,124
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,638
3,637
629
24,193
24,192
–
–
–
–
–
–
–
–
–
–
2,124
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42 ANZ Annual Report 2009
Remuneration Report 43
1 The value of shares and/or performance rights is based on the 1-day VWAP of the Company’s shares traded on the ASx on the date of vesting, lapsing or exercising, multiplied by the number
of shares and/or performance rights. The value of options is based on the difference between the 1-day VWAP and the exercise price, multiplied by the number of options.
2 The first tranche of 110,011 deferred shares granted to the CEO on his commencement vested on 2 October 2008 – refer to section 2.5 for further details. The value has been determined based
on the 1-day VWAP on 2 October 2008 of $19.0610 per share.
3 STI Restricted/Deferred Shares which were granted in prior years and first became exercisable in the current year.
4 Performance Rights granted under the LTI plans in 2005 and 2006 were subject to testing against the relevant performance hurdle in November 2008. As ANZ’s TSR performance was below
the median of the comparator group at that time, the performance rights did not vest and, accordingly, were lapsed.
5 Other for P Marriott relates to share options granted to a related party.
6 Shares and/or options which were granted in 2008 under the STI mandatory deferral arrangements. In accordance with the conditions of grant, the equity is forfeited in the case of resignation
prior to vesting (B hartzer) but vests in the case of retirement (R Edgar).
7 DRP refers to shares acquired under the Dividend Reinvestment Plan in relation to deferred/restricted shares held in Trust.
8 hurdled options which previously vested but were exercised in the current year at an exercise price of $18.22 per share.
9 hurdled and/or Index-Linked Options which lapsed on cessation of employment.
10 Performance Rights which lapsed on cessation of employment.
11 Performance Rights which were pro-rated on cessation of employment based on service from time of grant to the retirement date.
REMUNERATION REPORT (Audited) (continued)
2.10. ShAREhOLDINGS OF ExECUTIVES
The movement during the reporting period in shareholdings of Executives (held directly, nominally and by related parties) is provided below.
The movement during the reporting period in options and performance rights of Executives (held directly, nominally and by related parties)
is provided below.
TABLE 14: ExECUTIVES’ ShAREhOLDINGS (INCLUDING MOVEMENTS DURING ThE 2008/09 YEAR)
TABLE 15: ExECUTIVES’ OPTION AND PERFORMANCE RIGhT hOLDINGS (INCLUDING MOVEMENTS DURING ThE 2008/09 YEAR)
Balance of shares
as at 1 Oct 20081
Shares granted
during the year
as remuneration2
Shares from
other changes
during the year3
Balance as at
30 Sep 20094
Balance as at date
of report sign-off6
Name
Type of options/rights
Balance as at
1 Oct 20081
Granted during
the year as
remuneration2
Exercised
during
the year
Number forfeited
or lapsed during
the year3
Balance as at
30 Sep 2009
Balance as at
date of report
sign–off7
Name
Current Executives
M Smith
D Cartwright
S Elliott5
J Fagg5
G hodges
P Marriott
C Page
A Thursby
Former Executives
R Edgar
B hartzer
373,983
16,469
–
46,097
282,054
571,641
–
97,337
381,956
332,092
–
55,296
15,060
–
–
7,275
–
68,348
7,275
37,834
1,042
2,300
–
1,047
–
(44,566)
–
2,139
(117,630)
(367,357)
375,025
74,065
15,060
47,144
282,054
534,350
–
167,824
271,601
2,569
375,025
74,065
15,060
47,144
282,054
534,350
–
167,824
n/a
n/a
1 Balance of shares held at 1 October 2008 include beneficially held shares (both direct and indirect) and shares held by related parties.
2 Details of shares granted as remuneration during 2009 are provided in Table 11.
3 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
or the ANZ Share Purchase Plan.
4 The following shares were held on behalf of Executives (i.e. indirect beneficially held shares) as at 30 September 2009: M Smith – 330,033; D Cartwright– 73,023;
S Elliott – 15,060; J Fagg – 10,547; G hodges – 126,747; P Marriott – 168,225; A Thursby – 167,824.
5 Commencing balance is based on holdings as at the date of commencement as a KMP.
6 R Edgar’s and B hartzer’s shareholdings are not provided as they are no longer KMP as at the report sign-off date.
Current Executives
M Smith
D Cartwright
S Elliott4
J Fagg4
G hodges
P Marriott
C Page
A Thursby
Former Executives
R Edgar
B hartzer
Special Options
LTI Performance Rights
STI Deferred Options
LTI Performance Rights
hurdled Options
Index-Linked Options
LTI Performance Rights
STI Deferred Share Rights
hurdled Options
Index-Linked Options
STI Deferred Options
LTI Performance Rights
STI Deferred Share Rights
hurdled Options
Index-Linked Options
STI Deferred Options
LTI Performance Rights
Other
Performance Rights
STI Deferred Options
LTI Performance Rights
hurdled Options
Index-Linked Options
STI Deferred Options
LTI Performance Rights
hurdled Options
Index-Linked Options
LTI Performance Rights
–
779,002
–
46,296
–
33,316
34,155
83,794
37,722
109,181
176,000
–
175,556
–
136,863
311,000
–
177,711
442
–
–
46,296
83,558
272,000
–
125,508
99,440
222,000
195,227
700,000
–
96,770
40,040
–
–
–
–
–
–
–
67,739
50,050
11,004
–
–
48,385
50,050
–
38,038
164,509
55,055
–
–
48,385
25,025
–
–
75,075
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(31,558)
–
–
(4,170)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(60,346)3
–
–
–
–
(62,501)3
(442)5
–
–
–
(52,000)6
(125,000)6
–
(146,363)3
(99,440)6
(222,000)6
(270,302)3
700,000
779,002
96,770
86,336
–
33,316
34,155
83,794
37,722
109,181
176,000
67,739
165,260
11,004
136,863
311,000
48,385
165,260
–
38,038
164,509
101,351
–
147,000
48,385
–
–
–
–
700,000
779,002
96,770
86,336
–
33,316
21,200
76,238
37,722
109,181
113,000
67,739
152,381
11,004
136,863
158,000
48,385
152,381
–
38,038
164,509
101,351
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1 Balance of options/rights held at 1 October 2008 include beneficially held options/rights (both direct and indirect) and options/rights held by related parties.
2 Details of options/rights granted as remuneration during 2009 are provided in Table 11.
3 The 2005 and 2006 LTI grants of Performance Rights were subject to a relative TSR hurdle against a comparator group of financial services companies. This hurdle was tested on
19 November 2008. As ANZ’s TSR was below the median of the comparator group over the three year period, the Performance Rights lapsed.
4 Commencing balance is based on holdings as at the date of commencement as a KMP.
5 Other relates to options granted to a related party.
6 hurdled and Index-linked options forfeited on cessation of employment.
7 R Edgar’s and B hartzer’s option and performance right holdings are not provided as they are no longer KMP as at the report sign-off date.
44 ANZ Annual Report 2009
Remuneration Report 45
REMUNERATION REPORT (Audited) (continued)
2.11. LEGACY LTI PROGRAMS
2.12. REMUNERATION PAID TO ExECUTIVES
Remuneration details of Executives for the years ended 30 September 2009 and 2008 are set out below in Table 17.
Overall the year-on-year total is higher but it must be noted that there are additional disclosed executives in this year’s table compared
to 2008. Due to the change in composition, prior year figures are not provided in relation to the four newly included executives. This results
in a distortion of year on year totals at the bottom of the table.
LTI equity grants awarded in 2009 are broadly unchanged from 2008. The overall actual STI payments are also only slightly higher than last year
but this is consistent with the improvement in ANZ’s performance. however, despite these grants and payments remaining fairly consistent,
the value expensed under share-based payments is significantly higher in 2009. This is due to the introduction of STI deferral last year which has
resulted in the deferred STI portion being included for the first time in share-based payments expenses for the 2009 year.
For those Executives who were disclosed in both 2008 and 2009, the following are noted:
G hodges – Fixed remuneration is unchanged and STI is slightly lower than last year, therefore, the year on year increase is attributable to the
greater amount of amortisation of equity in 2009 which relates to prior year grants.
P Marriott – Fixed remuneration is also unchanged but the STI is higher than last year. The year on year increase is therefore attributable partly
to the increased STI but also to the greater amount of amortisation of equity in the current year.
A Thursby – Fixed remuneration was reviewed last year and increased in October 2008. In 2009, Thursby has been awarded a higher STI amount
reflecting very strong performance. The largest contributing factor to the year on year change is the amortisation of equity relating to prior
grants, including sign-on arrangements.
There are a number of legacy LTI programs which are no longer offered to new entrants but which have existing participants. Details of these
are shown in Table 16 below
Option plans described below have 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.
TABLE 16: LEGACY LTI PLANS
Type of Equity
Details
hurdled Options
(hurdled B) (Granted
November 2004)
hurdled Options
(hurdled A) (Granted
to Executives from
February 2000 until
July 2002, and from
November 2003 until
May 2004)
Index-linked options
(Granted from October
2002 to May 2003)
Deferred Shares
(Granted from
February 2000)
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. Where ANZ’s performance falls between two of the
comparators, TSR is measured on a pro rata basis.
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
Suncorp-Metway Limited
Westpac Banking Corporation
Until May 2004, hurdled options were granted to executives with the following performance hurdles attached.
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
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 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.
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 ANZ’s Executive LTI program, however there may be circumstances
(such as retention) where this type of equity (including Deferred Share Rights) will be issued.
46 ANZ Annual Report 2009
Remuneration Report 47
REMUNERATION REPORT (Audited) (continued)
TABLE 17: ExECUTIVE REMUNERATION FOR 2009 AND 2008
Short-Term
Employee Benefits
Post-
Employment
Financial
Year
Cash
salary
$
3,000,000
3,000,000
850,000
Non
monetary
benefits1
$
5,000
566,567
128,977
Total
cash
$
incentive2,3
Total
$
Super
contributions4
$
2,400,000
2,400,000
465,000
5,405,000
5,966,567
1,443,977
–
–
–
Current Executives
M Smith13
Chief Executive Officer
D Cartwright
Group Managing Director, Operations,
Technology and Shared Services
S Elliott
Group Managing Director, Institutional
J Fagg
Chief Executive Officer, New Zealand
G hodges10
Deputy Chief Executive Officer and
Acting Chief Executive Officer, Australia
P Marriott
Chief Financial Officer
C Page
Chief Risk Officer
A Thursby
Chief Executive Officer, Asia Pacific,
Europe & America
Former Executives
R Edgar
Deputy Chief Executive Officer
B hartzer11
Chief Executive Officer, Australia
P hodgson
Group Manager Director, Institutional
Total of all Executive KMPs12
Total of all Disclosed Executives
2009
2008
2009
2009
2009
2009
2008
2009
2008
2009
2009
2008
2009
2008
2009
2008
2008
2009
2008
2009
2008
302,752
8,905
300,000
611,657
27,248
357,000
63,814
214,000
634,814
–
1,012,631
98,630
530,000
1,641,261
1,000,000
912,431
930,483
779,817
90,705
9,426
9,786
301,988
550,000
525,000
450,000
900,000
1,640,705
1,446,857
1,390,269
1,981,805
1,000,000
88,351
1,400,000
2,488,351
875,000
453,456
1,050,000
2,378,456
547,459
958,878
1,138,052
1,460,741
852,120
9,050,142
9,077,222
9,900,142
9,077,222
5,656
9,786
32,574
11,799
8,905
614,344
1,151,004
743,321
1,151,004
700,000
450,000
–
850,000
–
6,969,000
5,750,000
7,434,000
5,750,000
1,253,115
1,418,664
1,170,626
2,322,540
861,025
16,633,486
15,978,226
18,077,463
15,978,226
34,679
–
82,569
64,517
70,183
–
–
49,541
36,122
102,798
32,246
53,330
367,018
186,215
367,018
186,215
long-Term
Employee Benefits
Retirement
benefit
accrued
during year5
$
long service
leave
accrued
during
the year
$
Share-Based Payments6
Total
amortisation
value of
STI shares
$
Total
amortisation
value of
lTI shares
$
Total
amortisation
value of
STI options
$
Total
amortisation
value of
lTI options
$
Total
amortisation
value of
performance
rights
$
Total
amortisation
of other
equity
allocations7
$
Termination
benefits8
$
Total
excluding
termination
benefits
$
Grand Total
Remuneration 9
$
28,588
(9,088)
–
–
–
–
–
3,035
–
–
–
–
–
–
19,298
–
–
–
28,588
22,333
28,588
22,333
45,663
45,788
13,933
–
–
160,485
1,679
14,268
44,415
15,222
20,871
14,527
–
–
–
–
80,239
–
–
17,275
272,832
14,377
–
–
59,677
–
74,902
–
115,782
–
–
–
–
99,546
260,030
468,853
–
–
–
–
–
–
–
4,977
–
5,607
–
–
–
–
21,516
–
6,039
16,732
–
54,871
–
–
189,057
–
–
132,340
–
94,529
–
–
321,397
–
138,865
–
–
–
–
–
–
–
–
–
–
4,795
–
5,402
–
–
–
2,341,479 3,143,461
5,111,391
1,839,734
– 10,935,603 10,935,603
12,963,480
– 12,963,480
310,957
82,736
–
2,201,145
2,201,145
–
57,810
222,457
42,061
–
–
698,394
698,394
913,600
913,600
790,098
701,280
670,933
709,626
115,909
–
–
–
–
–
–
2,617,878
2,617,878
–
–
–
–
2,399,207
2,399,207
2,390,349
2,196,292
2,390,349
2,196,292
2,182,424
2,182,424
356,711
678,029
–
4,134,595
4,134,595
174,414
365,291
–
2,932,538
2,932,538
–
4,155
–
5,817
233,660
506,025
(762,604)
780,312
–
–
–
–
421,902
–
212,967
–
1,790,963
2,065,457
510,820
3,221,856
2,212,865
2,065,457
723,787
3,221,856
1,259
200,327
– 1,334,282
1,132,673
2,466,955
687,131
–
–
21,428
3,968,643 3,921,361
4,911,718
5,476,682 1,334,282
634,869 26,174,626 26,809,495
28,245,785
26,911,503
113,479
629,338
–
876,188
–
4,279,600 4,004,097
634,869 28,375,771 29,010,640
260,030
–
54,871
–
21,428
4,911,718
5,476,682 1,334,282
26,911,503
28,245,785
1 Non-monetary benefits generally consists of salary packaged items such as car parking as
well as company-funded benefits including preparation of Australian taxation returns by
PwC. This item also includes costs met by the company in relation to relocation, such as
airfares and housing assistance. The fringe benefits tax payable on any benefits is also
included in this item.
2 The total cash incentive relates to the cash component only, with the deferred equity
component to be amortised from the grant date. The relevant amortisation of the 2008 STI
deferred components are included in share-based payments above. The 2009 STI deferred
components will be amortised from the grant date in the 2010 Remuneration Report. The
cash incentive component was approved by the Board on 20 October 2009. 100% of the
cash incentive awarded for the 2008 and 2009 years vested to the Executive in the applicable
financial year.
3 The possible range of STI payments is between 0 and 3 times target STI. The actual STI received
is dependent on ANZ Group, Division and individual performance (refer to Section 2.6.3 for
more details). The 2009 STI awarded (cash and equity component) as a percentage of target
STI was: M Smith 150% (2008:80% plus additional option grant approved by shareholders in
December 2008); D Cartwright 72%; S Elliott 100%; J Fagg 71%; G hodges 72% (2008:75%);
P Marriott 71% (2008:58%); C Page 157%; A Thursby 217% (2008:181%); R Edgar 100% pro-rated
to cessation date (2008:58%); B hartzer 0% (2008:83%); P hodgson (2008:0%). Anyone who
received less than 100% forfeited the rest of their STI entitlement. The minimum value is nil
and the maximum value is what was actually paid.
4 As M Smith, D Cartwright and A Thursby are holders of long stay visas, their Fixed
Remuneration does not include the 9% Superannuation Guarantee contribution, however
they are able to elect voluntary superannuation contributions.
5 Accrual relates to Retirement Allowance. As a result of being employed with ANZ prior
to November 1992, G hodges is 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). R Edgar was also entitled to a Retirement Allowance, which was paid to him on
retirement and is included in the Termination Benefits amount.
6
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
relevant 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.
7 Amortisation of other equity allocations for M Smith relates to the sign-on award and
the special equity allocations which were approved by shareholders at the 2007 and
2008 Annual General Meetings respectively. Amortisation for S Elliott and A Thursby relates
to equity granted on commencement – refer to Table 19 for more details; Amortisation for
J Fagg relates to equity granted prior to commencement as a KMP but amortised and
reflected since her commencement and inclusion as a KMP.
8 Termination benefits for R Edgar include retirement allowance and annual and long service
leave entitlements payable on his retirement. Termination benefits for B hartzer include
annual and long service leave entitlements only which were payable on his cessation.
9 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.
10 G hodges’ 2009 cash salary includes an annual leave payment of $47,310, paid on change
of contracts on transfer from New Zealand to Australia.
11 B hartzer’s 2009 share-based payments amortisation reflects the reversal of previously
amortised values due to the forfeiture of equity on cessation of his employment.
12 Total excludes D Cartwright who is included in the disclosures by virtue of being in the
Top 5 highest remunerated executives and is not included under the definition of KMP.
13 While the CEO is an Executive Director he has been included in this table with other Executives.
48 ANZ Annual Report 2009
Remuneration Report 49
REMUNERATION REPORT (Audited) (continued)
3. Contract Terms
3.1. CEO’S CONTRACT TERMS
The following table sets out details of the contract terms relating to the CEO. The contract terms are in line with industry practice
(based on external advice on Australian and international peer company benchmarks) and ASx Corporate Governance Principles.
TABLE 18: CONTRACT TERMS – CEO (M SMITh)
Length of Contract
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.
Notice Periods
M Smith or ANZ may terminate the employment agreement by providing 12 months’ written notice.
Resignation
M Smith may resign by providing 12 months’ written notice. On resignation, all unexercised Performance Rights
(or cash equivalent) and unvested sign-on award will be forfeited.
Termination on Notice
by ANZ
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.
Death or Total and
Permanent Disablement
Termination for serious
misconduct
On termination on notice by ANZ: All Performance Rights (or cash equivalent) which have vested or vest during
the notice period will be retained and become exercisable; all Performance Rights (or cash equivalent) which have
not yet vested will be retained and will vest and become exercisable subject to the relevant time and performance
hurdles being satisfied. Sign-on award will vest in full.
All Performance Rights (or cash equivalent) and sign-on award will vest.
ANZ may immediately terminate the CEO’s employment at any time in the case of serious misconduct, and the
CEO 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 without notice by ANZ in the event of serious misconduct: All Performance Rights (or cash
equivalent) and sign-on award will be forfeited.
3.2. ExECUTIVES’ CONTRACT TERMS
The following table sets out details of the contract terms relating to the Executives. The contract terms for all Executives are similar, but do,
on occasion, vary to suit different needs.
TABLE 19: CONTRACT TERMS – ExECUTIVES
Length of Contract
Rolling.
Notice Periods
Resignation
In order to terminate the employment arrangements, Executives are required to provide the company with 6 months’
written notice, ANZ must provide Executives with 12 months’ written notice.
Employment may be terminated by the Executive giving 6 months’ written notice.
On resignation any options, performance rights and unvested deferred shares will be forfeited.
Termination on Notice
by ANZ
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.
There is discretion to pay STI on a pro-rata basis (depending on termination date, reason for termination and
subject to business performance).
On termination on notice by ANZ any options, performance rights 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. Options,
performance rights or LTI shares that have not yet vested will generally be forfeited. (Although in relation to
P Marriott there is a contractual requirement that equity granted prior to 1 October 2008 will vest in full.) Under
the new mandatory deferral provisions of the STI program (effective from 2008), Executives must be in employment
with ANZ and not in receipt of notice (given or received), to exercise vested STI deferred options or for vested
STI deferred shares to be released in full.
TABLE 19: CONTRACT TERMS – ExECUTIVES (CONTINUED)
Redundancy
If ANZ terminates employment for reasons of bona fide redundancy, a severance payment will be made that
is equal to 12 months’ Fixed Remuneration.
Death or Total and
Permanent Disablement
Termination for serious
misconduct
Other arrangements
All STI Deferred Shares are released. Options, Performance Rights and LTI Deferred Shares are either released
in full or on a pro-rata basis, at the discretion of the Board with regard to the circumstances.
There is discretion to pay short-term incentives on a pro-rata basis (depending on termination date and subject
to business performance).
All Options, Performance Rights 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 without notice by ANZ in the event of serious misconduct any Options, Performance Rights
and Deferred Shares still held in trust will be forfeited.
S Elliott
As part of S Elliott’s employment arrangement, he was granted Deferred Shares to a total value of $250,000.
The grant was made following his commencement with one-half vesting after 1 year and the other half vesting
after 2 years.
The Shares are restricted and held in trust for the beneficial interest of S Elliott, 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.
A Thursby
As part of A Thursby’s employment arrangement, he was granted 3 separate tranches of Deferred Shares to the
value of $1 million per annum, subject to Board approval. The first grant was to be made around the time of
commencement with the subsequent two grants being awarded around his 1st and 2nd anniversaries with ANZ.
The first tranche was approved by the Board on 3 September 2007, the second on 28 August 2008, and the third
on 22 September 2009.
The Shares are 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.
Signed in accordance with a resolution of the Directors
COPY OF ThE AUDITORS INDEPENDENCE DECLARATION
Charles B Goode
Chairman
Michael R P Smith
Director
5 November 2009
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 2009 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
5 November 2009
50 ANZ Annual Report 2009
Remuneration Report 51
Corporate Governance
The following statement sets out the governance framework the Board has adopted at ANZ as well as highlights of the
substantive work undertaken by the Board and its Committees during the financial year.
Directors
The below information relates to the Directors in office, and sets out their Board Committee memberships and other details, as at
30 September 2009.
OThER JURISDICTIONS
ANZ also monitors best practice developments in corporate
governance across other relevant jurisdictions.
ANZ deregistered from the US Securities and Exchange Commission
(SEC) 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 the Audit Committee,
as described in this statement.
Recognition
ANZ has been assessed as the leading bank globally on the
Dow Jones Sustainability Index (DJSI) for the third consecutive
year. ANZ received a rating of 92/100 for Corporate Governance
as part of this assessment.
In 2009, ANZ also received the Special Award for Governance
Reporting (Private Sector) at the 2009 Australasian Reporting
Awards for the second consecutive year.
Website
Full details of ANZ’s governance framework are set out at
www.anz.com > About us > 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.
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 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 Corporate Governance Principles
and Recommendations (ASx Governance Principles) during the
financial year, explaining any departures from them.
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 ASx Governance
Principles are contained on www.anz.com >About us > Our company
> Corporate governance.
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 may materially 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.
Mr C B Goode, AC Chairman, Independent Non-Executive Director
BCom (Hons), mBA (ColumBiA), 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 (Director from 2008)
and The Ian Potter Foundation Ltd (Director from 1987).
Mr M R P Smith, OBE Chief Executive Officer, Executive Director
BsC (Hons)
Chief Executive Officer since 1 October 2007.
Skills, experience and expertise:
Mr Smith is an international banker with over 30 years experience in
banking operations in Asia, Australia and internationally. Until June
2007, he was President and Chief Executive Officer, The hong Kong
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.
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: 71. Residence: Melbourne.
Mr Goode will retire from the Board in February 2010 and will be
succeeded by Mr Morschel as Chairman.
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), Asia
Business Council (from 2008), Financial Literacy Advisory Board
(from 2008) and Visa Asia Pacific Senior Advisory Council (from 2009).
Fellow: The hong Kong Management Association (from 2005).
Former Directorships include:
Former Chairman: hSBC Bank Malaysia Berhad (2004–2007) and hang
Seng Bank Limited (2005–2007). Former CEO and Director: The hong
Kong and Shanghai Banking Corporation Limited (2004–2007). Former
Director: hSBC Australia Limited (2004–2007), hSBC Finance Corporation
(2006–2007) and hSBC Bank (China) Company Limited (2007). Former
Board Member: Visa International (Asia Pacific) Limited (2005–2007).
Age: 53. 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 and the human Resources 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: KaComm Communications Pty Ltd (Director from 2006).
Director: Eircom holdings Ltd (formerly Babcock & Brown Capital
Limited) (from 2006).
Former Directorships include:
Former Chairman: GPM Classified Directories (2007–2008). Former
Director: James hardie Industries NV (2002–2006).
Age: 66. Residence: Based in New York, United States of America
and also resides in Sydney.
52 ANZ Annual Report 2009
Corporate Governance 53
CORPORATE GOVERNANCE (continued)
Mr J K Ellis Independent Non-Executive Director
Mr I J Macfarlane, AC Independent Non-Executive Director, Chairman of the Governance Committee
mA oxon, FAiCD, FAus imm, FTse, Hon llD (monAsH), Hon DR enG (C.Q.u),
Hon Fie AusT
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), Earth Resources Development
Council (from 2006) and MBD Energy Limited (from 2009).
Mr P A F hay Independent Non-Executive Director
llB (melB)
Non-executive director since November 2008. Mr hay is a member
of the Risk Committee and Governance Committee.
Skills, experience and expertise:
Mr hay has a strong background in company law and investment
banking advisory work, with a particular expertise in relation to
mergers and acquisitions. he has also had significant involvement
in advising governments and government-owned enterprises.
Mr lee hsien Yang Independent Non-Executive Director
msC, BA
Non-executive director since February 2009. Mr Lee is a member
of the Technology Committee.
Skills, experience and expertise:
Mr Lee is one of Asia’s most respected business leaders and has
considerable knowledge of the region. he has a background in
engineering and brings to the Board his international business
and management experience across a wide range of sectors
including food and beverages, properties, publishing and printing,
telecommunications, financial services, education, civil aviation
and land transport.
Current Directorships:
Chairman: Fraser & Neave, Limited (from 2007) and Civil Aviation
Authority of Singapore (from July 2009). Director: Singapore Exchange
Limited (from 2004), The Islamic Bank of Asia Limited (from 2007)
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) and Golf Australia (2005–2008).
Former Chancellor: Monash University (1999–2007).
Age: 71. Residence: Melbourne.
Mr Ellis will retire from the Board with effect from the end of the
2009 Annual General Meeting.
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).
Member: Council of International Advisors to the China Banking
Regulatory Commission (from 2009), 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) and Financial Markets
Foundation for Children (1996–2006). Former Governor: Reserve Bank
of Australia (Member 1992–2006, Chairman 1996–2006).
Age: 63. Residence: Sydney.
Current Directorships:
Chairman: Lazard Pty Ltd Advisory Board (from 2009). Director:
Alumina Limited (from 2002), Landcare Australia Limited (from 2008),
GUD holdings Limited (from 2009) and NBN Co Limited (from 2009).
Part Time Member: Takeovers Panel (from 2009).
Former Directorships include:
Former Chief Executive Officer: Freehills (2000–2005). Former Director:
Pacifica Group Limited (1989–2008) and Lazard Pty Ltd (2007–2009).
Age: 59. Residence: Melbourne.
and Kwa Geok Choo Pte Ltd (from 1979). Member: Governing Board
of Lee Kuan Yew School of Public Policy (from 2005), Rolls Royce
International Advisory Council (from 2007) and Merrill Lynch PacRim
Advisory Council (from 2007). Consultant: Capital International Inc
Advisory Board (from 2007).
Former Directorships include:
Former Chairman: Republic Polytechnic (2002–2009). Former Director:
SingTel Optus Pty Limited (2002–2007), Singapore Post Limited
(1995–2007), L & L Services Pte Ltd (2004–2008) and Board of
INSEAD (1999–2007). Former Member: Textron International Advisory
Council (1999–2008). Former Chief Executive Officer: Singapore
Telecommunications Limited (1995–2007).
Age: 52. Residence: Singapore.
Mr D E Meiklejohn Independent Non-Executive Director, Chairman of the Audit Committee
BCom, DiPeD, 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 Director and Chief Financial Officer: Amcor Limited (1985–2000).
Age: 67. Residence: Melbourne.
Mr J P Morschel Independent Non-Executive Director, Chairman of the Risk Committee
DiPQs, FAiCD
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), Leighton holdings Limited (Chairman and Director
2001–2004) and CSR Limited (Director 1996–2003, Chairman
2001–2003). 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: 66. Residence: Sydney.
Ms A M Watkins Independent Non-Executive Director, Chairman of the human Resources Committee
BCom, FCA, F Fin, mAiCD
Non-executive director since November 2008. Ms Watkins is a member
of the Audit Committee.
Skills, experience and expertise:
Ms Watkins is an experienced CEO and established director with
a grounding in finance and accounting. her experience includes
retailing, agriculture, food manufacturing and financial services, and
covers small to medium companies as well as large organisations.
Current Directorships:
Chief Executive Officer: Bennelong Group (from 2008). Director:
Woolworths Limited (from 2007), Yarra Capital Partners Pty Ltd
(from 2008), AICD Victorian Council (from 2007) and The Nature
Conservancy Australian Advisory Board (from 2007).
Former Directorships include:
Former Chairman: Mrs Crocket’s Kitchen (2006–2007). Former CEO:
Berri Limited (2002–2005). Former Director: Just Group Limited
(2004–2008). Former Partner: McKinsey & Company (1996–1999).
Age: 46. Residence: Melbourne.
54 ANZ Annual Report 2009
Corporate Governance 55
CORPORATE GOVERNANCE (continued)
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;
appointing and reviewing the performance of the Chief Executive
Officer; and
reporting to shareholders on ANZ’s performance.
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 (Board Appointees);
any matters in excess of any discretions delegated to Board
Committees or the Chief Executive Officer;
annual approval of the budget and strategic plan;
annual approval of the remuneration and conditions of service
for any executive Directors, direct reports to the Chief Executive
Officer and other key executives;
significant changes to organisational structure; and
the acquisition, establishment, disposal or cessation of any
significant business.
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 60 to 64.
Substantive areas of focus for the Board in the 2009 financial year
included oversight of:
the management of ANZ’s businesses in the context of the global
financial crisis and economic downturn, including in particular
ANZ’s capital and funding requirements;
succession planning for the role of the Chairman of the Board;
new Director appointments;
completion of the “One ANZ” restructure, and remediation work
arising from the Securities Lending Review; and
the ongoing implementation of ANZ’s strategies in relation to
its 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;
reports on major projects and current business issues;
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.
There are two private sessions held at the end of each Board meeting
which are each chaired by the Chairman of the Board.
The first involves all Directors including the CEO, and the second
involves only the non-executive Directors.
The Chief Financial Officer, 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 area
of responsibility is being considered or as otherwise requested by
the Board.
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 management level, ANZ has a Management Board which
comprises the Chief Executive Officer and ANZ’s most senior executives.
As at 30 September 2009, the following senior executives, in addition
to the Chief Executive Officer, were members of Management Board:
Graham hodges – Deputy Chief Executive Officer and Acting Chief
Executive Officer, Australia*; Peter Marriott – Chief Financial Officer;
Jenny Fagg – Chief Executive Officer, New Zealand; Alex Thursby –
Chief Executive Officer, Asia Pacific, Europe and America;
Shayne Elliott – Group Managing Director, Institutional;
David hisco – Group Managing Director, Commercial Banking;
David Cartwright – Group Managing Director, Operations,
Technology and Shared Services; Susie Babani – Group Managing
Director, human Resources; Chris Page – Chief Risk Officer; and
Joyce Phillips – Group Managing Director, Strategy, M&A, Marketing
and Innovation.
(* From November 2009, Philip Chronican will join ANZ as Chief Executive Officer, Australia).
Typically, the Management Board meets every week and has a full day
meeting each month to discuss business performance, review shared
initiatives and build collaboration and synergy across the Group.
One ANZ
In September 2008, ANZ announced a new business model and
organisational 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, Europe & America – and its global
Institutional client business. Each geography mainly focuses on
two customer segments – Retail and Commercial, which are
co-ordinated globally.
The new structure became effective during the year.
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.
ANZ pursued a remediation program to address the 13
recommendations arising from the Review. Remedial actions
are well progressed and ANZ has kept APRA fully informed.
ANZ continues to focus on ensuring the remedial initiatives are
operationally effective and achieve their intended outcomes.
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
53 to 55.
The Governance Committee (see page 62) has been delegated
responsibility for the director nomination process. The Committee
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 non-executive 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.
56 ANZ Annual Report 2009
Corporate Governance 57
CORPORATE GOVERNANCE (continued)
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 2009 financial year.
INDEPENDENCE AND MATERIALITY
Under ANZ’s Board Charter, the Board must contain a majority of
non-executive Directors who satisfy ANZ’s criteria for independence.
The Board Charter sets out independence criteria in order to establish
whether a non-executive Director 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 2009 financial year, the Board conducted its annual review
of criteria for independence against the ASx Governance Principles
and APRA Prudential Standards, as well as US director independence
requirements.
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 2009, 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 53 to 55 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, 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.
INDEPENDENT ADVICE
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.
In addition, ANZ’s Board Renewal and Performance Evaluation Policy
confirms 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 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 57), Directors also receive a quarterly bulletin 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. Employees
have access to the Directors directly or through the Company
Secretary. Shareholders who wish to communicate with the
Directors may direct correspondence to a particular Director, or
to the non executive Directors as a whole.
Role of Company Secretary
The Board is responsible for the appointment of ANZ’s Company
Secretaries. The Board has appointed three Company Secretaries.
The Group General Counsel 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 20.
Performance Evaluations
OVERVIEW
The framework used to assess the performance of Directors is based
on the expectation that they are performing their duties in a manner
which should create and continue to build sustainable value for
shareholders, and in accordance with the duties and obligations
imposed upon them by ANZ’s Constitution and the law.
The performance review takes into account each Director’s
contribution across various criteria including:
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.
The performance evaluation process is set out in ANZ’s Board
Renewal and Performance Evaluation Policy.
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 non-executive 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.
58 ANZ Annual Report 2009
Corporate Governance 59
CORPORATE GOVERNANCE (continued)
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
During 2008/09, the performance of the Board in respect of the
previous year was assessed using an independent external facilitator,
who sought input from each Director and certain members of senior
management when carrying out the assessment.
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.
BOARD COMMITTEES
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
review and consider the following:
the scope of the Committee’s responsibilities and duties as
enshrined in its Charter;
the Committee’s performance against its Charter and annual
calendar of business;
the Committee’s performance against any goals or objectives
it set itself for the year under review;
major issues that faced the Committee during the year; and
the 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 24 to 25.
