2001 Interim Results
Australia and New Zealand Banking Group Limited
26 April 2001
Results highlights
• NPAT from continuing operations $907m - up 18%
• EPS up 13% to 55.8 cents
• ROE of 19.6%, up from 17.8%
• Costs flat - cost income ratio down to 49.4%
• Credit quality sound:
– ELP charge down to 35 bp’s
– Total non-accruals down
– Specific provisions flat
• Profit on sale of holding in St George $99m ($65m after
tax), offset by write downs in investments ($84m)
• Improved disclosure - financial information provided for each
business unit
Note: Comparisons are against half year ended March 2000 (including Grindlays)
Page 2
2001 Interim Results
Australia and New Zealand Banking Group Limited
26 April 2001
Peter Marriott
Chief Financial Officer
Strong income growth, with good
progress across the board
1,100
1,000
$m
Abnormal/
Discontinued
Items
930
104
Profit on
sale of St
George
65
NonInterest
Income
76
Write
downs
(84)
Expenses
(34)
Provisioning
Tax
(14)
(12)
Interest
Income
84
900
826
Discontinued
(12)
907
895
Eftpos NZ acquisition
and GST ($26m)
800
700
2H 2000
2H 2000
Continuing
2001 1H
Continuing
Page 4
2001
1H
“Unusual” items – St George profit
offset by write downs in investments
• St George - $99m profit ($65m after tax)
– regulatory issues
- not critical to strategy
– attractive price
• Panin - $43m
280
Panin
IDR
Share Price
230
writedown#
– long term growth prospects
remain positive
• E*Trade - $21m writedown#
– online broking service provides
core customer offering
180
130
80
Oct-00
2.30
Dec-00
Feb-01
Apr-01
$
E*Trade
1.80
Share Price
1.30
• Other - $20m writedown#
– a number of small eCommerce
related investments
# - no tax relief on these writedowns
Page 5
0.80
0.30
Oct-00
Dec-00
Feb-01
Apr-01
Income drivers*
%
4
3.68
3.56
3.35
3.48 3.45
3
3.12
3.23
Margins stabilised in first
half
3.22
PFS
2.81
International
2.62
CFS
2
1.73
1.64
1.90
1.90
1.91
• Greater focus on improving
margins
1
Mar-99
Mar-01
143
Other
126
44
Trading
173
32
Non-interest income
continues to grow
140
FX
Other Fees
Lending
Fees
Mar-00
• Benefit from differential
between 90d BBSY and cash
rate
496
• Driven by higher non-lending
fee income
560
351
372
1H 2000
1H 2001
• FX profits higher, reflecting
AUD volatility
* For continuing businesses
Page 6
Cost-income ratio on track to meet
target of mid 40’s
$m
3500
Expenses
Income
CTI
Sale of
Grindlays
3000
CTI
70
65
2500
60
2000
55
1500
50
1000
45
Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar97
98
98
99
99
00
00
01
Page 7
• Reduction in Cost
Income ratio driven
by revenue growth
and cost control
• Approximately $65m
of restructuring
provision used
– two year program,
with benefits
principally 2002 and
beyond
• eTransformation will
continue to drive
costs down
Good profit growth across most businesses
Mar 00 v Mar 01
$m
200
180
160
Personal
140
Corporate
120
International and
