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Chairman`s Address to Shareholders/Presentation by CEO

Document date:  Mon 20 Dec 1999
Published:  Mon 20 Dec 1999 00:00:00
Document No:  156490
Document part:  B
Market Flag:  N

HOMEX - Melbourne                                                     



I would now like to comment briefly on three areas in relation to the
Bank and the public interest, namely executive salary levels, country
branch representation and the public image of banks which includes
the customer experience.

Firstly, there has been much recent adverse comment about remuneration
levels of senior executives in our country.

Senior executives are not, of course, the only people to receive high
earnings. Some entrepreneurs do, but the community seems to accept
that an owner who sells out, or goes public, has done so after taking
risk and is receiving due entitlement for building a business.

Some sports people and some entertainers do too. But we, the public,
have come to accept high rewards for these sporting heroes and
popular entertainers. This may be partly because many of them perform
on the world stage and we have little say in their rewards, and
partly because we easily recognise their exceptional abilities.

It is not so easy for the public to assess the performance of a Chief
Executive or senior business executives. Shareholders are generally
not in a position to judge their individual performance and there are
many variables which affect a corporation's results.

Now I cannot unravel the complexities of our private enterprise
economy, and explain why senior executives receive higher remuneration
than many other professionals. It is a worldwide phenomenon and is 
particularly evident in the financial sector.

I can however explain why your company pays its levels of remuneration
in the interests of shareholders.

It is because Australia and New Zealand now compete in global

Globalisation has bought many benefits such as EFTPOS, e-Commerce and
Internet Banking. The level of efficiency in delivery has improved
enormously and growth opportunities through innovation have developed
in many different areas.

We need to hire some executives from overseas, and although this is a
wonderful country in which to live, we have to some extent to meet
international remuneration levels. These executives then join our
management team and it is quite inappropriate for us not to reward
Australians within our company, occupying positions of similar
responsibility, with a comparable remuneration package.

We would have to do this even if we did not hire any executives from
the international market, as otherwise we would have an executive
talent drain both to overseas and to our domestic competitors. We are
thus inter-related with international markets whether we wish it or

It is clearly vital for our shareholders that we hire and retain a
high-calibre executive management team. Leadership at the top is very
important in embracing change in an organisation, in providing drive
and developing strategy and setting the standard for ethical and
business performance.

At the ANZ we are facing up to the reality of the market. We are also
seeking to ensure that the senior executive positions are available
to all with the capacity. We are also adopting programs to further
train our staff to develop the necessary abilities. We are further
seeking to hold the level of executive salaries around current levels
and provide an increasing proportion of remuneration by way of
bonuses that are only paid if pre-agreed objectives are achieved. For
longer term incentives we are using options which can only be
exercised if ANZ outperforms other companies and are only of value if
the shareholders are also receiving the benefit of a higher share

I might add that overall we are fortunate that the business community
has not rejected the reality of the markets, and that Australia has
not suffered the brain drain in business which has impacted on other

As a country we also need to recognise that our manufacturing, mining
and rural industries can not employ more than a minority of our
labour force. We need to make a quantum leap in our commitment to
education and training so that Australia can be a leading player in
higher skilled industries, particularly those associated with
computers, telecommunication and science. It is only by making this
step change that we will maintain our high standards of living
relative to other countries. Not enough people seem to recognise the
urgency of this need.

I would now like to turn to a second area of public interest, namely
banking in country areas. There are many valid responses to the
criticism of banks closing branches in country regions, including
that businesses have already left town and taken their banking with
them, that major customers in the town are doing their banking in the
closest major centre anyway, and that the technology of telephone
banking or e-Commerce provides an alternative.

Your Board took the view eighteen months that we would not, for as
long as we could, close any further country branches or withdraw from
a community. This remains our policy, although it must be said at
some cost to shareholders. Over this period we have been
investigating economically sustainable ways of servicing country
areas. We are discussing partnerships and other methods of
co-operation, but to date are finding a constructive solution elusive.
We also realise we must charge at least the cost of our services, as
other providers of financial services are cherry-picking the most
profitable areas of our business and not providing the broader

This leads me into the next area of public interest namely the
reputation of banks in the wider community. Over the last decade the
banking industry has clearly lost much of the broad respect it held.
Interestingly most of this decline occurred early in the decade when
banks faced serious financial difficulties as a result of the
recession in Australia and consequent fall in commercial property
values. While we have restored asset quality and profitability, we
have made little progress on the reputation problem. Somewhat
paradoxically people's view of their own bank branch and the people
they personally deal with is very positive, much more favourable than
their perception of the industry as a whole.