REVIEW PROCESSES UNDERTAKEN
Board and relevant senior management evaluations in accordance with
the above processes have been undertaken in respect of the 2008/09
reporting period with one exception. During the year, the Chairman of
the Board announced that he would be retiring in February 2010 and,
in these circumstances, it was believed unnecessary and of no benefit
to carry out a performance review of the Chairman.
Board Committees
As set out on page 56 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.
MEMBERShIP AND ATTENDANCE
Each of the principal Board Committees is comprised solely of
independent non-executive Directors, has its own Charter and has
the power to initiate any special investigations it deems necessary.
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 the non-executive
Director private sessions of Committees. 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 the carrying out
of 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 agendas following
a process approved by the Board. The offices of the executives who
are appointed to assist the Chairman of each Board Committee liaise 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 Chairman. 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
Chairman. When there is a cross-Committee item, the Committees
will communicate with each other through their Chairman. Throughout
the year, Committee Chairman also conduct agenda planning meetings
involving relevant stakeholders to take account of emerging issues.
ANZ BOARD COMMITTEE MEMBERShIPS – as at 30 September 2009
Audit
Governance
human Resources
Risk
Mr D E Meiklejohn FE, C
Mr I J Macfarlane C
Ms A M Watkins3 C
Mr J P Morschel C
Technology
Dr G J Clark C
Mr J K Ellis
Mr J K Ellis
Ms A M Watkins1
Dr G J Clark
Mr P A F hay2
Dr G J Clark4
Mr P A F hay2
Mr J P Morschel
Mr I J Macfarlane
Mr I J Macfarlane
Mr C B Goode (ex Officio)
Mr D E Meiklejohn
Mr C B Goode (ex Officio)
Mr D E Meiklejohn
Mr Lee hsien Yang5
Mr C B Goode (ex Officio)
Mr C B Goode (ex Officio)
Mr C B Goode (ex Officio)
C – Chairman FE – Financial Expert
1 Ms Watkins joined the Audit Committee on 12 November 2008, following her appointment as a Director.
2 Mr hay joined the Governance Committee and Risk Committee on 12 November 2008, following his appointment as a Director.
3 Ms Watkins was appointed to the human Resources Committee on 12 November 2008, following her appointment as a Director and became Chairman of the Committee on 22 March 2009.
4 Dr Clark joined the human Resources Committee on 22 March 2009.
5 Mr Lee joined the Technology Committee on 1 February 2009, following his appointment as a Director.
Ms Jackson was a Director of ANZ, Chairman of the human Resources Committee, and a member of the Audit Committee during 2008/09 prior to her retirement from the Board on 21 March 2009.
AUDIT COMMITTEE
The Audit Committee is responsible for the oversight and monitoring
of:
ANZ’s financial reporting principles and policies, controls and
procedures;
the effectiveness of ANZ’s internal control and risk management
framework;
the work of Internal Audit which reports directly to the Chairman
of the Audit Committee (refer to Internal Audit on page 64 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, annual 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 (Chairman) was
determined to be a ‘financial expert’ for the 2009 financial year under
the definition set out in the Audit Committee Charter which reflects
US audit committee requirements. Refer to page 55 for his
qualifications. While the Board has determined that Mr Meiklejohn
has the necessary attributes to be a ‘financial expert’ in accordance
with the relevant requirements, it is important to note that this does
not give rise to him having responsibilities additional to those of
other members of the Audit Committee.
The Audit Committee meets with the external auditor and internal
auditor without management being present. The Chairman of the
Audit Committee meets separately and regularly with the Group
General Manager, Internal Audit, the external auditor and management.
The Group General Manager, Finance is the executive responsible
for assisting the Chairman of the Committee in connection with the
administration and efficient operation of the Committee.
Substantive areas of focus in the 2009 financial year included:
Internal and External Audit – The Committee approved the annual
plans for internal and external audit and kept progress against
those plans under regular review. Adjustments to the internal audit
plan were made during the year to accommodate changes arising
from the One ANZ restructure and high priority items;
Regulatory developments – Reports on domestic and international
accounting and financial reporting developments were provided
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 2009 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, emerging risks and
areas of focus, and Program status;
Whistleblowing – The Committee received reports on disclosures
made under ANZ’s Global Whistleblower Protection Policy, and of
enhancements to the Policy, including the establishment of a 24/7
External hotline; and
Information Security – the Committee received regular reports on
information security.
60 ANZ Annual Report 2009
Corporate Governance 61
CORPORATE GOVERNANCE (continued)
GOVERNANCE COMMITTEE
The Governance Committee is responsible for:
identifying and recommending prospective Board members,
Committee members and succession planning for the position
of Chairman (see page 57);
ensuring there is a robust and effective process for evaluating the
performance of the Board, Board Committees and non-executive
Directors (see pages 59 to 60);
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 Group General Counsel is the executive responsible for assisting
the Chairman of the Committee in connection with the administration
and efficient operation of the Committee.
Substantive areas of focus in the 2009 financial year included:
Succession Planning – Three new Director appointments were
made during the year, together with announcements regarding
the succession plan relating to the Chairman of the Board;
Governance framework –The Committee reviewed the Board’s
governance framework and principles including Board composition
and appointment procedures, Board and Committee education
and Director independence criteria. A new director tenure policy
was adopted under which non-executive Directors will retire once
they have served a maximum of three 3 year terms after election
by shareholders, unless invited by the Board to extend their tenure
due to special circumstances;
Ethics Framework – A new Code of Conduct for employees and
non-executive Directors was launched during the year;
Securities Lending Review – The Committee was updated on
progress of the Securities Lending remediation program and
endorsed a number of governance initiatives which included
implementation of a new Policy and Guidelines to enhance the
governance of Management Committees;
Board Performance Evaluation – The Committee considered and
reported to the Board on each of the recommendations from the
external review of Board performance; and
Review and approval of Group policies – The Committee approved
amendments to existing Group policies including the Continuous
Disclosure Policy, Global Employee Securities Trading and Conflict
of Interest Policy, Board Renewal and Performance Evaluation
Policy, Fit & Proper Policy, Director independence criteria and
assessment process, and Shareholder Charter.
hUMAN RESOURCES COMMITTEE
The human Resources Committee is responsible for reviewing and
approving the Group’s compensation programs and remuneration
strategy, including any equity based programs, compensation levels
and policy guidelines (details in the Remuneration Report on pages
23 to 51).
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 23 to 51).
In addition, the Committee considers and approves key executive
appointments, and senior executive succession plans, as well as
policies relating to health and safety issues and diversity.
The Group Managing Director, human Resources is the executive
responsible for assisting the Chairman of the Committee in connection
with the administration and efficient operation of the Committee.
Substantive areas of focus in the 2009 financial year included:
Management roles and performance – The Committee reviewed
the performance of the CEO and CEO’s direct reports and ensured
that succession plans were in place for Management Board and
business critical roles;
Focus on governance and policy impacts of APRA Prudential
Standards on remuneration, the proposed changes to taxation
of employee equity plans, the Productivity Commission Review
and the proposed termination payments cap legislation. The
Committee continues to closely monitoring these developments
and implications for ANZ;
Fitness and Propriety – The Committee completed fit and proper
assessments for all current and new Board Appointees; and
Remuneration – The Committee approved the grant of $1000
of shares to each eligible employee under the Employee Share
Acquisition Plan, and reviewed and approved amendments to
the bonus framework for the Institutional Division. The Committee
conducted an annual review of remuneration for non-executive
Directors and agreed to freeze director fees for the 2008/09
financial year, and also reviewed the compensation structure
for senior executives and agreed not to increase salaries for the
2009/10 financial year.
For more details on the activities of the human Resources Committee,
please refer to the Remuneration Report on pages 23 to 51.
RISK COMMITTEE
The Board is principally responsible for approving the Group’s risk
tolerance, 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 is delegated responsibility for overseeing,
monitoring and reviewing the Group’s risk management principles
and policies, strategies, processes and controls including credit,
market, liquidity, balance sheet, operational, compliance and other
reputational risk frameworks.
The Committee 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 supporting
the Chairman of the Committee in connection with the
administration and efficient operation of the Committee.
Substantive areas of focus in the 2009 financial year included:
Economic Environment – The Committee received regular
updates on the global economic environment and regulatory
changes implemented/proposed following the impact of the
global financial crisis;
Liquidity – The Committee performed an ongoing and detailed
review of the Group’s liquidity and funding positions and risks
throughout the year;
Provisioning – The Committee regularly reviewed provisioning
in light of the global financial crisis;
Risk Frameworks – The Committee approved an updated
Operational Risk Framework and further development of the
Risk Appetite Framework. The Committee also reviewed the
Information Security Governance Framework;
Securities Lending Review – The Committee continued to monitor
the remediation program in relation to issues raised in the Review.
During the year, management 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.
For further information on how ANZ manages its material financial
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.
TEChNOLOGY COMMITTEE
The Technology Committee assists the Board in the effective
discharge of its responsibilities in relation to technology and related
operations 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, its operational processes
and systems.
The Committee is also responsible for the review and approval
of management’s recommendations for long-term technology
and related operations planning and the overall framework for
the management of technology risk.
The Group Managing Director, Operations, Technology and Shared
Services is the executive responsible for assisting the Chairman of
the Committee in connection with the administration and efficient
operation of the Committee.
Substantive areas of focus in the 2009 financial year included:
Technology Architecture – The Committee monitored the definition
and execution of ANZ’s Technology Architecture Strategy;
Information Security – The Committee received regular updates
on key information security issues and strategies and technology
risk remediation;
Future needs – The Committee received reports on the future
technology investment requirements for ANZ and on ANZ’s future
IT operating model; and
Projects – The Committee received reports on the progress of ANZ’s
major technology and property projects, including the 833 Collins
Street development, and on recent changes to the priorisation and
governance of projects at ANZ.
DIRECTORS’ MEETINGS
The number of Board meetings and meetings of Committees during the year the Director was eligible to attend, and the number of meetings
attended by each Director were:
Board
Risk
Committee
Audit
Committee
human
Resources
Committee
Governance
Committee
Technology
Committee
Executive
Committee
Shares
Committee*
Committee
of the Board*
G J Clark
J K Ellis
P A F hay
C B Goode
M A Jackson
Lee hsien Yang
I J Macfarlane
D E Meiklejohn
J P Morschel
M R P Smith
A M Watkins
A
B
5
7
7
7
7
5
7
7
6
7
A
17
17
14
17
7
11
17
17
17
17
14
B
17
16
14
16
6
11
17
15
17
17
13
A
9
9
5
B
7
9
5
9
9
7
7
A
2
5
3
5
3
B
2
5
3
5
3
A
4
3
4
4
4
B
4
3
4
4
3
A
4
4
4
4
4
B
4
4
4
4
4
A
1
2
1
1
2
2
2
1
B
1
2
1
1
2
2
2
1
A
1
6
2
2
1
2
B
1
6
2
2
1
2
A
1
2
3
B
1
2
3
11
11
1
7
5
10
2
1
7
5
10
2
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 Risk, Audit, human Resources, Governance, and Technology Committees.
* The meetings of the Shares Committee and Committee of the Board as referred to in the table above include those conducted by written resolution.
62 ANZ Annual Report 2009
Corporate Governance 63
CORPORATE GOVERNANCE (continued)
ADDITIONAL COMMITTEES
In addition to the five principal Board Committees, the Board has
constituted an Executive Committee and a Shares 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 manage on behalf of the Board the issue of shares and options
(including under 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.
Audit and Financial Governance
INTERNAL AUDIT
Internal Audit is a function independent of management whose
role is to appraise the effectiveness of ANZ’s risk management,
control and governance processes. Operating under a Board
approved Charter, Internal Audit’s primary reporting line is to
the Audit Committee with a direct communication line to the
Chief Executive Officer and external auditors.
The Global audit plan is derived utilising a risk based approach and
is refreshed on a quarterly basis. The Audit Committee approves
the plan, the associated budget and any changes thereto quarterly.
Audits fully conform to the International Standards for the
Professional Practice of Internal Auditing and results thereof are
reported to the Audit Committee, Risk Committee and Executive
Management. These results influence the performance assessment
of business heads.
Furthermore, Internal Audit monitors the remediation of audit issues
and highlights the current status of any outstanding audits.
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) and also the
compensation, retention and oversight of the external auditor.
The Policy also stipulates that the Audit Committee:
pre-approves all audit and non-audit services on an engagement
by engagement basis or pursuant to specific pre-approval policies
adopted by the Committee;
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 2009 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
pages 20 to 21.
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 5 years. Certain other senior audit staff are required to
rotate off after a maximum of seven years. Any appointments of
ex-partners or ex-employees of the external auditor as ANZ finance
staff, or at senior manager level or higher, must be pre-approved by
the Chairman of the Audit Committee.
As disclosed in previous Annual Reports, the US SEC commenced
an inquiry into non-audit services provided by ANZ’s auditor, KPMG.
ANZ has provided the information requested by the SEC. This inquiry
has not concluded. Should the SEC determine that services provided
by KPMG did not comply with the US auditor independence rules,
the SEC may seek sanctions, the nature and amount of which are not
known. Whilst ANZ cannot predict the outcome of the inquiry, based
on information currently available, ANZ does not believe it will have
a material adverse effect on the Company.
FINANCIAL CONTROLS
As previously noted, the Audit Committee of the Board oversees
ANZ’s 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 21.
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 Directors 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:
Anti-Money Laundering and Counter-Terrorism Financing Program;
Use of Systems, Equipment and Information Policy;
Global Fraud and Corruption Policy;
Group Expense Policy;
Equal Employment Opportunity, Bullying and harassment Policy;
health and Safety Policy;
Global Employee Securities Trading and Conflict of Interest Policy;
Global Anti-Bribery Policy; and
Global Whistleblower Protection Policy.
Within two months of commencing employment with ANZ, and
thereafter on an annual basis, all employees are 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.
In June 2009, ANZ launched the Global Performance Improvement
and Unacceptable Behaviour Policy to support the Code of Conduct
and Ethics. This Policy sets out the processes that will be followed
to determine whether the Code of Conduct and Ethics has been
breached and the consequences that should be imposed on
employees who are found to have breached the Code of Conduct
and Ethics. Breaches of the Code of Conduct and Ethics which lead
to formal warnings automatically result in a behaviour flag being
raised under the ANZ Global Performance Management Framework
and have a direct bearing on the individual’s performance and
remuneration outcomes for the financial year in question.
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 Conflict of Interest
Policy prohibits trading in ANZ securities or the securities of other
companies by all employees and Directors who are aware of
unpublished price-sensitive information.
The Policy specifically prohibits restricted employees and their
associates 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
Audit 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 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 and Management Board members are also prohibited from
providing ANZ securities as security in connection with any margin
loan or similar financing arrangement under which they may be
subject to a margin call or loan to value ratio obligations.
64 ANZ Annual Report 2009
Corporate Governance 65
CORPORATE GOVERNANCE (continued)
WhISTLEBLOWER PROTECTION
The ANZ Global Whistleblower Policy provides a mechanism by
which ANZ employees, contractors and consultants may voice serious
concerns or escalate serious matters on a confidential basis, without
fear of reprisal, dismissal or discriminatory treatment.
Complaints may be made under the Policy to designated Whistleblower
Protection Officers, or via an independently managed Whistleblower
Protection hotline.
Commitment to Shareholders
Shareholders are the owners of ANZ and our approaches described
below are enshrined in ANZ’s Shareholder Charter, a copy of which
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, it is important for shareholders to 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 shareholders, the wider market and the community. To this
end, ANZ, outside of its scheduled result announcements, issued
additional 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 newsletter, and the Investor Centre
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 us > Investor Centre >
Events & Publications. 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. 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 considering 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.
A committee of senior executives (the Continuous Disclosure
Review 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.
Corporate Responsibility
Corporate responsibility and sustainability are part of ANZ’s core
strategy. The global financial crisis has brought into focus how
economies and the community are best served when the banking
sector understands the importance of its role in the broader
community. In September 2009, ANZ released a new corporate
responsibility framework which responds to the priorities of customers,
employees, community groups, regulators and governments across
our business and provides a clear direction for ANZ, with flexibility
to suit specific geographic regions. The following 5 priority areas
have been identified for ANZ to focus on globally:
education and employment for the disadvantaged;
rural development;
financial capability;
responsible practices;
urban sustainability.
ANZ will strengthen existing programs and develop and implement
new initiatives consistent with our core purpose and priorities over
the coming years.
Donations
During the year ended 30 September 2009, ANZ contributed over
$22 million in cash, time and in-kind services to charitable organisations
in the regions where ANZ does business.
More than $4 million of this contribution was invested in financial
literacy and inclusion programs such as MoneyMinded (Australia
and New Zealand), Saver Plus and Progress Loans (Australia). ANZ’s
community partners the Brotherhood of St Laurence, Berry Street,
The Benevolent Society and The Smith Family currently deliver these
programs in over 20 communities. Funding of $13.5 million has been
granted by the Federal Government with the aim of extending the
reach and impact of the Saver Plus program from 20 to more than
50 communities across Australia over the next 2 years. ANZ will
continue to work closely with its community partners on this
expansion. Financial Literacy is a key element of ANZ’s Corporate
Responsibility Strategy, targeting especially those in disadvantaged
communities who are most at risk of financial exclusion.
The $22 million contribution also includes donations of more than
$2.5 million to support the recovery and rebuilding of communities
in our region affected by disaster, including for example the Sichuan
Earthquake (Oct 2008), the Victorian Bushfire Crisis (Feb 2009) and
the Pacific Tsunami (Sept 2009). Further details can be accessed at
www.anz.com/community
In addition, for the year to 30 September 2009, ANZ donated $50,000 to
the Liberal Party of Australia and $50,000 to the Australian Labor Party.
66 ANZ Annual Report 2009
Corporate Governance 67
Shareholders Information
Ordinary Shares
At 8 October 2009, the twenty largest holders of ordinary shares held 1,430,321,088 ordinary shares, equal to 57.11% of the total issued
ordinary capital.
ANZ Convertible Preference Shares (ANZ CPS)
At 8 October 2009, the twenty largest holders of ANZ CPS held 2,672,105 securities, equal to 24.71% of the total issued securities.
Name
Number of
shares
%
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
hSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
ANZ NOMINEES LIMITED
COGENT NOMINEES PTY LIMITED
QUEENSLAND INVESTMENT CORPORATION
AMP LIFE LIMITED
UBS WEALTh MANAGEMENT AUSTRALIA
NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
RBC DExIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
451,912,188
357,731,260
289,692,228
78,029,750
65,373,642
38,300,554
25,071,461
21,031,328
18.04
14.28
11.57
3.12
2.61
1.53
1.00
0.84
12.
13.
14.
15.
16.
17.
14,451,928
0.58
18.
13,931,919
0.56
12,772,086
0.51
19.
20.
AUSTRALIAN REWARD INVESTMENT ALLIANCE
CITICORP NOMINEES PTY LIMITED
ANZEST PTY LTD
AUSTRALIAN FOUNDATION INVESTMENT
COMPANY LIMITED
PERPETUAL TRUSTEE COMPANY LIMITED
CITICORP NOMINEES PTY LIMITED
RBC DExIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
ANZEST PTY LTD
RBC DExIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
Number of
shares
%
11,300,111
0.45
8,093,657
7,627,312
6,224,394
6,181,106
0.32
0.30
0.25
0.25
5,783,314
0.23
5,777,259
5,529,303
0.23
0.22
Name
Number of
securities
%
Name
1.
2.
3.
4.
5.
6.
7.
8.
9.
UBS WEALTh MANAGEMENT AUSTRALIA NOMINEES
PTY LTD
RBC DExIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
UCA CASh MANAGEMENT FUND LTD
hSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
UBS NOMINEES PTY LTD
QUESTOR FINANCIAL SERVICES LIMITED
hARMAN NOMINEES PTY LTD
NETWEALTh INVESTMENTS LIMITED
RBC DExIA INVESTOR SERVICES AUSTRALIA
NOMINEES PTY LIMITED
628,530
5.81
318,502
239,791
193,838
180,310
162,204
139,290
2.95
2.22
1.79
1.67
1.50
1.29
119,794
1.11
87,248
0.81
76,866
0.71
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
NATIONAL NOMINEES LIMITED
COGENT NOMINEES PTY LIMITED
CITICORP NOMINEES PTY LIMITED
BALLARD BAY PTY LTD
JMB PTY LIMITED
SPINETTA PTY LTD
ThE AUSTRALIAN NATIONAL UNIVERSITY
MACEQUEST PTY LTD
ANZ NOMINEES LIMITED
KOLL PTY LTD
Number of
securities
75,304
69,588
%
0.70
0.64
59,000
0.55
50,000
50,000
50,000
48,000
42,500
41,340
40,000
0.46
0.46
0.46
0.44
0.39
0.38
0.37
2,672,105
24.71
Total
Distribution of shareholdings
At 8 October 2009
Range of shares
1 to 1,000
1,000 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000
Total
At 8 October 2009:
5,506,288
0.22
10.
1,430,321,088
57.11
Number of
holders
% of
holders
195,343
166,016
23,633
12,582
477
398,051
49.07
41.71
5.94
3.16
0.12
Number of
shares
80,884,874
366,217,289
161,712,649
255,057,728
1,640,715,687
% of
shares
3.23
14.62
6.46
10.18
65.51
100.00
2,504,588,227
100.00
Total
Distribution of ANZ CPS holdings
At 8 October 2009
Range of shares
1 to 1,000
1,000 to 5,000
5,001 to 10,000
10,001 to 100,000
Over 100,000
Total
Number
of holders
% of
holders
Number of
securities
% of
securities
14,472
1,040
98
50
8
15,668
92.37
6.64
0.63
0.32
0.05
100.00
4,313,214
2,280,500
800,838
1,435,313
1,982,259
39.89
21.09
7.41
13.28
18.33
10,812,124
100.00
there were no additional/new entries in the register of Substantial Shareholdings. Subsequently, ANZ received a notice of initial substantial holder from Barclays Group
on 13 October 2009 in relation to its holding of 126,645,464 ANZ ordinary shares;
the average size of holdings of ordinary shares was 6,292 (2008: 5,421) shares; and
there were 7,370 holdings (2008: 10,095 holdings) of less than a marketable parcel (less than $500 in value or 21 shares based on the market price of $24.74),
which is less than 1.85% 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.
At 8 October 2009: There was one holding of less than a marketable parcel (less than $500 in value or 6 securities based on the market price of $99.94, which is less than 0.01% of the total holdings of
ANZ CPS).
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.
68 ANZ Annual Report 2009
Shareholder Information 69
ShAREhOLDER INFORMATION (continued)
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 2009
participants held 1.30% (2008: 1.52%) 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]; senior and subordinated debt [Australia and
New Zealand Banking Group Limited]; and senior debt [ANZ National
(Int’l) Limited];
Luxembourg Stock Exchange – Subordinated debt [Australia
and New Zealand Banking Group Limited]; and non-cumulative
Trust Securities (Euro Trust Securities) [ANZ Capital Trust III];
New Zealand Stock Exchange – Senior and subordinated debt 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.
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.
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 were perpetual, subordinated and non-cumulative,
paid floating rate interest payments and could 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. ANZ redeemed the Convertible Notes
on 28 September 2009.
ANZ CPS
On 30 September 2008, the Company 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.
70 ANZ Annual Report 2009
Shareholder Information 71
Financial Report
INCOME STATEMENTS FOR ThE YEAR ENDED 30 SEPTEMBER
BALANCE ShEETS AS AT 30 SEPTEMBER
Income Statements
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 expense
Profit before credit impairment and income tax
Provision for credit impairment
Profit before income tax
Income tax expense
Profit after income tax
Profit attributable to minority interest
Profit attributable to shareholders of the Company
Earnings per ordinary share (cents)
Basic
Diluted
Dividend per ordinary share (cents)
Consolidated
The Company
Sep 09
$m
26,206
(16,398)
9,808
3,337
83
382
13,610
(6,225)
7,385
(3,005)
4,380
(1,435)
2,945
(2)
2,943
131.0
129.6
102
Sep 08
$m
32,604
(24,754)
7,850
3,948
143
218
12,159
(5,696)
6,463
(1,948)
4,515
(1,188)
3,327
(8)
3,319
170.4
162.2
136
Sep 09
$m
20,666
(13,600)
7,066
3,075
–
–
10,141
(4,868)
5,273
(2,079)
3,194
(909)
2,285
–
2,285
n/a
n/a
102
Sep 08
$m
23,634
(18,238)
5,396
4,437
–
–
9,833
(4,300)
5,533
(1,573)
3,960
(624)
3,336
–
3,336
n/a
n/a
136
Note
3
4
3
3
3
4
16
6
8
8
7
The notes appearing on pages 76 to 183 form an integral part of these financial statements.
The results of 2009 include the following items:
Tax on New Zealand Conduits ($196 million after tax) Company (nil).
Transformation costs associated with an organisational transformation ($17 million after tax, tax expense: $7 million), Company ($2 million after tax, tax expense: $1 million).
New Zealand investor settlement on ING Diversified Yield Fund and ING Regular Income Fund ($121 million after tax, tax expense: $52 million) Company (nil).
Restructuring costs associated with the implementation of a new “One ANZ” business model ($83 million after tax, tax expense: $35 million), Company
($72 million after tax, tax expense: $31 million).
The results of 2008 include the following items:
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).
Transformation costs associated with an organisational transformation ($152 million after tax, tax expense: $66 million), Company ($127 million after tax, tax expense: $54 million).
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).
Assets
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances
Customer's 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 assets1
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
Contingent liabilities
The notes appearing on pages 76 to 183 form an integral part of these financial statements.
1 Excludes notional goodwill in equity accounted entities.
Consolidated
Sep 09
$m
Sep 08
$m
The Company
Sep 09
$m
Sep 08
$m
Note
25,317
4,985
30,991
37,404
16,575
332,007
13,762
–
–
4,565
693
503
3,896
4,227
2,062
25,030
9,862
15,177
36,941
17,480
334,554
15,297
–
–
4,375
809
357
3,741
5,078
1,592
20,199
3,236
27,410
33,001
13,554
256,008
13,739
45,471
8,522
761
601
446
829
2,749
1,449
18,081
8,573
12,846
33,298
15,103
236,124
15,262
26,661
9,144
869
680
239
623
3,352
1,005
476,987
470,293
427,975
381,860
19,924
294,370
36,516
13,762
–
99
111
7,775
1,312
57,260
13,429
20,092
283,966
31,927
15,297
–
61
149
9,443
1,217
67,323
14,266
16,974
227,300
33,168
13,739
42,336
61
90
6,006
905
46,033
11,885
18,001
203,328
31,455
15,262
17,469
2
145
6,851
908
52,071
12,776
444,558
443,741
398,497
358,268
32,429
26,552
29,478
23,592
19,151
871
(1,787)
14,129
32,364
65
32,429
12,589
871
(742)
13,772
26,490
62
26,552
19,151
871
(494)
9,950
29,478
–
29,478
12,589
871
(75)
10,207
23,592
–
23,592
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
43
44
72 ANZ Annual Report 2009
Financial Report 73
STATEMENTS OF RECOGNISED INCOME AND ExPENSE FOR ThE YEAR ENDED 30 SEPTEMBER
CASh FLOW STATEMENTS FOR ThE YEAR ENDED 30 SEPTEMBER
NOTES TO ThE FINANCIAL STATEMENTS
Items recognised directly in equity1
Currency translation adjustments
Exchange differences on translation of foreign operations taken to equity
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 76 to 183 form an integral part of these financial statements.
1 These items are disclosed net of tax (refer note 6).
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
Note
29
29
29
45
(909)
393
(283)
254
29
18
–
(106)
(63)
(124)
–
(1,155)
2,945
1,790
(305)
60
60
(39)
(35)
(79)
1
56
3,327
3,383
20
18
–
(97)
(63)
(113)
–
(518)
2,285
1,767
(272)
63
60
(34)
5
(60)
–
16
3,336
3,352
2
8
–
–
1,788
3,375
1,767
3,352
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 on 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 three months
Trading Securities
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
37(a)
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
Note
26,795
49
2,799
1,192
(17,354)
(3,652)
(503)
(1,161)
(7,754)
(851)
(439)
(29)
2,253
1,402
(15,971)
(1,897)
–
12,601
(168)
(994)
(3,682)
32,189
84
2,696
692
(24,186)
(3,156)
(465)
(1,284)
(1,628)
(2,006)
(464)
(10)
(4,692)
(739)
31
(46,855)
–
49,796
976
(1,189)
(210)
21,245
156
2,071
1,847
(14,503)
(2,736)
(362)
(1,457)
(7,936)
(845)
(78)
5
2,427
1,032
(14,491)
(23,162)
6,412
26,171
(1,027)
259
(4,972)
23,341
304
1,953
70
(17,852)
(2,256)
(324)
(1,101)
(796)
(2,002)
(38)
18
(3,620)
(674)
501
(37,813)
2,222
43,503
761
(3,146)
3,051
(30,980)
31,559
(30,228)
26,914
(28,206)
29,480
(28,555)
25,189
(263)
15
(709)
27
(50)
(401)
(450)
128
(559)
98
(1,333)
(5,430)
(231)
15
(211)
8
(704)
151
(291)
113
(396)
10
(1,134)
(5,064)
20,417
(20,648)
29,200
(21,091)
16,297
(14,009)
22,545
(17,319)
1,287
(1,344)
(697)
4,680
3,695
(3,682)
(401)
3,695
(388)
23,487
(294)
22,805
3,823
(1,975)
(46)
67
9,978
(210)
(5,430)
9,978
4,338
19,074
75
23,487
1,242
(1,344)
(664)
4,680
6,202
(4,972)
151
6,202
1,381
17,156
(486)
18,051
2,851
(1,455)
–
67
6,689
3,051
(5,064)
6,689
4,676
12,040
440
17,156
37(b)
Cash flows from investing activities
Net decrease/(increase)
Available-for-sale assets
Purchases
Proceeds from sale or maturity
Controlled entities and associates
Purchased (net of cash acquired)
Proceeds from sale (net of cash disposed)
Premises and equipment
Purchases
Proceeds from sale
Other
Net cash (used in)/provided by investing activities
Cash 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 (used in)/provided by financing activities
Net cash (used in)/provided by operating activities
Net cash (used in)/provided by investing activities
Net cash (used in)/provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign currency translation
Cash and cash equivalents at end of period
The notes appearing on pages 76 to 183 form an integral part of these financial statements.
74 ANZ Annual Report 2009
Financial Report 75
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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 2009 was authorised
for issue in accordance with the resolution of the directors on
5 November, 2009.
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 the 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.
iv) Changes in accounting policy and early adoptions
AASB 8 Operating Segments has been early adopted by the Group
for the 2009 financial year. AASB 8 replaces AASB 114 Segment
Reporting and requires the use of a ‘management approach’ to
segment reporting. Segment information is therefore presented on
the same basis as that used for internal reporting purposes. Adoption
of this standard and the restructure of the Group has resulted in a
revision to the Group’s reportable segments.
As goodwill is allocated by management to groups of cash-generating
units (CGUs) on a segment level, the change in reportable segments
has required a corresponding restructure of the Group’s CGUs. Refer
to additional information in note 2(vi) and note 36.
AASB 2007-3 Amendments to Australian Accounting Standards
arising from AASB 8 makes consequential amendments to various
standards which arise as a result of the issuance of AASB 8. This
standard is required to be applied when an entity applies AASB 8
and as such this standard has also been early adopted in the current
financial year.
AASB 2008-10 Amendments to Australian Accounting Standards –
Reclassification of Financial Assets resulted in amendments to AASB
139 Financial Instruments: Recognition and Measurement permitting
reclassification of Financial Assets in certain limited circumstances.
This standard also resulted in amendments to AASB 7 Financial
Instruments: Disclosure. The Group has applied this standard from
1 October 2008 and reclassified $415 million of available-for-sale
financial assets to loans and advances as at 1 November 2008. Refer
to additional information in note 14.
Various AASB Interpretations became effective and thus applicable
to the Group for the first time from 1 October 2008 with no material
impact. These are as follows:
AASB Interpretation 13 “Customer Loyalty Programmes” which
requires the deferral of revenue associated with such programmes
and the recognition over the redemption period. The Group offers
such programmes through many of its credit card arrangements,
however, a thorough review of the underlying arrangements has
not resulted in any material adjustment as ANZ typically acts as an
agent in these relationships.
AASB Interpretation 14 “AASB 119 – The Limit on a Defined Benefit
Asset, Minimum Funding Requirements and their interaction”
which provides guidance on the amount of surplus that can be
recognised as an asset by an employer sponsor of a defined benefit
scheme. No adjustment has resulted from applying this guidance.
AASB Interpretation 16 “hedges of a Net Investment in a Foreign
Operation” clarifies certain aspects of hedge accounting for net
investments in foreign operations. The Group’s existing hedges
are in compliance with the requirements thus no adjustment
was required.
There has been no other change in accounting policy during the year.
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.
1: Significant Accounting Policies (continued)
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; or
power to govern the financial and operating policies of the
other entity; or
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).
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.
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.
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.
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.
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 rate 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.
76 ANZ Annual Report 2009
Financial Report 77
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Significant Accounting Policies (continued)
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. 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.
Fees charged for providing ongoing services (for example,
maintaining and administering existing facilities) are recognised
as income over the period the service is provided.
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.
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 rate method.
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 rate 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.
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).
1: Significant Accounting Policies (continued)
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.
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.
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.
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.
78 ANZ Annual Report 2009
Financial Report 79
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Significant Accounting Policies (continued)
When the hedging instrument expires, is sold, terminated,
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 net settle.
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.
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 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 portfolio and an assessment of the economic cycle.
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 uncollectable, 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.
1: Significant Accounting Policies (continued)
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 loan
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.
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.
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.
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:
Buildings
Building integrals
Furniture & equipment
Computer & office equipment
1–1.5%
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.
80 ANZ Annual Report 2009
Financial Report 81
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Significant Accounting Policies (continued)
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.
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.
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.
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.
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.
1: Significant Accounting Policies (continued)
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 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)).
h) PRESENTATION
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; or
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.
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.
82 ANZ Annual Report 2009
Financial Report 83
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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 pronouncements until their effective date.
1: Significant Accounting Policies (continued)
iii) Accounting Standards and Interpretations not early adopted (continued)
AASB amendment/ standard/
interpretation
AASB 3
Business Combinations
(revised)
AASB 101
Presentation of Financial
Statements (revised)
Application date
for the Group
1 October 2009
1 October 2009
Possible impact on the Company and the 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 revised standard will apply to future reporting periods and the impact will depend upon
the nature of acquisitions undertaken.