subsidiaries
100
80
60
40
20
0
General Banking
Mortgages
Institutional
Structured Finance
Corporate
Cards
Transaction Services
Small Business
Asset Finance
Foreign Exchange
Investment Mgmt
Asia
Capital Markets
Pacific
Wealth
Page 8
80% of businesses delivered revenue
growth greater than expense growth
revenue
growth
%*
ROE
top third
middle third
Mortgages
50
45
40
35
bottom third
Cards
30
Institutional
25
GCM
20
Asia
15
General
Banking
Small
Business
-25
-20
-15
-10
10
Pacific
Corporate
5
Wealth
-5
5
Asset
Finance
10
15
20
25
30
-5
-10
-15
*based on pcp
GFX
GTS
Page 9
Investment
Management
expense
growth
%*
Personal portfolio
Profit Breakdown
• Mortgages and Cards
reinforce value of our
specialisation strategy
Mort
27%
• Clear opportunities for
customer businesses to
replicate success of
product businesses
• Significant market share
growth opportunities
remain
– creation of Metrobanking
and Regionalbanking
– a 1% increase in market
share for customer
businesses worth
$100m+ revenue
Cards
14%
Wealth
3%
Small
Bus
11%
Metro
27%
Region
18%
$m
1250
1050
850
Interest Income
Other Income
650
Expenses
450
250
Sep-99 Mar-00
Page 10
Sep-00 Mar-01
Corporate portfolio – fee income driving
profit growth
Profit Breakdown
• Five of six businesses
delivered profit growth
greater than 10%
• “Non-traditional” income
for Corporate Banking
grew 40%+ on
annualised basis, largely
by executing Wall St to
Main St strategy
Inst
25%
GSF
24%
GTS
15%
Corp
18%
GCM GFX
7% 11%
$m
600
550
Interest Income
500
Other Income
Expenses
450
400
350
300
250
Sep-99
Page 11
Mar-00
Sep-00
Mar-01
International & Subsidiaries – risk
Profit Breakdown
reducing, profits up
Pacific
16%
• Asset Finance
reconfiguring back office
platform to deliver
substantial efficiencies
Asset
Finance
35%
Asia
23%
Inv
Mgmt
26%
• Negative profit growth
for Investment
Management due to tax
changes and increased
growth spend
Asian Credit Quality
• Asia showing positive
signs, on track to record
significant profit growth
for the full year
AAA to
BBB+
28.8
BBB to
BBB-
14.1
BB-
20.4
BB+ to BB
7.4
B to CCC
Non-accrual
Page 12
43.8
15.5
52.0
24.4
26.0
12.7
13.7
5.1
3.0
11.1
10.0
4.0
3.0
5.0
Sep-99
Sep-00
'March-01
Total non-accrual loans continue to
fall, but increase in Australia
Historic
$m
1800
Gross Non-Accrual
Loans (LHS)
Geographic
Non-Accrual Loans/
Loans & advances (RHS)
1662
2.0%
Mar-00
1000
1543
1500
$m
Gross Non-Accrual Loans
Sep-00
Mar-01
1391
1295
1.5%
800
1200
749
681
651
872
900
600
900
495
1.0%
657
699
457
727
400
600
428
0.5%
Net Non-Accrual
Loans (LHS)
300
858
200
72 59 89
0
0.0%
1997
1998
1999
2000 2001 1H
0
Aust
Page 13
NZ
Inter
Current provisioning in line with
expectations
$m
140
Actual SP v ELP
charge
120
100
ELP charge
SP charge
80
60
40
20
0
-20
-40
Mar00
Sep-00 Mar-01
Personal
Mar-00 Sep-00 Mar-01
Corporate
Mar-00 Sep-00 Mar-01
Int & Sub.
