2008 Annual Report

2008 Annual Report Annual Report Contents Chairman’s Report 2 Notes to the Financial Statements (continued) Chief Executive Officer’s Report 3 14 Net Loans and Advances 92 Chief Financial Officer’s Report 4 15 Impaired Financial Assets 93 Ten Year Summary 14 16 Provision for Credit Impairment 93 17 Shares in Controlled Entities, Associates Directors’ Report 16 and Joint Venture Entities 96 Principal Activities 16 18 Tax Assets 99 Result 16 19 Goodwill and Other Intangible Assets 100 State of Affairs 16 20 Other Assets 101 Dividends 16 Review of Operations 16 21 Premises and Equipment 101 Events since the end of the Financial Year 16 22 Deposits and Other Borrowings 103 Future Developments 17 23 Income Tax Liabilities 103 Environmental Regulation 17 24 Payables and Other Liabilities 104 Directors’ Qualifications, Experience and Special Responsibilities 17 25 Provisions 104 Company Secretaries’ Qualifications and Experience 17 26 Bonds and Notes 105 Non-Audit Services 18 27 Loan Capital 106 Lead Auditor’s Independence Declaration 18 28 Share Capital 109 Directors and Officers who were previously partners 29 Reserves and Retained Earnings 111 of the Auditor 18 30 Minority Interests 112 Chief Executive Officer/Chief Financial Officer Declaration 18 31 Capital Management 113 Directors’ And Officers’ Indemnity 18 32 Assets Charged as Security for Liabilities and Rounding Of Amounts 19 Collateral Accepted as Security for Assets 115 Executive Officers’ and Employee Share Options 19 33 Financial Risk Management 116 Remuneration Report 20 34 Fair Value of Financial Assets and Financial Liabilities 141 Director Remuneration 20 35 Maturity Analysis of Assets and Liabilities 148 Non-executive Directors’ Remuneration 24 36 Segment Analysis 148 Executive Remuneration Structure 25 37 Notes to the Cash Flow Statements 152 Chief Executive Officers’ Remuneration 29 38 Controlled Entities 154 Disclosed Executives’ Contract terms 32 39 Associates 155 Equity Instruments Relating to Disclosed Directors 40 Interests in Joint Venture Entities 155 and Executives 33 41 Securitisations 157 Copy of the Auditor’s Independence Declaration 41 42 Fiduciary Activities 157 Corporate Governance Statement 42 43 Commitments 158 Shareholder Information 56 44 Credit Related Commitments, Guarantees, Financial Report 60 Contingent Liabilities and Contingent Assets 159 Income Statements 60 45 Superannuation and Other Post Employment Balance Sheets 61 Benefit Schemes 163 Statements of Recognised Income and Expense 62 46 Employee Share and Option Plans 168 Cash Flow Statements 63 47 Key Management Personnel Disclosures 174 Notes to the Financial Statements 64 48 Transactions with Other Related Parties 175 49 Exchange Rates 175 1 Significant Accounting Policies 64 50 Events Since the End of the Financial Year 175 2 Critical Estimates and Judgements Used in Applying Accounting Policies 76 Directors’ Declaration 176 3 Income 78 Independent Auditor’s Report 177 4 Expenses 79 Financial Information 178 5 Compensation of Auditors 80 1 Capital Adequacy 178 6 Current Income Tax Expense 81 2 Average Balance Sheet and Related Interest 181 7 Dividends 82 3 Interest Spreads and Net Interest Average Margins 184 8 Earnings per Ordinary Share 83 4 Special Purpose and Off-Balance Sheet Entities 185 9 Liquid Assets 84 5 Leveraged Finance 186 10 Due from Other Financial Institutions 84 11 Trading Securities 84 6 Asset-Backed Securities 187 12 Derivative Financial Instruments 85 Glossary of Financial Terms 188 13 Available-for-sale Assets 91 Alphabetical Index 192 ANZ Annual Report 2008 1 Chairman’s Report A message from Charles Goode ANZ has weathered a challenging year in 2008 and been able to maintain the dividend for shareholders. Our underlying business performance was solid, however dislocation in global financial markets and the change in the cycle in Australia and New Zealand impacted parts of our business. The Board and our new Chief Executive acted decisively to address the changing environment and a number of process and control issues in the Bank. While the economic outlook is softer, we have a clear strategy and the foundations on which to plan positively for the future. OUR performance Board ANZ’s profit after tax for the year ended 30 September 2008 was Four new Directors will be appointed to the Board over the next $3,319 million, down 21% and cash profit* was $3,029 million, twelve months to add further experience and expertise and to down 23%. Both reflect credit related losses. facilitate a transition with the planned retirements of some directors. Importantly, our business remains strong and we maintained the Margaret Jackson and Jerry Ellis will retire during 2009. Both have dividend at 136 cents per share fully franked. made a very considerable contribution to the Board. We appointed The global economic environment softened and financial markets Peter Hay, a leading Australian corporate lawyer with experience were in turmoil as a result of the US sub-prime crisis. In