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.
AASB 123
Borrowing Costs
(revised)
The amendments to this standard remove the option to expense all borrowing costs and
require the capitalisation of all borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset. There is no significant impact expected
to the Company or Group on application of this standard as the Company and Group currently
capitalises borrowing costs on any significant qualifying assets.
AASB 127
Consolidated and
Separate Financial
Statements (revised)
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.
1 October 2009
1 October 2009
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 consequential amendments to a number of Australian Accounting
Standards arising from revised AASB 123 Borrowing Costs. No material impact on the
Company or the Group is expected.
1 October 2009
AASB 2007-6
Amendments to
Australian Accounting
Standards arising from
AASB 123
84 ANZ Annual Report 2009
AASB amendment/ standard/
interpretation
AASB 2007-8
Amendments to
Australian Accounting
Standards arising from
AASB 101
AASB 2008-1
Amendments to
Australian Accounting
Standard – Share-based
Payments: Vesting
Conditions
and Cancellations
AASB 2008-2
Amendments to
Australian Accounting
Standards – Puttable
Financial Instruments
and Obligations arising
on Liquidation
AASB 2008-3
Amendments to
Australian Accounting
Standards arising from
AASB 3 and AASB 127
AASB 2008-5
Amendments to
Australian Accounting
Standards arising
from the Annual
Improvements Project
AASB 2008-6
Further Amendments
to Australian Accounting
Standards arising
from the Annual
Improvements Project
Possible impact on the Company and the Group’s financial report in period of initial adoption
This standard makes technical amendments to a number of Australian Accounting Standards
arising from revised AASB 101 Presentation of Financial Statements. No material impact on the
Company or the Group is expected.
Application date
for the Group
1 October 2009
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.
1 October 2009
This standard defines puttable instruments and requires puttable instruments with certain
characteristics to be classified as equity.
1 October 2009
The application of this standard is not expected to have an impact on 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 Business Combinations and AASB 127 Consolidated and Separate
Financial Statements. No material impact on the Company or the Group is expected.
1 October 2009
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.
1 October 2009
This standard amends AASB 1 First-time Adoption of Australian Equivalent to International
Financial Reporting Standards 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 Non-current Assets held for Sale and
Discontinued Operations 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.
1 October 2009
Financial Report 85
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1: Significant Accounting Policies (continued)
1: Significant Accounting Policies (continued)
iii) Accounting Standards and Interpretations not early adopted (continued)
iii) Accounting Standards and Interpretations not early adopted (continued)
Application date
for the Group
1 October 2009
Possible impact on the Company and the Group’s financial report in period of initial adoption
This standard amends AASB 1 First-time Adoption of Australian Equivalents to International
Financial Reporting Standards 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 Revenue 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 Consolidated and Separate Financial Statements 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 Impairment of Assets 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 Effects of Foreign
Exchange Rates.
The amendments are not expected to have a material impact on the Company or the Group.
This standard clarifies the effect of using options as hedging instruments and the circumstances
in which inflation risks can be hedged.
1 October 2009
The above amendments are not expected to have a material impact as the Company or Group
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 Presentation of Financial Statements (effective for
the Group on 1 October 2009) and to achieve consistency with the disclosure requirements
for segments in AASB 8 Operating Segments (effective for the Group on 1 October 2009).
The above amendments are not expected to have a material impact as the Group no longer
issues a concise financial report.
AASB Interpretation 17 applies to situations where an entity pays dividends by distributing
non-cash assets to its shareholders. These distributions will need to be measured at fair value
and the entity will need to recognise the difference between the fair value and the carrying
amount of the distributed assets in the income statement on distribution. The interpretation
further clarifies when a liability for the dividend must be recognised and that it is also
measured at fair value.
No material impact on the Company or Group is expected.
1 October 2009
1 October 2010
This standard makes consequential amendments resulting from the issuance of
Interpretation 17.
1 October 2010
No material impact on the Company or Group is expected.
This standard improves the disclosures about financial instruments.
1 October 2009
No material impact on the Company or Group is expected as the amendments relate
to disclosure matters.
AASB amendment/ standard/
interpretation
AASB 2008-7
Amendments to
Australian Accounting
Standards – Cost of
an Investment in a
Subsidiary, Jointly
Controlled Entity
or Associate
AASB 2008-8
Amendments to
Australian Accounting
Standards – Eligible
hedged Items
AASB 1039
Concise Financial
Reports
Interpretation 17
Distribution of
Non-cash Assets
to Owners
AASB 2008-13
Amendments to
Australian Accounting
Standards arising from
Interpretation 17
Distributions of Non-cash
Assets to owners
AASB 2009-2
Amendments to
Australian Accounting
Standards – Improving
Disclosures about
Financial Instruments
86 ANZ Annual Report 2009
AASB amendment/ standard/
interpretation
AASB 2009-3
Amendments to
Australian Accounting
Standards – Embedded
Derivatives
AASB 2009-4
Amendments to
Australian Accounting
Standards arising
from the Annual
Improvements Project
AASB 2009-5
Further Amendments
to Australian Accounting
Standards arising
from the Annual
Improvements Project
AASB 2009-6
Amendments to
Australian Accounting
Standards
AASB 2009-7
Amendments to
Australian Accounting
Standards
AASB 2009-8
Amendments to
Australian Accounting
Standards – Group
Cash-settled Share-based
Payment Transactions
Possible impact on the Company and the Group’s financial report in period of initial adoption
This standard clarifies the treatment of certain embedded derivatives.
No material impact on the Company or Group is expected.
Application date
for the Group
1 October 2009
This standard makes editorial amendments to standards from the Annual Improvements Project.
1 October 2010
No material impact on the Company or Group is expected as the amendments are of a technical
nature.
This standard makes editorial amendments to standards from the Annual Improvements Project.
1 October 2010
No material impact on the Company or Group is expected as the amendments are of a technical
nature.
This standard makes editorial amendments to standards and interpretations as a result of the
issuance of revised AASB 101 Presentation of Financial Statements.
1 October 2009
No material impact on the Company or Group is expected as the amendments are of a technical
nature.
This standard makes editorial amendments to standards and an interpretation.
1 October 2009
No material impact on the Company or Group is expected as the amendments are of a technical
nature.
This standard clarifies the treatment of group cash-settled share-based payment transactions.
1 October 2010
No material impact is expected as the Company and Group does not have cash-settled share-
based payment transactions.
Financial Report 87
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
2: Critical Estimates and Judgements Used in Applying Accounting Policies
2: Critical Estimates and Judgements Used in Applying Accounting Policies (continued)
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 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 and the economic cycle.
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, 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 be complex to determine whether the Group has control of an
SPE, the Group 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.
ii) Significant joint ventures
The Group adopts the equity accounting method for its 49% interest
in the joint ventures:
ING Australia Limited (INGA); and
ING (NZ) holdings Limited (ING NZ).
As at 30 September 2009, the carrying amount of the Group’s
investment in INGA was $1,649 million (Sep 2008: $1,589 million)
and in ING NZ was $204 million (Sep 2008: $178 million).
The carrying value of these investments is subject to an annual
impairment test to ensure that their carrying value does not exceed
recoverable amount at balance sheet date. Any excess of carrying
value over recoverable amount is taken to the income statement
as an impairment write-down.
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. Therefore they 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
These entities are set up to assist with the structuring
of client financing. The resulting lending arrangements
are at arms length and ANZ typically has limited ongoing
involvement with the entity.
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.
Credit protection
The special purpose entities in this category are created
to allow ANZ to purchase credit protection.
ANZ may manage these vehicles.
Refer to additional information in relation to special purpose and off-balance sheet entities in section 4 of the Financial Information (unaudited),
page 193.
A valuation of the Group’s investment in INGA and ING NZ, based
on a value-in-use methodology, was performed as part of the
planned acquisition of the remaining interest in these entities
(refer note 50). The review concluded that the estimated recoverable
amount of the investments based on a discounted cash flow
approach (which may differ from a fair value assessment) exceeded
their carrying amount and accordingly no write-down was required.
Changes in the assumptions upon which these valuations were
based, together with changes in future cash flows, could materially
impact the valuation undertaken.
iii) Significant Associates
The carrying values of all significant 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. This exercise resulted in the
recognition of an impairment charge of $25 million in relation to
the Group’s investment in Saigon Securities Inc. (SSI).
As at 30 September 2009, 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.
As at 30 September 2009 no impairment of associates was identified
as a result of either the review of impairment indicators listed
above or the recoverable amount test performed on longer term
investments, beyond the impairment charge in relation to SSI.
iv) 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.
v) Financial Instruments at Fair Value
A significant portion of financial instruments are carried on the
balance sheet at fair value.
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. In the event that there is no active
market for the instrument, fair values are based on present value
estimates or other market accepted valuation techniques.
The majority of valuation techniques employ only observable
market data, however, for certain financial instruments the fair value
cannot be determined 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 data derived
and extrapolated from market data and tested against historic
transactions and observed market trends. These valuations are
based upon assumptions established by application of professional
judgement to analyse the data available to support each assumption.
Changing the assumptions changes the resulting estimate of fair value.
The valuation models incorporate the impact of factors that
would influence the fair value determined by a market participant.
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, recovery rates, implied default
probabilities, credit index tranche prices and correlation curves.
The majority of outstanding derivative positions are transacted
over-the-counter and therefore need to be valued using valuation
techniques. Included in the determination of the fair value of derivatives
is a credit valuation adjustment to reflect the credit worthiness of the
counterparty, representing the credit risk component of the overall
fair value increment on a particular derivative asset. The total valuation
adjustment is influenced by the mark-to-market of the derivative trades
and by the movement in the current market cost of credit.
vi) 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.
The CGUs for the Group have been revised during the period to align
with the Group’s new reportable segments. Refer note 36.
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 2009, the balance of goodwill recorded as an
asset in ANZ National Bank Limited was $2,657 million (30 September
2008: $2,713 million). This represents the most significant component
of the Group’s goodwill balance and is allocated to the New Zealand
region CGU in line with the Group’s new reportable segments.
In determining the recoverable amount of the CGU for testing of
the goodwill in ANZ National Bank Limited, an independent valuation
was obtained during the year based on a discounted cash flow
approach. Changes in assumptions upon which the valuation is based
together with changes in future cash flows could materially impact
the valuation obtained. The results of the independent valuation
showed a value-in-use in excess of the carrying amount of the CGU
(including goodwill).
At 30 September 2009 impairment testing by management review was
conducted for all material goodwill balances. This assessment involves
applying judgement and reviews against the following indicators:
Performance
Operational and Regulatory factors
Economic and industry factors
The assessment did not reveal any impairment indicators and
accordingly no write-down was required.
88 ANZ Annual Report 2009
Financial Report 89
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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 the profit and loss
Fee income on trust and other fiduciary activities
Other fees and commissions
Controlled entities
Total fee and commission income
Fee and commission expense 2
Net fee and commission income
Other income
Net foreign exchange earnings
Net gains from trading securities and derivatives3
Credit risk on derivatives
Movements on financial instruments measured at fair value through profit or loss4
Gain on Visa shares5
Profit on sale of premises6
Stadium Australia income
Dividends received from controlled entities
Brokerage income
ANZ Share of ING NZ frozen funds investor settlement
Writedown of assets in non continuing business
Writedown of investment in Saigon Securities Inc
Mark to market (loss)/gain on Panin warrants
Mark to market (loss)/gain on Saigon Securities Inc options
Private equity and infrastructure earnings
Other
Total other income
Total other operating income
Share of joint venture profit from ING Australia and ING (NZ)
Share of associates’ profit7
Total share of joint venture and associates profit
Total income8
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
313
989
678
22,545
927
754
26,206
–
26,206
25,193
989
24
26,206
535
1,125
1,008
27,417
1,370
1,149
32,604
–
32,604
31,446
1,125
33
32,604
254
832
556
15,835
927
475
18,879
1,787
20,666
19,819
832
15
20,666
435
940
863
18,269
1,370
709
22,586
1,048
23,634
22,668
940
26
23,634
764
595
598
455
236
45
1,931
2,976
–
2,976
(269)
2,707
962
303
(135)
(358)
–
15
–
–
76
(173)
(112)
(25)
(14)
(1)
(1)
93
630
3,337
83
382
465
166
47
2,104
2,912
–
2,912
(256)
2,656
708
310
(687)
348
281
57
19
–
78
–
(32)
–
26
17
49
118
1,292
3,948
143
218
361
166
–
1,375
2,139
365
2,504
(196)
2,308
740
370
(121)
(328)
–
–
–
234
–
–
(112)
(25)
–
(1)
(1)
11
767
3,075
–
–
153
–
1,472
2,080
248
2,328
(186)
2,142
340
104
(684)
342
281
4
–
1,805
–
–
(32)
–
–
17
49
69
2,295
4,437
–
–
30,008
36,913
23,741
28,071
1 Lending fees exclude fees treated as part of the effective yield calculation and included in interest income (refer note 1B(ii)).
2
Includes interchange fees paid.
3 Does not include interest income.
4
Includes 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 loss on financial assets and liabilities designated at fair value was $506 million (2008: $251 million gain) for the Group and $488 million (2008: $235 million gain) 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 $1 million (2008: $109 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 $14 million (2008: $44 million) for the Group and $12 million (2008: $20 million) for the Company.
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 types 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 benefits plan
Superannuation costs – defined contribution plans
Equity-settled share-based payments
Temporary staff
Other
Total personnel expenses
ii) Premises
Amortisation of leasehold improvements
Depreciation of buildings and integrals
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, fraud and forgeries
Postage and stationery
Professional fees
Telephone
Travel
Other
Total other expenses
v) Restructuring
Total operating expenses
Total expenses
Consolidated
The Company
2009
$m
431
9,821
472
730
646
3,975
323
16,398
–
16,398
15,911
487
16,398
242
2,238
20
238
103
155
602
3,598
38
18
335
134
34
559
97
77
239
92
181
26
56
768
195
7
14
72
–
64
16
74
118
197
63
149
201
2008
$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
76
69
208
81
131
2
42
609
182
7
12
66
34
54
22
72
122
182
58
169
151
2009
$m
306
7,328
–
336
646
3,125
42
11,783
1,817
13,600
13,450
150
13,600
169
1,622
14
196
87
115
501
2,704
27
4
236
92
34
393
76
54
197
71
148
22
25
593
134
3
9
58
–
50
10
55
84
171
34
105
356
1,170
130
6,225
1,131
181
5,696
22,623
30,450
1,069
109
4,868
18,468
2008
$m
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
64
46
175
58
97
2
15
457
125
5
7
54
34
46
21
47
84
153
30
118
254
978
148
4,300
22,538
90 ANZ Annual Report 2009
Financial Report 91
1
Comprises software amortisation of $155 million (2008: $127 million), refer note 19, and computer depreciation of $84 million (2008: $81 million), refer note 21. The Company comprises software
amortisation of $140 million (2008: $115 million), refer note 21, and computer depreciation of $58 million (2008: $60 million), refer note 21.
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
5: Compensation of Auditors
Consolidated
The Company
6: Current Income Tax Expense
KPMG Australia
Audit or review of financial reports of the Company or Group entities2
Other audit-related services1,2
Other assurance services2,3
Total
Overseas related practices of KPMG Australia
Audit or review of financial reports of the Company or Group entities
Other audit-related services1
Other assurance services3
2009
$’000
6,004
3,295
127
9,426
3,714
1,074
41
4,829
2008
$’000
5,648
2,415
198
8,261
3,131
872
12
4,015
Total compensation of auditors
14,255
12,276
2009
$’000
5,127
2,278
127
7,532
1,081
459
41
1,581
9,113
2008
$’000
4,285
1,637
198
6,120
752
316
–
1,068
7,188
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 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.
Includes prudential supervision reviews for central banks and work required for local statutory purposes.
1
2 Goods and services tax inclusive.
3 Other assurance services comprises:
Consolidated
Market Risk benchmarking review
Market Risk system capability review
Training courses
Accounting Advice
ANZ Nominees confirmation procedures
Due diligence agreed upon procedures
Trustee certification
Total
2009
$’000
2008
$’000
75
41
35
17
–
–
–
168
–
–
70
–
28
106
6
210
(a) Income tax recognised in the Income Statement
Tax expense/(income) comprises:
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 expensed charged in the Income Statement
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
Profit from associated and joint venture entities
New Zealand Conduits
Mark-to-market (gains)/losses on fair valued investments related to associated entities
Impairment of investment in associate company
Restatement of deferred tax balances for New Zealand tax rate change
Structured transactions
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
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
1,175
–
260
–
1,435
1,202
1
(5)
(10)
1,188
643
–
266
–
909
534
–
97
(7)
624
4,380
4,515
3,194
3,960
1,314
1,355
958
1,188
(16)
(8)
(141)
196
5
7
–
32
–
46
23
(9)
(112)
–
–
–
(1)
(90)
–
21
1,435
1,187
–
1,435
32.8%
957
478
1
1,188
26.3%
751
437
(8)
(72)
–
–
–
7
–
32
(37)
29
909
–
909
(2)
(541)
–
–
–
–
–
(90)
38
31
624
–
624
28.5%
15.8%
794
115
552
72
(b) Income tax recognised directly in equity
The following income tax amounts were charged/(credited) directly to equity during the period
(60)
(182)
(70)
(122)
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.
92 ANZ Annual Report 2009
Financial Report 93
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
7: Dividends
Ordinary dividends1
Interim dividend
Final dividend
Bonus option plan adjustment
Dividend on ordinary shares
1 Dividends are not accrued and are recorded when paid.
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
993
1,514
(55)
2,452
1,192
1,381
(67)
2,506
993
1,514
(55)
2,452
1,192
1,381
(67)
2,506
A final dividend of 56 cents, fully franked, is proposed to be paid on 18 December 2009 on each eligible fully paid ordinary share
(2008: final dividend of 74 cents, paid 18 December 2008, fully franked). The 2009 interim dividend of 46 cents, paid 1 July 2009, was fully
franked (2008: interim dividend of 62 cents, paid 1 July 2008, fully franked).
The tax rate applicable to the franking credits attached to the 2009 interim dividend and to be attached to the proposed 2009 final dividend
is 30% (2008: 30%).
Dividends paid in cash or satisfied by the issue of shares under the dividend reinvestment plan during the years ended 30 September 2009
and 2008 were as follows:
Paid in cash1
Satisfied by share issue2
Preference share dividend
Euro trust securities
Dividend on preference shares
Consolidated
The Company
2009
$m
664
1,788
2,452
2008
$m
–
2,506
2,506
2009
$m
664
1,788
2,452
2008
$m
–
2,506
2,506
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
33
33
46
46
–
–
–
–
1 During the year ended 30 September 2009, cash of $664 million was paid to shareholders who did not elect to participate in the dividend reinvestment plan or the bonus option plan. Cash of
$1,046 million was received from the issue of shares pursuant to dividend reinvestment plan underwriting agreement for the 2008 Final dividend. 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 the dividend reinvestment plan underwriting agreements. There was no net cashflow to ANZ during the year ended 30 September 2008.
Includes shares issued to participating shareholders under the dividend reinvestment plan and shares issued in accordance with dividend reinvestment plan underwriting agreements.
2
Euro Trust Securities
On 13 December 2004, the Group issued 500,000 Euro Floating Rate
Non-cumulative Trust Securities (“Euro Trust Securities”) at 1,000
each into the European market, raising 500 million ($871 million
at the spot rate at the date of issue, net of issue costs). The Euro
Trust Securities comprise 2 fully paid securities – an interest paying
unsecured note issued by a United Kingdom subsidiary (ANZ Jackson
Funding PLC) and a fully paid 1,000 preference share issued by
the Company, which are stapled together and issued as a Euro Trust
Security by ANZ Capital Trust III.
Distributions on Euro Trust Securities are non-cumulative and are
payable quarterly in arrears (on 15 March, 15 June, 15 September,
15 December of each year) based upon a floating distribution rate
equal to the 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 to 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 $49 million (2008: $35 million) after
adjusting for franking credits that will arise from the payment of
tax on Australian profits for the 2009 financial year, $602 million of
franking credits which will be utilised in franking the proposed 2009
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 and legal
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 the
payment of cash dividends is monitored having regard to the
regulatory and other legal requirements to maintain a specified
capital adequacy ratio.
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 or dividend on a Tier 1
instrument, if the bank proposes to pay coupon or dividends on
Tier 1 instruments which exceed the level of current year profits.
If any dividend, interest or redemption payments 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 or ANZ Convertible
Preference Shares 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, 33,032,100 ordinary shares were issued at $13.58
per share and 19,354,790 ordinary shares at $15.16 per share to
participating shareholders under the dividend reinvestment plan
(2008: 20,500,208 ordinary shares at $27.33 per share, and 22,046,238
ordinary shares at $20.82 per share). All eligible shareholders can
elect to participate in the dividend reinvestment plan. In addition,
75,000,000 ordinary shares were issued at $13.95 per share to a
nominee of UBS AG, Australia Branch (2008: 28,270,906 ordinary
shares at $27.71 per share, and 33,263,186 ordinary shares at $21.14
per share were issued to UBS Nominees Pty Ltd and a nominee of
JP Morgan Australia Limited respectively) in accordance with a
dividend reinvestment plan underwriting agreement.
8: Earnings per Ordinary Share
Basic Earnings per share (cents)
Earnings reconciliation ($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
weighted average number of convertible US Trust Securities at current market prices
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
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
2009 final dividend and will continue to apply to future dividends
until such time as the Company announces otherwise.
For the 2009 final dividend, the “Pricing Period” under the dividend
reinvestment plan and bonus option plan terms and conditions
will be the seven trading days commencing on and including
13 November 2009.
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, 3,928,449 ordinary shares were issued under
the bonus option plan (2008: 2,838,335 ordinary shares). For the
2009 final dividend, details of the discount that will be applied
when calculating the “Acquisition Price”, and of the “Pricing Period”,
in respect of the bonus option plan are set out above in respect
of the dividend reinvestment plan.
Consolidated
2009
$m
131.0
2,945
2
33
2,910
2008
$m
170.4
3,327
8
46
3,273
2,221.6
129.6
1,921.1
162.2
2,910
54
–
–
52
25
3,041
2,221.6
3.8
51.3
–
–
45.5
24.7
2,346.9
3,273
41
55
63
–
1
3,433
1,921.1
6.7
73.4
57.9
56.9
0.2
0.4
2,116.6
94 ANZ Annual Report 2009
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 (2008: approximately 1 million).
Financial Report 95
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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 agreements 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
Consolidated
The Company
2009
$m
3,108
10,133
7,265
4,811
25,317
2008
$m
4,849
4,752
9,740
5,689
2009
$m
878
9,492
5,018
4,811
2008
$m
1,260
3,682
7,450
5,689
25,030
20,199
18,081
18,393
6,924
25,317
15,645
9,385
25,030
15,228
4,971
20,199
10,133
7,948
18,081
Consolidated
The Company
2009
$m
4,412
573
4,985
2008
$m
7,842
2,020
9,862
2009
$m
2,823
413
3,236
2008
$m
7,023
1,550
8,573
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
8
8
10
10
8
8
10
10
2,657
6,412
4,146
17,768
30,983
30,991
71
2,373
3,736
8,987
15,167
15,177
2,657
5,273
4,146
15,326
27,402
27,410
71
2,162
3,736
6,867
12,836
12,846
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.
96 ANZ Annual Report 2009
Financial Report 97
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
12: Derivative Financial Instruments (continued)
Trading
Fair Value
hedging
Total fair value
of derivatives
Fair value
Cash flow
Net investment
in foreign operations
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Consolidated at
30 September 2008
Trading
Fair Value
hedging
Total fair value
of derivatives
Fair value
Cash flow
Net investment
in foreign operations
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Consolidated at
30 September 2009
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
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
Collateral
Total
Notional
Principal
Amount
$m
204,830
168,826
281
7,067
14,089
5,648
10,084
19
569
–
(6,795)
(13,167)
(28)
–
(530)
–
233
–
–
–
233
–
(260)
–
–
–
(260)
395,093
16,320
(20,520)
23,195
1,196
(1,472)
–
–
75,358
1,041,561
105,435
12,468
14,699
9
17,447
1,478
188
–
(20)
(16,880)
(1,322)
–
(124)
–
1,272
–
–
–
–
(1,297)
–
–
–
1,249,521
19,122
(18,346)
1,272
(1,297)
11,303
13,071
24,374
12,454
9,804
22,258
46,632
704
271
975
–
146
146
–
(14)
(14)
(1,019)
(419)
(1,438)
1,121
(1,452)
–
(2,078)
7,084
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
193
14
–
–
208
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
(236)
(16)
–
–
(253)
–
–
–
–
–
–
–
–
10
–
–
–
–
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,658
10,317
19
569
–
(6,795)
(13,427)
(28)
–
(530)
16,563
(20,780)
1,196
(1,472)
10
18,912
1,492
188
–
(21)
(18,413)
(1,338)
–
(124)
20,602
(19,896)
704
271
975
–
146
146
–
(14)
(14)
(1,019)
(419)
(1,438)
1,121
(1,452)
(2,078)
7,084
37,404
(36,516)
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
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
Collateral
Total
Notional
Principal
Amount
$m
222,003
205,894
134
8,929
17,761
7,698
15,940
72
899
–
(7,956)
(8,328)
(17)
–
(942)
–
727
–
–
–
727
–
(307)
–
–
–
(307)
454,721
24,609
(17,243)
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)
12,455
14,414
26,869
14,060
11,256
25,316
52,185
1,212
201
1,413
–
(32)
(32)
–
48
48
(1,704)
(296)
(2,000)
1,461
(2,032)
–
(4,400)
2,607
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
323
86
–
–
411
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(343)
(47)
–
–
(390)
–
–
–
–
–
–
–
–
42
–
–
–
–
42
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,740
16,667
72
899
–
(7,956)
(8,635)
(17)
–
(942)
25,378
(17,550)
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
48
(1,704)
(296)
(2,000)
1,461
(2,032)
(4,400)
2,607
36,941
(31,927)
1,714,441
35,681
(34,706)
1,505
(1,557)
208
(253)
10
1,911,066
35,237
(30,418)
1,251
(1,119)
411
(390)
42
98 ANZ Annual Report 2009
Financial Report 99
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
12: Derivative Financial Instruments (continued)
Trading
Fair value
Fair Value
hedging
Cash flow
Total fair value
of derivatives
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
The Company at
30 September 2008
Trading
Fair value
Fair Value
hedging
Cash flow
Total fair value
of derivatives
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
Assets
$m
liabilities
$m
The Company at
30 September 2009
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
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
Collateral
Total
Notional
Principal
Amount
$m
186,901
181,534
281
6,941
14,074
5,201
10,900
19
563
–
(5,670)
(13,664)
(28)
–
(517)
–
233
–
–
–
233
–
(260)
–
–
–
(260)
389,731
16,683
(19,879)
23,180
1,196
(1,472)
–
–
52,290
797,689
88,494
12,305
14,326
8
12,979
1,442
186
–
(18)
(12,740)
(1,320)
–
(121)
965,104
14,615
(14,199)
–
1,043
–
–
–
1,043
–
(440)
–
–
–
(440)
11,303
13,066
24,369
12,454
9,804
22,258
46,627
704
271
975
–
146
146
–
(14)
(14)
(1,019)
(419)
(1,438)
1,121
(1,452)
–
(1,984)
4,697
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
79
14
–
–
94
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
(146)
(16)
–
–
(163)
–
–
–
–
–
–
–
–
5,201
11,133
19
563
–
(5,670)
(13,924)
(28)
–
(517)
16,916
(20,139)
1,196
(1,472)
9
14,101
1,456
186
–
(19)
(13,326)
(1,336)
–
(121)
15,752
(14,802)
704
271
975
–
146
146
–
(14)
(14)
(1,019)
(419)
(1,438)
1,121
(1,452)
(1,984)
4,697
Foreign exchange contracts
Spot and forward contracts
Swap agreements
Futures contracts
Options purchased
Options sold
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
Collateral
Total
Notional
Principal
Amount
$m
199,708
213,523
134
8,726
17,574
7,148
14,973
72
888
–
(7,759)
(10,615)
(17)
–
(930)
–
523
–
–
–
523
–
(307)
–
–
–
(307)
439,665
23,081
(19,321)
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)
12,455
14,408
26,863
14,060
11,256
25,316
52,179
1,212
201
1,413
–
(32)
(32)
–
48
48
(1,704)
(296)
(2,000)
1,461
(2,032)
–
(3,909)
2,380
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
188
86
–
–
276
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(224)
(47)
–
–
(271)
–
–
–
–
–
–
–
–
7,148
15,496
72
888
–
(7,759)
(10,922)
(17)
–
(930)
23,604
(19,628)
1,610
(1,697)
21
8,558
1,785
168
–
(25)
(8,639)
(1,700)
–
(114)
10,532
(10,478)
1,212
201
1,413
–
(32)
(32)
–
48
48
(1,704)
(296)
(2,000)
1,461
(2,032)
(3,909)
2,380
1,424,642
31,631
(32,305)
1,276
(700)
94
(163)
33,001
(33,168)
1,559,040
32,042
(30,585)
980
(599)
276
(271)
33,298
(31,455)
100 ANZ Annual Report 2009
Financial Report 101
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
12: Derivative Financial Instruments (continued)
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
2009
$m
(467)
442
2008
$m
(566)
587
The Company
2009
$m
2008
$m
(773)
759
(1,176)
1,132
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
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
2009
$m
79
(89)
26
(148)
42
(90)
2008
$m
153
(53)
18
(56)
17
79
2009
$m
51
(89)
26
(135)
38
(109)
2008
$m
80
7
(2)
(49)
15
51
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 (2008: 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 $53 million loss for the
Group (2008: $12 million gain) and a $71 million loss for the Company (2008: $9 million gain).
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 gain (2008: $4 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
2009
$m
1,501
1,578
3,079
716
2,943
9,412
425
13,496
16,575
2008
$m
165
2,686
2,851
2,602
957
10,352
718
14,629
17,480
2009
$m
1,147
1,334
2,481
716
1,079
8,853
425
11,073
13,554
2008
$m
165
1,748
1,913
2,602
39
9,831
718
13,190
15,103
Total
fair
value
$m
716
4,444
10,990
425
16,575
An impairment loss of $20 million was recognised in the Income Statement (2008: $98 million), refer note 16.
Available for sale by maturities at 30 September 2009
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
Between
3 months and
12 months
$m
Between
1 year and
5 years
$m
Between
5 year and
10 years
$m
After
10 years
$m
No
maturity
specified
$m
602
2,482
4,775
57
7,916
114
1,111
3,524
84
4,833
–
851
2,018
–
2,869
–
–
19
–
19
–
–
156
284
440
–
–
498
–
498
The table below shows the breakdown of the hedging reserve attributable to each type of cash flow hedging relationship:
Available for sale by maturities at 30 September 2008
Variable rate loan assets
Variable rate liabilities
Re-issuances of short term fixed rate liabilities
Total hedging reserve
Consolidated
The Company
2009
$m
236
(140)
(186)
(90)
2008
$m
289
(96)
(114)
79
2009
$m
111
(112)
(108)
(109)
2008
$m
221
(95)
(75)
51
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
Between
3 months and
12 months
$m
Between
1 year and
5 years
$m
Between
5 year and
10 years
$m
After
10 years
$m
No
maturity
specified
$m
2,431
1,086
5,689
117
9,323
171
27
4,369
517
5,084
–
9
1,886
84
1,979
–
–
101
–
101
–
–
524
–
524
–
–
469
–
469
Total
fair
value
$m
2,602
1,122
13,038
718
17,480
102 ANZ Annual Report 2009
Financial Report 103
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
14: Net Loans and Advances
14: Net Loans and Advances (continued)
Consolidated
The Company
Below is an analysis of the impact on the financial position of ANZ (Consolidated and the Company):
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
Net loans and advances1
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 operating lease receivables
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
2009
$m
8,347
9,376
188,090
116,609
10,766
2,367
136
2,654
2008
$m
8,282
8,892
175,826
130,595
11,174
2,394
295
2,592
2009
$m
6,653
7,910
149,761
82,068
10,387
1,700
136
2,290
2008
$m
6,384
7,421
129,856
90,459
1,262
1,175
287
2,226
Values on reclassification date
Exchange rate fluctuations
Impairment loss recognised in the year
Principal repayments
Amortisation to face value1
Changes in fair value including exchange rate fluctuations
338,345
340,050
260,905
239,070
Closing balance at end of year
(4,526)
(2,372)
560
(6,338)
(3,496)
(2,600)
600
(5,496)
(3,300)
(2,102)
505
(4,897)
(2,632)
(508)
194
(2,946)
332,007
334,554
256,008
236,124
Impairment loss recognised in the year
1 The weighted average effective interest rate for the reclassified assets approximates 1.3%.
15: Impaired Financial Assets
Fair value
$m
415
n/a
–
(61)
n/a
(138)
216
–
AFS
revaluation
reserve in
equity
$m
Carrying
amount
$m
415
(89)
–
(61)
8
n/a
273
20
233
(49)
(20)
–
(7)
n/a
157
–
593
965
458
(262)
1,754
34
207
110
351
563
1,169
309
(273)
1,768
58
213
82
353
489
613
266
(225)
1,143
22
200
110
332
179
491
238
(158)
750
28
170
69
267
2,105
2,121
1,475
1,017
512
806
215
1,533
3,674
7,021
71
519
1,009
273
1,801
3,694
7,406
74
412
488
158
1,058
3,506
6,810
71
150
468
215
833
432
814
16
10,766
11,174
10,387
1,262
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 provision for credit impairment. 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.
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
2009
$m
4,392
673
530
5,595
(1,512)
(14)
4,069
2008
$m
1,750
846
77
2,673
(646)
(29)
1,998
2009
$m
3,310
504
504
4,318
(1,050)
(12)
3,256
2008
$m
1,347
846
72
2,265
(459)
(29)
1,777
1,597
1,060
1,200
758
1 Restructured items are facilities in which the original contractual terms have been modified to provide for concessions of interest, or principal, or other payments due, or for an extension
in maturity for a non-commercial period for reasons related to the financial difficulties of a customer, and are not considered impaired. Includes both on and off balance sheet exposures.
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
$135 million (2008: $115 million) for the Group and $94 million (2008: $82 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.
2
1 The company results in 2009 were impacted by the transfer of the assets and liabilities of Esanda Finance Corporation Limited (Esanda).