We fully accept that some of our actions have not helped. For
instance the Australian Bankers' Association's attempt, on behalf of
the industry, to address the banks' poor reputation with the public.
It is worth expanding on some aspects of this situation. Firstly. the
initial proposal by the ABA to enter into an arrangement with Mr John
Laws was not supported by ANZ, nor by the Council of the ABA. The
subsequent proposal, which was finally approved, was screened by the
Council, against specific criteria, including transparency. As it was
presented, the proposal fulfilled these criteria. However, we are
particularly unhappy that its implementation did not conform to these

The arrangement was not made transparent to the public, as was
intended. What actually was implemented was a misconceived and
mishandled public relations exercise and, as a member of the Council
of the Australian Bankers' Association, we bear equal responsibility
with the other member banks of the Council, for what has happened and
we unreservedly apologise.

The recent attempt by the Australian Bankers Association, on behalf
of the industry, to address the banks poor public reputation, was
misconceived and mishandled, and has only exacerbated the problem.

At ANZ we consider there are really two aspects to this issue.
Firstly the adequacy of the customer experience, which I will address
shortly, and secondly the public perception. We are concentrating our
own efforts on making a difference on the first issue. But we realise
the second also needs to be addressed. Banks being large and
profitable players in the economy are easy targets for criticism from
both the public and politicians. Nevertheless, let me assure
shareholders that we are listening to the criticism and will be
adopting policies to address it.

This brings me to the more important aspect of service levels for our
customers. At last year's meeting in Melbourne our Chief Executive
spoke of our aspirations for serving our customers - the policy of
going the extra yard. This is a management philosophy that is being
instilled throughout the company. While we have made progress in some
areas, in others, this is proving more difficult. Our customer
satisfaction in business and corporate banking is excellent. It is
with our retail customers where we need to improve and are determined
to make significant progress. Our progress is slower than we wish but
it is coming. It is partly a problem of embracing technology to
reduce costs in the face of declining margins while at the same time
providing personal and individual service for non-routine matters.
We are making progress with our Private Bank in the central business
district of the cities and our Premier Banking service in our major
branches. We realise that it is our staff who inter-relate with our
customers and they are the key to lifting our customer experience. We
are learning and this area is one of our major initiatives for the
year ahead.

I have moved from our profit performance into areas of public
interest, but I wish you to know that these are considered very
important issues by your Bank.


Now to the outlook for the year ahead.

Prospects for the world economy are much brighter then they seemed at
this time last year. Most of the countries affected by the Asian
financial crisis are recovering more strongly than had been expected.
Japan, too, seems more likely to be on a sustainable recovery path.
Economic activity is clearly picking up in Europe. The US economy
continues to grow strongly with little sign of inflation, although we
believe that US interest rates may rise further next year, as the
Federal Reserve seeks to ensure that American inflation remains low.

The global environment for Australia is therefore favourable. We
expect the Australian economy to continue to perform strongly over
the year ahead, albeit growth may be a little slower and inflation
higher than in the year now ending. New Zealand is also clearly
recovering from the recession which accompanied the Asian crisis last
year. In both these markets, we expect that interest rates will
continue to move higher next year, although the extent of that
movement should be much smaller than during previous periods of
monetary tightening.

Against this generally positive background there are of course some
uncertainties. For example, while we believe that most of the
developed world is adequately prepared for the rollover into the new
millennium, the risk of disruption flowing from the transition to
Year 2000 cannot be discounted. There is also the risk to economic
growth that might arise were there to be a major correction in the
world's equity markets.

In the year ahead for ANZ you can expect continued focus on growing
our domestic businesses, in simplifying our international operations,
and in outperforming our peers in the growth of earnings per share.
This will be enhanced by leveraging technology to improve efficiency,
by improving our customer service, by reducing our risk profile and
by managing our capital structure.

The reductions in the corporate tax rate will be beneficial to our
on-going profitability and the value to shareholders overall is
positive. We do however expect a writedown in the balance sheet value
of Future Income Tax Benefit of up to $60 million dollars, as an
abnormal item in the first half. This is likely to be offset by
abnormal gains from other sources leaving a modest net abnormal
charge in the half. For the first two months of this financial year,
business is tracking close to our expectations and the outlook for
full year profits remains strong.

It is the policy of the Bank to manage its operations for performance
both for the current year and also for the medium term. We have a
strong foundation and the enthusiasm for the Bank to continue to
perform and to deliver value for shareholders and we are confident
that this will be achieved.