this in investment banking, and Alison Watkins, who has experience environment ANZ experienced a significant increase in provisions in small business, retailing and financial services, to our Board for credit impairment following the cyclical lows in 2007. We kept in November. shareholders informed as these issues emerged through trading Sir Rod Eddington, one of Australia’s most respected business updates during the year. leaders with extensive international business experience, has A number of deficiencies in our Institutional Division in risk agreed to join the Board and succeed me as Chairman. He will join management and operational controls were identified and the Board in the third quarter of 2009 when he has relinquished remedial action is being taken. We are addressing a backlog some of his current commitments and will assume the Chair after of expenditure in our technology and systems. a transition period at which time I will retire from the Board. We aim to be a super regional bank and this involves further Our results were a solid achievement in a time when many expansion into Asia. We are very pleased that Lee Hsien Yang, other banks in the world faced considerable difficulty. I thank an experienced Asian business leader who lives in Singapore management and staff for their contribution. and has considerable knowledge of the region, has also agreed to join our Board from 1 February 2009. EXpansion and growtH ANZ has an aspiration to become a super regional bank through Outlook expanding in Asia. Our underlying performance and progress across Looking ahead, although coordinated action by governments the Group in 2008 reinforces that ANZ has a good foundation on and regulators has helped to provide stability to the global which to build and achieve this aspiration. financial system, economic growth will be much softer in 2009. We have made a number of senior management appointments The underlying performance of our business and our strategic to strengthen and expand ANZ. Susie Babani joined from HSBC focus on Asia however provide the foundation for us to manage and was appointed Group Managing Director Human Resources. through these uncertain times and deliver acceptable returns Christopher Page, also from HSBC, initially joined ANZ as Head for shareholders over the longer term. of Risk for Asia Pacific and was subsequently appointed Chief Risk Officer. Margaret Payn was appointed to lead Strategy and Marketing and focus on strategic productivity improvements across the Bank. We are in a strong liquidity position and well capitalised consistent with our AA credit rating. We took the opportunity with the Interim and Final Dividend to improve our capital position by offering a discount of 1.5% under our Dividend Reinvestment Plan and having it underwritten. ANZ’s Tier 1 capital ratio of 7.7% compares well globally and against domestic peers. Charles Goode Chairman * Adjusted for non-core items (i.e. significant items and non-core income arising from the use of derivatives in economic hedges and fair value through profit and loss). 2 ANZ Annual Report 2008 Chief Executive Officer’s Report A message from Michael Smith At ANZ we have taken the decision that it is time to change and set ourselves up to become a super regional bank focused on Australia, New Zealand and Asia Pacific. 2008 has been a difficult year in banking around the world but we have demonstrated a high level of resilience given the international turmoil. Our results show we have the right foundation with solid underlying momentum in our business. At the same time we need to take the necessary steps to ensure we are well managed during the challenging economic conditions ahead. ANZ is positioned well in a difficult environment. Although ANZ’s Performance. We need out performance at every level – financial earnings fell 21% in 2008, underlying revenue* grew 12%. Lending out performance, out performing in customer service and in our growth for the year was 16% and growth in deposits and other work ethic. borrowings was 21% highlighting an increased reliance on AA rated We have made good progress in 2008, however there is much banks, the relative strength of the regional economy and the quality that needs to be done over the next four years to deliver on our of ANZ’s franchise. aspirations. The Personal Division and our rapidly growing Asia Pacific Division Although we expected credit costs to increase in 2008, provisions delivered very good performances. The Institutional Division were high. In the wake of these losses, we have undertaken a review improved on an underlying basis but provisions and valuation of our business to ensure that everything we do is core to our clients’ adjustments had a significant impact on the result for the Group needs and our risk appetite is managed well. as a whole. The performance in New Zealand was softer reflecting a weaker economy. We undertook a review of our Securities Lending business.

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