16: Provision for Credit Impairment
As a consequence of the turmoil in global financial markets, significant difficulty arose in determining appropriate fair value estimates by
reference to quoted market prices for certain financial instruments reported at fair value on the balance sheet, increasing the subjectivity inherent
in valuations. This affected some mortgage backed securities held by the Group which were originally classified for financial reporting purposes
as Available-for-sale. In November 2008, the Group reclassified these mortgage backed securities, issued in America, into loans and advances
measured at amortised cost. The reclassification applied only to securities that were no longer traded in an active market. It is the Group’s
intention to hold these assets for the foreseeable future in order to recover the initial investment through a stream of contractual repayments.
104 ANZ Annual Report 2009
Provision movement analysis
New and increased provisions
Australia
New Zealand
Asia, Pacific, Europe and America
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
2009
$m
2008
$m
The Company
2009
$m
2008
$m
2,387
540
118
3,045
(210)
2,835
(85)
2,750
20
235
3,005
978
187
72
1,237
(105)
1,132
(100)
1,032
98
818
1,948
2,262
2
37
2,301
(173)
2,128
(50)
2,078
20
(19)
2,079
856
–
42
898
(72)
826
(63)
763
98
712
1,573
Financial Report 105
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by financial asset class
16: Provision for Credit Impairment (continued)
Movement in provision for credit impairment by financial asset class (continued)
Consolidated
Collective provision
Balance at start of year
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
2009
$m
2008
$m
Net loans and
advances
and acceptances
2009
$m
2008
$m
Other financial assets
2009
$m
2008
$m
Credit related
commitments1
2008
$m
2009
$m
Total provisions
2009
$m
2008
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,062
(48)
538
2,552
646
2,741
(22)
(73)
(1,865)
85
1,512
1,483
4
575
2,062
261
1,012
–
(28)
(699)
100
646
4,064
2,708
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
759
(8)
(303)
448
29
9
–
–
(24)
–
14
509
7
243
759
9
20
–
–
–
–
29
2,821
(56)
235
3,000
675
2,750
(22)
(73)
(1,889)
85
1,526
1,992
11
818
2,821
270
1,032
–
(28)
(699)
100
675
462
788
4,526
3,496
1 Comprises undrawn facilities and customer contingent liabilities.
The Company
Collective provision
Balance at start of year
Adjustment for exchange rate fluctuations
and transfers2
Charge to income statement
Total collective provision
Individual provision
Balance at start of year
Charge to income statement
Adjustment for exchange rate fluctuations
and transfers2
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
2009
$m
2008
$m
Net loans and
advances
and acceptances
2009
$m
2008
$m
Other financial
assets
2009
$m
2008
$m
Credit related
commitments1
2008
$m
2009
$m
Total provisions
2009
$m
2008
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,519
1,028
95
272
7
484
1,886
1,519
459
2,071
37
(65)
(1,502)
50
1,050
2,936
172
743
4
(23)
(500)
63
459
1,978
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
625
389
2,144
1,417
18
(291)
352
29
7
–
–
(24)
–
12
364
8
228
625
113
(19)
15
712
2,238
2,144
9
20
488
2,078
–
–
–
–
29
654
37
(65)
(1,526)
50
1,062
3,300
181
763
4
(23)
(500)
63
488
2,632
1 Comprises undrawn facilities and customer contingent liabilities.
The table below contains a detailed analysis of the movements in individual provision for Net loans and advances and acceptances.
The table below contains a detailed analysis of the movements in individual provision for Net loans and advances and acceptances.
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
Total individual provision
Ratios
Individual provision as a % of total gross advances
Collective provision as a % of total gross advances
Bad debts written off as a % of total gross advances
Australia
Asia Pacific, Europe
and America
2009
$m
2008
$m
2009
$m
2008
$m
New Zealand
2009
$m
2008
$m
Net loans and
advances and
acceptances
2009
$m
2008
$m
487
2,140
(9)
(65)
(1,569)
64
1,048
214
794
(11)
(23)
(566)
79
487
48
101
(9)
(1)
(69)
5
75
9
59
12
–
(38)
6
48
111
500
(4)
(7)
(227)
16
389
38
159
(1)
(5)
(95)
15
111
646
2,741
(22)
(73)
(1,865)
85
1,512
261
1,012
–
(28)
(699)
100
646
The Company
Individual provision
Balance at start of year
Charge to income statement
Adjustment for exchange rate fluctuations
and transfers
Discount unwind
Bad debts written off
Recoveries of amounts previously written off
Total individual provision
Australia
Asia Pacific, Europe
and America
New Zealand
Net loans and
advances and
acceptances
2009
$m
424
2,042
44
(65)
(1,468)
49
1,026
2008
$m
165
710
(3)
(23)
(485)
60
424
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
35
27
(7)
–
(34)
1
22
7
33
7
–
(15)
3
35
–
2
–
–
–
–
2
–
–
–
–
–
–
459
2,071
37
(65)
(1,502)
50
–
1,050
2008
$m
172
743
4
(23)
(500)
63
459
2
Includes the transfer of individual provisions of $49 million and collective provisions of $94 million from the Esanda Australia legal entity to the Company in 2009.
Consolidated
2009
%
0.4
0.9
0.5
2008
%
0.2
0.8
0.2
Ratios
Individual provision as a % of total gross advances
Collective provision as a % of total gross advances
Bad debts written off as a % of total gross advances
Consolidated
2009
%
0.4
0.8
0.6
2008
%
0.2
0.8
0.2
106 ANZ Annual Report 2009
Financial Report 107
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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
2009
$m
–
2,712
1,853
4,565
2008
$m
–
2,608
1,767
4,375
2009
$m
8,522
761
–
9,283
2008
$m
9,144
869
–
10,013
1
2
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.
Investments in joint venture entities are accounted for in the consolidated financial statements using the equity method of accounting.
ACQUISITIONS OF CONTROLLED ENTITIES
There were no material controlled entities acquired during the year ended 30 September 2009 or the year ended 30 September 2008.
DISPOSAL OF CONTROLLED ENTITIES
There were no material controlled entities disposed of during the year ended 30 September 2009.
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).
Details of aggregate assets and liabilities of controlled entities disposed of 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
Provisions 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 disposal
Less: Balances of disposed cash and equivalents
Inflow of cash from disposals, net of cash disposed
Consolidated
Carrying amount
The Company
Carrying amount
2009
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
2008
$m
–
200
–
150
(123)
(50)
–
177
(98)
79
81
–
2
2009
$m
n/a
n/a
–
n/a
n/a
n/a
n/a
–
–
–
–
–
–
2008
$m
n/a
n/a
174
n/a
n/a
n/a
n/a
174
(97)
77
81
–
4
Consolidated
The Company
2009
$m
–
–
–
2008
$m
81
–
81
2009
$m
–
–
–
2008
$m
81
–
81
18: Tax Assets
Australia
Current tax asset
Deferred tax asset
New Zealand
Current tax asset
Deferred tax asset
Overseas Markets
Current tax asset
Deferred tax asset
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 income
Provision for employee entitlements
Other provisions
Other
Deferred tax assets recognised directly in equity
Defined benefits obligation
Available-for-sale revaluation reserve
Cash flow hedges
Set-off of deferred tax assets pursuant to set-off provisions1
Net deferred tax assets
Unrecognised deferred tax assets
The following deferred tax assets will only be recognised if:
assessable income is derived of a nature and an amount sufficient to enable the benefit
to be realised
the conditions for deductability imposed by tax legislation are compiled with; and
no changes in tax legislation adversely affect the Group in realising the benefit.
Consolidated
2009
$m
2008
$m
586
214
800
107
–
107
–
289
289
680
–
680
129
98
227
–
259
259
1,196
693
1,166
809
882
445
108
130
325
217
850
218
87
130
288
170
The Company
2009
$m
601
194
795
–
–
–
–
252
252
1,047
601
667
318
99
100
198
118
2008
$m
680
14
694
–
–
–
–
225
225
919
680
650
165
65
99
187
110
2,107
1,743
1,500
1,276
70
49
37
156
47
58
–
105
57
48
43
148
40
50
–
90
(1,760)
(1,491)
(1,202)
(1,127)
503
357
446
239
Unused realised tax losses (on revenue account)
Total unrecognised deferred tax assets
8
8
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.
108 ANZ Annual Report 2009
Financial Report 109
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
19: Goodwill and Other Intangible Assets
20: Other Assets
Goodwill
Gross carrying amount
Balances at start of the year
Additions through business combinations
Writedowns
Derecognised on disposal
Foreign currency exchange differences
Balance at end of year1
Software and other intangible assets
Gross carrying amount
Balances at start of the year
Additions
Additions from internal developments
Foreign currency exchange differences
Impairment
Balance at end of year
Accumulated amortisation and impairment
Balances at start of the year
Amortisation expense2 (refer note 4)
Foreign currency exchange differences
Impairment
Balance at end of year
Net book value
Balances at start of the year
Balance at end of year
Goodwill, software and other intangible assets
Net book value
Balances at start of the year
Balance at end of year1
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
3,064
–
–
(4)
(61)
2,999
1,447
3
411
(2)
(34)
1,825
770
162
3
(7)
928
677
897
3,126
5
(4)
–
(63)
3,064
1,222
–
286
(2)
(59)
1,447
671
134
1
(36)
770
551
677
3,741
3,896
3,677
3,741
–
–
–
–
–
–
–
–
–
–
–
–
1,283
–
372
(3)
(31)
1,621
1,087
–
256
(1)
(59)
1,283
660
143
(4)
(7)
792
623
829
623
829
576
120
–
(36)
660
511
623
511
623
1 Excludes notional goodwill in equity accounted entities.
2 Comprises software amortisation expense of $155 million (September 2008: $127 million) and amortisation of other intangible assets $7 million (September 2008: $7 million). The
Company comprises software amortisation expense of $140 million (September 2008: $115 million) and amortisation of other intangible assets $3 million (September 2008: $5 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(vi).
Accrued interest/prepaid discounts
Accrued commissions
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
Depreciation
Furniture and equipment
At Cost
Depreciation
Computer equipment
At Cost
Depreciation
Capital works in progress
At Cost
Total premises and equipment
Consolidated
The Company
2009
$m
1,097
77
139
917
277
37
1,683
4,227
2008
$m
1,819
129
111
433
185
42
2,359
5,078
Consolidated
2009
$m
628
(218)
410
385
(229)
156
969
(613)
356
979
(748)
231
2008
$m
640
(208)
432
356
(202)
154
938
(568)
370
937
(722)
215
2009
$m
743
57
54
581
160
37
1,117
2,749
2008
$m
1,329
89
55
351
5
42
1,481
3,352
The Company
2009
$m
2008
$m
92
(42)
50
254
(150)
104
753
(459)
294
719
(550)
169
97
(42)
55
236
(127)
109
725
(418)
307
682
(527)
155
909
2,062
421
1,592
832
1,449
379
1,005
110 ANZ Annual Report 2009
Financial Report 111
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
21: Premises and Equipment (continued)
22: Deposits and Other Borrowings
Reconciliations of the carrying amounts for each class of premises and equipment are set out below:
Consolidated
Freehold and leasehold land and buildings
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Foreign currency exchange difference
Carrying amount at end of year
leasehold improvements
Carrying amount at beginning of year
Additions
Disposals
Amortisation
Foreign currency exchange difference
Carrying amount at end of year
Furniture and equipment
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Foreign currency exchange difference
Carrying amount at end of year
Computer equipment
Carrying amount at beginning of year
Additions
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
2009
$m
432
41
(34)
(18)
(11)
410
154
46
(1)
(38)
(5)
156
370
67
(4)
(72)
(5)
356
215
110
(8)
(84)
(2)
231
421
488
909
2008
$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
The Company
2009
$m
2008
$m
55
6
–
(4)
(7)
50
109
23
–
(27)
(1)
104
307
50
(3)
(58)
(2)
294
155
78
(5)
(58)
(1)
169
379
453
832
58
2
(1)
(4)
–
55
89
41
(1)
(21)
1
109
280
85
(4)
(54)
–
307
171
43
–
(60)
1
155
141
238
379
2,062
1,592
1,449
1,005
Certificates of deposit
Term deposits
Other deposits bearing interest and other borrowings
Deposits not bearing interest
Commercial paper
Borrowing corporations debt1
Total deposits and other borrowings
Consolidated
The Company
2009
$m
44,711
108,367
113,304
10,174
14,227
3,587
2008
$m
52,346
89,225
100,575
9,367
22,422
10,031
2009
$m
41,019
79,332
92,987
5,800
8,162
–
2008
$m
47,656
62,225
79,098
5,322
9,027
–
294,370
283,966
227,300
203,328
1
Included in this balance is debenture stock of controlled entities. $2.1 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 ($3.1 billion) other than land
and buildings. 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. Effective from 18 March 2009, Esanda ceased to write new debentures.
In addition, this balance also includes NZD 1.6 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 (NZD 1.9 billion).
23: Income Tax Liabilities
Australia and New Zealand
Current tax payable
Deferred tax liabilities
Overseas Markets
Current tax payable
Deferred tax liabilities
Total current and deferred income tax liability
Total current tax payable
Deferred tax liabilities recognised in profit and loss
Lease finance
Treasury instruments
Capitalised expenses
Other
Deferred tax liabilities recognised directly in equity
Cash flow hedges
Foreign currency translation reserve
Set-off of deferred tax liabilities pursuant to set-off provision1
Net deferred tax liability
Unrecognised deferred tax liabilities
The following deferred tax liabilities have not been bought to account as liabilities:
Other unrealised taxable temporary differences2
Total unrecognised deferred tax liabilities
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
–
–
–
99
111
210
210
99
215
608
144
877
–
–
–
61
149
210
210
61
234
637
147
576
–
–
–
61
90
151
151
61
104
609
144
435
–
–
–
2
145
147
147
2
114
658
53
426
1,844
1,594
1,292
1,251
–
27
27
31
15
46
–
–
–
21
–
21
(1,760)
(1,491)
(1,202)
(1,127)
111
149
90
145
67
67
46
46
31
31
11
11
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.
112 ANZ Annual Report 2009
Financial Report 113
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
26: Bonds and Notes
Bonds and notes by currency
United States dollars
USD
Great British pounds
GBP
Australian dollars
AUD
New Zealand dollars
NZD
Japanese Yen
JPY
Euro
EUR
hong Kong dollars
hKD
Swiss francs
ChF
Canadian dollars
CAD
Norwegian krone
NOK
Singapore dollars
SGD
Czech koruna
CZK
Total bonds and notes
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
22,199
4,202
2,822
1,522
7,512
13,208
2,727
2,015
684
53
230
86
57,260
24,783
7,263
2,984
1,414
5,644
17,365
3,230
2,560
1,692
53
240
95
67,323
14,031
3,218
2,772
73
7,436
13,208
2,690
1,713
684
53
69
86
46,033
15,940
5,608
2,934
131
4,853
15,479
2,975
2,246
1,692
53
65
95
52,071
24: Payables and Other Liabilities
Creditors
Accrued interest and unearned discounts
Defined benefits plan obligations
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
Other
Total provisions
Consolidated
The Company
2009
$m
1,689
2,448
246
1,028
765
1,599
7,775
2008
$m
2,808
3,563
154
734
379
1,805
9,443
2009
$m
1,295
1,771
200
780
652
1,308
6,006
2008
$m
2,392
2,561
132
499
318
949
6,851
Consolidated
The Company
2009
$m
445
144
169
554
2008
$m
444
183
169
421
1,312
1,217
2009
$m
339
124
146
296
905
2008
$m
340
155
140
273
908
The Company
2009
$m
2008
$m
155
91
(77)
(45)
124
140
29
(10)
(13)
146
273
238
(155)
(60)
296
32
153
(9)
(21)
155
138
15
(5)
(8)
140
241
263
(183)
(48)
273
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
Provisions 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 forgeries
Carrying amount at beginning of the year
Provisions made during the year
Payments made during the year
Transfer/release of provision
Carrying amount at the end of the year
Other provisions3
Carrying amount at beginning of the year
Provisions made during the year
Payments made during the year
Transfer/release of provision
Carrying amount at the end of the year
Consolidated
2009
$m
183
111
(104)
(46)
144
169
30
(12)
(18)
169
421
476
(272)
(71)
554
2008
$m
37
185
(15)
(24)
183
186
37
(38)
(16)
169
398
281
(186)
(72)
421
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 Other provisions comprise various other provisions including loyalty programs, workers’ compensation and make-good provisions on leased premises.
114 ANZ Annual Report 2009
Financial Report 115
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
27: Loan Capital
hybrid loan capital (subordinated)4
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
835m
NZD
floating rate notes
fixed rate notes1
Subordinated notes4
USD
AUD
AUD
AUD
USD
AUD
GBP
EUR
USD
AUD
AUD
GBP
NZD
AUD
AUD
AUD
AUD
GBP
NZD
NZD
GBP
AUD
AUD
AUD
AUD
AUD
EUR
79m
400m
380m
350m
400m
300m
200m
500m
250m
300m
300m
250m
350m
350m
350m
100m
100m
175m
250m
350m
400m
290m
210m
100m
365m
500m
750m
floating rate notes due 2008
floating rate notes due 2010
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 20162
fixed notes due 20163
floating rate notes due 20162
fixed notes due 20163
fixed notes due 20163
fixed notes due 20172
floating rate notes due 20172
fixed notes due 20172
floating rate notes due 20172
fixed notes due 20172
fixed notes due 20172
fixed notes due 20172
fixed notes due 20183
fixed notes due 20173
floating rate notes due 20172
floating rate notes due 20172
floating rate notes due 20182
floating rate notes due 20182
fixed notes due 2019
Total loan capital
loan capital by currency
AUD
NZD
USD
GBP
EUR
Australian dollars
New Zealand dollars
United States dollars
Great British pounds
Euro
Interest Rate
%
4.48
5.36
6.54
BBSW + 2.50
BBSW + 2.00
LIBOR + 0.15
9.66
LIBOR + 0.53
BBSW + 0.29
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 + 0.40
6.38
7.60
8.23
4.75
7.75
BBSW + 0.75
BBSW + 0.70
BBSW + 1.20
BBSW + 2.05
5.13
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
423
907
820
1,081
–
3,231
341
685
438
938
1,014
1,081
600
4,071
375
700
1,026
1,075
–
400
–
–
455
304
372
830
284
299
300
479
287
350
350
100
100
349
205
287
724
289
210
100
365
500
1,233
9,172
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
–
9,120
397
853
820
1,081
–
3,151
341
–
341
–
400
–
–
455
304
372
830
284
299
300
479
–
350
350
100
100
349
–
–
724
289
210
100
365
500
1,233
8,393
438
938
1,014
1,081
600
4,071
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
–
8,330
13,429
14,266
11,885
12,776
4,748
1,464
2,410
2,744
2,063
6,069
1,490
2,576
3,239
892
4,748
–
2,330
2,744
2,063
6,069
–
2,576
3,239
892
13,429
14,266
11,885
12,776
1 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.
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.
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 US Trust Securities, UK Stapled Securities and ANZ CPS constitutes Tier 2 capital as
defined by APRA for capital adequacy purposes. US Trust Securities 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.
27: Loan Capital (continued)
US TRUST SECURITIES
On 27 November 2003, the Company issued 1.1 million USD
non-cumulative Trust Securities (“US Trust Securities”) at USD1,000
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.
116 ANZ Annual Report 2009
Financial Report 117
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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
On 26 September 2008, the Company through its New York branch
issued 1,200 Convertible Notes at an issue price of $500,000 each.
The Convertible Notes were perpetual, subordinated and non-
cumulative, pay floating rate interest payments and could 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. ANZ redeemed the
Convertible Notes on 28 September 2009.
28: Share Capital
Numbers of issued shares
Ordinary shares each fully paid
Preference shares each fully paid
Total number of issued shares
The Company
2009
2,504,540,925
500,000
2,505,040,925
2008
2,040,656,484
500,000
2,041,156,484
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 fully paid ordinary 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.
Numbers of issued shares
Balance at start of the year
Bonus option plan1
Dividend Reinvestment Plan1
Dividend Reinvestment Plan underwriting
ANZ employee share acquisition plan
ANZ share option plan2
Conversion of StEPS
Share placement and Share Purchase Plan5,6,7
Balance at end of year
Ordinary share capital
Balance at start of the year
Dividend Reinvestment Plan1
Dividend Reinvestment Plan underwriting
ANZ employee share acquisition plan2
Treasury shares3,4
ANZ share option plan2
Conversion of StEPS
Share placement and Share Purchase Plan5,6,7
Balance at end of year
The Company
2009
2,040,656,484
3,928,449
52,386,890
75,000,000
6,224,007
818,805
–
325,526,290
2008
1,864,678,820
2,838,335
42,546,446
61,534,092
2,975,312
4,115,132
61,968,347
–
2,504,540,925
2,040,656,484
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
12,589
742
1,046
99
–
14
–
4,661
8,946
1,019
1,487
80
(10)
67
1,000
–
12,589
742
1,046
99
–
14
–
4,661
8,946
1,019
1,487
80
(10)
67
1,000
–
19,151
12,589
19,151
12,589
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, 5,948,457 shares were issued during the September 2009 year to the Group’s
Employee Share Trust for settlement of amounts due under share-based compensation plans (2008: 2,356,857).
4 As at 30 September 2009, there were 7,721,314 Treasury shares outstanding (2008: 4,374,248).
5 On 3 June 2009, shares were issued under a placement to institutions and sophisticated and professional investors. The share placement was made at a fully underwritten offer price of $14.40
per share. The placement was underwritten by Deutsche Bank AG, Sydney Branch, J.P Morgan Australia Limited and UBS AG, Australia Branch.
6 On 13 July 2009 shares were issued to eligible shareholders in accordance with the terms and conditions of the Share Purchase Plan released to the ASx on 10 June 2009. The shares were issued
at a price of $14.40 per share.
Includes capital raising costs of $25 million.
7
118 ANZ Annual Report 2009
Financial Report 119
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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
€1,000 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,
€1,000 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 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.
29: Reserves and Retained Earnings
a) Foreign currency translation reserve
Balance at beginning of the year
Currency translation adjustments, net of hedges after tax
Total foreign currency translation reserve
b) Share option reserve1
Balance at beginning of the year
Share-based payments
Transfer of options lapsed to retained earnings2
Total share option translation reserve
c) Available-for-sale revaluation reserve
Balance at beginning of the 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 beginning of the year
Gains/(loss) recognised after tax
Transfer (to)/from income statement
Total hedging reserve
Total reserves
1 Further information about share based payments to employees is disclosed in note 46 to the financial statements.
2 The transfer of balances from the share option and capital reserves to retained earnings represent items of a distributable nature.
Consolidated
The Company
2009
$m
871
871
2008
$m
871
871
2009
$m
871
871
2008
$m
871
871
Retained earnings
Balance at beginning of the year
Profit attributable to shareholders of the Company
Adjustment on step acquisition of associate
Transfer of options lapsed from share option reserve1,2
Acturial gain/(loss) on defined benefit plans after tax3
Ordinary share dividend paid
Preference share dividend paid
Retained earnings at end of year
Total reserves and retained earnings
Consolidated
2009
$m
2008
$m
(816)
(909)
(1,725)
(1,209)
393
(816)
83
9
(23)
69
(88)
29
18
–
(41)
79
(106)
(63)
(90)
(1,787)
70
14
(1)
83
97
(305)
60
60
(88)
153
(39)
(35)
79
(742)
The Company
2009
$m
(153)
(283)
(436)
83
9
(23)
69
(56)
20
18
–
(18)
51
(97)
(63)
(109)
(494)
2008
$m
(407)
254
(153)
70
14
(1)
83
93
(272)
63
60
(56)
80
(34)
5
51
(75)
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
13,772
2,943
–
23
(124)
(2,452)
(33)
14,129
12,342
13,082
3,319
1
1
(79)
(2,506)
(46)
13,772
13,030
10,207
2,285
–
23
(113)
(2,452)
–
9,950
9,456
9,436
3,336
–
1
(60)
(2,506)
–
10,207
10,132
1 Further information about share based payments to employees is disclosed in note 46 to the financial statements.
2 The transfer of balances from the share option, general and capital reserves to retained earnings represent items of a distributable nature.
3 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).
120 ANZ Annual Report 2009
Financial Report 121
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
29: Reserves and Retained Earnings (continued)
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).
30: Minority Interests
Share capital
Retained profit
Total Minority Interests
31: Capital Management
Consolidated
2009
$m
39
26
65
2008
$m
29
33
62
ANZ pursues an active approach to capital management, which
is designed to protect the interests of depositors, creditors and
shareholders. This involves the on-going review and Board approval
of the level and composition of the Group’s capital base, assessed
against the following key policy objectives:
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 Level 1 (the Company and specified subsidiaries) and
Level 2 (ANZ consolidated under Australian prudential standards);
Capital levels are aligned with the risks in the business and to
meet strategic and business development plans through ensuring
that 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” credit rating category 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. ANZ’s risk
appetite is the level of risk ANZ is prepared to accept in order
to achieve its strategic objectives, expressed quantitatively in
terms of limits and tolerances that provides a scale against which
management can review ANZ’s risk profile, and as set by the Board
and directs Regions in the execution of their strategic objectives;
and
An appropriate balance between maximising shareholder returns
and prudent capital management principles.
The Group achieves these objectives through an Internal Capital
Adequacy Assessment Process (ICAAP) whereby the Group
conducts detailed strategic and capital planning over a medium
term time horizon.
Annually, ANZ conducts a detailed strategic planning process over
a three year time horizon, the outcomes of which are embodied in
the Strategic Plan. This process involves forecasting key economic
variables which regions use to determine key financial data for
their existing business. New strategic initiatives to be undertaken
over the planning period and their financial impact are then
determined. These processes are used for the following:
Review capital ratios, targets, and levels of different classes of
capital against the Group’s risk profile and risk appetite outlined in
the Strategic Plan. The Group’s capital targets reflect the key policy
objectives above, and the desire to ensure that under specific
stressed economic scenarios that capital levels are sufficient to
remain above both Economic Capital and PCR requirements.
Stress tests are performed under different economic conditions
to ensure a comprehensive review of the Group’s capital position
both before and after mitigating actions. The stress tests determine
the level of additional capital (i.e. the ‘capital buffer’ above Pillar 1
minimum capital) needed to absorb losses that may be experienced
during an economic downturn.
Stress testing is integral to strengthening the predictive approach
to risk management and is a key component in managing risks,
asset writing strategies and business strategies. It creates greater
understanding of the 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 to management and the
ANZ Board’s Risk Committee on a range of scenarios and stress tests.
31: Capital Management (continued)
Results are subsequently used to:
recalibrate the Group’s management targets for minimum
and operating ranges for its respective classes of capital such
that the Group will remain compliant with APRA’s PCRs; and
identify the level of organic capital generation and hence
determine current and future capital requirements for the
Company (Level 1) and the Group (Level 2).
From these processes, a Capital Plan is developed and approved
by the Board which identifies the capital issuance and maturity
profile, options around capital products, timing, markets and
strategies under differing market and economic conditions.
The Capital Plan is maintained and updated through a monthly
review of forecast financial performance, economic conditions
and development of business initiatives and strategies. The Board
and senior management are provided with monthly updates of the
Group’s capital position. Any actions required to ensure ongoing
prudent capital management are submitted to the Board for approval.
Regulatory environment
The Group’s regulatory capital calculation is governed by APRA’s
Prudential Standards which adopt a risk-based capital assessment
framework based on the Basel II capital measurement standards.
This risk-based approach requires eligible capital to be divided by
total risk weighted assets (RWAs), with the resultant ratio being
used as a measure of a bank’s capital adequacy. APRA determines
PCRs for Tier 1 and Total Capital, with capital as the numerator and
RWAs as the denominator.
To ensure that ADIs are adequately capitalised on both a stand-alone
and group basis, APRA adopts a tiered approach to the measurement
of an ADI’s capital adequacy by assessing the ADIs financial strength
at three levels:
Level 1 – the ADI on a stand-alone basis (i.e. the Company and
approved subsidiaries which are consolidated to form the ADIs’
Extended Licensed Entity);
Level 2 – the consolidated banking group (i.e. the consolidated
financial group less certain subsidiaries and associates excluded
under the prudential standards); and
Level 3 – the conglomerate group at the widest level.
ANZ is a Level 1 and Level 2 reporter and measures capital adequacy
monthly on a Level 1 and Level 2 basis, and is not required to report
on a Level 3 basis.
Regulatory capital is divided into Tier 1, carrying the highest capital
elements, and Tier 2, which has lower capital elements, but still adds
to the overall strength of the ADI.
Tier 1 capital is comprised of ‘Fundamental’ capital, ‘Residual’ capital,
and Tier 1 deductions. Fundamental capital comprises shareholder’s
equity adjusted for items which APRA does not allow as regulatory
capital or classifies as lower forms of regulatory capital. Fundamental
capital includes the following significant adjustments:
Reserves exclude the hedging reserve and available-for-sale
revaluation reserve, and reserves of insurance and funds
management subsidiaries and associates;
Retained earnings excludes retained earnings of insurance and
funds management subsidiaries and associates and includes
capitalised deferred fees forming part of loan yields that meet
the criteria set out in the prudential standard; and
Current year net of tax earnings is net of any interim and special
dividends paid during the current year and the expected final
dividend payment, net of the expected dividend reinvestment
under the Dividend Reinvestment Plan and Bonus Option Plan, and
excludes profits of insurance and funds management subsidiaries
and associates.
Residual capital covers non-innovative and innovative hybrid Tier 1
instruments with limits restricting the volume that can be counted
as Tier 1 capital.
Tier 1 deductions include amounts deducted solely from Tier 1,
mainly intangible assets i.e. goodwill and capitalised software,
capitalised brokerage and borrowing expenses and net deferred tax
assets, and deductions taken 50% from Tier 1 and 50% from Tier 2,
which mainly includes the tangible component of investment in
other subsidiaries and associates regulated by APRA, or their overseas
equivalent, and the amount of Expected Losses (EL) in excess of
Eligible Provisions for Loan Losses (net of tax).
Tier 2 capital is comprised of Upper and Lower Tier 2 capital less
capital deductions taken 50% from Tier 2 capital. Upper Tier 2 capital
mainly comprises perpetual subordinated debt instruments, whilst
Lower Tier 2 includes dated subordinated debt instruments which
have a minimum term of five years.
Total Capital is the sum of Tier 1 capital and Tier 2 capital.
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 regulators in countries where the Company
operates branches and subsidiaries.
122 ANZ Annual Report 2009
Financial Report 123
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
31: Capital Management (continued)
32: Assets Charged as Security for Liabilities and Collateral Accepted as Security for Assets
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
Tier 1 capital
Tier 2
Upper Tier 2 capital
Subordinated notes2
Deductions
Tier 2 capital
Total qualifying capital
Capital adequacy ratios
Tier 1
Tier 2
Total
2009
$m
2008
$m
32,429
(2,341)
30,088
1,901
2,122
34,111
(7,492)
26,619
1,390
9,082
(2,661)
7,811
26,552
(2,409)
24,143
2,095
2,847
29,085
(7,856)
21,229
1,374
9,170
(1,206)
9,338
34,430
30,567
10.6%
3.1%
13.7%
7.7%
3.4%
11.1%
Includes goodwill (excluding associates) of $2,999 million (2008: $3,064 million).
1
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.
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. 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 UDC and its 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.
Collateral provided to central banks.
The carrying amounts of assets pledged as security are as follows:
Regulatory deposits
Securities sold under arrangements to repurchase
Assets pledged as collateral under debenture undertakings
Cash deposited in structured funding transaction
Other
Consolidated
The Company
Carrying Amount
Related liability
Carrying Amount
Related liability
2009
$m
509
3,586
4,665
1,080
97
2008
$m
469
1,696
15,566
918
–
2009
$m
n/a
3,586
3,398
2,006
–
2008
$m
n/a
1,654
9,902
2,000
–
2009
$m
330
1,974
–
1,080
97
2008
$m
298
1,615
–
918
–
2009
$m
n/a
1,974
–
–
–
2008
$m
n/a
1,573
–
–
–
Collateral accepted as security for assets
ANZ has accepted cash as collateral on securities loaned to other parties.
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 received on securities borrowed
Fair value of received securities
Consolidated
The Company
2009
$m
746
740
–
–
2008
$m
2,096
2,093
94
98
2009
$m
746
740
–
–
2008
$m
2,096
2,093
94
98
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 $nil (2008: $105 million) against stock
provided to counterparties to the value of $nil (2008: $86 million).
124 ANZ Annual Report 2009
Financial Report 125
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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 Market Risk Committee (CMRC), which is an executive
management committee comprising senior risk, business and
group executives, chaired by the Chief Risk Officer. CMRC 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. CMRC also further delegates credit
responsibility to the broader organization, based on a combination
of factors, including size of risk, level of risk, nature of counterparty,
collateral support, risk concentration limits, location of risk and
expertise of specific credit points.
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
modelling 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.
33: Financial Risk Management (continued)
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.
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 when 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 counterparty are
aggregated and cash collateral is exchanged daily. The collateral
is provided by the counterparty 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.
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 counterparty, 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.