• ELP is a function of volume (on and off balance sheet),
risk grade profile, and level of security
• Specific Provisions tend to be less volatile in Personal
businesses and track more closely to ELP
Page 14
Arrears analysis indicates no systemic
deterioration
%
% personal lending assets over 60 days in arrears
%
2.50
7.50
Personal Loans
7.00
2.00
Business FDAs
6.50
6.00
1.50
1.00
5.50
Credit Cards
5.00
Housing Loans
4.50
0.50
RILs*
4.00
Overdrafts
3.50
0.00
3.00
Mar-00 Sep-00 Dec-00 Jan-01
Feb-01 Mar-01
Mar-00 Sep-00 Dec-00 Jan-01 Feb-01 Mar-01
• Small upturn in arrears in Jan-Feb
largely reversed during March
• Increase in credit card arrears
reflects seasonal influences
• Arrears broadly in line with same
period last year
• Personal loan arrears continue to
increase in % terms due to
reducing book
* Residential Investment Loans
Page 15
Corporate book holding up well, despite a
few one off “issues”
Corporate risk grade profile
AAA to
BBB+
BBB to
BBB-
38.4%
26.4%
37.9%
26.7%
38.4%
Risk actively managed
38.9%
• Quarterly strategy reports prepared
for all high risk accounts
26.9%
• June to October 2000 - all BB rated
accounts within Corporate reviewed
in expectation of downturn
27.4%
• New accounts > $3m to be referred
“one level higher”
BB + to
BB
18.2%
19.1%
19.4%
20.3%
BB-
11.7%
12.3%
11.7%
9.3%
>B
5.3%
4.0%
Sep-99
Mar-00
3.6%
Sep-00
4.1%
Mar-01
>B = B, B-, CCC
& non-accrual
Page 16
Group risk grade profile continues to
improve
$114.6bn
AAA to
BBB+
14.8%
BBB to
BBB-
41.5%
BB + to
BB
19.2%
BB>B
17.3%
$126.5bn
16.2%
45.3%
15.8%
5.4%
17.3%
3.9%
7.2%
Sep 1998
ELP (bp’s)
$134.9bn
45
>B = B, B-, CCC
& non-accrual
16.2%
16.9%
49.7%
50.5%
14.6%
14.7%
15.6%
14.1%
3.8%
Sep 1999
Sep-2000
43
38
•
Page 17
$141.0bn
Mar-01
35
Risk grade profiles by division and
geography in appendix
Credit quality is sound in some of our
larger industry exposures - Australia
Lending Assets (AUDm)
% of Portfolio (RHS scale)
% in CCR 7D-8G (RHS scale)
% in CCR 9-10 (RHS scale)
x
Manufacturing
Real Estate Operators & Dev.
10bn
12.0%
10.0%
8bn
8.0%
6bn
6.0%
4bn
4.0%
2bn
2.0%
0bn
0.0%
Sep-98
10bn
12.0%
8bn
10.0%
4bn
2bn
0bn
Sep-98
Agriculture
12.0% 10bn
10.0%
8bn
8.0%
6bn
6.0%
4bn
2bn
0bn
4.0%
Sep-98
Mar-01
8.0%
6bn
Mar-01
10bn
Retail Trade
8bn
2.0%
2bn
0.0%
0bn
4bn
2.0%
2bn
0.0%
0bn
Mar-01
Page 18
8.0%
6.0%
4.0%
2.0%
0.0%
Sep-98
Mar-01
Construction
12.0% 10bn
12.0%
10.0%
10.0%
4.0%
Sep-98
10.0%
4.0%
6.0%
4bn
8bn
6bn
8.0%
6bn
12.0%
6.0%
Mar-01
Accomm. Cafes &
Restaurants
10bn
8bn
8.0%
6bn
6.0%
4bn
4.0%
2.0%
2bn
2.0%
0.0%
0bn
0.0%
Sep-98
Mar-01
Provisioning levels remain strong
$m
ELP
charge
241
1700
1500
represents
3 years
expected
losses
%
1.10
FX
impact
1460
27
1.06
1.05
1373
1.02
1.00
(181)
Net SP
transfer
1300
GP/Lending Assets*
Surplus
448
0.98
0.97
0.95
0.90
1100
1012
0.85
900
0.80
700
0.75
0.70
500
1H
APRA
2001 Guidelines
2000
ANZ
Mar-01
CBA
Dec-00
NAB
Jun-00
ELP - Economic Loss Provision
SP - Specific Provision
Page 19
* includes acceptances
W BC
Jun-00
Capital management will continue
$b
%
8.5
8.0
140
7.7
7.9
7.5
7.5
130
7.4
7.0
7.3
120
Capital Management
Philosophy:
• Maintain capital consistent with
ANZ’s AA status and peer group
ratings
– Tier 1 (6.5 - 7.0%)
– Inner Tier 1 (6.0%)
6.5
6.0
6.7
6.9
6.5
6.4
5.5
6.2
5.0
110
100
Mar-99
Mar-00
Mar-01
Tier 1
Inner Tier 1
RWA's
Page 20
Progress
• $413m in share buybacks in the
half year
• New framework for allocating
capital for operating risk
implemented
• Capping of DRP/BOP
2001 Interim Results
Australia and New Zealand Banking Group Limited
26 April 2001
John McFarlane
Chief Executive Officer
We are performing well and on track to
deliver on our 3 year commitments
Measure
3 Year Commitment
EPS growth
> 10%
13%
ROE
> 20%
19.6%
