australia and new zealand banking group limited october...
TRANSCRIPT
1
European Debt Investor Update
Australia and New Zealand Banking Group LimitedOctober 2008
Peter Marriott, Chief Financial OfficerRick Moscati, Treasurer
Saul Eslake, Chief Economist
2
Agenda
• Economics Update
• Overview
• 2008 FY Results Summary
•Credit Quality
•Credit Intermediation Trades
• Treasury Update
•Capital, Funding & Liquidity
•Government Guarantee
• Conclusion
3
Economics Update
4
-1
0
1
2
3
4
5
6
01 02 03 04 05 06 07 08 09 10
Real % change from year earlier
Aus
US
UK
Euro-zone
The Australian economy will slow, but it won’t contract outright as in other developed economies
Real GDP
Sources: Australian Bureau of Statistics; ANZ.
5
A$ and US$ and commodity prices
Weaker commodity prices will reduce national income, although plummeting A$ will provide some offset
Source: US Federal Reserve Board; Datastream.
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
00 01 02 03 04 05 06 07 08100
150
200
250
300
350
400
450
500
550
6001966 = 100US$ per A$
Australian dollarvs US dollar(left scale)
CRB index of industrialcommodity prices(right scale)
6
The corporate sector is (in general) in a strong financial position and shouldn’t need to cut labour costsaggressively
Pre-tax company profits
Australian non-financial corporate sector finances
Debt-equity ratio
Inventory-sales ratio
0.6
0.70.8
0.91.0
1.11.2
88 92 96 00 04 08
%
Interest cover ratio
12
34
56
7
88 92 96 00 04 08
x (4-qtr movingaverage)
Sources: Australian Bureau of Statistics; Reserve Bank of Australia; ANZ.
02468
101214
88 92 96 00 04 08
% of non-farm GDP(4-qtr moving average) Total
Excl. mining
50
75
100
125
150
175
88 92 96 00 04 08
%
7
Australia’s housing market has clearly softened but is unlikely to become as dire as America’s
-20-15-10-505
101520
01 02 03 04 05 06 07 08
% change from year earlierAustralia
US
House prices
* 90 days or more past due. For Australia, securitized mortgages only (including on-balance sheet mortgages would result in a lower figure). Sources: ABS; US Commerce Department; S&P; Mortgage Bankers’ Association of America.
Mortgage delinquency rates*
0
1
2
3
4
5
01 02 03 04 05 06 07 08
% of total loans outstanding
Australia
US
0.0
0.5
1.0
1.5
2.0
01 02 03 04 05 06 07 08
% change from year earlierAustralia
US
Population growth
50
75
100
125
150
175
01 02 03 04 05 06 07 08
1990s average = 100
Australia
US
Housing commencements
8
Australia has greater scope to use monetary and fiscal policy to boost growth if required
Note: data shown are for the ‘general government’ sector, ie including State and local governments but excluding government business enterprises. Sources: Bloomberg; OECD, Economic Outlook 83, June 2008,
Policy interest rates Budget surplus/deficit, 2008
0
1
2
3
4
5
6
7
8
9
00 01 02 03 04 05 06 07 08
% of GDPNZ
Aus
UK
US
CanadaEU
Japan -6
-4
-2
0
2
4
6
Korea
Sw
eden
Australia
Spain
Can
ada
Germ
any
Japan
Italy
France
UK
US
% of GDP
9
Overview
10
ANZ – a major bank in Australia and New Zealand, expanding into Asia
Cost/income ratio
Total assets
S&P credit rating
Moody's credit rating
Points of representation ...
Tier 1 Capital ratio
Cash profit after tax A$3,029 million
Underlying Revenue growth +12%
Cost/income ratio 47.4%
Total assets A$471 billion
Points of representation* 31 countries
Number of staff 36,925
1,346 branches
Tier 1 ratio (Basel II) 7.7%
For the year to 30 September 2008 …
Established in 1835, ANZ is a major international banking and financial services group whose headquarters are located in Melbourne, Australia.