126 ANZ Annual Report 2009
Financial Report 127
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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:
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
Australia
Agriculture, forestry
fishing and 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 and 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
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
Credit related
commitments3
2008
2009
$m
$m
Total
2009
$m
2008
$m
25
22
–
–
23
17
2
–
184
14
9
182
57
–
–
2
115
51
21
246
411
31
20
10,099
5,507
4,519
10,216
5,908
4,560
202
5,395
6,449
1,805
4,305
18,967
16,204
25,413
26,256
8,694
12,595
4,691
73
–
1
18
8
149
36
3,508
139
–
3
38
9
537
597
10,054
434
–
68
180
133
–
3,288
5,341
144
–
25
129
18
20
1,595
124
437
–
593
156
302
323
650
69
316
142
8,401
95
9,321
– 158,750 147,067
25,103
9,492
6,346
6,625
7,135
22,454
8,633
4,525
5,935
8,796
391
51
160
237
735
85
46
38
46
73
1
71
1,339
189
73
38
50
75
210
131
102
6,557
3,181
3,625
6,357
2,333
3,446
17,065
8,821
8,212
17,274
8,420
8,130
144
2,684
1,827
8,553
8,624
170
4,484
9,610
59,436
69,140
2
206
1,054
540
212
102
143
188
279
7,559
31,565
7,182
3,656
2,367
5,696
6,092
492
8,021
9,507
15,291
18,147
16,975
28,046 191,654 176,167
32,740
30,487
12,619
12,716
9,054
7,373
13,127
12,153
17,839
18,937
6,678
2,697
2,419
5,565
7,589
6,828
9,178
33,513
23,535
28,431
28,879 251,850 250,912
2,124
3,204
84,927
85,080 407,673 400,788
38
2
–
–
86
–
–
–
–
–
–
–
–
–
39
23
71
11
2
23
62
8
1
6
16,835
710
702
15,087
1,020
774
837
892
3,668
2,959
3,396
1,984
6,287
4,290
1,074
1,561
31
66
–
2
72
5
15
5
155
156
–
–
299
26
19
34
1,128
1
–
–
–
6
–
32
209
7
–
–
–
3
–
12
144
79
–
30
61
66
5
145
232
174
–
17
11
17
9
70
1,169
2,307
45,251
6,817
1,318
1,293
1,413
1,125
549
2,680
45,552
7,832
1,755
1,186
1,583
2,315
185
8
8
9
12
12
26
500
75
14
14
15
13
118
8
6
7
12
4
21
358
61
13
9
12
13
1,195
326
433
367
994
617
731
8,519
1,135
908
466
795
808
3,710
249
191
18,324
1,057
1,145
19,063
1,285
972
218
1,275
1,146
376
15,431
11,182
133
648
11,285
1,919
427
288
383
426
3,101
3,210
54,270
8,059
2,373
1,850
2,243
2,128
1,282
3,686
57,195
9,829
2,505
1,529
2,006
2,870
3,904
3,734
4,602
2,238
6,924
4,897
80,851
82,786
891
642
17,294
20,253 114,466 114,550
Consolidated
Overseas Markets
Agriculture, forestry
fishing and 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 and 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
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
Credit related
commitments3
2008
2009
$m
$m
Total
2009
$m
2008
$m
1
–
–
–
–
–
–
–
10
3
40
–
–
–
56
–
27
1
7
8
90
4
8
58
1,477
524
207
2,946
1,544
141
681
696
16,156
16,927
4,853
4,546
1,513
2,634
1,526
1,222
220
6
–
–
–
–
5
74
4
4
–
–
–
–
28
168
3,863
39
–
22
–
93
–
69
1,610
38
–
23
–
82
–
63
–
223
–
27
1
26
63
153
15
113
–
18
33
31
60
101
321
4,720
2,355
1,454
360
1,477
2,064
2,241
297
4,793
2,379
302
444
1,553
3,052
2,280
19
7
3
9
20
4
61
30
19
5
19
27
27
55
29
3
13
2,093
479
923
2,869
691
760
3,627
1,014
1,180
5,960
2,268
968
401
488
1,099
1,255
23
5,354
7,311
29,422
32,663
6
90
65
6
8
29
57
43
1,085
10,573
460
237
303
732
4,584
2,417
1,396
11,222
387
35
278
393
7,298
2,810
5,493
15,622
2,845
1,759
669
2,346
6,743
4,981
3,328
16,260
2,831
384
763
2,088
10,495
5,465
16,462
17,131
8,992
6,418
2,049
3,165
19,406
21,649
250
427
29,641
35,938
76,800
84,728
64
24
–
–
109
17
2
–
194
17
49
221
57
–
56
25
213
63
30
277
563
43
29
28,411
6,741
5,428
28,249
8,472
5,475
289
61
49
383
168
111
9,845
3,986
4,981
12,936
3,273
4,397
39,016
10,892
10,537
42,297
11,973
10,070
266
6,913
8,037
64
164
3,452
2,533
10,927
11,025
21,629
24,191
27,216
22,734
33,213
33,180
11,294
15,378
105
205
10,832
17,297 104,289 112,985
4,942
145
–
3
90
13
169
115
3,667
299
–
3
337
35
584
799
15,045
474
–
90
180
232
–
3,389
7,160
189
–
48
129
103
20
1,670
268
739
–
650
218
394
391
948
316
603
1,632
15,428
941
16,794
– 206,356 194,998
33,237
11,691
9,085
11,260
11,730
30,725
10,311
7,294
9,412
12,162
426
95
208
306
906
17
158
1,869
283
92
71
92
115
12
317
1,477
607
233
140
212
244
1,981
18,863
40,544
8,554
4,867
3,564
11,075
9,318
14,117
23,885
2,021
19,891
38,093
35,807
39,718 248,769 236,193
42,953
40,305
8,632
15,887
15,758
3,402
12,671
11,568
3,100
25,628
21,139
13,246
26,174
26,047
10,825
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.
Gross Total
27,194
30,043
47,107
32,191
37,404
36,941 352,107 355,347
3,265
4,273 131,862 141,271 598,939 600,066
Individual provision for
credit impairment
Collective provision for
credit impairment
–
–
–
–
–
–
–
–
–
–
–
–
(1,512)
(646)
(2,552)
(2,062)
–
–
–
–
(14)
(29)
(1,526)
(675)
(448)
(759)
(3,000)
(2,821)
27,194
30,043
47,107
32,191
37,404
36,941 348,043 352,639
3,265
4,273 131,400 140,483 594,413 596,570
Income yet to mature
Capitalised brokerage/
mortgage origination
fees
–
–
–
–
–
–
–
–
–
–
–
(2,372)
(2,600)
–
560
600
–
–
–
–
–
–
–
(2,372)
(2,600)
–
560
600
27,194
30,043
47,107 32,191
37,404 36,941 346,231 350,639
3,265
4,273 131,400 140,483 592,601 594,570
Excluded from analysis
above4
3,108
4,849
459
466
–
–
–
–
–
–
–
–
3,567
5,315
30,302
34,892
47,566
32,657
37,404
36,941 346,231 350,639
3,265
4,273 131,400 140,483 596,168 599,885
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.
128 ANZ Annual Report 2009
Financial Report 129
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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):
33: Financial Risk Management (continued)
Concentrations of credit risk analysis (continued):
Composition of financial instruments that give rise to credit risk by industry (continued):
The Company
Australia
Agriculture, forestry
fishing and mining
Business Services
Construction
Entertainment, Leisure
and Tourism
Financial, Investment
and Insurance5
Government and
Official Institutions
Manufacturing
Personal Lending
Property Services
Retail Trade
Transport and Storage
Wholesale trade
Other
New Zealand4
Agriculture, forestry
fishing and 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
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
Credit related
commitments3
2008
2009
$m
$m
Total
2009
$m
2008
$m
24
21
–
–
23
17
2
–
29
14
9
181
56
–
–
2
114
51
21
245
411
31
20
10,073
5,493
4,507
9,406
4,990
3,053
202
5,382
6,211
1,684
4,261
18,931
15,662
28,077
27,636
9,776
13,625
3,433
136
–
3
37
9
526
583
10,043
434
–
67
180
133
–
3,286
5,215
140
–
24
126
18
20
1,552
123
435
–
590
155
301
321
648
69
316
142
8,371
94
9,020
– 158,347 139,854
24,660
7,265
4,514
6,385
7,123
22,397
8,599
4,451
5,920
8,771
391
51
160
237
635
68
37
31
37
66
1
57
1,076
152
58
30
40
61
172
99
61
6,550
3,178
3,621
6,357
2,333
3,446
16,858
8,794
8,189
16,425
7,470
6,582
124
2,681
1,827
8,526
8,366
176
4,637
10,269
63,171
71,629
2
178
868
474
146
73
123
131
279
7,551
31,531
7,167
3,652
2,364
5,690
6,089
492
8,021
9,305
15,214
17,811
16,920
28,047 190,954 168,769
32,230
30,374
10,096
12,661
7,191
7,287
12,856
12,118
16,394
18,891
6,678
2,471
2,417
5,565
6,370
9,030
33,307
22,815
31,081
30,159 252,229 236,200
1,714
2,627
84,990
84,293 409,957 385,124
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28
–
–
–
–
–
–
–
–
28
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,194
–
–
–
–
–
7,194
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
271
–
–
–
–
–
271
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28
–
–
–
–
–
28
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28
–
–
7,493
–
–
–
–
–
7,521
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,626
72
–
1
17
8
147
36
6,636
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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 During 2009, ANZ established a licensed banking branch in New Zealand.
5
Includes amounts due from other group entities.
liquid assets and due
from other financial
institutions
Trading and
AFS1 assets
Derivatives
loans and
advances and
acceptances
Other
financial
assets2
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
Credit related
commitments3
2008
2009
$m
$m
Total
2009
$m
2008
$m
–
–
–
–
–
–
–
–
9
3
38
–
–
–
51
–
23
1
6
7
80
4
8
56
1,223
318
89
423
15,643
16,207
4,476
3,021
1,403
2,638
1,271
197
6
–
–
–
–
5
70
4
4
–
–
–
–
27
122
2,522
37
–
21
–
88
–
60
1,461
34
–
21
–
75
–
58
–
199
–
26
–
24
60
143
15
109
–
18
33
31
50
97
255
3,830
1,340
1,402
162
1,052
1,617
2,239
2,686
1,349
87
515
998
261
4,174
1,795
277
401
1,181
2,645
1,763
15
4
1
5
17
3
48
17
18
2
13
20
21
42
22
2
10
1,721
432
917
2,500
669
739
2,991
758
1,051
5,308
2,044
887
366
445
801
1,026
17
5,199
6,995
28,009
29,876
4
69
50
4
6
22
44
33
1,086
10,233
66
241
201
700
4,294
1,035
1,371
10,772
103
34
246
385
7,121
2,390
4,063
14,353
1,423
1,708
365
1,877
5,996
3,568
3,116
15,162
1,948
354
686
1,694
9,887
4,463
15,921
16,364
7,254
4,721
1,892
3,139
15,221
18,132
184
325
26,491
33,770
66,963
76,451
24
21
–
–
23
17
2
–
38
17
47
181
56
–
51
2
137
52
27
491
35
28
11,296
5,811
4,596
12,092
6,339
3,140
252
258
5,805
6,726
17,327
20,468
23,407
18,683
29,508
30,274
11,047
14,623
4,823
78
–
1
17
8
152
106
3,437
140
–
3
37
9
553
705
12,565
471
–
88
180
221
–
3,346
6,676
174
–
45
126
93
20
1,610
123
634
–
616
155
325
381
791
84
425
397
12,201
355
13,194
– 166,881 141,649
24,937
7,666
5,695
9,030
8,886
23,799
8,761
5,503
7,537
11,010
409
84
191
287
732
83
41
32
42
83
4
105
1,364
170
60
43
60
82
214
121
63
8,271
3,610
4,538
8,857
3,002
4,185
19,849
9,552
9,240
21,733
9,514
7,469
134
3,047
2,272
9,327
9,392
193
9,836
17,264
91,208 101,505
6
247
918
478
152
95
167
164
1,365
17,784
31,625
7,408
3,853
3,064
9,984
7,124
12,421
19,277
1,863
18,793
32,973
31,273
28,150 199,870 170,717
32,584
32,082
6,712
10,782
13,026
2,717
8,885
9,164
2,802
22,743
18,114
12,686
20,857
22,459
8,760
The Company
Overseas Markets
Agriculture, forestry
fishing and 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 and 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
22,557
25,394
40,561
27,536
33,001
33,298 274,644 254,332
2,169
2,952 111,509 118,063 484,441 461,575
Individual provision for
credit impairment
Collective provision for
credit impairment
–
–
–
–
–
–
–
–
–
–
–
–
(1,050)
(459)
(1,886)
(1,519)
–
–
–
–
(12)
(29)
(1,062)
(488)
(352)
(625)
(2,238)
(2,144)
22,557
25,394
40,561
27,536
33,001
33,298 271,708 252,354
2,169
2,952 111,145 117,409 481,141 458,943
Income yet to mature
Capitalised brokerage/
mortgage origination
fees
–
–
–
–
–
–
–
–
–
–
–
(2,102)
(508)
–
505
194
–
–
–
–
–
–
–
(2,102)
(508)
–
505
194
22,557
25,394
40,561
27,536
33,001
33,298 270,111 252,040
2,169
2,952 111,145 117,409 479,544 458,629
Excluded from analysis
above4
878
1,260
403
413
–
–
–
–
–
–
–
–
1,281
1,673
23,435
26,654
40,964
27,949
33,001
33,298 270,111 252,040
2,169
2,952 111,145 117,409 480,825 460,302
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.
130 ANZ Annual Report 2009
Financial Report 131
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
CREDIT QUALITY
33: Financial Risk Management (continued)
Maximum exposure to credit risk (continued)
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 tables 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 tables present 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
– Australia
– New Zealand
– Asia Pacific, Europe & America
Other financial assets
Undrawn facilities
Contingent facilities
Total
Reported
Excluded1
Maximum exposure
to credit risk
2009
$m
25,317
4,985
30,991
37,404
16,575
2008
$m
25,030
9,862
15,177
36,941
17,480
247,211
79,607
18,951
3,265
246,537
81,983
21,331
4,273
2009
$m
3,108
–
–
–
459
–
–
–
–
2008
$m
4,849
–
20
–
446
2009
$m
22,209
4,985
30,991
37,404
16,116
2008
$m
20,181
9,862
15,157
36,941
17,034
–
–
–
–
247,211
79,607
18,951
3,265
246,537
81,983
21,331
4,273
464,306
458,614
3,567
5,315
460,739
453,299
106,644
25,218
111,265
30,006
131,862
141,271
–
–
–
–
–
–
106,644
25,218
111,265
30,006
131,862
141,271
596,168
599,885
3,567
5,315
592,601
594,570
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.
The Company
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available–for–sale assets
Net loans and advances and acceptances
– Australia
– New Zealand
– Asia Pacific, Europe & America
Other financial assets
Undrawn facilities
Contingent facilities
Total
Reported
Excluded1
Maximum exposure
to credit risk
2009
$m
20,199
3,236
27,410
33,001
13,554
247,617
7,199
14,931
2,169
2008
$m
18,081
8,573
12,846
33,298
15,103
233,478
–
17,909
2,952
2009
$m
878
–
–
–
403
–
–
–
–
2008
$m
1,260
–
20
–
393
2009
$m
19,321
3,236
27,410
33,001
13,151
–
–
–
–
247,617
7,199
14,931
2,169
2008
$m
16,821
8,573
12,826
33,298
14,710
233,478
–
17,909
2,952
369,316
342,240
1,281
1,673
368,035
340,567
88,006
23,503
90,026
28,037
111,509
118,063
–
–
–
–
–
–
88,006
23,503
90,026
28,037
111,509
118,063
480,825
460,303
1,281
1,673
479,544
458,630
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.
132 ANZ Annual Report 2009
Financial Report 133
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
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.
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.
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 are classified as impaired and an appropriate level of
individual provision is held.
Restructured items are facilities in which the original contractual terms have been modified to provide for concessions of interest, or principal,
or other payments due, or for an extension in maturity for a non-commercial period for reasons related to the financial difficulties of a customer,
and are not considered impaired.
DISTRIBUTION OF FINANCIAL INSTRUMENTS BY CREDIT QUALITY
Neither past
due nor
impaired
Past due but not
impaired
Restructured
Impaired
Total
Consolidated
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets2
Net loans and advances and acceptances
– Australia
– New Zealand
– Asia Pacific, Europe & America
Other financial assets
Credit related commitments3
The Company
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments1
Available-for-sale assets2
Net loans and advances and acceptances
– Australia
– New Zealand
– Asia Pacific, Europe & America
Other financial assets
Credit related commitments3
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
22,209
4,985
30,991
37,272
16,116
2008
$m
20,181
9,862
15,157
36,886
17,019
–
–
–
–
–
–
–
–
–
–
236,197
76,281
17,862
3,265
131,459
234,727
78,904
20,853
4,273
141,159
7,489
2,352
528
–
–
9,771
2,805
308
–
–
576,637 579,021
10,369
12,884
–
–
–
5
–
293
1
374
–
–
673
–
–
–
55
–
733
–
–
–
35
823
2009
$m
–
–
–
127
–
3,232
973
187
–
403
2008
$m
–
–
–
–
15
2009
$m
22,209
4,985
30,991
37,404
16,116
2008
$m
20,181
9,862
15,157
36,941
17,034
1,306 247,211
79,607
18,951
3,265
246,537
81,983
21,331
4,273
77 131,862 141,271
274
170
–
4,922
1,842 592,601 594,570
Neither past
due nor
impaired
Past due but not
impaired
Restructured
Impaired
Total
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
19,321
3,236
27,410
32,869
13,151
2008
$m
16,821
8,573
12,826
33,243
14,695
–
–
–
–
–
–
–
–
–
–
236,625
6,992
14,305
2,169
111,132
222,222
–
17,601
2,952
117,956
7,489
199
328
–
–
9,322
–
162
–
–
467,210 446,889
8,016
9,484
504
–
–
–
5
–
293
–
206
–
–
2009
$m
–
–
–
127
–
3,210
8
92
–
377
2008
$m
–
–
–
–
15
2009
$m
19,321
3,236
27,410
33,001
13,151
2008
$m
16,821
8,573
12,826
33,298
14,710
1,201
–
146
–
247,617
7,199
14,931
2,169
72 111,509
233,478
–
17,909
2,952
118,063
3,814
1,434 479,544 458,630
–
–
–
55
–
733
–
–
–
35
823
Internal rating
Strong credit profile
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.
Satisfactory risk
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
– Australia
– New Zealand
– Asia Pacific, Europe & America
Other financial assets2
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
– Australia
– New Zealand
– Asia Pacific, Europe & America
Other financial assets2
Credit related commitments1
Strong credit profile
Satisfactory risk
2009
$m
21,631
4,959
30,570
35,317
15,181
2008
$m
18,526
9,146
14,304
34,511
15,842
2009
$m
368
20
421
1,336
931
2008
$m
1,496
578
840
1,870
1,077
Sub-standard
but not past
due or impaired
Total
2009
$m
210
6
–
619
4
2008
$m
159
138
13
505
100
2009
$m
22,209
4,985
30,991
37,272
16,116
2008
$m
20,181
9,862
15,157
36,886
17,019
167,814
51,911
9,987
3,254
105,167
166,735
54,591
14,585
4,246
110,390
55,723
19,891
6,431
7
23,072
57,687
21,710
5,853
27
27,397
12,660
4,479
1,444
4
3,220
10,305
2,603
415
–
236,197
76,281
17,862
3,265
3,372 131,459
234,727
78,904
20,853
4,273
141,159
445,791 442,876 108,200 118,535
22,646
17,610 576,637 579,021
Strong credit profile
Satisfactory risk
2009
$m
18,970
3,211
27,141
31,322
13,093
2008
$m
15,423
7,884
11,973
31,288
14,542
2009
$m
144
20
269
986
58
2008
$m
1,239
557
840
1,507
65
Sub-standard
but not past
due or impaired
Total
2009
$m
207
5
–
561
–
2008
$m
159
132
13
448
88
2009
$m
19,321
3,236
27,410
32,869
13,151
2008
$m
16,821
8,573
12,826
33,243
14,695
168,156
6,487
9,199
2,167
90,469
165,469
–
12,101
2,927
95,026
55,809
418
4,283
2
18,397
49,317
–
5,159
25
20,348
12,660
87
823
–
2,266
7,436
–
341
–
236,625
6,992
14,305
2,169
2,582 111,132
222,222
–
17,601
2,952
117,956
370,215 356,633
80,386
79,057
16,609
11,199 467,210 446,889
1 Derivative assets, considered impaired, net of credit valuation adjustments.
2
3 Comprises undrawn facilities and customer contingent liabilities.
Impaired Available-for-sale debt security where the cumulative mark-to-market loss has been transferred from equity to the Income Statement.
1 Comprises undrawn facilities and customer contingent liabilities.
2 Mainly comprises trade dated assets and accrued interest.
134 ANZ Annual Report 2009
Financial Report 135
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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:
As at 30 September 2009
Liquid assets
Due from other financial
institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and
acceptances1
– Australia
– New Zealand
– Asia Pacific, Europe & America4
Other financial assets2
Credit related commitments3
Consolidated
The Company
1-5
days
$m
6-29
days
$m
30-59
days
$m
60-89
days
$m
>90
days
$m
Total
$m
1-5
days
$m
6-29
days
$m
30-59
days
$m
60-89
days
$m
>90
days
$m
Total
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,478
665
–
–
–
3,376
820
322
–
–
1,110
315
–
–
–
457
187
42
–
–
1,068
365
164
–
–
7,489
2,352
528
–
–
1,478
33
–
–
–
3,376
126
187
–
–
1,110
22
–
–
–
457
9
18
–
–
1,068
9
123
–
–
–
–
–
–
–
–
7,489
199
328
–
–
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. 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.
2,143
4,518
1,425
686
1,597 10,369
1,511
3,689
1,132
484
1,200
8,016
Consolidated
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 and
acceptances1
– Australia
– New Zealand
– Asia Pacific, Europe & America4
Other financial assets2
Credit related commitments3
Consolidated
The Company
1-5
days
$m
6-29
days
$m
30-59
days
$m
60-89
days
$m
>90
days
$m
Total
$m
1-5
days
$m
6-29
days
$m
30-59
days
$m
60-89
days
$m
>90
days
$m
Total
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,078
1,018
–
–
–
4,919
961
240
–
–
1,108
396
–
–
–
–
–
–
–
–
891
171
42
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
775
259
26
–
–
9,771
2,805
308
–
–
2,073
–
–
–
–
4,692
–
138
–
–
3,096
6,120
1,504
1,104
1,060 12,884
2,073
4,830
–
–
–
–
–
976
–
–
–
–
976
–
–
–
–
–
831
–
16
–
–
847
–
–
–
–
–
750
–
8
–
–
–
–
–
–
–
–
9,322
–
162
–
–
758
9,484
Includes Customers’ Liability for Acceptances.
1
2 Other financial assets is a subset of Other Assets that includes trade dated trading assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
4 For Asia Pacific, Europe and America, past due pools comprise 1-29 days (shown above in the 6-29 days band) and 30-89 days (shown above in the 60-89 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.
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances1
– Australia
– New Zealand
– Asia Pacific, Europe & America
Other financial assets2
Credit related commitments3
The Company
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances1
– Australia
– New Zealand
– Asia Pacific, Europe & America
Other financial assets2
Credit related commitments3
Cash and
securities
Real estate
Other
Total value of
collateral
Credit exposure
Unsecured
portion
of credit
exposure
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,238
1,606
76
–
–
6,536
1,765
–
–
–
1,501
320
287
–
–
1,743
388
–
–
–
6,739
1,926
363
–
–
8,279
2,153
–
–
–
7,489
2,352
528
–
–
9,771
2,805
308
–
–
750
426
165
–
–
1,492
652
308
–
–
6,920
8,301
2,108
2,131
9,028 10,432 10,369 12,884
1,341
2,452
Cash and
securities
Real estate
Other
Total value of
collateral
Credit exposure
Unsecured
portion
of credit
exposure
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,238
199
53
–
–
6,535
–
–
–
–
1,501
–
153
–
–
1,393
–
–
–
–
6,739
199
206
–
–
7,928
–
–
–
–
7,489
199
328
–
–
9,322
–
162
–
–
750
–
122
–
–
1,394
–
162
–
–
5,490
6,535
1,654
1,393
7,144
7,928
8,016
9,484
872
1,556
Includes Customers’ Liability for Acceptances.
1
2 Other financial assets is a subset of Other Assets that includes trade dated trading assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
136 ANZ Annual Report 2009
Financial Report 137
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
33: Financial Risk Management (continued)
Consolidated
The Company
Consolidated
Individual provision
balances
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.
Impaired
instruments
Individual provision
balances
Australia
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances1
Other financial assets2
Credit related commitments3
New Zealand
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances1
Other financial assets2
Credit related commitments3
Overseas Markets
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances1
Other financial assets2
Credit related commitments3
Aggregate
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and acceptances1
Other financial assets2
Credit related commitments3
2009
$m
2008
$m
2009
$m
–
–
–
127
–
3,232
–
377
–
–
–
–
–
1,306
–
72
–
–
–
–
–
1,048
–
12
3,736
1,378
1,060
–
–
–
–
–
973
–
26
999
–
–
–
–
–
187
–
–
187
–
–
–
127
–
4,392
–
403
–
–
–
–
–
274
–
5
279
–
–
–
–
15
170
–
–
185
–
–
–
–
15
1,750
–
77
–
–
–
–
–
389
–
2
391
–
–
–
–
–
75
–
–
75
–
–
–
–
–
1,512
–
14
Includes Customers’ Liability for Acceptances.
1
2 Other financial assets is a subset of Other Assets that includes trade dated trading assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
4,922
1,842
1,526
2008
$m
–
–
–
–
–
487
–
29
516
–
–
–
–
–
111
–
–
111
–
–
–
–
–
48
–
–
48
–
–
–
–
–
646
–
29
675
Impaired instruments
2008
$m
2009
$m
–
–
–
127
–
3,210
–
377
–
–
–
–
–
1,201
–
72
2009
$m
–
–
–
–
–
1,026
–
12
3,714
1,273
1,038
–
–
–
–
–
8
–
8
–
–
–
–
–
92
–
–
92
–
–
–
127
–
3,310
–
377
–
–
–
–
–
–
–
–
–
–
–
–
–
15
146
–
–
161
–
–
–
–
15
1,347
–
72
–
–
–
–
–
2
–
–
2
–
–
–
–
–
22
–
–
22
–
–
–
–
–
1,050
–
12
3,814
1,434
1,062
2008
$m
–
–
–
–
–
424
–
29
453
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35
–
–
35
–
–
–
–
–
459
–
29
488
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.
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and
acceptances1
– Australia
– New Zealand
– Asia Pacific, Europe & America
Other financial assets2
Credit related commitments3
–
–
–
–
–
–
–
–
–
5
5
–
–
–
–
–
7
–
–
–
–
7
The Company
Liquid assets
Due from other financial institutions
Trading securities
Derivative financial instruments
Available-for-sale assets
Net loans and advances and
acceptances1
– Australia
– New Zealand
– Asia Pacific, Europe & America
Other financial assets2
Credit related commitments3
–
–
–
–
–
–
–
–
–
5
5
–
–
–
–
–
5
–
–
–
–
5
Cash and securities
Real estate
Other
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
–
–
–
53
–
–
–
–
–
–
–
–
–
74
–
–
–
–
–
–
Total value of
collateral
Credit exposure
2009
$m
–
–
–
127
–
2008
$m
–
–
–
–
–
2009
$m
–
–
–
127
–
2008
$m
–
–
–
–
15
Unsecured
portion of
credit exposure
2009
$m
2008
$m
1,011
400
13
–
9
469
94
–
–
4
1,173
184
99
–
375
343
69
122
–
44
2,184
584
112
–
389
819
163
122
–
48
3,232
973
187
–
403
1,306
274
170
–
77
1,048
389
75
–
14
1,486
567
1,905
578
3,396
1,152
4,922
1,842
1,526
Cash and securities
Real estate
Other
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
–
–
–
53
–
–
–
–
–
–
–
–
–
74
–
–
–
–
–
–
Total value of
collateral
Credit exposure
2009
$m
–
–
–
127
–
2008
$m
–
–
–
–
–
2009
$m
–
–
–
127
–
2008
$m
–
–
–
–
15
Unsecured
portion of
credit exposure
2009
$m
2008
$m
1,011
6
13
–
2
469
–
–
–
4
1,173
–
57
–
358
303
–
111
–
39
2,184
6
70
–
365
777
–
111
–
43
3,210
8
92
–
377
1,201
–
146
–
72
1,026
2
22
–
12
1,085
473
1,662
453
2,752
931
3,814
1,434
1,062
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15
487
111
48
–
29
690
–
–
–
–
15
424
–
35
–
29
503
Includes Customers’ Liability for Acceptances.
1
2 Other financial assets is a subset of Other Assets that includes trade dated trading assets and accrued interest.
3 Credit related commitments comprise undrawn facilities and customer contingent liabilities.
138 ANZ Annual Report 2009
Financial Report 139
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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 and banking book activities.
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.
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 Market Risk Committee
(‘CMRC’) and the Group Asset & Liability Committee (‘GALCO’).
The CMRC, chaired by the Chief Risk Officer, is responsible for the
oversight of market 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 CMRC 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.
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. The VaR exposures do not include foreign exchange translation exposure on the mark-to market for credit
risk on the structured credit derivative as this is not a traded position.
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
Value at risk at 99% confidence
Foreign exchange
Interest rate
Credit spread
Commodity
Diversification benefit
The Company
Value at risk at 97.5% confidence
Foreign exchange
Interest rate
Credit spread
Commodity
Diversification benefit
Value at risk at 99% confidence
Foreign exchange
Interest rate
Credit spread
Commodity
Diversification benefit
30 September 2009
30 September 2008
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
4.6
10.8
3.2
4.3
n/a
13.2
7.0
19.5
5.3
8.0
n/a
25.9
0.9
2.4
1.2
0.6
n/a
3.6
1.3
3.7
1.6
0.8
n/a
4.5
2.0
6.6
1.8
1.4
(4.4)
7.4
3.2
10.6
2.4
2.3
(6.7)
11.8
2.4
2.8
1.2
1.3
(3.6)
4.1
3.2
5.0
1.8
2.0
(6.1)
5.9
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
30 September 2009
30 September 2008
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
3.8
10.6
3.2
4.3
n/a
14.1
6.6
19.3
5.3
8.0
n/a
25.6
0.3
2.0
1.2
0.6
n/a
2.9
0.4
3.1
1.5
0.8
n/a
3.1
1.9
6.4
1.8
1.4
(3.8)
7.7
3.0
10.3
2.4
2.3
(6.0)
12.0
2.4
2.3
1.2
1.3
(4.0)
3.2
3.2
4.2
1.8
2.0
(6.4)
4.8
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
3.5
9.6
2.4
1.2
(7.1)
9.6
4.8
19.0
3.1
1.7
(10.8)
17.8
As at
$m
3.1
9.4
2.4
1.2
(5.9)
10.2
4.5
18.8
3.1
1.7
(11.4)
16.7
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.
140 ANZ Annual Report 2009
Financial Report 141
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
33: Financial Risk Management (continued)
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.
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. NBIs without statistical evidence or justification have
remained at zero duration. Below are aggregate VaR figures covering non-traded interest rate risk.
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.
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.
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.
Consolidated
Value at risk at 97.5% confidence
Australia
New Zealand
Overseas Markets
Diversification benefit
The Company
Value at risk at 97.5% confidence
Australia
Overseas Markets
Diversification benefit
30 September 2009
30 September 2008
As at
$m
18.3
9.3
6.4
(8.0)
26.0
As at
$m
18.3
6.2
(1.0)
23.5
high for
year
$m
low for
year
$m
Average for
year
$m
20.7
9.3
7.9
n/a
27.1
12.5
2.8
3.3
n/a
13.8
17.6
6.0
6.0
(5.7)
23.9
30 September 2009
high for
year
$m
low for
year
$m
Average for
year
$m
20.7
7.5
n/a
24.5
12.5
3.1
n/a
13.5
17.6
5.8
(2.8)
20.6
As at
$m
11.7
3.4
3.1
(2.8)
15.4
As at
$m
11.7
2.6
(2.2)
12.1
high for
year
$m
low for
year
$m
Average for
year
$m
11.7
3.4
3.6
n/a
15.4
5.6
1.8
1.7
n/a
7.9
8.3
2.7
2.7
(2.9)
10.8
30 September 2008
high for
year
$m
low for
year
$m
Average for
year
$m
11.7
3.0
n/a
12.3
5.6
1.4
n/a
6.6
8.3
2.2
(1.2)
9.3
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.
Impact of 1% Rate Shock
As at 30 September
Maximum exposure
Minimum exposure
Average exposure (in absolute terms)
Consolidated
The Company
2009
$m
2008
$m
2009
$m
2008
$m
0.10%
1.03%
0.10%
0.55%
0.94%
0.94%
(0.55%)
0.47%
0.51%
1.49%
0.51%
0.99%
1.62%
1.62%
(0.74%)
0.77%
Visa Inc.
Sacombank
Energy Infrastructure Trust
Other equity holdings
Impact on equity of 10% variation in value
Consolidated
The Company
2009
$m
258
114
43
44
459
46
2008
$m
243
92
46
65
446
45
2009
$m
202
114
43
44
403
40
2008
$m
190
92
46
65
393
39
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 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 2009 and 2008 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.
142 ANZ Annual Report 2009
Financial Report 143
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
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.
‘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.
‘Survival horizons’: The Global financial crisis has highlighted
the importance of differentiating between stressed and normal
market conditions in a name-specific crisis, and the different
behaviour that offshore and domestic wholesale funding markets
can exhibit during market stress events. As a result, the Group has
enhanced its liquidity risk scenario modelling, to supplement APRA’s
statutory requirements.
During the 2009 financial year, the Group has linked its liquidity risk
appetite to defined liquidity ‘survival horizons’ (i.e. the time period
under which ANZ must maintain a positive cashflow position under
a specific scenario or stress). Under these scenarios, customer and/
or wholesale balance sheet asset/liability flows are stressed. The
following stressed scenarios are modelled:
Extreme Short Term Crisis Scenario (ESTC): A name-specific stress
during a period of market stress.
Short Term Crisis Scenario (NSTC): A name-specific stress during
a period of normal markets conditions.
Global Funding Market Disruption (GFMD): Stressed global
wholesale funding markets leading to a closure of domestic
and offshore markets.
Offshore Funding Market Disruption (OFMD): Stressed global
wholesale funding markets leading to a closure of offshore
markets only.
Each of ANZ’s operations is responsible for ensuring its compliance
with all scenarios that are required to be modelled. Additionally, we
measure, monitor and manage all modelled liquidity scenarios on an
aggregated Group-wide level.
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 is closely monitored
by the Group.
The Group’s liquidity and funding risks are governed by a detailed
policy framework which is approved by the Board of Directors. In
response to the impact of the global financial crisis, the framework
has been reviewed and updated.
The core objective of the framework is to ensure that the Group
has sufficient liquidity to meet obligations as they fall due without
incurring unacceptable losses.
ANZ has a low appetite for liquidity risk, as determined by the Board.
Key principles of ANZ’s approach to liquidity risk management include:
Maintaining the ability to meet all payment obligations in the
immediate term.
Ensuring that the Group has the ability to meet ‘survival horizons’
under a range of ANZ-specific and general market liquidity stress
scenarios, at the site and Group-wide level, to meet cash flow
obligations over the short to medium term.
Maintaining strength in the Group’s balance sheet structure to
ensure long term resilience in the liquidity and funding risk profile.
Limiting the potential earnings at risk implications associated with
unexpected increases in funding costs or the liquidation of assets
under stress.
Ensuring the liquidity management framework is compatible
with local regulatory requirements.
Preparation of daily liquidity reports and scenario analysis,
quantifying the Group’s positions.
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.