Cost-income ratio
mid 40’s
49.4%
Inner Tier 1
6%
Credit rating
maintain AA category
•
Achievement
6.2%
maintained
We have also committed to improving customer satisfaction,
and will publicly report our progress
Page 22
Implementation of our strategy is
progressing well
• Specialisation
– 16 Business Units within 3 portfolios, plus corporate centre
– Separate financial reporting for each Business Unit
• eTransformation - the eBank with a human face
– Leading internet banking penetration
– Highest profit per employee
• Perform Grow and Breakout
– Active resource allocation - Expenses, Capital, Balance
Sheet, Talent
– Investment focused on lower risk, higher growth activities
Page 23
New strategy delivering value majority of businesses with double digit earnings
growth
Business Unit
Mortgages
Cards
Institutional
Asia
Structured Finance
General Banking
Capital Markets
Foreign Exchange
Transaction Services
Corporate Banking
Small Business
Asset Finance
Pacific
Wealth Management
Investment Management
1H 2001
$m
1H2000
$m
112
58
88
31
85
191
24
40
54
65
48
47
21
11
34
58
34
67
11
69
181
16
32
46
61
45
46
22
15
43
Page 24
Change Change
$m
%
54
24
21
20
16
10
8
8
8
4
3
1
-1
-4
-9
93
71
31
181
23
6
50
25
17
7
7
2
-5
-27
-21
We are developing a track record for building
growth businesses
%
15
%
Mortgage market
share
14
Share of credit
card spend
30
25
13
12
20
11
10
15
95
96
97
98
99
00
$m
700
%
16
600
FM inflows
(LHS)
500
400
300
01
(RHS)
96
97
98
99
00
01
Personal customers
- Australia
14
3.8
12
3.6
200
100
10
3.4
Mar-98 Sep-98 Mar-99 Sep-99 Mar-00 Sep-00
0
-100
m
4.2
4.0
Deposit
market share
95
Mar-00 Jun-00 Sep-00 Dec-00 Mar-01
8
Page 25
Most businesses expected to grow
above market over next 2-3 years
Market
Growth
High
Wealth
Management
Personal
Corporate
Investment
Management
Cards
Int. & Subsidiaries
GTS
Asia
Mortgages
GCM
Medium
GSF
GFX
Institutional
Metro
Banking
Small
Business
Corporate
Low
Pacific
Regional
Banking
Asset
Finance
Note: Size of bubble
approximates
relative profit
contribution
Below
Market
At Market
Page 26
Above BU Growth
Market
Cost management delivers competitive
advantage and funds to invest in growth
businesses
Clear leadership on
Cost Income ratio
65
63
lower costs/AVA
higher productivity
NAB
CBA
61
W BC
59
ANZ
eTransformation
57
55
53
•
51
49
•
Target
47
Mid 40’s
45
1997
1998
1999
2000
1H 2001
Page 27
competitive
advantage
capacity to
invest in growth
eTransformation - enhancing the
customer experience
%
45
40
Internet banking users as
% of main relationships
Transaction activity
39.1
35
Cheques
32.0
30
13%
24%
Phone/Internet Banking
23.5
25
Direct Entry
24%
Credit Card
14%
8%
24%
20
13.7
15
EFTPOS
10
5
ANZ
W BC
NAB
9%
ATM
10%
11%
Branch Deposits
11%
9%
8%
8%
2%
Oct-96
Mar-01
Branch Withdrawals
0
25%
CBA
Source: JP Morgan & Roy Morgan Research
Page 28
eTransformation – examples of real,
tangible benefits internally
Project
Benefits
“Manage my leave”
95% reduction in
processing costs
Web enablement - rollout of IP
network to all points of
representation
Cost neutral, but 100
times capability increase
Common Administration System
Estimated benefits
~$40m
Provides staff with online
access to training courses,
including an eMBA
eTrain - online training
Page 29
We continue to actively manage and
reduce risk
Lending Profile by Asset Type*
100%
• Exiting higher risk businesses
• More emphasis on lower risk
businesses
80%
60%
• Corporate balance sheet
deliberately constrained –
focus on fee income
40%
20%
• Risk based approach
embedded through EVA
0%
ANZ ANZ ANZ
1991 1996 2001
CBA
NAB
WBC
business
consumer
* CBA as at 31/12/00, NAB & WBC as
at 30/9/00
Page 30
Being the eBank with a human face
•
Put our customers first with an experience that delights