Market capitalisation of A$38.3 billion as at 30 September 2008One of the 10 largest and most successful companies in AustraliaThe leading bank and largest company in New ZealandStrong and stable ratings: Moody’s Aa1 (stable), Standard and Poor’s AA (stable)
China
Vietnam
Cambodia
Malaysia
Philippines
Indonesia
Laos
+
11
2008 FY Results Summary
12
Results overview
*Adjusts headline numbers for significant items & fair value hedge gains/losses
unchanged
-26%
+10%
+12%
-23%
-21%
Growth
2007 to 2008
136c
155.3c
$5,444m
$12,343m
$3,029m
$3,319m
Dividend
Cash EPS*
Expenses*
Underlying Revenue*^
Cash Earnings*
NPAT
^Adjusted for impact of credit risk on derivatives and structured transaction
13
Business performance overview
Institutional• Improved underlying revenue momentum
• Significant negative provision impact from global financial market dislocation and small number of large individual losses
Asia Pacific• Excellent performance driven by investment in the business
• Strong revenue growth - increased customer, product penetration
New Zealand (Businesses)
• Solid balance sheet growth, market share gains
• Impacts from slowing economy and higher provisions
Australia (Personal Division)
• Strong result from lending and customer deposits
• Continued investment in personnel and premises
Cash Earnings
1,330
1,482
1,485
413
526
815
271
715
2007 2008
+12%
-12%
+52%
-65%
NZD
NZD
14
Non C
ore
ite
ms
2008 g
row
th
2007 NPAT
2007cash
2008cash
2008NPAT
Non c
ore
ite
ms
(22.8%)
(20.6%)
$3 billion cash profit down on prior year due to significantly higher credit impairments
Cash profit
Cash EPS down 26%
(256)4,180
$m
3,924 (895)
3,029290 3,319
Income• Lower due to higher credit
risk on derivatives from Credit Intermediation Trades and Corporates
Expenditure• Slightly higher from a
consolidation and higher remediation costs
Provisions• Essentially unchanged with
higher CP offset by lower IP
Cash NPAT• Still >$3bn although lower
than expected
Reconciliation to July Trading update
(excluding the reclassification of credit risk on derivatives to income)
15
13.7%
(0.3%)
10.7%
0.9%2.1%
11.0%
2007 PBP
2008 PBP
Credit risk on
derivatives
Str
uct
ure
d t
rade*
FX
2008 adjusted
PBP
Save for credit intermediation trades and a structured trade, PBP growth exceeded 2007…
(11%)
13.7%
(13%)
(13%)
(0%)(3%)(26%)
2008 adjusted
PBP
Credit risk on derivatives
CP
IP
Tax
& F
X
New
shar
es
issu
ed
Cash EPS
Credit related costs
$2,669m
…but substantial credit related costs lead to a 26% decrease in
Cash EPS
Momentum in underlying business offset by credit related costs
*Matching offsetting tax credit #Removing the impacts of exchange rate movement ^2008 PBP of 13.7% calculated on adding back the drag of credit risk on derivatives 11.0%, structured trade 2.1% and FX 0.9%
#12.2%
#
^
16
9.9
4.3
Rev Exp
Reported growth Reported growth
4.1
1.6
Rev Exp
Strong underlying PBP and revenue growthCosts paced with revenue
Full year revenue expense jaws
5.3
11.5
9.9
Full Year (% growth)
2H08 (HoH)(% growth)
Underlying growth*Underlying growth*
4.1
* Adjusted for credit risk on derivatives and structured transaction (matching offsetting tax credit)
^ Excludes Institutional Asia Pacific, included in Asia Pacific division
4.4
46
16.4
-8.4
10.5
4.38.5
46
9.2
Income growth (% growth)
Expense growth (% growth)
Institutional adjustments*
Jaws 1.2% 6.2% 0% 0.1%
PersonalAsia
PacificNZ
PersonalAsia
PacificNZ
Institutional^
Institutional^
24.8
17
1.4%
1.7%
2.2%
-0.4%
0.9%
• Remediation and technology costs
Expenses reflect growth initiatives across the region and institutional remediation action
1.0%
0.9%
2.6%
3.5%
4.1%
$586m^
Asia Pacific Personal Institutional* NZ Businesses Group
Full year cost growth targeted to growth opportunities and
remediation work$151m^
Second half cost growth slowing in Australia and New Zealand and
directed to Asia growth
• Branch network, Customer Groups & Markets expanded
• Continued investment in line with growth strategy
• Cost control initiatives and seasonality
• Increased Markets FTE and remediation costs
• Flow on effects from branch and FTE expansion in 2007
• Impacted by acquisition of subsidiary• Growth in frontline FTE,
reduced discretionary spend
^ Removing the impacts of exchange rate movement*Excluding Asia Pacific, included in Asia Pacific division
18
16
73
7441
Sep 07 Mar 08 Sep 08Instit.^ Personal NZ*Asia Pacific Group
97
165
7513
Sep 07 Mar 08 Sep 08
^Excluding Institutional Asia (included in Asia Pacific) * Removing the impacts of exchange rate movement