Management of liquidity and funding risks are overseen by the
Group Asset and Liability Committee (GALCO).
Supervision and Regulation
APRA supervises liquidity risk via its Prudential Standard APS 210 –
Liquidity (last published January 2008) and has adopted guidelines
based on the ‘Basel Committee’ “Sound Practices for Managing
Liquidity in Banking Organisations”.
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.
33: Financial Risk Management (continued)
Group Funding Composition
The Group actively uses balance sheet disciplines to prudently manage funding requirements and maintain balance sheet stability. Also, the
Group employs funding metrics to ensure that an appropriate proportion of the Group’s assets are funded by stable funding sources including
core customer deposits, longer-dated wholesale debt (with a remaining term exceeding one year), and equity. This approach recognises that
long-term wholesale debt and other core customer deposits have favourable liquidity characteristics.
ANZ’s funding composition strengthened further as a result of continued growth in customer deposits and a stable volume of term funding.
Customer deposits and other funding liabilities increased by 12% to $242.4 billion (55% of total funding), from $215.6 billion (50% of total
funding) at 30 September 2008. As a result, the Group’s proportional reliance on short term wholesale funding decreased to 17% from 22%.
The table below outlines the Group’s funding composition.
Funding Composition
Customer deposits and other liabilities1
Australia
Asia Pacific, Europe & America
New Zealand
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’ equity5
Total funding maturity
Short term wholesale funding
Liability for acceptances
Long term wholesale funding4
– less than 1 year residual maturity
– greater than 1 year residual maturity
Total customer deposits and other liabilities (funding)
Shareholders’ equity and hybrid debt5
Total funding and shareholders’ equity5
Consolidated
2009
$m
2008
$m
153,481
30,487
49,173
233,141
132,665
22,530
49,534
204,729
9,297
10,870
242,438
215,599
57,260
13,429
44,711
14,227
13,762
19,924
1,572
67,323
14,266
52,346
22,422
15,297
20,092
(3,532)
164,885
188,214
31,558
25,681
14%
3%
5%
15%
55%
8%
18%
4%
7%
14%
50%
7%
100%
100%
Includes term deposits, other deposits excluding Collateralised Loan Obligation and securitisation deposits.
Includes interest accruals, payables and other liabilities, provisions and net tax provisions.
Includes net derivative balances, special purpose vehicles, other borrowings and preference share capital Euro hybrids.
1
2
3
4 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.
5 Shareholders’ equity excludes preference share capital.
Wholesale Funding
The Group’s global wholesale funding strategy is designed to deliver a sustainable portfolio of wholesale funds that balances cost efficiency
against prudent duration 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.
During 2009, ANZ maintained the required access to all major wholesale funding markets to meet its borrowing requirements in full. Short-term
wholesale funding markets continue to function effectively, both locally and offshore.
ANZ also undertook the following actions to improve its funding capabilities, specifically:
Established a licensed banking branch in New Zealand in January 2009. The branch structure expands the range of funding options available
to our New Zealand business.
Transitioned Esanda Finance Corporation Limited (Esanda) from a wholly-owned subsidiary towards a division of ANZ, including the launch
of Esanda Term Deposits.
144 ANZ Annual Report 2009
Financial Report 145
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
During 2009, the Group’s wholesale debt issuance program was supported by debt investor meetings held in Australia, New Zealand, the
United States, Canada, United Kingdom, France, Germany, the Netherlands, hong Kong, China, Japan, South-East Asia and the Middle East.
The Australian Government Guarantee Scheme has also enabled ANZ to expand its debt investor base to a broader range of investors,
including central banks, monetary authorities, sovereign wealth fund managers and insurance companies.
The Group 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 Capacity and Debt Issuance Planning
Group Treasury provides wholesale funding plans to senior management on a regular basis (via the Group Asset and Liability Committee).
These plans address targeted funding volumes, markets, investors, tenors and currencies for senior, subordinated and hybrid transactions.
Plans are supplemented with a monthly forecasting process which reviews the funding position to-date in light of market conditions and
balance sheet requirements.
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 during 2009 the Group raised $25.8 billion of new term funding (greater than one year at the end of the financial year). The
weighted average tenor of new term debt issuance was 3.9 years. The marginal cost of term finding has declined from the peaks established
in early calendar 2009, however funding costs remain high by historical standards. The weighted average cost of term debt issuance increased
by 69 basis points in 2009 (including the cost of the Government Guarantee) as a result of market conditions.
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 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 a source of cash in stressed conditions. All assets held in
this portfolio are securities eligible for repurchase under agreements with the applicable central bank (i.e. ‘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 under each of the Group’s various stress scenarios.
At 30 September 2009 the volume of eligible securities held, post any repurchase (i.e. repo) discounts applied by the applicable central
bank, was $60.2 billion.
To further strengthen the Bank’s balance sheet, the Group continues to maintain strong coverage ratios of Liquidity Portfolio to maturing
wholesale offshore debt maturities. Liquidity portfolio levels provide coverage of offshore wholesale funding maturities for at least one year.
The Liquidity Portfolio is well diversified by counterparty, currency, and tenor. Under the liquidity policy framework securities purchased
must be of a similar or better credit quality to ANZ’s external long-term or short-term credit ratings and continue to be repo eligible. Currently
securities issued by approximately 84 separate counterparties – comprising bank, government and agency issuers – are held in the portfolio.
Supplementing its liquidity position, the Group holds additional cash and liquid asset balances. Our Markets business also holds secondary
sources of liquidity in the form of liquid instruments in its trading portfolios. These other assets are not included in the eligible securities held
in the prime Liquidity Portfolio outlined below.
Eligible securities (Market values1)
Australia
New Zealand
United States
United Kingdom
Asia
Internal RMBS (Australia)
Internal RMBS (New Zealand)
Total
1 Market value is post the repo discount applied by the applicable central bank.
2009
$m
18,694
8,771
1,301
2,939
1,984
24,508
1,954
60,151
2008
$m
12,899
6,620
2,739
4,157
–
8,305
–
34,720
33: Financial Risk Management (continued)
Counterparty credit ratings
long term counterparty Credit Rating1
AAA
AA+
AA
AA-
A+
A
Total
Market
Value
$m
43,827
3,043
10,849
1,867
264
301
60,151
No. of
counter-
parties
51
4
11
9
5
4
84
1 Where available, based on Standard & Poor’s long-term credit ratings.
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 level. To align with the enhanced liquidity scenario analysis framework, crisis management
strategies are assessed against the Group’s crisis stress scenarios.
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;
Crisis Declaration Assessment processes, and related escalation triggers set against early warning 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 2009:
Consolidated at 30 September 2009
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 capital3,4
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)6
– funding
Receive leg (-ve is an inflow)
Pay leg
– other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
less than
3 months1
$m
18,541
23,474
77,069
111,314
10,174
8,947
1,718
2,028
13,574
7,274
179
23,344
3 to 12
months
$m
1,428
9,928
29,395
–
–
5,400
1,356
–
188
7,999
2,787
–
1 to
5 years
$m
37
13,552
4,062
–
–
–
752
–
–
44,075
9,940
–
(19,623)
21,242
(22,830)
24,048
(90,946)
96,489
(1,887)
2,194
(4,485)
5,218
(9,499)
9,875
After
5 years
$m
–
–
30
–
–
–
–
–
–
1,699
1,551
–
(6,388)
6,499
(2,339)
2,263
No
maturity
specified2
$m
Total
$m
–
20,006
–
–
–
–
–
–
–
–
–
1,026
–
46,954
110,556
111,314
10,174
14,347
3,826
2,028
13,762
61,047
15,483
23,344
–
–
–
–
(139,787)
148,278
(18,210)
19,550
Includes at call instruments.
Includes perpetual investments brought in at face value only.
1
2
3 Any callable wholesale debt instruments have been included at their next call date.
4
5 The full mark-to-market of derivative liabilities held for trading purposes has been included in the ’less than 3 months’ category.
6 The undiscounted cash flows for all derivative instruments used for the purposes of balance sheet management have been included based on the contractual maturity of the instrument.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
146 ANZ Annual Report 2009
Financial Report 147
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
33: Financial Risk Management (continued)
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 capital3,4
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)6
– funding
Receive leg (-ve is an inflow)
Pay leg
– other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
less than
3 months1
$m
17,661
29,616
66,817
98,566
9,367
15,419
4,836
2,031
14,439
8,120
322
27,126
3 to 12
months
$m
2,295
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
–
(20,210)
20,117
(30,268)
31,357
(79,793)
83,327
(3,563)
3,481
(5,608)
5,290
(7,994)
8,138
After
5 years
$m
–
109
111
–
–
–
–
–
–
2,331
2,997
–
(4,055)
4,457
(489)
455
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
–
–
–
–
(134,326)
139,258
(17,654)
17,364
Includes at call instruments.
Includes perpetual investments brought in at face value only.
1
2
3 Any callable wholesale debt instruments have been included at their next call date.
4
5 The full mark-to-market of derivative liabilities held for trading purposes has been included in the ’less than 3 months’ category.
6 The undiscounted cash flows for all derivative instruments used for the purposes of balance sheet management have been included based on the contractual maturity of the instrument.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
The Company at 30 September 2009
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
Liability for acceptances
Bonds and notes3
Loan capital3,4
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)6
– funding
Receive leg (-ve is an inflow)
Pay leg
– other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
less than
3 months1
$m
15,726
20,096
61,132
92,995
5,800
6,563
–
13,550
5,452
164
24,388
3 to 12
months
$m
1,241
9,602
17,399
–
–
1,720
–
188
5,979
2,741
–
1 to
5 years
$m
19
13,552
1,922
–
–
–
–
–
35,992
8,991
–
(13,215)
14,519
(14,816)
15,814
(57,583)
62,560
(1,293)
1,308
(3,276)
3,463
(7,472)
7,277
After
5 years
$m
–
–
29
–
–
–
–
–
1,412
1,551
–
(5,511)
5,653
(2,274)
2,175
No
maturity
specified2
$m
Total
$m
–
16,986
–
–
–
–
–
–
–
–
341
–
–
–
–
–
43,250
80,482
92,995
5,800
8,283
–
13,738
48,835
13,788
24,388
(91,125)
98,546
(14,315)
14,223
Includes at call instruments.
Includes perpetual investments brought in at face value only.
1
2
3 Any callable wholesale debt instruments have been included at their next call date.
4
5 The full mark-to-market of derivative liabilities held for trading purposes has been included in the ’less than 3 months’ category.
6 The undiscounted cash flows for all derivative instruments used for the purposes of balance sheet management have been included based on the contractual maturity of the instrument.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
33: Financial Risk Management (continued)
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
Liability for acceptances
Bonds and notes3
Loan capital3,4
Derivative liabilities (trading)5
Derivative assets and liabilities (balance sheet management)6
– funding
Receive leg (-ve is an inflow)
Pay leg
– other balance sheet management
Receive leg (-ve is an inflow)
Pay leg
less than
3 months1
$m
15,859
25,972
47,921
79,089
5,322
6,790
9
14,404
6,338
305
28,168
3 to 12
months
$m
2,279
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
–
(10,343)
10,258
(17,197)
18,370
(56,471)
59,352
(2,341)
2,269
(3,145)
2,900
(4,892)
4,929
After
5 years
$m
–
109
110
–
–
–
–
–
1,823
2,997
–
(3,722)
4,141
(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
Includes at call instruments.
Includes perpetual investments brought in at face value only.
1
2
3 Any callable wholesale debt instruments have been included at their next call date.
4
5 The full mark-to-market of derivative liabilities held for trading purposes has been included in the ’less than 3 months’ category.
6 The undiscounted cash flows for all derivative instruments used for the purposes of balance sheet management have been included based on the contractual maturity of the instrument.
Includes instruments that may be settled in cash or in equity, at the option of the Company.
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 2009
Undrawn facilities
Issued guarantees
30 September 2008
Undrawn facilities
Issued guarantees
less than
1 year
$m
106,644
25,218
Consolidated
More than
1 year
$m
Total
$m
–
–
106,644
25,218
less than
1 year
$m
88,006
23,503
The Company
More than
1 year
$m
–
–
Total
$m
88,006
23,503
less than
1 year
$m
111,265
30,006
Consolidated
More than
1 year
$m
The Company
Total
$m
less than
1 year
$m
More than
1 year
$m
–
–
111,265
30,006
90,026
28,037
–
–
Total
$m
90,026
28,037
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.
148 ANZ Annual Report 2009
Financial Report 149
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
In line with industry practice, ANZ obtains insurance cover from
third party and captive providers to cover those operational risks
where cost-effective premiums can be obtained. In conducting
their business, business units are advised to act as if uninsured and
not to use insurance as a guaranteed mitigation for operational risk.
Business disruption is a critical risk to a bank’s ability to operate,
so ANZ has comprehensive business continuity, recovery and
crisis management plans. The intention of the business continuity
and recovery plans is to ensure critical business functions can be
maintained, or restored in a timely fashion, in the event of material
disruptions arising from internal or external events.
Group Operational Risk is responsible for maintaining ANZ’s
Advanced Measurement Approach (AMA) for operational risk
regulatory capital calculations. ANZ uses a scenario analysis based
methodology to assess exposure to unexpected operational risk
events and uses probability distributions and monte carlo simulations
to model and calculate its operational risk regulatory capital (ORRC).
This methodology incorporates the use of business risk profiles
which consider the current business environment and internal
control factors over a twelve month time horizon.
33: Financial Risk Management (continued)
OPERATIONAL RISK MANAGEMENT
Within ANZ, operational risk is defined as the risk of loss resulting
from inadequate or failed internal processes, people and systems
or from external events. This definition includes legal risk, and the
risk of reputational loss or damage arising from inadequate or failed
internal processes, people and systems, but excludes strategic risk.
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:
Approve Operational Risk and Compliance policies.
Approve ANZ’s Group Compliance Framework.
Endorse ANZ’s Operational Risk Framework for approval
by the Risk Committee of the Board.
Monitoring the state of operational risk management and
instigating any necessary corrective actions;
Review all material actual, potential or near miss risk events; and
Monitor associated treatment plans.
Membership of OREC comprises senior executives and OREC
is chaired by the Chief Risk Officer.
Business unit staff and line management have first line accountability
for the day-to-day management of operational risk. This includes
implementation of the operational risk framework and involvement
in decision making processes concerning all material operational risk
matters. Divisional risk governance functions provide oversight of
operational risk undertaken in the business units.
Divisional Risk Committees and Business Unit Risk Forums manage
and maintain oversight of operational risks supported by thresholds
for escalation and monitoring. Group Operational Risk are responsible
for exercising governance over operational risk through the
management of the operational risk framework, policy development,
framework assurance, operational risk measurement and capital
allocation, fraud strategy and reporting of operational risk issues
to executive committees.
ANZ’s Operational Risk Framework outlines the approach to
managing operational risk and specifically covers the minimum
requirements that divisions/business units must undertake in the
management of operational risk. ANZ’s Operational Risk Framework
is supported by specific policies, guidelines and templates with the
effectiveness of the framework assessed through a series of assurance
reviews and related processes. This is supported by an independent
review programme by Internal Audit.
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).
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 2009
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 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
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
–
–
–
–
–
190
–
–
190
$m
25,317
4,985
–
–
–
331,817
13,762
3,265
379,146
held for
trading
$m
–
–
30,991
35,681
–
–
–
–
66,672
Sub-total
$m
–
–
30,991
35,681
–
190
–
–
66,862
$m
–
–
–
1,723
–
–
–
–
1,723
$m
–
–
–
–
16,575
–
–
–
16,575
$m
25,317
4,985
30,991
37,404
16,575
332,007
13,762
3,265
464,306
$m
25,317
4,985
30,991
37,404
16,575
331,991
13,762
3,265
464,290
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
$m
25,030
9,862
–
–
–
334,306
15,297
4,273
388,768
held for
trading
$m
–
–
15,177
35,237
–
–
–
–
50,414
Sub-total
$m
–
–
15,177
35,237
–
248
–
–
50,662
$m
–
–
–
1,704
–
–
–
–
1,704
$m
–
–
–
–
17,480
–
–
–
17,480
$m
25,030
9,862
15,177
36,941
17,480
334,554
15,297
4,273
458,614
$m
25,030
9,862
15,177
36,941
17,480
333,746
15,297
4,273
457,806
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.
150 ANZ Annual Report 2009
Financial Report 151
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL ASSETS (continued)
FINANCIAL LIABILITIES
The Company 30 September 2009
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 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
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
–
–
–
–
–
190
–
–
190
$m
20,199
3,236
–
–
–
255,818
13,739
2,169
295,161
held for
trading
$m
–
–
27,410
31,631
–
–
–
–
59,041
Sub-total
$m
–
–
27,410
31,631
–
190
–
–
59,231
$m
–
–
–
1,370
–
–
–
–
1,370
$m
–
–
–
–
13,554
–
–
–
13,554
$m
20,199
3,236
27,410
33,001
13,554
256,008
13,739
2,169
369,316
$m
20,199
3,236
27,410
33,001
13,554
256,210
13,739
2,169
369,518
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
$m
18,081
8,573
–
–
–
235,876
15,262
2,952
280,744
held for
trading
$m
–
–
12,846
32,042
–
–
–
–
44,888
Sub-total
$m
–
–
12,846
32,042
–
248
–
–
45,136
$m
–
–
–
1,256
–
–
–
–
1,256
$m
–
–
–
–
15,103
–
–
–
15,103
$m
18,081
8,573
12,846
33,298
15,103
236,124
15,262
2,952
342,239
$m
18,081
8,573
12,846
33,298
15,103
235,671
15,262
2,952
341,786
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.
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.
Consolidated 30 September 2009
Due from other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
Consolidated 30 September 2008
Due from other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
The Company 30 September 2009
Due from other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
At amortised
cost
At fair value through profit or loss
hedging
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
6,065
–
8,933
1,926
–
16,924
$m
19,924
–
288,305
13,762
48,327
11,503
7,215
389,036
held for
trading
$m
–
34,706
–
–
–
–
–
34,706
Sub-total
$m
–
34,706
6,065
–
8,933
1,926
–
51,630
$m
–
1,810
–
–
–
–
–
1,810
$m
19,924
36,516
294,370
13,762
57,260
13,429
7,215
442,476
$m
19,924
36,516
294,593
13,762
57,493
13,179
7,215
442,682
At amortised
cost
At fair value through profit or loss
hedging
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
10,868
–
6,396
2,242
–
19,506
$m
20,092
–
273,098
15,297
60,927
12,024
8,904
390,342
held for
trading
$m
–
30,418
–
–
–
–
–
30,418
Sub-total
$m
–
30,418
10,868
–
6,396
2,242
–
49,924
$m
–
1,509
–
–
–
–
–
1,509
$m
20,092
31,927
283,966
15,297
67,323
14,266
8,904
441,775
$m
20,092
31,927
284,110
15,297
66,794
14,013
8,904
441,137
At amortised
cost
At fair value through profit or loss
hedging
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
–
–
8,933
1,926
–
10,859
$m
16,974
–
227,300
13,739
37,100
9,959
5,786
310,858
held for
trading
$m
–
32,305
–
–
–
–
–
32,305
Sub-total
$m
–
32,305
–
–
8,933
1,926
–
43,164
$m
–
863
–
–
–
–
–
863
$m
16,974
33,168
227,300
13,739
46,033
11,885
5,786
354,885
$m
16,974
33,168
227,478
13,739
46,141
11,701
5,786
354,987
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.
152 ANZ Annual Report 2009
Financial Report 153
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
34: Fair Value of Financial Assets and Financial Liabilities (continued)
FINANCIAL LIABILITIES (continued)
The Company 30 September 2008
Due from other financial institutions
Derivative financial instruments1
Deposits and other borrowings
Liability for acceptances
Bonds and notes2
Loan capital2
Payables and other liabilities
At amortised
cost
At fair value through profit or loss
hedging
Total
Total
Carrying amount
Fair value
Designated
on initial
recognition
$m
–
–
–
–
6,396
2,242
–
8,638
$m
18,001
–
203,328
15,262
45,675
10,534
6,671
299,471
held for
trading
$m
–
30,585
–
–
–
–
–
30,585
Sub-total
$m
–
30,585
–
–
6,396
2,242
–
39,223
$m
–
870
–
–
–
–
–
870
$m
18,001
31,455
203,328
15,262
52,071
12,776
6,671
339,564
$m
18,001
31,455
203,413
15,262
51,742
12,520
6,671
339,064
The tables below provide 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. This allocation is based on the categorisation of the lowest level input into a valuation model or a valuation
component that is significant to the reported fair value of the financial instrument. In this regard, the significance of an input is assessed
against the reported fair value of the financial instrument and considers various factors specific to the financial instrument. The “quoted
market price” category also includes financial instruments valued using quoted yield where it is available for a specific debt security. In
the prior year, these were categorised as instruments valued using a valuation technique. Comparatives have been adjusted to conform
to the current classification.
The methods used in valuing different classes of financial assets or liabilities are described in section (i) on pages 151 to 154. There have
been no substantial changes in the valuation techniques applied to different classes of financial instruments. ANZ continuously monitors the
relevance of inputs used and calibrates its valuation models where there is evidence that changes are required to ensure that the resulting
valuations remain appropriate.
In November 2008, ANZ transferred certain mortgage backed securities out of available-for-sale financial assets into loans and advances.
As at September 2008 these assets were valued using either quoted market prices or models with observable inputs.
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 balance
sheet at fair value.
The best evidence of fair value is a quoted price in an active market.
Accordingly, wherever possible fair value is based on the quoted
market price of the financial instrument.
In the event that there is no quoted market price for the instrument,
fair value is based on present value estimates or other market accepted
valuation techniques. The valuation models incorporate the impact
of bid/ask spread, counterparty credit spreads and other factors that
would influence the fair value determined by a market participant.
The analysis presented in this section discloses the financial
instruments that are valued using a valuation technique other
than a quoted marked price. The majority of valuation techniques
employ only observable market data. however, for certain financial
instruments the valuation technique may employ some data
(valuation inputs or components) which is not readily observable in
the current market. In these cases valuation inputs (or components
of the overall value) are derived and extrapolated from other relevant
market data and tested against historic transactions and observed
market trends. Valuations using one or more non-observable data
inputs require professional judgement.
ANZ has a control framework that ensures that the fair value is either
determined or validated by a function independent of the party that
undertakes the transaction.
Where quoted market prices are used, independent price
determination or validation is obtained. 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.
Consolidated
Financial assets
Trading securities
Derivative financial instruments
Available-for-sale financial assets
Loans and advances (designated at fair value)
Financial liabilities
Derivative financial instruments
Deposits and other borrowings (designated
at fair value)
Bonds and notes (designated at fair value)
Loan capital (designated at fair value)
The Company
Financial assets
Trading securities
Derivative financial instruments
Available-for-sale financial assets
Loans and advances (designated at fair value)
Financial liabilities
Derivative financial instruments
Bonds and notes (designated at fair value)
Loan capital (designated at fair value)
Valuation technique
Quoted market price
Using observable inputs
2009
$m
2008
$m
2009
$m
2008
$m
14,130
1,862
12,930
–
28,922
4,386
2,428
11,002
–
17,816
16,713
34,797
2,764
190
54,464
10,642
33,276
4,486
248
48,652
With significant
non-observable inputs
2009
$m
148
745
881
–
1,774
2008
$m
149
1,237
1,992
–
3,378
Total
2009
$m
2008
$m
30,991
37,404
16,575
190
85,160
15,177
36,941
17,480
248
69,846
1,854
2,032
33,608
28,102
1,054
1,793
36,516
31,927
–
–
–
–
–
–
6,065
8,933
1,926
1,854
2,032
50,532
10,868
6,396
2,242
47,608
–
–
–
–
–
–
6,065
8,933
1,926
1,054
1,793
53,440
10,868
6,396
2,242
51,433
Valuation technique
Quoted market price
Using observable inputs
2009
$m
2008
$m
2009
$m
2008
$m
12,933
1,808
11,175
–
25,916
1,767
–
–
1,767
3,720
2,356
10,912
–
16,988
2,105
–
–
2,105
14,329
30,448
1,763
190
46,730
30,347
8,933
1,926
41,206
8,977
29,705
3,267
248
42,197
27,557
6,396
2,242
36,195
With significant
non-observable inputs
2009
$m
148
745
616
–
1,509
1,054
–
–
1,054
2008
$m
149
1,237
924
–
2,310
1,793
–
–
1,793
Total
2009
$m
2008
$m
27,410
33,001
13,554
190
74,155
33,168
8,933
1,926
44,027
12,846
33,298
15,103
248
61,495
31,455
6,396
2,242
40,093
154 ANZ Annual Report 2009
Financial Report 155
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
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
ChANGES IN FAIR VALUE AND MOVEMENTS IN AND OUT
The following table presents the composition of the financial instruments remeasured at fair value with significant non-observable inputs.
Consolidated
Asset backed securities
Illiquid corporate bonds and loans
Structured credit products
Other derivatives
Total
The Company
Asset backed securities
Illiquid corporate bonds and loans
Structured credit products
Other derivatives
Total
Trading securities
Derivatives
Available-for-sale
Derivatives
Financial assets
Financial liabilities
2009
$m
148
–
–
–
148
148
–
–
–
148
2008
$m
149
–
–
–
149
149
–
–
149
2009
$m
–
–
704
41
745
–
–
704
41
745
2008
$m
–
–
1,212
25
1,237
–
–
1,212
25
1,237
2009
$m
103
778
–
–
881
–
616
–
–
616
2008
$m
967
1,025
–
–
1,992
393
531
–
–
924
2009
$m
–
–
1,019
35
1,054
–
–
1,019
35
1,054
2008
$m
–
–
1,704
89
1,793
–
–
1,704
89
1,793
Asset backed securities and illiquid corporate bonds comprise illiquid bonds where the effect on fair value of credit risk cannot be directly or
indirectly observed in the market, and include long dated Australian CPI indexed bonds.
Structured credit products comprise the structured credit intermediation trades that ANZ entered into from 2004 to 2007 whereby ANZ sold
protection using credit default swaps over certain structures, then to mitigate risk purchased protection via credit default swaps from eight
US financial guarantors over the same trades. The underlying structures involve synthetic collateralised debt obligations, portfolios of external
collateralised loan obligations or specific bonds/floating rate notes. These trades are valued using complex models with certain inputs relating
to the reference assets and derivative counterparties not observable in the market.
Other derivative financial instruments comprise long dated instruments, predominantly relating to soft commodities, which extend significantly
beyond the period for which market data used to derive the fair value is readily available.
The following table details movements in the balance of these financial assets and liabilities. Trading derivatives are categorised on a portfolio
basis, and classified as either financial assets or financial liabilities based on whether the closing balance is a gain or a loss. This could be different
to the opening balance.
Consolidated
Opening balance
New purchases and issues
Disposals/(sales) and cash settlements
Transfers:
Transfers into the category
Transfers out of the category
Fair value gain/(loss) recorded in the income statement
Fair value gain/(loss) recognised in equity
Closing balance
The Company
Opening balance
New purchases and issues
Disposals/(sales) and cash settlements
Transfers:
Transfers into the category
Transfers out of the category
Fair value gain/(loss) recorded in the income statement
Fair value gain/(loss) recognised in equity
Closing balance
Financial
assets
Derivatives
Available
-for-sale
Financial
liabilities
Derivatives
2009
$m
1,237
7
(39)
2
(3)
(459)
–
745
1,237
7
(39)
2
(3)
(459)
–
745
2009
$m
1,992
–
(1,032)
–
(13)
(28)
(38)
881
924
308
(541)
–
(13)
(24)
(38)
616
2009
$m
(1,793)
(4)
(56)
(19)
–
818
–
(1,054)
(1,793)
(4)
(56)
(19)
–
818
–
(1,054)
Trading
securities
2009
$m
149
32
(13)
–
–
(20)
–
148
149
32
(13)
–
–
(20)
–
148
SENSITIVITY TO DATA INPUTS
Where valuation techniques use assumptions derived from significant non-observable market inputs, changing these assumptions change the
resultant estimate of fair value. The majority of these transactions are “back-to-back” in nature where ANZ either acts as a financial intermediary,
or ANZ hedges market risks at inception. In these circumstances, changes in the assumptions generally have minimal impact on the income
statement, with the exception of the structured credit intermediation trades that create significant exposure to market risk and/or credit risk.
Principal inputs used in the determination of fair value of financial instruments included in this group include data inputs such as counterparty
credit spreads, market-quoted CDS prices, recovery rates, implied default probabilities, market-quoted credit index tranche prices and
correlation curves and other inputs, some of which may not be directly observable in the market. For both the Group and the Company,
the potential effect of changing prevailing assumptions to reasonably possible alternative assumptions for valuing those financial instruments
could result in an increase of $37 million (2008: $73 million) or a decrease of $27 million (2008: $69 million) in net derivative financial
instruments as at 30 September 2009. 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.
DEFERRED FAIR VALUE GAINS AND LOSSES
Where the fair value of a financial instrument is determined using non-observable data that has a significant impact on the valuation
of the instrument, any difference between the transaction price and the amount determined based on the valuation technique arising
on initial recognition of the financial instrument (day one gain or loss) is deferred on the balance sheet. Subsequently, 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 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 the 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, including exchange differences
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
5
–
(2)
3
–
5
–
5
5
–
(2)
3
–
5
–
5
(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 $190 million (2008: $248 million). Of this, $86 million
(2008: $119 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
$5 million (2008: $6 million). The amount recognised in the income statement attributable to changes in credit risk was a gain of $1 million
(2008: $6 million loss).
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.
156 ANZ Annual Report 2009
Financial Report 157
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
34: Fair Value of Financial Assets and Financial Liabilities (continued)
36: Segment Analysis
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.
(i) Description of segments
During the year, the Group moved to a new business model and organisational structure with the creation of three segments based on the
geographic regions in which the Group operates (Australia, New Zealand and the combined Asia, Pacific, Europe & America). Each geography
focuses primarily on four customer based divisions being, Retail, Commercial, Wealth and Institutional. The Institutional division is also managed
on a global basis.
The segments and product and services categories as reported below are consistent with internal reporting provided to the chief operating
decision maker, being the Chief Executive Officer.
Consolidated
Carrying amount
Amount at 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
The Company
Carrying amount
Amount at 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
Deposits and other
borrowing
2009
$m
6,065
2008
$m
10,868
Bonds and notes
loan capital
2009
$m
8,933
2008
$m
6,396
2009
$m
1,926
2008
$m
2,242
(6)
(2)
2
–
(88)
92
(148)
2
–
(2)
(2)
(166)
242
76
(31)
(135)
(166)
(47)
(12)
(59)
(7)
12
(59)
(47)
Deposits and other
borrowing
2009
$m
2008
$m
–
–
–
–
–
–
–
–
–
–
Bonds and notes
loan capital
2009
$m
8,933
2008
$m
6,396
2009
$m
1,926
2008
$m
2,242
92
(148)
2
(7)
(166)
242
76
(31)
(135)
(166)
(47)
(12)
(59)
12
(59)
(47)
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).
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
2009
2008
Due within
one year
$m
Greater than
one year
$m
4,759
12,749
77,150
13,762
19,889
277,889
13,762
11,317
400
226
3,826
254,857
–
35
16,481
–
45,943
13,029
Total
$m
4,985
16,575
332,007
13,762
19,924
294,370
13,762
57,260
13,429
Due within
one year
$m
Greater than
one year
$m
9,230
14,407
77,626
15,297
19,615
267,333
15,297
16,198
12
632
3,073
256,928
–
477
16,633
–
51,125
14,254
Total
$m
9,862
17,480
334,554
15,297
20,092
283,966
15,297
67,323
14,266
The primary sources of external revenue across all business units are interest, fee income and trading income.
As the composition of segments was amended during the financial year, September 2008 comparatives have been restated for consistency.
(ii) Transactions between segments
Costs are allocated between business units across segments within ANZ for management reporting comparative purposes on an arms length basis.
Consolidated
External interest income
External interest expense
Adjustment for intersegment interest
Net interest income
Other external operating income
Share of net profit/(loss) of equity
accounted investments
Segment revenue
Other external expenses
Net intersegment expenses
Operating expenses
Provision for credit impairment
Segment result
Income tax expense
Minority interests
Profit after income tax attributed to
shareholders of the company
Acquisition of plant & equipment, intangibles
and other non-current assets
Non-Cash Expenses
Depreciation and amortisation
Equity-settled share-based payment expenses
Provision for credit impairment
Credit risk on derivatives
Provisions for employee entitlements
Provisions for restructuring
Financial Position
Total external assets1
Shares in associates and joint venture companies
Total external liabilities2
Goodwill
Intangibles
1 Excludes deferred tax assets.
2 Excludes deferred tax liabilities.
Australia
New Zealand
Asia Pacific,
Europe & America
Total
2009
$m
18,409
(11,653)
329
7,085
2,061
76
9,222
(4,161)
(12)
(4,173)
(2,008)
3,041
(955)
(2)
2008
$m
22,422
(17,152)
404
5,674
2,488
123
8,285
(3,950)
15
(3,935)
(1,487)
2,863
(754)
(2)
2,084
2,107
611
460
(285)
(74)
(2,008)
(129)
(50)
(100)
(265)
(64)
(1,487)
(717)
(69)
(149)
2009
$m
6,106
(3,832)
(397)
1,877
540
11
2,428
(1,130)
(73)
(1,203)
(722)
503
(344)
–
159
77
(40)
(14)
(722)
(6)
(59)
(20)
2008
$m
8,171
(6,032)
(437)
1,702
847
92
2,641
(1,139)
(67)
(1,206)
(256)
1,179
(348)
–
831
40
(39)
(11)
(256)
–
(63)
(29)
2009
$m
1,691
(913)
68
846
736
378
1,960
(934)
85
(849)
(275)
836
(136)
–
700
67
(49)
(15)
(275)
–
(3)
(10)
2008
$m
2,011
(1,570)
33
474
613
146
1,233
(607)
52
(555)
(205)
473
(86)
(6)
2009
$m
26,206
(16,398)
–
9,808
3,337
2008
$m
32,604
(24,754)
–
7,850
3,948
465
361
13,610
12,159
(6,225)
–
(6,225)
(3,005)
4,380
(1,435)
(2)
(5,696)
–
(5,696)
(1,948)
4,515
(1,188)
(8)
381
2,943
3,319
59
755
559
(26)
(9)
(205)
30
(2)
(3)
(374)
(103)
(3,005)
(135)
(112)
(130)
(330)
(84)
(1,948)
(687)
(134)
(181)
324,918
1,826
312,378
264
809
321,072
1,862
307,845
270
603
101,445
383
82,589
2,680
49
100,270
304
88,793
2,733
44
50,121
2,356
49,480
55
39
48,594
2,209
46,954
61
30
476,484
4,565
444,447
2,999
897
469,936
4,375
443,592
3,064
677
158 ANZ Annual Report 2009
Financial Report 159
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
36: Segment Analysis (continued)
External segment revenue by products and services
The table below sets out revenue from external customers for groups of similar products and services as required by AASB 8 Operating Segments.