•
Focus on creating value for our shareholders
•
Lead and inspire our people
•
Breakout, be bold and have the courage to be different
•
Earn the trust of our people and the community
Page 31
Our breakout approach is
differentiating us
Strategy
• Specialised businesses
• First class execution (no surprises)
Staff
• 86% of managers on individual contracts
• 12% rise in staff satisfaction
Customers
• Establishment of Customer Charter,
Customer Advocate and distinctive
customer and community initiatives
eTransformation
• Leading cost income ratio
• Highest internet banking penetration
Risk
• Leading financial disclosure & transparency
• EVA embedded in culture
Page 32
New customer and community
initiatives
• Fee free, over-the-counter services for older customers
(aged 60+)
• A new Customer Charter setting out clear service standards
effective from 1 October 2001. A key feature of the Charter
will be a financial donation payable by ANZ to a charity of
the customer’s choice if ANZ does not meet its complaint
resolution standards
• Appointment of a senior Customer Advocate to ensure the
satisfactory resolution of customer issues and complaints.
• Improvements and greater funding for ANZ’s community
relations program
• Paid leave for staff who volunteer for community service
Page 33
The economy - signals are mixed….
Real GDP Growth incl. and excl.
housing and Olympics (est)
%
7
6
13000
Year ended
11000
5
10000
4
Year ended, excluding
dwellings and Olympics
3
2
9000
8000
7000
0
5000
p00
87
2.5
Newspaper Job Ads
31
We are starting to see a
rebound in housing
approvals
89
91
93
95
97
99
01
Se
-9
9
Se
p
Se
Se
p98
6000
p97
1
33
Retail Sales
2.0
29
27
25
23
21
ANZ job ads series
suggests unemployment
levels approaching 7.5%
19
17
Mthly % ch.
000’s per week
House approvals
12000
15
1.5
Starting to show
signs of life
1.0
0.5
0.0
Jun97
Jun98
Jun99
Jun00
98
-0.5
Page 34
99
00
01
…. but we are cautiously optimistic
• Sharp slowdown in H2 2000
– overstates weakness of underlying economic activity - we continue
to expect a solid cyclical rebound in 2001-02
• Fundamentals remain healthy
– usual preconditions for recession in Australia (rising inflation and
interest rates) notably absent
• Risks remain
– weakened global growth, rising inventory levels, subdued business
sentiment and falling job advertisements
• But monetary and fiscal conditions remain supportive
– after slowing to only 2% in 2000-01, growth forecast to rebound to
3.2% in 2001-02
Page 35
Outlook
• System credit growth forecasts*
– housing
12.4%
– personal
11.1%
– business
6.5%
• Personal to exceed system credit growth
• Corporate credit growth - continuing higher quality focus
• Margin compression will continue
• Costs flat
• Challenges ahead, however we are well placed to
continue to perform well, and achieve our targets over
the medium term
* forecast for year ending 30 September
Page 36
Summary
• We are performing well
• Cost management momentum –
eTransformation has just
begun…
• Risk reduction continues
• Our new strategy is creating
value and better positioning us for
growth
• We are differentiating ourselves
through our Breakout program
Page 37
We are
on track
to achieve
our goals
The material in this presentation is general background information about the Bank’s
activities current at the date of the presentation. It is information given in summary
form and does not purport to be complete. It is not intended to be relied upon as
advice to investors or potential investors and does not take into account the
investment objectives, financial situation or needs of any particular investor. These
should be considered, with or without professional advice when deciding if an
investment is appropriate.