Volume growth slowing in the second half while margins have stabilised
13.0%7.7% 4.9%$bn
181 195205
Strong deposit growth
Strong lending growthMargin trend improvement from managing impacts of credit crisis 16.3%
10.3% 5.4%$bn
301 332350
1
Cre
dit m
arke
t im
pac
ts
Ass
et a
nd L
iabili
ty m
ix
Oth
er
Oth
er
Sep 072H07
Mar 081H08
214.6
bps
199.2201.7
(6.5)
(1.3) 1.82.0(3.2)
(5.7)
Cre
dit m
arke
t im
pac
ts
Ass
et a
nd L
iabili
ty m
ix
Sep 082H08
19
Credit Quality
20
Higher individual provisions across regions ($m)
83 79
657
255
359
473
FY06 FY07 FY08
Commercial IP Charge* Consumer IP Charge
Significantly higher Individual Provisions from Institutional large names and NZ portfolio
Significant increase in commercial Provisions off a low base, consumer
upward trend from NZ ($m)
814
159157
FY06 FY07 FY08Aus NZ Offshore
338 438
1,130
Small number of exposures dominating IP growth ($m)
* Excludes 1H08 impact from Monoline insurer, restated to credit risk on derivatives (negative adjustment to income)
$30-100m (8 customers)
$20-29m (3 customers)
$10-19m (2 customers)
$5-9m (4 customers)
$<5m
21
Collective Provision increase dominated by environmental factors reflecting recent credit stress
Economic cycle adjustment• For deterioration in global credit
markets and slowing NZ economy (includes Inst. $180m, NZ $36m)
Concentration risk• Higher single name risk for
Financial Institutions and property portfolios within Institutional
Risk Profile• Downgrades in Institutional,
portfolio movements New Zealand
Volume Growth• Increase across all divisions
Portfolio mix & Other• Includes oil shock roll-off
131197
17 12
200
-85 -68
145
6
-6 -36-68
300
225Economic Cycle Adj.
Concentration
Other*
Portfolio Mix
Risk Profile
Lending Growth
818
83
Collective Provision (CP)
FY07 FY08
$m
* Other comprises Group Items, scenario impact including the modelled unwind of the oil price shock provision (raised in 2005) and non continuing businesses
69
FY06
22
Actively managing for new reality:collective provisions, capital, company restructure
0.81% 0.79% 0.73%
0.94%
1.13%
Sep 06 Mar 07 Sep 07 Mar 08 Sep 08
Strengthened collective provision
balance (CP/CRWA)
• Boosted collective provisions over past 12 months from historically low levels experienced in FY07.
• This reflects the worsening environment across all divisions but in particular Institutional and New Zealand.
• At the same time, steps taken to significantly increase capital levels and implementing a flatter company structure to be more responsive.
23
43 37 126 133
642 661 666
1,750
846
28
FY05 FY06 FY07 FY08
NNPCC* NPLs Restructured loans
0.0%
0.5%
1.0%
1.5%
2.0%
Oct Dec Feb Apr Jun Aug
Consumer arrears being closely managed
Higher arrears and impaired assets from single name exposures and rising consumer stress
Credit Cards >60+ Days
Mortgages Retail >60+ Days
0.0%
0.5%
1.0%
1.5%
2.0%
Oct Dec Feb Apr Jun Aug
Australia
New Zealand
Credit Cards >60 Days
Mortgages Retail >60 Days
2006 2007 2008
Impaired loans impacted by large single name Institutional customers (Impaired Assets ($m))
713698 792
2,729
*NNPCC: Net Non Performing Commitments and contingents
>$100m (5 customers)
$50-99m
$25-49m
$10-24m <$10m
Impaired Assets By Size
24
Credit Intermediation Trades
25
Realised Losses
531(US$425m)
156
34
721
Credit risk on derivatives
Composition of “Credit Risk on Derivatives”charged to Non interest income
A$m• Back-to-back sold and bought credit
protection trades
• Mark-to-market on trades does not fully offset as one financial guarantor has defaulted and the valuation of the remaining counterparties reflects widening of their credit spreads
• Arises from requirement to mark to market derivatives even though cash losses are expected to be low
• Includes losses related to two mining companies and a financial services company
• Previously in Collective ProvisionOther
Expect to substantially write back
CreditIntermediation
Trades
26
• Credit spreads
• Credit correlations
• Currency (AUD versus USD exchange rate)
• Duration
• One financial guarantor has defaulted
• Valuation then considers receivables from the remaining financial guarantors based on appropriate credit spread for each counterparty
• Valuation adjustment can be likened to a collective provision
Structured credit intermediation trades -calculation of credit risk on derivatives
Information also available on ANZ website, in the analysts toolkit
Calculation of mark-to-market and is a function of:
3691,14011,630Position at 28 July update
Counterparty (Bought protection)
8
1
1
1
1
4
No.