Retail
Commercial
Wealth
Institutional
Partnerships
Other
Total revenue
Australia
New Zealand
Asia Pacific,
Europe & America
Total
2009
$m
4,060
2,084
347
3,145
–
(414)
9,222
2008
$m
3,640
1,847
441
2,456
–
(99)
8,285
2009
$m
1,316
704
45
631
–
(268)
2,428
2008
$m
1,456
725
62
475
–
(77)
2,641
2009
$m
445
–
57
1,172
347
(61)
1,960
2008
$m
362
–
40
693
199
(61)
2009
$m
5,821
2,788
449
4,948
347
(743)
2008
$m
5,458
2,572
543
3,624
199
(237)
1,233
13,610
12,159
The following disclosure represents a secondary segment view on a divisional basis, consistent with the Group matrix reporting structure.
Consolidated
Year ended 30 September 2009
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
Minority interests
Profit after income tax attributed to shareholders
of the Company
Consolidated
Year ended 30 September 2008
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
Minority interests
Profit after income tax attributed to shareholders
of the Company
Australia
$m
Institutional
$m
Asia Pacific,
Europe &
America
$m
New Zealand
Businesses
$m
4,877
1,624
6,501
(2,757)
3,744
(884)
2,860
(839)
–
3,041
1,907
4,948
(1,583)
3,365
(1,408)
1,957
(553)
(3)
891
1,118
2,009
(891)
1,118
(252)
866
(164)
–
1,580
506
2,086
(1,018)
1,068
(635)
433
(123)
–
less:
Institutional
Asia Pacific,
Europe &
America
$m
Consolidated
$m
(545)
(627)
(1,172)
418
(754)
140
(614)
162
1
9,808
3,802
13,610
(6,225)
7,385
(3,005)
4,380
(1,435)
(2)
Other
$m
(36)
(726)
(762)
(394)
(1,156)
34
(1,122)
82
–
2,021
1,401
702
310
(1,040)
(451)
2,943
Australia
$m
Institutional
$m
Asia Pacific,
Europe &
America
$m
New Zealand
Businesses
$m
4,244
1,699
5,943
(2,644)
3,299
(518)
2,781
(797)
–
1,823
1,801
3,624
(1,245)
2,379
(1,281)
1,098
(324)
(3)
570
735
1,305
(590)
715
(170)
545
(106)
(6)
1,729
512
2,241
(1,029)
1,212
(240)
972
(313)
–
less:
Institutional
Asia Pacific,
Europe &
America
$m
Consolidated
$m
(282)
(411)
(693)
268
(425)
126
(299)
87
1
7,850
4,309
12,159
(5,696)
6,463
(1,948)
4,515
(1,188)
(8)
Other
$m
(234)
(27)
(261)
(456)
(717)
135
(582)
265
–
1,984
771
433
659
(317)
(211)
3,319
37: Notes to the Cash Flow Statements
a) Reconciliation of net profit after income tax to net cash provided
by operating activities
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
Inflows
(Outflows)
Inflows
(Outflows)
Inflows
(Outflows)
Inflows
(Outflows)
Operating profit after income tax attributable to shareholders of the Company
2,943
3,319
2,285
3,336
Adjustment 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)/loss 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
Net derivatives/foreign exchange adjustment
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
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
3,005
135
375
3
675
(571)
(5)
(1)
(162)
(962)
(424)
1,879
9
(15,971)
2,253
1,402
(1,897)
(7,754)
–
722
92
144
12,601
(168)
(994)
(1,115)
294
(190)
(6,625)
(3,682)
1,948
687
330
(2)
584
(402)
(32)
(361)
(176)
(708)
(310)
(166)
14
31
(4,692)
(739)
(46,855)
(1,628)
–
(248)
40
(1,282)
49,796
976
(1,189)
754
115
(14)
(3,529)
(210)
2,079
121
289
3
409
(395)
(5)
–
–
(740)
(467)
1,687
9
(14,491)
2,427
1,032
(23,162)
(7,936)
6,412
586
32
(14)
26,171
(1,027)
259
(788)
281
(29)
(7,257)
(4,972)
1,573
718
259
(4)
418
(230)
(4)
(281)
2
(340)
(164)
(696)
14
501
(3,620)
(674)
(37,813)
(796)
2,222
(277)
22
(1,416)
43,503
761
(3,146)
560
86
(1,463)
(285)
3,051
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
Due from other financial institutions – less than three months
Cash and cash equivalents in the statement of cashflows
Consolidated
The Company
2009
$m
18,393
4,412
22,805
2008
$m
15,645
7,842
23,487
2009
$m
15,228
2,823
18,051
2008
$m
10,133
7,023
17,156
160 ANZ Annual Report 2009
Financial Report 161
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
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 entities1
Investments in controlled entities
Purchases of interest in associates and joint ventures
Cash inflows from disposals
Disposals of controlled entities
Disposals of associates and joint ventures
d) Non-cash financing and investing activities
Share capital issues
Dividends satisfied by share issue
e) Financing arrangements
Credit stand by arrangements
Stand by lines
Other financing arrangements
Overdraft and other financing arrangements
Total finance available
1
Cash outflows due to purchases of controlled entities in 2009 relate to acquisitions not yet complete.
Consolidated
The Company
2009
$m
34
–
229
263
–
15
15
2008
$m
10
–
440
450
81
47
128
2009
$m
34
194
3
231
–
15
15
2008
$m
6
62
223
291
81
32
113
1,788
1,788
2,506
2,506
1,788
1,788
2,506
2,506
Consolidated
2009
2008
Available
$m
Unused
$m
Available
$m
Unused
$m
1,186
1,186
1,419
1,419
–
–
–
–
1,186
1,186
1,419
1,419
38: Controlled Entities
Ultimate parent of the Group
Australia and New Zealand Banking Group limited
All controlled entities are 100% unless otherwise noted.
The material controlled entities of the Group are:
Amerika Samoa Bank*
ANZ Bank (Vietnam) limited
ANZ Capel Court limited
ANZ Capital hedging Pty ltd
ANZ Commodity Trading Pty ltd
ANZcover Insurance Pty ltd
ANZ Trustees limited
ANZ Fund Pty ltd
ANZ Bank (Europe) Limited*
ANZ Bank (Kiribati) Limited*1
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*
Endeavor Finance Limited*
Tui Endeavor 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
LFD Limited
Minerva holdings Limited*
Upspring Limited*
Votraint No. 1103 Pty Ltd
ANZ lenders Mortgage Insurance Pty ltd
ANZ Nominees limited
ANZ Orchard Investments Pty ltd
Australia and New Zealand Banking Group (PNG) limited
Chongqing liangping ANZ Rural Bank Company 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
Vietnam
Australia
Australia
Australia
Australia
Australia
Australia
United Kingdom
Kiribati
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
Australia
United Kingdom
United Kingdom
Australia
Australia
Australia
Australia
Papua New Guinea
China
Guam
Guam
Australia
Australia
Australia
Indonesia
Laos
Banking
Banking
Investment Banking
hedging
Finance
Captive-Insurance
Trustee/Nominee
Investment
Banking
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
holding Company
holding Company
Finance
Investment
Mortgage Insurance
Nominee
holding Company
Banking
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%) (2008: 150,000 $1 ordinary
shares (25%)); PT ANZ Panin Bank – 7,500 IDR 1 million shares (15%) (2008: 7,500 IDR 1 million shares (15%)); ANZ Royal Bank (Cambodia) Limited – 319,500 USD100 ordinary shares
(45%) (2008: 189,000 USD100 ordinary shares (35%)); ANZ Vientiane Commercial Bank Limited – 1,000,000 $1 ordinary shares (10%) (2008: 4,000,000 $1 ordinary shares (40%));
Omeros II Trust – residual capital unitholder (2008: residual capital unitholder).
162 ANZ Annual Report 2009
Financial Report 163
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
39: Associates
Significant associates of the Group are as follows:
AMMB holdings Berhad1
P.T. Bank Pan Indonesia
Date
became
an associate
Ownership
interest
held
May 2007
April 2001
24%
39%
Voting
interest
24%
39%
Shanghai Rural Commercial Bank
September 2007
20%
20%
Bank of Tianjin
Saigon Securities Inc.1
Diversified Infrastructure Trust3
Cards NZ Limited
Metrobank Card Corporation
Other associates
Total carrying value of associates
June 2006
July 2008
March 2008
August 2002
October 2003
20%
18%
54%
15%
40%
20%
18%
54%
15%
40%
1 Significant influence was established via representation on the Board of Directors.
2 Applicable to those investments in associates where there are published price quotations.
3 ANZ has significant influence but not control over this entity (refer note 17 for further details).
Incorporated
in
Malaysia
Indonesia
Peoples Republic
of China
Peoples Republic
of China
Vietnam
Australia
New Zealand
Philippines
Aggregated assets of significant associates (100%)
Aggregated liabilities of significant associates (100%)
Aggregated revenues 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
Adjustments1
Share of associates net profit accounted for using the equity method
958
516
461
276
108
104
70
34
185
403
n/a
31 December
Banking
n/a
146
n/a
n/a
n/a
31 December
31 December
30 September
30 September
31 December
Banking
Stockbroking
Investment
Cards Services
Cards Issuing
218
150
100
72
30
230
2,712
2,608
2009
$m
88,726
80,817
6,089
2008
$m
88,929
81,561
5,239
Consolidated
2009
$m
294
(74)
220
162
382
2008
$m
278
(56)
222
(4)
218
1 The results differ from the published results of these entities due to the application of IFRS, Group Policies and acquisition adjustments.
40: Interests in Joint Venture Entities
The Group has interests in joint venture entities as follows:
Carrying
value
2009
$m
Carrying
value
2008
$m
Fair
value2
$m
Reporting
date
999 1,000
939
406
31 March
31 December
Principal
activity
Banking
Banking
ING Australia Limited1,5
ING (NZ) holdings Limited3,5
Ownership
interest held
Voting
interest
Incorporated in
Carrying value6
$m
Reporting
date
49%2
49%4
49%
50%
Australia
1,649
31 December
New Zealand
204
31 December
Principal activity
Funds Management
and Insurance
Funds Management
and Insurance
Total interests in Joint Venture entities
1,853
On 25 September 2009, the Company announced it had reached agreement with ING Groep to acquire ING Groep’s 51% shareholdings in the
ANZ-ING wealth management and life insurance joint ventures in Australia and New Zealand for $1,760 million, taking its ownership interest
to 100%. Completion is subject to various conditions, including regulatory approval, and is expected to occur during the fourth quarter of
calendar 2009.
Once completed, the acquisition will result in the Group fully consolidating the assets, liabilities and operations of ING Australia Limited (“INGA”)
and ING (NZ) holdings Limited (“INGNZ”) and its subsidiary companies into the Group’s results. At acquisition date, under the step acquisition
provisions of AASB3R Business Combinations (Revised), the Group will remeasure its existing 49% interests which are accounted for under the
equity method at acquisition date fair values and will recognise the resulting gain or loss in the income statement.
The 49% interests in INGA and INGNZ were accounted for as joint venture entities at 30 September 2009 and accordingly equity accounting
is applied. These investments were assessed for impairment by comparing the carrying values to both the fair market value and the value in
use, which is based on a discounted cash flow analysis. The investments were not considered impaired as the value in use for these associates
exceeds the carrying value.
1 A joint venture entity from 1 May 2002.
2 This represents the Group’s 49% share of the assets and liabilities of ING Australia Limited. The Group has joint control of the joint venture, and accordingly the entity is not consolidated.
Key details of the joint venture are:
ING Australia Limited is owned 51% by ING Groep and 49% by ANZ.
Both shareholders have an equal say in strategic decisions with a number of matters requiring the approval of both shareholders (i.e. require unanimous approval).
These include major items of capital expenditure, acquisitions or disposals in excess of $20 million and changes to the Board structure.
Equal board representation with four Group nominees and four ING Groep nominees. All key issues (including business plans, major capital expenditure, acquisitions etc) require unanimous
Board approval.
Refer to Critical Estimates and Judgements used in Applying Accounting Policies note 2 (iii) for details regarding valuation of investment in ING Australia Limited.
The Joint Venture includes the majority of the Group’s and ING’s funds management and insurance activities in Australia.
3 A joint venture entity from 30 September 2005.
4 This represents the Group’s 49% share of assets and liabilities of ING (NZ) holdings Limited. The Group has joint control of the joint venture, and accordingly the entity is not consolidated.
Key details of the joint venture are:
ING (NZ) holdings Limited is owned 51% by ING Groep and 49% by ANZ.
Both shareholders have an equal say in strategic decisions with a number of matters requiring the approval of both shareholders (i.e. require unanimous approval). These include major
items of capital expenditure, acquisitions or disposals in excess of $20 million and changes to the Board structure.
Equal board representation with four Group nominees and four ING Group nominees. All key decisions (including business plans, major capital expenditure, acquisitions etc) require
unanimous Board approval.
Refer to Critical Estimates and Judgements used in Applying Accounting Policies note 2 (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.
ING Australia Limited and ING (NZ) holdings Limited have different reporting dates than the Consolidated Group to align with the ING Groep parent entity.
5
6 2008 carrying values as follows: ING Australia Limited $1,589 million; and ING (NZ) holdings Limited $178 million.
164 ANZ Annual Report 2009
Financial Report 165
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
40: Interests in Joint Venture Entities (continued)
41: Securitisations
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 of reserves
Additional investment
Adjustment for exchange 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)/benefit
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
2009
$m
410
483
1,589
73
–
(13)
–
–
1,649
11,914
2,909
14,823
13,176
575
13,751
1,072
343
(229)
114
(41)
73
73
136
43
179
21
21
2008
$m
313
410
1,519
124
(27)
(27)
–
–
1,589
12,498
2,340
14,838
13,311
516
13,827
1,011
396
(230)
166
(42)
124
124
141
51
192
27
27
ING (NZ) holdings
limited
2009
$m
2008
$m
58
68
178
10
–
–
19
(3)
204
75
140
215
(38)
52
14
201
95
(89)
6
4
10
10
14
–
14
–
–
39
58
162
19
–
–
–
(3)
178
65
134
199
(3)
9
6
193
77
(63)
14
5
19
19
7
–
7
–
–
Consolidated
Total
2009
$m
468
551
1,767
83
–
(13)
19
(3)
1,853
11,989
3,049
15,038
13,138
627
13,765
1,273
438
(318)
120
(37)
83
83
150
43
193
21
21
2008
$m
352
468
1,681
143
(27)
(27)
–
(3)
1,767
12,563
2,474
15,037
13,308
525
13,833
1,204
473
(293)
180
(37)
143
143
148
51
199
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 as buyer of last resort.
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 2009 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 the year
Net cash proceeds received
Retained interests
Gain/(loss) on securitisation/sale (pre-tax)
Consolidated
2009
$m
2008
$m
–
–
–
–
–
–
–
–
The Company
2009
$m
22,971
–
(22,971)
–
2008
$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:
Securitisation
Carrying amount of assets (original)
Carrying amount of assets (currently recognised)
Carrying amount of associated liabilities
Consolidated1
2009
$m
2008
$m
–
–
–
–
–
–
The Company
2009
$m
22,971
19,929
19,929
2008
$m
11,229
10,360
10,360
1 The balances are nil as the Company balances are eliminated the balance in the Company relate to an internal securitisation.
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.
166 ANZ Annual Report 2009
Financial Report 167
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
42: Fiduciary Activities (continued)
The aggregate amounts of funds concerned are as follows:
Trusteeships
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets
CREDIT RELATED COMMITMENTS GUARANTEES AND CONTINGENT LIABILITIES
Consolidated
2009
$m
2,439
2008
$m
2,338
Credit related commitments
Facilities provided
Consolidated
The Company
Contract
amount
2009
$m
Contract
amount
2008
$m
106,644
111,265
72,170
16,180
18,294
71,911
18,818
20,536
106,644
111,265
Contract
amount
2009
$m
88,006
72,210
–
15,796
88,006
Contract
amount
2008
$m
90,026
71,109
–
18,917
90,026
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:
Undrawn facilities1
Australia
New Zealand
Overseas Markets
Total
ING Australia Limited Joint Venture
ING (NZ) holdings Limited Joint Venture
Controlled entities – New Zealand
Controlled entities – Australia
2009
$m
43,275
5,541
5,948
1,053
55,817
2008
$m
42,507
6,764
4,908
1,365
55,544
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 2009, ANZ Custodian
Services had funds under custody and administration in Australia of $98.5 billion (30 September 2008: $143.2 billion) and in New Zealand of
$5.4 billion (30 September 2008: $6.9 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
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 one year but not later than 5 years
Later than 5 years
Furniture and equipment
Not later than 1 year
Later than one year but not later than 5 years
Later than 5 years
Total lease rental commitments
Total commitments
1 Relates to premises and equipment.
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
56
–
38
94
252
559
324
375
9
53
437
271
597
362
1,135
1,230
38
68
–
106
1,241
1,335
37
47
–
84
1,314
1,751
56
–
14
70
187
422
298
907
31
63
–
94
375
9
22
406
197
437
340
974
25
35
–
60
1,001
1,071
1,034
1,440
In addition, as disclosed in Note 50, the Company has reached agreement to acquire ING Groep’s 51% shareholdings in the ANZ-ING wealth
management and life insurance joint venture in Australia and New Zealand for $1,760 million and selected businesses from Royal Bank of
Scotland Group plc for approximately USD 550 million (AUD 626 million). Both acquisitions are subject to regulatory approval.
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 letter of credit
Performance related contingencies
Other
Total
Australia
New Zealand
Overseas Markets
Total
Consolidated
The Company
Contract
amount
2009
$m
4,760
1,528
–
3,195
14,924
811
25,218
12,758
1,113
11,347
25,218
Contract
amount
2008
$m
6,679
1,651
10
4,957
15,568
1,141
30,006
13,170
1,435
15,401
30,006
Contract
amount
2009
$m
4,561
1,492
–
2,942
14,004
504
23,503
12,781
–
10,722
23,503
Contract
amount
2008
$m
6,442
1,617
10
4,744
14,518
706
28,037
13,184
–
14,853
28,037
168 ANZ Annual Report 2009
Financial Report 169
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
OThER BANK RELATED CONTINGENT LIABILITIES
All of these transactions have now either matured or been terminated.
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) Securities Lending
ANZ had entered into Australian Master Securities Lending
Agreements (AMSLAs) with Opes Prime and a related company.
Under the AMSLAs, ANZ acquired shares in various companies listed
on the Australian Stock Exchange. On 27 March 2008, ANZ appointed
a receiver and manager to Opes Prime and related companies.
In August 2009, the Federal Court of Australia approved a scheme
of arrangement which provides a commercial resolution of
claims against ANZ and Merrill Lynch by Opes Prime creditors,
the liquidators of Opes Prime, and the Australian Securities and
Investments Commission. ANZ, Merrill Lynch and the receiver of
Opes Prime contributed assets and cash totalling approximately
$253 million. Provision has been made for ANZ’s share of the cost
in these financial statements.
A US class action was commenced against ANZ and certain directors
and executives in December 2008 on behalf of holders of ANZ’s
American Depositary Receipts (ADRs). The claim alleges that ANZ
and the named individuals failed to disclose information regarding
internal controls in ANZ’s securities lending business and that this
affected the value of the ADRs. The proceedings are at an early stage
and are being defended.
ANZ had also entered into an AMSLA with Primebroker Securities
Limited. On 4 July 2008, ANZ appointed a receiver and manager
to Primebroker. On 31 August 2009, a court found that ANZ’s
appointment of the receiver to Primebroker was invalid. The receiver
is appealing the decision. ANZ has joined in the appeal.
There are ongoing developments concerning the events surrounding
ANZ’s securities lending business 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.
The New Zealand Inland Revenue Department (“IRD”) is reviewing
a number of structured finance transactions as part of an audit of the
2000 to 2005 tax years. A number of cases are before the courts and
two decisions have been issued in the high Court, on 16 July 2009
and 7 October 2009, in favour of the IRD in respect of proceedings
taken against other Banks.
The Group has a provision which covers its exposure to primary
tax and interest (tax–effected), net of an amount receivable from
Lloyds Banking Group plc (“Lloyds”) reflecting an indemnity given
by Lloyds under the agreement by which the Group acquired the
NBNZ holdings Limited Group.
170 ANZ Annual Report 2009
Other audits and 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 in accordance with the terms of the applicable
agreement (refer note 42).
v) New Zealand Commerce Commission
In November 2006, the 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 Commerce 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 Limited and the other
abovementioned defendants seeking unquantified damages,
based on allegations similar to those contained in the Commerce
Commission proceedings. ANZ National Bank Limited settled the
claims with the Commission and the retailers without any admission
of liability. Similar settlements were reached by the other parties. The
proceedings against all parties were discontinued in October 2009.
In addition, ANZ is aware that the Commerce Commission is looking
closely at credit contract fees under the Credit Contracts and
Consumer Finance Act 2003 (“CCCFA”). In its 2008-2011 Statement
of Intent the Commission stated that: “The Commission is turning
more to litigation under the Credit Contracts and Consumer Finance
Act to ensure credit contract fees are reasonable and disclosed.
Currently the credit industry is not fully compliant with the legislation
and taking more action through the courts will encourage better
compliance and clarify any areas of the law that may be uncertain.”
In particular ANZ is aware that the Commerce Commission is
investigating the level of default fees charged on credit cards and
the level of currency conversion charges on overseas transactions
using credit cards under the CCCFA. The Commission is also
investigating early repayment charges on fixed rate mortgages.
At this stage the possible outcome of these investigations and any
liability or impact on fees cannot be determined with any certainty.
vi) 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.
vii) Deed of Cross Guarantee in respect of certain controlled entities
Pursuant to class order 98/1418 (as amended) dated 13 August 1998, relief was granted to a number of wholly owned controlled entities
from the Corporations Act 2001 requirements for preparation, audit, and publication of individual 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
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.
5 Relief originally granted on 9 February 2009.
ANZ Orchard Investments Pty Ltd2
ANZ Securities (holdings) Limited3
ANZ Commodity Trading Pty Ltd4
ANZ Funds Pty Ltd1
Votraint No. 1103 Pty Ltd2
ANZ Nominees Ltd5
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 the start of the year
Total available for appropriation
Ordinary share dividends provided for or paid
Transfer from reserves
Actuarial gains/(losses) on defined benefits plans after tax
Retained profits at the end of the year
Assets
Liquid assets
Available-for-sale assets
Net loans and advances
Other assets
Premises and equipment
Total assets
liabilities
Deposit and other borrowings
Income tax liability
Payables and other liabilities
Provisions
Total liabilities
Net assets
Shareholders equity1
1 Shareholders’ equity excludes retained profits and reserves of controlled entities within the class order.
Consolidated
2009
$m
4,063
(921)
3,142
10,810
13,952
(2,451)
22
(113)
2008
$m
3,950
(679)
3,271
10,105
13,376
(2,506)
–
(60)
11,410
10,810
20,200
13,554
256,017
136,913
1,488
18,081
15,103
236,772
111,608
1,043
428,172
382,607
227,301
137
170,351
905
203,328
253
154,526
908
398,694
359,015
29,478
29,478
23,592
23,592
Financial Report 171
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
44: Credit Related Commitments, Guarantees, Contingent Liabilities and Contingent Assets (continued)
45: Superannuation and Other Post Employment Benefit Schemes
viii) ING New Zealand Funds
Trading in the ING Diversified Yield Fund and the ING Regular
Income Fund (“the Funds”) was suspended on 13 March 2008 due
to deterioration in the liquidity and credit markets. These funds
are managed by the joint venture partner (ING (NZ) Limited). Some
of these funds were sold to ANZ National Bank customers.
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.
On 5 June 2009, ING NZ AUT Investments Limited, a subsidiary of
ING (NZ) Limited, made an offer to investors in the Funds. The offer
closed on 13 July 2009. Investors holding approximately 99% of the
funds accepted the offer to receive a payment of 60 NZ cents per unit
in the ING Diversified Yield Fund or 62 NZ cents per unit in the ING
Regular Income Fund, as applicable, either (i) in cash no later than
28 August 2009, or (ii) by way of deposit in an on-call account with
ANZ National, paying 8.30% per annum fixed for up to five years.
Acceptance of this offer was conditional on investors waiving all
claims. however, ANZ National Bank customers were offered an
additional opportunity, for a limited period of time, to ask the ANZ
National Bank customer complaints team (and, where still unsatisfied,
the New Zealand Banking Ombudsman) to consider requests for
additional compensation.
The Group considers it has adequately provided for these obligations
at this time. Allowance for the estimated cost of this offer is recognised
as a reduction in “other operating income” in the income statement
with a corresponding provision in the balance sheet.
The ultimate cost to ANZ National Bank will depend on the final
value of units in the Funds, any recoveries under insurance, the
number of complaints and the results of any litigation and regulatory
proceedings that may be brought in connection with the Funds
or their sale. The Commerce Commission has sought information
regarding the Funds and the sale of units in the Funds and is
investigating this matter. At this stage it is not possible to predict
the outcome of any investigation.
ix) 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. 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.
x) 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.
xi) 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
matter has been remanded to the Special Court for deliberation on
certain issues.
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 are:
Scheme
Scheme type
Country
Australia
ANZ Australian Staff
Superannuation Scheme1,2
Defined contribution scheme
Section C3 or
Defined contribution scheme
Section A or
Defined benefit scheme
Pension Section4
Defined benefit scheme5 or
Contribution levels
Employee/
participant
Employer
Optional8
Balance of cost10
Optional
9% of salary11
Nil
Nil
Balance of cost12
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
New Zealand
ANZ National Bank Staff Superannuation
Scheme (formerly ANZ Group (New Zealand)
Staff Superannuation Scheme)1,2
National Bank Staff
Superannuation Fund1,2
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% (2008: 9%) of members’ salaries.
11 2009: 9% of salary.
12 As determined by the Trustee on the recommendation of the actuary – currently nil (2008: nil).
13 As recommended by the actuary – currently nil (2008: nil).
14 2009: 7.5% of salary.
15 As recommended by the actuary – currently 24.8% (2008: 24.8%) of members’ salaries.
16 2009: 11.5% of salary.
17 As agreed by the Trustee and Group after taking the advice of the actuary – currently 26% (2008: 26%) of pensionable salaries and additional quarterly contributions of GBP 7.5 million
From 1 October 2003, all member contributions are at a rate of 5% of salary.
until December 2015.
172 ANZ Annual Report 2009
Financial Report 173
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
45: Superannuation and Other Post Employment Benefit Schemes (continued)
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 is 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 shown 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.
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. An interim actuarial valuation, conducted
by consulting actuaries Russell Employee Benefits as at 31 December 2008, showed a deficit of $13 million and the actuary recommended that
the funding position of the Pension Section be reviewed. Group contributions to the Pension Section remain suspended until the review is
completed. The next full actuarial valuation is due to be conducted as at 31 December 2010.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
2009 Schemes
ANZ Australian Staff Superannuation Scheme Pension Section1
ANZ UK Staff Pension Scheme1
ANZ UK health Benefits Scheme4
ANZ National Bank Staff Superannuation Scheme2
National Bank Staff Superannuation Fund3
Other5,6
Total
Net market
value of
assets held
by scheme
$m
Excess/(deficit)
of net
market value
of assets over
accrued benefits
$m
21
649
-
5
139
5
819
(13)
(328)
(9)
-
(15)
(2)
(367)
Accrued
benefits*
$m
34
977
9
5
154
7
1,186
* 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 2009), 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 2008.
2 Amounts were measured at 31 December 2007.
3 Amounts were measured at 31 March 2008.
4 Amounts were measured at 30 September 2009.
5 Amounts were measured at 30 September 2007.
6 Other includes the defined benefit arrangements in Japan, Philippines and Taiwan.
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.
Employer contributions to the defined benefit sections 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 $61 million to the defined benefit sections of the schemes during the next financial year.
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 2008 showed a deficit of GBP 180 million
($328 million at 30 September 2009 exchange rates).
Following the actuarial valuation as at 31 December 2008, 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 7.5 million until 31 December 2015. These contributions will be reviewed following the next actuarial
valuation which is scheduled to be undertaken as at 31 December 2010.
The following economic assumptions were used in formulating the actuary’s funding recommendations:
Rate of investment return on existing assets
– to 31 December 2018
– to 31 December 2033
Rate of investment return for determining ongoing contributions
Salary increases
Pension increases
5.4% p.a.
4.1% p.a.
6.8% p.a.
4.9% p.a.
3.1% 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.
On adoption of AIFRS, a net liability representing the defined benefit obligation calculated under AASB 119 was recognised on the balance
sheet. The basis of calculation under AASB119 is detailed in note 1F(vi) and on page 82.
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
2008 showed a deficit of NZD 19 million ($15 million at 30 September 2009 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.
On adoption of AIFRS, a net asset representing the defined benefit surplus calculated under AASB 119 was recognised on the balance sheet.
The basis of calculation under AASB119 is detailed in note 1F(vi) and on page 82.
174 ANZ Annual Report 2009
Financial Report 175
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
45: Superannuation and Other Post Employment Benefit Schemes (continued)
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
Amounts included in the balance sheet in respect of its defined benefits scheme
Present value of funded defined benefit obligation
Fair value of scheme assets
Net liability arising from defined benefit obligation
Amounts recognised in the balance sheet
Other assets
Payables and other liabilities
Net liability arising from defined benefit obligation
Amounts recognised in equity in respect of defined benefit schemes
Acturial (gains)/losses incurred during the year and recognised directly in retained earnings
Cumulative acturial (gains)/losses recognised directly in retained earnings
Consolidated
2009
$m
2008
$m
The Company
2009
$m
2008
$m
8
72
(67)
5
2
20
10
70
(77)
–
2
5
(1,095)
849
(246)
(1,160)
1,006
(154)
–
(246)
(246)
175
223
–
(154)
(154)
112
48
6
63
(60)
5
–
14
(938)
738
(200)
–
(200)
(200)
153
181
8
60
(68)
–
–
–
(1,003)
871
(132)
–
(132)
(132)
84
28
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
2009
%
5.25
5.50
5.50
6.00
6.00
8.50
6.20
n/a
4.50
5.50
4.90
3.00
3.00
3.10
2.50
2.50
7.00
5.00
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
11.00
6.00
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 difference on foreign schemes
Benefits paid
Closing defined benefit obligation
Movements in the fair value of the scheme assets in the relevant period
Opening fair value of scheme assets
Expected return on scheme assets
Actuarial gains/(losses)
Exchange difference on foreign schemes
Contributions from the employer
Contributions from scheme participants
Benefits paid
Closing fair value of scheme assets1
Actual return on scheme assets
1,160
8
72
1
126
5
(205)
(72)
1,095
1,006
67
(49)
(161)
57
1
(72)
849
18
1,267
10
70
1
(83)
–
(35)
(70)
1,160
1,199
77
(195)
(45)
39
1
(70)
1,006
(118)
1,003
6
63
–
121
5
(202)
(58)
938
871
60
(32)
(157)
54
–
(58)
738
28
1,112
8
60
–
(93)
–
(32)
(52)
1,003
1,037
68
(177)
(42)
37
–
(52)
871
(109)
1 Scheme assets include the following financial instruments issued by the Group: cash and short term debt instruments $2.4 million (September 2008: $59.1 million), fixed interest securities
$0.6 million (September 2008: $1.0 million) and equities $0.2 million (September 2008: $0.3 million).
Analysis of the scheme assets
Equities
Debt securities
Property
Other assets
Total assets
176 ANZ Annual Report 2009
Consolidated
Fair value of scheme
assets
The Company
Fair value of scheme
assets
2009
%
35
39
7
19
100
2008
%
32
37
11
20
100
2009
%
33
37
8
22
100
2008
%
30
34
13
23
100
To determine the expected returns of each of the asset classes held by the relevant scheme, the actuaries assessed historical return trends and
market expectations for the asset class returns applicable for the period over which the obligation is to be settled. The overall expected rate of
return on assets for each scheme was then determined as the weighted average of the expected returns for the classes of assets held by the
relevant scheme.
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
2009
$m
2008
$m
2007
$m
2006
$m
2005
$m
2009
$m
2008
$m
2007
$m
2006
$m
2005
$m
history of experience adjustments
Defined benefits obligation
Fair value of scheme assets
Surplus/(deficit)
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets
(1,095)
849
(246)
7
(49)
(1,160)
1,006
(154)
12
(195)
(1,267)
1,199
(68)
(1,462)
1,238
(224)
9
6
7
48
(1,246)
1,099
(147)
(6)
100
(938)
738
(200)
7
(32)
(1,003)
871
(132)
8
(177)
(1,112)
1,037
(75)
(1,296)
1,067
(229)
10
12
5
44
(1,076)
922
(154)
(7)
90
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 2008 and 2009 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 2009 year, 1,936,095 shares with an issue price of $14.40
were granted under the plan to employees on 8 December 2008
(2008 year: 926,878 shares with an issue price of $28.24 were granted
on 13 December 2007).
Financial Report 177
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
46: Employee Share and Option Plans (continued)
Deferred share plan
A Short Term Incentive (STI) deferral program has been implemented
for 2009 bonuses, with equity deferral relating to 50% of amounts
above a specified threshold. Deferred equity can be taken as shares
and/or options. For Management Board members, mandatory
STI equity deferral commenced in 2008 (rather than 2009), with
expensing occurring in the 2009 financial year due to the 31 October
2008 grant date. Refer to page 38 of the Remuneration Report for
details. Unvested STI deferred shares are forfeited on resignation
or dismissal for serious misconduct.
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.
STI three year deferred shares were granted under an 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 2008 or 2009 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.
In exceptional circumstances, sign-on deferred shares are granted
to certain employees upon commencement with ANZ to compensate
for equity forgone 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 2009 year, 4,322,932 deferred shares with a weighted
average grant price of $17.20 were granted under the deferred share
plan (2008 year: 2,445,372 shares with a weighted average grant price
of $28.26 were granted).
Restricted share plan
In prior years, eligible employees were able to elect a pre-tax sacrifice
of part or all of their annual cash bonus for ANZ shares. The shares
were subject to a 1 year 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 2009 year, 272,626 shares with an issue price of $17.18
were granted under the Restricted Share Plan (2008 year: 354,384
shares with an issue price of $29.95 were granted).