For further information visit
www.anz.com
or contact
Philip Gentry
Head of Investor Relations
ph: (613) 9273 4185
fax: (613) 9273 4091
Page 38
e-mail: gentryp@anz.com
Copy of presentation
available on
www.anz.com
Page 39
Risk grade profile by division
Corporate
Personal
AAA to
BBB+
0.20%
BBB to
BBB-
75.7%
BB + to
BB
BB>B
0.16%
0.20%
77.0%
7.6%
7.1%
12.7%
3.8%
12.7%
3.0%
Sep-99
Mar-00
77.8%
7.1%
12.0%
2.9%
Sep-00
0.24%
78.5%
6.9%
11.5%
AAA to
BBB+
38.4%
37.9%
38.4%
38.9%
BBB to
BBB-
26.4%
26.7%
26.9%
27.4%
BB + to
BB
18.2%
19.1%
19.4%
20.3%
11.7%
5.3%
12.3%
4.0%
11.7%
Sep-99
Mar-00
Sep-00
BB>B
2.9%
Mar-01
International & Subsidiaries
AAA to
BBB+
BBB to
BBBBB + to
BB
BB-
>B = B, B-, CCC
& non-accrual
13.4%
12.3%
10.4%
9.7%
10.7%
9.4%
32.1%
30.2%
36.6%
36.9%
> B 11.2%
Sep-99
8.8%
29.1%
40.9%
8.3%
Mar-00
Page 40
Sep-00
15.9%
10.1%
28.4%
38.9%
6.7%
Mar-01
3.6%
9.3% 4.
Mar-01
Risk grade profile by geography*
Australia
New Zealand
AAA to
BBB+
21.1%
20.9%
19.8%
BBB to
BBB-
21.1%
23.5%
BB + to
BB
24.6%
BB>B
AAA to
BBB+
24.8%
24.6%
BBB to
BBB-
17.9%
24.2%
25.1%
BB + to
BB
18.2%
28.0%
26.8%
25.8%
BB-
29.8%
5.2%
4.6%
>B
9.3%
4.3%
Sep-99
Sep-00
Sep-99
Sep-00
4.7%
Mar-01
International
AAA to
BBB+
23.0%
BBB to
BBB-
37.0%
43.6%
50.6%
18.4%
>B = B, B-, CCC
& non-accrual
19.8%
BB + to
BB
15.2%
17.8%
BB-
14.7%
10.6%
>B
10.1%
9.6%
5.5%
7.1%
Sep-99
Sep-00
Mar-01
* Excludes housing
Page 41
17.0%
30.2%
29.9%
14.5%
15.3%
21.3%
21.1%
29.7%
29.1%
4.6%
Mar-01
Economic Loss Provisioning
GP % net lending
assets
Actual Losses are funded
from the General Provision
2.5%
ELP Charge
= Loan Amount x
Probability loss x
Loss Given default
General
Provision
balance
2.0%
1.5%
Plus
1.0%
Actual
SP’s
P&L Charge
An adjustment to
ensure the GP balance
is sufficient to cover:
0.5%
•
0.0%
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15
ELP charge will vary from year to year based on:
• changes in lending volumes
• change in risk grade profile
• security levels
• product and geographic mix
Page 42
•
•
Volatility around
expected loss (using
statistically quantified
variance)
Remaining term of loan
portfolio
Balance sheet growth
System credit growth forecasts
25
Business
Housing
Personal
20
Total
15
10
5
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
-5
-10
Page 43
Summary of forecasts - Australia
Calendar years
1999
2000
2001
2002
Real GDP growth
4.7
3.7
2
3¾
Inflation
1.5
4.5
3¾
1½
Unemployment (Dec)
7.0
6.6
7½
6½
Current account deficit (%GDP)
-5.8
-4.0
-2.3
-3.3
Housing starts (‘000)
157
148
116
136
90-day bill yield (% pa, Dec)
5.48
6.20
4.75
10-year bond yield (% pa, Dec)
6.64
5.50
5.4
6.1
A$ (US cents, Dec)
65.8
55.8
52.0
60.0
Sources: ABS; RBA; Economics@ANZ.
Page 44
5.1