425
156
269
Credit risk on derivatives
(USD m)
1,35311,241
1561,333Defaulted monoline
54356BBB-/B2
586BBB+/A3
46433B/Ba2
1,0929,033AAA/Aaa
Mark to
Market (USD m)
Notional Principal Amount (USD m)
Rating
Calculation of credit risk on intermediation trades
27
Credit Intermediation Trade Structures
$1,353m
$143m
$105m
$1,105m
Mark to Market
-
-
11
6
Average Remaining Life
(Years)
-
-
Attach Avg 29%
Detach Avg 100%(Super Senior)
Attach Avg 19%
Detach Avg 43%
Attach/Detach Average
˜ 65020$8.9bn Synthetic
CDO
-
4
˜ 700
No of names
38
8
10
No. of structures
$11.2bn
$1.0bn
$1.3bn
Portion of Notional
Total
Other (bonds)
CLO
Type of structure
CDOs - 20 transactions that reference synthetic, all of which are rated investment grade . 75% of the underlying reference assets are investment grade corporates with concentrations (approximately 30% each) in consumer goods/services and financials, with the remainder diversified across 8 other industry sectors.
CLOs – 10 transactions that reference CLO trades, all structures are super-senior (i.e. detach at 100%). The underlying assets largely are largely senior-secured loans issued by corporates with high concentrations (approximately 25% each) in consumer goods/services and industrial sectors with the remainder diversified across 10 sectors.
28
0%
5%
10%
15%
20%
25%
1920 1930 1940 1950 1960 1970 1980 1990 2000
Weighted Average Remaining Subordination
Stress test on Credit Intermediation trades looking at likelihood of cash losses
Data used in stress test • Moody’s historical corporate default rates going
back to 1920*• Analysed cumulative default rates and likelihood
of breaching attachment point for each CDO & CLO
Conclusion• Only in Great Depression scenario did any tranches
breach attachment points• Even using that scenario majority of trades still
remained safe• Total realised cash losses approx ~US$400m under
the stress scenario and only if financial guarantors default as well (i.e. double default event)
* Data set included all companies analysed/rated by Moody's
Weighted Average Remaining Subordination
On ‘average’ subordination remains positive but some
trades would be in loss totalling ~US$400m
29
Treasury Update
30
Capital, Funding and Liquidity
31
Strong capital position compares favourably with domestic and international peers
Tier 1 Mar 08
Cas
h E
arnin
gs
Ord
inar
y D
ivid
ends
RW
A G
row
th
2008 I
nte
rim
div
. under
write
New
Hyb
rids
Oth
er*
0.50
0.63 7.710.05
0.27(0.18)
(0.40)
6.84
0.38 8.09
2008 F
inal div
under
write
Tier 1 Sep 08
Adj. Tier 1 Sep 08
(pro forma)
ANZ adj’stdTier 1 under
FSA
Basel II Capital Position (Tier 1 ratio)
Volume, risk and methodology changes
10.0
Minimum Management
target
7.0%
* ‘Other’ includes FX impacts, ING JV and associates, non-core profit, sundry share issuance, capitalised expenses and pensions.
