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Preliminary Final Report

Document date:  Wed 04 Nov 1998
Published:  Wed 04 Nov 1998 00:00:00
Document No:  142712
Document part:  C
Market Flag:  Y

HOMEX - Melbourne                                                     


My first year as Chief Executive Officer of ANZ has been both
challenging and rewarding.

Whilst Australia and New Zealand have felt some effect from the Asian
crisis, international financial markets have been in turmoil,
substantially impacting international banks around the world,
including ourselves. Nevertheless, ANZ has delivered a profit broadly
similar to last year. We achieved this by producing record results in
both Australia and New Zealand, which were up 16% and 28%
respectively, to offset a 39% decline internationally. This is a
significant achievement in a difficult environment, and serves to
underscore the transformation of our domestic businesses over the
past two years, as well as the diversified nature of our group.

This said, I do not wish to mask some very real problems we have
experienced overseas with the onset of material increases in both
country and market risk in emerging markets, particularly in Asia and
Russia, which caused credit and trading losses. Faced with this, we
acted quickly and decisively to protect earnings by reducing non core
exposure, halting proprietary trading, and withdrawing from high risk
segments. This has served to mitigate the potential impact on profits
and shareholder value. Whilst slipping against our domestic
competitors recently, our share price trend compares favourably with
international banks in the USA and Europe, many of which are trading
at almost half of their recent values. For the long haul we remain
convinced that having an international presence is the right strategy
for ANZ.


Our businesses in Australia and New Zealand achieved a significant
profit improvement of $144 million after tax in aggregate, notably as
a result of our success in reducing costs by $121 million. In both
countries we reduced the cost income ratio by more than 5%.

Personal Banking results were up 29% to $462 million, principally
following the successful cost rationalisation of the business. In
Australia, there has been strong product growth in mortgage lending
and cards. ANZ frequently recorded the highest monthly inflows in
mortgage lending during the year. In credit cards, we remain the
clear market leader. Our retail funds management strategy was
enhanced by the introduction of the 'Gateway' master trust, which
achieved good customer acceptance.

Business Banking in Australia, where we hold a leading position,
achieved sound growth while rebalancing its risk position. Asset
Finance achieved strong growth in new business writings while
lowering the cost base to maintain leadership in this segment. Our
foreign exchange and domestic capital markets activities had an
excellent year. ANZ Securities faced substantially increased
competition, mainly from foreign entrants, which jeopardised its
future prospects. We therefore took the decision to withdraw from
institutional stockbroking and to focus on retail broking.

In summary, domestically we simultaneously reduced costs per
customer, increased revenue per customer, and increased our market
share. We believe this is an excellent set of outcomes.


1998 has been a year of considerable turmoil in international
financial markets - the most turbulent period since the 1930's. The
current downturn in Asia is the most severe for at least 50 years,
and full recovery is unlikely for three to five years. Our long
established international positioning, which served us well in the
early 1990s when domestic markets were weak, felt the adverse impact
of this environment. In response we reduced non-core Asian exposures;
total Asian exposures were reduced by 47%. The increase in
non-accrual loans of $790 million came mainly from overseas, leading
to net specific provisions of $512 million being transferred from the
general provision.

The contagion effect spread westwards and emerging markets bond
markets collapsed, notably in Russia, resulting in sizeable trading
losses for our operations in London. Following a strategic review
aimed at lowering risk, we withdrew from this business. The costs of
exiting, including the write-down of the residual bond portfolio, and
exiting institutional broking, were taken as abnormal items.

We are not proud of this aspect of the result. While we made the most
of the volatility in exchange rates and earned good profits from our
foreign exchange activities, this more hostile environment tested our
existing strategies to their limits, exposing some flaws. We have
used this year to put these issues largely behind us and we believe
that the reduction in risk, which followed our decisions, will
contribute substantially to improved quality of earnings in the


Conditions in the year ahead are likely to remain challenging. Most
forecasters predict a slowing in economic activity worldwide,
including Australia, and market volatility is likely to persist.
Indeed, the outlook for the next five years is radically different to
the conditions of the last five years. In this lower growth and more
volatile environment, we will continue to reduce risk, reduce cost
and focus on building our customer businesses.

We are now pursuing a strategy to reposition our business
increasingly towards consumer banking and small business, including
retail funds management and related products. Nevertheless, we intend
to maintain our strength in Corporate Banking but with a lower risk
profile and stronger non-interest income. This repositioning of the
bank is under way, as has already been demonstrated this year.

We are a major domestic bank but differentiate ourselves by our
international presence. However new market conditions overseas
require us to be more selective. Everyone is well aware of our
strengths in South Asia and the Pacific Islands, but we are
underweight in East Asia and have indicated our intention to
strengthen this through acquisition when the time is right. As things
stand, the environment in East Asia has remained too risky for us to
proceed. We have consciously slowed this process, pending an improved
environment. Going forward, we intend to maintain roughly the current
balance of domestic versus international with effort overseas
concentrated on markets that offer the greatest potential for
shareholder value, at a lower level of risk.

We also intend to bring alive our promise of making dealing with ANZ
an enjoyable experience for our customers, and of creating an
environment at ANZ where people excel. We are building a performance
based culture, with increasing levels of accountability, better
performance management and increased remuneration for those who
contribute most. Improving the skills and leadership abilities of our
people is a priority. Without jeopardising these objectives, we will
continue our emphasis on cost reduction and on the establishment of a
more technologically oriented approach to banking.

It is important that everyone understands the progress we have made
in transforming our businesses, particularly in Australia and New
Zealand. Accordingly we have substantially increased our already high
level of disclosure by adding full profit and loss accounts by
geography and by business, and more detail on country risk and

All of these changes are in the pursuit of increased shareholder
value by achieving superior financial performance. Notwithstanding a
more hostile environment and a flatter result than we had hoped, we
have demonstrated good progress in delivering superior earnings
performance domestically. This, together with actions already taken
to lower risk, give sufficient confidence to reiterate our promises
to shareholders on future profit, return on equity and on lowering
our cost-income ratio.


The achievements of the last year, especially in a tough external
environment, could not have been made without the loyalty, commitment
and hard work of many people throughout ANZ. I would like personally
to thank all our people for their substantial contribution.

I am conscious that there is still a lot to be done. I am however
confident we will rise to the challenge.