Performance share plan
Performance shares are essentially LTI deferred shares with
a performance hurdle. They were granted to former employees
in 2004 and 2005. The balance outstanding at the beginning
of the current year has since been forfeited.
Share valuations
The fair value of shares granted in the 2009 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 $107.8 million based
on 6,531,653 shares at a weighted average price of $16.50 (2008 year:
fair value of shares granted was $105.3 million based on 3,726,634
shares at a weighted average price of $28.26). 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 2008 and 2009 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 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 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. An averaging calculation is used for TSR over a
90 day period for start and end values in order to reduce the impact
of share price volatility. 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).
46: Employee Share and Option Plans (continued)
CEO Performance rights
The CEO’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 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).
CEO Options
At the 2008 Annual General Meeting, shareholders approved a
special grant to the CEO of 700,000 options which were granted on
18 December 2008. These will be available for exercise from the date
of vesting, December 2011, with the option exercise price being equal
to the market value of ANZ shares at the date they were granted i.e.
$14.18 per share. Upon exercise, each Option entitles the CEO to one
ordinary ANZ share. At grant the options were independently valued
at $2.27 each i.e. a total value of $1.589 million. however, these
options will only have any value if, at the vesting date or during the
subsequent exercise period (i.e. 2 years after vesting), the share price
exceeds $14.18. This value will be based on the amount by which
the market price exceeds the exercise price multiplied by the total
number of options.
Deferred options (No performance hurdles)
Under the STI deferral program for 50% of amounts above a specified
threshold, deferred equity can be taken as shares and/or options
(refer to Deferred Share Plan section above).
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 2008 and 2009 years.
Performance option plan (No performance hurdle applies)
Performance options were granted to certain employees (below
executive levels) as part of an 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 an
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 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.
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 (Industry Group)
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.
178 ANZ Annual Report 2009
Financial Report 179
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
46: Employee Share and Option Plans (continued)
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 2009 financial
year and movements during the 2009 financial year are set out below:
Weighted Average Exercise Price
Opening balance
1 October 2008
17,697,581
$14.81
Options
Granted
3,260,938
$11.64
Options
Forfeited
(2,709,394)
$7.83
Options
Expired1
Options
Exercised
Closing balance
30 September 2009
(2,191,963)
$18.71
(928,149)
$15.04
15,129,013
$14.80
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 2009 was $16.57 (2008: $21.74).
The weighted average remaining contractual life of share options outstanding at 30 September 2009 was 2.4 years (2008: 2.5 years).
The weighted average exercise price of all exercisable share options outstanding at 30 September 2009 was $18.95 (2008: $18.78).
A total of 4,015,504 exercisable share options were outstanding at 30 September 2009 (2008: 5,327,652).
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
Opening balance
1 October 2007
21,693,355
$16.23
Options
Granted
2,001,018
$0.00
Options
Forfeited
1,721,322
$12.19
Options
Expired1
123,289
$17.15
Options
Exercised
4,152,181
$16.09
Closing balance
30 September 2008
17,967,581
$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.
No options over ordinary shares have been granted since the end of the 2009 financial year up to the signing of the Directors’ Report on
5 November 2009.
Details of shares issued as a result of the exercise of options during the year ended 30 September 2009 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
0.00
0.00
0.00
0.00
0.00
0.00
16.33
16.33
12,481
58,813
24,619
395
738
5,470
1,650
1,008
4,170
26,100
371,675
–
–
–
–
–
–
–
–
–
426,213
6,069,453
17.34
17.60
17.55
17.55
18.03
18.22
18.22
18.22
20.68
20.68
23.49
264,081
32,616
29,968
1,388
1,925
1,758
30,059
35,264
3,800
18,837
1,334
4,579,165
574,042
525,938
24,359
34,708
32,031
547,675
642,510
78,584
389,549
31,336
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
180 ANZ Annual Report 2009
Details of shares as a result of the exercise of options since the end of the 2009 financial year up to the signing of the Directors’ Report
on 5 November 2009 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
0.00
17.18
17.18
17.34
17.55
130
19
16,856
72,677
2,065
125
191,731
16,375
–
–
–
–
35,477
2,148
3,324,616
287,381
17.55
17.60
18.22
18.22
20.68
20.68
23.49
13,353
11,601
7,838
11,566
7,394
21,034
7,001
234,345
204,178
142,808
210,733
152,908
434,983
164,453
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 2009 financial year are contained in the table below.
Type of Equity
Special Options
STI Deferred Options
STI Deferred Options
STI Deferred Share Rights
STI Deferred Share Rights
LTI Deferred Share Rights
LTI Performance Rights
Special Retention Deferred
Share Rights
Grant date
18-Dec-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
31-Oct-08
Number of
Options
700,000
1,212,216
418,766
84,659
89,121
369,598
368,368
Exercise
price
(5 day
VWAP)
($)
14.18
17.18
17.18
0.00
0.00
0.00
0.00
Fair
value
($)
2.27
2.80
2.94
16.38
15.45
14.58
9.99
Share
closing
price at
grant
($)
14.27
17.36
17.36
17.36
17.36
17.36
17.36
9-Dec-08
18,210
11.84
0.00
14.10
ANZ
expected
volatility1
(%)
Equity
term
(years)
Vesting
period
(years)
Expected
life
(years)
Expected
dividend
yield
(%)
Risk free
interest
rate
(%)
30
30
30
30
30
30
30
34
5
5
5
5
5
5
5
5
3
1
2
1
2
3
3
2
4
3
3.5
1
2
3
3
2
6.00
6.00
6.00
6.00
6.00
6.00
6.00
6.00
3.37
4.48
4.64
4.28
4.48
4.48
4.25
3.49
1 Expected volatility represents a measure of the amount by which ANZ’s share price is expected to fluctuate over the life of the options. The measure of volatility used in the model is the
annualised standard deviation of the continuously compounded rates of return on the historical share price over a defined period of time preceding the date of grant. This historical average
annualised volatility is then used to estimate a reasonable expected volatility over the expected life of the options.
The significant assumptions used to measure the fair value of instruments granted during the 2008 financial year are contained in the table below.
Type of Equity
Performance Rights
Performance Rights
Performance Rights
Deferred Share Rights
Deferred Share Rights
Deferred Share Rights
Performance Rights
Grant date
19-Dec-07
19-Dec-07
19-Dec-07
29-May-08
9-Nov-07
9-Nov-07
30-Oct-07
Number of
Options
258,620
259,740
260,642
22,633
49,717
208,780
940,886
Exercise
price
(5 day
VWAP)
($)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Fair
value
($)
11.60
11.55
11.51
18.38
25.59
24.49
12.30
Share
closing
price at
grant
($)
26.85
26.85
26.85
21.35
27.95
27.95
29.69
ANZ
expected
volatility1
(%)
Option
term
(years)
Vesting
period
(years)
Expected
life
(years)
Expected
dividend
yield
(%)
Risk free
interest
rate
(%)
17
17
17
n/a
15
15
15
4
5
6
5
5
5
5
3
4
5
3
2
3
3
3
4
5
3
2
3
3
4.50
4.50
4.50
5.00
4.50
4.50
4.50
6.82
6.73
6.66
n/a
6.77
6.69
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.
47: Key Management Personnel Disclosures
The Key Management Personnel (KMP) of the Group and Company are the same.
SECTION A: ExECUTIVE DIRECTORS AND OThER KEY MANAGEMENT PERSONNEL COMPENSATION
The company staff are employees of the ultimate parent entity, Australia and New Zealand Banking Group Limited (ANZ) and the KMP
compensation included in the management fee expenses is as follows:
Short term employee benefits
Post employment benefits
Long term employment benefits
Termination benefits
Share-based payments
2009
$
18,077,463
367,018
142,067
634,869
9,789,223
29,010,640
2008
$
15,978,226
186,215
282,363
1,334,282
10,464,699
28,245,785
Financial Report 181
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO ThE FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
47: Key Management Personnel Disclosures (continued)
48: Transactions with Other Related Parties (continued)
SECTION B: KEY MANAGEMENT PERSONNEL LOAN TRANSACTIONS
Loans made to directors of the Company and other key management personnel of the Group are made in the ordinary course of business
on an arm’s length commercial basis, including the term of the loan, security required and the interest rate.
Associates
During the course of the financial year the Company and Group conducted transactions with associates on normal terms and conditions as
shown below:
Details of 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 year, are as follows:
Directors
Executive Director 2009
M Smith
Executive Director 2008
M Smith
Non-executive Directors 2009
P hay2
A Watkins3
Other key management personnel 2009
J Fagg4
B C hartzer6
G K hodges
P R Marriott
A Thursby
C Page
Other key management personnel 2008
R J Edgar5
B C hartzer
G K hodges
P R Marriott
A Thursby
Opening balance
1 October
$
Closing balance
30 September
$
Interest paid and
payable in the
reporting period
$
highest balance
in the reporting
period
$
535,611
–
62,697
1,000,000
356,800
535,611
60,829
2,099,851
–
3,189,724
1,125,000
3,289,964
3,641,055
12,438,898
3,055,034
905,479
1,931,834
–
560,291
7,806,997
3,672,905
2,824,293
–
4,117,937
12,105,808
10,415,975
–
1,890,097
1,750,932
–
12,438,898
3,055,034
905,479
1,931,834
3,954
213,132
208,765
381,671
170,733
7,399
99,751
19,854
14,085
973,081
250,229
181,186
139,013
1,128,856
3,295,434
4,319,402
13,039,953
10,581,121
912,467
1,931,834
1,843,116
1,083,067
14,707,145
4,391,758
2,883,188
2,190,000
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:
Opening balance
1 October
$
Closing balance
30 September
$
Interest paid and
payable in the
reporting period
$
Number in group at
30 September1
Directors
2009
2008
Other key management personnel
2009
2008
3,725,335
356,800
4,414,964
535,611
279,783
60,829
21,972,300
14,864,486
30,280,749
18,331,245
888,173
1,557,594
2
1
5
4
1 Number in the Group includes directors and specified executives with loan balances greater than $100,000.
2 P hay commenced as non-executive director effective 12 November 2008.
3 A Watkins commenced as non-executive director effective 12 November 2008 and the opening balance represents the balance on commencement.
4 J Fagg commenced her role as CEO, ANZ (NZ) effective 1 May 2009 and the opening balance represents the balance on appointment to New Zealand’s CEO.
5 R Edgar retired from ANZ effective 8 May 2009 and loans outstanding during this reporting period were less than $100,000.
6 B hartzer ceased employment with ANZ effective 31 July 2009.
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
Cost recovered from joint venture entities
2009
$000
241,410
9,324
–
166,467
9,497
2008
$000
253,052
16,407
26,950
184,058
9,423
2009
$000
212,434
9,324
–
134,884
8,766
2008
$000
223,224
15,264
–
164,795
8,499
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.
Amounts receivable from associates
Amounts payable to associates
Interest revenue
Interest payable
Other revenue
Dividend revenue
Cost recovered from associates
Consolidated
The Company
2009
$000
165,986
69,763
16,303
3,339
11,190
36,136
2,164
2008
$000
207,899
71,693
19,144
630
12,106
15,451
1,649
2009
$000
149,114
239
12,286
–
1,812
33,936
2,164
2008
$000
181,223
–
14,780
–
2,400
3,979
1,649
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:
Chinese Yuan
Euro
Great British Pound
Indonesian Rupiah
Malaysian Ringgit
New Zealand Dollar
Papua New Guinea Kina
United States Dollar
2009
2008
Closing
6.0026
0.6014
0.5486
8506.3
3.0548
1.2188
2.4154
0.8792
Average
5.0018
0.5392
0.4719
7837.9
2.6034
1.2248
2.0018
0.7319
Closing
5.4723
0.5568
0.4440
7538.8
2.7641
1.1934
2.0765
0.7995
Average
6.4356
0.6030
0.4601
8382.5
2.9755
1.1918
2.4754
0.9069
50: Events Since the End of the Financial Year
On 25 September 2009, the Company announced it had reached agreement with ING Groep to acquire ING Groep’s 51% shareholdings in the
ANZ-ING wealth management and life insurance joint ventures in Australia and New Zealand for $1,760 million, taking its ownership interest to 100%.
Completion is subject to various conditions, including regulatory approval, and is expected to occur during the fourth quarter of calendar 2009.
Once completed, the acquisition will result in the Group fully consolidating the assets, liabilities and operations of ING Australia Limited (“INGA”)
and ING (NZ) holdings Limited (“INGNZ”) and its subsidiary companies into the Group’s results. At acquisition date, under the step acquisition
provisions of AASB3R Business Combinations (Revised), the Group will remeasure its existing 49% interests which are accounted for under the
equity method at acquisition date fair values and will recognise the resulting gain or loss in the income statement.
On 4 August 2009 the Company announced it had reached agreement with Royal Bank of Scotland Group plc to acquire selected businesses
in Taiwan, Singapore, Indonesia1, hong Kong, Phillipines and Vietnam. The purchase price is based on the fully recapitalised net tangible book
value of these businesses plus a premium of USD50 million and whilst the ultimate purchase price is not determinable until completion it is
estimated to amount to approximately USD550 million (AUD626 million). Each acquisition is subject to regulatory approval in the relevant
jurisdictions, which is expected to occur from late 2009 through 2010. Accordingly these acquisitions will be progressively consolidated into
the 2010 results including the impacts of acquisition accounting, integration and acquisition costs.
1 The Indonesian business will be acquired through ANZ’s 85% owned subsidiary P.T. Bank Pan Indonesia.
182 ANZ Annual Report 2009
Financial Report 183
DIRECTORS’ DECLARATION
NOTES TO ThE FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO ThE MEMBERS OF AUSTRALIA
AND NEW ZEALAND BANKING GROUP LIMITED
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 2009 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 27 to 51 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 B Goode
Chairman
5 November 2009
Michael R P Smith
Director
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 2009, 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(A)(i), the directors also state, in accordance with Australian Accounting Standard AASB 101
Presentation of Financial Statements, that the financial report of the Company and the Group, 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 2009 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 27 to 51 of the directors’ report for the year ended 30 September 2009. 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 2009, complies
with Section 300A of the Corporations Act 2001.
KPMG
Melbourne, Australia
5 November 2009
Michelle hinchliffe
Partner
184 ANZ Annual Report 2009
Financial Report 185
FINANCIAL INFORMATION
1: Capital Adequacy
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
Deductions
Tier 1 capital
Tier 2
Upper Tier 2 capital
Subordinated notes
Deductions
Tier 2 capital
Total qualifying capital
Capital adequacy ratios
Tier 1
Tier 2
Total
Risk weighted assets
2009
$m
32,429
(2,341)
30,088
1,901
2,122
34,111
(7,492)
26,619
1,390
9,082
(2,661)
7,811
2008
$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
Table 1
Table 2
Table 3
Table 4
Table 2
34,430
30,567
10.6%
3.1%
13.7%
7.7%
3.4%
11.1%
Table 5
252,069
275,434
1: Capital Adequacy (continued)
Table 1: Prudential adjustments to shareholders’ equity
Reclassification of preference share capital
Accumulated retained profits and reserves of insurance and funds
management 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)
Earnings not recognised for prudential purposes
Mark-to market impact of own credit spread
Negative Available-for-sale reserve
Sub-total
Deductions taken 50% from Tier 1 and 50% from Tier 2
Investment in ANZ insurance subsidiaries
Investment in funds management 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 provisions1
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 notes2
General reserve for impairment of financial assets net of
attributable deferred tax asset3
Total
2009
$m
(871)
(1,010)
391
90
41
(1,403)
421
(2,341)
(3,047)
(849)
(602)
(325)
–
12
(20)
(4,831)
50%
(161)
(33)
(737)
(976)
(506)
(36)
(212)
(2,661)
(7,492)
269
1,024
97
1,390
2008
$m
(871)
(841)
351
(78)
88
(1,511)
453
(2,409)
(4,889)
(625)
(642)
(92)
(117)
(149)
(136)
(6,650)
(65)
(34)
(262)
(610)
(167)
(36)
(32)
(1,206)
(7,856)
248
1,072
54
1,374
Gross
(321)
(67)
(1,474)
(1,951)
(1,012)
(72)
(424)
(5,321)
Table 4: Subordinated notes2
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.
1 The gross deduction includes a collective provision component net of tax of $1,875 million, other eligible provisions of $1,642 million less an estimate for regulatory expected loss of $4,529 million.
2 The fair value adjustment is excluded for prudential purposes as the prudential standard only permits inclusion of cash received and makes no allowance for hedging.
3 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.
186 ANZ Annual Report 2009
Financial Report 187
FINANCIAL INFORMATION
1: Capital Adequacy (continued)
2: Average Balance Sheet and Related Interest
Table 5: Risk weighted assets
On balance sheet
Commitments
Contingents
Derivatives
Total credit risk
Market risk – Traded
Market risk – IRRBB
Operational risk
Total risk weighted assets
Table 6: Credit risk weighted assets by Basel asset class
Subject to Advanced IRB approach
Corporate
Sovereign
Bank
Residential Mortgage
Qualifying revolving retail (credit cards)
Other retail
Credit risk weighted assets subject to Advanced IRB approach
2009
$m
170,035
37,704
12,377
9,695
229,811
3,553
2,465
16,240
252,069
116,153
1,408
5,592
36,725
6,852
17,108
183,838
2008
$m
177,570
47,398
14,519
11,263
250,750
2,609
4,058
18,017
275,434
127,365
2,079
12,624
33,727
8,703
14,218
198,716
Credit risk specialised lending exposures subject to slotting criteria
24,272
30,250
Subject to Standardised approach
Corporate
Sovereign
Bank
Residential Mortgage
Credit risk weighted assets subject to Standardised approach
Credit risk weighted assets relating to securitisation exposures
Credit risk weighted assets relating to equity exposures
Other assets
Total credit risk weighted assets
13,531
–
13
411
13,955
2,658
1,914
3,174
12,980
–
21
344
13,345
4,271
1,146
3,022
229,811
250,750
Table 7: Collective provision and Regulatory Expected loss by Region
Australia
Asia Pacific, Europe & America
New Zealand
Total
Collective provision
Regulatory Expected loss
2009
$m
2,001
339
660
3,000
2008
$m
2,149
225
447
2,821
2009
$m
3,291
214
1,024
4,529
2008
$m
2,327
119
606
3,052
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.
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
Derivatives
Australia
New Zealand
Overseas Markets
Premises and equipment
Other assets
Provisions 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
4,501
1,346
7,479
27,831
2,973
7,379
2009
Interest
$m
164
49
100
1,243
166
258
238,521
80,202
21,980
15,852
5,604
1,089
915
12
236
287
231
329
68
26,603
(397)
26,206
14,670
425
3,828
5,472
10,857
8,323
1,727
437,514
(10,050)
427,464
48,062
12,063
795
1,844
19,303
(2,826)
(701)
(341)
78,199
505,663
353,755
105,509
56,449
515,713
(10,050)
505,663
31.7%
Average
rate
%
Average
balance
$m
2008
Interest
$m
Average
rate
%
6.4
6.6
4.1
7.2
8.1
5.0
8.6
9.6
6.0
8.7
5.0
8.1
7.8
5.0
7.1
5.7
8.3
3.6
3.6
1.3
4.5
5.6
3.5
6.6
7.0
5.0
6.2
2.8
6.2
5.2
2.1
4.0
3.9
6.1
3,002
1,390
6,171
22,733
2,316
6,223
193
92
250
1,633
187
313
220,367
78,103
17,299
18,884
7,491
1,042
15,397
463
1,347
23
366
401
382
404
32
33,040
(436)
32,604
4,512
5,152
7,647
5,666
563
397,004
(6,229)
390,775
24,656
4,358
1,889
1,513
15,136
(2,040)
(442)
(193)
44,877
435,652
303,530
94,765
43,586
441,881
(6,229)
435,652
31.6%
188 ANZ Annual Report 2009
Financial Report 189
FINANCIAL INFORMATION
2: Average Balance Sheet and Related Interest (continued)
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
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
Intragroup elimination
1
Includes foreign exchange swap costs.
Average
balance
$m
2009
Interest
$m
Average
rate
%
Average
balance
$m
2008
Interest
$m
Average
rate
%
87,556
30,498
37,258
18,779
2,305
640
63,383
16,041
1,860
5,030
2,439
10,078
7,709
7,263
5,663
1,371
14,670
425
65,343
12,668
717
3,875
99
31
10,050
405,751
(10,050)
395,701
4,308
1,695
640
577
62
5
1,952
568
14
171
105
155
393
337
381
91
635
11
3,221
710
44
15
265
43
397
16,795
(397)
16,398
4.9
5.6
1.7
3.1
2.7
0.8
3.1
3.5
0.8
3.4
4.3
1.5
5.1
4.6
6.7
6.6
4.3
2.6
4.9
5.6
6.2
n/a
n/a
n/a
4.0
4.1
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
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
6,229
372,837
(6,229)
366,608
436
25,190
(436)
24,754
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
6.8
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 assets 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.
2009
Average
balance
$m
2008
Average
balance
$m
4,951
3,253
1,540
50,399
11,958
(3,147)
11,944
80,898
4,787
3,432
1,200
22,841
3,542
(884)
10,603
45,521
476,599
412,129
336,219
99,387
51,043
486,649
(10,050)
288,656
89,022
40,680
418,358
(6,229)
476,599
412,129
29.5%
30.0%
28,193
871
29,064
22,652
871
23,523
505,663
435,652
190 ANZ Annual Report 2009
Financial Report 191
FINANCIAL INFORMATION
3: Interest Spreads and Net Interest Average Margins
4: Special Purpose and Off-Balance Sheet Entities
Net interest income
Australia
New Zealand
Overseas Markets
Average interest earning assets
Australia
New Zealand
Overseas Markets
less intragroup elimination
Gross earnings rate1
Australia
New Zealand
Overseas Markets
Group
Interest spread and net interest average margin may be analysed as follows:
Australia
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin – Australia
New Zealand
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin – New Zealand
Overseas Markets
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin – Overseas Markets
Group
Net interest spread
Interest attributable to net non-interest bearing items
Net interest margin
1 Average interest rate received on interest earning assets. Overseas Markets includes intragroup assets.
2009
$m
2008
$m
7,085
1,877
846
9,808
5,674
1,702
474
7,850
297,674
89,993
49,847
(10,050)
271,677
86,961
38,366
(6,229)
427,464
390,775
%
%
6.30
6.79
3.53
6.13
2.01
0.37
2.38
1.68
0.41
2.09
1.74
(0.04)
1.70
1.98
0.31
2.29
8.40
9.40
5.33
8.34
1.63
0.46
2.09
1.40
0.56
1.96
1.27
(0.04)
1.23
1.59
0.42
2.01
Below is an analysis of the assets of consolidated and non-consolidated special purpose entities (SPEs) which ANZ has established or manages.
This note is designed to reflect the Group’s main exposures to SPEs and does not include every transaction the Group has entered into with an
SPE. 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
2009
$m
7,110
n/a
–
2008
$m
8,021
n/a
2,145
7,110
10,166
Consolidated
SPEs
2009
$m
2008
$m
33,788
350
–
34,138
11,884
147
–
12,031
1 ANZ’s net investment in non-consolidated Structured Finance entities is $163 million at 30 September 2009 (30 September 2008: $166 million).
Australia
New Zealand
Other
Total
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
Total assets of SPEs:
Non-consolidated SPEs which
ANZ established or manage
Corporate loans
Rural loans
Trade receivables
Residential mortgages
Credit cards and other personal loans
Car loans and equipment finance
Other
Consolidated SPEs
Corporate loans
Trade receivables
Residential mortgages
Car loans and equipment finance
Other
Maximum exposure to non-consolidated SPEs1
Liquidity support facilities (drawn)
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.
–
2,217
2,164
1,099
–
1,029
446
6,955
–
–
28,763
–
654
2,145
2,064
2,096
1,442
13
1,009
586
9,355
–
185
10,731
69
559
29,417
11,544
–
–
–
–
–
–
155
155
–
–
4,633
–
–
4,633
557
–
–
–
–
–
254
811
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
88
–
88
–
–
–
–
–
–
–
–
410
–
–
77
–
487
–
2,217
2,164
1,099
–
1,029
601
2,702
2,064
2,096
1,442
13
1,009
840
7,110
10,166
–
–
33,396
88
654
410
185
10,731
146
559
34,138
12,031
Non-Consolidated
SPEs
2009
$m
2008
$m
1,446
2,495
30
1,520
791
–
41
1,237
3,290
33
1,768
958
393
21
6,323
7,700
192 ANZ Annual Report 2009
Financial Report 193
FINANCIAL INFORMATION
5: Leveraged Finance
6: Asset-Backed Securities
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,
New Zealand and Asia Pacific and Europe & America 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.
Unfunded commitments
Funded exposures
Total gross exposures
Individual provisions
Net exposure
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
278
310
82
75
32
128
905
474
246
185
905
155
156
50
112
38
67
578
327
177
74
578
782
609
334
308
145
468
744
628
131
532
146
666
1,060
919
416
383
177
596
899
784
181
644
184
733
2,646
2,847
3,551
3,425
1,325
1,009
1,507
1,156
1,799
1,255
1,834
1,333
312
184
497
258
2,646
2,847
3,551
3,425
(19)
(2)
–
(3)
–
(6)
(30)
(30)
–
–
(30)
(9)
(13)
–
–
–
–
(22)
(22)
–
–
(22)
Exposure by industry
Manufacturing
Business services
healthcare
Retail
Media
Other
Exposure by geography
Australia
New Zealand
Asia Pacific and Europe
& America
Total individual provision balance
Movements in individual provision
Balance at start of year
Charge to income statement
Bad debts written off
1,041
917
416
380
177
590
890
771
181
644
184
733
3,521
3,403
1,769
1,255
1,812
1,333
497
258
3,521
3,403
2009
$m
2008
$m
22
118
(110)
30
10
30
(18)
22
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.
The following terminology relates to residential mortgage backed securities originated in the US:
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.
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 (excluding subprime mortgages).
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.
Exposure by industry
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
2009
$m
–
142
650
–
2008
$m
395
140
892
461
2009
$m
–
139
455
–
2008
$m
393
138
655
453
792
1,888
594
1,639
Trading portfolio
liquidity portfolio
Other
Total
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
–
–
124
124
–
–
161
161
–
273
94
367
–
423
106
529
–
–
103
103
–
–
949
949
–
273
321
594
–
423
1,216
1,639
Carrying amount by rating and
location of underlying assets
Australia and New Zealand
United States
AAA & AA
A
BBB
2009
$m
2008
$m
2009
$m
2008
$m
2009
$m
2008
$m
BB and below inc
not rated
2009
$m
2008
$m
Total
2009
$m
2008
$m
226
94
320
1,109
412
1,521
–
–
–
–
117
117
1
73
74
1
–
1
–
200
200
–
–
–
227
367
594
1,110
529
1,639
1 September 2008 comprises notes held in a credit protection SPE, refer page 88.
194 ANZ Annual Report 2009
Financial Report 195
GLOSSARY
AAS – Australian Accounting Standards.
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, Europe & America – Includes the following:
Retail which provides retail and small business banking services
to customers in the Asia Pacific region.
Asia Partnerships which is a portfolio of strategic retail
partnerships in Asia. This includes partnerships or joint venture
investments in Indonesia with P.T. 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 Sacombank and
Saigon Securities Incorporation.
Wealth which includes investment and insurance products and
services across Asia Pacific and under the Private Bank banner
assisting customers in the Asia Pacific region to manage, grow
and preserve their assets.
Executive & Support which includes the central support functions
for the division.
Institutional Asia Pacific, Europe & America matrix reports to
the Asia Pacific, Europe & America division and is referred to in
the paragraph below entitled “Institutional”.
Bangalore which includes operations, technology and shared
services support services across all geographic regions.
In August 2009, ANZ announced it had reached agreement with the
Royal Bank of Scotland Group plc (“RBS”) to acquire selected RBS
businesses in Asia. The acquisition of each business is subject to
regulatory approvals, including local prudential regulatory approval,
with completion and integration into the Asia Pacific, Europe &
America Retail, Wealth and Institutional segments anticipated
progressively from late 2009 calendar year.
Australia – Includes the following:
Retail
Retail Distribution operates the Australian branch network,
Australian call centre, specialist businesses (including specialist
mortgage sales staff, mortgage broking and franchisees, direct
channels (Mortgage Direct and One Direct)) and distribution
services.
Retail Products is responsible for delivering a range of products
including mortgages, cards, unsecured lending, transaction
banking, savings and deposits:
Mortgages provide housing finance to consumers in Australia
for both owner occupied and investment purposes.
Cards and Unsecured Lending provides consumer credit cards,
ePayment products, personal loans and ATM facilities in Australia.
Deposits provide transaction banking and savings products,
such as term deposits and cash management accounts.
Commercial
Esanda provides motor vehicle and equipment finance
and investment products.
Regional Commercial Banking provides a full range of
banking services to personal customers and to small business
and agribusiness customers in rural and regional Australia.
Business Banking provides a full range of banking services,
including risk management, to metropolitan based small
to medium sized business clients with a turnover of up to
A$50 million.
Small Business Banking Products provides a full range of
banking services for metropolitan-based small businesses
in Australia with unsecured loans up to A$100,000.
Institutional
A full range of financial services to institutional customers
within Australia along the product lines of Transaction Banking,
Markets and Specialised Lending. Also includes Balance Sheet
Management and Relationship and Infrastructure. Refer detailed
description of the Institutional business under the paragraph
below entitled “Institutional”.
Wealth
Private Bank specialises in assisting high net worth individuals
and families to manage, grow and preserve their family assets.
Investments and Insurance Products comprises Australia’s
Financial Planning, Margin Lending, Insurance distribution
and Trustees businesses in addition to ETrade, an online
broking business.
ING Australia limited (“INGA”) is a joint venture between
ANZBGL and the ING Group. ANZBGL owns 49% of INGA
and receives proportional equity accounted earnings.
Group Centre
Group Centre includes the Australian portion of Operations,
Technology & Shared Services, Treasury, Group human Resources,
Group Strategy, Group Financial Management, Group Risk
Management and Group Items.
Collective provision is the provision for Credit Losses that are
inherent in the portfolio but not able to be individually identified.
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.
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.
Impaired commitments and contingencies comprises undrawn
facilities and contingent facilities where the customer’s status is
defined as impaired.
Impaired loans comprises drawn facilities where the customer’s
status is defined as impaired.
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 to
institutional customers in all geographies. Multinationals, institutions
and corporates with sophisticated needs and multiple relationships
are served globally. Institutional has a major presence in Australia
and New Zealand and also has operations in Asia, Europe and the
United States.
Transaction Banking provides working capital solutions
including lending and deposit products, cash transaction banking
management, trade finance, international payments, securities
lending, clearing and custodian services principally to institutional
and corporate customers.
Global 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.
Specialised lending provides complex financing and advisory
services, structured financial products, leasing, project finance,
leveraged finance and infrastructure investment products to the
Group’s global client set.
Balance Sheet Management manages the Institutional and
Corporate balance sheets with a particular focus on credit quality,
diversification and maximising risk adjusted returns.
Relationship and infrastructure includes client relationship
teams for global institutional customers and corporate customers
in Australia, and central support functions.
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 – includes the following:
New Zealand comprises three customer segments, Retail, Commercial
and Institutional, a Wealth segment and an operations and support
area which includes Treasury funding:
Retail
National Bank Retail, operating under the National Bank brand in
New Zealand, provides a full range of banking services to personal
and business banking customers.
ANZ Retail, operating under the ANZ brand in New Zealand,
provides a full range of banking services to personal and business
banking customers.
Commercial
Corporate & Commercial Banking incorporates the ANZBGL and
ANZ National Bank brands and provides financial solutions through
a relationship management model for medium-sized businesses
with a turnover of up to NZ$150 million.
Rural Banking provides a full range of banking services to rural
and agribusiness customers.
UDC provides motor vehicle and equipment finance, operating
leases and investment products.
Institutional
A full range of financial services to institutional customers within
New Zealand along the product lines of Transaction Banking,
Markets and Specialised Lending. Also includes Balance Sheet
Management and Relationship and infrastructure. Refer detailed
description of the Institutional business under the paragraph
below entitled “Institutional”.
Wealth
Private Banking includes the private banking operations under
the ANZBGL and ANZ National Bank brands and Bonus Bonds.
ING New Zealand Limited (“INGNZ”) is a joint venture between
ANZBGL and ING. ANZBGL owns 49% of INGNZ and receives
proportional equity accounted earnings.
Operations and Support includes the back-office processing,
customer account maintenance, and central support areas
including Treasury funding.
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.
196 ANZ Annual Report 2009
Glossary 197
This page has been intentionally left blank
GLOSSARY (continued)
Operating expenses exclude the provision for impairment of loans
and advances charge.
Operating income in business segments includes 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 (also known as Asia Pacific, Europe & America)
includes all operations outside of Australia and New Zealand.
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.
Revenue includes net interest income and other operating income.
Segment assets/liabilities represents total external assets/liabilities
excluding deferred tax balances.
Segment result represents profit before income tax expense.
Segment revenue includes net interest income and other
operating income.
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.
Underlying profit represents the directors’ assessment of the profit
for the ongoing business activities of the Group, and is based on
guidelines published by the Australian Institute of Company Directors
and the Financial Services Institute of Australasia. ANZ applies this
guidance by adjusting statutory profit for material items that are
not part of the normal ongoing operations of the Group including
one-off gains and losses, gains and losses on the sale of businesses,
non-continuing businesses, timing differences on economic hedges,
and acquisition related costs.
198 ANZ Annual Report 2009
Glossary 199
Impaired Financial 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
Signifi cant Accounting Policies
Special Purpose and Off -Balance Sheet Entities
Statements of Recognised Income and Expense
Superannuation and Other Post Employment
Benefi t Schemes
Tax Assets
Ten Year Summary
Trading Securities
Transactions with Other Related Parties
195
125
164
103
189
73
115
186
122
75
2
4
6
168
92
163
52
169
88
93
113
97
184
18
94
96
95
177
183
183
91
151
167
186
72
126
196
110
105
72
113
90
185
192
165
181
194
96
116
158
122
104
161
76
111
114
111
105
114
23
121
167
159
119
68
108
76
193
74
173
109
16
96
182
ALPHABETICAL INDEX
Asset-Backed Securities
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 Offi cer’s Report
Chief Financial Offi cer’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
200 ANZ Annual Report 2009
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