10.7
ANZ adj’stdTier 1 under
OSFI
Includes $1.08bn CPS issue and $0.6bn Private Placement
32
• Funding strategy designed to ensure stability of core sources of funding such as Customer Deposits and Term Wholesale debt: reduces reliance on Short-Term Wholesale debt
• Funding composition has remained stable over the last year: reflecting ANZ’s strong credit rating and diversified sources of funding
• Despite higher costs, ANZ has strengthened the balance sheet by increasing the volume of funding sourced from term debt markets
• ANZ ratings re-affirmed by Moody’s (Aa1) and Standard & Poor’s (AA) (stable)
Funding composition Sep-08
Conservative funding strategy leaves ANZ well placedto manage liquidity in difficult market conditions
0
5
10
15
20
25
FY09 FY10 FY11 FY12 FY13 FY>13Senior Term SUB
Commercial Bills 4%
Term debt residual >1yr 14%
Term debt residual <1yr 7%
SHE & hybrid debt 7%
Total customer funding 50%
Short term wholesale debt 18%
Group Funding profile^ – September 2008
20.130.4 34.7
53.9
Sep-07 Mar-08 Sep-08 CurrentLiquidity portfolio Cash and other liquid assets
^ Percentage of total liabilities & equity
Balanced term debt maturity profile ($bn) Significant increase in liquid assets ($bn)>12 months of offshore wholesale funding maturities
33
Completed $24 billion of term wholesale funding during FY08 (FY07 ~$19 billion)
• An additional $9 billion of 1 year debt and $6 billion of extendible notes issued as a replacement for commercial paper: reflects strategic decision to lengthen the short-end maturity profile.
• The weighted average tenor of new term debt (>1 year) was 4.0 years.
• The average cost of term funding (including 1 year debt and extendibles) increased by 64 basis points year-on-year: not ANZ specific - reflects the impact of the global credit crisis.
• ANZ unaffected by the closure of securitisation markets.
Strong 2008 funding leaves ANZ well placed for 2009
• Forecast 2009 funding requirement lower, ~$21bn.
• Availability of government guarantee provides further funding diversification if required.
Strong 2008 funding year leaves ANZ well placed to manage 2009 requirements
Borrowed consistently over the year ($bn)
Short-term wholesale fundingportfolio lengthened
Average days to maturity (remaining)
As at … Sep-07 Sep-08
US Commercial Paper 28 144
European Commercial Paper 46 53
Domestic Certificates of Deposit 73 83
Issuer: Australia and New Zealand Banking Group Limited
US$3.8bn Extendible Note
issue
0123456789
Oct07
Nov07
Dec07
Jan08
Feb08
Mar08
Apr08
May08
Jun08
Jul08
Aug08
Sep08
Private PlacementsSubordinated DebtPublic Senior Debt Issues
34
Government Guarantee
35
Australian Government Guarantee
Background
• On Sunday October 12, the Australian Federal Government announced two schemes designed to support confidence in the Australian financial system.
• The two schemes are the Deposit Guarantee Scheme Wholesale Funding Guarantee Scheme.
Fee Structure
• Whilst ANZ did not require Government intervention to access funding markets, the Australian Government’s regulatory response has served to stabilise market sentiment.
• Provides a level playing field in offshore markets• Provides access to a new and very large AAA investor base• Will change pricing dynamics and issuance strategy particularly in offshore markets.
Credit Rating Debt Issues Up to 60 MonthsAA 70bpA 100bp
BBB and Unrated 150bp
Implications for ANZ
36
Conclusion
37
Actively managing for the new reality :
20.130.4 34.7
53.9
Sep-07 Mar-08 Sep-08 CurrentLiquidity portfolio Cash and other liquid assets
6.8% 6.7% 6.7% 6.9%7.7%
Sep 06 Mar 07 Sep 07 Mar 08 Sep 08
Strengthened capital position
(Tier 1 ratio)
0
3
6
9
Sep-07 Dec-07 Mar-08 Jun-08 Sep-08
Sub Debt
Private Placements
Public Senior
Liquidity boosted substantially
Borrowing through all market conditions
38
Conclusion
• Good underlying performance offset by credit charges.
• Addressed legacy institutional issues.
• New simplified business structure for new environment.
• Very strong liquidity levels and lower funding requirements for 2009.
• Tier 1 capital > 8% post DRP underwrite.
• Lower domestic growth environment but Super Regional Strategy provides access to higher growth Asia.
• ANZ is 1 of 14 AA rated banks globally.
39
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.comor contact
David GoodeDebt Investor Relations Manager
ph: (613) 9273 2653 e-mail: [email protected]